M/s. M.M.Forgings Ltd., CHENNAI V. DCIT, CHENNAI

ITA 1770/CHNY/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 1126 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-02-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 19-01-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 20-10-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P B SEKARAN
• Keywords: Depreciation; Rectification of order; Additional depreciation
• Section: 32; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH B CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AN D SHRI GEORGE MATHAN, JUDICIAL MEMBER .. I.T.A. NO. 674/MDS/2010 & 1770/MDS/2010 ASSESSMENT YEAR : 2006-07 M/S. M.M. FORGINGS LTD., 95, ANNA SALAI, CHENNAI-600 032. V. THE DEPUTY COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE- IV, CHENNAI. (PAN:AAACM2164L) A N D I.T.A. NO. 721/MDS/2010 ASSESSMENT YEAR : 2006-07 THE ASSISTANT COMMISSIONER OF V. M/S. M. M. FORGINGS LTD., INCOME-TAX, COMPANY CIRCLE-IV(3), 95, ANNA S ALAI, CHENNAI. CHENNAI-600 032. (APPELLANTS) (RESPONDENTS) ASSESSEE BY : SHRI PHILIP GEORGE RESPONDENT BY : SHRI P.B. SEKARAN O R D E R PER GEORGE MATHAN, JUDICIAL MEMBER : ITA 1770/MDS/2010 IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF T HE LEARNED CIT(APPEALS)-V, CHENNAI IN ITA NO. 282/2008-09 DATED 16-08-2010 FOR THE ASSESSMENT YEAR I.T.A. NOS. 674, 721 & 1770/MDS/2010 2 2006-07, WHEREIN THE LEARNED CIT(A) HAS ALLOWED REC TIFICATION APPLICATION FILED BY THEREVENUE U/S 154 OF THE INCOME TAX ACT, 1961. I TA NO. 674/MDS/2010 IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF T HE LEARNED CIT(APPEALS)-V, CHENNAI IN ITA NO. 282/08-09 DATED 22-02-2010 FOR T HE ASSESSMENT YEAR 2006- 07 AND ITA NO. 721/MDS/10 IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDEROF THE LEARNED CIT(APPEALS)-V, CHENNAI IN ITA NO. 282/08-09 DATED 22-02- 2010 FOR THE ASSESSMENT YEAR 2006-07. 2. SHRI PHILIP GEORGE, ADVOCATE REPRESENTED ON BEHA LF OF THE ASSESSEE AND SHRI P.B. SEKARAN, LEARNED CIT-DR REPRESENTED ON BE HALF OF THE REVENUE. 3. THE FACTS ADMITTED IN THIS APPEAL ARE THAT THE A SSESSEE IS A COMPANY WHICH IS DOING THE BUSINESS OF MANUFACTURE AND EXPO RT OF STEEL FORGING. THE RETURN FILED BY THE ASSESSEE FOR THE RELEVANT ASSES SMENT YEAR CAME TO BE PROCESSED AND THE ASSESSING OFFICER IN THE COURSE O F ASSESSMENT HAD DISALLOWED THE CLAIM OF ADDITIONAL DEPRECIATION IN RESPECT OF THE NEW MACHINERIES ON THE GROUND THAT THE NEW MACHINERIES HAD BEEN INSTALLED AND PUT TO USE AFTER 30-09- 2005. THE ASSESSING OFFICER HAD ALSO WHILE COMPUTI NG THE DEDUCTION U/S. 80-IA OF THE ACT EXCLUDE THE EXPORT INCENTIVES IN RESPECT OF THE PLANT II NEW UNIT II OF THE ASSESSEE ON THE GROUND THAT THE EXPORT INCENTIV ES WERE RECEIVED ON THE SALE OF THE IMPORT ENTITLEMENTS AND BY VIRTUE OF THE EXP ORTS. IT WAS THE SUBMISSION THAT ON APPEAL BEFORE THE LEARNED CIT(A), THE LEARN ED CIT(A) HAD DISMISSED THE ASSESSEES GROUND IN RESPECT OF THE ADDITIONAL DEPR ECIATION IN RESPECT OF THE I.T.A. NOS. 674, 721 & 1770/MDS/2010 3 MACHINERY ACQUIRED AFTER 30-09-2005 AND HAD UPHELD THE RESTRICTION OF THE 50% DISALLOWANCE. IT WAS FAIRLY AGREED BY BOTH THE SID ES THAT THE LEARNED CIT(A) HAD DISMISSED THE ASSESSEES GROUND BY FOLLOWING THE DE CISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE I N ITA NO.2151/MDS/2008 DATED 4-12-2009 FOR THE ASSESSMENT YEAR 2005-06. 4. IT WAS THE FURTHER SUBMISSION THAT IN RESPECT OF THE ISSUE OF THE REDUCTION OF THE EXPORT INCENTIVE BY COMPUTING THE DEDUCTION U/S 80IA IN RESPECT OF THE PROFIT IN THE NEW UNIT-II, THE LEARNED CIT(A) HAD G RANTED PARTIAL RELIEF TO THE ASSESSEE INSOFAR AS HE HAD DIRECTED THE ASSESSING O FFICER TO RESTRICT THE REDUCTION OF THE NET PROFIT BY ` .44,45,984/- AS AGAINST ` 2,67,71,746/- ADOPTED BY THE ASSESSING OFFICER. IT WAS THE SUBMISSION THAT IT W AS AGAINST THE CONFIRMATION OF THE DISALLOWANCE OF THE ADDITIONAL DEPRECIATION IN RESPECT OF THE MACHINERY ACQUIRED AFTER 30-09-2005 AS ALSO THE RESTRICTION O F THE REDUCTION OF THE NET PROFIT BY ` . 44,45,984/- IN RESPECT OF THE COMPUTATION OF DEDU CTION U/S 80IA IN RESPECT OF THE EXPORT INCENTIVE PROFIT, THE ASSESSEE IS IN APPEAL IN ITA NO. 674/MDS/2010. IN RESPECT OF THE DIRECTION GIVEN BY THE LEARNED CI T(A) TO RESTRICT THE REDUCTION OF THE NET PROFIT BY ` . 44,45,984/- IN RESPECT OF THE COMPUTATION OF DEDU CTION U/S. 80IA REPRESENTING THE EXPORT INCENTIVE PROFITS, THE REVENUE IS IN APPEAL IN ITA NO.721/MDS/2010. IT WAS THE FURTHER SUBMISSION THA T SUBSEQUENT TO THE ORDER OF THE LEARNED CIT(A) ON 22-02-2010 THE HON'BLE SUPREM E COURT IN THE CASE OF LIBERTY INDIA V. CIT REPORTED IN 317 ITR 218 HAD HE LD THAT THE DUTY DRAW BACK I.T.A. NOS. 674, 721 & 1770/MDS/2010 4 RECEIPT/DEPB BENEFITS DO NOT FORM PART OF THE NET PR OFITS OF THE ELIGIBLE INDUSTRIAL UNDERTAKING FOR THE PURPOSES OF SECTION 80IA. CONS EQUENTLY THE ASSESSING OFFICER HAD FILED A MISCELLANEOUS PETITION BEFORE T HE LEARNED CIT(A) U/S 154 SEEKING RECTIFICATION OF THE MISTAKE IN THE ORDER A ND THE LEARNED CIT(A) HAD VIDE HIS ORDER DATED 16-08-2010 FOLLOWING THE DECISION O F THE HON'BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA, REFERRED TO SUPRA, HE LD THAT THE ASSESSEE WAS NOT ENTITLED TO THE DEDUCTION U/S 80IA ON THE EXPORT IN CENTIVES RECEIVED BY IT. CONSEQUENTLY, THE LEARNED CIT(A) HAD RECTIFIED HIS ORDER BY HOLDING THAT THERE WAS A MISTAKE APPARENT FROM RECORD. IT WAS AGAINST THIS RECTIFICATION ORDER THAT THE ASSESSEE IS IN APPEAL IN ITA NO. 1770/MDS/2010. 5. AT THE TIME OF HEARING IT WAS FAIRLY AGREED BY B OTH THE SIDES THAT THE ISSUE IN REGARD TO THE ADDITIONAL CLAIM OF DEPRECIATION O N THE MACHINERY BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO. 2151 /MDS/2008 DATED 4-12-2009 FOR THE ASSESSMENT YEAR 2005-06 WHEREIN THE CO-ORDI NATE BENCH OF THIS TRIBUNAL HELD IN PARAS 4 TO 4.5 AS FOLLOWS: 4. GROUND NO.2 - REGARDING RESTRICTION OF ADDITIONAL DEPRECIATION TO 50%:- 4.1 THE ASSESSEE CLAIMED DEPRECIATION U/S 32(1)(I IA) AT THE RATE OF 15% OF THE COST IN RESPECT OF FIXED ASSETS ADDED AFTER 30.9.2004. THE ASSESSING OFFICER RESTRICTED THE CLAIM TO 50% ON THE GROUND THAT THE ASSESSEE HAS USED THE PLANT AND MACHINERY FOR LESS THAN 180 DAYS DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. 4.2 ON APPEAL, THE LEARNED COMMISSIONER OF INCO ME TAX (APPEALS) HAS DECIDED THE ISSUE IN PARA 9 OF HIS ORDER AS UNDER:- I.T.A. NOS. 674, 721 & 1770/MDS/2010 5 'HOWEVER, IT IS NOTICED THAT THE CONCERNED SECOND PROVISO TO SECTION 32(1) WAS AMENDED BY FINANCE ACT, 2002 WIT H EFFECT FROM 01-04- 2003 BY REPLACING THE WORDS 'WHERE AN ASSET REFERR ED TO IN CLAUSE (I) OR CLAUSE (II)' WITH THE WORDS 'WHERE AN ASSET REFERRE D TO IN CLAUSE (I) OR CLAUSE (II) OR CLAUSE (IIA)'. ONCE THE SECOND PROVISO, WHI CH RESTRICTS DEPRECIATION, IS MADE SPECIFICALLY APPLICABLE TO ADDITIONAL DEPRE CIATION DEALT WITH IN CLAUSE (IIA) THROUGH AN AMENDMENT APPLICABLE FOR THE PERIO D UNDER CONSIDERATION, THE INTERPRETATION ON APPLICABILITY OF A PROVISO TO A SECTION OR SUB-SECTION ADVANCED BY THE ASSESSEE COMPANY WOULD MAKE SUCH AN AMENDMENT REDUNDANT. SUCH AN INTERPRETATION CANNOT, ACCORDIN GLY, BE ACCEPTED. THE ASSESSING OFFICER'S ACTION IN RESTRICTING THE ADDIT IONAL DEPRECIATION TO 50% OF THE AMOUNT COMPUTED AS PER THE PRESCRIBED RATE, FOR ASSETS ACQUIRED AND PUT TO USE FOR LESS THAN 180 DAYS, IN ACCORDANC E WITH THE SECOND PROVISO TO SECTION 32(1) IS CORRECT AND THE APPEAL FILED BY THE ASSESSEE ON THIS GROUND IS HEREBY DISMISSED. 4.3 W E HAVE HEARD THE LEARNED A.R. AS WEL L AS THE LEARNED D EPARTMEN TA L REP R ESENTAT I VE AND C ONSIDERED THE RELEVANT RECORDS . T HE MAIN CONTE NTION OF THE L EAR N ED C OUNSE L FOR THE ASSESSEE IS THAT THE SECOND PROVISO TO SECT ION 32(1) IS N O T APPLICABLE TO THE CLAIM OF THE ASSESSEE IN RESPECT OF DEPRECIATION ON NEW LY IN S T A LL ED PLANT AND MACH I NERY . C L AUSE ( I IA) OF SUB-SECT I ON ( 1) OF SECTION 3 2 AS I T STOOD AT THE R ELEVANT PERIOD OF TIME STIPULATES AN ADDIT I ONA L DEPRECIATION EQUAL TO 15% OF T HE ACTUAL COST OF T H E MACH IN ER Y OR PLANT ACQUIRED AND I NSTALLED AFTER 3 1 . 3.2002 TO BE A LL OWED AS DEDUCT ION UN DER C LAUS E (II A ) OF S UB -SEC TION ( 1 ) OF SECT I O N 3 2 OF THE INCOM E TA X A CT . TH US , C L AUSE ( II A) MANDATES THAT ADD I T I O N A L DEP RECIATION IS AL L OWAB L E U N DER CL AUSE ( I I) OF SUB - SECTION (1) OF SECT I ON 32 . 4 . 4 THE S ECOND P R OV I SO TO SUB-SECTION (1) OF S E CTI ON 3 2 READS AS UNDE R: ' PROV I DED FURTHER THAT WHERE AN ASSET REFE R RED T O IN C L AUSE (I) OR CLAUS E (II) O R C LAUS E ( IIA ), A S THE CASE MAY BE , IS ACQUIRED BY THE ASSESSEE DURING TH E P R EV I OU S Y EA R AND I S PUT T O USE FOR THE PURPOSES O F BU SINESS OR PROFESSION FOR A PE RI OD O F LESS T HA N ON E H U N DRED AND E I GHTY DAY S IN TH A T PRE VIOUS Y EAR, THE DEDUCT I ON UN DER THIS SUB - SECTION I N RESPECT OF S UC H ASSET SHA L L BE RESTRICTED TO FIFTY PER C E NT OF TH E AMO U N T CALCULATED AT THE PERCENTAGE P RES C RIBED FOR AN ASSET U ND E R CLA U SE ( I ) O R C L AUSE (II) OR CLAUSE (IIA), AS THE CASE MAY BE. ' 4.5 FROM THE SECOND PROVISO, IT IS CLEAR THAT FOR AVAILING THE FULL BENEFIT OF ADDITIONAL CLAIM OF DEPRECIATION AS PER CLAUSE ( IIA), THE NEWLY INSTALLED MACHINERY OR PLANT / ASSET SHOULD BE PUT TO USE FOR THE PURPOSE OF BUSINESS FOR NOT LESS THAN 180 DAYS IN THE PREVIOUS YEAR. WE DO NOT FIND ANY SUBSTANCE I.T.A. NOS. 674, 721 & 1770/MDS/2010 6 OR MERIT IN THE CONTENTION OF THE ASSESSEE THAT THE SECOND PROVISO IS NOT APPLICABLE FOR THE ADDITIONAL DEPRECIATION UNDER CL AUSE (IIA). WHEN THE PROVISO ITSELF STIPULATES THE ASSETS REFERRED TO IN CLAUSE (I) OR CLAUSE (II) OR CLAUSE (IIA), THEN THERE IS NO SCOPE OF ANY AMBIGUITY OR DOUBT TH AT THE SECOND PROVISO IS VERY MUCH APPLICABLE TO THE ASSETS REFERRED IN CLAU SE (I) OR CLAUSE (II) OR CLAUSE (IIA) OF SUB-SECTION (1) OF SECTION 32. ACCORDINGLY , WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF THE LOWER AUTHORITIES QU A THIS ISSUE. THE IMPUGNED ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) IS UPHELD. THOUGH IT HAS BEEN VEHEMENTLY ARGUED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT THE ASSESSEE HAS NOT ACCEPTED THE SAID ORDER, WE ARE UNABLE TO CONCEDE TO THE SUBMISSIONS OF THE LEARNED AUTHORISED REPRESENT ATIVE INSOFAR AS NO FRESH FACTS ARE AVAILABLE TO DISTINGUISH THE SAID ORDER. IN TH E CIRCUMSTANCES AS IT IS NOTICED THAT THE LEARNED CIT(A) HAS FOLLOWED THE PRINCIPLES OF JUDICIAL DISCIPLINE IN FOLLOWING THE TRIBUNALS ORDER AND AS NO FRESH FACTS HAVE BEE N PLACED WHICH COULD COMPEL US TO DIFFER FROM THE VIEW TAKEN EARLIER BY THE CO-ORD INATE BENCH OF THIS TRIBUNAL, RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDIN ATE BENCH OF THIS TRIBUNAL, THE FINDING OF THE LEARNED CIT(A) ON THIS ISSUE STANDS CONFIRMED. 6. IN REGARD TO THE ISSUE AS TO WHETHER THE DUTY DR AW BACK RECEIPTS/DEPB BENEFITS FORM PART OF THE NET PROFITS OF ELIGIBLE I NDUSTRIAL UNDERTAKING FOR THE PURPOSES OF SECTION 80IA AS IT IS NOTICED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F LIBERTY INDIA V. CIT, REFERRED TO SUPRA, WE ARE OF THE VIEW THAT THE ORDER OF THE LEARNED CIT(A) IN RECTIFYING THE ORDER PASSED BY HIM ON 22.2.2010 IS ON A RIGHT FOOT ING AND DOES NOT CALL FOR ANY INTERFERENCE. THIS IS ALSO BECAUSE WHEN THE HON'BLE SUPREME COURT LAYS DOWN A I.T.A. NOS. 674, 721 & 1770/MDS/2010 7 LAW, IT IS DEEMED TO BE THE LAW RIGHT FROM THE BEGI NNING. A MISTAKE IN THE APPLICATION OF THE CORRECT LAW IS A MISTAKE APPAREN T FROM THE RECORD WHICH RECTIFIABLE U/S 154. IN THE CIRCUMSTANCES, THE APP EAL OF THE ASSESSEE IN ITA NO. 1770/MDS/2010 STANDS DISMISSED. 7. AS WE HAVE ALREADY HELD THAT THE DUTY DRAW BACK/ DEPB BENEFITS ARE NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA BY FOLLOW ING THE LAW LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA, THE APPEAL OF THE REVENUE IN ITA NO. 721/MDS/2010 STANDS ALLOWED. 8. IN THE RESULT, THE ASSESSEES APPEALS IN ITA NO. 674/MDS/2010 AND ITA NO. 1770/MDS/2010 STAND DISMISSED AND THE REVENUES APPEAL IN ITA NO. 721/MDS/2010 STANDS ALLOWED. 9. THE ORDER WAS PRONOUNCED IN THE COURT ON 04/02/2 011. SD/- SD/- (ABRAHAM P. GEORGE) (GEORGE MATHAN) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 04 TH FEBRUARY, 2011. H. COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE