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Income Tax Appellate Tribunal, C/“SMC” BENCH, CHENNAI
Before: SHRI CHANDRA POOJARI
आदेश / O R D E R
PER CHANDRA POOJARI, ACCOUNTANT MEMBER:
This appeal is filed by the assessee, aggrieved by the order of the Learned Commissioner of Income Tax(A)-11, Chennai dated 27.10.2016 pertaining to assessment year 2013-14.
The first ground in its appeal is with regard to disallowance of contribution to Gratuity Fund administered by LIC on the reason that the said gratuity was not granted approval.
The facts of the issue are that the assessee company claimed an amount of `5,93,361/- towards contribution to Gratuity Fund established for its employees and claimed the same as deduction in the computation of income. During assessment proceedings, the AO asked the assessee to produce a copy of approval accorded by CIT for the Gratuity Fund which is being administered by LIC. In response, the assessee submitted that an application was filed before the CIT seeking approval of the Gratuity Scheme and that as on date the approval has not been accorded by the CIT. Hence, the AO disallowed the said sum on the reason that the Gratuity Fund was not approved as provisions of the section 36(1)(v) of the Act.
Aggrieved by the order of ld. Assessing Officer, the assessee carried the appeal before the Ld.CIT(A). Before the Ld.CIT(A) , the ld.A.R confirmed that Gratuity Fund Scheme is yet to be approved by the CIT, hence, the CIT(A) endorsed the view of the ld. Assessing Officer. Against the order of Ld.CIT(A), now the assessee is in appeal before us.
I have heard both the parties and perused the material on record. The main contention of the ld.A.R that the assessee made an application on 10.04.1997 before the CIT seeking approval of the Gratuity Fund constituted by the assessee. As there was no communication from the office of CIT as to non-granting of approval, the assessee cannot be held to be non-complaint of statute and disallowance is not warranted. The ld.A.R relied on the judgement of Rajasthan High Court in the case of CIT vs. Jaipur Thar Gramin Bank in (2016) 388 ITR 228(Raj.) In my opinion, the AO has not brought on record the exact position of the application seeking approval of Gratuity Fund Scheme made by the assessee to the CIT. Hence, it is appropriate to remit the issue in dispute to the file of AO to bring on record the exact position of the application seeking approval of Gratuity Fund Scheme. Further, as rightly placed by ld.A.R that once the assessee fulfills the condition laid down for approval having created a trust with the LIC and if it is not the case of the AO that the assessee has not deposited money in terms of creation of the Trust, therefore, on such facts, the claim of assessee cannot be disallowed.
With this observation, this issue is remitted to the file of AO to verify whether the assessee made the application before the CIT and if the approval is not granted for which the assessee is not responsible.
So, the claim of assessee is to be allowed. With this observation, the issue is remitted to the file of AO for fresh consideration.
The next ground is with regard to disallowance of Machinery Shifting expenses at `2,75,000/- from one factory to another factory.
6 According to the assessee, this is the revenue expenditure as the assessee shifted a part of existing plant and machinery from one factory to another factory. In my opinion, this claim of assessee cannot be allowed as the expenditure is not incurred wholly and exclusively for the purpose of carrying on the business. On the other hand, it is related to shifting of plant and machinery from one place to another, which is related to the capital asset. It should be considered as capital expenditure and the Ld.CIT(A) placing reliance in the judgement of jurisdictional High Court in the case of CIT Vs. Taj Fire Works Industries in (2007) 288 ITR 92(Mad.), which is squarely covered on the issue relating to expenses incurred on shifting certain plant and machinery from one of its factories to the other, observed as capital in nature. Accordingly, the order of Ld.CIT(A) is confirmed on this issue. This ground raised by the assessee stands dismissed.
The next ground is with regard to disallowance of additional depreciation on the ground that the assessee was not engaged in manufacture.
7.1 The facts of the issue are that the entire income of assessee during the year under consideration comprised of contract receipts from M/s.Breaks India Ltd., as evidenced by 26AS statement. The assessee undertook works contract from M/s.Breaks India Ltd and carried out certain jo0b works like machinering operations, press operations and bracing operation etc. on the material supplied by the contractee. The AO found that even the said job works were not carried out fully by the assessee and substantial part of the work was got done through various sub-contractors as evidenced by the sub- contract charges of `3,87,76,789/-. Further, the AO pointed out that from the sub-contract agreement entered into between the assessee and the sub-contractors that if there is any process which is akin to manufacture, the same was done by the sub-contractors and not by the assessee. Further, it is noticed that a machinery used by the assessee was purchased from M/s.Breaks India Ltd., which shows that assessee is carrying out job work as per the requirement of the contractee using the machine as well as the material supplied by the contractee. It is mentioned in the Contract Agreement that the contract is for conversion charges and testing charges of Hose Assembly. For these reasons, the AO came to a conclusion that the assessee was not engaged in manufacturing activity but there was only an assembling unit. Hence, the AO disallowed the assessee’s claim of additional depreciation on plant and machinery u/s.32(1)(iia) of the Act @ 20% on purchase of machines made before Sept.,2012.
Aggrieved by the order of ld. Assessing Officer, the assessee carried the appeal before the Ld.CIT(A).
7.2 On appeal, the Ld.CIT(A) endorsed the view of the AO that the assessee had not purchased any raw material but only performed certain operation in the nature of job work. According to Ld.CIT(A), as
per the contract agreement, thease was given cotgnract for conversion, testing charges and assembling hose from the material supplied by the contractee. Therefore. Ld.CIT(A) was of the opinion that this is not a case where the process of manufacturing or production is involved. The Ld.CIT(A) observed that the assessee could not give any evidence whatsoever to substantiate its claim that it was manufacturing a new product. Besides it, the facts in the relevant previous year clearly pointed out that the assessee was only an assembling unit and was not engaged in any manufacturing actity.
Hence, the Ld.CIT(A) arrived at a conclusion that the assessee is not entitled to additional depreciation u/s.32(10(iia) of the Act. Against the order of Ld.CIT(A), now the Revenue is in appeal before us.
I have heard both the parties and perused the material on record. It is brought to my notice by ld.A.R that assessee has been considered as a manufacturer for granting of deduction u/s.80-IB of the Act for the assessment year 2004-05 by the Tribunal vide order dated 03.06.2011 in ITA No.369/Mds./2010 wherein held that:- “6. We find that he Assessing Officer has stated that the assessee is engaged in only machine components and not manufacture of any product or article or thing. We find that no elaborate details of the activities undertaken by the assessee in the course of its business has been brought on record by either of the lower authorities. The observation of the Assessing Officer is also to the effect that assessee has not purchased any raw materials and has not sold any finished goods. In our considered opinion, the core activities of a manufacturing unit is to convert raw material into different product which is finished product of an undertaking. It is immaterial that whether raw material was purchased by an industrial undertaking itself or was supplied to it by somebody else. The manufacturing business carried on by assessee on its own behalf or on behalf of somebody else is not relevant for deciding the eligibility of Page 7 of 9 /Mds/2010 deduction u/s 80IB of the Act. Our above view also finds support from the decision of the Delhi High Court in the case of Nu Luk (P) Ltd Vs. CIT [1986] 157 ITR [Del] 253.
7. Further the ld. CIT(A) has stated from the photograph and flow chart furnished before him it is clear that the finished product of the assessee is distinct and different from the raw material used. However, we find from the records that it is not clear as to what was the raw material of the assessee or what was the finished product of the assessee’s industrial undertaking. In the absence of these details, we are not in a position to uphold the order of the ld. CIT(A). Further the claim of the assessee is that it undertook manufacturing activity and manufactured hose pipe used in automobile components on behalf of others but we find that the copy of agreement which the assessee entered into with others are not brought on record. We do not find any material available on record from which it can be found that what was the raw material of the assessee’s industrial undertaking and what was exactly the finished goods of the industrial undertaking. Copies of invoice raised by the assessee have also not been brought on record by either of the parties. Further, in respect of the date of commencement Page 8 of 9 I.T.A. No.369 /Mds/2010 of production or operation of the industrial undertaking we find that the Assessing Officer only relied upon the date mentioned in the audit report and Form No. 10CCB which was claimed by the assessee as a typographical error. It could not be appreciated that the Assessing Officer had not looked into the past assessment records and other various material from which exact date of commencement of production or operation of assessee’s industrial undertaking could have been found. The above approach is definitely not acceptable. If the assessee is statutorily eligible for some benefit, then in our opinion, benefit could not be denied merely because of an innocent mistake like typing mistake which could have been easily ascertained with other material like past assessment record, SSI registration certificate, etc. Be that as it may, the ld. CIT(A) has stated that “with regard to the Assessing Officer’s observation that the appellant is eligible for deduction only upto Assessment Year 2001-02, I find that the ld. A.R. has clearly clarified that it is only a typographical and clerical error in the Form No. 10CCB. It is also supported by evidences like Annual Report, Tax Audit report, etc”.
8. From the above observation of the ld. CIT(A), it is not clear what was stated in the annual report and in the tax audit report and how he Page 9 of 9 /Mds/2010 arrived the conclusion that the date mentioned in Form No.10CCB was only typographical error. We find that the order of the ld. CIT(A) is not a speaking order as well as the Assessing Officer has not properly verified the facts and not brought all relevant material on record. In the above facts and circumstances of the case, in our considered opinion, it shall be fair and just to restore the issue back to the file of the Assessing Officer for adjudicating the issue afresh after verification in light of the discussion made hereinabove. The Assessing Officer shall allow reasonable opportunity of hearing to the assessee before adjudicating the issue afresh.”
In view of the above findings of the Tribunal, we are of the opinion that the assessee cannot be considered as non- manufacturing unit so as to deny the additional depreciation sought by the assessee . Accordingly, the AO is directed to grant additional depreciation considering the assessee as a manufacturer. Hence, this ground raised
by the assessee is allowed.
10. In the result, the appeal of assessee is partly allowed for statistical purposes. Order pronounced in the open court on 03rd July, 2017.