General Industrial Controls P. Ltd., Pune V. Addl. CIT, Range-9, Pune

ITA 889/PUN/2012

• Counselvise Citation: 88924514 RSA 2012
• Duration Of Justice: 2 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 04-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S P WALIMBE
• Keywords: Depreciation; Commercial expediency
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE BEFORE: SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO . 889 / P N/ 20 1 2 ASSESSMENT YEAR : 200 8 - 09 GENERAL INDUSTRIAL CONTROLS P. LTD. , T - 107, MIDC, BHOSARI, PUNE VS. ADDL. CIT, RANGE - 9, PUNE (APPELLANT) (RESPONDENT) PAN NO. AAACG6241J APPELLANT BY: SHRI KISHORE PHADKE RESPONDENT BY: SHRI S.P. WALIMBE DATE OF HEARING : 02 - 0 7 - 2014 DATE OF PRONOUNCEMENT : 27 - 0 8 - 2014 ORDE R P ER R.S. PADVEKAR , JM : - IN THIS APPEAL, THE ASSESSEE HAS CHALLENGED THE IMPUGNED ORDER OF THE LD. CIT(A) - V, PUNE DATED 29 - 03 - 2012 FOR THE A.Y. 200 8 - 09. GROUND NO. 1 READS AS UNDER: 1. THE LEARNED CIT (A) - V, PUNE ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE OF DEPRECIATION ON FOUNDATION OF WINDMILL AMOUNTING TO RS.2,23,764/ - . 2. THE FACTS WHICH ARE REVEALED FROM THE RECORD AS UNDER. THE ASSESSEE COMPANY IS IN THE FIELD OF DESIGNING, DEVELOPING AND MANUFACTURING ELECTRONIC CONTROL AND TIMING DE VICES WHICH ARE USED IN THE INSTRUMENTATION AND SWITCHGEAR INDUSTRY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS CLAIM ED DEPRECIATION @ 80% ON THE FOUNDATION OF WIND MILLS AS WELL AS ELECTRICA L ACCESSORIES OF WIND MILLS. THE ASSESSING OFFICER WAS OF THE OPINION THAT THE WINDMILL FOUNDATION IS NOT AN INTEGRAL PART OF THE WINDMILL AND THEREFORE, IT WAS NOT ENTITLED FOR HIGHER RATE OF 2 ITA NO . 889 /PN/201 2, GENERAL INDUSTRIAL CONTROLS P. LTD., PUNE DEPRECIATION APPLICABLE FOR WINDMILL. THE ASSESSING OFFICER, THEREFORE, DISALLOWED EXCESS DEPRECIATION ON THE FOUNDATION AMOUNTING TO RS.2,23,764/ - BY ADOPTING NORMAL RATE OF DEPRECIATION @ 10%. THE ASSESSEE CHALLENGED THE SAID DISALLOWANCE BEFORE THE LD. CIT(A) BUT WITHOUT SUCCESSES. NOW, THE ASSESSEE IS IN APPEA L BEFORE US. 3. WE HAVE HEARD THE PARTIES. THE LD. COUNSEL SUBMITS THAT IN THE PRECEDING TWO YEARS THE ASSESSING OFFICER HAS ALLOWED THE DEPRECIATION @ 80% OF THE CIVIL WORK FOUNDATION. HE SUBMITS THAT THE ASSESSING OFFICER CANNOT DISTURB THE WDV AS ADMITTEDLY IN THIS YEAR THE ASSESSEE HAS NOT CLAIMED THE DEPRECIATION FOR THE FIRST TIME. HE SUBMITS THAT OTHERWISE ALSO THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT - III, PU NE VS. COOPER FOUNDARY PVT. LTD. ITA NO. 1326 OF 2010 JUDGMENT DATED 14 TH JUNE, 2011. WE HAVE ALSO HEARD THE LD. DR. 4. WE FIND THAT THE ISSUE STANDS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF COOPER FOUNDARY PVT. LTD. (SUPRA). MOREOVER, THE ITAT , PUNE HAS TAKEN A CONSISTENT VIEW THAT THE FOUNDATION IS THE INTEGRAL PART OF THE WINDMILL. WE ALSO FIND THAT THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE ITA T, PUNE IN THE CASE OF M/S. WESTERN PRECICAST PVT. LTD. VS. JCIT, RANGE - 1, SANGLI, ITA NO. 1495/PN/2011 ORDER DATED 30 - 01 - 2013. WE, THEREFORE, ALLOW THE GROUND TAKEN BY THE ASSESSEE AND DIRECT THE ASSESSING OFFICER NOT TO DISTURB THE WDV OF THE WINDMILL F OUNDATION. ACCORDINGLY, GROUND NO. 1 IS ALLOWED. 5. GROUND NO S . 2 AND 3 READS AS UNDER: 2. THE LEARNED CIT (A) - V, PUNE ERRED IN LAW AND ON FACTS IN SUSTAINING DISALLOWANCE OF RS.1,90,400/ - ON ACCOUNT OF ALLEGED PERSONAL EXPENDITURE IN FOREIGN TRAVEL EX PENSES. 3 ITA NO . 889 /PN/201 2, GENERAL INDUSTRIAL CONTROLS P. LTD., PUNE 3. FURTHER, THE LEARNED CIT (A) - V, PUNE ERRED IN LAW AND ON FACTS IN ENHANCING THE DISALLOWANCE OF FOREIGN TRAVELLING EXPENSES FROM RS.1,90,400/ - TO RS.6,62,972/ - ON ACCOUNT OF ALLEGED PERSONAL BENEFITS TO PERSONS COVERED U/S. 40A(2)(B). 6. T HE FACTS WHICH ARE REVEALED FROM THE RECORD AS UNDER. IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS DEBITED THE FOREIGN TRAVEL EXPENSES TO THE EXTENT OF RS.12,69,335/ - AND THE SAID EXPENDITURE INCLUDED ALSO FOREIGN TRAVEL EXPENSES OF SHRI OJAS CHORDIYA, SON OF THE MANAGING DIRECTOR SHRI S.B. CHORDIYA WHO HAD GONE TO SWITZERLAND TO ATTEND FINANCE COURSE. THE ASSESSING OFFICER AFTER MAKING OBSERVATION ESTIMATED THE DISALLOWANCE AT 15% OF TOTAL EXPENDITURE AND ACCORDINGLY, MADE THE ADDITION T O THE EXTENT OF RS.1,90,400/ - . THE ASSESSEE CHALLENGED THE SAID ADDITION BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS OBSERVED THAT THE EXPENDITURE ON FOREIGN TRAVEL OF SHRI OJAS CHORDIYA TO SWITZERLAND WAS TO THE EXTENT OF RS.6,62,972/ - . AS OBSERVED BY HI M THE ASSESSING OFFICER WAS NOT CORRECT TO MAKE THE DISALLOWANCE OF PERCENTAGE BASIS IN AN ADHOC MANNER. THE LD. CIT(A) PROCEEDED TO MAKE THE ENHANCEMENT AND ACCORDINGLY, ISSUED THE NOTICE TO THE ASSESSEE AS IN HIS OPINION THE ENTIRE EXPENDITURE WAS OF PE RSONAL NATURE. THE ASSESSEE RESISTED THE ENHANCEMENT NOTICE BY FILING THE FOLLOWING OB JECTIONS : 2. THE APPELLANT IS IN RECEIPT OF THE ENHANCEMENT NOTICE ISSUED BY YOUR GOODSELF VIDE LETTER DATED 24 - 2 - 2012. THE ISSUE RELATES TO THE EXPENDITURE INCURRED O N FOREIGN TRAVEL EXPENSES RELATING TO MR. OJAS CHORDIYA, WHO ATTENDED A FINANCE MANAGEMENT COURSE IN SWITZERLAND. IN THIS CONTEXT, THE APPELLANT HAS TO STATE AND SUBMIT AS UNDER. EARLIER CONTENTIONS AND SUBMISSIONS - VIDE EARLIER SUBMISSION DATED 9 - 12 - 2012 AND 21 - 2 - 2012, THE APPELLANT HAS MADE THE FOLLOWING PROPOSITIONS. A) EXISTENCE OF COMMERCIAL EXPEDIENCY IN THE SAID EXPENDITURE 4 ITA NO . 889 /PN/201 2, GENERAL INDUSTRIAL CONTROLS P. LTD., PUNE B) NON - EXISTENCE OF ANY PERSONAL ELEMENT CONSIDERING CORPORATE STATUS C) EXISTENCE OF EMPLOYMENT OF MR. OJAS PRIOR TO THE SAID EXPENDITURE D) JOINING BACK OF MR. OJAS AFTERWARDS E) PAYMENT OF FBT ON THE ENTIRE EXPENDITURE F) RELIANCE ON VARIOUS PRECEDENTS,,ETC. OBJECTION OF THE LEARNED AO - IS SUBMITTED, THE LEARNED AO HAS STATED THAT OBSERVED PRESENCE OF PERSONAL ELEMENT IN THE, FOREIGN TRAVEL EXPENDITURE. AS SUBMITTED EARLIER, ONCE THE FBT IS PAID ON THE ENTIRE RELATED EXPENDITURE, THE SAME ISSUE CAN NO MORE BE TESTED FOR POSSIBLE PERSONAL .ELEMENT, ETC. THE CBDT CIRCULAR AND THE ITAT DECISIONS IN THIS CONTEXT HAVE ALREADY BEEN C ITED BEFORE YOUR GOODSELF EARLIER. 3. CASE - LAW ANALYSIS - IN KEEPING WITH THE DISCUSSION DURING THE COURSE OF LAST HEARING, THE APPELLANT TAKES TILLS OPPORTUNITY TO ANALYSE RELEVANT PRECEDENTS AND FACTS THEREIN IN COMPARISON WITH THE PRESENT CASE THE APPEL LANT REITERATES, IN THE SPIRIT OF PAYMENT OF FBT, CBDT CIRCULAR ETC. AND CONSIDERING THE CORPORATE FORM OF THE APPELLANT, THESE DECISIONS ARE NOT REQUIRED TO BE VISITED. YET, TO ENSURE THE COMPLETENESS OF SUBMISSION THE RELEVANT CASE - LAW IS ANALYSED AND EN CLOSED HEREWITH AS ANNEXURE - 1. 4. EMERGING RATIO FROM THE ANALYSIS: FROM THE SAID ANALYSIS IT WILL TRANSPIRE THAT THE DISALLOWANCE OF HIGHER EDUCATION EXPENSES IS CONFIRMED IN CASES WHERE THE SAID EXPENSES RELATE EITHER TO PERSONAL DUTY OF THE PARENTS OR I N CASES WHERE THERE IS NO EMPLOYER - EMPLOYEE RELATIONSHIP OR WHERE, THE COMMERCIAL EXPEDIENCY IS ABSENT IN SUCH EXPENSES IN THE PRESENT CASE, MR. OJAS WAS ALREADY AN EMPLOYEE OF THE COMPANY, WORKING IN DESIGNS SECTION OF THE COMPANY AND THAT. MR. OJAS DID J OIN THE COMPANY AFTER COMPLETION OF THE COURSE. AS PER FACTS, MR. OJAS JOINED AFTER ANOTHER MS - ENGINEERING COURSE IN USA AND THEN, AFTER 20 MONTHS JOINED THE APPELLANT COMPANY. NOW, EXPENSES FOR THE SAID 20MONTHS WERE NOT INCURRED BY THE APPELLANT. MR. O JAS, AFTER RESUMING EMPLOYMENT IN APRIL 2009, HAS BEEN HANDLING TECHNICAL AND FINANCIAL 5 ITA NO . 889 /PN/201 2, GENERAL INDUSTRIAL CONTROLS P. LTD., PUNE ADMINISTRATION SIDES OF THE APPELLANTS BUSINESS. AS SUCH, THE PRESENT FACTS ARE NEARER TO THE BOMBAY HIGH COURT DECISION IN THE CASE OF SAKAL PAERS, 114 ITR 256. THE APPELLANT SUBMITS, THE EXPENSES MAY PLEASE BE ALLOWED AND THE ENHANCEMENT MOOTED THROUGH THE ABOVE REFERRED LETTER DATED 24 - 2 - 12 MAY PLEASE BE DROPPED. 7. THE LD. CIT(A) WAS NOT IMPRESSED WITH THE EXPLANATION OF THE ASSESSEE AND HE MADE THE ENTIRE DI SALLOWANCE TO THE EXTENT OF RS.6,62,972/ - WHICH WERE THE FOREIGN TRAVEL EXPENSES ON SHRI OJAS CHORDIYA , IN PLACE OF RS.1,90,400/ - DISALLOWED BY THE ASSESSING OFFICER. THE REASONS GIVEN BY THE LD. CIT(A) ARE AS UNDER: 22. AFTER CAREFUL CONSIDERATION OF TH E FACTS OF THE CASE AND REPLY OF THE APPELLANT, IT IS SEEN THAT SHRI OJAS CHORDIYA IS SON OF THE MANAGING DIRECTOR AND AFTER QUALIFYING AS B.E. IN MARCH, 2006, HE GOT APPOINTMENT LETTER FROM THE APPELLANT COMPANY ON 2 ND JUNE, 2006. THEREAFTER, ON 19/04/20 07, HE GOT APPOINTMENT IN SWISS FINANCE ACADEMY, SWITZERLAND AND ON 16/06/2007, CRASH COURSE COMMENCED AND AFTER COMPLETION OF THE COURSE ON 21/07/2007, HE RETURNED TO INDIA VIA LONDON AND THEREAFTER ON THE NEXT DAY I.E. 22/07/2007 HE RESIGNED AND PROCEEDE D FOR FURTHER STUDIES IN U.S. THE SEQUENCE OF EVENTS SHOW THAT THE SO CALLED APPOINTMENT IN THE COMPANY WAS TAILOR MADE TO SHOW THAT MR. OJAS CHORDIYA WAS EMPLOYEE OF THE APPELLANT COMPANY AND HE HAD PROCEEDED TO SWITZERLAND FOR FURTHER STUDIES FOR THE PU RPOSE OF THE BUSINESS OF THE APPELLANT COMPANY. IN FACT, SHRI OJAS CHORDIYA WAS STILL TO COMPLETE HIS D=EDUCATION AND THE EMPLOYMENT WAS GIVEN JUST TO GIVE COLOUR OF EMPLOYEE GOING ON TRAINING AND NOTHING ELSE. IN FACT, THE EXPENDITURE IS NOTHING BUT PER USAL EXPENDITURE OF M.D. WHICH HAS BEEN DEBITED TO THE P&L A/C OF THE APPELLANT COMPANY UNDER THE GARB OF TRAINING EXPENSES OF AN EMPLOYEE. THE VERY FACT THAT SHRI OJAS CHORDIYA RETURNED TO MUMBAI ON 21/07/2007 AND RESIGNED ON THE VERY NEXT DAY I.E. ON 22/ 07/2007 FOR FURTHER STUDIES FOR U.S. SHOWS THE INTENTION OF THE APPELLANT. THERE WAS NO INTENTION TO GET THE BENEFIT FROM THE CRASH COURSE IN SWITZERLAND BY THE APPELLANT COMPANY. 6 ITA NO . 889 /PN/201 2, GENERAL INDUSTRIAL CONTROLS P. LTD., PUNE 23. THE LEARNED COUNSEL OF THE APPELLANT HAS ALSO ANALYSED THE DECISION AND THE RATIO OF THE DECISIONS IN THE CASE OF DR. S.M. NAIK AND K.B. MEHTA WHICH ARE BY AND LARGE IN FAVOUR OF THE DEPARTMENT IN THE SENSE THAT SHRI OJAS CHORDIYA IS RELATED PARTY AND THE RESPONSIBILITY TO SEND HIM FOR FURTHER STUDIES WAS THE RESPONSIBILITY OF THE PARENT I.E. M.D. IN THIS CASE. IT HAS BEEN ALREADY EXPLAINED THAT THE APPOINTMENT LETTER WAS JUST TO GIVE A COLOUR OF HIS BEING EMPLOYEE AND THE SAME CANNOT BE ACCEPTED. THEREFORE, THE RATIO OF THE DECISION OF THE DR. S.M. NAIK IN 104 ITD 516 AND K.B. MEHTA IN 86 ITD 256 IS BY AND LARGE APPLICABLE TO THE FACTS OF THE CASE. THE LEARNED COUNSEL OF THE APPELLANT HAS RELIED ON THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF SAKAL PAPERS REPORTED IN 114 ITR 256 (BOM) BUT IN THAT CASE THE CONCER NED PERSON WAS EMPLOYEE WITH THE ASSESSEE COMPANY FOR 5 YEARS. IN THIS CASE, IT HAS BEEN SEEN THAT SHRI OJAS CHORDIYA WAS EMPLOYED ONLY ON 2/06/2006 TO GIVE A COLOUR OF EMPLOYMENT AND THEREFORE, THE FACTS OF SAKAL PAPERS ARE DISTINGUISHABLE. THE APPELLANT HAS ALSO STATED THAT FBT WAS PAID ON THIS AMOUNT AND THEREFORE, NO SEPARATE DISALLOWANCE COULD HAVE BEEN MADE. FROM THE DETAILS OF FBT FILED, IT IS NOT CLEAR AS TO NOW THE AMOUNT OF RS.6,62,9727 - HAS BEEN TREATED AS FBT. IN ANY CASE, FBT IS TO BE PAID ON N ON IDENTIFIABLE EXPENSES AND SINCE THIS EXPENDITURE WAS CLEARLY IDENTIFIABLE THEREFORE, THERE WAS NO REQUIREMENT TO PAY FBT ON THIS AMOUNT AND THEREFORE, THERE IS NO MERIT IN THE APPELLANT'S SUBMISSION THAT FBT HAS BEEN ALLEGEDLY PAID ON THIS AMOUNT AND TH EREFORE, NO ADDITION SHOULD BE MADE. 24. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO SUBSTITUTE THE DISALLOWANCE BY RS.6,62,972/ - ON ACCOUNT OF FOREIGN TRAVEL AND STAY EXPENSES OF SHRI OJAS CHORDIYA IN PLACE OF RS.1,90,400/ - . ACCORDINGLY THE GROUND IS DISMISSED WITH DIRECTION TO THE ASSESSING OFFICER TO MAKE DISALLOWANCE OF RS.6,62,972/ - INSTEAD OF RS.1,90,400/ - . IN SUM AND SUBSTANCE THE LD. CIT(A) ENHANCED THE INCOME OF THE ASSESSEE BY MAKING THE ADDITION OF RS.6,62,972/ - . 7 ITA NO . 889 /PN/201 2, GENERAL INDUSTRIAL CONTROLS P. LTD., PUNE 8. WE HAVE HEARD THE PA RTIES. THE LD. COUNSEL ARGUES THAT BEFORE GOING TO THE SWITZERLAND FOR HIGHER EDUCATION , HE WAS THE EMPLOYEE OF THE ASSESSEE COMPANY. HE SUBMITS THAT SHRI OJAS CHORDIYA COMPLETED THE FINANCE MANAGEMENT COURSE IN SWITZERLAND AND DURING HIS STUDY HE WAS TH E EMPLOYEE OF THE ASSESSEE COMPANY AND THE SAID FACT IS NOT DISPUTED. HE ARGUES THAT AFTER COMING FROM SWITZERLAND HE RESIGN ED FROM SERVICE AND PROCEEDED TO FURTHER STUDIES. HE SUBMITS THAT THE ASSESSEE COMPANY HAS PAID THE FBT ON THE SAID EXPENDITURE AN D HENCE, OTHERWISE ALSO NO DISALLOWANCE CAN BE MADE. HE SUBMITS THAT AFTER COMING BACK FROM THE HIGHER STUDIES HE HAS TAKEN THE RESPONSIBILITY OF THE COMPANY AND HE IS MANAGING DIRECTOR. HE PLACED HIS HEAVY RELIANCE ON THE DECISION OF THE HON'BLE HIGH CO URT OF BOMBAY IN THE CASE OF SAKAL PAPER 114 ITR 256. WE HAVE ALSO HEARD THE LD. DR, WHO RELIED ON THE ORDER OF THE LD. CIT(A). 9. IN THIS CASE IT NOT IN DISPUTE THAT SHRI OJAS CHORDIYA IS SON OF THE THEN MANAGING DIRECTOR . H E QUALIFIED AS B.E. IN MARC H, 2006 IN INDIA AND JOINED THE ASSESSEE COMPANY IN JUNE, 2006. IN APRIL, 2007 HE WENT TO SWISS FINANCE ACADEMY, SWITZERLAND BUT AFTER RETURNING HE RESIGNED AND AGAIN WENT FOR FURTHER STUDIES. AS PER THE STATEMENT MADE BY THE LD. COUNSEL AT BAR HOW HE IS THE MANAGING DIRECTOR OF THE ASSESSEE COMPANY. WE FIND THAT THE ASSESSEES CASE IS SQUARELY COVERED BY THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF SAKAL PAPER (SUPRA). IN THIS CASE ALSO ULTIMATELY THE BENEFIT OF EDUCATION IS TO THE ASSE SSEE COMPANY AS NOWHERE IT IS DISPUTED BEFORE US THAT SHRI OJAS CHORDIYA HAS NOT BECOME A MANAGING DIRECTOR OF THE ASSESSEE COMPANY. WE, THEREFORE, HOLD THAT ON THE SPECIFIC FACTS OF THIS CASE THE FOREIGN TRAVEL EXPENSES ON EDUCATION OF SHRI OJAS CHORDIYA IS ALLOWABLE EXPENDITURE U/S. 37(1) AND ACCORDINGLY, ALLOW THE GROUND NOS. 2 AND 3 AND DELETE THE ADDITION OF RS.6,62,972/ - . GROUND NO. 4 IS THE ALTERNATE 8 ITA NO . 889 /PN/201 2, GENERAL INDUSTRIAL CONTROLS P. LTD., PUNE PLEA TO GROUND NOS. 2 AND 3 AS THE ASSESSEE HAS SUCCEEDED ON GROUND NOS. 2 AND 3. GROUND NO. 4 BEC OME ACADEMIC. 10. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 27 - 08 - 2014 SD/ - SD/ - ( G . S . PAN NU ) ( R.S. PADVEKAR ) ACCOUNTANT MEMBER JUDICIAL MEMBER RK /PS PUNE , DA TED : 27 TH AUGUST, 2014 COPY TO 1 DEPARTMENT 2 ASSESSEE 3 THE CIT(A) - V, PUNE 4 THE CIT - V, PUNE 5 THE DR, ITAT, B BENCH, PUNE . 6 GUARD FILE. //TRUE COPY// BY ORDER PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL P UNE