Commissioner Of Income-Taxfaridabad v. M/S. P.r. Packaging Ltd. Ballabgarh

-1- IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH. --- Income-tax Appeal No. 445 of 2010Date of decision: 15.9.2010 Commissioner of Income-taxFaridabad Versus M/s. P.R. Packaging Ltd. Ballabgarh --- Appellant --- Respondent CORAM:HON’BLE MR. JUSTICE ADARSH KUMAR GOELHON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- PRESENT: Ms. Urvashi Dhugga, Advocatefor the appellant. --- AJAY KUMAR MITTAL, J. This appeal under Section 260A of the Income-tax Act,1961 (for short “the Act’”) has been filed by the Revenue against theorder dated 13.11.2009, passed by the Income Tax Appellate Tribunal,Delhi Bench “F” New Delhi, (in short “the Tribunal”) in Income-taxAppeal No. 2700/Del/2009, in respect of assessment year 2005-06. The facts of the case are that the respondent, i.e. assessee-company is engaged in manufacture of thermocol packing/ duplexcartons and corrugated boxes. For the assessment year 2005-06, the assessee filed return of income declaring total income of Rs. NIL. Thereturn was taken up for scrutiny. The assessment was completed underSection 143(3) of the Act vide order dated 31.12.2007 at an income ofRs. 39,65,890/-. The assessing officer made an addition of Rs.2,57,417/- on account of deferred revenue expenditure on the groundthat the assessee had failed to furnish any evidence in support of itsclaim despite repeated opportunities. The assessing officer madeanother addition of Rs. 50,18,599/- on account of bogus purchases as itwas observed that the assessee had failed to prove the genuineness ofthe said purchases. The assessee filed appeal before theCommissioner of Income-tax (Appeals), Faridabad {in short “CIT(A)”}.The CIT (A) vide order dated 31.3.2009, partly allowed the appeal of theassessee giving relief of Rs. 56,16,739/- and confirming the addition ofRs. 1,14,981/- besides enhancing the income of the assessee by Rs.5,120/- subject to directions in para 20.1 of its order for verification ofset-off of the brought-forward unabsorbed business loss/depreciation. The Revenue preferred appeal before the Tribunal. Theaddition of first amount indicated above, i.e. Rs. 2,57,417/- isconcerned, the Tribunal upheld the order of CIT(A) in that behalf. Inregard to addition of Rs. 50,18,599/- made by the assessing officerwhich was deleted by the CIT(A), the Tribunal concurred with the viewof the CIT(A) and upheld the order of the said authority. Qua disallowance of Rs.50,000/- which the assessee hadpaid as loan processing fee, by the assessing officer, which was deletedby the CIT(A) after relying on the decision of the Madras High Court inCIT v. Shree Meenakshi Mills Ltd. (2007) 290 ITR 107, the Tribunal put its seal of affirmation. The order with regard to additions of amounts ofRs. 18,859/- on account of employees’ contribution to provident fundand Rs.21,010/- on account of ISO expenses even though theexpenditure incurred were capital expenditure, passed by the assessingofficer and deleted by the CIT(A) was also upheld by the Tribunal byorder dated 13.11.2009. This is how the Revenue has claimed that the followingsubstantial questions of law arise in this appeal for consideration of thisCourt: 1-Whether on the facts and in the circumstances of thecase, the learned ITAT was right in law in upholdingthe order of the learned CIT(A) in deleting theaddition of Rs. 2,57,417/- made by the AssessingOfficer on account of deferred revenue expenditureeven though the assessee had failed to furnish anyevidence/justification in support of its claim despiterepeated opportunities provided and is contrary tothe decision of Hon’ble Madras High Court in thecase of Ashoka Betelnut Co. (P) Ltd. 259 ITR 733wherein their Lordship had observed that the saidprovisions permit the writing off of deficienciesbetween WDV in the money realized on the assetswhich is sold, discarded, demolished or destroyed inthe previous year together with the amount of scrapvalue, if less than WDV? 1-Whether on the facts and in the circumstances of thecase, the learned ITAT was right in law in upholdingthe order of the learned CIT(A) in deleting theaddition of Rs. 2,57,417/- made by the AssessingOfficer on account of deferred revenue expenditureeven though the assessee had failed to furnish anyevidence/justification in support of its claim despiterepeated opportunities provided and is contrary tothe decision of Hon’ble Madras High Court in thecase of Ashoka Betelnut Co. (P) Ltd. 259 ITR 733wherein their Lordship had observed that the saidprovisions permit the writing off of deficienciesbetween WDV in the money realized on the assetswhich is sold, discarded, demolished or destroyed inthe previous year together with the amount of scrapvalue, if less than WDV? Whether on the facts and in the circumstances of the case, the learned ITAT was right in law in upholdingthe order of the learned CIT(A) in deleting theaddition of Rs. 50,18,599/- made by the AssessingOfficer on account of bogus purchases even thoughthe assessee had failed to prove the genuineness ofthese purchases?” We have heard learned counsel for the Revenue-appellantand have also gone through the record. The appeal relates to deletion of Rs.2,57,417/- andRs.50,18,599/- made by CIT(A) which has been upheld by the Tribunal. Regarding Question No.1 The CIT(A) deleted the addition of Rs. 2,57,417/- whichwas made by the assessing officer on account of deferred revenueexpenditure with the observations that in the re-opened assessmentproceedings under Section 147 of the Act for assessment years 2001-01 and 2002-03, the assessing officer had taken a view that theassessee was to be allowed depreciation on moulds and dyes asagainst the deferred revenue expenditure claimed by him. It was furtherobserved that on the basis of Written Down Value so worked out, thedepreciation allowable during the assessment year under referencewould be Rs.9,60,358/-. The CIT(A) further observed that in the light ofthe said position, deduction was to be allowed by way of depreciation orby invoking Section 32(1)(iii) of the Act, and since depreciation wasfound to be higher than the deduction claimed by the assessee at Rs.6,43,542/-, disallowance of Rs. 2,57,417/- being 40% of Rs. 6,43,542/-was not called for. The relevant observations of the CIT(A), while deleing the aforesaid deduction as recorded in para 9.5 of its order areas under: “I have carefully gone through the assessment order,written submissions and heard the Ld. AR at lengthcoupled with the fact that the AO has not contributed anyassistance to rebut or oppose the detailed facts and theposition of law stated in the written submissions andreproduced above. It cannot be disputed that the appellanthas failed to substantiate the correctness of the explanationrendered before the AO that scrap value of the old dyes /moulds are adjusted in the cost of the new dyes/ moulds,but the fact that dyes And moulds are purchased year afteryear have not been disputed. The matter needs to beexamined as to what deduction is admissible on facts andin law, to controvert the assessee’s claim of deferredrevenue expenditure at Rs. 6,43,542/-. Though the AO hasopted to invoke provisions of section 32(1)(iii) of the Act,but it is evident that he has not understood the provisionsof section 32(1)(iii) in its true import. The Ld. AR has giventhe working of Rs. 6,43,542/- as mentioned below: Purchases of dyes/moulds during the year Rs. 15,43,771/- ; 20% thereof= Rs.3,08,754 20% of purchases forA.Y. 2004-05 (Rs.11,53,049)= Rs. 2,30,61020% of purchases for A.Y. 2003-04 (Rs.5,58,823)= Rs.1,04,178 Total: = Rs.6,43,543 However, if depreciation is to be allowed in the mannerprovided u/s 32(1)(iii) and as decided by the AO, it is foundthat deduction would work out at Rs. 8,56,373/-, asdemonstrated below:- Purchases of dyes/moulds during the year Rs. 15,43,771/- ; 20% thereof= Rs.3,08,754 20% of purchases forA.Y. 2004-05 (Rs.11,53,049)= Rs. 2,30,61020% of purchases for A.Y. 2003-04 (Rs.5,58,823)= Rs.1,04,178 Total: = Rs.6,43,543 However, if depreciation is to be allowed in the mannerprovided u/s 32(1)(iii) and as decided by the AO, it is foundthat deduction would work out at Rs. 8,56,373/-, asdemonstrated below:- B.F. Value of dyes and moulds is Rs.9,12,715 as perbalance sheet (Page 16 of P.B.) and if 40% of it isdisallowed, 60% of it would work out at= Rs. 5,47,629In addition, additions of dyes/moulds during the year are at= Rs.15,43,771(6 of the P.B. and dep. as per Appendix 1 of the I.T. Rules would work at= Rs.3,08,744Total:= Rs. 8,56,373 The learned A.R. has also contended that the AO hasreopened proceedings u/s 148 for A.Y. 2000-01 and 2002-03 and held that the assessee is to be allowed depreciationinstead of deferred revenue expenditure claimed by theassessee. It is pleaded that the Department cannot adoptcontradictory stand in different assessment years and incase, depreciation is allowed during the year underconsideration on the WDV/cost from 31.3.2002 onward,depreciation to be allowed would work out atRs.9,60,358/-. The Ld. AR has also contended that in fact,expenses on the cost of dyes/moulds is revenueexpenditure, as it represents replacements and it does notconstitute plant and machinery in its own form and has thus claimed that correct amount of deduction as revenueexpenditure would be admissible at Rs.24,56,486/- quaRs.6,43,542/- claimed by the assessee. The AO has notcontroverted the correctness of the above mentionedcalculations given in the written submissions. In myconsidered opinion, on the facts and circumstances of thecase and the position of law, the AO has to adopt aconsistent approach and deduction is to be claimed inaccordance with law; inter alia, either by invoking section32(1)(ii) or by allowing depreciation, the deductionallowable would work out at a higher amount thandeduction claimed at Rs.6,43,542/- claimed as deferredrevenue expenditure. Yet I am not inclined to allowdeduction of the higher amount than what is claimed in thereturn of income, but in my firm opinion, on the facts of thecase, no addition is called for from the claim of deductionmade at Rs. 6,43,542/-. Accordingly, the addition of Rs.2,57,417/- is cancelled. Ground No.2 is thus, allowed.”The Tribunal affirmed the order of the CIT(A) deleting the deduction. No error or perversity could be pointed out by the counselfor the appellant in the above finding of the CIT(A) as affirmed by theTribunal. Thus, it cannot be said to be a substantial question of law. Regarding Question No.2 This question relates to addition of Rs. 50,18,599/- madeby the assessing officer on account of bogus purchases. The CIT (A) deduction. No error or perversity could be pointed out by the counselfor the appellant in the above finding of the CIT(A) as affirmed by theTribunal. Thus, it cannot be said to be a substantial question of law. Regarding Question No.2 This question relates to addition of Rs. 50,18,599/- madeby the assessing officer on account of bogus purchases. The CIT (A) after elaborate discussion had allowed the application filed by theassessee under Section 46A of the Income-tax Rules, 1962 wherebythe assessee had furnished all relevant documents relating togenuineness of the purchases made by it from M/s. Rajesh Dyes &Chemicals, M/s. Sameer Enterprises, M/s. Sharma Traders and M/s.Aneja Papers. The CIT(A) after analyzing the evidence and thedocuments produced by the assessee had concluded that all theaforesaid four parties were assessed to income tax and were havingtheir permanent account numbers with the Department. It was alsorecorded that the assessee had made payments to the aforesaid partiesby account payee’s cheques. The findings by the CIT(A) have beenrecorded in detail in para Nos.10.3 to 10.10 of its order. The CIT(A)after appreciating the evidence on record had arrived at the conclusionthat the purchases made by the assessee were genuine and not bogusas viewed by the assessing officer. The aforesaid findings of the CIT(A)recorded were affirmed in appeal by the Tribunal. While affirming thefindings, the Tribunal observed as under: “The learned CIT(A) has elaborately discussed andanalyzed the various evidence and materials in support ofpurchases made from various parties, and has consideredthe respective evidence in support of the contention that allthe purchases were genuine and have been duly confirmedby the respective parties. In the light of the detailedverification made by the learned CIT(A) and in the absenceof any material rebutting the learned CIT(A)’s finding, weare inclined to uphold the order of learned CIT(A) in deleting the addition of Rs. 50,18,599/- made on account of bogus purchases.” The appellate authorities on appreciation of material onrecord had arrived at a conclusion that the purchases from the aforesaidparties were genuine. Learned counsel for the appellant-Revenue could not showor point out any material or error of law in the findings of fact so arrivedat by the appellate authorities below to persuade this Court to interferetherewith in any manner. In view of the above, no substantial question of law asclaimed by the Revenue arises for determination by this Court. Theappeal is dismissed. (AJAY KUMAR MITTAL) JUDGE September 15, 2010rkmalik/gbs (ADARSH KUMAR GOEL) JUDGE