Silicon Jewel Industries Pvt. Ltd., Ahmedabad V. The Dy.CIT, Circle-8, Ahmedabad

ITA 1868/AHD/2015

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 0543 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 22-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: APARNA A GARWAL
• Assessee Lawyers: ARTI N SHAH A RS
• Keywords: Depreciation; Set aside
• Section: 271(1)(c); 143(3); 32

Judgement Text

, A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ I.T.A. NOS. 1868 & 1869/AHD/2015 ( ASSESSMENT YEAR : 2010-11) SILICON JEWEL INDUSTRIES PVT. LTD. SHREE LAXMI SAW MILL COMPOUND, NR. MANGALAM CINEMA, ODHAV, AHMEDABAD - 382415 / VS. DCIT CIRCLE 8, AHMEDABAD ./ ./ PAN/GIR NO. : AALCS9603H ( APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : ARTI N. SHAH, A.RS. / RESPONDENT BY : APARNA AGARWAL, CIT.D.R. DATE OF HEARING 16/09/2019 !'# / DATE OF PRONOUNCEMENT 17/09/2019 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED QUANTUM AND PENALTY APPEALS HAVE BEEN FILED AT THE INSTANCE OF THE ASSESSEE AGAINST THE ORDER OF THE C OMMISSIONER OF INCOME TAX (APPEALS)-8, AHMEDABAD (CIT(A) IN SHORT), DAT ED 28.04.2015 ARISING IN THE ASSESSMENT ORDER DATED 11.03.2013 AND PENALT Y ORDER DATED 23.07.2013 PASSED BY THE ASSESSING OFFICER (AO) UND ER S. 143(3) & ITA NO. 1868 & 1869/AHD/15 [SILICON INDUSTRIES PVT. LTD. VS. DCIT] A.Y. 2010-11 - 2 - 271(1)(C) OF THE INCOME TAX ACT, 1961 (THE ACT) RES PECTIVELY; CONCERNING A.Y. 2010-11. 2. THERE BEING COMMON THREAD TO THE GRIEVANCE IN BO TH APPEALS, BOTH CASES WERE HEARD TOGETHER AND DISPOSED OF BY T HE COMMON ORDER. 3. WE SHALL FIRST TAKE UP ASSESSEES QUANTUM APPEAL IN ITA NO. 1868/AHD/2015 CONCERNING AY 2010-11. ITA NO. 1868/AHD/2015 - (QUANTUM APPEAL) 4. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE REA D AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WE LL AS LAW ON THE SUBJECT, THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) HAS ERRED IN CONFIRMING THE ACTION OF ASSESSING OFFICER IN MAKING DISALLOWANCE OF RS.15,40,803/-. 2. EVEN OTHERWISE, THE LD. CIT(A) HAS ERRED IN NOT GRANTING THE DEPRECIATION BY CAPITALIZING THE EXPENSE OF RS.77,0 4,015/-. 5. WHEN THE MATTER WAS CALLED FOR HEARING, THE LEAR NED AR FOR THE ASSESSEE ASSAILED THE ORDER OF THE CIT(A) AND CONTE NDED THAT THE CIT(A) HAS MISDIRECTED HIMSELF IN LAW AND ON FACTS IN REFU SING TO GRANT RELIEF TO THE ASSESSEE AS CALLED FOR. ADVERTING TO THE FACTS, LE ARNED AR FOR THE ASSESSEE SUBMITTED THAT THE RETURN FILED BY THE ASSESSEE WAS SUBJECTED TO SCRUTINY ASSESSMENT. THE AO IN THE COURSE OF THE SCRUTINY A SSESSMENT INTER ALIA OBSERVED THAT ASSESSEE HAS DEBITED PRELIMINARY AND PREOPERATIVE EXPENSES OF RS.15,86,103/- WHICH HAS BEEN CLAIMED AS DEDUCTI ON UNDER S.35D OF THE ACT. ON PERUSAL OF THE DETAILS OF THE PRELIMINARY AND PREOPERATIVE EXPENSES, IT WAS FOUND THAT THE ASSESSEE HAS DEBITE D CERTAIN EXPENSES AGGREGATING TO RS.79,30,515/- (RS.78,99,015/- DURIN G AY 2008-09 AND RS.31,500/- IN APRIL 2009) AND SUCH EXPENSES WERE I NCURRED BEFORE COMMENCEMENT OF COMMERCIAL PRODUCTION. THE ASSESSE E HAS CLAIMED 1/5 TH OF THE AFORESAID AMOUNT AS DEDUCTION UNDER S.35D OF THE ACT. THE AO ITA NO. 1868 & 1869/AHD/15 [SILICON INDUSTRIES PVT. LTD. VS. DCIT] A.Y. 2010-11 - 3 - HOWEVER OBSERVED THAT EXCEPT FOR THE EXPENDITURE IN CURRED TOWARDS ROC FEES AMOUNTING TO RS.2,26,500/-, THE REMAINING EXPE NDITURE IS NOT ELIGIBLE FOR AMORTIZATION OF 1/5 TH EXPENDITURE UNDER S.35D OF THE ACT. THE AO ACCORDINGLY ALLOWED DEDUCTION OF RS.45,300/- UNDER S.35D OF THE ACT AS ATTRIBUTABLE TO ROC FEES BUT HOWEVER DISALLOWED THE REMAINING AMOUNT OF RS.15,40,803/- AND ADDED THE SAME TO THE TOTAL INCO ME OF THE ASSESSEE. 6. THE LEARNED AR FOR THE ASSESSEE THEREAFTER ADVER TED TO THE ORDER OF THE CIT(A) AND SUBMITTED THAT WHEN THE AFORESAID AC TION OF THE AO WAS CHALLENGED BEFORE THE CIT(A), AN ALTERNATIVE PLEA W AS ALSO TAKEN BEFORE THE CIT(A) THAT WHERE THE EXPENDITURE CLAIMED IS NOT AD MITTED AS ELIGIBLE UNDER S.35D OF THE ACT, SUCH EXPENDITURE REQUIRES TO BE C APITALIZED TO THE FIXED COSTS AND APPROPRIATE DEPRECIATION ALLOWANCE IS REQ UIRED TO BE GRANTED TO THE ASSESSEE IN TERMS OF SECTION 32 OF THE ACT. TH E LEARNED AR FOR THE ASSESSEE ADVERTED OUR ATTENTION TO THE BREAKUP OF E XPENDITURE OF PRELIMINARY AND PRE-OPERATIVE EXPENDITURES ANNEXED TO PAPER BOOK AND SUBMITTED THAT MAJORITY OF THE EXPENSES INCURRED CO MPRISES OF BANK INTEREST (RS.37.95 LAKHS), PROCESSING FEE CHARGES (RS.21.68 LAKHS) AND DOCUMENT OF STAMPING CHARGES (RS.7.22 LAKHS) AND THESE EXPEN SES IN PARTICULAR ARE IN RELATION TO THE BORROWED FUNDS UTILIZED FOR ACQUISI TION OF FIXED ASSETS AND THEREFORE REQUIRES TO BE CAPITALIZED UNDER S.36(1)( III) OF THE ACT AND IS REQUIRED TO BE ADDED TO THE ACTUAL COST FOR THE PUR POSES OF CLAIM OF DEPRECIATION ALLOWANCE UNDER S.32 OF THE ACT. THE LEANED AR FOR THE ASSESSEE SUBMITTED THAT THE CIT(A) HOWEVER HAS WRON GLY DENIED APPROPRIATE RELIEF IN TERMS OF THE ALTERNATIVE PLEA FOR CLAIM OF DEPRECIATION. 7. THE LEARNED DR FOR THE REVENUE, ON THE OTHER HAN D, RELIED UPON THE ORDER OF THE CIT(A). 8. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE CORE C ONTROVERSY FOR ADJUDICATION BEFORE US IS WHETHER THE ASSESSEE IS E LIGIBLE FOR DEPRECIATION ALLOWANCE ON THE ADDITIONAL CAPITALIZATION OF COST AS SOUGHT OR NOT IN THE GIVEN FACTS OF THE CASE. WE NOTICE THAT THE CIT(A) HAS NOT RAISED ANY OBJECTION ON FIRST PRINCIPLE THAT THE ASSESSEE IS E LIGIBLE TO DEPRECIATION ON ITA NO. 1868 & 1869/AHD/15 [SILICON INDUSTRIES PVT. LTD. VS. DCIT] A.Y. 2010-11 - 4 - ALL COSTS INCURRED FOR ACQUISITION OF ASSET UP TO T HE PERIOD TILL THE ASSET WAS FIRST PUT TO USE AS ATTRIBUTABLE TO SUCH CAPITAL AS SETS. THE CIT(A) HOWEVER HAS OBSERVED THAT DIRECT AND PROXIMATE RELATIONSHIP BETWEEN THE EXPENSES AND THE ACQUISITION OF ASSETS REQUIRES TO BE ESTABL ISHED. HAVING REGARD TO THE CLAIM OF THE ASSESSEE FOR INCURRING OF SUBSTANT IAL EXPENDITURE OF BORROWALS FROM BANK WHICH HAS BEEN UTILIZED FOR ACQ UISITION OF ASSETS, WE CONSIDER IT EXPEDIENT TO RESTORE THE ISSUE BACK TO THE FILE OF THE CIT(A) FOR PROPER VERIFICATION OF THIS ASPECT. THE ISSUE IS A CCORDINGLY REMANDED BACK TO THE FILE OF THE CIT(A) FOR MAINTAINABILITY OF CL AIM OF DEPRECIATION ON THE COSTS ATTRIBUTABLE TO ACQUISITION OF ASSETS AS EMBE DDED IN PRELIMINARY AND PREOPERATIVE EXPENSES. IT SHALL BE OPEN TO THE ASS ESSEE TO ESTABLISH BEFORE THE CIT(A) TO HIS SATISFACTION THAT EXPENSES INCURR ED TOWARDS INTEREST AND OTHER COSTS ARE ATTRIBUTABLE TO THE ACQUISITION OF ASSET. THE ASSESSEE SHALL BE ENTITLED TO DEPRECIATION ALLOWANCE ON SUCH INTER EST AND OTHER COSTS IN ACCORDANCE WITH LAW. NEEDLESS TO SAY, THE ASSESSEE SHALL EXTEND FULL COOPERATION TO THE CIT(A) AND SHALL PROVIDE ALL INF ORMATION AND EVIDENCES AS MAY BE REQUIRED FOR THE PURPOSE OF DETERMINATION OF THE ISSUE. THE ORDER OF THE CIT(A) IS THEREFORE SET ASIDE TO THIS EXTENT AND RESTORED BACK FOR ADJUDICATION AFRESH IN ACCORDANCE WITH LAW. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO. 1869/AHD/2015 IS ALLOWED FOR STATISTICAL PURPOSES. 10. IN ITA NO.1869/AHD/2015, THE ASSESSEE HAS RAISE D GRIEVANCE TOWARDS IMPOSITION OF PENALTY OF RS.5,08,464/- UNDER S.271( 1)(C) OF THE ACT AS A CONSEQUENCE OF DISALLOWANCE OF PRELIMINARY AND PREO PERATIVE EXPENSES AS NOTED IN THE QUANTUM APPEAL. AS THE QUANTUM ORDER OF THE AO IS SUBJECT TO FRESH EXAMINATION OF THE CIT(A) AS NOTED IN ITA NO. 1868/AHD/2015, THE CONSEQUENTIAL PENALTY IMPOSED ON SUCH ADDITION/DISA LLOWANCE UP TO AND UNTIL THE ISSUE REGARDING DETERMINATION OF TAXABLE INCOME IS FINALIZED, PENALTY UNDER S.271(1)(C) OF THE ACT CANNOT BE IMPO SED UPON THE ASSESSEE. THE DETERMINATION OF TAXABLE INCOME OF THE ASSESSEE IS PRESENTLY SUB-JUDICE BEFORE THE CIT(A) OWING TO THE APPELLATE ORDER OF T HE ITAT IN QUANTUM PROCEEDINGS. IT WILL BE THE STATUTORY DISCRETION O F THE CIT(A) TO CONSIDER ITA NO. 1868 & 1869/AHD/15 [SILICON INDUSTRIES PVT. LTD. VS. DCIT] A.Y. 2010-11 - 5 - THE MERITS OF IMPOSITION OF PENALTY ON THIS ISSUE A FRESH IN ACCORDANCE WITH LAW ON CONCLUSION OF THE QUANTUM APPEAL SO RESTORED . THUS, THE APPELLATE ORDER OF THE CIT(A) CONFIRMING THE PENALTY IS ALSO SET ASIDE AND RESTORED BACK TO THE FILE OF THE CIT(A). 11. IN THE RESULT, BOTH THE APPEALS FILED BY ASSESS EE ARE ALLOWED FOR STATISTICAL PURPOSES. SD/- SD/- (KUL BHARAT) (PRADIP KUMAR KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: DATED 17/09/2019 TRUE COPY S. K. SINHA !'#' / COPY OF ORDER FORWARDED TO:- &. / REVENUE 2. / ASSESSEE (. )*+ , / CONCERNED CIT 4. ,- / CIT (A) /. 012 33*+4 *+#4 56) / DR, ITAT, AHMEDABAD 7. 289 : / GUARD FILE. BY ORDER / 4 /5 *+#4 56) THIS ORDER PRONOUNCED IN OPEN COURT ON 17/09/2 019