M/s. Priti Oil Limited, Sambalpur V. DCIT, Circle-1(1), Sambalpur, Sambalpur

ITSSA 14/CTK/2013

• Counselvise Citation: [2017] 122 COUNSELVISE.COM (IT) 3023 (ITAT-CUTTACK)
• Duration Of Justice: 3 year(s) 10 month(s) 25 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 17-02-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 14-02-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 22-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business expenditure; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE SHRI N.S SAINI, ACCOUNTANT MEMBER AND SHRI A BY T. VARKEY, JUDICIAL MEMBER IT (SS) A NO. 14 /CTK/2013 ASSESSMENT YEAR : 2008 - 09 M/S. PRITI OIL LIMITED, NAYPARA, SAMBALPUR VS. DCIT, CIRCLE 1(1), SAMBALPUR PAN/GIR NO. AACCP 1257 B (APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY : SHRI P.R.MOHANTY /SAMBULAL AGRAWAL , AR REVENUE BY : SHRI ASIT KUMAR MOHAPATRA, CIT DR DATE OF HEARING : 14 /02 / 2017 DATE OF PRONOUNCEMENT : 17 /02 / 2017 O R D E R PER BENCH THIS IS AN APPEAL FILED BY THE ASSESSEE AGA INST THE ORDER OF CIT(A) - BERHAMPUR, CAMP: SAMBALPUR , DATED 19.12.2012 , FOR THE ASSESSMENT YEAR 2008 - 09. 2. GROUND NOS.1 & 2 ARE GENERAL IN NATURE AND HENCE REQUIRES NO SEPARATE ADJUDICATION BY US . 3. IN GROUND NOS.2 & 3, THE GRIEVANCE OF THE ASSESSEE IS THAT THE CIT(A) ERRED IN CONFIRMING ADHOC DISALLOWANCE OF SAL SEED S EXPENSES OF RS.2 LAKHS. 2 IT(SS)A NO.14 /CTK/2013 ASSESSMENT YEAR :2008 - 09 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS CLAIMED A SUM OF RS.62,97,744/ - UNDER THE HEAD SAL SEED S EXPENSES IN ADDITION TO AN AMOUNT OF RS.9,39,98,348/ - UNDER THE HEAD PURCHASE OF SAL SEEDS. THE ASSESSEE SUBMITTED THAT THE SAL SEED S EXP E NSE S ARE EXPENSES TOWARDS COLLECTION, TRANSPORTATION AND OTHER MISC. EXPENSES INCURRED BY STAFF WHO ARE ENGAGED IN PURCHASE OF SAL SEEDS FROM LOCAL MEMBERS. THE ASSESSING OFFICER OBSERVED THAT THE ENTIRE PAYMENT HAS BEEN MADE IN CASH AND THE EXPENSES ARE NOT PROPERLY VOUCHED. THEREFORE, HE MADE AN ESTIMATED DISALLOWANCE OF RS.3 LAKHS OUT OF THE EXPENSES CLAIMED BY THE ASSESSEE. 5. O N APPEAL BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER HAS MADE AN ADHOC DISALLOWANCE OF RS.3 LAKHS OUT OF TOTAL EXPENSES OF RS.62,97,744/ - UNDER THE HEAD SAL SEEDS EXPENSES , THE LEDGER ACCOUNT OF WHICH WAS FILED BEFORE THE ASSESSI NG OFFICER AND ALL VOUCHERS THEREOF PRODUCED BEFORE HIM. THE ASSESSING OFFICER OBSERVED THAT THE EXPENSES ARE NOT PROPERLY VOUCHED AND VERIFIABLE. IT WAS SUBMITTED THAT THE JODHPUR BENCH OF THIS TRIBUNAL IN THE CASE OF OM PRAKASH JOSHI VS IT O, 123 TTJ 2 46 (JODHPUR TRIB) HAS HELD THAT THE ADHOC DISALLOWANCE OF EXPENSES CANNOT BE MADE ON THE GROUND THAT THEY ARE EXCESSIVE WHEN THE EXPENSES ARE PROPERLY VOUCHED. THE CIT(A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE HELD THAT THERE WAS NO INFIRMITY IN THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING A PART OF THE EXPENSES. HOWEVER, 3 IT(SS)A NO.14 /CTK/2013 ASSESSMENT YEAR :2008 - 09 CONSIDERING THE FACTS OF THE CASE AND THE NATURE OF THE EXPENSES, HE RESTRICTED THE DISALLOWANCE TO RS.2 LAKHS IN THE INTEREST OF JUSTICE AND ALLOW ED RELIEF OF RS.1 LAKH . 6. BEFORE US, LD A.R. OF THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES AND LD D.R. RELIED ON THE ORDER OF THE CIT(A). 7. WE FIND THAT THE ASSESSING OFFICER HAS MADE AN ESTIMATED ADHOC DISALLOWANCE OF RS.3 LAKHS OUT OF SAL SEED S EXPENSES OF RS.62,97,744/ - ON THE GROUND THAT THE EXPENSES ARE NOT PROPERLY VOUCHED. HOWEVER, THE ASSESSING OFFICER HAS NOT POINTED OUT FOR WHICH OF THE SPECIFIC PROPER VOUCHERS ARE NOT MAINTAINED BY THE ASSESSEE. THEREFORE, WITHOUT BRINGING ANY SUCH MATERIAL ON RECORD, NO DISA LLOWANCE CAN BE MADE . IT IS NOT THE CASE OF THE REVENUE THAT THE EXPENSES CLAIMED UNDER THE HEAD SAL SEEDS EXPENSES ARE NOT GENUINE OR BOGUS OR ARE INFLATED IN ORDER TO REDU CE THE INCOME BY THE ASSESSEE. THEREFORE, IN OUR CONSIDERED VIEW, THE DISALLOWANCE CANNOT BE SUSTAINED IN LAW. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) AND VACATE THE DISALLOWANCE OF RS.2 LAKHS AS SUSTAINED BY HIM AND ALLOW GROUND NOS.2 & 3 OF TH E APPEAL OF THE ASSESSEE. 8. IN GROUND NO.4 OF THE APPEAL, THE GRIEVANCE OF THE ASSESSEE IS THAT THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.2 LAKHS ON ACCOUNT OF FORFEITURE OF THE TENDER AMOUNT ( EARNEST MONEY DEPOSIT ) BY M/S. HINDALCO INDUSTRIE S LTD. FOR NON - LIFTING OF ALUMINIUM DROSS BY THE ASSESSEE ON THE GROU ND THAT THE EXPENDITURE WAS CAPITAL IN NATURE. 4 IT(SS)A NO.14 /CTK/2013 ASSESSMENT YEAR :2008 - 09 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS CLAIMED RS.2 LAKHS AS TENDER EXPENSES. THE ASSESSEE STATED THAT THE AMOUNT WAS DEPOSITED WITH M/S. HINDALCO INDUSTRIES LTD., FOR PURCHASE OF ALUMINIUM DROSS. IT WAS SUBMITTED THAT THE ASSESSEE FAILED TO L IFT THE ALUMINIUM DROSS, THEREFORE, THE EARNEST MONEY DEPOSIT OF RS.2 LAKHS WAS FORFEITED BY M/S. HINDALCO INDUSTRIES LTD. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE LIFTING OF ALUMINIUM DROSS IS NOT EXISTING BUSINESS OF THE ASSESSEE AND HENCE, EARNEST MONEY DEPOSIT AMOUNT FORFEITED IS NOT ALLOWABLE AS BUSINESS EXPENDITURE OF THE ASSESSEE. HE, ACCORDINGLY, ADDED RS.2 LAKHS TO THE INCOME OF THE ASSESSEE. 10. ON APPEAL, THE CIT(A) OBSERVED THAT THE ASSESSEE IS IN BUSINESS OF MANUFACTURING AND TRA DING OF EDIBLE OIL AND VANASPATI GHEE. TRADING IN ALUMINIUM DROSS IS DEFINITELY NOT IN THE EXISTING LINE OF ASSESSEES BUSINESS. THEREFORE, ANY LOSS INCURRED OF THE NATURE IN THE INSTANT CASE CANNOT BE CLAIMED AS AN EXPENDITURE AGAINST PROFIT FROM VANSA PATI BUSINESS. FURTHER, THE EXPENDITURE IS IN FACT OF A CAPITAL NATURE BECAUSE A DEPOSIT IN THE NATURE OF EARNEST MONEY DEPOSIT HAS BEEN FORFEITED BY M/S. HINDALCO INDUSTRIES LTD., FOR NON - PERFORMANCE OF THE CONTRACT . HE, THEREFORE, CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 11. BEFORE US, THE A . R OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE BY INCURRING THE EXPENDITURE OF RS.2 LAKHS HAS NOT DERIVED ANY ENDURING BENEFIT 5 IT(SS)A NO.14 /CTK/2013 ASSESSMENT YEAR :2008 - 09 AND, THEREFORE, THE EXPENDITURE CANNOT BE HELD TO BE A CAPITAL EXPENDITURE AND HENC E, SUBMITTED THAT THE DISALLOWANCE MADE SHOULD BE DELETED. 12. ON THE OTHER HAND, THE D.R. SUPPORTED THE ORDERS OF LOWER AUTHORITIES 13 WE FIND THAT RS.2 LAKH WAS DEPOSITED AS EARNEST MONEY DEPOSIT BY THE ASSESSEE WITH M/S. HINDALCO INDUSTRIES LIMITED FOR LIFTING OF ALUMINIUM DROSS. SINCE THE ASSESSEE DID NOT HONOUR THE AGREEMENT, M/S. HINDALCO INDUSTRIES LTD., FORFEITED THE EARNEST MONEY DEPOSIT OF RS.2 LAK HS WHICH THE ASSESSEE CLAIMED THE DEDUCTION AS BUSINESS EXPENDITURE. THE AS SESSING OFFICER OBSERVED THAT THE ASSESSEE WAS NOT IN THE BUSINESS OF TRADING IN ALUMINIUM DROSS AND, THEREFORE, THE SAID LOSS OF RS.2 LAKHS CANNOT BE ALLOWABLE AS DEDUCTION AGAINST THE PROFIT OF THE EXISTING BUSINESS OF THE ASSESSEE. ON THE OTHER HAND, T HE CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER OBSERVING THAT THE EARNEST MONEY DEPOSIT WAS FORFEITED BY M/S. HINDALCO INDUSTRIES LIMITED FOR NON - PERFORMANCE OF CONTRACT AND HENCE, IT WAS A CAPITAL EXPENDITURE. WE FIND THAT THE ASSESSEE WANTED TO START A NEW BUSINESS OF TRADING IN ALUMINIUM DROSS FOR WHICH, IT MADE ERNEST MONEY DEPOSIT OF RS.2 LAKHS WITH M/S. HINDALCO INDUSTRIES LIMITED. SINCE LATER ON THE ASSESSEE CHANGED ITS MIND CONSIDERING THE BUSINESS NOT PROFITABLE, IT DID NOT FULFIL ITS CO MMITMENT BY LIFTING THE ALUMINIUM DROSS AND, THEREFORE , EARNEST MONEY DEPOSIT WAS FORFEITED BY M/S HINDALCO INDUSTRIES LIMITED AND THE ASSESSEE SUFFERED A LOSS OF RS.2 LAKHS. THE ASSESSEE BY INCURRING THIS EXPENDITURE HAS NOT DERIVED ANY ENDURING BENEFIT 6 IT(SS)A NO.14 /CTK/2013 ASSESSMENT YEAR :2008 - 09 AND THE EXPENDITURE IS NOT OF CAPITAL IN NATURE AND HENCE, THE CIT(A) IS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE BY HOLDING IT TO BE A CAPITAL EXPENDITURE. FURTHER, WE FIND THAT THE HONBLE DELHI HIGH COURT IN THE CASE OF JAY ENGINEERING WORKS LTD. V S. COMMISSIONER OF INCOME TAX , (2007) 212 CTR (DEL) 562 HAS HELD THAT THE NATURE OF THE NEW BUSINESS IS NOT A DECISIVE TEST FOR DETERMINING WHETHER OR NOT THERE IS AN EXPANSION OF AN EXISTING BUSINESS. THE NATURE OF THE BUSINESS COULD BE DISTINCT. WHAT IS OF IMPORTANCE IS THAT THE CONTROL OF BOTH THE VENTURES, THE EXISTING VENT URE AS WELL AS THE NEW VENTURE, MUST BE IN THE HANDS OF ONE ESTABLISHMENT OR MANAGEMENT OR ADMINISTRATION. THE PLACE OF BUSINESS OF THE EXISTING BUSINESS AND THE NEW BUSINESS MAY NOT BE IN CLOSE PROXIMITY. HOWEVER, THE FUNDS UTILISED FOR THE MANAGEMENT OF BOTH THE CONCERNS MUST BE COMMON AS REFLECTED IN THE BALANCE SHEET OF THE COMPANY. THE CONTROL OVER THE TWO UNITS IS IN THE HANDS OF THE SAME MANAGEMENT AND ADMINISTRATION. THERE IS NO DOUBT ON THIS SCORE AND IN FACT, THE ANNUAL REPORT OF THE ASSESSEE MAKE S A REFERENCE TO THE PROJECT AT HYDERABAD. THERE CAN BE NO DISPUTE FROM THE FACTS THAT HAVE BEEN PLACED ON RECORD THAT THE NEW VENTURE WAS MANAGED FROM COMMON FUNDS AND THERE IS THE NECESSARY UNITY OF CONTROL LEADING TO AN INTERCONNECTION, INTERDEPENDENCE AND INTERLACING OF THE TWO VENTURES SUCH THAT IT CAN BE SAID THAT THE FUEL INJECTION EQUIPMENT PROJECT IS ONLY AN EXTENSION OF THE EXISTING BUSINESS OF THE ASSESSEE AND, THEREFORE, THE EXPENDITURE INCURRED BY THE ASSESSEE ON THIS PROJECT IS A REVENUE EXPEN DITURE . 7 IT(SS)A NO.14 /CTK/2013 ASSESSMENT YEAR :2008 - 09 14. IN THE PRESENT CASE AT HAND ALSO, IT IS NOT IN DISPUTE THAT THE CONTROL OVER THE ALUMINIUM DROSS BUSINESS WAS UNDER THE SAME MANAGEMENT AND ADMINISTRATION. THE FUNDS UTILIZED WERE OUT OF THE EXISTING BUSINESS OF THE ASSESSEE AND, THEREFORE, IN VIEW OF ABOVE QUOTED DECISION OF HONBLE DELHI HIGH COURT, THE EARNEST MONEY DEPOSIT LOSS OF RS.2 LAKHS WAS ALLOWABLE AS REVENUE EXPENDITURE. WE, THEREFORE, SET ASIDE THE ORDERS OF LOWER AUTHORITIES ON THIS ISSUE AND DELETE THE DISALLOWANCE OF RS.2 LAKHS AND ALLOW THE GROUND OF APPEAL OF THE ASSESSEE. 15. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOU NCED IN THE OPEN COURT ON 17 /02 /2017 IN THE PRESENCE OF PARTIES. S D/ - SD/ - ( ABY T. VARKEY) ( N.S SAINI) JUDICIAL MEMBER A CCOUNTANT MEMBER CUTTACK; DATED 17 /02 /2017 B.K.PARIDA, SPS COPY OF THE ORDER FORWARDED TO : BY ORDER, SR.PRIVATE SECRETARY ITAT, CUTTACK 1. THE APPELLANT : M/S. PRITI OIL LIMITED, NAYPARA, SAMBALPUR 2. THE RESPONDENT. DCIT, CIRCLE 1(1), SAMBALPUR 3. THE CIT(A) SAMBALPUR 4. CIT , SAMBALPUR 5. DR, ITAT, CUTTACK 6. GUARD FILE. //TRUE COPY//