Sanghvi Aerospace Pvt. Ltd.,, Ahmedabad v. The Dy.CIT., Circle-8,, Ahmedabad

ITA 1809/AHD/2007 | 2004-2005
Pronouncement Date: 18-02-2010 | Result: Allowed

Appeal Details

RSA Number 180920514 RSA 2007
Assessee PAN AACCS7434D
Bench Ahmedabad
Appeal Number ITA 1809/AHD/2007
Duration Of Justice 2 year(s) 9 month(s) 17 day(s)
Appellant Sanghvi Aerospace Pvt. Ltd.,, Ahmedabad
Respondent The Dy.CIT., Circle-8,, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 18-02-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted C
Tribunal Order Date 18-02-2010
Date Of Final Hearing 02-02-2010
Next Hearing Date 02-02-2010
Assessment Year 2004-2005
Appeal Filed On 01-05-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE SHRI BHAVNESH SAINI JM & SHRI A.N. PAHUJA AM I.T.A. NO.1809/AHD/2007 - AY 2004-05 I.T.A. NO. 143/AHD/2009 - AY 2004-05 SANGHVI AEROSPACE PVT LTD VS DY.CIT CIRCLE-8 2 ND FLOOR PK HOUSE AHMEDABAD ELLISBRIDGE AHMEDABAD [PAN : AACCS7434D] (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI NC AMIN AR REVENUE BY: SHRI SANJEEV KASHYAP DR O R D E R AN PAHUJA : THESE TWO APPEALS BY THE ASSESSEE AGAINST TWO O RDERS DATED 02- 03-2007 AND DATED 04-12-2008 OF THE CIT(A)-XIV AH MEDABAD RAISE A NUMBER OF GROUNDS. GROUND NOS. 1 TO 3 IN I.T.A. NO.1809/AH D/2007 RELATE TO CLAIM FOR DEDUCTION OF ELECTRICITY BILLS OF THE DIRECTOR WHIL E GROUND NOS. 4 TO 8 RELATE TO CLAIM FOR DEDUCTION U/S 80IB OF THE ACT. GROUND NOS. 1 T O 7 IN I.T.A. NO. 143/AHD/2009 RELATE TO LEVY OF PENALTY U/S 271(1)(C) THE INCOME -TAX ACT 1961[HEREINAFTER REFERRED TO AS THE ACT] ON THE DISALLOWANCE U/S 8 0IB OF THE ACT. ITA NO.1809/AHD/2007 2. ADVERTING FIRST TO QUANTUM APPEAL FACTS IN BRI EF AS PER RELEVANT ORDERS ARE THAT THE RETURN DECLARING INCOME OF RS.28 76 000/ - FILED ON 21.10.2004 BY THE ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURING OF AEROSPACE WIRES AFTER BEING PROCESSED ON 6.12.2004 U/S 143(1) OF THE ACT WAS TAKEN UP FOR SCRUTINY WITH THE ISSUE OF NOTICE U/S 143(2) OF THE ACT ON 2 6.7.2005. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER[AO IN SHORT] NOTICED THAT THE ASSESSEE CLAIMED DEDUCTION OF EXPENDITURE ON ACCOUN T OF ELECTRICITY CONSUMED AT THE RESIDENCE OF THE DIRECTORS OF THE COMPANY. TO A QUERY BY THE AO THE ASSESSEE RELIED ON THEIR SUBMISSIONS FILED BEFORE T HE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE AY 2003-04. SINCE A SIMILAR DISALLOWANCE HAD BEEN MADE IN THE Y 2003-04 THE AO DISALLOWED THE A MOUNT IN THE YEAR UNDER CONSIDERATION ON THE GROUND THAT THE DIRECTORS HA D NOT SHOWN THE AMOUNT AS ITA NO.1809/AHD/2007 & ITA NO.143/AHD/2009 2 PERQUISITE IN THEIR RETURNS OF INCOME NOR THE ASSE SSEE PROVIDED RESOLUTION OF BOD OF THE COMPANY AUTHORIZING SUCH A PERQUISITE O R EVEN THE AGREEMENT OR TERMS OF CONDITIONS OF APPOINTMENT OF DIRECTORS. 3 ON APPEAL THE ASSESSEE CONTENDED THAT T HE ELECTRICITY EXPENSES OF THE DIRECTORS ARE ALLOWABLE IN VIEW OF CLAUSE (IV) OF S UB SECTION (2) OF SECTION 17 READ WITH PROVISO 1 AND HENCE THE SAME MAY BE ALLOWED. HOWEVER THE LD. CIT(A) UPHELD THE DISALLOWANCE ON THE GROUND THAT PROVIS IONS OF SECTION 17(2)(IV) OF THE ACT RELATE TO PAYMENT MADE BY EMPLOYER TO THE EMPL OYEES WHILE THE DIRECTORS WERE NOT SALARIED EMPLOYEES OF THE ASSESSEE. MOREO VER THERE WAS NO RESOLUTION OF BOD OF THE COMPANY GRANTING PERKS ON ACCOUNT O F ELECTRICITY AT THE RESIDENCE OF DIRECTORS NOR THE DIRECTORS HAD NOT SHOWN THE S AME AS PERKS IN THEIR INDIVIDUAL RETURNS. 4. THE ASSESSEE IS NOW IN APPEAL BEFORE US A GAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. AR ON BEHALF OF THE ASSESS EE WHILE SUBMITTING THAT A COPY OF RESOLUTION OF BOD OF THE COMPANY PLACED AT SL. N O.3 PAGE 16 OF THE PAPER BOOK WAS FILED ONLY BEFORE THE LD. CIT(A) AND NOT B EFORE THE AO PLEADED THAT SINCE EXPENDITURE HAS BEEN INCURRED FOR THE PURPOSE OF BUSINESS OF THE COMPANY DEDUCTION IS ADMISSIBLE. THE LD. AR ADDED THAT THE DIRECTORS WERE NOT REQUIRED TO SHOW THE AMOUNT IN TERMS OF THE PROVISO TO SEC. 17( 2) OF THE ACT THEIR REMUNERATION BEING BELOW RS. 1 LAC EACH. ON THE OTH ER HAND THE LD. DR WHILE SUPPORTING THE FINDINGS OF THE LD. CIT(A) POINTED O UT THAT THERE IS NOTHING IN THE IMPUGNED ORDER SUGGESTING THAT THE SAID RESOLUTION WAS PLACED BEFORE THE LD. CIT(A) OR THE AO. 5. WE HAVE HEARD BOTH THE PARTIES AND HAVE GONE TH ROUGH THE FACTS OF THE CASE. WE FIND THAT A SIMILAR ISSUE AROSE IN THE AS SESSEES OWN CASE IN THE PRECEDING AY 2003-04. HOWEVER ON AN APPEAL THE I SSUE OF REOPENING OF THE ASSESSMENT ALONG WITH OTHER ISSUES WAS RESTORED TO THE FILE OF THE AO IN TERMS OF ORDER DATED 3.4.2009 OF THE ITAT IN ITA NO. 2386 /AHD./2006 FOR THE AY 2003- ITA NO.1809/AHD/2007 & ITA NO.143/AHD/2009 3 04. IN THE YEAR UNDER CONSIDERATION UNDISPUTEDLY THE AFORESAID RESOLUTION OF BOD OF THE COMPANY PLACED AT PAGE 16 OF THE PAPER B OOK DOES NOT FIND MENTION IN THE IMPUGNED ORDERS WHILE THE LD. DR STATED THA T THE SAID DOCUMENT DOES NOT SEEM TO HAVE BEEN PLACED BEFORE THE LD. CIT(A). IN THESE CIRCUMSTANCES IN THE INTEREST OF JUSTICE WE CONSIDER IT FAIR AND APPROP RIATE TO VACATE THE FINDINGS OF THE LEARNED CIT(A) AND RESTORE THE MATTER TO HIS FILE W ITH THE DIRECTIONS TO EXAMINE THE CLAIM OF THE ASSESSEE AS TO WHETHER OR NOT THE DOCUMENT PLACED AT PAGE 16 OF THE PAPER BOOK WAS FILED BEFORE HIM AND IF FILED FOLLOW THE MANDATE IN TERMS OF RULE 46A(1) TO (4) OF THE IT RULES 1962 AND THERE AFTER DISPOSE OF THE MATTER IN ACCORDANCE WITH LAW AFTER ALLOWING SUFFICIENT OPPO RTUNITY TO BOTH THE PARTIES. IN THE EVENT DOCUMENT PLACED AT PAGE 16 OF THE PAPER B OOK IS NOT FILED BEFORE HIM THE DISALLOWANCE SHALL STAND CONFIRMED THERE BEING NO MATERIAL WARRANTING INTERFERENCE WITH THE FINDINGS OF THE LD. CIT(A) IN THE IMPUGNED ORDER. WITH THESE DIRECTIONS GROUND NOS. 1 TO 3 IN THE APPEAL ARE D ISPOSED OF. 6. GROUND NOS. 4 TO 8 RELATE TO DISALLOWANCE OF DED UCTION U/S 80IB OF THE ACT.. THE AO NOTICED THAT THE ASSESSEE CLAIMED DEDUCTION OF RS.11 88 578/- U/S 80IB OF ACT WHILE IN THE PRECEDING ASSESSMENT YEAR A SIM ILAR CLAIM WAS DENIED SINCE THE ASSESSEE DID NOT FULFILL THE CONDITIONS MENTION ED U/S 80IB OF THE ACT THE ASSESSEE HAVING USED OLD MACHINERY EXCEEDING THE PR ESCRIBED LIMIT OF 20% STIPULATED IN EXPLANATION 2 OF THE SECTION 80IB(2) OF THE ACT. THE ASSESSEE COMPANY WAS INCORPORATED ON 25-02-1992 AND STARTED BUSINESS FROM ITS PREMISES AT LALIT WAREHOUSE NAROL SAKHEJ HIGH WAY AHMEDABAD. WITH EFFECT FROM 10-04-1997 THE ASSESSEE COMPANY IS STATED T O HAVE SET UP A NEW INDUSTRIAL UNDERTAKING AT MAHALAXMI INDUSTRIAL ESTA TE SANAND DIST AHMEDABAD. THIS NEW UNDERTAKING IS CLAIMED BY THE ASSESSEE COM PANY TO BE ELIGIBLE FOR DEDUCTION U/S 80IB. THE DETAILS OF GROSS BLOCK OF PLANT AND MACHINERY AS PER THE DEPRECIATION SCHEDULES FILED BY THE ASSESSEE COMPAN Y BEFORE THE AO REVEALED AS UNDER: ITA NO.1809/AHD/2007 & ITA NO.143/AHD/2009 4 DATE GROSS BLOCK OF PLANT & MACHINERY RS.) NET BLOCK OF PLANT & MACHINERY (RS.) % USED OF MACHINERY PREVIOUSLY USED 31-03-93 712968 653524 - 31-03-94 1348010 1166383 - 31-03-95 2480520 2003448 - 31-03-96 3334027 2353435 - 31-03-97 4672889 (OLD MACHINES) 3300004 - 31-03-98 6438227 5277494 72.58 31-03-99 6354223 4830703 73.53 31-03-00 6990234 4768183 66.84 31-03-01 7388769 4470520 63.24 31-03-02 7946250 4234878 58.80 31-03-03 8257095 4023784 56.59 31-03-04 8404405 3607470 55.6 FROM THE ABOVE CHART THE AO MADE OUT A CASE THAT D URING EACH OF THE PRECEDING ASSESSMENT YEARS THE ASSESSEE COMPANY HAD MORE THA N 20% OF ITS GROSS BLOCK OF MACHINERY COMPRISING OLD MACHINES AND THAT EVEN IF THE COMPARISON IS MADE BETWEEN NET BLOCK OF OLD MACHINES AND NET BLOCK OF MACHINES IN THE DEPRECIATION SCHEDULE THE STATUS IS THE SAME. IN THIS VIEW OF THE MATTER. THE AO CONCLUDED THAT THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S 80IB OF THE ACT. 7. ON APPEAL THE ASSESSEE CONTENDED THAT IN THE AU DIT REPORT FOR THE AY 2003-04 THE AUDITORS SPECIFICALLY MENTIONED IN CO LUMN 18-ELIGIBLE BUSINESS U/S 80IB OF THE ACT AND IN COLUMN (B) VALUE OF MACHINE RY RECEIVED ON TRANSFER AT RS.13 48 010/- AND TOTAL VALUE OF MACHINERY OR PLAN T USED IN BUSINESS IS RS.82 57 095/- WHICH HAS BEEN TOTALLY IGNORED AND OMITTED TO BE CONSIDERED BY THE AO. IT WAS POINTED OUT THAT THE UNIT OF SANAND WAS TOTALLY NEW ONE AND FOR THE PURPOSE OF SECTION 80IB OF THE ACT VALUATION O F MACHINERY IS TO BE TAKEN AT RS.13 48 010 AS A BASE AND THE VALUATION OF MACHINE RY AS ON 31-03-2004 FOR THE ASSESSMENT UNDER CONSIDERATION IS TO BE TAKEN AT 20 % OF MACHINERY AS ON 31-03- ITA NO.1809/AHD/2007 & ITA NO.143/AHD/2009 5 2004. IN SUPPORT THE ASSESSEE RELIED ON THE DECIS IONS IN THE CASE OF CIT VS SEEYAN PLYWOODS 190 ITR 564(KERALA) CIT VS. GUJRA T OIL & INDUSTRIES LTD. 201 ITR 325(GUJ). IT WAS ARGUED THAT THE CLAIM OF THE ASSESSEE FOR THE AY 1994-95 TO 1997-98 HAS BEEN ALLOWED WHILE THE FACTS AND CIRCUM STANCES OF THE CASE FOR THE YEAR UNDER CONSIDERATION ARE IDENTICAL WITH THE FA CTS IN THE PRECEDING YEARS. IT WAS FURTHER POINTED OUT THAT TOTAL ASSETS UPTO ASSE SSMENT YEAR 1997-98 DID NOT INCLUDED LAND AND BUILDING IN THE BLOCK OF ASSETS A ND THE SAME WAS REFLECTED ONLY IN THE AY1998-99 ONWARDS AND THEREFORE UNIT BEING NEW THE RELIEF CLAIMED BY THE ASSESSEE BE ALLOWED. IN THE LIGHT OF THESE SUBM ISSIONS THE LD. CIT(A) UPHELD THE FINDINGS OF THE AO HOLDING AS UNDER: 3.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE AND THE SUBMISSIONS ALONG WITH THE JUDICIAL PRONOUNCEMENTS. THIS ISSUE HAS COME UP FOR CONSIDERATION FOR THE A.Y. 2003-04 AND AFTER A DETAILED DISCUSSION IT WAS HELD BY THE UNDERSIGNED VIDE APPELLATE ORDER DT. 03-08-2006 THAT THE ACTION OF AO WAS JUST IFIED IN DISALLOWING THE CLAIM U/S 80IB OF THE ACT. SINCE T HE FACTS ARE SAME AS IN THE A.Y. 2003-04 I HOLD THAT THE ACTION OF A O IN DISALLOWING THE CLAIM U/S 80IB WAS QUITE JUSTIFIED AND HENCE TH IS GROUND IS ALSO REJECTED. 8. THE ASSESSEE IS NOW IN APPEAL BEFORE U S AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LD. AR ON BEHALF OF THE ASSES SEE REITERATED THEIR SUBMISSIONS BEFORE THE LD CIT(A) WHILE THE LD. DR SUPPORTED THE ORDER OF THE LD. CIT(A). 9. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. WE FIND THAT IN THEIR WRITTEN SUBMISSIONS DATED 26. 2.2007 FILED BEFORE THE LD. CIT(A) THE ASSESSEE MENTIONED THAT THEIR CLAIM HA D BEEN ALLOWED IN THE AY 1994-95 TO 1997-98 WHILE THE LD. CIT(A) FOUND T HAT THE NEW INDUSTRIAL UNDERTAKING WAS SET UP AT NEW PLACE W.E.F. 10.4.1 997.AS PER DETAILS OF ASSETS PLACED IN THE PAPER BOOK THE ASSESSEE HAS SHOWN CA PITAL WORK IN PROGRESS AS ON 31.3.1996 & 31.3.1997 AND SUCH CAPITAL WORK IN P ROGRESS AS ON 31.3.1998 IS SHOWN AS NIL. THE LD. CIT(A) CONCLUDED IN HIS ORD ER FOR THE AY 2003-04 THAT FIRST ITA NO.1809/AHD/2007 & ITA NO.143/AHD/2009 6 YEAR OF CLAIM FOR DEDUCTION U/S 80IB WAS AY 1998-99 WHILE THE ASSESSEE IN HIS LETTER DATED 26.4.2006 FILED BEFORE HIM IN THE APPE AL FOR THE AY 2003-04 PLEADED THAT ON ACCOUNT OF LOSSES IN THE AY 1998-99 TO 2001 -02 NO SUCH CLAIM WAS ADMISSIBLE WHILE IN THE AY 2002-03 CLAIM HAS BEEN ALLOWED AS PER INTIMATION U/S 143(1) OF THE ACT. APPARENTLY THE ISSUE AS TO WHETHER OR NOT MACHINERY PREVIOUSLY USED FOR ANY PURPOSE HAS BEEN TRANSFER RED TO NEW BUSINESS WAS NOT EXAMINED IN THE AY 2002-03 .IT WAS ONLY IN THE AY 2 003-04 THAT THIS ISSUE WAS EXAMINED AND THE MATTER IS NOW STATED TO BE PENDING BEFORE THE AO IN TERMS OF THE AFORESAID ORDER DATED 3.4.2009 OF THE ITAT .IN THE IMPUGNED ORDER THE LD. CIT(A) FOLLOWED HIS OWN ORDER FOR THE AY 2003-04. IN THESE CIRCUMSTANCES ESPECIALLY WHEN THE ISSUE AS TO WHICH WAS THE INIT IAL YEAR OF CLAIM FOR DEDUCTION U/S 80IB OF THE ACT AND WHETHER OR NOT MACHINERY PREVIOUSLY USED FOR ANY PURPOSE HAS BEEN TRANSFERRED TO THE NEW BUSINESS WAS NOT EXAMINED EITHER IN THE INITIAL YEAR OR EVEN IN THE YEAR UNDER CONSIDER ATION AND THESE ISSUES ARE PENDING BEFORE THE AO IN THE AY 2003-04 WE CONSIDE R IT FAIR AND APPROPRIATE TO SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE T HE MATTER TO THE FILE OF THE AO FOR DECIDING THE ISSUE RELATING TO CLAIM OF DEDUCTI ON U/S 80IB OF THE ACT AFRESH IN ACCORDANCE WITH LAW AFTER ALLOWING SUFFICIENT OPPOR TUNITY TO THE ASSESSEE. THE AO IS FREE TO UNDERTAKE ANY INDEPENDENT ENQUIRES I F FOUND NECESSARY AND THEREAFTER MAY PASS SUCH ORDER AS HE DEEMS PROPER IN ACCORDANCE WITH LAW . WITH THESE OBSERVATIONS GROUND NOS. 4 TO 8 IN THE APPEAL ARE DISPOSED OF. ITA NO.143/AHD/2009 10. IN THIS APPEAL THE ASSESSEE RAISED VARIOUS GROUNDS RELATING TO IMPOSITION OF PENALTY LEVIED U/S 271(1)(C) OF THE ACT. SINCE THE LD. CIT(A) UPHELD THE DISALLOWANCE OF CLAIM FOR DEDUCTION U/S 80IB OF THE ACT AS ALSO EXPENDITURE OF RS. 1.92 876/- ON THE ELECTRICITY CONSUMED AT THE RESID ENCE OF DIRECTORS THE AO IMPOSED PENALTY OF RS.4 95 600/-@U/S 271(1)(C) OF T HE ACT @ 100% OF THE TAX SOUGHT TO BE EVADED . ON APPEAL THE LD. CIT(A) WHI LE DELETING THE PENALTY IN RELATION TO THE AMOUNT OF 1.92 876/- ON ACCOUNT OF ELECTRICITY CONSUMED AT THE ITA NO.1809/AHD/2007 & ITA NO.143/AHD/2009 7 RESIDENCE OF DIRECTORS UPHELD THE LEVY OF PENALTY IN RESPECT OF WRONG CLAIM OF DEDUCTION OF RS.11 88 578/- U/S 80IB OF THE ACT . S INCE THE SAID ISSUE OF CLAIM FOR DEDUCTION U/S 80IB OF THE ACT HAS BEEN RESTORED BY US TO THE FILE OF THE AO IN I.T.A. NO.1809/AHD/2007 PENALTY LEVIED BY THE AO DOES NOT SURVIVE. HONBLE SUPREME COURT IN THE CASE OF K.C.BUILDERS VS. ACIT 265 ITR 562(SC) HELD THAT ORDINARILY PENALTY CANNOT STAND IF THE ASSESSMENT ITSELF IS SET ASIDE. WHERE AN ORDER OF ASSESSMENT OR REASSESSMENT ON THE BASIS OF WHICH PENALTY HAS BEEN LEVIED ON THE ASSESSEE HAS ITSELF BEEN SET ASIDE BY THE TRIBUNAL THE PENALTY CANNOT STAND BY ITSELF . UNTIL ASSESSMENT DURING T HE COURSE OF WHICH PENALTY PROCEEDINGS HAVE BEEN INITIATED BECOMES FINAL THE PENALTIES IMPOSABLE TOO CANNOT BE DETERMINED WITH CERTAINTY WHICH IS REFERA BLE TO TAX LIABILITY OF THE ASSESSEE. SINCE THE VERY BASIS UPON WHICH THE PENAL TY HAS BEEN IMPOSED DOES NOT EXIST IN VIEW OF OUR AFORESAID ORDER IN I.T.A. NO.1809/AHD/2007 IN THE ASSESSEES CASE WE HAVE NO ALTERNATIVE BUT TO SET ASIDE THE IMPUGNED ORDER AND QUASH THE LEVY OF PENALTY UPHELD BY THE LD. CI T(A). HOWEVER THE AO IS FREE TO INITIATE THE PENALTY PROCEEDINGS U/S 271(1)(C) O F THE ACT WHILE COMPLETING THE ASSESSMENT IN TERMS OF OUR DIRECTIONS IN PARA 9 AB OVE IN I.T.A. NO.1809/AHD/2007. 11. GROUND NO. 9 IN I.T.A. NO.1809/AHD/200 7 BEING GENERAL IN NATURE DOES NOT REQUIRE ANY SEPARATE ADJUDICATION WHILE NO ADD ITIONAL GROUND HAVING BEEN RAISED IN TERMS OF RESIDUARY GROUND NOS. 10 & 8 IN THESE TWO APPEALS ACCORDINGLY THESE GROUNDS ARE DISMISSED. 12. IN THE RESULT APPEAL IN I.T.A. NO.1809/AHD /2007 IS ALLOWED FOR STATISTICAL PURPOSES WHILE IN I.T.A. NO. 143/AHD/2009 IS ALLOW ED. . ORDER PRONOUNCED ON THIS 18TH DAY OF F EBRUARY 2010. SD/- SD/- (BHAVNESH SAINI) (A.N. PAHUJA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD DATED:18TH FEBRUARY 2010 ITA NO.1809/AHD/2007 & ITA NO.143/AHD/2009 8 PK/- COPY TO: 1. THE ASSESSEE 2. DY.CIT CIRCLE-8 AHMEDABAD 3. CIT(A)-XIV AHMEDABAD 4. CIT CONCERNED 5. DR C BENCH BY ORDER DR/AR ITAT