M/s. Minol Acids and Chemicals Pvt.Ltd.,, Baroda v. The Income tax Officer,Ward-4(1),, Baroda

ITA 3603/AHD/2008 | 2005-2006
Pronouncement Date: 29-01-2010 | Result: Partly Allowed

Appeal Details

RSA Number 360320514 RSA 2008
Assessee PAN AABCM3246L
Bench Ahmedabad
Appeal Number ITA 3603/AHD/2008
Duration Of Justice 1 year(s) 2 month(s) 25 day(s)
Appellant M/s. Minol Acids and Chemicals Pvt.Ltd.,, Baroda
Respondent The Income tax Officer,Ward-4(1),, Baroda
Appeal Type Income Tax Appeal
Pronouncement Date 29-01-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 29-01-2010
Date Of Final Hearing 26-08-2010
Next Hearing Date 26-08-2010
Assessment Year 2005-2006
Appeal Filed On 03-11-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE SHRI T.K. SHARMA JM & SHRI A.N. PAHUJA AM I.T.A. NO.3603/AHD/2008 (ASSESSMENT YEAR 2005-06) M/S MINOL ACIDS & CHEMICALS VS ITO WARD-.4(1) PVT LTD C-101 AAYKAR BHAVAN RACE COURSE SUDHAN APARTMENT CIRCLE VADODARA ATMAJYOTI ASHRAM ROAD VADODARA [PAN : AABCM3246L] (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI KN BHATT AR REVENUE BY : SHRI DS CHAUDHARY DR O R D E R AN PAHUJA : THIS APPEAL BY THE ASSESSEE AGAINST AN ORDER DATED 16-09-2008 OF THE LD.CIT(A)-III BARODA RAISES THE FOLLOWING GRO UNDS: 1. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD.CIT(A) HAS ERRED IN LAW AND IN FACTS IN CONFIRMI NG THE DISALLOWANCE OF RS.4 61 576 BEING THE LEASE CHARGES PAID TO GUJARAT GAS FINANCIAL SERVICES PVT LTD AND HENCE YOUR PETITIONER PRAYS THAT THE SAME BE ALLOWED AS CLAIME D BY THE APPELLANT. 2. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CA SE THE LD.CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.82 021 TREATING THE SAME AS BAD DEBT AND HENCE Y OUR PETITIONER PRAYS THAT IN VIEW OF THE FACTS AND CIRC UMSTANCES OF THE CASE THE LD.CIT(A) OUGHT TO HAVE DELETED TH E SAME. 3. YOUR PETITIONER PRAYS THAT ALL OTHER RELIEF(S) A ND REBATES AS MAY BE ALLOWABLE TO IT UNDER THE THEN EXISTING PROV ISIONS OF THE ACT BE ALLOWED TO IT. 2. FACTS IN BRIEF AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING INCOME OF RS.85 390/- FILED ON 29-10-2005 BY THE ASSESSEE E NGAGED IN MANUFACTURE AND SALE OF DYES INTERMEDIATES LIKE H ACID MIX CLEAVE ACID KOTCH ACID VIOLET ACID ETC. AFTER BEING PROCESSED ON 6.3.2006 U/S 143(1) OF THE INCOME-TAX ITA 3603/AHD/2008 2 ACT 1961[HEREINAFTER REFERRED TO AS THE ACT] WAS TAKEN UP FOR SCRUTINY WITH THE ISSUE OF NOTICE U/S 143(2) OF THE ACT ON 20.7.2006. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER[AO IN SHORT] INTER ALIA NOTICED THAT THE ASSESSEE IN ITS RETURN OF INCOME CLAIMED A SUM OF RS.4 63 102/- PAID TO GUJARAT GAS FINANCIAL SERVICES LTD (GGFSL) WHICH I S A SUBSIDIARY COMPANY OF GUJARAT GAS COMPANY LIMITED SUPPLYING GAS TO THE A SSESSEE AT ITS FACTORY AT ANKLESHWAR. ACCORDING TO THE ASSESSEE IN THE YEAR 1996 WHEN THE GUJARAT POLLUTION CONTROL BOARD INSTITUTED THE POLLUTION CO NTROL NORMS STRINGENTLY THERE WERE MANY UNITS WHO WERE FINDING IT DIFFICULT TO ME ET THE NORMS AND AT THE SAME TIME IT WAS NOT POSSIBLE FOR THEM TO PROVIDE THAT MUCH FUNDS FOR THE PURCHASE OF NECESSARY EQUIPMENTS. THEREFORE GUJARAT GAS COMPA NY LTD CAME FORWARD THROUGH ITS SUBSIDIARY GGFSL AND ASKED VARIOUS USER S OF GAS ABOUT THE EQUIPMENTS THAT THE CONSUMER MAY NEED TO MEET THE N ORMS. SUCH NECESSARY EQUIPMENTS WERE PURCHASED AND LEASED TO THE VARIOUS INDUSTRIAL UNITS. AT THAT TIME CONSIDERING THE TAX BENEFIT WHICH GGFSL WAS T O GET THE FINANCIAL COST OF THE ENTIRE TRANSACTION WAS WORKED OUT AND FOR THAT THE CONSUMERS WERE ASKED TO PAY THE SECURITY DEPOSIT TO THAT EXTENT. THE AO PO INTED OUT THAT AS PER THE TERMS OF LEASE SECURITY DEPOSIT WAS TO BE ADJUSTED AND S ET OFF AGAINST THE INTEREST AMOUNT IN THE ACCOUNTING YEAR 2004-05 I.E. AY 2005- 06.THE AO NOTICED FROM THE LEASE DETAILS THAT THE AMOUNT IN QUESTION RELATED T O THE SECURITY DEPOSITS PLACED WITH GUJARAT GAS FINANCIAL SERVICES LTD IN RESPECT OF THE LEASE FINANCE OF RS.19 91 000 SANCTIONED FOR ACQUIRING THE POLLUTION CONTROL EQUIPMENTS. IT WAS ALSO NOTED THAT AS PER THE LEASE AGREEMENT DATED 30 .11.1996 THAT THE ASSESSEE COMPANY PLACED AN INTEREST FREE SECURITY DEPOSIT OF RS.6 17 210 (BEING 31% OF RS. 19 91 000 FINANCED BY GUJARQAT GAS FINANCIAL SE RVICES LTD). HOWEVER THE ASSESSEE COULD NOT RECOVER THE SECURITY DEPOSIT TO THE EXTENT OF RS.4 63 102/- ON ACCOUNT OF THE FACT THAT RS.1 526 WAS APPROPRIATED BY GUJARAT GAS FINANCIAL SERVICES LTD. TOWARDS INTEREST ON DELAYED PAYMENTS AND RS.4 61 576/- WAS WITHHELD AND/OR NOT RELEASED ON ACCOUNT OF ASSESSEE S FAILURE TO FURNISH THE RELEVANT RECEIPTS ISSUED FOR THE SECURITY DEPOSIT B Y GGFSL. ACCORDINGLY THE AO CONSTRUED THAT THE AMOUNT IN QUESTION RELATED TO AC QUISITION OF CAPITAL ASSETS AND ITA 3603/AHD/2008 3 ASSESSEES FAILURE TO PRODUCE THE RELEVANT RECEIPTS ISSUED BY THE GGFSL THE SECURITY DEPOSIT HAS BEEN WITHHELD. THE AO ALSO FO UND THAT VIDE CERTIFICATE DATED 25-11-2003 GGFSL WAIVED ALL ITS TITLES RIGHTS AND INTEREST WITH RESPECT TO THE PROPERTY ACQUIRED AS PER THE LEASE AGREEMENT DATED 30-11-1996 AND THE ASSESSEE COMPANY BECOME THE SOLE AND ABSOLUTE OWNER OF THE EQUIPMENT AND ACCORDINGLY GGFSL CERTIFIED THAT THE CHARGE OVER THE PROPERTY ACQUIRED THROUGH LEASE FINANCE HAS BEEN FULLY SATISFIED AND DISCHARG ED. THEREFORE THE CLAIM OF THE ASSESSEE WAS HELD NOT TENABLE AND A DISALLOWANCE OF RS.4 61 576 WAS MADE IN THE ASSESSMENT. 3. ON APPEAL THE ASSESSEE FURNISHED THE FOLLOWING WORKING OF THE LEASE CHARGES BEFORE THE LD. CIT(A) AND SUBMITTED THAT TH E SUM OF RS.4 61 576/- REPRESENTED THE LEASE INTEREST. THIS WAS AN ALLOWA BLE EXPENSE AND NO RECEIPT THEREOF HAD BEEN ISSUED BY GGFSL: AMOUNT PAID BY CHEQUE ON DECEMBER 1996 TO NOVEMBER 2003 RS. 24 80 786 LESS : EQUIPMENT AMOUNT RS. 19 91 000 ------------------- DIFFERENCE PAID AS LEASE CHARGES RS. 4 89 786 LESS : REBATE ALLOWED RS. 28 210 ------------------- NET AMOUNT CLAIMED RS. 4 61 576 ------------------- THE ASSESSEE FURTHER SUBMITTED BEFORE THE LD. CIT(A ) THAT ALL THE DETAILS IN RESPECT OF THE ENTIRE PAYMENT OF RS.24 80 786/- HAD BEEN FILED BEFORE THE AO. HOWEVER THE LD. CIT(A) UPHELD THE DISALLOWANCE IN THE FOLLOWING TERMS: 6.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE A.R. A ND THE FACTS OF THE CASE. INTEREST CHARGES ARE ALLOWABLE IF INC URRED ON REVENUE ACCOUNT. NORMALLY INTEREST PAYMENT FOR FINANCE OBT AINED FOR ACQUIRING A CAPITAL ASSET WOULD BE REQUIRED TO BE C APITALIZED AND WOULD NOT BE ALLOWABLE AS REVENUE EXPENDITURE. HOW EVER IN THE ITA 3603/AHD/2008 4 INSTANT CASE LEASING CHARGES WERE INCURRED. THE A SSESSEE HAD NOT BECOME THE OWNER OF THE ASSET. GGFSL REMAINED THE OWNER AND CLAIMED THE DEPRECIATION. IN SUCH SITUATION THE I NTEREST CHARGES WOULD BE ALLOWABLE AS BUSINESS EXPENDITURE IN THE H ANDS OF THE ASSESSEE. THE ASSET WAS TAKEN ON LEASE IN NOVEMBER 1996 I.E. IN AY 1997-98. THE LEASE AGREEMENT CLEARLY SHOWS THAT THE LEASE FINANCE WAS FOR A PERIOD OF 7 YEARS. THE APPELLANT HANDED OVER 84 POST-DATED CHEQUES FOR THE AGGREGATE AMOUNT OF RS.2 4 80 786/- COMPRISING OF PRINCIPAL + INTEREST. THE LAST PAYME NT WAS MADE IN NOVEMBER 2003 I.E. IN THE PREVIOUS YEAR RELEVANT T O AY 2004-05. NO INTEREST PERTAINING TO THIS YEAR HAS ACCRUED AND NO INTEREST PAYMENT HAS BEEN MADE IN THIS YEAR IN RESPECT OF LE ASE CHARGES. ONLY THE EXPENSES RELATING TO EARNING OF INCOME OF A PARTICULAR YEAR ARE ALLOWABLE. SINCE THE ENTIRE AMOUNT OF INTEREST PERTAINED TO THE EARLIER YEARS AND NO PART OF IT PERTAINED TO THE YE AR UNDER CONSIDERATION IT IS HELD THAT THE AO HAS RIGHTLY D ISALLOWED THE ENTIRE AMOUNT OF RS.4 61 576/-. THE ADDITION IS CONFIRMED AND THIS GROUND OF APPEAL THUS FAILS. 4. THE ASSESSEE IS NOW IN APPEAL BEFORE US AG AINST THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LEARNED COUNSEL ON B EHALF OF THE ASSESSEE WHILE INVITING OUR ATTENTION TO A DECISION DATED 10 -04-2003 OF THE ITAT SMC BENCH IN THE CASE OF DAKLE REINFORCED PLASTIC S PVT LTD IN ITA NO. 58/AHD/2000 CONTENDED THAT INTEREST ON DEPOSITS FRO M DIRECTORS PERTAINING TO EARLIER PERIOD WAS HELD ALLOWABLE IN THIS DECISI ON. ACCORDINGLY HE SUBMITTED THAT THEIR CLAIM WAS ALLOWABLE. TO A QUER Y BY THE BENCH THE LD. AR SUBMITTED THAT THE AMOUNT PERTAINED TO THE EAR LIER YEARS DURING THE CURRENCY OF LEASE . THE ASSESSEE HAD PLACED A SECUR ITY DEPOSIT OF RS.6 17 210/- WITH GGFSL AT THE TIME OF EXECUTION OF LEASE DEED. HOWEVER THE SUM OF RS. 1 54 108 WAS REFUNDED AND THE ASSESSEE COULD NOT RECOVER THE REMAINING DEPOSIT OF RS. 4 63 102/- .LATER AN AMOUNT OF RS. 1 526/- WAS APPROPRIATED BY GGFSL TOWARDS INTER EST ON DELAYED PAYMENT AND REMAINING AMOUNT WAS WITHHELD FOR WANT OF RECEIPTS OF SECURITY DEPOSITS. THE LEARNED COUNSEL FOR THE ASSE SSEE FURTHER PLEADED THAT THE INTEREST THOUGH NOT PERTAINING TO THE YEAR UNDER CONSIDERATION ACCUMULATED OVER THE YEARS AND THE CLAIM OF THE AS SESSEE MAY BE ALLOWED. THE LD. DR ON THE OTHER HAND SUPPORTED THE ORDERS OF THE ITA 3603/AHD/2008 5 AUTHORITIES BELOW AND SUBMITTED THAT SINCE THE CLAI M IN QUESTION PERTAINS TO EARLIER YEARS THE SAME IS NOT ALLOWABLE. THE LD. D R POINTED OUT THAT THE DECISION RELIED UPON BY THE LD. AR IS NOT APPLICABL E IN THE FACTS AND CIRCUMSTANCES OF THE INSTANT CASE SINCE IN THAT CAS E INTEREST ON DEPOSITS FROM THE DIRECTORS AND MEMBERS WAS DEFERRED TILL T HE PERIOD OF LOSS BY A RESOLUTION OF BOARD OF DIRECTORS OF THE COMPANY AN D CONSEQUENTLY THE LIABILITY WAS ALLOWABLE IN THE YEAR OF PROFITS ALON E. SUCH BEING NOT THE FACTS IN THE CASE UNDER CONSIDERATION CLAIM IS NOT ALLOW ABLE THE LD. DR ADDED. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE DECISION RELIED UPON. UNDISPUTEDLY AND AS SUBMITTED BY THE LD. AR ON BEHALF OF THE ASSESSEE LIABILITY ON ACCOUNT OF LEAS E FINANCE CHARGES PERTAINED TO THE EARLIER YEARS DURING THE CURRENCY OF LEASE. T HE ACCOUNTS FOR THE TRANSACTION UNDER THE SAID LEASE WERE SETTLED AS IS EVIDENT FR OM THE CERTIFICATE DATED 25.11.2003 OF THE GGSFL WHEREUNDER ALL ITS TITLES RIGHTS AND INTEREST WITH RESPECT TO PROPERTY ACQUIRED AS PER THE LEASE AGREE MENT DATED 30.11.1996 WERE WAIVED. THERE IS NOTHING TO SUGGEST THAT LIABILITY ON ACCOUNT OF LEASE CHARGES RELATES TO THE YEAR UNDER CONSIDERATION. MOREOVER THE LD. AR APPEARING ON BEHALF OF THE ASSESSEE COULD NOT POINT OUT ANY INFI RMITY IN THE FINDINGS OF THE LD. CIT(A). IN THESE CIRCUMSTANCES ESPECIALLY WHEN AD MITTEDLY THE LIABILITY PERTAINS TO THE EARLIER YEARS AND THERE IS NO MATERIAL BEFO RE US THAT THE SAID LIABILITY RELATES TO THE YEAR UNDER CONSIDERATION WE ARE NOT INCLINED TO TAKE A DIFFERENT VIEW IN THE MATTER. AS REGARDS RELIANCE PLACED ON THE AFORESAID DECISION OF THE TRIBUNAL IN THE CASE OF DAKLE REINFORCED PLASTICS P VT LTD (SUPRA) AS POINTED OUT BY THE LD. DR APPARENTLY FACTS IN THE CITED DECISI ON WERE ALTOGETHER DIFFERENT FROM THE FACTS IN THE CASE UNDER CONSIDERATION. IN THE C ITED DECISION LIABILITY ON ACCOUNT OF INTEREST ON DEPOSITS FROM THE DIRECTORS AND MEMBERS WAS DEFERRED TILL THE PERIOD OF LOSS BY A RESOLUTION OF BOARD OF DIRE CTORS OF THE COMPANY AND CONSEQUENTLY THE LIABILITY WAS ALLOWABLE IN THE Y EAR OF PROFITS ALONE. SUCH ARE NOT THE FACTS IN THE INSTANT CASE. THEREFORE RELIANCE ON THE SAID DECISION IS MISPLACED. ITA 3603/AHD/2008 6 5.1 IN VIEW OF THE FOREGOING ESPECIALLY WHE N ADMITTEDLY THE LIABILITY PERTAINS TO THE EARLIER YEARS AND THERE IS NO MATE RIAL BEFORE US SO AS TO ENABLE US TO TAKE A DIFFERENT VIEW IN THE MATTER WE HAVE NO ALTERNATIVE BUT TO UPHOLD THE FINDINGS OF THE LD. CIT(A). ACCORDINGLY GROUND NO 1 IN THE APPEAL IS DISMISSED. 6. THE GROUND NO.2 RELATES TO DISALLOWANCE OF AN AMOUNT OF RS. 82 021/- . THE AO NOTICED DURING THE COURSE OF ASSESSMENT PROC EEDINGS THAT THE ASSESSEE CLAIMED AN AMOUNT OF RS. 1 63 529/- ON ACCOUNT OF R ATE DIFFERENCE AND DISCOUNT ALLOWED TO CUSTOMERS DUE TO INFERIOR QUALITY/IMPURI TIES ETC. OUT OF THIS AMOUNT OF RS. 82 021/- RELATED TO DISCOUNT ALLOWED ON JOB WO RK EXECUTED IN THE PREVIOUS YEAR RELEVANT TO THE AY 2004-05 DUE TO NON-RECOVERY OF MODVAT. SINCE THE AMOUNT RELATED TO THE PRECEDING ASSESSMENT YEAR TH E AO DISALLOWED THE CLAIM IN THE YEAR UNDER CONSIDERATION. 7. ON APPEAL THE ASSESSEE PLEADED THAT THE A O WAS NOT JUSTIFIED IN DISALLOWING THE AMOUNT OUT OF IRRECOVERABLE JOB CHA RGES. THE LD. CIT(A) WITHOUT RECORDING ANY FINDINGS ON THE CONCLUSION OF THE AO THAT THE LIABILITY RELATED TO THE PRECEDING ASSESSMENT YEAR OR THAT THE AMOUNT WAS CL AIMED ON ACCOUNT OF DISCOUNT ALLOWED UPHELD THE DISALLOWANCE RELYING U PON THE DECISION IN THE CASE OF DHALL ENTERPRISED AND ENGINEERS P. LTD. V. CIT 2 95 ITR 481 (GUJ) HOLDING THAT THE ASSESSEE HAS NOT ESTABLISHED THAT THE DEBT HAD BECOME BAD IN THE YEAR UNDER CONSIDERATION. 8. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LD. AR ON BEHALF THE ASSESSEE PLEADED THAT AMOUNT WAS IN THE NATURE OF DISCOUNT WHILE THE LD. DR SUPPORTED T HE FINDINGS OF THE LD. CIT(A). 9. WE HAVE HEARD BOTH THE PARTIES AND GON E THROUGH THE FACTS OF THE CASE. WE FIND THAT THE AO DISALLOWED THE CLAIM FOR DEDUCT ION OF THE AFORESAID AMOUNT ON THE GROUND THAT THE LIABILITY PERTAINED TO THE P RECEDING ASSESSMENT YEAR WHILE ITA 3603/AHD/2008 7 THE LD. CIT(A) WITHOUT RECORDING ANY FINDINGS AS TO WHETHER OR NOT THE AMOUNT RELATED TO THE PRECEDING ASSESSMENT YEAR OR WAS IN THE NATURE OF DISCOUNT UPHELD THE DISALLOWANCE RELYING ON THE DECISION IN THE CASE OF DHALL ENTERPRISED AND ENGINEERS P. LTD.(SUPRA) HOLDING THAT THE ASSE SSEE HAS NOT ESTABLISHED THAT THE DEBT HAD BECOME BAD IN THE YEAR UNDER CONSIDERA TION. IN THE ASSESSMENT ORDER THERE IS NO SUCH FINDINGS OF BAD DEBT. BEFO RE US IT WAS PLEADED THAT THE AMOUNT WAS IN THE NATURE OF DISCOUNT. HOWEVER NO B ASIS FOR SUCH A CLAIM HAS BEEN PLACED BEFORE US. IN THESE CIRCUMSTANCES WE CONSIDER IT FAIR AND APPROPRIATE TO VACATE THE FINDINGS OF THE LD. CIT(A ) AND RESTORE THE MATTER TO HIS FILE WITH THE DIRECTIONS TO RE-EXAMINE THE CLAIM OF THE ASSESSEE AS TO WHETHER OR NOT THE AMOUNT WAS IN THE NATURE OF DISCOUNT AND T HAT THE LIABILITY FOR SUCH A CLAIM PERTAINED TO THE PRECEDING ASSESSMENT YEAR A ND THEREAFTER ADJUDICATE THE ISSUE IN ACCORDANCE WITH LAW AFTER ALLOWING SUFFICI ENT OPPORTUNITY TO BOTH THE PARTIES. THE ASSESSEE IS ALSO DIRECTED TO PLACE BEF ORE THE LD. CIT(A) ALL THE RELEVANT MATERIAL IN SUPPORT OF THEIR CLAIM OF DIS COUNT WHILE THE LD. CIT(A) IS FREE TO UNDERTAKE ANY INDEPENDENT ENQUIRIES NECESSARY TO ASCERTAIN THE GENUINENESS OF THE SAID CLAIM. WITH THESE DIRECTIONS GROUND NO .2 IS DISPOSED OF 10. GROUND NO. 3 BEING GENERAL IN NATURE DOES NOT REQUIRE ANY SEPARATE ADJUDICATION AND IS THEREFORE DISMISSED. 11. IN THE RESULT APPEAL IS PARTLY ALLOWED BUT FOR STATISTICAL PURPOSES ONLY. . ORDER PRONOUNCED ON 2 9TH JANUARY 2010. SD/- SD/- (T.K. SHARMA) (A.N. PAHUJA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD DATED 29TH JANUARY 2010 PK/- COPY TO: 1. THE ASSESSEE 2. ITO WARD-4(1) VADODRA 3. CIT(A)-IV BARODA 4. CIT-II BARODA ITA 3603/AHD/2008 8 5. DR C BENCH BY ORDER DEPUTY REGISTRAR ITAT AHMEDABAD