DCIT 10(2), MUMBAI V. SUPREME TREVES P.LTD, MUMBAI

ITA 3329/MUM/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4276 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-01-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2009-2010
• Appeal Filed On: 09-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M M UTTURE
• Assessee Lawyers: BHAUMIK SANGHAVIAR
• Keywords: Depreciation; Additional depreciation; Earning of tax free income
• Section: 14A

Judgement Text

, ,, , INCOME TAX APPELLATE TRIBUNAL,MUMBAI- E,BENCH , ,, , , ,, , BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & SANDEEP GOSAIN,JUDICIAL MEMBER /.ITA NO.3329/MUM/2014 , /ASSESSMENT YEAR-2009-10 DCIT-10(2) ROOM NO.432/474, 4 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD MUMBAI-400 020. VS. M/S. SUPREME TREVES PVT. LTD. SUPREME HOUSE, PLOT NO.110 16 TH ROAD, CHEMBUR MUMBAI-400 071. PAN NO. AACCS 4085 Q ( / ASSESSEE ) ( / RESPONDENT) /ASSESSEE BY :S/SHRI AKRAM KHAN AND BHAUMIK SANGHAVI-(AR) / REVENUE BY :SH. M.M. UTTURE -(DR) / DATE OF HEARING : 0 4 - 11 -2015 / DATE OF PRONOUNCEMENT :01.01.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DT.14.02.2014, OF THE CIT(A)- 21,THE ASSESSING OFFICER(AO) HAS FILED THE PRESENT APPEAL. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF MANUFAC TURING OF AUTOMOBILE INTERIOR TRIM PARTS AND OTHER OBJECTS FILED ITS RETURN OF INCOME ON 25/09/2009 DECLARING TOTAL INCOME AT RS73,150/-. THE AO COMPLETED THE ASSESSMENT U/S. 1 43 (3) ON 8.12.2011 DETERMINING INCOME OF THE ASSESSEE AT RS.3,85,38,544/-. 2. THE FIRST EFFECTIVE GROUND OF APPEAL IS ABOUT DISAL LOWING ADDITIONAL DEPRECIATION OF RS.9, 98,862/-ON ELECTRICAL INSTALLATIONS.DURING THE ASSE SSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE HAD DEBITED TO THE P&L ACCOUNT AN AMOUNT O F RS.9.98 LAKHS UNDER THE HEAD ADDITIONAL DEPRECIATION.THE AO HELD THAT THE ADDITI ONAL DEPRECIATION WAS ALLOWABLE ONLY ON THE MACHINERIES AND NOT ON ELECTRICAL INSTALLATIONS . 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).BEFORE HIM IT WAS ARGUED T HAT DETAILS OF ELECTRICAL INSTALLATIONS WERE MADE AVAILABLE TO THE AO.AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDER,THE FAA HELD THAT SIMILAR ISSUE WA S CONSIDERED IN THE CASES OF TRIBENI TISSUES LTD.(206 ITR 92) AND MAHAVIR SPG. MILLS LTD .(171 TAXMANN 371),THAT THE HONBLE CALCUTTA AND THE P &H HIGH COURTS HAD HELD THAT MOT ORS, ELECTRICAL INSTALLATIONS, UNDERGROUND CABLES, OVERHEAD CABLES WERE PART AND PARCEL OF ELE CTRICAL MACHINERIES USED FOR MANUFACTURE, THAT THE ASSESSEE WAS ELIGIBLE FOR ADDITIONAL DEPR ECIATION. 4. BEFORE US,THE DEPARTMENTAL REPRESENTATIVE(DR)SUPPOR TED THE ORDER OF THE AO AND THE AUTHORISED REPRESENTATIVE(AR)RELIED UPON THE ORDER OF THE FAA.WE HAVE HEARD THE RIVAL SUBMISSIONS.WE FIND THAT THE ISSUE BEFORE US IS COV ERED BY THE JUDGMENT OF THE HONBLE CALCUTTA HIGH COURT OF TRIBENI TISSUES LTD.(SUPRA). FACTS OF THE CASE WERE THAT THE ASSESSEE CLAIMED INVESTMENT ALLOWANCE UNDER SECTION 32A OF T HE ACT ON MOTORS,ELECTRICAL INSTALLATIONS, UNDERGROUND CABLES,AIR-CONDITIONING MACHINES,TUBEWE LLS AND WEIGHING MACHINES.THE AO REJECTED THE CLAIM ON THE GROUND THAT THE ELECTRICA L MACHINES WERE IN THE NATURE OF ADDITIONAL EQUIPMENT AND ACCESSORIES WHICH WERE NOT USED IN TH E ACTUAL MANUFACTURING PROCESS. THE FAA ALLOWED THE APPEAL OF THE ASSESSEE HOLDING THAT THESE ITEMS WERE PLANT AND MACHINERY 3329/M/14SUPREME 2 FOR THE PURPOSE OF MANUFACTURE AND THAT THE PLANT A ND MACHINERY INSTALLED IN THE FACTORY FUNCTIONED AS AN INTEGRAL PART OF THE CHAIN OF MANU FACTURING PROCESS.THE TRIBUNAL UPHELD THE ORDER OF THE FAA.IN THE APPEAL THE HONBLE HIGH COU RT HELD AS UNDER: THE EXPRESSION 'PLANT' IS NOT DEFINED IN THE INCOME -TAX ACT, 1961. THE DEFINITION THAT IS AVAILABLE IN SECTION 43(1) OF THE INCOME-TAX ACT, 1961, IS MEREL Y AN INCLUSIVE ONE AND NOT EXHAUSTIVE, BUT THE COUR TS HAVE GIVEN THE EXPRESSION A MEANING OF THE WIDEST A MPLITUDE. IT INCLUDES WHATEVER APPARATUS IS USED BY A BUSINESSMAN FOR CARRYING ON HIS BUSINESS NOT BEIN G HIS STOCK-IN-TRADE. IT CAN THUS ENCOMPASS ALL GOODS AND CHATTELS, FIXED OR MOVABLE, LIVE OR DEAD, WHICH HE KEEPS FOR PERMANENT EMPLOYMENT IN HIS BUSINESS..... THE ASSESSING OFFICER HAD MADE A DEM ARCATION AS BETWEEN MACHINES AND EQUIPMENT USED DIRECTLY IN THE MANUFACTURING PROCESS AND MACHINES AND EQUIPMENT USED IN THE ACCESSORY PART OF THE MANUFACTURING PROCESS. SUCH DIVISION OF THE MANUFAC TURING PROCESS DID NOT STAND TO REASON OR PRACTICALITY. ONE MAY OR MAY NOT CONCEIVE OF CERTAI N PARTS OR STAGES OF THE PROCESS AS PRINCIPAL PROCE SS AND THE REST AS ACCESSORY PROCESS BUT THAT MAKES NO DIFFERENCE TO THE FACT THAT ALL PROCESSES TAKEN TOGETHER CONSTITUTE AN INDIVISIBLE INTEGRAL PROCESS . AS A MATTER OF FACT, ALL MACHINERY AND EQUIPMENT THAT IS NECESSARY TO MAKE THE ASSESSEE'S MANUFACTUR ING UNIT IN A STATE OF OPERATIONAL INTEGRATION PERT AIN TO ITS MANUFACTURING PROCESS, BECAUSE THERE COULD N OT BE ANY MANUFACTURE UNLESS THIS OPERATIONAL INTEGRATION WAS ACHIEVED AFTER INSTALLATION OF THE PLANT AND THE PLANT GOES OPERATIONAL. THEREFORE, AN Y MACHINERY OR PLANT HAVING A LINK, HOWEVER MINOR, IN THE TOTAL PROCESS OF THE OPERATIONAL INTEGRATION SHOULD BE TAKEN AS MACHINERY OR PLANT PERTAINING TO THE MANUFACTURING PROCESS. THEREFORE, THE ASSESSEE WAS ENTITLED TO INVESTMENT ALLOWANCE UNDER SECTION 32A ON MOTORS,ELECTRICAL INSTALLATIONS, UNDERGROUND CABLES, OVERHEAD CABLES AND AIR-CONDITIONING MACHIN ES. RESPECTFULLY FOLLOWING THE ABOVE JUDGMENT,WE DECIDE GROUND NO.1 AGAINST THE AO. 5 .NEXT GROUND OF APPEAL IS ABOUT COMPUTING THE DISA LLOWANCE U/S.14A R.W. RULE 8D OF THE INCOME TAX RULES,1962(RULES).DURING THE ASSESSMENT PROCEEDINGS,THE AO DISALLOWED RS.8, 17,554/- UNDER SECTION 14A OF THE ACT,AS AGAINST DISALLOWANCE OF RS.37,875/- COMPUTED BY THE ASSESSEE. 6. IN THE APPELLATE PROCEEDINGS,THE FAA HELD THAT THE ASSESSEE HAD RESERVES AND SURPLUS OF RS.65, 14,00,000/-,THAT INVESTMENT UNDER EXEMPTED I NCOME WAS ONLY RS.18,75,000/-,THAT INVESTMENT AMOUNT WAS MUCH LESS THAN ASSESSEE'S OW NED FUNDS.HE REFERRED TO THE CASE OF THE HON 'BLE BOMBAY HIGH COURT DELIVERED IN THE CASE O F RELIANCE UTILITIES AND POWER LTD.(313 ITR 340) AND DELETED THE DISALLOWANCE MADE BY THE A O UNDER THE HEAD INTEREST EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME.HOWEVER,HE FURTH ER DIRECTED THE AO TO COMPUTE 0.5% OF AVERAGE INVESTMENT FOR MANAGERIAL AND ADMINISTRATIV E EXPENSES. 7 .BEFORE US,THE DEPARTMENTAL REPRESENTATIVE(DR) AND THE AUTHORISED REPRESENTATIVE(AR) SUPPORTED THE ORDERS OF THE AO AND THE FAA RESPECTI VELY.WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE F IND THAT THE AO HAD APPLIED THE PROVISIONS OF SECTION 14A R.W.R.8D OF THE RULES IN A MECHANICAL WAY,THAT THE FAA HAD CONSIDERED THE AVAILABILITY OF FUNDS AND HAD ARRIVE D AT A LOGICAL CONCLUSION.WE FIND THAT HE HAD DIRECTED THE AO TO MAKE DISALLOWANCE FOR ADMINI STRATIVE EXPENSES AND ALSO TAKEN IN TO THE ACCOUNT THE FACT THAT THE ASSESSEE ITSELF HAD M ADE DISALLOWANCE.IN OUR OPINION,THE ORDER OF THE FAA DOES NOT SUFFER FROM ANY LEGAL INFIRMITY.SO ,CONFIRMING HIS ORDER WE DECIDE GROUND NO.2 AGAINST THE AO. AS A RESULT,APPEAL FILED BY THE AO STANDS DISMISS ED. . ORDER PRONOUNCED IN THE OPEN COU RT ON 1 ST JANUARY, 2016. 01 , 2016 SD/- SD/- ( /SANDEEP GOSAIN ) ( / RAJENDRA ) /JUDICIAL MEMBER /ACCOUNTANT MEMBER MUMBAI, DATE: 01.01.2016. . . . JV.SR.PS. 3329/M/14SUPREME 3 / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR E BENCH, ITAT, MUMBAI / , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.