M/S. HEENA INDUSTRIES PVT. LTD.,FARIDABAD vs. ACIT, FARIDABAD

In the Income-Tax Appellate Tribunal, Delhi Bench ‘C’, New Delhi Before : Shri H.S. Sidhu, Judicial Member And Shri L.P. Sahu, Accountant Member ITA No. 6892/Del./2014 Assessment Year: 2006-07 Heena Industries Pvt. Ltd., vs. A.C.I.T., Circle 1, Plot No. 45, Sector 27A, Faridabad. Faridabad. PAN- AABCH7692B (Appellant) (Respondent) Appellant by Sh. Rakesh Jain & Sh. Gurjeet Singh, Adv. Respondent by Sh. Arun Kumar Yadav, Sr. DR

Date of Hearing 13.09.2017 Date of Pronouncement 09.10.2017

ORDER Per L.P. Sahu, A.M.: This is an appeal filed by the assessee against the order of ld. CIT(A), Faridabad dated 16.10.2014 for the assessment year 2006-07 on the following grounds : “1. Because the action for Initiation, Continuation and completion of reassessment proceedings u/s 147 is being challenged on facts and law, and being a Change of Opinion which is not permissible even further there being misinterpretation of the case laws. 2. Because the action for making proportionate addition of Rs. 1,82,268/- @ 12% by invoking the provisions of section 36(1)(iii) is under challenge on facts & law. Even the Quantum and rate application is being challenged.

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nature are not allowable expenditure and these expenses are required to be capitalized and depreciation @ 15% which computes to Rs.9,672/- is allowable. Thus, the assessee has made wrong claim of expenditure amounting to Rs.54,808/-in its profit and loss account. In view of the above facts, I have reasons to believe that due to failure/omission on the part of the assessee to disclose fully and truly material facts, an Income of Rs.54,808/- of the assessee for the AY 2006-07 has escaped assessment within the meaning of section 147 of the Income Tax Act on this account. 3. Subsequently, it has also come to notice that the assessee has claimed exhibition expenses of Rs.3,54,737/- which are of the nature of advertisement expenses on which no TDS was deducted by the assessee. Since the expenses are of the nature of advertisement expenses which are duly covered u/s 194C of the Income Tax Act, 1961. Therefore, the expenses claimed on this account are not allowable expenses u/s 40(a)(ia) of the Act. In view of the above facts, I have reasons to believe that due to failure/omission on the part of the assessee to disclose fully and truly material facts, an income of Rs.3,54,737/- of the assessee for the AY 2006-07 has escaped assessment within the meaning of section 147 of the Income Tax Act en this account. In view of facts stated above, I have reason to believe that income amounting to Rs.8,05,545/- has escaped assessment for the A.Y. 2006-07. Issue notice u/s 148 for the A.Y. 2006-07.”

On the above reasons recorded, the Assessing Officer has alleged the assessee on three issues (i) not capitalization of interest of Rs.3,96,000/- debited to the profit and loss account, (ii) non-capitalization of Rs.64,480/- for purchase of Mixer Machine which has been debited to profit and loss account as repair and renovation expenses and (iii) the assessee has claimed exhibition expenses of Rs.3,54,737/- which are in the nature of advertisement expenses on which no TDS was deducted by the assessee. Based on these reasons, the Assessing Officer reopened the assessment u/s. 147 of the IT Act.

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The matter was carried before the ld. CIT(A) on the validity of reopening proceedings as well as on merits of the additions. The ld. CIT(A) after considering the assessment order and the submissions of the assessee justified the reopening proceedings u/s. 147/148. The ld. CIT(A) accepted the alternative plea of the assessee in respect of interest paid of Rs.3,96,000/-. He also deleted the addition made on account of expenditure on repair and maintenance of a Mixer Machine and in respect of addition u/s. 40(a)(ia) regarding exhibition expenses of Rs.3,54,737/-, he rejected the appeal of the assessee. The assessee has challenged the impugned order in this appeal before the Tribunal. 4. The ld. AR reiterated the submissions made before the ld. CIT(A) and vehemently objected the reopening of assessment u/s. 147/148. He submitted that all the facts were duly disclosed in the original assessment proceedings,

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which were examined by the Assessing Officer. Therefore, the reopening made by the Assessing Officer is totally unjustified. The assessee has relied on the decision of ITAT in Vijay Poer Generators Ltd. vs. ACIT, 48 ITR (Trib) 736 (Delhi) and Menka Radhu Vs. ITO, (2016) 47 CCH 379 (Del. Trib). It was further submitted that the books of accounts, bills and vouchers were produced before the Assessing Officer. In respect of capitalization of interest, he submitted that the assessee had sufficient surplus funds which were utilized in the construction activities. No loan had been taken for the construction of property. The Assessing Officer could not establish any nexus that the construction in the flat was made out of any borrowed funds. In respect of exhibition expenses debited of Rs.3,54,737/-, he reiterated his submissions made before the ld. CIT(A), which is as under : "A sum of Rs.3,54,737.95 has been debited to Exhibition expenses having being incurred by M/s. Mullar & Phipps India Ltd. on our behalf (Pg.21). The said sum so paid is in fact publicity expense/selling expense, where the company's products are displayed at various stages and platforms/exhibitions. The expenses are initially borne by M/s. Mullar & Phipps and later on a claim is lodged with the Assessee along with other various expenses. These expenses being in the nature of Publicity Exhibition expenses are not covered under the provisions of sec 194C of the Income Tax Act, 1961. As no Contractual Obligation is entered into, therefore, no TDS had been deducted thereon. Hence the proposed addition is against the provision of law. In view of above submissions, it is prayed to delete the addition."

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return of income. He has wrongly debited into the profit and loss account the interest which was capital in nature. The assessee had incurred exhibition expenses which were in the nature of advertisement expenses and he had paid Rs.3,54,737/- to M/s. Mullar & Phipps India Ltd., on which TDS provisions u/s. 194C are applicable. Therefore, the AO has rightly disallowed the expenses u/s. 40(a)(ia) of the Act for non-deduction of tax at source. The case laws cited by the assessee are distinguishable on facts of the present case. 6. After hearing both the sides and perusing the materials available on record, we observe from the assessment order that the AO has not been able to substantiate any nexus between the funds utilized in the construction of flat and the interest debited to the profit and loss account for treating it as capital in nature. It is not the case of the Assessing Officer that the amount utilized in the construction represented interest bearing borrowed funds of the assessee. Per contra, there is no material on record to disbelieve the contention of the assessee that he had sufficient surplus funds which was utilized in the construction. Unless a nexus between the interest debited and the funds utilized is proved, the stand taken by the department regarding capitalization of interest, in our opinion, cannot be accepted. Therefore, the addition made by the authorities below in this head by way of impugned reassessment proceedings, deserves to be deleted.

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