M/s. K.N.Proteins Ltd., Ahmedabad V. Asstt. Commissioner of Income Tax, Ahmedabad

ITA 3105/AHD/2014

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 5916 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 1 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 24-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PARIN SHAH ARS; S N SOPARKAR
• Keywords: Depreciation; Earning of tax free income
• Section: 14A; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE JUSTICE P.P. BHATT, PRESIDENT AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ./ITA NO.3105/AHD/2014 ( / ASSESSMENT YEAR : 2010-11) N.K. PROTEINS LTD. 9 TH FLOOR POPULAR HOUSE ASHRAM ROAD AHMEDABAD-380 009 / VS. THE ACIT CIRCLE-5 AHMEDABAD ./ ./ PAN/GIR NO. : AAACN 9377 N ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI S.N. SOPARKAR AND SHRI PARIN SHAH, ARS / RESPONDENT BY : SHRI VINOD TANWANI, SR.DR / DATE OF HEARING 03/01/2019 !'# / DATE OF PRONOUNCEMENT 21/01/2019 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF I NCOME TAX (APPEALS)XI, AHMEDABAD [CIT(A) IN SHORT] VIDE APPE AL NO.CIT(A)- XI/36/ACIT.CIR-5/13-14 DATED 19/09/2014 ARISING I N THE ASSESSMENT ORDER PASSED UNDER S.143(3) OF THE INCOME TAX ACT, 1961(HERE-IN-AFTER REFERRED TO AS 'THE ACT') DATED 26/03/2013 RELEVAN T TO ASSESSMENT YEAR (AY) 2010-11. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- ITA NO.3105/AHD/2014 N.K. PROTEINS LTD. VS. ACIT ASST .YEAR - 2010-11 - 2 - 1. THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE DIS ALLOWANCE OF RS.1,83,838/- BEING EXPENDITURE INCURRED ON EXEM PT INCOME UNDER SECTION 14A IN AS MUCH AS THE ASSESSEE HAS NO T INCURRED ANY EXPENDITURE WHATSOEVER ON EXEMPT INCOME. 2. THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE DISA LLOWANCE OF DEPRECIATION OF RS.12,75,628 ON VEHICLE PURCHASED I N MARCH 2010 ON THE GROUND THAT THE SAME ARE NOT PUT TO USE IN AS MUCH AS THE VEHICLE WERE PUT TO USE IN THE MONTH OF MARC H 2010 AND THAT THE SUFFICIENT EVIDENCES WERE FURNISHED TO PRO VE THE TRUCKS ARE PUT TO USE DURING MARCH-2010. 3. THE FIRST ISSUE RAISED BY THE ASSESSEE IS THAT T HE LD.CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.1,83,838/- UNDER THE PROVISIONS OF SECTION 14A OF THE ACT. 4. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS A LIMITED COMPANY AND ENGAGED IN THE BUSINESS OF EDIBLE AND NON-EDIBLE OI L PRODUCTS AND BY- PRODUCTS THEREOF. 4.1. THE ASSESSING OFFICER DURING THE ASSESSMENT PR OCEEDINGS OBSERVED THAT ASSESSEE HAD CLAIMED INTEREST EXPENSES OF RS. 8,50,78,966/- ONLY. THE ASSESSEE HAS ALSO MADE INVESTMENT IN THE SECURI TIES. BUT THE ASSESSEE HAS NOT MADE ANY DISALLOWANCE UNDER THE PROVISIONS OF SECTION 14A R.W.RULE 8D OF THE INCOME TAX RULES, 1962. ACCORDI NGLY, THE ASSESSING OFFICER INVOKED THE PROVISIONS OF SECTION 14A R.W.R .8D AND MADE THE FOLLOWING DISALLOWANCES. SL.NO. PARTICULARS AMOUNT (RS.) 1. DIRECT EXPENSES NIL ITA NO.3105/AHD/2014 N.K. PROTEINS LTD. VS. ACIT ASST .YEAR - 2010-11 - 3 - 2. INTEREST EXPENSES UNDER RULE 8D(2)(II) 1,63,858/- 3. ADMINISTRATIVE EXPENSES UNDER RULE 8D(2)(III) 19,980/- TOTAL 1,83,838/- 4.2. THE ASSESSING OFFICER WORKED OUT THE DISALLOWA NCE OF RS.1,83,838/- AS PER THE PROVISIONS OF RULE 8D AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 5. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LD .CIT(A) WHO HAS CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 6. BEING AGGRIEVED BY THE ORDER OF LD.CIT(A), THE A SSESSEE IS IN APPEAL BEFORE US. 7. THE LD.AR BEFORE US FILED A PAPER-BOOK RUNNING F ROM PAGE NOS.1 TO 200 AND SUBMITTED THAT IN THE IDENTICAL FACTS AN D CIRCUMSTANCES, THE HONBLE TRIBUNAL IN ITS OWN CASE IN ITA NO.1986/AHD /2012 PERTAINING TO AY 2009-10 VIDE ORDER DATED 27/07/2016 HAS DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. 8. ON THE CONTRARY, THE LD.DR VEHEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ITA NO.3105/AHD/2014 N.K. PROTEINS LTD. VS. ACIT ASST .YEAR - 2010-11 - 4 - 9.1. AT THE OUTSET, WE NOTE THAT THE IMPUGNED ISSUE STANDS COVERED IN FAVOR OF THE ASSESSEE IN ITS OWN ORDER (SUPRA) . THE RELEVANT EXTRACT OF THE TRIBUNALS ORDER IS REPRODUCED HEREUNDER: 29. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL ON RECORD. ASSESSEE IS AGGRIEVED WITH THE DISALLOWANCE U/S 14A OF THE ACT OF RS.1,13,521/- CONFIRMED BY LD. CIT(A). WE FURTHER OBSERVE THAT LD . AR SPECIFICALLY MENTIONED THAT THERE IS NO EXEMPT INCOME EARNED BY THE ASSESSEE DU RING THE YEAR. WE ALSO OBSERVE THAT IN THE JUDGMENT OF HON. JURISDICTIONAL HIGH CO URT IN THE CASE OF CIT VS. CORRTECH ENERGY P. LTD.(SUPRA) HAS CONFIRMED THE OR DER OF THE TRIBUNAL DELETING DISALLOWANCE U/S 14A OF THE ACT AS THE ASSESSEE HAS NOT CLAIMED ANY EXEMPT INCOME. SIMILAR IS THE SITUATION IN THE CASE OF ASSESSEE AN D WE RESPECTFULLY FOLLOWING THE JUDGMENT OF HON. JURISDICTIONAL HIGH COURT ARE OF T HE VIEW THAT NO DISALLOWANCE IS CALLED FOR U/S 14A AS ASSESSEE HAS NOT CLAIMED ANY EXEMPT INCOME IN THE YEAR UNDER APPEAL. WE HOLD THAT LD. CIT(A) WAS NOT CORRECT IN UPHOLDING THE DISALLOWANCE AND ALLOW THE GROUND OF ASSESSEE. 10. THE FACTS IN THE INSTANT CASE ARE IDENTICAL TO THE FACTS OF THE CASE AS DISCUSSED ABOVE. THEREFORE, RESPECTFULLY FOLLOWIN G THE SAME, WE ARE NOT INCLINED TO UPHOLD THE ORDERS OF THE AUTHORITIES BE LOW. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD.CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION MADE BY HIM. THUS, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 11. SECOND GROUND RELATES TO THE ISSUE RAISED BY TH E ASSESSEE THAT THE LD.CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF D EPRECIATION AMOUNTING TO RS.12,75,628/- ON THE GROUND THAT THE VEHICLES WERE NOT PUT TO USE. 11.1. THE ASSESSEE DURING THE YEAR HAS PURCHASED FIVE NEW TRUCKS FOR HIRING PURPOSES FOR RS. 85,04,185/- ONLY. AS PER T HE TAX AUDIT REPORT, ITA NO.3105/AHD/2014 N.K. PROTEINS LTD. VS. ACIT ASST .YEAR - 2010-11 - 5 - THESE TRUCKS WERE PURCHASED AS ON 31.03.2010 AND TH E ASSESSEE CLAIMED DEPRECIATION @ 15% IN RESPECT OF SUCH TRUCKS. 11.2. HOWEVER, THE ASSESSING OFFICER FOUND THAT THE SE VEHICLES WERE NOT PUT TO USE IN THE FINANCIAL YEAR ENDING ON 31/03/20 10. THEREFORE, THE DEPRECIATION CLAIMED BY THE ASSESSEE WAS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 12. THE AGGRIEVED ASSESSEE, PREFERRED AN APPEAL BEF ORE THE LD.CIT(A) WHO HAS CONFIRMED THE ORDER OF THE ASSESSING OFFICE R. 13. BEING AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 14. THE LD.AR BEFORE US FILED A PAPER-BOOK RUNNIN G FROM PAGE NOS.1 TO 200 AND SUBMITTED THAT IN THE IDENTICAL FACTS AND C IRCUMSTANCES, THE HONBLE TRIBUNAL IN ITS OWN CASE IN ITA NO.1986/AHD /2012 PERTAINING TO AY 2009-10 VIDE ORDER DATED 27/07/2016 HAS DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. 15. ON THE CONTRARY, THE LD.DR VEHEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 16. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ITA NO.3105/AHD/2014 N.K. PROTEINS LTD. VS. ACIT ASST .YEAR - 2010-11 - 6 - 16.1. AT THE OUTSET, WE NOTE THAT THE IMPUGNED ISS UE STANDS COVERED IN FAVOR OF THE ASSESSEE IN ITS OWN ORDER (SUPRA) . THE RELEVANT EXTRACT OF THE TRIBUNALS ORDER IS REPRODUCED HEREUNDER: 17. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL ON RECORD. THROUGH THIS GROUND ASSESSEE HAS CHALLENGED THE ORD ER OF LD. CIT(A) CONFIRMING THE DISALLOWANCE ON DEPRECIATION OF RS.16,83,501/- ON 5 TANKERS ON THE GROUND THAT THEY WERE NOT PUT TO USE FOR BUSINESS PURPOSES BEFORE TH E CLOSE OF THE YEAR. FROM GOING THROUGH THE PAGES 99 TO 131 OF THE PAPER BOOK DATED 6.11.2015 WE FIND THAT ASSESSEE HAS PLACED COPIES OF GOODS CARRIAGE PERMIT, VEHICLE INSURANCE, CERTIFICATE OF FITNESS, CERTIFICATE OF REGISTRATION AND PUCC FOR ALL THE 5 TRUCKS WHICH SHOW THAT ALL THE 5 VEHICLES WERE OWNED BY ASSESSEE AND WERE READY TO U SE. AS FAR AS ASSETS BEING ACTUALLY USED WE OBSERVE THAT ON PAGES 11 TO 98 OF THE PAPER BOOK DATED 6.11.2015 EXHIBITING INVOICE NO.140 DATED 31.3.2009 ISSUED BY N. K. PROTEINS TO M/S N/ K. ROADWAYS LTD. FOR FUEL CHARGES. IT IS PERTINENT TO NOW THAT ASSESSEE ENTERED MEMORANDUM OF UNDERSTANDING ON 31.3.2008 WITH M/S N / K. ROADWAYS ON HIRING VARIOUS COMMERCIAL VEHICLES OWNED BY ASSESSEE WHICH ARE EXHIBITED AT ANNEXURE-A OF THE PAPER BOOK. THERE IS NO DISPUTE RAISED BY R EVENUE IN REGARD TO DEPRECIATION IN RESPECT OF THESE VEHICLES. FURTHER SUPPLEMENTARY DEED TO THE MEMORANDUM OF UNDERSTANDING DATED 31.3.2008 WAS EXECUTED ON 15 TH NOVEMBER, 2008 WHEREIN ASSESSEE AGREED FOR GIVING ON HIRE THE TRUCKS OR TA NKERS PURCHASED BY IT DURING FINANCIAL YEAR 2008-09. IMPUGNED 5 TRUCKS WHICH WER E PURCHASED ON 27.3.2009 AND WERE READY TO USE ALSO FORM PART ON THE SUPPLEMENTA RY AGREEMENT. WE FURTHER OBSERVE THAT HON. JURISDICTIONAL HIGH COURT IN THE CASE OF ACIT VS. ASHIMA SYNTEX (SUPRA) HAS DEALT WITH SIMILAR ISSUE OF ALLOWABILIT Y OF DEPRECIATION WITH REGARD TO THE USE OF THE ASSET IN THE RELEVANT YEAR BY OBSERVING AS UNDER :- 43. WE ARE, THEREFORE, OF THE OPINION THAT WHEN TH ERE IS COMMENCEMENT OF THE BUSINESS BY WAY OF PRODUCTION OF THE ARTICLES, IT C AN BE SAID THAT THE ASSESSEE IS ENTITLED TO DEPRECIATION. 44. IT IS REQUIRED TO BE NOTED THAT WHEN AN ENTREPR ENEUR UNDERTAKES TO INVEST A HUGE AMOUNT FOR THE MANUFACTURE OF THE PRODUCT, BE HAS T O PLAN IT PROPERLY. INSTALLATION OF MACHINERY OR PLANT AND MACHINERY IN THE BUILDING IT SELF IS NOT SUFFICIENT TO ATTRACT THE PROVISIONS CONTAINED IN SECTION 32OF THE ACT. THERE MUST BE USE OF PLANT AND MACHINERY FOR THE PURPOSE OF BUSINESS AS CONTEMPLAT ED IN SECTION 32 OF THE ACT. THERE IS THUS A THIN LINE BETWEEN THE TRIAL RUN AND ACTUAL PRODUCTION, OR MANY A TIME, THE WORD USED IS 'COMMERCIAL PRODUCTION'. IF THE MA CHINES ARE INSTALLED PROPERLY AND IT GIVES GOOD RESULT, THEN ONE NEED NOT WAIT FOR AN Y RECTIFICATION IN THE SYSTEM. THERE MAY BE SOME CASES WHEREIN AFTER COMMENCEMENT OF THE PRODUCTION, THE MACHINE MAY NOT GIVE PROPER RESULTS-MAY BE ON ACCOUNT OF FAILUR E OF CERTAIN PARTS, MAY BE ON ITA NO.3105/AHD/2014 N.K. PROTEINS LTD. VS. ACIT ASST .YEAR - 2010-11 - 7 - ACCOUNT OF REQUIREMENT OF CERTAIN ADDITIONAL MACHIN ERY, ETC. IN SUCH A CASE, THE PRODUCTION OBTAINED AT THE INITIAL STAGE WOULD BE C ONSIDERED AS TRIAL PRODUCTION. IN THE INSTANT CASE, THERE IS NOTHING TO INDICATE THAT THE ASSESSEE WAS REQUIRED TO INSTALL ANY ADDITIONAL PART OR MACHINERY WITH A VIEW TO RUN THE ENTIRE UNIT. IT IS NOT A CASE SIMILAR TO THAT CASE WHERE BEFORE THE BOMBAY HIGH C OURT THERE WAS NO PRODUCTION AND ONLY TOOLS WERE TESTED. THE PRESENT CASE IS NOT SIMILAR TO THAT OF SPECIALTY PAPER LTD. (1982] 133 ITR 879 (GUJ) (APPEX.) WHERE WET PR ESS WAS REQUIRED TO BE INSTALLED AND EVEN THEREAFTER ADDITIONAL MACHINERY WAS REQUIR ED TO BE INSTALLED. IN THE INSTANT CASE, PLANT AND MACHINERY WERE INSTALLED AND IT WOR KED SMOOTHLY. THERE MAY BE CERTAIN MACHINES, WHICH IN VIEW OF THE LATEST TECHN OLOGY, REQUIRE NO TRIAL RUN. IF SEPARATE PARTS ARE FITTED AND THE MACHINE IS BROUGH T INTO EXISTENCE, IT MAY REQUIRE A TRIAL RUN, BUT IF MACHINERY IS IMPORTED AND IT IS M ERELY FIXED HERE, IT DOES NOT MEAN THAT THE MACHINE WOULD NOT WORK. ULTIMATELY, ON EVI DENCE, THE TRIBUNAL HAS FOUND THAT 2,68,412 MTRS. OF GREY CLOTH WAS MANUFACTURED. 45. THE LAW DOES NOT REQUIRE THAT THERE MUST BE OPT IMUM PRODUCTION FOR GRANTING THE BENEFIT. LAW ONLY REQUIRES THAT THERE MUST BE USE O F PLANT AND MACHINERY FOR THE PURPOSE OF BUSINESS. USE OF SUCH WORDS THAT PLANT A ND MACHINERY WAS RUN MORE EXTENSIVELY OR WAS REQUIRED TO BE USED FOR LARGER P RODUCTION IS NOT TO BE FOUND IN THE ACT OR RULES. WHETHER THE PLANT AND MACHINERY WERE UP TO THE EXTENT OF ITS EFFICIENCY IS IRRELEVANT FOR THE PURPOSE OF DECIDING DEPRECIAT ION. THE TEST IS THAT BUILDING, PLANT AND MACHINERY ARE USED FOR THE PURPOSE OF BUSINESS. IT IS NOT EVEN NECESSARY THAT IN A YEAR IT MUST HAVE BEEN USED FORA PARTICULAR NUMBER OF DAYS. IF THE INTENTION OF THE LEGISLATURE WAS THAT IF THE PLANT AND MACHINERY IS USED FOR A PARTICULAR NUMBER OF DAYS, ONLY THEN ONE IS ENTITLED TO GET THE BENEFIT OF DEPRECIATION, THE LEGISLATURE WOULD HAVE MADE THAT PROVISION. EARLIER, RULES WERE TO THE AFORESAID EXTENT. EVEN RECENTLY, WITH REGARD TO DEPRECIATION OF VEHICLES, LAW IS MADE CLEAR. THEREFORE, IT IS FOR THE LEGISLATURE TO MAKE A PROVISION IN THAT REG ARD. UNLESS AND UNTIL THAT PROVISION IS MADE, PLANT, MACHINERY AND BUILDING USED FOR THE PURPOSE OF BUSINESS IN A PARTICULAR YEAR IRRESPECTIVE OF THE NUMBER OF DAYS FOR WHICH IT WORKED, AND IF WORKED FOR THE PURPOSE OF BUSINESS, WOULD ATTRACT THE PROV ISIONS OF SECTION 32 OF THE ACT. 18. RESPECTFULLY FOLLOWING THE DECISION OF HON. JUR ISDICTIONAL HIGH COURT IN THE CASE OF ACIT VS. ASHIMA SYNTEX (SUPRA) DISCUSSED AB OVE, WE ARE OF THE VIEW THAT AS THE ASSESSEE HAS PROVED BEYOND DOUBT THAT THE IMPUG NED ASSETS CONSISTING OF 5 TRUCKS PURCHASED FOR RS.67,34,004/- SATISFY ALL THE CONDIT IONS AS PROVIDED U/S 32 OF THE ACT AND, THEREFORE, ARE ELIGIBLE FOR DEPRECIATION FOR R S.16,83,501/-. ACCORDINGLY, THIS GROUND OF ASSESSEE IS ALLOWED. 18. THE FACTS IN THE INSTANT CASE ARE IDENTICAL TO THE FACTS OF THE CASE AS DISCUSSED ABOVE. THEREFORE, RESPECTFULLY FOLLOWIN G THE SAME, WE ARE NOT INCLINED TO UPHOLD THE ORDERS OF THE AUTHORITIES BE LOW. ACCORDINGLY, WE ITA NO.3105/AHD/2014 N.K. PROTEINS LTD. VS. ACIT ASST .YEAR - 2010-11 - 8 - SET ASIDE THE ORDER OF THE LD.CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION MADE BY HIM. THUS, THIS GROUND OF APPEAL IS ALLOWED. 19. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 21/01/2019 SD/- SD/- ( JUSTICE P.P. BHATT ) ( WASEEM AHMED ) PRESIDENT ACCOUNTANT MEMBER AHMEDABAD; DATED 21/01/2019 &.., .(.. / T.C. NAIR, SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. )*+ , / CONCERNED CIT 4. , ( ) / THE CIT(A)-XI, AHMEDABAD 5. /01 ((*+ , *+# , ) / DR, ITAT, AHMEDABAD 6. 145 6 / GUARD FILE. / BY ORDER, / ( //TRUE COPY// / ( DY./ASSTT.REGISTRAR) $%, / ITAT, AHMEDABAD 1. DATE OF DICTATION 03.01.2019 (DICTATION PAD 11- PAGES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER ..07.01.2019 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.25.1.2019 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 25.1.2019 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