The ACIT,(OSD)Circle-8, Ahmedabad V. M/s. Voltamp Transformers Ltd., Ahmedabad

ITA 1676/AHD/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0451 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 17-10-2012
• Assessment Year: 2009-2010
• Appeal Filed On: 31-07-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: Y P VERMA; B K S PANDYA
• Keywords: Depreciation; Proportionate interest

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD , . . , BEFORE SHRI MUKUL KR.SHRAWAT, JUDICIAL MEMBER AND SHRI T.R. MEENA, ACCOUNTANT MEMBER ./ I.T.A. NO.1676/AHD/2012 ( / ASSESSMENT YEAR : 2009-10) ACIT (OSD) CIRCLE-8 AHMEDABAD / VS. M/S.VOLTAMP TRANSFORMERS LTD. 312, SANMAN II OPP.RELIANCE PETROL PUMP PRAHALADNAGAR, SATELLITE AHMEDABAD ! ./'# ./ PAN/GIR NO. : AAACV 5048 G ( !$ / APPELLANT ) .. ( %&!$ / RESPONDENT ) !$ ' / APPELLANT BY : SHRI BKS PANDYA, CIT-D.R AND SHRI Y.P.VERMA SR.D.R. %&!$ ( ' / RESPONDENT BY : SHRI A.C.SHAH ) * ( / DATE OF HEARING : 01/02/2013 +,- ( / DATE OF PRONOUNCEMENT : 22/3/13 ./ O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL FILED BY THE REVENUE ARISING F ROM THE ORDER OF THE LEARNED CIT(APPEALS)-XIV, AHMEDABAD DATED 21/05 /2012 AND THE GROUNDS RAISED ARE HEREBY DECIDED AS FOLLOWS:- 2. GROUND NO.1 READS AS UNDER:- 1) THE LD.COMMISSIONER OF INCOME-TAX(APPEALS)-XIV, AHMEDABAD ERRED IN LAW AND ON F ACTS IN DELETING TH E DISALLOWANCE ITA NO. 1676/AHD/2012 ACIT (OSD) VS. M/S. VOLTAMP TRANSFORMERS LTD. ASST.YEAR -2009-10 - 2 - OF RS.14,843/- MADE U/S.36(1)(III) OF THE ACT, BEIN G THE INTEREST RELATED T6O CAPITAL WIP. 2.1. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDI NG ASSESSMENT ORDER PASSED U/S.143(3) OF THE IT ACT, DATED 29.12. 2011 WERE THAT THE ASSESSEE-COMPANY IS IN THE BUSINESS OF MANUFACTURIN G OF TRANSFORMER. THE AO HAS NOTED THAT THERE WAS A CAPITAL WIP OF RS .14,38,39,345/-. THE AOS OBJECTION WAS THAT THE ASSESSEE HAD SHOWN CAPITAL WIP INCLUDING CAPITAL ADVANCES BUT NO INTEREST EXPENSE HAD BEEN CAPITALISED. IT WAS NOTED BY THE AO THAT THE CAPITAL ADVANCES WE RE OF RS.14.38 CRORES. THE ASSESSEES ANSWER WAS THAT THE CAPITAL ADVANCE WAS MADE FROM OWN FUNDS AND NOT FROM BORROWED FUNDS. HOWEVER, THE A O WAS NOT CONVINCED AND INVOKED THE PROVISIONS OF SECTION 36( 1)(III) AND CALCULATED THE DISALLOWANCE AS UNDER:- FROM THE RECORDS IT IS OBSERVED THAT THE ASSESSEE HAS INCURRED INTEREST EXPENSE OF RS.273116/-. IN VIEW OF THE AB OVE MENTIONED FACTS THE PROPORTIONATE DISALLOWANCE OF INTEREST EX PENSES OF RS.273116/- FOR WHICH THE ASSESSEE COULD NOT GIVE A NY PROOF THAT THE SAME IS NOT USED FOR CAPITAL WIP, NEED TO BE MA DE U/S.36(1)(III) OF THE ACT. THE TOTAL FUNDS AVAILABLE WITH THE ASSESSEE COMPANY IN THE FORM OF SHARE CAPITAL, RESE RVE AND SURPLUS AND SECURED/UNSECURED LOANS AMOUNTS TO RS.264673943 2/-. THE ASSESSEE HAS PAD INTEREST OF RS.273116/- FOR WHICH THE ASSESSEE COULD NOT PROVE THAT NO PART OF IT WAS USED FOR CAP ITAL WIP OF 143839345/-. ACCORDINGLY PROPORTIONATE INTEREST DI SALLOWABLE IS BEING WORKED OUT AS UNDER:- INTEREST TO BE DISALLOWED = INTEREST EXPENSES CLAIM ED X CAPITAL WIP TOTAL FUNDS WITH THE ASSESSEE COMPANY INTEREST TO BE DISALLOWED = RS.273116/- X RS.14383 9345/- RS.2646739432/- = RS.14843/- ITA NO. 1676/AHD/2012 ACIT (OSD) VS. M/S. VOLTAMP TRANSFORMERS LTD. ASST.YEAR -2009-10 - 3 - IN VIEW OF THE ABOVE MENTIONED DISCUSSION THE PROPO RTIONATE INTEREST U/S.36(1)(III) IS DISALLOWED AT RS.14843/-, BEING C APITALIZED AND ADDED BACK TO THE TOTAL INCOME. IN VIEW OF FACTS MENTION ED ABOVE. 3. WHEN THE MATTER WAS CARRIED BEFORE THE FIRST APP ELLATE AUTHORITY, HE HAS HELD THAT THE ASSESSEE HAD SUFFICIENT INTEREST- FREE FUNDS AND THEREUPON PLACING RELIANCE ON RELIANCE UTILITIES & POWER LTD. 313 ITR 340 REVERSED THE FINDINGS OF THE AO AND DIRECTED TO DEL ETE THE ADDITION. 3.1. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES AND ON PERUSAL OF MATERIAL ON RECORD SPECIALLY WHEN THE ASSESSEE HAS DEMONSTRATED THAT THERE WERE NON-INTEREST BEARING OWN FUNDS OF RS.264 .67 CRORES AND THOSE FUNDS WERE CLAIMED TO HAVE BEEN UTILIZED FOR THE PU RPOSE OF CAPITAL WORK IN PROGRESS, THEN THERE WAS NO OCCASION ON THE PART OF THE AO TO PRESUME THAT THE INTEREST-BEARING FUNDS COULD HAVE BEEN USE D AS A CAPITAL WORK-IN- PROGRESS. THE PRESUMPTION, IF ANY, COULD BE OTHERW ISE ALSO; AS HELD IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. (SUPRA). RESPECTFULLY FOLLOWING THIS DECISION, THE VIEW EXPRESSED BY LD.CIT(A) IS H EREBY CONFIRMED AND THIS GROUND THE REVENUE IS DISMISSED. 4. GROUND NO.2 READS AS UNDER:- 2) THE LD. COMMISSIONER OF INCOME-TAX (APPEALS)-XI V, AHMEDABAD ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE U/S.145A OF THE ACT. 4.1 IT WAS OBSERVED BY THE AO THAT THE ASSESSEE HAD SHOWN AN AMOUNT RECEIVABLE ON ACCOUNT OF UNUTILIZED MODVAT AND ALSO A CLOSING BALANCE OF CENVAT CREDIT. ADMITTEDLY, THOSE AMOUNTS WERE NOT INCLUDED IN THE VALUE OF THE CLOSING STOCK. THE AO HAS OBSERVE D THAT AS PER THE PROVISIONS OF SECTION 145A THE TAXES/DUTY/CESS/FEES RELATED TO STOCK ARE ITA NO. 1676/AHD/2012 ACIT (OSD) VS. M/S. VOLTAMP TRANSFORMERS LTD. ASST.YEAR -2009-10 - 4 - REQUIRED TO BE INCLUDED IN THE VALUE OF THE CLOSING STOCK. THE ASSESSEE HAS GIVEN THE FOLLOWING REPLY:- YOU ARE INQUIRED ABOVE THE INCLUSION OF THE CENVAT BALANCE IN THE VALUATION OF CLOSING STOCK AND COMPLIANCE TO SE CTION. 145A. IN THIS CONNECTION IT MAY BE PLEASE BE NOTED THAT A S PER AS-2 ON VALUATION ON INVENTORY, THE PURCHASES ARE DEBITED N ET OFF CENVAT AND THE CLOSING STOCK OF RAW MATERIAL AND WIP IS VA LUED NET OFF CENVAT, SINCE THE COST OF PURCHASES DOES NOT INCLUD E CENVAT PAID AND THEREFORE, THE CLOSING STOCK IS ALSO VALUE D NET OFF CENVAT. THE COMPANY DOES NOT HAVE ANY STOCK OF FIN ISHED GOODS AS ON 31 ST MACH, 2009 AND THEREFORE; THERE IS NO QUESTION OF INCLUSION OF CENVAT IN THE STOCK OF FINISHED GOODS . FURTHER, THE UNUTILIZED BALANCE OF CENVAT IS NOT A INCOME AND IS USED AGAINST EXCISE DUTY PAYABLE IN THE SUBSEQUENT YEAR, AND THE REFORE THE SAME CANNOT BE TREATED AS INCOME. THE DETAILS OF T HE CENVAT CREDIT UTILIZED IS GIVE IN SCHEDULE-8 TO THE THE TA X AUDIT REPORT. IT MAY ALSO BE NOTED THAT THE COST OF RAW MATERIAL DEB ITED TO PROFIT AND LOSS ACCOUNT DOES NOT INCLUDE EXCISE DUTY PAID ON PURCHASES AND THEREFORE THE QUESTION OF INCLUSION OF UNUTILIZ ED EXCISE DUTY IN THE CLOSING STOCK DOES NOT ARISE. THIS PRINCIPLE I S SETTLED BY SUPREME COURT IN THE CASE OF CHAINROOP SAMPATRAM. FURTHER THE UNUTILIZED BALANCE OF CENVAT CREDIT CANNOT BE INCLU DED IN THE CLOSING STOCK IS ALSO TAKEN BY GUJARAT HC IN CASE O F NARMADA CHEMATUR PRIVATE LIMITED. 4.2. HOWEVER, THE AO WAS NOT CONVINCED; ALTHOUGH HE HAS NOTED THAT AS PER THE AUDITORS REPORT U/S.44AB, THE ASSESSEE HAD FOLLOWED EXCLUSIVE METHOD OF ACCOUNTING. THE AO HAS OPINED THAT TH E UNUTILIZED CREDIT OF TAXES., I.E. MODVAT/CENVAT IS NOTHING BUT A KIND OF A SUBSIDY OR AN INCENTIVE GIVEN BY THE GOVERNMENT. THE AO HAD MADE A DETAILED DISCUSSION IN RESPECT OF THE AMENDMENT PROVISIONS OF SECTION 145A OF IT ACT. FINALLY, HE HAS COMPUTED THE DISALLOWANCE A S UNDER:- 5.7. IN VIEW OF ABOVE FACTUAL AND LEGAL POSITION, THE ASSESSEES CONTENTION THAT THE FOLLOWING UNUTILIZED BALANCES O F TAXES, SHOULD ITA NO. 1676/AHD/2012 ACIT (OSD) VS. M/S. VOLTAMP TRANSFORMERS LTD. ASST.YEAR -2009-10 - 5 - NOT BE TAKEN INTO ACCOUNT WHILE VALUING THE CLOSING STOCK CANNOT BE ACCEPTED AND HENCE THE SAME IS HEREWITH REJECTED. 1. CENTRAL EXCISE RS. 3550/- 2. EDUCATION CESS PURCHASE RS. 55828/ - 3. CENVAT CREDIT PURCHASE RS. 2914100/- 4. HIGHER EDUCATION CESS PURCHASES RS. 65602/- 5. EDUCATIONAL CESS RECEIVABLE RS. 410135/- 6. EXCISE DUTY RECEIVABLE RS. 17519636/- 7. SERVICE TAX RECEIVABLE RS. 3554722/- 8. HIGHER E.CESS RECEIVABLE RS. 206570/- RS. 24730143/- IN VIEW OF THE EXPRESS PROVISIONS OF SECTION 145A O F THE ACT THE SAID UNUTILIZED BALANCES OF TAXES NEED TO BE INCLUD ED IN THE VALUE OF CLOSING STOCK. SINCE THE ASSESSEE HAS NOT INCLU DED THE SAID SUMS OF RS.24730143/- IN VALUE OF CLOSING STOCK, SO THE SAID SUM OF RS.24730143/- IS INCLUDED IN VALUE OF CLOSING STOCK AS ON 31.03.2009. ACCORDINGLY, A SUM OF RS.24730143/-, B EING THE AMOUNT OF UNUTILIZED BALANCES OF TAXES, IS ADDED BA CK TO TOTAL INCOME. IN VIEW OF FACTS MENTIONED ABOVE, I AM SAT ISFIED THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF HI S INCOME AND HENCE PENALTY PROCEEDINGS U/S.271(1)(C) OF THE ACT IS INITIATED SEPARATELY FOR FURNISHING INACCURATE PARTICULARS ON THIS ACCOUNT. ( ADDITION U/S.145A RS.24730143/- ) 5. BEFORE LD.CIT(A), A DECISION CITED WAS NARMADA CHEMATUR PETROCHEMICALS LTD. (2010) 327 ITR 369 (GUJ.). LD. CIT(A) HAS DISCUSSED THE ISSUE AT LENGTH. HE HAS CITED FEW D ECISIONS AND THEREAFTER ARRIVED AT THE CONCLUSION ON THE BASIS OF THE FINDI NG GIVEN THAT NO ADDITION ON ACCOUNT OF UNUTILISED CENVAT/MODVAT CREDIT COULD BE MADE TO THE INCOME OF THE ASSESSEE. THE ACTION OF THE AO WAS REVERSED THUS CAUSING GRIEVANCE TO THE REVENUE. ITA NO. 1676/AHD/2012 ACIT (OSD) VS. M/S. VOLTAMP TRANSFORMERS LTD. ASST.YEAR -2009-10 - 6 - 6. FROM THE SIDE OF THE REVENUE, LD.SR.DR Y.P.VERMA HAS ARGUED THAT THERE WAS A MANDATE U/S.145A OF THE ACT TO INC LUDE THE CESS/DUTY,ETC. IN THE INVENTORY IF NOT PAID. THE EXCLUSIVE METH OD AS ADOPTED BY THE ASSESSEE WAS AGAINST THE SAID MANDATE. THE LAW DO ES NOT PERMIT SUCH METHOD OF ACCOUNTING THROUGH WHICH AN INVENTORY IS VALUED WITHOUT TAKING INTO ACCOUNT THE DUTY/CESS. HE HAS PLACED RELIANCE ON FEW DECISIONS; NAMELY, CIT VS. BRITISH PAINTS INDIA L TD. (1991)188 ITR 44(SC), CHAINRUP SAMPATRAM VS. CIT(1953) 24 ITR 481 (SC) AND CIT VS. J.K.SYNTHETICS LTD. (1983) 143 ITR 271(ALL.) FO R THE LEGAL PROPOSITION THAT IF THE VALUATION OF THE CLOSING STOCK IS DONE BY EXCLUDING THE EXPENSES, THEN SUCH REJECTION OF METHOD BY THE AO IS CORRECT U/S.145 OF THE IT ACT. 6.1. FROM THE SIDE OF THE ASSESSEE, LD.AR MR. A.C. SHAH APPEARED AND FIRST OF ALL PLACED RELIANCE ON A DECISION OF ITAT B BENCH AHMEDABAD PRONOUNCED IN THE CASE OF UDAIKUMAR CHHABILDAS PATE L VS. JT.CIT/ACIT BEARING ITA NOS.3304/AHD/2010 & 2585/AHD/2011 DAT ED 28/09/2012. HE HAS ALSO PLACED RELIANCE ON DECISION OF ACIT VS . NARMADA CHEMATUR PETROCHEMICALS LTD. (2010) 327 ITR 369 (GUJ.). 7. WE HAVE HEARD BOTH THE SIDES AT SOME LENGTH. TH IS IS PURELY A LEGAL QUESTION AND PRESENTLY STOOD COVERED BY FEW D ECISIONS. IN THE CASE OF NARMADA CHEMATUR PETROCHEMICALS LTD. 327 ITR 369 (GUJ.), THE HONBLE COURT HAS OBSERVED THAT UNLESS AND UNTIL TH E AMOUNT OF THE DUTY IS NOT ENTERED ON ONE SIDE AS AN ITEM OF COST, IT C ANNOT BE TAKEN AS A COMPONENT OF THE VALUE OF THE CLOSING STOCK ON THE OTHER SIDE. FURTHER, ITA NO. 1676/AHD/2012 ACIT (OSD) VS. M/S. VOLTAMP TRANSFORMERS LTD. ASST.YEAR -2009-10 - 7 - THE ITAT AHMEDABAD BENCH IN THE CASE OF UDAIKUMAR C HHABILDAS PATEL (SUPRA) ORDER DATED 28/9/12 HAS HELD AS UNDER:- 5. ON THIS ISSUE, WE HAVE HEARD BOTH THE SIDES. AS FAR AS THE LEGAL ASPECT IS CONCERNED, THE HONBLE JURISDICTION AL HIGH COURT IN THE CASE OF NARMADA CHEMATUR PETROCHEMICALS 327 ITR 369 (GUJ.) HAS HELD THAT UNLESS AND UNTIL THE AMOUNT O F THE DUTY IS NOT ENTERED ON ONE SIDE AS AN ITEM OF COST, IT CANNOT B E TAKEN AS A COMPONENT OF THE VALUE OF THE CLOSING STOCK ON THE EITHER SIDE. THE TRUE PURPOSE OF CREDITING THE VALUE OF UNSOLD STOCK IS TO BALANCE TO COST OF THOSE GOODS ENTERED INTO OTHER SIDE OF ACCO UNT. THERE IS AN ANOTHER DECISION OF AN HONBLE GUJARAT HIGH COURT P RONOUNCED IN THE CASE OF CIT VS. UNIQUE INDUSTRIES 307 ITR 350 ( GUJ.), WHEREIN IT WAS HELD THAT THE EXCISE DUTY, SALES TAX AND OTH ER DUTIES FORM PART OF THE CLOSING STOCK WHEN THE SAME ARE INCURRE D. IN THAT CASE, IT WAS NOTED THAT THE ASSESSEE HAD NOT DEBITED ANY EXCISE DUTY OR SALES-TAX TO THE PURCHASE ACCOUNT OR P&L ACCOUNT. THE COURT HAS HELD THAT THE QUESTION OF INCLUDING THE EXCISE DUTY IN THE VALUE OF STOCK ARISES ONLY IF THE PURCHASES DEBITED TO P&L A CCOUNT ARE INCLUSIVE OF EXCISE DUTY. RATHER, THE COURT HAS CL ARIFIED THAT THE EXPENDITURE INCURRED ON EXCISE DUTY BUT IF PURCHASE S DEBITED ARE EXCLUSIVE OF EXCISE DUTY, THEN THE QUESTION OF INCL UDING THE SAME IN THE CLOSING STOCK ACCOUNT DOES NOT ARISE SINCE THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE BY DEBITING TO P&L ACCOUNT . LD.AR HAS CITED THE CASE OF CIT VS. INDO NIPPON CHEMICALS LTD . 261 ITR 275 (SC). HOWEVER, WE HAVE NOTED THAT THE ISSUE BEFORE THE HONBLE SUPREME COURT WAS SLIGHTLY DIFFERENT THAN THE ISSUE IN HAND BECAUSE IN THAT CASE THE AO HAD ADOPTED DIFFERENT M ETHODS OF VALUATION OF EXCISE DUTY PAID WHEN RAW-MATERIAL WAS PURCHASED AND AT THE TIME VALUING THE UNCONSUMED RAW-MATERIAL IN THE HANDS OF THE ASSESSEE AT THE END OF THE YEAR. THE HONBL E COURT HAS THUS HELD THAT THE AO WAS NOT JUSTIFIED IN ADOPTING THE GROSS METHOD AT THE TIME OF PURCHASES AND THE NET METHOD OF VA LUATION AT THE TIME OF VALUATION OF STOCK ON HAND. HOWEVER, THE B ASIC QUESTION WHICH IS YET TO BE ASCERTAINED IS THAT WHETHER THE ASSESSEE HAS ADOPTED EXCLUSIVE METHOD OR THE INCLUSIVE METHOD . WHILE ARGUING BEFORE US, LD.AR HAS IN SUBTLE MANNER EXPRE SSED THAT ONLY FOR THE PURPOSE OF VERIFICATION OF THIS FACT THE MA TTER CAN GO BACK TO THE AO BUT ONLY AFTER ASCERTAINING THE CORRECT POSI TION OF LAW. AS FAR AS THE LEGAL ASPECT OF THIS ISSUE IS CONCERNED, WE HAVE ALREADY ITA NO. 1676/AHD/2012 ACIT (OSD) VS. M/S. VOLTAMP TRANSFORMERS LTD. ASST.YEAR -2009-10 - 8 - DISCUSSED FEW CASE LAWS HEREINABOVE AND, THEREFORE, IT IS EXPECTED FROM THE AO TO FOLLOW THE SAME ONLY AFTER ASCERTAIN ING THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE IN RESPECT OF THE DUTIES IN QUESTION. WITH THESE DIRECTIONS, WE HEREBY RESTORE THIS GROUND FOR A FRESH ADJUDICATION AS DIRECTED, HENCE TO BE TREAT ED AS ALLOWED BUT FOR STATISTICAL PURPOSES. 7.1. IN THE RESULT, ON THE SAME LINES WE DEEM IT PR OPER TO RESTORE THIS GROUND BACK TO THE STAGE OF THE A.O. TO VERIFY THE FACTS AS ALSO THE ACCOUNTING POLICY ADOPTED BY THE ASSESSEE IN RESPEC T OF MODVAT/CENVAT INCENTIVES AND IF FIND ACCORDING TO THE LAW LAID DO WN, THEN NOT TO DISTURB THE METHOD OF ACCOUNTING OF THE ASSESSEE IN THIS RE GARD. WE DIRECT ACCORDINGLY. THIS GROUND MAY BE TREATED AS ALLOWED BUT FOR STATISTICAL PURPOSES ONLY. 8. GROUND NO.3 READS AS UNDER:- 3) THE LD. COMMISSIONER OF INCOME-TAX (APPEALS)-X IV, AHMEDABAD ERRED IN LAW AND ON FACTS IN RESTRICTING THE DISALLOWANCE MADE ON ACCOUNT OF DISALLOWANCE OF COMMISSION EXPENSES AT RS.1,12,500/- AS AGAINST THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AT RS.3,93,379/-. 8.1. THE ASSESSEE HAS CLAIMED COMMISSION EXPENSE OF RS.1,50,98,366/-. COMMISSIONS WERE CLAIMED TO HAVE BEEN PAID TO VARIO US PERSONS AS PER THE AGREEMENTS. IT WAS NOTED THAT THERE WAS AN AM OUNT UNDER THE HEAD MISCELLANEOUS SALES COMMISSION OF RS.3,93,379/-. ACCORDING TO AO, THE ONUS WAS ON THE ASSESSEE TO PROVE THE GENUINENE SS OF THE PAYMENT OF COMMISSION. AFTER DETAILED DISCUSSION AND AFTER CITING FEW DECISIONS, THE AO HAS HELD THAT THE SALES COMMISSION OF RS.3,9 3,375/- REMAINED ITA NO. 1676/AHD/2012 ACIT (OSD) VS. M/S. VOLTAMP TRANSFORMERS LTD. ASST.YEAR -2009-10 - 9 - UNSUBSTANTIATED. BEING AGGRIEVED THE MATTER WAS CARRIED BEFORE THE CIT(A) WHO HAS GIVEN THE VERDICT IN ASSESSEES FAVO UR AS FOLLOWS:- 4.3. DECISION : I HAVE CAREFULLY PERUSED THE ASSESSMENT ORDER AND T HE SUBMISSIONS GIVEN BY THE APPELLANT. THE BREAKUP OF THE DISALLOWANCE OF RS.3,93,379/- MADE BY THE A.O. IS A S UNDER: SANGITA HRUDAY PATIL RS.1,12,500 ORIENTAL CONTAINERS LTD. RS.3,00,000 RS.4,12,500 LESS :RECTIFIED ENTRY OF OTHER ACCOUNTS RS. 19,121 TOTAL : RS.3,93,379 THE A.O. DISALLOWED THE ABOVE COMMISSION AS NO DETA ILS WERE FURNISHED BEFORE HIM DURING THE COURSE OF ASSE SSMENT PROCEEDINGS. IN RESPECT OF COMMISSION PAID TO SANGITA HRUDAY PAT IL, THE APPELLANT HAS SUBMITTED THAT THE AGREEMENT AND THE CORRESPONDENCE MADE WITH HER ARE NOW SUBMITTED. TH E APPELLANTS EXPLANATION CANNOT BE ACCEPTED AS THE INFORMATION WAS NOT SUPPLIED TO A.O. BY THE APPELLA NT AT THE TIME OF ASSESSMENT PROCEEDINGS IN SPITE OF REPEATED OPPORTUNITIES AND SUFFICIENT TIME. THERE IS NO PRO OF THAT THE LADY HAS OFFERED SERVICES AS CLAIMED BY HER IN THE NOTE WHICH IS SENT TO THE APPELLANT COMPANY FOR RELEASE OF PAY MENT. THE DISALLOWANCE MADE BY THE A.O. IS, THEREFORE, UPHELD . REGARDING THE PAYMENT OF RS.3,00,000/- MADE TO ORIE NTAL CONTAINERS LTD., IT HAS BEEN EXPLAINED BY THE APPEL LANT THAT THIS PAYMENT WAS PART OF THE DEBIT NOTE OF RS.1,40, 05,331/- AND WAS CLAIMED OUT OF POCKET EXPENSES BY THE COMPA NY. SINCE THE APPELLANT COMPANY DO NOT REIMBURSE SUCH EXPENSES, IT WAS NOT REIMBURSED DURING FINANCIAL YE AR 2007-08. THE ORIENTAL CONTAINERS LTD. OBJECTED TO NON- ITA NO. 1676/AHD/2012 ACIT (OSD) VS. M/S. VOLTAMP TRANSFORMERS LTD. ASST.YEAR -2009-10 - 10 - ACCEPTANCE AND THREATENED TO DISCONTINUE THE BUSINE SS RELATIONS VIDE THEIR LETTER DATED 21/05/2008. THE APPELLANT COMPANY, THEREFORE, HAD TO ACCEPT THE CLAIM PAID DU RING THE CURRENT PREVIOUS YEAR AND, THEREFORE, SHOULD BE ALL OWED. THE SUBMISSION OF THE APPELLANT IS SUPPORTED BY DOCUMENTARY EVIDENCE AND SHOULD THEREFORE BE ACCEPT ED. IT IS NOT A COMMISSION FOR SAKE, BUT IT IS A REIMBURSE MENT OF CERTAIN EXPENSES. THE PARTY TO WHOM IT HAS BEEN PA ID IS ESTABLISHED AND THE OTHER PAYMENTS MADE TO THAT PAR TY HAVE BEEN ALLOWED AS DEDUCTION. THE DEDUCTION OF RS.3,0 0,000/- IS, THEREFORE, DIRECTED TO BE ALLOWED TO THE APPELL ANT COMPANY. IN VIEW OF THE ABOVE DISCUSSION, OUT OF THE DISALLO WANCE OF RS.3,93,379/-, A DISALLOWANCE OF RS.1,12,500/- IS U PHELD AND REST IS DIRECTED TO BE DELETED. THE GROUND OF APPE AL IS ACCORDINGLY PARTLY ALLOWED . 9. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES, WE HAVE NOTED THAT THE PAYMENT MADE TO ORIENTAL CONTAINERS LTD . WAS DULY EXPLAINED AND SUBSTANTIATED. IT WAS A CASE OF REIMBURSEMENT OF CERTAIN EXPENSES AND NOT THE PAYMENT OF COMMISSION. HOWEVER, IN RESPEC T OF PAYMENT TO SANGEETA PATIL THERE WAS NO EVIDENCE SUPPORTING THE IMPUGNED CLAI M, THEREFORE LD.CIT(A) HAS CONFIRMED THE ADDITION OF R S.1,12,500/-. CONSIDERING ALL THESE FACTS, WE ARE NOT INCLINED TO INTERFERE WITH THE FACTUAL FINDING OF THE LD.CIT(A), HENCE THIS GROUN D OF THE REVENUE IS DISMISSED. 10. GROUND NO.4 READS AS UNDER:- 4) THE LD. COMMISSIONER OF INCOME-TAX(APPEALS)-X IV, AHMEDABAD ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF DEPRECIATION AMOUNTING TO RS.3,69,6 04/- MADE ON VEHICLE. ITA NO. 1676/AHD/2012 ACIT (OSD) VS. M/S. VOLTAMP TRANSFORMERS LTD. ASST.YEAR -2009-10 - 11 - 10.1. THE ASSESSEE HAS CLAIMED EXCESS DEPRECIATION OF RS.3,69,604/- ON THE NEW COMMERCIAL VEHICLE PURCHASED. THE AOS OBJECTION WAS THAT THOSE VEHICLES WERE NOT REGISTERED BY THE RTO COMM ERCIAL VEHICLE, THEREFORE THE ASSESSEE WAS NOT ENTITLED FOR ADDITIO NAL DEPRECIATION CLAIMED @ 50% ON THOSE VEHICLES ACQUIRED DURING THE YEAR. WHEN THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY, L D.CIT(A) HAS EXAMINED THE PROVISIONS OF MOTOR VEHICLE ACT AND ALLOWED THE CLAIM AS FOLLOWS:- 5.3. DECISION : I HAVE CAREFULLY PERUSED THE ASSESSMENT ORDER AND T HE SUBMISSIONS GIVEN BY THE APPELLANT. THE A.O. HAS DISALLOWED TH E CLAIM OF DEPRECIATION AT HIGHER RATE AS IT HAS BEEN HELD BY HIM THAT THE VEHICLE WAS NOT A COMMERCIAL VEHICLE. THE A.O. HAS TOKEN THE MEANING OF COMMERCIAL VEHICLE IN COMMON PARLANCE AN D HAS HELD THAT COMMERCIAL VEHICLE IS DISTINCT AND DIFFERENT F ROM PRIVATE VEHICLE AND THE VEHICLE USED BY THE APPELLANT IS A PRIVATE VEHICLE. THE APPELLANT HAS SUBMITTED THAT AS PER NOTE NO. 6 TO THE RULES IN APPENDIX-I, THE WORD COMMERCIAL VEHICLE HAS BEEN DE FINED TO INCLUDE LIGHT MOTOR VEHICLE AS DEFINED BY MOTOR VEH ICLE ACT, 1988. FURTHER, SECTION 2(21) OF THE MOTOR VEHICLE ACT DEFINE THE WORD LIGHT MOTOR VEHICLE AS LIGHT MOTOR VEHICLE MEANS TRANSPORT VEHICLE OR AMN IBUS. THE GROSS VEHICLE WEIGHT OF EITHER OF WHICH OR A MO TOR CAR OR A TRACTOR OR ROAD ROLLER, THE UNLADEN WEIGHT OF ANY OF WHICH DOES NOT EXCEED 7500 KG. THE APPELLANT HAS FURTHER SUBMITTED THAT AS PER THE RC BOOK, THE VEHICLE IS LMV AND THE WEIGHT OF THE CAR IS 2074 KG . AND THE UNLADEN WEIGHT IS 1454 KG. WHICH WAS LESS THAN 7500 KG. THEREFORE, THE APPELLANT HAS CLAIMED THAT THE CAR P URCHASED WAS A COMMERCIAL VEHICLE AND APPELLANT WAS ENTITLED TO DE PRECIATION AT HIGHER RATE. AFTER CONSIDERING THE SUBMISSION OF THE APPELLANT AND THE FACTS, I AM INCLINED TO ACCEPT THE SUBMISSION MADE BY THE AP PELLANT. THE CLAUSE ITA NO. 1676/AHD/2012 ACIT (OSD) VS. M/S. VOLTAMP TRANSFORMERS LTD. ASST.YEAR -2009-10 - 12 - VI-A OF THE APPENDIX I.E. THE TABLE OF RATES OF WHI CH DEPRECIATION IS ADMISSIBLE PRESCRIBES THE DEPRECIATION @ 50% FOR NE W COMMERCIAL VEHICLE WHICH IS ACQUIRED ON OR AFTER 01/01/2009 BU T BEFORE 01/04/2009 AND IS PUT TO USE BEFORE 01/04/2009 FOR THE PURPOSE OF BUSINESS OR PROFESSION. FURTHER PARAGRAPH 6 OF THE NOTE BELOW THE TABLE DEFINES COMMERCIAL VEHICLES WHICH INCLUDES LIGHT MOTOR VEHI CLES AS PER THE MOTOR VEHICLE ACTS, THE SPECIFICATIONS FOR WHICH AR E REPRODUCED IN THE PRECEDING PARAGRAPH. THEREFORE, IT IS CLEAR THAT T HE APPELLANT IS ETITLED FOR DEPRECIATION @ 50% WHICH WAS GIVEN AS AN INCENT IVE FOR A SHORT PERIOD BETWEEN 01/01/2009 TO 01/04/2009 BUT THE PER IOD WAS LATER ON EXTENDED UPTO 01/10/2009. THE VEHICLE PURCHASED BY THE APPELLANT FULFILLS ALL THE CONDITIONS PRESCRIBED IN THE INCOM E TAX ACT AND THE RELATED MOTOR VEHICLE ACT AND FALLS WITHIN THE DEFI NITION OF COMMERCIAL VEHICLE. THE ACT HAS NOWHERE PRESCRIBED THAT A COM MERCIAL VEHICLE SHOULD BE A VEHICLE WHICH IS USED FOR THE PURPOSE O F HIRE. IT ONLY PRESCRIBES THAT THE VEHICLE SHOULD BE USED FOR THE PURPOSE OF BUSINESS OR PROFESSION. THE APPELLANT IS, THEREFORE, ENTITLED FOR THE DEPRECIATION @50%. THE GROUND OF APPEAL IS ACCORDINGLY ALLOWED . 11. ON HEARING BOTH THE SIDES, WE ARE OF THE CONSI DERED VIEW THAT LD.CIT(A) HAS RIGHTLY INTERPRETED THE RELEVANT PROV ISIONS OF MOTOR VEHICLE ACT, WHEREIN THE WORD COMMERCIAL VEHICLE HAS BEEN DEFINED. ONCE THE RELEVANT ACT HAS GIVEN A SPECIFICATION IN RESPECT OF A PARTICULAR TYPE OF VEHICLE, THEN THERE IS NO SCOPE LEFT TO INT ERPRET THE COMMERCIAL VEHICLE AS PER COMMON PARLANCE OR COMMON UNDERSTAND ING. THE FINDING IN THIS REGARD OF LD.CIT(A) IS HEREBY CONFI RMED. THIS GROUND OF THE REVENUE IS DISMISSED. 12. GROUND NO.5 READS AS UNDER:- 5) THE LD.COMMISSIONER OF INCOME-TAX (APPEALS)-XIV , AHMEDABAD ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF DEPRECIATION AMOUNTING TO RS.8,93,1 92/- MADE ON SOFTWARE. ITA NO. 1676/AHD/2012 ACIT (OSD) VS. M/S. VOLTAMP TRANSFORMERS LTD. ASST.YEAR -2009-10 - 13 - 12.1. THE ASSESSEE HAS CLAIMED DEPRECIATION ON COMP UTER SOFTWARE AT RS.8,93,192/-. THE AO HAS NOT ALLOWED THE EXCES S DEPRECIATION AND REDUCED THE SAME TO NORMAL DEPRECIATION @ 25%. W HEN THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY, LD.CI T(A) HAS HELD AS FOLLOWS:- 6.3. DECISION : I HAVE CAREFULLY PERUSED THE ASSESSMENT ORDER AND T HE SUBMISSIONS GIVEN BY THE APPELLANT. THE A.O. HAS D ISALLOWED THE DEPRECIATION @ 60% CLAIMED BY THE APPELLANT BY HOLD ING THAT IT WAS AN APPLICATION SOFTWARE AND SHOULD BE TREATED A S INTANGIBLE ASSET AND ACCORDINGLY IT WAS ENTITLED FOR DEPRECIA TION @ 25%. THE APPELLANT HAS SUBMITTED THAT THE DISTINCTION BE TWEEN SYSTEM SOFTWARE AND APPLICATION SOFTWARE MADE BY THE A.O. IS NOT APPLICABLE. THE CLAIM OF THE APPELLANT IS DULY SUP PORTED BY THE PROVISIONS OF THE INCOME TAX ACT. IT HAS INVITED M Y ATTENTION TO NOTE NO.7 OF THE APPENDIX I WHICH DEFINES THE COM PUTER SOFTWARE AS UNDER: COMPUTER SOFTWARE MEANS ANY COMPUTER PROGRAMME RECORDED ON ANY DISK, TAPE, PERFORATED MEDIA OR OTH ER INFORMATION STORAGE DEVICE. IT HAS FURTHER BEEN EXPLAINED BY THE APPELLANT THAT THE CLASSIFICATION MADE BY AS 26 SPECIFYING COMPUTER S OFTWARE AS INTANGIBLE ASSET HAS NO RELATION WITH THE APPLICABI LITY OF DEPRECIATION AS PER I.T. RULES. AFTER CONSIDERING THE EXPLANATION OF THE APPELLANT, I AM INCLINED TO ACCEPT THE VIEW PROPOUNDED BY THE APPELLANT. THE I NCOME TAX ACT DOES NOT MAKE ANY DIFFERENCE BETWEEN THE SYSTEM SOF TWARE AND THE APPLICATION SOFTWARE. THE SCHEDULE ONLY PROVIDES T HE DEPRECIATION @ 60% ON THE COMPUTER SOFTWARE AND THE TERM COMPUT ER SOFTWARE HAS ALSO BEEN DEFINED IN THE APPENDIX I . THE CLASSIFICATION MADE BY THE ACCOUNTING STANDARDS CAN NOT OVERWRITE ITA NO. 1676/AHD/2012 ACIT (OSD) VS. M/S. VOLTAMP TRANSFORMERS LTD. ASST.YEAR -2009-10 - 14 - THE DEFINITION GIVEN IN THE INCOME TAX ACT. ACCORD INGLY, THE APPELLANT IS ENTITLED TO DEPRECIATION @ 60%. THE G ROUNDS OF APPEAL ARE ACCORDINGLY ALLOWED . 13. ON HEARING THE SUBMISSIONS OF BOTH THE SIDES, W E ARE NOT INCLINED TO INTERFERE WITH THE LEGAL FINDING OF LD.CIT(A). IN OUR OPINION, HE HAS CORRECTLY INTERPRETED THE APPENDIX. THEREFORE, THIS GROUND OF THE REVENUE IS DISMISSED. 14. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED THAT TOO FOR STATISTICAL PURPOSES ONLY. SD/- SD/- ( . . ) ( ) ( T.R. MEENA ) ( MUKUL KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL ME MBER AHMEDABAD; DATED 22/ 3 /2013 ..) , .)../ T.C. NAIR, SR. PS ! '#$% &%# / COPY OF THE ORDER FORWARDED TO : 1. !$ / THE APPELLANT 2. %&!$ / THE RESPONDENT. 3. /01 2 / CONCERNED CIT 4. 2 () / THE CIT(A)-XIV, AHMEDABAD 5. 56 7 % )01, 01 , 8 / / DR, ITAT, AHMEDABAD 6. 7 9 : * / GUARD FILE. ' ( / BY ORDER, & 5 % //TRUE COPY// )/' * ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD