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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: SHRI G.S. PANNU & SHRI SAKTIJIT DEY
The captioned are four appeals by the Revenue for multiple assessment years pertaining to the same assessee and since they involve certain common issues, they have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity.
Before we proceed to adjudicate each of the respective appeals, it may be noted that at the time of hearing it was a common ground between the parties that the issues are substantively covered by the decision of the Tribunal in assessee’s own case for Assessment Years 2002-03 to 2003-04 in & 1675/Mum/2014 dated 17.06.2016, which has considered the import of the order of the Income-tax Settlement Commission dated 28.03.2014 passed u/s 245D(d) of the Income Tax Act, 1961 (in short ‘the Act’).
Insofar as the appeal of the Revenue for Assessment Year 2001-02 is concerned, the following two Grounds have been raised :-
“(i) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in allowing the assessee’s claim of depreciation on the basis of the order of the Hon'ble Settlement Commission whereas facts of the case are different and the Hon'ble Settlement Commission has only allowed the claim on different facts.
(ii) Whether on the facts and circumstances of the case and in law, the CIT(A) erred in allowing discount given by the assessee on sales of Rs.1,18,67,854/- to M/s. Earnesh Exports Pvt. Ltd. at unusually high rate of 65%.”
In order to appreciate the controversy in Ground of appeal no. 1, the relevant facts are that assessee is part of Krishna Filament group of cases in which a search and seizure action was carried out by the Department u/s 132(1) of the Act on 29.07.1998, which yielded incriminating material and evidences. Consequently, a block assessment u/s 158BC of the Act was finalised in the case of the assessee on 13.07.2001 for the block period 01.04.1988 to 29.07.1998. It transpires that regular assessment of Assessment Year 1999-2000 was also finalised wherein the assessee had failed to produce books of account and its income was estimated. The Assessing Officer notes that in the instant assessment year also, assessee was required to produce its books of account, but it took the stand as taken in the earlier period, saying that the books of account have been damaged in the floods. This plea of the assessee had been dismissed by the Revenue in the past years and, in fact, assessee had approached the Income-tax Settlement Commission whose decision dated 28.03.2014 (supra) covered the period upto Assessment Year 2000-01. In this background, the Assessing Officer, while computing the income for the year, noted assessee’s claim for depreciation of Rs.42,26,24,906/- made in the statement of total income. The Assessing Officer noted that the claim of depreciation was subject to the findings given in the block assessment order, which was pending settlement before the Income-tax Settlement Commission for Assessment Years 1997- 98 to 2000-01. Further, with regard to the additions made to fixed assets during the previous year relevant to the year under consideration, the Assessing Officer noted that in the absence of any bills or other relevant particulars being furnished by the assessee, the claim was not allowable. Accordingly, the Assessing Officer restricted the depreciation to the extent of Rs.1,69,48,750/- thereby resulting in denial of depreciation of Rs.40,56,76,156/-. The CIT(A) has relied upon his order for Assessment Year 2002-03 and allowed the claim of the assessee in the following words :-
“10.1 Since the depreciation claim in respect of assets acquired prior to A.Y 2001-02 is subject matter of settlement application, depreciation on the amount of exchange rate capitalized will also have to be allowed by the A.O for this assessment year as per the order of the Honourable Settlement Commission. The CIT(A)-40 has also allowed the depreciation for the A.Y 2002-03 which is a later year vide his order No. CIT(A)- 40/ACIT(OSD)-II/C.R.7/60/05-06 dtd. 22.11.2013. Therefore, this ground of appeal is allowed for the A.Y 2001-02.”
5. Before us, the aforesaid decision of the CIT(A) is in challenge by the Revenue. At the time of hearing, the ld. DR pointed that in Assessment Year 2002-03, the Tribunal, noticing the decision of the Income-tax Settlement Commission has remitted the issue back to the file of the Assessing Officer on the issue of depreciation vide its order dated 17.06.2016 (supra) and, therefore, in this year too, the matter may be set-aside. It is also pointed out that in the face of the categorical finding by the Assessing Officer that no details were furnished with regard to the assets added during the year, the directions of the CIT(A) to allow the depreciation, in any case, is not justified. It is pointed out that in this year, the manufacturing activity of the assessee had closed down since October, 2000 and, therefore, the depreciation has to be accordingly reduced as per law.
In response, the learned representative for the assessee pointed out that the business was indeed carried out by the assessee during the year and reference has been made to the Profit & Loss Account, copy of which is placed at page 19 of the Paper Book, to point out that sales have been effected and that even assets have been put to use for carrying out the business activity. Insofar as the depreciation on the assets added during the previous year relevant to the assessment year under consideration is concerned, the learned representative fairly conceded that assessee does not wish to press the same. So, however, it has been pointed out that the opening WDV of the assets for the purpose of allowing depreciation has to be adjusted in terms of the decision of the Income-tax Settlement Commission, which has partly allowed assessee’s claim of depreciation for the period upto Assessment Year 2000-01.
In light of the aforesaid stand, we deem it fit and proper to set-aside the order of the CIT(A) and direct the Assessing Officer to consider the order of the Income-tax Settlement Commission dated 28.03.2014 and allow depreciation having regard to the facts and circumstances of the instant year. Of course, the Assessing Officer shall adjust the opening WDV in terms of the decision of the Income-tax Settlement Commission, and so far as assessee’s claim for depreciation on current year’s addition to the fixed assets is concerned, same has not been pressed by the assessee. In the ensuing proceedings, the Assessing Officer shall consider the conceded position that the manufacturing stopped from October, 2000 onwards and the depreciation claim would be available in respect of assets put to use. Be that as it may, considering the entirety of facts and circumstances, the matter is remanded back to the file of the Assessing Officer who shall reappraise the claim of assessee for depreciation in light of the precedents, and in law. Thus, on this aspect, the ground of the Revenue is treated as allowed for statistical purposes.
The next Ground of appeal is with regard to the action of CIT(A) in deleting the disallowance of Rs.59,56,461/- made by the Assessing Officer out of miscellaneous expenses by restricting the discount allowed by the assessee to M/s. Earnest Export Pvt. Ltd.
9. In this context, the brief facts are that the Assessing Officer examined the details of expenses incurred under the head ‘miscellaneous expenses’ and found that a major portion of Rs.77,36,639/- was on account of discount allowed to one concern, M/s. Earnest Export Pvt. Ltd. The Assessing Officer noticed that the discount was allowed in relation to sales of Rs.1,18,67,854/- which came to almost 65%, which according to him was not justified. Instead, the Assessing Officer restricted the discount to 15% and accordingly, the balance of Rs.59,56,461/- was disallowed as an expense incurred for non-business purposes. The CIT(A) has allowed the claim of assessee by stating that in view of the details submitted by the assessee by way of ledger copies and confirmation of the parties, the claim was allowable. Against such a decision, Revenue is in appeal before us.
Before us, the ld. DR has reiterated the stand of the Assessing Officer and pointed out that assessee did not provide any explanation justifying the high rate of discount.
Per contra, the learned representative for the assessee has referred to Paper Book, pages 49 to 51 wherein is placed the copy of account with the said party and on that basis it is sought to be pointed out that the discount has been allowed keeping in mind the terms and conditions of the sale. The learned representative pointed out that the assessee has made sales to the said concern multiple times and the total sales are to the tune of almost Rs.6 crores. Considering the overall relationship with the party, discount of Rs.77,36,639/- was allowed in relation to the sale of Rs.1,18,67,854/-. The learned representative pointed out that there was no material with the Assessing Officer to doubt the bona fide of the assessee and, therefore, the CIT(A) made no mistake in deleting the addition.
We have carefully considered the rival submissions. Ostensibly, the disallowance has been made by the Assessing Officer on mere conjectures and surmises. No doubt, the discount allowed to M/s. Earnest Export Pvt. Ltd. in relation to one of the sale transaction of Rs.1,18,67,854/- looks disproportionate, but assessee has explained that the discount was allowed considering its overall relationship with the said concern with whom assessee was having multiple sale transactions even during the year under consideration. In support, reference has been made to the copy of account of the said party and it has been pointed out that there is no challenge to the bona fide of the transactions entered by the assessee. Considering the aforesaid, in our view, the action of the Assessing Officer has been rightly negated by the CIT(A), which in substance is based on mere surmises and conjectures. Thus, on this aspect, Revenue fails.
In the result, appeal of the Revenue for the Assessment Year 2001-02 is partly allowed.
Insofar as the other captioned appeals of the Revenue are concerned, the only issue raised is with regard to the claim of depreciation. The said issue is liable to be decided in the light of our observations in the Ground of appeal no. 1 for Assessment Year 2001-02, as also the decision of the Tribunal for Assessment Years 2002-03 and 2003-04 dated 17.06.2016 (supra). Accordingly, these appeals are also disposed.
In the result, all the appeals of the Revenue are treated as partly allowed, as above.
Order pronounced in the open court on 5th January, 2018.