T D Power Ltd, Bangalore V. Deputy Commissioner of Income tax, LTU, Bangalore

ITA 2003/BANG/2017

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 3302 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 19-11-2019
• Assessment Year: 2013-2014
• Appeal Filed On: 13-10-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R PREMI
• Assessee Lawyers: SHYAM RAMADHYANI
• Keywords: Depreciation; Proportionate interest; Corroborative evidences; Revised return; Capital expenditure; Set aside
• Section: 143(3); 142(1); 250; 143(2); 32; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES C BENCH: BANGALORE BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA. NO. 2003 /BANG/201 7 (ASSESSMENT YEAR: 20 13 - 14 ) M/S. T D POWER SYSTEMS LIMITED, PLOT NO.27 & 28 & 29, KIADB INDL. AREA, DOBUSPET, BANGALORE - 562 111 .APPELLANT PAN AABCT 0360J VS. DY. COMMISSIONER OF INCOME TAX, LTU, BANGALORE. RESPONDENT. ASSESSEE BY: SHRI SHYAM RAMADHYANI, C.A. REVENUE BY: S MT. R. PREMI, JCIT (D.R) DATE OF HEARING : 19.11 .2019 DATE OF PRONOUNCEMENT : 28 .11 .2019 O R D E R PER SHRI PAVAN KUMAR GADALE, JM : THE ASSESSEE HAS FILED AN APPEAL AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - 14, BANGALORE PASSED UNDER SECTION 143(3) AND 250 OF THE INCOME TAX ACT, 1961 (THE ACT). 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : 2 ITA NO.2003/BANG/2017 3 ITA NO.2003/BANG/2017 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE MANUFACTURE OF AC GENERATORS, MOTORS AND TRADING IN GOODS FOR POWER GENERATION AND OTHER ELECTRIC EQUIPMENTS AND FILED THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2013 - 14 ON 27.09.2013 AND SUB SEQUENTLY FILED REVISED RETURN OF INCOME ON 12.11.2014 WITH TOTAL INCOME OF RS.10,38,82,550 . T HE CASE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) AND 142(1) OF THE ACT WERE ISSUED. IN RESPONSE THE LEARNED AUTHORISED REPR ESENTATIVE OF THE ASSESSEE AND THE CFO OF THE COMPANY APPEARED AND FURNISHED THE DETAILS AND EXPLAINED THE CLAIM OF DEDUCTION UNDER SECTION 35(2AB) OF THE ACT. THE ASSESSING OFFICER ON PERUSAL OF THE 4 ITA NO.2003/BANG/2017 FINANCIAL STATEMENTS FOUND THAT THE ASSESSEE HAS CLAIME D DEDUCTION OF RS.32,01,83,434 UNDER SECTION 35(2AB) OF THE ACT AND IN THE COURSE OF HEARING PROCEEDINGS THE ASSESSEE HAS FILED THE SUPPORTING EVIDENCE FOR CLAIM ALONG WITH COPY OF FORM NO.3CL DT.14.5.2015 ISSUED BY DSIR WHERE THE DEDUCTION IS ALLOWABLE T O THE ASSESSEE RS.31,52,30,000 (BEING WEIGHTED DEDUCTION OF 200% OF RS.1,576.15 LAKHS ) . THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS MADE EXCESS CLAIM OFRS.49,53,434 AND DISALLOWED WHEREAS T HE ASSESSEE'S ALTERNATIVE CONTENTION THAT THE DEPRECIAT ION SHOULD BE ALLOWED ON CAPITAL EXPENDITURE WHICH WAS NOT CONSIDERED BY DSIR AND DISALLOWED BY THE ASSESSING OFFICER. BUT T HE ASSESSING OFFICER IS OF THE OPINION THAT THE ASSESSEE IS NOT ENTITLED FOR ALTERNATE RELIEF OF CLAIM OF DEPRECIATION UNDER SECTIO N 32 AND DISALLOWED. 4. ON THE SECOND DISPUTED ISSUE, A.O. ON PERUSAL OF THE BALANCE SHEET, FOUND THAT AN AMOUNT OF RS.10,56,48,529 ADVANCED TO SRI N. RADHAKRISHNA AND ASSESSING OFFICER ISSUED SHOW CAUSE NOTICE FOR DISALLOWANCE OF INTEREST AS THE FUN DS WERE NOT UTILIZED FOR THE BUSINESS PURPOSE. THE ASSESSEE FILED LETTER DT.3.2.2016 EXPLAINING THAT THE AMOUNT, ADVANCED IS UTILIZED OUT OF INTERNAL ACCRUAL FOR PURCHASE OF LAND AND NO BORROWED FUNDS ARE USED . WHEREAS THE ASSESSING OFFICER FOUND FROM THE PROFIT AND LOSS ACCOUNT THAT THE ASSESSEE HAS CLAIMED INTEREST OF RS.3.13 CRORES AND THERE IS NO CLARITY WITH RESPECT TO AMOU NT ADVANCED OF RS.10. 56 CRORES . FURTHER AS ON 1.4.2012, THE ASSESSEE HAS BALANCE OF RS.202.55 CRORES WHICH ALSO CONSISTED OF B ORROWED FUND S . THE ASSESSING OFFICER F I ND THAT THE ASSESSEE AS PER 5 ITA NO.2003/BANG/2017 BALANCE SHEET AS ON 31.03.2013 HAS RS.461 CRORES AS OWN FUNDS. HENCE 1/3 RD OF AMOUNT ADVANCED OF RS.10.56 CRORES IS TREATED AS B ORROWED FUND S UTILIZED FOR THE PURPOSE OF ADVANCE AND PROPORTIONATE INTEREST 18% OF RS.63,38,912 IS DISALLOWED UNDER SECTION 37 OF THE ACT. 5. ON THIRD DISPUTED ISSUE, THE ASSESSEE HAS PAID ROYALTY UNDER SECTION 40 (A) AND OUT OF THE TOTAL CLAIM THE ASSESSING OFFICER HAS DISALLOWED RS.20,86,499 AND ASSESSED THE TOTAL INCOME OF RS.11,72,61,395 AND PASSED ORDER UNDER SECTION 143(3) OF THE ACT DT.25.02.2016. AGGRIEVED BY THE ORDER, THE ASSESSEE HAS FILED AN APPEAL WITH THE CIT(APPEALS). THE C IT(APPEALS) IN THE APPELLATE PROCEEDINGS CONSIDERED THE GROUNDS OF APPEAL, STATEMENTS OF THE ASSESSEE AND FINDINGS OF THE ASSESSING OFFICER BUT GRANTED PARTIAL RELIEF IN RESPECT OF ROYALTY PAYMENT AND CONFIRMED THE OTHER DISALLOWANCES AND PARTLY ALLOWED T HE APPEAL. AGGRIEVED BY THE ORDER OF CIT(APPEALS), THE ASSESSEE HAS FILED AN APPEAL WITH THE TRIBUNAL. 6. AT THE TIME OF HEARING, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE CIT(APPEALS) HAS ERRED IN CONFIRMING ADDITION BY NOT ALLOW ING THE CLAIM OF DEPRECIATION UNDER SECTION 32 OF THE ACT AND ALSO CONFIRMING THE DISALLOWANCE OF INTEREST OBSERVING THAT BORROWED FUNDS WERE UTILIZED FOR THE PURPOSE OF LAND ADVANC E . THE LEARNED AUTHORISED REPRESENTATIVE FURTHER EMPHASIZED ON THE ALTER NATE CLAIM OF GRANT OF DEPRECIATION ON CAPITAL EXPENDITURE AND SUPPORTED WITH MATERIAL PAPERS AND PAPER BOOK. WHEREAS ON THE DISALLOWANCE OF INTEREST THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE ASSESSEE HAS SURPLUS FUNDS 6 ITA NO.2003/BANG/2017 AND ADVANCE HAS BEE N MADE OUT OF INTERNAL ACCRUAL S AND SUPPORTED WITH JUDICIAL DECISIONS AND PRAYED FOR ALLOWING THE APPEAL. CONTRA, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDERS OF LEARNED CIT(APPEALS). 7. WE HEARD THE RIVAL CONTENTIONS AND PERUSED T HE MATERIAL ON RECORD. THE LEARNED AUTHORISED REPRESENTATIVE SUBMI SSIONS IN RESPECT OF FIRST DISPUTED ISSUE IS IN THE NATURE OF ALTERNATE CLAIM WHERE THE ASSESSEE HAS CLAIMED DEDUCTION UNDER SECTION 32(2AB) OF THE ACT OF RS.32,01,83,434 BUT AS PER THE FO RM NO.3CL DT.14.05.2015 ISSUED BY THE DSIR, THE DEDUCTION IS RESTRICTED TO RS.31,52,30,000. THEREFORE THE ASSESSEE CLAIMED THAT THE DEPRECIATION ON THE CAPITAL EXPENDITURE WHICH WAS NOT CONS IDERED BY THE DSIR OF RS.49,53,434 HAS TO BE ALLOWED. THE LEAR NED AUTHORISED REPRESENTATIVE REFERRED TO THE PAPER BOOK PAGE 25 WHERE ADDITION IN PLANT AND MACHINERY AS ON 31.3.2013 A STATEMENT WAS FILED AND AS PER THE STATEMENT AT SL.NO.17 THE ASSESSEE HAS MADE ADDITION OF OVEN 198 KW THE VALUE IS RS.8,35,150 AND S IMILARLY AT PAGE 27 SL.NO.82 ADDITION ON OVEN 168 KW THE VALUE OFRS.16,41,169 AND THE TOTAL ADDITION DURING THE YEAR IS RS.24,76,319 WHEREAS THE DSIR IN FORM NO.3CL REPORT HAS NOT CONSIDERED THE WEIGHTED DEDUCTION OF 200% UNDER SECTION 34(2AB) OF THE ACT ON THESE ASSETS WHICH IS NOT DISPUTED BY THE REVENUE. THE ASSESSEE HAS MADE THE CLAIM OF DEPRECIATION ON ASSETS AND WAS DENIED. WE FOUND THAT THE ASSESSEE HAS MADE ADDITION AS PER THE STATEMENT FILED TO PLANT AND MACHINERY AND UNDER PROVISIONS OF SECTIO N 32 OF THE ACT THE ASSESSEE IS OWNER AND ELIGIBLE FOR DEPRECIATION ON ASSETS AND THE ASSESSEE IS 7 ITA NO.2003/BANG/2017 A LIMITED COMPANY AND FOLLOW THE PROVISIONS OF COMPANIES ACT, 1956 AND FURTHER THE ASSET S HA VE BEEN CONSIDERED IN THE BLOCK OF ASSETS. WE FOUND THE ASSESSEE HAS PURCHASED THE PLANT AND MACHINERY S INCE THE PLANT AND MACHINERY WERE NOT ELIGIBLE FOR WEIGHTED DEDUCTION UNDER SECTION 35(2AB) OF THE ACT . BUT RATIONALLY IN THE NORMAL COURSE, THE ASSESSEE SHOULD BE ENTITLED FOR DEPRECIATION ON PURCHASE VALUE. HENCE CONSIDERING THE SUBMISSIONS AND THE PROVISIONS AND THE CLAIM MADE BY THE ASSESSEE. THE ASSESSING OFFICER DECLINED THE CLAIM OF DEPRECIATION ON THESE PLANT AND MACHINERY BUT IN THE NORMAL AND ORDINARY COURSE OF BUSINESS, DEPRECIATION HAS TO BE ALLOWED UND ER SECTION 32 OF THE ACT. WE ARE OF THE SUBSTANTIVE OPINION THAT THE ASSET S ARE PURCHASED FOR USAGE ; WHICH ARE WHOLLY AND EXCLUSIVELY USED FOR THE PURPOSE OF BUSINESS AND HAS BEEN U TILISED FOR THE BUSINESS OPERATION S . WE ARE OF THE OPINION THAT T HE ASSE SSING OFFICER HAS NOT MADE OUT A CASE THAT THE PLANT AND MACHINERY WAS NOT UTILIZED FOR THE PURPOSE OF BUSINESS. HENCE WE ARE OF THE SUBSTANTIVE VIEW THAT THOUGH THE PLANT AND MACHINERY WHICH ARE NOT ELIGIBLE FOR WEIGHTED DEDUCTION UNDER SECTION 32(2AB) O F THE ACT, THE ASSESSEE IS ENTITLED TO THE DEPRECIATION ON THE PLANT AND MACHINERY USED FOR THE PURPOSE OF BUSINESS. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO GRANT DEPRECIATION ON THE PLANT AND MACHINERY CLAIMED BY THE SAME AND ALLOW THE GROUNDS OF APPEAL OF THE ASSESSEE. 8. ON THE SECOND DISPUTED ISSUE, THE LEARNED AUTHORISED REPRESENTATIVES CONTENTION THAT THE ASSESSEE HAS ADEQUATE SURPLUS FUND AND NO BORROWED FUNDS HAVE BEEN UTILIZED FOR ADVANCE FOR LAND PURCHASE AND THE AMOUNT S ARE ACCRUED OUT OF THE 8 ITA NO.2003/BANG/2017 INTERNAL REVENUES AND NOT OUT OF THE BORROWED FUNDS. THE LEARNED AUTHORISED REPRESENTATIVE SUBSTANTIATED HIS STAND EXPLAINING THAT THE ASSESSEE COMPANY HAS ADEQUATE FUNDS AND REFERRED TO THE BALANCE SHEET AT NOTE 17 OF CASH AND BANK BALANCE WH ERE THE ASSESSEE HAS PARKED THE FUNDS IN BANK DEPOSITS. THE CONTENTION OF THE LEARNED AUTHORISED REPRESENTATIVE THAT THE ADVANCE OF RS.1 0 ,56,48,529 FOR PURCHASE OF LAND IS MADE OUT OF THE REVENUES AND THE SHAREHOLDERS FUNDS AVAILABLE AS ON 31.03.2013 IS R S.461 CRORES. THE CONTENTION OF THE LEARNED AUTHORISED REPRESENTATIVE THAT THE OPENING BALANCE OF SHAREHOLDERS FUNDS AS ON 31.3.201 2 ARE MORE THAN AMOUNT ADVANCED FOR THE LAND. THE LEARNED AUTHORISED REPRESENTATIVE RELIED ON CATENA OF DECISIONS ON THE CL AIM ALLOWABLE UNDER SECTI ON 36(1)(III) OF THE ACT. WE PERUSED THE FINANCIAL STATEMENTS, BALANCE SHEET AND SCHEDULES, AND CONSIDERED THE LEARNED AUTHORISED REPRESENTATIVE SUBMISSIONS WHICH ARE REALISTIC IN EXPLAINING THE NET WORTH OF THE ASSESSEE COMPANY . WE FOUND THAT THE ASSESSEE HAS I NTEREST FREE FUNDS WHICH ARE SUFFICIENT TO MEET ITS ADVANCES BUT THE FACT THAT AS PER THE OBSERVATIONS OF THE ASSESSING OFFICER THE ASSESSEE COULD NOT GIVE CLARITY OF BALANCE ON 1.4.2012 OF RS.202.55 CRORES WHICH INCLUD E BORROWED FUNDS. WE SUPPORT THE VIEW ON THE ASSESSEE'S SURPLUS FUNDS AVAILABLE FOR INVESTMENTS OR ADVANCE S BUT THE FACT REMAINS WHE THER THE RS.10 .56 CRORES IS ADVANCED OUT OF THE BORROWED FUNDS OR NOT. WE RELY ON THE JUDICIAL DECISIONS AND THE DECISIO N OF THE HON'BLE APEX COURT IN THE CASE OF CIT VS. RELIANCE INDUSTRIES LTD CIVIL APPEAL 9 ITA NO.2003/BANG/2017 NO.10/2019 DT.2.1.2019. THE HON'BLE SUPREME COURT HAS OBSERVED AT PAGE 3 PARA AS UNDER : ACCORDINGLY CONSIDERING THE SUBMISSIONS OF THE LEARNED AUTHORISED REPRESENTATIVE AND FACTS DEALT IN THE FINANCIAL STATEMENTS AND JUDICIAL DECISIONS, WE RESTORE THIS 10 ITA NO.2003/BANG/2017 DISPUTED ISSUE TO THE FILE OF ASSESSING OFFICER FOR LIMITED PURPOSE TO VERIFY AND EXAMINE W HETHER ADVANCES ARE OUT OF NON - INTEREST BEARING FUNDS AND IF IT IS FOUND THAT THE ADVANCES ARE OUT OF INTERNAL ACCRUALS. THE DISALLOWANCE OF INTEREST SHOULD BE DELETED. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LEARNED CIT(APPEALS) ON THIS GROUND OF APPE AL AND REMIT TO THE FILE OF ASSESSING OFFICER AND ALLOW THE GROUND S OF APPEAL OF ASSESSEE FOR STATISTICAL PURPOSES. 9. IN THE RESULT, THE ASSESSEE'S APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 28TH NOV., 2019. SD/ - SD/ - ( B.R. B ASKARAN ) (PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 28 TH NOV., 2019. *REDDY GP COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. CIT (A) 4. PR. CIT 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCO ME - TAX APPELLATE TRIBUNAL BANGALORE