The ITO, Ward-8(1), Ahmedabad V. Santosh Starch Ltd., Ahmedabad

ITA 1704/AHD/2009

• Counselvise Citation: 170420514 RSA 2009
• Duration Of Justice: 3 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-11-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 08-08-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 25-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M MATHIAVANAN
• Keywords: Capital asset; Depreciation; Tax effect; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH AHMEDABAD (BEFORE SHRI G. C. GUPTA, VP AND SHRI A. MOHAN ALAN KAMONY, AM) ITA NO. 1704/AHD/2009 A. Y.: 2006-07 THE INCOME TAX OFFICER, WARD 8 (1), 4 TH FLOOR, A WING, AJANATA COMMERCIAL CENTER, ASHRAM ROAD, AHMEDABAD VS SANTOSH STARCH LTD., 71 NEW CLOTH MARKET, OUTSIDE RAIPUR GATE, AHMEDABAD, P. A. NO. AACCS 7445 N (APPELLANT) (RESPONDENT) APPELLANT BY SHRI M. MATHIAVANAN, SR, DR RESPONDENT BY SHRI GAURAV NAHTA, AR DATE OF HEARING: 08-08-2012 DATE OF PRONOUNCEMENT: 02-11-2012 O R D E R PER A. MOHAN ALANKAMONY: THIS APPEAL IS FILED BY THE REVENUE AGGRIEVED BY THE ORDER OF THE LEARNED CIT(A )-XIV, AHMEDABAD DATED 27-03-2009 IN APPEAL NO. CIT(A)- XIV/WD.8(1)/188/08-09, FOR ASSESSMENT YEAR 2006-07 PASSED U/S 250 READ WITH SECTION 143(3) OF THE ACT. 2. THE ASSESSEE, A LIMITED COMPANY ENGAGED IN MANUF ACTURING STARCH FILED HIS RETURN OF INCOME FOR AY 2006-07 EL ECTRONICALLY ON 29 TH DECEMBER, 2006 DECLARING INCOME AT NIL. THE RETURN WAS SELECTED FOR SCRUTINY AND PROCESSED U/S 143 (1) OF THE ACT. SUBS EQUENTLY, THE ASSESSMENT WAS FINALIZED BY THE LEARNED AO U/S 143( 3) ON 08 TH ITA NO.1704/AHD/2009 (AY: 2006-07) ITO, W-8(1), AHMEDABAD VS SANTOSH STARCH LTD. 2 DECEMBER, 2008, WHEREIN THE LEARNED AO HAD MADE CER TAIN ADDITIONS BY DISALLOWING VARIOUS CLAIMS OF THE ASSESSEE. HOWE VER, THE LEARNED CIT(A) DIRECTED THE LEARNED AO TO DELETE THE ADDITI ONS MADE BY HIM. THE REVENUE WENT IN APPEAL BEFORE THE TRIBUNAL AGAI NST THE ORDER OF THE LEARNED CIT(A) AND THE TRIBUNAL VIDE ITS ORDER DATED 25-09-2009 DECIDED THE APPEAL AGAINST THE REVENUE FOR THE REAS ONS THAT THE TAX EFFECT INVOLVED IN THE DEPARTMENTAL APPEAL IS BELOW THE LIMIT PRESCRIBED BY THE CBDT AT THE RELEVANT TIME. THE R EVENUE BEING AGGRIEVED BY THE AFORESAID DECISION OF THE TRIBUNAL CARRIED THE MATTER IN APPEAL BEFORE THE HONBLE GUJARAT HIGH COURT IN TAX APPEAL NO.604 OF 2010. THE HONBLE HIGH COURT WHILE ADMITT ING THE APPEAL HAD FRAMED THE FOLLOWING QUESTION: WHETHER THE APPELLATE TRIBUNAL IS RIGHT IN LAW AN D ON FACTS IN DISMISSING THE APPEALS OF THE REVENUE ON THE GROUND OF LOW TAX EFFECT, THOUGH NOTIONAL TAX EFFECT EXCEEDED THE MON ETARY LIMIT PRESCRIBED BY THE BOARD? THE HONBLE HIGH COURT FOLLOWING THEIR JUDGMENT DAT ED 09-05-2011 IN GROUP OF TAX APPEALS BEING TAX APPEAL NO.1601 OF 20 09 AND CONNECTED APPEALS ANSWERED THE QUESTION IN FAVOUR O F THE REVENUE AND DIRECTED THE TRIBUNAL TO ADJUDICATE THE APPEAL ON MERITS. 3. NOW, AS PER THE AFORESAID DIRECTION OF THE HONB LE GUJARAT HIGH COURT THE CASE IS PLACED BEFORE US FOR CONSIDERATIO N ON MERITS. THE REVENUE HAS IN ITS APPEAL RAISED TEN ELABORATE GROU NDS WHEREIN GROUNDS NO.1, 3, 5, 7, 9 AND 10 ARE GENERAL IN NATU RE AND DO NOT SURVIVE FOR ADJUDICATION. SURVIVING GROUNDS NO.2, 4 , 6 AND 8 OF THE APPEAL ARE REPRODUCED HEREUNDER FOR REFERENCE: ITA NO.1704/AHD/2009 (AY: 2006-07) ITO, W-8(1), AHMEDABAD VS SANTOSH STARCH LTD. 3 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.2,68,000/- IN RESPECT OF INTERES T ON BORROWED CAPITAL. 4. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.1,95,458/- IN RESPECT OF DEPRECIATION AND OTHER EXPENSES. 6. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE BY CAPITALIZING THE EXPENSES UNDER THE HEAD REPAIRS AND MAINTENANCE AMOUNTING TO RS.12,38,533/-. 8. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.18,000/- U/S 40A (2) (B) OF THE I. T. ACT. 4. GROUNDS NO. 2: DELETING ADDITION OF RS.2,68,000/- IN RESPECT OF INTEREST ON BORROWED CAPITAL. DURING THE ASSESSMENT PROCEEDINGS THE LEARNED AO NOTICED THAT THE ASSESSE E HAD MADE NEW ADDITIONS IN THE ASSETS AMOUNTING TO RS.2,28,28 ,894/- FROM ITS BORROWED FUNDS. THE LEARNED AO REQUIRED THE ASSESSE E TO EXPLAIN IF IT HAD CAPITALIZED ANY INTEREST COST ON THE ASSETS PRI OR TO THE ASSETS PUT TO USE. THE ASSESSEE EXPLAINED THAT ADDITION TO PL ANT AND MACHINERY WAS RS.86,14,054/- AND IN RESPECT OF BUILDING IT WA S RS.97,65,983/- AND REMAINING ADDITION WAS IN RELATION TO VEHICLES WHICH WERE PUT TO USE FROM THE DATE OF ACQUISITION. IT WAS FURTHER SU BMITTED THAT IN RESPECT OF PLANT & MACHINERY AND BUILDING, THE ASSE SSEE HAD NOT AVAILED ANY DIRECT BORROWING TO ACQUIRE THE SAME AN D THEREFORE NO INTEREST WAS CAPITALIZED. THE LEARNED AO DID NOT A CCEPT THE CONTENTION OF THE ASSESSEE ON THE FOLLOWING REASONS : (I) ON PERUSAL OF THE SANCTION LETTER OF LIMITS OF KARUR VYSYA BANK LTD. DATED 4/12/2004, IT IS SEEN THAT THE BANK HAS ITA NO.1704/AHD/2009 (AY: 2006-07) ITO, W-8(1), AHMEDABAD VS SANTOSH STARCH LTD. 4 STATED THAT THE SAID LOAN SHALL BE RELEASED IN STAG ES DEPENDING ON THE PROGRESS OF CONSTRUCTION/ARRIVAL/INSTALLATION OF MACHINERIES. I N VIEW OF THIS, THE ASSESSEES ARGUMENT THAT THE COMPANY HAD NOT AVAILED ANY DIRECT BORROWING TO ACQUIRE ASSET IS NO T TRUE. (II) THE ASSESSEES CONTENTION THAT IT HAS USED ACC RUAL PROFIT OF THE COMPANY IS ALSO NOT SUBSTANTIATED BY ANY EVI DENCE LIKE CASH FLOW STATEMENT. IT IS NOTICED THAT THE AS SESSEE HAD BOTH SECURED AND UNSECURED LOANS AMOUNTING TO RS.24.20 CRORES AS ON 31.03.2005 WHICH STANDS AT RS.36.22 CRORES AS AT 31.03.2006. AS AGAINST THIS, THE ASSESSEE HAS 15.79 CRORES AS INVENTORY, DEBTORS, LOANS/ADVANCES AND BANK & CASH BALANCES. THE FIXED ASSETS ALSO STAND AT RS.30.60 CRORES. CONSIDERING A LL THESE FACTORS, IT IS NOT JUST POSSIBLE THAT THE ASS ESSEE HAS NOT USED THE LOAN FUNDS FOR ACQUISITION OF NEW ASSE TS. 5. IT WAS FURTHER OBSERVED BY THE LEARNED AO THAT T HE ASSESSEE HAD DEBITED INTEREST AMOUNTING TO RS.3,21,78,324/- WHICH INCLUDED BANKING CHARGES. THE RATIO OF NEW ASSETS I.E. BUILD ING AND MACHINERY TO SECURED AND UNSECURED LOANS COMES TO 1.83 / 36.2 2 I.E. 0.05. INTEREST ATTRIBUTABLE TO BUILDING AND MACHINERIES C OULD BE RS.16,08,916/-. THE ASSESSEE HAD NOT GIVEN ANY DETA ILS OF EXACT DATE OF PURCHASE OF MACHINERIES AND DATE OF PUTTING THE SAME TO USE. THE LEARNED AO ON PERUSAL OF DEPRECIATION CHART FOUND T HAT MOST OF THE DEPRECIATION ON NEW ADDITIONS HAD BEEN CLAIMED AFTE R 1-10-2005. ACCORDINGLY, THE LEARNED AO IN VIEW OF THE ABOVE FA CTS CONSIDERED TWO MONTHS INTEREST AS INTEREST COST INCURRED ON NE W ASSETS WHICH WERE TO BE CAPITALIZED AND WORKED OUT THE TOTAL INT EREST AT RS.2,68,000/- AND DISALLOWED THE SAME. ITA NO.1704/AHD/2009 (AY: 2006-07) ITO, W-8(1), AHMEDABAD VS SANTOSH STARCH LTD. 5 6. THE ASSESSEE CARRIED THE MATTER BEFORE THE LEARN ED CIT(A). THE LEARNED CIT(A), CONSIDERING THE FACTS OF THE CASE A ND THE SUBMISSION OF THE ASSESSEE DIRECTED THE LEARNED AO TO DELETE T HE ADDITION BY OBSERVING IN PARA 2.3 OF HIS ORDER AS UNDER: 2.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND TH E SUBMISSION OF THE A. R. IT IS SEEN FROM THE DETAILS FURNISHED THAT THE APPELLANT HAS NOT AVAILED ANY SPECIFIC LOAN WHI CH HAS BEEN USED FOR ADDITION TO CAPITAL ASSETS AND THERE WERE NO BANK BORROWINGS SPECIFICALLY FOR ACQUIRING FIXED ASSETS. FURTHER THE LOAN AVAILED OFF WAS USED FOR WORKING CAPITAL AND T HE SAME WAS NOT USED FOR PURCHASING MACHINERIES AND IT IS FURTH ER SEEN THAT THE ADDITION DURING THE YEAR ON THIS COUNT IS VERY NEGLIGIBLE AS COMPARED TO LAST YEAR. FURTHER THE APPELLANT IS HAV ING SUFFICIENT INTEREST FREE FUNDS AND HENCE THE QUESTION OF UTILI ZING THE INTEREST BEARING FUNDS FOR MAKING ADDITION TO ASSET S DID NOT ARISE AT ALL AND THE AO HAS NOT BEEN ABLE TO PROVE THE NEXUS BETWEEN THE INTEREST BEARING LOANS AND THE FUNDS US ED FOR MAKING ADDITION TO ASSETS. IT IS ALSO SEEN THAT DUR ING THE YEAR, TERM LOAN HAS INCREASED FROM RS.16.50 CR. TO RS.16, 62 CR ONLY AND THE INCREASE IN THE WORKING CAPITAL WAS NOT MEA NT FOR ASSETS. BY FOLLOWING VARIOUS CASE LAWS AS RELIED UP ON BY THE A. R. INCLUDING THE DECISION IN THE CASE OF TORRENT FI NANCIERS VS. ACIT 73 TTJ 624 (AHD A BENCH), I AM OF THE OPINIO N THAT THE INTEREST PAYMENT CANNOT BE CAPITALIZED WHEN THE BOR ROWED FUNDS HAVE NOT BEEN UTILIZED FOR PURCHASE OF ASSETS AND THERE IS NO EXTENSION OF BUSINESS. I, THEREFORE, HOLD THAT T HE DISALLOWANCE MADE BY THE A. O. BY TREATING THE INTE REST PAYMENT AS CAPITAL IN NATURE IS NOT JUSTIFIED AND T HE SAME IS DIRECTED TO BE DELETED. AGAINST THE FINDINGS OF THE LEARNED CIT(A), THE REV ENUE IS IN APPEAL BEFORE US. 7. THE LEARNED DR SUPPORTED THE ORDER OF THE AO. ON THE OTHER HAND, THE LEARNED AR SUPPORTED THE ORDER OF THE LEA RNED CIT(A). ITA NO.1704/AHD/2009 (AY: 2006-07) ITO, W-8(1), AHMEDABAD VS SANTOSH STARCH LTD. 6 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y PERUSED THE MATERIALS ON RECORD INCLUDING THE PAPER BOOK FILED BY THE ASSESSEE RUNNING TO 30 PAGES. THE LEARNED CIT(A) HAD DELETED THE DISALLOWANCE MADE BY THE LEARNED AO BASED ON THE FO LLOWING REASONS WHICH WERE FURTHER SUBSTANTIATED BY DOCUMEN TARY EVIDENCES PRODUCED BY THE ASSESSEE: (I) THE ASSESSEE HAD NOT AVAILED ANY SPECIFIC LOAN WHICH HAS BEEN USED FOR ADDITION TO CAPITAL ASSETS. (II) THERE WAS NO BANK BORROWING IN ORDER TO ACQUIR E FIXED ASSETS. (III) WHATEVER BANKING LOAN WAS AVAILED IT WAS USED FOR WORKING CAPITAL. (IV) THE ASSESSEE HAD SUFFICIENT INTEREST-FREE FUND S FOR PROCURING FIXED ASSETS. 9. THE REVENUE COULD NOT CONTROVERT THE ABOVE FINDI NGS OF THE LEARNED CIT(A) WITH ANY COGENT EVIDENCE. MOREOVER, ON PERUSING THE PAPER BOOK AT PAGE NO.10 WHEREIN THE CHARTERED ACCO UNTANTS OF THE ASSESSEE COMPANY HAD CERTIFIED THAT BORROWING COSTS ARE RECOGNIZED AS EXPENSES IN THE PERIOD IN WHICH THEY ARE INCURRED, EXCEPT TO THE EXTENT WHERE BORROWING COSTS THAT ARE DIRECTLY ATTRIBUTABLE TO THE ACQUISITION, CONSTRUCTION, OR P RODUCTION OF AN ASSET TILL PUT FOR ITS INTENDED USE IS CAPITALIZED AS PART OF THE COST OF THAT ASSET. A QUALIFYING ASSET IS ONE THAT NECES SARILY TAKES SUBSTANTIAL PERIOD OF TIME TO GET READY FOR INTENDE D USE. ALL OTHER BORROWING COST IS CHARGED TO REVENUE. FROM THE ABOVE FACTS, IT IS APPARENT THAT THE ASSESSEE HAS NOT CHARGED ANY INTE REST EXPENSE ATTRIBUTABLE TO PURCHASE OF FIXED ASSET TO THE PROF IT AND LOSS ACCOUNT OF THE ASSESSEE. THEREFORE, WE HEREBY CONFIRM THE ORDE R OF THE LEARNED ITA NO.1704/AHD/2009 (AY: 2006-07) ITO, W-8(1), AHMEDABAD VS SANTOSH STARCH LTD. 7 CIT(A) ON THIS ISSUE. THUS, GROUND NO.2 RAISED BY T HE REVENUE AGAINST DELETING OF ADDITION OF RS.2,68,000/- IN RE SPECT OF INTEREST ON BORROWED CAPITAL IS DECIDED AGAINST THE REVENUE AND , THEREFORE, DISMISSED. 10. GROUND NO.4: DELETING THE DISALLOWANCE OF RS.1,95,458/- IN RESPECT OF DEPRECIATION AND OTHER EXPENSES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LEARNED AO DISALLOWED T HE CLAIM OF DEPRECIATION ON THE GROUND THAT THE MOTOR CARS HAVE BEEN PURCHASED IN THE NAME OF TWO DIRECTORS VIZ SHRI MAHABIR S. CH OWDHARY AND SHRI GAUTAM CHOWDHARY AND THE SAME WAS NOT PURCHASED IN THE NAME OF THE ASSESSEE COMPANY. THE LEARNED AO BY PLACING REL IANCE ON THE DECISION IN THE CASE OF M. M. FISHERIES REPORTED IN 227 ITR 204 (DEL.) DISALLOWED RS.1,45,45/- ON ACCOUNT OF DEPRECIATION AND RS.50,000/- ON ACCOUNT OF EXPENSES ON VEHICLES TOTALING TO RS.1 ,95,458/- HOLDING THAT SINCE THE VEHICLES WERE NOT OWNED BY THE ASSES SEE COMPANY, THE ASSESSEE WAS NOT ENTITLED FOR ANY CLAIM OF DEPR ECIATION AND EXPENSES ON THE SAID CARS. 11. ON APPEAL BEFORE THE LEARNED CIT(A), THE CLAIM OF THE ASSESSEE WAS DIRECTED TO BE DELETED BY THE LEARNED CIT(A) BY OBSERVING AS UNDER IN PARA 3.3 OF HIS ORDER: 3.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND TH E SUBMISSIONS ALONG WITH THE JUDICIAL PRONOUNCEMENT A S RELIED UPON. I AM INCLINED TO AGREE WITH THE VIEWS OF THE APPELLANT AND HOLD THAT THE CAR PURCHASED OUT OF FUNDS OF THE COM PANY IS AN ASSET OF THE APPELLANT COMPANY, THOUGH THE SAME WAS REGISTERED IN THE NAME OF THE DIRECTOR AND HENCE TH ERE WAS NO JUSTIFICATION FOR DISALLOWANCE OF DEPRECIATION AND RELATED ITA NO.1704/AHD/2009 (AY: 2006-07) ITO, W-8(1), AHMEDABAD VS SANTOSH STARCH LTD. 8 EXPENSES. FURTHER, IT IS ALSO SEEN THAT THE REASON FOR REGISTERING THE VEHICLE IN THE NAME OF THE DIRECTORS WAS TO GET LOWER R. T. O. TAX, OTHERWISE THE CAR WAS WHOLLY AND EXCLUSIVEL Y USED FOR THE BUSINESS OF APPELLANT. BY FOLLOWING THE CASE LA WS, SUPRA, I HOLD THAT THE A. O. IS NOT JUSTIFIED IN MAKING THE DISALLOWANCE MOUNTING TO RS.1,95,458/- AND THE SAME IS DIRECTED TO BE DELETED. I ALSO FIND THAT THE CAR EXPENSES CANNOT B E DISALLOWED IN THE HANDS OF A COMPANY AS THERE CANNOT BE ANY PE RSONAL EXPENSES IN CASE OF A COMPANY AS HELD IN SAYAJI IRO N & ENGINEERING CO. 253 ITR 749 (GUJ.). REVENUE PREFERRED APPEAL BEFORE US AGAINST THIS ORD ER OF THE LEARNED CIT(A). 12. BEFORE US, THE LEARNED DR SUPPORTED THE ORDER O F THE LEARNED AO AND ON THE OTHER HAND, THE LEARNED AR SUPPORTED THE ORDER OF THE LEARNED CIT(A). LEARNED AR FURTHER SUBMITTED THAT T HIS ISSUE HAD BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE ITAT AHMEDABAD B BENCH IN ASSESSEES OWN CASE FOR AY 2007-08 IN ITA NO.1884/AHD/2010 DATED 19-11-2010, WHEREIN IT WAS H ELD AS UNDER: 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND TH AT AS REGARDS OWNERSHIP OF THE VEHICLE IS CONCERNED, IT I S PURCHASED BY THE ASSESSEE-COMPANY IN THE NAME OF DIRECTOR AND IT IS NOT IN DISPUTE THAT FUND FOR PURCHASE OF THE VEHICLE WA S FROM THE ASSESSEE-COMPANY. BEFORE US ALSO ASSESSEE FILED COM PLETE FUNDS FLOW STATEMENT WHICH PROVES THAT THE VEHICLE WAS PURCHASED FROM THE ASSESSEE-COMPANYS FUNDS. WE FIN D THAT HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT V. MOHD. BUX SHOKAT ALI (NO.2) (2002) 256 ITR 357 (RAJ) HELD THA T ASSESSEE- COMPANY-FIRM WAS ENTITLED TO DEPRECIATION ON VEHICL E PURCHASED BY IT FOR ITS BUSINESS PURPOSE BUT REGISTERED IN TH E NAME OF ONE OF THE PARTNERS. FURTHER, THE HONBLE DELHI HIGH CO URT IN THE CASE OF CIT V. BASTI SUGAR MILLS LTD. (2002) 257 IT R 88 (DEL) HELD THAT ASSESSEE WAS ENTITLED TO DEPRECIATION ON VEHICLE ITA NO.1704/AHD/2009 (AY: 2006-07) ITO, W-8(1), AHMEDABAD VS SANTOSH STARCH LTD. 9 THOUGH THE VEHICLE WAS NOT REGISTERED IN ITS NAME. THE ASSESSEE-COMPANY ALSO SUBMITTED THAT HONBLE SUPREM E COURT IN THE CASE OF MYSORE MINERALS LTD. V. CIT (1999) 2 39 ITR 775 (SC) AND CIT V. PODAR CEMENT PVT. LTD. & OTHERS (19 97) 226 ITR 625 (SC) HAS HELD THAT MEANING OF OWNED BY ASSE SSEE SHOULD BE GIVEN IN WIDER SENSE. THE PERSON WHO ENJO YS THE PROPERTY IS THE OWNER ELIGIBLE FOR DEPRECIATION EVE N THOUGH HE MAY NOT BE OWNER LEGALLY. ACCORDINGLY, THE ASSESSEE WAS HELD ENTITLED TO DEPRECIATION IN RESPECT OF PROPERTIES O F WHICH THE ASSESSEE HAD NOT OBTAINED A DEED OF CONVEYANCE FROM THE VENDORS ALTHOUGH. IT HAD TAKEN POSSESSION AND MADE PART PAYMENT OF THE CONSIDERATION. AS REGARDS TO USES OF THE CAR, ASSESSEE FILED COPY OF ACCOUNT OF PETROL AND DIESEL EXPENSES AND HE HAS DEMONSTRATED THE PETROL EXPENDITURE FOR THE MONTH OF DEC.07 I.E. ON 12-12-2006 AND 05-03-2007 AMOUNT ING TO RS.22,889/- AND RS.23,373/- PURCHASED FOR THE VEHIC LE IN THE NAME OF DIRECTOR OF THE ASSESSEE-COMPANY. IN VIEW O F THE ABOVE FACTS, WE ARE OF THE VIEW THAT THE LOWER AUTH ORITIES HAVE ERRED IN DISALLOWANCE OF DEPRECIATION. WE ALLOW THE CLAIM OF THE ASSESSEE. ACCORDINGLY, THE LEARNED AR PRAYED THAT THE ORDER O F THE LEARNED AO MAY BE SUSTAINED. 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE MATERIALS ON RECORD AND THE DECISION OF THE ITAT RE LIED UPON BY THE ASSESSEE. AT THE OUTSET, WE MUST SAY THAT THE LEARN ED DR COULD NOT CONTROVERT TO THE SUBMISSION OF THE LEARNED AR OR D ISTINGUISH THE DECISION OF ITAT REFERRED SUPRA WHICH WAS HEAVILY R ELIED UPON BY THE LEARNED AR. ON PERUSING THE FACTS, IT IS APPARENT T HAT THE FACTS THIS CASE IS IDENTICAL TO THE FACTS DECIDED BY THE TRIBU NAL CITED SUPRA. THEREFORE, FOLLOWING THE AFORESAID DECISION OF OUR CO-ORDINATE BENCH, WE HEREBY CONFIRM THE ORDER OF THE LEARNED CIT(A) A ND DISMISS GROUND NO.4 RAISED BY THE REVENUE IN THIS APPEAL. ITA NO.1704/AHD/2009 (AY: 2006-07) ITO, W-8(1), AHMEDABAD VS SANTOSH STARCH LTD. 10 14. GROUND NO.6: DELETING DISALLOWANCE BY CAPITALIZING EXPENSES UNDER THE HEAD REPAIRS AND MAINTENANCE A MOUNTING TO RS.12,38,533/-. THE LEARNED AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT CERTAIN EXPENSES APPEARING AS CAPITAL EXPENSES HAVE BEEN DEBITED BY THE ASSESSEE AS REVEN UE EXPENSES. ON PERUSAL OF THE BILLS SUBMITTED BY THE ASSESSEE C LAIMING THE SAME AS REVENUE EXPENSES, THE LEARNED AO, PARTIALLY ACCE PTED THE CONTENTION OF THE ASSESSEE AS SOME OF THE GOODS WER E PURCHASED FOR ELECTRIFICATION OF STAFF QUARTERS AND OVERHAULING O F EXISTING BORE-WELLS. HOWEVER, FOR THE COST OF NEW CONSTRUCTIONS AND FABR ICATIONS INCURRED BY THE ASSESSEE, THE LEARNED AO TREATED AN AMOUNT O F RS.12,38,533/- AS CAPITAL IN NATURE AND DISALLOWED THE SAME AS REV ENUE EXPENDITURE. 15. THE ASSESSEE CARRIED THE MATTER BEFORE THE LEAR NED CIT(A) WHO HELD AS UNDER: 4.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND TH E SUBMISSIONS AS ADVANCED BY THE A. R. OF THE APPELLA NT. FROM THE DETAILS FURNISHED BY THE APPELLANT, IT IS SEEN THAT THE ACTUAL EXPENDITURE ATTRIBUTABLE TO REPAIRS IS ONLY 1.12% O F TOTAL TURNOVER AND BY REPLYING ON THE JUDICIAL DECISION A S RELIED UPON, I AM OF HT E OPINION THAT THE SAME REPRESENTS REPAI RS AND I HOLD THE SAME AS REVENUE EXPENDITURE AND DELETE THE DISA LLOWANCE OF RS.12,38,533/- AND DIRECT THE A. O. TO WITHDRAW DEPRECIATION ALLOWED ON THE SAME. NOW, THE REVENUE IS IN APPEAL BEFORE US AGAINST THI S FINDING OF THE LEARNED CIT(A). ITA NO.1704/AHD/2009 (AY: 2006-07) ITO, W-8(1), AHMEDABAD VS SANTOSH STARCH LTD. 11 16. THE LEARNED DR RELIED ON THE ORDER OF THE LEARN ED AO AND ON THE OTHER HAND, THE LEARNED AR SUPPORTED THE ORDER OF THE LEARNED CIT(A). 17. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS ON RECORD. BEFORE US THE ASSESSEE SUBMITTED DETAILS OF REPAIRS AND MAINTENANCE (PAPER BOOK PAGES 19 TO 30) ALONG WITH EXPLANATION AND COPIES OF INVOICES. ON PERUSING THE ASSESSMENT ORDE R, WE DO NOT FIND ANY SPECIFIC REASON ADOPTED BY THE LEARNED AO IN TR EATING THE AMOUNT OF RS.12,38,533/- AS CAPITAL EXPENDITURE. THE LEARN ED AO HAS SIMPLY STATED AS UNDER: ON PERUSAL OF THE BILLS IN RESPECT OF ABOVE MENTIO NED EXPENSES, IT IS NOTICED THAT THESE HAVE BEEN PURCHA SED EITHER FOR NEW CONSTRUCTION OR FABRICATION. IT IS NOTICED THAT THE ELECTRIC GOODS HAVE BEEN PURCHASED TO DO ELECTRIFICATION OF THE STAFF QUARTERS. THE EXPENSES RELATED TO BORE WELL APPEARS TO BE RELATED TO COMPLETE OVERHAULING OF BORE WELLS. IN V IEW OF THE FACTS AND REASONS CITED ABOVE, I TREAT EXPENSES AMO UNTING TO RS.12,38,533/- AS NARRATED IN THE ABOVE TABLE AS CA PITAL EXPENSES AND DISALLOW THE SAME AS REVENUE EXPENSES. THE DEPRECIATION IS HOWEVER ALLOWED ON THE SAME. 18. THE REASONS POINTED OUT BY THE ASSESSEE FOR TRE ATING THE PAYMENTS FOR PURCHASE OF VARIOUS ITEMS AS REVENUE E XPENDITURE WHICH IS FORMING PART OF PAPER BOOK PAGE NO.19 TO 2 2 HAS NOT BEEN DULY CONFRONTED BY THE LEARNED AO AND MADE A FINDIN G ON THE SAME AS TO WHY THESE PAYMENTS ARE TO BE TREATED AS CAPIT AL EXPENDITURE. SINCE, THE AMOUNT INVOLVED WAS MEAGER COMPARE TO TH E OVERALL TRANSACTIONS OF THE APPELLANT COMPANY, THE LEARNED CIT(A) JUDICIOUSLY ALLOWED THE APPEAL OF THE ASSESSEE IN ITS FAVOUR. A T THIS JUNCTURE, WE ITA NO.1704/AHD/2009 (AY: 2006-07) ITO, W-8(1), AHMEDABAD VS SANTOSH STARCH LTD. 12 ARE ALSO OF THE CONSIDERED VIEW THAT THE AMOUNT INV OLVED IS NEGLIGIBLE AND NO RESOURCE NEEDS TO BE UNNECESSARILY WASTED ON THIS ISSUE AND THEREFORE, WE HEREBY CONFIRM THE ORDER OF THE LEARN ED CIT(A). THUS, GROUND NO.6 RAISED BY THE REVENUE IS DISMISSED. 19. GROUND NO.8: DELETING ADDITION OF RS.18,000/- U/S 40A (2) (B) OF THE I. T. ACT. THE LEARNED AO DURING THE ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE IMPORTED 36 MT TOPIOCA PO WDER DUTY FREE UNDER ADVANCE LICENSE SCHEME/DFLA AND DIVERTED THE SAME AND SOLD TO ITS SISTER CONCERN SANTOSH STARCH PRODUCTS LTD. AT RS.11,000/- PER MT. THE SAID COMPANY HAS SOLD THIS ITEM TO DIFF ERENT PERSONS AT A HIGHER PRICE. THE LEARNED AO OBSERVED THAT FOR FY 2 006-07 SIMILAR ISSUE WAS INVESTIGATED BY THE INVESTIGATION WING OF THE DEPARTMENT WHEREIN IT WAS ESTABLISHED THAT THE SALES HAD BEEN MADE TO A RELATED PERSON AT A PRICE LOWER THAN MARKET RATE AND SUBSEQ UENT SALES WERE MADE AT A PROFIT OF RS.500/- PER MT. CONSIDERING TH E TOTAL QUANTITY OF SALES OF 36 MT THE LEARNED AO MADE ADDITION OF RS.1 8,000/- ON ACCOUNT OF SUPPRESSED SALES MADE BY THE ASSESSEE. ON APPEAL BY THE ASSESSEE, THE LEARNED CIT(A) DELETED THE ADDITI ON MADE BY THE AO ON THIS ACCOUNT BY OBSERVING AS UNDER IN PARA 5. 3 OF HIS ORDER: 5.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND TH E SUBMISSIONS AS ADVANCED BY THE A. R. IT IS SEEN FRO M THE DETAILS FURNISHED BY THE APPELLANT THAT THE TAPIOCA POWDER PURCHASED BY THE APPELLANT HAS BEEN SOLD BY THE SIS TER CONCERN ON RETAIL BASIS AND THE SAME WAS SOLD AT THE PREVAI LING MARKET RATE. FURTHER, THE A. O. HAS SIMPLY STATED THAT THE SALES WERE MADE ON AN AVERAGE PROFIT OF RS.500/- PER MT BY THE ASSOCIATE CONCERN WHICH IS NOT SUFFICIENT TO MAKE ADDITION U/ S 40A(2) (B), HOWEVER, HE HAS NOT POINTED OUT ANY INSTANCE TO SUP PORT THAT ITA NO.1704/AHD/2009 (AY: 2006-07) ITO, W-8(1), AHMEDABAD VS SANTOSH STARCH LTD. 13 THE APPELLANT HAS NOT EFFECTED THE SALES AT PREVALE NT MARKET RATE. THEREFORE, I HOLD THAT THE ADDITION MADE ON T HIS COUNT IS WITHOUT ANY LOGIC AND HENCE THE SAME IS DIRECTED TO BE DELETED. AGGRIEVED, BY THE FINDING OF THE LEARNED CIT(A), TH E REVENUE IS IN APPEAL BEFORE US. 20. THE LEARNED DR SUPPORTED THE ORDER OF THE LEAR NED AO AND THE LEARNED AR RELIED UPON THE ORDER OF THE LEARNED CIT (A). 21. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS ON RECORD. THE LEARNED CIT(A) HAS DELETED THE MEAGE R ADDITION OF RS.18,000/- MADE BY THE LEARNED AO U/S 40A (2) (B) OF THE ACT FOR THE FOLLOWING REASONS: (I) THE APPELLANT HAD SOLD THE BULK STOCK OF 36,000 MT OF TOPIOCA POWDER TO ITS SISTER CONCERN SANTOSH STARCH PRODUCT LTD. WHILE AS M/S. SANTOSH STARCH PRODUCTS PVT. LTD. HAD SOLD THE SAME TO VARIOUS PARTIES ON RETAIL BASIS. (II) THE AO HAS NOT BROUGHT OUT ANY SUFFICIENT MATE RIAL TO STATE THAT THE APPELLANT HAD SOLD THE PRODUCT TO IT S SISTER CONCERN BELOW THE MARKET PRICE. CONSIDERING THESE ABOVE OBSERVATIONS OF THE LEARNED CIT(A), WE ARE OF THE VIEW THAT THE LEARNED CIT(A) WAS RIGHT TO HO LD THAT THE PRICE DIFFERENCE WAS DUE TO THE NATURE OF TRADING I.E. WH OLESALE AND RETAIL. MOREOVER, AS OBSERVED BY THE LEARNED CIT(A), THE LE ARNED AO HAS NOT BROUGHT OUT ANY MATERIAL ON RECORD TO ESTABLISH THAT THE APPELLANT HAD SOLD THE PRODUCTS TO ITS SISTER CONCERN BELOW T HE PREVAILING MARKET RATE. FOR THE AFORE SAID REASONS, WE ARE IN TOTAL CONFORMITY ITA NO.1704/AHD/2009 (AY: 2006-07) ITO, W-8(1), AHMEDABAD VS SANTOSH STARCH LTD. 14 WITH THE ORDER OF THE LEARNED CIT(A) AND, THEREFORE , UPHOLD THE SAME. THUS, GROUND NO.8 RAISED BY THE REVENUE IS DISMISSE D. 22. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 02-11-2012. SD/- SD/- (G. C. GUPTA) VICE PRESIDENT (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER LAKSHMIKANT LAKSHMIKANT LAKSHMIKANT LAKSHMIKANTA AA A DEKA DEKA DEKA DEKA / // / COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, AHMEDABAD 1. DATE OF DICTATION: 20-10-2012/25-10-12/30-10-12 (DIRECT ON COMPUTER) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 26-10-12/30-10-12 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: