M/s. Farmson Pharmaceuticals Gujarat Pvt. Ltd., Vadodara V. The Asstt. Commissioner of Income Tax, Circel-1(1)(2), Vadodara

ITA 2841/AHD/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 9687 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2003-2004
• Appeal Filed On: 27-10-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: LALIT P JAIN
• Keywords: Depreciation; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH BEFORE: SHR I MAHAVIR PRASAD , JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER M/S. FARMSON PHARMACEUTICALS GUJARAT PVT. LTD. 28 - 35, GIDC INDUSTRIES ESTATE NANDESARI, VADODARA - 391340 PAN: AAACF3358B (APPELLANT) VS THE ACIT, CIRCLE - 1 (1)(2) , VADODARA - 390007 (RESPONDENT) REVENUE BY : S H RI LALIT P. JAIN , SR. D . R. ASSESSEE BY: SHRI BHAVIN MARFATIA, A.R. DATE OF HEARING : 28 - 08 - 2 018 DATE OF PRONOUNCEMENT : 26 - 09 - 2 018 / ORDER P ER : AMARJIT SINGH, ACCOUNTANT MEMBER : - THIS ASSESSEE S APPEAL FOR A. Y. 2003 - 04 , ARI SES FROM ORDER OF THE CIT(A) - I, VADODARA DATED 29 - 07 - 2 016 , IN PROCEEDINGS UNDER SECTION 143(3) RWS 254 OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . 2. THE ASSESSEE HAS RAISED FOLLOWI NG GROUNDS OF APPEAL: - 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 1, VADODARA ['THE CIT (A)'] ERRED IN FACT AND IN LAW IN CONFIRMING THE; ACTION OF THE ASSISTANT COM MISSIONER OF INCOME TAX CIRCLE - 1(1)(2), VADODARA ['THE AO'] IN REJECTIN G THE CLAIM OF THE APPELLANT THAT THE LOSS ARISING ON ACCOUNT OF .WRITE OFF OF CAPITAL WORK IN PROGRESS (CWIP) IS A REVENUE LOSS. 2. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE LEARNED AO IN NOT ALLOWING LOSS AS REVE NUE LOSS DESPITE THE FACT THAT IT REPRESENTED LOSS ON ACCOUNT OF ABANDONED PROJECT. 3. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE LEARNED AO IN HOL DING THAT LOSS OF RS. 73,43,678/ - BEING LOSS ON DISCARDED ASSETS IS NOT ALLOWABLE UNDER THE INCOME TAX ACT, 1961 ('THE ACT') AS REVENUE LOSS AND ALSO NOT REVENUE LOSS. I T A NO . 2841 / A HD/20 16 A SSESSMENT YEAR 200 3 - 04 I.T.A NO. 2841 /AHD/20 16 A.Y. 2003 - 04 PAGE NO M/S. FARMSON PHARMACEUTICALS GUJARAT PVT. LTD. VS. ACIT 2 4. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN NOT DIRECTING THE AO TO ALLOW LOSS IN A.Y. 2007 - 08 AS THE ASSETS WERE SOLD IN A.Y. 2007 - 08. 5. THE LEARNED CIT (A) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE A O IN RESTRICTING THE CLAIM OF DEPRECIATION ON POLLUTION CONTROL EQUIPMENT TO 25% INSTEAD OF 100% CLAIMED BY THE APPELLANT ON THE GROUND THAT ASSETS PURCHASED BY THE APPELLANT DOES NOT FALL IN APPENDIX - 1 OF THE INCOME TAX RULES, 1962 AND THEREBY MAKING ADDITION OF RS.49,35,483/ - TO THE TOTAL INCOME OF THE APPELLANT. 6. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONFORMING THE ACTION OF THE AO IN HOLDING THAT THE ASSETS PURCHASED AR E NOT PART OF POLLUTION CONTROL EQUIPMENT AND THEREBY MAKING ADDITION OF RS. 49,35,483/ - TO THE TOTAL INCOME OF THE APPELLANT. 7. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONFORMING THE ACTIONS OF THE AO IN INITIATING PENALTY PROCEEDING U/S. 2 71(1)(C) OF THE ACT. 3. AT THE TIME OF HEARING, LD. COUNSEL HAS WITHDRAWN GROUND NO. 1 AND HAS NOT PRESSED GROUND NOS. 2, 3 AND 5 OF THE APPEAL, THEREFORE, GROUND NOS. 1, 2, 3 AND 5 ARE DISMISSED AS NOT PRESSED/WITHDRAWN. THEREFORE THE GROUND NO 4 OF TH E APPEAL IS ADJUDICATED AS UNDER: - 4 . IN THIS CASE RETURN OF INCOME DECLARING LOSS OF RS. 14 , 64 , 777/ - WAS FILED ON ON 2 0 TH OCTOBER, 2003. THE REAFTER THE ORIGINAL ASSESSMENT WAS FINALIZED U/S. 143(3) ON 31 ST MARCH, 2006. T HE ASSESSEE HAS CLAIMED RS. 73 , 43 , 67 8/ - LOSS ON SALE/ WRITE OFF OF THE FI XED ASSETS OF CAPITAL WORK IN PROGRESS. THE ASSESSEE HAS EXPLAINED THAT ASSETS W ERE PUT TO USE ONLY FOR ITS BUSINESS PURPOSE FOR SOME TIME AND DUE TO PROBLEM OF POLLUTION , THE ENTIRE TECHNOLOGY HAD TO BE CHANGED. T HEREAFTER, THE ALTERNATIVE USE OF THE SAID MAC HINERY COULD NOT BE WORKED AND THE MACHINERY WERE SCRAPED. T HE ASSESSING OFFICER HA D TREATED THE SAME AS CAPITAL EXPENDITURE AND DID NOT ALLOW AS BUSINESS DEDUCTION. 5 . ON APPEAL, THE LD. C IT(A) HAS CONFIRMED THE ADDITION. HOWEVER, THE CO - ORDINATE BENCH OF THE ITAT VIDE THEIR ORDER IT A NO. 666 AND 667/AHD/2011 DATED 9 TH JAN, 2015 HAS SET ASIDE THE ISSUE TO THE FILE OF ASSESSING OFFICER TO VERIFY WHEN THE DISCARDED MACHINERY WAS PURCHASED , W HAT WAS T HE ACTUAL COST OF MACHINERY AND WHETHER THE SAID MACHINERY WAS SOLD DURING THE YEAR AS SCRAP BY THE ASSESSEE OR NOT. DURING THE COURSE OF ASSESSMENT U/S. 1 43(3) R.W.S. 254 OF, THE ASSESSING OFFICER STATED THAT ASSESSEE HAS NOT FURNISHED ANY MATE RIAL I.T.A NO. 2841 /AHD/20 16 A.Y. 2003 - 04 PAGE NO M/S. FARMSON PHARMACEUTICALS GUJARAT PVT. LTD. VS. ACIT 3 EVIDENCES SUCH BILLS/VOUCHERS OF PURCHASES, BILLS AND VOUCHERS OF SALES AND OTHER RELEVANT DOCUMENTS AS PER THE DIRECTION OF THE ITAT . THEREFORE, THE SUBMISSION OF THE ASSESSEE WAS NOT CO - ORDINATED WITH THE DIRECTION OF THE ITAT . CONSEQUENTLY, THE CLAIM OF THE ASSESSE E TO THE AMOUNT OF RS . 73 , 43 , 678/ - DEBITED TO THE PROFIT AND LOSS ACCOUNT WAS NOT ALLOWED BY THE ASSESSING OFFICER. 6 . AGGRIEVED ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS DISMISSED THE APPEAL OF THE ASSESSEE. THE RELEVANT PART OF THE DECISION OF THE LD. CIT(A) IS REPRODUCED AS UNDER: - 4.3. I HAVE CONSIDERED THE FACTS OF THE CASE, THE SUBMISSION OF THE APPELLANT AND THE AO'S OBSERVATIONS. THIS IS THE CASE WHERE THE APPELLANT HAD ACQUIRED NEW ASSETS BUT THE SA ME COULD NOT BE UTILIZED FOR ITS BUSINESS PURPOSES AND HENCE THEY WERE WRITTEN OFF IN THE BOOKS OF ACCOUNT AND THE AMOUNT SPENT ON THEM WAS TREATED AS 'EXPENDITURE' IN THE PREVIOUS YEAR 2002 - 03. A PERUSAL OF THE DIRECTION GIVEN BY ITAT, AHMEDABAD BENCH AS REPRODUCED ABOVE SHOWS THAT THE ITAT HAS CLEARLY HELD THAT SUCH EXPENDITURE IS ALLOWABLE ONLY IN THE YEAR IN WHICH SUCH UNUSED MACHINERY ARE ACTUALLY SOLD OUT BY THAT ASSESSEE. THE ITAT HAS HELD THAT EVEN THOUGH THE NOTIONAL LOSS IS PROVIDED IN THE BOOKS O F ACCOUNT, BUT TILL THE ACTUAL LOSS TAKES PLACE, THE SAME IS NOT ALLOWABLE TO THE ASSESSEE. THE APPELLANT ITSELF HAS ADMITTED THAT THESE ASSETS WERE NOT ACTUALLY SOLD DURING THE CURRENT YEAR BUT WERE SOLD DURING THE PREVIOUS YEAR RELEVANT TO AY.2007 - 08. UN DER SUCH CIRCUMSTANCES, SUCH LOSS CLAIMED BY THE APPELLANT IS NOT ALLOWABLE IN THE CURRENT YEAR AND HENCE THE DISCUSSION REGARDING NATURE OF DISALLOWANCE IN THE CURRENT YEAR IS ONLY ACADEMIC IN NATURE. ACCORDINGLY, IT IS HELD THAT SINCE THE ASSETS WERE NOT SOLD OUT IN THE CURRENT YEAR, HENCE NO LOSS ON ACCOUNT OF THESE ASSETS CAN BE ALLOWED IN THE CURRENT YEAR. THIS AS PER THE DIRECTION OF ITAT, AHMEDABAD BENCH AND HENCE THIS GROUND OF APPEAL IS DISMISSED. 7 . DURING THE COURSE OF APPELLATE PROCEEDINGS BEF ORE US, LD. COUNSEL HAS FURNISHED PAPER BOOK CONTAINING SUBMISSION AND DETAILS MADE BEFORE ASSESSING OFFICER AND LD. CIT(A). HE HAS CONTENDED THAT LD. CIT(A) SHOULD HAVE ALLOWED THE LOSS INCURRED ON S A LE OF ASSET IN ASSESSMENT YEAR 2007 - 08. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF LD. CIT(A). 8. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD CAREFULLY. THE ORIGINAL ASSESSMENT U/S. 143(3) OF THE ACT WAS MADE ON 31/03/ 2006. AT THE TIME OF ASSESSMENT, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED LOSS OF RS. 73,43,678/ - ON SALE/WRITE OFF OF T HE FIXED ASSETS OF CAPITAL WORK IN PROGRESS. THE ASS ESSEE HAS CLAIMED THAT THE ASSETS I.T.A NO. 2841 /AHD/20 16 A.Y. 2003 - 04 PAGE NO M/S. FARMSON PHARMACEUTICALS GUJARAT PVT. LTD. VS. ACIT 4 WERE PUT TO USE ONLY FOR TEST PURPOSE. SUBSEQUENTLY, S A ME WERE D ISCARDED AND W RITTENO FF. THE ASSESSING OFFICER HAS TREATED THE SA ID EXPENDITURE AS CAPITAL EXPENDITURE AND DEDUCTION WAS NOT ALLOWED. THE LD. CIT(A) HAS DISMISSED THE APPEAL OF THE ASSESSEE STATING THAT LOSS ARISING FROM SCRAPING OF THE CAPITAL WORK IN P ROGRESS WAS NOTHING BUT SUNK COST OF THE ALL I ED VENTURE AND WAS NEITHER REVENUE OR CAPITAL LOSS. HE HAS PLACED RELIANCE ON THE DECISION OF THE MOHAN M E AKINS BREWARIES LTD. VS. CIT WHEREIN IT WAS HELD THAT LOSS IN RESPECT OF MILK PLANT DISCARDED AND WRITTE N OFF DURING THE PREVIOUS YEAR WAS NOT ALLOWABLE U/S. 45 OF THE ACT. THE ITAT HAS SET ASIDE THE ISSUE TO THE ASSESSING OFFICER TO VERIFY WHEN THE MACHINERY WHICH WAS CLAIMED TO HAVE BEEN DISCARDED WAS PURCHASED , WHAT WAS THE ACTUAL COST OF MACHINERY AND W HETHER THE SAID MACHINE WAS ACTUALLY SOLD OUT DURING THE YEAR AS SCRAP BY THE ASSESSEE OR NOT. DURING THE COURSE OF SET ASIDE ASSESSMENT, THE ASSESSING OFFICER HAS STATED THAT THE ASSESSEE HAD NOT FURNISHED ANY MATERIAL EVIDENCES TO ALL THESE EXPENDITURES SUCH AS BILLS/VOUCHERS OF PURCHASES OF SALES AND OT H ER RELEVANT DOCUMENTS . HE HAS STA T ED THAT THE ASSESSEE HAS FAILED TO FURNISH THE RELEVANT MATERIAL TO EXAMINE THE FOLLOWING ISSUES ACCORDING TO THE DIRECTIONS OF THE ITAT (I) SUPPORTING MATERIAL FOR THE PURCHASE OF THE DISCARDED MACHINERIES. (II) EVIDENCES OF ACTUAL CO S T OF THE MACHINERY. (III) EVIDENCE OF SELLING OF MACHINERY AS SCRAP DURING THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER HAS DISALLOWED THE CLAIM OF T H E ASSESSEE FOR LACK OF S UPPORTING EVIDENCES AND NATURE OF WRITTEN OFF ASSETS WERE CAPITAL OF NATURE . THE LD. CIT(A) HAS SUSTAINED THE DISALLOWANCE STATIN G THAT ASSESSEE HAS PROVIDED ONLY NOTIONAL LOSS IN THE BOOK S OF ACCOUNT AND AS S ESSEE HAS NOT S OLD T H ESE ASSETS D U RING THE YEAR U NDER CONSIDERATION . WE FIND THAT THE ASSESSEE HAS FURNISHED ONLY ANNEXURE PERTAINING TO PLANT AND MACHINERY AS TO WHEN THE MACHINERY IN QUESTION WAS PURCHASED AND WHAT WAS THE ACTUAL COST OF THE MACHINERY. IT IS ALSO CLEAR THAT THE ASSESSEE HAS WRITTEN O FF THE MACHINERY ON NOTIONAL BASIS WITHOUT ACTUALLY SELLING THE MACHINERY. AFTER PERUSAL OF THE I.T.A NO. 2841 /AHD/20 16 A.Y. 2003 - 04 PAGE NO M/S. FARMSON PHARMACEUTICALS GUJARAT PVT. LTD. VS. ACIT 5 MATERIAL ON RECORD , IT IS CLEAR THAT THE MACHINERY IN QUESTION WAS NOT SOLD BY THE ASSESSEE AS S CRAP DURING THE YEAR UNDER CONSIDERATION AND IT HAS FAI L E D TO FURNISH THE RELEVANT EVIDENCES SHOWING PUR CHASE OF THE DISCARDED MACHINERY . AFTER CONSIDERING THE ABOVE FACTS, WE ARE INCLINED WITH THE FINDINGS OF THE LD. CIT(A) THAT NO ACTUAL LOSS HA D BE E N TAKEN PLACE DURING THE YEAR AS THE MACHINERY WAS NOT ACTUALL Y SOLD DURING THE YEAR . WE DO NOT FIND ANY MERIT IN T H E CLAIM OF THE ASSESSEE TO AL LOW THE LOSS DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2007 - 08 AFTER CONSIDERING THE FACT THAT T H E MACHINERY IN QUESTION WAS WRITTEN OFF FROM THE BOOKS OF ACCOUN T DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2003 - 04. CONSIDERING THE ABOVE FACTS INCLUDING NON - FURNISHING OF THE DOCUMENT AS PER THE DIRECTION OF THE CO - ORDINATE BENCH AS SUPRA , WE DO NOT FIND ANY ERROR IN THE DECISION OF LD. CIT(A), THEREFORE, THE APPEAL OF THE ASSESSEE IS DISMISSED. 9. IN THE RESULT , THE APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 26 - 09 - 201 8 SD/ - SD/ - ( MAHAVIR PRASAD ) ( AMARJIT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 26 /09 /2018 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,