ACIT, Circle -1(1), Tirupathi V. Mangal Precision Products Limited, Tirupathi

CO 136/HYD/2012

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7996 (ITAT-HYDERABAD)
• Duration Of Justice: 1 month(s) 29 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 23-11-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 24-09-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AMISHA S GUPT
• Keywords: Depreciation
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 1232/HYD/2012 ASSESSMENT YEAR: 2006-07 ASST. COMMISSIONER OF INCOME-TAX, APPELLANT CIRCLE (1)1, TIRUPATHI VS. MANGAL PRECISION PRODUCTS LTD., RESPONDENT TIRUPATHI. (PAN AADCM5441K) C.O. NO. 136/HYD/12 (IN ITA NO. 1232/HYD/2012 ASSESSMENT YEAR: 2006-07) MANGAL PRECISION PRODUCTS LTD., CROSS OBJECT OR TIRUPATHI. (PAN AADCM5441K) VS. ASST. COMMISSIONER OF INCOME-TAX, RESPONDENT CIRCLE (1)1, TIRUPATHI REVENUE BY : SMT. AMISHA S. GUPT ASSESSEE BY : SHRI PHALGUNA KUMAR DATE OF HEARING : 21/11/2012 DATE OF PRONOUNCEMENT : 23/11/ 2012 ORDER PER ASHA VIJAYARAGHAVAN, J.M.: THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AG AINST THE ORDER OF THE CIT(A), GUNTUR, DATED 30/05/2012 FOR T HE ASSESSMENT YEAR 2006-07. THE ASSESSEE FILED C.O., WHICH IS IN SUPPORT OF THE ORDER OF THE CIT(A). ITA NO. 1232/HYD/2012 & 136/HYD/12 M/S MANGAL PRECISION PRODUCTS LTD. 2 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE COMPANY DERIVING INCOME FROM MANUFACTURE AND SALE OF PLASTI C COMPONENTS AND SHEET METAL. IT FILED THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION ON 30/11/2006 ADMITTING TOTAL INCOME OF RS. 3,61,72,440/-BEFORE SET OFF OF UNABSORBED DEPRECIAT ION OF EARLIER YEARS. ASSESSMENT U/S 143(3) OF THE IT ACT WAS COMP LETED ON 18/12/2008, ACCEPTING THE INCOME RETURNED. 3. SUBSEQUENTLY, THE CIT PASSED THE ORDER U/S 263 D ATED 30/03/2011 AND SET ASIDE THE ASSESSMENT U/S 143(3) MADE BY THE AO ON 18/12/2008 FOR WORKING OUT THE ADMISSIBLE DEP RECIATION ON THE ADDITIONS TO THE MACHINERY DURING THE PREVIOUS YEAR RELEVANT TO AY 2006-07. 4. THE CIT, TIRUPATHI IN HIS ORDER U/S 263 HELD AS FOLLOWS:- 6.3 AS CAN BE SEEN FROM THE EXTRACT FROM THE DIRECT ORS REPORT, WHICH IS A STATUTORY DOCUMENT FILED BEFORE VARIOUS STATUTORY AUTHORITIES, ADDITIONAL PRODUCTION FACILI TIES HAVE STARTED FROM 4 TH QUARTER (FY 2005-06) WITH COMPLETION OF THE PLANT ERECTION IN NOV. 2005. AS THE DIRECTORS REPOR T IS A STATUTORY DOCUMENT, THE ASSERTIONS MADE THERE IN AR E FINAL LIKE A STONE TABLET. WHEN THE DIRECTORS REPORT IS INFORM ING THEIR SHAREHOLDERS AS WELL AS REST OF THE INTERESTED WORL D THAT THE PRODUCTION HAS COMMENDED IN 4 TH QUARTER AFTER ERECTION OF THE ADDITIONAL FACILITIES IN NOV. 2005, THERE CANNOT BE ANY SECOND OPINION AS TO THE ELIGIBILITY DATE FOR DEPRECIATION . 6.4 THE CONTENTION OF THE ASSESSEE THAT PART OF THE MACHINERY HAS BEEN CAPITALIZED PRIOR TO SEPTEMBER 2005 AND A FOURTH STAGE MACHINERY I.E. ANNEALING MACHINERY HAS BEEN C APITALIZED LATER IN OCTOBER 2005, IS ALSO EXAMINED. AS CAN BE SEEN FROM THE PROCESS FLOW CHART FURNISHED BEFORE ME, THERE A RE DIFFERENT STAGES IN THE MANUFACTURING FASTENERES AND IT IS TR UE THAT DIFFERENT MACHINERIES HAVE BEEN INSTALLED AT DIFFER ENT STAGES, SOME BEFORE 30 TH SEPTEMBER, 2005 AND SOME IN OCTOBER, 2005. ITA NO. 1232/HYD/2012 & 136/HYD/12 M/S MANGAL PRECISION PRODUCTS LTD. 3 HOWEVER, THE BASIC CRITERION FOR ENTITLING THE DEPR ECIATION IS CAPITALIZATION, EVEN BEFORE THE MACHINERY WAS PUT T O USE. UNLESS AND UNTIL THE MACHINERY BEING INSTALLED IS C APITALIZED, IT CANNOT BE PUT TO USE. THUS, THE STATEMENT IN THE DI RECTORS REPORT THAT THE MACHINERY HAS BEEN CAPITALIZED IN N OV. 2005 IS VERY MUCH RELEVANT AND THAT CAN IN NO WAY BE DEVIAT ED FROM. 6.5 THE CERTIFICATE FURNISHED BY THE PLANT MANAGER THAT PART OF THE MACHINERY WAS INSTALLED IN SEPTEMBER 2005 AN D PART WAS INSTALLED AND CAPITALIZED IN OCTOBER 2005 IS AL SO HAVING ITS DEFICIENCIES. WHILE THE FOUR INSTALLATION AND COMMI SSIONING CERTIFICATES RELATING TO CRANES, WIRE DRAWING MACHI NERY, FUME EXTRACTION SYSTEM AND COIL PHOSPHATING, FAX WERE OF DATED SEPTEMBER 2005. IT IS SURPRISING THAT CERTIFICATE O F THE PLANT MANAGER STATES THAT THE MACHINERY HAS BEEN CAPITALI ZED IN THE MONTH OF AUGUST 2005. HENCE, IT IS FELT THAT THERE ARE SUBSTANTIAL DISCREPANCIES AMONG DIRECTORS REPORT, PLANT MANGERS CERTIFICATE AND THE INSTALLATION CERTIFICA TE. 5. IN THE CONSEQUENTIAL ORDER DATED 30/12/2011, THE AO WHILE COMPLETING THE ASSESSMENT U/S 143(3) R.W.S 263, HAD STATED THAT DEPRECIATION IS ALLOWABLE @7.5% ONLY ON NEW MACHINE RY WHEREAS THE ASSESSEE CLAIMED DEPRECIATION ON NEW MACHINERY AT @ 15%, THEREFORE, HE DISALLOWED THE BALANCE AMOUNT OF RS. 19,88,100/- AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 6. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN AP PEAL BEFORE THE CIT(A). 7. BEFORE THE CIT(A), THE AR OF THE ASSESSEE FILED THE ANNEXURES CONTAINING THE DETAILS OF MANUFACTURING PROCESS OF FASTENERS, INSTALLATION COMMISSIONING CERTIFICATES, BILLS FOR PURCHASE OF MACHINERY ETC., THE AR OF THE ASSESSEE FILED DETAI LED SUBMISSIONS, WHICH HAD BEEN INCORPORATED BY THE CIT(A) AT PAGES 2 TO 8 OF HIS ORDER. ITA NO. 1232/HYD/2012 & 136/HYD/12 M/S MANGAL PRECISION PRODUCTS LTD. 4 8. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E, THE CIT(A) OBSERVED THAT THE ASSESSEE HAD SUBMITTED THE INVOIC ES OF THE MACHINERY, INSTALLATION AND COMMISSIONING CERTIFICA TES, PHOTOGRAPHS OF THE MACHINERY AND OTHER INFORMATION. HE FURTHER OBSERVED THAT DETAILS OF RECEIPT OF MACHINERY WITHIN ITS FACTORY PREMISES AND ALSO THE PRODUCTION RECORDS OF THE MACHINERY PROVED THAT THE ASSESSEE AS A PRUDENT BUSINESSMAN HAS PUT TO USE THE NEWLY ACQU IRED MACHINERY AS AND WHEN THEY WERE READY FOR USE AND THE EVIDENC E FILED BY THE ASSESSEE IS SUFFICIENT TO THIS EXTENT. THE CIT(A) F URTHER OBSERVED THAT THERE IS NO INCONSISTENCY/DISCREPANCY BETWEEN THE DIRECTORS REPORT, PLANT MANAGERS CERTIFICATE AND THE INSTALL ATION CERTIFICATES AND THE ASSESSEE HAS PRODUCED SUBSTANTIVE EVIDENCE TO DEMONSTRATE THAT THE MACHINERY WAS PUT TO USE. WITH ABOVE OBSER VATIONS, THE CIT(A) CONCLUDED THAT THE DEPRECIATION ON THE ASSET S PUT TO USE DURING THE CURRENT YEAR SHOULD BE BASED ON THE ASSE TS PUT TO USE DURING THE FIRST HALF AND SECOND HALF OF THE CONCER NED FY AND HENCE, DENIAL A PART OF DEPRECIATION IN THE NORMAL COURSE OF COMPUTATION HAS TO BE SET ASIDE. FURTHER THE CIT(A) HELD THAT V ARIATIONS IN THE NORMAL COURSE OF COMPUTATION HAVE NO EFFECT ON 115J B INCOME AND, HENCE, ALLOWED THE APPEAL OF THE ASSESSEE. 9. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US AN D HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE CIT(A) IS ERRONEOUS BOTH IN LAW AND ON FACTS. 2. THE DECISION OF THE CIT(A) IS UNILATERAL AS NO O PPORTUNITY WAS GIVEN TO THE AO ON THE SUBMISSIONS MADE BY THE APPELLANT. 3. THE CIT(A) ERRED IN ALLOWING INFORMATION FILED B Y THE ASSESSEE TO DEMONSTRATE THAT THE MACHINERY WAS PUT TO USE AT ITA NO. 1232/HYD/2012 & 136/HYD/12 M/S MANGAL PRECISION PRODUCTS LTD. 5 THE TIME OF APPELLATE PROCEEDINGS. THE SAME IS NOT ALLOWABLE AS PER THE PROVISIONS OF RULE 46A OF IT RULES. 4. THE CIT(A) ALLOWED DEPRECIATION AT HIGHER RATE A S CLAIMED BY THE ASSESSEE AND STATED THAT THE EVIDENCE IS SUFFIC IENT FOR ALLOWING DEPRECIATION IS NOT CORRECT. 10. WE HAVE HEARD THE ARGUMENTS OF THE LEARNED DR S MT. AMISHA S. GUPT AND THE LEARNED COUNSEL FOR THE ASSESSEE SH RI E. PHALGUNA KUMAR. 11. THE GRIEVANCE OF THE REVENUE IS THAT THE CIT(A) HAS NOT COMPLIED WITH THE PROVISIONS OF RULE 46A OF IT RULE S, AS THE CIT(A) HAD NOT FORWARDED THE INFORMATION SUPPLIED BY THE A SSESSEE AT THE TIME OF APPELLATE PROCEEDINGS BEFORE HIM TO DEMONST RATE THAT THE MACHINERY WAS PUT TO USE, TO THE AO, WHO OUGHT TO H AVE REPLIED IN THE REMAND REPORT AFTER PROPER ENQUIRY AND INVESTIG ATION OF THE MATERIAL SUPPLIED BY THE ASSESSEE TO THE CIT(A). TH E LEARNED DR OBJECTED TO THE CONCLUSION MADE BY THE CIT(A) THAT THE EVIDENCE IS SUFFICIENT FOR DEPRECIATION WITHOUT GIVING PROPER O PPORTUNITY TO THE AO TO VERIFY/EXAMINE SUCH EVIDENCES. IN THESE CIR CUMSTANCES, WE DEEM IT FIT AND PROPER TO REMIT THE ISSUE TO THE FI LE OF THE AO TO WORK OUT THE ADMISSIBLE DEPRECIATION AND ALSO TO VE RIFY WHETHER THERE IS ANY INCONSISTENCY BETWEEN THE DIRECTORS R EPORT AND PLANT MANAGERS CERTIFICATE AND INSTALLATION CERTIFICATE FOR THE PURPOSE OF WORKING OUT AS TO WHEN NEWLY ACQUIRED MACHINERY WAS PUT TO USE AND THEREAFTER THE AO IS DIRECTED TO RE-WORK THE DE PRECIATION IN ACCORDANCE WITH LAW. 12. THE C.O. FILED BY THE ASSESSEE IS IN SUPPORT OF THE ORDER OF THE CIT(A) AND SINCE THE ORDER OF THE CIT(A) IS SET ASI DE AND THE MATTER HAS BEEN REMITTED TO THE FILE OF THE AO IN THE REVE NUES APPEAL ITA NO. 1232/HYD/2012 & 136/HYD/12 M/S MANGAL PRECISION PRODUCTS LTD. 6 (SUPRA), THE C.O. BECOMES INFRUCTUOUS AND THE SAME IS DISMISSED AS INFRUCTUOUS. 13. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES AND THE C.O. FILED BY THE ASSESSEE IS DISM ISSED. PRONOUNCED IN THE OPEN COURT ON 23 RD NOVEMBER, 2012. SD/- SD/- (CHANDRA POOJARI) (ASHA VIJAYARAGH AVAN) ACCOUNTANT MEMBER JUDICIAL MEMBE R HYDERABAD, DATED: 23 RD NOVEMBER, 2012. KV COPY TO:- 1) ACIT, CIRCLE 1(1), AAYAKAR BHAVAN, K.T. ROAD, TIR UPATHI 517 507. 2) M/S MANGAL PRECISION PRODUCTS LTD., RENIGUNTA-KADAP A ROAD, KARAKAMBADI, TIRUPATHI. 3) THE CIT (A), GUNTUR 4) THE CIT, TIRUPATHI 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD.