UPRA CHEM P. LTD, MUMBAI V. ACIT 4(3), MUMBAI

ITA 1030/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83773 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-09-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 28-08-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 04-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJESH K ARVIND
• Assessee Lawyers: K GOPAL
• Keywords: Depreciation; Capital expenditure

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE HONBLE S/SHRI H.L. KARWA, PRESIDENT AND B. R.BASKARAN (AM) . . , . . , ./I.T.A. NO.1030/MUM/2011 ( / ASSESSMENT YEAR :2007-08) UPRA CHEM PVT LTD., 64 RANVIR MANSION, PRINCE STREET, MUMBAI-400002. / VS. ASSTT. COMMISSIONER OF INCOME TAX 4(3), ROOM NO.649, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 ( / APPELLANT) .. ( !' / RESPONDENT) ./ $% ./ PAN/GIRNO.: AAACUOO52H & / APPELLANT BY : SHRI K GOPAL !' ' & /RESPONDENT BY : SHRI RAJESH K ARVIND ( ) ' * + / DATE OF HEARING : 28.8.2014 ,- ' * + / DATE OF PRONOUNCEMENT : 10.9.2014 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINS T THE ORDER DATED 16.11.2010 PASSED BY LD CIT(A)-8, MUMBAI AND IT REL ATES TO THE ASSESSMENT YEAR 2007-08. 2. FOLLOWING ISSUES ARE URGED BY THE ASSESSEE BEFOR E US:- (A) ADDITION ON ACCOUNT OF SHORTFALL IN PRODUCTIO N. (B) DISALLOWANCE OF REPAIR EXPENSES TREATING THE SA ME AS CAPITAL IN NATURE. 3. THE FACTS RELATING TO THE ABOVE SAID ISSUES ARE STATED IN BRIEF. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF ALUMINUM CHLORIDE ANHYDROUS. DURING THE YEAR UNDER CONSIDER ATION, THE ASSESSEE I.T.A. NO.1030/MUM/2011 2 DECLARED PRODUCTION LOSS AT 7.70%. IN THE EARLIER YEARS, THE PRODUCTION LOSS WAS SHOWN AT 1.59% AND 5.24%. THE SUBMISSION OF THE AS SESSEE THAT THE LOSS/WASTAGE WOULD DEPEND UPON THE MATERIAL CONSUME D WAS NOT CONVINCING TO THE ASSESSING OFFICER. HENCE, THE AO ESTIMATED THE PRODUCTION LOSS AT 5% AND CONSIDERED THE BALANCE LOSS OF 2.70% AS UNACCOUNTED SALES, WHICH WORKED OUT TO RS.29,90,450/-. ACCORDINGLY, THE AO ASSESSED THE A BOVE SAID AMOUNT AS CONCEALED INCOME OF THE ASSESSEE. THE AO NOTICED THAT THE EXPENDITURE CLAIMED TOWARDS REPAIRS AND MAINTENANCE HAS INCREAS ED TO RS.36.37 LAKHS DURING THE YEAR UNDER CONSIDERATION AS AGAINST THE AMOUNT OF RS.13.22 LAKHS CLAIMED IN THE PRECEDING YEAR. ON EXAMINATION OF T HE SAID CLAIM, THE AO NOTICED THAT THE ASSESSEE CLAIMED PURCHASE OF ASSETS NAMED FURNACE AND RECEIVER TANKS AMOUNTING TO RS.8,89,560/- AS REPAIRS EXPENS ES. THE AO TREATED THE AMOUNT OF RS.8,89,560/- AS CAPITAL EXPENDITURE AND DISALLOWED THE SAME. 4. IN THE APPELLATE PROCEEDINGS, THE LD CIT(A) CO NFIRMED BOTH THE ADDITIONS DISCUSSED ABOVE. AGGRIEVED, THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 5. THE FIRST ISSUE RELATES TO THE ESTIMATION OF PRO DUCTION LOSS AT 5% AS AGAINST 7.7% CLAIMED BY THE ASSESSEE. THE LD A.R SUBMITTED THAT THE PRODUCTION LOSS WOULD DEPEND UPON THE QUALITY OF MATERIALS AND HENC E IT IS NOT POSSIBLE FOR THE ASSESSEE TO STANDARDIZE THE SAME. HE FURTHER SUBMI TTED THAT THE GROSS PROFIT RATIO DECLARED BY THE ASSESSEE HAS INCREASED TO 14. 37% AS AGAINST 12.93 % DECLARED IN THE IMMEDIATELY PRECEDING YEAR. ON TH E CONTRARY, THE LD D.R SUBMITTED THAT THE ASSESSEE HAS FAILED TO SUBSTANTI ATE THE CLAIM OF HIGHER PRODUCTION LOSS AND HENCE THE AO WAS CONSTRAINED TO ESTIMATE THE PRODUCTION LOSS AT 5%. 6. WE HAVE HEARD RIVAL CONTENTIONS ON THIS ISSUE. A PERUSAL OF THE ORDER PASSED BY LD CIT(A) WOULD SHOW THAT THE ASSESSEE HA D TAKEN A NEW PLEA BEFORE THE FIRST APPELLATE AUTHORITY THAT THE PRODUCTION L OSS HAS INCREASED DUE TO DAMAGE TO EQUIPMENT OR DUE TO NEGLIGENCE OF WORKERS. WE N OTICE THAT THE LD CIT(A) HAS RIGHTLY REJECTED THE SAID CONTENTIONS IN THE ABSENC E OF ANY MATERIAL TO SUBSTANTIATE THE SAID CLAIM. WE NOTICE THAT THE PR ODUCTION LOSS DECLARED IN THE IMMEDIATELY PRECEDING TWO YEARS WAS 5.24% AND 1.59% RESPECTIVELY. AS AGAINST THE ABOVE SAID PERCENTAGE OF LOSS, DURING THE YEAR UNDER CONSIDERATION, THE I.T.A. NO.1030/MUM/2011 3 ASSESSEE HAS DECLARED PRODUCTION LOSS AT 7.7%. WE NOTICE THAT THE ASSESSEE COULD NOT SUBSTANTIATE ITS CLAIM THAT THE INCREASE IN THE LOSS WAS DUE TO INFERIOR QUALITY OF MATERIALS. AT THE SAME TIME, WE NOTICE THAT THE GROSS PROFIT RATIO HAS INCREASE TO 14.37% AS AGAINST 12.93% DECLARED IN TH E IMMEDIATELY PRECEDING YEAR. HENCE, CONSIDERING ALL THE ABOVE SAID FACTOR S, WE ARE OF THE VIEW THAT THIS ISSUE WOULD MEET THE ENDS OF JUSTICE, IF THE PRODUC TION LOSS IS ESTIMATED AT 6.25%. WHEN THIS WAS PROPOSED TO LD A.R, HE READILY AGREED TO THE SAME. ACCORDINGLY, WE MODIFY THE ORDER OF LD CIT(A) AND DIRECT THE ASS ESSING OFFICER TO COMPUTE THE ADDITION BY ADOPTING THE PRODUCTION LOSS AT 6.25%. THIS GROUND OF THE ASSESSEE STANDS PARTLY ALLOWED. 7. THE NEXT ISSUE RELATES TO THE DISALLOWANCE O F EXPENSES INCURRED ON FURNACE AND RECEIVER TANKS. BEFORE US, THE LD A.R SUBMITTE D THAT THE FURNACE AND RECEIVER TANKS ARE VULNERABLE PARTS OF THE MACHINER Y AND THEY REQUIRE FREQUENT CHANGE DUE TO PROCESSING OF CHEMICAL PRODUCTS INSID E THE ABOVE ASSETS. THE LD A.R FURTHER SUBMITTED THAT THE ASSESSEE IS CONSTRAI NED TO CHANGE THOSE ASSETS EVERY YEAR AND HENCE THE COST OF REPLACEMENT HAS BE EN CLAIMED AS REPAIR EXPENSES. WHEN THE LD A.R WAS ASKED TO SUBSTANTIAT E HIS SUBMISSIONS BY FURNISHING BILLS OF EVERY YEAR IN SUPPORT OF PURCHA SE OF THE ABOVE SAID TWO ASSETS, THE LD A.R EXPRESSED HIS INABILITY TO FURNISH THE S AME. HE SUBMITTED THAT THE ABOVE SAID TWO ASSETS ARE, SOMETIME, MANUFACTURED I N HOUSE ALSO. ALTERNATIVELY, THE LD A.R PRAYED THAT THE ASSESSEE SHOULD BE ALLOW ED DEPRECIATION ON THE COST OF FURNACE AND RECEIVER TANKS. 8. WE HAVE HEARD LD D.R ALSO ON THIS ISSUE. SI NCE THE ASSESSEE COULD NOT SUBSTANTIATE ITS CLAIM THAT THE FURNACE AND RECEIVE R TANKS ARE REPLACED EVERY YEAR, WE DO NOT FIND ANY MERIT IN THE CONTENTIONS O F THE ASSESSEE. HOWEVER, SINCE THE AO HAS DISALLOWED THE CLAIM OF THE ASSESS EE BY TREATING THE COST OF FURNACE AND RECEIVER TANKS AS CAPITAL EXPENDITURE, WE FIND MERIT IN THE ALTERNATIVE CONTENTION OF THE ASSESSEE THAT DEPRECIATION SHOULD BE ALLOWED ON THE CAPITALIZED COST. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO ALLOW DEPRECIATION AT THE APPLICABLE RATES ON THE AMOUNT OF RS.8,89,560/-. I.T.A. NO.1030/MUM/2011 4 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 10TH SEPT, 2014 . ,- ( . /0 1 2 10 TH SEPT , 2014 - ' 3) 4 SD SD ( . . / H.L. KARWA ) ( . . , / B.R. BASKARAN) / PRESIDENT / ACCOUNTANT MEMBER / ( ) MUMBAI : 10TH SEPT, 2014 . . . ./ SRL , SR. PS ! ' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !' / THE RESPONDENT. 3. ( 9* ( ) / THE CIT(A)- CONCERNED 4. ( 9* / CIT CONCERNED 5. 6. :; 3 !*< , + < , / ( ) / DR, ITAT, MUMBAI CONCERNED 3 = ) / GUARD FILE. > ( / BY ORDER, TRUE COPY ? $ (ASSTT. REGISTRAR) + < , / ( ) /ITAT, MUMBAI