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Income Tax Appellate Tribunal, MUMBAI BENCH “G”, MUMBAI
Before: SHRI R.C. SHARMA, HONBLE & SHRI C.N. PRASAD, HONBLEShri
O R D E R PER C.N. PRASAD (JM)
This appeal is filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals) – 33, Mumbai dated 06.11.2015 for the Assessment Year 2009-10.
Assessee has raised the following grounds in its appeal: -
1. That, on the facts and in the circumstances of the case and in Law, the learned Joint Commissioner of Income Tax (herein after referred to as A.O.) has erred in making adjustment u/s. 145A of the Act and thereby increasing the total income by ₹.78,43,619/- and the learned Commissioner of Income-Tax (Appeals) (hereinafter referred to as CIT (A)) has set aside the matter to the A.O. as per the (A.Y: 2009-10) Shri Gautam Hiralal Gandhi directions given in the appellate order u/s. 250 and directed him to re-compute the working u/s. 145A of the Act. The learned A.O. be directed to delete the additions of ₹.78,43,619 made u/s. 145A to the total income and reduce the total income accordingly 2. On the facts and in the circumstances of the case and in law, the learned A.O. has erred in disallowing payment of Professional charges of ₹.20,50,000 and the learned CIT (A) has erred in confirming the action of learned A.O. The learned A.O. be directed to allow ₹.20,50,000 as deduction and reduce the total income accordingly.
3. That, on the facts and in the circumstances of the case and in Law, the learned A.O. has erred in disallowing expenses of ₹.10,38,241/- treating the same as personal in nature. Further, the learned CIT (A) has erred in granting a partial relief and disallowed expenses of ₹.5,12,526 treating the same as personal in nature. The learned A.O. be directed to delete the entire disallowance of ₹.10,38,241 and reduce the total income accordingly. Without prejudice to the above it is submitted that disallowance of ₹.5,12,526 of expenses is on the higher side and same be reduced substantially. The learned A.O. be directed to reduce the disallowance substantially and reduce the total income accordingly.
That, on the facts and in the circumstances of the case and in Law, the learned A.O. has erred in calculating interest of ₹.16,47,651 u/s 234B of the Act. The learned A.O. be directed to charge correct interest u/s 234B as per law and reduce the income tax demand accordingly.
5. That, on the facts and in the circumstances of the case and in Law, the learned A.O. has erred in initiating penalty proceedings u/s 271(l)(c) of the Act. The learned A.O be directed to drop the penalty proceedings.”
At the time of hearing the Learned Counsel for the assessee submitted that Ground No.1 is not pressed and the same may be dismissed as not pressed. In view of the submission of the counsel this ground is dismissed as not pressed.
4. Coming to Ground No.2 i.e. disallowance made by the Assessing Officer which was confirmed by the Ld.CIT(A) with respect to professional
(A.Y: 2009-10) Shri Gautam Hiralal Gandhi charges paid by the assessee, the facts are that, the Assessing Officer while completing the assessment noticed that assessee paid professional charges during the current Assessment Year at ₹.26,98,221/- as against ₹.3,19,065/- compared to the last year. Assessing Officer called for the details and the nature of services, the reason for huge increase in the expenditure. Assessee submitted that an amount of ₹.20,50,000/- was paid to Jayanth Kumar Poddar towards consultancy and preparation of project report. Assessee contended that it planned to enter into area of manufacturing film and for that purpose to set up and run a multilayer co-extrusion tubular blown film plant and a study of this project was taken up as the assessee was looking for diversification from its existing business. Assessee also placing reliance on the decision of the Hon'ble Delhi High Court in the case of CIT v. Priya Village Road Shows Ltd., [185 taxman 44] submitted that assessee is entitled to claim the expenditure for feasibility report of a new project in the same line of business.
Assessing Officer not satisfied with the submissions of the assessee disallowed the expenditure on the ground that the project report is not related to the same line of business of the assessee. He also observed that the raw materials prices were taken as on 01.06.2004 which clearly shows that the report was old and not prepared on the study during
(A.Y: 2009-10) Shri Gautam Hiralal Gandhi Financial Year 2008-09. On appeal Ld.CIT(A) sustained the disallowance holding that the business of Polystyrene film manufacturing was quite different than the existing injection molding business and that is the reason for expanding existing capacity at Daman. He also analyzed the judgement of the Hon'ble Delhi High Court in the case of CIT v. Priya Village Road Shows Ltd. (supra) and observed that in that decision it has been held that, if it is the same line of business it is to be allowed as deduction and if it is starting up new business which was not carried out by the assessee earlier then such expenditure is to be held as capital.
Before us, Learned Counsel for the assessee submitted that Plastic film is a thin continuous polymeric material and these are used in a wide variety of applications like packaging, plastic bags, labels, building construction, landscaping, electrical fabrication, photographic films etc. and are mainly used in the FMCG sector. The raw materials used in the manufacturing of Polystyrene film are Polyethylene i.e. LDPE (Low density polyethylene) which is the largest volume commodity thermoplastic and packaging film used for vide variety of applications. LLDPE (Linear low-density polyethylene) has similar properties as LDPE and is often used in similar applications. ULDPE (Ultra low density polyethylene) is a soft and very flexible thermoplastic that is often used for very specific film applications, such as stretch wrap, food packaging, health and hygiene.
(A.Y: 2009-10) Shri Gautam Hiralal Gandhi HOPE (High density polyethylene) is a milky white, semi-translucent thermoplastic. It is flexible but more rigid and stronger than LDPE and has good impact strength and superior puncture resistance. The other materials used are Poly Propylene, Polyster, Nylon etc. The Ld. Counsel for the assessee contends that the materials used in the Polystyrene film manufacturing are same as used in the manufacture of injected plastic molded items i.e. used in the existing line of business.
Ld. Counsel for the assessee further submitted that, it would continue to remain in the same business/manufacturing activities i.e. Plastics. The machinery and raw material to be used in Polystyrene film manufacturing were common to our existing line of business i.e. injected molded containers. Further, the technical and commercial people carrying out the activities will remain same for both the manufacturing activities. Ld. Counsel for the assessee contended that the identification of new projects which may be taken up with advantage does not amount to initiation of a new business, but, on the other hand, it forms part of the development activity of assessee's existing business. Learned Counsel for the assessee submitted that in view of the expenses incurred for feasibility study of project is revenue in nature as they were incurred wholly and exclusively for the purpose of business and in the normal course of running the business, the same is allowable as deduction.
(A.Y: 2009-10) Shri Gautam Hiralal Gandhi 8. On the other hand, Ld. DR vehemently supported the orders of the lower authorities.
We have heard the rival submissions, perused the orders of the authorities below. The Assessing Officer as well as the Ld.CIT(A) stated in the order that the feasibility report of the new report was not related to the same line of business of the assessee. It is the observation of the Assessing Officer that the project report does not describe the purpose and background of the report. The assessee did not produce project report before us. However, Ld. Counsel for the assessee contends that the feasibility report is for the similar line of business, the raw materials is same; machinery is same and assessee continued to remain in the same business / manufacturing activity i.e., plastics. Therefore, it is contended that it is not a new line of business. On a careful reading of the orders of the lower authorities and the submissions of the assessee, we are of the view that this issue has to be examined thoroughly by the Assessing Officer with reference to the submissions by the assessee taking into account the feasibility report and the case laws relied on. Thus, we restore this issue to the file of the Assessing Officer for thorough examination and to decide in accordance with law, after providing adequate opportunity of being heard to the assessee. Ground No.2 is allowed for statistical purpose.
(A.Y: 2009-10) Shri Gautam Hiralal Gandhi 10. Coming to Ground No.3 i.e., in respect of the adhoc disallowance made by the Assessing Officer from various heads that is club expenses, membership and subscription, gifts, sales promotion expenses, motor car expenses, telephone expenses, staff welfare expenses, conveyance expenses, entertainment and travelling expenses, Ld. Counsel for the assessee submitted that the expenses were disallowed only on the ground that personal element cannot be ruled out as several cash self- made vouchers were prepared. Ld. Counsel for the assessee further submitted that the Assessing Officer disallowed 50% of the expenses incurred towards club expenses, member ship and subscription and gifts and the remaining expenditure was disallowed at 20% except travelling expenses which was disallowed at 5%. Learned Counsel for the assessee submitted that the Ld.CIT(A) restricted the disallowance to 50% in respect of the membership and subscription expenses, 25% in respect of gifts and all other expenses except travelling expenses and club expenses to 10%. In respect of Club expenses and travelling expenses the disallowance made by Assessing Officer is sustained by the Ld.CIT(A). Ld. Counsel for the assessee fairly submitted that for the Assessment Year 2006-07 the Tribunal restricted the disallowance in respect of telephone expenses and motor car expenses to 10%. Considering the submissions by both the parties and the decision of the Tribunal for the Assessment Year 2006-07 in ITA.No. 8332/MUM/2010
(A.Y: 2009-10) Shri Gautam Hiralal Gandhi dated 23.10.2013, we restrict the disallowance sustained by the Ld.CIT(A) to 10% in respect of sales promotion expenses, motor car expenses, telephone expenses, staff welfare expenses, conveyance expenses and entertainment expenses. We also direct the Assessing Officer to restrict the club expenses and conveyance expenses to 10% and we sustain the disallowance made toward travelling expenses at 5%. This ground is partly allowed.
Coming to Ground No. 4 which is in respect of levy of interest u/s.234B of the Act, this ground is consequential, therefore we restore this issue to the file of the Assessing Officer.
Coming to Ground No.5 which is against levy of penalty u/s.271(1)(c) of the Act, this ground is premature at this stage and therefore this ground is dismissed as premature.
In the result, appeal of the assessee is partly allowed.
Order pronounced in the open court on the 03rd August, 2018