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Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD
Before: SHRI P.M. JAGTAP, VICE-
आदेश / O R D E R This appeal filed by the assessee is directed against the order of learned Commissioner of Income-Tax (Appeals), Vadodara-5 [“CIT(A)” in short] dated 11.09.2020 and the solitary issue involved therein, as pressed by the learned Counsel for the assessee at the time of hearing before the Tribunal, relates to the disallowance of Rs.10,92,028/- made by the Assessing Officer and confirmed by the learned CIT(A) on account of depreciation.
2. The assessee, in the present case, is an individual who is engaged in the business of processing of wheat, paddy and semi-processed rice, besides trading of pulses. The return of income for the year under consideration was filed by the assessee on 30.11.2014 declaring a total income of Rs.32,07,070/-. The case of the assessee was selected for scrutiny under CASS and a notice under Section 143(2) of the Income-tax Act, 1961 (“the Act” in short) was issued by the Assessing Officer to the assessee on 28.08.2015. In the Profit & Loss account filed along with the return of Shri Ghanshyambhai Thakkar Vs ITO AY : 2014-15 2 income, a sum of Rs.22,60,523/- was debited by the assessee on account of depreciation. The claim of the assessee for depreciation was examined by the Assessing Officer during the course of assessment proceedings and on such examination, he found that depreciation to the extent of Rs.10,92,028/- was claimed by the assessee on fixed assets such as factory building, electrical installation and plant & machinery at Nana Kalodara acquired post September 2014. He also noted from the details furnished by the assessee that the setting up of unit at Nana Kalodara was started in the last week of November, 2013 and the same was claimed to be completed in March 2014. He found that the Optical Sorter machine purchased by the assessee vide bill dated 19.02.2014 for Rs.85,83,233/- had actually arrived in India in the last week of March. According to the Assessing Officer, there was highly unlikely chance of the same getting installed in the factory of the assessee situated at distant part of Khambhat District within a week of its arrival at Delhi Airport. In this regard, the only evidence produced by the assessee in the form of certificate from bank from which LC was obtained for purchase of Optical Sorter machine was found to be not sufficient by the Assessing Officer to establish the claim of the assessee that the said machine was actually installed and put to use before 31st March, 2014. He observed that there was no other documentary evidence filed by the assessee to establish the commissioning of the plant and commencement of functioning at Nana Kalodara unit before 31st March 2014. In the absence of any evidence to show that the said unit had become functional during the year under consideration, the Assessing Officer held that the assets of the said unit could not be said to have put to use in the year under consideration. He accordingly disallowed the claim of the assessee for depreciation on the said assets amounting to Rs.10,92,028/- and made addition to that extent to Shri Ghanshyambhai Thakkar Vs ITO AY : 2014-15 3 the total income of the assessee in the assessment completed under Section 143(3) of the Act vide an order dated 17.11.2016.
3. The disallowance made by the Assessing Officer on account of depreciation amounting to Rs.10,92,028/- was challenged by the assessee in the appeal filed before the learned CIT(A). During the course of appellate proceedings before the learned CIT(A), written submission was filed by the assessee in support of his case on the issue on 10.04.2019 stating as under:-
“I am an Individual deriving income from my proprietary concern named Ghanshyambhai Pitamberdas Thakkar which is doing trading and processing of grains and pulses. Also I have my cold storage at Village: Nana Kalodara, Tal. Khambhat Dist. Anand.
I had filed my ROI for the AY 2014-15 declaring total taxable income of Rs.32,07,070/-.
The Assessing officer had made addition of Rs. 70,92,028/- on account of inadmissible claim of depreciation on Plant, Factory Building and Plant & machinery assuming that the said asset is not put to use. Another addition of Rs. 10000/- was made on account of Interest income without any fault mentioned in the order. Being aggrieved by the order this appeal is preferred.
Here it is submitted that the assets were purchased in the second half of the year under consideration and was put to use during the same year and half depreciation was claimed for that.
The additions to various assets had been made as detailed below.
1. Electric Installations. Rs. 2591/- on 27/01/2014 for copper earthing plate wire Rs.128741/- on 01/02/2014 for various switches. Rs.748191/- 13/03/2014 for Copper plate earthing.
No further purchases were made. Thus the electric installation was complete. 2. Factory Building
Shri Ghanshyambhai Thakkar Vs ITO AY : 2014-15 4 Rs. 2706428/- during 24/11/2013 to Various items were purchased 28/03/2014 and installed at the factory, the Last items being parking tiles on 20/03/2014 & kapchi on 28/03/2014. (Parking tiles fitting is the last activity to be done & further to it, it has no effects in starting production activities.
No further purchases were made. Thus the Building work was complete.
Plant & Machinery. Rs. 12609948/- during 25/12/2013 to Various items were purchased 29/03/2014 and installed at the factory, the Last items being KVAR testing Charges on 29/03/2014.
No further purchases were made. Thus the Machinery work was complete.
The bill of Raj Freight Movers Dt. 25/3/2014 and Bill of Perfect Logistics Dt. 20/03/2014 also indicates that the machinery were released by custom department and transported to Kansari (Khambhat) from Delhi. The distance is about less than 1000 kilometers and the same can be covered withln 30-40 hours from Dt. 20/03/2014.
Further to this, it is stated that it was clearly brought to the notice of the AO that the machinery was such that by plugging the electric wire, the machine can be started. It is like a computer system with camera for sorting and hence the same can be utilised immediately on its receipt. The AO had not considered this aspect also.
During Assessment proceedings, a certificate from our banker was produced about the utilisation of the asset within the same financial year. An application for certificate from MGVCL was made on 11/11/2016 which was received on 23/11/2016. The assessing officer had stated that there are possibilities of not installing of the machinery without going into the facts about the machinery purchase.
The additional evidence certificate, which was applied for on 11.11.2016 from MGVCL, but was not provided by the MGVCL while assessment proceedings up to the date of order i.e. 17/11/2016, in the form of a certificate obtained Dated 23/11/2016 giving details of release of 95 KW power on 22/03/2014 is also attached which also clearly indicates that the power supply was also obtained on 22.03.2014 for our unit and thus there is no reason for disallowing the depreciation on these assets.
Shri Ghanshyambhai Thakkar Vs ITO AY : 2014-15 5 I rely on the following judgments wherein it is decided in favour of the assesses that the assets even if it is put to use or ready for use, the depreciation is allowable, though the asset may be used or may not used.
Betterman Engineers P. ltd. V/s. ITO ITAT Kolkata ITA 2001/Kol/2Q14 (Copy Enclosed) 2. CIT West Bengal IV V/s. Norplex Oak India Hon. Calcutta High Court 3. ACIT V/s. Chennai Petroleum Corpo. Ltd. ITAT Chennai. (Copy of Relevant portion is Enclosed) 4. CIT V/s. National Thermal Power Corpo. Ltd. Hon. High Court, Delhi (Copy Enclosed)
There are number of other judgments which clearly states that the assets once kept ready for use, is eligible for depreciation.
In my case, the assets are already used by me hence there is no question of put to use or kept ready for use.
The AO has added Rs.10000/- stating as Interest income without any fault mentioned in the order.
It is respectfully submitted that since the learned AO had erred in making the above additions, it is requested that the additions made of Rs.10,92,028/- + Rs.10,000/- total Rs. 11,02,028/- may please be deleted.
Since the learned Assessing Officer had erred in making addition on the above and also by initiating penalty u/s. 271(1)(C) and charging interests under various sections, it is requested that the same may please be deleted.
Kindly consider the above facts and delete the additions. Hope I will get full justice from your honour. Your appellant craves your leave to add, alter, amend and/or delete all or any of the above grounds at the time of final hearing in case of need arise.”
Thereafter, a further submission was filed by the assessee on 02.05.2019 and 30.08.2020 stating as under:-
Submission dated 02.05.2019 "In continuation of my submission Dt. 10/04/2019, I have to further submit as follows.
Shri Ghanshyambhai Thakkar Vs ITO AY : 2014-15 6 I am doing trading and processing activities of grains and pulses and for that I have factory building along with machineries at Plot No. 8/B, GIDC, Kansari, Khambhat where I have installed Rice Mill Machinery and processing plant for the agricultural products I had obtained plot No. 8/B at GIDC Kansari, Khambhat (The copy of the GIDC letter is attached). On this plot I had obtained an electric connection of 87 KVA from MGVCL and copies of light bills for the month of April 2013 and March 2014 are attached. I am also having my proprietary cold storage.
As I was not having latest technology sortex machine, I was not able to clean the Agriculture products to the satisfaction of the buyers. To overcome this defects, during the F.Y. 2013-14, I had decided to start my new Sortex unit on the land at S. No. 233, Village : Nana Kalodara, Tal. Khambhat and for that I had started construction work of the new factory building on my own land at Village Nana Kalodara on 24/11/2013 and the construction work was completed on 20.03.2014. The copy of letter obtained from Patvari and Sarpanch of Village Panchayat named Nana Kalodara Gram Panchayat, Nana Kalodara mentioning the date of completion of construction of new plant as 20/03/2014 is enclosed.
Further to this I have to state that during construction period, I had made application for Letter of Credit (Foreign LC) of 135000 USD for purchase of Sortex Machinery from HDFC Bank Limited, Khambhat and the same was sanctioned and I had acquired Machinery on the basis of this LC.
The machine was purchased from Satake International, Bangkok as per their Bill- Invoice No. SIB14/061 Dated 19/2/2014 and the machine was actually received on 01/03/2014 at the factory premises.
I enclose herewith the following papers as supporting evidences.
1. Invoice of Machinery purchased from Satake International, Bangkok and the Bill- Invoice No. SIB14/061 is Dated 19/2/2014. The machinery was reached to my unit at Nana Kalodara on 01/03/2014 as per the inward stamp on the original bill - invoice of Satake International, Bangkok.
After billing, the machine was shipped as per the Shipping Advice Dt. 21 02/2014. 3. The air way bill for this machinery was made on 20/02/2014 by Thai Airways international Public Company Limited. 4. Machinery Release order Dt. 21/02/2014 by our banker given to Thai Airways for release of Machinery.
Shri Ghanshyambhai Thakkar Vs ITO AY : 2014-15 7
Bill of Entry (BE) Dt. 21/02/2014 obtained from Indian custom EDI system.
Cargo Arrival Notice Dt. 21/02/2014 was given to me by Thai Cargo. 7. Lorry Receipt No. 5812 of P C Road lines thorough which my machinery was dispatched from New Delhi to my factory showing entry of the machinery in to Gujarat on dated 28/02/2014 at the Shamlaji Check post which is around 200 kilometers from our unit, which at last reached to me on 1/3/2014.
I also enclose herewith the copy of the bill of Raj Freight Movers dated 25.03.2014 , on the basis of which the assessing officer had come to the conclusion that the Sortex machine had came to factory at the end time of the month of March 2014. However I would like to clarify that this is his consultancy bills, which is billed on me by him at a later date on 25/03/2014, for the activities done by him on my behalf during February 2014. Thus the consultancy bill with reimbursement of the payments was billed on me, on a later date that is 25/03/2014. On the basis of this bill, it cannot be concluded that the machinery came after that date.
Further to this, I would like to submit that the bank officials, as they had made finance of 135000 $ as foreign LC, had a/so visited our unit and verified the machinery installed and also verified the production process started and had given certificate to that effect. The copy of the same is enclosed herewith which was also submitted during assessment proceedings. Further to this it is stated that the machinery was such that by plugging the electric wire, the machine can be started. It is like a computer system with camera for sorting and hence the same can be utilised immediately on its receipt.
Also during construction period, I had made application for getting 95 KVA electric supply from MGVCL on 27/01/2014 and as per their estimate – quotation I had paid Rs. 282110/-on 14/2/2014. (Copies of Quotation as well as money receipt obtained from MGVCL are enclosed.) On my application for 95 KVA electric connections, I had been given electric connection on 22/03/2014 as per copy of the certificate of MGVCL dated 23/11/2016.
Now as there was use of only 10 days electric connection, from the date of connection "that is 22/03/2014 to the end of the month that is 31/03/2014, I was not given the electric bill of the 10 days for the month of March 2014 but I was given bill of the month of April 2014 only and the utilisation of the units of the month of March 2014 were clubbed with the utilisation of the Shri Ghanshyambhai Thakkar Vs ITO AY : 2014-15 8 units of April 2014. I enclose here with the copy of electric bill of the month of April 2014 which shows unit utilisation of 4340. As I was not given the bill for the month of the March 2014 unit utilisation, I had made a request to the MGVCL authorities for the certificate about the utilisation of the unit of electricity for the month of March 2014 and as per their certificate the unit utilisation were 943 units during the month of March 2014. Copy of the certificate is attached herewith.
I had also started Electric fittings and installation work simultaneously at the new factory premises and had purchased various switches and other items & this work was completed on 13/03/2014. These items are delivered to me immediately along with bill of purchase and the dispatch date remains the date of bill and not beyond that. Also these items were installed immediately as I was to get electric, connection shortly.
At last on receipt of Machinery at the Nana Kalodara factory premises on 01/03/2014, construction work having been completed on 20/03/2014, Electric Installation work having been completed on 13/03/2014 and on getting electric connection released on 22/3/2014, I had sent my 400 bags of Gujarat -17 rice each of 25 kg., for Sortex process at S No. 233 Nana Kalodara from my existing factory Plot No. 8/B, GIDC, Kansari, Khambhat, which is only 1 (one) Km. away from the new factory, on 23/03/2014 vide gate pass No. dated 23/03/2014 ( Copy enclosed ) which were obtained back after Sortex process on 24/03/2014 vide gate pass No. 1 dated 24/03/2014.
All these steps taken by me and papers and proofs produced, establishes the use of Plant as well as Machineries before the end of the FY 2013-14.
Further to this, I recently came to know that the Trial run of machinery is also considered as put to use for the claim of depreciation as per the following case laws.
- Gujarat High Court in the case of ACIT Vs. Ashima Syntex Ltd. (2001 251 ITR 133 GUJ) - CIT vs. Mentha & Allied Products (326 ITR 297 (Allahabad HC))
Where as in my case there is an actual utilisation of the assets itself before the end of the FY 2013-14 and hence I request your honour to kindly consider the assets as utilised and allow the claim of depreciation on these assets & oblige.
I also request you sir to kindly consider my submissions dated 10/04/2019.” Submission dated 30.08.2020
Shri Ghanshyambhai Thakkar Vs ITO AY : 2014-15 9 "There is only one ground of appeal that is disallowance of depreciation on machinery, on the assumption that the asset is not put to use during AY 2014-15. (FY 2013-14)
It is submitted that the imported machine was dispatched to my place on 19.02.2014 vide invoice no. SIB 14/061 from Thailand to New Delhi and then to my unit. I enclose the proofs as follows. (Copies of invoice, shipping advice, airway bill, HDFC bank release order, bill of entry in India, cargo arrival notice at new Delhi, transport receipt of P. C. Roadlines duly stamped by government of Gujarat commercial tax check post dated 28/2/2014 and inward in to my factory wide inward no. 102 dated - 01/03/2014 with sr. No. Marked as 1,2,3,4,5,6,7 are attached)
The electric connection of 95kv was released to my unit on 22/03/2014 as per copy of certificate from MGVCL dated 23.11.2016. The Sr. No. is 8.
The sortex machine, which is imported, is such that by plugging the electric wire, it can be started. It is like a computer system with camera for sorting of the product and hence the same can be utilised immediately on receipt which in fact was received to my unit on 1.3.2014 as per details in first para.
Thereafter electric connection was released on 22/03/2014 as stated above and MGVCL certificate is also attached at sr. No. 8 as above, and the production on the imported machine was started on 23/03/2014. The goods inward gate pass no. 1308 dated 23/03/2014 and gate pass for goods send back after sorting on 24/03/2014 is attached as per sr. No. 9 and 10.
Our bankers HDFC Bank Ltd., had also certified about the production started in the FY 2013-14 as per certificate dt. 14.11.2016. Copy attached at Sr. No. 11.
Gram Panchayat Nana Kaiodara, where my unit is located, had certified that the construction of the new plant was completed on 20/03/2014. Certificate is attached at sr. No. 12 MGVCL as per its certificate dated 24/04/2019 has certified that my unit has consumed 943 units during 22/03/2014 to 31/03/2014. Copy is attached at Sr. No. 13
Shri Ghanshyambhai Thakkar Vs ITO AY : 2014-15 10 All the above documents establishes that the production was started on the new imported machinery during FY 2013-14 and the depreciation cannot be disallowed on it.
I request you sir to kindly consider my previous submissions dated 10/4/2019 and 2/5/2019, wherein mention of various judgements are given in which the depreciation was allowed even if the asset is ready to use and/or put to use, attached herewith Sr. No. 14 to 19.
As the e-proceeding portal is not showing any option for submit - view, I am sending these papers in your honours' email.
I therefore request you sir to kindly consider the above facts and delete the additions made."
5. The learned CIT(A) did not find merit in the submissions made on behalf of the assessee and proceeded to confirm the disallowance made by the Assessing Officer on account of depreciation for the following reasons given in paragraph Nos.4 & 4.1 of his impugned order:-
“I have carefully considered the facts on record, arguments put forth in the assessment order and the written submissions of the appellant. Sole ground of appeal pertains to disallowance of depreciation of Rs.10,92,028/-. Main allegation in the assessment order is that machinery was not ‘put to use’ during FY 2013-14.
Appellant imported optical sorter machine from Thailand vide invoice No. SIB14/061 dated 19.02.2014. Electric connection was released to factory unit on 22.03.2014 as per copy of MGVCL certificate dated 23.11.2016. That machinery was to be installed in a refurbished factory shed at Khambhat, Gujarat. The said machinery was moved from Delhi to Plot No. 8/B, GIDC Kansari, Khambhat, Anand, Gujarat by Raj Freight Movers vide invoice dated 25.03.2014. AO asked the appellant to submit installation certificate, industry clearance certificate, Vijli Bill to prove that machine was put to use during FY2013-14. In response, Appellant submitted Letter of Credit dated 14.11.2016 issued by HDFC Bank duly signed by Branch Manager wherein it is stated that acquired machinery was installed during FY 2013-14 and production started in the same year. However, AO did not believe the said certificate on the reasoning that the said certificate is not supported by inspection note of bank authorities.
Shri Ghanshyambhai Thakkar Vs ITO AY : 2014-15 11 4.1 During the appellate proceedings, A R has submitted a certificate dated 24.04.2019 from MGVCL stating that 923 units of electricity was consumed during the month of March 2014. A certificate from Talati and Gram Sarpanch has also been submitted to show that machine was put to use during FY 2013-14. In addition, appellant has claimed to have started production also. In support appellant has submitted a copy of gate pass bearing SI No.1 wherein 400 kg of Rice has been shown to have supplied to nearby mill using vehicle No. GJ07E3954. From the assessment order and arguments of the ld AR, purchase of machinery is not in dispute. Only dispute is w.r.t. date of installation of machinery. Appellant has claimed that said imported machinery functions on plug and play basis akin to computer. In order to verify the claim of the appellant that machine was a plug and play device, I have visited google to see machine description to know the procedure for installation. Shipping invoice dated 21.02.2014 clearly suggest value of goods Rs.135000 USD, gross weight of the machinery is 2014 kg and net wt 954.43 Kg. A picture downloaded from website is given below for ready reference:
From the website, it is known that Optical Sorting (sometimes called digital sorting) is the automated process of sorting solid products using cameras and/or lasers. Depending on the types of sensors used and the software- driven intelligence of the image processing system, optical sorters can recognize objects' color, size, shape. The sorting machine should be installed on a horizontal plane and it requires fabrication work for input and output of the goods. Machine must have a good grounding, with the bar at the grounding terminal to get into the ground for at least 50 cm. Installation
Shri Ghanshyambhai Thakkar Vs ITO AY : 2014-15 12 should be made in well-ventilated places rather than places of low or high temperature, or with high humidity or many dusty. Most importantly vehicle GJ07E3954 used for carrying rice products vide Bill No.1 dated 24.03.2014, does not exist as per the national register portal vahan. The search result is reproduced herewith:-
From the above facts, ld AR argument that machinery is like a computer is totally false. It is amply clear that such a high value machinery having sophisticated camera/sensors cannot be installed without guidance of Original Equipment Manufacturer (OEM). Despite repeated request, ld. AR could not produce installation certificate nor any write up from OEM or manufacturer was submitted before me. Insistence upon consumption of bijli bill only indicates some other civil work, electric fitment work, rightly pointed by AO in the assessment order, has been carried out. Further, Talati or Sarpach is not a technical person to certify the installation of machinery. Similarly Bank manager has given certificate without any inspection note duly appointed by bank. These evidence, do not support claim of the appellant that machinery was put to use during FY 2013-14. Lack of direct evidence in support of claim of 'put to use' of the Optical Sortex machinery disentitles the appellant to claim depreciation u/s 32 of the Act. Thus, disallowance made by AO is upheld. Sole ground is dismissed.
6. Aggrieved by the order of the learned CIT(A), the assessee has preferred this appeal before the Tribunal.
I have heard the arguments of both the sides and also perused the relevant material available on record. The main contention raised by the Shri Ghanshyambhai Thakkar Vs ITO AY : 2014-15 13 learned Counsel for the assessee is that adverse inference was drawn by the learned CIT(A) against the assessee based on the material available on record as well as collected directly by him without giving any opportunity to the assessee of being heard. He has submitted that the Optical Sorter Machine imported by the assessee from Thailand vide invoice dated 19.02.2014 was taken as moved from Delhi to the unit of the assessee during the last week of March 2014 by the learned CIT(A) on the basis of invoice of Raj Freight Movers. He submitted that the said machine in fact was transported by P.C. Road Lines and the same was duly delivered at the unit of the assessee on 01.03.2014 vide consignment note No.5817. He has submitted that similarly the information directly collected by the learned CIT(A) from the website regarding Optical Sorter Machine was used by him to come to the conclusion that the said machine was required to be installed on a horizontal plane and it required fabrication work for input and output of the goods. He has submitted that the Optical Sorter Machine actually requires no such foundation or fabrication and the installation of the same is quite easy; it can be done very quickly. As regards the non-existence of the vehicle No. GJ07E3954 claimed to be used by the assessee for carrying the rice products on 24.03.2014 as shown by the learned CIT(A) on the basis of information obtained from National Register Portal Vahan, he has submitted that the assessee is having the certificate of registration to show the existence of the said vehicle. He has submitted that the assessee is also having report of Arth Marketing confirming the completion of commissioning of the plant and machinery on 21st and 22nd March, 2014. He has submitted that the assessee, however, could not produce these evidences in the absence of any opportunity given by the learned CIT(A) during the course of appellate proceedings. He accordingly has filed the Shri Ghanshyambhai Thakkar Vs ITO AY : 2014-15 14 said evidences as additional evidences as follows with a request to admit the same:- i. Consignment note of P.C. Road Lines showing delivery of Optical Sorter Machine on 01.03.2014; ii. Service Commissioner’s Report of Arth Marketing showing commissioning of the plant and machinery on 21st and 22nd March, 2014; iii. Certificate of Registration of vehicle No. GJ 7 E 3954 showing existence of the said vehicle; iv. Actual photograph of Optical Sorter Machine to show that the same was not required any heavy foundation or fabrication.
Keeping in view the relevance of the additional evidences filed by the assessee and the fact that proper and sufficient opportunity was apparently not given by the learned CIT(A) to the assessee to file the same, I consider it fair and proper and in the interest of justice to admit the additional evidences filed by the assessee. Even learned Departmental Representative has not raised any objection for admission of the said additional evidences. She, however, has contended that an opportunity may be given to the Assessing Officer to verify the said evidences filed by the assessee for the first time before the Tribunal. I find merit in this contention of the learned Departmental Representative and since the learned Counsel for the assessee has not raised any objection in this regard, I set aside the impugned order of the learned CIT(A) on this issue and restore the matter to the file of the Assessing Officer with the direction to decide the same afresh in accordance with law after verifying the additional evidence filed by the assessee and Shri Ghanshyambhai Thakkar Vs ITO AY : 2014-15 15 after giving proper and sufficient opportunity of being heard to the assessee.
In the result, the appeal of the assessee is treated as allowed for statistical purposes.
Order pronounced in the open Court on 12th October, 2022 at Ahmedabad.