Ezentech (India) Pvt. Ltd., Uttar Pradesh V. DCIT, New Delhi

ITA 2138/DEL/2011

• Counselvise Citation: 213820114 RSA 2011
• Duration Of Justice: 3 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 21-07-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 29-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARWINDER KAUR
• Keywords: Depreciation; Wholly owned subsidiary

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : B NEW DELHI BEFORE SHRI I.C. SUDHIR, JM AND SHRI J.SUDHAKAR REDDY, AM ITA NO.2138/DEL/2011 AY : - 200 5 - 06 EZENTECH (INDIA) P.LTD. VS. DCIT, CIRCLE 11(1) 16, UDYOG KENDRA NEW DELHI GREATER NOIDA, U.P. PAN: AA B C E 3184 F (APPELLANT) APPELLANT BY : SHRI VED JAIN, C.A. RESPONDENT BY : S MT. PARWINDER KAUR, SR. D.R. O R D E R PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AGAINST THE ORDER OF THE LD. CIT (A) XIII NEW DELHI DT.25.6.2009 PERTAINING TO THE AY 2005 - 06 ON THE FOLLOWING GROUNDS. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD.CIT(A) HAS ERRED IN CONFIRMING DISALLOWANCE OF DEPRECIATION OF RS.1,36,21,869/ - CLAIMED BY THE APPELLANT. THE SAME IS LIABLE TO BE FULLY ALLOWED. 2. . ON THE FACTS A ND IN THE CIRCUMSTANCES OF THE CASE, LD.CIT(A) HAS ERRED IN CONFIRMING DISALLOWANCE OF BUSINESS LOSS OF RS.8,09,388/ - SUFFERED BY THE APPELLANT. THE SAME IS LIABLE TO BE FULLY ALLOWED. 2. FACTS IN BRIEF: - THE ASSESSEE IS A PRIVATE LTD., CO. AND A 100% SUBSIDIARY OF E ZENDECH C O. LTD., KOREA ( ECL ) AND IS ENGAGED IN THE MANUFACTURE OF SHEET METAL PARTS OF REFRIGERATOR , AIR CONDITIONERS ETC., IT HAS TIED UP FOR DEDICATED SUPPLY OF COMPONENTS TO OEM CUSTOMER S SUCH AS L.G.INDIA AND SAMSUNG INDIA. FOR THE AY 2005 - 06 THE ASSESSEE FILED A RETURN OF INCOME ON 25.10.2005 DECLARING A LOSS OF RS 1,44,31,247/ - . THE AO VIDE HIS ORDER DT.28.12.2007 PASSED U/S 143 (3) OF THE ACT DETERMINED THE TOTAL INCOME AT NIL INTERALIA REJECTING THE CLAIM OF THE ASSESSEE FOR BUSINESS LOSS TO THE EXTENT OF RS 8,09,383/ - AND DEPRECIATION TO THE TUNE OF RS 1,36,21,869/ - . 2.1. THE AO REJECTED THE CLAIM OF THE ASSESSEE THAT MANUFACTURING ACTIVITY HAS BEEN STARTED . PA RA 6 OF HIS ORDER IS EXTRACTED FOR READY REFERENCE. 6. THE ASSESSEE S CLAIM THAT MANUFACTURING ACTIVITY HAS BEEN STARTED IS NOT ACCEPTABLE BECAUSE OF THE FOLLOWING REASONS: I. NO PRODUCTION RECORD HAS BEEN PRODUCED; II. NO WAGES REGISTER OR EVIDENCE OF PAYMENT OF WAGES IS PRODUCED; III. NO ELECTRICITY CONNECTION HAS B EEN TAKEN; ITA NO. 2138/DEL/2011 AY 2005 - 06 EZENTECH (INDIA) PVT.LTD. 2 IV. NO EVIDENCE HAS BEEN FURNISHED THAT THE BUILDING WAS READY FOR USE, THE BUILDING USE CERTIFICATE HAS NOT BEEN PRODUCED; V. NO EVIDENCE HAS BEEN PRODUCED THAT THE MACHINERY WAS INSTALLED AND READY FOR USE; VI. EVEN IF THE MACHINERY WAS INSTALLED AND REA DY FOR USE, THE ASSESSEE HAS TO PROVE THE ACTUAL USER FOR THE PURPOSE OF BUSINESS TO MAKE IT ENTITLED FOR CLAIM OF DEPRECIATION. IN VIEW OF THE ABOVE, IT IS CLEAR THAT THE MACHINERY HAS NOT BEEN INSTALLED AND PUT TO USE. NO MANUFACTURING ACTIVITY HAS BEEN CARRIED OUT. HENCE THE CLAIM OF BUSINESS LOSS AND DEPRECIATION TO THE EXTENT OF RS.8,09,383/ - AND 1,36,21,869/ - RESPECTIVELY ARE DISALLOWED. 2.2. AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL. THE FIRST APPELLATE AUTHORITY CONSIDERED THE SUBMISSI ONS OF THE ASSESSEE AND REJECTED THE SAME BY HOLDING THAT (A) THERE IS NO ELECTRICITY CONNECTION; (B) NO EVIDENCE OF PRODUCTION; (C ) NO EVIDENCE TO ESTABLISH THAT THE BUILDING WAS READY FOR USE; (D) NO WAGES HAVE BEEN PAID AT ALL. HE OBSERVED THAT THE BA SIC ONUS OF ESTABLISHING THAT THE MACHINERY WAS READY FOR USE AND HAD BEEN INSTALLED HAS NOT BEEN DISCHARGED BY THE ASSESSE. IN THE OPINION OF THE LD.CIT(A) THE MACHINERY CAN BE SAID TO BE INSTALLED AND READY TO USE ONLY WHEN ALL THE SUPPORTING LOGISTICS ARE IN PLACE. HE WAS OF THE VIEW THAT MEAGER SALE OF RS.601/ - HAS BEEN SHOWN, THERE IS NO EVIDENCE TO SUPPORT THAT ANY TRIAL RUN MANUFACTURING HAS BEEN DONE OR MACHINERY WAS INSTALLED AND READY TO USE. HE WAS OF THE VIEW THAT THE PREPONDERANCE OF PROBAB ILITY REGARDING INSTALLATION OF MACHINERY AND MANUFACTURING ACTIVITY DOES NOT INDICATE THE CIRCUMSTANCES TO BE IN FAVOUR OF THE ASSESSEE. 3. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE LD.COUNSEL FOR THE ASSESSEE SHRI VED JAIN FILED A PAPER B OOK RUNNING INTO 187 PAGES AND DREW THE ATTENTION OF THE BENCH TO VARIOUS EVIDENCES PLACED FROM PAGES 72 TO 122 AND ARGUED THAT (A) THE CONSTRUCTION OF THE FACTORY WAS COMPLETED BEFORE JANUARY, 2005; (B) THE INSTALLATION AND OPERATION OF VARIOUS MACHINERY WAS COMPLETED BEFORE THE END OF THE YEAR 2005. THE TOTAL COST OF THE PRODUCT WAS RS.2,60,99,000/ - AND WAS TO BE HANDED OVER BY 19.12.2014 WHERE AS BY DECEMBER , 2004 A PAYMENT OF RS.2,37,43,692/ - HAD ALREADY BEEN MADE AND DUE TO CERTAIN IRREGULARITIES O F THE CONTRACTOR, BALANCE PAYMENT WAS WITHHELD BY THE ASSESSEE. 4.1. GOODS MANUFACTURED BY THE ASSESSEE IS SUBJECT TO LEVY OF EXCISE DUTY AND THE SALE IS SUBJECT TO LEVY OF VAT. VAT ASSESSMENT ORDER DT. 15.3.2007 WAS FILED. ATTENTION WAS DRAWN TO COPIES OF PRODUCTION SLIP, RGI REGISTER, EXCISE DUTY REGISTER IN FORM RG 11 FOR MARCH, 2005. ITA NO. 2138/DEL/2011 AY 2005 - 06 EZENTECH (INDIA) PVT.LTD. 3 4.2. I T IS NOT THE CASE OF THE AO THAT SALES HAVE NOT BEEN MADE. EVEN IF GOODS WERE SENT FOR TESTING PURPOSES THE SAME HAVE TO BE MANUFACTURED BY USING PLANT AND MACHIN ERY . IT FURTHER RELIED ON THE ARGUMENTS MADE BEFORE THE AO AS WELL AS THE LD. CIT (A) THAT SALARIES UP TO THE COMMENCEMENT OF THE PRODUCTION WERE CAPITALISED AND ONLY A SMALL PORTION OF THAT WAS DEBITED TO PROFIT AND LOSS ACCOUNT AND THE PAYMENT OF SALAR IES INCLUDE AMOUNT PAID TO SKILLED WORKERS. DIESEL SETS WERE USED FOR MANUFACTURING AND THE BOOKS REFLECTED LARGE QUANTITIES OF DIESEL PURCHASED. 4.3. THE LD.D.R. MRS.PARWINDER KAUR ON THE OTHER HAND RELIED ON THE ORDER OF THE AO AS WELL AS OF THE LD.C IT(A) AND SUBMITTED THAT THERE IS ONLY ONE TRANSACTION OF SALE AND THAT TOO AMOUNTING TO A SMALL FIGURE OF RS.698.70, WHICH DEMONSTRATES THAT MANUFACTURING ACTIVITY HAS NOT COMMENCED. SHE SUBMITTED THAT THERE ARE LOT OF CONTRADICTIONS IN THE SUBMISSIONS O F THE ASSESSEE AND TRIED TO POINT OUT THAT THE MATERIAL TRANSFER NOTE AT PAGE 78 WAS DT. 26.3.2005 AND INVOICE CUM CHALLAN WAS DT. 28.3.2005 AND WHEREAS FORM NO.RG1 DAILY STOCK ACCOUNT AT PAGE 133 OF THE PAPER BOOK RECORDS THAT 10 UNITS WERE FOR HOME USE. 4.3.1. ON EXCISE SALES TAX OF RETURNS, SHE SUBMITTED THAT THESE ARE DECLARATIONS GIVEN BY THE ASSESSEE AND HENCE HAVE NO EVIDENTIARY VALUE . 5. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, MATERIAL ON R ECORD, ORDERS OF LOWER AUTHORITIES, CASE LAWS CITED, WE HOLD AS FOLLOWS. 6. THE ONLY ISSUE THAT HAS TO BE ADJUDICATED, IS WHETHER THE BUSINESS OF THE ASSESSEE WAS SET UP AS ON 31 ST MARCH,2005. A PERUSAL OF THE ORDER OF THE LD.CIT(A) DEMONSTRATES THAT THE REVENUE DOES NOT DISPUTE THE PROPOSITIONS THAT DEPRECIATION HAS TO BE GRANTED WHEN THE PLANT AND MACHINERY OF THE ASSESSEE COMPANY IS READY FOR USE. THIS PROPOSITION IS SUPPORTED BY A NUMBER OF CASE LAWS, SOME OF WHICH ARE LISTED BELOW. * CIT V S. UNION CARBIDE (INDIA) LTD. (2002) 254 ITR 488 (CAL.) * VINDHYACHAL DISTILLERIES PVT.LTD. (2004) 272 ITR 583 * ACIT VS. ASHIMA SYNTAX LTD. (2001) 251 ITR 133 * CIT VS. GEOTECH CONSTRUCTION CORPORATION (2000) 244 ITR 452 6.1. IN THE CASE ON HAND THE REVE NUE IS NOT DISPUTING THE FACT THAT THE ASSESSEE HAS SOLD GOODS WORTH RS.698.70 ON 28.3.2005 . THE ASSESSEE HAS FILED BOTH EXCISE RECORDS AS WELL AS SALES TAX RECORDS, AS EVIDENCE OF SALE. THIS EVIDENCE IS NOT CONTROVERTED BY THE LD.D.R. EXCEPT FOR SOME THAT THESE ARE SELF - ITA NO. 2138/DEL/2011 AY 2005 - 06 EZENTECH (INDIA) PVT.LTD. 4 SERVING DOCUMENTS. IN OUR VIEW THE ASSESSEE HAS EFFECTIVELY REPLIED TO THE ISSUES RAISED BY LD.AO. RECORDS WERE PRODUCED TO DEMONSTRATE PAYMENTS MADE TO THE CONTRACTORS FOR CONSTRUCTION OF THE BUILDING. IT WAS ALSO DEMONSTRATED THA T THE ASSESSEE HAD TWO LARGE GENERATORS OF 500 KVA AND THAT THESE GENERATORS WERE RUN FOR SUBSTANTIVE NUMBER OF HOURS AND THAT THERE WAS SUBSTANTIAL CONSUMPTION OF FUEL. THERE IS NO DENYING OF THE FACT THAT THE TRIAL RUN PRODUCTION WAS CARRIED OUT BY THE ASSESSEE. THERE WAS A PILOT LOT OF GOODS PRODUCED BY THE ASSESSEE AND THERE WAS ALSO A SALE OF GOODS PRODUCED BY THE ASSESSEE. EXCEPT FOR FINDING FAULT WITH THE EVIDENCES PRODUCED BY THE ASSESSEE, THERE IS NO MATERIAL WITH REVENUE TO CONTROVERT THE STAN D OF THE ASSESSEE. 6.2. THUS IN OUR CONSIDERED VIEW, ONCE WE HAVE COME TO A CONCLUSION THAT THE ASSESSEE S BUSINESS WAS SET UP PRIOR TO 31 ST MARCH,2005 AND THAT THE PLANT AND MACHINERY WERE READY TO USE AND THAT THE TRIAL RUN HAS BEEN CARRIED OUT, WE HAVE TO ACCEPT THE CONTENTION OF THE ASSESSEE THAT THE DISALLOWANCE OF DEPRECIATION AND BUSINESS LOSS BY THE AO, AS CONFIRMED BY THE FIRST APPELLATE AUTHORITY IS ERRONEOUS . 7. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST OCTOBER,2014. SD/ - SD/ - ( I.C. SUDHIR ) (J.SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: THE 21 ST OCTOBER , ,2014 * MANGA COPY OF THE ORDER FORWARDED TO: 1. APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT(A); 5.DR; 6.GUARD FILE BY ORDER ASST. REGISTRAR