Eimco Elecon (I) Ltd.,, Dist.Anand v. The ACIT., Anand Circle,, Anand

ITA 2420/AHD/2007 | 2003-2004
Pronouncement Date: 08-01-2010 | Result: Partly Allowed

Appeal Details

RSA Number 242020514 RSA 2007
Bench Ahmedabad
Appeal Number ITA 2420/AHD/2007
Duration Of Justice 2 year(s) 7 month(s) 3 day(s)
Appellant Eimco Elecon (I) Ltd.,, Dist.Anand
Respondent The ACIT., Anand Circle,, Anand
Appeal Type Income Tax Appeal
Pronouncement Date 08-01-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 08-01-2010
Date Of Final Hearing 17-12-2009
Next Hearing Date 17-12-2009
Assessment Year 2003-2004
Appeal Filed On 04-06-2007
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'A' (BEFORE S/SHRI T K SHARMA AND D C AGRAWAL) ITA NO.2420/AHD/2007 (ASSESSMENT YEAR:- 2003-04) EIMCO ELECON (INDIA) LIMITED ANAND SOJITRA ROAD VALLABH VIDYA NAGAR DISTRICT: ANAND V/S THE ASSISTANT COMMISSIONER OF INCOME- TAX ANAND CIRCLE ANAND [APPELLANT] [RESPONDENT] APPELLANT BY :- SHRI D K PARIKH AR RESPONDENT BY:- SHRI ANAND MOHAN DR O R D E R PER D C AGRAWAL (ACCOUNTANT MEMBER): THIS IS AN APPEAL BY THE ASSESSEE RAISING THE FOLLOWING GROUNDS: 1 THE ORDER PASSED BY THE LEARNED CIT(A) CONFIRMING V ARIOUS ADDITIONS / DISALLOWANCES IS BAD IN LAW AND BE QUAS HED. THE ADDITIONS / DISALLOWANCES MADE BY THE AO AND SUSTAI NED BY THE LEARNED CIT(A) ARE UNWARRANTED AND SAME BE DELETED IN TOTO. 2 THE LEARNED CIT(A) HAS ERRED IN CONFIRMING DISALLOW ANCE MADE BY THE AO OF RS.6 45 332 BEING 40% OF DIRECTORS FOREI GN TRAVELING EXPENSES INCURRED BY THE COMPANY. YOUR APPELLANT SU BMITS THAT ADHOC DISALLOWANCES MADE BY THE AO AND SUSTAINED BY LEARNED CIT(A) IS NOT JUSTIFIED AND SAME BE DELETED NOW. 3 THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTI ON OF AO OF NOT ALLOWING DEPRECIATION ON AUTOMATED VERTICAL STORAGE SYSTEM OF RS.26 11 622 INFERRING THAT SAME IS NOT PUT TO USE DURING THE YEAR. YOUR APPELLANT SUBMITS THAT AUTOMATED VERTICAL STOR AGE SYSTEM 2 WAS PURCHASED AND ADDED TO BLOCK OF ASSETS WHICH ARE PUT TO USE AND HENCE DEPRECIATION BE ALLOWED AS CLAIMED AND DI SALLOWANCE MADE IN THIS REGARD BE DELETED NOW. 4 THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THE ACTIO N OF AO OF RECALCULATING DEDUCTION U/S 80HHC BY REDUCING GROS S INTEREST. YOUR APPELLANT SUBMITS THAT ONLY NET INTEREST BE CO NSIDERED AND AO BE DIRECTED TO ALLOW THE DEDUCTION U/S 80HHC ACC ORDINGLY. 5 THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTI ON OF AO OF CHARGING INTEREST U/S 234B/C/D OF THE ACT. YOUR APP ELLANT SUBMITS THAT LEVY OF INTEREST IS INCORRECT. IT BE HELD SO N OW AND SAME BE DELETED. 2 THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS E NGAGED IN THE BUSINESS OF MANUFACTURING MINING MACHINES AN D SPARE PARTS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTED THAT THE ASSESSEE HAS INCURRED AN EXPENDITURE OF RS .16 13 331/- ON FOREIGN VISIT OF DIRECTORS. THE AO SOUGHT SPECIF IC REPLY OF THE ASSESSEE ABOUT THE DETAILS OF FOREIGN TRAVELING EXP ENSES BUT THE ASSESSEE FURNISHED A SIMPLY REPLY THAT THEY WERE UN DERTAKEN FOR BUSINESS PURPOSE. HE NOTED THAT THE DIRECTORS ARE C OMMON IN OTHER COMPANIES AND IT IS NOT ESTABLISHED THAT THE TOUR WAS UNDERTAKEN FOR THE BUSINESS PURPOSE OF THE ASSESSEE ONLY. SINCE SPECIFIC DETAILS WERE NOT AVAILABLE HE DISALLOWED 40% OF DIRECTORS TRAVELING EXPENSES AND MADE AN ADDITION OF RS.6 45 332/-. 3 THE CIT(A) NOTED THAT THE ASSESSEE COMPANY HAS COLLABORATION WITH FOREIGN COMPANIES AND IMPORTING MANY COMPONENTS BUT THE ASSESSEE FAILED TO ESTABLISH THE NEXUS OF THESE EXPENSES WITH THE BUSINESS OF THE ASSESSEE. EXCEPT CLAIMING THE 3 ASSESSEE FAILED TO SUBSTANTIATE THE PURPOSE OF THE VISIT. HE ACCORDINGLY CONFIRMED THE ADDITION. 4 BEFORE US THE LEARNED AR FOR THE ASSESSEE SUBMI TTED THAT IN AY 2001-02 THE TRIBUNAL HAS ALLOWED THE CLA IM. SINCE THE FACTS REMAIN THE SAME THERE IS NO REASON TO DISALLO W THE CLAIM THIS YEAR. ON THE OTHER HAND THE LEARNED DR SUBMIT TED THAT THE FACTS EVERY YEAR WOULD BE DIFFERENT. MAY BE IN THO SE YEARS THE ASSESSEE WAS ABLE TO ESTABLISH THE NEXUS OF THE EXP ENDITURE WITH THE BUSINESS OF THE ASSESSEE BUT THIS YEAR THE ASSE SSEE HAS NOT SHOWN WHETHER THE EXPENDITURE WAS INCURRED EXCLUSIV ELY FOR THE PURPOSE OF ASSESSEES BUSINESS. THERE IS NO MATERIA L ALSO TO SHOW THAT THE ASSESSEE HAD ACTUALLY CARRIED OUT ANY BUSI NESS WORK THROUGH THESE FOREIGN VISITS. 5 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. SINCE THE CLAIM OF FOREIGN TRAVELING EXPENSES IS A FACTUAL ISSUE THE ASSESSEE HAS TO ES TABLISH EVERY YEAR THAT THE EXPENDITURE WAS INCURRED FOR THE BUSI NESS PURPOSES. THERE IS NO RES JUDICATA IN SUCH MATTERS. THERE IS NO PRINCIPLE OF CONSISTENCY APPLICABLE WHEN THE FACTS ARE REQUIRED TO BE ESTABLISHED EVERY YEAR. CONSISTENCY HAS TO BE IN TH E MATTER OF APPLICATION OF LAW IF FACTS ARE SIMILAR BUT WHERE AUTHORITIES ARE GIVING FINDING THAT THE DIRECTORS ARE ALSO DIRECTOR S IN VARIOUS OTHER COMPANIES AND IT IS NOT ESTABLISHED THAT THE FOREIGN TRAVELING WERE UNDERTAKEN FOR THE PURPOSE OF BUSINE SS OF THE ASSESSEE ALONE AND THAT TOO IT IS NOT ESTABLISHED AS TO WHAT WORK THEY HAVE DONE ON THEIR TRIPS THE CLAIM TO THE EXT ENT MADE BY THE 4 ASSESSEE CAN NOT BE ALLOWED. THE DISALLOWANCE OF 40 % MADE BY THE AUTHORITIES BELOW IS REASONABLE AND IS CONFIRME D. THIS GROUND OF ASSESSEE IS REJECTED. 6 THE SECOND GROUND RELATES TO DISALLOWANCE OF RS.26 11 622/- BEING THE CLAIM OF DEPRECIATION ON A UTOMATED VERTICAL STORAGE SYSTEM (AVSS). DURING THE COURSE O F ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASS ESSEE HAS PURCHASED ONE AVSS FOR MAINTAINING INVENTORY. THE A SSESSEE EXPLAINED THAT AVSS WAS INSTALLED ON 21-3-2003 AND 24-3-2003. IT FURNISHED NECESSARY INSTALLATION REPORTS. THE LE ARNED ASSESSING OFFICER HOWEVER INFERRED THAT AVSS IS I NSTALLED IN THE LAST WEEK OF MARCH AND THERE IS NO DOCUMENTARY EVIDENCE THAT IT WAS PUT TO USE FOR BUSINESS PURPOSE DURING THE Y EAR. INSTALLATION REPORTS FURNISHED ARE ONLY SELF SUPPOR TING AND THEREFORE CANNOT BE ACCEPTED. HE ACCORDINGLY DISALL OWED THE CLAIM OF DEPRECIATION ON THIS AVSS. 7 THE LD. CIT(A) EXAMINED THE ISSUE. HE NOTICED TH AT DEPRECIATION COULD BE ALLOWED IF IT IS ESTABLISHED THAT THE MACHINERY IS ACTUALLY PUT TO USE. IT CAN NOT BE ALL OWED IF MACHINERY IS MERELY CAPABLE OF BEING USED. IT WAS O NLY ESTABLISHED THAT AVSS WAS CAPABLE OF BEING USED BUT THERE IS NO EVIDENCE THAT THE MACHINE WAS ACTUALLY PUT TO USE. IT WAS FURTHER CLAIMED BEFORE THE LD. CIT(A) THAT ONCE MACHINERY H AS BECOME PART OF BLOCK OF ASSETS THAT ITS USE AND INDIVIDUA L IDENTITY IS LOST AND THEREFORE IT IS NOT MATERIAL WHETHER A PART MAC HINERY IS PUT TO USE OR NOT. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) 5 HOWEVER NOTED THAT IN THE FIRST YEAR USE OF PLANT A ND MACHINERY HAS TO BE ESTABLISHED AND THE QUESTION OF MERGING I T WITH THE BLOCK OF ASSETS WOULD ARISE FOR SUBSEQUENT YEARS. 8 BEFORE US THE LEARNED AR FOR THE ASSESSEE SUBMI TTED THAT THERE CAN NOT BE ANY SEPARATE / INDEPENDENT EV IDENCE AS AVSS IS ONLY STORAGE DEVICE AND ONCE IT IS INSTALLE D IT IS LEFT ON THE STAFF TO SLOWLY PICK UP AND LEARN ABOUT ITS USE . THERE ARE THOUSANDS OF BOXES IN THIS AVSS WHERE SMALL SPARE P ARTS ARE KEPT. THE REPLACEMENT OF EXISTING SYSTEM WITH THIS AVSS MAY TAKE TIME BUT ITS USE WAS STARTED IN THE YEAR ITSEL F. AVSS MIGHT NOT HAVE BEEN FULLY OCCUPIED THIS YEAR BUT THE EMPL OYEES HAD STARTED MAKING USE OF IT THIS YEAR. ON THE OTHER HA ND THE LEARNED DR RELIED ON THE ORDER OF THE AUTHORITIES BELOW. 9 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD. IT IS UNDISPUTED FACT THAT AVSS WAS INSTALLED AS PER INSTALLATION REPORTS BY 24-3-2003. ONCE THE MACHINE IS INSTALLED THEN THERE IS NO CONTRARY MAT ERIAL TO SHOW THAT SUCH INSTALLATION REPORTS ARE FABRICATED OR TH AT THE MACHINE WAS NOT IN PLACE AS CLAIMED BY THE ASSESSEE THROUGH INSTALLATION REPORTS. IT IS NOT A CASE WHERE A MACHINE HAS TO BE SHOWN GIVING PRODUCTION OR BECOMING AN INTEGRAL PART OF OTHER MA CHINES. IT IS STORAGE DEVICE SYSTEM WHICH IS INDEPENDENT OF ALL O THER MACHINES. IT CONTAINS AN ENUMERABLE BOXES WHERE SM ALL SPARE PARTS ARE KEPT AND THROUGH COMPUTERIZED SYSTEM EACH BOX IS BROUGHT OUT FOR KEEPING OR TAKING OUT SPARE PARTS. ONCE IT IS STATED THAT SOME EMPLOYEES HAVE STARTED MAKING USE OF IT THOUGH 6 NOT ALL BUT SOME BOXES WERE UTILIZED FOR KEEPING SP ARE PARTS WE HOLD THAT THE SYSTEM WAS PUT TO USE. ACCORDINGLY T HE ASSESSEE IS ENTITLED FOR DEPRECIATION THIS YEAR. THIS GROUND OF ASSESSEE IS ACCORDINGLY ALLOWED. 10 GROUND NO.4 RELATES TO CLAIM OF DEDUCTION U/S 8 0HHC ON INTEREST. THE AO NOTED THAT THE ASSESSEE CLAIMED DEDUCTION OF RS.65 567/- U/S 80HHC. HE NOTED THAT THE ASSESSEE H AS CONSIDERED NET INTEREST OF RS.59 84 768/-. IT HAS P AID INTEREST TO THE EXTENT OF RS.1 05 40 402/-. SINCE PAYMENT OF IN TEREST IS MORE THAN THE INTEREST INCOME THERE IS NO SURPLUS. ONCE IT IS SO INTEREST IS NOT TO BE REDUCED WHILE CALCULATING DED UCTION U/S 80HHC. 11 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) UPHELD THE ORDER OF THE AO ON THE GROUND THAT THE A SSESSEE FAILED TO ESTABLISH THE NEXUS BETWEEN THE INTEREST INCOME AND BUSINESS INCOME. IN THIS REGARD WE REFER TO THE FINDINGS OF THE CIT(A) AS UNDER: 8.3. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPE LLANT AND DO NOT FIND MERIT ON THE SAME. IT HAS BEEN HELD BY VARIOUS COURTS THAT INTEREST INCOME IS ASSESSABLE UNDER THE HEAD INCOME FROM OT HER SOURCES. [NAVIN BHARAT INDUSTRIES LTD V. DCIT (2004) 270 ITR (AT) 1 (BORN); URBAN STANISLAUS CO V CIT (2003) 263 ITR 10 (KER). SLP DISMISSED (2004) 265 ITR (ST) 30; CIT V SOUTH INDIA PRODUCE CO. (2003) 265 ITR 20 (KER); CIT V NIZAR AHMED (A.S.) & CO (2003) 259 ITR 244 (MAD);] 8.4 THE SUPREME COURT IN VELLOR ELECTRIC CORPORATIO N V CIT (1997) 227 ITR 557 HELD THAT IT MUST BE PROVED THAT THE A CTIVITY FROM WHICH 7 THE INCOME IS EARNED MUST HAVE A DIRECT AND PROXIMA TE CONNECTION WITH THE PRIORITY BUSINESS. THE APPELLANT DID NOT E STABLISH THAT THE INTEREST EARNED HAS A PROXIMATE NEXUS WITH THE BUSI NESS OF THE APPELLANT. 8.5. IN CIT V NIZAR AHAMED AND CO (A.S.) THE DEDUC TION FOR INTEREST WAS DENIED ONLY BECAUSE THE ASSESSEE WAS UNABLE TO ESTABLISH THAT THE DEPOSIT WITH THE BANK AND THE CREDIT FACILITY WERE INEXTRICABLY LINKED.. THE DECISION HAS TO DEPEND UPON THE FACTS OF EACH C ASE BECAUSE AS WAS POINTED OUT BY A SPECIAL BENCH OF THE TRIBUNAL IN RAJEEV ENTERPRISES V. AC EXPLANATION (BAA)(1) AT THE END OF SECTION 8OHHC SPECIFICALLY INCLUDES INTEREST AS AN ITEM FOR INCLU SION SUBJECT TO EXCLUSION OF 90% THEREOF. BOARD CIRCULAR NO.642 DA TED 15TH DECEMBER 1992 IS ALSO TO THE SAME EFFECT. 8.6. IN REVINDRANATHAN NAIR (K) V DCIT THE HIGH CO URT FOLLOWED THE NARROWER INTERPRETATION OF SECTION 8OHHC RESTRICTIN G THE RELIEF BY EXCLUDING INTEREST ON CAPTIVE DEPOSITS AS NOT FALLI NG WITHIN THE SCOPE OF SECTION 8OHHC. THE SUPREME COURT IN PANDIAN CHEMICA LS LTD. V CIT HAD CONFIRMED THE DECISION OF THE HIGH COURT ADVERS E TO THE TAXPAYER IN VIEW OF THE NARROWER MEANING ASSIGNED TO THE EXP RESSION DERIVED FROM IN CONTRAST WITH WHAT IS TO BE UNDERSTOOD AS ATTRIBUTABLE TO. 8.7 IN VIEW OF THE ABOVE SINCE THE APPELLANT FAILE D TO ESTABLISH A PROXIMATE NEXUS BETWEEN INTEREST INCOME AND BUSINES S INCOME THE AOS ORDER IS NOT INTERFERED WITH AND ACCORDINGLY CONFIRMED . 12 THE LEARNED AR FOR THE ASSESSEE SUBMITTED THAT NETTING HAS TO BE ALLOWED IN VIEW OF THE DECISION OF THE HO NBLE DELHI HIGH COURT IN THE CASE OF SRI RAM HONDA POWER EQUIP MENT 207 CTR 689 AND OF THE ORISSA HIGH COURT IN THE CASE OF TATA SPONGE IRON LTD. V CIT (2007) 292 ITR 175 FOR THE PROPOSIT ION THAT WHERE THE ASSESSEE HAS EARNED INTEREST ON DELAYED P AYMENT FROM CUSTOMERS AND BILL DISCOUNTING THEN IT WILL BE BUS INESS PROFITS AND THAT THE ASSESSEE IS ENTITLED TO SET OFF INTERE ST PAYMENTS 8 AGAINST THE INTEREST INCOME FROM BANK AND INTER-COR PORATE DEPOSITS. THE LEARNED DR ON THE OTHER HAND RELIED ON THE ORDER OF THE AUTHORITIES BELOW. 13 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD. THE HONBLE ORISSA HIGH COU RT IN THE CASE OF TATA SPONGE IRON LTD. V CIT (2007) 292 ITR 175 HAS HELD AS UNDER:- (II) THAT THE ASSESSEE WAS IN THE BUSINESS OF MAN UFACTURE AND SALE OF SPONGE IRON. INCOMES WHICH HAD DIRECT OR IMMEDI ATE NEXUS WITH THE MANUFACTURE AND SALE OF SPONGE IRON ALONE WOULD QUALIFY TO BE COVERED UNDER SECTION 80HH. ANY INTEREST EARNED BY THE ASSESSEE WHICH HAS DIRECT OR IMMEDIATE NEXUS WITH EITHER MAN UFACTURE OR SALE OF ITS PRODUCT HAS TO BE ACCEPTED TO BE INCOME WHIC H QUALIFIED AS AN INCOME UNDER SECTION 80HH. INTEREST EARNED BY THE A SSESSEE FROM ITS CUSTOMERS FOR DELAYED PAYMENT AND FOR BILL DISCOUNT ING DID BEAR A DIRECT AND IMMEDIATE NEXUS WITH THE INDUSTRIAL UNDE RTAKING OF THE ASSESSEE AND THEREFORE HAD TO BE HELD TO BE INCOME DERIVED FROM THE INDUSTRIAL UNDERTAKING AND THEREFORE ENTITLED FOR RELIEF UNDER SECTION 80HH. (III) THAT INTEREST EARNED BY THE ASSESSEE FROM THE DEPOSITS MADE IN THE BANK AND INTER CORPORATE DEPOSITS THOUGH ATTRI BUTABLE TO THE BUSINESS OF THE ASSESSEE WAS A STEP REMOVED FROM TH E ASSESSEES INDUSTRIAL UNDERTAKING AND THEREFORE COULD NOT BE HELD TO HAVE BEEN DERIVED FROM THE INDUSTRIAL UNDERTAKING AND WOULD NOT QUALIFY FOR RELIEF UNDER SECTION 80HH. HOWEVER THE ASSESSEE WO ULD BE ENTITLED TO SET OFF OF INTEREST PAYMENTS AGAINST INTEREST INCOM E FROM BANK AND INTER CORPORATE DEPOSITS. IN THE PRESENT CASE ALSO IT IS NOT ESTABLISHED THAT THE INTEREST INCOME EARNED BY THE ASSESSEE IS DERIVED FROM THE I NDUSTRIAL UNDERTAKING. IT IS NOT ESTABLISHED THAT THE ASSESSE E HAS EARNED INTEREST INCOME ON DELAYED PAYMENT FROM THE CUSTOME RS OR ON 9 ACCOUNT OF BILL DISCOUNTING. THUS THE NEXUS OF INDU STRIAL UNDERTAKING WITH THE INTEREST INCOME EARNED IS NOT ESTABLISHED. THEREFORE IT WILL NOT BE INCLUDED IN BUSINESS PROF ITS OF THE ASSESSEE FOR THE PURPOSE OF DEDUCTION U/S 80HHC. SO FAR AS THE NETTING IS CONCERNED THERE IS NO DISPUTE BUT THIS WILL REMAIN OUT OF PURVIEW OF DEDUCTION U/S 80HHC. IN OUR CONSIDERE D VIEW THE AUTHORITIES BELOW HAVE NOT DISPUTED THE NETTING. TH EY HAVE ONLY DISPUTED THE CLAIM OF THE ASSESSEE THAT THE INTERES T INCOME IS NOT DERIVED FROM THE BUSINESS OF THE ASSESSEE. SINCE TH ERE IS NO CONTRARY MATERIAL BEFORE US WE UPHOLD THE FINDING OF THE AUTHORITIES BELOW. THIS GROUND OF THE ASSESSEE IS R EJECTED. 14 GROUND NO.5 RELATES TO CHARGING OF INTEREST U/S 234B/C/D OF THE ACT. WE HAVE HEARD THE LEARNED DR A ND THE LEARNED AR. CHARGING OF INTEREST U/S 234B AND 234C IS CONSEQUENTIAL IN NATURE. THEY WILL DEPEND UPON THE FINAL INCOME. SO FAR AS INTEREST U/S 234D IS CONCERNED IT WOULD BE APPLICABLE WITH EFFECT FROM AY 2004-05 AS RELEVANT PROVISIONS WERE BROUGHT INTO STATUTE WITH EFFECT FROM 1-6-2003. ACCORDINGLY THIS GROUND IS PARTLY ALLOWED. 15 IN THE RESULT THE ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT TODAY ON 08-01-2 010 SD/- SD/- (T K SHARMA) JUDICIAL MEMBER (D C AGRAWAL) ACCOUNTANT MEMBER DATE : 08-01-2010 10 COPY OF THE ORDER FORWARDED TO : 1. EIMCO ELECON (INDIA) LIMITED ANAND SOJITRA ROAD VALLABH VIDYA NAGAR DISTRICT: ANAND 2. THE ACIT ANAND CIRCLE ANAND 3. CIT CONCERNED 4. CIT(A)-IV BARODA 5. THE DR ITAT AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT AHMEDABA