Income Tax Appellate Tribunal - Jaipur
Uttam Polyrubs India P Ltd., Jaipur vs Assistant Commissioner Of Income Tax, ... on 22 February, 2018
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI VIJAY PAL RAO, JM AND SHRI VIKRAM SINGH YADAV, AM
vk;dj vihy la-@ITA No. 859 & 860/JP/2017
fu/kZkj.k o"kZ@Assessment Years : 2010-11 & 2013-14.
M/s Uttam Polyrubs India Pvt. cuke ACIT, Circle-2,
Ltd., Vs. Alwar.
G-1060, Phase III, RIICO
Industrial Area,
Bhiwadi, Alwar.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN No. AAACU 4543 P
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj ls@ Assessee by : Shri P.C. Parwal (C.A.)
jktLo dh vksj ls@ Revenue by: Shri Runn Singh (Addl CIT)
lquokbZ dh rkjh[k@ Date of Hearing : 20.02.2018.
?kks"k.kk dh rkjh[k@ Date of Pronouncement : 22/02/2018.
vkns'k@ ORDER
PER BENCH:
These are two appeals filed by the assessee against the orders of Ld. CIT(A)-22, Alwar, dated 22.09.2017 for the A.Y. 2010-11 and 2013-14 respectively. In ITA No. 859/JP/2017 pertaining to A.Y. 2010-11, the assessee has raised the solitary ground of appeal which reads as under:-ITA No. 859/JP/2017
"The Ld. CIT(A) has erred on facts and in law in confirming the disallowance of depreciation of Rs. 1,25,123/- claimed on 'Electrical equipment under installation', Rs. 3,82,784/- claimed on 'building under construction' and Rs. 5,47,739/- claimed on 'P & M under installation', aggregating to Rs. 10,55,646/- by incorrectly holding that these assets were not used for the purpose of business nor they were ready for use."2
ITA Nos 859 & 860/JP/2017.
M/s Uttam Polyrubs India Pvt. Ltd.,Alwar.
2. Briefly the facts of the case are that the assessment in this case was completed under section 143(3) on 8.3.2013. Thereafter, the Assessing Officer observed that depreciation on Electrical Equipment under installation, Building under construction and Plant and Machinery under installation was wrongly allowed to the assessee company as these assets were under installation or construction. Thereafter, a notice u/s 154 was issued to the assessee. In response, the assessee submitted that it has never charged depreciation on fixed assets not capitalized or put to use. It was submitted that the same is evident from the fact that during the installation/construction, asset is kept in separate account and at the time of capitalization, the same is transferred to respective assets. The Assessing Officer referred to the copy of the Ledger Account of Electrical Equipment, Plant & Machinery as well as Building and observed that the assessee has debited various amount under the head "Electrical Equipment under installation", "Plant and Machinery under installation" and "Building under Construction" and credited amount of Rs. 1,25,123/- Rs. 5,47,739/- & Rs. 3,82,784/- respectively on account of depreciation. It was accordingly held by the AO that the assessee has claimed depreciation of Rs. 10,55,646/- on assets which were not put to use during the financial year relevant to assessment year and accordingly, disallowed the depreciation being mistake apparent from record by passing an order under section 154 of the Act. 3
ITA Nos 859 & 860/JP/2017.
M/s Uttam Polyrubs India Pvt. Ltd.,Alwar.
3. Being aggrieved, the assessee carried the matter in appeal before the Ld. CIT(A), who has confirmed the said disallowance. As per the Ld. CIT(A), the appellant company itself has declared the assets in question as under
construction and under installation and therefore, it is legitimate on the part of the AO to conclude that such assets have not been used for the purpose of business not they are even ready for use. Being aggrieved with the said findings, the assessee is in appeal before us.
4. During the course of hearing, the Ld. AR took us through the ledger accounts of building, electrical equipment and plant and machinery. It was submitted that the said accounts reflect the addition to the respective block of assets during the year under consideration. It was submitted that there are separate accounts which are maintained when the respective assets are under construction/installation and when the construction/installation is completed, the amounts are transferred from the said work-in-progress accounts to the assets accounts. Our reference was drawn to the Building account and the journal entry passed on 30.9.2009 wherein the building account has been debited and the "building under construction" account has been credited by amount of Rs. 72,17,127/-. It was submitted that the said journal entry demonstrated the fact that the building has since been constructed and all the expenditures which were lying under "building under construction" account 4 ITA Nos 859 & 860/JP/2017.
M/s Uttam Polyrubs India Pvt. Ltd.,Alwar.
has since been transferred and capitalized in the building account. It was submitted that the said journal entry has been wrongly understood by the AO without appreciating the same. It was further submitted that the depreciation of Rs. 3,82,783/- which has been credited to the building account is in respect of the building which has been fully constructed and put to use during the year and not in respect of building under construction. It was accordingly submitted that the similar position exist in respect of other two capital assets in the nature of Electrical Equipment and Plant and Machinery. It was accordingly submitted that the lower authorities have failed to appreciate the nature of the accounting entries and it has resulted in disallowance of the book depreciation which has not been claimed on first place. Further, drawing our reference to the computation of income as well as the depreciation schedule, it was submitted that the whole of the book depreciation debited in the profit/loss account including the depreciation so disallowed by the AO has already been disallowed by the assessee in its return of income amounting to Rs 28,53,408 and what has been claimed is the depreciation computed as per the provisions of section 32 of the IT Act amounting to Rs 39,33,133.
5. We have heard the Ld. D/R who has relied on the order of the lower authorities.
5
ITA Nos 859 & 860/JP/2017.
M/s Uttam Polyrubs India Pvt. Ltd.,Alwar.
6. We have heard the rival contentions and perused of the material available on record. On perusal of computation of income as well as ledger accounts of building, electrical equipments and plant & machinery, we find that during the year, there is capitalization of expenditure in these respective asset accounts and the amount of capital expenditure which was kept in the separate construction/installation accounts have been transferred to the asset accounts and which has been capitalized during the year. Further, the amount of depreciation which has been disallowed by the AO is the book depreciation on these assets which has already been disallowed in the computation of income at the time of filing of return of income by the assessee company. We accordingly find the contentions so raised by the ld AR to be factually correct. In the result, we donot find any basis for disallowing the book depreciation as has been done by the AO and confirmed by the ld CIT(A). The disallowance so made is hereby deleted. The sole ground of assessee's appeal is allowed.
7. In the result, appeal filed by the assessee is allowed. ITA No.860/JP/2017
8. Now, we take up appeal in ITA No. 860/JP/2017 pertaining to A.Y. 2013-14 wherein the assessee has taken the following grounds of appeal:- 6
ITA Nos 859 & 860/JP/2017.
M/s Uttam Polyrubs India Pvt. Ltd.,Alwar.
"1. The Ld. CIT(A) has erred on facts and in law in confirming the disallowance of Rs. 15,57,583/- on account of interest on unsecured loans paid in excess of 18% to the persons specified u/s 40A(2)(b) of the IT Act.
2. The Ld. CIT(A) has erred on facts and in law in confirming the disallowance of Rs. 75,000/- out of business promotion expenses.
3. The Ld. CIT(A) has erred on facts and in law in confirming the disallowance of Rs. 50,000/- out of development and consultancy charges."
9. Regarding ground no. 1, at the outset, the assessee submitted that the matter is squarely covered by the decision of the Co-ordinate Bench in assessee's own case in ITA No. 760/JP/2015 dated 28.07.2016 and the relevant findings of the Co-ordinate Bench are reproduced as under:-
"There is no dispute with regard to the fact that the amount was borrowed for the purpose of business and the assessee has claimed payment of interest @ 24% per annum. However, the AO considering the same as unreasonable and excessive, restricted @ 18%. The revenue has not placed any material under the identical facts and circumstances that the fair market rate of interest is lower than what the assessee has claimed. As per section 40A(2)(b), the AO has to give a finding having regard to the fair market rate. In the present case, no such finding is given. The assessee has placed reliance on the two decisions of the Coordinate Bench of the Tribunal rendered in the case of Ram Avtar Garg vs. ITO in ITA No. 58/JP/2010 pertaining to A.Y. 2005-06 and in assessee's own case in ITA No. 570/JP/2015 pertaining to A.Y. 2010-11 wherein the Coordinate Benches have allowed the interest @ 24% being fair market rate. The facts of the present case are identical. The revenue has not brought any contrary material on record suggesting that the rate so claimed by the assessee is excessive of the fair market rate as prevalent during the year under appeal. Therefore, we hereby direct the AO to delete the disallowance of Rs. 6,92,942/- made on 7 ITA Nos 859 & 860/JP/2017.
M/s Uttam Polyrubs India Pvt. Ltd.,Alwar.
account of interest on fair market rate paid in excess of 18% to the persons specified under section 40A(2)( b) of the Act."
10. Undisputedly, there are no changes in the facts and circumstances of the fact, the AO has followed the earlier year's order and has made the subject addition. The Coordinate Bench in the earlier year has examined the matter at length and has deleted the said addition. Respectfully following the decision of the Co-ordinate Bench, the addition so made in the hands of the assessee company is hereby deleted.
11. Regarding Ground No. 2 and 3, the Ld. AR submitted that these are pure adhoc additions which have been made by the AO and confirmed by the Ld. CIT(A). It was submitted that the AO has not pointed out any specific defects in the books of accounts or the specific expenditure which calls for the disallowance. It was accordingly submitted that the additions so made should be deleted. In support of this, the Ld. AR has relied on the following decisions:-
1. ACIT Vs. Ganpati Enterprises Ltd. (2013) 142 ITD 118 (Delhi) (Trib.)
2. CIT Vs. Oracle India (P) Ltd. 199 Taxman 181 (Del)(HC)(Mag.)
3. Arthur & Anderson & Co. Vs. ACIT 2010-TIOL- 416-ITAT-Mum
4. Season Catering Services (P) Ltd. Vs. DCIT 43 DTR 397 (Del) (Trib) 8 ITA Nos 859 & 860/JP/2017.
M/s Uttam Polyrubs India Pvt. Ltd.,Alwar.
12. The Ld. D/R is heard who has relied on the orders of the lower authorities and submitted that the AO has been more than reasonable in disallowing the subject expenses in absence of necessary documentation for verification.
13. In order to appreciate the contentions so raised by the Ld. AR, it would be relevant to refer to the finding of the AO which are contained at para 4 & 5 of the assessment order which are reproduced as under:-
"4. During the year under consideration assessee company has claimed expenditure under the head of business promotion of Rs. 31,04,309/-. During the course of assessment proceedings the A.R. of the assessee was asked to produce complete voucher of expenses claimed in P & L account for verification. On examination of books it was found that above expenses were not fully vouched and some of the vouchers were self made and were not supported by the bills. The assessee has failed to furnish complete bills and vouchers of expenses. Hence, the assessee has failed to discharge the onus laid upon it. In absence of the bills and vouchers the expenses are not verifiable as there are no source documents for some of the expenses. In view of the above discussion I find it quite justified to disallow an amount of Rs. 75,000/- out of the expenses in absence of proper verification.
5. During the year under consideration assessee company has claimed expenditure under the head of development and consultancy charges of Rs. 18,15,500/-. During the course of assessment proceedings the A.R. of the assessee was asked to produce complete voucher of expenses 9 ITA Nos 859 & 860/JP/2017.
M/s Uttam Polyrubs India Pvt. Ltd.,Alwar.
claimed in P & L account for verification. On examination of books it was found that above expenses were not fully vouched and some of the vouchers were self made and were not supported by the bills. The assessee has failed to furnish complete bills and vouchers of expenses. Hence, the assessee has failed to discharge the onus laid upon it. In absence of the bills and vouchers the expenses are not verifiable as there are no source documents for some of the expenses. In view of the above discussion I find it quite justified to disallow an amount of Rs. 50,000/- out of the expenses in absence of proper verification.
14. We have heard the rival contentions and purused the material available on record. The AO has disallowed Rs 75,000 out of Rs 31,04,309 of business promotion expenses and Rs 50,000 out of Rs 18,15,500 of development and consultancy expenses. The reasoning of the AO in both these cases have been that there are no source documents for some of the expenses and hence, in absence of proper verification, the expenses cannot be allowed. However, it is not clearly emerging from the assessment order as to what are those specific expenditure whose source documents are not produced by the assessee for verification. The ld DR also couldn't explain any linkage between the amount of the disallowance so made by the AO and whether these are the expenditure whose source documents are not available for verification. It is therefore a case of adhoc disallowance amount of the total expenditure claimed under the above mentioned two heads of expenditure. There is no basis for adhoc disallowance of expenditure in the eyes of law. There is no 10 ITA Nos 859 & 860/JP/2017.
M/s Uttam Polyrubs India Pvt. Ltd.,Alwar.
finding that these expenditure are bogus or not incurred for purposes of the assessee's business. In view of the same, given that these are purely adhoc additions, the same cannot be sustained and are hereby deleted. In the result, ground no. 2 and 3 of assessee's appeal are allowed.
15. In the result, the assessee's appeal is allowed.
In the result, both the appeals filed by the assessee are allowed.
Order pronounced in the open Court on 22/02/2018.
Sd/- Sd/-
(Jh fot; iky jko) (foØe flag ;kno ½
(VIJAY PAL RAO) (VIKRAM SINGH YADAV)
U;kf;d lnL; / Judicial Member ys[kk lnL; /Accountant Member
Jaipur
Dated:- 22/02/2018.
Pooja/
vkns'k dh izfrfyfi vxzfs "kr@Copy of the order forwarded to:
1. The Appellant- M/s Uttam Polyrubs India Pvt. Ltd., Alwar.
2. The Respondent - ACIT, Circle-2, Alwar.
3. The CIT.
4. The CIT (4),
5. The DR, ITAT, Jaipur
6. Guard File (ITA No. 859 & 860/JP/2017) vkns'kkuqlkj@ By order, lgk;d iathdkj@ Assistant. Registrar 11 ITA Nos 859 & 860/JP/2017.
M/s Uttam Polyrubs India Pvt. Ltd.,Alwar.