Pentamedia Graphics Ltd., CHENNAI V. ACIT, CHENNAI

ITA 957/CHNY/2011

• Counselvise Citation: 95721714 RSA 2011
• Duration Of Justice: 7 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-01-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 17-01-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 26-05-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Depreciation; Period of limitation; Time period of passing order; Revenue expenditure
• Section: 143(3); 10B; 148; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER ITA NOS.957 & 958(MDS)/2011 ASSESSMENT YEARS : 2002-03 & 2003-04 M/S.PENTAMEDIA GRAPHICS LTD., (FORMERLY PENTAFOUR SOFTWARE & EXPORTS LTD.), TAURUS, 25-FIRST MAIN RD., UNITED INDIA COLONY,KODAM- BAKKAM, CHENNAI-600024. PAN AAACP1647B. VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, COMPANYCIRCLE V(2), CHENNAI. (APPELLANT) (RESPONDENT) APPELLANT BY : MRS.PUSHYA SEETHARAMA N FOR MS. G.VARDINI, ADVOCATES. RESPONDENT BY : SHRI SHAJI P JACOB, IRS, ADDL.COMMIONER OF INCOME-TAX DATE OF HEARING : 17 TH JANUARY, 2012 DATE OF PRONOUNCEMENT : 17 TH JANUARY, 2012 O R D E R PER DR.O.K.NARAYANAN, VICE-PRESIDENT: THESE TWO APPEALS ARE FILED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEARS ARE 2002-03 AND 2003-04. THE - - ITA 957 & 958 OF 2011 2 APPEALS ARE DIRECTED AGAINST THE ORDERS OF THE COMM ISSIONER OF INCOME-TAX, CHENNAI-IV AT CHENNAI, PASSED UNDER SEC TION 263 OF THE INCOME-TAX ACT, 1961, DATED 24-3-2011. 2. FOR THE ASSESSMENT YEAR 2002-03, THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT. THE ASSESSMENT ORDER WAS TAKEN IN APPEAL BEFORE THE COMMISSIONER O F INCOME- TAX(APPEALS). LATER ON, THE MATTER WAS TAKEN BEFOR E THE INCOME- TAX APPELLATE TRIBUNAL IN SECOND APPEAL. IN THE LI GHT OF THE ORDER OF THE TRIBUNAL DATED 24-3-2008, THE ASSESSING AUTH ORITY PASSED AN ORDER TO GIVE EFFECT TO THE ORDERS OF THE TRIBUN AL THROUGH HIS PROCEEDINGS DATED 3-7-2008. 3. THE COMMISSIONER OF INCOME-TAX, ON PERUSAL OF T HE RECORDS, FOUND THAT THE ASSESSING AUTHORITY, WHILE GIVING EFFECT TO THE ORDER OF THE TRIBUNAL, HAS ADOPTED THE PROFIT A S PER THE PROFIT AND LOSS ACCOUNT WITHOUT EXCLUDING THE DEPRECIATION ALREADY DEBITED IN THE PROFIT AND LOSS ACCOUNT UNDER THE PR OVISIONS OF THE COMPANIES ACT. THIS HAS RESULTED IN THE ASSESSING AUTHORITY GIVING DEDUCTIONS FOR DEPRECIATION ALLOWANCE TWICE, ONE COMPUTED UNDER THE COMPANIES ACT AND THE OTHER COMP UTED UNDER THE INCOME-TAX ACT. THE COMMISSIONER OF INCO ME-TAX - - ITA 957 & 958 OF 2011 3 ALSO FOUND THAT WHILE COMPUTING THE BENEFIT OF SECT ION 10B, THE ASSESSING AUTHORITY HAS NOT SPLIT DEPRECIATION ALLO WANCE INTO TWO, TO EXCLUDE ONE PORTION AND ON THAT GROUND ALSO THE ORDER OF THE ASSESSING AUTHORITY HAS BECOME ERRONEOUS. 4. IN VIEW OF THE ABOVE, THE COMMISSIONER OF INCOM E- TAX PASSED A REVISION ORDER UNDER SECTION 263 OF TH E ACT, DIRECTING THE ASSESSING OFFICER TO MAKE APPROPRIATE ADJUSTMENTS IN RESPECT OF DEPRECIATION AND RE-COMPUTE THE TAXAB LE INCOME AFTER GIVING THE ASSESSEE AN ADEQUATE OPPORTUNITY O F BEING HEARD. 5. IT IS AGAINST THE ABOVE THAT THE ASSESSEE HAS C OME IN APPEAL FOR THE ASSESSMENT YEAR 2002-03. 6. AS FEARED BY THE ASSESSEE, THE COMMISSIONER OF INCOME-TAX HAS NOT DEALT WITH ANY ISSUE THAT WAS SU BJECT MATTER OF ADJUDICATION BEFORE THE TRIBUNAL. IN THAT WAY T HE COMMISSIONER OF INCOME-TAX HAS NOT EXCEEDED HIS JUR ISDICTION AVAILABLE TO HIM UNDER SECTION 263 OF THE ACT. SEC TION 263 AUTHORISES A COMMISSIONER OF INCOME-TAX TO REVISE A NY ORDER PASSED BY ANY SUBORDINATE AUTHORITY, WHICH IS FOUND TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE R EVENUE. THE - - ITA 957 & 958 OF 2011 4 ORDER PASSED BY THE ASSESSING AUTHORITY TO GIVE EFF ECT TO THE ORDERS OF THE TRIBUNAL IS ANY ORDER PASSED BY AN ASSESSING AUTHORITY, WHO IS SUBORDINATE TO THE COMMISSIONER O F INCOME-TAX. THEREFORE, THE COMMISSIONER OF INCOME-TAX INVOKED T HE POWERS UNDER SECTION 263 WITHIN THE PERMISSIBLE LIMITS OF LAW. HE HAS NOT EXCEEDED JURISDICTION. 7. REGARDING THE MERITS, IT IS QUITE EVIDENT THAT THE ASSESSING AUTHORITY HAS ADOPTED THE NET PROFIT FOR FURTHER GIVING DEDUCTION BY WAY OF DEPRECIATION, WHICH WAS ALREADY MODIFIED BY THE DEPRECIATION ALLOWANCE AS PROVIDED UNDER THE CO MPANIES ACT. THEREFORE, THE EXCESS AMOUNT OF DEPRECIATION ALLOWANCE HAS BEEN GRANTED TO THE ASSESSEE. LIKEWISE, THE DI VISION OF DEPRECIATION ALLOWANCE ALSO HAS NOT BEEN DONE WHILE COMPUTING THE BENEFIT AVAILABLE TO THE ASSESSEE UNDER SECTION 10B OF THE ACT. THIS ALSO HAS RESULTED IN EXCESSIVE BENEFIT T O THE ASSESSEE. WE, THEREFORE, FIND THAT THE ORDER PASSED BY THE AS SESSING AUTHORITY IS ERRONEOUS AS WELL AS PREJUDICIAL TO TH E INTERESTS OF THE REVENUE. 8. IN THESE CIRCUMSTANCES, THE REVISION ORDER PASS ED BY THE COMMISSIONER OF INCOME-TAX FOR THE ASSESSMEN T YEAR - - ITA 957 & 958 OF 2011 5 2002-03 IS IN ACCORDANCE WITH LAW AND HIS ORDER IS UPHELD. THE ASSESSEE FAILS IN ITS APPEAL FOR THE ASSESSMENT YEA R 2002-03. 9. AS FAR AS THE ASSESSMENT YEAR 2003-04 IS CONCERNED, THE FIRST GROUND RAISED BY THE ASSESSEE IS REGARDING LIMITATION. IT IS THE CASE OF THE LEARNED SENIOR C OUNSEL APPEARING FOR THE ASSESSEE THAT THE PERIOD OF LIMITATION APPL ICABLE TO THIS CASE IS TO BE COMPUTED FROM THE DATE OF THE FIRST A SSESSMENT ORDER PASSED UNDER SECTION 143(3) AND IF SO, THE RE VISION ORDER HAS BEEN PASSED BEYOND TIME. THE LEARNED SENIOR CO UNSEL ARGUED THAT THE COMMISSIONER OF INCOME-TAX OUGHT NO T TO HAVE WORKED OUT THE LIMITATION PERIOD FROM THE DATE OF T HE SECOND ASSESSMENT ORDER PASSED UNDER SECTION 147, READ WIT H SECTION 143(3). 10. THE ISSUE CONSIDERED BY THE COMMISSIONER OF INCOME-TAX TO EXERCISE HIS POWERS UNDER SECTION 263 AND THE ISSUE CONSIDERED BY THE ASSESSING AUTHORITY TO ISSU E NOTICE UNDER SECTION 148 WERE DIFFERENT ISSUES. AFTER COM PLETING THE REGULAR ASSESSMENT, THE ASSESSING AUTHORITY ISSUED NOTICE UNDER SECTION 148 TO MAKE GOOD A PARTICULAR LAPSE ON THE BASIS OF THE REASONS RECORDED BY HIM. THAT POINT ALONE WAS ADJU STED IN THE - - ITA 957 & 958 OF 2011 6 ASSESSMENT COMPLETED UNDER SECTION 143(3) READ WITH SECTION 147. THE LATTER ORDER SURVIVES FOR THE VERIFICATIO N OF THE COMMISSIONER OF INCOME-TAX. RATHER, THE FIRST ORDE R OF ASSESSMENT HAS BEEN MERGED WITH THE INCOME-ESCAPING ASSESSMENT COMPLETED SUBSEQUENTLY. WHEN THE COMMIS SIONER OF INCOME-TAX HAS THE AUTHORITY TO EXAMINE THE RECO RDS OF THE SECOND ORDER, THE ENTIRE MATTER OF ASSESSMENT IS OP EN BEFORE HIM. WHEN THAT IS THE CASE, HE CAN PASS AN ORDER U NDER SECTION 263 WITH REFERENCE TO ANY ISSUE IN THE LIGHT OF THE VERIFICATION OF THE INCOME-ESCAPING ASSESSMENT ORDER AND THE LIMITA TION PERIOD BEGINS FROM THE DATE OF PASSING OF SUCH INCOME-ESCA PING ASSESSMENT ORDER. THEREFORE, IT IS TO BE SEEN THAT THE COMMISSIONER OF INCOME-TAX HAS PASSED HIS REVISION ORDER FOR THE ASSESSMENT YEAR 2003-04 WITHIN THE PERIOD OF LI MITATION. THIS OBJECTION RAISED BY THE ASSESSEE FAILS. 11. THE ISSUE ON WHICH THE COMMISSIONER OF INCOME- TAX HAS REVISED THE ORDER FOR THE ASSESSMENT YEAR 2 003-04, IS THE INTEREST PAID BY THE ASSESSEE ON THE LOAN TAKEN BY THE EMPLOYEES OF THE ASSESSEE FOR ALLOTMENT OF ESOP SHA RES TO THEM. THE EMPLOYEES OF THE ASSESSEE COMPANY AT THE FIRST - - ITA 957 & 958 OF 2011 7 INSTANCE OPTED FOR ESOP AND AVAILED BANK LOANS FOR THE PURPOSE OF ACQUIRING THE SHARES. LATER ON, THE EMPLOYEES D ECLINED TO SUBSCRIBE TO THE ESOP AND, THEREFORE, THE LOAN HAD TO BE REPAID ALONGWITH INTEREST. THE ASSESSEE CLAIMED THE INTER EST AS AN EXPENDITURE DEDUCTIBLE IN COMPUTING ITS TAXABLE INC OME. THE COMMISSIONER OF INCOME-TAX HELD THAT THE LOAN WAS N OT AVAILED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE AND, TH EREFORE, SUCH INTEREST COULD NOT BE ALLOWED AS A DEDUCTION IN COM PUTING THE INCOME OF THE ASSESSEE. 12. THE LEARNED SENIOR COUNSEL APPEARING FOR THE ASSESSEE HAS ARGUED THAT ON MERITS THE ISSUE RAISED BY THE COMMISSIONER OF INCOME-TAX IS NOT SUSTAINABLE AS TH E INTEREST PAID BY THE ASSESSEE WAS A REVENUE EXPENDITURE AND, THEREFORE, ITS CLAIM FOR DEDUCTION WAS QUITE LEGITIMATE. SHE CONTENDED THAT THE EXPENDITURE IS DEDUCTIBLE UNDER SECTION 36(1) O F THE ACT. THE ESOP IS IN THE NATURE OF A PERQUISITE TO THE EMPLOY EES AND, THEREFORE, THE INTEREST CHARGES ATTRIBUTABLE TO THE LOAN AVAILED FOR GIVING AWAY SUCH PERQUISITES IN THE NATURE OF ESOP TO THE EMPLOYEES IS AN EXPENDITURE INCURRED IN THE COURSE OF CARRYING ON OF THE BUSINESS AND IT IS WITHIN THE LEGITIMATE RIGHT OF THE - - ITA 957 & 958 OF 2011 8 ASSESSEE TO MANAGE ITS RELATIONSHIP WITH THE EMPLOY EES TO THE BEST OF ITS INTERESTS AND ANY EXPENDITURE INCURRED BY THE ASSESSEE COMPANY IN THAT COURSE SHOULD BE TREATED A S INCURRED FOR THE BUSINESS AND ENTITLED FOR DEDUCTION AS EXPE NDITURE IN COMPUTING THE TAXABLE INCOME. 13. WE APPRECIATE ALL THESE PROFOUND ARGUMENTS ADVANCED BY THE LEARNED SENIOR COUNSEL APPEARING FO R THE ASSESSEE. BUT THESE ARGUMENTS HAVE TO BE VERIFIED WITH THE FACTS AND DETAILS AVAILABLE ON RECORD. THE COMMISS IONER OF INCOME-TAX HAS NOT ADJUDICATED THE ISSUE HIMSELF BU T SET ASIDE THE MATTER TO THE ASSESSING OFFICER TO RE-DETERMINE THE ISSUE AFTER HEARING THE ASSESSEE. THEREFORE, IT IS IN TH E BEST INTEREST OF THE ASSESSEE TO RAISE ALL THE ABOVE CONTENTION BEFO RE THE ASSESSING AUTHORITY AT THE TIME OF PASSING ORDERS I N CONSEQUENCE OF THE REVISION PASSED BY THE COMMISSIONER OF INCOM E-TAX FOR THE ASSESSMENT YEAR 2003-04. RESERVING THAT LIBERT Y OF THE ASSESSEE TO RAISE ITS OBJECTIONS BEFORE THE ASSESSI NG AUTHORITY, WE UPHOLD THE REVISION ORDER PASSED BY THE COMMISSI ONER OF INCOME-TAX FOR THE ASSESSMENT YEAR 2003-04. - - ITA 957 & 958 OF 2011 9 14. IN RESULT, THESE TWO APPEALS FILED BY THE ASSE SSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF HEARING ON TUESDAY, THE 17 TH JANUARY, 2012 AT CHENNAI. SD/- SD/- (HARI OM MARATHA) (DR. O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED THE 17 TH JANUARY, 2012. V.A.P. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT (4) CIT(A) (5) D.R. (6) G.F.