CBDT Criteria For Selection Of Scrutiny Cases In FY 2013-14
August 6th, 2013
The CBDT has issued Instruction No. 10 of 2013 dated 05.08.2013 announcing the procedure and criteria for selection of scrutiny cases under the compulsory manual for FY 2013-14. The guidelines appear to have been issued pursuant to the direction of the Delhi High Court in Joginder Pal Gulati vs. OSD – CPIO
ST : Service tax paid on commission paid to commission agents causing sale of goods is ineligible for input service credit
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[2013] 35 taxmann.com 317 (Ahmedabad - CESTAT)
CESTAT, AHMEDABAD BENCH
Commissioner of Central Excise, Daman
v.
Paras Motors Mfg. Co.*
M.V. RAVINDRAN, JUDICIAL MEMBER
ORDER NOS. A/10248 TO 10250/WZB/AHD/2013
APPEAL NOS. E/157 & 392/2011 & E/CO/83/2011
APPEAL NOS. E/157 & 392/2011 & E/CO/83/2011
FEBRUARY 7, 2013
Rule 2(l) of the Cenvat Credit Rules, 2004 - CENVAT Credit - Input service - Commission Agent's Services - In view of judgment in CCE v. Cadila Healthcare Ltd. [2013] 32 taxmann.com 105 (Guj.), service tax paid on commission paid to commission agents causing sale of goods is ineligible for input service credit [Paras 8 & 9] [In favour of revenue]
Rule 15 of the Cenvat Credit Rules, 2004 - CENVAT Credit - Confiscation and penalty - Since there were judgments in favour of assessee allowing Cenvat credit of commission agent's services during material period and assessee was regularly filing periodical returns to authorities indicating therein availment of such Cenvat credit, availment of such credit out of bonafide belief as to eligibility did not warrant invocation of extended period of limitation and imposition of evasion penalty under Rule 15(2) - Hence, penalty imposed under Rule 15(2) of CENVAT Credit Rules, 2004 was set aside [Para 10] [In favour of assessee]
EDITOR'S NOTE
It was clarified by CBEC in Circular No. 943/4/2011-CX, dated 29-4-2011 that the said services are eligible as input service and amount to sales promotion. Probably, the assessee did not bring said CBEC Circular to notice of the Court. Even the Department did not do so and argued just contrary to what has been clarified by CBEC.
CASE REVIEW
CCE v. Cadila Healthcare Ltd. [2013] 32 taxmann.com 105 (Guj.) [Para 8] followed.
CASES REFERRED TO
CCE v. Cadila Healthcare Ltd. [2013] 32 taxmann.com 105 (Gujarat) (para 3), CCE v. GTC Industries Ltd. [2008] 17 STT 63 (Mum - Cestat) (LB) (para 5) and Coca Cola India (P.) Ltd. v. CCE 2008 (223) ELT 69 (Tri. - Mum.) (para 5).
P.N. Sarvaiya for the Appellant.
ORDER
1. All these appeals are directed against order in appeal No. SKSS /272/DMN/SDMN/2010-11, dt.08.12.10.
2. Appeal No. E/157/11 has been filed by the department against the impugned order only on the ground that the first appellate authority has extended the benefit of partial payment of penalty as per provisions of Section 11AC and their appeal seeks for enhancement of 100% penalty. Appeal No/E/392/11 is filed by the assessee for setting aside the impugned order which has denied them the Cenvat credit of the service tax paid on the commission paid to the commission agents. E/CO/83/11 is filed by the assessee against the appeal filed by the Revenue.
3. None appears on behalf of the appellant despite notice. On perusal of the records, I find that this matter was listed on the board on 23.10.12 & 14.12.12 on which dates the matter was adjourned on the request of the appellant and the matter got listed on 01.02.13. On that day, the consultant appeared for the appellant and he was informed about the decision of the Hon'ble High Court of Gujarat in the case of CCE v. Cadila Healthcare Ltd.[2013] 32 taxmann.com 105 and the copy of the same was served to him to study the same and make his submissions today. Today when the matter was to be heard, the ld. counsel is absent nor there is any request for adjournment. I take up the appeal filed by the appellant for disposal despite there being no representation from the appellant.
4. The relevant facts for consideration are the appellant herein has availed Cenvat credit of Service tax paid on the commission paid to the commission agents for the sale of their goods. It is also noticed that the appellant is to indicate the said availment of credit in their returns which has been filed with the authorities. The audit party took an objection that appellant is not eligible for such credit of the service tax paid on the commission paid to the commission agents as per the provisions of Rule 2(l) of the Cenvat Credit Rules, 2004. Accordingly, show-cause notice was issued which after due process of law was adjudicated and the adjudicating authority confirmed the reversal of the Cenvat credit availed of the service tax paid on the commission paid to the commission agents and also directed to pay the interest on the said amount and imposed equivalent amount of penalty under Section 15 of the Cenvat Credit Rules read with the Section 11AC of the Central Excise Act, 1944. Aggrieved by such an order appellant preferred an appeal before the first appellate authority who concurred with the views of the adjudicating authority and upheld the confirmed demands by the department by reducing the penalty 25% if the amount of penalty is paid within 30 days from the receipt of the order in appeal.
5. I perused the grounds of appeal raised by the appellant and also the cross objection filed by them. I find that the appellant has been contended that the Cenvat credit availed by them on the service tax paid on the commission paid to the commission agents is eligible as Cenvat credit has been upheld by the various decisions of this bench. It is also the contention of the appellant that the Larger Bench of the Tribunal in the case of CCE v. GTC Industries Ltd.[2008] 17 STT 63 (Mum.-Cestat) and Coca Cola India (P.) Ltd. v. CCE 2008 (223) ELT 69 (Tri.-Mum.) which indicates that any services which are rendered in connection with the business of the assessee, service tax paid on such amount is eligible for availing the Cenvat credit. As regards the penalty imposed, it is their claim of the appellant no penalty is imposable as appellant has been filing the returns with the authorities as a manufacturer indicating therein the Cenvat credit availed by them and there was no objection to the said such credit till the audit party took a different view.
6. Ld. Assistant Commissioner (A.R.), would submit that the judgment of the Hon'ble High Court of Gujarat in the case of Cadila Healthcare Ltd.(supra) has held that service tax paid on the commission paid to an agent is not eligible as Cenvat credit. He would submit that the department's appeal is for the enhancement of penalty to 100% as the assessee has not divulged to department that they had availed Cenvat Credit of the service tax paid on the commission paid to the commission agents. It is also his submission that this suppression/ mis -statement of the facts in order to avail ineligible Cenvat credit.
7. I have considered the submissions made at length by the ld. A.R. and also perused the records.
8. At the outset, I find that as regards the eligibility to avail Cenvat credit of the Service tax paid on the commission to the commission agents, the same now stands settled by the judgment of the Hon'ble High Court of Gujarat in the case of Cadila Healthcare Ltd. (supra) wherein their lordships have held that such service tax is ineligible for availment of Cenvat credit on this issue, on merit, I find that the appellant has no case and the appeal to that extent is rejected.
9. This leads me to the interest part wherein I find that the appellant is liable to pay the interest on the amount of service tax credit taken by him and utilised during the material period. To that extent also, the appeal of the appellant is rejected.
10. As regards the penalty imposed, I find both the lower authorities have imposed the equivalent amount of penalties on the appellant under Rule 15 of the Cenvat Credit Rules, 2004 read with provisions of Section 11AC of the Central Excise Act, 1944. I find the strong force in the contentions raised by the appellant in grounds of appeal, as to that during the relevant period, there were decisions which indicated that service tax paid on the commission to the commission agents is eligible for availment of Cenvat credit and accordingly appellant availed the Cenvat credit. It is also undisputed that the appellant is a manufacturer and was filing regular monthly ARE-1 returns to the authorities and indicating therein availment of such Cenvat credit. In my considered view, the action of the appellant in taking the Cenvat credit of the service tax to the commission agents could be out of bonafide belief as to eligibility to Cenvat credit as it is in relation to the business of manufacturing and selling. I find that the said bonafide belief of the appellant cannot be considered as erroneous and that too, to invoke the extended period of limitation for imposition of equivalent amount of penalty. In my view, the appellants have made out a case for setting aside the penalties imposed by the lower authorities. Accordingly, I set aside that portion of the order which imposes equivalent amount of penalty on the appellant under the provisions of Rule 15 of the Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944.
11. The appeals are disposed of as indicated herein above i.e. assessee's appeal allowed partly and department's appeal is rejected and the cross objection filed by the assessee is also disposed of.
TAX DEDUCTORS WHO DEFAULT IN DEPOSITING TDS BY DUE DATE SHALL BE LIABLE FOR PROSECUTION: CBDT
It has come to the notice of Income Tax Department that many times the tax deductors, after deducting TDS from specified payments, are deliberately not depositing the taxes so deducted in Government account and continue to deploy the funds so retained for business purposes or for personal use. Such retention of Government dues beyond the due date is an offence liable for prosecution under Section 276B of the Income Tax Act, 1961. The defaulter, if convicted, can be sentenced to Rigorous Imprisonment (RI) for a term which can extend upto seven years. The TDS units of Income Tax Department have been taking up prosecution proceedings in suitable cases where TDS has been retained beyond the due date. The Central Board of Direct Taxes has partly modified existing guidelines for identification of cases for launching prosecution. As per the revised guidelines, the criterion of minimum retention period of 12 months has been dispensed with. For the benefit of public at large, it is now clarified that defaulters, who have retained the TDS deducted and failed to deposit the same in Government account within due date, shall be liable for prosecution, irrespective of the period of retention. However, the offence u/s 276B of the Income Tax Act can be compounded by Chief Commissioner having jurisdiction on the case, either before or after the launching of prosecution proceedings. In the recent past, several defaulters have submitted petitions for compounding of such offences and compounding orders have also been passed by the Competent Authority in suitable cases. - www.pib.nic.in
IT : Construction of building on urban land, whether partly completed or under construction would still be taxable as urban land
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[2013] 35 taxmann.com 173 (Calcutta)
HIGH COURT OF CALCUTTA
Commissioner of Wealth Tax, Kolkata-XIX
v.
Sanjay Krishna Hedge*
GIRISH CHANDRA GUPTA AND TARUN KUMAR DAS, JJ.
AWT NO. 1 OF 2012
GA NO. 2711 OF 2012†
GA NO. 2711 OF 2012†
MARCH 14, 2013
Section 2(ea) of the Wealth-Tax Act, 1957 - Assets [Urban land] – Whether where construction of building was partly completed or was under construction, exception engrafted in definition of words 'urban land' does not get attracted and an incomplete construction on 'urban land' would still be taxable as urban land – Held, yes [Para 9] [In favour of revenue]
FACTS
| ■ | The assessee had purchased a flat in an incomplete condition for a sum of Rs. 64.05 lakhs. | |
| ■ | For the purpose of computation of wealth tax, the Assessing Officer had treated the amount of investment as value of urban land within the meaning of section 2(ea)(v). | |
| ■ | On appeal, the Commissioner (Appeals) rejected the views of the Assessing Officer. | |
| ■ | On revenue's appeal, the Tribunal held that the value could not be treated as an 'urban land' as the land had already been constructed thereupon. | |
| ■ | In the instant appeal to the High Court, the revenue contended that only that piece of the land is excluded from the meaning of the expression 'urban land' which has been constructed upon with the requisite approvals. |
HELD
| ■ | The intention of the Legislature appears to be to tax the wealth either in the form of urban land or in the form of a house. The contention is that the flat was purchased in an incomplete condition and is yet to be fully completed. In that case, there can be no doubt that the construction is yet to be completed. If the construction is partly completed or the building is under construction. In that case the exception engrafted in the definition of the words 'urban land' does not get attracted. In that event, the 'urban land' or undivided interest, of the assessee, continues to be open for taxation within the category of urban land. [Para 9] |
CASE REVIEW
CWT v. Girdhar G. Yadalam [2007] 163 Taxman 372 (Kar.) (para 9) followed.
CASES REFERRED TO
CIT v. Smt. Neena Jain [2010] 189 Taxman 308 (Punj & Har.) (para 1) and CWT v. Girdhar G. Yadalam [2007] 163 Taxman 372 (Kar.) (para 9).
P. Dudheria for the Appellant. P. Bag for the Respondent.
ORDER
The Court : The subject matter of challenge in this appeal is an order dated February 21, 2012, by which the learned Tribunal, following a Division Bench judgment of the Punjab and Haryana High Court in the case of CIT v. Smt. Neena Jain [2010] 189 Taxman 308, held that the flat purchased by the assessee in an incomplete condition was not an "asset" within the meaning of section 2(ea)of the Wealth Tax Act nor was a piece of an "urban land" within the meaning of section 2(ea)(v) of the said Act. The Assessing Officer had treated the investment of a sum of Rs.64.65 lakhs as an "urban land" within the meaning of section 2(ea)(v) of the Wealth Tax Act.
2. In an appeal by the assessee, the CWT did not agree with the view of the Assessing Officer. The learned Tribunal, also, held that the subject investment could not be treated as an "urban land" because the land had already been constructed upon.
3. We already have noticed that the flat was purchased in an incomplete condition and the flat is yet to be made habitable.
4. Mr. Dudheria, learned Advocate appearing for the appellant, submitted that the assessee has sought to avoid the applicability of section 2(ea) of the Act on the ground that the construction of the flat in question has not yet been completed. Therefore, the flat is under construction. He drew our attention to the definition of the expression "urban land" which is as follows:
| "(i) | in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the valuation date; or | |
| (ii) | in any area within such distance, not being more than eight kilometres from the local limits of any municipality or cantonment board referred to in sub-clause (i), as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette. | |
| but does not include land on which construction of a building is not permissible under any law for the time being in force in the area in which such land is situated or the land occupied by any building which has been constructed with the approval of the appropriate authority or any unused land held by the assessee for industrial purposes for a period of two years from the date of its acquisition by him [or any land held by the assessee as stock-in-trade for a period of ten years from the date of its acquisition by him];" |
5. Mr. Dudheria contended that only that piece of the land is excluded from the meaning of the expression "urban land" which has been constructed upon with the requisite approvals. The provision cannot apply according to him to a building which is under construction. The provision, according to him, is not that the exception would apply to both the cases where the land which has been constructed upon or partly constructed upon or for that matter to a building under construction. The expression used by the Legislature can only be construed to mean such land which has already been constructed upon.
6. Admittedly, the flat is under construction. Therefore, the assessee cannot claim the benefit of the exception engrafted in the section.
7. In support of his submission, Mr. Dudheria drew our attention to a Division Bench judgment of the Karnataka High Court in the case of The CWT v.Girdhar G. Yadalam [2007] 163 Taxman 372, wherein the following view was taken:
"The said definition of urban land would show that certain lands are not includible for the purpose of 'urban land'. We are concerned in the case on hand with regard to the lands occupied by any building which has been constructed with the approval of the appropriate authority. Approval by appropriate authority is not disputed. What is argued before us is that since the building is being constructed, the same is exempt for the purpose of wealth-tax in terms of the meaning to be given to urban land. A careful reading of the said definition would show that what is excluded is the land occupied by any building which has been constructed [Emphasis supplied]. Admittedly, in the case on hand, the building is not fully constructed. It is in the process of construction. Building in the process of construction cannot be understood as a building which has been constructed as sought to be argued before us. Courts have to interpret any definition in a reasonable manner for the purpose of fulfilling the object of the Act. Courts cannot interpret a term in such an unreasonable manner making thereby unworkable of the Act as sought to be argued before us. Constructed has its own meaning. Constructed would mean 'fully constructed' as understood in the common parlance. The Tribunal unfortunately, without noticing the intention of the Legislature and the specific wordings in the section has chosen to blindly follow its earlier order. If the order of the Tribunal is accepted then neither the owner nor the builder nor the occupant would pay any tax to the Government in terms of the Wealth-tax Act. In these circumstances, we are unable to accept that argument advanced by the learned counsel for the appellant. On the other hand, we would accept the reasonable argument of the learned counsel for the department in the matter of the proper understanding of the words 'land occupied by any building which has been constructed', since that would fulfil the intention of Legislature."
8. Mr. Bag, learned Advocate appearing for the assessee, reiterated that the judgment of the Punjab and Haryana High Court in the case of Smt. Neena Jain (supra) supported his contention which was taken into consideration by the learned Tribunal. He submitted that this Court should, therefore, refrain from interfering with the order under challenge.
9. We have considered the rival submissions. We are of the opinion that the view expressed by the Karnataka High Court is preferable. The intention of the Legislature appears to be to tax the wealth either in the form of urban land or in the form of a house. The contention is that the flat was purchased in an incomplete condition and is yet to be fully completed. In that case, there can be no doubt that the construction is yet to be completed. If the construction is partly completed or the building is under construction, in that case the exception engrafted in the definition of the words "urban land" does not get attracted. In that event, the urban land or undivided interest, of the assessee, therein continues to be open for taxation within the category of urban land.
10. We therefore set aside the order under challenge to the aforesaid extent and the appeal to that extent is allowed in favour of the revenue. The matter shall now go back for reassessment on the aforesaid basis. The value of urban land or interest of the assessee therein has to be worked out in accordance with law.
SB IT: Mere failure in proving capacity of shareholders to invest in share capital of assessee, could not be a ground for imposing penalty on company
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[2013] 35 taxmann.com 453 (Allahabad)
HIGH COURT OF ALLAHABAD
Commissioner of Income-tax, Kanpur
v.
Awadh Fertilisers (P.) Ltd.*
R.K. AGRAWAL AND RAM SURAT RAM (MAURYA), JJ.
IT APPEAL DEFECTIVE NO. 59 OF 2001†
DECEMBER 6, 2012
I. Section 68, read with section 271(1)(c), of the Income-tax Act, 1961 - Cash credits [Share application money] - Assessment year 1989-90 - Whether failure of assessee-company in proving capacity of various shareholders to invest in share capital could not be a ground for initiating penalty proceeding against it - Held, yes [Para 8] [In favour of assessee]
II. Section 139, read with section 271(1)(c), of the Income-tax Act, 1961 - Return of income - Revised return [Bona fide of assessee] - As assessment was getting barred by limitation and assessee was unable to produce necessary documentary evidence vis-Ã -vis, capacity of shareholders and depositors to full extent within a short span of time - In order to buy peace and to avoid litigation, assessee filed a revised return and surrendered share capital and unsecured loans to certain extent - Revised return had been acted upon by assessing authority and net loss declared therein had been accepted in toto - Whether bona fide of assessee was established in instant case and, therefore, revised return was proper - Held, yes [Para 6] [In favour of assessee]
FACTS
| ■ | During the course of assessment proceeding, the Assessing Officer noticed that the equity share capital of the assessee-company had been increased by an amount of Rs. 9,40,500 and thereby also new unsecured loans. When asked to prove the genuineness of these transactions, the assessee submitted confirmatory letters, except in the case of two persons. A number of defects regarding the new loans and shareholders were found in those letters. As assessment was getting barred by limitation and assessee was unable to produce necessary documentary evidence vis-Ã -vis capacity of shareholders and depositors to full extent within a short span of time, in order to buy peace and to avoid litigation, assessee filed a revised return and surrendered share capital and unsecured loans to certain extent. Depreciation amounting to Rs. 24,62,390 was also claimed. Thus, a net loss of Rs. 13,87,540 was shown in the revised return. The loss as declared in the revised return was accepted by the Assessing Officer. Penalty proceedings under section 271(1)(c) was initiated and he imposed penalty of Rs. 4,25,000 on the ground that the assessee had concealed its income to the extent of the share capital and unsecured loans which were surrendered in the revised return. | |
| ■ | The appeal preferred by the assessee before the Commissioner (Appeals) was dismissed. | |
| ■ | On second appeal, the Tribunal allowed the appeal. | |
| ■ | In the instant appeal, the revenue submitted that the revised return filed by the assessee was no return in the eyes of law. During the course of the assessment proceedings the assessing officer had made inquiries and found the confirmatory letters of shareholders and creditors defective on certain points, thus, the concealment of income was writ large, forcing the assessee to surrender the said amount. The assessee filed a revised return and, therefore, could not be absolved from paying the penalty. |
HELD
| ■ | The submission for the revenue authorities is wholly misconceived. The revised return had been acted upon by the assessing authority and in fact, the loss of Rs. 13,87,540 declared by the assessee in the revised return filed, had been accepted in toto. The bona fide of the assessee is, therefore, established because it was not able to produce the necessary documentary evidence for proving the capacity of the shareholders and depositors to the full extent within a short span of time as the assessment was getting barred by limitation. Even the depreciation of Rs. 24,62,390 claimed in the revised return had been accepted by the Assessing Officer. The share capital and the unsecured loans amounting to Rs. 12,23,100 declared by the assessee in the revised return has also been accepted. [Para 6] | |
| ■ | In view of the decision of Supreme Court in the case of CIT v. Stellar Investment Ltd. [2001] 251 ITR 263/115 Taxman 99 and CIT v. Lovely Exports (P.) Ltd. [2008] 216 CTR 195 (SC), the subscription made by the various shareholders in the share capital of a company cannot be taxed at the hand of the company and can only be taxed at the hands of the shareholder under Section 69. [Para 7] | |
| ■ | That being the position, factually, failure of the assessee in proving the capacity of various shareholders to invest in the share capital, could not have been a ground for initiating penalty proceedings. This fact also establishes the bona fide of the assessee. [Para 8] | |
| ■ | In view of the aforesaid, the Tribunal had rightly deleted the penalty. |
CASE REVIEW
CIT v. Stellar Investment Ltd. [2001] 251 ITR 263/115 Taxman 99 (SC) and CIT v. Lovely Exports (P.) Ltd. [2008] 216 CTR 195 (SC) (para 7)followed.
CASES REFERRED TO
CIT v. Stellar Investment Ltd. [2001] 251 ITR 263/115 Taxman 99 (SC) (para 7) and CIT v. Lovely Exports (P.) Ltd. [2008] 216 CTR 195 (SC)(para 7).
S. Chopra, A. Kumar, A.N. Mahajan, B.J. Agarwal, D. Awasthi, G. Krishna and R.K. Upadhyay for the Appellant. A. Bansal and S.K. Gargfor the Respondent.
ORDER
R.K. Agrawal, J. - The present appeal has been filed under Section 260 (A) of the Income Tax Act, 1961 (hereinafter referred to as the 'Act') against the order dated 31.7.2000 passed by the Income Tax Appellate Tribunal, Allahabad (hereinafter referred to as the 'Tribunal'). The appeal has been admitted vide order dated 7.5.2012 on the following substantial questions of law: -
| "1. | Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was legally correct in directing the Assessing Officer to delete the penalty under section 271(1)(c) of the Income Tax Act, 1961 and refund the amount of penalty, if any collected? | |
| 2. | Whether on the facts and the circumstances of the case, the Income Tax Appellate Tribunal was legally correct in coming to the conclusion that the Assessing Officer had accepted the assessee's request contained in its letter dated 24.3.1992 for non-levy of penalty under section 271(1)(c) of the Income Tax Act, 1961? | |
| 3. | Whether on the facts and the circumstances of the case, the Income Tax Appellate Tribunal was legally correct in holding that a revised return of income was filed by the assessee after entering into some kind of agreement with the Assessing Officer and that, therefore, there was no question of any concealment of income or particulars on the part of the assessee for which penalty could be levied?" |
2. Briefly stated, the facts giving rise to the present appeal are as follows:-
The respondent assessee is a private limited company engaged in the business of manufacture and sale of Single Super Phosphate Fertilizer. The appeal relates to the Assessment Year 1989-90 which is the first year of assessment. For the assessment year in question, the assessee filed his return of income on 30.12.1989 showing a loss of Rs. 2,23,575/- in respect of the previous year comprising 21 months. During the course of assessment proceeding, the Assessment Officer noticed that the equity share capital had been increased by an amount of Rs. 9,40,500/-and thereby also new unsecured loans. The Assessing Officer required the assessee to explain the increase in the equity share capital and also to prove the genuineness of the credits appearing in those accounts as loans were in the name of other persons. The assessee submitted confirmatory letters, except in the case of two persons, namely, Sri Virendra Singh and Sri R.N. Maheshwari who, it was claimed, had made gifts to some family members who were shown to have purchased shares in the assessee company as gifts said to have been received by them. The confirmatory letters were scrutinized and a number of defects regarding the new loans and shareholders, were found in them. As the assessment was getting barred by limitation and the assessee was unable to produce the necessary documentary evidence, vis-a-vis, the capacity of the shareholders and the depositors to the full extent in order to buy peace and to avoid litigation, by the letter dated 24.3.1992, the assessee filed a revised return and surrendered the share capital to the extent of Rs. 8,62,000/- and unsecured loans of Rs. 3,61,100/-. Depreciation amounting to Rs. 24,62,390/- was also claimed. Thus, a net loss of Rs. 13,87,540/- was shown in the revised return. The loss as declared in the revised return was accepted by the Assessing Officer vide order dated 31.3.1992. Penalty proceedings under section 271(1)(c) of the Act was initiated and vide order dated 25.9.1992, he imposed penalty of Rs. 4,25,000/- on the ground that the assessee had concealed it's income to the extent of the share capital and unsecured loans surrendered in the revised return. The appeal preferred by the assessee before the Commissioner of Income Tax (Appeals) was dismissed vide order dated 8.3.1994.
3. Feeling aggrieved, the assessee preferred a second appeal before the Tribunal. The Tribunal by the impugned order, allowed the appeal by holding as follows:-
"7. We have carefully considered the rival submissions facts and circumstances and the documents filed before us by way of paper book. The fact remains that the AO completed the assessment on the basis of revised return dated 24.3.92 along with letter dated 24.3.92, wherein the appellant-assessee had specifically requested for non-levy of penalty and other legal consequences. Prima facie, it appears that the AO accepted the request of the appellant-assessee as per letter dated 24.3.92, because the surrendered amount has been accepted as such and so also credit for claim of depreciation amounting to Rs. 24,52,590/- has been allowed in spite of the fact that such a claim could not be allowed as revised return was not filed in time as per the provisions of section 139(5). Therefore, all this gives an impression that the revised return was filed after entering into some kind of agreement with the AO, therefore, there is no question of any concealment of income or particulars on the part of appellant-assessee, for which penalty could be levied. Moreover, in view of Delhi High Court judgment reported in 240 ITR 880 merely because the appellant-assessee was unable to produce creditors and the shareholders and the amount was surrendered, the penalty of concealment cannot be sustained. In view of the facts and circumstances and the case law, we direct the AO to delete the penalty and refund the amount of penalty if collected any."
4. We have heard Sri Shambhu Chopra, learned Senior Standing Counsel for the Revenue and Sri S.K. Garg, learned counsel appearing for the respondent -assessee.
5. Sri Chopra submitted that the revised return filed by the assessee was no return in the eyes of law as it was filed beyond the stipulated period and further, during the course of the assessment proceedings, the Assessing Officer had made inquiries and found the confirmatory letters defective on certain points, thus, the concealment of income was writ large, forcing the respondent - assessee to surrender the said amount. The assessee filed a revised return and therefore, cannot be absolved from paying the penalty.
6. The submission is wholly misconceived. The revised return had been acted upon by the Assessing Authority and in fact, the loss of Rs. 13,87,540/- declared by the assessee in the revised return filed on 24.3.1992, had been accepted in toto. The bonafide of the assessee is therefore established because it was not able to produce the necessary documentary evidence for proving the capacity of the shareholders and depositors to the full extent within a short span of time as the assessment was getting barred by limitation. Even the depreciation of Rs. 24,62,390/- claimed in the revised return, had been accepted by the Assessing Officer. The share capital and the unsecured loans amounting to Rs. 12,23,100/- declared by the assessee in the revised return has also been accepted.
7. We may mention here that in view of the decision of Hon'ble Supreme Court in the case of CIT v. Stellar Investments Ltd. [2001] 251 ITR 263/115 Taxman 99 (SC) and CIT v. Lovely Exports (P.) Ltd. [2008] 216 CTR 195 (SC) the subscription made by the various shareholders in the share capital of a company cannot be taxed at the hand of the company and can only be taxed at the hands of the shareholder under Section 69 of the Act.
8. That being the position, factually, failure of the assessee in proving the capacity of the various shareholders to invest in the share capital, could not have been a ground for initiating penalty proceedings. This fact also establishes the bonafide of the assessee.
9. In view of the aforesaid discussion, we are of the considered opinion that the Tribunal had rightly deleted the penalty. The impugned order does not suffer from any legal infirmity.
10. The appeal fails and is dismissed.
IT: No disallowance if services were, in fact, rendered but payment of commission was made in name of a different party
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[2013] 35 taxmann.com 447 (Allahabad)
HIGH COURT OF ALLAHABAD
Commissioner of Income-tax
v.
Dr. Amar Kant Gupta*
R.K. AGRAWAL AND RAM SURAT RAM (MAURYA), JJ.
IT APPEAL NOS. 271, 290, 296 & 298 OF 2000†
JANUARY 15, 2013
Section 37(1), read with section 263, of the Income-tax Act, 1961 - Business expenditure - Allowability of [Commission] - Assessment years 1991-92 to 1994-95 - Assessee claimed deduction of amount of commission paid to company RPL for procuring order from Government department - Assessing Officer of RPL found that orders were procured by SG who was director of company RPL in his individual capacity and, thus, payment of commission had to be assessed in hands of said 'SG' - However, Commissioner sought to revise said order on ground that no services for procuring order were rendered at all - Whether since Assessing Officer on basis of detailed inquiry found that 'SG' had rendered services in his individual capacity, order of Commissioner was to be set aside - Held, yes [Para 4] [In favour of assessee]
A.N. Mahajan, A. Kumar, B.J. Agarwal, D. Awasthi, G. Krishna, R.K. Upadhyay and S. Chopra for the Appellant. A. Bansal, Amit Shukla,R.R. Agarwal, S. Agarwal, R.S. Agarwal and S.K. Garg for the Respondent.
ORDER
1. All these four appeals have been filed under Section 260 (A) of the Income Tax Act, 1961 (hereinafter referred to as the 'Act') against the order dated 3.3.2000 passed by the Income Tax Appellate Tribunal, Delhi Bench "SMC" New Delhi (hereinafter referred to as the 'Tribunal'). The Income Tax Department has proposed the following substantial question of law said to be arising out of the order of the Tribunal. The substantial question of law in all these four appeals is similar :-
"Whether on the facts and circumstances of the case, the Ld. ITAT is legally correct in stating that Ld. CIT was not justified in invoking the provisions of Section 263 of the I.T. Act whereas D.C. (Asstt.), Spl. Range while completing the assessment of M/s Ratandeep Polymers (P) Ltd., established that neither service was rendered by the company to the assessee nor an order in behalf of the assessee from Govt. Department was received for service?"
2. Briefly stated, the facts giving rise to the present appeal are as follows:-
The appeal relates to the Assessment Years 1991-92 to 1994-95. In all these assessment years the respondent-assessee claimed payment of commission of various amount to M/s Ratandeep Polymers (P) Ltd. For the assessment/re-assessment proceedings for the year 1991-92, the Assessing Officer inquired the matter in a great detail and found that in fact orders were procured by Dr. Shashi Kant Garg from various Government Department and Commission was paid and he being Director of the Company had claimed payment on behalf of Company. The Income Tax Officer had found that Divisional Ayurvedic and Unani Officer, Muzaffarnagar, Principal/Superintendent, Swamy Kalyan Dev Rajkiya Ayurvedic College, Rampur, Divisional Ayurvedic and Unani Officer, Narendra Nagar, Tehri Garhwal, Divisional Ayurvedic and Unani Officer, D.M. Colony, Bulandshahar, Divisional Ayurvedic and Unani Officer, Moradabad, Divisional Ayurvedic and Unani Officer, Saharanpur had confirmed that the orders were procured by Dr. Shashi Kant Garg on behalf of M/s. Amar Pharmaceuticals, Muzaffarnagar of which assessee was the proprietor and supplies were made accordingly. In this back ground the Assessing Officer has held that the payment of commission alleged to be paid to M/s Ratandeep Polymers (P) Ltd. was in fact actually paid to Dr. Shashi Kant Garg and this commission is to be assessed in the hand of Dr. Shashi Kant Garg on substantive basis. This order was set aside by the Commissioner of Income Tax, Meerut in exercise of provisions of Section 263 of the Act on the ground that inquires from M/s Ratandeep Polymers (P) Ltd. showed that books of accounts of the said Company had been manipulated and no services have been rendered for which commission was to be paid. He accordingly, set aside the order and directed the Assessing Officer to pass a fresh order in accordance with law in the light of the observation made under Section 263 of the Act. On the basis of the inquiry made for the Assessment Year 1991-92, the aforesaid order was made applicable for the subsequent assessment years. However, on an appeal before the Tribunal, the Tribunal has allowed the appeal and set aside the order of the Commissioner of Income Tax, Meerut passed under Section 263 of the Act.
3. We have heard Sri Dhananjay Awasthi, learned Senior Standing Counsel for the Revenue and Sri Rakesh Ranjan Agrawal, learned counsel appearing for the respondent-assessee.
4. In our considered opinion as Assessing Officer on the basis of a detailed inquiry found that on procurement of orders from various Government Department for the respondent-assessee, Dr. Shashi Kant Gupta had rendered services in his individual capacity, the amount of commission which is alleged to have been paid to M/s Ratandeep Polymers (P) Ltd., has to be assessed on substantive basis in the hands of Dr. Shashi Kant Garg . There is no question of holding that the Assessing Officer had not made a detailed inquiries in this behalf. The order of Commissioner of Income Tax (Appeals) under Section 263 of the Act has been righly set aside by the Tribunal.
5. We do not find any legal infirmity in the impugned order. The appeal fails and is dismissed.
IT : Interest earned by assessee-co-operative society on mutual funds invested with banks would be treated as other income of society
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[2013] 35 taxmann.com 445 (Uttarakhand)
HIGH COURT OF UTTARAKHAND
Commissioner of Income-tax, Dehradun
v.
Laksar Cooperative Cane Development Union Ltd.*
BARIN GHOSH, CJ.
AND SERVESH KUMAR GUPTA, J.
AND SERVESH KUMAR GUPTA, J.
IT APPEAL NOS. 17 TO 20 & 25 OF 2008
MAY 31, 2013
Section 56 of the Income-tax Act, 1961 - Income from other sources - Changeable as [Co-operative society] - Assessee, a co-operative society, was providing credit facilities to its members - It invested its surplus funds with banks in form of fixed deposits, N.S.S. etc., and earned interest income - Said income was assessed as other income of society while assessee claimed same as business income of society - Whether though no doubt fund invested was mutual fund belonging to members of co-operative societies, but for keeping those funds invested with a third party, i.e., bank, third party was making contribution to that fund by paying interest and it being no contribution by any of members of societies, same could not be treated to be an expansion of mutual fund by contributions of members but expansion of funds of co-operative society by a third party - Held, yes - Whether, thus, it was rightly assessed as other income of society - Held, yes [Para 1] [In favour of revenue]
CASE REVIEW
Bangalore Club v. CIT [2013] 212 Taxman 566/29 taxmann.com 29 (SC) and CIT v. Dehradun Club Ltd. [IT Appeal No. 15 of 2007] (para 1)followed.
CASES REFERRED TO
CIT v. Karnataka State Co-operative Apex Bank [2001] 251 ITR 194/118 Taxman 321 (para 1), CIT v. Dehradun Club Ltd. [IT Appeal No. 15 of 2007] (para 1) and Bangalore Club v. CIT [2003] 212 Taxman 566/29 taxmann.com 29 (SC)(para 1).
Hari Mohan Bhatia for the Appellant. Siddhartha Sah, Amar Shukla and Gopal Narain for the Respondent.
JUDGMENT
Barin Ghosh, CJ. - Respondents, in these appeals, are registered Cooperative Societies. They are providing credit facilities to their members. They are not Cooperative Banks and, accordingly, no banking regulation provision is applicable to them. The surplus funds available in their hands have been invested by them in the form of bank fixed deposits, National Savings Certificates etc. There is no dispute that these investments have been made beyond their members, with third parties. The third parties have paid interest on those investments. The interest income, in the hands of the respondents, was treated as other income. Respondents contended, which contention has been accepted by the Tribunal that the funds available to the respondents is a mutual fund and that has been expanded by mutuality and, accordingly, the same should be treated to be profit and gain of business attributable to the activity of providing credit facilities to the members of the respondents. This short finding is under challenge. The fact remains that the investments were made with third parties and, accordingly, though the amount of investment is the amount created by mutuality but the income earned therefrom from the third party, by which the mutual fund has been expanded, has been contributed by a third party and not by mutuality and, as such, the same cannot be taken into account as the profits and gains of business attributable to providing credit facilities to the members of the respondents. Section 80P of the Income Tax Act will not apply to the same. Had those investments been part of the business requirement of any of the respondents, then, of course, income derived from such investments, as held by the Hon'ble Supreme Court in the case of CIT v. Karnataka State Co-Operative Apex Bank [2001] 251 ITR 194/118 Taxman 321, would be profits and gains of the business of the respondents. That was not the contention of any of the respondents at any stage. In other words, it was contended by the respondents, at any stage, that these investments were compulsory in nature and, accordingly, were required to be made by them to remain in the business of providing credit facilities to their members. The only contention was that the respondents are providing credit facilities to their members and since the excess available after providing such credit facilities are being invested, the income derived therefrom by way of interest should be treated to be interest paid on the mutual fund, thus invested, and as part of the profits and gains of business attributable to providing credit facilities to its members. No doubt, the fund invested is the mutual fund belonging to the members of the Cooperative Societies, but for keeping those funds invested with a third party, the third party is making contribution to that fund by paying interest and that being no contribution by any of the members of the Societies, the same cannot be treated to be an expansion of the mutual fund by the contributions of the members, the same being an expansion of the funds of the Cooperative Society by a third party for the fund remained invested with it for a certain period of time. This aspect of the matter has already been dealt with by this Court in the case of CIT v. Dehradun Club Ltd. [IT Appeal No. 15 of 2007] and also by the Hon'ble Supreme Court in the case of Bangalore Club v. CIT [2013] 212 Taxman 566/29 taxmann.com 29 and other connected appeals.
2. We, accordingly, allow the appeals, set aside the judgments of the Tribunal as well as of the Commissioner of Appeals and restore the assessment orders.
IT : When books of account of assessee firm found and seized from place of partner of firm Assessing Officer is fully empowered to initiate proceeding under section 153C against firm, i.e. 'other person'
IT : Where there was a family settlement and there was a retirement as well as induction of new partner and assets of partnership transferred to retiring partner, same would amount to transfer of capital assets in nature of capital gain chargeable to tax under section 45(4)
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[2013] 32 taxmann.com 322 (Ahmedabad - Trib.)
IN THE ITAT AHMEDABAD BENCH 'B'
Bharat Ginning & Pressing Factory
v.
Income-tax Officer, Central Ward -1, Baroda*
MUKUL KUMAR SHRAWAT, JUDICIAL MEMBER
AND T.R. MEENA, ACCOUNTANT MEMBER
AND T.R. MEENA, ACCOUNTANT MEMBER
IT APPEAL NOS. 2404 TO 2408 (AHD.) OF 2007
[ASSESSMENT YEARS 1999-2000 TO 2004-05]
[ASSESSMENT YEARS 1999-2000 TO 2004-05]
APRIL 12, 2013
I. Section 153C of the Income-tax Act, 1961 - Assessment of income of any other person [Firm and partners] - Assessment years 1999-2000, 2000-01, 2002-03 to 2004-05 - Whether when books of account of assessee firm found and seized from place of partner of firm, Assessing Officer is fully empowered to initiate proceeding under section 153C against firm i.e. 'other person' and no separate satisfaction is required to be recorded - Held, yes [Para 5] [In favour of revenue]
II. Section 45, read with section 2(47), of the Income-tax Act, 1961 - Capital gains - Chargeable as [Distribution of assets of firm on dissolution] - Assessment year 1999 - 2000 - There was a family settlement and there was a retirement as well as induction on new partner - On account of re-constitution of partnership firm, assets of firm i.e. land and building had been revalued on mutual understanding to Rs.47.86 lakhs as against book value of Rs. 6.45 lakhs - Firm credited amount on account of revaluation in respective partners/capital accounts in their profits sharing ratios in firm and accordingly, firm had paid Rs.23.93 lakhs to retiring partners on account of revaluation of assets of firm - Whether there was transfer of capital assets in nature of capital gains which was chargeable to tax under section 45(4) - Held, yes [Para 9] [In favour of Revenue]
Words and phrases : 'Otherwise' as occurring in section 45 of the Income-tax Act, 1961
FACTS-II
| ■ | The Assessing Officer observed that the assessee was family firm which had been re-constituted its partnership wherein three partners namely HS having share of 25%, PS of 12.5% and BS of 12.5% had retired from the partnership firm. On account of re-constitution of the partnership firm, the assets of the firm i.e. land and building had been revalued on mutual understanding to Rs. 47.86 Lakhs as against book value of Rs. 6.45 lakhs and the amount on account of revaluation was credited in respective partners Capital Accounts in their profit sharing ratios in the firm. Accordingly, the firm had paid Rs. 23.93 Lakhs to the retiring partners on account of revaluation of assets of the firm. | |
| ■ | The Assessing Officer invoked provisions of section 45(4). The Assessing Officer concluded that the assessee transferred the building 'otherwise' under section 45(4) and, therefore, he made addition of Rs. 23.93 Lakhs on account of Long Term Capital Gain in the income of the firm. | |
| ■ | On appeal, the Commissioner (Appeals) held that the word 'otherwise' takes into consideration not only dissolution of the firm but also cases of reconstitution of the firm. Further, the amount of Rs.23,93,040 was paid to retiring partners in lieu of relinquishment of their rights in the assets of the firm which is clearly covered by the defininition of 'transfer' as per section 2(47), whether on account of re-constitution of the Partnership firm, or, on re-valuation of assets. The word 'transfer' as defined in section 2(47) includes the extinguishment of any rights therein or relinquishment of the capital asset. Here, in this case, the retiring partners had extinguished or relinquished their right in the assets of the firm for which they had received consideration of Rs. 23.93 lakhs from the firm. The gain to the firm was in the form of amount introduced in the firm by two new partners. Thus, capital gain was clearly applicable in the instant case. | |
| ■ | On appeal : |
HELD-II
| ■ | The Assessing Officer made addition by following Bombay High Court decision in case of CITv. A.N. Naik Associates [2004] 265 ITR 346/136 Taxman 107, which has been confirmed by the CIT(A), wherein it was held that on transfer of capital assets by way of distribution of capital assets on account of dissolution of firm or otherwise, the gain shall be chargeable to tax as the income of the firm. The expression 'otherwise' has to be read with the words transfer of the capital assets. If so read, it become clear that even when a firm is in existence and there is a transfer of capital assets, it comes within expression 'otherwise'. The word 'otherwise' takes into sweep not only cases of dissolution but also cases of subsisting partners of partnership transferring assets to a retiring partner. As per section 2(47), the distribution of capital assets that dissolution of a firm would be regarded as transfer. It is now clear that when the assets are transferred to a partner that falls within the expression 'otherwise' and the rights of the other partners in those assets of the partnership firm extinguished. In this case, there was a family settlement and there was a retirement as well as induction of new partner and assets of the partnership transferred to the retiring partner. It would amount to the transfer of capital assets in the nature of capital gain which were chargeable to tax under section 45(4). |
CASE REVIEW
Regards,
Pawan Singla
BA (Hon's), LLB
Audit Officer
| | Interest paid is treated as compensatory and allowed under section 37(1) |
| Posted on 05 August 2013 by Diganta Paul | |
CourtINCOME TAX APPELLATE TRIBUNAL BriefFacts in brief:- The assessee company is engaged mainly in the business of manufacture and sale of auto parts. During the year under reference the assessee company was in the process of setting up a plant for manufacturing of various auto components i.e. fuel tanks, grip rear, step assembly, frame for two wheelers segment. The assessee company is a joint venture between JBM Group and Thai Summit Group of Thailand. The company is running three manufacturing units at Gurgaon (Haryana), Chakan (Pune) and Hosur (Tamil Nadu). During the impugned Assessment Year, the appellant had set up a new manufacturing unit at Pantnagar in Uttarakhand. The assessee filed its return of income for the Assessment Year 2008-09 declaring a loss of Rs.21.07 crores on 30th September, 2008. Subsequently a revised return of income was filed on 12th March, 2010 declaring a loss of Rs.22,29,57,473/-. The Assessing Officer passed an order u/s 143(3) on 20.12.2010 assessing the loss at Rs.19,35,83,997/- inter alia making additions on account of disallowance of expenses on Pant Nagar Unit on the ground that these are preoperative expenses, prior period expenses etc. Aggrieved the assessee carried the matter in appeal. CitationACIT, Circle 16(1) New Delhi (Appellant) Vs. M/s Thai Summit Neel Auto P.Ltd. 601, Hemkunt Chambers 89, Nehru Place New Delhi 110 019 PAN: AABCT 9860 D (Respondent) Judgement N THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: "H" NEW DELHI BEFORE SHRI J.SUDHAKAR REDDY, AM AND SHRI C.M. GARG, JM ITA no. 5582/Del/2011 Assessment Year: 2008-09 ACIT, Circle 16(1) New Delhi (Appellant) Vs. M/s Thai Summit Neel Auto P.Ltd. 601, Hemkunt Chambers 89, Nehru Place New Delhi 110 019 PAN: AABCT 9860 D (Respondent) AND Cross Objection 295/Del/2012 (In ITA 5582/Del/12) A.Y. 2008-09 Thai Summit Neel Auto P.Ltd. New Delhi (Appellant) Vs. ACIT, Circle 16(1) New Delhi (Respondent) Appellant by:- Sh.R.Santhanam, Adv. & Sh. Suresh Malik, C.A. Respondent by:- Sh. A.K.Mishra, CIT, D.R O R D E R PER J.SUDHAKAR REDDY, AM This is an appeal filed by the Revenue directed against the order of the Ld.Commissioner of Income Tax (Appeals)-XIX dt. 1.9.2011 pertaining to the Assessment Year 2008-09. The Cross Objection is filed by the assessee. 2. Facts in brief:- The assessee company is engaged mainly in the business of manufacture and sale of auto parts. During the year under reference the assessee company was in the process of setting up a plant for manufacturing of various auto components i.e. fuel tanks, grip rear, step assembly, frame for two wheelers segment. The assessee company is a joint venture between JBM Group and Thai Summit Group of Thailand. The company is running three manufacturing units at Gurgaon (Haryana), Chakan (Pune) and Hosur (Tamil Nadu). During the impugned Assessment Year, the appellant had set up a new manufacturing unit at Pantnagar in Uttarakhand. The assessee filed its return of income for the Assessment Year 2008-09 declaring a loss of Rs.21.07 crores on 30th September, 2008. Subsequently a revised return of income was filed on 12th March, 2010 declaring a loss of Rs.22,29,57,473/-. The Assessing Officer passed an order u/s 143(3) on 20.12.2010 assessing the loss at Rs.19,35,83,997/- inter alia making additions on account of disallowance of expenses on Pant Nagar Unit on the ground that these are preoperative expenses, prior period expenses etc. Aggrieved the assessee carried the matter in appeal. 3. The First Appellate Authority allowed the claim of the assessee for deduction of preoperative expenses. Further on the other issues he granted part relief. Aggrieved the Revenue is in appeal before us on the following grounds. "1. On the facts and the circumstances of the case and in law the ld.CIT(A) has erred in directing the Assessing Officer to treat the preoperative expenditure of Rs.3,44,51,263/- as revenue expenditure as against the capital expenditure held by the Assessing Officer and withdrawing the depreciation of Rs.51,67,990/-. 2. On the facts and the circumstances of the case and in law the ld.CIT(A) has erred in deleting the disallowance of Rs.37,692/- made by the Assessing Officer out of prior period expenses as capital expenditure and allowing depreciation." 4. The assessee filed a Cross Objection on the following grounds. "1. On the facts and in the circumstances of the case, the authorities below had erred, both on facts and in law, in disallowing interest of Rs.50,511/- paid by the assessee to the Central Excise department on reversal of Service Tax credit taken earlier on outward freight for GTA services and the same ought to have been allowed as revenue expenditure u/s 37(1). 2. On the facts and in the circumstances of the case, the Assessing Officer made the illegal addition of Rs.50,511/- without even issue of show cause notice and effective opportunity of hearing to the appellant and the impugned addition ought to have been deleted by the CIT(A) but in view of the disallowance having been upheld by him, the orders of both the lower authorities are liable to be quashed and the deduction rightly claimed be allowed to the appellant." 5. We have heard Mr.R.Santhanam, the Ld.Counsel on behalf of the assessee and Shri A.K.Mishra, the Ld.CIT, D.R. on behalf of the Revenue. On a careful consideration of the facts and circumstances of the case and a perusal of the papers on record and the orders of the authorities below, we hold as follows. 6. As far as ground no.1 is concerned, both parties submitted that the issuein question is covered by the decision of Hon'ble Delhi 'H' Bench of the ITAT inthe assessee's own case for the Assessment Year 2006-07. In ITA 5184/Del/2010 order dt. 18.2.2013 where at para 5 it is observed as follows. "5. We have heard rival contentions and gone through the entire material available on record. It has not been disputed that Gurgaeon plant commenced manufacturing and initial sale was effected on 24.3.20905 which is accepted by department. Thereafter, from April,2005 to February,2006 the manufacturing activities on trial production and sales continued. Though the plant may not have run on its full commercial capacity, the fact nevertheless remains that there were manufacturing activities and sales of such production. Thus, the manufacturing business of the assessee had commenced. In view thereof, we find no infirmity in the order of the CIT(A), which in turn has relied on Hon'ble Delhi High Court judgement in the case of L.G.Electronics (India) Ltd. (supra). The same is upheld." 6.1. In the case on hand the assessee company has submitted that the Pant Nagar Unit was completed and commissioned in April, 2007 and thus the business of the assessee company had been set up. It was pointed out that the commercial production began only in October, 2007, as certain tests and experiments were necessary before commencement of commercial production. It was submitted that during the interim period test run was done. The Assessing Officer had at page 7 observed as follows. "I have carefully considered the submissions of the assessee company. There is no denying of the fact that the assessee company has incurred revenue expenditure of Rs.54,03,67,284/- at its Pant Nagar Plant during the period 1.4.2007 to 30.9.2007 and generated sales revenue of Rs.50,59,14,021/- in this period (after considering other income and impact of increase/decrease in stock). Further, I find that mere setting up of business and carrying on of business at Pant Nagar w.e.f. 1.4.2007 is not enough, and actual commencement of commercial production and sales are essential to claim deduction for the expenses u/s 37(1). Therefore, I disallow the aforesaid expenses amounting to Rs.3,44,53,263/- incurred and claimed by the assessee company for the period April,2007 to September,2007 prior to commencement of commercial production on 1.10.2007 at its Pant Nagar unit and treat them as pre-operative in nature, to be capitalized." 6.2. These observations in our considered opinion are contrary to the propositions laid down by various Courts and Tribunals on this issue. Thus we uphold the finding of the First Appellate Authority on this issue. We respectfully following the Coordinate Bench order for the Assessment Year 2006-07. In the result this ground of the Revenue is dismissed. 7. Ground no.2 is on the issue of disallowance of prior period expenses. The Ld.Commissioner of Income Tax (Appeals) agreed with the contentions of the assessee that the expenditure in question crystallized during the year and under those circumstances, they have to be allowed. We find no infirmity in the same. 8. In the result the appeal of the Revenue is dismissed. 9. Coming to the Cross Objection filed by the assessee, the fact of the issue is explained by the assessee in its written submissions before the Ld.Commissioner of Income Tax (Appeals) which is extracted for ready reference. "During the year under consideration, the appellant company has paid Rs.50,511/- as interest at the time of reversal of service tax credit wrongly taken earlier. The said interest is revenue expenditure deductible u/s 37(1) as the payment of interest represents expenditure laid out wholly or exclusively for the purpose of the business. As per prevailing practice, the AGCR Audit party visits all big assesses and if on examination of the records concerning service tax, they find any deficiency like the credit for the tax paid on any item/goods/services is not allowable then they inform the assessee to correct the deficiency. During the course of such an audit, the assessee company was informed that it had availed wrong credit of service tax. On being informed, the appellant company reversed the service tax credit though PlA and on that service tax amount, it paid Rs.50,511/- as interest. The voucher and the calculations of the interest are enclosed at page nos. 126 to 127." 10. The Ld.Commissioner of Income Tax (Appeals) held that the assessee was penalized and the payment was not compensatory in nature. Before us the assessee furnished documents where the transaction in question is recorded as follows: "Being interest on GTA paid to Central Excise after reversal on 23.8.2007 to 'PLA'." A perusal of the details shows that this is a case of payment of interest and not penalty. Thus in our view it is compensatory in nature and has to be allowed as a deduction u/s 37(1). Thus we allow this ground of the assessee in the C.O. 11. In the result the C.O. filed by the assessee is allowed. 12. In the result the appeal filed by the Revenue is dismissed and the C.O. filed by the assessee is allowed. Order pronounced in the Open Court on 05th July, 2013. Sd/- Sd/- (C.M. GARG) (J.SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: the 05th July, 2013 *manga Copy of the Order forwarded to: 1. Appellant; 2. Respondent; 3. CIT; 4. CIT(A); 5. DR; 6. Guard File By Order Asst. Registrar 1. Date of Dictation: 2. Draft placed before the Author on: 3. Draft proposed and placed before Second Member on: 4. Draft discussed/approved by the Second Member on: 5. Approved draft came to Sr.P.S. on: 6. Date of Pronouncement: 7. File sent to Bench Clerk on: 8. Date on which file given to Head Clerk on: 9. Date of dispatching the Order on: |
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