Income Tax Appellate Tribunal - Ahmedabad
Sarabhai Machinery Pvt.Ltd.,, Baroda vs Department Of Income Tax on 19 September, 2014
आयकर अपील य अ धकरण, अहमदाबाद यायपीठ 'डी' अहमदाबाद।
IN THE INCOME TAX APPELLATE TRIBUNAL
"D" BENCH, AHMEDABAD
ी जी0सी0 गु ता, उपा य एवं ी एन0एस0 सैनी, लेखा सद य के सम
BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND
SHRI N.S. SAINI, ACCOUNTANT
आयकर अपील सं./ ITA No. 2600/Ahd/2012
नधारण वष/Assessment Year: 2002-03
Asstt. Commissioner of M/s. Sarabhai Machinery
Income Tax, Circle-4, Vs Pvt. Ltd. ,
Baroda Ranoli, Dist. Baroda
PAN: AACCS 9830 R
आयकर अपील सं./ ITA No. 2623/Ahd/2012
नधारण वष/Assessment Year: 2002-03
M/s. Sarabhai Machinery ITO,
Pvt. Ltd. , Vs Ward-4(3),
PAN: AACCS 9830 R Baroda
आयकर अपील सं./ ITA No. 2606/Ahd/2012
नधारण वष/Assessment Year: 2003-04
Asstt. Commissioner of M/s. Sarabhai Machinery
Income Tax, Circle-4, Vs Pvt. Ltd. ,
Baroda PAN: AACCS 9830 R
CO No.19/Ahd/2013 - AY 2003-04
(in ITA No. 2606/Ahd/2012 - AY 2003-04)
M/s. Sarabhai Machinery Asstt. Commissioner of
Pvt. Ltd. , Vs Income Tax, Circle-4,
PAN: AACCS 9830 R Baroda
अपीलाथ / (Appellant) यथ / (Respondent)
Revenue by : Smt. Sonia Kumar, Sr. D.R.
Assessee(s) by : Shri Vijay Kumar, AR
सुनवाई क तार ख/ Date of Hearing : 09/09/2014
घोषणा क तार ख /Date of P ronouncement: 19/09/2014
ITA Nos 2600, 2623, 2606 of 2012 &
CO 19/Ahd/2013-AYs 2002-03 & 03-04
Sarabhai Machinery Pvt Ltd.
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आदे श/O R D E R
PER SHRI N.S. SAINI, ACCOUNTANT MEMBER:
The appeals in ITA No. 2600/Ahd/2012 and 2623/Ahd/2012 are the cross-appeals filed by the Revenue and assessee against the order of CIT(A)-III, Baroda dated 06.08.2012 for AY 2002-03. The appeal in ITA No.2606/Ahd/2012 and CO No.19/Ahd/2013 are filed by the Revenue and assessee respectively against the order of CIT(A)-III, Baroda dated 06.08.2012 for AY 2003-04.
2. The ground No.1 of the Revenue's appeal in both the Assessment Years i.e. AYs 2002-03 and 2003-04, is directed against the order of CIT(A)-III, Baroda in deleting the addition of Rs.6,84,182/- in AY 2002-03 and Rs.8,07,334/- in AY 2003-04 on account of reversal of the provision made by the assessee for revaluation of liability.
3. The ground No.1 of the appeal of the assessee in Assessment Year 2002-03 is directed against the order of the CIT(A)-III, Baroda in sustaining the disallowance made by the Assessing Officer of Rs.21,39,553/- on account of revaluation of liability.
4. The facts of the case are that a tripartite agreement was made between Sarabbai Machinery Ltd. (SML), Ambalal Sarabhai Enterprise Ltd. (ASE Ltd.) and the purchasers of the shares of SML on 18.04.1994. At that particular point i.e. in 1994, SML was indebted to ASE Ltd. for an aggregate amount of Rs. 7,40,96,250/- (consisting of unpaid purchase consideration, advances received by SML from ITA Nos 2600, 2623, 2606 of 2012 & CO 19/Ahd/2013-AYs 2002-03 & 03-04 Sarabhai Machinery Pvt Ltd.
-3-ASE Ltd and interest provided on these amounts). In the said agreement, clause 3 expressly provided that the interest on the unpaid purchase consideration shall cease to accrue with effect from 01.10.1993. The clause 4 of the agreement provided for the payments in installments in the following manner:
"4.1 The aforesaid sum of Rs. 7,40,96,250 shall be paid by SML to ASE in the following manner:
Rs.
1,00,00,000 On 1st October, 1994
1,00,00,000 On 1st April. 1995
1,00,00,000 On 1st October, 1995
1,14,10,000 On 1st April, 1996
-------------
4,14,10,000
3,26,86,250 On 1st April, 2014
--------------
7,40,96,250 Total
========
4.2..........
4.3 Whereas the last installment of Rs. 3,26,86,250 is payable on 1st April, 2014, SML shall be at liberty, in its sole discretion, to discharge that liability at any earlier point of time by the payment of that amount which would be the then present value of the said amount of Rs.3,26,86,250 on the basis of the discounting factor of 18% p.a."
5. It was submitted by the AR of the assessee that the aforesaid agreement provides for provision of separate securities for the dues of Rs. 4,14,10,000 and Rs. 3,26,86,250. For Rs. 4,14,10,000/-, SML will give a Demand Promissory Note alongwith the purchaser Shri Siddharth Chimanbhai Patel as a joint signatory to the promissory note. Further, the assessee-company stated that SML is to create in favour of the ASE, an Equitable Mortgage by deposit of the Title Deeds of all its immovable properties at Ranoli and by hypothecating ITA Nos 2600, 2623, 2606 of 2012 & CO 19/Ahd/2013-AYs 2002-03 & 03-04 Sarabhai Machinery Pvt Ltd.-4-
all its movable machinery and equipments at Ranoli as a security. It further stated that, the balance amount of Rs. 3,26,86,250 will be secured by Deep Discount Bonds/Debentures of such present value as would, on maturity on 1st April, 2014, give an aggregate amount of Rs. 3,26,86,250. Therefore, he submitted that, following position emerged with regard to SML's claim for interest on the unpaid purchase consideration:-
AY Total Amount of Amount allowed Amount
interest in the asstt disallowed
1987-88 41,41,500 41,41,500 Nil
1988-89 41,41,500 41,41,500 Nil
1989-90 72,47,625 31,06,125 41,41,500
1990-91 41,41,500 Nil 41,41,500
1991-92 41,41,500 Nil 41,41,500
1992-93 41,41,500 Nil 41,41,500
1993-94 41,41,500 Nil 41,41,500
1994-95 20,71,000 Nil 20,71,000
-------------- -------------- --------------
TOTAL 3,41,67,625 1,13,89,125 2,27,78,500
======== ========
(-) 14,81,375 TDS on interest accounted in books
--------------
3,26,86,250 Balance due to ASE
========
6. It was further submitted that the Tripartite Agreement had the effect of ceasing the accrual of interest on the unpaid purchase consideration with effect from 01.10.1993. Thus, so far as the liability for interest upto 30.9.1993 is concerned, there was no cessation or remission of the liability whatsoever. The cessation of liability can take place only when SML actually exercises the option of discharging the liability for Rs.3,26,86,250 earlier than on 1.4.2014 and it is only in that event that the amount by which the liability had ceased upon such earlier payment, can be known.
ITA Nos 2600, 2623, 2606 of 2012 & CO 19/Ahd/2013-AYs 2002-03 & 03-04 Sarabhai Machinery Pvt Ltd.
-5-7. Considering that SML had the option to discharge the aggregate interest liability of Rs. 3,26,86,250 (which was payable on 1.4.2014) at any earlier point of time by the payment of only that amount which was equal to the discounted value thereof (based on the discounting factor of 18% p.a.) at the time of payment, solely with a view to secure that the books of account reflected this position, the Board of Directors of the Company passed a resolution at their meeting held on 2.9.1996 for writing back Rs. 82,47,082 [Rs. 99,08,539 minus Rs. 16,61,457 (present value of Rs. 3,26,86,250 as on 31/03/1996 at a discounting factor of 18%)]. This amount of Rs.82,47,082 written back to the credit of the Profit and Loss Account does not at all represent any cessation, remission or waiver of the liability to ASE - especially such as is envisaged by Section 41 of the Income-tax Act, 1961, and there can be no question for including the credit as the Company's income for taxation purposes for the year ended 31.3.1996 corresponding to A.Y. 1996-97. The assessee-company submitted that the ASE has accounted for the entire amount of interest upto 30.9.1993 in its books of account and offered it for taxation. Further, for the reason that the Tripartite Agreement does not envisage any remission of that liability, ASE Ltd. has not passed any entry for withdrawing the credit for income in the form of that interest. However, this amount of Rs. 82,47,082/- written back to the credit of the Profit and Loss Account for A. Y. 1996-97 has been added by the department and considered it as company's income for that A. Y. 1996-97.
8. As per the agreement, during the year ended 31.3.1997, SML had subscribed an amount of Rs. 15,08,000 for 290 Deep Discount Bonds of ICICI Limited (@ Rs. 5,200 per bond.) which were to mature on 15.7.2021 and which, on maturity, were to fetch SML Rs.
ITA Nos 2600, 2623, 2606 of 2012 & CO 19/Ahd/2013-AYs 2002-03 & 03-04 Sarabhai Machinery Pvt Ltd.
-6-5,20,00,000 (@ Rs. 2,00,000 per bond). Considering that no interest as such was to accrue on these bonds and the maturity value was payable only upon maturity/early redemption of the bonds, no entry was passed in the books of account for taking credit on account of income on these bonds in the books of account for the year ended 31.3.1997 and thereafter. However, as per one of the conditions of issue of the above bonds, ICICI Ltd exercised the option of Early Redemption of the Bond and paid Rs. 11,000 per bond on 15/07/2001. The effect of same was under:
Gross Amount @ Rs.11,000 per Bond On 290 Bonds 31,90,000 Less : TDS 3,43,128
------------
Net Amount 28,46,872
=======
This has created a surplus of Rs.16,82,000/- as under:
Gross Amount 31,90,000
Less : Cost of 290 [email protected],200 15,08,000
------------
Surplus 16,82,000
=======
Therefore, the aforesaid surplus amount was offered to tax in the A. Y. 2002-2003 and the TDS thereon was claimed in the return.
9. It was also submitted by the AR of the assessee that now the position in SML's books of accounts is that the books of account show a liability of only Rs. 16,61,457 on account of interest aggregating to Rs. 3,26,86,250 which is payable to the ASE Limited on 1.4.2014.
That amount of Rs. 16,61,457 represents the present value (of the total liability of Rs. 3,26,86,250) as at 31.3.1996 arrived at on the ITA Nos 2600, 2623, 2606 of 2012 & CO 19/Ahd/2013-AYs 2002-03 & 03-04 Sarabhai Machinery Pvt Ltd.
-7-basis of the discounting factor of 18 per cent per annum. The present value as at the end of subsequent years upto 31.3.2002 is as under:
Rs.
31.3.1996 16,61,457 31.3.1997 19,60,519 31.3.1998 23,13,412 31.3.1999 27,29,826 31.3.2000 32,21,195 31.3.2001 38,01,010 31.3.2002 44,85,192
10. As the ICICI Bonds had been redeemed early, the board thought it advisable to write up the liability so that the books of account as at 31.3.2002 would show the liability at its then present value of Rs. 44,85,192. That would require a credit entry for Rs.28,23,735 [Rs. 44,85,192 minus Rs. 16,61,457 (already provided there in books)] on account of increment in the present value during the period from 1.4.1996 to 31.3.2002 on the basis of the discounting factor of 18% per annum. This was done by the company by debiting profit and loss account and crediting liability account. As the Department assessed Rs. 82,47,082/- for A. Y. 1996-97, the same is now debited to Profit and Loss A/c. while restoring the liability and therefore is rightly deducted.
11. It was further submitted by the AR of the assessee that while disallowing the claim of the assessee the Assessing Officer has not appreciated the facts of the case properly. Further, he submitted that the Assessing officer in para 4.4.3 of his order has held that agreement was executed in 1994 and the bonds were purchased in 1997, therefore there is no direct nexus between purchase of bonds and payments of the liability and both are separate transaction and not connected with payment of liability to ASE limited. It was further ITA Nos 2600, 2623, 2606 of 2012 & CO 19/Ahd/2013-AYs 2002-03 & 03-04 Sarabhai Machinery Pvt Ltd.-8-
held by assessing officer that bonds were getting matured in 2021 whereas the liability was to be paid in 2014 therefore there is no motive of purchase of deep discount bond for repayment of liability. Therefore, the AR of the assessee submitted that during the year ended 31.3,1997, SML had subscribed an amount of Rs. 15,08,000 for 290 Deep Discount Bonds of ICICI Limited (@ Rs. 5,200 per bond.) which were to mature on 15.7.2021 and which, on maturity, were to fetch SML Rs. 5,20,00,000 (@ Rs. 2,00,000 per bond). He pointed out one of the conditions of the above referred issue of bond, which reads as under:
"(2) Early Redemption The holder(s) of the Bond (s)/the Company shall have the option of Early Redemption of the Bond only at the dates and at the Deemed Face Value mentioned below:
a) on July 15,2001 for Rs. 11,000
b)on July 15,2006 for Rs. 24,000
c) on July 15,2011 for Rs. 50,000
d)on July 15,2016 for Rs.1,00,000"
12. The AR of the assessee further submitted that assessee had an option to get early redemption of said bonds on July 2011 and therefore it had purchased such bonds. The assessee would have made early redemption of said bonds in 2011 and from same, fresh investments would have been made from the said amount and on the basis of such proceeds, the assessee would have paid the liability of ASE limited. In view of aforesaid, it is stated that assessing officer has wrongly held that liability and investment has no correlation. In fact, assessee had purchased such bonds to meet its liability.
13. He also submitted that the Assessing officer in para 4.4.1 has observed that assessee-company is not revaluing its liability on year to year basis and it is not the case that revaluation was regularly made to show true value of liability in the balance sheet and ITA Nos 2600, 2623, 2606 of 2012 & CO 19/Ahd/2013-AYs 2002-03 & 03-04 Sarabhai Machinery Pvt Ltd.
-9-therefore the assessee company has diverted from its regular practice of accounting hence fall in profit due to change in method of accounting is not acceptable. In this connection, the assessee- company submitted that it had written back the amount of Rs.82,47,082 in profit and loss account in A.Y. 1996-97 on the basis of discounted value of the said liability. Further, as the assessee had purchased the bonds of ICICI limited during the A.Y. 1997-98 to meet its liability payable to ASE limited in 2014, the assessee-company had not revalued its liability in A.Y. 1997-98 and following notes was included in the Annual accounts for such decision.
"10. Provisions for interest on the Company's liability to Ambalal Sarabhai Enterprises Ltd. (ASE) pursuant to the agreement dated April 18, 1994 has not been made since the maturity value of the ICICI Bonds acquired by the Company for securing that liability will be adequate to meet the Company's liability to ASE, both for principal and interest."
14. Further, a note explaining above referred situation was explained in return of income for A.Y. 1997-98, which reads as under:-
"In view of what has been mentioned in Note No. 10 of Schedule-J forming part of the attached Annual Accounts, deduction for interest on the Company's liability to Ambalal Sarabhai Enterprises Limited pursuant to the Agreement dated April, 1994 has not been claimed. Further, since no income on the ICICI Bonds referred to in the said Note, held by the Company, has accrued due during the year, the same has also not been considered in the computation of Total Income hereinabove."
15. The AR of the assessee further submitted that, as can be seen from the above narrated facts, that as the assessee had purchased ITA Nos 2600, 2623, 2606 of 2012 & CO 19/Ahd/2013-AYs 2002-03 & 03-04 Sarabhai Machinery Pvt Ltd.
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the bonds of ICICI to meet its liability, the assessee had not revalued its liability from A.Y. 1996-97 to A.Y. 2001-2002. It is further submitted that as soon as the bonds of ICICI was redeemed on 15/07/2001, the assessee-company had decided to revalue its liability from A.Y. 2002-2003 and onwards. In view of aforesaid, it is stated that the assessee had reason for not revaluing its liability from the date it purchase the bonds till the date of redemption and the assessee had not diverted in its regular practice of accounting.
16. Further, the AR of the assessee submitted that the Assessing Officer has not appreciated the facts of the case that assessee has already shown the income of Rs.82,47,082 for similar revaluation in the year relevant to the A. Y. 1996-97 which was taxed by the Department has been ignored. He submitted that as the assessee- company had claimed Rs.28,23,735 being the reversal of provision of Rs. 82,47,082 made in A.Y. 1996-97 and which was taxed as income in said assessment year, there is no justification for making any disallowance of said Rs. 28,23,735 when there is no reason to deviate from the action of the Assessing Officer taken in the A.Y. 1996-97 when the amount was taxed.
17. In the backdrop of the above submissions, the AR of the assessee submitted that the CIT(A) was not justified in granting deduction of Rs.6,84,182/- out of total deduction Rs.28,23,735/- by holding that the present value of the debt of Rs. 3,26,86,250/- at the beginning of the previous year 2001-02 was Rs.38,01,010/- and at the end of the previous year was Rs.44,85,192/- and therefore the difference of Rs.6,84,182/- was the increase in liability pertaining to AY 2002-03 and this is the amount which can be termed as the liability on account of reversal in original provision made as accruing ITA Nos 2600, 2623, 2606 of 2012 & CO 19/Ahd/2013-AYs 2002-03 & 03-04 Sarabhai Machinery Pvt Ltd.
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during this accounting year and as per matching principle, only this amount can be allowed as deduction in computation of income of the current assessment year and that balance amount of Rs.21,39,553/- had accrued as a liability before 01.04.2001 which cannot be allowed as a deduction during this assessment year. The purchase of ICICI Bond is a separate transaction which is not relevant for determining the accrual of such liability and accordingly directing the Assessing Officer to allow the deduction of Rs.6,84,182/- to the assessee from its income.
18. The Departmental Representative relied on the order of the Assessing Officer and submitted that the CIT(A) was not justified in deleting the disallowance to the extent of Rs.6,84,182/- in AY 2002- 03 and Rs.8,07,334/- in AY 2003-04.
19. We find that in the instant case the assessee has revalued its liability to M/s. Ambalal Sarabhai Enterprises Ltd. (ASE Ltd.) and increased the same by Rs.28,23,735/-. In our considered view, in normal parlance such increase in liability is not an expense incurred wholly and exclusively for the purposes of business and is therefore not allowable as deduction to the assessee. But looking at the entire facts of the case, we find that in this case when the assessee revalued the same liability in the AY 1996-97 resulting in credit of Rs.82,47,082/- to the profit and loss account, the Department held that amount as taxable income of the assessee. In our opinion, Department cannot be allowed to blow hot and cold at the same time. In the AY 1996-97 when in reality no cessation of liability of Rs.99,08,539/- took place but only because the assessee for its accounting purposes revalued its liability, the credit so arising was treated as taxable income of the assessee. Keeping in view this ITA Nos 2600, 2623, 2606 of 2012 & CO 19/Ahd/2013-AYs 2002-03 & 03-04 Sarabhai Machinery Pvt Ltd.
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peculiar fact of the case, in our considered opinion on similar revaluation made during the year under consideration when a debit has arisen in the profit and loss account because of write back of the liability which was written down in earlier year, such debit amount in the profit and loss account to the extent to which it was assessed as taxable income in the AY 1996-97 ought to be allowed as deduction as business loss to the assessee. We are alive to the fact that when no cessation or increase in real liability takes places then the taxable income of the assessee is not effected merely because of passing entry of revaluation of liability in the books of the assessee. However, in the instant case when no cessation of liability took place in the AY 1996-97 when the assessee by a book entry reduced its liability on revaluating the amount of reduction was treated by the Department as taxable income of the assessee and therefore when to that extent when liability is again enhanced by the assessee in its books of account, the enhanced amount is to be allowed as deduction from taxable income on the very same analogy. We, therefore, find that Rs.28,23,735/- enhanced as liability during the year being part of Rs.82,47,082/- which was reduced as liability during the AY 1996- 97 and assessed as taxable income of the assessee for that assessment year, we modify the order of CIT(A) and direct the Assessing Officer to allow the same as deduction to the assessee for AY 2002-03. Therefore, this ground of appeal of the assessee is allowed and that of the Revenue is dismissed.
20. In the AY 2003-04, we find that the assessee has further enhanced its liability to M/s. Ambalal Sarabhai Enterprise Ltd. by Rs.8,07,334/-. Thus, the total enhancement of liability is within Rs.82,47,082/- which was taxed by the Department in the AY 1996-
97. Therefore, we following the reasoning given above for AY 2002- ITA Nos 2600, 2623, 2606 of 2012 & CO 19/Ahd/2013-AYs 2002-03 & 03-04 Sarabhai Machinery Pvt Ltd.
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03 confirm the order of the CIT(A) and dismiss this ground of appeal of the Revenue.
21. Ground No.2 of the appeal of the assessee in AY 2002-03 is directed against the order of the CIT(A) in confirming the disallowance of Rs.8,317/- on account of interest expense made by the Assessing Officer u/s 14A of the Act.
22. The Assessing Officer observed that the assessee had made investment of Rs.6,65,358/- in shares of M/s. Paras Petrofills Ltd. Before the Assessing Officer, the assessee submitted that such investment was made in March 2002 from its cash credit facility obtained from Indusind Bank to whom the assessee was paying interest @ 15%. On query by the Assessing Officer to explain as to why the corresponding interest paid for investment in the shares should not be disallowed, the assessee failed to furnish any explanation and in that event, the Assessing Officer held that the investment in shares of M/s. Paras Petrofills Ltd. was made out of interest bearing funds and disallowed Rs.8,317/- u/s 14A of the Act.
23. On appeal, the CIT(A) confirmed the action of the Assessing Officer for the reason that the assessee before the Assessing Officer accepted the investments in shares were made out of interest bearing funds.
24. Before us no material was brought on record by the AR of the assessee to show that the investments in shares of M/s. Paras Petrofills Ltd. were not made out of interest bearing funds of the assessee and that the assessee had sufficient interest free funds for making such investments in shares. Therefore, we find no good ITA Nos 2600, 2623, 2606 of 2012 & CO 19/Ahd/2013-AYs 2002-03 & 03-04 Sarabhai Machinery Pvt Ltd.
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reason to interfere with the order of CIT(A) which is confirmed and this ground of the assessee is dismissed.
25. Ground No.3 of the appeal of the assessee in AY 2002-03 is directed against the order of the CIT(A) confirming the ad-hoc disallowances of Rs.40,000/- out of Staff Welfare Expenses of 6,74,490/- and Ground No.1 of the Cross-objections filed by the assessee is directed against the order of the CIT(A) confirming the ad-hoc disallowance of Rs.43,458/- out of staff welfare expenses of Rs.5,79,459/- in AY 2003-04.
26. The brief facts of the case are that the Assessing Officer observed that majority of the staff welfare expenses were incurred in cash and vouchers of these expenses were not enclosed. Since the expenses were not fully verifiable, the Assessing Officer disallowed Rs.40,000/- in AY 2002-03 and Rs. 43,458/- in AY 2003-04 out of these expenses.
27. On appeal, the CIT(A) confirmed the action of the Assessing Officer observing that the Assessing Officer has made disallowances in view of the discrepancies as mentioned in his order.
28. Before us, the AR of the assessee submitted that the Assessing Officer was not justified in making ad-hoc disallowances out of staff welfare expenses by making a general remark that expenses were not fully verifiable or the vouchers were not enclosed. He submitted that the Assessing Officer has not pointed out against which of the item of expenditure the assessee has not maintained voucher. He, therefore, submitted that the ad-hoc disallowance of Rs.40,000/-
ITA Nos 2600, 2623, 2606 of 2012 & CO 19/Ahd/2013-AYs 2002-03 & 03-04 Sarabhai Machinery Pvt Ltd.
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made by the Assessing Officer was not sustainable and therefore the CIT(A) was not justified in confirming the same.
29. On the other hand, the Departmental Representative supported the orders of the lower authorities.
30. We have heard the rival submissions, perused the orders of the lower authorities and material available on record. In the instant case, the brief facts of the case are that the Assessing Officer made disallowance of Rs.40,000/- in AY 2002-03 and Rs.43,458/- in AY 2003-04 out of staff welfare expenses of Rs.6,74,490/- in AY 2002- 03 and Rs.5,79,459/- in AY 2003-04 claimed by the assessee on the ground that majority of the expenses were incurred in cash and vouchers of such expenses were not enclosed. On appeal, the CIT(A) confirmed the action of the Assessing Officer. The contention of the AR of the assessee is that the disallowance was made without pointing out the items of the expenses in respect of which the assessee had not maintained the vouchers and therefore, the Assessing Officer is not justified in making disallowance of expenses on ad-hoc basis. We find force in the arguments of the AR of the assessee. We find that the Assessing Officer has not pointed out for which items of the expenditure the assessee has not maintained the vouchers. Without bringing such material on record, he was not justified in making ad-hoc disallowance of Rs.40,000/- in AY 2002-03 and Rs.43,458/- in AY 2003-04 out of staff welfare expenses of Rs.6,74,490/- in AY 2002-03 and Rs.5,79,459/- in AY 2003-04. Hence, we set aside the orders of the lower authorities on this issue and delete the disallowance of Rs.40,000/- in AY 2002-03 and Rs.43,458/- in AY 2003-04 and allow this ground of appeal of the assessee in both the years under appeal.
ITA Nos 2600, 2623, 2606 of 2012 & CO 19/Ahd/2013-AYs 2002-03 & 03-04 Sarabhai Machinery Pvt Ltd.
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31. Ground No.4 of the assessee's appeal in AY 2002-03 is directed against the order of CIT(A) in initiating penalty u/s 271(1)(c) of the Act. This ground of appeal of the assessee is dismissed as premature.
32. Ground No.2 of the Revenue's appeal is directed against the order of CIT(A) deleting the disallowance of Rs.3,98,212/- in AY 2002-03 and Rs.3,07,493/- in AY 2003-04 on account of delay in payment of the employees contribution to the Provident Fund and ESI.
33. At the time of hearing, the Departmental Representative fairly submitted that the issue was covered in favour of the Revenue by the decision of the Hon'ble Gujarat High Court in the case of CIT v. Gujarat State Road Transport Corporation, reported in [2014] 366 ITR 170 (Guj.), wherein it was held that if the assessee has not credit the employees' contribution to the employees' account in the relevant fund or funds on or before the due date mentioned in the Explanation to section 36(1)(va), the assessee shall not be entitled to deduction of such amount in computing the income referred to in section 28. Therefore, respectfully following the decision of Hon'ble Gujarat High Court in the case of Gujarat State Road Transport Corporation (supra), we set aside the order of CIT(A) and restore back the order of Assessing Officer. Thus, this ground of appeal of the Revenue is allowed for both the assessment years under consideration.
34. Ground No.3 of the Revenue's appeal in AY 2002-03 is directed against the order of the CIT(A) in deleting the disallowance of Rs.61,056/- out of vehicle expenses. The brief facts of the case are ITA Nos 2600, 2623, 2606 of 2012 & CO 19/Ahd/2013-AYs 2002-03 & 03-04 Sarabhai Machinery Pvt Ltd.
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that assessee made payment of Rs.61,065/- as one time RTO tax to the RTO, Mumbai. The Assessing Officer disallowed the same holding it to be a capital expenditure which would give enduring benefits to the assessee.
35. Before the CIT(A) the assessee argued that it had not purchased any new car during the year and was paying RTO tax every year. During the year under consideration, RTO, Mumbai preferred to collect the tax once in life time and the assessee had paid the same and claimed as revenue expenditure. It was submitted that the assessee had not acquired or brought into existence any new asset or has not derived any enduring benefit by paying RTO tax for one time. Therefore treating the same as capital expenditure by the Assessing Officer was not justified.
36. The CIT(A) after considering the submissions of the assessee allowed the same by holding it as revenue expenditure.
37. The Departmental Representative has relied on the order of the Assessing Officer. The AR of the assessee supported the order of the CIT(A).
38. After considering the rival submissions and perusal of the material available on record, we are of the considered opinion that the tax is payable to the RTO for plying of vehicle on the road. Till immediately preceding year, the RTO was collecting tax every year and only in this year the RTO decided to levy life time tax on the vehicle of the assessee which was already used by the assessee and was not a case of acquisition of any new vehicle. By making this payment the assessee has not acquired any new asset. By making ITA Nos 2600, 2623, 2606 of 2012 & CO 19/Ahd/2013-AYs 2002-03 & 03-04 Sarabhai Machinery Pvt Ltd.
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this payment to the RTO, the assessee is entitled to ply vehicle on road without which the assessee would not be able to ply the vehicle on road. Thus, the collection of road tax by RTO as one time payment was revenue expenditure. The DR could not bring any material on record to show that the expenditure in question was a capital expenditure because the assessee was deriving any benefit of enduring nature or has acquired any new capital asset. Hence, we find no infirmity in the order of CIT(A) which is confirmed and thus, this ground of appeal of the Revenue is dismissed.
39. Ground No.2 of the Cross-objections of the assessee is directed against the initiation of penalty proceedings u/s 271(1)(c) of the Act by the Assessing Officer. We dismiss this ground of cross-objections as premature.
40. In the result, the appeals of the Revenue and the appeal of the assessee as well as the Cross-objections filed by the assessee are partly allowed as indicated above.
Order pronounced in the Court on Friday, the 19th of September, 2014 at Ahmedabad.
Sd/- Sd/-
(G.C. GUPTA) ( N.S. SAINI)
VICE PRESIDENT ACCOUNTANT MEMBER
Ahmedabad; Dated 19/09/2014
*Bt
TRUE COPY
आदे श क त ल प अ े षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. संबं धत आयकर आयु त / Concerned CIT
ITA Nos 2600, 2623, 2606 of 2012 &
CO 19/Ahd/2013-AYs 2002-03 & 03-04
Sarabhai Machinery Pvt Ltd.
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4. आयकर आयु त(अपील) / The CIT(A)-III, Baroda
5. वभागीय त न ध, आयकर अपील य अ धकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड फाईल / Guard file.
आदे शानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad