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Income Tax Appellate Tribunal, “B” BENCH : KOLKATA
Before: Hon’ble Shri A.T.Varkey, JM & Shri M.Balaganesh, AM ]
Date of Pronouncement : 16.10.2018 ORDER Per M.Balaganesh, AM
These two appeals by the assessee and the appeal by the revenue arise out of the common order of the Learned Commissioner of Income Tax(Appeals)-18, Kolkata [in short the ld CIT(A)] in Appeal Nos. 579 & 592/CIT(A)-18/16-17/Cir-11(1)/Kol dated 14.06.2017 against the common order passed by the ACIT, Circle-11, Kolkata [ in short the ld AO] under section 254 / 143(3) of the Income Tax Act, 1961 (in short “the Act”) dated 31.03.2006 for the Assessment Years 1996-97 & 1997-98 respectively. Both these appeals are taken together and disposed off by this common order for the sake of convenience.
DISALLOWANCE U/S 43B OF THE ACT Ground No. 1 of Assessee Appeal for Asst Year 1996-97 The brief facts are that the assessee submitted its return of income for the Asst Year 1996-97 on 29.11.1996 declaring total loss of Rs 2,63,38,975/-. The scrutiny assessment was completed u/s 143(3) of the Act determining total loss at Rs 96,71,857/- making various disallowances / additions. One such disallowance made thereon was on account of excise duty on closing stock to the tune of Rs 52,43,000/-, which was upheld by the ld CITA in first appeal. On further appeal preferred by the assessee company before this tribunal, the same was disposed off by this tribunal in to 1355 (Kol) of 2003 dated 30.4.2004 for the Asst Years 1994-95 , 1996-97 and 1997-98 by setting aside the issue to the file of the ld AO afresh in accordance with law. Pursuant to the said order, the impugned assessment was framed by the ld AO. In the said assessment, the ld AO observed that on perusal of the tax audit report, it appears that the excise duty of Rs 52.43 lakhs had not been provided on uncleared finished goods for the purpose of valuation of closing stock. The ld AO felt that it is a well settled fact that sicne the assessee company is following mercantile system of accounting, liability is incurred as soon as the excisable goods are manufactured or produced but not at the time of clearance of finished goods. He held that since the assessee company had not provided for the excise duty on closing stock of finished goods, the excise duty amounting to Rs 52.43 lakhs requires to be added back to the total income and which would be allowable as deduction only in the year of payment u/s 43B of the Act. He held that the assessee could not produce any evidence to prove that the said excise duty had been duly paid either before the due date of filing return u/s 139(1) of the Act so as to make it allowable u/s 43B of the Act in the year under consideration itself or in subsequent years. Accordingly, disallowance of Rs 52,43,000/- was made u/s 43B of the Act towards excise duty on closing stock of 2.1. We have heard the rival submissions. At the outset, we find that the entire disallowance has been triggered based on the observations made by the tax auditor in the tax audit report. We find that the tax auditor had duly observed that the assessee had not provided for excise duty on closing stock of finished goods, meaning thereby, no debit to profit and loss account has been made for the same. While it is so, it could be concluded that no deduction had been claimed by the assessese towards excise duty on closing stock of finished goods in the Asst Year 1996-97. When there is no claim of deduction, there cannot be applicability of provisions of section 43B of the Act. We also find that the legislature by introduction of section 145A of the Act had mandated the inclusion of excise duty on closing stock of finished goods in the overall valuation of closing stock. But this is effective only from Asst Year 1999-2000. In any case, the effect of the same would be revenue neutral, as on one hand, the assessee would make provision for excise duty by debiting profit and loss account and on the other hand the same would be added to the closing stock of finished goods. In the instant case, the authorities below had invoked the provisions of section 43B of the Act for making the disallowance, which in our considered opinion, is not at all applicable to the facts of the case. Hence we hold that both the authorities grossly erred in not understanding the issue in the right perspective and had merely been carried away by the observations made in the tax audit report. Accordingly, the ground no. 1 raised by the assessee is allowed for Asst Year 1996-97.
DISALLOWANCE OF DEPRECIATION U/S 32 OF THE ACT Ground No. 2 of Assessee Appeal for Asst Year 1996-97 Ground No. 1 of Assessee Appeal for Asst Year 1997-98 Ground Nos. III & IV of Revenue Appeal for Asst Year 1996-97 3 The brief facts of this issue are that the ld AO observed that during the relevant Asst Year, the assesee company had claimed depreciation for Rs 22,50,396/-. On perusal of the record, it appears that during the relevant period, only three units of the company remained in operation and all other units remained closed. He observed that as per provisions of section 32 of the Act, depreciation is allowable on fixed assets which were put to use during the relevant period. Since during the previous year, only three units of the assessee company were in operaetion, hence in absence of details, 50% of depreciation claimed was disallowed in the sum of Rs 11,25,198/- by the ld AO. The ld CITA observed that though depreciation is allowable on block of assets only if production is contained in the same unit. Profit is determined unit wise. If any unit has stopped production, depreciation would not be allowable on its assets. The ld CITA held that the ld AO had disallowed only 50% of depreciation claimed by the assessee as the assessee could not furnish separate list of assets, which requires no interference. Aggrieved, the assessee is in appeal before us. The revenue is also in appeal before us on this issue.
3.1. We have heard the rival submissions. It is not in dispute that the depreciation on assets is allowable on the basis of block of assets with effect from 1.4.1988. Hence for the assessment years under consideration, the principle of ‘block of assets’ would be applicable. It is now well settled that once an asset enters the particular block of assets and depreciation granted thereon for the whole block as such, the concerned asset loses its identity. Reliance in this regard is placed on the decision of Hyderabad Tribunal in the case of Natco Exports vs DCIT reported in 86 ITD 445. Moreover, the condition of ‘put to use’ should be tested only in the year of installation or purchase and not thereafter. Hence we hold that the depreciation is allowable on the entire block of assets in the instant case. In any case, the basis adopted by the authorities below of disallowing 50% of depreciation claimed is not in accordance with law. We find that 4
5 Metal Box India Ltd. A.Yrs. 1996-97 & 1997-98 the ld CITA had not granted any relief to the assessee with regard to this issue and hence the grounds raised by the revenue in this regard are not maintainable. Accordingly, the grounds raised by the assessee in this regard are allowed and grounds of the revenue are dismissed as not maintainable in this regard.
DISALLOWANCE OF MISCELLANEOUS EXPENSES – Rs 100.99 lakhs Ground Nos. I & II of Revenue Appeal for Asst Year 1996-97 The brief facts of this issue are that the ld AO observed that under the head ‘other operating expenses’ the assessee company had debited miscellaneous expenses of Rs 277.38 lakhs. The ld AO observed that miscellaneous expenses includes printing charges for Rs 108.75 lakhs which appears to be very abnormally high in nature. No supporting documents / evidences were produced in this regard by the assessee. Accordingly, the ld AO disallowed miscellaneous expenses in the sum of Rs 100.99 lakhs in the assessment. The assessee had already furnished a letter dated 26.10.98 before the ld AO in the original assessment proceedings itself furnishing the complete break up of Miscellaneous Expenses to the tune of Rs 277.38 lakhs which included printing and stationery charges of Rs 7.76 lakhs only. It was specifically brought to the notice of the then AO that printing charges had been wrongly shown as Rs 108.75 lakhs in Schedule -5 of Annual Report and that the correct amount was only Rs 7.76 lakhs. This fact was completely ignored by the ld AO in the set aside assessment also. The ld CITA duly appreciated the same and held that correct printing charges is only Rs 7.76 lakhs and that the same is not abnormally high and accordingly deleted the disallowance made in the sum of Rs 100.99 lakhs towards miscellaneous expenses. Aggrieved, the revenue is in appeal before us.
4.1. We have heard the rival submissions. We find that the mistake committed in the annual report had been duly pointed out and brought to the notice of the ld AO in the original assessment proceedings itself vide written submissions dated 26.10.1998, which 5
6 Metal Box India Ltd. A.Yrs. 1996-97 & 1997-98 has been summarily ignored by the ld AO. We find that the same had been duly appreciated by the ld CITA by holding that the correct printing charges is only Rs 7.76 lakhs and that the same is not to be considered as abnormally very high. It was argued that since the assessee is already declared as a sick industrial company and most of its units are closed , the papers containing documents and evidences are dislocated and hence the evidences could not be furnished before the ld AO. We find that the ld CITA had taken due cognizance of the same and had deleted the disallowance of miscellaneous expenses on an estimated basis , which requires no interference. Accordingly, the Grounds I & II raised by the revenue for Asst Year 1996-97 are dismissed.
DISALLOWANCE OF LEGAL & PROFESSIONAL EXPENSES – Rs 9,87,014/- Ground No. 2 of Assessee Appeal for Asst Year 1997-98 The brief facts of this issue are that the assessee company debited a sum of Rs 31,72,000/- towards legal and professional expenses in its profit and loss account. The ld AO sought the details of the same. Since the assessee company was declared as a sick industrial company and its employees had left the service and records were dislocated, the assessee could furnish only the ledger account in respect of legal and professional charges in part only to the tune of Rs 21,84,986/-. But the ld AO proceeded to disallow the entire legal and professional expenses in the sum of Rs 31,72,000/- for want of details. The ld CITA observed that the payments to the tune of Rs 21,84,986/- for which ledger account has been produced, have been made by cheques and there is nothing on record to suggest that these expenses are not related to business. Hence he held that relief is entitled for the assesee to that extent. In respect of remaining sum of Rs 9,87,014/- , no evidences were submitted by the assessee even 5.1. We have heard the rival submissions. We find that the ld CITA had granted relief to the assessee to the tune of Rs 21,84,986/- for which details in the form of ledger accounts were produced before the ld AO, since it could be deciphered from the same that the same were paid by account payee cheques. But for the remaining sum of Rs 9,87,014/- , no evidence whatsoever was furnished by the assessee . Hence the same has been rightly confirmed by the ld CITA, which in our considered opinion, does not require any interference. Accordingly, the Ground No. 2 of Assessee Appeal for Asst Year 1997-98 is dismissed.
In the result, year Appeal by Result 1673/Kol/2017 1996-97 assessee allowed 1916/Kol/2017 1996-97 revenue dismissed 1674/Kol/2017 1997-98 assessee partly allowed.
Order pronounced in the Court on 16.10.2018