ACIT, Pune V. M/s ALPHA FOAM LTD, Pune

ITA 2246/PUN/2012

• Counselvise Citation: 224624514 RSA 2012
• Duration Of Justice: 1 year(s) 7 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-06-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 09-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Capital receipt; Revised return; Capital expenditure
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO.1838/PN/2012 (ASSESSMENT YEAR 2005-06) M/S. ALPHA FOAM LIMITED, J-172, MIDC, BHOSARI, PUNE 411026 PAN NO.AACCA4196J .. APPELLANT VS. ACIT, CIRCLE-8, PUNE .. RESPONDENT ITA NO.2246/PN/2012 (ASSESSMENT YEAR 2005-06) ACIT, CIRCLE-8, PUNE .. APPELLANT VS. M/S. ALPHA FOAM LIMITED, J-172, MIDC, BHOSARI, PUNE 411026 PAN NO.AACCA4196J .. RESPONDENT ASSESSEE BY : SHRI NIKHIL PATHAK REVENUE BY : SHRI SANTOSH KUMAR DATE OF HEARING : 25-06-2014 DATE OF PRONOUNCEMENT : 26-06-2014 ORDER PER R.K. PANDA, AM : THESE ARE CROSS APPEALS. THE FIRST ONE IS FILED BY THE ASSESSEE AND THE SECOND ONE FILED BY THE REVENUE AND ARE DIRECTE D AGAINST THE ORDER DATED 02-08-2012 OF THE CIT(A)-V, PUNE RELATING TO THE ASSESSMENT YEAR 2005-06. FOR THE SAKE OF CONVENIENCE, THESE WERE H EARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. 2 ITA NO.1838/PN/2012 (BY ASSESSEE) : 2. GROUNDS OF APPEAL NO.1 TO 4 BY THE ASSESSEE RELA TES TO THE ORDER OF THE CIT(A) IN CONFIRMING THE DISALLOWANCE OF RS.10, 52,000/- IN RESPECT OF GUARANTEE COMMISSION PAID TO THE DIRECTORS. 2.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE IS A COMPANY ENGAGED IN MANUFACTURING OF PV FOAM, AUTOMOBILE SEA T ASSEMBLY, VACUUM FORMED PARTS, CHEMICAL PVC, ABS, PP SHEETS E TC. IT FILED ITS RETURN OF INCOME ON 31-10-2005 DECLARING TOTAL INCO ME OF RS.25,54,378/- DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASS ESSING OFFICER OBSERVED FROM ANNEXURE-II TO THE PROFIT AND LOSS AC COUNT THAT THE ASSESSEE HAS DEBITED GUARANTEE COMMISSION OF RS.10,52,000/- WHICH WERE GIVEN TO MR. RAJIV RANKA RS.5,26,000/- AND MS. SUREKHA RANK A RS.5,26,000/-. NOTHING WAS POINTED OUT BY THE AUDITOR IN THE AUDIT REPORT WHILE GIVING DETAILS OF PAYMENT COVERED U/S.40A(2)(B). THE ASSE SSING OFFICER THEREFORE ASKED THE ASSESSEE TO JUSTIFY THE CLAIM O F DEDUCTION AS CLAIMED UNDER THE HEAD GUARANTEE COMMISSION. 2.2 IT WAS EXPLAINED BY THE ASSESSEE THAT THE ASSES SEE HAS OBTAINED LOAN FROM STATE BANK OF INDIA. AS PER THE TERMS AND CON DITIONS THEY HAVE ASKED FOR PERSONAL GUARANTEE AND SECURITY OF DIRECT ORS AS A PRE-CONDITION FOR DISBURSEMENT OF LOAN. AS PER THE SANCTIONED LE TTER THEY REFUSED TO SANCTION AND GIVE LOAN WITHOUT PERSONAL GUARANTEE O F MR. RAJIV RANKA AND MS. SUREKHA RANKA. IT WAS SUBMITTED THAT AS AGAINS T THE SANCTIONED LOAN OF RS.2.10 CRORES (CC LIMIT RS.1.5 CRORES, LC LIMIT RS.0.50 CRORES AND BANK GUARANTEE RS.0.10 CRORES) THE ASSESSEE HAS PAI D RS.10,52,000/- ONLY 3 AS GUARANTEE COMMISSION TO THE 2 DIRECTORS @ RS.5,2 6,000/- EACH WHICH COMES TO 2.5%. 2.3 HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIE D WITH THE EXPLANATION GIVEN BY THE ASSESSEE. HE NOTED THAT T HE COMPANY IS HAVING FIXED ASSETS RS.202 CRORES, BOOK DEBTS RS.786 CRORE S AND STOCK OF RS.1.88 CRORES. FURTHER, RESERVES OF THE COMPANY A RE RS.2.29 CRORES. THEREFORE, THERE WAS NO NECESSITY OF GIVING SUCH HU GE GUARANTEE COMMISSION TO THE DIRECTORS. ACCORDING TO THE ASSE SSING OFFICER, THIS IS NOTHING BUT DIVERSION OF FUNDS OF THE COMPANY TO TH E DIRECTORS. REJECTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASSESSEE AND APPLYING THE PROVISIONS OF SECTION 40A(2)(B), WHICH THE AUDITOR HAS PURPOSE LY NOT MENTIONED IN THE AUDIT REPORT, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF GUARANTEE COMMISSION OF RS.10,52,000/- PAID TO BOTH THE DIREC TORS. 2.4 IN APPEAL THE LD.CIT(A) UPHELD THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. WHILE DOING SO, HE RELIED ON TH E DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. UNITED BREWERIES LTD. VIDE ITA NO.404/2009 ORDER DATED 15-10-2011. 3. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSE SSEE IS IN APPEAL BEFORE US. 4. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE PARTIES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE FIND IN T HE IMMEDIATELY PRECEDING ASSESSMENT YEAR, I.E. 2004-05 AN AMOUNT O F RS.10,52,000/- WAS DEBITED BY THE ASSESSEE AS GUARANTEE COMMISSION UND ER THE HEAD INTEREST AND FINANCE CHARGES PAID TO MR. RAJIV RANKA AND MS . SUREKHA RANKA 4 AMOUNTING TO RS.5,26,000/- EACH. THE RATE FOR SUCH COMMISSION WAS 3.5%. THE ASSESSING OFFICER APPLYING THE PROVISION S OF SECTION 40A(2)(B) RESTRICTED SUCH GUARANTEE COMMISSION TO 1 % AND MADE DISALLOWANCE OF RS.7,52,000/- WHICH WAS CONFIRMED B Y THE LD.CIT(A). ON FURTHER APPEAL, THE TRIBUNAL ALLOWED THE ENTIRE CLAIM OF GUARANTEE COMMISSION BY DELETING THE DISALLOWANCE. WHEN THE REVENUE CHALLENGED THE ORDER OF THE TRIBUNAL, THE HONBLE HIGH COURT V IDE ITA NO.2325/2011 ORDER DATED 23-04-2014 DISMISSED THE APPEAL FILED B Y THE REVENUE ON THIS ISSUE BY OBSERVING AS UNDER : 3. THE NEXT ISSUE IS REGARDING DISALLOWANCE OF GUARANT EE COMMISSION PAID TO THE TWO DIRECTORS. IT IS CONDEDED BEFORE US T HAT SUB-SECTION (2) OF SECTION 14A DOES NOT PROHIBIT PAYMENT OF SUCH AMOUNT T O THE DIRECTOR. ALL THAT IS REQUIRED TO BE RECORDED IS THE SATISFACTION THA T SUCH EXPENDITURE INCURRED ON ACCOUNT OF THE PAYMENT, IS NOT EXCESSIVE O R UNREASONABLE AND HAVING REGARD TO THE MARKET VALUE OF THE GOODS OR TH E SERVICES OR FACILITIES. IN CONSIDERING THIS CLAIM, THE TRIBUNAL FOUND THAT TH E ACCOUNTANT OF THE COMPANY COMMITTED A MISTAKE IN PAYING THE COMMISSION @ 3.51% TO THE DIRECTORS AND THE ASSESSEE CONCEDED BEFORE THE TRIBUNAL THAT THIS WAS A MISTAKE AND THE COMMISSION HAS BEEN RESTRICTED NOT 1% AS CLAIMED BY THE REVENUE BUT 1.77%. THE TOTAL PAYMENT, THERE IS NOT MORE THAN RS.10,52,000/-. IN THE GIVEN FACTS AND CIRCUMSTANCES, THE TRIBUNAL DID NOT COMMIT ANY ERROR IN UPHOLDING THIS LIMITED PAYMENT A ND PARTICULARLY WHEN IT IS NOT FOUND TO BE UNREASONABLE OR EXCESSIVE. THE P ARAMETERS WHICH THIS CLAIM IS CONSIDERED ARE THUS IN TUNE WITH LAW. WE DO NOT FIND THAT THE VIEW TAKEN IS PERVERSE OR VITIATED BY ANY ERROR OF LAW APP ARENT ON THE FACE OF THE RECORD RESULTING IN THIS COURTS INTERVENTION. TH E APPEAL IS THEREFORE DEVOID OF MERITS EVEN WITH REGARD TO THIS ISSUE. 4.1 SINCE THE JURISDICTIONAL HIGH COURT IN ASSESSEE S OWN CASE HAS ALLOWED SUCH GUARANTEE COMMISSION IN THE PRECEDING YEAR, THEREFORE, RESPECTFULLY FOLLOWING THE SAME, WE SET-ASIDE THE O RDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOW ANCE. 4.2 SO FAR AS THE DECISION OF THE HONBLE KARNATAKA HIGH COURT RELIED ON BY THE LD.CIT(A) IS CONCERNED, WE ARE OF THE OPI NION THAT IN VIEW OF THE DECISION OF THE JURISDICTIONAL HIGH COURT IN AS SESSEES OWN CASE, THE SAME IS NOT APPLICABLE TO THE ASSESSEE COMPANY. FU RTHER, THE FACTS IN THAT 5 CASE ARE ALSO DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. IN THE CASE BEFORE HONBLE KARNATAKA HIGH CO URT, MR.VIJAY MALLYA, WHOSE NET WEALTH WAS RS.70.47 LAKHS AS ON 31-03-199 0 STOOD AS A GUARANTOR FOR AN AMOUNT OF RS.115.32 CRORES. FURTH ER, HE WAS A NON- RESIDENT DURING THAT YEAR AND NO PRIOR PERMISSION F ROM RBI WAS TAKEN BY HIM. FURTHER, HUGE AMOUNT OF GUARANTEE COMMISSION WAS GIVEN TO MR.VIJAY MALLYA. HOWEVER, IN THE INSTANT CASE, THE NET WEALTH OF BOTH THE DIRECTORS ARE RS.4.56 CRORES AND THEY HAVE GIVEN G UARANTEE IN RESPECT OF LOAN WORTH RS.2.05 CRORES. THEREFORE, THE FACTS IN THE CASE OF UNITED BREWERIES LTD. AS DECIDED BY HONBLE KARNATAKA HIGH COURT ARE DIFFERENT FROM THAT OF THE INSTANT CASE. IN THIS VIEW OF THE MATTER AND IN VIEW OF THE DECISION OF THE JURISDICTIONAL HIGH COURT IN ASSESS EES OWN CASE, WHICH IS BINDING ON US, WE SET-ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF GUARANTEE C OMMISSION OF RS.10,52,000/-. 5. GROUNDS OF APPEAL NO.5 BY THE ASSESSEE READS AS UNDER : 5, THE LD.CIT(A) ERRED IN HOLDING THAT THE INSURANC E CLAIMED RECEIVED IN RESPECT OF CAPITAL ASSETS SHOULD BE REDUCED FROM THE WDV OF THE CURRENT YEAR FOR COMPUTING DEPRECIATION OF THE CURRENT YEAR WITHOUT APPRECIATING THAT THE SAID INSURANCE CLAIM HAD ACCRUED TO THE ASSESSE E IN THE SUBSEQUENT YEAR AND HENCE THE SAME COULD NOT HAVE BEEN REDUCED FROM THE WDV OF THE CURRENT YEAR. 5.1 FACTS OF THE CASE, IN BRIEF, ARE THAT DURING T HE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTIC ED THAT THE APPELLANT COMPANY HAD NOT REDUCED INSURANCE CLAIM FROM THE RE SPECTIVE W.D.V. HE CAME TO THE CONCLUSION THAT AFTER DEDUCTING THE INS URANCE CLAIM FROM THE RESPECTIVE W.D.V, THE ASSESSEE WAS ENTITLED TO CLAI M DEPRECIATION AT RS.24,80,844/-, WHILE THE CLAIM WAS MADE AT RS.32,1 1,274/-. ACCORDINGLY, 6 HE DISALLOWED THE DIFFERENCE OF RS.7,30,430/- (32,1 1,274 - 24,80,844) AND ADDED BACK TO THE TOTAL INCOME. 5.2 BEFORE THE CIT(A) IT WAS SUBMITTED THAT THE ASS ESSING OFFICER WAS NOT CORRECT IN REDUCING THE CLAIM OF DEPRECIATION O N ACCOUNT OF INSURANCE CLAIM AS THE SAME WAS NOT RECEIVED DURING THE YEAR BUT IN SUBSEQUENT YEAR. ENTIRE INSURANCE CLAIM WAS SHOWN AS REVENUE RECEIPT IN THE YEAR OF RECEIPT. THE ASSESSING OFFICER HAS NOT ALLOWED DEPR ECIATION ON THE CAPITALIZATION OF RS.55,39,813/- THOUGH MENTIONED I N THE ASSESSMENT ORDER. THIS ISSUE WAS ALSO DIRECTED TO BE VERIFIED IN THE REMAND ORDER DATED 22.06.2011. THE ASSESSING OFFICER IN HIS REMA ND REPORT SUBMITTED THAT IN THE ASSESSMENT ORDER W.D.V WAS CORRECTLY RE DUCED AS THE INSURANCE SURVEYOR SHRI. J. C. BHANSALI HAD SUBMITT ED HIS REPORT ON 17.03.2005 I.E. BEFORE THE END OF THE YEAR. SECONDL Y, THE MACHINERY WHICH WAS DAMAGED, WAS NOT USED FOR THE PURPOSE OF BUSINE SS. IN COUNTER REPLY THE ASSESSEE SUBMITTED THAT EVEN THOUGH SURVEYOR'S REPORT IS DATED 17.03.2005, THE ASSESSEE WAS INTIMATED ABOUT ITS CL AIM ONLY IN THE NEXT YEAR AND THE INSURANCE COMPANY DIRECTLY CREDITED TH E AMOUNT TO THE BANK ACCOUNT OF THE ASSESSEE AND THEREFORE, CLAIM MADE B Y THE ASSESSEE IS JUSTIFIED. 5.3 BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE LD.CIT(A) SUSTAINED DISALLOWANCE OF DEPRECIATION AMOUNTING TO RS.7,38,430/- BY OBSERVING AS UNDER : 22. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE AS WELL AS REPLY OF THE APPELLANT. IN THIS CASE RAW MATERIAL, SEMI FINISHED GOODS, FINISHED GOODS ETC. WERE ALSO DESTROYED, ALONGWITH PLANT & MACH INERY AND FACTORY SHED IN THE FIRE ON 16.07.2004.' THE CLAIM OF INSURAN CE IN RESPECT OF STOCK ETC HAS TO BE TREATED AS REVENUE RECEIPT. SIMILARLY, THE INSURANCE CLAIM IN 7 RESPECT TO CAPITAL ASSETS HAS TO BE REDUCED FROM THE W.D .V OF RESPECTIVE ASSETS. THE CLAIM OF THE APPELLANT THAT THOUGH SURVEYOR S* REPORT IS DATED 17.03.2005, THE APPELLANT CAME TO KNOW ABOUT IT IN THE NEXT FINANCIAL YEAR WILL NOT MAKE ANY DIFFERENCE AS AMOUNT BECAME DUE TO THE APPELLANT BEFORE 31.03.2005. DEPRECIATION IS NOTIONALLY CALCUL ATED IN THE BOOKS OF ACCOUNT AND THE SAME CAN BE DONE EVEN AFTER THE END OF THE FINANCIAL YEAR WHILE FILING OF RETURN AS WELL AS REVISED RETURNS IF N ECESSARY. THEREFORE, I DO NOT FIND ANY INFIRMITY IN THE ORDER. AS FAR AS THE ISSUE OF WORKING OF DISALLOWANCE OF DEPRECIATION IS CONCERNED, THE ASSESSING OFFICER SHOULD VERIFY THIS MATTER WHILE GIVING EFFECT TO THIS ORDER . IN THE RESULT, GROUND IS DISMISSED, SUBJECT TO VERIFICATION OF COMPUTATION OF DI SALLOWANCE OF DEPRECIATION BY THE ASSESSING OFFICER. 5.4 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASS ESSEE IS IN APPEAL BEFORE US. 6. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SAME ARGUMENTS AS MADE BEFORE THE CIT(A). HE SUBMITTED THAT EVEN THO UGH THE REPORT OF THE SURVEYOR IS DATED 17-03-2005, HOWEVER, THE ASSESSEE WAS INTIMATED ABOUT ITS CLAIM ONLY IN THE NEXT YEAR. FURTHER, THE CLAI M OF INSURANCE IN RESPECT OF STOCK ETC. HAS BEEN CLAIMED AS A REVENUE RECEIPT IN THE A.Y. 2006-07 WHICH HAS BEEN ACCEPTED BY THE REVENUE. THEREFORE, REDUCING THE INSURANCE CLAIM FROM THE WDV OF CURRENT YEARS ASSE T IS NOT CORRECT. THE DEPARTMENT CANNOT TAKE TWO DIFFERENT STANDS TOWARDS RECEIPT OF INSURANCE, I.E. ONE FOR FIXED ASSETS AND THE OTHER FOR CURRENT ASSETS. 7. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND HEAVILY RELIED ON THE ORDER OF THE CIT(A). 8. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE PARTIES AND PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A). THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT ENTIRE INSURANCE CLAIM WAS SHOWN AS REVENUE RECEIPT IN THE YEAR OF RECEIPT AND THE ASSESSING OFFICER HAS NOT DISTURBED THE RECEIPT FOR SUCH INSU RANCE CLAIM ON ACCOUNT OF STOCK ETC IN THE YEAR OF RECEIPT COULD NOT BE C ONTROVERED BY THE LD. 8 DEPARTMENTAL REPRESENTATIVE. WE, THEREFORE, FIND N O REASON AS TO WHY THE INSURANCE CLAIM WHICH WAS RECEIVED IN SUBSEQUENT YE AR SHOULD BE REDUCED FROM THE WDV OF THE CURRENT YEAR ESPECIALLY WHEN TH E ASSESSEE WAS NOT INTIMATED ABOUT THE SAME BY THE INSURANCE COMPANY D URING THE IMPUGNED ASSESSMENT YEAR. IN THIS VIEW OF THE MATTER, WE SE T-ASIDE THE ORDER OF LD.CIT(A) AND ALLOW THE GROUND RAISED BY THE ASSESS EE. ITA NO.2242/PN/2012 (BY REVENUE) : 9. GROUNDS RAISED BY THE REVENUE ARE AS UNDER : 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE CIT(A) WAS NOT JUSTIFIED IN ALLOWING THE EXPENSES ON REPAIRS OF PLANT AND MACHINERY, FACTORY BUILDING ETC OF RS.55,39,813/- WH EN THE EXPENDITURE WAS NOT OF RECURRING NATURE BUT INCURRED FOR SUBSTANTI AL REPLACEMENT OF DESTROYED BUILDING AND MACHINERY AFTER A MAJOR FIRE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LA W, THE CIT(A) WAS NOT JUSTIFIED IN ALLOWING THE EXPENSES AS REVENUE IN NATURE WITHOUT APPLYING JUDICIAL GUIDELINES ON THE ISSUE INDEPENDENTL Y ON EACH ITEM OF EXPENDITURE. 3. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTER ANY OF THE ABOVE GROUNDS OF APPEAL. 9.1 FACTS OF THE CASE, IN BRIEF, ARE THAT DURING TH E COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE COMPANY HAS CLAIMED AN AMOUNT OF RS.78,98,490/- UNDER THE HEAD REPAIRS AND MAINTENANCE. THE BREAKUP OF THE ABOVE AMOUNT WAS GI VEN AS UNDER : (I) REPAIRS TO BUILDING - RS.19,99,705/- (II) REPAIRS TO MACHINERY - RS.35,40,108/- (III) REPAIRS TO VEHICLES - RS. 1,26,214/- (IV) REPAIRS & MAIN. OTHERS - RS. 45,071/- (V) REPAIRS & MAIN. OTHERS - RS. 1,59,268/- (VI) REPAIRS & MAIN. OTHERS - RS.20,28,124/- ----------------------- TOTAL - RS.78,98,490/- ----------------------- 9 9.2 THE ASSESSING OFFICER CONFRONTED THE ASSESSEE O N THE ADMISSIBILITY OF THE SAME AND ALSO ASKED AS TO WHY THE SAME SHOUL D NOT BE TREATED AS CAPITAL EXPENDITURE IN VIEW OF THE FACT THAT THE IT EMS PURCHASED APPEARED TO BE NEW MACHINERY PURCHASES AND ALSO THAT FACTORY BUILDING WAS COMPLETELY RENOVATED. THE ASSESSEE SUBMITTED THAT T HERE WAS MAJOR FIRE IN THE CHAKAN FACTORY AND DURING THE FIRE ASSEMBLY LIN E OF FOAM WAS SUBSTANTIALLY DAMAGED, WHILE FACTORY SHED WAS COMPL ETELY GUTTED IN THE FIRE. HOWEVER, INSTEAD OF PURCHASING THE PLANT, THE ASSESSEE PREFERRED TO REPLACE DAMAGED PARTS OF THE MACHINERY WITH NEW ONE . THIS WAS COST EFFECTIVE. SIMILARLY, THE BUILDING WAS REPAIRED EXT ENSIVELY BUT IN NO CASE THE EXPENDITURE CAN BE SAID TO BE CAPITAL IN NATURE , AS NO NEW ASSET CAME INTO EXISTENCE. THE ASSESSING OFFICER HOWEVER, DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE AS HE WAS OF THE VIEW T HAT NEW ASSET HAS COME INTO EXISTENCE. ACCORDINGLY, HE REDUCED RS.1,26,214 /- BEING REPAIRS TO VEHICLES AND RS.22,32,463/- BEING OTHER REPAIRS AND MAINTENANCE AND MADE THE ADDITION OF RS.55,39,813/-. HOWEVER, HE AL LOWED DEPRECIATION AT THE APPLICABLE RATE OF 50% IN RESPECT OF BUILDING R S.19,99,705/- AND P&M RS.35,40,108/- AS THE INSTALLATION FOR THE SAME WAS DONE AFTER 30-09-2004. 10. BEFORE THE CIT(A) THE ASSESSEE FILED DETAILS OF ITEMS ABOVE RS.50,000/- REPLACED BY THE ASSESSEE. THE ASSESSEE ALSO FILED SURVEYORS REPORT IN WHICH DETAILS OF DAMAGES TO PLANT AND MAC HINERY WAS MENTIONED. IT WAS ARGUED THAT INSTEAD OF PURCHASE OF ENTIRE PLANT AND MACHINERY THE ASSESSEE REPLACED SMALL PARTS OF PLAN T AND MACHINERY WHICH WAS DAMAGED. IT WAS FURTHER ARGUED THAT THE INSURANCE CLAIM OF RS.88.89 LAKHS WAS SHOWN AS REVENUE RECEIPT IN SUBS EQUENT YEAR AND THEREFORE THE EXPENDITURE ON REPAIRS WAS OF REVENUE IN NATURE. 10 11. BASED ON THE SUBMISSIONS MADE BY THE ASSESSEE T HE LD.CIT(A) CALLED FOR A REMAND REPORT FROM THE ASSESSING OFFIC ER. AFTER CONSIDERING THE REMAND REPORT AND THE COMMENTS OF THE ASSESSEE TO SUCH REMAND REPORT THE LD.CIT(A) DELETED THE DISALLOWANCE BY OBSERVING AS UNDER : 17. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE AS WELL AS REPLY OF THE APPELLANT AND ALSO REMAND REPORT SUBMITTED BY THE ASSESSING OFFICER. AS FAR AS THE ISSUE REGARDING REPAIRS TO THE BUILDING I S CONCERNED, THE MAIN OBJECTION OF THE ASSESSING OFFICER STANDS ON THE FOOTIN G THAT EVEN BEFORE FIRE, SUBSTANTIAL QUANTITY OF BUILDING MATERIAL WAS PU RCHASED WHICH ARE USED IN CONSTRUCTION OF PERMANENT STRUCTURE. THE ASSESSIN G OFFICER WAS OF THE VIEW THAT FIRE CAN DESTROY PLASTIC, WOOD AND OTHE R ARTICLES BUT NOT MS ANGLES, STEEL ETC. THIS VIEW OF THE ASSESSING OFFICER APPE ARS TO BE QUITE NARROW IN THE SENSE THAT IN A BIG FACTORY BUILDING PU RCHASE OF SUCH BUILDING MATERIAL OF GENERAL REPAIRS IS QUITE COMMON. THERE IS ALSO NO TRUTH IN THE STATEMENT OF THE ASSESSING OFFICER THAT MS ANGLE AND STEE L CANNOT BE DESTROYED IN FIRE. HERE, THE WORD DESTRUCTION SHOULD B E UNDERSTOOD IN THE SENSE THAT AFTER FIRE SUCH MATERIAL MADE OF STEEL CAN VERY WELL BECOME UNUSABLE AND THEREFORE, IT CANNOT BE SAID THAT STEEL MATERIAL AND MS ANGLES CANNOT BE DESTROYED IN FIRE. THE ASSESSING OFFICER'S CLAI M THAT HE APPELLANT FAILED TO PRODUCE EVIDENCE THAT NO PERMANENT STRUCTU RE WAS ERECTED ALSO APPEARS TO BE RATHER STRANGE IN THE SENSE THAT NO SUCH O NUS LIES ON THE APPELLANT. IF THE ASSESSING OFFICER WAS OF THE VIEW THAT SUCH MATERIAL CAN BE USED ONLY IN PERMANENT STRUCTURE AND NOT FOR REPAI RS, NOTHING PREVENTED HIM FROM VISITING THE SITE AND FIND OUT THE TRUTH. INSTEAD OF CONFRONTING THE APPELLANT WITH CLEAR EVIDENCE, THE ASSESSING OFFICER HAS MADE A CASE RATHER ON IMAGINATION WHICH CANNOT BE AP PROVED. 18. AS REGARDS, REPAIRS TO PLANT & MACHINERY, THE ASSESSIN G OFFICER'S CASE IS LARGELY BASED ON THE FACT THAT SOME OF THE ITEM S CAN BE INDEPENDENTLY USED. THE APPELLANT HAS REPLIED TO THE OBJECTIONS OF THE ASSESSING OFFICER STATING THAT ALL THE ITEMS HAVE BEEN USE D AS REPAIRS TO PLANT & MACHINERY EXCEPT THE TWO ITEMS STATED ABOVE W HICH CAN BE TREATED AS INDEPENDENT PLANT & MACHINERY. I FIND THAT CASE O F DUAL USE OF ANY ITEM WILL NOT SUPPORT THE ASSESSING OFFICER AS LONG AS THE SAME IS USED IN PLANT & MACHINERY AS A COMPONENT OF PLANT & MACHINERY. UN LESS IT IS PROVED THAT ANY ITEM IS INDEPENDENTLY CAPABLE OF BEING TREA TED AS PLANT & MACHINERY THE SAME WILL NOT FALL IN THE NATURE OF CA PITAL EXPENDITURE. IN THIS CASE APART FROM THE ABOVE TWO ITEMS, IT IS SEEN TH AT CUTTING MACHINE (DATED 31-03-2005) AMOUNTING TO RS.1,29,500/- IS ALSO AN INDEPENDENT MACHINERY, AND NEEDS TO BE TREATED AS CAPITAL EXPENDI TURE. ACCORDINGLY, ASSESSING OFFICER IS DIRECTED TO RESTRICT THE DISALLOWANCE TO RS.1,52,633/- (1,29,500 +11,200 +11,933). HE IS ALSO DIRECTED TO ALLOW DEPRECIATION AS PER LAW. THUS, THE GROUND IS PARTLY ALLOWED. 11.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE RE VENUE IS IN APPEAL BEFORE US. 11 12. AFTER HEARING BOTH THE SIDES WE FIND NO INFIRMI TY IN THE ORDER OF THE CIT(A). THERE IS NO DISPUTE TO THE FACT THAT THERE WAS DAMAGE TO THE PLANT & MACHINERY, STOCK ETC. DUE TO MAJOR FIRE. THE ASS ESSEE REPLACED SMALL PARTS OF PLANT & MACHINERY INSTEAD OF PURCHASING TH E PLANT. FURTHER, THE ASSESSEE HAS TREATED THE RECEIPTS FROM THE INSURANC E COMPANY AS REVENUE RECEIPT IN THE SUBSEQUENT YEAR. HE HAS NOT TREATED THE SAME TOWARDS CAPITAL RECEIPT BY REDUCING FROM THE W.D.V. THE LD. DEPARTMENTAL REPRESENTATIVE ALSO COULD NOT CONTROVERT THE OBSERV ATIONS OF THE LD. CIT(A) THAT NONE OF THE ITEMS ARE INDEPENDENTLY CAP ABLE OF BEING CALLED AS PLANT & MACHINERY SO AS TO TREAT THE SAME AS CAP ITAL IN NATURE. IN THIS VIEW OF THE MATTER AND IN VIEW OF THE DETAILED REAS ONING GIVEN BY LD.CIT(A) WE FIND NO INFIRMITY IN THE SAME. ACCORD INGLY, THE SAME IS UPHELD AND THE GROUNDS RAISED BY THE REVENUE ARE DI SMISSED. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSE E IS ALLOWED AND THE APPEAL FILED BY THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 26-06-2014. SD/- SD/- (SHAILENDRA KUMAR YADAV) (R.K. PAN DA) JUDICIAL MEMBER ACCOUNTAN T MEMBER PUNE DATED: 26 TH JUNE, 2014 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. THE CIT(A)-V, PUNE 4. THE CIT-V, PUNE 5. THE D.R, A PUNE BENCH 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY ITAT, PUNE BENCHES, PUNE