M/s S.R. Industries Limited, Chandigarh V. ACIT, Chandigarh

ITA 1125/CHANDI/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95520 (ITAT-CHANDIGARH)
• Duration Of Justice: 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-09-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 19-08-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 18-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: T N SINGLA
• Keywords: Depreciation; Rectification of order; Revenue expenditure; Reassessment proceedings
• Section: 147; 154; 15; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MRS. ANNAPURNA MEHROTRA, ACCOUNTANT MEMBER ITA NO. 1125/CHD/2014 ASSESSMENT YEAR: 2007-08 M/S S.R. INDUSTRIES LIMITED., VS. THE ACIT CHANDIGARH CIRCLE 3(1) CHANDIGARH PAN NO. AACCA0346K (APPELLANT) (RESPONDENT) APPELLANT BY : SH. T.N. SINGLA RESPONDENT BY : SH. MANJIT SINGH DATE OF HEARING : 19/08/2015 DATE OF PRONOUNCEMENT :03/09/2015 ORDER PER ANNAPURNA MEHROTRA A.M. THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A) CHANDIGARH DT. 03/11/2014. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE C OMPANY IS A MANUFACTURER AND EXPORTER OF TERRY TOWEL .FOR THE IMPUGNED ASSES SMENT YEAR, THE ASSESSEE FILED ITS RETURN OF INCOME AT A TOTAL INCOME OF RS. NIL CLAIMING LOSS OF RS. 86,40,279/- . ASSESSMENT UNDER SECTION 143(3) WAS F RAMED ON THE ASSESSEE AND DISALLOWANCE ON ACCOUNT OF INTEREST PAID ON CAPITAL WORK IN PROGRESS WAS MADE UNDER SECTION 36(1)(III) ON ACCOUNT OF FACT THAT TH E ASSESSEE HAD SHOWN AN AMOUNT OF RS. 6,43,261/- AS CAPITAL WORK IN PROGRES S IN THE BALANCE SHEET. THEREAFTER REASSESSMENT PROCEEDINGS WERE INITIATED FOR THE REASON THAT THE ASSESSEE HAD OPENING CAPITAL WORK- IN- PROGRESS OF RS. 12,17,65,666/- AND CLOSING 2 CAPITAL WORK IN- PROGRESS OF RS. 6,43,261/- MAKING AVERAGE INVESTMENT IN CAPITAL WORK- IN -PROGRESS DURING THE YEAR OF RS. 6,12,044, 63/- , WHILE THE ASSESSEE HAD PAID INTEREST OF RS. 1,47,52,591/- ON BORROWED FUND S DURING THE YEAR, THE DISALLOWANCE OF INTEREST UNDER SECTION 36(1)(III) I N RELATION TO THE AVERAGE CAPITAL WORK- IN- PROGRESS WORKED OUT TO RS. 73,44,534/- @ 12% COMPUTED. SINCE THE AO BELIEVED THAT THERE WAS ESCAPMENT OF INCOME OF TH E ASSESSEE TO THE TUNE OF RS. 73,44,534/- HE INITIATED REASSESSMENT PROCEEDIN GS UNDER SECTION 147 OF THE INCOME TAX ACT 1961. 3. DURING THE REASSESSMENT PROCEEDINGS THE ASSESSEE SUBMITTED THAT IT HAD CAPITALIZED ALL INTEREST ON LOANS TAKEN FOR THE EXP ANSION OF BUSINESS DURING THE YEAR. THE ASSESSEE SUBMITTED THAT IT HAD PUT TO USE ITS ASSETS ON 21/08/2006 AND ALL INTEREST PAID UP TO THAT DATE WHICH AMOUNTED TO RS. 18,77,665/- WAS CHARGED TO PRE OPERATIVE EXPENSES. THE ASSESSEE FURTHER STA TED THAT ALL PRE OPERATIVE EXPENSES UP TO THE DATE OF 21/08/2006 I.E; DATE ON WHICH IT PUT TO USE THE ASSETS WERE CAPITALIZED AND NO PART WAS CLAIMED AS REVENUE EXPENDITURE THUS THE ASSESSEE CLAIMED THAT NO INTEREST WAS DISALLOWABLE UNDER SECTION 36(1)(III) OF THE INCOME TAX ACT. 4. THE AO AFTER CONSIDERING REPLY OF THE ASSESSEE S TATED THAT THOUGH THE ASSESSEE HAD CLAIMED THE ASSETS TO BE PUT TO USE ON 21/08/2006, BUT THE DETAILS OF THE WORK IN PROGRESS ACCOUNT FILED BY THE ASSESS EE SHOWED THAT THE WORK IN PROGRESS CONTINUE TO EXIST THROUGH OUT THE YEAR. TH EREFORE RECALCULATING THE INTEREST ON WORK IN PROGRESS UP TO THE DATE ON WHIC H IT WAS CAPITALIZED IN THE BOOKS I.E; FEBRUARY 2007, AN AMOUNT OF RS. 68,16,89 1/- WAS CALCULATED AS INTEREST WHICH OUGHT TO BE ADDED BACK UNDER SECTION 36(1)(II I) OF THE ACT. GIVING ALLOWANCE TO THE AMOUNT OF INTEREST ALREADY CAPITAL IZED BY THE ASSESSEE AMOUNTING TO RS. 18,77,665/- AND THE INTEREST DISAL LOWED BY THE AO UNDER 3 SECTION 143(3) VIDE ORDER DT. 10/12/2008 AMOUNTING TO RS. 77,191/- HE MADE A NET DISALLOWANCE OF RS. 48,62,035/- TO THE INCOME O F THE ASSESSEE. 5. THEREAFTER NOTICE UNDER SECTION 154 OF THE INCOM E TAX ACT 1961, WAS ISSUED TO THE ASSESSEE ON 09/11/2012 FOR THE REASON THAT THOUGH CAPITAL WORK IN PROGRESS AMOUNTING TO RS. 13,33,69,281/- WAS PUT TO USE DURING THE YEAR ONLY IN FEBRUARY 2007, DEPRECIATION AND ADDITIONAL DEPRECIA TION ON SUBSTANTIAL PART OF THE ADDITION WAS CLAIMED FOR THE FULL YEAR ,WHICH W AS OTHERWISE ALLOWABLE @ 50% OF THE AMOUNT DUE, SINCE THE ASSETS WERE PUT TO USE FOR LESS THAN SIX MONTHS. THE ASSESSEE FURNISHED A REPLY ON 29/11/2012 SUBMITTING DETAILS OF DEPRECIATION CLAIMED AND ASSETS PUT TO USE IN SUPPORT OF ITS CLA IM OF DEPRECIATION AND MOREOVER CONTESTED THE CLAIM OF THE AO THAT THE ASS ETS WERE PUT TO USE IN FEBRUARY 2007, AND STATED THAT ACTUALLY THE ASSETS WERE PUT TO USE ON 21/08/2006. THE ASSESSEE CLAIMED THAT IT HAD RIGHTL Y CLAIMED DEPRECIATION UNDER THE INCOME TAX ACT AND MOREOVER CONTESTED THAT THI S ISSUE COULD NOT BE A SUBJECT MATTER OF RECTIFICATION UNDER SECTION 154, SINCE IT REQUIRED FURTHER VERIFICATION OF THE FACTS ON RECORD AND INFORMATION WHICH WAS SUPPLIED DURING THE RECTIFICATION PROCEEDINGS. NOT ACCEPTING THE CO NTENTION OF THE ASSESSE, THE AO PASSED THE ORDER UNDER SECTION 154 OF THE ACT, D ISALLOWING THE EXCESS DEPRECIATION CLAIMED AMOUNTING TO RS. 1,94,75,052/- VIDE ORDER DT. 04/06/2013. 6. THE LD. CIT(A) UPHELD THE ORDER OF THE AO BY STA TING AT PARA 5 OF HIS ORDER AS FOLLOWS : 5. I HAVE CONSIDERED THE FACTS OF THE CASE. RECTIFI CATION U/S 154 CAN BE DONE IF MISTAKE IS APPARENT FROM RECORD. IN THE INSTANT CASE, THERE WAS AN APPARENT MISTAKE IN THE ASSESSMENT ORDER PASSED ON 19.12.2011 THAT WHEREAS INTEREST HAD BEEN CAPITALIZED UPTO 2/2007 ON CERTAI N ASSETS BECAUSE THESE HAD NOT BEEN PUT TO USE, BUT THE ASSESSING OFFICER DID NOT RESTRICT DEPRECIATION ON THESE ASSETS TO 50%, WHICH WAS TO BE DONE SINCE THE SAME HAD BEEN PUT TO USE FOR LESS THAN 180 DAYS. THE ARGUMENT OF THE LD. COU NSEL THAT RECTIFICATION ORDER U/S 154 CAN BE PASSED ONLY IF THE MISTAKE IS OBVIOUS AN D PATENT AND NOT SOMETHING WHICH CAN BE ESTABLISHED BY A LONG DRAWN PROCESS OF REASONING ON POINTS ON WHICH THERE MAY BE TWO OPINIONS, BUT IN THIS CASE, THERE WAS AN OBVIOUS AND APPARENT MISTAKE IN THE ASSESSMENT ORDER PASSED ON 19.12.2011 AND SO THE ARGUMENT OF THE LD. COUNSEL IS NOT ACCEPTABLE. THER EFORE, IT IS HELD THAT THE 4 ASSESSING OFFICER WAS RIGHT IN DISALLOWING THE IMPU GNED DEPRECIATION ON PLANT & MACHINERY AND ELECTRICAL INSTALLATION U/S 154 OF TH E ACT. GROUNDS OF APPEAL TAKEN BY THE APPELLANT ARE DISMISSED. 7. AGGRIEVED AGAINST THE ORDER OF LD. CIT(A) THE AS SESSEE FILED AN APPEAL BEFORE US TAKING THE FOLLOWING GROUNDS OF APPEAL: 1. THAT THE ORDER OF LEARNED CIT(A) IS BAD AGAINST THE FACTS & LAW. 2. THAT THE LEARNED CIT(A) HAS WRONGLY UPHELD THE INIT IATIONS OF PROCEEDINGS U/S 154/155 AS VALID ON DEBATABLE ISSUE. 3. THAT THE LEARNED CIT(A) WRONGLY UPHELD THE DISALLOW ANCE OF DEPRECIATION OF RS. 2,05,59,642/- ON ADDITION DURING THE YEAR IN PLANT & MACHINERY. 4. THAT THE LEARNED CIT(APPEALS) WRONGLY UPHELD THE DI SALLOWANCE OF DEPRECIATION OF RS. 1,08,366/- ON ADDITION DURING THE YEAR IN ELECTRICA L INSTALLATIONS. 8. THE ONLY EFFECTIVE GROUND OF APPEAL IN THIS CASE IS AGAINST THE INITIATION OF RECTIFICATION PROCEEDINGS U/S154 OF THE ACT AND THE CONSEQUENTIAL DISALLOWANCE OF DEPRECIATION OF RS. 2,05,59,642/- ON ADDITION TO PLANT & MACHINERY AND RS. 1,08,366/- ON ADDITION OF ELECTRICAL INSTALLATIONS DURING THE YEAR. 9. THE LD. AR ARGUED BEFORE US THAT THE ISSUE OF CL AIM OF DEPRECIATION WAS A DEBATABLE ISSUE CONSIDERING THE DATE OF WHICH NEW P LANT & MACHINERY AND ELECTRICAL INSTALLATION WAS PUT TO USE AND THEREFOR E IT COULD NOT BE THE SUBJECT MATTER OF RECTIFICATION AND HENCE THE ORDER PASSED UNDER SECTION 154 WAS BAD IN LAW. 10. ON MERITS THE AR SUBMITTED THAT THE MAJORITY OF THE MACHINES IN DISPUTE WERE PURCHASED IN FINANCIAL YEAR 2005-06 BUT PUT TO USE ON 21/08/2006. IN SUPPORT OF THE SAME HE SUBMITTED COPY OF ACCOUNT OF WORK IN PROGRESS AND COPY OF ACCOUNT OF PLANT & MACHINERY AND ELECTRICAL INSTALLATION FOR THE FINANCIAL YEAR 2005-06 AND 206-07. THE AR FURTHER R ELIED UPON THE CERTIFICATE OF CHARTERED ENGINEER TO PROVE THE DATE OF INSTALLATIO N OF NEW PLANT & MACHINERY. THE CERTIFICATE FROM CENTRAL EXCISE DEPT. REGARDING INSTALLATION OF NEW PLANT & MACHINERY WERE ALSO RELIED UPON BY THE LD. AR TO SH OWING THE DATE OF INSTALLATION OF NEW PLANT & MACHINERY. THE AR FURTH ER RELIED UPON DETAILS OF PRE- 5 OPERATIVE EXPENSES WHICH WERE CAPITALIZED ON 21/08/ 2006, TO PROVE THE DATE OF START OF PRODUCTION FROM THE NEW PLANT & MACHINERY. THE AR FURTHER SUBMITTED THAT THE FACT THAT POWER CONSUMPTION HAD INCREASED BY 33% AS COMPARED TO LAST YEAR, WAGES AND LABOUR CHARGES HAD INCREASED B Y 86% AS COMPARED TO LAST YEAR, CONSUMPTION OF YARN INCREASED BY 37% AND PURC HASE OF UNFINISHED TOWELS DECREASED BY 44% AS COMPARED TO LAST YEAR, SALES IN CREASED BY 5% AS COMPARED TO LAST YEAR INSPITE THE DECREASE IN PURCH ASE OF UNFINISHED TOWELS BY 44% AND THE FACT THAT THE VALUE OF EXPORT INCLUDING DUTY DRAW BACK HAD INCREASED BY 14% ALL SHOWED THAT THE ASSESSEE HAD P UT TO USE THE MACHINERY ON 21/08/2006. THE AR ARGUED THAT THE ISSUE OF IMPROVE MENT IN QUALITY AFTER THE LOOMS WERE PUT TO USE CLEARLY PROVED THAT THE NEW P LANT & MACHINERY WAS PUT TO USE ON 21/08/2006. THE AR STATED THAT ALL THESE MAC HINES WERE INSTALLED UP TO APRIL 2006 AND AFTER INSTALLATION THEY WERE OTHERWI SE ALSO READY FOR USE AND ELIGIBLE FOR DEPRECIATION FROM THAT VERY DAY I.E. A PRIL 2006. THE AR THEREFORE PLEADED THAT EVEN ON MERIT THE ASSESSEE HAD RIGHTLY CLAIMED DEPRECIATION FOR THE ENTIRE YEAR FOR ASSETS PUT TO USE ON 21/08/2006 . 11. THE LD. DR ON THE OTHER HAND RELIED ON THE ORDE R OF LD. CIT(A). 12. WE HAVE PERUSED THE DOCUMENTS AND ORDER OF THE AUTHORITIES BELOW AND HAVE HEARD THE REPRESENTATIVE OF BOTH THE PARTIES. 13. THE ONLY ISSUE IN THE PRESENT APPEAL IS WHETHER IN THE PREVAILING FACTS RECTIFICATION PROCEEDINGS U/S 154 COULD BE RESORTED TO AND IF YES, WHETHER THE EXCESS DEPRECIATION WAS CORRECTLY DISALLOWED. IT IS SETTLED LAW THAT RECTIFICATION PROCEEDINGS UN DER SECTION154 CAN BE RESORTED TO, ONLY TO CORRECT GLARING AND OBVIOUS MISTAKES OF FACT AND LAW. IF ALL FACTS ARE ON RECORD AND NO FURTHER CALCULATION OR ASCERTAINME NT IS NECESSARY AND IF ON THESE FACTS IT IS CLEAR THAT AN ERROR OF LAW OR FAC T HAS BEEN MADE, THAT ERROR CAN 6 BE RECTIFIED U/S 154. CONVERSELY MISTAKES WHICH CAN BE DISCOVERED ONLY BY A COMPLICATED PROCESS OF INVESTIGATION, ARGUMENT, ELU CIDATION, OR DEBATE CANNOT BE SAID TO BE APPARENT MISTAKES AND IN SUCH CASE S 154 CANNOT BE RESORTED TO. WE RELY ON DECISION OF CALCUTTA HIGH COURT IN C ASE OF HINDUSTAN LEVER LTD. VS. JCIT & OTHERS, 284 ITR 42. 14. IN THE PRESENT CASE THE ALLEGED MISTAKE SOUGH T TO BE RECTIFIED IS THE DEPRECIATION GRANTED TO THE ASSESSEE U/S 32, ON APP LICABLE RATES FOR THE ENTIRE YEAR, WHICH AS PER THE AO SHOULD ACTUALLY HAVE BEEN RESTRICTED TO 50% ONLY SINCE ON THE BASIS OF INFORMATION ON RECORD WITH TH E AO, THE ASSETS WERE PUT TO USE ONLY IN FEBRUARY 2007 AND THUS FOR LESS THAN 18 0 DAYS. THUS AO WANTED TO REAPPRECIATE FACTS ON RECORD WHICH HAVE ALREADY BEE N CONSIDERED. 15. WE FIND THAT THE FACT THAT THE ASSETS WERE PUT IN USE IN FEBRUARY 2007 IS A MATTER OF DEBATE. IN THE PROCEEDINGS U/S 147, THE A SSESSEE HAD STATED THAT HIS ASSETS WERE PUT TO USE ON 28/08/2006. THE ASSESSE H AD ALSO PRODUCED EVIDENCE OF THE SAME IN THE FORM OF COPY OF WIP PLANT & MAC HINERY AND WIP ELECTRIC INSTALLATION FOR THE F.Y 2005-06 AND 2006-07 SHOWIN G THE DATE OF PURCHASE OF THESE ASSETS, FIXED ASSETS REGISTER FOR THE F.Y 200 5-06 AND 2006-07 SHOWING THE DATE OF PURCHASE ,INSTALLATION AND DATE OF PUT TO U SE OF THESE ASSETS, CERTIFICATE OF M/S POWER TRACKS APPROVED CHARTERED ENGINEERS T O PROVE THE DATE OF INSTALLATION OF THE NEW PLANT AND MACHINERY, CERTIF ICATE OF CENTRAL EXCISE DEPARTMENT REGARDING INSTALLATION OF NEW PLANT AND MACHINERY ALL OF WHICH SHOWED THAT THE ASSETS WERE INSTALLED BY AUGUST 200 6. IT SUPPORTS CASE OF ASSESSEE ON MERITS. ON THE OTHER HAND THE AO HAS RE LIED UPON DETAIL OF WIP PROVIDED BY THE ASSESSEE DURING REASSESSMENT PROCEE DINGS WHICH SHOWED THAT THE CAPITAL WIP WAS CAPITALIZED IN THE MONTH OF FEB RUARY 2007 TO BELIEVE THAT THE ASSETS WERE PUT TO USE FOR LESS THAN 180 DAYS. CLEARLY THIS APPEARS TO BE A 7 MATTER WHICH REQUIRES LONG DRAWN PROCESS OF REASONI NG. THE MERE FACT THAT CAPITAL WIP WAS CAPITALIZED IN THE MONTH OF FEBRUAR Y DOES NOT SETTLE THE ISSUE OF CLAIM OF DEPRECIATION. THE ASSETS MAY HAVE BEEN INS TALLED AND READY FOR USE EARLIER AS CLAIMED BY THE ASSESSEE. THE POINT THERE FORE IS CLEARLY DEBATABLE AND REQUIRES FURTHER INVESTIGATION WHICH IS NOT PERMISS IBLE U/S 154 OF THE INCOME TAX ACT. IN CASE OF T.S. BALRAM, ITO, VS. VOLKART BROTH ERS AND OTHERS, 82 ITR 50, HONBLE SUPREME COURT HELD A DECISION ON A DEBATABLE POIN T OF LAW IS NOT A MISTAKE APPARENT FROM RECORD. HONBLE PUNJAB & HARYANA HIG H COURT IN CASE OF CIT VS. INVESTMENT TRUST OF INDIA LTD. (2009)184 TAXMAN 381 HELD THE ISSUE RELATING TO DISALLOWANCE OF DEPRECIATION ON THE GROUND THAT THE ASSET DID NOT EXIST IN THE ASSESSEES BUSINESS OF HIRING OUT ASSETS, IS A DEBA TABLE ONE AND HENCE CANNOT BE THE SUBJECT MATTER IN RECTIFICATION PROCEEDING. THEREFORE THE PROVISION OF SECTION 154 OF THE INCOME TAX ACT, 1961 IS NOT ATTR ACTED TO THE INSTANT CASE. IN VIEW OF THE ABOVE, THE PROCEEDINGS INITIATED U/S 15 4 ARE HELD TO BE BAD IN LAW AND HEREBY QUASHED. RESULTANTLY ORDERS OF AUTHORITI ES BELOW ARE SET ASIDE AND ADDITION IS DELETED. 16. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 03/09/2015 AG COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR