Asst. Comm. of Income-tax, Circle-1,, Kolhapur v. M/s. Aqua Alloys Pvt. Ltd.,, Kolhapur

ITA 1502/PUN/2011 | 2007-2008
Pronouncement Date: 15-07-2013 | Result: Dismissed

Appeal Details

RSA Number 150224514 RSA 2011
Assessee PAN AACCA5198A
Bench Pune
Appeal Number ITA 1502/PUN/2011
Duration Of Justice 1 year(s) 7 month(s) 17 day(s)
Appellant Asst. Comm. of Income-tax, Circle-1,, Kolhapur
Respondent M/s. Aqua Alloys Pvt. Ltd.,, Kolhapur
Appeal Type Income Tax Appeal
Pronouncement Date 15-07-2013
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 15-07-2013
Assessment Year 2007-2008
Appeal Filed On 28-11-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV JUDICIAL MEMBER AND SHRI R.K.PANDA ACCOUNTANT MEMBER ITA NO. 1502/PN/2011 (ASSESSMENT YEAR: 2007-08) THE ASSTT. CIT CIR. 1 KOLHAPUR APPELLANT VS. M/S. AQUA ALLOYS P. LTD. CHANDGAD TAL. CHANDGAD DIST. KOLHAPUR PAN AACCA 5198 A .. RESPONDENT APPELLANT BY: SHRI Y.K. BHASKAR RESPONDENT BY: SHRI PRAM OD SHINGTE DATE OF HEARING : 09-07-2013 DATE OF ORDER : 15.07.2013 ORDER PER SHAILENDRA KUMAR YADAV JM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A) KOLHAPUR DATED 28-9-2011 FOR A.Y. 2007-08 RA ISING THE FOLLOWING GROUNDS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE CIT(A) ERRED IN ALLOWING THE ASSESSEES AP PEAL AGAINST THE ADDITION ON ACCOUNT OF TREATMENT OF REV ENUE EXPENDITURE CLAIMED BY THE ASSESSEE COMPANY AS CAPI TAL EXPENDITURE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE I N LAW THE CIT(A)ERRED IN HOLDING THAT THE SAID EXPENSES W ERE INCURRED TO ALLOW THE PLANT AND MACHINERY TO OPERAT E AT MAXIMUM OPERATIONAL EFFICIENCY AND TO LIVE OUT OF T HE LIFE OF THE MACHINERY AS AGAINST AOS FINDING THAT THE EXPENSES RESULT IN INCREASING THE LIFE OF THE MACHI NERY AND GIVE ENDURING BENEFIT TO THE ASSESSEE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE CIT(A) ERRED IN ALLOWING THE ASSESSEES AP PEAL ON THE DISALLOWANCE OF GUARANTEE COMMISSION PAID TO DIRECTORS. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE CIT(A) ERRED IN IGNORING THAT IN RESPECT O F GUARANTEE COMMISSION THE ONUS TO JUSTIFY THE CLAIM WITH COGENT EVIDENCE WAS ON THE ASSESSEE WHICH IT FAILED TO DO WITHIN THE PROVISIONS OF SEC. 37(1) OF THE ACT. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE CIT(A) ERRED IN IGNORING THAT GUARANTEE COMMISSION WAS NOTHING BUT A GUISE TO GIVE ADDITION AL REMUNERATION TO THE DIRECTORS AND THE AO HAD RIGHTL Y DISALLOWED THE SAME AFTER EXAMINING THE NECESSITY T O INCUR THE EXPENDITURE. 2. THE ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SELLING ALLOYS IRON AND STEEL CA STINGS. THE ASSESSEE IS A JOBBING FOUNDRY. THE ASSESSEE FILED A RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION DECLARING TOTAL IN COME OF RS. 5 02 94 510/-. REVISED RETURN WAS FILED ON 13-11-2 007 REVISING THE TOTAL INCOME TO RS. 5 05 14 020/-. IN SCRUTINY ASS ESSMENT U/S 143(3) OF THE ACT CERTAIN ADDITIONS WERE MADE TO T HE TOTAL INCOME WHICH WERE CONTESTED BEFORE THE FIRST APPELLATE AUT HORITY. 3. THE FIRST ISSUE BEFORE US RELATES TO ADDITION OF RS. 21 72 420/- OUT OF REPAIRS AND MAINTENANCE EXPENSES HOLDING THE SAME TO BE CAPITAL IN NATURE WHICH WAS ALLOWED BY THE CIT(A). THE SAME HAS BEEN OPPOSED BY THE REVENUE BEFORE US. 4. THE LEARNED DR SUBMITTED THAT THE CIT(A) WAS NOT JUSTIFIED IN ALLOWING ASSESSEES APPEAL AGAINST THE ADDITION MAD E ON ACCOUNT OF TREATMENT OF REVENUE EXPENDITURE CLAIMED BY THE ASS ESSEE AS CAPITAL EXPENDITURE. THE CIT(A) WAS NOT JUSTIFIED IN HOLDI NG THAT THE SAID EXPENSES WERE INCURRED TO ALLOW THE PLANT AND MACHI NERY TO OPERATE AT MAXIMUM OPERATIONAL EFFICIENCY AND TO LIVE OUT T HE LIFE OF THE MACHINERY AS AGAINST ASSESSING OFFICERS FINDING TH AT THE EXPENSES RESULT IN INCREASING THE LIFE OF MACHINERY AND GIVE ENDURING BENEFIT TO THE ASSESSEE. ON THE OTHER HAND THE LEARNED A UTHORISED REPRESENTATIVE SUPPORTED THE ORDER OF THE CIT(A). 5. AFTER GOING THROUGH THE RIVAL SUBMISSIONS AND PE RUSING THE MATERIAL WE FIND THAT THE ASSESSEE HAS CLAIMED THE FOLLOWING EXPENSES TOWARDS REPAIRS AND MAINTENANCE. 1. MELTING FURNACE I) CABLE GLAND 1 88 538 II) SWITCH 68 557 2 57 045/ - 2. HEAT TREATMENT FURNACE I) FIBROTHAL INSULATION ( HOOD NO. 1) UNIT 6 55 350 II) HEATING ELEMENTS (HOOD NO. 2) UNIT II 4 35 443 III) FIBROTHAL INSULATION 10 58 512 21 59 305 / 3. FORK LIFT RECONDITIONING 1 25 423/ - TOTAL 25 41 773/ - THE ABOVE SAID EXPENSES WERE INCURRED ON DIFFERENT PLANT AND MACHINERY. THE CABLE GLAND WAS REPLACED IN RESPECT OF THE MELTING FURNACE. FIBROTHAL INSULATION AND ELECTRICAL WERE REPLACED IN RESPECT OF HOOD NO. 1 OF 3.5 MTRS DIAMETER HEAD TRE ATMENT FURNACE AND IN RESPECT OF FIBROTHAL INSULATION OF HEAT TREA TMENT FURNACE OF 4.8 MTRS DIAMETER. THEREFORE THESE REPAIRS WERE N OT MADE IN RESPECT OF A SINGLE HEAT TREATMENT FURNACE OR A MEL TING FURNACE. IT WAS ESSENTIAL FOR THE ASSESSEE T CARRY OUT THESE RE PAIRS TO MAINTAIN THE OPERATIONAL EFFICIENCY OF THE HEAT TREATMENT PL ANTS AND TO ENSURE THAT THE MELTING FURNACE RECEIVED UNINTERRUPTED POW ER SUPPLY. THE EXPENSES IN QUESTION ALSO INCLUDED THE LABOUR COST INVOLVED IN CARRYING OUT THE REPAIRS AND THE COST OF COMMISSION ING AFTER THE REPAIR IS COMPLETED. THE ASSESSING OFFICER OBSERVE D THAT THE COST OF A NEW 2 MTRS DIAMETER HEAT TREATMENT FURNACE IS ARO UND RS. 20 LAKHS THE COST OF 3.5 MTRS DIAMETER HEAT TREATMENT FURNACE WITH TWO HOODS IS ROUGHLY AROUND RS. 30 LAKHS AND A 4.8 MTRS DIAMETER BOGIE FURNACE IS ROUGHLY AROUND RS. 25 LAKHS. IN TH IS BACKGROUND THE ASSESSING OFFICER PRESUMED THAT RS. 24 13 800/- WAS THE EXPENSE INCURRED IN RESPECT OF A SINGLE FURNACE AND HENCE HE DISALLOWED THE ENTIRE AMOUNT OF EXPENSES CLAIMED AS A REVENUE AMOUNT. IN FACT THE ASSESSEE CLAIMED RS. 25 41 773 /- TOWARDS REPAIRS AND EXPENSES ACCORDING TO THE CIT(A) THESE EXPENSES HAVE NOT BROUGHT INTO EXISTENCE ANY NEW ASSET AND HAVE N OT PROVIDED THE ASSESSEE WITH AN ADVANTAGE OF ENDURING BENEFIT. TH ESE EXPENSES WERE IN FACT INCURRED TO ALLOW THE PLANT AND MACHIN ERY TO OPERATE AT MAXIMUM OPERATIONAL EFFICIENCY AND TO LIVE OUT OF T HE LIFE OF THE MACHINERY. HENCE THE DISALLOWANCE WAS RIGHTLY DIR ECTED TO BE DELETED BY THE CIT(A). THIS REASONED FINDING OF CIT (A) NEEDS NO INTERFERENCE FROM OUR SIDE. WE UPHOLD THE SAME. 6. THE NEXT ISSUE IS WITH REGARDS TO DISALLOWANCE O F RS. 9 61 659/- BEING GUARANTEE COMMISSION PAID TO DIRE CTORS HOLDING THE SAME TO BE NON-BUSINESS EXPENDITURE. THE ASSES SING OFFICER HAS DISALLOWED A SUM OF RS. 9 61 659/- BEING GUARAN TEE COMMISSION PAID TO THE DIRECTORS @ 1% OF THE CREDIT FACILITY ALLOWED. THIS AMOUNT WAS BEING PAID TO THE DIRECTORS SINCE 1 993 AND HAS NEVER BEEN A SUBJECT MATTER OF DISALLOWANCE. THE A SSESSING OFFICER OBSERVED THAT IT WAS ILLOGICAL AND IRRATIONAL THAT WHENEVER A COMPANY REQUIRES FUNDS AND HAS TO RAISE THEM FROM B ANKING OR FINANCIAL INSTITUTIONS THE DIRECTORS WOULD BE GIVE N GUARANTEE COMMISSION FOR PERSONAL GUARANTEE GIVEN BY THEM. I NSPITE OF STRONG FINANCIAL POSITION THIS MODUS OPERANDI WAS FOLLOWE D. SO THE ASSESSING OFFICER HELD THAT THERE WAS NO BUSINESS E XIGENCY INVOLVED IN ALLOWING THE GUARANTEE COMMISSION. THE MATTER W AS CARRIED IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY WHO OB SERVED THAT THERE WERE AS MANY AS 82 SHAREHOLDERS IN THE ASSESSEE COM PANY DURING THE RELEVANT PERIOD. OUT OF THESE 82 SHAREHOLDERS THERE ARE FIVE DIRECTORS AND OUT OF THESE FIVE DIRECTORS ONLY THRE E DIRECTORS HAVE GIVEN THE PERSONAL GUARANTEE. THE PERSONAL GUARANT EE WAS GIVEN BY THE DIRECTORS EVER SINCE THE INCEPTION OF BUSINESS AND WAS ALLOWED TO THEM AS A GENUINE BUSINESS EXPENSES. THE CREDIT FACILITY WAS FIRST PROVIDED TO THE ASSESSEE COMPANY IN 1986. TH E CREDIT LIMITS WERE SANCTIONED ON HYPOTHECATION OF INVENTORY BOOK DEBTS AND OTHER CURRENT ASSETS APART FROM THE EQUITABLE MORTG AGE OF FIXED ASSETS AS COLLATERAL SECURITY AND PERSONAL GUARANTE E OF DIRECTOR. IN BANKING BUSINESS EVERY SECURED OR EVEN UNSECURED LO AN HAS TO BE GUARANTEED BY THE PERSONS WHO INTEND TO AVAIL OF TH E CREDIT FACILITY. IN CASE OF CORPORATE CLIENTS THE PERSONAL INDIVIDUA L GUARANTEE OF DIRECTORS IS NORMAL PHENOMENA. IN CASE THE DIRECTOR S ARE NOT SOLVENT THE BANKS INSIST ON THIRD PARTY COUNTER GU ARANTEES OF PERSONS WHO ARE PEOPLE OF MEANS. IF A THIRD PERSON AL GUARANTEE WAS GIVEN THEN THE GUARANTEE COMMISSION PAID OR PAYABLE TO SUCH THIRD PARTIES WOULD BE ALLOWED AS A BUSINESS EXPENSES. I N THIS BACKGROUND THE CIT(A) OBSERVED THAT WHY THE SAME R EASON AND LOGIC CANNOT BE EXTENDED WHEN GUARANTEE COMMISSION IS PAID TO DIRECTORS. ACCORDINGLY HE ALLOWED THE SAME. THE ABOVE REASONED FINDING OF THE CIT(A) ON THIS ISSUE. 7. IN THE RESULT THE APPEAL OF THE REVENUE IS DISM ISSED. PRONOUNCED IN THE OPEN COURT ON THIS 15 TH JULY 2013 SD/- SD/- (R.K.PANDA) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE DATED: 15 TH JULY 2013 ANKAM COPY TO:- 1) ASSESSEE 2) DEPARTMENT 3) THE CIT(A- KOLHAPUR 4) THE CIT- KOLHAPUR 5) THE DR A BENCH I.T.A.T. PUNE. 6) GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY I.T.A.T. PUNE