THE DY CIT RG 8(3), MUMBAI v. M/S. TRANSASIA BIO-CHEMICALS LTD, MUMBAI

ITA 40/MUM/2008 | 2005-2006
Pronouncement Date: 25-11-2011 | Result: Partly Allowed

Appeal Details

RSA Number 4019914 RSA 2008
Assessee PAN AAACT2038C
Bench Mumbai
Appeal Number ITA 40/MUM/2008
Duration Of Justice 3 year(s) 10 month(s) 23 day(s)
Appellant THE DY CIT RG 8(3), MUMBAI
Respondent M/S. TRANSASIA BIO-CHEMICALS LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 25-11-2011
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted J
Tribunal Order Date 25-11-2011
Date Of Final Hearing 23-11-2011
Next Hearing Date 23-11-2011
Assessment Year 2005-2006
Appeal Filed On 02-01-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J MUMBAI BEFORE SHRI D.K. AGARWAL (JM) & SHRI B. RAMAKOTAI AH (AM) I.T.A. NO.40/MUM/2008 (A.Y. 2005-06) DY. COMMR. OF INCOME-TAX RANGE-8(3) R.NO.204 2 ND FLOOR AAYKAR BHAVAN M.K. ROAD MUMBAI-400 020. VS. M/S. TRANSASIA BIO-CHEMICALS LTD. TRANSASIA HOUSE CHANDIVALI STUDIO RD. MUMBAI-400 072. PAN : AAACT 2038 C. APPELLANT RESPONDENT APPELLANT BY SMT. KUSUM INGALE. RESPONDENT BY SHRI A SHOK SUTHAR. DATE OF HEARING 23-11-2011 DATE OF PRONOUNCEMENT 30-11-2011 O R D E R PER D.K. AGARWAL JM : THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AG AINST THE ORDER DATED 29-10-2007 PASSED BY THE CIT(A) FOR THE ASSESSMENT YEAR 2005-0 6. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING TRADING AND EXPORT OF MEDICAL IN STRUMENTS DIAGNOSTIC REAGENTS AND PROVIDING AFTER SALES SERVICE FOR THE INSTRUMENTS SUPPLIED BY THEM. THE RETURN WAS FILED DECLARING TOTAL INCOME OF RS.2 65 14 832/- AFTER CLAIMING DEDUCTION UNDER SECTIONS 10A AND 80IB. HOWEVER THE ASSESSMENT WAS COMPLETED AFTER MAKING VARIOUS ADDIT IONS/DISALLOWANCES AT AN INCOME OF RS.5 00 28 328/- VIDE ORDER DATED 29-03-2007 PASSE D U/S.143(3) OF THE INCOME-TAX ACT 1961 ITA NO.40/MUM/2008 M/S.TRANSASIA BIO-CHEMICALS LTD. 2 (THE ACT). ON APPEAL THE LD. CIT(A) WHILE ALLOWIN G SUBSTANTIAL RELIEF TO THE ASSESSEE PARTLY ALLOWED THE APPEAL. 3. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 4. GROUND NO.1 IS AGAINST THE DELETION OF ADDITION OF RS.2 05 44 950/- MADE BY THE AO ON ACCOUNT OF UNDER-STATEMENT OF PROFIT DUE TO CHANGE IN ACCOUNTING POLICY IN RESPECT OF ANNUAL MAINTENANCE CONTRACTS. 5. BRIEF FACTS OF THE ABOVE ISSUE ARE THAT THE AO N OTED THAT PRIOR TO ASSESSMENT YEAR 2002-03 THE ASSESSEE HAD BEEN FOLLOWING CASH SYSTEM OF ACCO UNTING IN RESPECT OF ANNUAL MAINTENANCE CHARGES COLLECTED FROM ITS CUSTOMERS FOR UNDERTAKIN G MAINTENANCE CONTRACTS FOR THE MEDICAL INSTRUMENTS SUPPLIED BY THE ASSESSEE. DURING THE SA ID ASSESSMENT YEAR 2002-03 THE ASSESSEE HAD CHANGED ITS METHOD OF ACCOUNTING FOR RECORDING REVENUE FROM ANNUAL MAINTENANCE CHARGES COLLECTED FROM CUSTOMERS FROM CASH BASIS TO MERCANT ILE BASIS. THE CHANGE IN METHOD OF ACCOUNTING WAS DISALLOWED BY THE AO IN ASSESSMENT Y EAR 2002-03 ON THE GROUND THAT THE CHANGE FROM CASH SYSTEM OF ACCOUNTING TO MERCANTILE SYSTEM OF ACCOUNTING HAD RESULTED IN UNDER-STATING THE TAXABLE INCOME. THE ASSESSEE CONTESTED THE ACTI ON OF THE AO REGARDING NOT ACCEPTING THE CHANGE IN THE METHOD OF ACCOUNTING BEFORE THE LD. C IT(A). THE LD. CIT(A) HELD THAT THE CHANGE IN METHOD OF ACCOUNTING WAS A BONA FIDE CHANGE MADE BY THE ASSESSEE FOR RECOGNIZING REVENUE FROM MAINTENANCE CONTRACTS AND ACCORDINGLY DELETED THE A DDITION MADE BY THE AO. ACCORDING TO THE AO SINCE THE DEPARTMENT HAS NOT ACCEPTED THE DECIS ION OF THE LD. CIT(A) AND HAS PREFERRED APPEAL BEFORE THE TRIBUNAL WHICH IS PENDING HENCE THE AO FOLLOWING THE ASSESSMENT ORDERS FOR THE EARLIER YEARS HAS OBSERVED THAT THE ANNUAL MAI NTENANCE CHARGES RECEIVED BY THE ASSESSEE AMOUNTING TO RS.2 05 44 950/- WHICH HAVE BEEN ACCO UNTED FOR BY THE ASSESSEE IN THE SUBSEQUENT YEAR DUE TO CHANGE IN ACCOUNTING POLICY TREATED TH E SAME AS ASSESSEES INCOME FOR THE YEAR UNDER CONSIDERATION AND THEREBY MADE AN ADDITION OF RS.2 05 44 950/- TO THE TOTAL INCOME OF THE ASSESSEE. ON APPEAL THE LD. CIT(A) FOLLOWING THE APPELLATE ORDERS FOR THE ASSESSMENT YEARS 2003- ITA NO.40/MUM/2008 M/S.TRANSASIA BIO-CHEMICALS LTD. 3 04 AND 2004-05 WHEREIN THE CHANGE IN THE SYSTEM OF ACCOUNTING WAS ALLOWED DELETED THE ADDITION MADE BY THE AO. 6. AT THE TIME OF HEARING THE LD. D.R. SUPPORTS TH E ORDER OF THE AO. 7. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSE SSEE SUBMITS THAT THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBU NAL IN THE ASSESSEES OWN CASE IN ADDL. CIT VS. TRANSASIA BIO-CHEMICALS LTD. AND VICE VERSA IN ITA NO.5784/MUM/2007 1174/MUM/2007 176/MUM/2006 1683/MUM/2007 AND 7591/MUM/2005 DATED 30-12-2009 FOR ASSESSMENT YEARS 2004-05 2003-04 AND 2002-03 WHEREIN THE TRI BUNAL HAS UPHELD THE ORDER OF THE LD. CIT(A) IN DELETING THE ADDITION MADE BY THE AO. HE FURTHER SUBMITS THAT THE ABOVE ORDER OF THE TRIBUNAL HAS BEEN FOLLOWED BY THE TRIBUNAL FOR THE ASSESSMENT YEAR 2006-07 IN ITA NO.2705/MUM/2009 DATED 18-02-2010. HE ALSO PLACED O N RECORD COPY OF THE ABOVE ORDER OF THE TRIBUNAL. HE THEREFORE SUBMITS THAT THE ORDERS PA SSED BY THE LD. CIT(A) IN DELETING THE ADDITION BE UPHELD. 8. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD. WE FIND MERIT IN THE PLE A OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY T HE ORDERS OF THE TRIBUNAL. IT HAS BEEN INTER ALIA HELD BY THE TRIBUNAL IN PARA 3.7 OF THE ORDER DATED 30-12-2009 (SUPRA) THAT .IN THE CASE UNDER CONSIDERATION THE ASSESSEE WAS COMPELLE D TO CHANGE ITS METHOD OF ACCOUNTING IN RESPECT OF INCOME FROM AMC AND CMC ON ACCOUNT OF MANDATORY REQUIREMENT OF AS-9 REQUIREMENT OF COMPANIES ACT AND INCOME TAX ACT SUCH BONAFIDE CHA NGES OF METHOD OF ACCOUNTING IS ACCEPTABLE IF THE ASSESSEE HAS CONSISTENTLY FOLLOWED THE CHANGED METHOD OF ACCOUNTING IN SUBSEQUENT YEARS. IN THE CASE UNDER CONSIDEATION THE ASSESSEE HAS FOLLO WED THE CHANGED METHOD OF ACCOUNTING IN SUBSEQUENT YEARS. WE FIND THAT THE CIT(A) HAS RIGHT LY DELETED THE ADDITION THEREFORE THE ORDER OF CIT(A) IS CONFIRMED ON THIS ISSUE. THE ABOVE ORDER HAS BEEN FOLLOWED BY THE TRIBUNAL IN THE CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2006-07 (SU PRA). ITA NO.40/MUM/2008 M/S.TRANSASIA BIO-CHEMICALS LTD. 4 9. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BRO UGHT ON RECORD BY THE REVENUE WE RESPECTFULLY FOLLOWING THE CONSISTENT VIEW OF THE T RIBUNAL HOLD THAT SINCE THE CHANGE OF METHOD OF ACCOUNTING WAS ON ACCOUNT OF MANDATORY REQUIREME NT OF AS-9 SUCH BONA FIDE CHANGE OF METHOD OF ACCOUNTING HAS BEEN CONSISTENTLY FOLLOWED BY THE ASSESSEE AND THERE IS NO CHANGE OF METHOD OF ACCOUNTING IN SUBSEQUENT YEARS THE LD. C IT(A) WAS FULLY JUSTIFIED IN DELETING THE ADDITION MADE BY THE AO. THE GROUND TAKEN BY THE RE VENUE IS THEREFORE REJECTED. 10. GROUND NO. 2 IS AGAINST THE DELETION OF DISALLO WANCE MADE U/S.14A OF RS.8 92 225/-. 11. BRIEF FACTS OF THE ABOVE ISSUE ARE THAT THE AO OBSERVED THAT THE ASSESSEE HAS DIVERTED ITS FUNDS FOR NON-BUSINESS PURPOSES. THE PROPORTIONATE INTEREST ON SUCH INVESTMENT AND ADVANCES NEEDS TO BE DISALLOWED. HE FURTHER OBSERVED THAT DU RING THE YEAR THE ASSESSEE HAS INCURRED INTEREST EXPENDITURE OF RS.16 02 381/- ON BORROWED FUNDS OF RS.1 63 12 365/- AS ON 31-03-2005. HE WORKED OUT THE AVERAGE INTEREST RATE AT 9.823%. THE PROPORTIONATE INTEREST ON THE ABOVE AMOUNT OF RS.90 83 025/- (RS.39 89 025/- + RS.50 85 000/-) HE WORKED OUT TO RS.8 92 225/- AND AFTER DISALLOWING THE SAME ADDED TO THE TOTAL INCO ME OF THE ASSESSEE. ON APPEAL THE LD. CIT(A) FOLLOWING THE APPELLATE ORDERS FOR THE ASSESSMENT Y EARS 2003-04 AND 2004-05 WHEREIN IT HAS BEEN HELD THAT THE AO HAD NOT MADE OUT ANY CASE TH AT BORROWING MADE BY THE ASSESSEE IS NOT FOR THE PURPOSES OF BUSINESS DELETED THE DISALLOWANCE MADE BY THE AO. 12. AT THE TIME OF HEARING THE LD. D.R. SUBMITS T HAT THE ISSUE MAY BE SET ASIDE TO THE FILE OF THE AO IN VIEW OF THE DECISION OF HONBLE BOMBAY HIGH COURT IN GODREJ & BOYCE MFG. CO.LTD. 13. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSE SSEE WHILE RELYING ON THE ORDER OF THE LD. CIT(A) SUBMITS THAT HE HAS NO OBJECTION IF THE ISS UE IS SET ASIDE TO THE FILE OF AO TO DECIDE THE SAME IN THE LIGHT OF THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. (2010) 328 ITR 81 (BOM.). 14. HAVING CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD WE FIND MERIT IN THE PLEA OF THE PARTIES THAT THE ISSUE STANDS COVERED ITA NO.40/MUM/2008 M/S.TRANSASIA BIO-CHEMICALS LTD. 5 BY THE RECENT JUDGMENT OF THE HONBLE JURISDICTIONA L HIGH COURT IN GODREJ & BOYCE MFG. CO. LTD. VS. DCIT (SUPRA) WHEREIN THEIR LORDSHIPS AFTER CO NSIDERING THE DECISION OF THE TRIBUNAL IN DAGA CAPITAL MANAGEMENT PVT. LTD. (117 ITD 169) (MUM) (S B) WHILE HOLDING THAT THE PROVISIONS OF SUB-SECTIONS (2) AD (3) OF SEC. 14A OF THE ACT ARE CONSTITUTIONALLY VALID HAVE HELD VIDE PLACITUM 88(VI) APPEARING AT PAGE 138 OF THE ITR AS UNDER : (VI) EVEN PRIOR TO ASSESSMENT YEAR 2008-09 WHEN R ULE 8D WAS NOT APPLICABLE THE ASSESSING OFFICER HAS TO ENFORCE TH E PROVISIONS OF SUB SECTION (1) OF SECTION 14A. FOR THAT PURPOSE THE A SSESSING OFFICER IS DUTY BOUND TO DETERMINE THE EXPENDITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INC OME UNDER THE ACT. THE ASSESSING OFFICER MUST ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND CIRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTUNITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECORD.' RESPECTFULLY FOLLOWING THE ABOVE JUDGMENT WE SET A SIDE THE ORDERS PASSED BY THE REVENUE AUTHORITIES ON THIS ISSUE AND SEND BACK THE MATTER TO THE FILE OF THE AO DECIDE THE SAME AFRESH IN THE LIGHT OF THE DIRECTIONS OF THE HONBLE JURISDIC TIONAL HIGH COURT IN THE ABOVE CITED CASE AND ACCORDING TO LAW AFTER PROVIDING REASONABLE OPPORTU NITY OF BEING HEARD TO THE ASSESSEE. THE GROUND TAKEN BY THE REVENUE IS THEREFORE PARTLY ALLOWED FOR STATISTICAL PURPOSES. 15. IN THE RESULT THE REVENUES APPEAL STANDS PART LY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE 30TH DA Y OF NOVEMBER 2011. SD/- SD/- ( B. RAMAKOTAIAH) (D.K. AGARWAL) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI: 30TH NOVEMBER 2011. NG: COPY TO : 1. DEPARTMENT. 2.ASSESSEE. 3 CIT(A)-XXIX MUMBAI. 4 CIT-8 MUMBAI. 5.DR J BENCH MUMBAI. ITA NO.40/MUM/2008 M/S.TRANSASIA BIO-CHEMICALS LTD. 6 6.MASTER FILE. (TRUE COPY) BY ORDER ASS T. REGISTRAR ITAT MUMBAI. ITA NO.40/MUM/2008 M/S.TRANSASIA BIO-CHEMICALS LTD. 7 DETAILS DATE INITIALS DESIGNATI ON 1. DRAFT DICTATED ON 23-11-2011 SR.PS/ 2. DRAFT PLACED BEFORE AUTHOR 24-11-2011 SR.PS/ 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/A M 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/ 6. KEPT FOR PRONOUNCEMENT ON SR.PS/ 7. FILE SENT TO THE BENCH CLERK SR.PS/ 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9. DATE ON WHICH FILE GOES TO THE AR 10. DATE OF DISPATCH OF ORDER