ITO 4(2)(1), MUMBAI V. KAMADGIRI FASHION (SYNTHETICS ).LTD, MUMBAI

ITA 720/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3329 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-08-2016
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 31-01-2014
• Court: TRIBUNAL
• Department Lawyers: S SRIRAM
• Assessee Lawyers: A K KOLI
• Keywords: Corroborative evidences; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN (AM) & SHRI SANJAY GARG (JM) I.T.A. NO. 720 /MUM/ 20 1 4 (ASSESSMENT YEAR 200 9 - 1 0 ) ITO - 4(2)(1) ROOM NO. 644 6 TH FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI - 400 020. VS. M/S. KAMAD GIRI FASHION PVT. LTD. 28, Y.A. CHUNAWAL INDUSTRIAL ESTATE KONDIVITA LANE ANDHERI EAST MUMBAI - 400 059. ( APPELLANT ) ( RESPONDENT ) PAN NO . AAACK1654P ASSESSEE BY SHRI A.K. KOLI DEPARTMENT BY SHRI S. SRIRAM DATE OF HEARING 24 .8 . 201 6 DATE OF PRO NOUNCEMENT 24 .8 . 201 6 O R D E R PER B.R. BASKARAN (AM) : - THE APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 1.11.2013 PASSED BY LEARNED CIT(A) - 8, MUMBAI AND IT RELATES TO A.Y. 2009 - 10. 2. THE REVENUE IS AGGRIEVED BY THE DECISION R ENDERED BY LEARNED CIT(A) ON FOLLOWING ISSUES : - A) DISALLOWANCE OF AMALGAMATION EXPENSES OF ` 3,52,313/ - B) DISALLOWANCE MADE OUT OF SALARY AND WAGES. 3. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. THE ASSESSEE - COMPANY IS ENGAGED IN THE BUSINESS OF MANU FACTURE AND SALE OF FABRICS. THE FIRST ISSUE RELATES TO DISALLOWANCE OF AMALGAMATION EXPENSES. THE ASSESSING OFFICER DISALLOWED A SUM OF ` 3,52,313/ - RELATING TO AMALGAMATION EXPENSES INCURRED IN CONNECTION WITH AMALGAMATION OF A COMPANY NAMED M/S. STRIPS APPARELS LTD. WITH IT , ON THE REASONING THAT THE SAME IS CAPITAL IN NATURE. KAMADGIRI FASHION PVT. LTD. 2 LEARNED CIT(A), HOWEVER , TOOK THE VIEW THAT AMALGAMATION EXPENDITURE INCURRED BY THE ASSESSEE CANNOT BE TREATED A CAPITAL IN NATURE , SINCE AMALGAMATION HAS TAKEN PLACE FOR ACHIEVI NG OF ECONOMIC SCALE AND TO ENHANCE THE BUSINESS EFFICIENCY. ACCORDINGLY HE DIRECTED THE AO TO ALLOW THE SAME AS REVENUE EXPENDITURE. 4. LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE EXPENSES INCURRED ON AMALGAMATION OF COMPANY CANNOT BE TREATED AS REVENUE EXPENDITURE , SINCE AMALGAMATION WOULD GIVE ENDURING BENEFIT TO THE ASSESSEE. 5. ON THE CONTRARY, LEARNED AR SUBMITTED THAT THE ASSESSEE HAS NEVER CLAIMED AMALGAMATION EXPENDITURE AS REVENUE EXPENDITURE AND THE ASSESSING OFFICER HAS COMMITTED AN ERROR IN PRESUMING SO. LEARNED AR INVITED OUR ATTENTION TO PAGE NO. 69 OF THE PAPER BOOK AND SUBMITTED THAT THE AMALGAMATION EXPENSES OF ` 3.52 LAKHS HAS BEEN DEDUCTED FROM THE GENERAL RESERVE AVAILABLE WITH THE ASSESSEE AND IT HAS NOT BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT. LEARNED AR FURTHER SUBMITTED THAT AMALGAMATION EXPENSE HAS BEEN CLAIMED BY THE ASSESSEE U/S. 35DD OF THE ACT TO THE EXTENT OF 20% AS PROVIDED IN THAT SECTION. LEARNED AR FURTHER SUBMITTED THAT THE ASSESSING OFFICER, HAVING ALLOWED DEDUCTION U/S. 35DD OF THE ACT , COULD NOT HAVE DISALLOWED AMOUNT OF ` 3.52 LAKHS. 6. HAVING HEARD THE RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT THERE IS MERIT IN THE CONTENTIONS OF THE ASSESSEE. SINCE THE ASSESSEE HAS NOT DEBITED THE PROFIT AND LOSS AC COUNT WITH THE AMALGAMATION EXPENSES OF ` 3.52 LAKHS, THE QUESTION OF DISALLOWING THE SAME DOES NOT ARISE. FROM THE ANNUAL REPORT FURNISHED BY THE ASSESSEE, WE NOTICE THAT THE ASSESSEE REDUCED AMALGAMATION EXPENSES FROM THE GENERAL RESERVES ACCOUNT. HENCE, WE ARE OF THE VIEW TH AT LTHE AO HAS MADE DISALLOWANCE ON THE WRONG APPRECIATION OF THE FACTS. EVEN THOUGH, THE LEARNED CIT(A) HAS NOT CONSIDERED THE FACTUAL ASPECTS DISCUSSED ABOVE, HOWEVER, FOR THE REASONS DISCUSSED ABOVE, WE ARE OF THE VIEW THAT H IS FI NAL DECISION DOES NOT CALLED FOR ANY INTERFERENCE , SINCE THE DISALLOWANCE OF AN KAMADGIRI FASHION PVT. LTD. 3 EXPENDITURE, WHICH WAS NOT DEBITED TO THE PROFIT AND LOSS ACCOUNTS WA S NOT CALLED FOR /JUSTIFIED . ACCORDINGLY, WE UPHOLD THE DECISION RENDERED BY LEARNED CIT(A) ON THIS ISSUE. 7. NEXT ISSUE CONTESTED BY THE REVENUE RELATES TO THE DISALLOWANCE MADE OUT OF SALARY AND WAGES EXPENSES. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED SUM OF ` 16.19 CRORES UNDER THE HEAD SALARY AND WAGES. HE NOTICED THAT THE INCREASE IN SALARY AND WAGES EXPENSES WAS NOT COMMENSURATE WITH THE INCREASE IN SALES. ACCORDINGLY, HE ASKED THE ASSESSEE TO PRODUCE THE BOOKS OF ACCOUNT ALONG WITH SUPPORTING VOUCHERS. AS AGAINST THE CLAIM OF ` 16.19 CRORES MADE UNDER THIS HEAD, THE ASSESSEE PRODUCED SUPPORTING EVIDENCE TO THE TUNE OF ` 5.52 CRORES. HE ALSO NOTICED THAT THE MAJOR PART OF LABOUR CHARGES PAYMENT S HAVE BEEN MADE BY WAY OF SELF MADE VOUCHERS WHICH ARE NOT INDEPENDENTLY VERIFIABLE. THE ASSESSING OFFICER ALSO OBSERVED THAT THE ASSESSEE DID NOT SUBMIT COMPLETE DETAILS WITH REGARD TO CONTRACT LABOUR PAYMENT S . SINCE INCREASE IN SALARY AND WAGES EXPENSES WAS NOT COMMENSURATE WITH THE INCR E ASE IN SALE, THE ASSESSING OFFICER TOOK THE VIEW THAT THE LABOUR EXPENSES SHOULD BE ALLOWED AT 110% OF THE EXPENSES CLAIMED IN IMMEDIATELY PRECEDING YEAR. ACCORDINGLY, HE ALLOWED EXPENSES TO THE EXTENT OF ` 13.19 CRORES AND DISALLOWED THE BALANCE AMOUNT OF ` 3.00 CRORES. LEARNED CIT(A) RESTRICTED THE DISALLOWANCE TO ` 25 LAKHS AND HENCE THE REVENUE IS AGGRIEVED BY THIS DECISION. 8. AT THE TIME OF HEARING, LEARNED AR SUBMITTED THAT THE ASSESSEE HAS MAINTAINED PROPER VOUCHERS IN RESPECT OF ENTIRE AMOUNT OF ` 16.19 CRORES CLAIMED AS SALARY AND WAGES EXPENSES. HE SUBMITTED THAT THE ASSESSEE WOULD BE IN A POSITION T O FURNISH ALL THE VOUCHERS BEFORE THE ASSESSING OFFICER FOR HIS VERIFICATION. LEARNED DEPARTMENTAL REPRESENTATIVE ALSO AGREED THAT THIS ISSUE MAY BE SET ASIDE TO THE FILE OF THE ASSESSING OFFICER FOR CARRYING OUT NECESSARY VERIFICATION. WE ACCORDINGLY SET ASIDE THE ORDER PASSED BY LEARNED CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE ASSESSING OFFICER WITH THE KAMADGIRI FASHION PVT. LTD. 4 DIRECTION TO DECIDE THE ISSUE AFRESH BY CONSIDERING INFORMATION AND EXPLANATION THAT MAY BE FURNISHED BY THE ASSESSEE. 9. IN THE RE SULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURP O S ES. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 24. 8 .2016 SD/ - SD/ - (SANJAY GARG ) (B.R.BASKARAN ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 24 / 8 / 20 1 6 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, / /TRUE COPY// ( DY./ASSTT. REGISTRAR) ITAT, MUMBAI PS