HIND ALUMINIUM INDUSTRIES LTD, MUMBAI V. ACIT 6(1), MUMBAI

ITA 7671/MUM/2013

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0737 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-07-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Assessment Year: 2008-2009
• Appeal Filed On: 31-12-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JEETENDRA KUMAR
• Keywords: Capital asset; Depreciation; Earning of tax free income; Tax effect
• Section: 14A; 32

Judgement Text

1 , INCOME TAX APPELLATE TRIBUNAL,MUMBAI H BENCH , , , BEFORE S/SH. JOGINDER SINGH,JUDI CIAL MEMBER & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO. 7671/ MUM/201 3 , / ASSESSMENT YEAR - 200 8 - 09 M/S. HIND ALUMINIUM INDUSTRIES LTD.B - 1, TULSI VIHAR, 1 ST FLOOR DR. A.B. ROAD, WORLI NAKA MUMBAI - 18. PAN: AAACA 4671 Q VS ACIT, 6(1 ) ROOM NO.563, AAYAKAR BHAVAN MUMBAI. ( / APPELLANT ) ( / RESPONDENT ) /ASSESSEE BY : SHRI NISHIT GANDHI / REVENUE BY :SHRI JEETENDRA KUMAR - DR / DATE OF HEARING : 01 - 07 - 2015 / DATE OF PRONOUNCEMENT : 10 - 07 - 2015 , 1961 254 ( 1 ) ORDER U/S.254(1)OF THE INCOME - TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 07.10.2013 OF THE CIT(A) - 14,MUMBAI,THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. T HE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN ENHANCING THE TOTAL INCOME OF APPELLANT ON ACCOUNT OF EXCHANGE DIFFERENCE OF RS.11,20,749/ - . UNDER THE FACTS AND CIRCUMSTANCES OF THE MATTER HE OUGHT NOT TO HAVE ENHANCED THE INCOME ON ACCOUNT OF EXCHANGE DI FFERENCE BY RS.11,20,749. 2. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DIRECTING THE A.O. TO RE - COMPUTE DISALLOWANCE U/S 14A R.W.R.6D TAKING INTEREST INCOME RS. NIL. WHEN THERE IS NO INTEREST INCOME THERE SHOULD NOT BE ANY DISALLOWANCE U/S 14A. UN DER THE FACTS AND CIRCUMSTANCES OF THE MATTER HE OUGHT TO HAVE DIRECTED A.O. TO DISALLOW ONLY EXPENSES DIRECTLY INCURRED FOR EARNING THE EXEMPT INCOME AS STATED IN RULE 8D(2)(I). 3. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DIRECTING THE A.O. TO R ESTRICT THE DISALLOWANCE TO 20 % BEING RS.75,475/ - OF DIWALI EXPENSES, OFFICE EXPENSES AND GARDEN EXPENSES (1,96,376+1,48,952+32,045=RS.3,77,376) ON AD - HOC BASIS. UNDER THE FACTS AND CIRCUMSTANCES OF THE MATTER HE OUGHT NOT TO HAVE DIRECTED TO A.O. TO DISA LLOW RS 75,475 BEING 20% OF RS.3,77,376 ON AD - HOC BASIS. 4. THE APPELLANT CRAVES, LEAVE TO ADD, AMEND OR ALTER THE ABOVE GROUNDS OF APPEAL AT OR BEFORE THE TIME OF HEARING. ASSESSEE HAD ALSO FILED FOLLOWING ADDITIONAL GROUND S OF APPEAL: 4.1 IN THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 14, MUMBAI, ['THE CIT (A)'] ERRED IN NOT DIRECTING THE ASSESSING OFFICER TO ALLOW DEPRECIATION ON THE AMOUNT OF RS.11,20,749/ - BEING EXCHANGE RATE DIFFERENCE EVEN THO UGH THE SAME WAS TREATED BY THE CIT(A) AS BEING PART OF THE COST OF FIXED ASSET REQUIRED TO BE ADJUSTED U/S 43A OF THE ACT. 7671 /MUM/1 3 HAIL (0 8 - 09 ) 2 4.2 IT IS SUBMITTED THAT IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE DEPRECIATION AS PER SECTION 32 OF THE ACT SHOULD BE ALLOWED TO THE APPELLANT ON THE ADJUSTED COST OF THE ASSET ADDING THEREIN THE AMOUNT OF EXCHANGE RATE DIFFERENCE AS DISALLOWED BY THE CIT(A). 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, DELETE OR MODIFY ALL OR ANY THE ABOVE GROUND AT THE TIME OF HEARING. AN APPLICATION WAS FILED BY THE ASSESSEE TO ADMIT THE ABOVE ADDITIONAL GROUND.IT WAS STATED THAT THE ISSUE RAISED IN THE ADDITIONAL GROUND DOES NOT REQUIRE INVESTIGATION OF THE FACTS AND WAS A PURE LEGAL ISSUE.WE FIND THAT THE ADDITIONAL GROUND S RAISED BY THE ASSESSEE ARE LEGAL IN NATURE.HENCE SAME STAND ADMITTED. DURING THE COURSE OF HEARING BEFORE US,THE AUTHORISED REPRESENTATIVE(AR)OF THE ASSESSEE STATED THAT CONSIDERING THE LOW TAX EFFECT THE ASSESSEE WAS NOT INTERESTED IN PRESSING GROUND NO .2. CONSIDERING HIS STATEMENT,GROUND NO.2 STANDS DISMISSED AS NOT PRESSED. 2. ASSESSEE - COMPANY,ENGAGED IN THE BUSINESS OF MANUFACTURE OF ALUMINIUM WIRE ETC,FILED ITS RETURN OF INCOME ON 30.09.2008, D ECLARING TOTAL INCOME OF RS. 1,95,70,534 / - . ASSESSING OFFICE R (AO) FINALISED THE ASSESSMENT U/S.143(3) OF THE ACT,ON 22.12.2010 ,DETE RMINING THE TOTAL INCOME AT RS. 2,00,53,820 / - . 2.1. FIRST GROUND OF APPEAL PERTAINS TO ENHANCEMENT OF INCOME BY THE FIRST APPELLATE AUTHORITY (FAA) . WHILE EXAMINING THE MISCELLANEOUS EXPE NSES,THE FAA NOTICED THAT THE ASSESSEE HAD AN AMOUNT OF RS.11.20 LAKHS AS EXCHANGE RATE DIFFERENCE.FROM THE EXAMINATION OF THE ACCOUNTS IT WAS FURTHER FOUND THAT THE ASSESSEE HAD TAKEN TERM LOAN IN FOREIGN CURRENCY FOR PURCHASING OF WIND TURBINE FOR ITS PO WER PLANT.SHE HELD THAT THE WIND TURBINE WAS A CAPITAL ASSET AND THAT EXCHANGE RATE LOSS WAS NOT ALLOWABLE.ACCORDINGLY,A NOTICE FOR ENHANCING THE INCOME WAS ISSUED TO THE ASSESSEE AS PER THE PROVISIONS OF SECTION 251(2)OF THE ACT.IN RESPONSE TO THE NOTICE, THE ASSESSEE MADE SUBMISSIONS BEFORE THE FAA.AFTER CONSIDERING THE REPLY OF THE ASSESSEE THE FAA HELD THAT THE HONBLE APEX COURT HAD,IN THE MATTER OF WOODWARD GOVERNOR OF INDIA (254ITR 145),HELD THAT IF FOREIGN EXCHANGE LOSS WAS INCURRED ON REVENUE ACCOUN T SAME WAS ALLOWABL,THAT EXCHANGE LOSS WAS ON ACCOUNT OF CAPITAL ACCOUNT THE ADJUSTMENT HAD TO BE DONE IN COST OF CAPITAL ASSET AS PER THE PROVISIONS OF SECTION 43A OF THE ACT,THAT FOREIGN EXCHANGE LOSS WAS ON ACCOUNT OF PURCHASE OF WIND TURBINE FOR ITS P OWER PROJECT,THAT POWER PLANT WAS A CAPITAL ASSETS,THAT LOSS INCURRED HAD TO BE ADJUSTED AS PER THE PROVISIONS OF SECTION 43A OF THE ACT.FINALLY,RLYING UPON THE JUDGMENT OF THE HONBLE APEX COURT,DELIVERED IN THE CASE OF SUTLEJ COTTON MILLS LTD.(116ITR1),T HE FAA ENHANCED THE INCOME OF THE ASSESSEE BY RS. 11.20 LAKHS. 2.2. BEFORE US, AUTHORISED REPRESENTATIVE(AR) S TATED THAT THE ADDITIONAL GROUND RAISED BY THE ASSESSEE WAS INTERLINKED WITH THE GROUND NO.1.IT WAS ARGUED THAT EVEN IF THE FAA HAD DISALLOWED THE FOREIGN EXCHANGE LOSS INVOKING THE PROVISIONS OF SECTION 43A OF THE ACT,SHE SHOULD HAVE ALLOWED DEPRECIATION U/S.32 OF THE ACT. DEPARTMENTAL REPRESENTATIVE (DR) ARGUED THAT THE ISSUE WAS NOT RAISED BY THE ASSESSEE BEFORE THE FAA. 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT THE FAA HAD ISSUED ENHANCEMENT NOTICE TO THE ASSESSEE AND AFTER CONSIDERING ITS REPLY HAD MADE AN ADDITION OF RS.11,20,749 TO THE TOTAL INCOME OF THE ASSESSEE ,THAT THE FOREIGN EXCHANGE LOSS WAS N OT ALLOWED BY HER AS THE PROVISIONS OF SECTION 43A WERE APPLICABLE TO THE FACTS OF THE CASE.THE FAA HAD FOLLOWED THE DECISION OF THE HONBLE SUPREME COURT.WE DO NOT SEE ANY INFIRMITY IN HER ORDER.AS FAR AS DEPRECIATION IS CONCERNED WE ARE OF THE OPINION TH AT ISSUE SHOULD BE DECIDED BY THE FAA. THEREFORE,IN THE INTEREST OF JUSTICE,WE ARE REMITTING BACK THE MATTER TO THE FILE OF THE 7671 /MUM/1 3 HAIL (0 8 - 09 ) 3 FAA FOR FRESH ADJUDICATION WHO WOULD AFFORD A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE .GROUND NO.1 IS DECIDED AGAINST T HE ASSESSEE .HOWEVER,ADDITIONAL GROUND IS DECIDED IN ITS FAVOUR,IN PART. 3 .LAST GROUND OF APPEAL IS ABOUT DISALLOWANCE OF RS.75,475/ - .DURING THE ASSESSMENT PROCEEDING THE AO DISALLOWED 10% OF THE MISCELLANEOUS EXPENSES DEBITED TO PROFIT AND LOSS ACCOUNT.HE OBSERVED THAT THE ASSESSEE HAD NOT SUBMITTED THE PROOF FOR MISCELLANEOUS EXPENSES. 3.1. BEFORE THE FAA,THE ASSESSEE ARGUED THAT THE AO HAD NOT IDENTIFIED ANY PARTICULAR EXPENSE AND HAD DISALLOWED THE EXPENSES ON AD HOC BASIS.THE FAA HELD THAT THE ASSESSEE HAD JUST SUBMITTED THE LIST OF MISCELLANEOUS EXPENSES,THAT IT HAD NOT PRODUCED ANY DOCUMENTARY EVIDENCE TO SUPPORT THE CLAIM, THAT IT HAD NOT FILED DETAILS OF DIWALI EXPENSES,OFFICE EXPENSES AND GARDEN DEVELOPMENT EXPENSES.THE FAA DELETED THE OTHER ADDITIO NS.BUT,AT THE SAME TIME DIRECTED THE AO TO DISALLOW 20% OF THE ABOVE MENTIONED THREE EXPENSES I.E. DIWALI EXPENSES,OFFICE EXPENSES AND GARDEN DEVELOPMENT,AMOUNTING TO RS.75,475/ - . 3.2. DURING THE COURSE OF HEARING BEFORE US,THE AR STATED THAT DISALLOWANCE W AS MADE ON AD HOC BASIS, THAT EXPENSES WERE INCURRED IN ROUTINE MANNER.DR SUPPORTED THE ORDER OF THE FAA.WE HAVE PERUSED THE MATERIAL.ON A SPECIFIC QUERY BY THE BENCH,THE AR ADMITTED THAT DETAILS OF ABOVE MENTIONED THREE EXPENSES WERE NOT FILED BEFORE TH E FAA. IF THE ASSESSEE COULD NOT PROVE THAT THE EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS AND IF THE FAA HAD DISALLOWED A PART OF THE EXPENDITURE THEN IN OUR OPINION THE ORDER OF THE FAA SHOULD NOT BE DISTURBED.SO,CONFIR MING HER ORDER,WE DECIDE GROUND NO.3 AGAINST THE ASSESSEE. AS A RESULT APPEAL OF THE ASSESSEE STANDS PARTLY ALLOWED . . ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH JU LY ,2015. 10 , 2015 SD/ - SD/ - ( / JOGINDER SINGH) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / MUMBAI, /DATE: 10 .0 7 .2015 . . . JV. SR.PS. 7671 /MUM/1 3 HAIL (0 8 - 09 ) 4 / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY O RDER, / DY./ASST. REGISTRAR , / ITAT, MUMBAI.