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Income Tax Appellate Tribunal, “A” BENCH: KOLKATA
Before: Shri P. M. Jagtap, AM & Shri K. Narasimha Chary, JM]
1 ITA No. 2120/Kol/2013 V. Mart Retail Ltd.., AY 2009-10 IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH: KOLKATA [Before Shri P. M. Jagtap, AM & Shri K. Narasimha Chary, JM]
I.T.A No. 2120/Kol/2013 Assessment Year: 2009-10 V. Mart Retail Ltd., New Delhi Vs. Assistant Commissioner of Income-tax, (PAN:AABCV7206K) Range-7, Kolkata. (Appellant) (Respondent) Date of hearing: 21.09.2016 Date of pronouncement: 30.09.2016
For the Appellant: Shri V. N. Purohit, FCA For the Respondent: Shri Sallong Yaden, Addl. CIT ORDER Per Shri K. Narasimha Chary, JM: This appeal by assessee is arising out of order of CIT(A)-VIII, Kolkata vide Appeal No. 301/CIT(A)-VIII/Kol/11-12 dated 03.12.2012. Assessment was framed by Addl. CIT, Range-7, Kolkata u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) for AY 2009-10 vide his order dated 31.12.2011.
This appeal of assessee is delayed by 121 days and a condonation petition has been filed by the assessee along with an affidavit. After considering the same and on the concession given by the Ld. DR for condonation of delay, we condone the delay and admit this appeal for hearing.
Brief facts of the case are that the assessee is engaged in retail business through a chain of out lets. They filed their return of income for the AY 2009-10 on 16.9.2009 disclosing a total income of Rs.1,33,27,140/- and on 21.9.2010 they have filed their revised return of income. Return of income was processed u/s.143(1) of the Act and in the meanwhile it was selected for scrutiny. Subsequently, it was selected in CASS. By way of order dated 31.12.2011, learned AO assessed total income of the assessee at Rs.1,71,76,930/- and in that process disallowed a part of depreciation of Generator claimed at 80% as provided in item No.8(xiii) of New Appendix – I of the I. T. Rules, disallowed deposit of ESI u/s 36(1)(va) of the Act, part of general expenses and fines and penalties. Aggrieved by the order of the learned AO, the assessee carried the matter in appeal before the Ld. CIT(A), who by way of impugned order, inter alia, dismissed the appeal in respect
2 ITA No. 2120/Kol/2013 V. Mart Retail Ltd.., AY 2009-10 of depreciation on generators, reduced the disallowance in respect of general expenses and confirmed the finding of the learned AO in respect of ESI.
Challenging the impugned order the assessee preferred this appeal before us on the following grounds: “1. That the Ld. CIT(A) has erred in confirming the disallowance of Depreciation on heavy duty generator set to the extent of Rs.35,64,438/- as made by AO. 2. That the Ld. CIT(A) has further erred in sustaining ad-hoc disallowance out of General Expenses at Rs. 1 lac. 3. That the Ld. CIT(A) has further erred in not accepting assessee/appellant’s plea that irrespective of claim not made in return but only during assessment stage of ESI contributions made before filing of return at Rs.17892/-.”
Argument of the learned AR is that insofar as the depreciation on generator is concerned, it is provided in vide entry No (xiii) of item No III(8) provided in Part A of New Appendix I which deals with the rates at which depreciation is admissible, 80% of depreciation is allowable on the written down value of any special devices including electric generators, as such the authorities below committed error in limiting the depreciation to 15%. He further submits that there was no disallowance of general expenses in any earlier years and the business of the assessee requires meeting of sundry expenses like serving tea etc to the customers, and details of such minor items will be numerous. Lastly, he contends that though there is delay in payment of ESI it was paid within due date as provided under section 43B of the Act. Ld DR vehemently relies on the orders of the authorities below.
Basing on the above factual position and contentions on either side, the points that arise for consideration are: i. Are the authorities below justified in restricting the depreciation on Generators at 15%? ii. Is the learned CIT justified in disallowing the general expenses to a tune of Rs.1,00,000/-. iii. Are the authorities below justified in disallowing the claim of deduction under section 43B of the Act? iv. To what relief?
ISSUE No1:
Case of assessee is that for running their business, they are using heavy duty Generator sets and in respect of such Generator sets in the relevant AY they claimed depreciation at higher rate. Such percentage was restricted to 15% by the learned AO and
3 ITA No. 2120/Kol/2013 V. Mart Retail Ltd.., AY 2009-10 confirmed by the learned CIT(A). According to the learned AO, electric Generators used to generate electricity by using conventional fuels such as coal, diesel, petrol, gas, firewood etc are considered falling within the general category of Plant and machinery and depreciation applicable is at a general rate, and for generators which use non-conventional fuels, municipal waste, agricultural waste or generators which harness solar and wind power to generate electricity may be treated as eligible for higher depreciation under special categories. Between the two decisions cited before him i.e,, CIT VS. Agarwal Transformers (P) Ltd (2002) 258 ITR 0251 relied upon by the assessee and CIT Vs. Anang Polyfile Pvt. Ltd (2004) 267 ITR 0266 relied upon by the Revenue, learned AO preferred the later decision on the ground that similarity and applicability of the former decision to the facts and circumstances of the case were not properly explained or justified by the assessee company.
We have carefully gone through the facts and the decisions submitted by the assessee and Revenue. While considering the entry “(xiii) Any special devices including electric generators and pumps running on wind energy” Hon’ble Rajasthan High court has held as follows :
“According to the rules of construction, where two or more words which are susceptible of analogous meaning are coupled together noscitur a sociis, they are understood to be used in their cognate sense. They take, as it were, their colour from each other, the meaning of the more general being restricted to a sense analogous to that of the less general. Thus, in our view the word "electric generator" must be construed as ejusdem generis. The electric generator by itself generate electricity and, therefore, do not fall within the renewable energy devices. It is different from pumps run on wind energy, which falls within the renewable energy devices. Thus, it is erroneous to say that the condition "run on wind energy" is also attached to electric generators. Even grammatically neither, nor the word ‘both’ is used after the word ‘pumps’ in the relevant entry and this also clarifies that the condition "running on" wind "energy" is only attached to the word ‘pumps’ and not to the electric generators. A further reading of the entry shows that it is inclusive, it refers to two different items namely, electric generators and secondly the pumps running on wind energy. Thus, in our view the electric generator clearly falls under the renewable energy devices…”
Hon’ble Gujarat High Court while considering the entry “(xiii) Any special devices including electric generators and pumps running on wind energy” has held as follows :
“although, at the first blush it may appear that this sub-item (xiii) includes electric generators and, therefore, diesel sets for generating electrical energy may fall under this sub-item, on proper scrutiny it would appear that what is contemplated is electric generators running on wind energy and pumps running on wind energy, and, hence, generator sets running on diesel would not fall under sub-item (xiii).”
4 ITA No. 2120/Kol/2013 V. Mart Retail Ltd.., AY 2009-10 7. It is the argument of the Ld. DR that in CIT Vs. Agarwal Transformers (P) Ltd. (2002) 258 ITR 0251 the Hon’ble Rajasthan High Court clearly stated that the word “electric generator” must be construed as ejusdem generis i.e. the words have to be understood with reference to the company of the other words which they keep. It is further held by the Hon’ble Rajasthan High Court that the condition “running on wind energy” is only attached to the word ‘pump’ and not to the ‘electric generators’. Ld. DR further submitted that though the Hon’ble Rajasthan High Court observed that ‘electric generator’ clearly falls under the renewable energy devices in view of its observations the said word is to be understood in the context of other expressions in Item No. 8(iii) provided in Part A of new Appendix-I. In that scenario it follows that all the electric generators do not fall under the category of renewable energy devices but such electric generators which run on non- conventional fuels fit in the entries of Item No. 8(iii) of Appendix. He further argued that the focus of Hon’ble Rajasthan High court was on whether the expression run on wind energy could be attached to pumps as well as electric generators. The Hon’ble High Court observed that such an expression cannot be attached to electrical generators and has to be read as pumps running on wind energy. According to the Ld. DR, this does not mean that all electric generators are renewable energy devices unless they run on non-conventional energy sources. He further submitted that, that is the reason why in a later decision by Hon’ble Gujarat High court, Their Lordships were pleased to observe that although at the first blush it may appear that the sub item (xiii) includes electric generators and, therefore, diesel set for generating electrical energy may fall under the sub item, on proper scrutiny it would appear that what is contemplated is electrical generator run on wind energy and pumps run on wind energy and hence, generator sets running on diesel would not fall under sub item (xiii). According to Ld. DR there is no conflict between these two decisions and he submits that the condition ‘running on wind energy’ has no application to the electrical generator but at the same time, only such electrical generators as run on non-conventional energy sources alone answer the description renewal energy devices. We find a lot of force in the arguments of the Ld. DR. However, either from the assessment order or from the order of Ld. CIT(A), we are unable to understand the source of energy for the electric generator in respect of which higher rate of depreciation is claimed. Whether such generators are running on conventional or non-conventional energy sources is very much essential to give a finding on the rate of depreciation which the assessee is entitled. Since it
5 ITA No. 2120/Kol/2013 V. Mart Retail Ltd.., AY 2009-10 is a verifiable question of fact, we find it just and proper to set aside the orders of the lower authorities and remand the matter back to the file of AO for fresh verification of the source of energy which the electrical generator of the assessee is running on, and accordingly reach the correct rate of depreciation which the assessee is entitled to. We order accordingly. This ground of appeal of assessee is allowed for statistical purposes.
Issue No.2 8. Now turning to the aspect of disallowance of general expenses are concerned, Assessment Order reads that the assessee claimed and deducted Misc. expenses to a tune of Rs.59,95,496/- out of which an amount of Rs.52,44,976 was claimed as General Expenses. Learned AO disallowed the same to a tune of Rs.2,62,248/-representing 5% thereof on the ground that the assessee company could not furnish its full details and justification for incurring such expense. Learned CIT(A) reduced the disallowance to Rs.1,00,000/-. It is the submission of the learned AR that in none of the preceding years since 2006-07 there is any disallowance of general expenses claimed by the assessee and that in the immediately preceding year the assessee claimed deduction of general expenses at Rs.51,84,134/- against net sales of Rs.97,93,18,179/- and such expenses constitute 0.52% of net sales. It is his further submission that in the relevant Assessment Year the expenses claimed constitute only 0.42% against the increase of sales by 45%. He further brought it to our notice that no specific item of disallowance could be made out from the orders of the authorities below and it was not possible for any verification in the absence of such details.
There is no denial of these figures submitted by the Learned AR. On the other hand, they find a place in the order of CIT(A). When the learned AO allowed general expenses at 51,84,134/- i.e., 0.52% of the net sales in the immediately preceding year, there is no reason for disallowing the same when the net sales went up by 45% and general expenses went down by 0.10% in this Assessment Year. Further there is no reference to any particular item of disallowance. Disallowance at 5% as adopted by learned AO or the Rs.1,00,000/-as adopted by the learned CIT(A) do not appear to have any scientific or rationale basis amenable to scrutiny by us and they are presumptive in nature. Further, rule of consistency demands that the authorities are consistent in their treatment with reference to the disallowance of expenses. We, therefore, hold that the restriction of deduction of general expenses by the authorities below is not properly explainable and does not stand to juridical
6 ITA No. 2120/Kol/2013 V. Mart Retail Ltd.., AY 2009-10 scrutiny. We, therefore, while answering the issue in favour of the assessee delete the disallowance. This issue of assessee’s appeal is allowed.
Issue No3: 10. Insofar as the claim for deduction under Section 43B of the Act is concerned, learned AO disallowed deduction to a tune or Rs.17,892/- on the ground that the assessee had not made the claim at the time of filing the return. In respect of late payment of ESI, claim of assessee is that though there is some delay, the payment was made well within the stipulated under section 139(1) of the Act. Learned CIT(A) turned down the request of the assessee in this regard holding that the assessee has not followed the procedure for making the claim inasmuch as the liability is outstanding in the balance sheet and that no evidence has been furnished along with the return of income to show that the said liability has properly been discharged. Though the assessee submitted before us that the payment was made with some delay but before the stipulated time under section 139(1) of the Act, no evidence is produced by them. Learned AR submits that such evidence is not within their command and the same could be secured and verified by the learned AO. In these circumstances, since it is a verifiable fact, instead of disallowing the claim of the assessee at once, we deem it just and proper to afford an opportunity to the assessee to prove their case before the learned AO, and the learned AO will secure the relevant papers for verification to reach the just tax liability of the assessee. We, therefore, set aside the matter on this point and restore the same to the file of learned AO for due verification and disposal afresh. We answer the point accordingly. Therefore, this ground of appeal of assessee is allowed for statistical purposes.
In the result, the appeal of the assessee is partly allowed for statistical purpose. Order is pronounced in the open court on 30.09.2016. Sd/- Sd/- (P. M. Jagtap) (K. Narasimha Chary) Accountant Member Judicial Member
Dated : 30th September, 2016
Jd.(Sr.P.S.)
7 ITA No. 2120/Kol/2013 V. Mart Retail Ltd.., AY 2009-10 Copy of the order forwarded to:
APPELLANT – V. Mart Retail Ltd., C/o, Saraf & Chandra, Chartered Accountants, Ashoka House, Suit No. 501, 3A, Hare Street, Kolkata-700 001. 2 Respondent –ACIT, Range-7, Kolkata. 3. The CIT(A), Kolkata 4. CIT , Kolkata 5. DR, Kolkata Benches, Kolkata /True Copy, By order, Asstt. Registrar.