DHABRIYA POLYWOOD LIMITED,JAIPUR vs. DCIT CENTRAL CIRCLE-1, JAIPUR, JAIPUR

आयकरअपीलीय अधिकरण] जयपुरन्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”B” JAIPUR Mk0 ,l- lhrky{eh]U;kf;d lnL; ,oa Jh jkBksM deys'k t;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ fu/kZkj.k o"kZ@Assessment Year : 2015-16 cuke Dhabriya Polywood Limited DCIT, B- 9 D 1, Malviya Industrial Area, Vs. Central Circle-1, Jaipur. Jaipur. LFkk;hys[kk la-@thvkbZvkj la-@PAN/GIR No.: AACCD 5090 Q vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksjls@Assesseeby : Shri Rajeev Sogani (C.A) & Shri Rohan sogani (C.A.) jktLo dh vksjls@Revenue by: Ms. Runi Pal (Addl.CIT) lquokbZ dh rkjh[k@Date of Hearing :18/05/2023 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 24/07/2023 vkns'k@ORDER PER: DR. S. SEETHALAKSHMI, J.M. This appeal is filed by the assessee against the order of the ld. CIT(A)-4, Jaipur dated 20-12-2022 for the assessment year 2015-16 wherein the assessee has raised the following grounds of appeal. “1. In the facts and circumstances of the case and in law, ld. CIT(A) has erred in, confirming the action of ld. AO, in passing the rectification order u/s 154 of the Income Tax Act, 1961on debatable issues which are outside the purview of section 154. The Action of the ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the said order passed by ld. CIT(A).

2. In the facts and circumstances of the case and in law, ld. CIT(A) has erred in, confirming the action of ld. AO, in disallowing the ROC filing fee of Rs. 9,38,000, treating the same as apparent error in original order formed u/s 143(3). The Action of the ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may Dhabriya Polywood Ltd. please be granted by quashing the said disallowance of Rs. 9,38,000 made by ld. AO and confirmed by ld. CIT(A).

3. In the facts and circumstances of the case and in law, ld. CIT(A) has erred in confirming the action of ld. AO in disallowing the Trade Mark fee of Rs. 16,000 treating the same as apparent error in original order. The Action of the ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the said disallowance of Rs. 16,000 made by ld. AO and confirmed by ld. CIT(A).

2. During the course of hearing, the ld. AR of the assessee has not pressed the ground No. 3 for which the DR has no objection. Hence, the same is dismissed being not pressed. 3.1. Apropos Ground No. 1 & 2 of the assessee, brief facts of the case are that the assessee is a company engaged in the business of manufacturing of extruded PVC profile section etc. The assessee company filed its return of income on 30.10.2015 for the assessment year 2015-16 declaring a total income at Rs. 4,65,30,280/-. The AO completed the assessment u/s 143(3) of the Act vide order dated 21.07.2017 at a total income of Rs. 4,67,04,130/- by disallowing expenses of Rs. 1,73,849/-.Disallowance being insignificant, no appeal was filed by the assessee against the order of the AO. Thereafter, AO invoked the provisions of Section 154 of the Act, disallowed expenditure of Rs. 9,54,000 and computed total income of Rs. 4,76,58,130, vide order dated 08.04.2021. Against the order passed by the AO, under Section 154 of the Act, the assessee company preferred an appeal before the Dhabriya Polywood Ltd. ld. CIT(A) who dismissed the appeal of the assessee company by observing as under:- ‘’4.3 I have considered the facts of the case and written submissions of the appellant as against the observations/ findings of the AO in the assessment order for the year under consideration. The contentions/ submissions of the appellant are being discussed and decided as under:- ‘’(i) Mistake is an ordinary word but in taxation law, it has a special significance. It is not an arithmetical or clerical error alone that comes with its purview. It comprehends errors which after a judicious probe into the record from which it is supposed to emanate are discerned. The word ‘’mistake’’ is inherently indefinite in scope. It is mostly subjective mistake, capable of being rectified under sections 154 and is not confined to clerical or arithmetical mistakes. It is a settled position of law that any expenditure incurred which relate to increase in authorized capital are not allowable as revenue expenditure and I am of the considered view that the AO has rightly allowed the same under the provisions of Section 154 of the Act. Accordingly, the addition of Rs.954,000/- is confirmed and Ground of Appeal No. 1 to 4 are treated as dismissed.’’ 3.2 Being aggrieved by the order of the ld. CIT(A), the assessee carried the matter before the ITAT with the prayer that the ld. CIT(A) has erred in confirming the action of the AO in invoking the provisions of Section 154 of the Act and thus the present proceedings initiated u/s 154 of the Act should be quashed. To this effect, the ld. AR of the assessee filed the following written submission. ‘’GROUND NO. 1,2: INVOKING SECTION 154 AND DISALLOWANCE OF EXPENSES SUBMISSIONS

1. ASSESSING OFFICER: Post completing the assessment u/s 143(3) vide orderdated 21.07.2017, ld. AO invoked section 154 and disallowed following expenses, observing that these expenses are of capital in nature and being mistake apparent on record, were required to be disallowed: Particulars Total Grand Total ROC Fee -Increase in Authorised Capital Filing Fee 5,25,000 Stamp Duty Fee 3,50,000 Franking Fee Payment 63,000 9,38,000 Trade Mark Fee 16,000 16,000 Total 9,54,000

8.1. General Life Insurance vs. CIT [2006] 286 ITR 232 Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1991-92 - Whether expenditure incurred in connection with issuance of bonus shares is revenue expenditure - Held, yes

8.2. Navi Mumbai SEZ (P.) Ltd. Vs. ACIT [2013] 152 ITD 828

Dhabriya Polywood Ltd. Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of (Share capital, expenses to increase) - Assessment year 2008-09 - Whether where assessee incurred certain expenditure for increase in share capital, in view of fact that entire incremental share capital was used for purchase of trading stock, expenditure in question was to be allowed as revenue expenditure - Held, yes

Sl. Ld. CIT(A)’s Our Rebuttals No Contentions 1 Section 154  Ld. CIT(A) herself, has accepted the fact that for any comprehends error, mistake to be covered under Section 154, a judicious probe which, after a has to be done into the records. Word “Probe” being used judicious probe into by the ld. CIT(A) itself points out to the fact the same the records from would not come under the purview of mistake “apparent” which it is supposed on record. to emanate are  Where any judicious probe is to be done, the same would discerned. not be covered under the purview of Section 154. There are other sections which are provided such as, Section 143 or Section 147, wherein right has been given by the statute to the Assessing Officer to “probe” into the expenses claimed by the assessee in detail.  Ld. CIT(A) has erred in only considered the word mistake 2 The word “mistake” is inherently indefinite on a standalone basis rather reading the same with in scope. “apparent on record”.  Section 154 talks about mistake apparent on record that has to be a mistake which is apparent on the face of the record, without involving any debatable question of law.  If the said mistake is not mistake apparent on record, then that cannot be within the scope of Section 154. 3 It is a settled position  In this regard, before the ld. CIT(A) various case laws were Dhabriya Polywood Ltd. of law that any submitted which are also provided hereinbefore.. expenditure incurred,  Accordingly, both the views are possible. Hence, the said which relates to disallowance is out of the purview of Section 154. increase in authorised capital is not allowable as revenue expenditure.

In view of above ld. CIT(A) has erred in confirming the action of the ld. AO in invoking the provisions of Section 154 and accordingly, the present proceedings initiated under Section 154 should be quashed.” During the course of hearing, the ld. DR supported the order of the ld. 3.3 CIT(A) and also filed reply vide letter No. Addl.CIT(DR)/ITAT/JPR/2022-23/99 dated 17-05-2023 as under:- Ground Ground of Appeal

Reply No. 1 In the facts and circumstances of The contention of the assessee is the case and in law, ld. CIT(A) has not acceptable as the issue on erred in, confirming the action of ld. which addition were made in the AO, in passing the rectification order passed u/s 154 of the Act order u/s 154 of the Income Tax are not debatable. Further, the ld. Act, 1961on debatable issues which CIT(A) while passing the order are outside the purview of section u/s 250 of the Act clearly stated in 154. The Action of the ld. CIT(A) is para 4.3 of the order on page 5 illegal, unjustified, arbitrary and that ‘’Mistake is an ordinary against the facts of the case. Relief word, but in taxation law, it has a may please be granted by quashing special significance. It is not an the said order passed by ld. CIT(A). arithmetical or clerical error alone that comes within its purview.

2. In the facts and circumstances of The ld. CIT(A) while passing the case and in law, ld. CIT(A) has order observed that ‘’it is a settled erred in, confirming the action of ld. position of law that any AO, in disallowing the ROC filing expenditure incurred which fee of Rs. 9,38,000, treating the relates to increase in authorized Dhabriya Polywood Ltd. same as apparent error in original capital are not allowable as order formed u/s 143(3). The Action revenue expenditure and I am of of the ld. CIT(A) is illegal, the considered view that the AO unjustified, arbitrary and against has rightly allowed the same the facts of the case. Relief may under the provision of Sec. 154 if please be granted by quashing the the Act.’’.Furtyher in the case of said disallowance of Rs. 9,38,000 Brooke Bond India Ltd. vs CIT made by ld. AO and confirmed by (SC) 225 ITR 798 and in the case ld. CIT(A). of Punjab State Industrial Development Corporation Ltd. vs CIT (SC) 225 ITR 702 held that expenditure incurred on account of ROC filing for issuing of share is of capital nature. Therefore, the claim of the assesee is not tenable.

3. In the facts and circumstances of In the order passed u/s 154 of the the case and in law, ld. CIT(A) has Act, the AO disallowed total erred in confirming the action of ld. Rs.44,000/- on account of trade AO in disallowing the Trade Mark mark fee debated for Rs.16,000/- fee of Rs. 16,000 treating the same which was paid to Registrar of as apparent error in original order. Trademark, reason are better The Action of the ld. CIT(A) is known to the assessee However, illegal, unjustified, arbitrary and these expenses are not allowable against the facts of the case. Relief as these expenditure are of may please be granted by quashing enduring nature for long term the said disallowance of Rs. 16,000 benefit of business thus not made by ld. AO and confirmed by allowable as revenue expenditure ld. CIT(A). as these expenditure relate to the sheets and molding manufacture and sold by the assessee company. Therefore, the claim of the assesse is not acceptable and liable to be rejected accordingly.

3.4 We have heard both the parties and perused the materials available on record including the case laws cited by the respective parties. In this appeal, the Dhabriya Polywood Ltd. assessment was completed u/s 143(3) vide order dated 21-07-2017 at a total income of Rs.4,67,04,130/- by disallowing expenses of Rs.1,73,849/- for which no appeal was filed by the assessee being insignificant disallowance before the ld. CIT(A). It is also noted that the AO thereafter invoked the provisions of Section 154 of the Act by computing total income of Rs.4,76,58,130/- and thus disallowed expenditure of Rs.9,54,000/- vide order dated 08-04-2021 for which the assessee against invoking Section 154 of the Act by the AO preferred appeal before the ld. CIT(A) who dismissed the appeal of the assessee. The crux of the issue in this appeal is with respect to invoking of Section 154 of the Act by the AO in the case of the assessee and subsequently confirmed by the ld. CIT(A) with his following observation :- 4.3…’’ (i) Mistake is an ordinary word but in taxation law, it has a special significance. It is not an arithmetical or clerical error alone that comes with its purview. It comprehends errors which after a judicious probe into the record from which it is supposed to emanate are discerned. The word ‘’mistake’’ is inherently indefinite in scope. It is mostly subjective mistake, capable of being rectified under sections 154 and is not confined to clerical or arithmetical mistakes. It is a settled position of law that any expenditure incurred which relate to increase in authorized capital are not allowable as revenue expenditure and I am of the considered view that the AO has rightly allowed the same under the provisions of Section 154 of the Act. Accordingly, the addition of Rs.954,000/- is confirmed and Ground of Appeal No. 1 to 4 are treated as dismissed.’’ It is also noted that the ld. AR of the assessee in his written submission rebutted the contentions of the ld. CIT(A) in a tabulated form as under:-

Dhabriya Polywood Ltd. Sl. Ld. CIT(A)’s Contentions Our Rebuttals No  1 Section 154 comprehends Ld. CIT(A) herself, has accepted the fact that for any mistake to be error, which, after a covered under Section 154, a judicious probe has to be done into the judicious probe into the records. Word “Probe” being used by the ld. CIT(A) itself points out to records from which it is the fact the same would not come under the purview of mistake supposed to emanate are “apparent” on record. discerned.  Where any judicious probe is to be done, the same would not be covered under the purview of Section 154. There are other sections which are provided such as, Section 143 or Section 147, wherein right has been given by the statute to the Assessing Officer to “probe” into the expenses claimed by the assessee in detail. 2 The word “mistake” is  Ld. CIT(A) has erred in only considered the word mistake on a inherently indefinite in standalone basis rather reading the same with “apparent on record”. scope.  Section 154 talks about mistake apparent on record that has to be a mistake which is apparent on the face of the record, without involving any debatable question of law.  If the said mistake is not mistake apparent on record, then that cannot be within the scope of Section 154. 3 It is a settled position of  In this regard, before the ld. CIT(A) various case laws were submitted law that any expenditure which are also provided hereinbefore.. incurred, which relates to  Accordingly, both the views are possible. Hence, the said disallowance increase in authorised is out of the purview of Section 154. capital is not allowable as revenue expenditure.

It is also noted that whether to disallow or not the expenditure named ROC filing fee amounting to Rs.9,38,000/- is outside the purview of Section 154 of the Act as provisions of Section 154 of the Act for rectifying the order can be invoked only for making mistake apparent on record. Further, it is also noted that whether the expenditure in relation to increase in authorized share capital is of capital expenditure or revenue expenditure is out of the purview of Section 154 of the Act because this issue is not a mistake apparent on record. It is also noteworthy to mention that the rebuttal

Dhabriya Polywood Ltd. as made by the assessee against the observation of the ld. CIT(A) in tabulated form (supra) indicate that invocation of section 154 of the Act as made by the AO in the case of the assessee is not justifiable because Section 154 talks about mistake apparent on record that has to be a mistake which is apparent on the face of the record without involving any debatable question of law. Hence taking into consideration the entire facts of the case, the Bench does not concur with the findings of the ld. CIT(A) and the Ground No. 1 and 2 of the appeal of the assessee is allowed. 4.0 In the result, the appeal of the assessee is partly allowed Order pronounced in the open court on 24 /07/2023.

Sd/- Sd/- ¼jkBksM deys'k t;UrHkkbZ ½ ¼MkWa-,l-lhrky{eh½ (RATHOD KAMLESH JAYANTBHAI) (Dr. S. Seethalakshmi) ys[kk lnL; @Accountant Member U;kf;dlnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 24/07/2023 *Mishra आदेश की प्रतिलिपिअग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू The Appellant- Dhabriya Polywood Limited, Jaipur. 1. 2. izR;FkhZ@ The Respondent- DCIT, Central Circle-1, Jaipur. 3. vk;djvk;qDr@ The ld CIT 4. विभागीय प्रतिनिधि] आयकरअपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. xkMZQkbZy@ Guard File ( By order,

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