ACIT, Hyderabad V. M/s Raasi Regractories Ltd., Hyderabad

ITA 912/HYD/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59262 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 7 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 09-02-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 14-06-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NIVEDITA BISWAS
• Assessee Lawyers: S RAMA RAO

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE CHANDRA POOJARI, ACCOUNTANT MEMBER & SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 912/HYD/2010 ASSESSMENT YEAR 2005-06 THE ACIT, CIRCLE 3(1), HYDERABAD VS M/S RASI REFRACTORIES LIMITED, HYDERABAD (PAN AABCR0333H) APPELLANT RESPONDENT APPELLANT BY : SMT. NIVEDITA BISWAS, DR RESPONDENT BY : SHRI S. RAMA RAO DATE OF HEARING : 17.1.2012 DATE OF PRONOUNCEMENT : 10.2.2012 ORDER PER ASHA VIJAYARAGHAVAN, JM . THIS APPEAL PREFERRED BY THE REVENUE IS DIR ECTED AGAINST THE ORDER PASSED BY THE CIT(A) IV, HYDERABAD DATED 31.3.2010 AND IT PERTAINS TO THE ASSESSMENT YEAR 2005-06. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S A PUBLIC LIMITED COMPANY MANUFACTURING REFRACTORY BRICKS. F OR THE ASSESSMENT YEAR 2005-06 IT FILED RETURN OF INCOME A DMITTING NIL INCOME. THE RETURN WAS PROCESSED U/S 143(1) OF THE ACT. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY. IN RESPONSE TO THE NOTICES ISSUED U/S 143(2) OF IT ACT THE ASSESSE ES AR APPEARED AND PRODUCED INFORMATION AND EVIDENCE CALL ED FOR. THE ASSESSMENT WAS COMPLETED. 3. UNDER THE HEAD SALES SERVICES THE ASSESSEE HA S DEBITED A SUM OF RS.13,10,166/- BEING THE AMOUNT PAID TO SUB CONTRACTOR ITA NO.912/2010 M/S RASI REFRACTORIES LIMITED, HYDERABAD 2 IN RESPECT OF SERVICES RENDERED FOR CONSTRUCT OF HE AT RESISTANT BRICK WALLED ROOMS AT VSP, VISAKHAPATNAM. THE ASSE SSEE WAS CALLED UPON TO EXPLAIN HOW THIS EXPENDITURE IS ALLO WABLE AS THE CORRESPONDING RECEIPT/INCOME IN RESPECT OF THE ABOV E CONTRACT FROM THE VSP, VISAKHAPATNAM HAS NOT BEEN DECLARED F OR ASSESSMENT. DURING THE COURSE OF HEARING THE ASSES SEES REPRESENTATIVE CONTENDED THAT THE RECEIPT WAS RECEI VED IN NEXT YEAR. THOUGH THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF THE AMOUNT RECEIVED IN THE NEXT YEAR, THE INFORMATI ON HAS NOT BEEN FURNISHED. IN VIEW OF THE ASSESSEES FAILURE TO FURNISH THE INFORMATION AS TO THE RECEIPTS, THE EXPENDITURE OF RS.13,10,066/- CANNOT BE ALLOWED AND SO ADDED. 4. AGGRIEVED, BY THE ORDER OF THE ASSESSING OFFICE R THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). 5. THE CIT(A) HELD THAT THE AO HAS NOT DOUBTED THE GENUINENESS OF ANY SUCH EXPENDITURE. THE CIT(A) TH EREFORE ALLOWED THE EXPENDITURE OF RS.13,10,066/- DURING TH E YEAR ON THIS ACCOUNT HOLDING THAT THE DISALLOWANCE CANNOT BE MADE MERELY FOR THE REASON THAT THERE WAS NO CONTRACT RE CEIPT SHOWN SEPARATELY BY THE ASSESSEE AGAINST THE PAYMENTS MAD E TOWARDS CONCERNED SUB CONTRACTS FOR SERVICES RENDERED FOR C ONSTRUCTION OF HEAT RESISTANT BRICK WALLED ROOMS AT VSP. 6. AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US AND RAISED THE FOLLOWING GROUNDS: 1. THE ORDER OF THE CIT(A) IS ERRONEOUS BOTH ON FA CTS AND LAW. 2. THE CIT(A) OUGHT TO HAVE UPHELD THE DISALLOWANCE MADE ON SUB CONTRACTORS AS THE ASSESSEE FAILED TO SUBSTANTIATE ITS CLAIM. ITA NO.912/2010 M/S RASI REFRACTORIES LIMITED, HYDERABAD 3 7. WE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIALS AVAILABLE ON RECORD. WE FIND THAT THE ASSESSEE SUP PLIES REGULARLY REFRACTORY BRICKS TO VIZ., STEEL PLANT. WE UNDERST AND THAT THE ASSESSEE IS EXPECTED TO ENSURE A MINIMUM PERFORMANC E LIFE OF THESE BRICKS IN THE BLAST FURNACE AND OTHER USAGE A REA AND IF BRICKS MAINTAINED BY THE ASSESSEE PERFORM BETTER T HAN THE MINIMUM PERFORMANCE LIFE, THE ASSESSEE GETS BONUS W HICH IS ACCOUNTED FOR UNDER THE HEAD OTHER INCOME (PERFOR MANCE BONUS) AND WHEN PRODUCT PERFORMANCE IS BELOW PAR, T HE PAYMENTS ARE DEDUCTED WHICH IS A LOSS TO THE COMPAN Y. REPLACING REFRACTORY BRICK IN HIGH TEMPERATURE AREA IS BOTH EXPENSIVE AND TIME CONSUMING, PERIODICAL MAINTENANC E IS DONE TO THE BRICKS TO ENHANCE THE LIFE OF THE SAME. BECA USE OF THESE SERVICES, THE LIFE OF THE BRICKS GETS INCREASED AND THE COMPANY RECEIVES BONUS. 8. THOUGH THE ASSESSEE FURNISHED DETAILS OF SUCH EXPENSES FOR THE PAST SEVERAL YEARS AND ALSO FOR TH E ASSESSMENT YEAR 2005-06, THE ASSESSEE DID NOT PRODUCE THE AGR EEMENT FOR MAINTENANCE. IN THESE CIRCUMSTANCES, WE DEEM IT F IT TO RESTORE THE ISSUE TO THE FILE OF THE AO TO VERIFY THE CONDI TION/AGREEMENT TO MAINTAIN THE BRICKS AND VERIFY THE FACT THAT UNL ESS THE SERVICES APPLICATION IS MADE TO THE BRICKS THE COMP ANY WILL NOT BE ABLE TO EARN SUCH BONUS AND WILL INCURS PERFORMA NCE PENALTY. THE VERIFICATION BY THE AO WOULD PROVE THAT THE EXP ENSE ON THE SALES SERVICE CHARGES AT VSP IS INCURRED GENUINELY FOR THE PURPOSE OF THE BUSINESS AND THEREAFTER THE AO SHALL DECIDE THE ISSUE IN ACCORDANCE WITH LAW. ITA NO.912/2010 M/S RASI REFRACTORIES LIMITED, HYDERABAD 4 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS P ARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10. 2. 2012 SD/- SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER DATED THE 10 TH FEBRUARY, 2012 COPY FORWARDED TO: 1. THE ACIT, CIRCLE 3(1), HYDERABAD 2. M/S RASI REFRACTORIES LIMITED, 6-3-349/20, ALPHA BUSINESS CENTRE, ROAD NO.1, BANJARA HILLS, HYDERABA D 3. THE CIT(A)-IV, HYDERABAD 4. THE CIT, HYDERABAD 5. THE DR, ITAT, HYDERABAD NP/