DCIT 8(3)(2), MUMBAI vs. ZYLOG PLAST ALLOY P. LTD, MUMBAI

This appeal, filed by the Revenue, being 31st March, 2015 passed by the learned Commissioner of Income Tax (Appeals)- 14, Mumbai (hereinafter called “the CIT(A)”), for the assessment year 2011-12, the appellate proceedings before the learned CIT(A) arising from the assessment order dated 25th March, 2014 passed by the A.O. u/s 143(3) of the Income-tax Act,1961 (Hereinafter called “the Act”).

The grounds of appeal raised by the Revenue in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called “the Tribunal”) read as under:-

The brief facts in this case are that the assessee company is engaged in the business of manufacturing of modified polypropylene granule & moulded components. It was observed by the A.O. that the assessee has claimed discount and rebate expenses of Rs. 93,77,075/- in the Profit and Loss Account. The assessee was asked to furnish details and evidences of expenses claimed in the Profit and Loss Account. On perusal of the details furnished by the assessee, the A.O. observed that the discount and rebate expenses were claimed by the assessee separately in the P&L account and it ITA 3412/Mum/2015 3 has been allowed to customers separately outside the sale bills. The A.O. observed that normally, in general business practice the discount and rebate were allowed by any person in the bill amount and not outside the bill amount. The AO observed that the assessee has also not furnished any calculation, reasons, justification for these expenses incurred towards discounts and rebates. In the absence of any evidences, discount and rebate given by the assessee cannot be verifiable and deserves to be disallowed were the observations of the AO. Accordingly, the A.O. disallowed an amount of Rs. 93,77,075/- claimed by the assessee towards expenses being discounts and rebates and added the same to the total income of the assessee vide assessment order dated 25-03-2014 passed by the AO u/s 143(3) of the Act of 1961 as the same were not established to have been incurred exclusively for the purposes of business of the assessee.

During the course of assessment proceedings u/s 143(3) r.w.s. 143(2) of the Act, the A.O. also observed that the assessee has stated to have got installed new plant at Plot No. 1-8/2, Phase-II, Sipcot Industrial Park, Sriperumbudur, Chennai . It was observed by the AO that the assessee has claimed to be engaged in the business of manufacturing of modified polypropylene granule & moulded components and is having manufacturing units at Nasik and Pune as well a new undertaking was stated to be established at Chennai. The AO observed that no manufacturing activity has begun in Chennai unit and hence the assessee is not eligible to claim additional depreciation on new plant and machinery installed for new undertaking at Chennai. The AO observed that the assessee had furnished electricity bills for its Maharashtra units located at Pune and Nasik for the whole year while the assessee has furnished electricity bill for its Chennai unit only for the month of April 2011. It was observed by the AO that the assessee has not submitted any electricity bill for the entire previous year ended 31-03-2011 with respect to new undertaking stated to be operative at ITA 3412/Mum/2015 4 Chennai. The AO also observed that the assessee has not furnished any certificate for commencement / commissioning of its manufacturing unit at Chennai and even trial of activity certificate was not furnished. The AO observed that the assessee had claimed depreciation of Rs. 65,04,525/- and additional depreciation of Rs. 87,33,201/- for its new plant and machinery purchased for assesse’s new industrial undertaking at Chennai plant. The assessee was asked to furnish details of depreciation and additional depreciation along-with documentary evidences to prove the eligibility. In reply, the assessee furnished the details of depreciation along with a certificate from the Auditors, wherein the Auditors mentioned as under:-

It was also observed by the A.O. that the assessee has purchased land for a cost of Rs. 72.75 lacs which were apparently made from the funds raised by the assessee from secured and unsecured loan. The assessee was asked to explain as to why the interest attributable to the land cost may not be treated as capital in nature and disallowed accordingly. In reply, the assessee submitted that the land was purchased by the assessee out of its own accrual and has not taken any loan for purchase of land and hence interest expenditure cannot be capitalized. The A.O. rejected the contentions of the assessee and held that the onus to prove that the land were purchased by the assessee out of its own accruals were mere statements and not supported with any documentary evidences and the assessee has just tried to justify its claim of interest. The onus lies on the assessee to prove that the lands were purchased from its own interest free accruals and no cost of interest has been directly or indirectly borne by the assessee for purchase of land and this onus has not been discharged by the assessee. Thus, the A.O. brought to tax by disallowing interest expenses amounting to Rs.9,32,473/- @ 12% on cost of land amounting to Rs. 77,70,605/- and disallowed the interest expenses being expenditure not incurred exclusively for the purpose of business of the assessee vide assessment order dated 25-03-2014 passed by the AO u/s 143(3) of the Act.

Aggrieved by the assessment order dated 25-03-2014 passed by the A.O. u/s 143(3) of the Act, the assessee carried the matter before the ld. CIT(A) by filing first appeal. Before the ld. CIT(A), the assessee had submitted large number of additional evidences w.r.t. all the three additions to justify its claim which were annexed to statement of facts filed along with the appeal in ITA 3412/Mum/2015 6 the form of Annexure A to D (pages 166-378/paper book filed with the tribunal) . The learned CIT(A) adjudicated the first appeal on merits by accepting the contentions of the assessee by deleting all the three aforesaid additions after appreciation of these additional evidences which were filed by the assessee for the first time before the learned CIT(A) vide appellate order dated 31-03-2015 passed by learned CIT(A). Thus, in nut-shell , the learned CIT(A) deleted the afore-stated three additions made by the A.O. , vide appellate order dated 31-03-2015.

Aggrieved by the appellate order dated 31-03-2015 passed by the ld. CIT(A), the Revenue is in appeal before the Tribunal.

Before us the matter was argued by both the parties on merits. It was also admitted by the learned counsel for the assessee during the course of hearing before us that a large number of additional evidences were filed by the assessee before the learned CIT(A) for the first time which were annexed to statement of facts filed along with memo of appeal filed before the learned CIT(A), which evidences were not produced by the assessee before the AO during the course of assessment proceedings . It was accepted by learned counsel for the assessee that no remand report was called by the learned CIT(A) from the AO for seeking his comments/observation on these additional evidences filed by the assessee for the first time before learned CIT(A). The learned DR has taken objection to the non-compliance of Rule 46A of Income- tax Rules , 1962 by learned CIT(A) before adjudication of the appeal on merits by learned CIT(A) based on reliance of additional evidences filed for the first time before learned CIT(A) during appellate proceedings.

We have heard rival contentions and also perused the material available on record. We have observed that the A.O. has made three additions wherein additions had been made to the income of the assessee by disallowing ITA 3412/Mum/2015 7 expenses incurred with respect of discount and rebates to the tune of Rs. 93,77,075/- allowed to the customers by the assessee, disallowance of depreciation of Rs. 65,04,525/- and additional depreciation to the tune of Rs. 87,33,201/- on new undertaking at Chennai and the third one is on account of disallowance of interest expenses incurred on the purchase of land to the tune of Rs. 9,32,473/- . We have observed that the assessee filed large number of additional evidences to support its contentions before the learned CIT(A) for the first time during appellate proceedings which were annexed along with statement of facts filed along with memo of appeal filed with learned CIT(A) being Annexure A to D (pages 166-378/paper book filed with the tribunal) . The ld. CIT(A) admitted theses additional evidences filed with respect to all the three afore-stated additions made by the AO to the income, wherein all the three afore-stated additions stood deleted by learned CIT(A) on appreciation on merits of these large number of additional evidences filed by the assessee with learned CIT(A) vide his appellate order dated 31-03- 2015. These large number of additional evidences so submitted by the assessee for the first time during the course of appellate proceedings before the learned CIT(A) were admitted by the learned CIT(A) without giving and specifying any reasoning and justification as to the limbs under which as contemplated under Rule 46A(a) to (d) of Income-tax Rules, 1962 these additional evidences were admitted by him while adjudicating first appeal of the assessee as no justification were given by the assessee for non-filing of these evidences before the learned AO. Further, these large number of additional evidences were also not forwarded by learned CIT(A) to the A.O. for giving an AO an opportunity of examination, verification and seeking AO’s comments as no remand report was called by the learned CIT(A) as contemplated u/r 46A(3) of Income-tax Rules,1962. The ld. CIT(A) has to record reasons in writing before accepting additional evidences filed before him by the assessee for the first time as contemplated u/r 46A(2) of Income- tax Rules, 1962, which has not been done by learned CIT(A) in the instant ITA 3412/Mum/2015 8 appeal. Further, the learned CIT(A) is required u/r 46A(3) of Income-tax Rules, 1962 to forward these additional evidences to the AO for his examination and seek remand report from the AO on these additional evidences filed before him for the first time in appellate proceedings prior to adjudicating first appeal on merits, which has not been done in the instant case by learned CIT(A) . In our considered view, since these large number of additional evidences filed by the assessee for the first time before learned CIT(A) during the course of appellate proceedings goes to the root of the matter for deciding all the three issues under appeal on merits , these additional evidences need to be admitted by the learned CIT(A) on merits after being satisfied with mandate of Rule 46A(1) r.w.r. 46A(2) of Income-tax Rules,1962 and further these additional evidences needs to be confronted to the A.O. for his examination and comments in compliance of Rule 46A(3) of Income-tax Rules, 1962 wherein Remand Report need to be called by learned CIT(A) from the AO. These statutory Rules of 1962 cannot be given a simple go-bye and when the law contemplates a thing to be done in a particular manner , the same need to be done in that manner or otherwise it is not to be done at all. Under these circumstances and factual matrix of the matter as discussed by us above, we are inclined to set aside and restore all the three issues covered by this appeal back to the file of the learned CIT(A) who will decide the issues on merits after complying with requirements and mandate of Rule 46A(1) to (3) of Income-tax Rules, 1962. The assessee is directed to appear before learned CIT(A) forthwith on receipt of this order . The learned CIT(A) shall grant opportunity of being heard to the assessee in accordance with principles of natural justice in accordance with law before de-novo adjudicating the appeal. We order accordingly

In the result, appeal filed by the Revenue in 2011-12 is allowed for statistical purposes.