DCIT, New Delhi v. Lunar Diamonds Ltd, New Delhi

I.T.A. NO. 1595 /DEL/2010 1/1 IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL NEW DELHI BENCH D NEW DELHI BENCH D NEW DELHI BENCH D NEW DELHI BENCH D BEFORE SHRI I. P. BANSAL JUDICIAL MEMBER AND SHRI A K GARODIA ACCOUTANT MEMBER ITA NO. 1595 /DEL/2009 (ASSESSMENT YEAR 1999-2000) DCIT CIRCLE 4(1) VS. LUNAR DIAMONDS LTD. NEW DELHI D-15/4 OKHLA INDUSTRIAL AREA PHASE I NEW DELHI. (APPELLANTS) (RESPONDENTS) PAN / GIR NO. AAACL0060E APPELLANT BY: SHRI A.K. MONGA DR RESPONDENT BY: SHRI CHANDAN JHA AR ORDER ORDER ORDER ORDER PER A. K. GARODIA AM: PER A. K. GARODIA AM: PER A. K. GARODIA AM: PER A. K. GARODIA AM: 1. THIS APPEAL BY THE REVENUE HAS BEEN DIRECTED AGA INST THE ORDER OF LD. CIT(A) VII NEW DELHI DATED 20.01.2009 FOR THE ASSESSMENT YEAR 1999-2000. THE GROUNDS RAISED BY T HE REVENUE ARE AS UNDER: 1) THE ORDER OF THE LD. CIT(A) IS ERRONEOUS & CONT RARY TO FACTS & LAW. 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD .CIT(A) HAS ERRED IN DELETING THE RE-ASSESSMENT PROCEEDINGS AS BAD IN LAW IGNORING THAT AS PER FURT HER PROVISIONS TO SECTION 148(1) IN RESPECT OF RETURNS FILED BETWEEN 01.10.1991 AND 30.09.2005 IN RESPONSE TO NO TICE U/S 148 IT IS VALID TO SERVE THE NOTICE U/S 143(2) EVE N AFTER THE EXPIRY OF 12 MONTHS OF FROM THE DATE OF FILING OF R ETURN. IT IS AN INDISPUTABLE FACT THAT IN THIS CASE NOTICE U/S 1 43(2) HAS BEEN SERVED ON THE ASSESSEE BEFORE PASSING OF THE ASSESSMENT ORDER. 3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD .CIT(A) HAS ERRED IN DIRECTING A.O. TO ALLOW DED UCTION U/S 18IA(2) AT ` 8 73 040/- IGNORING:- A) THE DECISION OF APEX COURT IN THE CASE OF GEM IN DIA MANUFACTURING CO. 249 ITR 307 WHEREIN IT IS HELD THAT DEDUCTION U/S 80IA(2) IS NOT ALLOWABLE IN THE CASE OF ASSESSEE WHICH IS ENGAGED IN CUTTING AND POLISHING OF DIAMONDS. I.T.A. NO. 1595 /DEL/2010 2/2 B) THAT IN THE FIRST PAGE OF THE RETURN ITSELF THE ASSESSEE HAS DESCRIBED THE NATURE OF ITS BUSINESS AS DIAMOND CUTTING AND PROCESSING. C) THAT CLOSING STOCK FOR THE YEAR UNDER CONSIDERAT ION AMOUNTING TO ` 1 54 38 324/- IS COMPRISED OF DIAMON DS OF ` 1 00 81 836/- AND PRECIOUS STONES AND GEMS OF ` 53 56 488/- AND THE GOLD VALUE SHOWN AT NIL. THIS ALSO INDICATES THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE W AS NOT IN THE BUSINESS OF MANUFACTURING OF JEWELLERY AS CLAIMED BEFORE THE FIRST APPELLATE AUT HORITY. D) THAT NO EVIDENCE HAS BEEN FILED DURING THE ASSES SMENT PROCEEDINGS AS WELL AS APPELLATE PROCEEDINGS TO PRO VE THAT ASSESSEE WAS ENGAGED IN THE MANUFACTURING OF JEWELLERY. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD .CIT(A) HAS ERRED IN DIRECTING THE A.O. TO ALLOW DEPRECIATION OF ` 18 94 207/- IGNORING THAT THIS AMOUNT REPRESEN T DEPRECIATION AS PER COMPANYS ACT AND ASSESSEE HAS ITSELF ADDED BACK THE SAME IN ITS COMPUTATION OF INCOME. THE DEPRECIATION AS PER INCOME TAX ACT AT ` 21 52 959/- AS CLAIMED BY THE ASSESSEE HAS BEEN DULY ALLOWED BY THE A.O. 2. GROUND NO.1 IS GENERAL IN NATURE. 3. REGARDING GROUND NO.2 OF THE REVENUE WE FIND TH AT LD. D.R. SUPPORTED THE ASSESSMENT ORDER WHEREAS LD. A.R. SUP PORTED THE ORDER OF LD .CIT(A). AT THIS JUNCTURE IT WAS POIN TED OUT BY THE BENCH AND EVEN AS PER LD .CIT(A) NOTICE U/S 143(2) I.E. 1 7.11.2004 WAS SERVED ON THE ASSESSEE ON 22.11.2004. IT IS ALSO P OINTED OUT BY THE BENCH THAT IN THE PRESENT CASE THE ASSESSMENT ORDE R IS PASSED BY THE A.O. IN THE COURSE OF REASSESSMENT PROCEEDINGS AND NOTICE U/S 148 WAS ISSUED BY THE A.O. TO THE ASSESSEE ON 20.06 .2003 AND THEREFORE THE PROVISO TO SECTION 148(1) INSERTED B Y THE FINANCE ACT 2006 WITH RETROSPECTIVE EFFECT FORM 01.10.1991 BECO MES APPLICABLE. AS PER THIS PROVISO TO SECTION 148(1) WHERE RETURN HAS BEEN FURNISHED DURING THE PERIOD FORM 01.10.1991 TO 30.0 9.2005 IN RESPONSE TO A NOTICE SERVED ON THE ASSESSEE U/S 148 (1) AND THE A.O. HAS SERVED THE NOTICE ON THE ASSESSEE U/S 143(2) AT ANY TIME BEFORE THE EXPIRY OF THE TIME LIMIT FOR MAKING THE ASSESSM ENT/ REASSESSMENT OR RE-COMPUTATION AS SPECIFIED IN SUB- SECTION (2) TO SECTION 153 IT IS A VALID NOTICE U/S 143(2). IT W AS POINTED OUT BY THE I.T.A. NO. 1595 /DEL/2010 3/3 BENCH THAT AS PER HIS PROVISO TO SECTION 148(1) WH EN THE NOTICE U/S 143(2) WAS SERVED ON THE ASSESSEE ON 22.11.2004 AND THE REASSESSMENT ORDER IS PASSED BY THE A.O. ON 23.12.2 004 IS VALID. IN REPLY LD. A.R. HAD NOTHING TO SAY. IN VIEW OF THI S FACTUAL POSITION AS DISCUSSED WE REVERSE THE ORDER OF LD. CIT(A) ON TH IS ISSUE BECAUSE WE HAVE NOTED THAT AS PER THE PROVISO TO SECTION 14 8(1) THE NOTICE ISSUED BY THE A.O. U/S 143(2) COULD HAVE BEEN VALID LY SERVED ON THE ASSESSEE ANYTIME BY THE A.O. THE ASSESSMENT ORDER IS VALID. THEREFORE GROUND 2 OF THE REVENUE IS ALLOWED AND I T IS HELD THAT THE REASSESSMENT ORDER PASSED BY THE A.O. IS VALID. 4. REGARDING GROUND NO. 3 LD. D.R. SUPPORTED THE A SSESSMENT ORDER WHEREAS LD. A.R. SUPPORTED THE ORDER OF LD. C IT(A). 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HA VE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE FIND T HAT THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 80IA WAS REJECTED BY THE A.O. ON THIS BASIS THAT AS PER THE JUDGMENT OF HONBLE APEX COUR T RENDERED IN THE CASE OF GEM INDIA MANUFACTURING CO. 249 ITR 307 (S.C.) IT WAS HELD THAT CUTTING AND POLISHING OF RAW DIAMONDS DOE S NOT MAKE THE ASSESSEE COMPANY ENTITLED TO CLAIM DEDUCTION U/S 80 I OF THE I. T. ACT. ON THIS BASIS THE A.O. REJECTED THE CLAIM OF THE ASSESSEE REGARDING DEDUCTION U/S 80IA. IT HAS BEEN NOTED BY THE LD. CIT(A) THAT AS PER THE SUBMISSION OF THE ASSESSEE THE ASS ESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF JEWELLERY AND N OT IN THE BUSINESS OF CUTTING AND POLISHING OF DIAMONDS AND THEREFORE THE JUDGEMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF GEM I NDIA MANUFACTURING CO. (SUPRA) IS NOT APPLICABLE IN THE PRESENT CASE. EVEN BEFORE US NOTHING HAS BEEN BROUGHT ON RECORD BY THE REVENUE TO SHOW THAT THE BUSINESS OF THE ASSESSEE IS MERELY CUTTING AND POLISHING OF DIAMONDS AND THE ASSESSEE IS NOT ENGAG ED IN THE BUSINESS OF MANUFACTURING OF JEWELLERY. UNDER THES E FACTS WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF LD .CIT(A) ON THIS ISSUE. GROUND NO.3 OF THE REVENUE IS REJECTED. I.T.A. NO. 1595 /DEL/2010 4/4 6. REGARDING GROUND NO.4 OF THE REVENUE LD. D.R. S UPPORTED THE ASSESSMENT ORDER AND IT WAS POINTED OUT BY HIM THAT IN THE ASSESSMENT ORDER ITSELF THE A.O. HAS ALLOWED DEDUC TION OF ` 21 52 959/- WHICH IS NOTHING BUT DEPRECIATION ALLOW ABLE AS PER INCOME TAX RULES AND THEREFORE LD. CIT(A) WAS NOT JUSTIFIED IN GRANTING THE DEDUCTION OF ` 18 94 207/- BEING DEPRE CIATION AS PER COMPANYS ACT AND ADDED BACK BY THE A.O. IN REPLY LD. A.R. ALTHOUGH SUPPORTED THE ORDER OF LD .CIT(A) BUT HE H AS ADMITTED THAT THE DEDUCTION ALLOWED BY THE A.O. OF ` 21 52 959/- IS NOTHING BUT DEPRECATION ALLOWED AS PER INCOME TAX RULES. CONSI DERING THIS FACTUAL POSITION WE ARE IN AGREEMENT WITH LD. D.R. THAT SINCE DEPRECIATION AS PER INCOME TAX RULES WAS ALLOWED BY THE A.O. THE ADDITION OF ` 18 94 207/- REGARDING DEPRECIATION AS PER COMPANIES ACT IS IN ORDER AND THEREFORE CIT(A) WAS NOT JUSTI FIED IN HOLDING THAT THE ADDITION MADE BY THE A.O. FOR DEPRECIATION AS P ER COMPANYS ACT IS NOT SUSTAINABLE. WE THEREFORE REVERSE THE ORDER OF LD. CIT(A) ON HIS ISSUE. GROUND NO.4 IS ALLOWED. 7. IN THE RESULT APPEAL OF THE REVENUE IS PARTLY A LLOWED. 8. PRONOUNCED IN THE OPEN COURT ON 11 TH FEB. 2011. SD./- SD./- (I. P. BANSAL) (A K GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED:11 TH FEB. 2011 SP. COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT TRUE COPY: BY ORDER 4. CIT(A) 5. DR DY. REGISTRAR ITAT NEW DELHI