DCIT CORPORATE CIRCLE 1(2), CHENNAI vs. BERGEN PIPE SUPPORTS INDIA PRIVATE LTD., CHENNAI

PER G. MANJUNATHA, AM: This appeal filed by the Revenue is directed against

order of the learned Commissioner of Income Tax (Appeals)-4,

Chennai dated 09.08.2018 and pertains to assessment year

2013-14.

“1. The order of the Ld. CIT(A) is contrary to law, facts circumstances of the case. 2. The Ld. ClT(A) erred in allowing relief to the assessee without calling for Remand report or giving opportunity to the Assessing officer under Rule 46A or section 250(4) of the Act,

2 ITA No.2980/Chny/2018 despite the fact that additional evidences were submitted by the assessee for the claim of interest on Compulsorily Convertible Debentures which was originally not submitted during the assessment proceedings.

limited company, engaged in the business of manufacture and

supply of pipe support equipment for all types of pipe work

installations in the industrial & commercial sectors filed its

return of income for the assessment year 2013-14 on

30.11.2013 admitting total loss of Rs.7,00,15,645/-. The

Assessing Officer has completed regular assessment u/s.143(3)

3 ITA No.2980/Chny/2018 of the Income Tax Act, 1961 vide order dated 18.02.2016 and

made various additions, including additions towards

disallowance of interest on Compulsorily Convertible

Debentures of Rs.81,24,000/- by treating loan funds as equity

capital and disallowance of depreciation on plant & machinery

of Rs.1,00,98,069/- by adopting date of setting up of business

as 01.12.2012. The assessee has carried the matter in appeal

before the first appellate authority and the learned CIT(A) for

the reasons stated in his appellate order dated 09.08.2018

allowed appeal filed by the assessee and deleted additions

made towards disallowance of interest paid on CCDs and

disallowance of depreciation on plant & machinery. Aggrieved

by the learned CIT(A) order, the Revenue is in appeal before

us.

ground no.2 of the Revenue appeal is deletion of additions

towards interest paid on CCDs During the financial year

relevant to assessment year, the assessee has received equity capital of Rs.4,76,72,220/- and CCDs of Rs.12,51,66,680/- from

its parent company, M/s.Pipe Supports Group Ltd. U.K. During

the course of assessment proceedings, the Assessing Officer

4 ITA No.2980/Chny/2018 has called for copy of foreign inward remittance certificate from

bankers and on the basis of foreign inward remittance

certificates, noticed that although, the assessee has received

foreign inward remittance towards equity, but subsequently on

the basis of corrected FIRCs claimed that it has received

contribution towards CCDs and paid interest. Therefore, the

Assessing Officer opined that interest paid on CCDs cannot be

allowed as deduction and accordingly, disallowed total interest

paid amounting to Rs.81,24,000/-.

preferred an appeal before the learned CIT(A). Before the

learned CIT(A), the assessee has filed corrected FIRCs issued

by Axis Bank, Madurai branch and claimed that it has received

amount towards compulsorily convertible debentures and thus,

interest paid on debentures is allowable expenditure. The

learned CIT(A), after considering relevant details, including

information obtained from Axis Bank, Madurai branch,

u/s.133(6) of the Act, observed that bank has corrected

mistake in FIRCs issued by them by stating that although, it was

referred to as equity in the original FIRCs issued by the bank,

but, subsequently, it has been brought to our notice that said

5 ITA No.2980/Chny/2018 remittance is towards CCDs and thus, opined that the assessee

has rightly paid interest on CCDs and same is allowable as

deduction and accordingly, deleted additions made by the

Assessing Officer.

deleting additions made towards disallowance of interest paid

on equity by treating it as loan in violation of Rule 46A of the

I.T. Rules,1962, by considering corrected foreign inward

remittance certificates furnished by the assessee without

allowing the Assessing Officer to make their comments on

additional evidences filed by the assessee. Therefore, the issue

may be set aside to the file of the Assessing Officer for further

verification.

supporting order of the learned CIT(A) submitted that the

learned CIT(A) has considered corrected foreign inward

remittance certificates issued by the bank and also obtained

independent information from the bank, where the banker has

clarified that there is mistake in FIRCs issued by them and said

mistake has been corrected by referring to correct purpose for

6 ITA No.2980/Chny/2018 which funds received by the assessee which clearly shows

that the assessee has received funds towareds compulsorily

convertible debentures and accordingly, deleted additions made

towards disallowance of interest. Therefore, there is no error in

the reasons given by the learned CIT(A) to delete additions

made by the Assessing Officer and thus, there is no need to

set aside the issue to file of the Assessing Officer.

material available on record and gone through orders of the

authorities below. The Assessing Officer has made additions

towards interest paid on CCDs on the basis of foreign inward

remittance certificates issued by Axis Bank, Madurai branch, as

per which, purpose of remittance of funds by parent company

of the assessee is mentioned as foreign direct investments in

India in equity. The learned CIT(A) deleted additions made by

the Assessing Officer on the basis of corrected foreign inward

remittance certificates issued by Axis Bank, Madurai branch, as

per which purpose has been specified as funds received for

compulsorily convertible debentures. The said certificate is

supported by letter addressed by the Axis Bank to the learned

CIT(A) in response to notice issued u/s.133(6) of the Income

7 ITA No.2980/Chny/2018 Tax Act, 1961, during the course of appellate proceedings,

where the bankers have clearly stated that funds received by

the assessee from parent company is not for equity

contribution, but for compulsorily convertible debentures. The

learned CIT(A), on the basis of evidences filed by the assessee

observed that the assessee has received debentures from its

parent company on which it has paid interest and thus, same is

allowable as deduction. Although, the Revenue has taken a

ground in light of provisions of Rule 46A of I.T.Rules, 1962, but

in our considered view, when the learned CIT(A) has carried out

independent inquiries by obtaining necessary information from

bank, it cannot be said that there is violation of Rule 46A for

not giving opportunity of hearing to the Assessing Officer,

because the learned CIT(A) have co-terminus powers of the

Assessing Officer and can decide the issue independently, but

such decision should be based on evidences. In this case, the

assessee has furnished evidences and the learned CIT(A) has

considered the evidences filed by the assessee and also in light

of information obtained from bank and thus, we are of the

considered view that there is no question of violation of Rule

46A of I.T. Rules, 1962.

8 ITA No.2980/Chny/2018

circumstances of the case, we are of the considered view that

there is no error in the reasons given by learned CIT(A) to

delete additions towards disallowance of interest paid on

compulsorily convertible debentures and hence, we are inclined

to uphold findings of the learned CIT(A) and reject ground taken

by the Revenue.

ground no.3 & 4 of the Revenue appeal is disallowance of

depreciation of Rs.1,00,98,069/- on new plant and machinery

acquired and put to use. The Assessing Officer has

disallowed depreciation claimed on plant and machinery on the

ground that the assessee had installed and put to use plant

and machinery only on 30.11.2012, on the basis of certificate

issued by Inspector of Factories, Chittoor, and certificate of

Pollution Control Board issued on 21.12.2012. It was

explanation of the assessee before the Assessing Officer that

plant and machinery was installed and put to use before

01.10.2012 and the assessee has commenced trial run. The

assessee had also purchased necessary raw materials required

9 ITA No.2980/Chny/2018 for manufacturing activity and thus, argued that machinery has

been put in place before 01.10.2012 and hence, the assessee

is entitled for depreciation on plant and machinery.

material available on record and gone through orders of the

authorities below. There is no dispute with regard to fact that

the assessee has installed and put to use plant and machinery

on which depreciation has been claimed. The only dispute is

with regard to date of installation and put to use said plant and

machinery and according to the assessee, it has put to use

said plant and machinery on or before 01.10.2012, whereas

the Assessing Officer contended that said plant and machinery

has been put to use only in the month of November, 2012.

Officer to disallow depreciation on plant and machinery in light

of various evidences filed by the assessee and we ourselves do

not subscribe to the reasons given by the Assessing Officer for

simple reason that certificate or consent letter issued by

Inspector of Factories / Pollution Control Board is not relevant

factor to decide whether particular plant and machinery was

10 ITA No.2980/Chny/2018 installed or put to use , but what is relevant to see is date of

installation of plant and machinery and fact that said plant and

machinery was put to use in the business of the assessee or

not. In case, plant and machinery is put to use in the business

of the assessee, even if, said plant and machinery is not used

for production purpose, the assessee is entitled for

depreciation, but only condition prescribed for claiming

depreciation is that particular plant and machinery should be

ready for intended use. In this case, the learned CIT(A) has

recorded categorical finding that on the basis of evidences filed

by the assessee, the assessee has installed and put to use

said plant and machinery on or before 01.10.2012, which is

supported by necessary lease deed entered into by the

assessee with land owner for the purpose of construction of

factory, installation of plant and machinery and intimation to

Central Excise authorities for commencement of commercial

production. The assessee has also furnished electricity

consumption details which shows sudden increase in consumption of electricity from the month of October, 2012

onwards. From the above, it is very clear that the assessee has

installed and put to use relevant plant and machinery for

11 ITA No.2980/Chny/2018 intended purpose. Therefore, we are of the considered view

that the assessee is entitled for depreciation as per law. The

learned CIT(A), after considering relevant facts has rightly

deleted additions made by the Assessing Officer towards

depreciation on plant and machinery. Hence, we are inclined to

uphold findings of the learned CIT(A) and reject ground taken

by the Revenue.