The DCIT, Circle-1, Ahmedabad V. M/s. Ahmedabad Packaging Industries Ltd., Ahmedabad

ITA 2375/AHD/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5938 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-05-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 24-04-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 03-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DINESH SINGH
• Assessee Lawyers: S N DIVATIA
• Keywords: Capital asset; Depreciation; Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD .., , BEFORE SHRI S.S. GODARA, JUDICIAL MEMBER & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ I.T.A. NO.2375/AHD/2013 AY 2010-11 & CROSS OBJECTION NO.49/AHD/2014 - AY 2010-11 ( IN ITA NO.2375/AHD/2013 AY 2010-11 ) THE DCIT CIRCLE-1 AHMEDABAD / VS. M/S.AHMEDABAD PACKAGING INDUSTRIES LTD. A/2-326, PHASE-II, GIDC INDUSTRIAL ESTATE, VATVA, AHMEDABAD $ ./ ./ PAN/GIR NO. :AABCA 6006 A ( $' / APPELLANT ) .. ( ($' / RESPONDENT ) & CROSS OBJECTOR REVENUE BY : SHRI DINESH SINGH, SR.DR ASSESSEE BY : SHRI S.N. DIVATIA, AR )*+, / DATE OF HEARING 24/04/2017 -./+, / DATE OF PRONOUNCEMENT 01/ 05/2017 / O R D E R PER PRADIP KUMAR KEDIA, AM: THE REVENUE HAS FILED APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-6, AHMEDABAD [ CIT(A) IN SHORT] DATED 23/07/2013 ARISING OUT OF ASSESSMENT ORDER PASSED UNDER SECTION ITA NO.2375/AHD/2013 (BY REVENUE)& CO NO.49/AHD/2014 (BY ASSESSEE) DCIT VS. AHMEDABAD PACKAGING INDS.LTD. ASST.YEAR 2010-11 - 2 - 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REF ERRED TO AS 'THE ACT') DATED 08/03/2013 FOR THE ASSESSMENT YEAR (AY) 201 0-11. 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE RE AD AS UNDER:- 1. THE CIT(A) HAS ERRED IN LAW AND ON FACTS BY CO NSIDERING THE CAPITAL EXPENDITURE OF RS.21.63 LACS FOR RENOVATION OF FACTORY BUILDING AS REVENUE EXPENDITURE3. AS PER PROVISION S OF SECTION 30(A)(II), ONLY EXPENSES FOR CURRENT REPAIRS ARE AL LOWABLE AS DEDUCTION. WHILE DECIDING THE ISSUE, CIT(A) HAS OV ERLOOKED THE FACT THAT THE EXPENSES INCURRED HAVE GIVEN BENEFIT OF ENDURING NATURE TO THE ASSESSEE. 2. THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DEL ETING THE ADDITION OF RS.15.17 LACS TOWARDS UNUTILIZED CENVAT CREDIT DESPITE THE FACT THAT THE ASSESSEE FOLLOWED EXCLUSIVE METHO D OF VALUING INVENTORY IN CONTRAVENTION OF SECTION 145A WHICH MA NDATES INCLUSIVE METHOD. 3. THE ASSESSEE HAS ALSO FILED CROSS OBJECTIONS IN THE AFORESAID REVENUES APPEAL WHICH READ AS UNDER:- 1.1. THE LD.CIT(A) HAS ERRED IN AND OR ON FACTS IN CONF IRMING THE DISALLOWANCE OF RS.50,000. THE CLAIM SHOULD BE ALLOWED AS BUSINESS LOSS U/S.28. 1.2. THE LD.CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWA NCE OF RS.43.835 U/S.14A. ITA NO.2375/AHD/2013 (BY REVENUE)& CO NO.49/AHD/2014 (BY ASSESSEE) DCIT VS. AHMEDABAD PACKAGING INDS.LTD. ASST.YEAR 2010-11 - 3 - 4. GROUND NO.1 OF REVENUES APPEAL RELATES TO DET ERMINATION OF NATURE OF EXPENDITURE INCURRED FOR RENOVATION OF FACTORY B UILDING. IT IS THE CONTENTION OF ASSESSING OFFICER (AO) THAT EXPENDITU RE INCURRED RS.21.63 LAKHS FOR REPAIR AND RENOVATION OF THE FACTORY BUIL DING IS CAPITAL EXPENDITURE AND THUS NOT ELIGIBLE FOR DEDUCTION IN TERMS OF SECTION 30(A)(II) OF THE ACT. 4.1. IN THE COURSE OF HEARING, THE LD.DR FOR THE RE VENUE REFERRED TO THE ASSESSMENT ORDER AND SUBMITTED THAT THE ASSESSEE HA S INTER ALIA INCURRED RS.21.63 LAKHS ON ACCOUNT OF BUILDING REPAIRS AND I NTEREST INCURRED THEREON WHICH IS NOT IN THE NATURE OF REVENUE EXPEN DITURE AND THEREFORE NO PERMISSIBLE DEDUCTION. THE LD.DR SUBMITTED THAT TYPICALLY, THE ASSESSEE HAS INCURRED SMALL AMOUNT ON REPAIRS IN TH E PAST RANGING BETWEEN RS.60,000/- TO RS.2,70,000/- PER ANNUM AS AGAINST HEAVY EXPENDITURE INCURRED THIS YEAR. THE LD.DR FURTHER SUBMITTED THAT THE EXPENDITURE INCURRED DURING THE YEAR ARE IN THE NAT URE OF MAJOR REPAIRS OF THE BUILDING PREMISES. THE LD.DR REFERRED TO THE A SSERTIONS MADE BY THE AO AND SUBMITTED THAT THE ASSESSEE HAS CARRIED OUT RENOVATION OF THE FACTORY BUILDING INVOLVING RE-PLASTERING, RE-FLOORI NG, RE-PLACEMENT OF DOORS, RE-PLUMBING, WHICH CANNOT BE CHARACTERIZED A S CURRENT REPAIRS. THE LD.DR ALSO REFERRED TO THE BILLS AND SUBMITTED THAT SOME EXPENDITURE HAVE BEEN INCURRED TOWARDS BASIC RESTRUCTURING OF B UILDING INCLUDING REPLACEMENT OF RCC COLUMNS. THE LD.DR ACCORDINGLY SUBMITTED THAT ITA NO.2375/AHD/2013 (BY REVENUE)& CO NO.49/AHD/2014 (BY ASSESSEE) DCIT VS. AHMEDABAD PACKAGING INDS.LTD. ASST.YEAR 2010-11 - 4 - THE EXPENDITURE INCURRED ARE BRINGING ENDURANCE VAL UE TO THE PREMISES AND ARE IN THE NATURE OF CAPITAL EXPENDITURE ON WHI CH THE ASSESSEE IS ENTITLED TO DEPRECIATION AS ALREADY ALLOWED. 4.2. THE LD.AR, ON THE OTHER HAND, REFERRED TO THE DETAILS OF REPAIRS TO THE BUILDING OF DIFFERENT PHASE AND SUBMITTED THAT THE FACTORY BUILDING IS IN THE CHEMICAL ZONE WHICH IS SUBJECT TO RELATIVEL Y MORE DAMAGE AND WEAR AND TEAR. THE BUILDING SHED WAS TAKEN ON LEA SE FROM GIDC BEFORE ALMOST 27 YEARS BACK AND NO MAJOR REPAIRS WERE CARR IED OUT IN LAST 20 YEARS. THE LARGE SCALE REPAIRS AS INCURRED WERE OV ERDUE FOR NUMBER OF YEARS TO MAINTAIN THE OPERATIONAL EFFICIENCY. TH E LD.AR SUBMITTED THAT NO NEW ASSETS HAVE COME INTO EXISTENCE BY OUTLAY T OWARDS REPAIRS. ALL THE EXPENSES INCURRED TOWARDS REPAIR ARE REVENUE IN NATURE. 4.3. WE HAVE EXAMINED THE ISSUE CAREFULLY AND PERUS ED THE RECORD. THE LIMITED CONTROVERSY IS WHETHER THE REPAIR EXPENDITU RE SO INCURRED BY THE ASSESSEE REPRESENTS CAPITAL EXPENDITURE OR A REVENU E EXPENDITURE. HAVING CONSIDERED THE NATURE OF WORK EXECUTED BY THE ASSES SEE, WE OBSERVE THAT THE AMOUNT SPENT CANNOT BE SAID TO BE A CAPITAL EXP ENDITURE AS MADE OUT BY THE REVENUE. THE EXPENDITURE MIGHT HAVE SECURED SOME ENDURING BENEFIT TO THE ASSESSEE BECAUSE OF THE RENOVATION. HOWEVER, THE TEST OF ENDURING BENEFIT PER SE IS NOT A CERTAIN OR CONCLUSIVE TEST AND CANNOT BE APPLIED BLINDLY AND MECHANICALLY WITH REGARD TO THE PARTICULAR FACTS AND ITA NO.2375/AHD/2013 (BY REVENUE)& CO NO.49/AHD/2014 (BY ASSESSEE) DCIT VS. AHMEDABAD PACKAGING INDS.LTD. ASST.YEAR 2010-11 - 5 - CIRCUMSTANCES OF THE GIVEN CASE. THE ASSESSEE HAS SPENT MONEY ON REPLACEMENT OF FLOORING, PLASTERING, DOORS, PLUMBIN G ETC. SUCH AMOUNT INCURRED IN STRENGTHENING OF EXISTING LAYOUT CANNOT BE REGARDED AS A CAPITAL EXPENDITURE. THE EXPENDITURE ON REPAIRS OF THE BUILDING IS MERELY INCURRED TO REFURNISH AND RENOVATE THE EXISTING STR UCTURE AND IS NOT IN THE NATURE OF CREATION OF A CAPITAL ASSET. NO STRUCTUR AL CHANGES IS SHOWN TO HAVE BEEN MADE BY THE ASSESSEE WHILE INCURRING SUCH EXPENDITURE. A REPAIR ORDINARILY INVOLVES RENEWAL AND RESTORATION OF THE EXISTING WEAR AND TEAR. SUCH EXPENDITURE, IN OUR VIEW, IS IN THE NATURE OF CURRENT REPAIR IN SPITE OF MAJOR EXPENSES ALLEGED TO HAVE BEEN IN CURRED. THUS, WE FIND NO MERIT IN THE PLEA OF THE REVENUE ON THIS SCORE. 4.4. GROUND NO.1 OF REVENUES APPEAL IS ACCORDINGLY DISMISSED. 5. GROUND NO.2 OF REVENUES APPEAL CONCERNS ALLEGED CONTRAVENTION OF SECTION 145A WHILE VALUING THE CLOSING STOCK FOR DETERMINATION OF TAXABLE INCOME OF THE ASSESSEE. THE AO FOUND THAT UNUTILIZED CENVAT CREDIT OF RS.15,17,765/- HAS NOT BEEN INCLUDED IN T HE VALUATION OF CLOSING STOCK OF RAW-MATERIAL AND THEREBY THE TAXABLE INCOM E OF THE ASSESSEE- COMPANY IS UNDERREPORTED TO THIS EXTENT. HE ACCORD INGLY ADDED UNUTILIZED CENVAT CREDIT OF 15.17 LAKHS TO THE TOTA L INCOME OF THE ASSESSEE IN TERMS OF SECTION 145A OF THE ACT. ITA NO.2375/AHD/2013 (BY REVENUE)& CO NO.49/AHD/2014 (BY ASSESSEE) DCIT VS. AHMEDABAD PACKAGING INDS.LTD. ASST.YEAR 2010-11 - 6 - 5.1. IN FIRST APPEAL, THE CIT(A) FOUND THAT THE ACT ION OF THE ASSESSEE REMAINS TAX NEUTRAL BY FOLLOWING THE EXCLUSIVE MET HOD OF ACCOUNTING FOR THE PURPOSE OF VALUATION OF CLOSING STOCK. THE CIT (A) AFTER RELYING UPON SEVERAL JUDICIAL PRONOUNCEMENTS TO THIS EFFECT FOUN D MERIT IN THE GRIEVANCES OF THE ASSESSEE. THE CIT(A) ALSO NOTICE D THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. MAH AVIR ALLUMINIUM LTD. 297 ITR 77 (DELHI) FOR THE PROPOSITION THAT WH EN THERE IS ADJUSTMENT IN THE VALUATION OF CLOSING STOCK, TO GIVE EFFECT T O SECTION 145A OF THE ACT, THE OPENING STOCK ALSO HAS TO BE SIMULTANEOUSL Y INCREASED BY ANY TAX, DUTY, CESS OR FEE ACTUALLY PAID OR INCURRED WI TH REFERENCE TO SUCH STOCK. IF THE SAME HAS NOT BEEN ADDED FOR THE PURPO SE OF VALUATION IN THE ACCOUNT. THE CIT(A) ALSO TOOK NOTE OF THE GUIDANCE NOTE OF ICAI. RELIANCE WAS ALSO PLACED ON THE DECISION OF THE CO ORDINATE BENCH OF THE TRIBUNAL VIZ.ACIT VS. KANKAL (INDIA) PVT.LTD. 46 SO T 120 TO HOLD IN FAVOUR OF ASSESSEE. 5.2 THE REVENUE AGITATED THE FINDINGS OF CIT(A) BEF ORE TRIBUNAL. 5.3. ON PERUSAL OF THE ORDERS OF THE AUTHORITIES BE LOW AND ON CONSIDERATION OF RIVAL SUBMISSIONS ON THE ISSUE, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF THE CIT(A). THE CIT(A) HAS FOUND THE ENTIRE EXERCISE TO BE REVENUE NEUTRAL. SECONDLY, TO GIVE EFFECT TO SECTION 145A, BOTH THE OPENING STOCK AND CLOSING STOCK ARE REQUIR ED TO BE ITA NO.2375/AHD/2013 (BY REVENUE)& CO NO.49/AHD/2014 (BY ASSESSEE) DCIT VS. AHMEDABAD PACKAGING INDS.LTD. ASST.YEAR 2010-11 - 7 - SIMULTANEOUSLY BROUGHT IN PARITY AS A MATTER OF LEG ITIMATE EXPECTATION. WE ALSO TAKE NOTE OF THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF DY.CIT VS. BALVANT LALLUBHA I ROTLIWALA IN ITA NO.1885/AHD/2011 DATED 01/02/2016 RELIED UPON BY TH E ASSESSEE WHERE ON SIMILAR FACTS, ADDITION MADE UNDER S.145A WAS DE LETED BY THE ITAT. THE GUIDANCE NOTE ISSUED BY THE ICAI ALSO SUPPORTS THE CASE OF THE ASSESSEE FOR THE PROPOSITION THAT THERE IS NO IMPA CT ON ULTIMATE PROFIT BY RESORTING TO EXCLUSIVE METHOD OF ACCOUNTING FOR THE PURPOSE OF VALUATION OF STOCK AS ADOPTED BY THE ASSESSEE. THE REVENUE H AS NOT BROUGHT ON RECORD ANYTHING CONTRARY TO THE ASSERTIONS MADE BY THE CIT(A) IN FAVOUR OF ASSESSEE. IN CONSEQUENCE, WE DECLINE TO INTERFE RE WITH THE ORDER OF THE CIT(A). 5.4. AS A RESULT, GROUND NO.2 OF REVENUES APPEAL IS DISMISSED. 6. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ASSESSEES CROSS OBJECTION NO.49/AHD/2014 - AY 2010 -11 (ARISING OUT OF ITA NO.2375/AHD/2013 AY 2010-11). 7. AS PER GROUND NO.1 OF THE CROSS OBJECTION, THE A SSESSEE HAS EXPRESSED ITS DISSATISFACTION FOR DISALLOWANCE OF R S.50,000/- CLAIMED AS BAD DEBT BY THE AO AND SUSTAINED BY THE CIT(A). ITA NO.2375/AHD/2013 (BY REVENUE)& CO NO.49/AHD/2014 (BY ASSESSEE) DCIT VS. AHMEDABAD PACKAGING INDS.LTD. ASST.YEAR 2010-11 - 8 - 7.1. THE LD.AR FOR THE ASSESSEE SUBMITTED THAT THE AFORESAID AMOUNT WAS GIVEN AS ADVANCE IN THE ORDINARY COURSE OF BUSI NESS TO M/S.GUJARAT AGENCIES CORPORATION ABOUT 10 YEARS BACK. THE AMOU NT WRITTEN OFF AS BAD DEBT DURING THE YEAR IS THUS ALLOWABLE DEDUCT ION UNDER S.36(1)(VII) R.W.S. 36(2) OF THE ACT. THE LD.AR SUBMITTED IN TH E ALTERNATIVE THAT THE AFORESAID CLAIM OUGHT TO HAVE BEEN ALLOWED AS BUSI NESS LOSS UNDER S.28 OF THE ACT. 7.2. WE DO NOT FIND ANY MERIT IN EITHER OF THE CON TENTIONS. THE ASSESSEE HAS NOT BEEN ABLE TO PROVE THAT THE IMPUGNED AMOUNT WAS GIVEN AS ADVANCE FOR BUSINESS PURPOSE EXCEPT FOR BALD ASSERT IONS MADE TO THIS EFFECT. THEREFORE THE NATURE OF ALLEGED ADVANCE GI VEN IS NOT KNOWN. HENCE, WHETHER THE DEBT WAS ATTRIBUTABLE TO TRADE O R COMMERCE OF THE ASSESSEE IS NOT KNOWN AT THE FIRST PLACE. THE CLAI M TOWARDS BAD DEBTS HAS BEEN THEREFORE RIGHTLY REJECTED BY THE REVENUE. TH E ALTERNATIVE GROUND TOWARDS BUSINESS LOSS ALSO DOES NOT MERIT ACCEPTAN CE FOR THE SIMILAR REASON. THE LOSS IS REQUIRED TO BE PROVED TO BE EM ANATING FROM BUSINESS OF THE ASSESSEE. SECONDLY, THE LOSS IS REQUIRED TO BE PROVED TO HAVE BEEN CRYSTALLIZED DURING THE YEAR. NO MATERIAL OR EVIDE NCE HAS BEEN BROUGHT ON RECORD TO THIS EFFECT. THUS, GROUND NO.1 OF THE CROSS OBJECTION OF THE ASSESSEE IS DEVOID OF MERIT. ITA NO.2375/AHD/2013 (BY REVENUE)& CO NO.49/AHD/2014 (BY ASSESSEE) DCIT VS. AHMEDABAD PACKAGING INDS.LTD. ASST.YEAR 2010-11 - 9 - 7.2. GROUND NO.1 OF THE CROSS OBJECTION IS DISM ISSED. 8. GROUND NO.2 OF THE CROSS OBJECTION CONCERNS DISA LLOWANCE OF RS.43,835/- UNDER S.14A OF THE ACT. THE LD.AR FOR THE ASSESSEE POINTED OUT THAT THE ASSESSEE HAS EARNED A MEAGER DIVIDEND INCOME OF RS.8,212/- WHICH IS EXEMPT FROM TAX. HE RELIED UPON THE DECIS ION OF THE HONBLE HIGH COURT OF DELHI IN THE CASE OF JOINT INVESTMENT S PVT.LTD. VS. CIT REPORTED IN 372 ITR 692 (DELHI) AND SUBMITTED THAT ESTIMATION FOR DISALLOWANCE UNDER S.14A SHOULD BE RESTRICTED TO TH E TAX FREE DIVIDEND INCOME. GIVEN THE FACT THAT SOME JUDICIAL PRONOUNC EMENTS SUPPORT THE PROPOSITION OF ASSESSEE, WHILE SOME OTHERS DO NOT, WE ARE LEANED TOWARDS PLEA OF ASSESSEE. THE DISALLOWANCE UNDER S.14A IS ACCORDINGLY RESTRICTED TO THE EXTENT OF DIVIDEND INCOME EARNED. RESULTAN TLY, GROUND NO.2 OF THE CROSS OBJECTION IS PARTLY ALLOWED. 9. AS A RESULT, CROSS OBJECTION FILED BY THE ASSE SSEE IS PARTLY ALLOWED. ITA NO.2375/AHD/2013 (BY REVENUE)& CO NO.49/AHD/2014 (BY ASSESSEE) DCIT VS. AHMEDABAD PACKAGING INDS.LTD. ASST.YEAR 2010-11 - 10 - 10. IN THE COMBINED RESULT, THE APPEAL OF THE REVEN UE IS DISMISSED, WHEREAS CROSS OBJECTION FILED BY THE ASSESSEE IS PA RTLY ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 01 / 05/2017 SD/- SD/- (..) ( ) ( S.S. GODARA ) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 01/ 05 /2017 3..),.)../ T.C. NAIR, SR. PS !'!# / COPY OF THE ORDER FORWARDED TO : 1. $' / THE APPELLANT 2. ($' / THE RESPONDENT. 3. 456, 7, / CONCERNED CIT 4. 7, ( ) / THE CIT(A)-6, AHMEDABAD 5. 89,)56 , 56/ , 4 / DR, ITAT, AHMEDABAD 6. ;* / GUARD FILE. / BY ORDER, // (8,, //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 25.4.17 (DICTATION-PAD PA GES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 25.4.17 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.1.5.17 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 1.5.17 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER