Income Tax Appellate Tribunal - Chennai
Pentamedia Graphics Ltd., Chennai vs Assessee on 17 January, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
'A' BENCH, CHENNAI
BEFORE Dr. O.K.NARAYANAN, VICE-PRESIDENT
AND SHRI HARI OM MARATHA, JUDICIAL MEMBER
ITA Nos.957 & 958(Mds)/2011
Assessment Years : 2002-03 & 2003-04
M/s.Pentamedia Graphics The Assistant Commissioner
Ltd., (Formerly Pentafour of Income-tax,
Software & Exports Ltd.), CompanyCircle V(2),
"Taurus", 25-First Main Rd., Vs. Chennai.
United India Colony,Kodam-
bakkam, Chennai-600024.
PAN AAACP1647B.
(Appellant) (Respondent)
Appellant by : Mrs.Pushya Seetharaman for
Ms. G.Vardini, Advocates.
Respondent by : Shri Shaji P Jacob, IRS, Addl.Commioner
of Income-tax
Date of Hearing : 17th January, 2012
Date of Pronouncement : 17th January, 2012
ORDER
PER Dr.O.K.NARAYANAN, VICE-PRESIDENT:
These two appeals are filed by the assessee. The relevant assessment years are 2002-03 and 2003-04. The
-2- ITA 957 & 958 of 2011 appeals are directed against the orders of the Commissioner of Income-tax, Chennai-IV at Chennai, passed under section 263 of the Income-tax Act, 1961, dated 24-3-2011.
2. For the assessment year 2002-03, the assessment was completed under section 143(3) of the Act. The assessment order was taken in appeal before the Commissioner of Income- tax(Appeals). Later on, the matter was taken before the Income- tax Appellate Tribunal in second appeal. In the light of the order of the Tribunal dated 24-3-2008, the assessing authority passed an order to give effect to the orders of the Tribunal through his proceedings dated 3-7-2008.
3. The Commissioner of Income-tax, on perusal of the records, found that the assessing authority, while giving effect to the order of the Tribunal, has adopted the profit as per the profit and loss account without excluding the depreciation already debited in the profit and loss account under the provisions of the Companies Act. This has resulted in the assessing authority giving deductions for depreciation allowance twice, one computed under the Companies Act and the other computed under the Income-tax Act. The Commissioner of Income-tax
-3- ITA 957 & 958 of 2011 also found that while computing the benefit of section 10B, the assessing authority has not split depreciation allowance into two, to exclude one portion and on that ground also the order of the assessing authority has become erroneous.
4. In view of the above, the Commissioner of Income- tax passed a revision order under section 263 of the Act, directing the Assessing Officer to make appropriate adjustments in respect of depreciation and re-compute the taxable income after giving the assessee an adequate opportunity of being heard.
5. It is against the above that the assessee has come in appeal for the assessment year 2002-03.
6. As feared by the assessee, the Commissioner of Income-tax has not dealt with any issue that was subject matter of adjudication before the Tribunal. In that way the Commissioner of Income-tax has not exceeded his jurisdiction available to him under section 263 of the Act. Section 263 authorises a Commissioner of Income-tax to revise any order passed by any subordinate authority, which is found to be erroneous and prejudicial to the interests of the Revenue. The
-4- ITA 957 & 958 of 2011 order passed by the assessing authority to give effect to the orders of the Tribunal is "any order" passed by an assessing authority, who is subordinate to the Commissioner of Income-tax. Therefore, the Commissioner of Income-tax invoked the powers under section 263 within the permissible limits of law. He has not exceeded jurisdiction.
7. Regarding the merits, it is quite evident that the assessing authority has adopted the net profit for further giving deduction by way of depreciation, which was already modified by the depreciation allowance as provided under the Companies Act. Therefore, the excess amount of depreciation allowance has been granted to the assessee. Likewise, the division of depreciation allowance also has not been done while computing the benefit available to the assessee under section 10B of the Act. This also has resulted in excessive benefit to the assessee. We, therefore, find that the order passed by the assessing authority is erroneous as well as prejudicial to the interests of the Revenue.
8. In these circumstances, the revision order passed by the Commissioner of Income-tax for the assessment year
-5- ITA 957 & 958 of 2011 2002-03 is in accordance with law and his order is upheld. The assessee fails in its appeal for the assessment year 2002-03.
9. As far as the assessment year 2003-04 is concerned, the first ground raised by the assessee is regarding limitation. It is the case of the learned senior counsel appearing for the assessee that the period of limitation applicable to this case is to be computed from the date of the first assessment order passed under section 143(3) and if so, the revision order has been passed beyond time. The learned senior counsel argued that the Commissioner of Income-tax ought not to have worked out the limitation period from the date of the second assessment order passed under section 147, read with section 143(3).
10. The issue considered by the Commissioner of Income-tax to exercise his powers under section 263 and the issue considered by the assessing authority to issue notice under section 148 were different issues. After completing the regular assessment, the assessing authority issued notice under section 148 to make good a particular lapse on the basis of the reasons recorded by him. That point alone was adjusted in the
-6- ITA 957 & 958 of 2011 assessment completed under section 143(3) read with section
147. The latter order survives for the verification of the Commissioner of Income-tax. Rather, the first order of assessment has been merged with the income-escaping assessment completed subsequently. When the Commissioner of Income-tax has the authority to examine the records of the second order, the entire matter of assessment is open before him. When that is the case, he can pass an order under section 263 with reference to any issue in the light of the verification of the income-escaping assessment order and the limitation period begins from the date of passing of such income-escaping assessment order. Therefore, it is to be seen that the Commissioner of Income-tax has passed his revision order for the assessment year 2003-04 within the period of limitation. This objection raised by the assessee fails.
11. The issue on which the Commissioner of Income- tax has revised the order for the assessment year 2003-04, is the interest paid by the assessee on the loan taken by the employees of the assessee for allotment of ESOP shares to them. The employees of the assessee company at the first
-7- ITA 957 & 958 of 2011 instance opted for ESOP and availed bank loans for the purpose of acquiring the shares. Later on, the employees declined to subscribe to the ESOP and, therefore, the loan had to be repaid alongwith interest. The assessee claimed the interest as an expenditure deductible in computing its taxable income. The Commissioner of Income-tax held that the loan was not availed for the purpose of business of the assessee and, therefore, such interest could not be allowed as a deduction in computing the income of the assessee.
12. The learned senior counsel appearing for the assessee has argued that on merits the issue raised by the Commissioner of Income-tax is not sustainable as the interest paid by the assessee was a revenue expenditure and, therefore, it's claim for deduction was quite legitimate. She contended that the expenditure is deductible under section 36(1) of the Act. The ESOP is in the nature of a perquisite to the employees and, therefore, the interest charges attributable to the loan availed for giving away such perquisites in the nature of ESOP to the employees is an expenditure incurred in the course of carrying on of the business and it is within the legitimate right of the
-8- ITA 957 & 958 of 2011 assessee to manage its relationship with the employees to the best of its interests and any expenditure incurred by the assessee company in that course should be treated as incurred for the business and entitled for deduction as expenditure in computing the taxable income.
13. We appreciate all these profound arguments advanced by the learned senior counsel appearing for the assessee. But these arguments have to be verified with the facts and details available on record. The Commissioner of Income-tax has not adjudicated the issue himself but set aside the matter to the Assessing Officer to re-determine the issue after hearing the assessee. Therefore, it is in the best interest of the assessee to raise all the above contention before the assessing authority at the time of passing orders in consequence of the revision passed by the Commissioner of Income-tax for the assessment year 2003-04. Reserving that liberty of the assessee to raise its objections before the assessing authority, we uphold the revision order passed by the Commissioner of Income-tax for the assessment year 2003-04.
-9- ITA 957 & 958 of 2011
14. In result, these two appeals filed by the assessee are dismissed.
Order pronounced in the open court at the time of hearing on Tuesday, the 17th January, 2012 at Chennai.
Sd/- Sd/-
(Hari Om Maratha) (Dr. O.K.Narayanan)
Judicial Member Vice-President
Chennai,
Dated the 17th January, 2012.
V.A.P.
Copy to: (1) Appellant
(2) Respondent
(3) CIT
(4) CIT(A)
(5) D.R.
(6) G.F.