The DCITSabarkantha Circle, Himatnagar V. Regent Granito India Ltd., Himatnagar

ITA 280/AHD/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80579 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 30-12-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 03-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DINESH SINGH
• Assessee Lawyers: S N DIVETIA
• Keywords: Depreciation
• Section: 145

Judgement Text

IN THE INCOME TAX APPELALTE TRIBUNAL A BENCH AHMEDABAD BEFORE SHRI SHAILEND RA K UMAR YADAV, JUDICIAL MEMBER, AND SHRI ANIL CHATURVEDI , ACCOUNTANT MEMBER . ITA.NO. 280 / AHD /20 1 1 (ASSESSMENT YEAR: 200 7 - 0 8 ) DEPUTY COMMISSIONER OF INCOME TAX , SABARKAN THA CIRCLE, HIMATNAGAR APPELLANT VS. REGENT GRANITO INDIA LTD. HAJIPUR, NR. SABAR DAIRY, N.H. - 8 HIMATNAGAR RESPONDENT PAN: AACCR 5441B / BY APPELLANT : SHRI DINESH SINGH , D.R. / BY RESPONDENT : SHRI S.N. DIVETIA , A.R. / DATE OF HEARING : 30. 1 2 .2014 / DATE OF PRONOUNCEMENT : 31 . 12 .201 4 OR DER PER SHAILENDRA KUMAR YADAV, J . M: THIS APPEAL HAS BEEN FILED BY THE REVENU E AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) , AHMEDABAD , DATED 2 3 . 11 .201 0 FOR A.Y. 200 7 - 0 8 ON THE FOLLOWING GROUND S : I.T .A. NO. 280 / AHD /2 0 1 1 A.Y. 2007 - 200 8 ( D CIT VS. REGENT GRANITO INDIA LTD. ) PAGE 2 1.1 THE LEARNED CIT(A) - VIII, AHMEDABAD HA S ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF DEPRECIATION OF RS.2,96,968/ - MADE BY THE ASSESSING OFFICER BY ALLOWING DEPRECIATION @ 10% ON ELECTRICAL FITTINGS INSTEAD OF 15% CLAIMED BY THE ASSESSEE, WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD BY THE ASSESSING OFFICER . 1.2 IN DOING SO, THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THAT UNDER THE I.T RULES, THERE IS SEPARATE BLOCK OF ELECTRICAL INSTALLATION ON WHICH DEPRECIATION IS ADMISSIBLE @ 10% AND THEREFORE, THE LD.CIT(A) IS NOT JUSTIFIED IN ALLOWING DEPRECIATION @ 15% ON THE SAME, BY TREATING ELECTRICAL INSTALLATION AS PART OF THE PLANT. 2.1 THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.26,3 O,544/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF SUPPRESSED SALES WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD BY THE ASSESSING OFFICER . 2.2 THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE AF ORESAID ADDITION BY RELYING ON THE DECISION OF THE HONOURABLE KERALA HIGH COURT IN THE CASE OF ST. TERESA'S OIL MILLS VS. STATE OF KERALA 76 ITR 365, WITHOUT APPRECIATING THAT THE FACTS IN THE ABOVE MENTIONED CASE BEFORE THE HONOURABLE KERALA HIGH COURT WE RE DIFFERENT AND THEREFORE, THE RATIO OF THE SAID DECISION IS NOT APPLICABLE TO THE FACTS OF THE ASSESSEE. 2.3 IN DOING SO, THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THAT IN THE AFORESAID CASE OF ST. TERESA'S OIL MILLS, THE VARIATI ON OF ELECTRICITY CONSUMPTION WAS NEGLIGIBLE AND THE TOTAL ADDITION MADE WAS TO THE EXTENT OF RS.7 0 , 000 / - ONLY, WHEREAS IN THE PRESENT CASE, THE VARIATION IN THE CONSUMPTION OF ELECTRICITY WAS ABNORMALLY HIGH WHICH COULD NOT BE SATISFACTORILY EXPLAINED BY THE ASSESSEE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) OUGHT TO HAVE UPHELD THE DECISION OF THE ASSESSING OFFICER . 4. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD.CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFF ICER MAY BE RESTORED TO THE ABOVE EXTENT. I.T .A. NO. 280 / AHD /2 0 1 1 A.Y. 2007 - 200 8 ( D CIT VS. REGENT GRANITO INDIA LTD. ) PAGE 3 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF TILES. 3. THE ASSESSING OFFICER HAS DISALLOWED THE DEPRECIATION OF RS.2,96,968/ - BY ALLOWING DEPRECIATION @10% ON ELECTRIC INSTALLATION INSTEAD OF 15% CLAIMED BY THE ASSESSEE WHICH WAS DELETED BY THE CIT(A). 3. 1 BEFORE US LEARNED DR SUBMITTED THAT CIT(A) WAS NOT JUSTIFIED IN DELETING THE DISALLOWANCE OF DEPRECIATION OF RS.2,96,968/ - MADE BY ASSESSING OFFICER BECAUSE THERE IS SEPARATE BLOCK OF ELECT RIC INSTALLATION ON WHICH DEPRECIATION IS ADMISSIBLE @10% THEREFORE CIT(A) WAS NOT JUSTIFIED IN ALLOWING DEPRECIATION @15% ON THE SAME , BY TREATING ELECTRIC INSTALLATION AS PART OF THE PLANT. ON THE OTHER HAND, LEARNED AR SUBMITTED THAT CIT(A) WAS JUSTIFIE D IN ALLOWING THE DEPRECIATION @15% BY TREATING ELECTRIC INSTALLATION AS PART OF THE PLANT. 3.2 AFTER GOING THROUGH THE RIVAL SUBMISSION AND THE MATERIALS ON RECORD, WE FIND THAT ASSESSEE HAS CLAIMED DEPRECIATION @15% ON ELECTRIC INSTALLATION WHEREAS ASSE SSING OFFICER HAS ALLOWED DEPRECIATION @10% INTER ALIA STATING THAT ELECTRIC INSTALLATION IS A SEPARATE BLOCK AND CORRECT RATE OF DEPRECIATION FOR THAT BLOCK IS ONLY 10% AND ACCORDINGLY HE DISALLOWED DEPRECIATION @5% WHICH WORKED OUT TO RS.2,96,968/ - . THE STAND OF THE ASSESSEE IS THAT IMPUGNED ELECTRIC INSTALLATION IS PART OF PLANT AND MACHINERY; THEREFORE, DEPRECIATION SHOULD BE ALLOWED @15%. IN APPEAL CIT(A) I.T .A. NO. 280 / AHD /2 0 1 1 A.Y. 2007 - 200 8 ( D CIT VS. REGENT GRANITO INDIA LTD. ) PAGE 4 OBSERVED THAT IMPUGNED ELECTRIC INSTALLATION IS A PART OF PLANT AND MACHINERY. ASSESSING OFFICER H AS NOT GIVEN NEGATIVE FINDING IN THIS REGARD. HAVING CONSIDERED THE FACTS AND LAW ON THE RECORDS CIT(A) WAS JUSTIFIED IN HOLDING THAT ELECTRIC INSTALLATION UNDER SUBJECT IS INTEGRATED PART OF PLANT AND MACHINERY . I N ABSENCE OF ELECTRICITY INSTALLATION THE PLANT CANNOT RUN AND ACCORDINGLY ASSESSEE RIGHTLY CLAIMED DEPRECIATION @ 15%. THIS REASON ED FINDING OF CIT(A) WHEREBY IT HAS HELD IN CASE ELECTRIC INSTALLATION IS THE PART AND PARCEL OF PLANT AND MACHINERY THEN ASSESSEE IS ENTITLED FOR DEPRECIATION @ 15% W HICH IS APPLICABLE TO PLANT AND MACHINERY. THIS REASONED FINDING NEED NO IN TER FERENCE FROM OUR SIDE , WE UPHOLD THE ORDER OF CIT(A) ON THIS ISSUE . 4 . NEXT ISSUE IS WITH REGARD TO ADDITION OF RS.26,30,544/ - ON ACCOUNT OF SUPPRESSED SALES. THE ASSESSING OFF ICER HAS MADE ADDITION OF RS.26,30,544/ - ON ACCOUNT OF SUPPRESSED SALES WHICH WAS DELETED BY THE CIT(A). SAM E HAS BEEN OPPOSED BEFORE US BY L EARNED DR INTERALIA STATING THAT CIT(A) WAS NOT JUSTIFIED IN DELETING ADDITION OF RS.26,30,544/ - MADE BY THE ASSESS ING OFFICER ON ACCOUNT OF SUPPRESSED SALES WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND MATERIAL ON RECORD BY ASSESSING OFFICER . CIT(A) ERRED IN LAW AND ON FACTS BY DELETING THE ADDITION IN QUESTION ACCORDINGLY ORDER OF THE CIT(A) BE SET ASIDE A ND THAT OF ASSESSING OFFICER BE RESTORED. ON THE OTHER HAND, LEARNED AR SUPPORTED THE ORDER OF THE CIT(A) WHEREIN HE HAS DELETED THE ADDITION OF RS.26,30,544/ - MADE BY ASSESSING OFFICER ON ACCOUNT OF SUPPRESSED SALES. I.T .A. NO. 280 / AHD /2 0 1 1 A.Y. 2007 - 200 8 ( D CIT VS. REGENT GRANITO INDIA LTD. ) PAGE 5 4.1 AFTER GOING THROUGH THE RIVAL SUB MISSIONS AND MATERIAL ON RECORD, WE FIND THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF TILES. DURING THE YEAR UNDER CONSIDERATION ASSESSEE FILED RETURN OF INCOME DECLARING AN INCOME OF RS.3,26,90,930/ - . THE ASSESSING OFFICER PASSED ASSESSMEN T ORDER ON 23.12.2009 DETERMINING THE TOTAL INCOME AT RS.3,56,18,440/ - . THE ASSESSING OFFICER MADE MAJOR ADDITION OF RS.26,30,544/ - ON ACCOUNT OF SUPPRESSED SALES. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT FUEL CONSUMPTION HAS INCREASED SUBSTANTIALLY; THEREFORE, ASSESSEE WAS ASKED TO EXPLAIN THE SAME WHICH WAS NOT FOUND SATISFACTORY BY ASSESSING OFFICER . THE ASSESSING OFFICER ADOPTED THE AVERAGE FUEL CONSUMPTION OF 50547 CALORIES PER BOX, TAKING THE AVERAGE OF THREE YEARS. HE WO RKED OUT THE EXCESS CALORIES CONSUMED PER BOX AS 2077 CALORIES AND ACCORDINGLY CALCULATED EXTRA PRODUCTION OF 41983 BOXES. BY APPLYING THE AVERAGE SALE RATE PER BOX RS.486/ - HE WORKED OUT THE EXTRA PRODUCTION TO THE TUNE OF RS.20360251/ - . THUS, THE ASSESSI NG OFFICER MADE ADDITION OF RS.26,30,544/ - ON ACCOUNT OF SUPPRESSED SALES BY ADOPTING THE G.P. RATE OF 12.92%. THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY WHERE IN THE SAME WAS OPPOSED. THE STAND OF THE ASSESSEE IS THAT HE MAINTAINED QUANTI TY DETAILS REGARDING PURCHASE, SALES AND CONSUMPTION OF RAW MATERIALS. THE ASSESSING OFFICER WAS NOT JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNT U/S. 145 OF THE ACT IN ABSENCE OF DEFECT THE SAME SO THERE WAS NO QUESTION OF MAKING ADDITION OF SUCH A NATURE WHICH WAS THE STAND OF THE ASSESSEE I.T .A. NO. 280 / AHD /2 0 1 1 A.Y. 2007 - 200 8 ( D CIT VS. REGENT GRANITO INDIA LTD. ) PAGE 6 THAT IT IS LIABLE FOR EXCISE DUTY, SALES TAX, SERVICE TAX AND VAT AND THEREFORE EACH AND EVERY TRANSACTION OF THE APPELLANT HAS TO PASS THROUGH THE VERIFICATION OF THOSE DEPARTMENTS AND THERE IS NOTHING ON RECORD TO SUGG EST ANY ADVERSE OPINION BY SAID GOVERNMENT BODIES AGAINST THE ASSESSEE A S FAR AS PRODUCTION IS CONCERNED. REGARDING CONSUMPTION OF FUEL IT WAS STATED THAT DURING THE YEAR UNDER CONSIDERATION MANUFACTURING PROCESS WAS CHANGED, I.E., ASSESSEE SHIFTED FROM LP G FUEL TO LNG FUEL, AND FOR THAT REASON ALSO AVERAGE FUEL CONSUMPTION FOR THE YEAR UNDER REFERENCE IS SLIGHTLY HIGHER. ACCORDINGLY, EXPLAINED THE REASON FOR INCREASE IN THE EXPENDITURE. THE STAND OF THE ASSESSEE AS PER LETTER DATED 26.08.2009 IS AS UNDER: 3.3.3 'SIR, YOU ALSO WANT TO KNOW THE INCREASE / DECREASE IN FUEL CONSUMPTION OF QUANTITY, VALUE AND PRODUCTION COMPARE TO LAST YEAR IS NOT IN SAME PROPORTION. SIR, IN CERAMICS MANUFACTURING PROCESS THERE ARE DIVISIONS FOR MANUFACTURING OF TILES LIKE SPRA Y DRIER, KILN, POLISHING ETC. 'WHEN SYLO STORAGE IS ENOUGH BY PROCESSED RAW MATERIALS THERE IS NO NEED TO OPERATE THE SPRAY DRIER. LIKE THAT SOME TIME IF THE UNPOLISHED TILES STOCK ARE THERE THE OUT PUT OF FINISHED GOODS ARE INCREASING/ DECREASING DUE TO D AY TO DAY WHATEVER OUT PUT ARRIVE AND STOCKS OF UNPOLISHED TILES BOTH ARE POLISHED THE FINISHED GOODS PRODUCTION SHOULD BE INCREASE/ DECREASE. THERE IS MANY REASON FOR INCREASE/ DECREASE OF FUEL CONSUMPTION. THERE ARE PROBLEMS AND TECHNICAL CHANGES ARRIVED DUE TO USE OF CHAR COAL, LPG & LNG IN DRIER AND KILN. SOME TIME BLAST OCCURRED IN KILN DUE TO USE OF CHAR COAL AND THE MAINTENANCE CAN BE DONE DURING THE CONTINUOUS OF KILN. THE TEMPERATURE COULD ALSO CHANGE BY USING THE DIFFERENT FUEL ITEMS. THE CALORIE OF CHAR COAL, LPG & LNG ARE DIFFERENT. THEREFORE THE CONSUMPTION OF FUEL ITEMS ALSO INCREASE/ DECREASE. HENCE SIR FUEL CONSUMPTION SHOULD BE INCREASE/ DECREASE DEPENDS UPON SITUATION, USE OF ITEMS IN SPRAY DRIER & KILN AND THE PRACTICAL PROBLEMS OCCURRED I N MANUFACTURING PROCESS'. I.T .A. NO. 280 / AHD /2 0 1 1 A.Y. 2007 - 200 8 ( D CIT VS. REGENT GRANITO INDIA LTD. ) PAGE 7 4 . 2 FURTHER VIDE LETTER DATED 02.12.2009, THE STAND OF THE ASSESSEE IS AS UNDER: PREVIOUSLY WE WERE USING LPG GAS & CHARCOAL, RLNG GAS WAS INTRODUCED WITH EFFECT FROM SEPTEMBER 2006 WHICH IS PROVIDED THROUGH PIPELINE. THERE ARE DIFFERENT CALORIFIC VALUES OF COAL, LPG AND RLNG. IN LPG GAS, WHATEVER HEATING TEMPERATURE WAS ACHIEVED IN 1 KG AGAINST THAT IN LNG GAS, WE ARE REQUIRED TO CONSUME MORE THAN 1 KG OF RLNG. THE PROCESS CONSUMES CERTAIN AMOUNT OF HEAT TO GET DESIRED TEMPERATU RE OF PRODUCTS A N D THE HEAT IS GENERATED BY FIRING COAL, LPG OR RLNG. WE HAVE ALREADY SUBMITTED THAT THE HEAT (CALORIES) CONSUMED PER BOX OF TILES IN YEAR 2005 - 2006 WAS 49023 CALORIES PER BOX AND IN YEAR 2006 - 2007 IT WAS 51737 CALORIES PER BOX. SO IT I S CLEAR THAT THE FUEL CONSUMED IS ALMOST EQUIVALENT TO LAST PREVIOUS YEAR CONSUMPTION. DUE TO USE OF CHARCOAL IN MANUFACTURING .PROCESS, THE ASH WAS MIXING WITH THE TILES HENCE THE PRODUCT WAS FOUND TO BE DULL AND THERE WERE MANY OTHER DEFECTS, WHILE BY US ING LNG GAS, THE QUALITY HAS BEEN SUPREME AND IT CAN BE MAINTAINED WITH PROPER CONTROLS. . IN EARLIER YEAR THE COMPANY HAD BARRED THE COST OF TRADE DISCOUNT, COMPLAINT DISCOUNT, QUALITY DISCOUNT ETC. YOU HAVE OBSERVED FROM OUR EARLIER YEAR RECORD THAT THE COMPANY HAD MANY PROBLEMS FOR QUALITY OF TILES. AND THE COMPANY HAD RECEIVED COMPLAINTS FROM CUSTOMERS ABOUT QUALITY OF OUR PRODUCTS. THE COMPANY HAD TO IMPROVE ITS QUALITY AND RESTRUCTURE THE MANUFACTURING PROCESS. IN THE PROCESS OF IMPROVING THE QUALITY AND MINIMIZING THE QUALITY PROBLEMS, WE ENDED WITH LITTLE MORE CONSUMPTION OF GAS DURING THE YEAR UNDER CONSIDERATION. BY DOING THIS WE HAVE IMPROVED THE QUALITY AND IT IS CLEAR FROM OUR RECORD SUBMITTED TO YOU THAT NO SIGNIFICANT QUALITY COMPLAINTS HAD RE CEIVED IN F.Y, 2006 - 2007 . DURING THE PROCESS OF MANUFACTURING TILES, WE HAVE TO USE ELECTRICITY AND FUEL. BUT IN THAT TIME IF YOU COMPARE OUR FUEL CONSUMPTION IN CALORIES THERE WAS NO MUCH VARIATIONS. COMPARATIVE FUEL CONSUMPTION IN CALORIES IN THE YEAR 2005 - 06. 2006 - 07, 2007 - 08 & 2008 - 09, THE CONSUMPTION OF FUEL IN 2006 - 07 IS IN T HE LINE WITH REQUIREMENT OF PROCESS AND THERE IS NO EXCESS CONSUMPTION . I.T .A. NO. 280 / AHD /2 0 1 1 A.Y. 2007 - 200 8 ( D CIT VS. REGENT GRANITO INDIA LTD. ) PAGE 8 4 . 3 AS REPRODUCED SUPRA , CIT(A) OBSERVED THAT ASSESSING OFFICER HAS SUMMARILY REJECTED THE EXPLANATIO N OFFERED BY THE ASSESSEE, FOR INCREASE IN FUEL CONSUMPTION. DURING THE YEAR UNDER CONSIDERATION, ASSESSEE H AS SHIFTED ITS MANUFACTURING PROCESS FROM LPG FUEL TO LNG FUEL WHEREIN SOME EXTRA FUEL IS CONSUMED DURING PRODUCTION THERE ARE VARIOUS REASONS FOR INCREASE/DECREASE OF FUEL CONSUMPTION IN CERAMIC INDUSTRIES. AS STATED ABOVE, ASSESSEE S PRODUCTION IS UNDER THE ADMINISTRATIVE SUPERVISION OF EXCISE, SALES TAX, VAT AND SERVICE TAX AUTHORITIES AND ALSO AUDITED BY STATUTORY AUDITORS UNDER COMPANIES ACT AND BY TAX AUDITORS UNDER IT ACT. THE DETAILS OF PRODUCTION ARE SUBMITTED TO THE EXCISE DEPARTMENT FROM TIME TO TIME. THE SAME HAS NOT BEEN DISPUTED BY ASSESSING OFFICER AS THE SAME TIME ASSESSING OFFICER HAS NOT PRODUCED ANY COGENT EVIDENCE ON RECORD TO SUGG EST THAT EXCESS FUEL CONSUMPTION IS ON ACCOUNT OF UNRECORDED PRODUCTION. IN SUCH A SITUATION FINDING OF ASSESSING OFFICER ARE BASED ON CONJECTURE AND SURMISES WHICH IS NOT JUSTIFIED. IN THIS BACKGROUND, CIT(A) OBSERVED THAT ASSESSING OFFICER WAS NOT JUSTIF IED IN MAKING ADDITION ON ACCOUNT OF G.P. AFTER REJECTING BOOKS OF ACCOUNTS AND SAME WAS RIGHTLY DELETED BY CIT(A). WE UPHOLD THE SAME. 5 . IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. SD/ - SD/ - (ANIL CHATURVEDI ) ( SHAILENDRA KUMAR YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER PRABHAT KUMAR KESARWANI I.T .A. NO. 280 / AHD /2 0 1 1 A.Y. 2007 - 200 8 ( D CIT VS. REGENT GRANITO INDIA LTD. ) PAGE 9 COPY FORWARDED TO: 1. THE APPELLANT - 2. THE RESPONDENT - 3. THE CIT 4. CIT(APPEALS) 5. THE DR 6. GUARD FILE (ITA NO. 280/AHD / 201 1 ) BY ORDER A.R ., AHMEDABAD .