THE INDIAN HOME PIPE PIPE CO. LTD, MUMBAI v. DY CIT CEN CIR-22, MUMBAI

ITA 5172/MUM/2008 | 2004-2005
Pronouncement Date: 29-07-2011 | Result: Partly Allowed

Appeal Details

RSA Number 517219914 RSA 2008
Assessee PAN AAACT4063D
Bench Mumbai
Appeal Number ITA 5172/MUM/2008
Duration Of Justice 2 year(s) 11 month(s) 15 day(s)
Appellant THE INDIAN HOME PIPE PIPE CO. LTD, MUMBAI
Respondent DY CIT CEN CIR-22, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 29-07-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted I
Tribunal Order Date 29-07-2011
Date Of Final Hearing 30-05-2011
Next Hearing Date 30-05-2011
Assessment Year 2004-2005
Appeal Filed On 14-08-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH MUMBAI. BEFORE SHRI R.V.EASWAR PRESIDENT AND SHRI PRAMOD KUMAR ACCOUNTANT MEMBER I.T.A NO.5172/ MUM/2008 ASSESSMENT YEAR: 2004-05 THE INDIAN HUME PIPE CO. LTD. .. APPELLANT CONSTRUCTION HOUSE 2 ND FLOOR 5 WALACHAND HIRACHAND MARG BALLARD ESTATE MUMBAI-01. PA NO.AAACT 4063D VS DY. CIT CENT. CIRCLE-22 . RESPONDEN T AAYAKAR BHAVAN M.K. ROAD MUMBAI. APPEARANCES: H.P.MAHAJANI FOR THE APPELLANT SANJEEV DUTT FOR THE RESPONDENT DATE OF HEARING : 30-05-2011 DATE OF PRONOUNCEMENT: 29 -07-2011 O R D E R PER PRAMOD KUMAR: 1. BY WAY OF THIS APPEAL THE ASSESSEE HAS CHALLENGED COR RECTNESS OF CIT(A)S ORDER DATED 9 TH JULY 2008 IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT 1961 FOR THE ASSESSMENT YEAR 2004-05. 2. IN THE FIRST GROUND OF APPEAL THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCE: I .T.A NO.5172/ MUM/2008 ASSESSMENT YEAR: 2004-05 2 1.A. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE CIT(A) ERRED IN CONFIRMING THE VIEW OF THE LD AO TH AT THE APPELLANT WAS NOT ENTITLED TO DEDUCTION U/S.80-IA OF THE INCOME TA X ACT 1961. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND I N LAW THE CIT(A) ERRED IN CONFIRMING THE VIEW OF THE LD AO TH AT THE APPELLANT WAS A WORKS CONTRACTOR AND NOT A DEVELOPER OF INFRASTRUC TURE PROJECTS CLAIMED BY IT. B. THE LD CIT(A) ERRED IN DECIDING THE ABOVE ISSUE D E HORS THE FACTS OF THE CASE AND THE SUBMISSIONS MADE BY THE APPELLANT IN P ARTICULAR ON THE SCOPE OF THE RETROSPECTIVE AMENDMENT TO SECTION 80 -IA AND ON THE SUBJECT OF INVESTMENTS MADE AND RISKS ASSUMED BY THE APPE LLANT WHILE DEVELOPING THE ELIGIBLE INFRASTRUCTURE PROJECTS; C. THE LD AO BE DIRECTED TO ACCEPT THE CLAIM OF THE APPELLANT FOR DEDUCTION U/S.80IA AS RETROSPECTIVELY AMENDED. 3. BRIEFLY STATED THE RELEVANT MATERIAL FACTS ARE LI KE THIS. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF HUME PIPES AND EXECUT ION OF CIVIL PROJECTS. DURING THE RELEVANT PREVIOUS YEAR THE ASSESSEE HAD BUSINESS INCOM E EARNED FROM EXECUTION OF PROJECTS RELEVANT TO DEVELOPMENT OF INFRASTRUCTURE FACILITY SUCH AS WATER SUPPLY AND SEWERAGE PROJECTS COMPOSITE AND PART OF COMPOSITE P ROJECTS. THE CLAIM OF THE ASSESSEE WAS THAT COMPOSITE WATER SUPPLY PROJECTS MEAN UNDE RTAKING WATER SUPPLY PROJECTS FROM SOURCE TO DISTRIBUTION SYSTEM WHICH INCL UDES MANUFACTURING SUPPLYING LAYING JOINING OF PIPELINE AND INCLUDES C ONSTRUCTION OF PUMP HOUSE DELIVERY COMMISSIONING OF TURBINE PUMP SETS INSTALLATI ON OF BOOSTER MAINS BRANCH MAINS AND ELEVATOR RESERVOIRS ETC. WITH THIS EXPLANA TION OF ACTIVITY IT WAS CONTENDED THAT THE ASSESSEE WAS ENGAGED IN DEVELOPMENT OF INFRASTRU CTURE FACILITY AS DEFINED IN EXPLANATION (C) TO SECTION 80IA(4). THE ASSESSEE ON T HESE FACTS AND RELYING UPON TRIBUNALS DECISION IN THE CASE OF PATEL ENGINEERING L TD (84 TTJ 646) CLAIMED A DEDUCTION OF ` .11 39 42 000 U/S. 80IA OF THE ACT. THE ASSESSING OFFIC ER HOWEVER DID NOT ACCEPT THE SAID CLAIM. HE WAS OF THE VIEW THAT TH E ASSESSEE WAS A CONTRACTOR AND NOT DEVELOPER. RELYING UPON HONBLE SUPREME COURTS JUDGMENT IN THE CASE OF CIT VS. N.C.BUDHIRAJA & CO. (204 ITR 412) THE ASSESSING OFFICE R CONCLUDED THAT THE ASSESSEE CANNOT BE TERMED AS DEVELOPER OF A PROJECT MERELY BE CAUSE ASSESSEE HAS EXECUTED THE PROJECT FOR ACTUAL DEVELOPER OF INFRASTRUCTURE FACIL ITY I.E. GOVERNMENT OR SEMI- GOVERNMENT BODY CONCERNED AND THAT THE ASSESSEE COMPAN Y CANNOT BE CONSTRUED AS I .T.A NO.5172/ MUM/2008 ASSESSMENT YEAR: 2004-05 3 AN ENTERPRISE CARRYING ON BUSINESS OF DEVELOPING OPERA TING AND MAINTAINING OF ANY INFRASTRUCTURE FACILITY. AS REGARDS DECISION OF A COOR DINATE BENCH IN THE CASE OF PATEL ENGINEERING (SUPRA) THE ASSESSING OFFICER OBSERVED THAT THE DECISION HAS BEEN CHALLENGED BEFORE HONBLE BOMBAY HIGH COURT AND DOE S NOT THUS GIVE FINALITY TO THE DISPUTE. THE ASSESSING OFFICER THUS DECLINED THE DEDUCT ION U/S. 80IA AMOUNTING TO ` .11 39 42 000 TO THE ASSESSEE. AGGRIEVED ASSESSEE CARRIE D THE MATTER IN APPEAL BUT WITHOUT ANY SUCCESS. LEARNED CIT(A) UPHELD THE STAND O F THE ASSESSING OFFICER AND INTER ALIA OBSERVED AS FOLLOWS: 9. I HAVE CONSIDERED THE SUBMISSIONS PUT FORTH ON BEHALF OF THE APPELLANT BY THE LEARNED AR. THE FILTERS AND PARAMETERS OF VIEWI NG THE ELIGIBILITY OF AN ASSESSEE FOR A CLAIM UNDER SECTION 80IA(4) OF THE A CT HAVE BEEN MATERIALLY ALTERED BY VIRTUE OF AN AMENDMENT INSERTED BY WAY OF AN EXPLANATION IN SECTION 80IA BY THE FINANCE ACT 2007 WITH RETROS PECTIVE EFFECT FROM 1 ST APRIL 2000; A MATTER WHICH HAS BEEN IGNORED BY THE APPELL ANT IN ITS DETAILED SUBMISSIONS. THE OMISSION OF THE APPELLANT TO DISCU SS THE ELIGIBILITY OF ITS CLAIM FROM THE PERSPECTIVES OF THE SAID AMENDMENT IS IND EED CONSPICUOUS BY THE ABSENCE. THE SAID EXPLANATION WHICH HAS AN OVERRID ING IMPACT IN THE MATTER OF THE APPELLANTS ELIGIBILITY OF ITS CLAIM FOR A DEDU CTION U/S.80IA(4) OF THE ACT IS REPRODUCED BELOW:- EXPLANATION-FOR REMOVAL OF DOUBTS IT IS HEREBY DE CLARED THAT NOTHING CONTAINED IN THIS SECTION SHALL APPLY TO A PERSON W HO EXECUTES A WORK CONTRACT ENTERED INTO WITH THE UNDERTAKING OR ENTERPRISE AS THE CASE MAY BE. 10. THIS AMENDMENT IS OF RECENT VINTAGE. IN THE ME MORANDUM EXPLAINING THE PROVISIONS IN THE FINANCE BILL 2007 ITS PURPOSE AND AMBIT HAS BEEN DISCUSSED AS UNDER:- CLARIFICATION REGARDING DEVELOPER WITH REFERENCE T O INFRASTRUCTURE FACILITY INDUSTRIAL PARK ETC. FOR THE PURPOSES OF SECTION 80 IA INTERALIA PROVIDES FOR A TEN YEAR TAX BENEFIT TO AN ENTERPRISE OR AN UNDERTAKING ENGAGED IN DEVELOPMENT OF INFRASTRUCTURE FACILITIES INDUSTRIAL PARKS AND SPE CIAL ECONOMIC ZONES. THE TAX BENEFIT WAS INTRODUCED FOR THE REASON THAT I NDUSTRIAL MODERNIZATION REQUIRES A MASSIVE EXPANSION OF AND QUALITATIVE IMP ROVEMENT IN INFRASTRUCTURE (VIZ. EXPRESSWAYS HIGHWAYS AIRPORTS PORTS AND RA PID URBAN RAIL TRANSPORT SYSTEMS) WHICH WAS LACKING IN OUR COUNTRY. THE PURP OSE OF THE TAX BENEFIT HAS ALL ALONG BEEN FOR ENCOURAGING PRIVATE SECTOR PARTI CIPATION BY WAY OF INVESTMENT IN DEVELOPMENT OF THE INFRASTRUCTURE SEC TOR AND NOT FOR THE PERSONS WHO MERELY EXECUTE THE CIVIL CONSTRUCTION WORK OR AN Y OTHER WORKS CONTRACT. ACCORDINGLY IT IS PROPOSED TO CLARIFY THAT THE PROV ISIONS OF SECTION 80-IA SHALL NOT APPLY TO A PERSON WHO EXECUTES A WORKS CONTRACT ENTERED INTO WITH THE UNDERTAKING OR ENTERPRISE REFERRED TO IN THE SAID S ECTION. THUS IN A CASE WHERE A PERSON MAKES THE INVESTMENT AND HIMSELF CARRIES OUT THE DEVELOPMENT WORK I.E. CARRIES OUT THE CIVIL CONSTRUCTION WORK HE WILL BE ELIGIBLE FOR TAX BENEFIT UNDER SECTION 80-IA. IN CONTRAST TO THIS A PERSON WHO ENT ERS INTO A CONTRACT WITH ANOTHER PERSON [I.E. UNDERTAKING OR ENTERPRISE REFE RRED TO IN SECTION 80-IA] FOR I .T.A NO.5172/ MUM/2008 ASSESSMENT YEAR: 2004-05 4 EXECUTING WORKS CONTRACT WILL NOT BE ELIGIBLE FOR T HE TAX BENEFIT UNDER SECTION 80-IA. THIS AMENDMENT WILL TAKE RETROSPECTIVE EFFECT FROM 1 ST APRIL 2000 AND WILL ACCORDINGLY APPLY IN RELATION TO THE ASSESSMENT YEA R 2000-2001 AND SUBSEQUENT YEARS. 11. IT IS CLEAR FRO THE ABOVE AMENDMENT THAT AN ASS ESSEE CAN CLAIM A DEDUCTION UNDER SECTION 80IA(4) ONLY IF IT MAKES T HE INVESTMENT IN THE ELIGIBLE PROJECT AND ITSELF EXECUTES THE DEVELOPMENT WORK. A N ASSESSEE WILL BE DENIED A DEDUCTION U/S.80IA(4) IF IT ENTERS INTO A CONTRACT WITH ANOTHER PERSON FOR EXECUTING A WORKS CONTRACT. WHILE THOSE WHO PARTICIP ATE IN AN ELIGIBLE PROJECT AS PER THE IMPUGNED SECTION BY WAY OF INVESTMENT AR E ENTITLED TO SEEK A DEDUCTION U/S.80IA(4) ON THE OTHER HAND THOSE ASSE SSES WHO MERELY EXECUTE A CIVIL CONSTRUCTION WORK OR OTHER WORKS CONTRACT ARE NOT ENTITLED TO CLAIM SUCH A DEDUCTION. IT IS PERTINENT HERE TO DISCUSS THE MEAN ING OF A WORKS CONTRACT FOR THIS PURPOSE. A WORKS CONTRACT HAS NOT BEEN DEFINED IN SECTION 80IA OF THE ACT. A WORKS CONTRACT IS A CONTRACT FOR LABOUR WORK OR SE RVICE AND NOT FOR SALE OF GOODS THOUGH GOODS ARE USED IN EXECUTING THE CONTRA CT FOR LABOUR WORK OR SERVICE E.G. WHEN A CONTRACTOR CONSTRUCTS A BUILDIN G THE DEVELOPER PAYS FOR THE CAST WHICH INCLUDES THE COST OF BUILDING MATERIAL LABOUR AND OTHER SERVICES OFFERED BY THE CONTRACTOR. THE SUPREME COURT WHILE LAYING DOWN THE JUDICIAL RATIO IN THE CASE OF HAL LTD. V. STATE OF ORISSA 5 5 STC 327 OBSERVED THAT IN A CONTRACT FOR WORK THE PERSON PRODUCING HAS NO PRO PERTY IN THE THING PRODUCED AS A WHOLE EVEN IF PART OR EVEN WHOLE OF MATERIAL USED BY HIM MAY HAVE BEEN HIS PROPERTY EARLIER. THE APEX COURT FURTHER STATED IN THE CASE OF STATE OF TAMILNADU V. ANANDAM VISHWANATHAN (1989) 1 SCC 613 THAT THE NATURE OF CONTRACT CAN BE FOUND ONLY WHEN THE INTENTIONS OF T HE PARTIES ARE FOUND OUT. THE FACT THAT IN THE EXECUTION OF WORKS CONTRACT SOME M ATERIALS ARE USED AND THE PROPERTY IN THE GOODS SO USED PASSES TO THE OTHER PARTY THE CONTRACTOR UNDERTAKING THE WORK WILL NOT NECESSARILY BE DEEMED ON THAT ACCOUNT TO SELL THE MATERIALS. PRIMARY DIFFERENCE BETWEEN A CONTRACT OF WORK OR SERVICE AND A CONTRACT OF SALE IS THAT IN THE FORMER THERE IS TH E PERSON PERFORMING OR RENDERING SERVICE NO PROPERTY IN THE THING PRODUCE D AS A WHOLE NOTWITHSTANDING THAT A PART OR EVEN THE WHOLE OF TH E MATERIAL USED BY HIM MAY HAVE BEEN HIS PROPERTY. WHEN THE FINISHED PRODUCT S UPPLIED TO A PARTICULAR CUSTOMER IS NOT COMMERCIAL COMMODITY IN THE SENSE T HAT IT CANNOT BE SOLD IN THE MARKET TO ANY OTHER PERSON (OTHER THAN WHO COMMISSI ONED THE CONTRACTOR) THE TRANSACTION IS ONLY A WORKS CONTRACT. IT WAS HELD B Y THE SC IN THE CASE OF STATE OF GUJARAT V. VARIETY BODY BUILDERS AIR 1976 SC 210 8 THAT WHERE THE MAIN OBJECT OF WORK UNDERTAKEN BY THE PAYEE OF THE PRICE IS NOT THE TRANSFER OF A CHATTEL QUA CHATTEL THE CONTRACT IS ONE FOR LABOUR AND WORK. 12. THIS HAS BEEN REAFFIRMED AND REITERATED BY THE SUPREME COURT IN A RECENT JUDGMENT PRONOUNCED IN THE CASE OF STATE OF ANDHRA PRADESH V. KONE ELEVATORS (INDIA) LTD. 3 SCC 389 (2005) WHERE IT WAS STATED AS UNDER :- IT CAN BE TREATED AS WELL SETTLED THAT THERE IS NO STANDARD FORMULA BY WHICH OE CAN DISTINGUISH A CONTRACT FOR SALE FROM A WORK CONTRACT. THE QUESTION IS LARGELY ONE OF FACT DEPENDING UPON THE TERMS OF THE CONTRACT INCLUDING THE I .T.A NO.5172/ MUM/2008 ASSESSMENT YEAR: 2004-05 5 NATURE OF THE OBLIGATIONS TO BE DISCHARGED THERE UN DER AND THE SURROUNDING CIRCUMSTANCES. IF THE INTENTION TO TRANSFER FOR A P RICE A CHATTEL IN WHICH THE TRANSFEREE HAD NO PREVIOUS PROPERTY THEN THE CONTR ACT IS A CONTRACT FOR SALE. ULTIMATELY THE TRUE EFFECT OF AN ACCRETION MADE PU RSUANT TO A CONTRACT HAS TO BE JUDGED NOT BY ARTIFICIAL RULES BUT FROM THE INTE NTION OF THE PARTIES TO THE CONTRACT. IN A CONTRACT OF SALE THE MAIN OBJECT IS THE TRANSFER OF PROPERTY AND DELIVERY OF POSSESSION OF THE PROPERTY WHEREAS THE MAIN OBJECT IN A CONTRACT FOR WORK IS NOT THE TRANSFER OF THE PROPERTY BUT I T IS ONE FOR WORK AND LABOUR. ANOTHER TEST OFTEN TO BE APPLIED IS: WHEN AND HOW T HE PROPERTY OF THE DEALER IN SUCH A TRANSACTION PASSES TO THE CUSTOMER IS IT BY TRANSFER AT THE TIME OF DELIVERY OF THE FINISHED ARTICLE AS A CHATTEL OR BY ACCESSION DURING THE PROCESSION OF WORK ON FUSION TO THE MOVABLE PROPERTY OF THE CU STOMER? IF IT IS THE FORMER IT IS A SALE IF IT IS THE LATTER IT IS A WORKS CO NTRACTS. THEREFORE IN JUDGING WHETHER THE CONTRACT IS FOR A SALE OR FOR WORK A ND LABOUR THE ESSENCE OF THE CONTRACT OR THE REALITY OF THE TRANSACTION AS A WHO LE HAS TO BE TAKEN INTO CONSIDERATION. THE PREDOMINANT OBJECT OF THE CONTRA CT THE CIRCUMSTANCES OF THE CASE AND THE CUSTOM OF THE TRADE PROVIDE A GUIDE IN DECIDING WHETHER TRANSACTION IS A SALE OR A WORK CONTRACT. ESSEN TIALLY THE QUESTION IS OF INTERPRETATION OF THE CONTRACT. IT IS SETTLED LAW THAT THE SUBSTANCE AND NOT THE FORM OF THE CONTRACT IS MATERIAL IN DETERMINING THE NATURE OF TRANSACTION. NO DEFINITE RULE CAN BE FORMULATED TO DETERMINE THE QU ESTION AS TO WHETHER A PARTICULAR GIVEN CONTRACT IS A CONTRACT FOR SALE OF GOODS OR IS A WORKS CONTRACTS. ULTIMATELY THE TERMS OF A GIVEN CONTRACT WOULD BE DETERMINATIVE OF THE NATURE OF THE TRANSACTION WHETHER IT IS A SALE OF A WOR K CONTRACT. THEREFORE THIS QUESTION HAS TO BE ASCERTAINED ON FACTS OF EACH CAS E ON PROPER CONSTRUCTION OF TERMS AND CONDITIONS OF THE CONTRACT BETWEEN THE PA RTIES. 13. THE CONTRACTS EXECUTED BY THE APPELLANT PURSUAN T TO WHICH IT HAS CLAIMED A DEDUCTION U/S.80IA(4) MUST THEREFORE BE MEASURED FROM THE ABOVE METRICS LAID DOWN BY THE SUPREME COURT IN THE MATTE R OF WORKS CONTRACT. I HAVE PERUSED THE COPIES OF THE AGREEMENTS WITH VARIOUS U NDERTAKINGS WHICH WERE EXECUTED BY THE APPELLANT FOR EXECUTING THE IMPUGNED CONTRACTS WHICH ARE CLAIMED TO FALL WITHIN THE DOMAIN OF SECTION 80IA(4 ). IT IS CLEAR FROM THEM THAT THE UNDERLYING STATUES OF THE APPELLANT IN EACH OF THEM IS THAT OF A CONTRACTOR WHO HAS BEEN ENGAGED IN A WORKS CONTRACT. 14. IT IS CLEAR FROM THE ABOVE THAT THE APPELLANT H AD EXECUTED A WORKS CONTRACT IN RESPECT OF EACH OF THE PROJECTS FOR WHI CH IT HAS CLAIMED A DEDUCTION U/S.80IA(4) OF THE ACT. THE APPELLANT HAS ALSO BEEN UNABLE TO ESTABLISH AS TO HOW DID IT MAKE AN INVESTMENT IN THE PROJECT PART FROM NOT BEING ABLE TO PROVE THAT IT HAD NOT EXECUTED A WORKS CONTRACT AS IS EVIDENT A BOVE. IN VIEW OF THE FOREGOING I FIND NO MERIT IN THE CLAIM OF THE APPE LLANT FOR A DEDUCTION U/S.80IA OF THE ACT AND THUS REJECT THIS GROUND OF APPEAL. 4. THE ASSESSEE IS NOT SATISFIED BY STAND SO TAKEN BY THE CI T(A) AND IS IN FURTHER APPEAL BEFORE US. I .T.A NO.5172/ MUM/2008 ASSESSMENT YEAR: 2004-05 6 5. WE HAVE HEARD THE RIVAL CONTENTIONS PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CASE AS ALSO THE APPLI CABLE LEGAL POSITION. 6. WE FIND THAT THERE IS NO DISPUTE ABOUT THE FACT TH AT AS THE LAW STANDS NOW IN THE LIGHT OF RETROSPECTIVE INSERTION OF EXPLANATION B ELOW TO SECTION 80IA(13) THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S. 80IA(4). THIS EXPLANATION INTRODUCED BY FINANCE ACT 2009 WITH RETROSPECTIVE EFFECT FROM 1 ST APRIL 2000 PROVIDES THAT (F)OR THE REMOVAL OF DOUBTS IT IS HEREBY DECLARED THAT NOT HING CONTAINED IN THIS SECTION ( I.E. 80-IA) SHALL APPLY IN RELATION TO A BUSINESS REFERRED TO IN SU B-SECTION(4) WHICH IS IN THE NATURE OF WORKS CONTRACT AWARDED BY ANY PERSON (I NCLUDING CENTRAL OR STATE GOVERNMENT) AND EXECUTED BY THE UNDERTAKING OR ENTE RPRISE REFERRED TO IN SUB- SECTION (1). SUCH BEING THE LEGAL POSITION AND THE ASSESSEE HAVING MERELY EXECUTED THE WORKS CONTRACT FOR INFRASTRUCTURE DEVELOPMENT AS A WARDED TO HIM WE ARE OF THE CONSIDERED VIEW THAT AUTHORITIES BELOW RIGHTLY DECLIN ED THE DEDUCTION U/S. 80IA TO THE ASSESSEE. WE APPROVE THE CONCLUSIONS ARRIVED AT BY THE C IT(A) AND DECLINE TO INTERFERE IN THE MATTER. 7. WE MAY MENTION THAT WHILE LEARNED COUNSEL DOES NOT DISPUTE THAT ISSUE STANDS CONCLUDED AGAINST THE ASSESSEE BY EXPLANATION INSERTED BY FINANCE ACT 2009 HE SUBMITS THAT THE DECISION OF A LARGER BENCH OF THIS TRI BUNAL . IN THE CASE OF BT PATIL & SONS BELGAUN CONSTRUCTIONS PVT LTD. VS ACIT [35 SOT 171 ] WHICH HOLDS THAT EVEN WITHOUT THE BENEFIT OF THE AFORESAID AMENDMENT IS NO LONGER GOOD IN LAW IN THE LIGHT OF HONBLE BOMBAY HIGH COURTS JUDGMENT IN THE CASE O F CIT VS. ABG HEAVY INDUSTRIES LTD [322 ITR 323]. HE TAKES US THROUGH THE OBSERVATIO NS MADE BY HONBLE BOMBAY HIGH COURT WHICH ACCORDING TO HIM IMPLIEDLY OVER RULE TO THE STAND TAKEN BY LARGER BENCH IN BT PATILS CASE (SUPRA). LEARNED COUNSEL FURT HER SUBMITS THAT THIS ASPECT OF THE MATTER IS VERY IMPORTANT SINCE RETROSPECTIVELY OF AMENDMENT BY FINANCE ACT 2009 IS UNDER CHALLENGE BEFORE HONBLE BOMBAY HIGH C OURT IN THE CASE OF PATEL ENGINEERING (SUPRA) AND IN CASE CHALLENGE TO RETROSPE CTIVELY IS UPHELD THE ASSESSEES CLAIM TO DEDUCTION WILL HAVE TO BE UPHELD TOO. LEA RNED DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND OPPOSE THESE CONTENTIONS AND SUBMIT S THAT AS HELD BY LARGER I .T.A NO.5172/ MUM/2008 ASSESSMENT YEAR: 2004-05 7 BENCH IN BT PATILS CASE (SUPRA) EVEN WITHOUT THE BEN EFIT 2009 AMENDMENT ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S. 80IA. IN OUR CON SIDERED VIEW HOWEVER THIS ASPECT OF THE MATTER IS WHOLLY ACADEMIC AT THIS STAGE AND IT DOES NOT REALLY CALL FOR ANY ADJUDICATION BY US. ONCE IT IS AN ADMITTED POSITIO N THAT IN VIEW OF THE LAW AS IT IS STAND NOW THE ASSESSEE IS NOT ENTITLED TO DEDUCTION U/S. 80IA IT IS WHOLLY ACADEMIC AS TO WHAT WILL BE THE STATUS OF THE CLAIM IF EXPLANATIO N INSERTED BELOW SECTION 80IA(13) IS HELD TO BE APPLICABLE ONLY WITH PROSPECTIVE EFFECT AND NOT RETROSPECTIVE EFFECT AS HAS BEEN EXPRESSLY DONE BY THE LEGISLATURE. WE NEED NO T ADDRESS OURSELVES TO SUCH HYPOTHETICAL ARGUMENTS. AS REGARDS THE CONTENTIONS TH AT CERTAIN OBSERVATIONS MADE IN BT PATILS CASE (SUPRA) DO NOT HOLD GOOD LAW ANY LO NGER BECAUSE OF THE LAW LAID DOWN BY HONBLE BOMBAY HIGH COURT IN ABG HEAVY INDU STRIES LTD (SUPRA) IT IS ONLY ELEMENTARY THAT ONCE THEIR LORDSHIPS OF HIGH COURTS EX PRESSED VIEW OF ANY SUBJECT CONTRARY VIEWS OF THE COURTS BELOW CEASES TO HOLD GOOD IN LAW BUT THEN IN THE PRESENT CASE IT IS NOT REALLY NECESSARY TO ADDRESS OURSELVES TO TH IS ASPECT OF THE MATTER BECAUSE THAT ASPECT OF THE MATTER IS AT PRESENT WHO LLY ACADEMIC. WE THEREFORE SEE NO NEED TO ADJUDICATE UPON THE ARGUMENTS WHICH DEAL WITH CERTAIN HYPOTHETICAL SITUATION AND NOT THE PRESENT LEGAL SITUATION. THIS ASP ECT OF THE MATTER IS WHOLLY ACADEMIC AND INFRUCTUOUS. 8. GROUND NO.1 IS THUS DISMISSED. 9. IN GROUND NO.2 THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCE: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD CIT(A) ERRED IN CONFIRMING THE ACTION OF THE LD AO IN NOT ALLOWING DEDUCTION OF ` .4 73 084 AS CLAIMED BY THE APPELLANT IN RESPECT OF BONUS PAID TO EMPLOYEES. 10. SO FAR AS THIS GRIEVANCE OF THE ASSESSEE IS CONCERNED ONLY A FEW FACTS TO BE TAKEN NOTE OF. DURING THE COURSE OF ASSESSMENT PROCEEDI NGS IT WAS NOTICED THAT THE ASSESSEE HAS ADDED BACK A SUM OF ` .1 55 41 164 AS UNPAID BONUS. HOWEVER DURING THE ASSESSMENT PROCEEDINGS THE ASSESSEE REQUESTED TO REDUCE A SUM OF R.4 73 084 WHICH REPRESENTS UNCLAIMED BONUS BY THE EMPLOYEES AND N OT UNPAID BONUS TO THE EMPLOYEES. IT WAS SUBMITTED THAT THE COMPANY HAD DIST RIBUTED THE BONUS BEFORE FILING THE RETURN AND BEFORE FILING THE TAX AUDIT R EPORT BUT WHAT IS DISALLOWABLE UNDER I .T.A NO.5172/ MUM/2008 ASSESSMENT YEAR: 2004-05 8 SECTION 43B IS UNPAID BONUS AND NOT UNCLAIMED BONUS. T HE SUBMISSIONS OF THE ASSESSEE WAS THAT THE AMOUNT OF ` .4 73 084 REPRESENTS THE AMOUNT WHICH THE ASSESSEE HAS OFFERED TO PAY BUT WHICH THE EMPLOYEES HAVE NOT CLAIMED. THE AO WAS HOWEVER NOT IMPRESSED BY THIS SUBMISSION. HE OBSERVED T HAT THE TEST OF DISALLOWING OF BONUS UNDER SECTION 43B IS WHETHER THE AMOUNT HAS B EEN PAID OR NOT AND THE REASONS FOR NON PAYMENT ARE IMMATERIAL. THE AO THUS D ECLINED THE CLAIM MADE BY THE ASSESSEE. AGGRIEVED ASSESSEE CARRIED THE MATTER IN APPEAL BUT WITHOUT ANY SUCCESS. 11. THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE US. 12. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PE RUSED THE MATERIAL ON RECORD WE SEE NO NEED TO INTERFERE IN THE MATTER B ECAUSE SECTION 43B R.W.S. 36(1)(II) SPECIFICALLY PROVIDES THAT INTER ALIA ANY SUM PAID TO AN EMPLOYEE AS BONUS SHALL BE ALLOWED ONLY IN THE PREVIOUS YEAR IN WHICH SUCH SUM IS ACTUALLY PAID TO THE EMPLOYEE. IT IS WHOLLY IMMATERIAL AS TO WHETHER THE AMOUNT HAS R EMAINED UNPAID DUE TO LAPSE OF THE ASSESSEE OR NOT WE THEREFORE CONFIRM THE ACTIO N OF THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 13. GROUND NO.2 IS THUS DISMISSED. 14. IN GROUND NO.3 THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCE: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD CIT(A) ERRED IN CONFIRMING THE VIEW OF THE LD AO TH AT EXPENDITURE OF ` .2 68 475 WAS CAPITAL IN NATURE REJECTING THE CONTEN TION OF THE APPELLANT THAT IT WAS REVENUE IN NATURE. 15. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSI NG OFFICER NOTED THAT THE ASSESSEE HAS INCURRED AN EXPENDITURE OF ` .64.96 LAKHS UNDER THE HEAD REPAIRS AND OUT OF THE REPAIRS EXPENSES SO CLAIMED TH E ASSESSEE HAS SPENT THE AMOUNT TOWARDS COST OF CERAMIC TILES CIVIL WORK FURN ITURE FURNISHED AND ELECTRIC INSTALLATIONS WHICH ARE NOT DEDUCTIBLE AS CURRENT REPA IRS. THE EXPENDITURE SO INCURRED WHICH ACCORDING TO THE ASSESSING OFFICER AMOUNTED TO ` .2 98 305 WAS DISALLOWED THOUGH DEPRECIATION @10% WAS GRANTED ON THE SAME. TH E ASSESSING OFFICER RELIED UPON THE JUDGMENT OF HONBLE DELHI HIGH COURT IN TH E CASE OF MODI SPINNING & I .T.A NO.5172/ MUM/2008 ASSESSMENT YEAR: 2004-05 9 WEAVING MILLS CO. LTD VS. CIT(1993) 200 ITR 544 AND H ONBLE SUPREME COURTS JUDGMENT IN THE CASE OF BALIMAL NAVALKISHOR VS CIT[224 ITR 414). AGGRIEVED BY THE STAND SO TAKEN BY THE ASSESSING OFFICER THE ASSESSEE CARRI ED THE MATTER IN APPEAL BUT WITHOUT ANY SUCCESS. THE CIT(A) HELD THAT THE EXPENSES IN QUESTION WERE INCURRED OF RENOVATED LOBBY AND BOARD ROOM IS LONG LASTING AND EN DURING IN NATURE. SHE HOWEVER RESTRICTED THE DISALLOWANCE TO ` .2 38 648 AS AGAINST ` .2 68 475 MADE BY THE ASSESSING OFFICER. 16. THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE US. 17. WE HAVE HEARD THE RIVAL CONTENTIONS PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CASE AS ALSO THE APPLI CABLE LEGAL POSITION. 18. WE FIND THAT THE COPIES OF THE RELATED BILLS ARE PLACED BEFORE US AT PAGES 109 TO 112 OF THE COMPILATION OF PAPERS AND THAT A PERUSAL O F THESE PAPERS SHOW THAT EXPENSES HAVE BEEN INCURRED MAINLY ON REPAIRS AND MAIN TENANCE SUCH AS REPAIRING OF CHAIRS CHANGING UPHOLSTERY REPLACING CASTORS AND P OLISHING/PAINTING REMOVING EXISTING POP SHEETS FROM FALSE CEILING CARTING AWAY DE BRIS AND REDOING THE SAME REPLACING REXENE OF THE FURNITURE IN THE RECEPTION AREA GRANITE SHELF IN PANTRY REPAIRING/ALTERING EXISTING STORAGE IN PANTRY WITH RE PLACING DECAYED PLY FIXING NEW LAMINATE ON SHELF TOP BOTTOM ETC. ALL THESE EXPEN SES ARE CLEARLY IN THE NATURE OF CURRENT REPAIRS INASMUCH AS EVEN THOUGH SOME REPLACEME NTS ARE NEEDED BUT REPLACEMENTS ARE OF THE CONSUMABLE WHICH HAVE LIMITED SPAN OF LIFE. IN OUR CONSIDERED VIEW THE CLAIM OF THE ASSESSEE DESERVES TO BE ALLOWED AS IN THE NATURE OF CURRENT REPAIRS. WE FIND SUPPORT FROM THE JUDGMENT O F HONBLE BOMBAY HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX V. HEDE CONSULTANCY PVT. LTD.(258 ITR 320) WHEREIN IT HAS BEEN HELD THAT SINCE THE ASSETS CRE ATED BY SPENDING THE SAID AMOUNTS DID NOT BELONG TO THE ASSESSEE BUT THE ASSESSEE GOT THE BUSINESS ADVANTAGE OF USING MODERN BUSINESS PREMISES AT A LOW RENT THUS SAVING CONSIDERABLE REVENUE EXPENDITURE FOR A CONSIDERABLY L ONG PERIOD THE EXPENDITURE SHOULD BE LOOKED UPON AS REVENUE EXPENDITURE. WE A LSO FIND THAT IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2003-04 THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF I .T.A NO.5172/ MUM/2008 ASSESSMENT YEAR: 2004-05 10 THE ASSESSEE BY A COORDINATE BENCH OF THIS TRIBUNAL. WE THEREFORE UPHOLD THE GRIEVANCE OF THE ASSESSEE AND DIRECT THE AO TO ALLOW TH E DEDUCTION. 19. GROUND NO.3 IS THUS ALLOWED. 20. IN GROUND NO.4 THE ASSESSEE HAS RAISED THE FOLLOWIN G GRIEVANCE: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF APPELLANT S CLAIM FOR BAD DEBTS AN AMOUNT OF ` .1 66 833/-. 21. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSIN G OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED A DEDUCTION OF ` . 1 66 833 AS BAD DEBTS WHICH IN FACT REPRESENTS WRITE OFF OF CERTAIN DEBTS WHICH HAVE NOT BEEN TAKEN INTO ACCOUNT INCOME OF THE EARLIER ASSESSMENT YEARS. THE ASSESSING OFFIC ER WAS OF THE VIEW THAT AS SECTION 36(2)(I) CLEARLY STATES THAT IN ORDER TO EL IGIBLE FOR DEDUCTION AS BAD DEBT THE DEBT SHOULD FORM PART OF THE INCOME OF ONE OF TH E EARLIER PREVIOUS YEARS. AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL BE FORE THE CIT(A) BUT WITHOUT ANY SUCCESS. 22. THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE US. 23. WE HAVE NOTED THAT THE MAIN CONTENTION OF LEARN ED COUNSEL IS THAT IN VIEW OF HONBLE SUPREME COURTS JUDGMENT IN THE CASE OF VIJAY BANK VS CIT (5 SCC 416) THE ASSESSEES CLAIM OF BAD DEBT IS TO BE ALLOWED EVEN THOUGH THE DEBT HAS NEVER FORMED PART OF INCOME OF THE EARLIER ASSESSMENT YEARS. THE VIE WS SO EXPRESSED BY THEIR LORDSHIPS ARE IN THE CONTEXT OF BANKING INSTITUTION AN D THEREFORE THIS DECISION IS NOT APPLICABLE ON THE FACTS OF THE PRESENT CASE. AS IS CLE ARLY DISCERNABLE FROM THE MATERIAL ON RECORD THE AMOUNTS WHICH HAVE BEEN DISAL LOWED AS BAD DEBT REPRESENTS THE AMOUNTS WRITTEN OFF IN RESPECT OF CERTAIN DEPOSITS ETC. THIS CLAIM IN OUR HUMBLE UNDERSTANDING IS NOT PERMISSIBLE AS BAD DEBT FOR THE EL EMENTARY REASON AS RIGHTLY NOTED BY THE AUTHORITIES BELOW THAT THE RELATED AMO UNT HAS NOT BEEN INCLUDED AS INCOME IN ANY ONE OF THE EARLIER PREVIOUS YEARS. TO THAT EXTENT THE STAND OF THE AUTHORITIES BELOW IS QUITE JUSTIFIED AND DOES NOT CALL FOR ANY INTERFERENCE. HOWEVER NONE OF THE AUTHORITIES BELOW HAVE EXAMINED WHETHER THE AMOUNTS SO WRITTEN OFF I .T.A NO.5172/ MUM/2008 ASSESSMENT YEAR: 2004-05 11 QUALIFY FOR DEDUCTION AS A BUSINESS LOSS. IN THE INTER EST OF JUSTICE WE THEREFORE DEEM IT FIT AND PROPER TO REMIT THE MATTER TO THE F ILE OF THE ASSESSING OFFICER FOR RE- ADJUDICATION IN THIS LIGHT AFTER GIVING PROPER HEARI NG TO THE ASSESSEE. 24. GROUND NO.4 IS THUS ALLOWED FOR STATISTICAL PURPOSES. 25. IN THE RESULT APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 29 TH JULY 2011 SD/- (R.V.EASWAR) PRESIDENT SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER MUMBAI DATED 29 TH JULY 2011 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS) IV MUMBAI 4. COMMISSIONER OF INCOME TAX C-II MUMBAI 5. DEPARTMENTAL REPRESENTATIVE BENCH I MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR ITAT MUMBAI