Income Tax Appellate Tribunal - Mumbai
Polychem Ltd, Mumbai vs Assessee on 25 March, 2015
आयकर अपीलीय अिधकरण, अिधकरण "lh" खंडपीठ मुंबई INCOME TAX APPELLATE TRIBUNAL,MUMBAI - 'C' BENCH.
सव ौी वजयपाल राव , याियक सदःय एवं राजे ि, लेखा सदःय Before S/Sh.Vijay Pal Rao, Judicial Member & Rajendra,Accountant Member आयकर अपील सं/.ITA No. 4027/Mum/2013,िनधा िनधा रण वष /Assessment Year-2001-02 M/s Polychem Ltd., ITO-7, Oriental House, 4th Floor, 7, Mumbai.
J.Tata Road, Churchgate, Vs.
Mumbai-400020
PAN: AAACP7184M
(अपीलाथ%/ Appellant) (ू'यथ% / Respondent)
आयकर अपील सं/.ITA No. 4026/Mum/2013,िनधा
िनधा रण वष /Assessment Year-2006-07
M/s Polychem Ltd., CIT-7,
Oriental House, 4th Floor, 7, Mumbai.
J.Tata Road, Churchgate, Vs.
Mumbai-400020
PAN: AAACP7184M
(अपीलाथ%/ Appellant) (ू'यथ% / Respondent)
िनधा (रती ओर से / Assessee by :Shri D.J.Shukla
राजःव क+ ओर से/ Revenue by :Shri Premanand J.
सुनवाई क+ तार,ख/ Date of Hearing : 11.03.2015
घोषणा क+ तार,ख / Date of Pronouncement : 25.03.2015
आयकर अिधिनयम 1961 क+ धारा 254 ( 1 ) के अ तग त आदे श
Order u/s.254(1)of the Income-tax Act,1961(Act)
Per Rajendra,AM ले खा सदःय राजे ि के अनु सार: ार
Challenging the orders dt.23.01.2009 and 22.01.2009 of the CIT(A)-7,Mumbai,assessee-company has raised following Grounds of Appeal for the above mentioned two Assessment Years(AY.s.):
ITA/4027/Mum/2013-AY.2001-02:
1. (a) On the facts and circumstances of the case and in law the learned C.I.T. (Appeals) erred in upholding action of the Assessing Officer of reopening the assessment under section-147 of the I.T. Act, 1961.
(b) On the facts and circumstances of the case and in law the reassessments order dt. 31-12-2008 u/s 143(3) r.w.s. 147 of the I.T. Act, 1961 be declared bad in law and abinitio void. Without prejudice to above
2.On the facts and circumstances of the case and in the law the learned C.I.T. (Appeals) erred in confirming addition of Rs. 3.21 crores in respect of interest u/s 43B of the I.T. Act, 1961.
3. (a) On the facts and circumstances of the case and in the law the learned C.I.T. (Appeals) ought to have held that action of the AO to make addition in respect of Investment Allowance of Rs. 1.57 crores was in violation of the provision of section-32A r.w.s. 155(4A) of the I.T. Act, 1961 and the learned AO had no jurisdiction to make addition of said amount of Investment Allowance written back in accounts of the appellant.
(b) On the facts and circumstances of the case and in the law the learned C.LT. (Appeals) erred in restoring the matter to the file of Assessing Officer in respect of Investment Allowance of Rs.1.57 crores written back in profit and loss account of the appellant.
4. The appellant craves leave to add, alter or amend any of the grounds of appeal or to add new grounds of appeal if considered necessary.
ITA/4026/Mum/2013-AY.2006-07:
2 ITA/4026-27/Mum/2013-AY.2001-02 &06-07/Polychem.
1. On the facts and circumstances of the case and in law the learned CIT(A) erred in confirming disallowance of Rs.1,14,56,338/- made by the Assessing Officer under Sec.43B of the I.T.Act, 1961.
2. On the facts and circumstances of the case and in law the learned CIT(A) erred in disallowing of Rs. 8,05,926/- out of statutory depreciation of Rs. 17,09,010/- allowable to appellant for Asst. Year 2006-07.
3. The appellant craves leave to add, alter or amend any of the grounds of appeal or to add new grounds of appeal if considered necessary."
ITA/4027/Mum/2013-AY.2001-02:
Assessee-company,engaged in the business of manufacturing of ABS,SAM,flavouring essence for brandy concentration,filed its return of income on 30.10.2001,declaring income of Rs.2.45 Crores.Assessing Officer(AO)completed the assessment u/s.143(3)of the Act on 31.10.2003. Later on a notice u/s.148 of the Act was issued to assessee on 26.03.2008.The assessee,vide its letter,dated 09.04.2008 stated that the return filed on 31.10.2001 should be treated as the return filed in response to the notice issued u/s.148.The AO completed the assessment u/s.143(3) r.w.s. 147 of the Act on 31.12.2008 determining the income of the assessee at Rs. 4.78 Crores.After allowing carry forward of losses of Rs.4.78 Crores of the earlier years,the AO assessed the income at NIL for the year under appeal.
2.Through the ground No.1 of appeal,the assessee has agitated the AO's action of reopening the assessment u/s. 147 of the Act and also against the AO's action in reassessing the income for AY.
2001-02,vide order dated 31/1212008,passed u/s. 143(3) r.w.s. 147 of the Act.
3.Aggrieved by the order of the AO,the assessee filed an appeal before the First Appellate Authority (FAA).It was argued before him that the re-assessment that it was no where the case of the AO that the assessee had failed to disclose fully and truly all material facts necessary for assessment,that the reassessment proceedings initiated were merely in the nature of change of opinion,that Rs.3.21 crores,stated as disallowable u/s. 43B,was not in respect of any interest payment,that Investment Allowance relating to Asst Year 1990-91 was duly utilised for acquisition of plant & machinery in subsequent 10 years in accordance with provisions of Sec.32A of the Act,that there was nothing irregular in transfer of such "Investment Allowance" of Rs.1.57 crores to Profit & Loss Alc. in Asst Year 2001-02,that such transfer was not taxable, that proceedings u/s.147 had been invalidly initiated and deserves to be quashed.The assessee placed reliance on following decisions:
Kelvinator of India Ltd. 320 ITR 561 -SC,Caprihens (I) Ltd. 266 ITR 566 -Bom., Bapalal & Co. Exports-295 ITR 333 (Bom)and Avantis Pharma Ltd.-323 ITR 570-Bom.
After considering the submissions of the assessee and the assessment order,the FAA held that the AO had re-opened the assessment on valid reasons and he had recorded in the assessment order that the A.O. was under possession of the said information which clearly established that the assessee's income was under-assessed,that the AO was justified in re-opening of the said assessment.Accordingly,the AO's action of re-opening of the said assessment was confirmed.
4.Before us the Authorised Representative(AR)contended that the assessee argued that the original assessment was completed vide order u/s.143(3) dated 31-10-2003,that the assessment was reopened by issue of notice dated in March 2008 under Sec. 148 of the Act,that during the course of reassessment proceedings the assessee had discussed the matter with the AO and explained that Rs.29.84 crores written back to Profit & Loss A/c.in AY.2001-02 did not include any write back of interest of Rs.3.21 crores under Sec.43B of the Act,as stated in reasons recorded for reopening, that the amount of Rs.1.57 crores transferred from Investment Allowance Reserve had not been offered for tax during the year as the "Investment Allowance" Reserve of Rs.1.57 3 ITA/4026-27/Mum/2013-AY.2001-02 &06-07/Polychem.
crores related to AY.1990-91,that the reserve was utilised for acquisition of plant & machinery during the period of ten years next following in accordance with the provisions of Sec. 32A of the Act.Before the FAA,the assessee furnished the letter NO.HO:VP-CA & CS:434/2008,dated 24. 11.2008,submitted to the AO in the s which dealt with the entire matter of reopening exhaustively, that the assessee had disclosed all the material facts fully and truly during the original assessment proceedings.He referred to page nos.8,10,18,20.60,62 and 63 of the Paper Book(PB).He relied upon the case of (365ITR160).Departmental Representative(DR)supported the order of the FAA.
5.We have heard the rival submissions and perused the materials before us.We find that the assessment was reopened after four years and therefore the proviso to section 147 was applicable. As per the proviso for issuing notice beyond the period of four years there must be failure on part of the assessee to disclose fully and truly material facts.Before proceddings further,we would like to reproduce the reasons recorded by the AO and same read as under:
"On perusal of the records shows that the assessee company had not added an amount of interest of Rs 3.21 crores under the provisions of section 43B of the I.T.-Act. The interest of Rs.3.21crore out of the total amount of the interest of Rs 29.84 crore is waived by the financial institution. This failure on the part of the assessee had resulted in the under assessment of income of Rs.3.21 crore is out of the total amount of interest. The assessee had transferred an amount of Rs. 1.57 cr. From the investment allowance reserve; which the assessee had not offered for taxation. This failure on the part of the assessee had resulted in the under assessment of income of Rs.3.21 Cr is out of the total amount of interest. This resulted in the under assessment of income of the aggregate of about Rs.4.78 Cr. within the meaning of section 147 of the I. T. Act, 1961."
We find that nowhere the AO has mentioned that material facts were not fully and truly disclosed by the assessee.Not only he has to mention it,he has to prove with facts that actually there had been no disclosure of the facts.The Hon'ble Bombay High Court has held in the matter of Bombay Stock Exchange(supra)as under:
"............ex facie, it was evident that there was no suppression of material facts by the assessee. The reopening of the assessment had taken place beyond a period of four years. The jurisdictional requirement in such a case is that there must be a failure on the part of the assessee to fully and truly disclose all material facts necessary for the assessment for that the assessment year. Beyond a bald averment in the reasons that the assessee had failed to disclose material facts, the Assessing Officer had not indicated as to what material facts were not disclosed."
We find that the assessee had filed detailed explanation about both the issues mentioned in the notice during the original assessment(pages 8,10 and 62 of the PB).In these circumstances,we are of the opinion the order of the AO is neither valid on jurisdictional issue nor on merits.Therefore, reversing the order of the FAA,we decide both the grounds of appeal in favour of the assessee.
ITA/4026/Mum/2013-AY.2006-07:
6.First ground of appeal is about disallowance of Rs.1.14 Crores made by the AO u/s.43B of the Act.During the assessment proceedings,the AO held that an amount of Rs.1,11,00,596/-,being unpaid statutory liability was to be disallowed,that another amount of Rs.3,55,742/-was also to be disallowed under the provision of section 43B of the Act,in light of the audit report filed by the assessee.He called for explanation from the assessee in this regard.The assessee filed detailed written submission.After considering the same he made an addition of Rs.1.14 Crores(1.11 Crores+3.55 lakhs)to the total income of the assessee.
7.In the appellate proceeding before the FAA,the assessee contended that the assessee had neither claimed in Profit & Loss c. any deduction of Rs.1,39,41,444/- outstanding at the beginning of the year nor claimed deduction of Rs.1,11,00,596/- outstanding at the end of the year (out of opening balance),that the addition of Rs.1,11,00,596/- to the income of the assessee was totally misconcei
-ved,that Gratuity amount of RS.3,55,742/- had been shown as incurred during the year but not paid in accordance with provisions of Sec.43B and hence disallowable,that it haddisallowed the 4 ITA/4026-27/Mum/2013-AY.2001-02 &06-07/Polychem.
amount in computation of income submitted with Return of Income,that Gratuity incurred of Rs. 6,77,311/- had been added to the profit of the year and Rs.3,21,569/- actually paid had been claimed as deduction, resulting in disallowance of Gratuity incurred during the year but not paid amounting to Rs.3,55,742/-(6,77,311 -3,21,569),that there was double disallowance to the extent of Rs.3,55,742/-.
8.The FAA,after considering the submissions of the assessee and the assessment order held that the assessee had not claimed the deduction of the said amount through profit and loss account which pertained to earlier years,that the submission of the assessee was nowhere supported by any documentation,that merely making reference to clause 21(1)(A) of Annexure 9 could not substantiate the assessee's claim,that the balances were shown as outstanding and all such balances as on the closing day of the accounting year were shown as outstanding which were covered under the purview of section 43B of the Act,that as per section 43B deduction on actual payment was allowable.that the assessee's account clearly showed the said amount as outstanding, that the disallowance made by the AO was justified and correct.
9.Before us,the AR argued that the assessee had not claimed the gratuity,that it had disallowed the claim on its own,that there was double disallowance,that in the return of income every detail was made available about Rs.1.11 Crores.DR supported the order of the FAA.
10.We have heard the rival submission and perused the material before us.We find that Annexture 9,clause 21(1)(A) of the audit report,filed along with the return of income,gives the details of sums referred to in section 43B of the Act,that the amount in question pre-existed on the first day of the previous year,that same was not allowed in the assessment in any of the years,that the amount of Rs.1.39 Crores was outstanding opening balance,that Rs. 5.44 lakhs were paid during the year,that Rs.22. 96 lakhs were written by the assessee to the P& L account,that the disallowance made by the AO was part of the total amount of Rs.1.39 Crores.As the assessee had not claimed deduction in the P&L account for the disputed amount,therefore,in our opinion the disallowance made by the AO and confirmed by the FAA was not as per the provisions of law.Reversing the order of the FAA,we decied ground no.1 in faour of the assessee.
11.During the course of hearing representatives of both the sides agreed that the issue raised by the assessee vide ground no.2 was sent back to the file of the AO by the Tribunal,while deciding the appeal for the AY.2005-06,that the facts of both the AY.s.were identical.We find that the issue was dealt by the Tribunal as under in the earlier AY.:
5. Next Ground of Appeal is about dis-allowance made by the AO on account of depreciation amounting to Rs. 18.34 Lakhs. During the assessment proceedings, AO found that the assessee-
company had marked certain fixed assets under the head 'for disposal'. AO held that depreciation claimed in respect of such assets was not allowable since same were not used for the purpose of business, that depreciation in respect of assets pertaining to the unit which was closed was also not allowable. Finally, he dis-allowed depreciation amounting to Rs. 18.34 Lakhs relating to Plant & Machinery. Assessee preferred an appeal before the FAA. He held that value of the assets held for disposal was required to be reduced from the block, that assets had been discarded from active use. He rejected the appeal filed by the assessee-company.
5.1 Before us, AR submitted that assets were held for disposal, that assesseecompany had approached BIFR, that Plant & Machinery was part of the block assets, that for allowing depreciation it was not necessary that each and every machine should be used during the relevant period, that assessee had not gone out of the production completely he referred to Page Nos. 6 and 7 of the Paper Book, he relied upon the cases of Swati Synthetics Ltd., vs. ITO (210) 38 SOT 208; CIT Vs. Bharat Aluminium Co. Ltd., (2010) 187 Taxman 111 (Del); and CIT vs. Oswal Agro Mills Ltd., 238 CTR 113 (Del). Alternatively, he submitted that proportionate disallowance should be made. DR submitted that assets 5 ITA/4026-27/Mum/2013-AY.2001-02 &06-07/Polychem.
in question were discarded, that depreciation on such assets is not allowable.
5.2. We have considered the rival submissions and perused the material available to us. Cases relied upon by the assessee are about the assets that are ready for use,where as in the case under consideration assets in question were set apart for disposal. It is true that for claiming depreciation each and every machinery is not required to be utilised for a particular AY, but if assets are not in a condition to be used for business depreciation cannot be allowed. Alternate argument advanced by the AR about proportionate allowance of depreciation is, in our opinion, as per the provisions of law. We find that, in the paper book, AR has submitted a chart in this regard. In the interest of justice we restore back the matter to the file of the AO to decided the issue afresh. He is directed to take in to considering the depreciation-chart filed before us.
Ground No.2 stands Partly Allowed.
Respectfully,following the same we decide ground no.2 in favour of the assessee,in part.
As a result,appeal filed by the assessee for the AY.2001-02 and 2006-07 stand allowed and partly allowed respectively.
फलतः िनधा (रती ;ारा दा<खल क+ गई वष 2001-02 तथा 2006-07 क+ अपील बमशः मंजरू और आंिशक Cप से मंजरू क+ जाती है .
Order pronounced in the open court on 25th, March,2015.
आदे श क+ घोषणा खुले यायालय मG Hदनांक 25 ekpZ,2015 को क+ गई ।
Sd/- Sd/-
( वजयपाल राव/Vijay Pal Rao) राजे ि/Rajendra)
(राजे ि
याियक सदःय /JUDICIAL MEMBER लेखा सदःय /ACCOUNTANT MEMBER
मुंबई/Mumbai,Hदनांक/Date:25.03.2015.
SK
आदे श क+ ूितिल प अमे षत/Copy
षत of the Order forwarded to :
1. Assessee /अपीलाथ% 2. Respondent /ू'यथ%
3. The concerned CIT(A)/संबK अपीलीय आयकर आयुL,4.The concerned CIT /संबK आयकर आयुL
5. DR "C" Bench, ITAT, Mumbai / वभागीय ूितिनिध lh खंडपीठ,आ.अ. याया.मुंबई
6. Guard File/गाड फाईल स'या पत ूित //True Copy// आदे शानुसार/ BY ORDER, उप/सहायक पंजीकार Dy./Asst. Registrar आयकर अपीलीय अिधकरण, मुंबई /ITAT, Mumbai.