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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI V. DURGA RAO & SHRI G. MANJUNATHA
order of the learned Commissioner of Income Tax (Appeals)-4, Chennai dated 09.08.2018 and pertains to assessment year 2013-14.
The Revenue has raised following grounds of appeal:-
“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,
Compulsorily Convertible Debentures which was originally not submitted during the assessment proceedings.
The Ld. CIT(A) erred in not appreciating the fact that the Licence to work certificate issued by the Inspector of Factories, Chittoor issued only on 30.11.2012 and the Andhra Pradesh Pollution Control Board had issued consent order on 21.12.2012 to the assesse company and hence the actual set up of the factory happened only in December 2012 and not in October 2012, as claimed by the assesse.
4. The learned CIT(A) erred in not appreciating the ratio that the Apex Court in the case of CIW v. MIs Ramaraju Surgical Cotton Mills ltd. (1967) 63 ITR 478), has held that for reckoning the date setting up of factory, the certificate issued by Inspector of Factory was a vital date and benefits such as depreciation and operative expenses are tagged to that date.” 3. Brief facts of the case are that the assessee is a private 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)
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.
The first issue that came up for our consideration from 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
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/-.
Being aggrieved by the assessment order, the assessee 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
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.
The learned DR submitted that the ld.CIT(A) has erred in 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.
The learned A.R. for the assessee, on the other hand, 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 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.
We have heard both the parties, perused relevant 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
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.
In this view of the matter and considering facts and 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.
The next issue that came up for our consideration from 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
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.
We have heard both the parties, perused relevant 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.
We have gone through reasons given by the Assessing 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 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 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.