Accelerated freeze Drying Co. Ltd, Cherthala V. DCIT, Alappuzha

ITA 165/COCH/2018

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 2271 (ITAT-COCHIN)
• Duration Of Justice: 6 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-11-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 13-11-2018
• Assessment Year: misc
• Appeal Filed On: 23-04-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SANTHAM BOSE
• Keywords: Depreciation; Additional depreciation; Proportionate interest; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI CHANDRA POOJAR I, AM & SHRI GEORGE GEORGE K, JM ITA NO. 165 /COCH/201 8 : ASST.YEAR 201 3 - 201 4 M/S.ACCELERATED FREEZE DRYING COMPANY LIMITED C/O.M/S.RANGAMANI & CO CHARTERED ACCOUNTANTS CARD BANK BUILDING IIND FLOOR, V.C.S.B.ROAD ALLEPPEY 688 001. PAN : AABCA9632J. VS. THE ASST.COMMISSIONER OF INCOME - TAX, ALAPPUZHA. (APPELLANT) (RESPONDENT) APPELLANT BY : SRI.R.SREENIVASAN RESPONDENT BY : SRI.SANTHAM BOSE DATE OF HEARING : 13 .1 1 .2018 DATE OF PRONOUNCEMENT : 14 .1 1 .2018 O R D E R PER GEORGE GEORGE K., JM THIS APPEAL AT THE INSTANCE OF THE ASSESSEE IS DIRECTED AGAINST CIT(A)S ORDER DATED 10.04.2018 . THE RELEVANT ASSESSMENT YEAR IS 201 3 - 201 4 . 2. TWO ISSUES ARE INVOLVED IN THIS APPEAL, VIZ., (I) WHETHER THE CIT(A) IS JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF ADDITIONAL DEPRECIATION CLAIMED AMOUNTING TO RS.13,99,176? (II) WHETHER THE CIT(A) IS JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF INTEREST AMOU NTING TO RS.11,71,726? WE SHALL ADJUDICATE THE ISSUES RAISED AS FOLLOWS: - ITA NO. 165 / COCH /201 8 . M/S.ACCELERATED FREEZE DRYING CO.LTD. 2 3. ADDITIONAL DEPRECIATION AMOUNTING TO RS.13,99,176 : 3.1 THE ASSESSEE HAD CLAIMED AN AMOUNT OF RS.13,99,176 AS ADDITIONAL DEPRECIATION AT THE RATE OF 20% ON NEW PLANT AND MACHINERY. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF ADDITIONAL DEPRECIATION FOR THE REASON THAT THE ASSESSEE IS NOT DOING ANY MANUFACTURING OR PRODUCTION OF ANY ARTICLE OR THING. THE CIT(A) CONFIRMED THE VIEW TAKEN BY THE ASSESSING OFFICER BY FOLLOWING THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF CIT V. RELISH FOODS [(1999) 237 ITR 59 (SC)] . 3.2 THE ASSESSEE BEING AGGRIEVED HAS FILED THE PRESENT APPEAL BEFORE US. THE LEARNED AR REITERATED THE SUBMISSIONS MA DE BEFORE THE INCOME TAX AUTHORITIES. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT SIMILAR ISSUE WAS CONSIDERED IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2012 - 2013 BY THE TRIBUNAL IN ITA NO.31/COCH/2018 (ORDER DATED 24.10.2018) . IT WAS SUBMITTED THAT THE ISSUE WAS DECIDED BY THE TRIBUNAL AGAINST THE ASSESSEE BY FOLLOWING THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF CIT V. RELISH FOODS (SUPRA) . 3.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. AN IDENTICAL ISSU E WAS CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2012 - 2013 (SUPRA). THE TRIBUNAL BY FOLLOWING THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF CIT V. RELISH FOODS (SUPRA) , DISMISSED THE APPEAL OF THE ASSESSEE. THE RELEVANT FINDING OF THE TRIBUNAL READS AS FOLLOWS: - ITA NO. 165 / COCH /201 8 . M/S.ACCELERATED FREEZE DRYING CO.LTD. 3 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE SOLITARY ISSUE FOR OUR CONSIDERATION IS WHETHER THE ASSESSEE IS ENTITLED TO ADDITIONAL DEPRECIATION ON NEW PLANT AND MACHINERY. AS P ER THE PROVISIONS OF SECTION 32(1)(IIA) OF THE I.T.ACT, ADDITIONAL DEPRECIATION CAN BE GRANTED ONLY TO AN ASSESSEE, WHO IS ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING. THE LEARNED AR HAD RELIED ON THE JUDGMENT OF THE HONBL E KERALA HIGH COURT IN THE CASE OF MARWELL SEA FOODS (SUPRA) FOR CLAIMING THE BENEFIT OF DEDUCTION OF ADDITIONAL DEPRECIATION. THE HONBLE HIGH COURT IN THE SAID CASE, WHILE CONSIDERING THE ALLOWABILITY OF DEDUCTION U/S 80HH OF THE I.T.ACT, AFTER TAKING NO TE OF VARIOUS STEPS UNDERTAKEN BY THE ASSESSEE IN THAT CASE, HELD THAT THE ACTIVITIES ENGAGED ARE IN THE NATURE OF PROCESS AND THE ASSESSEE IN THAT CASE WAS ENTITLED TO DEDUCTION U/S 80HH OF THE I.T.ACT. THE HONBE APEX COURT IN THE CASE OF RELISH FOODS (S UPRA), AFTER CONSIDERING THE JUDGMENT OF THE HONBLE KERALA HIGH COURT IN THE CASE OF MARWELL SEA FOODS (SUPRA), HELD THAT PEELING, CLEANING AND FREEZING OF SEA FOOD, MAKING IT FIT FOR HUMAN CONSUMPTION WOULD NOT AMOUNT TO MANUFACTURE OR PRODUCTION. THE JU DGMENT OF THE HONBLE APEX COURT WAS FOLLOWED BY THE FOLLOWING JUDICIAL PRONOUNCEMENTS, WHICH HAD CATEGORICALLY HELD THAT PROCESSING OF RAW SHRIMPS, FISH ETC. WOULD NOT TANTAMOUNT TO MANUFACTURE OR PRODUCTION: - (I) CIT V. POYILAKADA FISHERIES P. LTD. [( 1999) 240 ITR 445 (KER.)] (II) CIT V. KALA CARTOONS PVT. LTD. [(2001) 252 ITR 658 (SC)] (III) CIT V. POYILAKADA FISHERIES P. LTD. [(2001) 252 ITR 661 (KER.)] 7. IN THE INSTANT CASE, THE ASSESSEE HAS NOT BROUGHT ON RECORD, THE PROCESS UNDERTAKEN BY IT IS SIMILAR TO THE PROCESS UNDERTAKEN BY THE ASSESSEE IN ITA NO. 165 / COCH /201 8 . M/S.ACCELERATED FREEZE DRYING CO.LTD. 4 CASE OF MARWELL SEA FOODS CASE CONSIDERED BY THE HONBLE KERALA HIGH COURT. THEREFORE. IN VIEW OF THE ABOVE M ENTIONED JUDICIAL PRONOUNCEMENTS, WE ARE OF THE VIEW THAT THE ASSESSEE IS NOT ENTITLED TO DEDUCTION OF ADDITIONAL DEPRECIATION. IT IS ORDERED ACCORDINGLY. 3.4 IN VIEW OF THE REASONING OF THE TRIBUNAL, WHICH HAS FOLLOWED THE JUDGMENT OF THE HONBLE APEX C OURT, WE HOLD THAT THE ASSESSEE IS NOT ENTITLED TO THE BENEFIT OF ADDITIONAL DEPRECIATION CLAIMED. IT IS ORDERED ACCORDINGLY. 3.5 IN THE RESULT, THE GROUND NOS. 1 TO 5 ARE REJECTED. 4. DISALLOWANCE OF INTEREST AMOUNTING TO RS.11,71,726 : 4.1 THE ASSESSEE HAD BORROWED AN AMOUNT OF RS.3,30,00,000 FROM INDO NISSIN FOODS PVT. LTD. THE ASSESSEE WAS PAYING INTEREST ON THE BORROWED AMOUNTS. PART OF THE AMOUNT BORROWED WAS ADVANCED TO KEYA FOODS INTERNATIONAL PVT. LTD., A SISTER CONCERN OF THE ASSESSE E. FOR THE AMOUNTS ADVANCED BY THE ASSESSEE TO ITS SISTER CONCERN KEYA FOODS INTERNATIONAL PVT. LTD., NO INTEREST WAS CHARGED. THE ASSESSING OFFICER DISALLOWED THE PROPORTIONATE INTEREST AMOUNTING TO RS. 1 1,71,726 FOR THE DIVERSION OF INTEREST BEARING FUNDS . 4.2 AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL TO THE FIRST APPELLATE AUTHORITY. THE CIT(A) CONFIRMED THE VIEW TAKEN BY THE ASSESSING OFFICER. THE RELEVANT FINDING OF THE CIT(A) READS AS FOLLOWS: - ITA NO. 165 / COCH /201 8 . M/S.ACCELERATED FREEZE DRYING CO.LTD. 5 4.3.3 ON PERUSAL OF THE ASSESSMENT ORDER, IT IS OBSERVED THAT THERE WAS DIRECT RELATIONSHIP BETWEEN FUNDS BORROWED BY THE APPELLANT FROM INDO NISSIN FOODS P LTD AND FUNDS ADVANCED TO KEYA FOODS INTERNATIONAL P LTD. THEREFORE, THE CLAIM OF THE LEARNED AR THAT THE APPELLANT HAD SUFFICIENT INTEREST FREE FUNDS WILL NOT HOLD. FURTHER, THE CLAIM OF LEARNED AR THAT THE FUNDS WERE ADVANCED ON ACCOUNT OF COMMERCIAL EXPEDIENCY HAS NOT BEEN PROVED BY PRODUCING THE RELEVANT DOCUMENTS. HENCE, IT IS HELD THAT THE ASSESSING OFF ICER HAS RIGHTLY DISALLOWED RS.11,71,726 UNDER SECTION 36(1)(III) OF THE ACT AND THE GROUND RAISED ON THIS ISSUE IS DISMISSED. 4.3 THE ASSESSEE BEING AGGRIEVED HAS FILED THE PRESENT APPEAL BEFORE THE TRIBUNAL. THE LEARNED COUNSEL FOR THE ASSESSEE REITERA TED THE SUBMISSIONS MADE BEFORE THE INCOME TAX AUTHORITIES. THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE ASSESSMENT ORDER AND THE ORDER OF THE CIT(A). 4.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. ADMITTEDLY THE BORROWED FUNDS FOR WHICH THE ASSESSEE WAS PAYING INTEREST AT THE RATE OF 9% WAS DIVERTED TO THE SISTER CONCERN. NO INTEREST WAS CHARGED BY THE ASSESSEE FOR THE AMOUNTS DIVERTED TO THE SISTER CONCERN. THE ASSESSEE WAS NOT ABLE TO PROVE THAT T HE AMOUNTS ADVANCED TO KE YA FOODS INTERNATIONAL PVT. LTD. WAS OUT OF COMMERCIAL EXPEDIENCY. T HERE IS A DIRECT NEXUS BETWEEN THE BORROWED FUNDS FOR WHICH THE ASSESSEE WAS PAYING INTEREST AND THE AMOUNTS DIVERTED TO KEYA FOODS INTERNATIONAL PVT. LTD., HENCE THE CONTENTION OF THE ASSESSEE, IT HAVING INTEREST FREE FUNDS IS ITA NO. 165 / COCH /201 8 . M/S.ACCELERATED FREEZE DRYING CO.LTD. 6 OF NO RELEVANCE. THEREFORE, WE ARE OF THE VIEW THAT THE DISALLOWANCE OF PROPORTIONATE INTEREST AMOUNTING TO RS.11,71,726 IS JUSTIFIED ON THE FACTS AND CIRCUMSTANCES OF THE CASE. IT IS ORDERED ACCORDINGLY. 4.5 IN THE RESULT, GROUND NOS.6 AND 7 ARE REJECTED. 5 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON THIS 14 TH DAY OF NOVEMBER , 2018 . SD/ - SD/ - ( CHANDRA POOJARI ) ( GEORGE GEORGE K. ) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN ; DATED : 14 TH NOVEMBER , 2018 . DEVDAS* COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT. REGISTRAR) ITAT, COCHIN 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), KOTTAYAM. 4. THE PR.CIT, KOTTAYAM. 5. DR, ITAT, COCHIN 6 . GUARD FILE.