SILICON JEWEL INDUSTRIES PVT. LTD.,,AHMEDABAD vs. THE DY.CIT, CIRCLE-8,, AHMEDABAD

The captioned quantum and penalty appeals have been filed at the instance of the assessee against the order of the Commissioner of Income Tax (Appeals)-8, Ahmedabad (‘CIT(A)’ in short), dated 28.04.2015 arising in the assessment order dated 11.03.2013 and penalty order dated 23.07.2013 passed by the Assessing Officer (AO) under s. 143(3) & & 1869/Ahd/15 [Silicon Industries Pvt. Ltd. Vs. DCIT] A.Y. 2010-11 - 2 - 271(1)(c) of the Income Tax Act, 1961 (the Act) respectively; concerning A.Y. 2010-11.

There being common thread to the grievance in both appeals, both cases were heard together and disposed of by the common order.

We shall first take up assessee’s quantum appeal in AY 2010-11.

The grounds of appeal raised by the assessee read as under:

The learned AR for the assessee thereafter adverted to the order of the CIT(A) and submitted that when the aforesaid action of the AO was challenged before the CIT(A), an alternative plea was also taken before the CIT(A) that where the expenditure claimed is not admitted as eligible under s.35D of the Act, such expenditure requires to be capitalized to the fixed costs and appropriate depreciation allowance is required to be granted to the assessee in terms of Section 32 of the Act. The learned AR for the assessee adverted our attention to the breakup of expenditure of preliminary and pre-operative expenditures annexed to paper book and submitted that majority of the expenses incurred comprises of bank interest (Rs.37.95 Lakhs), processing fee charges (Rs.21.68 Lakhs) and document of stamping charges (Rs.7.22 Lakhs) and these expenses in particular are in relation to the borrowed funds utilized for acquisition of fixed assets and therefore requires to be capitalized under s.36(1)(iii) of the Act and is required to be added to the actual cost for the purposes of claim of depreciation allowance under s.32 of the Act. The leaned AR for the assessee submitted that the CIT(A) however has wrongly denied appropriate relief in terms of the alternative plea for claim of depreciation.

The learned DR for the Revenue, on the other hand, relied upon the order of the CIT(A).

We have heard the rival submissions. The core controversy for adjudication before us is whether the assessee is eligible for depreciation allowance on the additional capitalization of cost as sought or not in the given facts of the case. We notice that the CIT(A) has not raised any objection on first principle that the assessee is eligible to depreciation on & 1869/Ahd/15 [Silicon Industries Pvt. Ltd. Vs. DCIT] A.Y. 2010-11 - 4 - all costs incurred for acquisition of asset up to the period till the asset was first put to use as attributable to such capital assets. The CIT(A) however has observed that direct and proximate relationship between the expenses and the acquisition of assets requires to be established. Having regard to the claim of the assessee for incurring of substantial expenditure of borrowals from bank which has been utilized for acquisition of assets, we consider it expedient to restore the issue back to the file of the CIT(A) for proper verification of this aspect. The issue is accordingly remanded back to the file of the CIT(A) for maintainability of claim of depreciation on the costs attributable to acquisition of assets as embedded in preliminary and preoperative expenses. It shall be open to the assessee to establish before the CIT(A) to his satisfaction that expenses incurred towards interest and other costs are attributable to the acquisition of asset. The assessee shall be entitled to depreciation allowance on such interest and other costs in accordance with law. Needless to say, the assessee shall extend full cooperation to the CIT(A) and shall provide all information and evidences as may be required for the purpose of determination of the issue. The order of the CIT(A) is therefore set aside to this extent and restored back for adjudication afresh in accordance with law.

In the result, appeal of the assessee in is allowed for statistical purposes.

In the assessee has raised grievance towards imposition of penalty of Rs.5,08,464/- under s.271(1)(c) of the Act as a consequence of disallowance of preliminary and preoperative expenses as noted in the quantum appeal. As the quantum order of the AO is subject to fresh examination of the CIT(A) as noted in , the consequential penalty imposed on such addition/disallowance up to and until the issue regarding determination of taxable income is finalized, penalty under s.271(1)(c) of the Act cannot be imposed upon the assessee. The determination of taxable income of the assessee is presently sub-judice before the CIT(A) owing to the appellate order of the ITAT in quantum proceedings. It will be the statutory discretion of the CIT(A) to consider ITA No. 1868 & 1869/Ahd/15 [Silicon Industries Pvt. Ltd. Vs. DCIT] A.Y. 2010-11 - 5 - the merits of imposition of penalty on this issue afresh in accordance with law on conclusion of the quantum appeal so restored. Thus, the appellate order of the CIT(A) confirming the penalty is also set aside and restored back to the file of the CIT(A).

In the result, both the appeals filed by assessee are allowed for statistical purposes.