Troikaa Pharamaceuticlas Ltd., Ahmedabad V. The ACIT, Circle -8, Ahmedabad

ITA 1592/AHD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5630 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-07-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 06-07-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 08-05-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure; Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B BEFORE SHRI MUKUL SHRAWAT, JUDICIAL MEMBER AND SHRI N.S.SAINI, ACCOUNTANT MEMBER DATE OF HEARING :6- 7- 2010 DRAFTED ON :6-7-2010 ITA NO.1592 /AHD/2008 ASSESSMENT YEAR : 2005-06 TROIKAA PHARMACEUTICALS LTD., COMMERCE HOUSE, OFF. JUDGES BUNGALOWS ROAD, AHMEDABAD-380054. VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-8, AHMEDABAD. PAN/GIR NO. : AABCT 0228K (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI DHIREN SHAH RESPONDENT BY: SHRI K.MADHUSUDAN, SR.D.R. O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-XIV, AH MEDABAD DATED 4-4-2008 RAISING FOLLOWING GROUNDS OF APPEAL: - GROUND NO.1 OF THE APPEAL READS AS UNDER:- 1 THE LD. LEARNED COMMISSIONER OF INCOME TAX( APPEALS) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE DIS ALLOWANCE ON ACCOUNT OF DEPRECIATION ON ELECTRIC FITTINGS AMOUNT ING TO RS.1,04,679/- WHILE OBSERVING THAT THERE IS SPECIFI C PROVISION OF ALLOWING DEPRECIATION @ 15% ON ELECTRIC FITTINGS. - 2 - 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E CLAIMED DEPRECIATION ON ELECTRICAL FITTINGS @ 25%. ACCORDIN G TO THE LEARNED ASSESSING OFFICER THE DEPRECIATION RATE PROVIDED IN THE INCOME TAX ACT ON ELECTRIC FITTINGS IS 15%. THEREFORE, THE LEA RNED ASSESSING OFFICER DISALLOWED EXCESS DEPRECIATION OF RS.1,04,6 79/- CLAIMED BY THE ASSESSEE. 3. ON APPEAL THE LD LEARNED COMMISSIONER OF INCOME TAX(APPEALS) OBSERVED THAT THE ASSESSEE CLAIMED DEP RECIATION ONELECRCAL FITTINGS @ 25% BY FITTING IT AS A PART O F PLANT AND MACHINERY WHEREAS THE LEARNED ASSESSING OFFICER HAS ALLOWED THE DEPRECATION ON THIS ITEM @ 15%, BY OBSERVING THAT T HE DEPRECIATION ON ELECTRICALFITTINGS IS APPLICABLE ONLY @ 15%. TH E ASSESSEE HAS SUBMITTED THAT IT IS PART OF PLANT AND MACHINERY AN D DEPRECIATION @ 25% IS ALLOWABLE. THE LEARNED COMMISSIONER OF INCOM E TAX(APPEALS) OBSERVED THAT HE IAS NOT IN AGREEMENT WITH THE CONTENTIONS OF THE ASSESSEE BECAUSE THERE IS SPECIF IC PROVISION OF ALLOWING DEPRECIATION @ 15% ONELECTRRICAL FITTINGS. THEREFORE, HE CONFIRMED THE ACTION OF THE LEARNED ASSESSING OFFIC ER. 4. BEFORE US THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE TH E LOWER AUITHORITIES WHEREAS THE LEARNED DEPARTMENTAL REPRE SENTATIVE SUPPORTED THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ASSESSEE HAS CLAIMED DEPRE CIATION @ 25% ON ASSETS CLAIMED AS ELECTRICAL FITTINGS. THE LEARNED ASSESSING OFFICER - 3 - OBSERVED THAT THE RATE OF 15% HAS BEEN SPECIFIED UN DER THE INCOME- TAX RULES AS RATE OF DEPRECIATION FOR ELECTRICAL FI TTINGS. THE ASSESSEE CLAIMED BEFORE THE LEARNED ASSESSING OFFICER THAT T HE ASSETS WHICH HAVE BEEN CLAIMED BY IT AS ELECTRICAL FITTINGS ARE INTEGRAL PARTS OF THE PLANT & MACHINERY. HOWEVER, THE LEARNED ASSESSING O FFICER RESTRICTED THE DEPRECIATION ON ELECTRICAL FITTINGS @ 15%. ON APPEAL LEARNED COMMISSIONER OF INCOME TAX(APPEALS) CONFIRM ED THE ORDER OF THE LEARNED ASSESSING OFFICER. BEFORE US THE LEA RNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE CONTENDED THAT THE E LECTRICAL FITTINGS WHICH WERE USED BY IT FOR ITS BUSINESS PURPOSES WER E PART AND PARCEL OF THE PLANT & MACHINERY AND THEY WERE USED ALONGWI TH THE PLANT & MACHINERY AND BEING PART OF THE PLANT & MACHINERY D EPRECIATION THEREON WAS ALLOWABLE @ 25% AND NOT @ 15%. WE FIND THAT THE LOWER AUTHORITIES HAVE DECIDED THE ISSUE BY MERELY LOOKING AT THE NOMENCLATURE GIVEN TO THE ASSET WITHOUT VERIFYING T HE ACTUAL DETAILS OF THE ASSET AND THE NATURE OF THE ASSETS. IN OUR C ONSIDERED OPINION THE ELECTRICAL FITTINGS WHICH FORMS INTEGRAL PART O F THE PLANT & MACHINERY AND THOSE ELECTRICAL FITTINGS WHICH ARE U SED ALONGWITH THE PLANT & MACHINERY AND CANNOT BE USED SEPARATELY AS SUCH ARE PART OF PLANT & MACHINERY AND DEPRECIATION @ 25% IS ALLOWAB LE IN RESPECT OF THE SAME. HOWEVER, IN CASE OF THOSE ELECTRICAL F ITTINGS WHICH ARE INDEPENDENTLY USED AS ELECTRICAL FITTINGS IN RESPEC T OF THOSE ASSETS DEPRECIATION @ 15% IS ONLY ALLOWABLE. IN THE INSTAN T CASE WE FIND THAT BOTH THE PARTIES BEFORE US HAVE NOT BROUGHT ON RECO RD DETAILS OF THE ASSET UNDER QUESTION SO AS THE ISSUE CAN BE COMPLET ELY ADJUDICATED BY US. IN THE CIRCUMSTANCES IN OUR CONSIDERED OPINION IT SHALL BE IN THE INTEREST OF THE JUSTICE TO RESTORE THIS ISSUE BACK TO THE FILE OF THE LEARNED ASSESSING OFFICER FOR PROPER VERIFICATION A ND AFTER THAT - 4 - ADJUDICATION OF THE ISSUE AFRESH IN THE LIGHT OF TH E OBSERVETIONS MADE HEREINABOVE. WE ORDER ACCORDINGLY. THE LEARNED ASSE SSING OFFICER SHALL PASS THE ORDER AFRESH ON THIS ISSUE AFTER PRO PER VERIFICATION AND AFTER ALLOWING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. THUS THIS GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PU RPOSES. 6. GROUND NO.2 OF THE APPEAL READS AS UNDER:- 2. THE LD. LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AND ON FACTS IN CONFIRMI NG THE DISALLOWANCE ON ACCOUNT OF FILTRATION EXPENSES OF RS.3,85,426/- CLAIMED BY THE APPELLANT WHILE MAKING AN OBSERVATION THAT THE APPELLANT IS MAINTAINING ONE R EGISTER FOR RAW MATERIAL AND THE OTHER ONE FOR CAPITAL GOODS AN D THE PURCHASES OF IT ARE REFLECTED IN THE REGISTER OF CA PITAL GOODS AND HENCE THE ASSESSING OFFICER WAS JUSTIFIED IN TREATI NG THE SAME AS CAPITAL IN NATURE. 7. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E CLAIMED FILTERATION EXPENSES OF RS.5,13,901/- ON PURCHASE OF VARIOUS GOODS AS REVENUE EXPENDITURE. THE LEARNED ASSESSING OFFIC ER TREATED THE SAME AS CAPITAL EXPENDITURE ON THE GROUND THAT THE ASSESSEE HAS TREATED THE GOODS AS CAPITAL BY DEBITING THE CENVAT CREDIT AVAILABLE ON PURCHASE OF SUCH GOODS TO THE RG-23C PART-II REGIST ER AND ALLOWED DEPRECIATION THEREON @ 25% AND THEREBY MADE A DISAL LOWANCE OF RS.3,85,426/-. 8. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) CONFIRMED THE ACTION OF THE LEARNED AS SESSING OFFICER. 9. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASS ESSEE FILED BEFORE US COPY OF ORDER OF THE TRIBUNAL DATED 11-6- 2010 PASSED IN THE CASE OF THE ASSESSEE ITSELF IN ITA NO.996/AHD/2010 FOR ASSESSMENT - 5 - YEAR 2006-07 AND SUBMITTED THAT THE ISSUE IS COVERE D IN FAVOUR OF THE ASSESSEE BY THE SAID ORDER OF THE TRIBUNAL AND THER EFORE, THE GROUND OF APPEAL OF THE ASSESSEE SHOULD BE ALLOWED. 10. THE LEARNED DEPARTMENTAL REPRESENTATIVE AGREED WITH THE ABOVE SUBMISSIONS OF THE LEARNED AUTHORISED REPRESE NTATIVE OF THE ASSESSEE. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSES SEE MADE PURCHASES OF GOODS WORTH RS.5,13,901/- FOR FILTRATION AND CLA IMED DEDUCTION FOR THE SAME AS REVENUE EXPENDITURE. SINCE THE ASSESSE E HAD DEBITED THE CENVAT CREDIT AVAILABLE ON PURCHASE OF GOODS TO TH E RG-23C PART- II REGISTER THE LEARNED ASSESSING OFFICER HELD THAT THE ASSESSEE HAS TREATED THE EXPENDITURE AS CAPITAL EXPENDITURE AND DISALLOWED DEDUCTION FOR THE SAME AS REVENUE EXPENDITURE BUT A LLOWED DEPRECIATION @ 25% TO THE ASSESSEE AND IN THIS WAY MADE DISALLOWANCE OF RS.3,85,426/-. WE FIND THAT ON THE SIMILAR FACTS AND ISSUE THE TRIBUNAL IN ASSESSMENT YEAR 2006-07 ALLOW ED THE CLAIM FOR DEDUCTION OF FILTRATION EXPENSES AS REVENUE EXPENDI TURE BY OBSERVING AS UNDER :- 7.THE LD CIT(A) ON THE OTHER HAND, ALLOWED THE C LAIM OF THE ASSESSEE ON THE GROUND THAT (I) BOOK ENTRY W ILL NOT ULTIMATELY DECIDE THE BASIC CHARACTER OF EXPENDITUR E BUT IT IS THE BUSINESS EXPEDIENCY AND LEGITIMATE CLAIM WHICH WILL DECIDE THE SAME; (II) SECONDLY SUCH CONSUMABLES DO NOT GIVE RI SE TO ANY ENDURING BENEFIT BUT ARE OF THE NATURE OF DAY TO DA Y USE AND KEEPING THE CAPACITY OR MAINTAINING ALREADY EXISTIN G PLANT FUNCTIONING TO THE STANDARD REQUIRED FOR MANUFACTUR ING AND PRODUCTION OF PHARMA DRUGS. LD.CIT(A) ENCLOSED ALON G WITH - 6 - THE ORDER THE LIST OF ITEMS WHICH WERE CONSUMED UND ER THE HEAD FILTRATION EXPENSES. 8. WE HAVE HEARD THE LD. DR AND THE LD. LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE. IN OUR C ONSIDERED VIEW THERE IS NO CASE FOR INTERFERENCE IN THE ORDER OF LD. LEARNED COMMISSIONER OF INCOME TAX(APPEALS). FOR TH E REASONS MENTIONED IN HIS ORDER AND ON PERUSAL OF GO ODS AND SAMPLE USED UNDER THE HEAD FILTRATION EXPENSES, WE ARE SATISFIED THAT THEY ARE THE DAY TO DAY CONSUMABLES AND DO NOT CREATE ANY CAPITAL ASSET OR ANY ENDURING BENEFIT TO THE ASSESS EE. THEIR MAINTENANCE EXPENDITURE WOULD FALL UNDER THE HEAD C URRENT REPAIRS. ACCORDINGLY WE DO NOT FIND ANY MERIT IN TH E APPEAL FILED BY THE REVENUE AND HENCE THE SAME IS DISMISSE D. THE APPEAL OF THE REVENUE IS ACCORDINGLY DISMISSED. 12. THE LEARNED DEPARTMENTAL REPRESENTATIVE COULD NOT POINT OUT ANY DISTINGUISHING FEATURES IN THE ABOVE QUOTED ORD ER OF THE TRIBUNAL. HE ALSO COULD NOT SHOW THAT THE ORDER OF THE TRIBUN AL PASSED IN THE ASSESSMENT YEAR 2006-07 WAS REVERSED IN APPEAL BY T HE HIGHER FORUM. AS THE FACTS AND ISSUE INVOLVED IN THE PRES ENT YEAR OF APPEAL ARE IDENTICAL TO THE FACTS AND ISSUE INVOLVED IN TH E ASSESSMENT YEAR 2003-04, RESPECTFULLY FOLLOWING THE ABOVE QUOTED OR DER OF THE TRIBUNAL WE SET ASIDE THE ORDERS OF THE LOWER AUT HORITIES AND DIRECT THE LEARNED ASSESSING OFFICER TO ALLOW DEDUCTION OF RS.5,13,901 CLAIMED ON ACCOUNT OF FILTRATION EXPENSES BY THE AS SESSEE. HOWEVER, WHILE DOING SO THE LEARNED ASSESSING OFFICER SHALL WITHDRAW THE DEPRECIATION OF RS.1,28,475/- ALLOWED TO THE ASSESS EE. THUS THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS A LLOWED IN THE MANNER INDICATED ABOVE. - 7 - ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 9TH DAY OF JULY, 2010. SD/- SD/- (MUKUL SHRAWAT ) ( N.S. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; ON THIS 9TH DAY OF JULY, 2010 PATKI COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-XIV,AHMEDABAD. 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD DATE INITIALS 1. DRAFT DICTATED ON 6-7-10 --------------- ---- 2. DRAFT PLACED BEFORE AUTHORITY 7-7-10 3. DRAFT PROPOSED & PLACED --------------- ------ ------------- JM BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED --------------- ----- -------------- JM/AM BY SECOND MEMBER 5. APPROVED DRAFT COMES TO P.S ---------------- -- ------------------ 6. KEPT FOR PRONOUNCEMENT ON ---------------- --- ----------------- 7. FILE SENT TO THE BENCH CLERK ---------------- -------------------- 8. DATE ON WHICH FILE GOES TO THE ---------------- -------------------- 9. DATE OF DISPATCH OF ORDER ---------------- --- ------------------