The DCIT(OSD)-1, Circle-4, Ahmedabad V. Maxmech Equipments Pvt. Ltd., Ahmedabad

ITA 1660/AHD/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 6027 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 8 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 09-06-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S K DEV
• Keywords: Depreciation; Proportionate interest; Additional evidence

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD , , BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ I.T.A. NO.1660/AHD/2015 ( / ASSESSMENT YEAR : 2010-11) THE ACIT CIRCLE-2(1)(2) AHMEDABAD / VS. MAXMECH EQUIPMENTS PVT.LTD. PLOT NO.2102, PHASE-IV, GIDC VATVA AHMEDABAD # ./ ./ PAN/GIR NO. : AAECM 8747 R ( #% / APPELLANT ) .. ( &#% / RESPONDENT ) #%' / APPELLANT BY : SHRI S.K. DEV, SR.DR &#%(' / RESPONDENT BY : NONE )*(+ / DATE OF HEARING 12/01/2018 ,-./(+ / DATE OF PRONOUNCEMENT 13/02/2018 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTA NCE OF THE REVENUE AGAINST THE APPELLATE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-VIII, AHMEDABAD [CIT(A) IN SHORT] DATED 31/03/2015 ARISING IN THE ASSESSMENT ORDER PASSED UNDER S.143(3) OF T HE INCOME TAX ITA NO.1660/AHD /2015 ACIT VS. MAXMECH EQUIPMENTS PVT.LTD. ASST.YEAR 2010-11 - 2 - ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT') D ATED 15/03/2013 RELEVANT TO ASSESSMENT YEAR (AY) 2010-11. 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE REA D AS UNDER:- 1. THE LD.CIT(A) ERRED IN ADMITTING ADDITIONAL EVIDEN CES DURING APPELLATE PROCEEDINGS EVEN WHEN CONDITIONS SPECIFIE D IN RULE 46(A)(I) WERE NOT SATISFIED AND THE AO OBJECTED TO SUCH ADMITTANCE ON THE BASIS OF FACTS AND ALSO THE JURIS DICTIONAL HIGH COURTS DECISION IN THE CASE OF FAIRDEAL FILAMENTS V/S. CIT (302 ITR 173). 2. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELE TING THE DISALLOWANCE OF RS.16,21,559/- MADE BY THE AO TOWAR DS DEPRECIATION ON BUILDING. 3. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELE TING THE DISALLOWANCE OF RS.21,14,476/- MADE BY THE AO BY CA PITALIZING INTEREST ON SECURED LOAN DEBITED IN THE P&L A/C. 3. BRIEFLY STATED, THE ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF CONSTRUCTION RELATED MACHINERY AND ITS PARTS. THE RETURN FILED BY THE ASSESSEE RELEVANT TO AY 2010-11 WAS SUBJECTED TO SCRUTINY ASSESSMENT. THE ASSESSING OFFICER (AO) INTER ALIA OBSERVED THAT THE ASSESSEE HAS CLAIMED EXCESS DEPRECIATION ON PLA NT AND MACHINERY TO THE TUNE OF RS.12,72,991/-. THE AO DENIED THE BEN EFIT OF EXTRA CLAIM ON BUILDING AMOUNTING TO RS.17,19,859/- OVER AND ABOVE THE CLAIM OF RS.16,21,559/- AS PER RETURN OF INCOME. THIS APART , THE AO ALSO OBSERVED THAT THE INTEREST ON SECURED LOAN TAKEN BY THE ASSE SSEE HAS BEEN UTILIZED ITA NO.1660/AHD /2015 ACIT VS. MAXMECH EQUIPMENTS PVT.LTD. ASST.YEAR 2010-11 - 3 - FOR CONSTRUCTION OF BUILDING. THEREFORE, HE INVOKE D THE PROVISIONS OF SECTION 36(1)(III) AND DISALLOWED RS.21,04,716/- OU T OF INTEREST EXPENSES ON ACCOUNT OF CAPITALIZATION OF INTEREST. 4. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL AGAINST THE ADDITIONS/DISALLOWANCES MADE. 4.1. THE CIT(A) GRANTED RELIEF ON BOTH COUNTS. AS REGARDS THE DISALLOWANCE OF DEPRECIATION ON ASSETS, THE RELEVAN T OPERATIVE PARA OF THE ORDER OF THE CIT(A) READ AS UNDER:- 3.3 DECISION: I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE ASSESSMENT ORDER AND THE WRITTEN SUBMISSION OF THE APPELLANT. THE AO NOTED THAT THE APPELLANT HAD CLAIMED DEPRECIATION OF RS. 31.08 LAK HS ON PLANT AND MACHINERY. IT WAS, HOWEVER NOTED BY HIM THAT CERTAI N PART OF THE PLANT AND MACHINERY WAS NOT INSTALLED AND USED IN THE YEA R AND, THEREFORE, HE WORKED OUT EXCESS DEPRECIATION CLAIM OF RS. 12,72,9 91/-. THE EXCESS CLAIM OF PLANT AND MACHINERY WORKED OUT BY THE AO W AS ACCEPTED BY THE APPELLANT. IT WAS FURTHER NOTED BY AO THAT THE BUIL DING DEPRECIATION HAS BEEN CLAIMED BY THE APPELLANT AT RS. 16,21,559/-. THE APPELLANT DURING THE COURSE OF ASSESSMENT PROCEEDINGS MADE A FRESH C LAIM OF DEPRECIATION OF RS. 17,19,859/- IN RESPECT OF THE FACTORY BUILDI NG SHED AND OFFICE CONSTRUCTED DURING F. Y. 2008 - 09. THE APPELLANT IN ITS SUBMISSION DATED 04/03/2013 SUBMITTED THAT THE BUILDING WAS COMPLETE D IN F. Y. 2008 - 09 AND WAS PUT TO USE IN APRIL 2010. THE AO DISALLOWED THE DEPRECIATION ON THE NEW BUILDING AS, ACCORDING TO THE APPELLANT'S W RITTEN SUBMISSION, ' THE SAME WAS PUT TO USE IN THE MONTH OF APRIL 2010. DUR ING THE COURSE OF ITA NO.1660/AHD /2015 ACIT VS. MAXMECH EQUIPMENTS PVT.LTD. ASST.YEAR 2010-11 - 4 - APPELLATE PROCEEDINGS THE APPELLANT HAS SUBMITTED T HAT THE BUILDING WAS COMPLETED DURING F. Y. 2008 - 09 AND WAS PUT TO USE DURING THE YEAR. THERE WAS A TYPOGRAPHICAL ERROR AND THE DATE WAS ME NTIONED AS 'APRIL 2010' AS AGAINST 'APRIL 2009'. IT HAS BEEN SUBMITTE D BY THE APPELLANT THAT IT WAS AN INADVERTENT MISTAKE ON THE PART OF THE TA X CONSULTANT. THE INTENTION WAS TO MENTION APRIL, 2009, AS IT WAS CLE ARLY MENTIONED IN THE WRITTEN SUBMISSION THAT THE BUILDING WAS COMPLETED IN F. Y. 2008 - 09. THE APPELLANT HAS ALSO GIVEN DETAILS OF ELECTRICITY AND POWER AND FUEL EXPENSES FOR A. Y. 2008 - 09 AND 2009 - 10 TO SUBST ANTIATE THE INCREASE IN POWER COST DUE TO STARTING OF OPERATION AT NEW BUIL DING, IT HAS ALSO SUBMITTED ACKNOWLEDGEMENT OF DISTRICT INDUSTRIES CE NTRE FOR INCREASE IN CAPACITY. THE APPELLANT HAS FURTHER GIVEN CERTIFICA TE OF GRAM PANCHAYAT SHOWING THAT THE BUILDING WAS READY FOR USE FROM 28 /02.2009. THE CERTIFICATE OF ENGINEER HAS ALSO BEEN SUBMITTED IN SUPPORT' OF ITS CLAIM THAT THE BUILDING WAS READY FOR USE AS ON 31/03/200 9. THE APPELLANT HAS ALSO GIVEN DETAILS OF THE BUILDING ACCOUNT WHICH SH OW AN ADDITIONAL EXPENDITURE OF 37.76 LAKH. IT HAS BEEN POINTED OUT BY THE APPELLANT THAT THIS ADDITION COMPRISES OF THE ROAD CONSTRUCTION AT THE FACTORY PREMISES AND EXPENDITURE ON REPAIRING AND RENOVATION OF THE OLD FACTORY BUILDING. IT HAS ALSO BEEN POINTED OUT BY THE APPELLANT THAT THE DISALLOWANCE HAS BEEN MADE BY THE AO MERELY ON THE BASIS OF THE LETT ER GIVEN BY THE CHARTERED ACCOUNTANT DURING THE COURSE OF ASSESSMEN T PROCEEDINGS. THERE WAS NO OTHER EVIDENCE FOR THE FINDING. AS MENTIONED ABOVE, THE DETAILS WERE FORWARDED TO T HE AO FOR FURTHER ENQUIRY ON VERIFICATION AND COMMENTS. THE REPORT H AS ALSO BEEN OBTAINED AND THE SAME HAS BEEN REPRODUCED IN THE PR ECEDING PAGES. THE EVIDENCE HAS ALSO BEEN ADMITTED FOR CONSIDERATI ON OF APPEAL AS THE SAME ARE IN THE NATURE OF CLARIFICATION AND THE SAM E ARE ALSO CONTEMPORARY. ON A CAREFUL CONSIDERATION OF ENTIRE FACTS OF THE C ASE, IT IS NOTED THAT THE CLAIM OF THE APPELLANT THAT THE BUILDING WAS READY TO USE AT THE END OF ITA NO.1660/AHD /2015 ACIT VS. MAXMECH EQUIPMENTS PVT.LTD. ASST.YEAR 2010-11 - 5 - FINANCIAL YEAR 2008 - 09 APPEARS TO BE CORRECT. THE SUBMISSION GIVEN BY THE CHARTERED ACCOUNTANT DURING THE COURSE OF ASSES SMENT PROCEEDINGS BEFORE HIM, WHICH IS THE VERY BASIS FOR MAKING THE DISALLOWANCE BY THE AO, IS REPRODUCED HERE UNDER: - '....AS FAR AS EXPENDITURE INCURRED OF RS. 1,71,98, 595/- UNDER THE HEADING 'BUILDING NEW SHED & OFFICE' IS CONCERNED, THE SAME WAS COMPLETED IN FY 2008-09 (ASS.YR.2009-10). IT WAS PUT TO USE IN APRI L 2010. AS CAN BE SEEN FORM THE RECORDS OF ASS.YR. 2009-10, NO DEPRECIATIO N WAS CLAIMED THEREON.' IT IS CLEAR FROM THE ABOVE SUBMISSION GIVEN BY THE CHARTERED ACCOUNTANT THAT HE WAS TRYING TO EXPLAIN THAT THE BUILDING WAS COMPLETED IN F. Y. 2008 - 09 AND WAS PUT TO USE IN APRIL, 2009. HOWEVER, DUE TO TYPOGRAPHICAL ERROR HE WROTE APRIL, 2010. WITHOUT PREJUDICE TO THIS, IT IS NOTED THAT ELECTRICITY BILLS SHOW THAT THERE IS AN INCREASED CONSUMPTION OF ELEC TRICITY DURING THIS YEAR AS COMPARED TO F. Y. 2008 - 09. THE APPELLANT HAS ALSO SHOWN MORE PRODUCTION AS COMPARED TO THE PRECEDING YEAR. THE CHARTERED ACCOU NTANT, WHO HAS GIVEN THE SUBMISSION HAS ALSO BY WAY OF AFFIDAVIT AFFIRMED TH E ABOVE FACT THAT THERE WAS A TYPOGRAPHICAL ERROR. AN EXAMINATION OF PROFIT AND LOSS ACCOUNT ALSO SHOW THAT THE SALES DURING THE CURRENT YEAR WERE RS. 19. 11 CRORES AS AGAINST RS. 14.75 CRORES IN THE PRECEDING YEARS. THE COST OF GO ODS, I.E. THE CONSUMPTION OF RAW MATERIAL WAS AT RS. 15.19 CRORES DURING THE YEA R AS AGAINST RS. 11.74 CRORES IN THE PRECEDING YEAR. THE MANUFACTURING AND SELLING EXPENSES HAVE ALSO INCREASED DURING THE YEAR. AS POINTED OUT EARL IER THAT THE ELECTRICITY CONSUMPTION HAS ALSO INCREASED DURING THE YEAR WHIC H CLEARLY SHOW THAT THE BUILDING HAVE BEEN PUT TO USE. IT IS ALSO, NOTED THAT THE APPELLANT WAS NOT GIVEN AN OPPORTUNITY TO EXPLAIN THE ERRORS WHICH WAS COMMITTED DURING THE C OURSE OF ASSESSMENT PROCEEDINGS. THE SUBMISSION WAS GIVEN BY THE APPELL ANT IN THE MONTH OF MARCH, 2013 AND THE ORDER WAS ALSO PASSED. THE AO D ID NOT SEEK ANY EXPLANATION FROM HIM ABOUT THE SAME. THE APPELLANT HAS MAINTAINED REGULAR RECORDS ABOUT ELECTRICITY BILLS, MANUFACTURING RECO RDS WHICH WOULD HAVE BEEN PRODUCED HAD THE AO ASKED THE SAME. THE BOOKS OF AC COUNTS ARE DULY AUDITED AND THERE IS NO MENTION OF ANY DISCREPANCY ABOUT TH IS IN THE AUDIT REPORT FURNISHED BY THE CHARTERED ACCOUNTANT. ITA NO.1660/AHD /2015 ACIT VS. MAXMECH EQUIPMENTS PVT.LTD. ASST.YEAR 2010-11 - 6 - IN VIEW OF THE ABOVE DISCUSSION, I AM OF THE CONSID ERED OPINION THAT THE CLAIM OF THE APPELLANT WAS IN ORDER AND THE DEPRECI ATION ON BUILDING WHICH WAS PUT TO USE DURING THE YEAR SHOULD BE ALLOWED. A CCORDINGLY, THE DISALLOWANCE OF DEPRECIATION ON THE BUILDING MADE B Y THE AO AMOUNTING TO RS. 17,19,859/- IS DIRECTED TO BE DELETED AND THE CLAIM OF DEPRECIATION IS ALLOWED. THE OTHER DISALLOWANCE MADE BY THE AO ON ACCOUNT OF EXCESS DEPRECIATION ON PLANT AND MACHINERY HAS BEEN ACCEPT ED BY THE APPELLANT ALSO. NO GROUND OF APPEAL HAS BEEN FILED REGARDING THAT D ISALLOWANCE ACCORDINGLY NO COMMENTS ARE OFFERED ON THE SAME. THE GROUND OF APPEAL IS ACCORDINGLY ALLOWED. 4.2 AS REGARDS GRIEVANCE TOWARDS CAPITALIZATION OF INTEREST EXPENSES, THE CIT(A) HAS ADDRESSED THE ISSUE AS UNDER:- 4.3. DECISION : I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE ASSESSMENT ORDER AND THE WRITTEN SUBMISSION OF THE APPELLANT. THE AO HAS DISALLOWED PROPORTIONATE INTEREST AS THE DEPRECIATI ON ON THE UNUSED BUILDING HAS BEEN DISALLOWED BY HIM. THE DI SALLOWANCE HAS BEEN MADE AS IT HAS BEEN HELD BY HIM THAT THE I NTEREST SHOULD BE CAPITALIZED. THE ISSUE IS LINKED WITH THE PREVI OUS GROUND OF APPEAL. SINCE IT HAS BEEN HELD BY ME, IN THE PRECE DING GROUND OF APPEAL, THAT THE APPELLANT IS ENTITLED FOR DEPRECIA TION ON THE BUILDING AS THE SAME WAS USED DURING THE YEAR, NO Q UESTION OF DISALLOWANCE OF INTEREST OR CAPITALIZATION OF THE S AME ARISES. THE DISALLOWANCE MADE BY THE AO IS ACCORDINGLY DIRECTED TO BE DELETED. 5. AGGRIEVED BY THE RELIEF GRANTED BY THE CIT(A), T HE REVENUE PREFERRED APPEAL BEFORE THE ITAT. ITA NO.1660/AHD /2015 ACIT VS. MAXMECH EQUIPMENTS PVT.LTD. ASST.YEAR 2010-11 - 7 - 6. NONE APPEARED FOR THE ASSESSEE DESPITE REPEATED NOTICES, THEREFORE THE MATTER IS ACCORDINGLY PROCEEDED EX-PARTE . 7. THE LD.DR FOR THE REVENUE RELIED UPON THE ORDER OF THE AO AND SUBMITTED THAT THE ADDITIONAL EVIDENCES ADMITTED BY THE CIT(A) IN THE APPELLATE PROCEEDINGS WERE DULY AVAILABLE WITH THE ASSESSEE AT THE TIME OF ASSESSMENT AND THERE WAS NO REASON TO WITHHOLD ADDI TIONAL EVIDENCES IN THE FORM OF ELECTRICITY BILL ETC. TO PROVE THE COMM ENCEMENT OF BUILDING IN THE PREVIOUS FINANCIAL YEAR (FY) 2008-09 AS CLAIMED . THE LD.DR ALSO POINTED OUT THAT THE ENQUIRY ON THE BONAFIDES OF SU CH ADDITIONAL EVIDENCES WAS NOT EXAMINED AS THE SAME WAS NOT PLACED FOR ENQ UIRY IN THE COURSE OF ASSESSMENT. THE DR THUS SUBMITTED THAT ADDITIONAL E VIDENCES SHOULD NOT HAVE BEEN ADMITTED BY THE CIT(A). THE LD.DR ACCOR DINGLY CONTENDED THAT WITHOUT PREJUDICE AFORESAID, A FRESH OPPORTUN ITY SHOULD BE GIVEN TO THE AO TO EXAMINE THE ENTIRE FACTS SO PLACED. THE LD.DR ALSO POINTED OUT THAT ALTHOUGH REMAND REPORT WAS CALLED FOR, THE SCOPE OF ENQUIRY IN THE REMAND PROCEEDINGS IS QUITE LIMITED AND IS WITH IN THE PURVIEW OF THE DIRECTIONS OF THE CIT(A). THEREFORE THE FAVOURABLE VIEW TAKEN BY THE CIT(A) BASED ON SUCH ADDITIONAL EVIDENCES WITHOUT O PPORTUNITY TO THE AO IN ACCORDANCE WITH LAW IS NOT FAIR. THE OTHER G ROUND ON CAPITALIZATION OF INTEREST IS ALSO CONNECTED TO THE USER OF BUILDING IN THE FINANCIAL YEAR WHICH ITSELF IS IN DISPUTE. THE LD. DR SUBMITTED THAT THE ITA NO.1660/AHD /2015 ACIT VS. MAXMECH EQUIPMENTS PVT.LTD. ASST.YEAR 2010-11 - 8 - ASSESSEE HIMSELF HAS CLAIMED BEFORE THE AO THAT THE BUILDING WAS PUT TO USE IN APRIL-2010 WHEREAS IT ALTERED THE STAND BEF ORE THE CIT(A). THE ASSESSEE HAS TAKEN ALTOGETHER DIFFERENT STAND AND I S CLAIMING PUT TO USE ON 28/08/2009. THEREFORE, CONTRARY STAND TAKEN BY THE ASSESSEE REQUIRES TO BE EXAMINED. 8. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTH ORITIES BELOW. THE REVENUE HAS CHALLENGED THE ACTION OF THE CIT(A) IN ADMITTING THE ADDITIONAL EVIDENCES PLACED BEFORE HIM AND ALSO QUE STIONED THE DECISION ON MERITS. BOTH THE SUBSTANTIVE GROUND REGARDING T HE EXCESS CLAIM OF DEPRECIATION AS WELL AS CAPITALIZATION OF INTEREST CAN BE DETERMINED ONLY AFTER ASCERTAINING THE CORRECT DATE OF PUT TO USE O F BUILDING CLAIMED BY THE ASSESSEE. IN THE ABSENCE OF ASSESSEE REMAINING PRE SENT BEFORE US IN THE COURSE OF HEARING, WE ARE UNABLE TO APPRECIATE THE FACTS IN PERSPECTIVE. HOWEVER, WE NOTE THAT SOME CONTRADICTION HAS ARISEN IN THE STAND OF THE ASSESSEE BEFORE THE AO VIS-A-VIS CIT(A). IN THE CI RCUMSTANCES, WE CONSIDER IT EXPEDIENT TO RESTORE BOTH THE ISSUES TO THE FILE OF AO FOR DE NOVO CONSIDERATION AFTER EXAMINING ALL THE FACTS AS MAY BE CONSIDERED NECESSARY. THE AO SHALL GIVE REASONABLE OPPORTUNI TY TO THE ASSESSEE WHILE REVISITING THE ISSUES IN QUESTION. THUS, BOT H THE SUBSTANTIVE ISSUES ARE SET ASIDE AND RESTORED BACK TO THE FILE OF AO F OR DE NOVO CONSIDERATION IN ACCORDANCE WITH LAW. ITA NO.1660/AHD /2015 ACIT VS. MAXMECH EQUIPMENTS PVT.LTD. ASST.YEAR 2010-11 - 9 - 9. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. THIS ORDER PRONOUNCED IN OPEN COURT ON 13 / 02/2018 SD/- SD/- () ( ) (RAJPAL YADAV) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 13/ 02 /2018 3..),.)../ T.C. NAIR, SR. PS !'#$%$' / COPY OF THE ORDER FORWARDED TO : 1. #% / THE APPELLANT 2. &#% / THE RESPONDENT. 3. 456+ 7+ / CONCERNED CIT 4. 7+ ( ) / THE CIT(A)-2, AHMEDABAD 5. 89:+)56 , 56/ , 4 / DR, ITAT, AHMEDABAD 6. :<* / GUARD FILE. / BY ORDER, &8++ //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 5.2.18(DICTATION-PAD 10-PA GES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 5.2.18 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.13.2.18 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 13.2.18 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER