The ACIT,Range-8, Ahmedabad V. M/s. Urmin Products Pvt.Ltd., Ahmedabad

ITA 956/AHD/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1777 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 25-04-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 31-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C S SHARMA
• Assessee Lawyers: A L THAKKAR
• Keywords: Capital asset; Depreciation; Rule of consistency; Revenue expenditure; Capital expenditure
• Section: 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH (BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER & SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER) ITA. NO: 956/AHD/2011& C.O. NO. 102/AHD/11 (ASSESSMENT YEAR: 2007-08) A.C.I.T., CIRCLE-8, AHMEDABAD URMIN PRODUCTS PVT LTD., 48, CHANGODAR INDUSTRIAL ESTATE, NR. BESAN FACTORY, BAVLA ROAD, CHANGODAR, AHMEDABAD V/S V/S URMIN PRODUCTS PVT LTD., 48, CHANGODAR INDUSTRIAL ESTATE, NR. BESAN FACTORY, BAVLA ROAD, CHANGODAR, AHMEDABAD A.C.I.T., CIRCLE-8, AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AAACU4489Q APPELLANT BY : SHRI C.S. SHARMA, SR. D.R. RESPONDENT BY : SHRI A. L. THAKKAR, A.R. ( )/ ORDER DATE OF HEARING : 25 -04-201 6 DATE OF PRONOUNCEMENT : 28 -04-2016 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: ITA NO. 956/AHD/1 1 & C.O. NO. 102/A/11 . A.Y. 2007-08 2 1. ITA NO. 956/AHD/2011 AND C.O. NO. 102/AHD/2011 ARE APPEALS BY THE REVENUE AND CROSS OBJECTION BY THE ASSESSEE AGAINST THE VERY SAME ORDER OF THE LD. CIT(A)-XVI, AHMEDABAD DATED 28.12. 2010 PERTAINING TO A.Y. 2007-08. THE APPEAL AND THE CROSS OBJECTION ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE REVENUE HAS RAISED FIVE SUBSTANTIVE GROUNDS OF APPEAL:- 1. THE LD. CIT(A)-XIV, AHMEDABAD ERRED IN LAW AND ON F ACTS IN DELETING THE ADDITION OF RS. 15,00,000/- MADE BY THE ASSESSING OFFICER ON AC COUNT OF VALUATION OF CLOSING STOCK. 2. THE LD. CIT(A) HAS ERRED AND ON FACTS IN DELETING T HE DISALLOWANCE OF RS. 45,238/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INSURAN CE PREMIUM ON TWO NEW VEHICLES. 3. THE LD. CIT(A) HAS ERRED AND ON FACTS IN DELETING T HE ADDITION OF RS. 2,89,289/- MADE BY THE ASSESSING OFFICER U/S. 41(1) OF THE ACT AS U NPROVED CREDITORS. 4. THE LD. CIT(A) HAS ERRED AND ON FACTS IN DELETING T HE DISALLOWANCE OF RS. 76,27,807/- MADE BY THE ASSESSING OFFICER U/S. 40(A)(IA) OF THE IT ACT ON ACCOUNT OF REIMBURSEMENT OF DEALER EXPENSES WITHOUT DEDUCTING TAX DEDUCTED AT SOURCE. 5. THE LD. CIT(A) HAS ERRED AND ON FACTS IN DELETING T HE DISALLOWANCE OF RS. 3,84,079/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF EXPENSE S RELATING TO TRADE MARK REGISTRATION. 3. AT THE VERY OUTSET, THE COUNSEL FOR THE ASSESSEE ST ATED THAT THE GRIEVANCE OF THE REVENUE TAKEN IN GROUND NO. 1 HAS BEEN DECIDED IN EARLIER YEARS BY THE TRIBUNAL/FIRST APPELLATE AUTHO RITY IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THE D.R. COULD NO T BRING ANY DISTINGUISHING DECISION IN FAVOUR OF THE REVENUE. W E FIND FORCE IN THE CONTENTION OF THE LD. COUNSEL AN IDENTICAL ISSUE WA S CONSIDERED BY THE TRIBUNAL IN A.Y. 2006-07 IN ITA NO. 1868/AHD/2009 & C.O. NO. 137/AHD/2009. WHILE DECIDING THIS ISSUE IN FAVOUR O F THE ASSESSEE, THE TRIBUNAL HAS REFERRED TO A SIMILAR ADDITION MADE BY THE A.O IN A.Y. ITA NO. 956/AHD/1 1 & C.O. NO. 102/A/11 . A.Y. 2007-08 3 2005-06 WHICH WAS DELETED BY THE LD. CIT(A) AND THE REVENUE DID NOT PREFER ANY APPEAL. THUS, THE FINDINGS OF THE LD. CI T(A) GIVEN IN A.Y. 2005-06 HAS BECOME FINAL. WHILE DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE, IT HAS BEEN CATEGORICALLY STATED THAT THE RE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES DURING THE YEAR UNDER C ONSIDERATION AND, THEREFORE, SIMILAR VIEW IS TAKEN. 4. THUS, CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCE S OF THE PRESENT CASE, WE DO NOT FIND ANY REASON TO INTERFERE WITH T HE FINDINGS OF THE LD. CIT(A). GROUND NO. 1 IS ACCORDINGLY DISMISSED. 5. GROUND NO. 2 RELATES TO THE DELETION OF THE DISALLO WANCE OF RS. 45,238/- MADE BY THE A.O ON ACCOUNT OF INSURANCE PR EMIUM ON TWO NEW VEHICLES. 6. WHILE SCRUTINIZING THE RETURN OF INCOME, THE A.O FO UND THAT THE ASSESSEE HAS PURCHASED NEW VEHICLES ON WHICH IT HAS PAID INSURANCE PREMIUM. THE A.O WAS OF THE FIRM BELIEF THAT THE IN SURANCE PREMIUM PAID ON THE NEW VEHICLES HAS TO BE TREATED AS CAPIT AL EXPENDITURE. THE A.O ACCORDINGLY TREATED THE INSURANCE PREMIUM AS CO ST OF THE ASSET AND TREATED THE SAME AS CAPITAL EXPENDITURE AND ALL OWED DEPRECIATION THEREON. THE LD. CIT(A) DELETED THE DISALLOWANCE HO LDING THAT THE PAYMENT OF INSURANCE PREMIUM ON MOTOR CAR PURCHASED WHETHER NEW OR OLD, IS AN ADMISSIBLE ITEM OF EXPENDITURE AND AL LOWED THE CLAIM OF THE ASSESSEE. 7. BEFORE US, THE LD. D.R. STRONGLY SUPPORTED THE FIND INGS OF THE A.O. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY STATED THAT MOTOR VEHICLES ARE TREATED AS PLANT AS PER THE DEFINITION GIVEN U/S. 43(3) OF ITA NO. 956/AHD/1 1 & C.O. NO. 102/A/11 . A.Y. 2007-08 4 THE ACT AND SINCE THE INSURANCE PREMIUM ON PLAINT I S ALLOWED AS REVENUE EXPENDITURE, THE CLAIM OF THE ASSESSEE HAS BEEN RIGHTLY ALLOWED BY THE FIRST APPELLATE AUTHORITY. WE HAVE C AREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND HAVE PERUSED THE FINDINGS OF THE AUTHORITIES BELOW. IN OUR CONSIDERED OPINION, THE INSURANCE CLA IM OF THE ASSESSEE IS NOT IN RESPECT OF ALREADY EXISTING ASSETS BUT IS IN RESPECT OF PURCHASE OF TWO NEW MOTOR VEHICLES. AS PER THE MOTOR VEHICLE ACT, NO VEHICLE IS ALLOWED TO PLY ON THE ROAD WITHOUT THE INSURANCE CO VER. THEREFORE, WITHOUT THE FIRST INSURANCE, IT CANNOT BE SAID THAT THE VEHICLE HAS BEEN PUT TO USE. THEREFORE, THE FIRST INSURANCE PREMIUM PAID WOULD GO TO INCREASE THE COST OF THE VEHICLE AND, THEREFORE, TH E SAME HAS BEEN TREATED AS CAPITAL EXPENDITURE. WE ACCORDINGLY SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND RESTORE THAT OF THE A.O. GROUND NO. 2 IS ALLOWED. 8. GROUND NO. 3 RELATES TO THE DELETION OF THE ADDIT ION OF RS. 2,89,289/- 9. WHILE SCRUTINIZING THE BALANCE SHEET, THE A. O FOUND THAT FOLLOWING CREDITORS ON WHICH NO PAYMENT HAS BEEN MADE DURING THE PAST THREE YEARS AND THERE HAVE BEEN NO TRANSACTIONS:- (A) GUPTA TOBACCO 7049 (B) FLEXI ENGINEERING CO. 91800 (C) KEVIN TECHNOLOGY 39670 (D) NIRAV PHARMA 150770 TOTAL 289289 10. THE ASSESSEE WAS ASKED TO EXPLAIN WHY THE ABOVE CRE DITORS SHOULD NOT BE ADDED BACK AS INCOME U/S. 41(1) OF TH E ACT. THE ASSESSEE STRONGLY CONTENDED THAT THERE IS NO SUGGES TION OF LIABILITY, THE LIABILITY EXISTS AND THE ASSESSEE IS BOUND TO MAKE THE PAYMENT. THE A.O WAS OF THE FIRM BELIEF THAT SINCE THE LIABILITY WOULD GET BARRED BY ITA NO. 956/AHD/1 1 & C.O. NO. 102/A/11 . A.Y. 2007-08 5 LIMITATION, THEREFORE, PROCEEDED BY TREATING RS. 2, 89,289/- AS INCOME OF THE ASSESSEE U/S. 41(1) OF THE ACT. 11. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT( A). AFTER CONSIDERING THE FACTS AND THE CIRCUMSTANCES, THE LD . CIT(A) OBSERVED THAT THERE IS NO CESSATION OR REMISSION OF LIABILIT Y DURING THE YEAR UNDER CONSIDERATION IN RESPECT OF THE AMOUNT PAYABLE, THE LIABILITY HAS NOT CEASED AND THE ASSESSEE HAS TO PAY THE CREDITORS. T HE LD. CIT(A) DELETED THE ADDITION OF RS. 2,89,289/-. 12. BEFORE US, THE LD. D.R. STRONGLY SUPPORTED THE FIND INGS OF THE A.O. THE LD. COUNSEL FOR THE ASSESSEE RELIED UPON T HE FINDINGS OF THE LD. CIT(A). WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE ADDITIONS HAVE BEEN MADE BY THE A.O ONLY BECAUSE HE FOUND NO TRANSACTION DONE IN THE ACCOUNT S OF THE IMPUGNED CREDITORS. IN OUR CONSIDERED OPINION, THIS CANNOT B E A SUFFICIENT CAUSE FOR HOLDING THAT THERE IS A REMISSION OR CESSATION OF LIABILITY. SINCE THERE IS NO CATEGORICAL FINDING BY THE A.O THAT THE RE IS A REMISSION OR CESSATION OF LIABILITY, WE DECLINE TO INTERFERE WIT H THE FINDINGS OF THE LD. CIT(A). GROUND NO. 3 IS ACCORDINGLY DISMISSED. 13. GROUND NO. 4 RELATES TO THE DELETION OF THE DISALLO WANCE OF RS. 76,27,807/- MADE BY THE A.O U/S. 40(A)(IA) OF THE A CT. 14. THIS ISSUE HAS BEEN CONSIDERED BY THE A.O AT PAGE 6 ON PARA 10 OF HIS ORDER WHEREIN HE HAS OBSERVED THAT THE ASSES SEE HAS CLAIMED EXPENDITURE OF RS. 1,09,57,370/- ON ACCOUNT OF REIM BURSEMENT OF DEALER EXPENSES. ASSESSEE WAS ASKED TO EXPLAIN THE NATURE OF EXPENDITURE. ASSESSEE FILED A COMPLETE DETAILS EXPL AINING THAT THE ITA NO. 956/AHD/1 1 & C.O. NO. 102/A/11 . A.Y. 2007-08 6 IMPUGNED EXPENDITURES HAVE BEEN INCURRED AND THE AS SESSEE HAS SIMPLY REIMBURSED THE SAME. IT WAS EXPLAINED THAT F OR SIMILAR REASONS NO TAX HAS BEEN DEDUCTED AT SOURCE. THE A.O WAS OF THE OPINION THAT AS PER THE PROVISIONS OF SECTION 194C OF THE ACT, T HE ASSESSEE WAS UNDER LEGAL OBLIGATION TO DEDUCT TAX AT SOURCE FAIL ING WHICH IT HAS VIOLATED THE PROVISIONS OF SECTION 40(A)(IA). THE A .O MADE AN ADDITION OF RS. 76,27,807/-. 15. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) AND REITERATED THAT THE EXPENDITURES HAVE BE EN INCURRED BY ITS EMPLOYEES AND THE ASSESSEE HAS SIMPLY REIMBURSED TH E SAME. SUPPORTING DOCUMENTS WERE FURNISHED BEFORE THE LD. CIT(A) WHO AFTER VERIFYING THE SAME OBSERVED THAT THE SUPPORTING DOC UMENTS INDICATE THE MONTH-WISE SALARY/DA PAID TO VARIOUS EMPLOYEES AND THE REIMBURSEMENT IS ON ACCOUNT OF SALARY, TRAVELLING, TA, DA AND OTHER RELATED MISCELLANEOUS EXPENSES AND THE IMPUGNED PAY MENT IN QUESTION IS PURELY REIMBURSEMENT OF PAYMENT OF SALA RY, TA, DA, TRAVELING EXPENDITURE AND OTHER RELATED EXPENDITURE . THE LD. CIT(A) ALSO VERIFIED THE COMPLETE DETAILS OF THE BREAK-UP OF THE PAYMENT MADE BY THE ASSESSEE TO ITS DISTRIBUTOR/DEALER ON A CCOUNT OF REIMBURSEMENT OF EXPENSES. AFTER CONSIDERING THE FA CTS, THE LD. CIT(A) THE DELETED THE DISALLOWANCE MADE BY THE A.O. 16. AGGRIEVED BY THIS, THE REVENUE IS BEFORE US. THE LD . D.R. COULD NOT CONTROVERT THE FACTUAL FINDINGS MADE BY THE LD. CIT(A) NOR THE LD. D.R. COULD POINT OUT ANY FACTUAL ERROR IN THE FINDI NGS OF THE LD. CIT(A). SINCE THIS IS A CASE OF REIMBURSEMENT OF EXPENDITUR E, WE DECLINE TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). FOR THE SAKE OF COMPLETION OF THE ADJUDICATION, WE FIND THAT NO ADDITIONS ON T HIS ACCOUNT HAVE ITA NO. 956/AHD/1 1 & C.O. NO. 102/A/11 . A.Y. 2007-08 7 BEEN MADE IN EARLIER ASSESSMENT YEARS NOR ANY ADDIT ION IS MADE IN SUBSEQUENT ASSESSMENT YEAR. THEREFORE, ON IDENTICAL SET OF FACTS, WHEN THE LAW IS THE SAME, RULE OF CONSISTENCY PROHIBITS SUCH ACTION OF THE A.O. WE DRAW SUPPORT FROM THE DECISION OF THE HONB LE SUPREME COURT GIVEN IN THE CASE OF RADHASOAMI SATSANG 193 ITR 321 . GROUND NO. 4 IS ACCORDINGLY DISMISSED. 17. GROUND NO. 5 RELATES TO THE DELETION OF THE DISALLO WANCE OF RS. 3,84,079/-. 18. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEE DINGS, THE A.O FOUND THAT THE ASSESSEE HAS MADE PAYMENTS TOTAL ING TO RS. 5,12,106/- AND HAS CLAIMED THE SAME AS EXPENDITURE IN RELATION TO TRADE MARK REGISTRATION. THE A.O DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE IN CLAIMING THIS EXPENDITURE AS REVENUE EX PENDITURE. SINCE THE TRADE MARK IS CONSIDERED AS A CAPITAL ASSET, TH E A.O TREATED RS. 5,12,106/- AS CAPITAL EXPENDITURE AND ALLOWED THE C LAIM OF DEPRECIATION @ 25%. 19. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) A ND REITERATED ITS CLAIM OF TRADE MARK REGISTRATION AS REVENUE EXP ENDITURE. IT WAS EXPLAINED TO THE LD. CIT(A) THAT THE EXPENDITURE IN QUESTION IS NOT THE FEES CHARGED BY THE GOVERNMENT AUTHORITY FOR THE RE GISTRATION OF THE TRADE MARK. THE EXPENDITURE HAS BEEN INCURRED FOR T HE LEGAL AND TECHNICAL AND PROFESSIONAL SERVICES RENDERED BY THE PAYEES IN CONNECTION WITH THE REGISTRATION OF THE TRADE MARK. AFTER CONSIDERING THE FACTS, THE LD. CIT(A) WAS CONVINCED THAT THE IM PUGNED EXPENDITURE IS OF REVENUE IN NATURE AND ALLOWED THE SAME. ITA NO. 956/AHD/1 1 & C.O. NO. 102/A/11 . A.Y. 2007-08 8 20. BEFORE US, THE LD. D.R. STRONGLY SUPPORTED THE FIND INGS OF THE A.O. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE R EITERATED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES. AT THE VE RY OUTSET, WE HAVE TO STATE THAT THE EXPENDITURE IN QUESTION HAS NOT B EEN INCURRED FOR ACQUISITION OF ANY CAPITAL ASSET AS SUCH. THE EXPEN DITURE HAS BEEN INCURRED FOR CARRYING OUT THE BUSINESS ACTIVITIES O F THE ASSESSEE AS REGISTRATION OF THE TRADE MARK IS ESSENTIAL SO AS T O SECURE THAT THE COMPETITORS DO NOT INFRINGE THE RIGHTS OF THE ASSES SEE. FURTHER, IT IS ALSO AN UNDISPUTED FACT THAT THE IMPUGNED PAYMENTS HAVE NOT BEEN MADE TO THE GOVERNMENT BUT TO PROFESSIONALS IN THEI R CAPACITY AS ADVISORS. CONSIDERING THE FACTS IN TOTALITY, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). GROU ND NO. 5 IS ACCORDINGLY DISMISSED. 21. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS P ARTLY ALLOWED. 22. IN SO FAR AS, THE C.O. OF THE ASSESSEE IS CONCERNED . LD. COUNSEL FOR THE ASSESSEE STATED THAT HE IS NOT PRESSING THE SAME AND THE SAME IS DISMISSED AS NOT PRESSED. ORDER PRONOUNCED IN OPEN COURT ON 28 - 04 - 201 6. SD/- SD/- (RAJPAL YADAV) (N. K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS)