Income Tax Appellate Tribunal - Mumbai
Welspun Power & Steel Ltd, Mumbai vs Department Of Income Tax on 15 December, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES, 'G', MUMBAI
BEFORE SHRI T.R.SOOD, ACCOUNTANT MEMBER
AND
SHRI VIJAY PAL RAO, JUDICIAL MEMBER
ITA No. 2287/Mum/2010
(Assessment Year : 2006-07)
M/s Welspun Power & Dy. Commissioner of
Steel Limited, Income Tax
Trade World, 7(3),
B-Wing, 9 t h floor, V/s Aayakar Bhavan,
Kamala M ills M K Road,
Compound, Mumbai-400020.
Lower Parel (W),
Mumbai-400013.
PAN: AAACW5308G
APPELLANT RESPONDENT
ITA No.3524/M um/2010
(Assessment Year : 2006-07)
Dy. Commissioner of M/s Welspun Power
Income Tax & Steel Limited,
7(3), Trade World, B-Wing,
Aayakar Bhavan, V/s 9 t h floor,
M K Road, Kamala Mills
Mumbai-400020 Compound,
Lower Parel (W),
Mumbai-400013.
PAN: AAACW5308G
APPELLANT RESPONDENT
Date of Hearing : 15.12.2011
Date of Prono uncement : 28.12.2011
Reve nue by : Shri F.V.Irani & Mitesh Shah
Assessee by : Shri A.K.Nayak
IT A No. 2287/M um/2010
2 ITA No.3524/Mum/2010
( As s es s me nt Ye ar : 2 00 6- 07 )
O R D E R
PER VIJ AY P AL RAO (JM) These cross-appeals are directed against the order dated 9.1.2010 of the ld. CIT(A) fo r the assessment year 2006-07.
ITA No. 2287/M um/2010 (by Assessee appeal)
2. The assessee has raise d following grounds in this appeal:
"The ground or grounds of appeal are without prejudice to one another.
1.a) On the fact and in the circumstances of the case and in law, the ld. CIT(A) erre d in confirming the addition of Rs.25,21,81O/- made by the AO to the income of the Appellant by way of disallowing prior period expenses.
b) The Ld. CIT(A) failed to appreciate that these expenses have been crystallized during the previous year and as such deduction for the same is allowable .
c) The LId. CIT(A) erred in not disposing off the ground No.5 raised disputing levy of interest u/s.2348, 234C and 234D of the Income Tax Act, 1961. The Appellant denies its liability for such interest."
3. During the course of assessment proceedings, the AO disallowed a sum of Rs.25,21,810/- by observing that the said expenditure has been shown by the IT A No. 2287/M um/2010 3 ITA No.3524/Mum/2010 ( As s es s me nt Ye ar : 2 00 6- 07 ) assessee in the tax audit report as prior year expenses. The assessee has challenged the action of the AO before the ld. CIT(A) and mainly contended that all these expenses we re arisen and crystallized during the previous year as the bills pertains to the earlier years but received during the year under conside ration. It was further submitted before the ld. CIT(A) that the assessee is following the mercantile syste m of accounting and there is no dispute re garding the genuineness of liability or quantum of expenses, therefore, these expense s cannot be disallowed. The ld. CIT(A) did not accept the contention of the assessee.
4. Before us, the ld.AR of the assessee has referred the details of the bills and submitted that all these bills were raised in the month of March 2005, howe ver, the assessee booked these bills in the nest year in which the asse ssee has received the same . The assessee is following the mercantile system of accounting and therefore whe n the assessee is consistently following the mercantile system of acco unting which has been accepted by the AO, then no disallowance is justified for the year unde r consideration. He has further IT A No. 2287/M um/2010 4 ITA No.3524/Mum/2010 ( As s es s me nt Ye ar : 2 00 6- 07 ) submitted that even otherwise, the assessee was taxed on book profit, there fo re, there would be no revenue effect. He has further submitted that even fo r the earlier years, the AO has assessed on bo ok profit and if the expenses were taken in account for the earlie r years there would no tax effect. Thus, the ld. AR of the assessee has submitted that when the consistent method of accounting is follo wed by the assessee and accepted by the revenue, the same cannot be disturbed for this year.
5. On the other hand, the ld. DR has submitted that when the assessee is following the mercantile system of accounting then the expenditures should have been claimed only for the year in which the bills were raised and expe nses were incurred and not in the year under consideration. He has relied upon the o rders of the lower authorities.
6. We have carefully considered the rival co ntentions and perused the relevant record. The main contention of the assessee is that the assessee is following the mercantile system of accounting the expenditure is booked and recognized only when the bills are received IT A No. 2287/M um/2010 5 ITA No.3524/Mum/2010 ( As s es s me nt Ye ar : 2 00 6- 07 ) and crystallized. Since majority of the bills as given in the details of expenditure are raised in the month of March 2005, the refore, there may be possibility at least for the bills which we re raised in the month of March 2005 receive d by the assessee and recognized only in the next financial year. However, when nothing has been produced before us to show that the assessee is following consistently this practice. However, the AO has no t discussed anything while addressing this issue of disallowance of prior period expenses. The ld. CIT(A) has also not discussed any thing and decided the issue summarily as under :
"Facts of the case have been considered:
• The Asse ssee is following me rcantile system of accounting. There is allegedly no dispute regarding the liability/quantum of expenses vs-a-vs parties. As such to say that expenses crystallized during the year is wrong.
• The assessee could have flied a re vised return of the year to which they pertained.
• Since the Assessee is following mercantile system of accounting-the prio r period expenses cannot be allowed.
The ground of appeal of the assessee is therefore dismissed."
IT A No. 2287/M um/2010 6 ITA No.3524/Mum/2010 ( As s es s me nt Ye ar : 2 00 6- 07 )
7. Thus in the absence of any relevant material on record, it is not possible for us to adjudicated upon the issue specifically on the point of whether the assessee is following the practice of re cognizing the e xpenditure only on receipt of bills and not on the issue date and that too consistently. Accordingly, this issue is remitted to the record of the AO for appropriate verification and examination of all the relevant facts and record and the n decide the issue as per law after providing reasonable opportunity of being heard to the assessee. Gro und No.1 taken by the assessee is the refore, allowed for statistical purposes.
8. Gro und No 2 is regarding charging of interest u/s 23B, 234C and 234D.
9. We have heard both the parties. We find that the issue of charging of interest under sections 234B is mandatory and consequential in nature. Accordingly, we direct the AO to calculate the interest as per law.
10. The appeal of the assessee is partly allowed for statistical purposes.
IT A No. 2287/M um/2010 7 ITA No.3524/Mum/2010 ( As s es s me nt Ye ar : 2 00 6- 07 ) ITA No.3524/Mum/2010(Revenue's Appeal)
11. The Revenue has raised only effective ground as unde r :
"1. Whether on the facts and circumstances of the case the CIT (A) was justified in law in treating the incentives in the nature of Sales Tax and Excise Duty granted by the Gujarat Government as capital receipts by relying on the decision of the ITAT, Special Bench, Mumbai when this decision has not been accepte d by the department?"
12. The assessee has received incentive of Rs.19,23,83,694/- granted by the Gove rnments. These receipts were in the nature of sales tax subsidy granted by the Gujarat Government and excise incentives granted by the Central Government as per the schemes commenced by the respective governments. In support of its claim, the assessee relied upon the decision of the Special Be nch of this Tribunal in Dy. CIT V/s Reliance Industries Ltd. (2004) 82 TTJ (Mumbai)(SB) 765 : (2004) 88 ITD 273 (Mumbai)(SB). The AO observed that since the department has challenged the order of the Special Bench o f this Tribunal in the case o f Dy. CIT V/s Reliance Industries Ltd. (supra) IT A No. 2287/M um/2010 8 ITA No.3524/Mum/2010 ( As s es s me nt Ye ar : 2 00 6- 07 ) before the Ho n'ble High Court, the matter is sub- judice.
13. On appeal, the ld. CIT(A) allowe d the claim of the assessee treating the said receipts as capital in nature by following the decision of the Special Bench of his Tribunal in Dy. CIT V/s Reliance Industries Ltd. (supra).
14. We have carefully considered the rival co ntentions and perused the relevant record. The AO disallowed the claim of the assessee because the revenue did not accept the decision of the Special Bench of this Tribunal and challenged before the jurisdictional High Court. Subsequently, the jurisdictional High Court dismissed the appeal of the Revenue by its o rder dated 15.4.2009. The revenue authorities carried the matter to the Hon'ble Supreme Court and recently Ho n'ble Supreme Court vide decision dated 9.9 .2011 has set aside the decision of the Jurisdictional High Court in the case of Reliance Industries and re mitted the matter to the Hon'ble High Court to decide the issue in question as formulated by the Hon' ble Supre me IT A No. 2287/M um/2010 9 ITA No.3524/Mum/2010 ( As s es s me nt Ye ar : 2 00 6- 07 ) Court. The relevant part of the decision of the Hon'ble Supreme Court is repro duced as under :
"Leave granted. -
Having heard learned counsel on both sides, we are of the view that the High Court ought not to have dismissed the appeal without conside ring the following questions, which, according to us, did arise for consideration. T hey are formulated as unde r:
"(A) W hether on the facts and in the circumstance s of the case and in law the Hon'ble Tribunal was right in holding that estimated expenditure for earning divide nd income canno t be subject to disallowance while computing book profits as well as under the normal provisions of the Income Tax Act?
B) Whether on the facts and in the circumstances of the case and in law the Hon'ble Tribunal was right in holding that sales tax incentive is a Capital Receipt?
Accordingly, the civil appeal is allowed, impugned order is set aside and the matter is remitted to the High Court to decide the questions, formulated above, in acco rdance with law.
New Delhi September 09.2011."
Since the order of the Special Bench of this Tribunal is already me rge d with the order of the Hon'ble High Court which has been set aside by the Hon'ble Supreme IT A No. 2287/M um/2010 10 ITA No.3524/Mum/2010 ( As s es s me nt Ye ar : 2 00 6- 07 ) Court fo r reco nsideration and decide the question as formulated, therefore, the issue cannot be decided simply by following the order of the Special Bench of this Tribunal. It is pertinent to note that neither the AO no r the CIT(A) has discussed this issue or analyzed the scheme of incentives granted by the respective governments. Even before us, the said scheme under which the incentives were re ceived by the assessee have no t been filed. The refore, the issue has to be adjudicated after considering the respective schemes of Gujarat Government and Central Government in view of the decision of the Hon'ble Supreme Court in case of Sahne y Steel and Press Works Ltd. (228 ITR 253) (SC). Accordingly, in the interest of justice, we set aside the orde r of the revenue authorities and remand the issue to the file of the AO for fresh adjudication after conside ring and analyzing the schemes of the respective governments and as per law after providing reasonable oppo rtunity of being heard to the assessee. Grounds taken by the Reve nue is therefore, allowed for statistical purposes.
IT A No. 2287/M um/2010 11 ITA No.3524/Mum/2010 ( As s es s me nt Ye ar : 2 00 6- 07 )
15. In sum and substance, the appeal of the assessee is partly allowed for statistical purposes and the appeal of the revenue is allowed fo r statistical purposes. Orde r pronounced in the open court on 28th Dec.2011.
Sd sd
( T.R.SOOD ) (VIJAY PAL RAO)
Accountant Member Judicial Member
Mumbai, Dated 28th December, 2011
SRL:
Copy to:
1. Appellant
2. Respo ndent
3. CWT Conce rned
4. CWT(A) concerned
5. DR concerned Bench
6. Guard file.
BY ORDER
True copy
ASSTT. REGISTRAR,
ITAT, MUMBAI