The ACIT,(OSD)Range-1, Ahmedabad V. Dharnendra Industries Ltd., Ahmedabad

ITA 1410/AHD/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80470 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 5 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 16-10-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 18-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MK SINGH
• Keywords: Depreciation; Additional evidence; Wrong claim; Tax effect; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI , ACCOUNTANT MEMBER ITA NO . 1410 /AHD/20 1 1 A. Y. 200 4 - 0 5 ACIT(OSD), RANGE - 1, AHMEDABAD. VS DHARMENDRA INDUSTRIES LTD., 2 ND FL OOR, CHARKRAVORTY COMPLEX, VIJAY CROSS ROAD, NAVRANGPURA, AHMEDABAD. PAN:AAACD 4124F (APPELLANT) (RESPONDENT) REVENUE BY : SHRI M .K. SINGH , SR. D.R. , ASSESSEE(S) BY : NONE / DATE OF HEARING : 16 / 10 /201 4 / DATE OF PRONOUNCEMENT: 31 / 10 /201 4 / O R D E R PER SHRI MUKUL KUMAR SHRAWAT, JUDICIAL MEMBER THIS IS AN A PPEAL FILED BY THE REVENUE ARISING FROM THE ORDER OF TH E L EARNED CIT (A ) - VI , AHMEDABAD , DAT ED 29 / 0 3 /201 1 FOR A.Y. 2004 - 05 AND THE ONLY GROUND IS IN RESPECT OF DELETION OF PENALTY OF RS.1,21,13,136/ - LEVIED U/S.271(1)(C) OF IT ACT. 2. ON THE DATE OF HEARING , NO ONE HAS APPEARED FROM THE SIDE OF THE RESPONDENT - AS SESSEE , ALTHOUGH THE NOTICE OF HEARING HAS DULY BEEN SERVED AS PER THE ACKNOWLEDG E MENT ON RECORD. WE HAVE PROCEEDED EX - PARTE QUA THE ASSESSEE AND HEARD LEARNED SR.D.R., MR. M.K. SINGH. ITA NO. 1410 /AHD/201 1 ACIT(OSD), RANGE - 1, AHMEDABAD VS. DHARMENDRA INDUSTRIES LTD. AHMEDABAD FOR A.Y. 200 4 - 0 5 - 2 3. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S.143(3) DATED 15.12.2006 AND THE PENALTY ORDER PASSED U/S.271(1)(C) DATED 29.06.2007 WERE THAT THE ASSESSEE - COMPANY IS IN THE BUSINESS OF TRADING OF CASTOR OIL. IT HAS ALSO BEEN NOTED BY THE AO THAT THE ASSESSEE IS A SICK COMPANY; HENCE, A CLOSED COMPANY WITH THE BIFR PROCEEDINGS. T HE ADDITION WAS RELATED TO THE ISSUE OF CLAIM OF DEPRECIATION. THE ASSESSEE HAS CLAIMED DEPRECIATION TOTALING RS.98,88,019/ - , WHICH INCLUDED DEPRECIATION ON MACHINERY AND ELECTRIC INSTALLATION AS UNDER: DEPRECIATION O N PLANT AND MACHINERY RS. 68,58,868/ - DEPRECIATION ON ELECTRIC INSTALLATIONS RS. 5,80,477/ - RS. 74,39,345/ - 3.1 THE AO HAS DISALLOWED THE ABOVE DEPRECIATION AFTER ASSIGNING FOLLOWING REASONS: FROM THE DETAILS OF MANUFACTURING EXPENSE S CLAIMED BY THE ASSESSEE, IT IS SEEN THAT THE EXPENDITURE ON POWER AND FUEL IS RS.16,090/ - . FROM THIS, IT IS CLEAR THAT THE MACHINERY WAS NOT UTILIZED FOR THE YEAR UNDER CONSIDERATION. THE ASSESSEE WAS ASKED TO STATE WHY THE DEPRECIATION CLAIM SHOULD NOT BE DISALLOWED, ESPECIALLY WHEN THE MAIN BUSINESS OF ASSESSEE DURING THE YEAR WAS TRADING IN CASTOR SEEDS ETC. THE ASSESSEE HAS NOT GIVEN ANY SPECIFIC REPLY TO THE SAID QUERY. FROM THE CLAIM FOR EXPENDITURE ON POWER AND FUEL INCURRED BY THE ASSESSEE, IT IS SEEN THAT THE ASSESSEE HAS NOT UTILIZED ANY OF THE MACHINERY BLOCK FOR THE BUSINESS CARRIED OUT DURING THE YEAR. THEREFORE, THE DEPRECIATION CLAIM ON THE MACHINERY BLOCK AND ELECTRICAL INSTALLATIONS IS NOT ADMISSIBLE. DURING THE COURSE OF HEARING, THE ASSESSEE COULD NOT PRODUCE ANY EVIDENCE TO SUBSTANTIATE ITS CLAIM. THE CLAIM OF DEPRECIATION TO THE EXTENT OF RS.74,39,345/ - IS ACCORDINGLY DISALLOWED. (DISALLOWANCE OF RS.74,39,345/ - ) 4. ONE MORE ADDITION WAS MADE BY THE AO FOR THE REASON THAT THE ASSE SSES HAS CLAIMED THE WRITE OFF OF SUNDRY BALANCE OF RS.2,63,25,495/ - . THE EXPLANATION OF THE ASSESSEE WAS THAT IT WAS NOT A WRITE OFF BUT ITA NO. 1410 /AHD/201 1 ACIT(OSD), RANGE - 1, AHMEDABAD VS. DHARMENDRA INDUSTRIES LTD. AHMEDABAD FOR A.Y. 200 4 - 0 5 - 3 FACTUALLY THE ASSESSEE HAS DEBITED THE RATE ITSELF . I N THE ABSENCE OF SATISFACTORY EXPLANATION THE SAID AMOUNT WAS DIS ALLOWED. 5. DURING THE COURSE OF PENALTY PROCEEDINGS, IT WAS EXPLAINED BY THE ASSESSEE THAT THE COMPANY WAS ENGAGED IN THE BUSINESS OF MANUFACTURING AND MARKETING OF CASTOR OIL. ALTHOUGH IT WAS SICK COMPANY BUT THE ASSESSEE WAS UNDER COMPULSION TO MAINTAI N THE PLANT AND MACHINERY. THE ASSESSEE HAD TO MAINTAIN THE MACHINES IN RUNNING CONDITION, THEREFORE, HIRED SOME TECHNICAL PEOPLE FOR OILING AND MAINTENANCE OF THE MACHINERY. BECAUSE OF THIS REASON, THE ASSESSEE HAS CLAIMED DEPRECIATION. IN RESPECT OF THE OTHER ADDITION, IT WAS EXPLAINED THAT THE ASSESSEE HAD PURCHASED BULK MATERIAL I.E. CASTOR SEED AND CASTOR OIL FROM VARIOUS PARTIES OF THE MARKET. THERE WAS SOME DISPUTE DUE TO INFERIOR QUALITY; HENCE, THE ASSESSEE HAS CLAIMED RATE DIFFERENCE. HOWEVER, THE AO WAS NOT CONVINCED AND IMPOSED THE IMPUGNED PENALTY. 6. BEFORE LEARNED CIT(A) CERTAIN ACCOUNTS AND SUBMISSIONS ALONG WITH EVIDENCES WERE PLACED; HENCE, A REMAND REPORT WAS CALLED FROM THE AO. ON THE BASIS OF THE REMAND REPORT AND THE EVIDENCES PLACED B EFORE LEARNED CIT(A) IT WAS HELD AS UNDER: 3.4 1 HAVE CONSIDERED THE F ACTS O F THE CASE, PENALTY ORDER AND APPELLANT'S SUBMISSION. ASSESSING O FF ICER MADE ADDITION ON ACCOUNT OF APPELLANT'S CLAIM OF DEPRECIATION AND RATE DIFFERENCE AND SUNDRY BALANCES WRITTE N OFF SINCE APPELLANT COULD NOT SUBMIT DETAILS AND NECESSARY EVIDENCES. THE REASON FOR NON - SUBMISSION OF DETAILS AND EVIDENCES WAS THE FACT THAT BUSINESS OPERATIONS WERE CLOSED AND B1FR PROCEEDINGS WERE INITIATED. MOST OF THE EMPLOYEES LEFT APPELLANT COMPA NY AND AS SUCH THERE WERE NOT MANY PEOPLE TO COMPLY WITH THE REQUIREMENTS OF VARIOUS AGENCIES. THESE FACTS ARE PART OF RECORD. THESE ACTIVITIES WITH ALMOST NO MANPOWER DUE TO FINANCIAL CRUNCH CONTINUED TILL PENALTY PROCEEDINGS AND THERE ALSO COMPLIANCE WAS LIMITED TO THE PERSONAL ATTENDANCE BY THE DIRECTOR. SINCE DIRECTOR IS NOT FAMILIAR WITH ITA NO. 1410 /AHD/201 1 ACIT(OSD), RANGE - 1, AHMEDABAD VS. DHARMENDRA INDUSTRIES LTD. AHMEDABAD FOR A.Y. 200 4 - 0 5 - 4 ACCOUNTING AND TAX ISSUES, THE ISSUES BEFORE ASSESSING OFFICER COULD NOT BE SATISFACTORILY EXPLAINED. DUE TO FINANCIAL DIFFICULTIES, APPELLANT COULD NOT ENGAGE PROFESS IONAL CHARTERED ACCOUNTANT TO SUBMIT NECESSARY EVIDENCES AND REPRESENT THE MATTER. THESE SITUATIONS ARE NOT ORDINARY. THE DISALLOWANCE AS WELL AS LEVY OF PENALTY IS ON ACCOUNT O F NON - SUBMISSION O F NECESSARY DETAILS AND EVIDENCES THEREFORE ONE CANNOT IGNORE THIS ASPECT. SINCE APPELLANT SUFFERED SUBSTANTIAL LOSSES, NO APPEAL WAS FILED AGAINST DISALLOWANCES MADE BY THE ASSESSING OFFICER SINCE THERE WAS NO TAX EFFECT TO THESE ADDITIONS. DURING PENALTY PROCEEDINGS APPELLANT ENGAGED A CHARTERED ACCOUNTANT TO REPR ESENT THE MATTER WHO GATHERED NECESSARY EVIDENCES AND MATERIAL AND SUBMITTED FOR CONSIDERATION. CONSIDERING THE CIRCUMSTANCES IN WHICH APPELLANT COMPANY WAS PASSING THROUGH SINCE 2004 TILL 2007, IT WOULD BE APPROPRIATE TO ADMIT ADDITIONAL EVIDENCES FILED D URING APPEAL HEARING. AFTER ADMITTING THESE EVIDENCES, THE SAME WERE SENT FOR ASSESSING OFFICER'S VERIFICATION AND COMMENTS. HOWEVER ASSESSING OFFICER, INSTEAD OF EXAMINING THESE EVIDENCES, JUST OBJECTED THEIR ADMISSION AND DID NOT COMMENT ON THE MERIT OF THESE EVIDENCES . 1 - DISALLOWANCE OF DEPRECIATION ON THE GROUND THAT MACHINERY HAD NOT BEEN UTILIZED IN VIEW OF VERY LOW POWER AND FUEL EXPENSE. ASSESSING OFFICER DISALLOWED DEPRECIATION ON THE GROUND THAT FUEL AND POWER CLAIMED WAS ONLY OF R S. 16,090. APPELLANT COULD NOT SUBMIT EVIDENCE TO PROVE THE USE OF PLANT FOR BUSINESS PURPOSE AND THEREFORE DISALLOWANCE WAS MADE AND PENALTY WAS ALSO LEVIED ON THE SAME. APPELLANT SUBMITTED THAT ELECTRICITY CONNECTION WAS DISCONNECTED IN DECEMBER 2002 HENCE THE POWE R AND FUEL EXPENSES WERE LOW. APPELLANT RUN ITS PLANT AND MACHINERY ON ALTERNATIVE FUEL WHICH IS CLEAR FROM THE CONSUMPTION OF LIGNITE AMOUNTING TO R S. 280744. APART FROM THIS, MANUFACTURING EXPENSES TO THE EXTENT OF R S. 40,59,449 WERE INCURRED. ON THE TOP OF IT, APPELLANT SUBMITTED THAT DURING THE YEAR PRODUCTION OF 4037.90 METRIC TON FINISHED GOODS WAS MADE WHICH IS REFLECTED IN AUDITED ACCOUNTS. I HAVE GONE THROUGH THESE EVIDENCES AND IT IS CLEAR THAT DURING THE YEAR APPELLANT MANUFACTURED GOODS TO THE E XTENT OF 4037.9 METRIC TON. SINCE CLAIM OF DEPRECIATION REQUIRES THE OWNERSHIP OF ASSET ALONG WITH THE USE THEREOF, APPELLANT FULFILLED BOTH THE CONDITIONS. THERE IS NO DOUBT ABOUT OWNERSHIP OF ASSETS. ONLY DOUBT WAS ABOUT USE OF ASSETS FOR THE PURPOSE OF BUSINESS. BY MANUFACTURING FINISHED GOODS FROM THE FACTORY, APPELLANT USED THESE ASSETS FOR T HE PURPOSE OF BUSINESS HENCE THIS CONDITION IS ALSO FULFILLED. ACCORDINGLY I DON'T FIND ANY INACCURATE PARTICULARS FURNISHED BY THE APPELLANT WHILE CLAIMING DEPREC IATION. PENALTY LEVIED ON ADDITION OF DEPRECIATION IS THEREFORE DELETED. 2 - PENALTY ON DISALLOWANCE OF RATE DIFFERENCES AND SUNDRY BALANCES WRITTEN OFF - ASSESSING OFFICER MADE THE ADDITION BECAUSE APPELLANT WAS ITA NO. 1410 /AHD/201 1 ACIT(OSD), RANGE - 1, AHMEDABAD VS. DHARMENDRA INDUSTRIES LTD. AHMEDABAD FOR A.Y. 200 4 - 0 5 - 5 NOT ABLE TO JUSTIFY AS TO HOW RATE DIFFERENCE IN QUESTION HAS ARISEN AND HOW IT IS ALLOWABLE AS REVENUE EXPENDITURE. APPELLANT DID NOT SUBMIT NECESSARY EVIDE NCE IN SUPPORT OF ITS CLAIM AND TH EREFORE ADDITION WAS MADE AND PENALTY WAS LEVIED. HOWEVE R, NOW A PPELLANT SUBMITTED DETAILED REASONS FOR RATE D IFFERENCE AND A L SO S U NDRY BALANCES WRITTEN OFF. THE COPY OF BILLS AND OTHER EVIDENCES SUBMITTED ESTABLISH THAT THERE WERE FLUCTUATIONS IN THE PRICES AND APPELLANT COULD NOT SELL ITS PRODUCT AT HIGHER PRICE BILLED BY IT. DUE TO THIS COUPLED WITH NON - PAYMENT BY CUSTOMERS, APPELLANT DEBITED RATE DIFFERENCE AND WRITTEN OFF UNREALISED BALANCES FROM THE CUSTOMERS. FROM THE DETAILS SUBMITTED, IT CANNOT BE SAID THAT APPELLANT'S CLAIM IS FRIVOLOUS OR BOGUS. IN ANY CASE APPELLANT SUBMITTED THAT THE CLAIM IS ALSO ALLO WABLE AS BAD DEBT S UN D ER SECTION 36(1)(VII) READ WITH SECTION 36(2). SINCE AMOUNT IS WRITTEN OFF AND TH E SAME IS CONSIDERED AS INCOME SINCE IT RELATES TO TRADE DEBTORS , BOTH THE CONDITIONS ARE FULFILLED. AS PER THE DECISION OF TRF LTD, ESTABLISHING THE DEB T AS BAD IS NO LONGER REQUIRED. IN VIEW OF THIS, THE ALLOWABILITY OF CLAIM OF RATE DIFFERENCE AND SUNDRY BALANCES WRITTEN OFF IS DEBATABLE ON WHICH PENALTY CANNOT BE LEVIED. CONSIDERING THE DETAILED SUBMISSIONS OF THE APPELLANT, THE ADDITION MADE BY THE AS SESSING OFFICER WILL NOT RESULT IN PENALTY AUTOMATICALLY. SINCE APPELLANT WAS ABLE TO JUSTIFY ITS CLAIM AND THE CLAIM WAS BONAFIDE, PENALTY FOR CONCEALMENT OR FURNISHING OF INACCURATE PARTICULARS OF INCOME CANNOT BE LEVIED. IN VIEW OF THIS PENALTY LEVIED B Y THE ASSESSING OFFICER FOR THIS ADDITION IS ALSO DELETED. 7 . AFTER CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT IN A SITUATION WHEN THE MACHINERY WAS USED IN THE PAST AND KEPT FOR READY USE FOR THE YEAR UN DER CONSIDERATION; THEREFORE, THE ASSESSEE WAS UNDER BONAFIDE IMPRESSION TO CLAIM THE DEPRECIATION FOR THE YEAR UNDER CONSIDERATION ; ALTHOUGH DUE TO SICK UNIT THERE WAS NO MANUFACTURING ACTIVITY AS INFORMED BY THE ASSESSEE. IT IS NOT A CASE OF THE REVENUE THAT THE CLAIM OF DEPRECIATION WAS FALSE OR MANIPULATED BY THE ASSESSEE. THERE WAS NO DISPUTE ABOUT THE QUANTUM OF CLAIM OF DEPRECIATION BUT THE DISPUTE WAS LEGAL IN NATURE THAT WHETHER UNDER SUCH CIRCUMSTANCE WHEN THE ASSESSEE COMPANY WAS UNDER BIFR PROCE EDINGS THEN WHETHER ENTITLED FOR CLAIM OF DEPRECIATION ? LIKEWISE, WE HAVE ALSO NOTED THAT THE DISALLOWANCE OF RATE OF INTEREST OF THE COMMODITIES WAS NOT HELD AS A FRIVOLOUS OR A BOGUS CLAIM . BECAUSE OF THE ITA NO. 1410 /AHD/201 1 ACIT(OSD), RANGE - 1, AHMEDABAD VS. DHARMENDRA INDUSTRIES LTD. AHMEDABAD FOR A.Y. 200 4 - 0 5 - 6 NON - PAYMENT BY THE PARTIES THE ASSESSEE HAD NO OP TION BUT TO DEBIT THE RATE DIFFERENCE. FROM THE SIDE OF THE REVENUE THERE IS NO ALLEGATION THAT THE INACCURATE PARTICULARS HAVE BEEN FURNISHED BY THE ASSESSEE, RATHER ON THE PARTICULARS AS FURNISHED BY THE ASSESSEE A VIEW WAS TAKEN BY THE AO. THUS UNDER TH E TOTALITY OF THIS FACTS AND CIRCUMSTANCES OF THE CASE, WE HEREBY AFFIRM THE FACTUAL AS WELL AS LEGAL FINDING OF LEARNED CIT(A) AND DISMISS THIS GROUND OF THE REVENUE. 8. IN THE RESULT, REVENUE S APPEAL IS DISMISSED. SD/ - SD/ - ( ANIL CHATURVEDI ) ( MUKUL KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 31 / 10 / 20 1 4 PRABHAT KR. KESARWANI , SR. P . S . / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A) - III, AHMEDABAD 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE . / BY ORDER, / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD