Case Law Details

Case Name : DCIT Vs M/s Scooters India Ltd. (ITAT Lucknow)
Appeal Number : Income Tax (Appeal) No. 575, 576, 625 and 626 of 2012, 203 of 2013
Date of Judgement/Order : 11/06/2015
Related Assessment Year : 2004-05
Courts : All ITAT (5168) ITAT Lucknow (78)
Brief of the Case

I.T.A. No.203/2013

ITAT Lucknow held In the case of DCIT vs. M/s Scooters India Ltd. that as per the provisions of section 150(2), the provisions of sub section (1) of section 150 are not applicable if it is found that at the time when the order of CIT (A) was passed, the reassessment was time barred under any other provision of the Act. In the present case, the order of CIT (A) is dated 30/07/2010 and therefore, as per the provisions of the first proviso to section 147, reassessment was time barred at that point of time because four years from the end of the relevant assessment year has already expired on 31/03/2009 before the order of CIT (A).

I.T.A. No.625 & 626 of 2012

 These appeals were filed by the assessee on various grounds. Major grounds related to disallowance of in house scientific research, disallowance of interest paid on loan, disallowance of bad and doubtful debts, and earnest money deposit w/off, disallowance on account of benevolent expense, disallowance on account of prior period adjustment and disallowance of account of provision made towards pending sales tax cases. Out of these some grounds were already decided against the assessee in earlier year judgments and some referred to the AO for a fresh consideration. In relation to ground no. 6 related to disallowance for provision made for pending sales tax cases, it was decided that any amount payable to Sales Tax Department is allowable subject to the provisions of section 43B and since the assessee has made a provision only of Rs.13,95,518/- towards pending Sales Tax cases and it is not the case of the assessee that payment was also made in the present year, deduction is not allowable u/s 43B of the Act.

In net, appeal is partly allowed for statistical purpose.

 I.T.A. No.575 and 576 of 2012

 These appeals were filed by the revenue on various grounds. Major grounds related to disallowance of advance w/off as bad debts, disallowance of demand and interest on taxes, deletion of addition on account of gratuity paid under LIC scheme, of addition related to interest subsidy on housing building loans and deletion of addition related to royalty receivables and interest accrued on term deposits. In relation to ground no. 4 related to deletion of addition related to interest subsidy on housing building loans, it was decided that in assessee’s own case for assessment year 2002-03 and 2003-04, this issue was decided in favour of the assessee in which it was held that the interest subsidy to the employees is for maintaining harmonious relationship and welfare of the employees, which is nothing but business expenditure. In net, appeal of the revenue partly allowed.

Facts of the Case

There are total five appeals, out of them one appeal (203/2013) of the Revenue for assessment year 2004-05 and there are cross appeals (575 & 576 of 2012 and 625 & 626 of 2012) of the Revenue and assessee respectively, for assessment year 2007-08 & 2008-09.

Contention of the Assessee

 In all the appeals, the learned counsel for the assessee supported the order of CIT (A).

Contention of the Revenue

In all the appeals, the learned counsel for the revenue supported the order of assessment.

 Held by CIT (A)

 I.T.A. No.203/2013

CIT (A) held that reopening of assessment u/s 147 by the AO is invalid. It observed that there is no patent mistake apparent from record and both the issues are debatable and therefore, the Assessing Officer was not justified in rectifying the total income u/s 154 of the Act since the issues were debatable.

CIT (A) further held that after examination of the facts and circumstances of the case, it is clear that the royalty receivable is accounted for. Royalty received of Rs.3,26,90,604/- is shown as miscellaneous receipts if schedule 12 relating to other income in the financial accounts for the year under consideration. Similarly, as per the double entry system or accounting as per schedule 12 where interest income on term deposits of Rs.4,33,02,062/- has been shown as income by the appellant. In view of the above, the addition of Rs.8,57,73,905/- is deleted.

 I.T.A. No.625 & 626 of 2012

 CIT (A) held that earnest money, security deposit and debtors claimed as bad debts were not considered as income in the current or earlier year.

Further held that the examination reveals that the appellant is claiming the expenses in the year under consideration solely on the ground that the vouchers concerned were passed in the current year as in none of the cases above it can be said that the liability arose in the year under consideration. The appellant is following mercantile system of accounting. The claim of depreciation is to be allowed in the year in which the depreciation relates. Similarly, for gratuity and leave encashment as the liability arose on accrual basis in the year to which it relates. Further, the appellant has not pressed the claim of expenses of Rs. 12,23,927/- pertaining to financial year 2004-2005. The interest and penalties are not allowable under the Act and therefore their claim related to earlier years is also not allowable. The appellant has not filed any detail in respect of material adjustments other than that it relates to reconciliation. In view of above, I do not find the expenses allowable. The disallowance of Rs. 12,04,18,481/- is confirmed.

I.T.A. No.575 and 576 of 2012

CIT (A) held that it appears that the AO has restricted the allowability of expenses with regard to terminology adopted in the books of accounts. The shortages in spares and general store are an allowable expenditure even if it cannot strictly be said to be a bad and doubtful debt. It is trite law that the terminology adopted is not a criterion to decide the allowability. Similarly, evaporation losses of petrol and diesel in appellant owned pumps are an allowable expenditure. These are losses incurred during the course of business and are therefore allowable. However, I do not find how earnest money security deposit and writing off of debtors could be allowed as a bad debt particularly because it has not been shown that the amount has been considered in income in the current or earlier years.

Held by ITAT

 I.T.A. No.203/2013

CIT (A) observations that the Assessing Officer is free to take action u/s 147 after following the procedure established by law in this regard, cannot be considered as a direction to the Assessing Officer to initiate proceedings u/s 147 as per the requirement of section 150(1) of the Act. In the present case, the first proviso to section 147 is also applicable because it is undisputed that the original assessment was completed by the Assessing Officer for the present year u/s 143(3) and four years from the end of the relevant assessment year has already elapsed before issuing notice u/s 148 of the Act. Moreover, as per the provisions of section 150(2), the provisions of sub section (1) of section 150 are not applicable if it is found that at the time when the order of CIT(A) was passed, the reassessment was time barred under any other provision of the Act. In the present case, the order of CIT (A) is dated 30/07/2010 and therefore, as per the provisions of the first proviso to section 147, reassessment was time barred at that point of time because four years from the end of the relevant assessment year has already expired on 31/03/2009 before the order of CIT (A).

Regarding ground No. 2 in respect of deletion of addition made by the Assessing Officer of Rs.8,57,73,905/- in relation to royalty receivable and accrued interest, it is observed that this is not the case of the Assessing Officer that corresponding amount is appearing in the liability side of the balance sheet but it is apparent from Schedule-12 that the assessee has shown corresponding amount as income. The amount of income shown under both these heads i.e. royalty received and interest on term deposit is higher than the amount shown in the balance sheet under the head ‘other current assets’ on account of royalty receivable and interest accrued on term deposit. It means that entire income under these heads were accounted for as income and that part of these two income, which were receivable at the end of the year, were shown in the balance sheet under the head ‘current assets’ and therefore, it cannot be said that the assessee has not shown these two items as income in the present year. As the both these amounts, which were shown by the assessee as asset in the balance sheet, were also shown in the income side of the profit & loss account and therefore, no addition is justified.

Accordingly appeal of the revenue dismissed.

I.T.A. No.625 & 626 of 2012

 In relation to first ground of appeal related to deduction on account of in house research, both the sides agreed that this issue is covered against the assessee by the Tribunal decision in assessee’s own case for assessment year 2005- 06 and 2006-07 in I.T.A. No.88 & 89/Lkw/2011 dated 06/02/2015. In this case, it was held that the assessee has failed to justify his claim of in-house scientific research carried out and therefore, no deduction u/s 35(2AB) is allowed. Also in assessment year 2009-10, this issue was decided by the Tribunal against the assessee in I.T.A. No.90/Lkw/2013 dated 13/11/2013.

In the present case also, the facts are same and no contrary view presented by the both the counsel, so following the decision of tribunal in assessee own case, deduction u/s 35 (2AB) cannot be allowed.

In relation to second ground of appeal related to disallowance of interest paid on loan, both the sides agreed that this issue is covered against the assessee by the Tribunal decision in assessee’s own case for assessment year 2005- 06 and 2006-07. In this case, it was held that since the assessee could not establish that borrowings were for business purposes, deduction is not allowable u/s 36(1)(iii) of the Act and moreover, u/s 57(iii) also, deduction is already allowed by the Assessing Officer to the extent of interest income and entire interest expenditure cannot be allowed because it could not be established by the assessee that the borrowing was made for making investment in FDR by showing direct nexus between the borrowing from bank and making FDR in bank.

In the present case also, the facts are same and no contrary view presented by the counsel, so following the decision of tribunal in assessee own case, deduction u/s 36(1)(iii) cannot be allowed.

In relation to third ground of appeal related to disallowance of bad and doubtful debts, earnest money deposit etc., both the sides agreed that this issue is covered against the assessee by the Tribunal decision in assessee’s own case for assessment year 2005- 06 and 2006-07. In this case, it was held that earnest money, security deposit and debtors claimed as bad debts were not considered as income in the current or earlier year. Therefore, this claim of the assessee is not allowable as per the provisions of section 36(2).

In relation to fourth ground of appeal related to disallowance of benevolent expenses, both the sides agreed that this issue is covered by the Tribunal decision in assessee’s own case for assessment year 2009-10 in I.T.A.No.90/Lkw/2013 dated 13/11/2013. In this case, matter was restored back to the AO for fresh decision. Since the facts are same in the present case, matter is restoring to the AO for fresh decision.

In relation to fifth ground of appeal related to disallowance of prior period expenses, it is clear from the order of CIT (A) that disallowance made by the Assessing Officer of Rs.1,204.18 lac included Rs.796.41 lac on account of gratuity and Rs.275.82 on account of leave encashment. Regarding these two amounts, we find that the provisions of section 43B are also applicable and therefore, it is necessary to find out as to whether the assessee has made payments in the present year or not. Therefore, restore the matter back to the file of the Assessing Officer for fresh decision. Regarding other amounts being expenses of financial year 2004-05 Rs.12.23 lac, depreciation Rs.12.34 lac, repairs & maintenance Rs.0.24 lac, interest and penalties on taxes Rs.10.82 lac, deposit with Sales Tax Rs.0.05 lac and material adjustment Rs.107.39 lac, we find that a clear finding has been given by CIT(A) that the assessee has not pressed the claim of expenses for financial year 2004-05. Regarding interest and penalties on taxes Rs.10.82 lac, he has given a finding that the same is not allowable under the Income-tax Act and therefore, the claim relating to earlier years is not allowable. Regarding the claim of Rs.107.39 lac on account of material adjustment, he has given a finding that the assessee has not filed any detail other than that it relates to resale. In the absence of any detail regarding this claim, the same is not allowable. Deposit with Sales Tax is also not allowable because this is a deposit and not an expense. Regarding depreciation of Rs.12.34 lac, he has given a finding that the same is to be allowed in the year with which the depreciation is related with. Regarding repairs and maintenance also, the same is not allowable unless it is shown that the liability has crystallized in the present year.

In relation to ground no. 6 related to disallowance for provision made for pending sales tax cases, We find that any amount payable to Sales Tax Department is allowable subject to the provisions of section 43B and since the assessee has made a provision only of Rs.13,95,518/- towards pending Sales Tax cases and it is not the case of the assessee that payment was also made in the present year, deduction is not allowable u/s 43B of the Act.

Accordingly, appeal of the assessee is partly allowed for statistical purpose.

I.T.A. No.575 and 576 of 2012

In relation to ground no. 1 related to disallowance of advance w/off as bad debts, From the order of CIT(A), we find that only part relief of Rs.36,671/- was allowed by CIT(A) in respect of shortages in spares and general stores and for evaporation loss of petrol and diesel in assessee’s own pumps. It was held by CIT(A) that these losses are incurred during the course of business and therefore, allowable. We do not find any infirmity in the order of CIT (A) on this issue and decline to interfere in the same.

In relation to ground no. 2 related to disallowance of demand and interest on taxes, from the order of CIT(A), we find that we find that the assessee claimed an amount of Rs.14,58,451/- under the head ‘demands and interest on taxes’. Out of this, CIT(A) confirmed Rs.13,95,518/- being provision towards pending Sales Tax cases by holding that it is in the nature of contingent liability and therefore, not allowable. He allowed relief of Rs.62,933/- but he has not given any finding that this amount was actually paid in the present year and in the absence of that finding, the order of CIT(A) is not sustainable but still we feel that in the interest of justice, the matter should go to CIT(A) for fresh decision.

In relation to ground no. 3 related to deletion of addition on account of gratuity paid under LIC scheme, this issue is covered against the assessee by the Tribunal order for assessment year 2005-06 & 2006-07 in I.T.A. No.88 & 89/Lkw/2011 dated 06/02/2015.

In relation to ground no. 4 related to deletion of addition related to interest subsidy on housing building loans, we find that as per Para 40.1 in assessee’s own case for assessment year 2002-03 and 2003-04, this issue was decided in favour of the assessee and it was held that the interest subsidy to the employees is for maintaining harmonious relationship and welfare of the employees, which is nothing but business expenditure. Respectfully following this Tribunal decision in assessee’s own case, we hold that in the present year also, this disallowance is not justified.

In relation to ground no. 5 related to deletion of addition related to royalty receivables and interest accrued on term deposits, from the order of CIT (A), we find that the assessee under the head current assets on account of royalty receivable and interest were also shown by the assessee in income in Schedule-12 of the balance sheet. This finding of CIT (A) could not be controverted by Learned D.R. of the Revenue and therefore, we do not find any reason to interfere in the order of CIT (A).

Accordingly, appeal of the revenue partly allowed.

 In the net result, the appeal of the Revenue for assessment year 2004-05 and 2008-09 are dismissed whereas appeal of the Revenue for assessment year 2007-08 is partly allowed. Both the appeals of the assessee are partly allowed.

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Category : Income Tax (27502)
Type : Judiciary (11707)
Tags : CA Deepak Aggarwal (390) ITAT Judgments (5352) section 147 (445) section 148 (371)

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