DCIT, New Delhi v. M/s. European Works P. Ltd., New Delhi

ITA 1269/DEL/2011 | 2006-2007
Pronouncement Date: 28-09-2011 | Result: Allowed

Appeal Details

RSA Number 126920114 RSA 2011
Assessee PAN AABCE5628C
Bench Delhi
Appeal Number ITA 1269/DEL/2011
Duration Of Justice 6 month(s) 18 day(s)
Appellant DCIT, New Delhi
Respondent M/s. European Works P. Ltd., New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 28-09-2011
Appeal Filed By Department
Order Result Allowed
Bench Allotted I
Tribunal Order Date 28-09-2011
Date Of Final Hearing 28-09-2011
Next Hearing Date 28-09-2011
Assessment Year 2006-2007
Appeal Filed On 11-03-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: I NEW DELHI BEFORE SMT. DIVA SINGH JUDICIAL MEMBER AND SHRI B.C.MEENA ACCOUNTANT MEMBER ITA NO: 1269/DEL/2011 A.Y. : 2006-07 DY.CIT CIRCLE 11 (1) VS. M/S EUROPEAN WORKS P.LTD. NEW DELHI 17/78 PUNJABI BAGH NEW DELHI PAN/GIR NO: AABCE5628C (APPELLANT) (RESPONDENT) APPELLANT BY : SH. A.K.MONGA SR.D.R. RESPONDENT BY : SH.BALJIT SINGH C.A. O R D E R PER DIVA SINGH JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER DT. 5.01.2011 OF CIT(A)-XIII NEW DELHI PERTAINING TO A .Y. 2006-07 ON THE FOLLOWING GROUNDS. 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 10 32 239/- ON ACCOUNT OF DISALLOWANCE OF EXPENSES. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.6 8 9 978/- ON ACCOUNT OF DISALLOWING DEPRECIATION. 3. THE APPELLANT CRAVES LEAVE TO ADD ALTER OR AME ND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARING. 2 2. THE RELEVANT FACTS QUA THE GROUNDS AGITATED BY T HE REVENUE ARE FOUND DISCUSSED AT PAGE 2 PARA 3 OF THE ASSESSMENT ORDER. FOR READY REFERENCE THEY ARE REPRODUCED AS UNDER. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT IS OBSERVED THAT THE ASSESSEE HAD FILED RETURN OF INCOME SHOWING THE TOTAL LOSS AT RS. 17 22 170/-. THE EXPENSES HAVE BEEN DEBITED UN DER VARIOUS HEADS TO THE EXTENT OF RS. 10 32 239/- WHICH INCLUD ES RENT OF RS. 6 00 000/- LABOUR CHARGES OF RS. 1 79 060/- ETC. THE ASSESSEE HAS NOT STARTED THE COMMERCIAL ACTIVITY. THE EXPEN SES ARE THEREFORE REQUIRED TO BE CAPITALIZED. FURTHER IT IS OBSERVED THAT IN THE COMPUTATION OF INCOME THE ASSESSEE HAS CLAI MED DEPRECIATION ON ASSETS TO THE EXTENT OF RS. 6 89 97 8/-. THE ASSESSEES REPRESENTATIVE ATTENDED AND SUBMITTED TH AT THE COMPANY IS ESTABLISHING A SERVICE CENTRE FOR VEHICL ES LIKE MERCEDES BML. DURING THE FINANCIAL YEAR THE COMPA NY HAS SET UP AND INSTALLED PLANT AND THE MACHINERY AND TEST C HECKS WERE CARRIED OUT. THE ASSESSEES ARGUMENT IS NOT ACCEPT ABLE BECAUSE NO COMMERCIAL ACTIVITY HAS BEEN STARTED AND THE ASS ESSEE IS IN THE PROCESS OF ESTABLISHING ITS BUSINESS. THE ASSE SSEE HAS SHOWN THE SALE OF RS. 1 905/- WHICH SEEMS TO HAVE B EEN CREDITED JUST TO SHOW THAT THE BUSINESS HAS STARTED. NO EVI DENCE REGARDING THE PURCHASE OR SALES WAS PRODUCED BY THE ASSESSEE. MOREOVER THE ASSESSEE IS IN THE BUSINESS OF OR SAL ES WAS PRODUCED BY THE ASSESSEE. MOREOVER THE ASSESSEE IS IN THE BUSINESS OF ESTABLISHING A SERVICE CENTRE FOR HIGH END CARS I.E. MERCEDES ETC. AND NO ACTIVITY IN THIS REGARD HAS CO MMENCED. HENCE THE CLAIM OF LOSS AS WELL AS DEPRECIATION AR E DISALLOWED AND ADDED TO THE TOTAL INCOME. DISALLOWANCE ON THI S ACCOUNT COMES TO RS. 17 22 170/-. PENALTY PROCEEDINGS U/S 271(1)(C ) OF THE I.T.ACT ARE INITIATED ON THIS POINT FOR FURNISH ING INACCURATE PARTICULARS OF INCOME. 3. IN APPEAL BEFORE THE CIT(A) IT WAS CONTENDED TH AT BY VIRTUE OF SECTION 3 AND SECTION 4 OF THE INCOME TAX ACT WHICH DEFINE THE TERM PREVIOUS YEAR AND BASIS OF CHARGE IN RESPECT OF THE TOTAL INCOME OF THE PREVIOUS YEAR RESPECTIVELY IT IS NOW SETTLED THAT ALL EXPENSES ARE ALLOWED ONCE THE BUSINESS IS SET UP AND NOT WHEN THE BUSINE SS IS COMMENCED. 3 THE FACTUM OF SET UP IT WAS SUBMITTED IS DEMONSTRAT ED BY THE FOLLOWING FACTS LEGALLY. A. PLANT AND MACHINERY: TOOLS AND MACHINERY REQU IRED FOR THE PLANT WERE PURCHASED AND INSTALLED AND READY FO R CARRYING OUT THE ACTIVITY OF CAR SERVICES. A COPY OF THE TOOLS AND MACHINERY ACCOUNT IS ENCLOSED AT APGE NO.4 TO 4 G OF THE PAPER BOOK SHOWING THE DIFFERENT PLANT AND MACHINER Y BEEN PURCHASED AND INSTALLED. FURTHER A CERTIFICATE ES TABLISHING THAT THE MACHINERY GIVEN THEREIN HAD BEEN INSTALLED ON 31.3.2006 IS ENCLOSED AT PAGE NO.5 AND 6 OF THE PA PER BOOK. ALL THE ABOVE MACHINERY HAD BEEN ORDERED IN SEPTEMB ER 2006. THE COMPANY HAD TAKEN A PREMISES ON RENT AND TOTAL RENT WAS PAID FROM 7.1.2006 ONWARDS TO THE TUNE OF RS. 6 00 000/- @ RS.2 00 000/- PER MONTH. THIS RENT WA S FOR THE WORKSHOP OF THE COMPANY WHERE THE SERVICE ACTI VITY WAS CARRIED OUT PAGE 8 OF THE PAPER BOOK. B. LABOUR CHARGES : FURTHER THE COMPANY HAD PAID LABOUR CHARGES FROM 30.12.2005 FOR VARIOUS WORKS AS CARRIE D OUT IN THE PREMISES FROM TIME TO TIME. A COPY OF THE LABO UR CHARGES ACCOUNT IS ENCLOSED AT PAGE NO.7 OF THE PAPER BOOK. THE ABOVE SUBMISSIONS CLEARLY SHOW THAT THE BUSINES S IN QUESTION WAS SET UP SOMETIME IN NOVEMBER 2005 WH EN THE TOOLS AND MACHINERY WERE ORDERED AND INSTALLED. TH E EXPENSES ON RENT AND LABOUR WERE TAKEN INTO ACCOUNT FOR THE SAID PERIOD AFTER THE SET UP OF THE BUSINESS I.E . LABOUR WAS CHARGED FROM 30.11.2005 AND RENT FROM 7.1.2006. BO TH THESE EXPENSES WERE INCURRED AFTER THE DUE DATE OF SET UP. C. DEPRECIATION: DEPRECIATION WAS CHARGED FOR SIX MONTHS AND WAS FOR THE PERIOD AFTER THE BUSINESS HAD BEEN SET UP. THE MACHINERY WAS INSTALLED AND TRIAL RUNS HAD BEEN CARRIED OUT WITH THE PLANT AND MACHINERY OWNED BY THE COMPA NY AND ALSO PUT TO USE. FURTHER THE BASIC REQUIREMEN TS OF SECTION 32 OF THE COMPANIES ACT WAS ACCEPTED TO AND THUS THE ASSESSEE WAS ENTITLED TO THE DEPRECIATION. D. OUR CONTENTION IS COVERED BY THE RATIO OF THE F OLLOWING CASE OF THE HONBLE HIGH COURT AS FOLLOWS. (2009) 311 ITR 253 (DELHI) CIT VS. HUGHES ESCORTS COMMUNICCATIONS LTD. 4. CONSIDERING THE SUBMISSIONS THE CIT(A) WAS OF TH E VIEW THAT ALL EXPENSES INCURRED BETWEEN THE DATE OF SETTING UP OF THE BUSINESS AND THE 4 COMMENCEMENT OF THE BUSINESS WOULD BE PERMISSIBLE A S A DEDUCTION BY VIRTUE OF S.3 & 4 OF THE INCOME TAX ACT IN THE LIGH T OF THE DECISIONS RELIED UPON BY THE LD.A.R. NAMELY WESTERN INDIA VEGETABLE PRODUCTS LTD. VS CIT (1954) 26 ITR 151 (BOM) CIT VS. L.G.ELECTRONICS IN DIA LTD. (2006) 282 ITR 545 (DEL) CIT VS. HUGHES ESCORTS COMMUNICATION LTD. 311 ITR 253 (DEL.). TAKING INTO CONSIDERATION THE FACT THAT TH E ASSESSEE IS IN THE BUSINESS OF SERVICE CENTRE FOR HIGH END VEHICLES/CA RS HE CONSIDERED THE ARGUMENTS OF LD.A.R. THAT IN THIS CASE WHEN THE TOO LS AND MACHINERY WERE ORDERED AND INSTALLED THE BUSINESS CAN BE SAID TO HAVE BEEN SET UP SOME TIME IN NOVEMBER 2005. RELYING UPON THE CERTI FICATE GIVEN BY THE C.A. THAT THE MACHINERY REQUIRED FOR THE PLANT HAD BEEN INSTALLED AND WAS READY FOR CARRYING OUT THE ACTIVITY OF SERVICIN G OF CARS AS ON 31.1.2006. HE WAS OF THE VIEW THAT THE CLAIM OF EX PENSES TOTALED UP TO RS. 3 94 210/- AS PER THE DETAILS PROVIDED BY THE A SSESSEE WERE REQUIRED TO BE CAPITALIZED EXPENSES DEBITED IN THE ACCOUNT F ROM 1.2.2006 TO 31.3.2006 WERE ALLOWABLE AS BUSINESS EXPENSES. THE CIT(A) ALSO REFERRED TO THE FACTS THAT THE SAID CERTIFICATE IS DATED 11 .2.2006 WHICH ALSO GAVE THE BREAK UP OF ALL THE EQUIPMENT AND MISC. WORK IN CLUDING PAINTING PLUMBING CIVIL WORK AND INTERIOR WORK CARRIED OUT AT THE ASSESSEES BUSINESS PREMISES. HE ALSO REFERRED TO THE FACT TH AT THE COPY OF BILLS FOR PURCHASE OF MACHINERY INSTALLED AT ASSESEES PREMIS ES ARE ALSO ENCLOSED ALONG WITH THE LEDGER ACCOUNT OF TOOLS AND MACHINE RY TO SUBSTANTIATE THAT ALL THESE MACHINERIES HAVE BEEN PURCHASED PRIO R TO THE DATE OF 5 CERTIFICATE OF INSTALLATION FURNISHED BY THE C.A. SIMILARLY LEDGER ACCOUNTS OF LABOUR CHARGES AND LEDGER ACCOUNT OF RENT PAID WERE ALSO FILED. THE SAID CERTIFICATION ALSO PROVIDED BY THE C.A. THAT T RIAL RUN FOR PLANT AND MACHINERY HAD BEEN CARRIED OUT ON 31.1.2006 WERE RE QUIRED TO BE CAPITALIZED AND THE REMAINING ALLOWED AS BUSINESS E XPENSES. 4.1. THE CIT(A) ALSO REFERRED IN HIS FINDING AT PAG E 5 THAT THE ASSESSEE WAS DIRECTED TO PROVIDE EVIDENCE OF TRIAL RUN IN RE SPONSE THERE TO THE ASSESSEE HAD FILED LETTER DT. 13.12.2010 CONTAINING COPIES OF CERTAIN INVOICES NOS. 2 TO 18 WHICH WERE STATED TO BE PER TAINING TO VARIOUS DATES STARTING FROM 15.12.2005 TO 27.3.2006. THESE DOCU MENTS WERE STATED TO BE REFLECTING THE DETAILS OF VARIOUS VEHICLES WITH THEIR REGISTRATION NUMBER AND THE ADDRESS OF THE OWNERS WHICH HAVE COM E FOR INSPECTION BY THE ASSESSEE. THE INVOICES WERE STATED TO BE BE LONGING TO VARIOUS JOBS REQUIRED TO BE DONE ON THESE VEHICLES AND ALSO AN E STIMATE WAS GIVEN TO THE OWNERS OF THE VEHICLES FOR THE JOB REQUIRED TO BE DONE ON THE VEHICLES. IT WAS CONTENDED THAT THESE DETAILS PROVIDE THE EVI DENCE OF THE ACTIVITY OF PUTTING TO USE THE INSTALLED MACHINERY THE INSPEC TION OF THE VEHICLES IT WAS STATED WAS FREE OF COST AS SUCH THE PLANT AND M ACHINERY WAS PUT TO USE AND WAS ALLOWABLE AS DEPRECIATION EVEN THOUGH N O COMMERCIAL ACTIVITY IN TERMS OF REVENUE EARNING HAS STARTED. RELIANCE WAS PLACED UPON CIT VS. JEO TECH CONSTRUCTION CORP. LTD. 244 I TR 452 CIT VS PAN ASIA BIOTECH 342 ITR 311 AND CIT VS. PREMIER INDUS TRIES 323 ITR 672. CONSIDERING THESE FACTS THE CIT(A) HELD THAT THE AS SESSEES PLANT AND 6 MACHINERY IS MORE THAN IN THE POSITION OF READY TO USE AND ALLOWED DEPRECIATION OF RS.6 89 978/-. 5. AGGRIEVED BY THIS THE REVENUE IS IN APPEAL BEFO RE THE TRIBUNAL. 6. THE LD.D.R. VEHEMENTLY CONTENDED THAT THE BUSINE SS HAS NOT COMMENCED AND THE CERTIFICATION OF THE C.A. GIVEN BY THE ASSESSEE IS BEFORE THE CIT(A) FOR THE FIRST TIME AND WAS NOT BE FORE THE A.O. SIMILARLY THE FACTS REFERRED TO REGARDING THE TRIAL RUN ARE ALSO ARGUED BEFORE THE CIT(A) AND NOT BEFORE THE A.O. NONE OF THESE FAC TS HAVE BEEN EXAMINED BY THE A.O. AS SUCH THE IMPUGNED ORDER DESERVES TO BE SET ASIDE. 7. THE LD.A.R. ON THE OTHER HAND CONTENDED THAT THE FACT THAT THE ASSESEES BUSINESS WAS SET UP IS EVIDENCED BY THE C OPIES OF THE LABOUR ACCOUNT AND THE INVOICES FOR PURCHASE OF TOOLS AND MACHINERY ETC. THE CERTIFICATE OF AUDITORS FOR A TRIAL RUN WAS RELIED UPON AND THE FACT THAT SINCE THE ASSESSEE WAS IN THE PECULIAR LINE OF BUSI NESS WHEREIN THE ASSESSEE HAD CALLED FOR A PRE INSPECTION OF VEHICLE S OF HIGH END VEHICLES OWNERS AND EXAMINED THEM AND GIVE AN ESTIMATE DEMON STRATES THAT THE ASSESSEE WAS READY TO COMMENCE BUSINESS AND IN FACT THE DOCUMENTS WILL SHOW THAT 26 HIGH END CARS WERE EXAMINED AND T HE CAPABILITY OF THE ASSESSEE TO COMMENCE BUSINESS STOOD DEMONSTRATED. RELIANCE WAS PLACED UPON THE JUDGEMENT OF THE JURISDICTIONAL HIG H COURT IN CIT VS HUGHES ESCORTS COMMUNICATION LTD. 311 ITR 253 (DELH I) 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD THE VARIOUS CASE LAWS REFERRED TO BY THE PARTIES 7 BEFORE THE BENCH PROCEED ON ACCEPTED FACTS. IN TH E CASE AT HAND FACTS NEED VERIFICATION. ADMITTEDLY EVIDENCES HAVE BEEN PLACED BEFORE THE CIT(A) WHICH WERE NOT MADE AVAILABLE TO THE A.O. M OREOVER THESE WERE NOT CONFRONTED TO THE A.O. BY WAY OF OBTAINING REMA ND REPORT ETC. AS PER SETTLED LEGAL PROCEDURES. IN THE FACTS OF THE PRES ENT CASE IT IS NECESSARY TO ESTABLISH BY WAY OF EVIDENCES AND DOCUMENTS BY V IRTUE OF WHICH THE ASSESSEE CONTENDS THAT IT WAS READY TO COMMENCE BUS INESS. THE DOCUMENTS FOR WHICH MAY BE THE CONTRACT WHICH THE ASSESSEE HAS ENTERED WITH THE COMPANIES FOR WHOSE HIGH END VEHIC LES THE ASSESSEE UNDERTOOK TO PROVIDE A SERVICE CENTRE. THE ACTIVIT IES FROM THE EVENT OF THE CONTRACT TILL THE DATE OF SETTING UP/READY TO COMME NCE BUSINESS AS PER SETTLED LEGAL PRINCIPLES HAVE TO BE CAPITALIZED WIT H WHICH LEGAL PRINCIPLE THERE CAN BE NO QUARREL. THE VARIOUS CASE LAWS REL IED UPON BEFORE THE CIT(A) LAY DOWN THE SAME PRINCIPLE. THE EXPENSES I NCURRED AFTER THE SAID EVENT NECESSARILY ARE REVENUE EXPENDITURE. WHAT IS TO BE SEEN IS THE FACTS AVAILABLE IN ASSESSEES CASE. IT IS ON THE F ACTS PREVALENT IN ASSESSEES OWN CASE THAT CONCLUSIONS CAN BE DRAWN AND NOT BY APPLYING THE RATIOS AND PRINCIPLES FROM VARIOUS JUDGEMENTS . THE CERTIFICATION OF A TRIAL RUN MAY HAVE TO BE OF SOME ENGINEER/EXPERT IN THE LINE OF BUSINESS DEPLOYED BY THE COMPANIES FOR WHOSE VEHICLES THE AS SESSEE IS TO FUNCTION AS A SERVICE CENTRE. TO THE BEST OF OUR HUMBLE UN DERSTANDING THE NECESSARY AND RELEVANT CERTIFICATION WOULD NOT BE O F A C.A. BUT AN ENGINEER/EXPERT IN THE FIELD FOR OVERSEEING THE SUC CESS OF THE TRIAL RUN 8 WHO WOULD BE CAPABLE OF MAKING SUGGESTIONS TOWARDS CORRECTIONS AND CHANGES IF ANY IN THE INSTALLED MACHINERY FOR SUCC ESSFUL BUSINESS FUNCTIONING FOR WHICH PURPOSE A TRIAL RUN IS RUN. 8.1. ACCORDINGLY FOR THE REASONS GIVEN HEREINABOVE THE IMPUGNED ORDER IS SET ASIDE AND THE ISSUE IS RESTORED TO THE FILE OF THE A.O. WITH THE DIRECTION TO DECIDE THE SAME IN ACCORDANCE WITH LAW BY WAY OF A SPEAKING ORDER. NEEDLESS TO SAY THAT THE ASSESSEE SHALL BE AFFORDED A REASONABLE OPPORTUNITY OF BEING HEARD. THE ASSESSEE SHALL BE AT LIBERTY TO FILE FRESH EVIDENCES BEFORE THE A.O. IN ORDER TO SUPPORT ITS C LAIM AND THE A.O. SHALL ENTERTAIN EXAMINE AND CONSIDER THESE BEFORE ARRIVI NG AT A CONCLUSION. 9. IN THE RESULT THE APPEAL OF THE REVENUE IS TREAT ED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 28 TH SEPTEMBER 2011. SD/ - SD/- (B.C.MEENA) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 28.9.2011 *MANGA COPY OF THE ORDER FORWARDED TO: 1. APPELLANT; 2.RESPONDENT; 3.CIT; 4.CI T(A); 5.DR; 6.GUARD FILE BY ORDER DY. REGISTRAR // C O P Y //