Income Tax Appellate Tribunal - Agra
Hind Lamps Ltd. vs Deputy Commissioner Of Income Tax on 26 June, 2000
Equivalent citations: (2000)68TTJ(AGRA)586
ORDER
Phool Singh, J.M. These two cross- appeals-one by the assessee and the other by revenue arises out of order dated 16-12-1990, recorded by the Commissioner (Appeals). Both the appeals were heard together and are being disposed of by a common order for the sake of convenience.
2. Ground Nos. 1 to 3 of assessee's appeal and ground No. 4 raised by the revenue relate to disallowance of Rs. 71,806 claimed by the assessee as expenditure incurred on transit home in the factory premises and Rs. 20,000 disallowed by assessing officer on account of the cost of electricity, water, gas, etc. in the guest house which was restricted to Rs. 12,000. Vide para 27 of the assessment order the assessing officer noted that assessee had claimed Rs. 79,936 on account of maintenance of transit house Rs., 4,390 as depreciation and Rs. 10,803 recovered from persons using transit house. The assessing officer also noted that expenses disclosed above did not cover all the expenses. Ultimately he disallowed Rs. 25,000 on ad hoc basis out of electricity expenses, water charges and cooking gas, etc. and further disallowed Rs. 71,806 out of maintenance of transit house. Rs. 20,000 claimed by the assessee as maintenance in respect of small guest house maintained at Calcutta were also disallowed making disallowance of Rs. 1,18,576. On appeal, the Commissioner (Appeals) reduced the disallowance on electricity, water, and gas, etc., to Rs. 12,000 and also deleted the disallowance of Rs. 20,000 in respect of premises at Calcutta. Aggrieved, the revenue as well as the assessee are in cross-appeals before the Tribunal.
2.1. At the time of hearing the learned counsel for the assessee submitted that identical issue was involved in the case of assessee for assessment year 1984-85 and Tribunal vide its order dated 5-9-1994, in ITA Nos. 1655 and 2149/Del/1990 in the cross-appeals of assessee and department, involving assessment year 1984-85 had decided this controversy and deleted the disallowance of Rs. 20,000 made on account of premises hired by M/s Bajaj Electricals at Calcutta on the finding that the same was being used as house. Further, in the same order, appearing at pp. 53 to 60 of the paper book, the Tribunal had deleted the addition in respect of expenses relating to rent, rates, etc. by following the order of Bombay High Court in the case of Chase Bright Steel Ltd. v. CIT (1989) 117 ITR 124 (Bom), concluding that repairs and maintenance of guest house were allowable under section 31 of the Act and no disallowance was called for under section 37(4) of the Act. The learned counsel submitted that same view be adopted in this year and amount of addition on account of electricity, water, etc. which was made at Rs. 12,000 and restricted to Rs. 8,000 by Commissioner (Appeals) was sustained to the extent of Rs. 1,500 by Tribunal and in the same view this year addition may be confirmed proportionately.
2.2. On the other hand, the learned Departmental Representative placed reliance on the order of assessing officer and the Commissioner (Appeals).
2.3. After considering all the facts we are of the considered view that expenses relating to repairs and maintenance of guest house are allowable under section 31 of the Act as held by Tribunal in the case of assessee itself for assessment year 1984-85 and we also confirm the action of Commissioner (Appeals) by which he deleted the disallowance of Rs. 20,000 in respect of premises at Calcutta. So far as estimated addition on account of electricity, water, etc., is concerned, we confirm it at Rs. 8,000 instead of Rs. 12,000 sustained by the Commissioner (Appeals). Ground Nos. 1 to 3 of assessee's appeal and ground No. 4 of revenue 's appeal stand disposed of accordingly.
3. Ground No. 4 of assessee's appeal and ground No. 5 of revenue 's appeal relate to disallowance of Rs. 30,000 under section 37(3A) and disallowance at 20 per cent of the same. The assessing officer noted in para 32 of the assessment order that assessee had claimed advertisement expenses, maintenance and running of motor cars, payments made to hotel, etc., for the purpose of disallowance under section 37(3A) but as per observation of assessing officer assessee failed to include the expenditure involved in the maintenance and running of the motor-cars relating to salary of driver, repair and insurance charges. He estimated such amount to Rs. 50,000 and that was added for disallowance under section 37(3A). On appeal, the Commissioner (Appeals) restricted this addition, following the order of Commissioner (Appeals) in assessee's own case for assessment year 1984-85, to Rs. 30,000, Aggrieved, both the assessee as well as the revenue are in appeal before the Tribunal.
3.1. It may be pointed out that similar disallowance was involved in the case of assessee for assessment year 1984-85 and the Tribunal in the case of assessee vide para 5 had deleted such addition after following the case law. The learned Departmental Representative conceded to this proposition and we conclude that no such disallowance was called for. The ground of the assessee is allowed in view of the decision of Tribunal in assessee's own case referred to above and ground of revenue fails.
4. Ground No. 5 of assessee's appeal relates to the disallowance of Rs. 68,912 made by the assessing officer out of the provisions for bonus on the ground that the said amount was shown payable to those workers who were drawing salary more than Rs. 1,000 p.m. It appears that Commissioner (Appeals) has not decided this ground which was specifically agitated as ground No. 15 before him. So the Commissioner (Appeals) is directed to decide this ground.
5. Ground No. 6 of assessee's appeal relates to addition of Rs. 5,021 in respect of alleged under valuation in stores. We find that the Commissioner (Appeals) has not discussed this issue in the order impugned. Accordingly, matter is restored to the file of the Commissioner (Appeals) to decide the issue in question in accordance with law.
6. Ground No. 7 of assessee's appeal relates to disallowance of Rs. 36,061 made by the assessing officer after invoking the provisions of section 40A(5). Again the Commissioner (Appeals) failed to discuss this point in the order impugned. Accordingly, matter is restored to the file of Commissioner (Appeals) for deciding the issue in controversy in accordance with law.
7. Ground No. 8 raised in assessee's appeal has not been pressed and the same stands rejected accordingly.
8. Ground No. 9 of the assessee's appeal relates to the addition made by assessing officer after invoking the provisions of section 43B of the Act in respect of the following expenses :S Rs.
(a) Central sales-tax 43,764
(b) U.P. sales-tax 96,375
(c) Additional tax on U.P. sale-tax 36,547
(d) Gratuity payable 795 2,05,429 8.1. The assessee claimed that no disallowance was called for but Commissioner (Appeals) also upheld the disallowance on the basis of order of Commissioner (Appeals) for just preceding year assessment year 1984-85. Aggrieved, the assessee is in appeal.
8.2. It was submitted by the learned counsel that in assessment year 1984-85 the Tribunal in the gross appeals of the assessee and the department referred to above, had deleted the disallowance in respect of Central sales-tax, U.P. sales-tax and additional tax on U.P. sale-tax by following the decision of Allahabad High Court in the case of CIT v. S.P. Foundries (1990) 185 ITR 555 (All). Further the reliance was placed on the decision of Hon'ble Supreme Court in the case of Allied Motors (P) Ltd. v. CIT (1997) 224 ITR 677 (SC). The learned Departmental Representative conceded to this proposition. The assessing officer has also taken note of the fact that amount of sales-tax and Central sales-tax which was outstanding as was not payable up to the end of accounting year was paid by the assessee before filing of return under section 139(1) of the Act. In view of this factual position, the ratio of Hon'ble Supreme Court in the case of Allied Motors (P) Ltd. v. CIT (supra) is fully applicable and thus amounts are to be deleted and assessing officer is directed to delete the same.
8.3. So far as amount of ESI and gratuity is concerned, the assessing officer as well as the Commissioner (Appeals) have not discussed the actual details of these amounts and matter stands restored back to the file of assessing officer for deciding the issue afresh in accordance with law.
9. Ground No. 10 to 13 of assessee's appeal relate to initial depreciation and depreciation on temple, Pujari quarter, mess for workers and school within factory premises. The assessing officer did not allow initial depreciation in respect of mess for workers, school on the ground that these facilities were also enjoyed by workers drawing salary of more than Rs. 10,000 p.a. The contention of the assessee was that out of 1,643 permanent employees 1,105 employees earned less than Rs. 10,000 p.a. and mess was entirely for workers and not for management staff. The Commissioner (Appeals) sustained the disallowance of initial depreciation on the mess building and school but did not decide the claim of the assessee relating to temple and Pujari quarters. Aggrieved, assessee as well as revenue are in appeal on this point.
9.1. During the course of hearing it was pointed out by the learned counsel for the assessee that depreciation on school building claimed by the assessee was allowed by Commissioner (Appeals) in the case of assessee for assessment year 1983-84. Copy of that order of Commissioner (Appeals) is appearing at pages 90 to 110 of the paper book and relevant discussion is appearing at page 104 in which it was concluded by the Commissioner (Appeals) that assessee was entitled for depreciation in respect of school building. Further, depreciation and initial depreciation on the temple was claimed by the assessee for assessment year 1984-85 which was disallowed by assessing officer and Commissioner (Appeals) but Tribunal vide para 7 of its order, deciding the cross-appeals of assessee and revenue for assessment year 1984-85, decided the issue in favour of the assessee. Accordingly the learned counsel submitted that assessee is entitled for depreciation on school building and temple as well as initial depreciation on the temple. About the initial depreciation and depreciation on mess building a was submitted that mess was being used for employees drawing less than Rs. 10,000 p.a. and it was not for management staff. There is nothing from the side of department to controvert this proposition that mess was also being used by employees who were drawing more than Rs. 10,000 p.a. In view of these facts the assessee is also entitled to claim initial depreciation and depreciation on mess building and on temple building and school in view of credit of Commissioner (Appeals) and Tribunal decided in favour of assessee.
9.2. Now we are left with depreciation on Pujari quarter. As Tribunal itself has concluded that assessee is entitled for depreciation on temple, same, yardstick is to be applied in respect of quarter for Pujari and the ground of the assessee stands allowed as assessee is entitled for depreciation and initial depreciation on temple, Pujari's quarter, mess workers and school which are admittedly within factory premises.
10. Now we are taking the revenue 's appeal. Ground Nos. 1 to 3 relate to addition on Rs. 1 lakh made by assessing officer after invoking the provisions of rule 6D. It was noted by assessing officer that assessee himself had offered Rs. 1,68,606 for disallowance under section 6D as per computation of tax auditors. However, assessing officer was of the opinion that assessee had furnished details of travel in respect of employees drawing more than Rs. 1,000 p.m. For want of details in respect of remaining employees the assessing officer made an ad hoc disallowance of Rs. 1 lakh in addition to the disallowance already offered. This disallowance was deleted by the Commissioner (Appeals) following the order for assessment year 1984-85. The revenue is in appeal.
10.1. At the time of hearing the learned counsel for the assessee submitted that Tribunal in the case of assessee for assessment year 1984-85 had upheld the order of Commissioner (Appeals) in deleting similar ad hoc disallowance as is' apparent from para 9 appearing at pages 58 and 59 of the paper book. Facts are identical and thus order of Commissioner (Appeals) deserves to be confirmed.
10.2. The learned Departmental Representative conceded and thus the ground Nos. 1 to 3 taken by the revenue fail.
11. Ground Nos. 4 and 5 stand already disposed of.
12. Ground No. 6 relates to disallowance of Rs. 18,000 claimed as retainership fees and disallowed by assessing officer under section 80VV of the Act. The Commissioner (Appeals) deleted the same.
12.1. At the time of argument the learned counsel for the assessee submitted that Tribunal in the case of assessee had deleted such disallowance for assessment year 1980-81 and case is reported in IAC v. Hind Lamps Ltd. (1985) 49 CTR (Trib) (Del) 21. Further reliance has been placed on the decision in the case of CIT v. United Commercial Bank Ltd. (1991) 189 ITR 57 (Cal) and K.N. Poddar & Sons (P) Ltd. v. CIT (1991) 191 ITR 365 (Karn) in which it has been laid down that provisions of section 80VV of the Act were not applicable to payment of retainership fee.
12.2. On the other hand, the learned Departmental Representative placed reliance on the order of assessing officer.
12.3. Respectfully following the order of Tribunal in the case of assessee for assessment year 1980-81 and in view of the ratio of the above case law, we do not find any infirmity in the order of Commissioner (Appeals). Ground fails.
13. Ground No. 7 relates to depreciation claimed at 100 per cent on trolly by assessee which was disallowed by the assessing officer and Commissioner (Appeals) reversed his order.
13.1. It was noted by the assessing officer that assessee had fabricated 20 trollies for stacking glass shells and finished lamps in the production department and washing department. Cost of each trolly was said to be less than Rs. 5,000. The assessing officer allowed depreciation @ 15 per cent as against 100 per cent claimed by the assessee. The assessing officer rejected the claim of the assessee that trollies were plant and machinery used in the manufacturing process. However, in appeal the Commissioner (Appeals) deleted the disallowance and held that considering its use in the factory, the trollies in dispute should be considered as plant, eligible for 100 per cent depreciation. Aggrieved, the revenue is in appeal.
13.2. The learned Departmental Representative placed reliance on the order of assessing officer. The learned counsel for the assessee has placed reliance on the order of the Commissioner (Appeals) and further placed before us a copy of Tribunal Chandigarh Bench in the case of SmithkIine Beecham Consumer Brands Ltd. v. Dy. CIT and vice versa in ITA Nos. 1707 & 1744/Del/1991 for assessment year 1988-89 decided on 22-7- 1998. The assessee in the aforesaid case had claimed hundred per cent deduction under section 32AB in respect of food-pots. The Tribunal after considering all the factual position concluded that food-pots were plant and machinery and assessee was eligible for deduction under section 32AB. On the same analogy the contention of the learned counsel for the assessee is that assessee was having identical case as assessee had got manufactured trollies for use in the manufacturing process and such trollies are plant and machinery. Further cost of each of the trollies was less than Rs. 5,000 and depreciation at 100 per cent was allowable. We do find force in the contention of the learned counsel for the assessee and do not find any infirmity in the order of Commissioner (Appeals) who had rightly decided the controversy. Ground fails.
14. Ground Nos. 8 and 9 of revenue's appeals relate to addition of Rs. 6,53,715 made by assessing officer on account of alleged unexplained investment in the construction of certain building and residential units. He called upon the assessee to furnish complete details or the building and residential units. During assessment proceedings assessing officer noted that assessee had raised certain construction on building and residential units. He called upon the assessee to furnish complete details of the building and residential units so constructed. The assessee was also required to file detailed notes regarding the cost of construction. The assessee filed reply on- 16-2-1988, along with details of building construction which were said to have been examined by the assessing officer. It appears that a reference was made by assessing officer to departmental valuer who after inspection of the building and after examination of the record of the assessee prepared valuation report which showed the difference of Rs. 6,53,715 in the cost shown by the assessee and cost arrived at by the departmental valuer. The assessing officer treated this difference of Rs. 6,53,715 as unexplained cost of construction and made the addition.
14.1. Matter was agitated before the Commissioner (Appeals) and assessee took the plea that details of the amount invested during the year at Rs. 20,24,005 were furnished before the assessing officer and construction work was through contractors on the basis of rates approved by the civil engineering department of the assessee-company. It was also the case of the assessee that after departmental valuer submitted the report, the assessing officer did not give an opportunity to the assessee to explain the difference nor copy of valuation report was furnished to the assessee during assessment proceedings. The assessee also submitted the reasons on which the report of departmental valuer was not to be relied upon. The learned Commissioner (Appeals) considered and noted that huge addition had been made by assessing officer on the basis of difference between the valuation made by the departmental valuer and the case shown by the assessee without discussing the full facts and arguments of the assessee. The Commissioner (Appeals) also noted that departmental valuer's report was not binding on the assessing officer under income-tax proceedings and he deleted the addition which was stated to have been made in a summary manner by the assessing officer. The revenue is in appeal.
14.2. The learned Departmental Representative placed reliance on the order of assessing officer and learned counsel for the assessee submitted that Commissioner (Appeals) had taken a very reasonable view on the basis of material available on record as assessing officer made the addition on the basis of the report or departmental valuer. It was also submitted that reference to departmental valuer was invalid as assessing officer had not pointed out any defects in the books of account and in the absence of such no addition is warranted. Reliance was placed on the decision of Rajasthan High Court in the case of CIT v. Pratapsingh Amrosingh Rajendra Singh & Deepak Kumar (1993) 2000 ITR 788 (Raj) in which their Lordships have concluded that if proper books were maintained by the assessee and expenditure was fully supported by vouchers then reference to valuation cell will not be valid unless accounts are rejected and addition to income could not be made on the basis of report of the Valuation Officer. Further reference had been made to the decision of Tribunal Indore Bench in the case of Income Tax Officer v. Pradeep Kumar Bajatiya & Co. (1997) 61 ITD 75 (Ind-Trib) and Ahmedabad Bench decision of Tribunal in the case of Income Tax Officer v. Pravinchandra Girdharlal (1999) 63 TTJ (Ahd-Trib) 357 and other case laws in which same ratio had been laid down. On the basis of all these facts the learned counsel submitted that Commissioner (Appeal) order need not be disturbed.
14.3. After going through the facts and circumstances of the case we are of the opinion that assessing officer had made the addition in a very cursory manner. He called upon the assessee to file details of the cost of construction and assessing officer had noted down that assessee submitted such details. Unless and until some defects were pointed out in the details or in the books of account, reference to departmental valuer was invalid in view of the decision of Rajasthan High Court in the case referred to above. The assessing officer had not discussed the explanation submitted by the assessee about cost and nature of construction as well as different expenditures which were said to be duly supported with sale and purchase vouchers unless and until some basic defect was not pointed out by assessing officer, reference cannot be made and no addition is warranted. Commissioner (Appeals) has rightly deleted the addition and we confirm his finding. Both the grounds fail.
15. Ground Nos. 10 and 11 relate to addition of Rs. 6 lakhs made by the assessing officer being extra profit in trading account relating to sale of scrap. During assessment proceedings the assessing officer noted that in the year under consideration the assessee had shown rate of gross profit at 8.95 per cent as against 10.3 per cent in assessment year 1984-85 and 12.09 per cent in assessment year 1983-84. He required the assessee to explain the reason for the fall in the gross profit rate. In its explanation the assessee submitted that it was on account of substantial increase in the liability towards interest and additional claim of depreciation because of heavy addition to plant and machinery as also building cost on the modernisation of the plant. The assessing officer proceeded to examine further and was very much concerned with the fall in the amount of scrap and waste sold in the year under consideration which was Rs. 39,29,187 as against Rs. 45,30,877 in the just preceding year. He called upon the assessee to justify the fall in the amount generated out of scrap and waste. The assessee filed written explanation in which he gave out different items from which scrap was generated in the year under consideration as well as some details of the assessment year 1984-85. It was also submitted that sales of scrap were effected by inviting sealed tenders opened in the presence of senior material manager and general manager, etc. and contract was awarded to the highest bidder. The assessing officer took into consideration to other statement and noted that scrap generated by the assessee out of consumption of aluminium strip and brass strip was shown lesser in the year under consideration. However, he was of the opinion that assessee had maintained records of consumption of raw material, manufacturing process, end-products/finished goods and scrap but he was of the opinion that method employed by the assessee was not fully proved as complete verification was lacking. He also took into consideration the auditor's report and noted that assessee had given figures of opening stock, purchases during the year, closing stock, material issued, increase/decrease in the work-in-progress and semi-finished goods but further informations were not given that is why auditors were silent about the yield of finished products, percentage of yield, storage/manufacturing, shrinkage, etc., and for that assessing officer reproduced the report of auditors as appearing from Annexure 10- Further the assessing officer noted that assessee had shown realisation of the value of scrap at lower rate than the prevailing market rates and for that he took into consideration that average sale rate comes to Rs. 19.50 per kg. while average rate quoted in Financial Express was Rs. 21.50 per kg. He worked out the difference amount of Rs. 3.50 lakhs and also noted that no quotation, etc. were produced in respect of different scrap waste glass and waste papers, etc., and sale of these remained unverified. Ultimately he added Rs. 6 lakhs.
15.1. The Commissioner (Appeals) considered the submissions of the assessee and deleted the addition after observing as under :
"15. I have considered the facts. This is a case of limited company where complete details duly audited have been maintained. During the year under consideration total quantity of scrap and waste sold is shown at Rs. 39,29,187 as against Rs. 43,30,877 in the preceding year. I also find that the stock of scrap was shown in closing stock at Rs. 17,37,000 while last year it was only Rs. 4,88,000. Therefore, it is clear that the scrap was generated and whatever was left after sale is shown in the closing stock. If it could not be sold for any reason would not lead to an adverse inference. The sales of scrap were effected by inviting sealed tenders opened in the presence of the senior material manager and general manager and the contract was awarded to the highest bidder. Therefore, there is no question of suppressing the sale rates. The assessing officer has not pointed out any item of sale made outside the books. No such alarming discrepancy has been pointed out which may invite such a huge addition of Rs. 6 lakhs. After considering the facts in its entirety I hold that the addition made is without any basis and based on guess work. Therefore, the addition of Rs. 6 lakhs is deleted. "
15.2. The learned Departmental Representative placed reliance on the order of assessing officer.
15.3. As against it the learned counsel for the assessee submitted that product manufactured by the assessee is excisable and all the records maintained by the assessee were subjected to scrutiny by excise authorities, who had never pointed out any defect in the maintenance of books of account. Not only this cost audit had been prescribed by the government for assessee-company and cost auditors have not made any adverse remarks regarding extent of wastage or the suppression of sale of scrap. The method of accounting of the assessee is the same as being followed by the assessee in the past. In earlier years tax authorities accepted the trading results without making any addition to the 'trading result. In the end reference to the case of K.P. Varghese v. Income Tax Officer (1991) 131 ITR 597 (SC) was made in which it was laid down that difference between the market value and consideration declared was not sufficient but assessing officer should prove that assessee had received more than what is declared. According to learned counsel nothing has been brought by the assessing officer to prove that assessee received more than the amount what had been shown in the account books or sold any scrap outside the books.
15.4. We have considered the rival submissions and perused the record as well as gone through the copy of submissions made before the assessing officer as well as the Commissioner (Appeals) in which all the details of generation of different types of scrap was given as well as the processeing adopted by the assessee for sale of scrap, nested etc. These facts have not been disputed. The addition had been made on ad hoc basis and on the basis that there was difference in the average sale rate shown by the assessee and than to the rate shown in the Financial Express. The assessee was found carrying on business in the remote area and persons who are purchasing scraps have to keep in mind that they have to incur expenses for transportation on scrap from remote area to the market while rate in the Financial Express may not be same as in the case of assessee and that basis was also not sufficient warranting any addition. The Commissioner (Appeals) had taken into consideration all the aspects and rightly deleted the addition. The result is that this ground also fails.
16. No other ground was agitated both the appeals.
17. Both the appeals stand disposed of in the manner as stated in the body of the order.