The DCIT, Circle-1(1)(1), Ahmedabad V. M/s. Ahmedabad Strips Pvt.Ltd., Ahmedabad

ITA 1971/AHD/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 6138 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-02-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 03-07-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ALHINUS TIRKEY
• Assessee Lawyers: BHAVESH SHAH
• Keywords: Depreciation; Additional depreciation; Retrospective amendment; Fair market value; Corroborative evidences

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ ITA NO.1717 AND 1971/AHD/2015 WITH CO NO.124 AND 148/AHD/2015 / ASSTT. YEARS: 2010-11 AND 2011-12 DCIT, CIR.1(1)(1) AHMEDABAD. VS. M/S.AHMEDABAD STRIPS P.LTD. 604, SARAP COMPLEX, 6 TH FLOOR NAVJIVAN PRESS ROAD BH. GUJARAT VIDHYAPEETH ASHRAM ROAD AHMEDABAD 380 014. PAN : AABCA 8222 A / (APPELLANT) / (RESPONDENT) REVENUE BY : SHRI ALHINUS TIRKEY, SR.DR ASSESSEE BY : SHRI BHAVESH SHAH, AR ! / DATE OF HEARING : 04/01/2018 '#$ ! / DATE OF PRONOUNCEMENT: 01/02/2018 %& / O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST O RDERS OF LD.CIT(A)- 1, AHMEDABAD DATED 19.2.2015 AND 24.4.2015 PASSED F OR THE ASSESSMENT YEAR 2010-11 AND 2011-12 RESPECTIVELY. ON RECEIPT OF NOTICE IN THE REVENUES APPEAL, THE ASSESSEE HAS FILED CROSS OBJE CTION BEARING CO NO.124/AHD/2015 AND 148/AHD/2015 FOR THE ASSESSMENT YEARS 2010-11 AND 2011-12 RESPECTIVELY. IT NO. 1717 AND 1971/AHD/2015 WITH CO 2 2. FIRST WE TAKE APPEALS OF THE REVENUE. 3. GROUND NO.1 IN BOTH YEARS IS COMMON. GRIEVANCE OF THE REVENUE IS THAT THE LD.CIT(A) HAS ERRED IN DELETING ADDITION O F RS.35,95,578/- AND RS.67,30,923/- IN THE ASSTT.YEAR 2010-11 AND 2011-1 2 RESPECTIVELY. THESE ADDITIONS WERE MADE BY THE AO WITH THE AID OF SECTI ON 40A(2)(B) OF THE INCOME TAX ACT, 1961. 4. FACTS ON ALL VITAL POINTS ARE COMMON IN BOTH THE YEARS. THEREFORE, FOR FACILITY OF REFERENCE WE TAKE UP FACTS FROM THE ASS TT.YEAR 2010-11. 5. IT EMERGES OUT FROM THE RECORD THAT IN THE ASSTT .YEAR 2010-11 THE ASSESSEE HAS AVAILED LOAN FROM 41 PERSONS WHEREAS I N THE ASSTT.YEAR 2011- 12 IT TOOK LOANS FROM 47 PERSONS/ENTITIES. THE ASS ESSEE HAS PAID INTEREST AT THE RATE OF 15% TO 18% TO ITS UNSECURED CREDITOR S. THE LD.AO WAS OF THE OPINION THAT INTEREST PAID BY THE ASSESSEE OVER AND ABOVE 12% IS EXCESSIVE. HE FURTHER OBSERVED THAT SUB-SECTION (A ) AND (B) OF SECTION 40(A) CONTEMPLATES THAT IF ANY ASSESSEE AVAILED SER VICES OR MAKES PURCHASES FROM PARTIES, WHO ARE SPECIFIED PERSONS ( RELATED PARTIES AS DEFINED IN SECTION 40A(2)(B) OF THE ACT) IS EXCESSI VE, HAVING REGARD TO FAIR MARKET VALUE OF THE SERVICES PROVIDED, THEN THE EXP ENDITURE FOUND RECORDED TO BE EXCESSIVE SHALL NOT BE ALLOWED AS DEDUCTION. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT CREDITOR TO WHOM INTEREST W AS PAID FALLS WITHIN THE AMBIT OF SPECIFIED PERSONS. THE AO HAS CONSIDERED FAIR MARKET VALUE OF THE INTEREST REQUIRED TO BE PAID AT 12%, WHICH IS COMME NSURATE WITH THE BANK RATES. ACCORDINGLY, HE DISALLOWED INTEREST PAID OV ER AND ABOVE 12% PER ANNUM, AND ACCORDINGLY MADE AN ADDITION OF RS.35,95 ,578/- IN ASSTT.YEAR 2010-11 AND RS.67,30,923/- IN THE ASSTT.YEAR 2011-1 2. ON APPEAL, THE LD.CIT(A) DELETED BOTH THE DISALLOWANCE. THE LD.CI T(A) HAS RECORDED A FINDING THAT INTEREST PAYMENT ON UNSECURED LOANS IN BETWEEN 15% TO 18% IS NOT EXCESSIVE. IT IS COMMENSURATE WITH THE FAIR MARKET VALUE OF AVAILING LOANS AT THIS RATE. IT NO. 1717 AND 1971/AHD/2015 WITH CO 3 6. BEFORE US THE LD.COUNSEL FOR THE ASSESSEE CONTEN DED THAT IN THE ASSTT.YEAR 2008-09 AND 2009-10 SIMILAR DISALLOWANCE WAS MADE. DISPUTE TRAVELLED UP TO THE TRIBUNAL, AND THE TRIBUNAL HAS DELETED THE DISALLOWANCE. HE PLACED ON RECORD COPY OF THE TRIBUNALS ORDER IN ITA NO.239 AND 1836/AHD/2012. ON THE OTHER HAND, THE LD.DR RELIED UPON THE ORDERS OF THE AO. 7. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND GO NE THROUGH THE RECORD. THERE IS NO DISPUTE WITH REGARD TO THE FAC T THAT CREDITORS DO FALL WITHIN THE CATEGORY OF SPECIFIED PERSONS CONTEMPLAT ED IN SECTION 40A(2)(B) OF THE ACT. SHORT QUESTION BEFORE US IS, WHETHER P AYMENT OF INTEREST AT THE RATE OF 18% TO SUCH PERSONS ON THE LOANS AVAILED FR OM THEM IS EXCESSIVE OR NOT, HAVING REGARD TO THE FAIR MARKET VALUE OF SUCH LOANS. NO DOUBT, THE LD.AO TOOK INTO CONSIDERATION INTEREST RATE AT 12%. THIS IS THE RATE ON WHICH BANKS USED TO GRANT SMALL TIME LOANS. THIS R ATE WAS ALSO KEEPS ON FLUCTUATING FROM 12% TO 14%, BUT IT IS TO BE KEPT I N MIND THAT LOANS AVAILED BY THE ASSESSEE WERE UNSECURED LOANS. IT HAS AVOID ED A LARGE NUMBER OF FORMALITIES, SUCH AS, GIVING SECURITIES, PLEDGING S OMETHING ETC. IN SUCH SITUATION A LITTLE PAYMENT OF HIGHER RATE OF INTERE ST COULD NOT BE TERMED AS EXCESSIVE. THEREFORE, WE ARE OF THE VIEW THAT THE LD.CIT(A)HAS RIGHTLY DELETED THE DISALLOWANCE. GROUND NO.1 IN BOTH THE YEARS IS REJECTED. 8. GROUND NO.3 IN THE ASSTT.YEAR 2010-11 IS INTER-C ONNECTED WITH GROUND NO.2 IN THE ASSTT.YEAR 2011-12. GRIEVANCE O F THE REVENUE IN THIS REGARD IS THAT THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.63,486/- AND RS.1,14,124/-. 9. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S PURCHASED A MOTOR CAR IN THE NAME OF MANAGER. IT HAS INCURRED EXPEND ITURE ON INTEREST WHICH WAS PAID ON THE LOAN USED FOR PURCHASING THE CAR. THE ASSESSEE HAS ALSO CLAIMED DEPRECIATION. THE LD.AO WAS OF THE VIEW TH AT SINCE CAR WAS PURCHASED IN THE NAME OF MANAGER, IT WAS NOT OWNED BY THE ASSESSEE, IT NO. 1717 AND 1971/AHD/2015 WITH CO 4 THEREFORE, EXPENDITURE INCURRED FOR ACQUIRING CAR A S WELL AS DEPRECIATION IS NOT ADMISSIBLE TO THE ASSESSEE. ON THE APPEAL, THE LD.CIT(A) HAS OBSERVED THAT CAR WAS USED PRACTICALLY FOR THE BUSINESS PURP OSE OF THE ASSESSEE. IT HAS PROVIDED FINANCE FOR PURCHASING THE CAR. THE O NLY NAME OF THE MANAGER IS BEING REFLECTED IN THE REGISTRATION CERTIFICATE. OTHERWISE, FOR ALL OTHER PRACTICAL PURPOSES CAR WAS USED BY THE ASSESSEE. T HE LD.CIT(A) HAS LOOKED INTO SUPPORTING EVIDENCE, AND THEREAFTER ALLOWED IN CIDENTAL EXPENSES AS WELL AS DEPRECIATION. AFTER GOING THROUGH ORDER OF THE LD.CIT(A), WE DO NOT FIND ANY REASONS TO INTERFERE IN IT. CAR WAS PRACT ICALLY OWNED AND POSSESSED BY THE ASSESSEE. IT WAS USED FOR THE PUR POSE OF ASSESSEES BUSINESS. THEREFORE, THIS GROUND OF APPEAL IS REJE CTED IN BOTH THE YEARS. 10. GROUND NO.2 IN THE ASSTT.YEAR 2010-11. IN THIS GROUND, REVENUES GRIEVANCE IS THAT THE LD.CIT(A) HAS ERRED IN DELETI NG ADDITION OF RS.1,77,730/-. 11. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. IT EMERGES OUT FROM THE RECO RD THAT THE ASSESSEE HAS PAID A SUM OF RS.1,77,730/- TO M/S.NARMADA CHEM. I T FAILED TO DEDUCT TDS ON THIS AMOUNT. THE LD.AO HAS DISALLOWED DEDUC TION OF THIS EXPENDITURE WITH THE HELP OF SECTION 40(A)(IA) OF T HE ACT. ON APPEAL, THE LD.CIT(A) HAS DELETED THIS ADDITION ON THE GROUND T HAT M/S.NARMADA CHEM HAS FILED ITS RETURN AND INCLUDED RECEIPTS FROM THE ASSESSEE IN ITS TAXABLE INCOME. WE FIND THAT THE ISSUE IN DISPUTE IS COVER ED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. ANSAL LANDMARK TOWNSHIP P.LTD., 377 ITR 635 (DE L). HONBLE COURT HAS HELD THAT SECOND PROVISO TO SECTION 40(A) OF THE ACT IS TO BE READ AS APPLICABLE WITH RETROSPECTIVE EFFECT. ACCORDING TO THIS PROVISO, IF A PAYEE HAS FILED ITS RETURN DISCLOSING PAYMENT RECEIVED, T HEN THE ASSESSEE WOULD NOT BE CONSIDERED IN DEFAULT. THE ORDER OF THE LD. CIT(A) IS IN LINE WITH HONBLE DELHI COURTS DECISION, THEREFORE, NO INTER FERE IS CALLED. THIS GROUND OF APPEAL OF THE REVENUE IS REJECTED. IT NO. 1717 AND 1971/AHD/2015 WITH CO 5 12. GROUND NO.3 IN THE ASSTT.YEAR 2011-12. 13. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE H AS INSTALLED LAB EQUIPMENTS AND CERTAIN ELECTRICAL ITEMS. IT CLAIME D ADDITIONAL DEPRECIATION AT THE RATE OF 20% ON THESE ITEMS, WHICH WERE DISAL LOWED BY THE AO. THE AO WAS OF THE OPINION THAT LAB EQUIPMENTS AND ELECT RICAL INSTALLATION WOULD NOT QUALIFY FOR PLANT & MACHINERY FOR THE PURPOSE O F MANUFACTURE. IN OTHER WORDS, ACCORDING TO THE AO, THESE ITEMS WOULD NOT B E CONSIDERED AS PART OF PLANT & MACHINERY USED FOR MANUFACTURING PURPOSE. SHE DISALLOWED ADDITIONAL DEPRECIATION AND MADE ADDITION OF RS.1,1 0,025/-. ON APPEAL, THE LD.CIT(A) DELETED DISALLOWANCE. 14. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. WITH REGARD TO THE FACT THAT THE ASSESSEE IS ENGAGED IN MANUFACTURING ACTIVITIES, THE AO HAS ALSO NOT DI SPUTED. IT IS ALSO NOT DISPUTED THAT THE ASSESSEE HAS INSTALLED CERTAIN EL ECTRICAL ITEMS AND LAB EQUIPMENTS, WHICH ACCORDING TO THE ASSESSEE ELIGIBL E FOR GRANT OF ADDITIONAL DEPRECATION. THE AO DISALLOWED THE CLAIM ONLY ON T HE GROUND THAT THESE ITEMS WERE NOT USED FOR MANUFACTURING PROCESS. A P ERUSAL OF THE ASSESSEES SUBMISSION BEFORE THE LD.AO WOULD INDICA TE THAT THE ASSESSEE HAS PURCHASED ELECTRICAL ITEMS, SUCH AS, ELECTRICAL CABLES, CAPACITORS AND UGVCL (POWER SUPPLY COMPANY) LINE CHARGES FOR INCRE ASE IN POWER LOAD. EXPENDITURE WAS INCURRED MAINLY FOR ADDITIONAL POWE R CONNECTION CHARGES. ACCORDING TO THE ASSESSEE, IT IS PART OF PLANT & MA CHINERY AND ADDITIONAL DEPRECIATION IS ELIGIBLE AS PER PROVISO OF SECTION 32(1)(A) OF THE ACT. SINCE THIS ELECTRICAL MACHINE REQUIRED ADDITIONAL POWER A ND IT IS INTER-CONNECTED WITH ITS MANUFACTURING ACTIVITY, IT CANNOT BE SAID THAT THESE CABLES ETC. WOULD NOT BE PART OF MANUFACTURING PROCESS. SIMILA RLY, LAB EQUIPMENTS ARE LINKED TO MANUFACTURING PROCESS, AND DEPRECIATION W OULD BE APPLICABLE. THE LD.CIT(A) HAS RIGHTLY HELD THAT THE ASSESSEE IS ENTITLED FOR ADDITIONAL IT NO. 1717 AND 1971/AHD/2015 WITH CO 6 DEPRECIATION ON THESE ITEMS. WE DO NOT FIND ANY ME RIT IN THE GROUND OF APPEAL. IT IS REJECTED. 15. IN THE RESULT, BOTH APPEALS OF THE REVENUE ARE DISMISSED. 16. SO FAR AS BOTH CROSS OBJECTIONS FILED BY THE AS SESSEE ARE CONCERNED, THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT TPHE SAME ARE IN SUPPORT OF LD.CIT(A)S ORDER, AND MAY BE DISPOSED OF ACCORDING LY. IN VIEW OF THIS SUBMISSION OF THE LD.COUNSEL FOR THE ASSESSEE, SINC E WE HAVE DISMISSED THE APPEALS OF THE REVENUE AND UPHELD THE ORDERS OF THE LD.CIT(A), THE CO FILED BY THE ASSESSEE ARE MERELY ACADEMIC IN NATURE, THE SAME ARE DISMISSED ACCORDINGLY. 17. IN THE RESULT, BOTH APPEALS OF THE REVENUE AND COS. OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON 1 ST FEBRUARY, 2018. SD/- SD/- (PRADIP KUMAR KEDIA) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER