Income Tax Appellate Tribunal - Kolkata
Uniworth International Ltd., Kolkata vs Department Of Income Tax on 11 January, 2012
आयकर अपीलीय अधीकरण, Ûयायपीठ - " ऐ" कोलकाता,
IN THE INCOME TAX APPELLATE TRIBUNAL "A" BENCH: KOLKATA
(सम¢)Before ौी महावीर िसंह, Ûयायीक सदःय एवं/and ौी, ौी लेखा सी.डȣ.राव सदःय)
[Before Hon'ble Sri Mahavir Singh, JM & Hon'ble Shri C. D. Rao, AM]
आयकर अपील संÉया / I.T.A No. 1135/Kol/2009
िनधॉरण वषॅ/Assessment Year : 1998-99
Income-tax Officer, Wd-11(3), Kolkata. Vs. Uniworth International Ltd.
(PAN:AAACU 3519 K)
(अपीलाथȸ/Appellant) (ू×यथȸ/Respondent)
&
C.O. No.63/Kol/2009
In आयकर अपील संÉया / I.T.A No. 1135/Kol/2009
िनधॉरण वषॅ/Assessment Year : 1998-99
Uniworth International Ltd. Vs. Income-tax Officer, Wd-11(3), Kolkata
(Cross Objector) (Respondent)
Date of hearing : 11.01.2012
Date of pronouncement: 20.01.2012
For the Revenue: Shri A. S. Mondal
For the Assessee: Shri N. M. Bhansali
आदे श/ORDER
Per Mahavir Singh, JM ( महावीर िसंह, Ûयायीक सदःय)
सदःय The appeal by revenue and the Cross Objection by assessee are arising out of order of CIT(A)-XI, Kolkata in Appeal No. 10/CIT(A)-XI/Circle-11/2000-01/Kol vide dated 29.04.2009. Assessment was framed by JCIT, Special Range-14, Kolkata for Assessment Year 1998-99 u/s. 143(3) Income Tax Act, 1961(hereinafter referred to as "the Act") vide his order dated 29.03.2001.
2. First we will take up appeal of revenue. The first issue in this appeal of revenue is against the order of CIT(A) deleting the disallowance of expenses on account of earlier years' adjustments. For this, revenue has raised following ground No.1:
"1.On the facts and in the circumstances of the case, Ld. CIT(A) has erred in deleting the addition of Rs.2,44,155/- on the mere argument of smallness of figure in comparison with volume of turnover in respect of which no details was filed by the assessee.
2 ITA 1135/K/2009 & CO .63/K/2009 Uniworth International Ltd., A.Y. 1998-99
3. We have heard rival submissions and gone through facts and circumstances of the case. We find that the Assessing Officer made disallowance on earlier years' adjustments of Rs.2,44,154/- as no details were available. The assessee claimed expenditure of Rs.50,36,296/- and as per assessment order, the assessee filed a detailed statement of expenditure. The assessee incurred expenditure of a sum of Rs.48,06,688/- towards payment of rates, rebates and discounts against sundry debtors' account, which was collected during the year. The assessee also adjusted recovery for an amount of Rs.14,537/-. According to Assessing Officer, the balance amount of Rs.2,44,154/- is not explained and hence, he added to the returned income of the assessee. The CIT(A) deleted on the basis of smallness of amount while comparing the volume of assessee's business. We find that even now before us, assessee could not adduce any evidence in support of its claim of the balance expenditure of Rs.2,44,154/-. No doubt the assessee filed detailed statement of such expenditure but only to the extent of Rs.48,06,678/-, which was particularly payments of rates, rebates and discounts against sundry debtors' account. Hence, we are of the view that the CIT(A) has wrongly allowed the claim of assessee without any basis and the Assessing Officer's order is in terms of facts and law of the case. This issue of revenue's appeal is allowed.
4. The next issue in this appeal of revenue is against the order of CIT(A) disallowing depreciation on enhanced value of assets purchased on loan. For this, revenue has raised following ground no.2:
"2. On the facts and in the circumstances of the case, Ld. CIT(A) erred in allowing depreciation to the enhanced value of an asset purchased on loan where neither the loan has been repaid nor the additional liability arising due to fluctuation in foreign exchange was paid during the year."
5. We have heard rival contentions and gone through facts and circumstances of the case. We find that the Assessing Officer noted that assessee has shown addition to plant and machinery amounting to Rs.1,66,59,240/-, which represented capitalized value of increasing in loan liability taken on the foreign currency and increase is attributable to fluctuation in exchange rate. This fact has not been denied. According to Assessing Officer, the assessee has not repaid the loan and additional liability has arisen due to exchange rate fluctuation. Hence, he disallowed depreciation on above capitalized plant and machinery at Rs.20,82,405/-. Aggrieved assessee preferred appeal before CIT(A), who deleted the disallowance by giving following finding in para 4.2 of his appellate order"
"4.2. According to this provision, the assesee was allowed to increase the actual cost of the asset or decrease it, as the case may be, on account of change in loan liability due exchange rate fluctuation on year to year basis during the currency of the loan. It is noted 3 ITA 1135/K/2009 & CO .63/K/2009 Uniworth International Ltd., A.Y. 1998-99 that the provision was amended with effect from 1.4.2003 and, as per the amended provision, the assesee is allowed to modify the liability on account of exchange rate fluctuation only at the time of making payment. A proviso was also added in the amended section to the effect that the modification in the actual cost of the assets would have to be so adjusted at the time of making the payment that the total amount of increase or decrease as the case may be is equal to the increase or reduction in the aforesaid liability taken into account at the time of making payment. In other words, the effect of any modification in the cost of acquisition before the date of repayment of loan (in accordance with the pre- amended provision) would have to be neutralized. In view of this legal position, it is held that the assessee's treatment of the increased loan liability attributable to exchange rate fluctuation was correct. Consequently, the addition is deleted."
We find that it is not the case of the revenue that there is no increase or addition to plant and machinery which represented capitalized value of increase in loan liability on account of fluctuation in foreign exchange. Whether the assessee had paid the loan or not, foreign exchange fluctuation takes place at one time only and even assessee has explained before us by way of documentary evidence that this increase or addition made to plant and machinery is on account of fluctuation in exchange rates and nothing else. We find force in the argument of Ld. Counsel and find that the CIT(A)'s order is quite reasonable and fair. Hence, the order of CIT(A) needs no interference and we uphold the same. This issue of revenue's appeal is dismissed.
6. Now, coming to Cross Objection of assessee. The cross objection filed by assessee is delayed by 22 days and for this, assessee submitted that the intimation about filing of the appeal by the department was received on 7th July, 2009. Therefore, there was delay in the filing of cross objection of 21 days. The reason for delay in filing the cross objection is that the order of the CIT(A) was not received by them till that time. It has been received only on 24th August, 2009 and thereafter the cross objection was prepared and filed on 28.08.2009. Therefore, he submitted that there was sufficient cause for not filing the cross objection in time. Hence, he requested that the delay in filing of the cross objection be condoned and the Cross objection be considered on merits. Ld. DR has got no serious objection to this prayer of assessee. Hence, we find the reason for delay of 22 days is reasonable and condone the same and the cross objection of assessee was taken up for hearing.
7. The first issue in this CO of assessee is as regards to treatment of loss arising due to diminution in value of shares at the close of the year as deemed speculation loss under Explanation to sec. 73 of the Act by lower authorities. For this, assessee has raised following ground nos. 1(a) and (b):
4 ITA 1135/K/2009 & CO .63/K/2009 Uniworth International Ltd., A.Y. 1998-99 "1.a) For that the Ld. CIT(A) erred in upholding the treatment of the loss of Rs.1,31,25,000/- arising due to diminution in value of the shares at the close of the year as 'deemed speculation loss' under the Expln. To sec. 73 of the I. T. Act.
b) For that there being no transaction of purchase or sale of shares during the year, the Ld. CIT(A) should have held that the de3eming provision of the Expln. To sec. 73 was not applicable to the loss arising due to diminution in value of the stock of shares brought forward from the preceding year."
8. We have heard rival submissions and gone through facts and circumstances of the case. We find that the assessee is a trader in dress material, yarns and other items. According to the assessment order, as per Schedule 19 of the audited accounts, assessee has disclosed value of closing stock of shares as per market rate at Rs.13,56,25,000/-. According to assessee as well as Assessing Officer, this entire stock of Rs.78.75 lacs was brought forward from earlier years and the value of opening stock of shares was at Rs.14,87,50,000/-. Hence, the assessee claimed the loss on account of diminution in value of closing stock of shares at Rs.1,31,25,000/-. The Assessing Officer considered that the assessee is a trader in different goods and as per Explanation to Sec. 73 of the Act transactions in shares are considered as speculation business. Accordingly, he disallowed the diminution to the valuation of closing stock of shares not allowable against any other income. Aggrieved, assessee preferred appeal before CIT(A), who also confirmed the action of Assessing Officer by considering the decision of Hon'ble Calcutta High Court in the case of CIT Vs. Sun Distributors & Mining Co. Ltd. 68 Taxman 223 and the Hon'ble High Court has held as under:
"What is to be seen is whether the business of the company consists in purchase and sale of shares. In the instant case, the assessee company had a business of buying and selling the shares. The shares are treated as stock-in-trade. The closing stock of the shares have been valued just as many other stock-in-trade is valued by a company. There were small lots of sale of shares in this year. But that will not make any difference to the main question, which is whether the company was engaged in the business of sale and purchase of shares. If it is found that any part of the business of the company consists in the purchase and sale of shares, then for the purpose of section 73 such a company shall be deemed to be carrying on a speculation business to the extent the business consisted of purchase and sale of such shares. It is not the requirement of the section that both purchase and sale of shares should take place in the same year. But what the section requires is that there need be a business of sale and purchase of shares and the assesee company carries on that business in the relevant year of account. The very fact that share were valued as stock-in-trade and the loss was disclosed as a result of the valuation of the shares goes to show that the business of share purchase and sale of shares was carried on by the company. To the extent such business was carried on, the business of the assessee company must be treated as speculation business.
In view of this, it is held that the action of the Assessing Officer was correct and the addition is confirmed."
9. We find that even otherwise, this issue is covered by jurisdictional High Court in the case of CIT Vs. K. L. Jhunjhunwala (1983) 139 ITR 371 (Cal) and CIT Vs. Arvind Investments 5 ITA 1135/K/2009 & CO .63/K/2009 Uniworth International Ltd., A.Y. 1998-99 Ltd. (1991) 192 ITR 365 (Cal). We find that the issue is squarely covered against the assessee and in favour of revenue by the decisions of Hon'ble Calcutta High Court cited supra. Respectfully following the same, we confirm the order of CIT(A) and this issue of assessee's Cross Objection is dismissed.
10. The next additional ground raised by assessee in this CO is as regards to the order of CIT(A) confirming the disallowance of brand promotion of Rs.1,41,57,203/-. For this, assessee has raised following ground no.1:
"1. For that the Ld. CIT(A) was not justified in upholding the addition to the tune of Rs.1,41,57,203/- on account of Brand Promotion Expenses. He should have taken a broad and pragmatic view of the matter and should have allowed the said amount as an allowable business expenditure."
11. We have heard rival submissions and gone through facts and circumstances of the case. The AO noticed that the assessee has booked expenditure under this head at Rs.1,88,26,379/- out of which only amount of Rs.76,24,014/- was debited the P&L Account. Balance amount of Rs.1,12,02,365/- was taken in the Balance Sheet as deferred revenue expenditure. The assessee claimed deduction of deferred revenue expenditure in its computation at Rs.1,00,02,365/- instead of Rs.1,12,02,365/-. The assessee explained before the AO that Rs. 12 lac debited to P&L Account relates to earlier years' and hence, he restricted the claim of deduction at Rs.1,76,26,379/- as against actual claim of expenditure at Rs.1,88,26,379/-. The assessee before CIT(A) also claimed that the maximum addition could have been made by AO at Rs.1,41,57,203/- as under:
"Total expenditure 17626379
Less : Bills not produced 1813407
Bills produced 15812972
Bills related to the previous year 3469176
Bills not related to the previous year 12343796
Total 14157203
To this extent, the assessee's contention is correct."
We find that the CIT(A) as well as the AO has recorded a categorical finding that bills to the tune of Rs.1,23,43,796/- pertains to earlier previous years and to explain this the assessee stated that the expenditure was booked in the current year because bills have been received in the current year only. But, assessee could not substantiate its claim with reference to documentary evidence. Hence, lower authorities disallowed the same considering that this claim is not genuine claim. Even now before us, the assessee could not adduce anything in support of its claim that how liability is ascertained in the current year and it has provided reasonable basis for estimating the same. The assessee could not produce any documentary evidence or bills or 6 ITA 1135/K/2009 & CO .63/K/2009 Uniworth International Ltd., A.Y. 1998-99 vouchers to substantiate its claim. Hence, we have no other alternative except to confirm the order of CIT(A) and this issue of assessee's C.O. is dismissed.
12. In the result, appeal of revenue as well as Cross Objection of assessee, both are dismissed.
13. Order pronounced in open court on 20.01.2012.
Sd/- Sd/-
सी.डȣ
सी डȣ.राव
डȣ राव लेखा सदःय महावीर िसंह, Ûयायीक सदःय
(C. D. Rao) (Mahavir Singh)
Accountant Member Judicial Member
तारȣख)
तारȣख) Dated : 20th January, 2012
(तारȣख
वǐरƵ िनǔज सिचव Jd.(Sr.P.S.)
आदे श कȧ ूितिलǒप अमेǒषतः- Copy of the order forwarded to:
1. अपीलाथȸ/APPELLANT - ITO, Ward-11(3), Kolkata.
2 ू×यथȸ/ Respondent, Uniworth International Ltd., 70A, Shakespeare Sarani,
Kolkata-17.
3. आयकर किमशनर (अपील)/ The CIT(A), Kolkata
4. आयकर किमशनर/CIT, Kolkata
5. वभािगय ूितनीधी / DR, Kolkata Benches, Kolkata
स×याǒपत ूित/True Copy, आदे शानुसार/ By order,
सहायक पंजीकार/Asstt. Registrar.