TAAN PRODUCTS, MUMBAI V. ITO 21(3)(2), MUMBAI

ITA 1765/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93281 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 13-04-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 14-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Additional evidence

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E , MUMBAI BEFORE SHRI R.C. SHARMA , ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDICIAL MEMBER ITA NO . 1765/M/2012 ASSESSMENT YEAR: 2008 - 09 M/S. TAAN PRODUCTS , A - 25, NANDKISHORE INDUSTRIAL ESTATE, OFF. MAHAKALI CAVES ROAD, ANDHERI (E), MUMBAI 400 093 PAN: AAAFT 0066D VS. ITO 21(3)(2), C - 11, 5 TH FLOOR, PRATYAKSKAR BHAVAN, BANDRA (E), MUMBAI - 4000 51 (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE B Y : SHRI A.K. LAL, A.R. REVENUE BY : SHRI S.K. JANGRE, D.R. DATE OF HEARING : 29.06. 201 5 DATE OF PRONOUNCEMENT : 22.7. 2015 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAINST THE ORDER D ATED 12.12.2011 OF THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO ASSESSMENT YEAR 2008 - 09. 2. THE ASSESSEE THROUGH ITS GROUNDS OF APPEAL HAS AGITATED THE CONFIRMATION OF DISALLOWANCE OF DEPRECIATION OF RS. 15 , 31 , 3 2 0/ - ON THE IMPORTED MACHINERY AS WELL AS DISALLOWANCE OF INTEREST OF RS.12,87,243/ - ON THE LOANS TAKEN FOR THE PURCHASE OF THE ABOVE MACHINERY. THE FACTS OF THE CASE ARE THAT DURING THE YEAR THE ASSESSEE IMPORTED A ND PURCHASED MACHINERY WORTH RS. 80 L AC S WHICH WA S AN AUTOMATIC TOOTHBRUSH ITA NO.1765/M/2012 M/S. TAAN PRODUCTS 2 FINISHING MACHINE AND CLAIMED D EPRE CIATION THEREON AMOUNTING TO RS.15,31,230/ - . DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE A SSESSING OFFICER (HEREINAFTER REFERRED TO AS THE AO) ASKED THE ASSESSEE TO FURNISH T HE INSTALLATION CERTIFICATE OF THE MACHINERY AND THE EVIDENCE OF USE OF THE MACHINERY IN THE ASSESSEE'S BUSINESS. BEFORE THE AO, IT WAS EXPLAINED BY THE ASSESSEE THAT THE ASS ESSEE HAD BEEN MANUFACTURING TOOTHBRUSH ON BEHALF OF GILLETTE COMPANY. IT WAS ALS O EXPLAINED BEFORE THE A O THAT THE ASSESSEE DID NOT HAVE HIS OWN WORK FORCE AND THE ACTIVITIES OF BRISTLING AND PACKING WE RE DONE ON LABOUR WORK BASIS . THE MATERIAL WAS TRANSFERRED TO M/S. K P. PLASTICS FOR CONVERSION INTO BRISTLES AND THEN TO M/S. S.P. P LASTIC FOR MOULDING OF HANDLES. IT WAS NOTED BY THE A O THAT NO MANUFACTURING ACTIVITY WAS BEING DONE BY THE ASSESSEE EVEN EARLIER AND AFTER PURCHASE OF THE RAW MATERIAL, AS IT WAS GETTING THE PRODUCTS MANUFACTURED FROM ITS SISTER CONCERNS I.E. M/S. K.P. PL ASTICS, M/S. S.P. PLASTICS AND M/S. GOODWILL PACKAGING, ON JOB WORK BASIS. SO WHEN THE ASSESSEE WAS NOT HAVING ANY BASIC MACHINERY FOR THE MANUFACTURING PROCESS, THEN T HERE WOULD NOT BE ANY NECESSITY OF A SOPHISTICATED MACHINERY WHICH WA S REQUIRED ONLY FOR FINISHING OF PRODUCTS AND NOT FOR THE BASIC MANUFACTURING OF THE PRODUCT. THE A O SUPPORTED HIS CONCLUSION FROM THE FACT THAT THERE WAS NO WORK FORCE EMPLOYED BY THE ASSESS EE FOR HIS OWN MANUFACTURING ACTIVITY AND ALL THE PRODUCTION AS PER THE CLIENTS REQU IREMENTS WAS BEING GOT DONE FROM THE SISTER CONCERNS ON JOB WORK BASIS. MOREOVER, NO INSTALLATION CERTIFICATE OF THE MACHINERY WAS PROVIDED TO THE AO. T H ERE WAS DECREASE IN TURNOVER FROM 2.19 CRORES TO 1. 4 8 CRORES WHICH FURTHER SUGGESTED THAT THE NEW MA CHINERY WAS NOT UTILIZED. UNDER THESE CIR CUMSTANCES, THE AO CAME TO THE CON CLUSION THAT THE MACHINERY HA D NOT BEEN USED IN THE BUSINESS ACTIVITY OF THE ASSESSEE AND HENCE HE DISALLOWED THE DEPRECIATION OF RS.15,31,230/ - CLAIMED ON SUCH MACHINE AND DISALLO WED THE INTEREST OF RS.12,87,243 / - ON THE LOANS TAKEN FOR THE PURCHASE OF THE ABOVE ITA NO.1765/M/2012 M/S. TAAN PRODUCTS 3 MACHINERY. AGGRIEVED BY THE ABOVE ADDITIONS, THE ASSESSEE HAS PREFERRED APPEAL BEFORE THE LD. CIT(A). 3. THE LD. CIT(A) , HOWEVER, DID NOT AGREE WITH THE SUBMISSIONS OF T HE ASSESSEE AND THEREFORE CONFIRMED THE DISALLOWANCE MADE BY THE AO. THE ASSESSEE HAS, THUS, COME IN APPEAL BEFORE US. 4. BEFORE US, THE LD. A.R. OF THE ASSESSEE HAS RELIED UPON THE AFFIDAVIT OF SHRI SHAILESH JAYANTILAL SHAH , A PARTNER OF THE ASSESSEE FIRM , CONTENTS OF THE SAME ARE REPRODUCED AS BELOW: I, SHRI SHAILESH JAYANTILAL SHAH, AGE 57 YEARS RESIDING AT A3/409, KAJURIA NAGAR, KHAJURIA ROAD, KANDIVALI (W), MUMBAI 400 067, ON SOLEMN AFFIRMATION MAKE THE FOLLOWING STATEMENTS: - 1. I AM THE SEN IOR PARTNER OF M/S.TAAN PRODUCTS, A PARTNERSHIP FIRM. I AM MAKING THIS AFFIDAVIT TO CLARIFY CERTAIN MISLEADING CONCLUSIONS DRAWN BY THE ASSESSING OFFICER ON PAGE 4 OF HIS ORDER AND ACCEPTED BY THE CIT (A) IN PARA 3.3 ON PAGE 3 OF HIS ORDER AGAINST WHICH TH E PRESENT APPEAL FOR AY 2008 - 09 BEFORE YOU LORDSHIP IS FILED. 2. WE ARE TOOTHBRUSH MANUFACTURERS FOR MNCS SINCE 1990. WE WERE MAKING TOOTHBRUSHES UNDER THE BRAND NAME 'PRUDENT' FOR PARLE PRODUCTS AND THIS BRAND WAS PURCHASED BY GILLETTE DIVERSIFIED OPERAT IONS LTD. (GDOL) IN JULY 2002 AND WE KEPT MAKING BRUSHES UNDER PRUDENT BRAND FOR GDOL. GDOL THEN HAD 2 MAJOR BRANDS ORAL - B AND PRUDENT. ORAL - B WAS BEING PERCEIVED AS A PRODUCT OF NICHE GROUP, EXPENSIVE AND HIGH QUALITY PRODUCT, WHEREAS PRUDENT AS A LOCAL B RAND WHICH WAS FOR MASSES, A COMPARATIVELY LOW PRICED PRODUCT. 3. WE WERE MANUFACTURING TOOTHBRUSHES PRUDENT ON OUR OWN LOCALISED MACHINES, DESIGNED AND MADE BY OUR TECHNICAL TEAM. WE HAD BOTH LOCAL TUFTING AND TRIMMING MACHINES FOR OUR PRODUCTION OF PRUD ENT BRAND TOOTHBRUSHES. ALL THE BRUSHES UNDER PRUDENT BRAND HAD FLAT TRIMMING PROFILE, SO WE COULD DO THEM EASILY ON OUR TRIMMING MACHINES. BUT FOR THE NEW OFFER TO MAKE ORAL - B SHINY CLEAN BRUSHES WITH ZIG - ZAG TRIMMING PROFILE, WE HAD TO BUY NEW MACHINE FR OM ZAHORANSKY GERMANY COSTING OVER RS 80 LACS AS SUGGESTED BY GILLETTE TEAM. WE BOUGHT THIS MACHINE AND INSTALLED THE SAME AT TAAN PRODUCTS, 10/11. KALP ATARU IND. EST. K.T.COMPLEX, S.NO. - 95, WALIV, VASAI (E), DIST. THANE - 401208 IN APRIL 2007. ITA NO.1765/M/2012 M/S. TAAN PRODUCTS 4 4. THIS W AS ONE OF THE KIND MACHINES WHICH HAD A TREM ENDOUSLY HIGH OUTPUT OF ABOUT 80, 000 BRUSHES PER DAY AND WE WOULD HAVE BEEN ABLE TO MAKE ABOUT 20 LACS TOOTHBRUSHES EVERY MONTH AND WHICH WOULD IN - TURN DO A MONTHLY TURNOVER OF ABOUT RS. 80 LACS. 5. WE HAD INSTAL LED THIS MACHINE IN OUR PREMISES BY PAYING COMPLETE IMPORT DUTY AND ALL THE TAXES, SO THERE WAS NO NEED TO GET ANY INSTALLATION CERTIFICATE FROM ANY DEPARTMENT AS IN CASE OF EPCG SCHEME (EXPORT PROMOTION AGAINST CAPITAL GOODS) WHERE THE COMPANY NEEDS TO GE T INSTALLATION CERTIFICATE FROM EXCISE DEPT. TO GIVE A CONFIRMATION TO CUSTOMS THAT THE MACHINE HAS BEEN INSTALLED AT THE SPECIFIED ADDRESS AND THE SAME COMPANY WILL DO THE EXPORTS WORTH 8 TIMES THE CUSTOMS DUTY SAVED. WE THEREFORE DID NOT APPROACH ANY DEP ARTMENT FOR INSTALLATION CERTIFICATE. 6. AFTER TRIAL RUNS WE HAD RECEIVED FROM GILLETTE A PRODUCTION PLAN FOR 5 LACS PIECES FOR THE MONTH OF NOV 2007 OF ORAL - B SHINY CLEAN MEDIUM TOOTHBRUSHES. ALL THE MATERIALS WERE PROCURED AND WE DID THE PRODUCTION RUN . FIRST LOT OF PRODUCTION RUN APPROVED BY MR. KANAN, THE QUALITY INSPECTOR WAS DESPATCHED. 7. 0N RECEIPT OF THESE GOODS, THERE WERE SOME ISSUES IN THE QUALITY ASPECTS AS PER THE ORAL - B TEAM AND BASED ON WHICH THERE WERE COST RELATED DISCUSSIONS WITH THE PURCHASE TEAM. ULTIMATELY GDOL DID NOT ALLOW US TO MAKE ORAL - B BRUSHES FOR THEIR FUTURE REQUIREMENTS. WE HAD BEEN APPROACHING THE APPROACHING THE GILLETTE TEAM CONTINUOUSLY FOR A WAY OUT. THERE AFTER THIS BRAND ORAL - B WAS BOUGHT OVER BY P & G (PROCTER & G AMBLE) A WELL KNOWN MNC SOMEWHERE IN 2008. WE APPROACHED P & G TEAM AS WELL BUT THEY ALSO HAD THE SAME OPERATIONAL TEAM AS IN GILLETTE TAKING DECISIONS FOR THIS BRAND'S QUALITY AND SALES PLANNING AND FURTHER HAD PROBLEMS OF NEW MANAGEMENT AND OWNERSHIP. 8 . WE HAD PURCHASED THIS MACHINE BY TAKING UP BANK LOAN AND BASED ON THE PROJECTIONS OF DOING BUSINESS FOR ORAL - B SHINY CLEAN, TURNOVER WORTH RS. 9.50 CRORES BESIDES THE TURNOVER THROUGH PRUDENT BRAND PRODUCTION AND SALES. THIS MACHINE WAS PUT TO USE AND WE PRODUCED AND DESPATCHED ORAL - B SH INY CLEAN TOOTHBRUSHES. 9. AS REGARDS THE OBSERVATIONS ON PAGE 4 OF THE ASSESSMENT ORDER I AM ENCLOSING HEREWITH (ANNEX 'A') A LETTER DT. 5 - 9 - 2014 FROM GOODWILL PACKAGING SPECIFICALLY STATING 'WE HAVE BEEN SUPPLYING THEM SKILLED AND SEMI SKILLED LABOUR WHICH ARE TRAINED TO RUN THE TOOTHBRUSH MANUFACTURING MACHINES. WE DO ALL THE ACTIVITIES IN TAAN'S PREMISES FROM THEIR MATERIAL....' 10. SIMILAR ARRANGEMENT WAS ALSO MADE WITH M/S. UDAY PLASTIC AND PACKAGINGS WHOSE LETTER D T. 1 - 9 - 2014 AND TWO INVOICES DT.31 - 10 - 06 & 31 - 12 - 2006 ARE ENCLOSED (ANNEX B, B I & B II ) SPECIFYING THAT THEIR LABOUR FORCED WAS DOING WORK IN THE PREMISES OF M/S. TAAN ON MACHINES OF M/S. TAAN PRODUCTS. ITA NO.1765/M/2012 M/S. TAAN PRODUCTS 5 11. WE HAVE ALL PRODUCTION RECORDS AVAILABLE FOR INSPE CTION IF REQUIRED . THE STATEMENTS MADE IN THE ABOVE PARAGRAPHS ARE TRUE AND CORRECT TO THE BEST OF MY KNOWLEDGE AND I BELIEVE THE SAME TO BE TRUE. 5. THE LD. A.R., THEREAFTER, HAS DRAWN OUR ATTENTION TO HIS APPLICATION FOR ADMISSION OF ADDITIONA L EVIDENCE SUBMITTING THAT THE ASSESSEE HAS FILED IN HIS COMPILATION 27 DOCUMENTS IN SUPPORT OF THE ABOVE CONTENTS OF THE AFFIDAVIT OF SHRI SHAILESH JAYANTILAL SHAH . HE HAS FURTHER INVITED OUR ATTENTION TO DOCUMENTS AT SL. NO.11 & 13 OF THE INDEX SHEET OF THE COMPILATION. THE DOCUMENT MENTIONED AT SL. NO.11 IS REGARDING MACHINE INSTALLATION DATE WHICH IS AN INSTALLATION CERTIFICATE/SERVICE RECORD OF M/S. ZAHORA NSKY PLACED AT PAGE 22 OF THE PAPER BOOK AND FURTHER THE DOCUMENT MENTIONED AT SL. NO.13 WHICH I S IN RELATION TO THE ORDERS OF ORAL - B TOOTHBRUSH FOR WHICH THE MACHINE IN QUESTION WAS IMPORTED AND USED. THE LD. A.R. OF THE ASSESSEE HAS STATED THAT IN THIS CASE THE CERTIFICATE OF INSTALLATION OF MACHINERY FROM EXCISE DEPARTMENT WAS NOT REQUIRED. HOWE VER, THE AO HAS INSISTED FOR PRODUCTION OF INSTALLATION CERTIFICATE FROM EXCISE DEPARTMENT REGARDING WHICH IT HAS BEEN EXPLAINED IN PARA 5 OF THE AFFIDAVIT THAT THE MACHINE WAS INSTALLED IN THE PREMISES OF THE ASSESSEE BY PAYING COMPLETE IMPORT DUTY AND AL L TAXES AND AS PER THE EXPORT PROMOTION AGAINST CAPITAL GOODS SCHEME , T HERE WAS NO NEED FOR THE ASSESSEE TO GET ANY INSTALLATION CERTIFICATE FROM EXCISE DEPARTMENT. HE HAS SUBMITTED THAT THE ABOVE SAID CONFIRMATIONS OF INSTALLATION OF MACHINE AND THE BO OKING OF THE ORDERS OF TOOTHBRUSHES ETC. COULD NOT BE PRODUCED BEFORE THE LOWER AUTHORITIES. HOWEVER, THE SAME ARE VERY MUCH NECESSARY FOR THE PROPER ADJUDICATION OF THE MATTER. HE, THEREFORE, HAS REQUESTED VIDE SAID APPLICATION FOR ADMISSION OF ADDITION AL EVIDENCES. 6. AFTER CONSIDERING THE SUBMISSIONS OF THE LD. A.R. MADE VIDE APPLICATION FOR ADDITIONAL EVIDENCES AND FURTHER IN THE LIGHT OF THE AFFIDAVIT OF SHRI SHAILESH JAYANTILAL SHAH , WE FIND THAT THE DOCUMENTS RELIED UPON BY THE ASSESSEE ARE ITA NO.1765/M/2012 M/S. TAAN PRODUCTS 6 VERY MUCH PROPER AND NECESSARY FOR JUST DECISION OF THE ASSESSEES CASE. WE THEREFORE ALLOW THE APPLICATION OF THE ASSESSEE FOR ADMISSION OF ADDITIONAL EVIDENCES AND RESTORE THE MATTER TO THE FILE OF THE AO FOR DECISION AFRESH ON THE ISSUE. NEEDLESS TO SAY T HAT THE AO WILL GIVE PROPER OPPORTUNITY TO THE ASSESSEE TO PRODUCE BEFORE HIM THE NECESSARY EVIDENCES IN SUPPORT OF HIS CASE AND THEN TO PASS A SPEAKING ORDER IN ACCORDANCE WITH LAW. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICA L PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 22.7. 201 5 . SD SD ( R.C. SHARMA ) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 22.7. 201 5 . * KISHORE , SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT ( A) CONCERNED, MUMBAI THE DR CONCERN ED BENCH //TRUE COPY// [ BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.