Associated Power Structure Pvt.Ltd., Baroda V. The ACIT.,Circle-1(1), Baroda

ITA 190/AHD/2008

• Counselvise Citation: 19020514 RSA 2008
• Duration Of Justice: 3 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 02-08-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 11-01-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Keywords: Depreciation; Opportunity of being heard; Additional depreciation; Initiation of penalty proceedings; Bad and doubtful debts
• Section: 80IB; 12

Judgement Text

I.T.A.NO. 190/AHD/2008 1 IN THE INCOME TAX APPELLATE TRIBUNAL, A BENCH, AHMEDABAD BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI A. K. GARODIA, ACCOUNTANT MEMBER I.T.A. NO.190 / AHD/2008 (ASSESSMENT YEAR 2004-05) M/S. ASSOCIATED POWER STRUCTURES P. LTD., 905/3, GIDC, MAKARPURA, BARODA VS. ACIT, CIRCLE 1(1), BARODA PAN NO. : AABCA6602N (APPELLANT) .. (RESPONDENT) APPELLANT BY: SHRI MILIN MEHTA, AR RESPONDENT BY: SHRI B.L. YADAV, DR DATE OF HEARING: 02.08.2011 DATE OF PRONOUNCEMENT: 26.08.2011 O R D E R PER SHRI A. K. GARODIA, AM:- THIS IS ASSESSEES APPEAL DIRECTED AGAINST THE ORD ER OF LD. CIT(A) I, BARODA DATED 04.10.2007 FOR THE ASSESSMENT YEAR 200 4-05. 2. THE GROUND NO.1 OF THE APPEAL IS AS UNDER: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS - I, BARODA) ['THE CIT(A)'] ERRED IN FACT AND IN LAW IN CONFIRMI NG THE ACTION OF THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE - 1(1), BARODA ['THE AO'] IN DISALLOWING DEDUCTION U/S 80IB OF THE INCOM E TAX ACT, 1961 ['THE ACT'] ON THE GROUND THAT THE UNIT SET UP BY T HE APPELLANT IS A NEW UNIT WHICH STARTED PRODUCTION AFTER THE PERIOD PRES CRIBED U/S 80IB OF THE ACT. THE AO FAILED TO APPRECIATE THE FACT THAT NO NEW UNIT WAS STARTED IT WAS IN FACT RELOCATION OF THE OLD UNIT F OR WHICH DEDUCTION U./S 80IB OF THE ACT IS AVAILABLE. I.T.A.NO. 190/AHD/2008 2 THE LEARNED CIT (A) ERRED IN FACT AND IN LAW IN CON FIRMING ACTION OF THE AO IN OBSERVING THAT THE APPELLANT IS NOT A SSI UNIT AND THEREFORE ON THIS COUNT ALSO NO DEDUCTION IS ALLOWABLE. THE LEARNED CIT (A) ERRED IN FACT AND IN LAW IN CON FIRMING ACTION OF THE AO IN OBSERVING THAT THE APPELLANT IS ELIGIBLE FOR ADDITIONAL DEPRECIATION ON THE GROUND THAT NEW UNIT HAS BEEN S ET UP. WITHOUT PREJUDICE TO ABOVE THE LEARNED AO ERRED IN FACT AND IN LAW IN NOT ALLOWING DEDUCTION U/S 80IB ON THE PROFITS OF T HE OLD UNIT. 3. THE BRIEF FACTS OF THE CASE TILL THE ASSESSMENT STAGE AND THE CONTENTIONS RAISED BY THE ASSESSEE BEFORE LD. CIT(A) ARE NOTED BY LD. CIT(A) IN PARA 4 OF HIS ORDER, WHICH IS REPRODUCED BELOW: AS REGARDS GROUND NO.(L), THE FACTS ARE-THAT THE A PPELLANT IS ENGAGED IN THE BUSINESS OF HOT DIP GALVANIZING AND FABRICATION OF STEEL ITEMS. THE APPELLANT HAD AN SSI UNIT MANUFACTURING W.E.F. 1-2-96 AT MAKARPURA ON WHICH DEDUCTION U/S. 80IB HAD BEEN GRA NTED. ANOTHER UNIT WAS SET UP AT MANGLEJ AND ASSESSEE CLAIMED DED UCTION U/S.80IB. THE APPELLANT CLAIMED THAT IT WAS NOT A NEW UNIT BU T THAT THE OLD UNIT WAS RELOCATED IN A NEW PLACE AND ALSO EXPANDED IN T HE PROCESS. IT WAS TERMED AS A RECONSTRUCTION OF AN EXISTING BUSINESS. IT WAS ARGUED THAT THE COMPANY'S BUSINESS, 'CUSTOMERS, CAP ITAL, MANAGEMENT WORK' FORCE HAD REMAINED UNCHANGED. NO SEPARATE ACC OUNTS WERE MAINTAINED AT THE TWO PLACES. THE APPELLANT RELIED ON THE DECISION IN THE CASE OF CIT V. TRAVANCORE RAYONS LTD., 164 ITR 134 (KER) IN SUPPORT OF ITS CLAIM. THE ASSESSING OFFICER CONTRAD ICTED THE CLAIM BY OBSERVING THAT THERE WAS ADDITION TO BUILDING, PLAN T &MACHINERY, ELECTRICAL INSTALLATION AND OFFICE EQUIPMENT OF THE AMOUNT OF RS.83,01,082/-, RS.1,21,54,410/-, RS.11,76,069/- AN D RS.41,930/- RESPECTIVELY. HE ALSO NOTED THAT THIS UNIT HAD BEEN RECORDED AS UNIT NO.2 IN THE DISTRICT INDUSTRIES CENTRE CERTIFICATE FALSIFYING THE APPELLANT'S CLAIM THAT IT HAD NOT GOT IT REGISTERED AS A NEW UNIT. HE FURTHER NOTED THAT AFTER THE COMMENCEMENT OF THE UN IT AT MANGLEJ, THE OLD UNIT WAS DISCONTINUED AND, THEREFORE, HE HELD I T TO BE THE NEW INDUSTRIAL UNDERTAKING. HE FURTHER HELD THAT SINCE THE TOTAL VALUE OF INVESTMENT IN PLANT & MACHINERY EXCLUDING TOOLS IN THIS NEW UNIT WAS MORE THAN RS.L CRORE ON THE LAST DAY OF THE FINANCI AL YEAR, IT DID NOT QUALIFY AS AN SSI UNIT UNDER I{R & D) ACT. HE ALSO RELIED UPON THE I.T.A.NO. 190/AHD/2008 3 DECISION IN THE CASE OF CIT V. GANGA SUGAR CORPORATION LTD. 92 ITR 173 (DEL), TEXTILE MACHINERY CORPORATION LTD. V. CIT 107 ITR 195(SC), CIT V. ORIENT PAPER MILLS. LTD. 176 ITR UO(SC) AND METTUR. CHEMICAL & INDUSTRIAL CORPORATION LTD. V. CIT 217 ITR 768 (SC). UNDER THE CIRCUMSTANCES, HE HELD THAT 'THERE IS A NEW EMERGENCE OF A PHYSICAL SEPARATE UNIT WHICH CAN VERY WELL EXISTS O N ITS OWN AS A VIABLE INDUSTRIAL UNIT. IN FACT, THE NEW UNIT, OF THE ASSESSEE IS RUNNING AS PHYSICALLY SEPARATE ON ITS OWN AS A VIABLE INDUSTRI AL UNIT'. FOR THESE REASONS, HE REJECTED THE APPELLANT'S CLAIM FOR DEDU CTION U/S.80IB. BEFORE ME, THE APPELLANT HAS SUBMITTED THAT IT HAD BEEN GRANTED CERTIFICATE AS SSI UNIT UNDER THE I (R&D) ACT WHICH WAS PRODUCED BEFORE THE ASSESSING OFFICER. IT HAS SUBMI TTED THAT THE FINANCIAL LIMIT FOR CONSIDERING PLANT & MACHINERY U NDER I(R&D) ACT IS DIFFERENT THEN WHAT THE ASSESSING OFFICER HA S APPLIED. IN THIS WAY, IT HAS ARGUED, THAT THE TOTAL INVESTMENT IN PLANT & MACHINERY AS PER BOOKS WAS RS.1,69,87,168/- BUT AS PER THE SSI DEFINITION IT WAS RS.62,58,254/-. IT FURTHER ARGUED THAT IN VIEW OF THE INCREASING ORDERS AT HAND IT HAD TO INCREASE TH E CAPACITY OF THE PLANT WHICH WAS NOT POSSIBLE AT THE EXISTING LO CATION DUE TO THE CONSTRAINT OF SPACE SO THAT IT HAD TO SHIFT ITS MANUFACTURING TO ANOTHER LOCATION. IT HAS REITERATED THAT NO NEW FAC ILITIES WERE CREATED BUT THE EXISTING FACILITIES WERE SHIFTED TO A DIFFERENT LOCATION. IT HAS FURTHER ARGUED THAT AFTER COMMENCE MENT OF PRODUCTION AT NEW LOCATION, PRODUCTION AT THE OLD L OCATION WAS REDUCED SUBSTANTIALLY AND ULTIMATELY STOPPED SO THA T IT WAS A CASE OF RE-CONSTRUCTION OF THE EXISTING BUSINESS. T HE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER HAVE BEEN REITERA TED. 4. LD. CIT(A) HAS DECIDED THIS ISSUE AGAINST THE AS SESSEE ON THIS BASIS THAT THE NEW UNIT AT MANGLEJ STATED PRODUCTIO N W.E.F. 01.06.2003 AND HENCE IT FALLS BEYOND THE PURVIEW OF SECTION 80IB O F THE ACT. REGARDING THIS CLAIM OF THE ASSESSEE THAT THERE IS RECONSTRUCTION OF OLD MAKARPURA UNIT OF THE ASSESSEE, IT WAS HELD BY THE LD. CIT(A) THAT SINCE THE OPERATION OF MANUFACTURING IN THE SAID UNIT AT MAKARPURA WERE NO T STARTED DURING THE PERIOD WHEN THE UNIT AT MANGLEJ WAS COMING OUT, IT IS NOT ACCEPTABLE THAT NEW MANGLEJ UNIT IS NOT AN INDEPENDENT UNIT AND HENCE, IT WAS HELD BY HIM THAT IT IS NOT THE RECONSTRUCTION OF THE EXISTING UNIT. HE REJECTED THE CLAIM OF THE I.T.A.NO. 190/AHD/2008 4 ASSESSEE FOR ALLOWING DEDUCTION U/S 80IB. HE CONFI RMED THE ASSESSMENT ORDER ON THIS ISSUE REGARDING REJECTION OF THE CLAI M OF THE ASSESSEE FOR DEDUCTION U/S 80IB AND NOW, THE ASSESSEE IS IN FURT HER PAELLA BEFORE US. 5. IT IS SUBMITTED BY THE LD. A.R. BEFORE US THAT T HE NEW UNIT OF THE ASSESSEE AT MANAGLEJ IS AN SSI UNIT AND THEREFORE, ELIGIBLE FOR DEDUCTION U/S 80IB EVEN IF IT IS HELD THAT IT IS A NEW UNIT AND S TARTED PRODUCTION ON 01.06.2003. HE SUBMITTED THAT IN THE CASE OF CHEMCON ENGINEERS PVT. LTD. VS ACIT IN ITA NO. 2873/A/2006 , DATED 23.07.2010, THE TRIBUNAL HAS HELD THAT FOR THE PURPOSE OF DECIDING AS TO WHETHER THE ASSES SEE UNIT IS AN SSI UNIT OR NOT, THE AMOUNT OF INVESTMENT IN PLANT & MACHINERY SHOULD BE CONSIDERED ONLY IN RESPECT OF THOSE ITEMS WHICH ARE PRODUCTIVE LY ENGAGED IN THE MANUFACTURING ACTIVITIES AND NOT THE OTHER ASSETS. IT IS SUBMITTED THAT IN THAT CASE, THE A.O. HAS CONSIDERED THOSE ASSETS WHICH WE RE UNDER INSTALLATION AND WHICH WERE NOT PUT TO USE FOR CARRYING OUT MANUFACT URING ACTIVITIES FOR COMPUTING THE LIMIT OF RS.1 CRORE FOR INVESTMENT IN PLANT & MACHINERY BUT THE ACTION OF THE A.O. WAS NOT APPROVED BY THE TRIB UNAL AND IT WAS HELD THAT THE ASSESSEE HAS FULFILLED THE REQUIREMENT OF SECTI ON 80IB AND THEREFORE, ELIGIBLE FOR DEDUCTION U/S 80IB. IT IS SUBMITTED T HAT IN THE PRESENT CASE ALSO, THE ASSESSEE HAS TO BE CONSIDERED AS ELIGIBLE FOR D EDUCTION U/S 80IB ON TWO BASIS. ONE IS THAT ASSESSEE IS AN SSI UNIT OR IN T HE ALTERNATIVE, 2 ND BASIS IS THAT IT IS NOT THE NEW UNIT BUT RECONSTRUCTION OF OLD UN IT AND, THEREFORE TILL THE PERIOD OF OLD UNIT EXPIRES, THE ASSESSEE IS ELIGIBL E FOR DEDUCTION U/S 80IB. IT WAS ONE MORE ALTERNATIVE CONTENTION RAISED BY THE L D. A.R. THAT SINCE THE OLD UNIT HAS ALSO WORKED DURING THE PRESENT YEAR TILL 3 1.05.2003, DEDUCTION SHOULD BE ALLOWED IN RESPECT OF PROFIT OF OLD UNIT IN THE PRESENT YEAR. RELIANCE WAS PLACED ON THE JUDGMENT OF HONBLE MADR AS HIGH COURT RENDERED IN THE CASE OF CIT VS. DALMIA MAGNESITE CORPN AS REPORTED IN 117 I.T.A.NO. 190/AHD/2008 5 ITR 930 (MAD.) IN SUPPORT OF THIS CONTENTION THAT E VEN AFTER RECONSTRUCTION, THE UNIT REMAINED THE SAME AND IT IS ELIGIBLE FOR D EDUCTION U/S 80IB. REGARDING THE WORKING OF INVESTMENT IN PLANT & MACH INERY, OUR ATTENTION WAS DRAWN TO PAGE 31-43 OF THE PAPER BOOK. AS AGAI NST THIS, LD. D.R. OF THE REVENUE SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSE D THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHO RITIES BELOW. WE FIND THAT ALL THE ASPECTS OF THE ISSUE IN DETAIL HAVE BE EN PROPERLY APPRECIATED AND CONSIDERED BY LD. CIT(A) IN PARA 5 OF HIS ORDER, WH ICH IS REPRODUCED BELOW: 5. I HAVE CONSIDERED THE RIVAL SUBMISSIONS. IT IS OBSERVED THAT THE THREE ISSUES INVOLVED ARE : WHETHER IT WAS A CASE OF SETTING UP A NEW MANUFACTURING UNIT OR OF RE-LOCATION OF THE EXISTING MANUFACTURING UNIT; IF IT WAS A CASE OF AN INDUSTRI AL UNDERTAKING FORMED AS A' RESULT OF RECONSTRUCTION OF THE BUSINE SS OF SUCH AN ALREADY EXISTING UNDERTAKING; IF THE MANUFACTURING UNIT AT MANGLEJ WAS AN SSI UNIT. IT IS OBSERVED THAT IT A MATTER O F RECORD THAT THE UNIT AT MANGLEJ WAS REGISTERED AS UNIT NO.2. BY THE DIST RICT INDUSTRIES CENTRE IN THE DIS CERTIFICATE. THIS FACT IS NOT IN DISPUTE. THEREFORE, 'IT CAN BE SAID WITH REASONABLE CERTAINTY AND FACTUAL A CCURACY THAT IT GAVE A SEPARATE AND INDEPENDENT IDENTITY TO THE SAI D MANUFACTURING UNIT, THIS DEFLATES THE APPELLANT'S CLAIM THAT IT D ID NOT REGISTER THE NEW UNIT AS A SEPARATE UNIT. IT IS ALSO OBSERVED THAT T HE GROSS VALUE OF PLANT & MACHINERY OF THE UNIT AT MAKARPURA WAS RS.48,32,7 58/- AND THIS REMAINS UN-CONTESTED. IT IS ALSO UNDISPUTED THAT TH ERE WAS ADDITION OF RS.1,21,54,410/- TO THE PLANT & MACHINERY DURING TH E RELEVANT PREVIOUS YEAR. THIS CLEARLY GIVES A LOT OF STRENGTH TO THE VIEW THAT A NEW VIABLE INDUSTRIAL UNIT CAME IN EXISTENCE WHICH HAD A' SEPARATE AND INDEPENDENT IDENTITY OF ITS OWN CREATED DURING THE ENDING MARCH, 2004. IT IS FURTHER OBSERVED THAT NOTHING STOPS THE MANAGEMENT FROM SETTING UP A NEW INDEPENDENT MANUFACTURING UNIT AT AN ALTOGETHER DIFFERENT LOCATION BY CONTINUING TO PRODUCE THE SAM E PRODUCT MIX FOR THE SAME CUSTOMERS; BUT THIS IN ITSELF IS NO CRITER ION TO SUGGEST THAT THESE FEATURES DO NOT ALLOW OR DO NOT RESULT INTO T HE SETTING UP OF A NEW UNIT. IT IS NOT THE APPELLANT'S CASE THAT THE O PERATIONS AND MANUFACTURING IN THE UNIT AT MAKARPURA WAS STOPPED DURING THE PROCESS WHEN THE UNIT AT MANGLEJ WAS COMING UP. THE FACT THAT THE I.T.A.NO. 190/AHD/2008 6 MANGLEJ UNIT CAME UP SIMULTANEOUSLY SHOWS THAT IT W AS AN INDEPENDENT UNIT. THE APPELLANT ITSELF HAS ADMITTED AT PARA 6 OF ITS SUBMISSIONS TO THE EFFECT THAT THE COMPANY DECIDED TO DISCONTINUE THE OPERATIONS AT MAKARPURA ONLY AFTER THE FACILITIES A T MANGLEJ GOT SETTLED. IT IS ALSO OBSERVED THAT THE NON-MAINTENAN CE OF SEPARATE BOOKS OF ACCOUNTS FOR THE TWO UNITS CANNOT BE THE CRITERI ON TO PRONOUNCE THAT IT WAS THE RE-CONSTRUCTION OF THE BUSINESS OF THE E XISTING INDUSTRIAL UNDERTAKING. IT IS ALSO E MATTER OF RECORD AND, IT REMAINS UNDISPUTED, THAT THE NEW UNIT AT MANGLEJ STARTED PRODUCING W..E .F. 1-6-2003. THAT BEING SO IT FALLS BEYOND THE PURVIEW OF SEC.8OIB SI NCE THE PERIOD OF COMMENCEMENT IS NOT COVERED UNDER THE SAID SECTION. UNDER THE CIRCUMSTANCES, IT IS BOTH REASONABLE AND LOGICAL TO CONCLUDE THAT THE MANUFACTURING UNIT SET UP AT MANGLEJ WAS A NEW INDU STRIAL UNIT SET UP BY THE APPELLANT AND, WHICH WAS RECOGNIZED AS UNIT NO.2 BY THE DISTRICT INDUSTRIES CENTRE AND, FURTHER, THAT IT STARTED PRODUCTION W.E.F. 1-6-2003 AND, THEREFORE, WAS NOT ELIGIBLE FO R DEDUCTION U/S 80IB. IT IS ALSO HELD THAT THE VALUE OF INVESTMENT IN THE PLANT & MACHINERY OF THIS NEW UNIT WAS MUCH BEYOND THE LIMI T OF AN SSI UNIT. UNDER THE CIRCUMSTANCES, THE ACTION OF THE ASSESSIN G' OFFICER IN DISALLOWING THE CLAIM OF DEDUCTION U/S,80IB IS CONF IRMED. 7. WE FIND THAT ALL THE ASPECTS WERE EXAMINED BY T HE LD. CIT(A) IN GREAT DETAIL AND A CLEAR FINDING HAS BEEN GIVEN BY HIM TH AT THE INVESTMENT IN PLANT & MACHINERY OF THE NEW UNIT IS MUCH BEYOND THE LIMI T OF SSI UNIT AND THE SAME IS RS.121.54 LACS AS AGAINST THE LIMIT OF RS.1 CRORES. THEREFORE, THIS CLAIM OF THE ASSESSEE IS NOT VALID THAT THE NEW UNI T IS A SSI UNIT. BEFORE US ALSO, ALTHOUGH THIS CONTENTION WAS RAISED BY LD. A. R. OF THE ASSESSEE BUT HE COULD NOT SATISFY US THAT THE INVESTMENT IN THE MAN AGALEJ UNIT IS BELOW RS. 1 CRORE. HENCE, THIS CONTENTION IS LIABLE TO BE REJE CTED. REGARDING THIS CLAIM OF THE ASSESSEE THAT IT IS A RECONSTRUCTION OF THE EXISTING UNIT, WE FIND THAT A CLEAR FINDING HAS BEEN GIVEN BY THE LD. CIT(A) THA T THE SAID UNIT WAS WORKING THROUGH OUT THE CONSTRUCTION PERIOD OF MAN GLEJ UNIT AND THE MANGLEJ UNIT HAS BEEN REGISTERED AS UNIT NO.2 BEFOR E THE DISTRICT INDUSTRIES CENTRE IN ITS DIS CERTIFICATE. WE, THEREFORE, DO N OT FIND ANY MERIT IN THIS CONTENTION ALSO THAT THE UNIT AT MANGLEJ IS RECONST RUCTION OF THE OLD UNIT AT I.T.A.NO. 190/AHD/2008 7 MAKARPURA. HENCE, BOTH THESE CONTENTIONS OF THE AS SESSEE ARE LIABLE TO BE REJECTED AND WE DO SO. THE JUDGMENT OF HONBLE MAD RAS HIGH COURT RENDERED IN THE CASE OF DALMIA MAGNESITE CORPN. (SU PRA) IS ALSO OF NO HELP TO THE ASSESSEE BECAUSE THE FACTS ARE DIFFERENT. 8. REGARDING THE ALTERNATE CLAIM OF THE ASSESSEE TH AT DEDUCTION SHOULD BE ALLOWED FOR THE PROFIT OF OLD UNIT FOR THE WORKING PERIOD OF THE OLD UNIT TILL 31.05.2003, WE FIND THAT IT IS NOTED BY THE LD. CIT (A) IN PARA 5 OF HIS ORDER THAT IT IS NOT THE CASE OF THE ASSESSEE THAT OPERAT ION OF THE MANUFACTURING IN THE UNIT AT MAKARPURA WAS STOPPED DURING THE PROCES S WHEN THE UNIT AT MANGLEJ WAS COMING UP BUT THERE IS NO CLEAR CUT FIN DING REGARDING THE DATE UP TO WHICH THE OLD UNIT WAS WORKING AND WHETHER TH ERE WAS ANY PROFIT OF THE OLD UNIT WHICH IS ELIGIBLE FOR DEDUCTION U/S 80IB. HENCE, WE FEEL THAT IN THE INTEREST OF JUSTICE, THIS ALTERNATIVE CLAIM OF THE ASSESSEE DESERVES CONSIDERATION AND THEREFORE, WE DIRECT THE A.O. TO EXAMINE THE ALTERNATIVE CLAIM OF THE ASSESSEE AND PASS NECESSARY ORDERS AS PER LAW AFTER ALLOWING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE AND TO THE EXTENT, IT IS FOUND THAT THE OLD UNIT WAS WORKING IN THE PRESENT YEAR, AND TO THE EXTENT OF PROFIT OF SUCH OLD UNIT, DEDUCTION SHOULD BE ALLOWE D TO THE ASSESSEE U/S 80IB AS PER THE PROVISIONS OF LAW. THE A.O. IS DIRECTED ACCORDINGLY. GROUND NO.1 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 9. GROUND NO.2 OF THE APPEAL IS AS UNDER: 2. THE LEARNED CIT (A) ERRED IN FACT AND IN LAW IN CONFIRMING ACTION OF THE AO IN CAPITALIZING INTEREST OF RS.59,3397- O N THE GROUND THAT THE SAID INTEREST REPRESENTS INTEREST ON SETTING UP OF NEW UNIT WHICH IS REQUIRED TO BE CAPITALIZED. 10. THE BRIEF FACTS OF THE CASE ARE THAT IT IS NOTE D BY THE CIT(A) IN PARA 7 OF HIS ORDER THAT DURING THE MONTH OF APRIL-MAY 200 3, LOAN AMOUNT OF RS.38,72,564/- WAS DISBURSED. HE HELD THAT ONLY THI S AMOUNT OF RS.38.72 I.T.A.NO. 190/AHD/2008 8 LACS SHOULD BE TAKEN INTO CONSIDERATION AND NOT THE ENTIRE AMOUNT OF LOAN OF RS.1 CRORES FOR THE PURPOSE OF DISALLOWANCE OF PAYM ENT OF INTEREST BECAUSE THE NEW UNIT HAD STARED MANUFACTURING W.E.F. 01.06. 2003. IT IS ALSO HELD BY HIM THAT THE A.O. SHOULD APPLY ACTUAL RATE OF INTER EST @ 11.5 % ON WHICH THE TERM LOAN WAS TAKEN. LD. CIT(A) DIRECTED THE A.O. TO RECOMPUTE THE DISALLOWANCE ON ACCOUNT OF INTEREST FOR THE PERIOD OF APRIL-MAY 2003 @ 11.5% ON THE AMOUNT OF RS.38,72,564/-. LD. CIT(A) CONFIRMED THE ACTION OF THE A.O. TO THAT EXTENT. NOW, THE ASSESSEE IS IN F URTHER APPEAL BEFORE US. 11. LD. A.R. OF THE ASSESSEE RAISED THE SAME CONTEN TION WHICH WERE RAISED BEFORE THE LD. CIT(A) WHEREAS THE LD. D.R. OF THE R EVENUE SUPPORTED THE ORDER OF LD. CIT(A). 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUS ED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. AS PER THE PROVISO TO SECTION 36(1)(III), WHICH WAS INSERTED B Y THE FINANCE ACT 2003 W.E.F. 01.04.2004 AND HENCE APPLICABLE IN THE PRESE NT CASE, INTEREST PAID IN RESPECT OF THE CAPITAL BORROWED FOR ACQUISITION OF AN ASSET FOR ANY PERIOD BEGINNING FROM THE DATE ON WHICH THE CAPITAL WAS BO RROWED FOR ACQUISITION OF ASSET TILL THE DATE ON WHICH SUCH ASSET WAS FIRS T PUT TO USE, SHALL NOT BE ALLOWED AS DEDUCTION. IN THE PRESENT CASE, THE BOR ROWING ON WHICH INTEREST PAYMENT IS MADE, IS FOR THE PURPOSE OF ACQUISITION OF ASSET AND THE ASSET IN QUESTION WERE PUT TO USE ON 01.06.2003 AND THEREFOR E, ANY INTEREST PAYMENT ON THAT LOAN UP TO 31.05.2003 IS NOT ALLOWABLE AS D EDUCTION AS PER THE PROVISO TO SECTION 36(1)(III) AND HENCE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A) ON THIS ISSUE. THIS GROUND IS REJECTED. 13. GROUND NO.3 IS AS UNDER: I.T.A.NO. 190/AHD/2008 9 THE LEARNED CIT (A) ERRED IN FACT AND IN LAW IN CO NFIRMING ACTION OF THE AO IN ALLOWING DEPRECIATION ON ELECTRICAL FITTI NGS @ 15% INSTEAD OF 25% CLAIMED BY THE APPELLANT. 14. THE BRIEF FACTS OF THIS ISSUE ALONG WITH ARGUME NTS OF THE ASSESSEE BEFORE LD. CIT(A) ARE NOTED BY THE LD. CIT(A) IN PA RA 8 OF HIS ORDER, WHICH IS REPRODUCED BELOW: 8. AS REGARDS GROUND NO. (3), THE ASSESSING OFFICE R ALLOWED DEPRECIATION @ 15% ON CERTAIN ITEMS OF ELECTRICAL F ITTINGS SUCH AS ELECTRICAL GOODS, SWITCHES, FITTINGS, CABLES, PLUGS , FUSE, LAMPS AND INSTALLATION CHARGES WHILE THE APPELLANT HAD CLAIME D DEPRECIATION @ 25% CLAIMING THESE ELECTRICAL FITTINGS UNDER THE HE AD 'PLANT & MACHINERY'. HE ALSO DISALLOWED THE APPELLANT'S CLAI M OF ADDITIONAL DEPRECIATION OF RS.1,34,138/- @ 15% STATING THAT TH ESE WERE PART OF FURNITURE & FIXTURE BLOCK AND NOT PLANT 6, MACHINER Y BLOCK. BEFORE ME, THE APPELLANT HAS REITERATED THE SUBMISS ION MADE BEFORE THE ASSESSING OFFICER. IT HAS FURTHER ARGUED THAT T HE INSTALLATION WORK RELATED TO , TRANSFORMERS, ELECTRICAL CABLING WORK AND INSULATED CONDUCTED BAR WHICH MAINLY RELATE TO THE MANUFACTUR ING ACTIVITY AND ARE INTIMATELY CONNECTED WITH THE PRODUCTION ACTIVI TY. IT IS FURTHER ARGUED THAT THE AUDITORS HAVE ALSO ACCEPTED THIS CL ASSIFICATION. 15. LD. CIT(A) HELD THAT THERE IS SEPARATE BLOCK OF ASSETS UNDER THE INCOME TAX RULES FOR ELECTRICAL FITTING AND FOR THIS REASO N, THE DEPRECIATION ALLOWED BY THE A.O. @ 15% IN RESPECT OF ELECTRICAL FITTINGS IS UPHELD. NOW, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 16. LD. AR OF THE ASSESSEE REITERATED THE SAME ARGU MENTS WHICH WERE RAISED BEFORE LD. CIT(APPEALS). LD. DR OF THE REVEN UE SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUS ED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW AND THE JUDGEMENTS CITED BY THE LD. A.R. THE DISPUTE IS RE GARDING RATE OF I.T.A.NO. 190/AHD/2008 10 DEPRECIATION TO BE ALLOWED IN RESPECT OF ELECTRICAL FITTINGS SUCH AS ELECTRICAL GOODS, CONDUCTOR, FITTINGS, CABLE, PLUGS, FUSE, LAM PS AND INSTALLATION CHARGES, INSULATION CONDUCTOR FOR THE PURPOSE OF EARTHING AN D DG SET METER ETC. THE A.O. HELD THAT DEPRECIATION IS ALLOWABLE ON THESE I TEMS @ 15% ONLY. BEFORE US, LD. A.R. HAS MERELY PLACED RELIANCE ON THE JUDG MENT OF HONBLE KARNATAKA HIGH COURT RENDERED IN THE CASE OF SANTOS H ENTERPRISES, 200 ITR 353 (KAR) AND NO OTHER ARGUMENT HAS BEEN RAISED BY THE LD. A.R. AS PER THIS JUDGEMENT OF HONBLE KARNATAKA HIGH COURT, IT IS SE EN THAT THIS CASE IS IN RESPECT OF A CINEMA THEATRE AND IT WAS HELD BY THE HONBLE KARNATAKA HIGH COURT IN THAT CASE THAT BUILDING AND STRUCTURES BEI NG PART THEREOF I.E. THE THEATRE CONSTITUTES PLANT IF FUNCTIONAL TEST IS APP LIED. THIS DECISION WAS ON THIS BASIS THAT IT MAY BE SEEN AS TO WHETHER THE SU BJECT-MATTER I.E. BUILDING AND STRUCTURE OR PART THEREOF CONSTITUTE A TOOL OF THE TAXPAYER AND WHETHER IT IS MERELY A PLACE WHERE THE TAXPAYER CARIES ON HIS BUS INESS. THE LD. A.R. HAS PLACED RELIANCE ON THIS JUDGMENT OF HONBLE KARNATA KA HIGH COURT BUT NO BASIS HAS BEEN SHOWN BY HIM AS TO HOW BY APPLYING T HE FUNCTIONAL TEST IN THE PRESENT CASE, THE ELECTRICAL GOODS BEING SUBJECT-MA TTER OF DISPUTE IS FALLING UNDER THE HEAD PLANT & MACHINERY WHICH IS ELIGIBL E FOR DEPRECIATION @ 25% AS AGAINST 15% ALLOWED BY THE A.O. BY HOLDING T HAT THESE ITEMS FALL UNDER THE HEAD ELECTRICAL FITTINGS. AS PER THE D ETAILS OF THESE ELECTRICAL FITTINGS ITEMS APPEARING AT PAGE 9 OF THE ASSESSMENT ORDER, WE FIND THAT EVEN GEB DEPOSIT IS ALSO INCLUDED THEREIN. NO BASIS HAS BEEN SHOWN AS TO HOW BY APPLYING THE FUNCTIONAL TEST, THESE ITEMS OF ELECTR ICAL FITTINGS CAN BE CONSIDERED AS PART OF PLANT & MACHINERY IN THE PRES ENT CASE AND HENCE, THIS JUDGEMENT OF HONBLE KARNATAKA HIGH COURT IS OF NO HELP TO THE ASSESSEE IN THE PRESENT CASE BECAUSE IT COULD NOT BE SHOWN BY T HE LD. A.R. THAT BY APPLYING FUNCTIONAL TEST AS RECOMMENDED BY THE HON BLE KARNATAKA HIGH COURT, THE ITEM OF ELECTRICAL FITTINGS IN QUESTION CAN BE CONSIDERED AS AN ITEM I.T.A.NO. 190/AHD/2008 11 OF PLANT & MACHINERY. NO OTHER ARGUMENT HAS BEEN A DVANCED BY THE LD. A.R. AND HENCE, WE DO NOT FIND ANY REASON TO INTERFERE I N THE ORDER OF LD. CIT(A) ON THIS ISSUE ALSO. THIS GROUND IS ALSO REJECTED. 18. GROUND NO. 4 OF THE APPEAL IS AS UNDER: THE LEARNED CIT (A) ERRED IN FACT AND IN LAW IN CO NFIRMING ACTION OF THE AO IN DISALLOWING CLAIM OF BAD DEBTS OF RS.48,2 59/- ON THE GROUND THAT THE APPELLANT HAS NOT SATISFIED THE CONDITIONS MENTIONED IN SECTION 36(L)(VII) OF THE ACT. IT MAY BE MENTIONED THAT ALL THE CONDITIONS MENTIONED IN SECTION 36(L)(VII) ARE FULFILLED BY TH E APPELLANT AND THEREFORE IT IS ELIGIBLE TO CLAIM DEDUCTION ON ACCO UNT OF BAD DEBTS. 19. THE BRIEF FACTS OF THE CASE ARE THAT THE A.O. D ISALLOWED CLAIM OF THE ASSESSEE FOR BAD DEBTS OF RS.48,259/- BY STATING TH AT THE ASSESSEE HAS NOT SHOWN THAT IT HAD SATISFIED ALL THE CONDITIONS OF S ECTION 36(1)(VII) OF THE INCOME TAX ACT, 1961. THE ASSESSEE HAS SIMPLY REPL IED THAT THE BAD DEBTS WERE OUT OF THE SALES MADE TO THE PARTIES AND THERE FORE, ALL THE REQUISITE CONDITIONS OF SECTION 36(1)(VII) WERE FULFILLED WHE REAS THE A.O. STATED THAT THE ASSESSEE FAILED TO SHOW FROM THE COPY OF THE RE LEVANT ACCOUNT OF THE RESPECTIVE YEAR THAT THESE AMOUNTS HAD BEEN TAKEN I NTO CONSIDERATION EARLIER FOR THE PURPOSE OF INCOME OF THE ASSESSEE AND HE CO ULD NOT SHOW FROM THE ACCOUNTS OF THE CURRENT YEAR THAT THE DEBTS HAD BEE N ACTUALLY WRITTEN OFF. LD. CIT(A) DECIDED THE ISSUE AGAINST THE ASSESSEE ON TH IS BASIS THAT THE ASSESSEE HAD FAILED TO SHOW THAT THESE DEBTS HAD ACTUALLY B ECOME BAD AND IRRECOVERABLE. NOW, THE ASSESSEE IS IN FURTHER APP EAL BEFORE US. LD. A.R. PLACED RELIANCE ON THE JUDGMENT OF HONBLE APEX COU RT IN THE CASE OF TRF LTD. AS REPORTED IN 323 ITR 397 (S.C.). LD. D.R. O F THE REVENUE SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 20. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUS ED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. WE FIND THAT THE A.O. HAD TWO OBJECTION REGARDING ALLOWABILITY O F THESE DEDUCTIONS. THE I.T.A.NO. 190/AHD/2008 12 1 ST OBJECTION IS THAT THE ASSESSEE COULD NOT ESTABLISH THAT THE AMOUNT IN QUESTION WERE CONSIDERED FOR INCOME IN THE PRESENT YEAR OR IN ANY EARLIER YEAR AS PER THE REQUIREMENT OF SECTION 36(2) OF THE ACT. THE 2 ND OBJECTION OF THE A.O. WAS THAT THE ASSESSEE COULD NOT SHOW THAT THE AMOUNT IN QUESTION WAS ACTUALLY WRITTEN OFF IN THE PRESENT YEAR. LD. CIT(A) HAS RAISED ONE MORE OBJECTION THAT THE ASSESSEE COULD NOT ESTABLISH THA T THE DEBT HAS ACTUALLY BECOME IRRECOVERABLE. ON THIS ASPECT REGARDING THE OBJECTION OF THE CIT(A), THE MATTER IS COVERED IN FAVOUR OF THE ASSESSEE AS PER THE JUDGEMENT OF HONBLE APEX COURT IN THE CASE OF TRF LTD. (SUPRA) WHEREIN, IT WAS HELD BY THE HONBLE APEX COURT THAT FOR THE PURPOSE OF CLAI MING DEDUCTION U/S 36(1)(VII), MERE WRITING OFF OF THE DEBT IN THE BOO KS OF THE ASSESSEE IS SUFFICIENT AND THE ASSESSEE IS NOT REQUIRED TO FURT HER SHOW THAT THE DEBT HAD ACTUALLY BECOME BAD AND IRRECOVERABLE. HENCE, THE OBJECTION RAISED BY THE LD. CIT(A) DOES NOT SURVIVE. THE ASSESSEE HAS FURNI SHED COPY OF LEDGER ACCOUNT OF THE PARTIES FROM WHICH IT IS SEEN THAT T HE BAD DEBTS WERE WRITTEN OFF AND THE SAME IS PLACED AT PAPER BOOK PAGES 72-8 1 AND ON PAGE 82-90 OF THE PAPER BOOK, THE ASSESSEE HAS FURNISHED COPY OF THE SALE REGISTER SHOWING SALES MADE TO PARTIES FOR WHICH BAD DEBTS WERE WRIT TEN OFF BY THE ASSESSEE. ON PAGES 66-71 OF THE PAPER BOOK IS THE COPY OF THE REPLY SUBMITTED BY THE ASSESSEE BEFORE THE A.O. AND IN THE SAME, WE FIND T HAT FROM THESE PARTIES, THE ASSESSEE HAS FILED DETAILED EXPLANATION AS TO IN WH ICH YEAR, THE AMOUNT WAS DEBITED TO THE ACCOUNTS OF THE PARTIES CONCERNED AN D IT WAS EXPLAINED THAT IT IS ON ACCOUNT OF SALE TO THE RELEVANT PARTIES. SINC E THE AMOUNTS OUTSTANDING FORM THESE PARTIES IS ON ACCOUNT OF SALES MADE TO T HE RELEVANT PARTIES, THE REQUIREMENT OF SECTION 36(2) STANDS COMPLIED WITH. REGARDING THE 2 ND OBJECTION OF THE A.O. THAT WHETHER THE ASSESSEE HAS ACTUALLY WRITTEN OFF BAD DEBTS IN QUESTION IN THE PRESENT YEAR OR NOT, WE FI ND THAT ON PAGE 81 OF THE PAPER BOOK IS COPY OF THE RELEVANT LEDGER ACCOUNT F OR THE PRESENT YEAR AS PER I.T.A.NO. 190/AHD/2008 13 WHICH THE AMOUNT IN QUESTION WAS ACTUALLY ;WRITTEN OFF IN THE BOOKS OF ACCOUNTS AND HENCE, WE FIND THAT BOTH THE OBJECTION S OF THE A.O. ARE ALSO UNFOUNDED AND THEREFORE, DISALLOWANCE MADE BY THE A .O. AND CONFIRMED BY THE CIT(A) WITH REGARD TO BAD DEBTS OF RS.48,259/- IS NOT JUSTIFIED AND THEREFORE, WE DELETE THIS DISALLOWANCE. GROUND NO. 4 IS ALLOWED. 21. GROUND NO.5 IS REGARDING CHARGING OF INTEREST U /S 234B. BOTH THE SIDES AGREED THAT THIS ISSUE IS CONSEQUENTIAL AND N O SEPARATE ADJUDICATION IS CALLED FOR. WE HOLD ACCORDINGLY. 22. IT WAS SUBMITTED BY THE LD. A.R. THAT GROUND NO .6 REGARDING INITIATION OF PENALTY PROCEEDINGS U/S 271(1)(C) IS PREMATURE A ND GROUND NO.7 IS GENERAL. 23. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED. 17. ORDER PRONOUNCED IN THE OPEN COURT ON 26 AUG.,2 011. SD/- SD/- (BHAVNESH SAINI) (A. K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED : 26/08/2011 *DKP COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR, AHMEDABAD 6. THE GUARD FILE /TRUE COPY/ I.T.A.NO. 190/AHD/2008 14 1. DATE OF DICTATION. 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER A.K.GARODIWA OTHER MEMBER BHAVNES H SAINI 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P .S./P.S.23/8/11 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. 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 RE GISTRAR FOR SIGNATURE ON THE ORDER . 9. DATE OF DESPATCH OF THE ORDER.