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Income Tax Appellate Tribunal, “C” BENCH : KOLKATA
Before: Hon’ble Sri N.V.Vasudevan, JM & Shri Waseem Ahmed, AM]
IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH : KOLKATA [Before Hon’ble Sri N.V.Vasudevan, JM & Shri Waseem Ahmed, AM] I.T.A No. 1527/Kol/2016 Assessment Year : 2012-13 M/s Pratap Polysacks Limited -vs.- D.C.I.T., Circle-5(1) Kolkata Kolkata [PAN : AABCP 6949 J] (Respondent) (Appellant) For the Appellant: Shri Sunil Surana, AR For the Respondent : Shri Saurabh Kumar, Addl. CIT, Sr.DR Date of Hearing : 27.02.2018. Date of Pronouncement : 01.03.2018. ORDER Per N.V.Vasudevan, JM This is an appeal by the Assessee against the order dated 11.05.2016 of C.I.T.(A)-2, Kolkata relating to A.Y.2012-13. 2. Ground Nos. 1, 6 and 7 are general in nature and call for no specific adjudication. 3. Ground No.2 raised by the assessee reads as follows :- “2. For that the Ld. C.I.T(A) erred in confirming the disallowance of Rs.13,40,961/- out of claim of depreciation and additional depreciation s= electric installations being integral part of plant and machinery and wrongly considered by the AO as Electric installations simplicitor.” 4. The Assessee is a company engaged in the business of manufacturing HDPE/PP Woven socks and aluminium composite panel. In the course of assessment proceedings the AO noticed that the assessee had claimed 15% of depreciation and 20% additional depreciation on additions to the block of assets “plant and machinery” of Rs.1,07,34,917/- and Rs.47,737/-. The sum of Rs.1,07,34,917/- was the cost of electrical installations and Rs.47,737/- was the cost of fire extinguisher. According to the AO the electrical installations were not to be regarded as plant and machinery but has to be regarded as falling within the block of assets “furniture and fitting including
2 ITA No.1527/Kol/2016 M/s Pratap Polysacks Ltd. A.Yr.2012-13 electrical fittings” on which depreciation is allowable only at 10%. Since additional depreciation is only allowed on plant and machinery, the AO did not allow the claim of the assessee for additional depreciation. According to the AO the assessee could not establish that the electrical installations were an integral part and part and parcel of the plant and machinery. The AO analysed each item of electrical installations which were claimed by the assessee as falling within the ambit of plant and machinery as follows :- 1. Electrical connection from WBSEDCL: Expenditure incurred for installation of Electrical connection comes under the purview of building and the expenses incurred for connection has no relevance with Plant & Machinery except the electricity is used for running Plant & Machinery, which is used for household purpose also. Tile initial payment for installation of electricity connection is definitely capital expenditure since it is one-time payment. The expense comes under the Building Block which is used in business. Hence, depreciation @ 10% is applicable on electric connection payment of Rs. 13,53,831/-.
Aluminium Armoured cable: The expense of Rs. 25,72,335/- towards purchase of aluminium armoured cable is recognised as expense incurred for purchase of electrical fitting. The cable has its distinct characteristic and used and deployed in Plant & Machineries as per requisition for making the machineries work. This cannot be an integral part of any plant or machinery, but can be used in any kind of plant or machinery for which those are used. Hence, the cable falls under the category of electrical fitting and depreciation as per Income Tax Act, is allowable @ 10%. Since the cable does not come under the Block plant or machinery, additional depreciation is not allowed.
Control Panel: The expense of Rs. 34,47,846/- towards purchase of control panel is recognised 'as expense incurred for purchase of electrical fitting. The control . panel has ifs distinct .characteristic and used and deployed in Plant & Machineries as per requisition for making the machineries work. This cannot be an integral part of any plant or machinery, but can be used in any kind of plant or machinery for which those are used. Hence, the control' panel falls under the category of electrical fitting and depreciation as per Income Tax Act, is allowable @ 10%. Since the control panel does not come under the Block plant or machinery, additional depreciation is not allowed.
Connection job work: The expense of Rs. 3,98,591/- towards connection job work is recognised as expense incurred for installation of electrical fitting. The labour work is used and charged for installation of various electrical fittings deployed in Plant & Machineries as per requisition for making the machineries 2
3 ITA No.1527/Kol/2016 M/s Pratap Polysacks Ltd. A.Yr.2012-13 work. This cannot be an integral part of any plant or machinery, but is related to electrical fitting to make the same work. Hence, the job charges falls under the category of electrical fitting and depreciation as per Income Tax Act, is allowable @ 10%. Since the connection job work does not come under the Block plant or machinery, additional depreciation is not allowed.
Transformer and VCB switch: The expense of Rs. 11,77,000/- towards purchase of transformer and VCB switch is recognised as expense incurred for purchase of electrical fitting. The transformer and VCB switch has its distinct characteristic and used and deployed in Plant & Machineries as per requisition for making the machineries work, This cannot be an integral part of any plant or machinery, but can be used in any kind of plant or machinery for which those are used. Hence, the transformer and VCB switch falls under the category of electrical fitting and depreciation as per Income Tax Act, is allowable @ 10%. Since the transformer and VCB switch do not come under the Block plant or machinery, additional depreciation is not allowed.
Various electrical items: The expense of Rs. 1,35,154/- towards purchase of various electrical items switch is recognised 'as expense incurred for purchase of electrical fitting. The various electrical items have its distinct characteristic and used and deployed in Plant & Machineries as per requisition for making the machineries work. This cannot be an integral part of any plant or machinery, but can be used in any kind of plant or machinery for which those are used. Hence, the various electrical items falls under the category of electrical fitting and depreciation as pet Income Tax Act, is allowable @ 10%. Since the electrical items do not come under the Block plant or machinery, additional depreciation is not allowed.
Fire extinguisher: The expense of Rs. 47,437/- towards purchase of Fire extinguisher is recognised as expense incurred for purchase of furniture & fixture. The control panel has its distinct characteristic and used for purpose not related to Plant & Machineries. This cannot be an integral part of any plant or machinery. Hence, fire extinguisher falls under the category of furniture & fixture and depreciation as per Income Tax Act, is allowable @ 10%. Since the fire extinguisher does not come under the Block plant or machinery, additional depreciation is not allowed.
The AO thereafter reworked depreciation that was to be allowed as follows:
On the basis of above analysis, it has been established that all the expenses capitalized fall under the nature of electrical fitting and, therefore, falls' under the block electrical fitting except the electric connection, which falls under the 3
4 ITA No.1527/Kol/2016 M/s Pratap Polysacks Ltd. A.Yr.2012-13 category building. In the case of M/s. Neel Metal Products Ltd. vs. Addl. CIT, Range 13, New Delhi, the Hon'ble ITAT, Delhi Bench (ITA No.1368/Del./2011) has given verdict in favour of department on the similar issue.
Asset Addition Deprecia Additio Deprecia Differe after tion @ nal tion nce 30.09.20 15% Depreca allowed (Rs.) 11 (Rs.) tion @ 10% (Rs.) (Rs.) (Rs.) Electrical 1073491 847758 1016639 536746 1327651 equipmen 7 t Fire 47737 3580 4774 2387 5967 Extinguis her Total 1078265 851338 1021413 539133 133368 4
Further, Rs. 7,342/- on discarded building @ 10% is disallowed. Hence, excess claim of Rs. 13,40,961/- is disallowed and added back to the total income.”
On appeal by the assesse the CIT(A) confirmed the order of the AO. Hence ground no.2 by the assessee before the Tribunal. 7. The ld. Counsel for the assessee submitted before us that the electrical installations was integral part of plant and machinery and therefore the revenue authorities ought to have been treated the same as plant and machinery and allowed depreciation at the rates applicable to plant and machinery and should have allowed additional depreciation. 8. We have considered the submissions of the ld. Counsel for the assesee. It is seen from Appendix-I which given the depreciation schedule that furniture including electrical fittings is considered as a separate block of asset. Therefore it is necessary that the assessee should show that electrical installations which are claimed to be falling within the block of assets “Plant and Machinery” are integral part of the plant and machinery and falls within the block of plant and machinery and not within the block of furniture and fittings and electrical installations. The AO has clearly brought out in the 4
5 ITA No.1527/Kol/2016 M/s Pratap Polysacks Ltd. A.Yr.2012-13 assessment order that each item had independent functions and was not an integral part of the plant and machinery. In the given circumstances we are of the view that order of the revenue authorities on this aspect does not require any reconsideration. Accordingly ground no.2 raised by the assessee is dismissed. 9. Ground No.3 raised by the assessee reads as follows :- “3. For that the Ld. C.I.T(A) erred in confirming the disallowance of Rs. 62,399/- under sec. 14A read with rule 8D when no exempt income was earned during the year, no expenses were incurred for earning any exempt income and further the share capital and reserves of the assessee company were more than the investments in shares, and no portion of the interest was disallowable.”.
As far as ground no.3 is concerned the plea of the assessee is that there can be no disallowance u/s 14A of the Act when there is no exempt income earned by the assessee during the relevant previous year. 11. Before us the ld. Counsel for the assessee submitted that the CBDT Circular on which the CIT(A) placed reliance is contrary to the decision of Hon’ble Delhi High Court in the case of Cheminvest Ltd. Vs CIT 317 ITD 33 (Delhi) wherein it was held that there can be no disallowance of expenses u/s.14A of the Act, if there is no exempt income during the relevant previous year. It was brought to our notice that the Hon’ble ITAT Kolkata in the case of REI Agro Ltd. Vs. DCIT 144 ITD 141 (Kol-Trib) has held that it is only the investments which yields dividend during the previous year that has to be considered while adopting the average value of investments for the purpose of Rule 8D(2)(iii) of the Rules. The aforesaid view of the Tribunal has since been affirmed as correct by the Hon’ble Calcutta High Court in G.A.No.3581 of 2013 in the appeal against the order of the Tribunal in the case of REI Agro Ltd. (supra). In the light of the admitted factual position that the assessee had not earned or received any dividend income during the previous year, we are of the view that there can be no disallowance u/s 14A of the Act. Accordingly the addition made u/s 14A of the Act is directed to be deleted. Gr.No.3 is also allowed.
6 ITA No.1527/Kol/2016 M/s Pratap Polysacks Ltd. A.Yr.2012-13 12. Ground No.4 raised by the assessee reads as follows :- 4. For that the Ld C.I.T(A) erred in confirming the addition of interest on fixed deposit of Rs. 2,52,615/- on the ground that the same was not pressed when the assessee made submissions that the interest was consistently accounted for in receipt basis and the same was duly accounted for and taxed in the succeeding assessment year.”
The AO added a sum of Rs.,2,52,615/- to the total income of the assessee on the ground that interest income to that extent was not accounted for by the assessee. The following were the relevant observations of the AO in this regard :- “From the 26AS statement, it has been found that Rs. 3,80,268/- has been received as interest on FD from Bank of India, but Rs. 1,27,653/- has been credited to the P /L account as interest on FD. During the assessment proceedings, the assessee has admitted that the accrued interest was not credited, but the received interest was credited only. Accordingly, there is a short credit of Rs. 2,52,615/- as interest received, which is treated as undisclosed income and added back to the total income of the assessee.
On appeal by the assessee the CIT(A) dismissed this ground of appeal on the ground that the assessee did not press for adjudication of the aforesaid ground. 15. Before us the ld. Counsel for the assessee submitted that submissions were made before CIT(A) on this issue. We are of the view that it would be just and appropriate to direct the CIT(A) to decide this issue afresh after affording the assessee opportunity of being heard. 16. Ground No.5 raised by the assessee reads as follows :- “5. For that the Ld. C.I.T(A) erred in confirming the addition of Rs. 20 lakhs as unexplained cash credit when no such loan was received by the assessee and it was explained that the sum was contra entry due to a cheque issued to the party which cheque was not presented for payment and cancelled.”
The facts with regard to ground no.5 raised by the assessee are that the AO noticed from the Tax Audit Report filed by the Assessee that a loan of Rs. 70,60,000/- was from M/s. Flower Trading & Investment Co. Ltd during the F.Y. 2011-12 and Rs. 1,86,45,000/- has been repaid during the relevant F.Y. Notice u/s.133(6) was issued to 6
7 ITA No.1527/Kol/2016 M/s Pratap Polysacks Ltd. A.Yr.2012-13 M/s.Flower Trading & Investment Co. Ltd by the AO on 31.10.2014 requesting to furnish detail of transaction of unsecured loan. M/s.Flower Trading & Investments Ltd., gave details of loans given by them to the Assessee and that which was repaid by the Assessee. According to the loan confirmation given by them, repayment received by them was depicted as under:
From the above table given by Flower Trading & Investment Co. Ltd, it can be seen that while the Assessee claimed that a sum of Rs.70,60,000 and Rs.1,66,45,000 was loan received by the Assessee from and repaid to flower trading & Investments Co.Ltd., respectively but flower trading & Investment co. Ltd., claimed that it has received Rs. 50,60,000/- as loan from M/s. Flower Trading & Investment Co. Ltd during the FY 2011-12. There was thus a difference of Rs.20 lacs. The Assessee explained that it had given a cheque for repayment of loan of Rs.20 lacs and made entry as if payment was made by it to M/s.flower Trading & Investment Co.Ltd., but the said cheque was not encashed by the party. The Assessee thereafter made a contra entry for 7
8 ITA No.1527/Kol/2016 M/s Pratap Polysacks Ltd. A.Yr.2012-13 Rs.20 lacs in its books of accounts showing the same as received from M/S.Flower Trading & Investment Co. Ltd. The transaction of repayment of loan was dated 22.06.2011 on which loan of Rs. 20,00,000/-was accepted and dated 25.06.2011 amounting to Rs. 20,00,000/- on which loan was repaid. The Assessee thus explained that this is the reason for the discrepancy in the figures of confirmation as per Assessee’s books of Accounts and as per books of M/S.flower Trading & Investment Co.Ltd. A certificate from the bank that cheque for Rs.20 lacs bearing distinctive number 088919 issued by the Assessee has not been encashed. 19. The AO however held that a loan of Rs. 20,00,000/- is recognised by the assessee as unsecured loan taken whereas the party from which loan was borrowed has not acknowledged the same. He therefore concluded that the assessee has introduced 20,00,000/- into its account in the form of unsecured loan and claimed to be repaid during the year, which has not been confirmed by the party engaged in such transaction. 20. On appeal by the assessee the CIT(A) confirmed the order of the AO. Hence ground no.5 by the assessee before the tribunal. 21. We have heard the rival submissions. It is clear from the ledger account of Flower Trading & Investment Co.Ltd. as appearing in the books of accounts of the assessee that there was a debit of Rs.20,00,000/- on 22.06.2011 towards refund of loan and a corresponding credit entry on 25.06.2011 reversing the debit entry. These entries are contra entries and do not represent any transaction. Flower Trading & Investment Co.Ltd in their books of accounts have not recognized these transactions at all. It is only because of this that there is a difference between the assessee’s books of accounts and the books of accounts of Flower Trading & Investment Co. Ltd. In our opinion the assessee has rightly reconciled the difference and the addition made by the AO is purely on surmises and ignoring the fact that loan confirmation from Flower Trading & Investment Co.Ltd does not reflect the sum of Rs.20 lakhs either as loan given to the assessee or loan repaid by the assessee. There was no credit entry in the books of accounts for Rs.20 lacs which the Assessee was required to explain. In such 8
9 ITA No.1527/Kol/2016 M/s Pratap Polysacks Ltd. A.Yr.2012-13 circumstances we are of the view that the addition made by the AO and confirmed by the CIT(A) is without any basis. Consequently ground no.5 raised by the assessee is allowed. 22. In the result the appeal by the assessee is partly allowed.
Order pronounced in the Court on 01.03.2018.
Sd/- Sd/- [Waseem Ahmed] [ N.V.Vasudevan ] Accountant Member Judicial Member
Dated : 01.03.2018. [RG Sr.PS]
Copy of the order forwarded to: 1. M/s Pratap Polysacks Limited, 425, Marshall House, 25, Strand Road, 4th Floor, Kolkata-700001. 2.D.C.I.T., Circle-5 (1), Kolkata. 3. CIT(A)-2, Kolkata 4. C.I.T.-2, Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.