ACIT, Meerut V. M/s Ankit Glass Industries (P) Ltd., Meerut

ITA 96/DEL/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9933 (ITAT-DELHI)
• Duration Of Justice: 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2009
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 04-08-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 09-01-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: V K GOEL
• Assessee Lawyers: PRATIMA KAUSHIK
• Keywords: Revenue expenditure; Capital expenditure; TDS
• Section: 143(3); 40(a)(ia); 37; 154

Judgement Text

I.T.A. NO.161,159,96/DEL/2009 1 IN THE INCOME TAX APPELLATE TRIBUNAL, NEW DELHI, BENCH A BEFORE SHRI C. L. SETHI, JUDICIAL MEMBER AND SHRI K. D. RANJAN, ACCOUTANT MEMBER ITA NO. 161, 159/DEL/2009 (ASSESSMENT YEAR 2004-05 & 2005-06) M/S. ANKIT GLASS INDUSTRIES PVT. LTD., VS. ACIT, CI RCLE 1, 311-A, ABULANE, MEERUT MEERUT I.T.A. NO.96/DEL/2009 (ASSESSMENT YEAR 2005-06) ACIT, CIRCLE I, VS. M/S. ANKIT GLASS INDUSTRIES P. LTD., MEERUT 311-A, ABULANE, MEERUT. (APPELLANTS) (RESPONDENTS) APPELLANT BY: SHRI V K GOEL, ADV. RESPONDENT BY: MS. PRATIMA KAUSHIK, SR. DR ORDER PER K. D. RANJAN, AM: 1. THE ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 20 04-05 AND CROSS APPEAL BY THE ASSESSEE AND THE REVENUE FO R THE ASSESSMENT YEAR 2005-06 ARISE OUT OF SEPARATE ORDERS OF CIT(A) MEERUT. THESE APPEALS WERE HEARD TOGETHER AND FOR THE SAKE OF CONVENIENCE, ARE BEING DISPOSED OFF BY THIS CONSOLIDATED ORDER. I.T.A. NO.161,159,96/DEL/2009 2 2. I.T.A. NO.161/DEL/2008 (ASSESSMENT YEAR 2004-05) : 2.1 THE ONLY ISSUE FOR CONSIDERATION RELATES TO THE CONFIRMATION OF DISALLOWANCE OF RS.1,78,814/- AS PR E- OPERATIVE EXPENSES. THE FACTS OF THE CASE STATED I N BRIEF ARE THAT THE ORIGINAL ASSESSMENT U/S 143(3) W AS MADE ON 28.12.2006 AT THE INCOME OF RS.43,91,639/-. THEREAFTER, IT WAS NOTICED BY THE ASSESSING AUTHORI TY THAT ASSESSEE HAD DEBITED A SUM OF RS.1,79,814/- ON ACCOUNT OF ADMINISTRATIVE AND OTHER EXPENSES UNDER THE HEAD PRE-OPERATIVE EXPENSES. THE ASSESSING AUTHORITY ISSUED NOTICE U/S 154 AND VIDE ORDER DATE D 06.09.2007 ADDED THE AMOUNT OF RS.1,79,814/- ON ACCOUNT OF PRE-OPERATIVE EXPENSES. 2.2 ON APPEAL BEFORE CIT(A), IT WAS SUBMITTED THAT UNDER SOME UNAVOIDABLE CIRCUMSTANCES, THE ASSESSEE HAD SHIFTED THE FACTORY FROM MEERUT TO BANGALORE DURING THE FINANCIAL YEAR 2002-03. IT HAD INCURRED THE EXPENSES OF RS.13,57,512/- DURING ASSESSMENT YEAR 2003-04 AND RS.4,20,631/- DURING THE CURRENT YEAR. THE ASSESSEE DID NOT CLAIM THE ENTIRE EXPENDITURE IN ASSESSMENT YEAR 2003-04. THE ASSESSEE CLAIMED 1/10 TH OF THE EXPENSES IN ASSESSMENT YEAR 2003-04. LIKEWISE IN ASSESSMENT YEAR 2004-05, THE ASSESSEE CLAIMED 1/10 TH OF THE I.T.A. NO.161,159,96/DEL/2009 3 EXPENSES UNDER THE HEAD PRE-OPERATIVE REVENUE EXPENSES. FURTHER THE ASSESSING OFFICER WHILE COMPLETING ASSESSMENT U/S 143(3) HAD ACCEPTED THE CLAIM OF THE ASSESSEE. IT WAS ALSO EXPLAINED THAT DUE TO THE POLICY OF THE CANTONMENT BOARD, THE ASSESSEE HAD TO SHIFT HIS FACTORY FROM MEERUT TO BANGALORE A S TWO OF ITS DIRECTORS WERE RESIDING AT BANGALORE. THEREFORE, THE EXPENDITURE INCURRED ON SHIFTING OF FACTORY WAS REVENUE IN NATURE. LD CIT(A) AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE HELD THAT ASSESSEE WAS CARRYING OUT ILLEGAL ACTIVIT IES AND AS SUCH THE EXPENDITURE ON ACCOUNT OF SHIFTING THE FACTORY FROM MEERUT TO BANGALORE WAS NOT AT ALL ALLOWABLE UNDER ANY OF THE PROVISIONS OF THE INCOME TAX ACT, 1961. HE PLACED RELIANCE ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF SHEETAL SUGAR WORKS LTD. VS. CIT 49 ITR 160 AND IN THE CASE OF CIT VS BIMETAL BEARINGS LTD. REPORTED IN 210 ITR 945 WHEREIN IT WAS HELD THAT EXPENDITURE INCURRED F OR SHIFTING OF FACTORY FROM ONE AREA TO ANOTHER WAS CAPITAL EXPENDITURE. SINCE THE ASSESSEE WAS RUNNIN G FACTORY ILLEGALLY IN A RESIDENTIAL PREMISES WHICH I S AGAINST THE PROVISIONS OF LAW AND AS SUCH EXPENDITU RE INCURRED FOR SHIFTING OF FACTORY WERE NEITHER I.T.A. NO.161,159,96/DEL/2009 4 ALLOWABLE AS CAPITAL EXPENDITURE U/S 35D NOR AS REVENUE EXPENDITURE U/S 37 OF THE ACT. THE LD. CIT(A) ACCORDINGLY DISMISSED THE APPEAL. 2.3 BEFORE US, LD. A.R. SUBMITTED THAT THE ASSESSIN G OFFICER WHILE COMPLETING ASSESSMENT U/S 143(3) HAS ALLOWED THE CLAIM OF THE ASSESSEE AS REVENUE EXPENDITURE. THE EXPENDITURE WHETHER IT IS ALLOWAB LE AS REVENUE EXPENDITURE OR CAPITAL EXPENDITURE, IS A DEBATABLE ISSUE AND THEREFORE, NO ORDER RECTIFYING A MISTAKE U/S 154 CAN BE PASSED BY THE ASSESSING AUTHORITY. LD. CIT(A) HOWEVER, HAS CONFIRMED THE DISALLOWANCE AS THE FACTORY WAS BEING RUN IN A RESIDENTIAL AREA. ON THE OTHER HAND LD. SR. DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 2.4 WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THERE IS NO DISPUTE THAT ASSESSING OFFICER WHILE COMPLETING ASSESSMENT U/S 143(3) HAS ALLOWED THE CLAIM OF THE ASSESSEE. THE EXPENDITURE WHETHER IT IS ALLOWABLE AS REVENUE EXPENDITURE OR DEFERRED REVENUE EXPENDITURE, REQUIRES EXAMINATION OF THE FACTS. THEREFORE, IT CANNOT BE TREATED AS A MISTAKE APPARENT FROM RECORD . UNDER SECTION 154, THE MISTAKES, WHICH ARE RECTIFIABLE WITHOUT GOING INTO THE INVESTIGATION OF THE I.T.A. NO.161,159,96/DEL/2009 5 FACTS AND WHERE TWO OPINIONS ARE POSSIBLE, CANNOT B E RECTIFIED. SINCE THE ISSUE IS OF DEBATABLE NATURE, IN OUR CONSIDERED OPINION, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DISALLOWING THE CLAIM OF THE ASSESSEE U/S 154 OF THE ACT. LIKEWISE, LD. CIT(A) WAS ALSO NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE MADE BY TH E ASSESSING OFFICER U/S 154 OF THE ACT. 2.5 IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED. 3. NOW, WE WILL DISCUSS THE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE FOR THE ASSESSMENT YEAR 2005-06 : 3.1 THE 1 ST ISSUE FOR CONSIDERATION IN ASSESSEES APPEAL RELATES TO CONFIRMATION OF ADDITION OF RS.1,84,779/ - ON ACCOUNT OF SHORTAGE OF CLOSING STOCK. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT THE ASSESSING OFF ICER NOTICED THE DISCREPANCY IN THE CLOSING STOCK. THE ASSESSING OFFICER FOUND THAT THE VALUE OF CLOSING STOCK OF EMPTY GLASS AMPULES WAS AT RS.19,35,564/- IN RESPECT OF ASSESSMENT YEAR 2003-04. HOWEVER, THE OPENING STOCK FOR ASSESSMENT YEAR 2004-05 WAS TAKEN FOR RS.14,25,363.83. ON A QUERY RAISED BY TH E ASSESSING OFFICER IT WAS EXPLAINED THAT FIGURES TAK EN AT RS.14,25,363.83 IN PLACE OF RS.19,35,235.88 WAS DUE TO A TYPOGRAPHICAL ERROR. HOWEVER, THE I.T.A. NO.161,159,96/DEL/2009 6 ASSESSING OFFICER FURTHER NOTICED THAT THERE WAS ST ILL DISCREPANCY. THE ASSESSING OFFICER WORKED OUT THE CLOSING STOCK OF EMPTY GLASS AMPULES AT 5051219 PIECES. HOWEVER, THE CLOSING STOCK ADMITTED BY THE ASSESSEE AS PER THE BOOKS OF ACCOUNTS WAS 3551219 PIECES. THEREFORE, THERE WAS A DIFFERENCE OF 15 LA CS PIECES. THE ASSESSING OFFICER ALSO FOUND DIFFERENC E OF RS.25,856/- IN THE CLOSING STOCK OF FINISHED GOO DS. THE ASSESSING OFFICER MADE ADDITION OF RS.1,84,779/- ON ACCOUNT OF THE CLOSING STOCK IN ORDER TO PREVENT ALL POSSIBLE LEAKAGES DUE TO FAULT Y CALCULATION BY THE ASSESSEE. ON APPEAL, LD. CIT(A ) CONFIRMED THE DISALLOWANCE, AS THE ASSESSEE WAS NOT ABLE TO EXPLAIN THE DISCREPANCY. 3.1.1 BEFORE US, THE ASSESSEE COULD NOT RECONCILE T HE DISCREPANCY IN THE CLOSING STOCK AS POINTED OUT BY THE ASSESSING OFFICER. ON THE OTHER HAND, LD. SR. DR SUPPORTED THE ORDER OF THE LD. CIT(A). 3.1.2 WE HAVE HEARD BOTH THE PARTIES. SINCE THE LD . COUNSEL FOR THE ASSESSEE HAD NOT RECONCILED THE DIFFERENCE IN THE CLOSING STOCK, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE DECISION OF LD. CIT(A) CONFIRMING THE ADDITION OF RS.1,84,779/- MADE ON I.T.A. NO.161,159,96/DEL/2009 7 ACCOUNT OF SHORTAGE OF CLOSING STOCK. THE GROUND O F APPEAL IS, THEREFORE, DISMISSED. 3.2 THE NEXT ISSUE FOR CONSIDERATION RELATES TO DISALLOWANCE OF PREOPERATIVE EXPENSES OF RS.1,77,824/- CLAIMED BY THE ASSESSEE ON ACCOUNT OF SHIFTING OF THE FACTORY FROM MEERUT TO BANGALORE. THE ASSESSING OFFICER DISALLOWED THE EXPENDITURE ON THE GROUND OF PREOPERATIVE EXPENSES WERE IN NATURE OF CAPITAL EXPENDITURE AND HENCE NOT ALLOWABLE AS DEDUCTION. LD. CIT(A) CONFIRMED THE DISALLOWANCE ON THE GROUND THAT THE BUSINESS WAS BEING RUN ILLEGALLY IN THE RESIDENTIAL PREMISES WHICH WAS AGAINST THE PROVISIONS OF LAW AND AS SUCH THE EXPENDITURE INCURRED FOR SHIFTING WERE NEITHER ALLOWABLE AS DEFERRED REVENUE EXPENDITURE U/S 35D NOR AS REVENUE EXPENDITURE U/S 37 OF THE ACT. 3.2.1 BEFORE US, LD. A.R. OF THE ASSESSEE SUBMITTED THAT LD. CIT(A) HAD CONFIRMED THE DISALLOWANCE MERELY ON THE GROUND THAT BUSINESS WAS RUN ILLEGALLY IN RESIDENTIAL AREA AND THEREFORE ASSESSEE WAS NOT ENTITLED FOR DEDUCTION. HE RELIED ON THE DECISION IN THE CASE OF CIT VS LOYAL SUPER FABRICS REPORTED IN 304 ITR 78 (MAD.) WHEREIN HON'BLE HIGH COURT HAS HELD THAT THE EXPENSES INCURRED ON SHIFTING OF FACT ORY I.T.A. NO.161,159,96/DEL/2009 8 DUE TO PUBLIC OPPOSITION AGAINST DISCHARGE OF SEWAG E WATER WAS ALLOWABLE AS REVENUE EXPENDITURE. ON THE OTHER HAND LD. SR. DR SUPPORTED THE ORDER OF THE CIT(A). 3.2.2 WE HAVE HEARD BOTH THE PARTIES AND GONE THROU GH THE MATERIAL AVAILABLE ON RECORD. THERE IS NO DISPUTE THAT FACTORY WAS SHIFTED FROM MEERUT TO BANGALORE DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2003- 04. THE ASSESSEE HAS BEEN CLAIMING 1/10 TH OF THE EXPENDITURE AS THE DEFERRED REVENUE EXPENDITURE. TH E EXPENDITURE HAS NOT BEEN INCURRED IN THE YEAR UNDER CONSIDERATION AND THEREFORE, THE CLAIM CANNOT BE ALLOWED U/S 37 OF THE ACT AS REVENUE EXPENDITURE IN THE YEAR UNDER CONSIDERATION. AS REGARDS THE CLAIM OF THE ASSESSEE U/S 35D, THE EXPENDITURE INCURRED AFTE R COMMENCEMENT OF HIS BUSINESS IN CONNECTION WITH THE EXTENSION OF INDUSTRIAL UNDERTAKING OR IN CONNECTION WITH SETTING UP OF NEW INDUSTRIAL UNIT I S ALLOWABLE ON DEDUCTION U/S 35D(1) OF THE ACT. THE EXPENDITURE REFERRED TO IN SUB-SECTION (1) OF SECTI ON 35D SHALL BE THE EXPENDITURE SPECIFIED IN CLAUSE (A ), CLAUSE (B), CLAUSE (C) OR CLAUSE (D) OF SECTION 35( 2) OF THE ACT. THE EXPENDITURE INCURRED ON SHIFTING OF FACTORY IS NOT COVERED BY ANY OF THE CLAUSES OF I.T.A. NO.161,159,96/DEL/2009 9 SECTION 35(2) OF THE ACT. ACCORDINGLY, THE CLAIM O F THE ASSESSEE FOR DEDUCTION OF 1/10 TH OF THE EXPENDITURE CANNOT BE ALLOWED IN THE YEAR UNDER CONSIDERATION. MOREOVER THIS CLAIM HAD NOT BEEN EXAMINED BY THE ASSESSING OFFICER IN THE YEAR IN WHICH THE FACTORY WAS SHIFTED I.E. IN THE ASSESSMEN T YEAR 2003-04. THEREFORE, IN OUR CONSIDERED OPINION , THE EXPENDITURE IS NOT ALLOWABLE U/S 35D(1) FOR THE YEAR UNDER CONSIDERATION. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY LD. CIT(A ) ALTHOUGH ON DIFFERENT GROUNDS, IN CONFIRMING THE ADDITION MADE BY THE ASSESSING OFFICER. IN THESE CIRCUMSTANCES, THE APPEAL FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2005-06 IS DISMISSED. 4. NOW WE ARE COMING TO THE REVENUES APPEAL FOR THE ASSESSMENT YEAR 2005-06 : 4.1 THE ONLY ISSUE FOR CONSIDERATION RELATES TO DIR ECTING THE ASSESSING OFFICER TO VERIFY THE GENUINENESS OF TRANSACTION OF RS.7,29,996/-. THE FACTS OF THE CAS E RELATING TO THIS GROUND OF APPEAL ARE THAT DURING T HE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAD NOT PAID THE TDS DURING THE PREVIOUS YEAR AND EVEN WITHIN THE STIPULATED TIME PROVIDED UNDER THE ACT. THE ASSESS EE I.T.A. NO.161,159,96/DEL/2009 10 HAD PAID AMOUNT OF RS.4,20,683/- ON ACCOUNT OF SUB- CONTRACT CHARGES AND RS.3,49,313/- ON ACCOUNT OF INTEREST. THE ASSESSEE HAD DEDUCTED TAX AT SOURCE AT RS.4,291/- AND RS.31,550/- IN RESPECT OF SUB-CONTRA CT PAYMENT AND INTEREST RESPECTIVELY. SINCE TDS WAS NOT PAID WITHIN THE STIPULATED TIME, THE ASSESSING OFFICER DISALLOWED THE AMOUNT OF RS.7,29,996/-. 4.1.1 ON APPEAL, IT WAS SUBMITTED BY THE ASSESSEE T HAT PAYMENTS WERE NOT BOGUS AND WERE GENUINE ONE. THEREFORE, THE DEDUCTION WAS ALLOWABLE, AS THE GENUINENESS OF PAYMENT WAS NOT DOUBTED BY THE ASSESSING OFFICER. THE LD. CIT(A) ON CONSIDERATION OF THE SUBMISSIONS MADE BY THE ASSESSEE DIRECTED TH E ASSESSING AUTHORITY TO VERIFY THE GENUINENESS OF TH E PAYMENT OF RS.7,29,996/- AND IF THE SAME WERE GENUINE, THE ASSESSING OFFICER WAS DIRECTED TO ALLO W THE SAME. 4.1.2 WE HAVE HEARD BOTH THE PARTIES AND GONE THROU GH THE MATERIAL AVAILABLE ON RECORD. BEFORE US, THE LD. A .R. SUBMITTED THAT THE PAYMENT OF TDS WAS MADE BEFORE THE DUE DATE FOR FILING OF RETURN OF INCOME FOR THE ASSESSMENT YEAR 2005-06. THE ASSESSEE FILED THE PHOTOCOPY OF THE CHALLANS FOR THE AMOUNT OF TDS REMITTED BY THE ASSESSEE. THE PAYMENT OF I.T.A. NO.161,159,96/DEL/2009 11 RS.33,148/- AND RS.4,802/- WERE MADE ON 28 TH OCTOBER 2005. U/S 40(A)(IA); ANY INTEREST, COMMISSION OR BROKERAGE, FEE FOR PROFESSION SERVICE S OR FEE FOR TECHNICAL SERVICES PAYABLE TO RESIDENTS OR AMOUNT PAYABLE TO CONTRACTOR OR SUB-CONTRACTOR BEIN G RESIDENT FOR CARRYING OUT ANY WORK (INCLUDING SUPPL Y OF LABOUR FOR CARRYING OUT ANY WORK) ON WHICH TAX I S DEDUCTIBLE AT SOURCE AND SUCH TAX HAS NOT BEEN DEDUCTED OR AFTER DEDUCTION, HAS NOT BEEN PAID SHAL L NO BE DEDUCTED IN COMPUTATION OF INCOME CHARGEABLE UNDER THE HEAD PROFITS & GAINS OF BUSINESS OR PROFESSION. WITH EFFECT FROM 1.4.2005, THE PROVISIONS OF SECTION 40(A)(IA) HAS BEEN AMENDED ACCORDING TO WHICH IN A CASE WHERE TAX WAS DEDUCTIBLE AND WAS SO DEDUCTED DURING THE LAST MONT H OF PREVIOUS YEAR, HAS BEEN PAID ON OR BEFORE THE DU E DATE, SHALL BE ALLOWED AS DEDUCTION. IN THE CASE BEFORE US, THE DUE DATE FOR FILING THE RETURN U/S 1 39(1) WAS 31 OCTOBER 2005 AND THE ASSESSEE HAD PAID THE AMOUNT OF TAX IN THE ACCOUNT OF THE GOVERNMENT ON 28 TH OCTOBER 2005 AND, THEREFORE, THE AMOUNT WILL BE ALLOWABLE AS DEDUCTION. THOUGH THE ASSESSEE HAD FILED PHOTOCOPY OF THE PAYMENT MADE ON 31 ST OCTOBER 2005, THE ASSESSING OFFICER IS DIRECTED TO VERIFY I.T.A. NO.161,159,96/DEL/2009 12 WHETHER THE TDS WAS MADE DURING THE LAST MONTH OF THE PREVIOUS YEAR AND IF THE PAYMENT HAS BEEN MADE WITHIN THE TIME SPECIFIED U/S 40(A)(IA), THE SAME W ILL BE ALLOWABLE AS DEDUCTION. THE ASSESSING AUTHORITY IS DIRECTED TO VERIFY AND DECIDE THE CLAIM OF THE ASSESSEE ACCORDINGLY AS PER THE PREVISIONS OF LAW. 4.1.3 IN THE RESULT, THE APPEAL FILED BY THE REVENU E IS ALLOWED FOR STATISTICAL PURPOSES. 5. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2004-05 IS ALLOWED AND FOR THE ASSESSMENT YEAR 2005-06 IS DISMISSED. THE APPEAL FILED BY THE REVENUE FOR THE ASSESSMENT YEAR 2005-0 6 IS ALLOWED FOR STATISTICAL PURPOSES. 6. THIS DECISION WAS PRONOUNCED IN THE OPEN COURT O N 13 TH AUG, 2009. (C. L. SETHI) (K. D. RANJAN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 13 TH AUG, 2009 SP. COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT TRUE COPY: BY ORDER 4. CIT(A) 5. DR DY. REGISTRAR, ITAT, NEW DELHI