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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI D.T. GARASIA & SHRI O.P. MEENA
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
Ground no. 1 relates to sustaining loss of Rs. 4,
41,154/- on account of excess consumption of bottles
in production.
The facts apropos of this ground are that the assessee
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
Being, aggrieved the assessee filed an appeal before
the ld. CIT (A).
The Ld. CIT (A) noted to the AO has allowed 50% loss
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.
Being, aggrieved the assessee filed this appeal before
the tribunal.
Before us, the learned Counsel for the assessee
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.
The learned Sr. D.R. supported the order of lower
authorities.
Page 6 of 9 M/s.IEVS Drugs(India) Pvt.Ltd./I.T.A.No. 436/Ind/2016/A.Y.05-06
We have heard the rival submissions of both the
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.
Ground no. 2 relates to disallowance of Rs.
41,250/- being load increase line charges, which
according to the AO were in the nature of capital
expenditure.
The Ld. CIT (A) confirmed the same by holding that
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.
Before us, the learned Counsel of the assessee
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.
We have heard the rival submissions of both the
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