M/s KCP Ltd., Chennai v. The DCIT, Central Circle, Vijayawada

ITA 582/VIZ/2002 | 1997-1998
Pronouncement Date: 19-01-2011 | Result: Partly Allowed

Appeal Details

RSA Number 58225314 RSA 2002
Assessee PAN AAACT8046J
Bench Visakhapatnam
Appeal Number ITA 582/VIZ/2002
Duration Of Justice 8 year(s) 5 month(s) 6 day(s)
Appellant M/s KCP Ltd., Chennai
Respondent The DCIT, Central Circle, Vijayawada
Appeal Type Income Tax Appeal
Pronouncement Date 19-01-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted DB
Tribunal Order Date 19-01-2011
Date Of Final Hearing 05-10-2010
Next Hearing Date 05-10-2010
Assessment Year 1997-1998
Appeal Filed On 12-08-2002
Judgment Text
ITA NO.582/VIZAG/2002 KCP LTD. CHENNAI PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SHRI BR BASKARAN ACCOUNTANT MEMBER ITA NO.582/VIZAG/2002 ASSESSMENT YEAR: 1997-98 KCP LTD. CHENNAI VS. DCIT CENTRAL CIRCLE VIJAYAWADA (APPELLANT) PAN NO: AAACT 8046J (RESPONDENT) APPELLANT BY: SHRI C. SUBRAHMANYAM CA RESPONDENT BY: SHRI T.L. PETER CIT(DR) ORDER PER SHRI B. R. BASKARAN ACCOUNTANT MEMBER: THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 06-06- 2002 PASSED BY LD CIT(A)-I HYDERABAD AND IT RELATE S TO THE ASSESSMENT YEAR 1997-98. 2. THE GROUNDS RAISED BY THE ASSESSEE GIVE RISE TO THE FOLLOWING ISSUES:- A. DISALLOWANCE OF PROFESSIONAL FEE PAID - RS.2 50 000/- B. DISALLOWANCE OF REPAIRS TO BUILDING - RS.42 80 744/- C. DISALLOWANCE OF BONUS EXPENSES - RS.39 388 /- D. OBJECTION TO INCLUSION OF CAPITAL GAINS IN BOOK PROFIT U/S 115JA - RS.5 5 30 000/- E. OBJECTION TO INTEREST CHARGED UNDER S. 234A & 2 34B IN 115JA. 3. THE FACTS RELATING TO THE CASE ARE STATED IN BRIEF. THE ASSESSEE COMPANY IS ENGAGED IN MANUFACTURE AND SALE OF SUGAR CEMENT ENGINEERING MACHINERY ETC. WHILE COMPLETING THE AS SESSMENT FOR THE ASSESSMENT YEAR 1997-98 THE ASSESSING OFFICER MADE VARIOUS ADDITIONS. THE APPEAL PREFERRED BY THE ASSESSEE BEFORE LD CIT( A) WAS PARTLY ALLOWED. ITA NO.582/VIZAG/2002 KCP LTD. CHENNAI PAGE 2 OF 7 STILL AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE U S ASSAILING THE DECISION OF LD CIT(A) IN CONFIRMING THE ADDITIONS CITED IN THE PRECEDING PARAGRAPHS. 4. THE FIRST ISSUE RELATES TO THE DISALLOWANCE OF PROFESSIONAL FEE OF RS.2.50 LAKHS PAID TO A CONCERN NAMED M/S AVIS CONS ULTANTS. THE ASSESSEE CLAIMED THE SAID PAYMENT AS REVENUE EXPENDITURE AS THE SAME WAS INCURRED TOWARDS A PROGRAM FOR THE EMPLOYEES WELFA RE PROGRAM AIMED AT INCREASING THE EFFICIENCY LEVEL OF EMPLOYEES AND AL SO FOR DEVELOPMENT OF CHILDREN OF EMPLOYEES. HOWEVER THE ASSESSEE DID N OT ULTIMATELY CARRY OUT THE SAID PROGRAM. HENCE THE ASSESSING OFFICER DISA LLOWED THE SAID EXPENDITURE BY FOLLOWING THE DECISION OF HONBLE AN DHRA PRADESH HIGH COURTS DECISION IN THE CASE OF VAZIR SULTAN TOBACC O COMPANY LTD. (175 ITR 55). THE LD CIT(A) CONFIRMED THE DISALLOWANCE FOR T HE REASON THAT THE ASSESSEE COULD NOT FURNISH THE DETAILS OF SERVICES RENDERED BY THE SAID CONSULTANT. 4.1 ACCORDING TO THE ASSESSEE THE CASE LAW REL IED UPON BY THE ASSESSING OFFICER VIZ. M/S VAZIR SULTAN TOBACCO COMPANY LTD. SUPRA IS NOT APPLICABLE TO THE FACTS OF THE INSTANT ISSUE. IT WAS SUBMITTED THAT IN THAT CASE THE CONSULTANCY CHARGES WERE PAID FOR STARTING A NEW LI NE OF BUSINESS WHERE AS IN THE INSTANT CASE IT WAS PAID IN CONNECTION WITH THE EMPLOYEES WELFARE PROGRAMME OF A RUNNING BUSINESS. WE FIND MERIT IN THE SAID CONTENTIONS. THE IMPUGNED AMOUNT OF RS.2.50 LAKHS HAS BEEN PAID TO M/S AVIS CONSULTANT FOR DEVELOPMENT OF A CONCEPT NAMED KCP CITM WHICH WAS INTENDED TO BENEFIT THE EMPLOYEES. ACCORDING TO TH E ASSESSEE THE SAID PROGRAM WOULD IMPROVE THE EFFICIENCY LEVEL OF EMPLO YEES AND ALSO HELP THE DEVELOPMENT OF THE CHILDREN OF THE EMPLOYEES. FOR THE REASONS BEST KNOWN TO THE ASSESSEE THE SAID PROGRAM SEEMS TO HAVE BEE N ABANDONED. HENCE IT CANNOT BE TAKEN AS A ABANDONMENT OF NEW LINE OF BUSINESS. CONSIDERING THE INTENTION OF THE ASSESSEE AND THE BENEFIT THAT WAS EXPECTED THERE FROM THE IMPUGNED EXPENDITURE COULD ONLY BE TREATED AS T HE EXPENDITURE ITA NO.582/VIZAG/2002 KCP LTD. CHENNAI PAGE 3 OF 7 INCURRED FOR THE EXISTING BUSINESS AND HENCE IT SHO ULD BE TREATED AS REVENUE EXPENDITURE. ACCORDINGLY WE REVERSE THE O RDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO DELE TE THE IMPUGNED ADDITION OF RS.2 50 000/-. 5. THE NEXT ISSUE RELATES TO THE EXPENDITURE OF RS.42 80 744/- CLAIMED AS CURRENT REPAIRS ON THE OFFICE BUILDING LOCATED IN CHENNAI. THE ASSESSEE CLAIMED A SUM OF RS.1 41 69 993/- AS REPAIRS TO OFF ICE BUILDING. TWO FLOORS OF THE SAID BUILDING ARE USED FOR OWN PURPOSES AND OTHER TWO FLOORS HAVE BEEN LET OUT. OUT OF THE ABOVE SAID EXPENDITURE T HE ASSESSEE HAD SPENT A SUM OF RS.60 95 922/- FOR LET OUT PORTION. HENCE T HE ASSESSEE DID NOT OBJECT TO THE DISALLOWANCE OF THE SAME I.E. AMOUNT SPENT FOR LET OUT PORTION. IN RESPECT OF BALANCE AMOUNT WHICH WAS IN CURRED FOR THE PORTION OF BUILDING USED BY THE ASSESSEE THE ASSESSING OFF ICER ACCEPTED THE CLAIM OF CURRENT REPAIRS TO THE TUNE OF RS.33 17 692/-. HOWEVER HE DID NOT ACCEPT THE CLAIM OF CURRENT REPAIRS FOR THE REMAI NING AMOUNT OF RS.47 56 282/- AS ACCORDING TO HIM THE SAID EXPEN DITURE WOULD NOT FALL UNDER THE CATEGORY OF CURRENT REPAIRS WHICH IS ELIGIBLE FOR DEDUCTION U/S 30(A)(II) OF THE ACT BUT CAN ONLY BE TREATED AS CA PITAL EXPENDITURE. ACCORDINGLY HE DISALLOWED THE SAME AND ALLOWED DEPR ECIATION THERE ON. THE LD CIT(A) ALSO CONFIRMED THE SAID DECISION OF THE A SSESSING OFFICER. 5.1. WE NOTICE THAT THE ASSESSING OFFICER HAS D ISCUSSED IN DETAIL ABOUT THE MEANING OF CURRENT REPAIRS BY PLACING RELIANC E ON VARIOUS CASE LAW. DURING THE COURSE OF HEARING THE ASSESSEE FILED AN ADDITIONAL GROUND CLAIMING THAT THE IMPUGNED EXPENDITURE CAN BE TREAT ED AS REVENUE EXPENDITURE U/S 37(1) HOWEVER WITH OUT PREJUDICE TO ITS CONTENTION TO THE CLAIM AS CURRENT REPAIRS. THERE CAN BE A SITUATI ON THAT SOME EXPENDITURE MAY NOT FALL UNDER THE CATEGORY OF CURRENT REPAIRS BUT STILL THE SAME MAY FALL UNDER THE CATEGORY OF REVENUE EXPENDITURE. TH E NATURE AND PURPOSE OF THE EXPENDITURE HAS TO BE TAKEN IN TO ACCOUNT TO DE CIDE WHETHER THE ITA NO.582/VIZAG/2002 KCP LTD. CHENNAI PAGE 4 OF 7 RELEVANT EXPENDITURE CLAIMED BY AN ASSESSEE IS A CU RRENT REPAIR OR REVENUE EXPENDITURE OR CAPITAL EXPENDITURE. THE HONBLE SU PREME COURT HAS DEALT WITH THESE ISSUES IN THE FOLLOWING CASES. A. CIT V SARAVANA SPINNING MILLS LTD. (293 ITR 201 ) B. CIT VS. RAMARAJU SURGICAL COTTON MILLS LTD (294 ITR 201) C. CIT VS. MANGAYARKARASI MILLS PVT. LTD (315 ITR 114) D. CIT VS. HINDUSTAN TEXTILES LTD. 2009-TIOL-138-S. C-IT-LB DATED 03-11-2009 E. CIT VS. SUGAVANEESWARA SPINNING MILLS LTD (2009- TIOL-124-S.C - IT-LB DATED 16.11.2009 F. CIT VS. BHOJRAJ TEXTILE MILLS LTD (2009-TIOL-22 -S.CT-IT-LB DATED 08-02-2010. THOUGH THE ASSESSING OFFICER HAS LISTED OUT THE NAT URE OF EXPENDITURE INCURRED ON RENTED PORTION OF THE BUILDING NO SUCH DETAIL IS EXTRACTED IN RESPECT OF THE EXPENSES INCURRED ON THE PORTIONS US ED BY THE ASSESSEE. HOWEVER THE ASSESSEE HAS GIVEN THE DETAILS OF THE EXPENDITURE IN HIS PAPER BOOK. HENCE IT IS NOT BORNE OUT FROM RECORD WHETHE R THE ASSESSING OFFICER DID CONSIDER THE EACH ITEM OF EXPENDITURE CLAIMED A S CURRENT REPAIRS. IN ANY CASE THE ASSESSING OFFICER HAS NOT DEALT WITH THE ALTERNATIVE CLAIM OF REVENUE EXPENDITURE MADE BY THE ASSESSEE BEFORE US. HENCE IN OUR VIEW THIS ISSUE REQUIRES EXAMINATION AFRESH IN THE LIGHT OF THE DECISIONS OF HONBLE APEX COURT CITED ABOVE AND ALSO IN THE LIGH T OF THE ALTERNATIVE CLAIM OF THE ASSESSEE. ACCORDINGLY WE REVERSE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE MATTER BACK TO THE FILE OF TH E ASSESSING OFFICER WITH A DIRECTION TO CONSIDER THE ISSUE AFRESH IN ACCORDANC E WITH LAW AFTER AFFORDING NECESSARY OPPORTUNITY OF BEING HEARD. 6. THE NEXT ISSUE RELATES TO THE DISALLOWANCE O F BONUS AMOUNT OF RS.39 388/-. IT APPEARS THAT A SUM OF RS.39 388/- P ERTAINING TO THE EMPLOYEES BONUS WAS DISALLOWED WHILE PROCESSING TH E RETURN U/S 143(1)(A) OF THE ACT. THOUGH THE ASSESSING OFFICER DID NOT S PECIFICALLY DISCUSS THIS ISSUE YET HE PROCEEDED TO COMPUTE THE TOTAL INCOME FROM THE STAGE OF THE TOTAL INCOME THAT WAS DETERMINED IN THE INTIMATION ISSUED U/S 143(1)(A). HENCE ACCORDING TO THE ASSESSEE THE ABOVE SAID AM OUNT WAS CONTINUED TO ITA NO.582/VIZAG/2002 KCP LTD. CHENNAI PAGE 5 OF 7 BE DISALLOWED IN THE REGULAR ASSESSMENT ORDER. ACC ORDING TO THE ASSESSEE IT FURNISHED NECESSARY DETAILS THAT WERE REQUIRED F OR ALLOWING THE SAID CLAIM OF BONUS PAYMENT YET THE ASSESSING OFFICER DID NOT ACT UPON IT. IN THE APPEAL THE LD CIT(A) DECLINED TO INTERFERE WITH TH IS ISSUE BY OBSERVING THAT THE ASSESSEE SHOULD HAVE AGITATED THIS ISSUE BY FI LING AN APPEAL AGAINST THE INTIMATION PASSED U/S 143(1)(A). 6.1. THERE APPEARS TO BE NO BAR IN THE ACT TO ALL OW ANY EXPENDITURE WHICH WAS DISALLOWED AS A PRIMA FACIE ADJUSTMENT W HILE PROCESSING THE RETURN UNDER SECTION 143(1)(A) OF THE ACT. FROM TH E ORDER OF THE ASSESSING OFFICER WE NOTICE THAT HE HAS ALLOWED THE CLAIM OF BONUS TO THE EXTENT OF RS.11.369/- ON PRODUCTION OF NECESSARY EVIDENCES W HICH IS IN ACCORDANCE WITH OUR VIEW EXPRESSED ABOVE. HOWEVER THE ASSESSM ENT ORDER IS SILENT ABOUT THE IMPUGNED CLAIM OF RS.39 388/-. HENCE WE ARE OF THE VIEW THAT THE IMPUGNED CLAIM OF THE ASSESSEE SHOULD BE ALLOWE D IF IT IS IN ACCORDANCE WITH THE LAW. ACCORDINGLY WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE MATTER BACK TO THE FILE OF THE ASSE SSING OFFICER WITH A DIRECTION TO EXAMINE THE CLAIM OF THE ASSESSEE IN A CCORDANCE WITH LAW AND DECIDE THE MATTER BY PASSING A SPEAKING ORDER. THE ASSESSEE SHOULD BE GIVEN NECESSARY OPPORTUNITY OF BEING HEARD. 7. THE NEXT ISSUE RELATES TO THE DISPUTE WHETHE R OR NOT THE INCOME FROM CAPITAL GAINS SHALL FORM PART OF BOOK PROFIT FOR THE PURPOSES OF SEC. 115JA OF THE ACT. THIS ISSUE IS COVERED BY THE DECISION OF HYDERABAD SPECIAL BENCH IN THE CASE OF RAIN COMMODITIES LTD. VS. D.C. I.T REPORTED IN (2010) 41 DTR (HYD)(SB) 449. IN THAT CASE THE SPECIAL BE NCH HELD THAT THE INCOME FROM CAPITAL GAINS CANNOT BE DEDUCTED FROM T HE NET PROFIT WHILE ARRIVING AT BOOK PROFIT U/S 115JB OF THE ACT. IN OU R VIEW THE RATIO OF THAT DECISION IS EQUALLY APPLICABLE FOR THE PURPOSES OF SEC. 115JA OF THE ACT ALSO. IN THE INSTANT THE LD CIT(A) HAS FOLLOWED THE DECISI ON OF HONBLE BOMBAY HIGH COURT IN THE CASE OF VEEKAYLAL INVESTMENT CO. (P) LTD. (2001) (116 ITA NO.582/VIZAG/2002 KCP LTD. CHENNAI PAGE 6 OF 7 TAXMAN 104 (BOM)) IN DECIDING THE ISSUE AGAINST THE ASSESSEE AND THE DECISION OF SPECIAL BENCH ALSO IS IN ACCORDANCE WIT H THE DECISION OF THE HON'BLE BOMBAY HIGH COURT. IN VIEW OF THE ABOVE WE HOLD THAT THE INCOME FROM CAPITAL GAINS SHOULD BE DEDUCTED FROM T HE NET PROFIT WHILE ARRIVING AT THE BOOK PROFIT UNDER SECTION 115JA OF THE ACT. 7.1 THE ASSESSEE HAS INVESTED THE LONG TERM CAPI TAL GAINS IN BONDS WHICH ARE ELIGIBLE FOR DEDUCTION U/S 54EA OF THE ACT. AC CORDINGLY IT WAS CLAIMED THAT THE AMOUNT SO EXEMPT U/S 54EA SHOULD BE EXCLUD ED FROM THE BOOK PROFITS FOR THE PURPOSES OF SEC. 115JA OF THE ACT. THIS ISSUE HAS ALSO BEEN DECIDED AGAINST THE ASSESSEE IN THE FOLLOWING CASES . A) N.J.JOSE & CO. (P) LTD. VS. ASST. CIT (321 ITR 132 (KER); 217 CTR 479) B) GROWTH AVENUE SECURITIES (P) LTD. DY. CIT (1 ITR (TRIB) 807; 128 TTJ (DEL) 426. IN THE ABOVE CITED CASES IT HAS BEEN HELD THAT THE CAPITAL GAIN AMOUNT EXEMPTED U/S 54E OR UNDER SIMILAR PROVISIONS SHOULD NOT BE DEDUCTED FOR ARRIVING BOOK PROFIT. THE SPECIAL BENCH IN THE CAS E OF RAIN COMMODITIES LTD SUPRA HAS ALSO TAKEN INTO ACCOUNT THE ABOVE CITED DECISIONS IN HOLDING THAT THE CAPITAL GAINS EXEMPTED U/S 47(IV) OF THE A CT IS NOT DEDUCTIBLE WHILE ARRIVING AT THE BOOK PROFIT. IN VIEW OF THE FOREGOI NG DISCUSSIONS WE CONFIRM THE ORDER OF LD CIT(A) IN HOLDING THAT THE AMOUNT E LIGIBLE FOR DEDUCTION UNDER SECTION 54EA IS NOT DEDUCTIBLE FROM THE BOOK PROFIT. 8. THE NEXT ISSUE RELATES TO THE CHARGEABILITY OF INTEREST U/S 234B & 234C OF THE ACT IN COMPUTING TAX U/S 115JA OF THE ACT. THIS ISSUE IS ALSO DECIDED AGAINST THE ASSESSEE BY THE HONBLE SUPREME COURT I N A RECENT DECISION DATED 07-01-2011 IN THE CASE OF JCIT VS. ROTA INDIA LTD. (CIVIL APPEAL NO.135 OF 2011) WHEREIN IT WAS HELD THAT THE INTER EST UNDER SECTION 234B IS LEVIABLE ON THE TAX PAYABLE UNDER SECTION 115JA /115JB OF THE ACT. ACCORDINGLY WE CONFIRM THE ORDER OF LD CIT(A) ON T HIS ISSUE. ITA NO.582/VIZAG/2002 KCP LTD. CHENNAI PAGE 7 OF 7 9. THE LAST ISSUE RELATES TO THE CALCULATION OF INTEREST CHARGEABLE U/S 234C OF THE ACT. ACCORDING TO THE ASSESSEE THE LO NG TERM CAPITAL GAIN AROSE ONLY ON 26.3.1997 AND ACCORDINGLY IT IS CLAIM ED THAT THE INTEREST U/S 234C IS TO BE LEVIED FROM THAT DATE ONLY. WE NOTIC E THAT SEC. 234C ITSELF CONTAINS PROVISIONS TO TAKE CARE OF THIS KIND OF SI TUATIONS AND HENCE THE ASSESSING OFFICER IS REQUIRED TO CHARGE INTEREST AS PER THE SAID PROVISIONS. ACCORDINGLY THE ASSESSING OFFICER IS DIRECTED TO C HARGE INTEREST U/S 234C AS PER THE RELEVANT PROVISIONS. 10. IN THE RESULT THE APPEAL OF THE ASSESSEE I S TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 19 TH JANUARY 2011. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM DATE:19-01-2011 COPY TO 1 THE KCP LIMITED RAMAKRISHNA BUILDINGS NO.2 DR. P.V. CHERIAN CRESCENT CHENNAI-600 008. 2 DCIT CENTRAL CIRCLE VIJAYAWADA. 3 4. THE CIT HYDERABAD. THE CIT(A) HYDERABAD. 5 THE DR ITAT VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM