ACIT CIRCLE-9(3), MUMBAI v. REMI METALS GUJARAT LTD., MUMBAI

ITA 3532/MUM/2010 | 2004-2005
Pronouncement Date: 15-07-2011 | Result: Dismissed

Appeal Details

RSA Number 353219914 RSA 2010
Assessee PAN AAACR2121C
Bench Mumbai
Appeal Number ITA 3532/MUM/2010
Duration Of Justice 1 year(s) 2 month(s) 10 day(s)
Appellant ACIT CIRCLE-9(3), MUMBAI
Respondent REMI METALS GUJARAT LTD., MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 15-07-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 15-07-2011
Assessment Year 2004-2005
Appeal Filed On 05-05-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH: MUMBAI BEFORE SHRI R.S. SYAL ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR JUDICIAL MEMBER ITA NO.3532/MUM/2010 (ASSESSMENT YEAR: 2004-05) ACIT CIRCLE 9(3) 2ND FLOOR ROOM NO.229 AAYAKAR BHAVAN M.K. ROAD MUMBAI -400 020 ....... APPELLANT VS M/S. REMI METALS GUJARAT LTD. PLOT NO.11 CAMA INDUSTRIAL ESTATE GOREGAON (E) MUMBAI -400 063 ..... RESPONDENT PAN: AAACR 2121 C ITA NO. 4237/MUM/2010 (ASSESSMENT YEAR: 2004-05) M/S. REMI METALS GUJARAT LTD. PLOT NO.11 CAMA INDUSTRIAL ESTATE GOREGAON (E) MUMBAI -400 063 ....... APPELLANT VS ACIT CIRCLE 9(3) 2ND FLOOR ROOM NO.229 AAYAKAR BHAVAN M.K. ROAD MUMBAI -400 020 ..... RESPONDENT PAN: AAACR 2121 C ASSESSEE BY: SHRI S.L. JAIN REVENUE BY: DR. B. SENTHIL KUMAR SHRI R.K. JALANI O R D E R ITA 3532/MUM/2010 ITA 4237/MUM/2010 M/S. REMI METALS GUJARAT LTD. 2 PER R.S. PADVEKAR JM THESE TWO APPEALS ONE BY THE ASSESSEE AND ANOTHER B Y THE REVENUE ARE FILED CHALLENGING THE IMPUGNED ORDER OF THE LD. CIT 20 MUMBAI DATED 25.2.2010 FOR THE A.Y. 2004-05. WE FI RST TAKE-UP THE REVENUES APPEAL FOR DISPOSAL BEING ITA 3532 OF 201 0. GROUND NO.1 READS AS UNDER:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE LD. CIT- (A) ERRED IN DISALLOWANCE MADE BY THE ASSESSIN G OFFICER AMOUNTING TO ` 3 10 11 063/- ON ACCOUNT OF START-UP EXPENSES AND NOT APPRECIATING THE FACT THAT SINCE THE SAME W AS INCURRED IN RELATION TO TRIAL PRODUCTION AND HENCE IT SHOU LD HAVE BEEN TREATED AS CAPITAL AND NOT REVENUE EXPENDITURE. 2. BRIEFLY STATED THE FACTS ARE AS UNDER. THE ASSE SSEE-COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF SEAMLES S PIPES AND TUBES ROLLED PRODUCTS ETC AND TRADING OF SEAMLESS STEEL CASTING PIPES. THE ASSESSEE FILED THE RETURN OF INCOME FOR THE A.Y . 2004-05 DECLARING THE TOTAL LOSS OF ` 122 23 84 240/-. THE A.O. HAS NOTED THAT IN THE COMPUTATION OF STATEMENT THE ASSESSEE HAS REDUCED S TART UP EXPENDITURE OF ` 62 002 313/- WHICH IS 1/5TH OF TOTAL EXPENDITURE WHICH HAS BEEN DEBITED TO THE PROFIT AND LOSS ACCOU NT. IT IS CLAIMED BY THE ASSESSEE THAT TOTAL START UP EXPENDITURE OF ` 3 10 11 063/- IS REVENUE IN NATURE THE SAME HAS BEEN CLAIMED AS REVE NUE EXPENDITURE. THE A.O. WAS OF THE OPINION THAT SAID EXPENDITURE P ERTAIN TO THE TRIAL PRODUCTION PERIOD AND SAID EXPENDITURE SHOULD HAVE BEEN CAPITALISED AND THE SAME CANNOT BE TREATED AS A REVENUE EXPENDI TURE. ACCORDINGLY THE A.O. RAISED THE QUERY TO THE ASSES SEE. THE ASSESSEE EXPLAINED THAT THE ASSESSEE-COMPANY STARTED THE COM MERCIAL PRODUCTION DURING THE ASSESSMENT YEAR 1997-98 AND D UE TO FINANCIAL CRUNCH AND BAD MARKET CONDITIONS PRODUCTION WAS AT VERY LOW LEVEL AND ONLY SOME JOB WORK WAS CARRIED OUT. AS PER THE EXPLANATION OF THE ITA 3532/MUM/2010 ITA 4237/MUM/2010 M/S. REMI METALS GUJARAT LTD. 3 ASSESSEE THE MATTER WAS REFERRED UNDER THE BIFR AN D AFTER THE REHABILITATION PACKAGE TRIAL PRODUCTION STARTED IN THE CURRENT FINANCIAL YEAR I.E. FINANCIAL YEAR RELEVANT TO THE A.Y. 2004- 05 AND IT WAS NOT FIRST TRIAL PRODUCTION OF THE COMPANY. THE ASSESSEE THE REFORE CLAIMED THAT THE SAID EXPENDITURE WAS REVENUE IN NATURE. THE A. O. REFERRED TO THE AUDITORS NOTE AND HAS NOTED THAT EXPENSES PERTAINE D TO THE TRIAL PRODUCTION PERIOD FROM SEPTEMBER 2003 TO DECEMBER 2003 AND AS PER THE REPORT OF THE DIRECTOR OF THOSE EXPENDITURE S ARE CAPITALISED. THE A.O. THEREFORE MADE DISALLOWANCE OF ENTIRE EX PENDITURE OF ` 3 19 11 063/-. THE ASSESSEE CHALLENGED THE DISALLO WANCE BEFORE THE LD. CIT (A). THE LD. CIT (A) ALLOWED THE EXPENDITU RE BY GIVING THE REASON THAT AS THERE IS NO FACTUAL DISPUTE IN RESPE CT OF THE COMMENCEMENT OF THE COMMERCIAL PRODUCTION IN THE CU RRENT YEAR AND DISPUTED EXPENSES ARE ALSO INCURRED DURING THE CURR ENT YEAR AND HENCE THERE IS REASON TO DISALLOW THE CLAIM OF THE ASSESSEE. NOW THE REVENUE IS IN APPEAL BEFORE US. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTI ES AND PERUSED THE RECORDS. IN THIS CASE ULTIMATELY THERE IS A LO SS ASSESSED BY THE A.O. MOREOVER NOWHERE IT IS CONTROVERTED BY THE A .O. THAT THOUGH THE COMMERCIAL PRODUCTION WAS STARTED IN 1997-98 BUT DU E TO THE FINANCIAL CRUNCHES AND BAD MARKET CONDITIONS THE S UBSTANTIAL PART OF ALL THE OPERATIONS WERE SUSPENDED IN APRIL 1997 AND AFTER THE REHABILITATION SCHEME UNDER THE BIFR THE ASSESSEE S TARTED THE PRODUCTION IN A.Y. 2004-05. PRESUMING THAT THERE I S A COMMERCIAL PRODUCTION THAT SUGGESTS THAT BUSINESS WAS READY AN D SET-UP IN ALL RESPECTS. MOREOVER ON THE PERUSAL OF THE COPY OF THE ASSESSMENT ORDER FOR THE A.Y. 2003-04 WE FIND THAT THE ASSESS EE HAS NOT PAID THE AMOUNT OF THE INTEREST ON THE BORROWED LOANS WHICH WAS SUBSEQUENTLY CONVERTED INTO THE LOANS AND SAME WAS DISALLOWED BY THE A.O. ON THE TOTALITY OF THE FACTS IN OUR OPIN ION NO INTERFERENCE IS CALLED FOR ON THIS ISSUE WE ACCORDINGLY CONFIRM TH E ORDER OF THE LD. CIT (A). ITA 3532/MUM/2010 ITA 4237/MUM/2010 M/S. REMI METALS GUJARAT LTD. 4 4. SO FAR AS OTHER GROUNDS OF THE REVENUE ARE CONCE RNED WHICH ARE THE ALTERNATIVE PLEA OF THE REVENUE AND AS GROUND N O.1 OF THE REVENUE IS DISMISSED HENCE OTHER GROUNDS OF THE REVENUE DO NOT SURVIVE AND ACCORDINGLY WE DISMISS THE SAME. 5. NOW WE TAKE-UP ASSESSEES APPEAL BEING ITA NO.4 237 OF 2010. 6. GROUND NO.1 READS AS UNDER:- 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN CONFIRMING ADDITION OF ` 5 06 078/- OF INTEREST WRITTEN BACK PAYABLE TO FINANCIAL INSTITUTIONS WHICH INTEREST ST OOD DISALLOWED UNDER PROVISIONS OF SECTION 43B BEING NO T PAID TO THE FINANCIAL INSTITUTIONS WITHOUT PROPERLY CONS IDERING THE FACTS OF THE CASE AND LAW APPLICABLE THERETO. 7. THE ISSUE IS IN RESPECT OF DISALLOWANCE OF ` 4 06 078/-. THE A.O. HAS NOTED THAT THE ASSESSEE HAS REDUCED SUM OF ` 5 06 078/- FROM THE TOTAL INCOME IN RESPECT OF THE INTEREST ON TERM LOANS WAIVED BY THE BANK AND FINANCIAL INSTITUTIONS AND CONCLUDE D THAT THE SAME IS DEEMED PAYMENT U/S.43B. THE ASSESSEES EXPLANATION TO THE A.O.S QUERY WAS THAT OPENING BALANCE OF OUTSTANDING LIABI LITIES TOWARDS INTEREST ON TERM LOAN OF FINANCIAL INSTITUTIONS AND BANK AMOUNTING TO ` 14 36 46 779/- WAS DISALLOWED IN THE EARLIER YEAR. IN THE CURRENT YEAR ` 5 06 078/- WAS WAIVED BY THE FINANCIAL INSTITUTIONS AND BANKS AND SAME HAS BEEN CREDITED TO THE PROFIT AND LOSS A CCOUNT AND THE SAID AMOUNT WAS NOT ALLOWED IN THE EARLIER YEAR AS DEDUCTION CANNOT BE TAXED IN THE A.Y. 2004-05. THE ASSESSEE COULD N OT FILE ANY EVIDENCE TO SUPPORT THE CLAIM. THE A.O. THEREFORE MADE EN TIRE DISALLOWANCE OF ` 5 06 078/- TO THAT EXTENT THE A.O. REDUCED THE LO SS. THE ASSESSEE CARRIED THE ISSUE BEFORE THE LD. CIT (A) BUT HE ALS O CONFIRMED THE ORDER ITA 3532/MUM/2010 ITA 4237/MUM/2010 M/S. REMI METALS GUJARAT LTD. 5 OF THE A.O. BY GIVING THE SAME REASON THAT THE ASSE SSEE DID NOT PROVE THAT THE EARLIER YEAR THE SAID EXPENDITURE WAS DISA LLOWED. 8. WE HAVE HEARD THE PARTIES. WE FIND THAT BEFORE US ALSO SAVE THE WRITTEN SUBMISSION NOTHING IS FILED TO SHOW THAT I N THE PRECEDING YEAR THE SAID AMOUNT WAS DISALLOWED WHILE COMPUTING THE ASSESSEES INCOME. THE BENCH ALSO PUT THE SPECIFIC QUERY TO T HE LD. COUNSEL THAT WHAT IS THE IDENTITY OF THAT PARTICULAR AMOUNT IN T HE YEAR IN WHICH THAT AMOUNT IS DISALLOWED. ON THE TOTALITY OF THE FACTS AND AS SUPPORTING EVIDENCE HAS BEEN PLACED BEFORE US BY THE ASSESSEE WE DO CONCUR WITH THE FINDING OF THE LD. CIT (A) AND DISMISS GRO UND NO.1. 9. GROUND NO.2 READS AS UNDER:- 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN CONFIRMING CAPITALIZATION OF INTEREST OF RS 13 86 000/- OUT OF THE INTEREST PAID ON THE PLEA THAT CAPITAL WORK IN PROGRESS OF ` 1.68 CRORES IS BEING CARRIED OUT OF THE BORROWED F UNDS WITHOUT APPRECIATING THE FACT THAT AT THE BEGINNING OF THE YEAR CAPITAL WORK IN PROGRESS WAS RS 1.19 WHICH WAS FINANCED OUT OF THE PROMOTERS CONTRIBUTION OF RS 12.91 CRORES. THE PROMOTERS CONTRIBUTION WAS NOT CARRYI NG ANY INTEREST. FURTHER ADDITION TO CAPITAL WORK-IN-PROG RESS IN CURRENT YEAR OF RS 49 LAKHS IS ALSO BEING PROMOTERS CONTRIBUTION NO DISALLOWANCE IS CALLED FOR. 10. THE FACTS WHICH REVEALED FROM THE RECORDS PERTA INING TO GROUND NO.2 ARE AS UNDER. THE A.O. HAS NOTED THAT THE ASS ESSEE HAS SHOWN THE SECURED LOANS AND MAJOR LOANS WERE BORROWED FOR INVESTMENT IN FIXED ASSETS. AS PER THE BALANCE-SHEET AND DEPRECI ATION CHART WORK- IN-PROGRESS OF CAPITAL ASSET WAS SHOWN AT RS 1.68 C RORES. THE A.O. SOUGHT THE EXPLANATION OF THE ASSESSEE BY STATING T HAT INTEREST ON THE PRE-PRODUCTION AMOUNT OF SECURED LOAN BORROWED AND SPENT ON CAPITAL WORK-IN-PROGRESS FOR FIXED ASSET WHICH ARE NOT PUT TO USE SHOULD BE ITA 3532/MUM/2010 ITA 4237/MUM/2010 M/S. REMI METALS GUJARAT LTD. 6 CAPITALISED. THE ASSESSEE FILED THE REPLY STATING THAT INTEREST ON PROPORTIONATE AMOUNT OF SECURED LOANS BORROWED FOR CAPITAL WORK-IN- PROGRESS WAS NOT CAPITALISED AS THE PROMOTERS BROUG HT IN AT RS 12.91 CRORES AS THEIR CONTRIBUTION/FUNDS AND CAPITAL WORK -IN-PROGRESS WAS INCURRED OUT OF THEIR OWN FUNDS. SECONDLY THE INT EREST ON LOAN HAD NOT BEEN PAID AND HENCE SAME IS ALREADY DISALLOWED . U/S.43B BY DENYING DEDUCTION TO THE ASSESSEE. THE A.O. WAS NO T SATISFIED WITH THE EXPLANATION OF THE ASSESSEE. IN THE OPINION OF THE A.O. THE INTEREST PAID/PAYABLE ON THE MONEY BORROWED FOR PURCHASE OF FIXED ASSET HAS TO BE CAPITALISED ONLY RELATING TO THE PERIOD PRIOR TO THE ASSET COMING INTO PRODUCTION I.E. RELATING TO ERECTION STAGE OF THE ASSET. THE A.O. ALSO NOTED THAT THE ASSESSEE DID NOT PRODUCE ANY DO CUMENTARY EVIDENCE THAT THE WORK-IN-PROGRESS WAS FINANCED BY THE FUNDS BROUGHT IN BY THE DIRECTORS / PROMOTERS OF THE COMPANY. TH E A.O. ALSO REFERRED TO THE EXPLANATION 8 TO SECTION 41 AND ACC ORDINGLY MADE THE DISALLOWANCE WHICH WAS WORK OUT TO RS 13 86 000/-. THE A.O. CHALLENGED THE DISALLOWANCE BEFORE THE LD. CIT (A) BUT WITHOUT SUCCESS. 11. WE HAVE HEARD THE PARTIES. THE LD. COUNSEL ARG UES THAT THE AMOUNT INVESTED IN CAPITAL WORK-IN-PROGRESS WAS OUT OF THE PROMOTERS CONTRIBUTION OF RS 12.91 CRORES ON WHICH NO INTERES T WAS PAID. THE LD. COUNSEL REFERRED TO THE PAPER BOOK PAGE NO.7 AN D SUBMITS THAT THE DETAILS ARE FILED IN RESPECT OF THE PROMOTERS CONTR IBUTION WHICH WAS FREE OF INTEREST ISSUED DURING THE PERIOD FROM 1.4. 2002 TO 31.3.2003 AMOUNTING TO RS 12.93 CRORES. THE CAPITAL WORK-IN- PROGRESS AS ON 31.3.2003 OF RS 11 91 36 561/- WHICH HAS BEEN CAPIT ALISED AND PUT TO USE DURING THE YEAR. IT IS ARGUED THAT PROVISO TO SUB-SECTION (3) TO SECTION 36 IS NOT APPLICABLE TO THE ASSESSEES CASE AS THE CAPITAL WORK- IN-PROGRESS IS NOT IN RELATION WITH THE EXTENSION O F THE EXISTING BUSINESS. ALTERNATIVELY HE PLEADED THAT IF THE INT EREST DISALLOWANCE IS CONFIRMED THEN THE DIRECTIONS MAY BE ISSUED FOR ALL OWING THE DEPRECIATION. WE HAVE ALSO HEARD THE LD. D.R. ITA 3532/MUM/2010 ITA 4237/MUM/2010 M/S. REMI METALS GUJARAT LTD. 7 12. IN THIS CASE THERE IS NO DISPUTE ABOUT THE FAC TS ON RECORD THAT DUE TO FINANCIAL PROBLEM THE ASSESSEE-COMPANY DECL ARED AS A SICK COMPANY AND THE REFERENCE WAS MADE UNDER THE BIFR A ND MAJOR MANUFACTURING OPERATIONS WERE SUSPENDED FROM APRIL 1997 UNTIL THE REHABILITATION SCHEME WAS FRAMED THE OPERATION OF THE PLANT AND MACHINERY REMAINED CLOSED FOR MORE THAN SEVEN YEARS . ADMITTEDLY THE ASSESSEE HAS ALSO SHOWN THE CAPITAL-WORK-IN-PRO GRESS WHICH HAS BEEN CAPITALISED IN THE YEAR UNDER CONSIDERATION. WE FIND THAT THOUGH THE ASSESSEE CLAIMED THAT INVESTMENT IN CAPITAL WOR K-IN-PROGRESS IS OUT OF PROMOTERS CONTRIBUTION AND NO INTEREST WAS PAYABLE BUT SAVE THE WRITTEN SUBMISSION AND COPY OF LEDGER A/C OF SH RI DINESH KHANNA FOR THE FINANCIAL YEAR 2007-08 NOTHING IS F ILED TO PROVE THE CLAIM REGARDING INTRODUCTION AND USE OF PROMOTERS F UNDS. IN OUR OPINION THE A.O. HAS RIGHTLY MADE THE DISALLOWANCE TREATING THE SAID AMOUNT PERTAINING TO THE INVESTMENT IN THE CAPITAL WORK-IN-PROGRESS. WE THEREFORE CONFIRM THE SAME. AT THE SAME TIME WE ACCEPT THE ALTERNATE PLEA OF THE LD. COUNSEL THAT THE DEPRECIA TION ON THE SAME AMOUNT SHOULD BE ALLOWED. ADMITTEDLY THE SAID AMO UNT IS TREATED AS A PART OF THE CAPITAL INVESTMENT WHICH IS IN THE NA TURE OF THE BUSINESS ASSET. HENCE THE ASSESSEE IS ELIGIBLE FOR DEPRECIA TION U/S.32. WE ACCORDINGLY DIRECT THE A.O. TO ALLOW THE DEPRECIAT ION ON THE SAID AMOUNT. 13. IN THE RESULT REVENUES APPEAL IS DISMISSED AN D ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 1 5TH JULY 2011. SD/- SD/- ( R.S. SYAL ) ACCOUNTANT MEMBER ( R.S. PADVEKAR ) JUDICIAL MEMBER MUMBAI DATE : 15TH JULY 2011 COPY TO:- ITA 3532/MUM/2010 ITA 4237/MUM/2010 M/S. REMI METALS GUJARAT LTD. 8 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A)20 MUMBAI. 4) THE CIT-9 MUMBAI. 5) THE D.R. D BENCH MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T. MUMBAI *CHAVAN ITA 3532/MUM/2010 ITA 4237/MUM/2010 M/S. REMI METALS GUJARAT LTD. 9 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 11/12.07.2011 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 13.07.2011 SR.PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7 FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER