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Income Tax Appellate Tribunal, ‘’ A’’ BENCH, AHMEDABAD
Before: SHRI RAJPAL YADAV & SHRI WASEEM AHMED
आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax(Appeals)-2, Ahmedabad, dated 08/03/2017 (in short “Ld.CIT(A)”) arising in the matter of assessment order passed under s.143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") dt.30/12/2014 relevant to the Assessment Year 2012-2013.
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At the outset, the learned AR before us submitted that there was a delay in filing the appeal before ITAT for 104 days due to the inadvertent mistake committed by the Accountant. As such the order of the ld. CIT-A was handed over by the assessee to the accountant to pass on the same to the tax consultant so that an appeal to the ITAT could be preferred. But the accountant failed to do so, resulting delay in filing the appeal for 104 days. The ld. AR before us has filed the affidavit of the accountant which is available on record.
2.1 In view of the above, the learned AR for the assessee claimed that the delay in filing the appeal was unavoidable and beyond the control of the assessee. Therefore, he prayed before us to condone the delay and adjudicate the issues raised therein on merit.
On the other hand, the learned DR before us submitted that there is inordinate delay in filing the appeal for 104 days. Accordingly, he opposed to condone the delay in filing the appeal.
We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion we find that the controversy arises for our adjudication whether there exist reasonable and sufficient cause for condoning the delay in filing the appeal before ITAT in the aforesaid facts and circumstances. There is no hard and fast rule which can be laid down for condoning the delay in filing the appeal. As such the discretion for condoning the delay can be exercised depending upon the facts of each case keeping in mind that in construing the expression ‘sufficient cause’, the principle of advancing substantial justice is of prime importance. Therefore, advancement of substantial justice is the prime factor while considering the reasons for condoning the delay.
4.1 We also note that the case on merit appears to be in favour of the assessee. But there is a technical defect in the appeal since the appeal was not filed within
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the period of limitation for the reason as described above. There was the affidavit filed by the assessee explaining the reasons for the delay in filing the appeal before us. However, the Revenue has not filed any counter-affidavit to deny the submission made by the assessee.
4.2 It is also important to note that Hon’ble Supreme Court in the case of Collector, Land Acquisition v. Mst. Katiji and Ors. (167 ITR 471) laid down certain principles for considering the condonation petition for filing the appeal which are reproduced hereunder: (1) Ordinarily, a litigant does not stand to benefit by lodging an appeal late (2) Refusing to condone delay can result in a meritorious matter being thrown at the very threshold and cause of justice being defeated. As against this, when delay is condoned, the highest that can happen is that a cause would be decided on merits after hearing the parties. (3) 'Every day's delay must be explained' does not mean that a pedantic approach should be made. Why not every hour's delay, every second's delay? The doctrine must be applied in a rational, commonsense and pragmatic manner. (4) When substantial justice and technical consideration are pitted against each other, the cause of substantial justice deserves to be preferred, for the other side cannot claim to have vested right in injustice being done because of a non-deliberate delay. (5) There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact, he runs a serious risk. (6) It must be grasped that the judiciary is respected not on account of its power to legalize injustice on technical grounds but because it is capable of removing injustice and is expected to do so.
4.3 From the above judgment of the Hon’ble Apex Court, we note that the substantial justice deserves to be preferred rather than deciding the matter on the basis of technical defect. We also note that there is no allegation from the Revenue that the appeal was not filed within the time by the assessee deliberately. Therefore, we are inclined to prefer substantial justice rather than technicality in deciding the issue. Hence we condone the delay and proceed to decide the issue on merit.
The assessee has raised the following grounds of appeal:
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The learned CIT(A) has erred both in law and on the facts of the case in confirming the disallowance ofinterest expenses of Rs.3,11,0107-u/s.36(l)(iii)of the Act. 2. The learned CIT(A) has erred both in law and on the facts of the case in confirming the disallowance u/s.HA r.w.r. 8D to the extent of Rs.23,143/-. 3. The learned CIT(A) has erred both in law and on the facts of the case in confirming the additionof interest on IT Refund of Rs.53,994/-. 4. The learned CIT(A) has erred both in law and on the facts of the case in confirming the disallowance of depreciation on machinery of Rs.6,58,057/-. 5. The learned CIT(A) has erred both in law and on the facts of the case in confirming the disallowance of depreciation on vehicles of Rs.3,49,543/- 6. The learned CIT(A) has erred both in law and on the facts of the case in confirming that disallowance U/S.14A is to be made while calculating book profit u/s. 115 JB. 7. Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. This action of the lower authorities is in clear breach of law and Principles of natural Justice and therefore deserves to be quashed. 8. The learned CIT(A) has erred in law and on facts of the case in confirming action of the ld.AO in levying interest u/s.234 A/B/C of the Act. 9. The learned CIT(A) has erred in law and on facts of the case in confirming action of the ld.AO in initiating penalty u/s.271(1)(c) of the Act. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.
At the outset the learned counsel for the assessee before us submitted that he has been instructed by the assessee not to press ground No. 2, 3 and 6 due to smallness of amount. Accordingly we dismiss the same as not pressed.
The 1st issue raised by the assessee in ground No. 1 is that the learned CIT (A) erred in confirming the disallowance of interest expenses amounting to ₹ 3,11,010/- under section 36(1)(iii) of the Act.
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The facts in brief are that the assessee in the present case is a private limited company and engaged in the business of industrial and commercial construction. The AO during the assessment proceedings found that the assessee has acquired a machine on the loan taken from ICICI Bank vide sanction letter dated 29th December 2010 (in the immediate preceding year) which was put to use as on 30th September 2011 (the year under consideration). Accordingly the AO was of the view that the interest expenses up to the date i.e. 30th September 2011 when the assets was put to use needs to be capitalized under the provisions of section 36(1)(iii) of the Act. Accordingly the AO worked out the amount of proportionate interest of ₹ 3,11,010/- and added to the total income of the assessee.
Aggrieved assessee preferred an appeal to the learned CIT (A) who confirmed the order of the AO.
Being aggrieved by the order of the learned CIT (A) the assessee is in appeal before us.
The learned AR before us submitted that an identical issue was raised by the AO in the immediate preceding assessment year with respect to the very same assets and finally made the disallowance of interest expenses. The matter was travelled up to ITAT which deleted the disallowance of interest expenses in ITA No. 928 /AHD /2016 vide order dated 20th January 2020 by observing that the acquisition of the assets in dispute does not amount to the extension of the existing business. Thus, there was no question of making the disallowance of interest expenses incurred on the money borrowed which was utilized in the acquisition of the fixed asset and the same was put to use as on 30-9-2011.
On the other hand the learned DR vehemently supported the order of the authorities below.
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We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly, the amount was borrowed dated 29th December 2010 in the immediate preceding year and the assessee claimed the interest expenses up to 31st March 2011 on such loan as revenue expenses in the FY 2010-11. But the same was disallowed by the AO on the reasoning that the asset was not put to use. However, on perusal of the order of the ITAT bearing ITA No. 928/AHD/2016 dated 20 January 2020, we note that the acquisition of the assets was not for extension of existing business and therefore the interest paid thereon was allowed as deduction. The relevant extract of the order of the ITAT reads as under: “We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly, there was the acquisition of the new machinery out of the borrowed fund which was not put to use during the year under consideration. But the question arises whether such acquisition of machinery amounts to the extension of the existing business. None of the authorities below has put some light on this aspect. As such the proviso to section 36(1)(iii) of the Act mandates to capitalize the amount of interest on the machine acquired out of the borrowed fund provided such acquisition results in the extension of the business. The relevant proviso to section 36(1)(iii) of the Act reads as under: 36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28— (i)XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
(ii)XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
(iii) the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession :
[Provided that any amount of the interest paid, in respect of capital borrowed for acquisition of an asset for extension of existing business or profession (whether capitalised in the books of account or not); for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction.] 8.1. As there is no finding of the authorities below about the extension of the existing business of the assessee, the controversy arises for adjudication whether such acquisition of the machinery refers to the extension of the business in the given facts of the circumstances. 8.2. In this regard, we note that the value of the machine acquired by the assessee during the year is negligible to the total value of the plant and machineries shown by the assessee in its balance-sheet as on 31 March 2011. Such, small addition in the plant and machinery cannot amount to the extension of the existing business. As there is no detail available before
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us suggesting that there was some increase in the production/sales etc, we are not inclined to treat the interest expense on the acquisition of such machinery out of the borrowed fund as extension of the existing business. Accordingly we hold that as there was no extension of the existing business, therefore the amount of interest expenses incurred by the assessee on the borrowed money utilized for the acquisition of the machineries is eligible for deduction as revenue expense. Hence the ground of Appeal of the assessee is allowed.”
12.1 The issue involved in the case on hand is identical to the issue as discussed above. Therefore, respectfully following the same, we set aside the finding of the learned CIT (A) and direct the AO to delete the addition made by him.
12.2 Before parting, we also note that the assessee before the learned CIT (A) has filed some additional documents which were not admitted by the learned CIT (A) in his order dated 8th of March 2017. However, we find that to resolve the controversy in the case on hand, there was no need to refer to any other document as all the relevant facts are emanating from the order of the AO. Accordingly, we are not impressed with the finding of the learned CIT (A) on the issue of additional documents filed by the assessee on the reasoning that these documents were not filed in consonance with the provisions of rule 46A of Income Tax Rule. Hence the ground of appeal of the assessee is allowed.
The 2nd issue raised by the assessee is that the learned CIT (A) erred in confirming the disallowance of depreciation for ₹ 6,58,057- claimed on the machineries.
The AO during the assessment proceedings found that the assessee got the registration of the machinery with the RTO dated 4th October 2011 i.e. after 30th September 2011. Accordingly he was of the view that the assessee can claimed depreciation at 50% of the actual rate of depreciation as the machine was used for a period less than 180 days. Accordingly, the AO disallowed the excess depreciation amounting to ₹ 6,58,057/- (7.5% of ₹ 84,63,093/-) and added to the total income of the assessee.
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Aggrieved assessee preferred an appeal to the learned CIT (A) who confirmed the order of the AO.
Being aggrieved by the order of the learned CIT (A) assessee is in appeal before us.
The learned AR before us contended that even assuming the assets was put to use as on 4th October 2010 as alleged by the AO, then also the assessee is eligible for depreciation at the hundred percent of the rate i.e. 15%.
17.1 The ld. AR also submitted that the correct value of the machinery/ asset is of Rs. 78,52,205/- whereas the AO has inadvertently recorded at Rs. 84,63.093/-.
17.2 On the other hand the learned DR vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. The 2nd proviso attached to section 32 of the Act has a direct bearing on the issue on hand which reads as under: Provided further that where an asset referred to in clause (i) or clause (ii) or clause (iia) or the first proviso to clause (iia), as the case may be, is acquired by the assessee during the previous year and is put to use for the purposes of business or profession for a period of less than one hundred and eighty days in that previous year, the deduction under this sub-section in respect of such asset shall be restricted to fifty per cent of the amount calculated at the percentage prescribed for an asset under clause (i) or clause (ii) or clause (iia), as the case may be :
18.1 A perusal of the above provision reveals that the asset which has been used for a period less than 180 days in the previous year is eligible for the depreciation at the rate of 50% of the amount of depreciation calculated at the prescribed percentage. In other words, assuming the asset is eligible for the depreciation at the rate of 15% but assessee shall claim depreciation only at the rate of 7.5% on the value of such assets.
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18.2 However, on calculation of the number of days considering the date 4th October as the date put to use, the total number of days works out to 180 days which implies that the condition as provided in the 2nd proviso to section 32 of the Act has been complied with. The learned AR for the assessee at the time of hearing has worked out the number of days in the manner as detailed below: S.No. Particulars Nos. 1. Number of days in October 2011 28 days 2. Number of days in November 2011 30 days 3. Number of days in December 2011 31 days 4. Number of days in January 2012 31 days 5. Number of days in February 2012 29 days being a leap year 6. Number of days in March 2012 31 days Total number of days 180 days
18.3 The provisions of section 32 of the Act provides that the asset put to use for less than 180 days, meaning thereby 179 days or less, then such asset will be eligible for depreciation at the rate 50% of the actual rate of depreciation. The above working for the number of days, the asset was put to use comes out 180 days which is outside the purview of the proviso to section 32 of the Act. The above working as shown by the learned counsel for the assessee was not disputed by the learned DR appeared for the revenue. In view of the above, we hold that the assessee is entitled for depreciation at the rate prescribed under the provisions of law. Accordingly we set aside the finding of the learned CIT (A) and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed.
The next issue raised by the assessee in ground No. 5 is that the learned CIT (A) erred in confirming the order of the AO by sustaining the disallowance of depreciation on vehicles for ₹ 3,49,543/- only.
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The assessee during the year has purchased 3 vehicles for its directors amounting to ₹46,60,584/- against the invoice dated 27th September 2011 and claimed depreciation at the rate of 15% amounting to Rs. 6,99,088/- only.
However the AO found that these vehicles were registered with the RTO dated 12th October 2011 and accordingly, he was also of the view that the use of such vehicles without the registration was not possible by the assessee. Thus he drew an inference that the assessee can claim depreciation at the rate of 7.5% on the value of vehicles as these assets were put to use for a period less than 180 days in the year under consideration. Hence he disallowed the excess depreciation amounting to ₹ 3,49,543/- and added to the total income of the assessee.
Aggrieved assessee preferred an appeal to the learned CIT (A).
The assessee before the learned CIT (A) submitted that the vehicles were purchased on 27th September 2011 as evident from the invoices issued by the party. Similarly, the insurance was taken for the period beginning from 27th September 2011 to 26th September 2012.
22.1 The assessee also contended that the registration date as mentioned in the records of the RTO is 28th of September 2011 but the certificate was issued dated 12th October 2011 which can be verified from the records. Accordingly the assessee claimed that it is entitled for the depreciation at the rate of 15% on the value of such vehicles.
However the learned CIT (A) rejected the contention of the assessee by observing as under:
6.4. On the other side the appellant has submitted that the RTO registration date is on 28.9.2011 as per RTO record. The contention of the appellant is found incorrect for the reason that the fee has been collected for the registration, HPA, CR Ten A on 28.9.2011 by the RTO but the registration of the vehicle has been made only on
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12.10.2011 as evident from the Registration Certificate. The certificate was also valid from 12.10.2011 to 11.10.2026 only. Thus it was clear from the copy of the certificate produced that the registration date was 12.10.2011 and 28.9.2011 was the fee payment date which was irrelevant to be considered for put to use of the vehicle on roads. Even the appellant has not provided any details and evidences to prove that during the period from 28.9.2011 to 12.10.2011 these vehicles have been used for the business purposes. Thus the deprecation granted by the AO at one half t of the specified rates is found justified and hence the same is confirmed.
Being aggrieved by the order of the learned CIT (A), the assessee is in appeal before us.
The learned AR before us reiterated the submission as made before the authorities below whereas, on the other hand the learned DR before us relied on the orders of lower authorities.
We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion we find that the assessee has purchased the vehicles dated 27th September 2011 as evident from the invoice issued by the seller of the car which is placed on page 15, 21 and 25 of the paper book. Similarly, the insurance policies were taken by the assessee with respect to such vehicles for the period beginning from 27th September 2011 to 26th September 2012 as evident from the copies of the insurance policies which are placed on record. Similarly we also note that the assessee has made the payment for the registration of the car to the Gujarat Motor Vehicles Department dated 28th September 2011 which are placed on pages 16, 23 and 26 of the paper book.
25.1 Thus from the above documents, it is transpired that the cars purchased by the assessee were ready to use as on the date of purchase i.e. prior to 28th September 2011. Accordingly, even if it is assumed that the vehicles were registered on 12th October 2011 then also the assessee is eligible for depreciation at the rate of 15% for the simple reason that the vehicles were ready to use.
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25.2 In holding so we draw support and guidance from the judgment of Hon’ble Gujarat High Court reported in [2001] 251 ITR 133, where it was held as under: The settled position in law is that it is not necessary that the machinery must be used for a particular number of days so as to be entitled to depreciation, but it requires that it should be used for the purpose of business or profession or vocation. The trial run of the machinery is obviously for the purpose of business and not for any other purposes. What is required to be seen is that the machinery must be ‘used’ for the purpose of business and keeping in mind the wider meaning ascribed by the various decisions of various Courts for the term ‘use’, even trial production of a machinery would fall within the ambit of ‘used for the purpose of business’. Further, as the statute does not prescribe a minimum time-limit for ‘use’ of the machinery, the assessee cannot be denied the benefit of depreciation on the ground that the machinery was used for a very short duration for trial run. In the instant case, the Tribunal, on appreciation of evidence, arrived at a conclusion that plant and machinery was used from 26-3-1993, till the end of the accounting year, i.e., 31- 3-1993. The Tribunal also found that grey cotton was manufactured and with permission of the authorities of Kandla Port Trust, the material was disposed of. Thus, use of machinery was not in doubt. Law does not require that there must be optimum production for granting the benefit. Law only requires that there must be use of plant and machinery for the purpose of business. Use of such words that plant and machinery was run more extensively or was required to be used for larger production, is not to be found in the Act or Rules. Whether the plant and machinery is used up to the extent of its efficiency is irrelevant for the purpose of deciding depreciation. The test is that building, plant and machinery are used for the purpose of business.
25.2 In view of the above, we hold that the assessee was eligible for depreciation at the rate of 15% on the value of the vehicles purchased during the year. Accordingly we set aside the order of the learned CIT (A) and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the Court on 19/08/2020 at Ahmedabad.
-Sd- -Sd- (RAJPAL YADAV) (WASEEM AHMED) VICE PRESIDENT ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 19/08/2020 manish