Wichitra Auto Limited, CHENNAI V. ACIT, CHENNAI

ITA 104/CHNY/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4086 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-07-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 19-06-2017
• Assessment Year: 2013-2014
• Appeal Filed On: 13-01-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V SREENIVASAN JICIT D R
• Keywords: Capital asset; Depreciation; Additional depreciation; Assessment record; Revenue expenditure; Capital expenditure

Judgement Text

, C/ SMC , IN THE INCOME TAX APPELLATE TRIBUNAL C/SMC BENCH, CHENNAI . , BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER I.T.A.NO.104 /MDS./2017 ( ASSESSMENT YEAR : 2013-14) M/S.WICHITR A AUTO LIMITED , 84/3,SIDCO INDUSTRIAL ESTATE, AMBATTUR, CHENNAI 600 098. VS. THE ACIT, CORPORATE CIRCLE 3(2), CHENNAI-34. PAN AAACW 0695 C ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : MR.C.NARESH , C.A / RESPONDENT BY : MR.V.SREENIVASAN, JICIT, D.R ! ' / DATE OF HEARING : 19.06.2017 #$%& ! ' /DATE OF PRONOUNCEMENT : 03.07.2017 / 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, CHENN AI DATED 27.10.2016 PERTAINING TO ASSESSMENT YEAR 2013-14. ITA NO. 104/MDS/2017 2 2. THE FIRST GROUND IN ITS APPEAL IS WITH REGARD T O DISALLOWANCE OF CONTRIBUTION TO GRATUITY FUND ADMINISTERED BY LIC O N THE REASON THAT THE SAID GRATUITY WAS NOT GRANTED APPROVAL. 3. THE FACTS OF THE ISSUE ARE THAT THE ASSESSEE CO MPANY 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 PROC EEDINGS, THE AO ASKED THE ASSESSEE TO PRODUCE A COPY OF APPROVAL AC CORDED BY CIT FOR THE GRATUITY FUND WHICH IS BEING ADMINISTERED B Y LIC. IN RESPONSE, THE ASSESSEE SUBMITTED THAT AN APPLICATIO N WAS FILED BEFORE THE CIT SEEKING APPROVAL OF THE GRATUITY SCH EME AND THAT AS ON DATE THE APPROVAL HAS NOT BEEN ACCORDED BY THE C IT. HENCE, THE AO DISALLOWED THE SAID SUM ON THE REASON THAT THE G RATUITY FUND WAS NOT APPROVED AS PROVISIONS OF THE SECTION 36(1)(V) OF THE ACT. AGGRIEVED BY THE ORDER OF LD. ASSESSING OFFICER, TH E 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 AP PROVED BY THE CIT, HENCE, THE CIT(A) ENDORSED THE VIEW OF THE LD. ASSESSING ITA NO. 104/MDS/2017 3 OFFICER. AGAINST THE ORDER OF LD.CIT(A), NOW THE A SSESSEE IS IN APPEAL BEFORE US. 4. I HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. THE MAIN CONTENTION OF THE LD.A.R THAT THE ASSESSEE MADE AN APPLICATION ON 10.04.1997 BEFORE THE CIT SEEKING AP PROVAL OF THE GRATUITY FUND CONSTITUTED BY THE ASSESSEE. AS THER E WAS NO COMMUNICATION FROM THE OFFICE OF CIT AS TO NON-GRAN TING 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 H AS NOT BROUGHT ON RECORD THE EXACT POSITION OF THE APPLICATION SEEKIN G APPROVAL OF GRATUITY FUND SCHEME MADE BY THE ASSESSEE TO THE CI T. HENCE, IT IS APPROPRIATE TO REMIT THE ISSUE IN DISPUTE TO THE FI LE OF AO TO BRING ON RECORD THE EXACT POSITION OF THE APPLICATION SEEKIN G APPROVAL OF GRATUITY FUND SCHEME. FURTHER, AS RIGHTLY PLACED BY LD.A.R THAT ONCE THE ASSESSEE FULFILLS THE CONDITION LAID DOWN FOR A PPROVAL HAVING CREATED A TRUST WITH THE LIC AND IF IT IS NOT THE C ASE OF THE AO THAT THE ASSESSEE HAS NOT DEPOSITED MONEY IN TERMS OF CREATI ON OF THE TRUST, ITA NO. 104/MDS/2017 4 THEREFORE, ON SUCH FACTS, THE CLAIM OF ASSESSEE CAN NOT BE DISALLOWED. WITH THIS OBSERVATION, THIS ISSUE IS REMITTED TO TH E 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 C ONSIDERATION. 5. 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 M ACHINERY FROM ONE FACTORY TO ANOTHER FACTORY. IN MY OPINION, THIS CL AIM OF ASSESSEE CANNOT BE ALLOWED AS THE EXPENDITURE IS NOT INCURRE D WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF CARRYING ON THE BUSI NESS. ON THE OTHER HAND, IT IS RELATED TO SHIFTING OF PLANT AND MACHIN ERY 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 RE LIANCE 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 ITA NO. 104/MDS/2017 5 COVERED ON THE ISSUE RELATING TO EXPENSES INCURRED ON SHIFTING CERTAIN PLANT AND MACHINERY FROM ONE OF ITS FACTORIES TO TH E OTHER, OBSERVED AS CAPITAL IN NATURE. ACCORDINGLY, THE ORDER OF LD .CIT(A) IS CONFIRMED ON THIS ISSUE. THIS GROUND RAISED BY THE ASSESSEE S TANDS DISMISSED. 7. THE NEXT GROUND IS WITH REGARD TO DISALLOWANCE OF ADDITIONAL DEPRECIATION ON THE GROUND THAT THE ASSESSEE WAS NO T ENGAGED IN MANUFACTURE. 7.1 THE FACTS OF THE ISSUE ARE THAT THE ENTIRE IN COME OF ASSESSEE DURING THE YEAR UNDER CONSIDERATION COMPRISED OF C ONTRACT RECEIPTS FROM M/S.BREAKS INDIA LTD., AS EVIDENCED BY 26AS ST ATEMENT. THE ASSESSEE UNDERTOOK WORKS CONTRACT FROM M/S.BREAKS I NDIA LTD AND CARRIED OUT CERTAIN JO0B WORKS LIKE MACHINERING OPE RATIONS, PRESS OPERATIONS AND BRACING OPERATION ETC. ON THE MATERI AL SUPPLIED BY THE CONTRACTEE. THE AO FOUND THAT EVEN THE SAID JOB WOR KS WERE NOT CARRIED OUT FULLY BY THE ASSESSEE AND SUBSTANTIAL P ART OF THE WORK WAS GOT DONE THROUGH VARIOUS SUB-CONTRACTORS AS EVIDENC ED BY THE SUB- CONTRACT CHARGES OF ` 3,87,76,789/-. FURTHER, THE AO POINTED OUT THAT ITA NO. 104/MDS/2017 6 FROM THE SUB-CONTRACT AGREEMENT ENTERED INTO BETWEE N THE ASSESSEE AND THE SUB-CONTRACTORS THAT IF THERE IS ANY PROCES S WHICH IS AKIN TO MANUFACTURE, THE SAME WAS DONE BY THE SUB-CONTRACTO RS AND NOT BY THE ASSESSEE. FURTHER, IT IS NOTICED THAT A MACHINE RY USED BY THE ASSESSEE WAS PURCHASED FROM M/S.BREAKS INDIA LTD., WHICH SHOWS THAT ASSESSEE IS CARRYING OUT JOB WORK AS PER THE R EQUIREMENT OF THE CONTRACTEE USING THE MACHINE AS WELL AS THE MATERIA L SUPPLIED BY THE CONTRACTEE. IT IS MENTIONED IN THE CONTRACT AGREEME NT THAT THE CONTRACT IS FOR CONVERSION CHARGES AND TESTING CHAR GES OF HOSE ASSEMBLY. FOR THESE REASONS, THE AO CAME TO A CON CLUSION THAT THE ASSESSEE WAS NOT ENGAGED IN MANUFACTURING ACTIVITY BUT THERE WAS ONLY AN ASSEMBLING UNIT. HENCE, THE AO DISALLOWED T HE ASSESSEES CLAIM OF ADDITIONAL DEPRECIATION ON PLANT AND MACHI NERY U/S.32(1)(IIA) OF THE ACT @ 20% ON PURCHASE OF MACHINES MADE BEFOR E SEPT.,2012. AGGRIEVED BY THE ORDER OF LD. ASSESSING OFFICER, TH E 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 ONL Y PERFORMED CERTAIN OPERATION IN THE NATURE OF JOB WORK. ACCORD ING TO LD.CIT(A), AS ITA NO. 104/MDS/2017 7 PER THE CONTRACT AGREEMENT, THEASE WAS GIVEN COTGNR ACT FOR CONVERSION, TESTING CHARGES AND ASSEMBLING HOSE FRO M THE MATERIAL SUPPLIED BY THE CONTRACTEE. THEREFORE. LD.CIT(A) WA S OF THE OPINION THAT THIS IS NOT A CASE WHERE THE PROCESS OF MANUFA CTURING OR PRODUCTION IS INVOLVED. THE LD.CIT(A) OBSERVED THA T THE ASSESSEE COULD NOT GIVE ANY EVIDENCE WHATSOEVER TO SUBSTANTI ATE ITS CLAIM THAT IT WAS MANUFACTURING A NEW PRODUCT. BESIDES IT, TH E FACTS IN THE RELEVANT PREVIOUS YEAR CLEARLY POINTED OUT THAT THE ASSESSEE WAS ONLY AN ASSEMBLING UNIT AND WAS NOT ENGAGED IN ANY MANUF ACTURING ACTITY. HENCE, THE LD.CIT(A) ARRIVED AT A CONCLUSION THAT T HE 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 BE FORE US. 8. I HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. IT IS BROUGHT TO MY NOTICE BY LD.A.R THAT ASSESSEE HAS BEEN CONSIDERED AS A MANUFACTURER FOR GRANTING OF DEDUCT ION U/S.80-IB OF THE ACT FOR THE ASSESSMENT YEAR 2004-05 BY THE TRIB UNAL VIDE ORDER DATED 03.06.2011 IN ITA NO.369/MDS./2010 WHEREIN HE LD THAT:- 6. WE FIND THAT HE ASSESSING OFFICER HAS STATED TH AT THE ASSESSEE IS ENGAGED IN ONLY MACHINE COMPONENTS AND NOT MANUFACT URE OF ANY PRODUCT OR ARTICLE OR THING. WE FIND THAT NO ELABOR ATE DETAILS OF THE ITA NO. 104/MDS/2017 8 ACTIVITIES UNDERTAKEN BY THE ASSESSEE IN THE COURSE OF ITS BUSINESS HAS BEEN BROUGHT ON RECORD BY EITHER OF THE LOWER AUTHO RITIES. THE OBSERVATION OF THE ASSESSING OFFICER IS ALSO TO THE EFFECT THAT ASSESSEE HAS NOT PURCHASED ANY RAW MATERIALS AND HAS NOT SOLD ANY FI NISHED GOODS. IN OUR CONSIDERED OPINION, THE CORE ACTIVITIES OF A MANUFA CTURING UNIT IS TO CONVERT RAW MATERIAL INTO DIFFERENT PRODUCT WHICH I S FINISHED PRODUCT OF AN UNDERTAKING. IT IS IMMATERIAL THAT WHETHER RAW MATE RIAL WAS PURCHASED BY AN INDUSTRIAL UNDERTAKING ITSELF OR WAS SUPPLIED TO IT BY SOMEBODY ELSE. THE MANUFACTURING BUSINESS CARRIED ON BY ASSESSEE O N ITS OWN BEHALF OR ON BEHALF OF SOMEBODY ELSE IS NOT RELEVANT FOR DECI DING THE ELIGIBILITY OF PAGE 7 OF 9 I.T.A. NO.369 /MDS/2010 DEDUCTION U/S 8 0IB 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 PHOTO GRAPH 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 AS SESSEES INDUSTRIAL UNDERTAKING. IN THE ABSENCE OF THESE DETAILS, WE AR E NOT IN A POSITION TO UPHOLD THE ORDER OF THE LD. CIT(A). FURTHER THE CLA IM OF THE ASSESSEE IS THAT IT UNDERTOOK MANUFACTURING ACTIVITY AND MANUFA CTURED HOSE PIPE USED IN AUTOMOBILE COMPONENTS ON BEHALF OF OTHERS BUT WE FIND THAT THE COPY OF AGREEMENT WHICH THE ASSESSEE ENTERED INTO WITH OTHE RS 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 ASSESSEES INDUSTRIAL UNDERTAKING AND WHAT WAS EXACTLY THE FINISHED GOODS OF THE INDUSTRIAL UNDERTAKING. COPIES OF INVOICE RAISED BY THE ASSESS EE HAVE ALSO NOT BEEN BROUGHT ON RECORD BY EITHER OF THE PARTIES. FU RTHER, IN RESPECT OF THE DATE OF COMMENCEMENT PAGE 8 OF 9 I.T.A. NO.369 /MDS /2010 OF ITA NO. 104/MDS/2017 9 PRODUCTION OR OPERATION OF THE INDUSTRIAL UNDERTAKI NG WE FIND THAT THE ASSESSING OFFICER ONLY RELIED UPON THE DATE MENTION ED IN THE AUDIT REPORT AND FORM NO. 10CCB WHICH WAS CLAIMED BY THE ASSESSE E AS A TYPOGRAPHICAL ERROR. IT COULD NOT BE APPRECIATED TH AT THE ASSESSING OFFICER HAD NOT LOOKED INTO THE PAST ASSESSMENT RECORDS AND OTHER VARIOUS MATERIAL FROM WHICH EXACT DATE OF COMMENCEMENT OF P RODUCTION OR OPERATION OF ASSESSEES INDUSTRIAL UNDERTAKING COUL D 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 LIK E TYPING MISTAKE WHICH COULD HAVE BEEN EASILY ASCERTAINED WITH OTHER MATERIAL LIKE PAST ASSESSMENT RECORD, SSI REGISTRATION CERTIFICATE, ET C. BE THAT AS IT MAY, THE LD. CIT(A) HAS STATED THAT WITH REGARD TO THE ASSE SSING OFFICERS OBSERVATION THAT THE APPELLANT IS ELIGIBLE FOR DEDU CTION ONLY UPTO ASSESSMENT YEAR 2001-02, I FIND THAT THE LD. A.R. H AS CLEARLY CLARIFIED THAT IT IS ONLY A TYPOGRAPHICAL AND CLERICAL ERROR IN TH E 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 RE PORT AND HOW HE PAGE 9 OF 9 I.T.A. NO.369 /MDS/2010 ARRIVED THE CONCLUSION THAT THE DATE MENTIONED IN FORM NO.10CCB WAS ONLY TYPOGRAPHICAL E RROR. 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 FAC TS 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 A ND JUST TO RESTORE THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOR ADJUDICATING THE ISSUE AFRESH AFTER VERIFICATION IN LIGHT OF THE DISCUSSIO N MADE HEREINABOVE. THE ASSESSING OFFICER SHALL ALLOW REASONABLE OPPORTUNIT Y OF HEARING TO THE ASSESSEE BEFORE ADJUDICATING THE ISSUE AFRESH. ITA NO. 104/MDS/2017 10 9. IN VIEW OF THE ABOVE FINDINGS OF THE TRIBUNAL, WE ARE OF THE OPINION THAT THE ASSESSEE CANNOT BE CONSIDERED AS N ON- MANUFACTURING UNIT SO AS TO DENY THE ADDITIONAL DEP RECIATION SOUGHT BY THE ASSESSEE . ACCORDINGLY, THE AO IS DIRECTED TO GRANT ADDITIONAL DEPRECIATION CONSIDERING THE ASSESSEE AS A MANUFACT URER. HENCE, THIS GROUND RAISED BY THE ASSESSEE IS ALLOWED. 10. IN THE RESULT, THE APPEAL OF ASSESSEE IS PART LY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 03 RD JULY , 2017. SD/- ( ) ( CHANDRA POOJARI ) /ACCOUNTANT MEMBER CHENNAI, DATED THE 03 RD JULY, 2017 . K S SUNDARAM. ' ( )!*+ ,+%! / COPY TO: 1 . / APPELLANT 3. ' ' -! () / CIT(A) 5. +0 1 )!)23 / DR 2. / RESPONDENT 4. ' ' -! / CIT 6. 1 45 6 / GF