ISHWAR ISPAT INDUSTRIES PRIVATE LIMITED, RAIPUR V. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 2(1), RAIPUR

ITA 172/RPR/2018

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 4833 (ITAT-RAIPUR)
• Duration Of Justice: 4 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 13-09-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 154

Judgement Text

आयकर अऩीऱीय अधधकरण, रायऩ ु र न्यायऩीठ, रायऩ ु र IN THE INCOME TAX APPELLATE TRIBUNAL RAIPUR BENCH, RAIPUR श्री रविश स ू द, न्याययक सदस्य एवं श्री अरुण खोड़वऩया, ऱेखा सदस्य के समक्ष । BEFORE SHRI RAVISH SOOD, JM & SHRI ARUN KHODPIA, AM आयकर अऩीऱ सं./ITA No.172/RPR/2018 ननधाारण वषा / Assessment Year :2010-2011) Ishwar Ispat Industries Pvt. Ltd., Plot No.168, Sector-C, Industrial Area, Urla, Raipur (C.G.) Vs DCIT-2(1), Raipur PAN No. : AABCI 4258 C (अऩीऱाथी /Appellant) .. (प्रत्यथी / Respondent) ननधााररती की ओर से /Assessee by : Shri R.B.Doshi, CA राजस्व की ओर से /Revenue by : Shri G.N.Singh, Sr. DR स ु निाई की तारीख / Date of Hearing : 26/07/2022 घोषणा की तारीख/Date of Pronouncement : 21/09/2022 आदेश / O R D E R Per Arun Khodpia, AM : This appeal is filed by the assessee against the order passed by the CIT(A)-I, Raipur, dated 14.06.2018, wherein the assessee has raised the following grounds :- 1. That the order of Ld. CIT(A) is bad in law as well as on facts. 2. In the facts and in the circumstances of the case, the Ld. C.I.T.(A) has erred in sustaining disallowance of depreciation of Rs.34,34,195/- under the Income Tax Act, 1961 without appreciating the facts and circumstance or the case. 3. That any other relief/ deduction, which the Hon'ble Tribunal may deem fit be granted to the appellant. 4. That the appellant craves leave, to urge, add, amend, alter, enlarge, modify, substitute, and delete any of the Ground or Grounds and to adduce fresh evidence at the time of the hearing of the appeal. 2. Facts in brief are that the assessee is a company, derives income from Manufacturing of MS Ingots and Steel Re-Rolled products. It filed its return of income on 07.10.2010 declaring total income at Rs.NIL. The ITA No.172/RPR/2018 2 case of the assessee was selected for scrutiny and statutory notices were issued to the assessee, in response to which the assessee filed his written submissions, books of accounts were produced, which were test checked by the AO. On verification of the valuation of closing stock of finished goods and raw materials, the AO found that the same were undervalued in as much the freight charges are not included in the value adopted for valuation in the case of coal, silico manganese, met coke and furnace oil. In absence of the relevant details, the AO estimated the closing stock at Rs.50,000/- and added the same to the total income of the Assessee and framed the assessment vide order dated 19.03.2013. Subsequently, the AO passed order u/s.154 of the Act, dated 28.03.2017, wherein the AO applied rate of depreciation @15% and not 80% as claimed by the assessee. It was also noted by the AO that since the moulds, dies and tools were put to use during 2 nd half of the year, therefore, depreciation allowable is only 7.5% and accordingly, the AO disallowed the excess depreciation of Rs.34,34,195/- and added the same to the total income of the assessee. 3. Aggrieved with the order of the AO, the assessee filed an appeal before the CIT(A) and the CIT(A) dismissed the appeal of the assessee. Against which the assessee is in further appeal before the Tribunal. 4. Ld. AR of the assessee submitted that the Moulds, Dies & Tools are not Plant &. Machinery but arc consumable items in Steel Industries tor manufacturing of Steel Ingots. The life of these moulds are normally 6 to 7 helpings and are not useable further as Moulds. The useful life of these ITA No.172/RPR/2018 3 moulds are short and are consumed with one year from the date of making of the moulds due to the high temperature of the liquid (Molten) steel poured into these moulds for manufacturing Steel Ingots. The old moulds are recycled along with other materials when they are not useful for pouring of high temperature of liquid steel and new moulds are utilized for the purpose of manufacturing of Steel Ingots. It was also submitted by the ld. AR that considering the high rate of wear and tear the Moulds. Dies & Tools arc Revenue Expenditure. The Appellant Company is claiming Depreciation @ 80% instead of treating it as 100% Revenue Expenditure and consistently claiming Depreciation on the same @80% instead of 100% and the same has been accepted by the Department in all the earlier and subsequent Scrutiny Cases. It was also submitted by the ld. AR that the expenditure incurred on the replacement of moulds subsequent to the commencement of business would be revenue expenditure. In this regard, ld. AR relied on the following case laws :- i) Volkart Brothers & Ors. (1971) 82 ITR 50 (SC) ii) Satish Kumar Aggarwal (2011) 8 ITR 424 (Delhi) iii) Tata Communications Ltd. (2014) 163 TTJ 106 (Mum) iv) Kalpesh S. Patel (2015) 44 CCH 350 (Ahd); and v) S.R.Industries Ltd. (2016) 156 ITD 125 (Chandigarh) vi) Mysore Spun Pipe Pvt. Ltd. 194 ITR 159 (Kar) 5. On other hand, ld. Sr. DR relied on the orders of the authorities below. 6. We have heard rival submissions and perused the material evidence available on record. We have also observed the legal pronouncements as relied upon by the assessee. In these judgments the ITA No.172/RPR/2018 4 findings of the hon’ble courts or coordinate benches of the ITAT were as under:- i) Volkart Brothers & Ors. (1971) 82 ITR 50 (SC) Held : The ITO was not justified in thinking that on that question there could be no two opinions. It was not open to the ITO to go into the true scope of the relevant provisions of the Act in a proceeding under section 154 of the 1961 Act. A mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivably be two opinions. ii) Satish Kumar Aggarwal (2011) 8 ITR 424 (Delhi) Held : Merely because there is a power to rectify, each and every decided issue resulting in possible loss of revenue of change of opinion of the Assessing Officer cannot be rectified under section 154. iii) Tata Communications Ltd. (2014) 163 TTJ 106 (Mum) Held : it is settled proposition of law that a mistake apparent from the record must be an obvious and patent mistake and not something which can be established by long drawn process of reasoning can be rectified u/s.154. iv) Kalpesh S. Patel (2015) 44 CCH 350 (Ahd) Held : The power of rectification under s. 154 of the IT Act can be exercised only when the mistake, which is sought to be rectified, is an obvious patent mistake, which is apparent from the record and not a mistake, which is required to be established by arguments and long drawn process of reasoning on points, on which there may conceivably be two opinions. The depreciation at the rate of 30% can be denied to the assessee if a finding of fact is being recorded by the Assessing Officer exhibiting that vehicles owned by the assessee alleged to have been used for commercial purpose on hire but, were not used for hire. This finding of the fact can only be recorded when a long drawn process of reasoning is undertaken. It is a disputed and debatable question, which will not come within the ambit of apparent mistake. v) S.R.Industries Ltd. (2016) 156 ITD 125 (Chandigarh) It is settled law that rectification proceedings under section154 can be resorted to, only to correct glaring and obvious mistakes of fact and law. If all facts are on record and no further calculation or ascertainment is necessary and if on these facts it is clear that an error of law or fact has been made, that error can be rectified u/s 154. Conversely mistakes which can be discovered only by a ITA No.172/RPR/2018 5 complicated process of investigation, argument, elucidation, or debate cannot be said to be "apparent mistakes" and in such cases 154 cannot be resorted to. We rely on decision of Calcutta High Court in case of Hindustan Lever Ltd. v. Jt. CIT [2006] 284 ITR 42. vi) Mysore Spun Pipe Pvt. Ltd. 194 ITR 159 (Kar) Held : Whether an expenditure is capital or revenue in nature, has to be decided in the context of business. While establishing a factory, the initial investment in all kinds of machineries and the parts will be in the nature of capital expenditure. However, replacement of parts of machineries, or repairs in the course of working them will be revenue expenditure. Further, the fact of the benefit accruing by the expenditure being of enduring nature by itself is not a conclusive test to hold it as capital expenditure. In the instant case, it was a matter of common knowledge that moulds did not last long. The assessee's business required moulds, which by constant use needed replacements. This replacement was not in the nature of replacing a part of machinery, but in the context of entire set up being treated as one unit. The replacements of moulds was in the nature of maintenance of the machineries installed in the factory, it may loosely be termed as rebuilding of the machineries as a whole, used in the productive process of the assessee. Hence, the Tribunal was justified in allowing the assessee's claim. 7. All the above case laws have led down a principle that a glaring and obvious mistake apparent from records can be rectified by initiating the proceedings u/s 154 of the Income Tax Act. A mistake which can be discovered only by a complicated process of investigation, argument, elucidation or debate cannot be said to be a “apparent mistake” and as such provisions of section 154 cannot be invoked for rectifications. In the factual circumstances of the present case we find relevance of the above judicial pronouncements, since in the present case whether the moulds, dies and tools havind useful life of less than a year, used for manufacturing of Steel Ingots are not covered under Plant and Machinery – Rolling Miss rolls @ 80% and same should be, in absence of any specific provision, shall be allowed to be depreciated @15%, can only be decided after undertaking a long drawn process of reasoning. It is ITA No.172/RPR/2018 6 therefore, an issue, which cannot be covered by as a mistake apparent from records. Therefore in the instant case, provisions of section 154 are not attracted and proceedings initiated are bed in law and liable to be quashed. Consequently, order of the Ld CIT(A) is also deserves to be set aside and addition made is deleted. 8. With regard to rate of depreciation, as submitted by the Ld AR of the assessee that the depreciation on the Moulds, Dies and Tools which are consumable items in Steel Industries for manufacturing of Steel Ingots, having a very short life of 6-7 helpings, thereafter the same are unusable further as moulds. In this regard Ld AR drew our attention to the judgment by Hon’ble Karnataka High Court in the case of Mysore Spun Concrete Pipe Pvt. Ltd. (1992) reported in 194 ITR 159 where in it is held that expenditure on moulds capitalized before the commencement of the business would be capital expenditure. The expenditure incurred on replacement of moulds subsequent to the commencement of business would be revenue in expenditure. Ld AR further submitted that the department has allowed depreciation for such Moulds, Dies and tools for the preceding and succeeding years i.e. AY 2009-10 and 2012-13 @ 80% to the assessee, the copies of assessment orders were placed in the paper book at page 11-17 and 23-24 respectively. In view of this submissions of the assessee which were not rebutted by the revenue, we are of the considered view that a consistent plausible view taken by the Assessing Officer in the different year in the assessee’s own case should not be disturbed. Therefore, in view of the judgment of the Hon’ble ITA No.172/RPR/2018 7 Karnataka High Court in the case of Mysore Spun Concrete Pipe Pvt. Ltd. (supra), we hold that a higher rate of depreciation is allowable to the Molds, Dies and tools as claimed by the assessee and allowed by the department in various assessment years except the impugned assessment year. In view of our above observations, we allow the appeal of the assessee. 9. In the result, the appeal of assessee is allowed. Order pronounced as per Rule 34(4) of ITAT Rules, 1963 on 21/09/2022. Sd/- (RAVISH SOOD) Sd/- (ARUN KHODPIA) न्यानयक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER रायऩ ु र/Raipur; ददनाांक Dated 21/09/2022 Prakash Kumar Mishra, Sr.P.S. आदेश की प्रनतलऱपऩ अग्रेपषत/Copy of the Order forwarded to : आदेशान ु सार/ BY ORDER, (Assistant Registrar) आयकर अऩीऱीय अधधकरण, रायऩ ु र/ITAT, Raipur 1. अऩीऱाथी / The Appellant- 2. प्रत्यथी / The Respondent- 3. आयकर आय ु क्त(अऩीऱ) / The CIT(A), 4. आयकर आय ु क्त / CIT 5. विभागीय प्रयतयनधध, आयकर अऩीऱीय अधधकरण, रायऩ ु र/ DR, ITAT, Raipur 6. गार्ड पाईऱ / Guard file. सत्यावऩत प्रयत //True Copy//