Income Tax Appellate Tribunal - Mumbai
Graham Firth Steel Products (I) Ltd, ... vs Department Of Income Tax on 9 April, 2014
अिधकरण मुंबई यायपीठ 'जी' मुंबई ।
आयकर अपीलीय अिधकरण,
IN THE INCOME TAX APPELLATE TRIBUNAL " G" BENCH, MUMBAI
सव ौी, नरे ि कुमार ब लै या, लेखा सदःय एवं अिमत शु'ला याियक सदःय के सम)
BEFORE SHRI N.K. BILLAIYA, AM AND SHRI AMIT SHUKLA, JM
आयकर अपील सं./I.T.A. No.1426/Mum/2010
िनधा रण वष / Assessment Year :2006-07
(िनधा
The DCIT, Circle 9(1), बनाम M/s. Graham Firth Steel
बनाम/
Aayakar Bhavan, Products (I) Ltd.,
Vs.
Mumbai-400 020 B-212 Shreyash Industrial
Estate,
Near Jai Coach,
Western Express,
Highway Goregaon (E),
Mumbai-400 063
आयकर अपील सं./I.T.A. No.2317/Mum/20102
िनधा रण वष / Assessment Year :2006-07
(िनधा
M/s. Graham Firth Steel बनाम The DCIT, Circle 9(1),
बनाम/
Products (I) Ltd., Aayakar Bhavan,
Vs.
B-212 Shreyash Industrial Mumbai-400 020
Estate,
Near Jai Coach,
Western Express,
Highway Goregaon (E),
Mumbai-400 063
ःथायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AAACG 1719P
(अपीलाथ- /Appellant) .. (ू/यथ- / Respondent)
अपीलाथ- ओर से/ Appellant by: Shri Arvind Sonde
ू/यथ- क1 ओर से/Respondent by: Mrs. Abhakala Chanda
सुनवाई क1 तार2ख / Date of Hearing :09.04.2014
घोषणा क1 तार2ख /Date of Pronouncement : .04.2014
आदे श / O R D E R
2 2317 & 1426/M/2010
PER N.K. BILLAIYA, AM:
These cross appeals by the Revenue and the assessee are directed against the very same order of the Ld. CIT(A)-19, Mumbai dt.22.12.2010 pertaining to A.Y. 2006-07. As both these appeals were heard together, they are disposed of by this common order for the sake of convenience and brevity.
ITA No. 1426/M/2010 - Revenue's appeal2. The Revenue has raised 5 substantive grounds of appeal which read as under:
"1. On the facts and in the circumstances of the case and in law the Ld.CIT(A) erred in directing the Assessing Officer to verify the claim of the assessee in respect of travelling expenses of Rs. 3,39739/- and allow such claim which is required for the survival of the assessee's business ignoring the fact that assessee had not conducted any business activity during the previous year.
2. On the facts and in the circumstances of the case and in law the Ld.CIT(A) erred in directing Assessing Officer to verify the claim of professional charges of Rs. 9,93,354/- and allow only such expenses which had been crystallised during the year under consideration ignoring the fact that assessee had not conducted any business activity during the previous year.
3. On the facts and in the circumstances of the case and in law the Ld.CIT(A) erred in directing the Assessing Officer to verify the claim of the assessee in respect of telephone expenses of Rs. 97,630/- and allow such claim which is required to the survival of the assessee's business ignoring the fact that assessee had not conducted any business activity during the previous year.
3 2317 & 1426/M/2010
4. On the facts and in the circumstances of the case and in law the Ld.CIT(A) erred in directing the Assessing Officer to verify the claim of the assessee's other expenses totalling to Rs. 26,74,830/- and allow such claim which is required for the survival of the assessee's business ignoring the fact that assessee had not conducted any business activity during the previous year.
5. On the facts and in the circumstances of the case and in law the Ld.CIT(A) erred in directing the Assessing Officer to make only specific adjustments in computing book profit u/s. 115JB ignoring the fact that the Assessing Officer had rightly made the adjustments but the assessee had wrong adjustment since it has not derived profit from sick industrial company and hence no deduction is allowable on this count."
3. Ground No. 1 to 4 relate to the deletion of addition made by the AO on account of:
1) Travelling expenses Rs. 2,39.729/-
2) Professional charges Rs. 9,93,354/-
3) Telephone expenses Rs. 97,630/-
4) Other expenses Rs.26,74,830/-
4. The assessee company was engaged in the business of manufacture and sale of cold rolled steel. On account of huge losses, incurred in the past several years, the company was declared as sick unit and brought within the purview of BIFR. On 28.1.2003, a show cause notice was issued for winding up of business, a compromise proposal was submitted, by one of the Directors, for revival of the company and a rehabilitation plan was submitted which was ultimately approved with certain amendments. As per the scheme sanctioned under BIFR regulations, the company was given a chance to revive itself, vide order dt. 26.12.2007 wherein the company could not carry on its main activity since it was engaged in the process of preparing the revival and rehabilitation plans to 4 2317 & 1426/M/2010 the satisfaction of the authorities concerned under BIFR. Finally, from A.Y 2007-08 onwards, the assessee company resumed its business.
5. Though the manufacturing activities could not take place during the assessment years under consideration as was the case in previous assessment years, the assessee had to incur certain expenditure necessary for the purpose of sustaining the company and also for making efforts to revive its business. In this regard, the assessee claimed deduction towards travelling expenses, professional charges, conveyance expenses, telephone expenses and depreciation in line with its claim in earlier assessment years.
6. The AO disallowed the claim of the assessee mainly on the ground that the assessee was not carrying on any business activity and hence the expenditure cannot be treated as revenue in nature. The AO also stated that the existence and survival of the company cannot be termed as "for the purpose of business" especially in the scenario of its being defunct. The AO disallowed travelling expenses at Rs.2,29,731/-, professional charges at Rs. 9,92,354/-, conveyance expenses at Rs. 1,31,999/-, telephone expenses Rs. 97,362/- and other expenses at Rs. 26,74,830/-.
7. The assessee carried the matter before the Ld. CIT(A). The Ld. CIT(A) after considering the facts and the submissions observed that during the relevant year under consideration a scheme for revival was under active consideration for the revival of business of the company. The Ld. CIT(A) found merit in the contention of the assessee that the expenses were necessarily incurred for ensuring the survival and existence of the company and is therefore allowable under the provisions of Sec. 37(1) of the Act.
5 2317 & 1426/M/2010
8. Regarding the claim of travelling expenses, the Ld. CIT(A) directed the AO to verify the claim made under the head travelling expenses and to allow such expenses as have been incurred by the employees/consultants for attending to various matters in connection with preserving and keeping the business alive so as to ensure its survival.
9. Regarding professional charges, the Ld. CIT(A) directed the AO to allow the claim of professional charges except those expenses in connection with disputes/cases pertaining to earlier years. The Ld. CIT(A) further directed that in respect of such expenses pertaining to disputes/cases of earlier years, the expenses shall be allowed only if the liability crystallized during the year under consideration.
10. The Ld. CIT(A) confirmed the disallowance of conveyance charges of Rs. 1,31,999/-. Telephone expenses were allowed and in respect of disallowance of other expenses , the Ld. CIT(A) directed the AO to allow the claim of operating expenses amounting to Rs. 2,84,666/- and also to allow provision payment to employees amounting to Rs. 68,742/-. However, with reference to other expenses, the Ld. CIT(A) directed the AO to scrutinize the claim and allow only those which have been incurred for the survival of the company.
11. Aggrieved by this, Revenue is before us. The Ld. Departmental Representative strongly relied upon the findings given in the assessment order.
6 2317 & 1426/M/2010
12. The Ld. Counsel for the assessee submitted that on identical facts, the Tribunal in earlier assessment years i.e. A.Y. 2004-05 and 2005-06 has confirmed the order of the Ld. CIT(A) dismissing the appeals filed by the Revenue. It is the say of the Ld. Counsel that there being no difference in the facts and circumstances, the same view should be followed.
13. We have carefully perused the orders of the lower authorities and the order of the Tribunal for A.Y. 2004-05 in ITA Nos. 6252/M/10 and 6253/M/10 for A.Y. 2005-06. It is not in dispute that for the year under consideration, the assessee company had made bonafide efforts to revive its business which is supported by the fact that the BIFR sanctioned the rehabilitation scheme. It is also an undisputed fact that the assessee company commenced its activities in subsequent years and has achieved substantial turnover which go to prove that the assessee never intended to windup its activity. In other words, it can be said that there were only a 'temporary' lull in the business. Since the Ld. CIT(A) has taken into consideration the overall circumstances of the case, we do not find any reason to interfere with the findings of the Ld. CIT(A). We, therefore, affirm the order of the Ld. CIT(A). Ground No. 1 to 4 are accordingly dismissed.
14. Ground No. 5 relates to the directions of the Ld. CIT(A) to the AO to make only specific adjustments in computing book profit u/s. 115JB.
15. This issue has been discussed by the Ld. CIT(A) at para-11 on page 14 of his order wherein the Ld. CIT(A) accepted the contention of the assessee that for the determination of income u/s. 115JB, no adjustment can be carried out except those specifically required to in the 7 2317 & 1426/M/2010 said section. The Ld. CIT(A) directed the AO to strictly follow the provisions of Sec. 115JB in the light of the decision of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. VS CIT 255 ITR 273.
16. In our considered view while determining the income u/s. 115JB, the computation has to start from the book profit as shown in the P&L account prepared in accordance with the provisions of Part-II and III of Schedule VI of the Companies Act, 1956 and as reduced by the adjustments as specified in the said section. The Hon'ble Supreme Court in the case of Apollo Tyres Ltd. (supra) has held that the AO is bound to make only such adjustments as has been specified in the said section to arrive at a MAT income. Therefore, we do not find any error or infirmity in the findings of the Ld. CIT(A), we affirm the same. Ground No. 5 is accordingly dismissed.
16. In the result, the appeal filed by the Revenue is dismissed.
ITA No. 2317/Mum/2010 - Assessee's appeal17. The assessee has raised 3 substantive grounds of appeal with sub grounds. Ground No. 1 relates to upholding the disallowance of conveyance expenses of Rs. 1,31,999/-.
18. In Revenue's appeal in ITA No. 1426/M/2010 while deciding ground No. 1 to 4, we have elaborately discussed the nature of the business of the assessee and other related facts and have allowed the expenses under the head telephone expenses, travelling expenses, professional expenses and other expenses. For similar reasons and also following the findings of the Tribunal in assessee's own case for A.Yrs 8 2317 & 1426/M/2010 2004-05 and 2005-06, we direct the AO to allow the claim of conveyance expenses of Rs. 1,31,999/-. Ground No. 1 and its sub grounds are accordingly allowed.
19. Ground No. 2 relates to upholding the disallowance of depreciation of Rs. 74,04,808/- which includes depreciation on account of goodwill amounting to Rs. 69,26,452/-.
20. The AO has discussed this disallowance at para-3 of his order. After discussing the facts of the case, the AO was of the firm belief that since there was no business carried on by the assessee, the claims of depreciation are not allowable as the assets have not been used for the purpose of the business during the year. The AO further observed that depreciation on goodwill is not allowable under income tax provisions since the same is not covered within the definition of intangible assets u/s. 32(1)(ii) of the Act.
21. The claim of depreciation was considered by the Ld. CIT(A) qua ground No. 6 of the appeal before him at para-9 of his order and at para- 9.2 the Ld. CIT(A) observed that the AO is correct in holding that the goodwill is not eligible for depreciation. The Ld. CIT(A) further observed that the assessee has not been able to prove with any cogent material the factual "passive" use of machinery. The disallowance was sustained.
22. Before us, the Ld. Counsel for the assessee strongly submitted that due to the circumstances explained for the claim of expenses, the assets of the assessee were ready to use. It is the say of the Ld. Counsel that considering the facts and surrounding circumstances, there was a passive use of assets and therefore the claim of depreciation deserves to be 9 2317 & 1426/M/2010 allowed. In so far as the depreciation of goodwill is concerned, the Ld. Counsel stated that this issue has been settled by the Hon'ble Supreme Court in the case of CIT Vs Smifs Securities Ltd 348 ITR 302.
23. The Ld. Departmental Representative strongly supported the findings of the Ld. CIT(A).
24. We have carefully perused the orders of the lower authorities. We have also the benefit of the order of the Tribunal in assessee's own case for A.Y. 2004-05 and 2005-06 in ITA No. 6252 & 6253/M/2010 wherein the Tribunal has allowed the claim of depreciation holding that the assets said to have been put to use as the claim of depreciation allowed in earlier years and there are no different facts during the year under consideration, the depreciation on assets is directed to be allowed.
25. In so far as claim of depreciation on goodwill is concerned, this issue is no more res integra because of the decision of the Hon'ble Supreme Court in the case of Smifs Securities (supra) wherein the Hon'ble Supreme Court has held that goodwill is an asset eligible for depreciation. Respectfully following the decision of the Hon'ble Supreme Court, we direct the AO to allow the claim of depreciation on goodwill. Ground No. 2 and its sub grounds are allowed.
26. Ground No. 3 reads as under:
"Treating of surplus on reorganization/demerger as per BIFR of Rs. 19,43,73,928/- as taxable income.
1. The Ld. CIT(A) erred in confirming the treatment of surplus on reorganization/demerger as per BIFR of Rs. 19,43,73,928/- (Rs. 8,36,99,463 being surplus due to OTS with bank on account of principal amount of loan & Rs.
10 2317 & 1426/M/2010 11,07,74,465 being increase in value of land hived off) as taxable income.
2. The Ld. CIT(A) erred in not adjudicating on the addition of Rs. 11,07,74,465 being increase in value of land hived off.
3. The Ld. CIT(A) ought not to have treated surplus on reorganization/demerger as per BIFR of Rs. 19,43,73,928 as taxable income."
27. The assessee filed the original return of income on 29.11.2006 declaring total loss at Rs. 1,22,04,360/-. On 31.10.2007 revised return of income was filed. As per the revised return of income, in the computation of income for business and profession, the assessee has shown net profit at Rs. 29,08,56,591/- from which the adjustments on account of depreciation and other expenses were made and the income chargeable under the head profit and gains was computed at Rs. 18,58,95,081/- from which brought forward losses were set off and the total income was reduced to Nil. During the course of the assessment proceedings, the assessee claimed additional deductions amounting to Rs.19,43,73,928/- on account of following:
a) Surplus on One time statement with banks by way of waiver of principal amount of loan Rs. 8,36,99,463/-
b) Increase in value of land hive off Rs.11,07,74,465/-
28. The AO out-rightly rejected the claim of the assessee holding that claim for additional deduction, otherwise than filing revised return of income cannot be entertained in assessment proceedings as held by Hon'ble Supreme Court in the case of Goetz (India) Ltd Vs CIT 284 ITR 11 2317 & 1426/M/2010
323. However, the AO further observed that the assessee has credited the waiver of bank and financial institutions principal and interest of Rs. 17,34,01,111/- in the profit and loss account and in the computation of income reduced the same. The AO further observed that the interest amount to Rs. 8,97,01,648/- was disallowed under the provisions of Sec. 43B in the earlier years.
29. As regards component of principal amount of Rs. 8,36,99,463/-, the AO observed that this has been credited to the profit and loss account and also shown in the revised return of income but subsequently deducted from total income by way of a letter filed during the course of the assessment proceedings. When questioned about the practicability of this waiver of loan, the assessee contended that the remission is a capital receipt since it is remission of loan liability. . The AO did not accept this contention of the assessee. The AO was of the firm belief that provisions of Sec. 28(iv) along with the provisions of Sec. 41 squarely apply on the facts of the case. Considering the provisions of Sec. 28(iv) and Sec. 41(1) and the decision of the Hon'ble Supreme Court in the case of Goetz (India) Ltd. (supra), the additional claim of deduction of Rs. 19,43,73,928/- was disallowed. The AO further disallowed the claim of the assessee that increase in value of land hive off is not chargeable to capital gain tax by virtue of the provisions of Sec. 47(via) of the Act.
30. The assessee carried the matter before the Ld. CIT(A). But Ld. CIT(A) at para 10.4 of his order observed that the additional claim for deduction had been made by means of a letter. The Ld. CIT(A) further observed that the assessment is made on the basis of the revised return filed. It is on the basis of the revised return that income is assessed and once a revised return is filed, it takes place of the original return and the 12 2317 & 1426/M/2010 original return as filed is to be deemed as withdrawn. Thus, the effective return for the purpose of assessment is the return which is ultimately filed on the basis of which the assessee requires to be assessed. The Ld. CIT(A) concluded that a letter filed seeking to claim deductions of large sums earlier offered to tax cannot take the place of a revised return. If omission or error had been noticed, the proper course of action was to file a revised return verified and signed by the persons authorized to sign the said declaration. The Ld. CIT(A) did not find any error in the findings of the AO who relied upon the decision of the Hon'ble Supreme Court in the case of Goetz (India) Ltd (supra). On merit of the case, the Ld. CIT(A) confirmed the findings of the AO relying on the decision of the Hon'ble Supreme Court in the case of CIT Vs T.V. Sundram Iyengar & Sons Ltd 222 ITR 344 and on the decision of the Hon'ble Bombay High Court in the case of Solid Containers Ltd. Vs DCIT 30 ITR 417.
31. Before us, the Ld. Counsel for the assessee stated that the remission of bank principle loan amounted to capital receipt and therefore was claimed as deduction , though , through a letter. The Ld. Counsel stated that such a claim can be made as has been held by the Hon'ble Jurisdictional High Court in the case of CIT Vs Pruthivi Brokers & Share holders Pvt. Ltd. 349 ITR 336. The Ld. Counsel further submitted that reliance on the decision of T.V. Sundram Iyengar & Sons (supra) and Solid Containers Ltd.(supra) by the Ld. CIT(A) is misplaced. The Ld. Counsel for the assessee strongly relied upon the decision of the Hon'ble Rajasthan High Court in the case of CIT Vs Shree Pipes Ltd 301 ITR 240 wherein the cases relied upon by the Ld. CIT(A) have been duly considered and distinguished. The Ld. Counsel also relied upon the decision of the Tribunal Mumbai Bench in the case of Rama Pulp & Paper Ltd. in ITA No. 3573/M/ 2011, M/s. Prism Cement Ltd. Vs JCIT 13 2317 & 1426/M/2010 101 ITD 103 (Mum), Bombay Gas Company Ltd. Vs ACIT 54 SO6T 13 (Mum) and ITO Vs Aristo Realty Developers Ltd., in ITA No. 7052/M/08.
32. The Ld. Departmental Representative supported the findings of the lower authorities.
33. We have carefully perused the order of the lower authorities and the relevant material evidences brought on record. We have also considered the decisions relied upon by both sides. At the very outset, the decision of the Hon'ble Supreme Court in the case of Goetz (India) (supra) restricts the AO for considering any claim otherwise than by a revised return. The said bar is not applicable to appellate authorities. Our view is fortified by the decision of the Hon'ble Jurisdictional High Court in the case of Pruthivi Brokers & Share holders Pvt. Ltd. (supra) at para- 23 of its order, the Hon'ble Bombay High Court thus held as under:
"It is clear to us that the Supreme Court did not hold anything contrary to what was held in the previous judgments to the effect that even if a claim is not made before the AO, it can be made before the appellate authorities. The jurisdiction of the appellate authorities to entertain such a claim has not been negated by the Supreme Court in this judgement. In fact, the Supreme Court made it clear that the issue in the case was limited to the power of the assessing authority and that the judgement does not impinge on the power of the Tribunal u/s. 254."
34. Coming to the merit of the additional claim made by the assessee , is on account of the surplus on One time settlement with banks by way of waiver of principal amount of loan Rs. 8,36,99,463/- and Increase in value of land hive off Rs.11,07,74,465/-, the Hon'ble Rajasthan High 14 2317 & 1426/M/2010 Court in the case of Shree Pipes (supra) has held that merely dealing with such waiver with the assessee in its books of account could not alter the effect of the order of BIFR. No remission or cessation of liability towards interest nor the assessee became entitled to waiver of interest therefore Sec. 41(1) could not be invoked to at a waived amount. It was further observed by the Hon'ble Court that under section 41(1) remission can be only by an act of creditor and cessation of liability can come by agreement or by law.
35. In the case before us, the issue relates to the waiver of the principle amount of loan. We find that the Hon'ble Rajasthan High Court has considered the decision of the Hon'ble Supreme Court in the case of T.V. Sundram Iyengar & Sons (supra). A similar issue was also considered by the Tribunal Mumbai Bench in the case of Rama Pulp (supra) wherein the Tribunal has considered the decision relied upon by the Ld. CIT(A) and finally held that the liability was reduced under the scheme of BIFR and the assessee has not enjoyed any actual benefit of remission of liability in the nature of trading. Considering the facts of the case in the light of the decisions discussed hereinabove, in our understanding of law, the Ld. CIT(A) has erred in confirming the findings of the AO. We, accordingly, reverse the findings of the CIT[A] and direct the AO to allow the claim of deduction in respect of the waiver of loan amounting to Rs. 8,36,99,463/-. A perusal of the order of the Ld. CIT(A) shows that he has not adjudicated on the addition of Rs. 11,07,74,465/- being increase in value of land hive off. We, accordingly restore this limited issue back to the files of the Ld. CIT(A). The Ld. CIT(A) is directed to adjudicate this grievance of the assessee in the light of the provisions of Sec. 47(vi) of the Act. This ground of the assessee is partly allowed for statistical purpose.
15 2317 & 1426/M/2010
38. In the result, the appeal filed by the assessee is partly allowed for statistical purpose and the appeal filed by the Revenue is dismissed.
Order pronounced in the open court on 23rd April, 2014 .
आदे श क1 धोषणा खुले यायालय म5 6दनांकः 23.4.2014 को क1 गई ।
Sd/- Sd/-
(AMIT SHUKLA ) (N.K. BILLAIYA)
याियक सदःय/JUDICIAL MEMBER लेखा सदःय / ACCOUNTANT MEMBER मुंबई Mumbai; 6दनांक Dated 23.4.2014 व.िन.स./ RJ , Sr. PS आदे श क1 ूितिल प अमे षत/Copy षत of the Order forwarded to :
1. अपीलाथ- / The Appellant
2. ू/यथ- / The Respondent.
3. आयकर आयु:(अपील) / The CIT(A)-
4. आयकर आयु: / CIT
5. वभागीय ूितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai
6. गाड फाईल / Guard file.
आदे शानुसार/ ार BY ORDER, स/या पत ूित //True Copy// उप/सहायक उप सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अिधकरण मुंबई / ITAT, Mumbai