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Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED
Consolidated Appeals (5)
आदेश/O R D E R PER BENCH: The captioned appeals have been filed at the instance of the Assessee against the separate orders of Commissioner of Income Tax (Appeals)-1, Ahmedabad [Ld.CIT(A) in short] arising in the matter of assessment orders
ITA NOS.438-439/Ahd/2018 & others For A.Ys 2008-09- 2009-10 & others
passed under s. 143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the above Assessment Years (AYs). Since issues are either inter-connected or common, for the sake of convenience, we dispose of all these appeals by this consolidated order.
First, we take up ITA No. 438/AHD/2018. The assessee has raised the following grounds of appeal:
The learned CIT(appeals) has erred in law and on facts in upholding the reduction of the profit pertaining to EOU unit by Rs.35,74,125/- as per Para 4 of the assessment order without properly appreciating the facts of the appellant.
He has erred in law and on facts in upholding the expenses of Rs.35,74,125/- relating to trading unit as incurred towards 100% EOU unit without properly appreciating and considering the facts and submission of the appellant. 3. The appellant craves leave to add to alter and/or to modify any ground of appeal.
The solitary issue raised by the assessee is that the learned CIT-A erred in confirming the order of the AO by reducing the amount of ₹ 35,74,125.00 from the profit pertaining to the undertaking eligible for deduction under section 10B of the Act being 100% EOU.
The facts as culled out from the order of the authorities below are that the assessee in the present case is a private limited company and engaged in the business of trading & manufacturing of chemicals. The assessee has two business units namely trading unit and 100% export oriented unit. The assessee in respect to its export oriented unit is eligible for the exemption/ deduction under section 10B of the Act and accordingly it has claimed the deduction of ₹ 2,77,47,514.00 under section 10B of the Act during the year.
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2.1 The assessee in its trading unit has shown gross receipt of ₹1,49,924.00 against an expenditure of ₹35,74,125.00 only which resulted a loss of ₹34,24,202.00 during the year.
2.2 The assessee during the assessment proceedings has also furnished the allocation of the expenses between the trading and exports oriented unit as detailed under: Nature of expense Trading unit 100% EOU Consolidated Trade purchases NIL 266665100 266665100 Manufacturing NIL 12354435 12354435 expense Payment and 1015953 1344502 2360454 provision to employees Administrative and 2352203 21951509 24303712 selling expenses Financial charges 43774 399498 443273 Depreciation 135118 5191979 5327097 Misc. expense 27078 NIL 27078 written off Total 3574125 307907025 311481150
2.3 However, the AO was not satisfied with the expenses claimed by the assessee against trading business which resulted loss of ₹34,24,202.00 for the reasons as detailed under: i. The assessee failed to provide any basis for the apportionment of the expenses between EOU and trading unit. ii. The assessee failed to furnish the supporting documentary evidence suggesting that it was maintaining separate accounts for both the units namely EOU and trading unit. iii. There was no business activity carried out by the assessee under its trading unit for the year under consideration.
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In view of the above, the AO was of the opinion that the assessee has declared higher profit with respect to its export oriented unit in order to avail the higher amount of deduction under section 10B of the Act. Accordingly, the AO allocated the 100% expenses of the trading unit to the EOU. Accordingly, the deduction claimed by the assessee under section 10B of the Act was reduced by the amount of the expenses claimed to have been incurred against the trading unit.
The aggrieved assessee preferred an appeal to the learned CIT (A).
The assessee before the learned CIT (A) submitted that it is engaged in the trading business for the last many years. It also filed the necessary details of the expenditure bifurcated between the trading and EOU for the assessment year 2006-07 and 2007-08. The assessee has not closed its trading unit and therefore the expenses claimed by it towards the trading unit cannot be disallowed merely on the ground that there was no business activity therein.
3.1 The assessee also claimed that the expenditure claimed under its trading unit were very nominal which was required to be incurred irrespective of the trading operation.
3.2 However, the learned CIT (A) disregarded the contention of the assessee by observing that the expenses under the trading unit cannot be allowed as there was no trading activity therein during the year under consideration.
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Being aggrieved by the order of the learned CIT (A), the assessee is in appeal before us.
The learned AR before us filed a paper book running from pages 1 to 21 and submitted that the assessee in the immediate preceding year as on 31st March 2007 has shown turnover of ₹5,65,60,473.00 from its trading unit. Similarly, the assessee further claimed that it has declared a turnover of ₹13,93,410.00 in the immediate succeeding year as on 31st March 2009 from its trading unit.
4.1 The learned AR further claimed that the assessee has shown fixed assets, sundry debtors, cash balance, loans and advances and current liabilities, provision in the balance sheet of trading unit as on 31st March 2010 and 31st March 2011. The learned AR in support of his contention filed the necessary documents which are placed on record.
4.2 Accordingly, the learned AR claimed that the trading unit of the assessee was very much in existence and therefore the expenses incurred in respect to its trading unit cannot be denied merely on the rational that there was no turnover of sale and purchase in the year under consideration.
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 assessee in the instant case has claimed certain expenditure amounting to Rs. 35,74,125.00 in respect of its trading unit
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but the same was allocated to the EOU on the ground that there was no trading activity therein. The ld. CIT-A subsequently confirmed the view of the AO.
The 1st question arises whether the expenses incurred by the assessee in 6.1 respect of unit having nil turnover can be treated of the 100% EOU in the given facts and circumstances. From the preceding discussion we note that the assessee till the year ending 31st March 2007 has shown substantial turnover amounting to ₹5,65,60,473.00 which evidences that the trading unit of the assessee was very much in existence. It is also a fact on record that there were certain trading assets and liabilities shown in the balance sheet in the year under consideration despite the fact that there was nil turn-over. Thus considering the overall financial position of the assessee, we conclude that the business of the assessee was very much in existence. Accordingly, we are of the view that the basis adopted by the authorities below to conclude that there was no business activity does not hold good in the given facts and circumstances.
6.2 In holding so, we find support and guidance from the judgment of Hon'ble Calcutta High Court in the case of CIT vs. Ganga Properties Ltd. reported in 199 ITR 94 (Cal) wherein it was held as under:- “A limited company even if it does not carry on business, even if it derives income from other sources, has to maintain its establishment for complying with statutory obligation so long as it is in operation and its name is not struck off the register or unless the company is dissolved. So long as the company is in operation, it has to maintain the status as a company and it has to discharge certain legal obligations and for that purpose it is necessary to appoint clerical staff and secretary or accountant and incur incidental expenses. In this background, the conclusion of the Tribunal that the expenses incurred were wholly and exclusively for the activities to earn income was a reasonable conclusion. The Tribunal was, thus, justified in allowing the expenditure claimed by the assessee as deduction.”
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6.3 We also note that there was no defect pointed out by the AO/learned CIT (A) in the amount of profit and the deduction claimed under section 10B of the Act in respect of its export oriented unit which was based on the chartered accountants report.
6.4 We also find that the AO has also observed that the assessee has not furnished the basis of allocation of expenses between the trading unit and exports unit. Indeed the onus lies on the assessee to furnish the necessary details in support of its claim. However, at the same time there was no information available with the AO suggesting that the assessee has manipulated the expenses so that it can claim high deduction for the profit of EOU under section 10B of the Act. Thus, in the absence of necessary details, the AO cannot arbitrarily allocate all the expenses of trading unit to the 100% EOU. In our view, the AO should have referred the data of the assessee of the earlier assessment years before allocating the expenses of trading unit to the export oriented unit. But the AO has not done so. In view of the above, we hold that the expenses claimed by the assessee in respect of its trading unit cannot be allocated to hundred percent export oriented unit. Hence we reverse the order of the authorities below. Accordingly we direct the AO to delete the disallowance made by him. Thus the ground of appeal of the assessee is allowed.
In the result, the appeal of the assessee is allowed.
Coming to the ITA No. 439/AHD/2018 for the AY 2009-10
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The assessee has raised the following grounds of appeal: 1. The learned CIT(appeals) has erred in law and on facts in upholding the disallowance of Depreciation and additional Depreciation of Rs.1,74,325/- on storage tank without properly appreciating and considering the facts, evidence adduced and ignoring the decision of Gujarat High Court and Supreme Court applicable to the facts of the appellant for considering the storage tank as plant. 2. On the facts the issue of depreciation remitted to the file of the A.O by the Hon’ble ITAT in ITA No.1596/Ahd/2012 by decision pronounced on 07/07/2016 ought to have been decided in favor of appellant read with decision of Gujarat High Court and Supreme Court. The appellant craves leave to add to alter and/or to modify any ground of appeal.
The only effective issue raised by the assessee is that the learned CIT (A) erred in confirming the disallowance of the depreciation/additional depreciation claimed in respect of storage tank amounting to ₹ 1,74,325.00 only.
The assessee in the year under consideration has purchased the storage tank for Rs. 43,58,150.00 which was capitalized under the head plant and machinery. Accordingly the assessee claimed depreciation on such storage tank at the rate of 15% + additional depreciation @ 20% amounting to Rs. 1,74,325.00.
7.1 However the AO was of the view that such storage tank is in the nature of structure and the same can be treated as part of the building. Thus the assessee was entitled for depreciation at the rate of 10% on such storage tank. Accordingly, the AO sought clarification from the assessee, vide order sheet entry dated 15th November 2011.
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The assessee vide letter dated 24th November 2011 submitted that the 7.2 storage tank was basically a part of the machinery which was used for manufacturing of chemical. Therefore it falls under the category of plant & machinery. The assessee in support of its claim also obtained the certificate from the engineer who certified that the storage tank was directly linked with the plant for manufacturing and storage of chemicals. The assessee also filed the copies of the purchase bills of the tanks in support of its contention.
7.3 However the AO did not accept the contention of the assessee by observing that the assessee failed to file the evidence/details on record. The AO further opined that if any accessory is used in structure of building then such accessory does not alter the basic purpose of the structure of building. Therefore the AO concluded that the storage tank was not part of the plant & machinery.
7.4 The AO accordingly disallowed the excess depreciation of Rs. 1,79,774/- and added to the total income of the assessee.
Aggrieved assessee preferred an appeal before the Ld. CIT (A). The assessee before the Ld. CIT (A) reiterated that it claimed the depreciation at the rate of 15% and additional depreciation at the rate of 20% treating the storage tank as part of the plant and machinery which is supported based on the expert certificate.
8.1 However, the learned CIT (A) disregarded the contention of the assessee by observing that the basic purpose of the storage tank is to store the raw materials, semi-finished goods and the finished goods. As such there is no
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role of the storage tank in the functioning of the plant and machinery. Furthermore, the storage tank shown in the drawing as part of the plant and machinery is not the conclusive evidence. Accordingly the learned CIT (A) confirmed the order of the AO.
Being aggrieved by the order of the Ld. CIT (A), the assessee is in appeal before us.
The learned AR before us filed a paper book running from pages 1 to 69 and drew our attention on page 31 of the paper book where the copy of the certificate from the engineer was placed demonstrating the function of the storage tank. The learned AR also filed the MAP showing the process of the manufacturing of chemicals with the storage tank which is placed on pages 32 to 58 of the paper book. The learned AR also claimed that it has claimed depreciation on storage tank considering the same as plant and machinery in the assessment year 2008-09 which was also allowed by the AO in the assessment framed under section 143(3) of the Act. The learned AR reiterated the submissions as made before the authorities below.
On the other hand, the learned DR before us submitted that there was no issue regarding the depreciation on the storage tank the assessment year 2008- 09. 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 issue in instant case relates whether the storage tank can be categorized as part of the plant and machinery. In our considered view there is no straight formula to hold or not to hold the storage
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tank as part of the plant and machinery. As such, it depends on facts and circumstances of each case to decide that the storage tank is part of the plant and machinery or otherwise.
11.1 The term plant and machinery refers to those machineries which are used in the manufacturing process. Accordingly such plant and machinery will be eligible for depreciation and the additional depreciation. In the instant case the learned AR for the assessee has drawn our attention on page 31 of the paper book where the copy of the certificate from the Innovative Engineers & Consultants was placed certifying that the impugned storage tank is part and parcel of the plant and machinery. None of the authorities below has challenged the validity of such certificate. Similarly there was no enquiry conducted about the genuineness of the certificate issued by the certified engineer despite the fact all the relevant details were available with the authorities below.
11.2 It is admitted fact that the assessee is engaged in the activity of chemicals which requires storage of various types of liquid material. The assessee to preserve such liquid materials/chemicals requires the storage tank wherefrom the same will be released for the further manufacturing process. This fact is evident from the drawing and the photographs filed by the assessee which are placed on pages 32 to 54 of the paper book.
11.3 We also note that in the similar facts and circumstances the Hon’ble Karnataka High Court in the case of CIT Vs. Mahant Oil Industries (P) Ltd. has decided as under:
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“Since section 32A is a beneficial provision, it should receive a liberal construction to effectuate the basic idea behind the provision. Therefore, there is no reason to restrict the meaning of the term 'plant' or 'machinery' used in section 32A. Following the decisions in the cases of CIT v. Warner Hindustan Ltd. [1979] 117 ITR 15 (AP) and CIT v. Hindusthan Motors Ltd. [1988] 170 ITR 431/39 Taxman 54 (Cal.) , it is well settled that an object or a thing which is beneficia1 to the carrying on the business of the assessee to earn the taxable income could be treated as a 'plant'. In the instant case, the assessee was carrying on the business of producing oil. A storage tank was absolutely necessary for the activities of the assessee. The Tribunal was, therefore, justified in holding that the assessee was entitled to investment allowance on the tank and in treating it as a 'plant'.”
On perusal of the above judgment, the facts of the present case appear similar to the case on hand. Therefore, we draw support from it and hold that the assessee is eligible to claim depreciation on such storage tank treating them as part of the plant and machinery for the reasons discussed above. Accordingly the assessee will claim depreciation at the rate of 15% plus the additional depreciation at the rate of 20%. Hence the ground of appeal of the assessee is allowed.
In the result, the appeal of the assessee is allowed.
Coming to the ITA No. 1291/AHD/2015 for the AY 2010-11
The assessee has raised the following grounds of appeal: 1. The learned CIT(appeals) has erred in law and on facts in upholding the disallowance of Rs.1,53,060/- u/s.14A r.w. Rule 8D without properly appreciating and considering the facts of the appellant. 2. He has erred in law and on facts in upholding the disallowance of Depreciation of Rs.1,79,774/- on storage tank without properly appreciating and considering the facts of the appellant. 3. The learned CIT(appeals) has erred in law and on facts in upholding the disallowance of the claim of the assessee u/s.35 for Rs.2,23,970/- being expenditure
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of capital nature on Scientific Research pertaining to the business carried on by the assessee without properly appreciating and considering the facts of the appellant. 4. He has erred in law and on facts in upholding the disallowance of Depreciation of Rs.53,927/- on Electrical fittings without properly appreciating and considering the facts of the appellant. 5. On the facts no such disallowances/additions ought to have been made. The appellant craves leave to add to alter and/or to modify any ground of appeal.
The first issue raised by the assessee is that the Ld. CIT (A) erred in confirming the disallowance of Rs. 1,53,060/- u/s 14A r.w. Rule 8D of the Act.
The assessee in the year under consideration earned dividend income of Rs. 20,14,675/- which was claimed as exempted income under section 10(34) of the Act. The assessee further claimed that it had not incurred any expenditure to earn such dividend income. Moreover the investment was also not made from borrowed fund. Therefore the interest expenditure was not incurred against such dividend income.
12.1 However the AO disregarded the contention by observing that the assessee must have incurred expenditure such as documentation, handing the investment portfolio, salaries of employees etc. The AO accordingly invoked the provision of section 14A r.w.r. 8D of Income Tax Rule and worked out the disallowance as under:
Direct Expenses NIL 2. Interest Expenses 25,160.00
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Administrative Exp. 1,27,900.00
Thus the AO disallowed the expenditure of Rs. 1,53,060/- and added to the total income of the assessee.
Aggrieved assessee preferred an appeal before the Ld. CIT (A). The assessee before the Ld. CIT (A) reiterated the submission as before the AO.
13.1 However the Ld. CIT (A) held that the AO rightly invoked the provision of section 14A read with rule 8D of the Income Tax Rule. Accordingly, the Ld. CIT (A) following his own order in the assessee’s own case for the A.Y. 2009-10 upheld the order of the AO.
Being aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us.
The learned AR before us submitted that the own fund of the assessee exceeds the amount of investment. Therefore there cannot be any disallowance on account of interest expenses.
On the other hand, the learned DR vehemently supported the order of the authorities below.
We have heard the rival contentions and perused the materials available on record. There is no dispute to the fact that the own fund of the assessee exceeds the amount of investment. Therefore, a presumption can be drawn that the fund was invested by the assessee out of its own fund. In this regard we
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find support and guidance from the judgment of Hon’ble Bombay High Court in the case of Reliance Utilities and Power Ltd. reported in 313 ITR 340 wherein it was held as under:- “The principle therefore would be that if there are funds available both interest-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest-free fund generated or available with the company, if the interest-free funds were sufficient to meet the investments. In this case this presumption is established considering the finding of fact both by the CIT(A) and Tribunal”.
16.1 Similarly, we also rely on the judgment of the Hon’ble Bombay High Court in the case of CIT vs. HDFC Bank Ltd reported in 366 ITR 505 (Bom). The relevant extract of the order is reproduced below:-
“Where assessee's capital, profit reserves, surplus and current account deposits were higher than the investment in tax-free securities, it would have to be presumed that investment made by the Assessee would be out of the interest-free funds available with Assessee and no disallowance was warranted u/s 14A.”
16.2 Similarly, we also find support from the judgment of Hon’ble Gujarat High Court in the case of UTI Bank Ltd. reported in 32 Taxmann.com 370 where the headnote reads as under : “If there are sufficient interest free funds to meet tax free investments, they are presumed to be made from interest free funds and not loaned funds and no disallowance can be made under section 14A”.
In view of the above proposition, we hold that no disallowance of interest expense claimed by the assessee can be made on account of investments as discussed above. Hence, we reverse the order of the authorities below. The AO is directed to delete the addition made by him.
16.3 Regarding the administrative expenses, we note that the assessee has not made any disallowance against the dividend income. Therefore, the AO had no
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option except to resort to the provisions of section rule 8D of Income Tax Rule. Accordingly, we confirm the disallowance of administrative expenses made by the authorities below. Hence the ground of appeal of the assessee is partly allowed.
The second ground raised by the assessee is that ''Ld.CIT (A)'' erred in upholding the disallowance of Depreciation of Rs.1,79,774/- on storage tank.
At the outset, we note that the fact in the above ground is identical to the facts of the case bearing ITA 439/AHD/2018 for A.Y. 2009-10 which we have decided in favor of the assessee vide paragraph number 11 of this order. Respectfully following the same, this ground of appeal of the assessee is allowed.
The third issue raised by the assessee is that the Ld. CIT (A) erred in confirming the disallowance of Rs. 2,23,970/- as capital expenditure on scientific research u/s 35 of the Act.
The assessee in the year under consideration claim deduction of Rs. 2,23,970/- u/s 35(1)(iv) of the Act. The assessee during the year purchase Fume Chamber and Extraction System of Rs. 1,70,730/- along with its accessories of Rs. 53,240/- only. The assessee did not claim any depreciation on such machineries as it was using the same for analytical research to improve and develop new products in chemical business. Therefore it claimed deduction u/s 35 of the Act as the expenditure was in capital in nature and it is used for scientific research relating to the business.
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18.1 However the AO was of the view that the provision of section 35(1)(iv) is applicable where capital expenditure is incurred for scientific research related to the business of the assessee. As such, the provision of section 43(4) of the Act provides that the activity which is undertaken for the extension of knowledge in the fields of natural or applied science is called scientific research. However the assessee was not able to substantiate that the expenditure on scientific research was leading to extension of knowledge of its business. Therefore in view of the above the AO disallowed the deduction of Rs. 2,23,970/- u/s 35 of the Act and added to the total income of the assessee.
Aggrieved assessee preferred an appeal before the Ld. CIT (A). The assessee before the Ld. CIT (A) reiterated the submission as before the AO.
19.1 However, the learned CIT (A) confirmed the order of the AO by observing as under “I am inclined with A.O. in view of specific provision of section 43(4) of the Act, mere claim of appellant u/s. 35 cannot be allowed on the ground that machinery so purposed is utilized in analytical research to develop new products. My predecessor Ld.CIT(A)-6, Ahmedabad vide order dt.04/06/2012(Appeal no.CIT(A)-VI/DCIT Cir- 1/206/1172) on the same issue with similar facts held. “I have considered the facts of the case; assessment order and appellant’s written submission. Appellant claimed deduction under section 35 of IT act on equipment purchased by it. Appellant claimed that it was used for analytical research and therefore it is entitled to claim deduction under section 35 of IT Act. Assessing officer did not allow the claim since appellant was not doing any scientific research but was only a manufacturer. The machine purchased was used in appellant's day- to-day business activity. Assessing officer further mentioned that appellant did not demonstrate as to how scientific research is leading to extension of knowledge to the business being carried out by the appellant. Even before the undersigned in appeal proceeding, appellant submitted the same submission without demonstrating that requirements of section 35 are fulfilled. Purchase of any equipment for the use in appellant's business even in laboratory will not be eligible for deduction under section 35. This deduction is allowable only for scientific research. The equipment was used by the appellant in its day-to-day manufacturing activity and therefore it cannot be said that appellant carried out scientific research resulting in extension of
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knowledge to its business. Accordingly the disallowance made by the assessing officer is confirmed." In the last year the claim was made for the purchase of gas chromatography machine (syringe 10UI straight, FN 23/42/HP) for Rs. 10,20,000 and same reasoning were given i.e. " The machine is used by the assessee for analytical research which is ongoing process to improve and develop new products in chemical business dealt in by the company. The technical aspects of the machine have been mentioned in the printed literature issued by the company titled as laboratory equipment’s and gas chromatography has also been discussed."
The appellant neither in the last year (F.Y. 08-09) nor in the impugned previous year given any details about what type/period of analytical research being done, how these machinery are related /used/helpful for such research, how such research is used/adopted for contention of appellant’s business or what type of new product so researched out and got patented. Further appellant failed to demonstrate about what was the need of these two additional machineries in previous year over and above the machine purchased in F.Y. 08-09. If all the these machines are interlinked then claim of appellant was patently wrong in F.Y. 08-09. It is therefore following the ratio of my predecessor, considering the fact and reasoning discussed above, the disallowance of Rs.223970 being claim u/s.35 of the Act as made by A.O in upheld and confirmed. This ground is dismissed.”
Being aggrieved by the order of the learned CIT (A), the assessee is in appeal before us.
The learned AR before us submitted that ITAT in the own case of the assessee in the assessment year 2009-10 has rejected the claim under section 35 of the Act but allowed the depreciation along with additional depreciation under section 32 of the Act.
On the other hand, the learned DR vehemently supported the order of the authorities below.
We have heard the rival contentions and perused the materials available on record. At the outset we note that the impugned issue is covered against the
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assessee by the order of this tribunal in ITA No. 1596/AHD/2012 pertaining to the assessment year 2009-10 vide order dated 7th July 2016. The relevant extract of the order is reproduced below:
We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the assessee was denied the claim of deduction u/s. 35 of the Act for the reason that as per the AO, assessee has not carried out any scientific research and the machinery was used in the normal business of the assessee. Before us, Id.AR apart from reiterating the submissions made before AO and Id.CIT(A) has not placed any material on record to demonstrate as to how the expenditure is allowable u/s.35 of the Act. Before us, assessee has raised an alternate plea of allowing depreciation u/s.32 of the Act. We are of the view that the alternate plea of assessee of depreciation needs to be accepted in view of the fact that the purchase of machinery being used for the purpose of business of the assessee has not been doubted by AO. In such circumstances, we are of the view that AO should have allowed the claim of depreciation u/s.32 of the Act. We therefore direct the AO to allow the depreciation in the year under consideration and in subsequent years in accordance with law. Thus, this ground of assessee is allowed. 22.1 We also note that the AO in the consequential order dated 26-03-2018 has allowed the additional depreciation on the fixed assets claimed to have been used for the scientific research activities. Accordingly, we reject the claim of the assessee under section 35 of the Act but direct the AO to allow the depreciation and additional depreciation of such machineries. Hence, the ground of appeal of the assessee is partly allowed.
The fourth issue raised by the assessee is that the Ld. CIT (A) erred in confirming the disallowance of depreciation of Rs. 53,927/- on electrical fittings.
The assessee during the year had made an addition of Rs. 14,319/- and Rs. 4,02,773/- in its fixed assets on account of electrical fittings on which it
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had claimed depreciation at the rate of 15% and additional depreciation at the rate of 20%. The assessee in support of its claim submitted that the electrical fittings are the part of the plant & machinery. Therefore it claimed the additional deprecation at the rate of 20% according to the provision of section 32 of the Act.
23.1 However the AO disregarded the contention of the assessee as the rate of depreciation applicable on electrical installation is 10%. The AO also opined that the depreciation at the rate of 15% is allowable where electrical installation is attached with the plant & machinery otherwise depreciation rate is 10% on other electrical installation. As such the assessee did not substantiate the details of electrical installation therefore the AO accordingly disallowed the excess depreciation of Rs. 716/- and Rs. 10,070/- (i.e. 5% of Rs. 14,319 and Rs. 4,02,773/-) and added to the total income of the assessee.
23.2 Regarding the claim of the assessee for additional depreciation at the rate of 20% on electrical fittings u/s 32(iia) observed that the additional depreciation is available on purchase of new plant & machinery to an assessee engaged in the manufacturing or production of articles and things. However the electrical fittings were not used in the manufacture or produce any article or thing. Therefore the AO did not allow the additional depreciation on electrical fittings.
23.3 The AO accordingly disallowed the additional deprecation of Rs. 2864 (on Rs. 14,319) and Rs. 40,277/- (on Rs. 4,02,773) u/s 32(iia) of the Act and added to the total income of the assessee.
ITA NOS.438-439/Ahd/2018 & others For A.Ys 2008-09- 2009-10 & others
Aggrieved assessee preferred an appeal before the Ld. CIT (A). The assessee before the Ld. CIT (A) reiterated the submission as made before the AO. The Ld. CIT (A) after considering the submission of the assessee has upheld the order of the AO by observing as under: I am not inclined with appellant. The principle of Resjudicata is not applicable to income tax proceedings. The appellant failed to demonstrate, how such heavy duty cables are part and parcel of plant and machinery. As per established legal proposition appellant has to demonstrate through functional test that such electric fittings machines cannot run independently. The appellant failed before A.O. as well as before me to demonstrate such functional test. It is not each and every kind of electric fittings whether in office or in factory which is eligible for depreciation at 15%. I am inclined with A.O that if such electric fittings are not plant and machinery then no additional depreciation in available on it. It is therefore, disallowance so made by A.O are upheld and confirmed. This ground is dismissed.
Being aggrieved by the order of the learned CIT (A), the assessee is in appeal before us.
The learned AR before us filed a paper book running from pages 1 to 49 and drew our attention on the bills of electrical wire placed on pages 29 to 40 of the paper book. Accordingly, the learned AR for the assessee claimed that the wires were used in the plant and machinery. Thus the AR prayed to allow the depreciation along with additional depreciation under section 32 of the Act treating the same as plant and machinery.
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. On perusal of the bills referred by the learned AR of the assessee, we note that these wires were meant for the industrial
ITA NOS.438-439/Ahd/2018 & others For A.Ys 2008-09- 2009-10 & others
purposes. Therefore an inference can be drawn that these were used along with the plant and machinery. The learned DR has not brought anything on record contrary to the argument advanced by the learned AR for the assessee. We also find support and guidance from the order of this tribunal in the case of Cera Sanitaryware Ltd versus DCIT reported in 68 Taxman.com 433 wherein it was held as under: “Held that the question is, whether electrical fittings, fans in the case of the assessee are integral part of plant or machinery or they are independent items. If they can function independently of plant and machinery, then probably the Assessing Officer would be right in restricting the claim of depreciation at 10 per cent. The reason being the rates of depreciation are prescribed visualising the wearing and tearing of the machinery in its user for the purpose of business. The Tribunal in the case of Madhu Industries Ltd. v. ITO [2010] 132 TTJ 233 (Ahd.) has observed that as electrical items cannot function independently of plant and machinery, the same cannot be classified independently. They become part of plant and machinery and depreciation will be admissible at the same rate which is applicable in the case of plant and machinery. The Assessing Officer in the impugned order has nowhere observed that these are not part and parcel of the plant and machinery. The assessee has pleaded that electric cables and fans are being installed in casting department where additional load of electricity is required. These fittings at the location attach moulding and casting at three places. Therefore, they are integral part of the machinery. The Assessing Officer shall compute the depreciation admissible to the assessee at 15 per cent on these electrical fittings and fans. The moment they are treated as a part of plant the assessee will get additional depreciation also.”
Accordingly we hold that, the electric fitting used in the plant and machinery is eligible for depreciation at the rate of 15% along with the additional depreciation at the rate of 20%. Hence the ground of appeal of the assessee is allowed.
In the result the appeal of the assessee is partly allowed.
Now coming to the ITA No. 3525/AHD/2015 AY 2011-12
The assessee has raised the following grounds of appeal.
ITA NOS.438-439/Ahd/2018 & others For A.Ys 2008-09- 2009-10 & others
The learned CIT(appeals) has erred in law and on facts in upholding the disallowance of Rs.1,30,448/- u/s.14A r.w. Rule 8D without properly appreciating and considering the facts of the appellant. 2. He has erred in law and on facts in upholding the disallowance of Depreciation of Rs.2,14,804/- on storage tank without properly appreciating and considering the facts of the appellant. 3. He has erred in law and on facts in upholding the disallowance of Depreciation of Rs.2,13,115/- on Electrical fittings without properly appreciating and considering the facts of the appellant. 4. On the facts no such disallowances/additions ought to have been made. The appellant craves leave to add to alter and/or to modify any ground of appeal.
The first issue raised by the assessee is that the Ld. CIT(A) erred in confirming the disallowance of Rs.1,30,448/- u/s 14A r.w. Rule 8D of the Income Tax Rule.
At the outset, we note that the fact in the above ground is identical to the facts of case bearing ITA No.1291/AHD/2015 for A.Y. 2010-11which we have decided in favor of the assessee in part vide paragraph no. 16 of this order. Respectfully, following the same, the ground of appeal of the assessee is partly allowed.
The second ground raised by the assessee is that Ld.CIT (A) erred in upholding the disallowance of Depreciation of Rs.2,14,804/- on storage tank.
At the outset, we note that the fact in the above ground is identical to the facts of the case bearing ITA 439/AHD/2018 for A.Y. 2009-10 which we have decided in favor of the assessee vide paragraph number 11 of this order.
ITA NOS.438-439/Ahd/2018 & others For A.Ys 2008-09- 2009-10 & others
Respectfully following the same, this ground of appeal of the assessee is allowed.
The third issue raised by the assessee is that the Ld. CIT (A) erred in confirming the disallowance of depreciation of Rs. 2,13,115/- on electrical fittings.
At the outset, we note that the fact in the above ground is identical to the facts of the case bearing ITA 1291/AHD/2015 for A.Y. 2010-11 which we have decided in favor of the assessee vide paragraph number 22 of this order. Respectfully following the same, this ground of appeal of the assessee is allowed.
In the result, the appeal of the assessee is partly allowed.
Now coming to the ITA No. 151/AHD/2016 AY 2012-13
The assessee has raised the following grounds of appeal. 1. The learned CIT(appeals) has erred in law and on facts in upholding the disallowance of Rs.33,687/- u/s.14A r.w. Rule 8D without properly appreciating and considering the facts of the appellant. 2. He has erred in law and on facts in upholding the disallowance of Depreciation of Rs.1,79,539/- on storage tank without properly appreciating and considering the facts of the appellant. 3. He has erred in law and on facts in upholding the disallowance of Depreciation of Rs.1,63,276/- on Electrical fittings without properly appreciating and considering the facts of the appellant. 4. On the facts no such disallowances/additions ought to have been made. The appellant craves leave to add to alter and/or to modify any ground of appeal.
ITA NOS.438-439/Ahd/2018 & others For A.Ys 2008-09- 2009-10 & others
The first issue raised by the assessee is that the Ld. CIT(A) erred in confirming the disallowance of Rs. 33,687/- u/s.14A r.w. Rule 8D of the Income Tax Rule.
At the outset, we note that the facts in the above ground are identical to the facts of case bearing ITA No.1291/AHD/2015 for A.Y. 2010-11 which we have decided in favor of the assessee in part vide paragraph 16 of this order. Respectfully, following the same, this ground of appeal of the assessee is partly allowed.
The second ground raised by the assessee is that Ld.CIT (A) erred in upholding the disallowance of Depreciation of Rs.1,79,539/- on storage tank.
At the outset, we note that the fact in the above ground is identical to the facts of the case bearing ITA 439/AHD/2018 for A.Y. 2009-10 which we have decided in favor of the assessee vide paragraph number 11 of this order. Respectfully following the same, this ground of appeal of the assessee is allowed
The third issue raised by the assessee is that the Ld. CIT (A) erred in confirming the disallowance of depreciation of Rs. 1,63,276/- on electrical fittings.
At the outset, we note that the fact in the above ground is identical to the facts of the case bearing ITA 1291/AHD/2015 for A.Y. 2010-11 which we have decided in favor of the assessee vide paragraph number 22 of this order.
ITA NOS.438-439/Ahd/2018 & others For A.Ys 2008-09- 2009-10 & others
Respectfully following the same, this ground of appeal of the assessee is allowed.
In the result, the appeal of the assessee is partly allowed.
Now coming to the ITA No. 3542/AHD/2015 AY 2013-14
The assessee has raised the following grounds of appeal.
The Ld.CIT has erred in law and on facts in upholding the disallowance of Depreciation of Rs.4,43,156/- on storage tank without properly appreciating and considering the facts of the appellant in as much as that it come under the category of plant and Machinery.. 2. The Ld.CIT has erred in law and on facts in upholding the disallowance of Depreciation of Rs.1,31,158/- on Electrical fittings without properly appreciating and considering the facts of the appellant that the said electrical fitting were part of machinery. 3. On the facts no such disallowances/additions ought to have been made. The appellant craves leave to add to alter and/or to modify any ground of appeal.
The First issue raised by the assessee is that Ld.CIT (A) erred in in upholding the disallowance of Depreciation of Rs. 4,43,156/- on storage tank.
At the outset, we note that the fact in the above ground is identical to the facts of the case bearing ITA 439/AHD/2018 for A.Y. 2009-10 which we have decided in favor of the assessee vide paragraph number 11 of this order. Respectfully following the same, this ground of appeal of the assessee is allowed
ITA NOS.438-439/Ahd/2018 & others For A.Ys 2008-09- 2009-10 & others
The second issue raised by the assessee is that the Ld. CIT (A) erred in confirming the disallowance of depreciation of Rs. 1,31,158/- on electrical fittings.
At the outset, we note that the fact in the above ground is identical to the facts of the case bearing ITA 1291/AHD/2015 for A.Y. 2010-11 which we have decided in favor of the assessee vide paragraph number 22 of this order. Respectfully following the same, this ground of appeal of the assessee is allowed.
In the result, the appeal of the assessee is allowed.
Now coming to the ITA No. 440/AHD/2018 AY 2014-15
The assessee has raised the following grounds of appeal.
The learned CIT(appeals) has erred in law and on facts in upholding the disallowance of Depreciation and additional Depreciation of Rs.6,26,627 on storage tank without properly appreciating and considering the facts, evidence adduced and ignoring the decision of Gujarat High Court and Supreme Court applicable to the facts of the appellant for considering the storage tank as plant. 2. On the facts the issue of depreciation remitted to the file of A.O. by the Hon'ble ITAT in ITA No.1596/Ahd/2012 by decision pronounced on 07/07/2016 for A.Y. 2009-10 ought to have been decided in favor of appellant read with decision of Gujarat High Court and Supreme Court. 3. The learned CIT(appeals) has erred in law and on facts in upholding the disallowance of Depreciation and additional Depreciation of Rs.3,06,220 on Electrical fitting without properly appreciating and considering the facts, evidence adduced and ignoring the decision of Gujarat High Court and Supreme Court applicable to the facts of the appellant for considering the electric fitting as plant.
ITA NOS.438-439/Ahd/2018 & others For A.Ys 2008-09- 2009-10 & others
The learned CIT(appeals) has erred in law and on facts in upholding disallowance of employees contribution to P.P. of Rs. 1,32,991/- on the ground of late payment as per the EPF Act though paid before due date of return. 5. He has erred in law and on facts in confirming addition of Rs.30,09,000/- on account of un-disclosed TDS in as much as that neither such interest was paid to the assessee nor it accrued as legal proceedings have been initiated against the payer. 6. On the facts no interest ought to have been levied u/s. 234-B of the Act. 7. The assessee craves leave to add, to alter and/or to modify any grounds of appeal.
The First issue raised by the assessee is that Ld.CIT (A) erred in upholding the disallowance of depreciation of Rs. 6,26,627/- on storage tank.
At the outset, we note that the fact in the above ground is identical to the facts of the case bearing ITA 439/AHD/2018 for A.Y. 2009-10 which we have decided in favor of the assessee vide paragraph number 11 of this order. Respectfully following the same, this ground of appeal of the assessee is allowed
The second issue raised by the assessee is that the Ld. CIT (A) erred in confirming the disallowance of depreciation of Rs. 3,06,120/- on electrical fittings.
At the outset, we note that the fact in the above ground is identical to the facts of the case bearing ITA 1291/AHD/2015 for A.Y. 2010-11 which we have decided in favor of the assessee vide paragraph number 22 of this order. Respectfully following the same, this ground of appeal of the assessee is allowed.
ITA NOS.438-439/Ahd/2018 & others For A.Ys 2008-09- 2009-10 & others
The third issue raised by the assessee in ground No. 4 is that the learned CIT (A) erred in confirming the addition made by the AO on account of employees contribution to PF for ₹1,32,991.00 on account of late payment.
On verification of accounts, the AO noticed that the assessee has not deposited the employee’s contribution to PF of Rs.1,32,991/- within the due date prescribed under the relevant Act. The AO, after considering judgment of the Hon’ble jurisdictional High Court in the case of Gujarat State Road Transport Corporation, 366 ITR 170 disallowed the claim and added the same to the total income of the assessee. In the first appeal before the ld.CIT(A), disallowance was confirmed. Hence the assessee is further before the Tribunal on this issue.
Heard both the sides and perused the materials available on record. We note that the Tribunal on number occasions has decided the similar issue by following the judgment of jurisdictional High Court in the case of Gujarat State Road Transport Corporation Ltd. (supra) against the assessee. The Jurisdictional High Court in the above case held that where assessee did not deposit employees' contribution in the relevant fund before the due date prescribed in Explanation to section 36(1)(va), no deduction would be admissible even though he deposits the same before due date under section 43B of the Act. Hence we are not inclined to interfere in the order of the Revenue authorities on this issue. Thus the ground of appeal of the assessee is dismissed.
ITA NOS.438-439/Ahd/2018 & others For A.Ys 2008-09- 2009-10 & others
The next issue raised by the assessee in ground No. 5 is that the learned CIT (A) erred in confirming the addition of ₹30,09,000.00 on account of interest income disclosed in TDS certificate.
The AO during the assessment proceedings observed that the assessee is entitled to receive a sum of Rs. 30,09,000.00 from M/s Elder pharmaceutical Ltd on account of interest income. But the same has not been shown by the assessee in its income tax return. The observation of the AO was based on the amount of TDS shown in form 26AS.
40.1 However, the assessee claimed that the impugned amount of interest was paid on 8th of March 2015 pertaining to the year under consideration. But the assessee by that time has already filed its return of income without claiming the amount of TDS.
40.2 The assessee also claimed that it has never received any interest from such party. The assessee also claimed that there is a dispute with the party for the recovery of the amount pending in the court of law. The assessee in support of its contention also filed the supporting documentary evidence. Accordingly, the assessee submitted that it has not received any amount of interest from such party and therefore it is not liable to pay tax on such interest income.
40.3 However the AO disagreed with the contention of the assessee by observing that the assessee is liable to offer the amount of interest income to tax as the party has deducted the TDS thereon. Accordingly the AO treated the sum of ₹30,09,000.00 as income of the assessee.
ITA NOS.438-439/Ahd/2018 & others For A.Ys 2008-09- 2009-10 & others
Aggrieved assessee preferred an appeal to the learned CIT (A) who has confirmed the order of the AO by observing as under:
6.4 On careful consideration above facts, it is seen that A.O. has made addition on the ground that TDS of Rs.3,00,900/- booked on 08/03/2015, therefore he has treated the corresponding amount of Rs.30,09,000/- as income of the assessee. The assessee argued that the above amount of interest provided for by the Elder Pharmaceuticals Ltd. has not been taken credit in the books of assessee because from the date of booking being 08/03/2015, it will be seen that no such interest has been paid or intimated to the assessee. The argument of the assessee is not acceptable since the deductor has deducted and paid the tax of Rs.3,00,900/- which pertains to F.Y. 2013-14 and the corresponding income of this TDS was supposed to be offered for the tax in the same year but the assessee failed to do so. During the course of appellate proceedings, the appellant neither produce any supporting evidence not could produce any logical explanation to prove that the action of the A.O is not proper and the same was not liable to be included in the total income of the appellant. Therefore in absence of any supporting evidence, the amount of Rs.30,09,000/- was treated as undisclosed income of the assessee company by the A.O. is confirmed. In view of the above, the addition made by the A.O is confirmed. Hence, this ground of appeal is dismissed.
Being aggrieved by the order of the learned CIT (A), the assessee is in appeal before us.
The learned AR before us submitted that it has not received any amount of interest from the party as well as it has not claimed the benefit of TDS certificate. Accordingly, the learned AR for the assessee claimed that the assessee is not liable to offer the impugned interest income to tax.
On the other hand, the learned DR vehemently supported the order of the authorities below.
ITA NOS.438-439/Ahd/2018 & others For A.Ys 2008-09- 2009-10 & others
We have heard the rival contentions and perused the materials available on record. The issue in the present case relates whether the assessee is liable to pay tax on the interest income as shown in the form 26 AS. In this regard we note that, the argument of the assessee that it has not received any amount of interest income has not been doubted. Thus we are of the view the assessee cannot be liable to tax merely on the basis of the entries made by the 3rd party in its books of accounts. In this regard, we find support and guidance from the order of this Tribunal in the case of M/s Vasant Investment Corpn. Ltd. VS ITO reported in 17 ITD 0691 wherein it was held as under: “Regarding the loan given against promissory notes it had taken six years to recover one- fifth of the principal, which showed that there could not be firm expectations regarding the payment of the full amount. It could not, therefore, be said that interest on it had accrued to the assessee.”
44.1 We also note that the assessee has written off the amount receivable from Elder pharmaceuticals Ltd in the financial 2014-15 as evident from the copy of the ledger which is placed on record.
In view of the above, we hold that the assessee is not liable to offer the impugned interest to tax as it has not received the same. This fact can be verified from the order of the Hon’ble Bombay High Court where the party i.e. Elderly Pharmaceuticals Ltd was declared as insolvent. Hence the ground of appeal of the assessee is allowed.
In the result the appeal of the assessee is partly allowed.
In the combined results, the appeals of the assessee bearing nos.438- 439/Ahd/2018 for A.Ys 2008-09 & 2009-10, No.3542/Ahd/2016 for
ITA NOS.438-439/Ahd/2018 & others For A.Ys 2008-09- 2009-10 & others
A.Y.2013-14 are allowed whereas appeals bearing ITA nos.1291/Ahd/2015 for A.Y.2010-11, No.3525/Ahd/2015 for A.Y. 2011-12, No.151/Ahd/2016 for A.Y. 2012-13, No.440/Ahd/2018 for A.Y.2014-15 are partly allowed.
Order pronounced in the Court on 31/07/2019 at Ahmedabad. /- - -Sd- -Sd- (MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER
(True Copy) Ahmedabad; Dated 31/07/2019 Manish