ACIT, CHENNAI V. M/s. Rane Engine Valves Ltd., CHENNAI

ITA 1082/CHNY/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64204 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2004-2005
• Appeal Filed On: 18-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANUPAMA SHUKLA IRS
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Depreciation
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH CHENNAI BEFORE DR. O. K. NARAYANAN, VICE PRESIDENT AND SHRI V. DURGA RAO, JUDICIAL MEMBER ------- ITA NO. 1082/MDS/2012 ASSESSMENT YEAR : 2004-05 THE ASST. COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-V(3), CHENNAI. V. M/S. RANE ENGINE VALVES LTD., MAITHRI, 132, CATHEDRAL ROAD, CHENNAI-600 086. (PAN :AAACT1279M) (APPELLANT) (RESPONDENT) APPELLANT BY : MS. ANUPAMA SHUKLA, IRS, CIT RESPONDENT BY : SHRI R. VIJAYARAGHAVAN, ADVOCATE DATE OF HEARING : 21.08. 2012 DATE OF PRONOUNCEMENT : 21.08.2012 O R D E R PER V. DURGA RAO, JUDICIAL MEMBER : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS), LARGE TAXPAYER UNIT, CHENNAI DATED 24-02-2012 FOR THE ASS ESSMENT YEAR 2004-05. ITA NO.1082/M DS/2012 2 2. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IS ENGA GED IN THE BUSINESS OF MANUFACTURE OF AUTOMOBILE PARTS. FOR T HE ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESSEE FI LED ITS RETURN OF INCOME ADMITTING A TOTAL INCOME OF ` 19,70,50,096/- AND REVISED THE RETURN OF INCOME ON 31-03-2006 ADM ITTING AN INCOME OF ` 20,15,43,777/-. THE RETURN WAS PROCESSED U/S 143(1) OF THE INCOME TAX ACT, 1961 ('THE ACT' FOR S HORT) AND SUBSEQUENTLY THE ASSESSMENT WAS COMPLETED U/S 143(3 ) DETERMINING THE TOTAL INCOME AT ` 20,06,43,151/-. 3. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD CR EATED A RESERVE U/S 32A OF THE ACT AGGREGATING TO ` 1,19,03,813/- FROM ASSESSMENT YEAS 1977-78 TO 1996-97. DURING THE PER IOD THE ASSESSEE HAD PURCHASED PLANT AND MACHINERY TO THE T UNE OF ` 51,27,23,088/- WHICH WAS MORE THAN THE AMOUNT OF RE SERVE CREATED. THE ASSESSING OFFICER WITHDREW THE INVEST MENT ALLOWANCE GRANTED U/S 32A AND PASSED ORDER ON 04-02 -2009 BY INVOKING SECTION 155(4A) OF THE ACT. THE REASON GI VEN BY THE ASSESSING OFFICER WAS THAT, .AS PER SECTION 32A IF THE ASSESSEE OWNS ANY SHIP OR AIRCRAFT OR MACHINERY AND IS WHOLLY USED FO R ITA NO.1082/M DS/2012 3 THE PURPOSE OF BUSINESS SHALL BE ALLOWED A DEDUCTION IN RESPECT OF THE P.Y. ION WHICH SUCH SHIP OR AIRCRAFT OR MACHINERY WAS ACQUIRED OR INSTALLED, OF A SUM BY WAY OF INVESTMENT ALLOWANCE. AS PER (5)(6) AND ANY ALLOWANCE MADE UNDERU THIS SECTION SHALL BE DEEMED TO HAVE BEEN WRONGLY MADE FOR THE PURPOSE OF THIS ACT, IF AT ANY TIME BEFORE THE EXPIRY OF TEN YEARS FROM THE END OF THE P.Y. IN WHICH THE MACHINERY, SHIP ETC WAS ACQUIRED, THE ASSESSEE DOES NOT UTILIZE THE AMOUNT CREDITED TO THE RESERVE ACCOUNT FOR THE PURPOSE OF ACQUIRING A NEW SHIP OR MACHINERY AND THE PROVISIONS OF SUB-SECTION (4A) OF SECTION 155 SHALL APPLY ACCORDINGLY. FURTHER AS PER SECTION 155(4A) IN THE ABOVE CASE THE INVESTMENT ALLOWANCE ORIGINALLY ALLOWED SHALL BE DEEMED TO HAVE BEEN WRONGLY ALLOWED AND THE A.O. MAY RECOMPUTE THE TOTAL INCOME OF THE RELEVANT PREVIOUS YEAR AND MAKE NECESSARY AMENDMENT. IT IS ALSO SEEN THAT INVESTMENT ALLOWANCE RESERVE OF ` 11930813/- WAS TRANSFERRED TO GENERAL RESERVE DURING THE P.Y. RELEVANT TO A.Y. 2004-05. IN VIEW OF THE ABOVE DISCUSSION, THE SUM OF ` 11930813/- IS BEING ADDED BACK U/S 155(4A) AND THE ORDER U/S 143(3) DATED 27.12.06 IS REVISED ACCORDINGLY. ITA NO.1082/M DS/2012 4 4. ON BEING AGGRIEVED, THE ASSESSEE CARRIED THE MAT TER BEFORE THE LEARNED CIT(APPEALS). IT WAS SUBMITTED B EFORE THE LEARNED CIT(APPEALS) THAT THE ASSESSEE IS ENTITLED TO CLAIM INVESTMENT ALLOWANCE DEDUCTION AT 25% OF THE TOTAL VALUE OF NEW PLANT AND MACHINERY INSTALLED AND PUT TO USE. THE CONDITION FOR ALLOWANCE IS THAT 75% OF THE INVESTME NT ALLOWANCE CLAIMED SHOULD BE DEBITED TO THE PROFIT A ND LOSS ACCOUNT AND CREDITED TO A RESERVE CALLED THE INVES TMENT ALLOWANCE RESERVE ACCOUNT AND SUBSEQUENTLY THE RES ERVE SHOULD BE UTILIZED FOR PURCHASING NEW PLANT AND MAC HINERY. THIS IS A BENEFICIAL SECTION CONFERRING AN ADDITION AL ALLOWANCE OVER AND ABOVE THE DEPRECIATION ON THE AMOUNT INVES TED IN ACQUIRING PLANT AND MACHINERY. THE RESTRICTION IS THAT THE PROFIT TO THE EXTENT TO 75% OF THE INVESTMENT ALLOW ANCE CLAIMED SHOULD NOT BE USED FOR DISTRIBUTION OF DIVI DENDS AND SHOULD BE STERILIZED BY CREDITING TO A RESERVE CALL ED INVESTMENT ALLOWANCE RESERVE ACCOUNT. BY DOING SO , THE PROFIT CANNOT BE DISTRIBUTED AS DIVIDEND. THE OTHE R REQUIREMENT IS THAT THE ASSESSEE SHOULD PURCHASE NE W MACHINERY WITHIN TEN YEARS. IT WAS FURTHER SUBMITT ED THAT ITA NO.1082/M DS/2012 5 ONCE THE ASSESSEE PURCHASED SUFFICIENT AMOUNT OF MA CHINERY TO THE EXTENT OF THE AMOUNT STANDING TO THE CREDIT IN THE INVESTMENT ALLOWANCE RESERVE, THEY SHOULD BE DEEMED TO HAVE UTILIZED THE INVESTMENT ALLOWANCE RESERVE FOR PURCH ASE OF MACHINERY AND HENCE SATISFIED THE REQUIREMENT OF SE CTION 32A. HE ALSO RELIED ON THE DECISION OF THE CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S. SHARDLOW INDIA LTD. (I TA NOS. 1492 & 1493/CHNY/2009 DATED 11.06.2010) AND INDIA P ISTONS LTD. (ITA NO. 211/MDS/2010 DATED 30-04-2010). THE LEARNED CIT(APPEALS) AFTER CONSIDERING THE SUBMISSIONS OF T HE ASSESSEE BY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CA SE OF INDIA PISTONS LTD. AND M/S. SHARDLOW INDIA LTD. (SUPRA) H ELD AS UNDER : 6. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSION OF THE LD. AR. I HAVE ALSO GONE THROUGH THE DECISIONS RELIED ON BY THE AO AND AR. THE APPELLANT HAS CREATED RESERVE OF ` 1,19,30,813/-. HOWEVER, IT HAS PURCHASED PLANT AND MACHINERY TO THE EXTENT OF ` 51,27,23,088/-. THEREFORE THE APPELLANT HAS CLEARLY PURCHASED PLANT AND MACHINERY WORTH MORE THAN THE AMOUNT OF RESERVE CREATED AND HAS UTILIZED THE IAR FOR PURCHASE OF PLANT AND MACHINERY. ON SIMILAR FACT, ITA NO.1082/M DS/2012 6 IN THE CASE OF M/S. INDIA PISTONS LTD. IN ITA NO. 63/07-08/A.III DATED 31.11.2009, I HAD HELD THAT THE INVESTMENT ALLOWANCE ALLOWED CANNOT BE WITHDRAWN U/S 155(4A) MERELY ON THE GROUND THAT SOME BALANCE IS LEFT IN THE INVESTMENT ALLOWANCE UTILIZED RESERVE. ON FURTHER APPEAL BY THE DEPARTMENT, THE HONBLE ITAT IN ITA NO. 211/MDS/2010 (SUPRA) DISMISSED THE APPEAL OF THE REVENUE. FURTHER, THE HONBLE ITAT IN THE CASE OF SHARDLOW INDIA LTD. (SUPRA) HAS ALSO DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. RESPECTFULLY FOLLOWING THESE DECISIONS, THE GROUND IS ALLOWED. 5. BEING AGGRIEVED, THE REVENUE HAS CARRIED THE MATT ER BEFORE THE TRIBUNAL. THE LEARNED DR SUPPORTED THE ORDER PASSED BY THE ASSESSING OFFICER. 6. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE A SSESSEE RELIED ON THE ORDER PASSED BY THE LEARNED CIT(APPEA LS) AND ALSO SUBMITTED THAT THE ISSUE INVOLVED IN THIS APPE AL IS SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S. SHARDLOW INDIA LTD. IN ITA NOS. 1492 & 1493/MDS/200 9 DATED 11-06-2010 WHICH WAS CONSIDERED BY THE LEARNED CIT(APPEALS). ITA NO.1082/M DS/2012 7 7. WE HAVE HEARD BOTH THE SIDES, PERUSED THE RECORD S AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ONLY ISSUE FOR CONSIDERATION IS THAT WHETHER THE ASSESSE E IS ENTITLED TO CLAIM INVESTMENT ALLOWANCE DEDUCTION U/S 32A OF THE ACT OR NOT. IT IS AN ADMITTED FACT THAT THE ASSESSEE HAD CREATED A RESERVE OF ` 1,19,30,813/-. THE ASSESSEE ALSO PURCHASED MACHINERY TO THE EXTENT OF ` 51,27,23,088/-.THEREFORE, THE ASSESSEE HAS PURCHASED PLANT AND MACHINERY WORTH MO RE THAN THE AMOUNT OF RESERVE CREATED AND HAS UTILIZED THE IAR FOR PURCHASE OF PLANT AND MACHINERY. THESE FACTS ARE N OT DISPUTED BY THE REVENUE AUTHORITIES. THE LEARNED CIT(APPEALS) BY CONSIDERING THE ABOVE FACTS AND BY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S. SH ARDLOW INDIA LTD. DATED 11-06-2010 (SUPRA), WHEREIN THE TRIBUNAL HAS HELD AS UNDER, ALLOWED THE GROUND OF APPEAL: 3. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE HAVE ALSO PERUSED THE DETAILS OF THE INVESTMENT ALLOWANCE RESERVE CREDIT, AS ALSO THE ADDITIONS TO THE PLANT AND MACHINERY. IT IS NOTICED THAT THE PLANT AND MACHINERY ACQUIRED ARE FAR EXCEEDING THE INVESTMENT ALLOWANCE RESERVE CREATED. IN THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE FINDING OF THE CO-ORDINATE BENCH ITA NO.1082/M DS/2012 8 OF THIS TRIBUNAL IN THE CASE OF M/S. INDIA PISTONS LTD. SQUARELY COVERS THE ISSUE IN THE APPEAL. IN THE CIRCUMSTANCES, RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S. INDIA PISTONS LTD. REFERRED TO SUPRA, THE FINDING OF THE LD. CIT)A)M ON THIS ISSUE STANDS CONFIRMED AND THE APPEALS OF THE REVENUE ARE DISMISSED. 8. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIB UNAL, CITED SUPRA, WE HOLD THAT THE ASSESSEE IS ELIGIBLE FOR TH E BENEFIT OF DEDUCTION UNDER SECTION 32A OF THE ACT. WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LEARNED CIT(APPEALS). A CCORDINGLY, THIS GROUND OF APPEAL RAISED BY THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF HEARING ON TUESDAY, THE 21 ST OF AUGUST, 2012, AT CHENNAI. SD/- SD/- (DR. O. K. NARAYANAN) ( V.DURGA RAO ) VICE PRESIDENT JUDICIAL MEMBER CHENNAI, DATED THE 21 ST AUGUST, 2012. H. COPY TO : (1) ASSESSEE (2) ASSESSING OFFICER (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE