DCIT, Sirhind V. M/s Sood Plastics Pvt. Ltd., Rajpura

ITA 839/CHANDI/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5130 (ITAT-CHANDIGARH)
• Duration Of Justice: 9 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 19-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: J K GARG
• Keywords: Gift; Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES B, CHANDIGARH BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER & DR. B.R.R. KUMAR, ACCOUNTANT MEMBER ITA NO. 839/CHD/2017 ASSESSMENT YEAR: 2012-13 THE DCIT, CIRCLE, VS. M/S SOOD PLASTICS (P) LTD., MANDI GOBINDGARH B-6, FOCAL POINT, RAJPURA PAN NO. AACCS5535P & ITA NO. 816/CHD/2017 ASSESSMENT YEAR: 2012-13 M/S SOOD PLASTICS (P) LTD., VS. THE DCIT, CIRCLE, B-6, FOCAL POINT, MANDI GOBINDGARH RAJPURA PAN NO. AACCS5335P (APPELLANT) (RESPONDENT) APPELLANT BY : SH. DEEPAK AGGARWAL, ADVOCATE RESPONDENT BY : SH. J.K. GARG, CIT DR DATE OF HEARING : 13.03.2018 DATE OF PRONOUNCEMENT : 13.03.2018 ORDER PER SANJAY GARG, JUDICIAL MEMBER: THE ABOVE CAPTIONED APPEALS ONE BY THE REVENUE AND ANOTHER BY THE ASSESSEE HAVE BEEN PREFERRED AGAINST THE ORDER DATE D 09.03.2017 OF THE COMMISSIONER OF INCOME TAX (APPEALS), [HEREINAFTER REFERRED TO AS CIT(A)], PATIALA RELATING TO ASSESSMENT YEAR 2012-1 3. ITA NO. 839/CHD/2017 ITA NO. 816/CHD/2017 (M/S SOOD PLASTICS (P) LTD) 2 2. SINCE BOTH THE APPEALS ARE ARISING OUT OF THE SA ME ORDER OF THE CIT(A), HENCE, THE SAME HAVE BEEN HEARD TOGETHER A ND ARE BEING DISPOSED OF BY THIS COMMON ORDER. FIRST, WE WILL TAKE UP APP EAL OF THE REVENUE IN ITA NO. 839/CHD/2017. 3. THE REVENUE IS AGGRIEVED BY THE ACTION OF THE CI T(A) IN DELETING THE ADDITION MADE OF RS. 34,14,667/- ON ACCOUNT OF SUPP RESSED SALE. THE ASSESSEE IS INVOLVED IN MANUFACTURING OF PACKAGING MATERIAL AND PLASTIC PRODUCTS. THE ASSESSING OFFICER OBSERVED THAT ASSES SEE HAD SHOWN LESS YIELD FOR THE YEAR UNDER CONSIDERATION AS COMPARED TO EARLIER ASSESSMENT YEARS. HE, THEREFORE, CONCLUDED THAT THE ASSESSEE MIGHT HAVE SUPPRESSED ITS SALES. HE BY TAKING AVERAGE OF THE PAST YEARS VIS-A -VIS THE PRODUCTION SHOWN BY THE ASSESSEE DURING THE YEAR UNDER CONSIDE RATION, ESTIMATED THE FIGURE OF SUPPRESSED SALES AND MADE ADDITION TO TH E INCOME OF THE ASSESSEE ACCORDINGLY. 4. BEING AGGRIEVED BY THE ABOVE ORDER OF THE ASSESS ING OFFICER, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). THE LD . CIT(A) FOUND THAT THERE WAS NO EVIDENCE ON THE FILE OR RECORD ABOUT T HE SUPPRESSION OF SALES AND CONSIDERED THE SUBMISSIONS OF ASSESSEE THAT LOW ER YIELD WAS ON ACCOUNT OF VARIOUS CIRCUMSTANCES INCLUDING POWER FLUCTUATIO N, BREAK DOWN OF ELECTRICITY AND THAT THE ASSESSEE WAS INVOLVED IN MANUFACTURING OF VARIOUS TYPES OF PRODUCTS ACCORDING TO DEMAND AND THAT THE YIELD DEPENDS UPON THE VARIETY OF PRODUCTS MANUFACTURE ALSO. THAT DURING T HE YEAR THERE WAS GENERATION OF MORE WASTE IN RELATION TO THE PRODUCT S MANUFACTURED, ETC. 5. THE LD. CIT(A) AFTER CONSIDERING THE OVERALL FAC TS AND CIRCUMSTANCES OF THE CASE OBSERVED THAT MERELY BECAUSE THE ASSESS EE HAD SHOWN DURING THE ITA NO. 839/CHD/2017 ITA NO. 816/CHD/2017 (M/S SOOD PLASTICS (P) LTD) 3 YEAR LESS YIELD THAT ITSELF CANNOT BE A GROUND FOR ADDITION. THAT EVEN OTHERWISE, THERE WAS NO EVIDENCE AVAILABLE OF SUPPR ESSION OF SALES. HE THEREFORE, DELETED THE ADDITIONS SO MADE BY THE ASS ESSING OFFICER ON THIS ISSUE. BEING AGGRIEVED BY THE ABOVE ORDER, THE REVE NUE HAS COME UP IN APPEAL BEFORE US. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IN OUR VIEW, THE LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION IN THE ABSE NCE OF ANY COGENT OR CONVINCING EVIDENCE THAT THE ASSESSEE HAS SURPASSED ITS SALES. THE ASSESSEE HAS EXPLAINED ABOUT VARIOUS FACTORS CONTRIBUTING FO R THE LOW YIELD. EVEN OTHERWISE, IN OUR VIEW, IN THE ABSENCE OF ANY INCRI MINATING EVIDENCE, IT CANNOT BE ASSUMED THAT THE ASSESSEE MIGHT HAVE SUPP RESSED THE SALES. WE, THEREFORE, DO NOT FIND ANY MERIT IN THE APPEAL OF T HE REVENUE AND THE SAME IS ACCORDINGLY DISMISSED. 7. NOW COMING TO THE APPEAL OF THE ASSESSEE IN ITA NO. 816/CHD/2017 , WHEREIN THE ASSESSEE HAS TAKEN FOLLOWING GROUNDS:- 1. THAT THE LD CIT(A) HAS ERRED IN CONFIRMING THE CAPITALIZATION OF INTEREST PAID, AMOUNTING TO RS.53,157/-, ON LOAN RAISED FOR PURCHASE OF MACHINE RY ON THE GROUND THAT THE MACHINERY HAS NOT BEEN USED DURING THE YEAR UNDER CONSIDERATION WHEREAS, AS PER THE ASSESSEE THE TRIAL RUN HAS BEEN CONDUCTED BY TH E ASSESSEE AFTER COMMISSIONING OF THE MACHINERY, THEREFORE, THE CAPITALIZATION MADE AS PER EXPLANATI ON 8 UNDER SECTION 43(1) R.W. SECTION 36(L)(III) IS BAD IN LAW AND THEREFORE PRAYED TO BE SET-ASIDE. 2. THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF DEPRECIATION AMOUNTING TO RS. 57,47 4/- ON BUILDING ON THE GROUND THAT IN THE MONTH OF MARC H THE ASSESSEE PURCHASED CEMENT AND BRICKS WHEREAS, A S PER THE ASSESSEE THE MEAGER AMOUNT EXPENDED ON CEMENT AND BRICKS COULD NOT CHALLENGE THE WHOLE ITA NO. 839/CHD/2017 ITA NO. 816/CHD/2017 (M/S SOOD PLASTICS (P) LTD) 4 BUILDING ERECTED AND COMMISSIONED BY THE ASSESSEE AMOUNTING TO RS. 11,49,474/ -, THEREFORE THE DISALLOWANCE OF DEPRECIATION IS BEING PRAYED TO BE SET- ASIDE. 3. THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF DEPRECIATION AMOUNTING TO RS. 10,35 6/- ON MACHINERY ON THE GROUND THAT IN THE MONTH OF MAR CH THE ASSESSEE PURCHASED MACHINERIES AND THERE ARE NO ERECTION CHARGES QUA THOSE MACHINERIES WHEREAS, AS PER THE ASSESSEE THE EMPLOYEES OF THE ASSESSEE ARE COMPETENT ENOUGH TO INSTALL THE SAID MACHINERIES, THEREFORE, THE DISALLOWANCE OF DEPRECIATION IS BEIN G PRAYED TO BE SET-ASIDE. 4. THAT THE LD CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF EXPENDITURE AMOUNTING TO RS. 58,840 /- ON THE GROUND THAT THE SAID EXPENDITURE RELATES TO SERVICE TAX PENALTY AND THEREFORE UNDER SECTION 37( 1) THE SAID EXPENDITURE IS NOT ALLOWABLE, WHEREAS, AS PER THE ASSESSEE THESE EXPENSES PAID TOWARDS MEETING STATUTORY OBLIGATION, THEREFORE THE DISALLOWANCE MA DE MAY KINDLY BE SET ASIDE. 5. THAT THE LD. CIT(A) HAS ERRED IN PARTIALLY CONFIRM ING THE DISALLOWANCE OF TRAVELLING EXPENDITURE TO THE TUNE OF RS. 3,91,028 (OUT OF RS.4,66,028/-) ON THE GROUN D THAT THE FAMILY OF DIRECTOR ACCOMPANIED HIM ON THE TRRIP WHEREAS, AS PER THE ASSESSEE THE BUSINESS EXIGENCY OF THE FOREIGN TRIP IS NOT IN DOUBT, THERE FORE THE DISALLOWANCE MADE MAY KINDLY BE SET-ASIDE. 6. THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE @ 50% OF SALES PROMOTION EXPENSES WHICH COMES TO RS.4,52,118/- ON THE GROUND THAT T HE ASSESSEE FAILED TO GIVE THE IDENTITY OF A PERSON TO WHOM THE COSTLY GIFTS HAVE BEEN PAID AND THE SOME EXPENDITURE HAS BEEN BOOKED ON 31.03.2012 WHEREAS, AS PER THE ASSESSEE THE BUSINESS EXIGENCY AND THE GENUINENESS OF THE EXPENDITURE IS NOT IN DOUBT, THEREFORE THE AD-HOC DISALLOWANCE MADE MAY KINDLY B E SET-ASIDE. ITA NO. 839/CHD/2017 ITA NO. 816/CHD/2017 (M/S SOOD PLASTICS (P) LTD) 5 7. THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF EXPENDITURE ON CONSUMABLES AMOUNTIN G TO RS.76,928/- ON THE GROUND THAT THE SAID EXPENDIT URE IS NOT IN COMMENSURATE WITH THE EARLIER YEAR EXPENDITURES WHEREAS, AS PER THE ASSESSEE THE GENUINENESS OF THE EXPENDITURE IS NOT IN DOUBT AND CONSUMABLES MAY VARY YEAR TO YEAR WHICH DEPENDS UPON NUMBER OF FACTORS, THEREFORE THE AD-HOC DISALLOWANCE MADE MAY KINDLY BE SET-ASIDE. 8. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE HAS INVITED OUR ATTENTION TO THE GROUNDS OF APPEAL WHEREIN A NOTING HAS BEEN MADE AT GROUND NOS. 3 & 4, WITHDRAWING THE SAME. THE LD. COUNSEL FOR THE ASSESSEE HAS ALSO STATED AT BAR THAT AS PER WITHDRAWAL INSTRUCTIONS O F HIS CLIENT, HE HAS WITHDRAWN GROUND NOS. 3 & 4. THEREFORE, GROUND NOS . 3 & 4 ARE DISMISSED AS WITHDRAWN. 9. GROUND NO.1 IS REGARDING THE CAPITALIZATION OF I NTEREST OF RS. 53,157/-. THE ASSESSING OFFICER DISALLOWED THE CAP ITALIZATION OF THE ABOVE INTEREST ON THE GROUND THAT THE MACHINERY WAS NOT P UT TO USE DURING THE YEAR. THE ASSESSEE CONTESTED THIS ISSUE UNSUCCESSFU LLY BEFORE LD. CIT(A) ALSO. BEFORE US, LD. COUNSEL FOR THE ASSESSEE HAS SUBMITT ED THAT THE MACHINERY WAS PUT TO USE AS A TRIAL RUN WAS DONE PRIOR TO FIR ST APRIL, 2012. WE FIND THAT THE ABOVE CONTENTION OF THE ASSESSEE IS NOT SU PPORTED WITH ANY COGENT AND CONVINCING EVIDENCE. WE, THEREFORE, DO NOT FIN D ANY MERIT IN THIS GROUND AND ACCORDINGLY DISMISS THE SAME. 10. GROUND NO. 2 IS REGARDING THE DEPRECATION ON BU ILDING AMOUNTING TO RS. 57,474/-. THE ASSESSING OFFICER OBSERVED FROM THE BILLS AND VOUCHERS OF CEMENT AND BRICKS THAT THE BILLS WERE OF THE MON TH OF MARCH 2012. HE, ITA NO. 839/CHD/2017 ITA NO. 816/CHD/2017 (M/S SOOD PLASTICS (P) LTD) 6 THEREFORE, HELD THAT THE BUILDING WAS NOT COMPLETED AT THE END OF THE FINANCIAL YEAR I.E. BY 31 ST MARCH, 2012. HE, ACCORDINGLY DISALLOWED THE DEPRECIATION CLAIMED ON THE BUILDING. THE SAID DISA LLOWANCE HAS BEEN FURTHER UPHELD BY THE LD. CIT(A). WE HAVE HEARD THE RIVAL CONTENTIONS. ADMITTEDLY, TH E BRICKS AND CEMENT WAS PURCHASED IN THE MONTH OF MARCH ITSELF, WHICH WAS USED FOR THE CONSTRUCTION OF THE AFORESAID BUILDING. IN VIEW OF THIS, IN OUR VIEW, LOWER AUTHORITIES HAVE RIGHTLY HELD THAT THE BUILDING WAS NOT COMPETED AT THE CLOSE OF THE YEAR I.E 31 ST MARCH OF THE RELEVANT YEAR. THERE IS NO EVIDENCE BROUGHT TO OUR KNOWLEDGE THAT THE BUILDING WAS PUT TO USE DURING THE YEAR. IN VIEW OF THIS, WE DO NOT FIND ANY MERIT IN THIS G ROUND OF APPEAL AND THE SAME IS ACCORDINGLY DISMISSED. 11. GROUND NO.5 IS RELATING TO THE DISALLOWANCE OF PART OF EXPENDITURE ON FOREIGN TRIP OF THE DIRECTOR ON THE GROUND THAT THE FAMILY OF THE DIRECTOR ACCOMPANIED HIM. THE TOTAL EXPENDITURE CLAIMED WAS AMOUNTING TO RS. 4,66,028/-, OUT OF WHICH, ASSESSING OFFICER DISALLO WED A SUM OF RS. 3,91,028/- PERTAINING TO THE EXPENSES ON THE FAMILY S VISIT ALONG WITH THE DIRECTOR. LD. COUNSEL FOR THE ASSESSEE COULD NOT EX PLAIN AS TO HOW THE FAMILY OF THE DIRECTOR CONTRIBUTED IN PROCURING BUS INESS FOR THE ASSESSEE COMPANY. HENCE, IN OUR VIEW, THE LOWER AUTHORITIES HAVE RIGHTLY DISALLOWED THE EXPENSES RELATING TO THE FOREIGN TRIP OF THE FA MILY OF DIRECTOR OF THE ASSESSEE. THIS GROUND IS ACCORDINGLY DISMISSED. 12. GROUND NO.6 IS REGARDING DISALLOWANCE OF 50% OF SALES PROMOTION EXPENSES CLAIMED TO HAVE BEEN INCURRED ON PURCHASE OF COSTLY GIFTS. THE LD. ASSESSING OFFICER ASKED THE ASSESSEE TO GIVE T HE DETAILS OF THE PERSONS ITA NO. 839/CHD/2017 ITA NO. 816/CHD/2017 (M/S SOOD PLASTICS (P) LTD) 7 TO WHOM THE COSTLY GIFTS WERE GIVEN AND HOW THE GIF TS TO THOSE PERSONS WERE BENEFICIAL TO THE BUSINESS OF THE ASSESSEE. HO WEVER, THE ASSESSEE COULD NOT GIVE ANY SATISFACTORY EXPLANATION IN THIS REGARD. BEFORE US, LD. COUNSEL FOR THE ASSESSEE COULD NOT EXPLAIN ABOUT THE JUSTIFICATION IN INCURRING OF THE EXPENSES ON THE G IFTS AND ALSO COULD NOT CO- RELATE WITH EVIDENCE THAT THE SAID EXPENDITURE WERE RELATING TO THE BUSINESS ACTIVITY OF THE ASSESSEE. IN VIEW OF THIS, WE DO N OT FIND ANY MERIT IN THIS GROUND OF APPEAL AND THE SAME IS ACCORDINGLY DISMIS SED. 13. GROUND NO.7 IS RELATING TO THE DISALLOWANCE OF EXPENDITURE INCURRED ON CONSUMABLES. THE ASSESSING OFFICER FOUND THAT TH E ASSESSEE HAS SHOWN EXPENDITURE ON CONSUMABLES WHICH WAS MORE THAN EXPE NDITURE CLAIMED IN THE EARLIER ASSESSMENT YEARS. THE ASSESSEE EXPLAINE D THAT THE EXPENDITURE ON CONSUMABLES VARY FROM YEAR TO YEAR AND THAT THER E CANNOT BE A STRAIGHT JACKET FORMULA TO RESTRICT THE EXPENDITURE ON CONSU MABLE TO A PARTICULAR LIMIT; THAT IT ALL DEPENDS UPON THE MANUFACTURING ACTIVITY AND VARIOUS OTHER CIRCUMSTANCES AND ALSO THE TYPES OF PRODUCTS MANUFACTURED. HOWEVER, THE ASSESSING OFFICER DID NOT GET SATISFIE D WITH THE ABOVE EXPLANATION AND MADE DISALLOWANCE OF RS. 76,928/-, OUT OF RS. 6.15,424/- ON AD HOC BASIS. THE ABOVE DISALLOWANCE HAS FURTHER BEEN UPHELD BY THE LD. CIT(A). WE HAVE HEARD THE RIVAL CONTENTIONS. WE FIND THAT T HE LOWER AUTHORITIES HAVE NOT DOUBTED THE INCURRING OF EXPEN DITURE ON THE BASIS OF ANY INCRIMINATING EVIDENCE FOUND AGAINST THE ASSESS EE. THE DISALLOWANCE HAS BEEN MADE MERELY ON CONJECTURE AND SURMISES. WE AGREE WITH THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THERE CANNOT BE AN ITA NO. 839/CHD/2017 ITA NO. 816/CHD/2017 (M/S SOOD PLASTICS (P) LTD) 8 ESTIMATION OF A FIX AMOUNT REGARDING THE CONSUMPTIO N OF CONSUMABLES IN MANUFACTURING PRODUCTS, WHICH MAY VARY OWING TO VAR IOUS CIRCUMSTANCES AS EXPLAINED BY THE ASSESSEE. THE ABOVE DISALLOWANCE H AS BEEN MADE BY THE LOWER AUTHORITIES ONLY ON A PRESUMPTION BASIS WHICH , IN OUR VIEW, IS NOT SUSTAINABLE IN THE EYES OF LAW. GROUND NO.7 IS, T HEREFORE, ALLOWED AND THE DISALLOWANCE MADE ON THIS ACCOUNT IS ORDERED TO BE DELETED. 14. IN VIEW OF THE ABOVE THE APPEAL OF THE REVENUE IS DISMISSED AND THE APPEAL OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (DR. B.R.R. KUMAR) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 13.03.2018 RKK COPY TO: 2. THE APPELLANT 3. THE RESPONDENT 4. THE CIT 5. THE CIT(A) 6. THE DR