M/S IVES DRUGS (IDNDIA) PVT. LTD.,INDORE vs. THE ADDL. CIT RANGE-1, INDORE

आदेश / आदेश /O R D E R आदेश / आदेश /

PER O.P. MEENA, ACCOUTANT MEMEBR.

This appeal is filed by the assessee against the order of ld.

Commissioner of Income tax (Appeals)-I, Indore [hereinafter

referred to as the CIT (A)] dated 17.10.2014. This appeal

pertains to Assessment Year 2005-06 as against appeal

decided in respect of assessment order dated 18.12.2007

passed u/s. 143(3) of Income Tax Act, 1961(herein after

referred to as "the Act) by the Addl CIT Range-1, Indore

[hereinafter referred to as the AO]. The assessee has taken

following grounds of appeal:- 1. On the facts and circumstances of the case, the

learned Commissioner of Income tax (Appeals) erred in

confirming the disallowance out of consumption of

inputs. 2. On the facts and circumstances of the case, the

learned Commissioner of Income tax (Appeals) erred in

confirming the disallowance of expenditure incurred as

line charges.

Page 3 of 9 M/s.IEVS Drugs(India) Pvt.Ltd./I.T.A.No. 436/Ind/2016/A.Y.05-06

41,154/- on account of excess consumption of bottles

in production.

has shown production loss of 1,30,396 bottles valued

at Rs. 4,41,154/- The AO worked out a chart as given

in para 03.1 of assessment order and noted that

average losses in bottles was more than 5% which was

considered to be quite excessive, nor it was

satisfactorily explained by the assessee, hence, Rs.

2,22,077/- being 50% of the same was disallowed.

Similarly, the AO worked out loss of 8.56% in rubber

cork which was considered to be excessive, hence,

disallowance of Rs. 1,12,563/- was made being excess

rubber cork used. Further, losses in aluminum seal

was found to be 8.64% of the production hence, after

allowing 1% loss as reasonable, excess aluminum loss

of Rs. 1,04,180/- was disallowed. Thus, total loss of

Rs. 4,41,154/- was added to total income.

Page 4 of 9 M/s.IEVS Drugs(India) Pvt.Ltd./I.T.A.No. 436/Ind/2016/A.Y.05-06

the ld. CIT (A).

of glass bottles claimed at Rs. 4,44,154/- and

disallowed Rs. 2,22,077/- . Similarly loss of Rs.

2,15,975 pieces out of which 1,90,785 was allowed

and pieces of 1,25,563 valued at Rs. 1,12,563/- was

disallowed and loss of aluminum of Rs. 1,04,180/-

was disallowed as the appellant could not provide

explanation as to how losses claimed are not excessive.

Accordingly, the Ld. CIT (A) has confirmed the same.

the tribunal.

submitted that the assessee is in the business of

manufacturing of intravenous fluids and medicines.

The IV fluids are medicines, which are directly injected

in the veins, hence, extreme caution, and safety is

adhered to, therefore, in such tedious process

damages, losses in glass bottles is inevitable.

Page 5 of 9 M/s.IEVS Drugs(India) Pvt.Ltd./I.T.A.No. 436/Ind/2016/A.Y.05-06

Similarly, the rubber cork is used as cap of the bottles,

which is before its use chemical coating is given and if

fall in ground then same is not used for safety

purpose. Hence, loss claimed is reasonable. The

learned Counsel also submitted that in aluminum seal

losses are reasonable as the aluminum seal is very

thin and results in losses during handling and sealing

operation. The learned Counsel pointed out that the

issue is covered in favour of the assessee in its own

case for the assessment year 2004-05 by order dtd.

27.03.2007 of ld. CIT (A)-I Indore (IT-473/06-07/410

wherein in para 4 at page 6 , the ld. CIT (A) has

categorically dealt with the issue. Such disallowance of

losses were deleted by the ld. CIT (A) in A.Y. 1992-93

which were also upheld by tribunal in the case of the

assessee for A.Y. 1992-93 in I.T.A. No.573/Ind/1995

dtd. 17.12.1999 against which no appeal before the

Hon`ble High Court has been filed by the Revenue.

authorities.

Page 6 of 9 M/s.IEVS Drugs(India) Pvt.Ltd./I.T.A.No. 436/Ind/2016/A.Y.05-06

parties and have perused the material available on

record. We find that the AO has proceeded to disallow

the losses by computing number of bottles, corks and

aluminum seal used and consumed and, accordingly

computed disallowances for the difference being 50%

of claim. The AO has not pointed out any defects in

maintenance of books of accounts and records

maintained by the assessee nor cited any comparable

cases, that losses claimed were excessive. Nor based

his finding on G.P. rate. The AO also not rejected

books of accounts to show as to how books of

accounts maintained are not reliable. We also find that

the Ld. CIT (A) appeal has deleted such disallowance in

appeal for A.Y. 2004-05 in the case of the assessee. We

further find that such disallowance of losses made by

the AO in A.Y. 1992-93 were also deleted by the ld. CIT

(A) and revenue`s appeal for that assessment year was

also dismissed by the coordinated bench of this

Tribunal in the case of DCIT vs. IVES Drugs (I) Pvt.

Page 7 of 9 M/s.IEVS Drugs(India) Pvt.Ltd./I.T.A.No. 436/Ind/2016/A.Y.05-06

Ltd. in I.T.A. No.573/Ind/1995 dtd. 17.12.1999

against this issue no appeal was filed by the Revenue

before the Hon`ble High Court. In view of this matter,

we are of the considered opinion that the AO was not

justified in making such disallowance of losses without

giving plausible reasons and after rejection of books of

accounts. Considering these facts and circumstances,

all the above disallowance are deleted which are also

covered by decision of ld. CIT (A) for A.Y. 2004-05 and

Hon`ble tribunal in the assessee`s own case.

Accordingly, the disallowance of Rs. 4,41,154 is

deleted. This ground of appeal of the assessee is

allowed.

41,250/- being load increase line charges, which

according to the AO were in the nature of capital

expenditure.

these are linked to increase in electric load which has

an enduring benefit for future years. Load increase line

Page 8 of 9 M/s.IEVS Drugs(India) Pvt.Ltd./I.T.A.No. 436/Ind/2016/A.Y.05-06

goes in to change and replacement of line by higher

capacity lines, which have enduring benefit; hence, the

AO was right.

submitted that Hon`ble Bombay High Court in CIT vs.

Excel Industries Ltd. [1980] 4 Taxman 89(Bom) has

categorically dealt with the issue in favour of the

assessee and held that the amount paid by the

assessee was for the construction of an overhead

supply line, which always remained the property of the

Board and hence, payment was revenue expenditure.

Similarly in Mafatlal Fine Spg. & Wvg. Co. Ltd. vs. CIT

[1993] 69 Taxman 385(Bom) it was held that

contribution made by the assessee company to the

Gujarat Electricity Board towards the lying of

additional circuit line in order to meet increased

demand of the assessee company was allowable

expenses.

parties and have perused the material available on

Page 9 of 9 M/s.IEVS Drugs(India) Pvt.Ltd./I.T.A.No. 436/Ind/2016/A.Y.05-06

record. We find that expenditure was incurred towards increase in line charges paid to Electricity Company, which cannot be considered as capital expenditure in the hands of the assessee as there is assets created in the hands of the assessee. Further, such types of disallowances of expenditure were held to be revenue in nature by Hon`ble Bombay High Court in the case laws as cited as above by the learned Counsel for the assessee. Therefore, disallowance of Rs. 41,250/- is deleted. Accordingly, ground no. 2 is allowed. 15. In the result, the appeal of the assessee is allowed. 16. The order pronounced in the open court on 11.01.2017. Sd/- Sd/- (डी.टी.गरािसया) (ओ.पी.मीना) �याियक सद�य लेखा सद�य (D.T.GARASIA) (O.P.MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER

�दनांक /Dated : 11th January, 2017/opm