DCIT CIR 3(1), MUMBAI V. ECHJJAY INDUSTRIES P. LTD, MUMBAI

ITA 3430/MUM/2008

• Counselvise Citation: 343019914 RSA 2008
• Duration Of Justice: 3 year(s) 1 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 12-05-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 15-05-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G P TRVEDI
• Assessee Lawyers: N R RAO
• Keywords: Depreciation; Opportunity of being heard; Rule of consistency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E,MUMBAI BEFORE SHRI D.K. AGARWAL (JM) & SHRI J. SUDHAKAR R EDDY (AM) I.T.A. NOS. 851, 4514/MUM/2007 & 3430/MUM/2008 (A.YS. 2003-04, 2004-05 & 2005-06) DY.COMMR. OF INCOME-TAX, CIR. 3(1), ROOM NO.607, 6 TH FLOOR, AAYKAR BHAVAN,MUMBAI-400 020. VS. M/S. ECHJAY INDUSTRIES P.LTD., 83, BAJAJ BHAVAN, NARIMAN POINT, MUMBAI-400021. PAN:AAACE1157B APPELLANT RESPONDENT APPELLANT BY SHRI G.P. TRVEDI RESPONDENT BY SHRI N .R. RAO. O R D E R PER D.K. AGARWAL, JM: ALL THESE APPEALS PREFERRED BY THE REVENUE ARE DIRE CTED AGAINST THE SEPARATE ORDERS DATED 20-10-2006, 09-04-2007 AND 25 -02-2008 PASSED BY THE LD. CIT(A) FOR THE ASSTT. YEARS 2003-04, 2004-05 AN D 2005-06 RESPECTIVELY. SINCE THE FACTS ARE IDENTICAL AND COMMON ISSUES ARE INVOL VED, ALL THESE APPEALS ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CO NVENIENCE. ITA NO.851/MUM/2007 (AY: 2003-04): 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING, FORGING, FABRICAT ING ENGINEERING PRODUCTS PARTICULARLY REQUIRED IN THE AUTOMOBILE INDUSTRY. I T CATERS TO THE REQUIREMENTS OF RAILWAYS, ISRO, CALCUTTA TRAMWAYS, ETC. THE RETURN WAS FILED DECLARING TOTAL INCOME OF RS.12,72,38,401/-. HOWEVER, THE ASSESSMEN T WAS COMPLETED AT AN INCOME OF RS.19,49,09,981/- INCLUDING DISALLOWANCE OF DEPRECIATION AND ITA NOS.851-4514-3430/M/08 ECHJAY INDUS. P.LTD. 2 DISALLOWANCE OF PART-DEDUCTION U/S.80HHC AND 80IB, VIDE ORDER DATED 24-03- 2006 PASSED BY THE AO U/S.143(3) OF THE I.T. ACT, 1961 (THE ACT). ON APPEAL, THE LD. CIT(A), WHILE PARTLY ALLOWING THE APPEAL, A LLOWED SUBSTANTIAL RELIEF TO THE ASSESSEE. 3. BEING AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 4. GROUND NO.1 IS AGAINST THE DIRECTION OF THE LD. CIT(A) NOT TO REDUCE ANY PART OF THE COMPENSATION FROM THE W.D.V. OF ASSET S WHILE COMPUTING THE ELIGIBLE DEPRECATION ALLOWANCE TO THE ASSESSEE FOR THE CURRE NT YEAR. 5. THE BRIEF FACTS OF THE ABOVE ISSUE DISCUSSED BY THE AO IN PARA 2 OF PAGE 2 OF THE ASSESSMENT ORDER ARE REPRODUCED AS UNDER : 2. DEPRECIATION CLAIM : RELEVANT TO THE ASSESSMENT YEAR 1999-00, THE ASSESS EE RECEIVED A COMPENSATION OF DM 7 MILLION FROM THE SU PPLIERS OF THE PLANT AND MACHINERY BEING THE AXIAL CLOSED D IE ROLLING LINE UPON SETTLEMENT OF DISPUTES IN SUPPLY, PERFORMANCE, ERECTION AND COMMISSIONING OF THE SAID PLANT AND MACHINERIES. OUT OF THIS AMOUNT, IT WAS HELD IN THE ASSESSMENT YEAR 1999-00 THAT A SUM OF RS.16,05,29,9 77/- RECEIVED ON CAPITAL ACCOUNT WENT TO REDUCE THE COST OF THE PLANT. ACCORDINGLY WDV OF THE PLANT AND THE MACHINE RIES AS AT 31.3.1999 WAS REDUCED BY THIS AMOUNT AND LOWER DEPRECIATION ALLOWED ACCORDINGLY. THE ASSESSEE FILE D AN APPEAL AGAINST THIS ORDER BEFORE THE CIT(A) AND THE CIT(A), IN HIS ORDER PASSED IN APPEAL NO. CIT(A)-III/CIR 3( 1)/IT- 937/01-02 DATED 7 TH MARCH 2002, HAS HELD THE ISSUE IN FAVOUR OF THE ASSESSEE. HE HAS HELD THAT THE COST O R WDV OF THE PLANT COULD NOT BE REDUCED BY ANY AMOUNT OF SUC H COMPENSATION RECEIVED. THE DECISION OF THE CIT(A) H AS NOT BEEN ACCEPTED AND A SECOND APPEAL HAS BEEN FILED BY THE DEPARTMENT ON THE POINT BEFORE THE ITAT, WHICH IS P ENDING DECISION. IN THE CIRCUMSTANCES, WITH A VIEW TO KEEP ING THE ISSUE ALIVE WHILE THE CIT(A)S DECISION IS NOT ACCE PTED BY THE DEPARTMENT, DEPRECIATION HAS BEEN REWORKED ON THE B ASIS OF THE REDUCED WDV OF THE PLANT AND MACHINERIES AS AT 31.3.2002. WORKING OF DEPRECIATION ALLOWABLE IS ANN EXED AS ANNEXURE A TO THIS ORDER. THE CLAIM OF DEPRECIATI ON MADE BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT WAS RS.6,92,49,548/- WHEREAS AN AMOUNT OF RS.5,65,51,534/- IS ONLY ALLOWABLE IN VIEW OF THE DISCUSSIONS ABOVE. DEPRECIATION IS ALLOWED ACCORDINGLY. ITA NOS.851-4514-3430/M/08 ECHJAY INDUS. P.LTD. 3 ON APPEAL, THE LD. CIT(A), FOLLOWING THE APPELLATE ORDER FOR THE ASSTT. YEAR 1999- 2000 AND SUCCESSIVE ASSTT. YEARS, DIRECTED THE AO N OT TO REDUCE ANY PART OF THE COMPENSATION FROM THE W.D.V. OF ASSETS WHILE COMPU TING THE ELIGIBLE DEPRECIATION ALLOWANCE FOR THE CURRENT YEAR. 6. AT THE TIME OF HEARING, THE LD. D.R. SUBMITS THA T SINCE THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSTT. YEARS2000-01 AND 2002-03 HAS SET ASIDE THE ISSUE TO THE FILE OF AO, THEREFORE, FOLLOWING THE S AME, THE ISSUE MAY BE SET ASIDE TO THE FILE OF THE AO. 7. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE SUPPORTS THE ORDER OF THE LD. CIT(A). 8. WE HAVE CAREFULLY HEARD THE SUBMISSIONS OF THE R IVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THER E IS NO DISPUTE THAT THIS ISSUE AROSE FOR THE FIRST TIME IN ASSTT. YEAR 1999-2000 W HEREIN THE AO HAS REDUCED THE W.D.V. OF THE PLANT BY THE FIGURE OF COMPENSATION RECEIVED. HOWEVER, ON APPEAL, THE LD. CIT(A) HELD THAT THE AO WAS NOT JUS TIFIED IN REDUCING THE ACTUAL COST OF THE ASSET BY THE COMPENSATION RECEIVED AND REDUCING THE CLAIM OF DEPRECIATION AND, THEREFORE, DIRECTED THE AO TO RE COMPUTE THE DEPRECIATION ALLOWANCE WITHOUT REDUCING ANY PART OF COMPENSATION FROM THE W.D.V. OF ASSETS AS AT 01-04-1998. WE FURTHER FIND THAT AO IN THE ASSTT. ORDER FOR THE IMPUGNED ASSESSMENT YEAR HAS ALSO OBSERVED THAT THE DECISIO N OF THE CIT(A) HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND SECOND APPEAL HAS BE EN FILED BEFORE THE TRIBUNAL WHICH IS PENDING FOR DECISION. WE FURTHER FIND THAT THE TRIBUNAL IN THE APPEAL FILED BY THE REVENUE IN DCIT VS. ECHJAY INDU STRIES P.LTD. IN ITA NO.7428/MUM/2003 FOR ASSTT. YEAR 2000-01 ORDER DATE D 15-12-2008 AND IN ITA NO.909/MUM/2006 FOR ASSTT. YEAR 2002-03 ORDER DATE D 30-04-2010 HAS SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORED THE MATTER TO THE FILE OF THE AO ITA NOS.851-4514-3430/M/08 ECHJAY INDUS. P.LTD. 4 FOR FRESH CONSIDERATION. IN THE ABSENCE OF ANY DIST INGUISHING FEATURE BROUGHT ON RECORD BY THE LD. COUNSEL FOR THE ASSESSEE, WE, RES PECTFULLY FOLLOWING THE CONSISTENT VIEW OF THE TRIBUNAL, SET ASIDE THE ORDE RS PASSED BY THE REVENUE AUTHORITIES ON THIS ACCOUNT AND RESTORE THE ISSUE T O THE FILE OF THE AO TO DECIDE THE SAME AFRESH IN THE LIGHT OF OUR OBSERVATIONS H EREINABOVE AND ACCORDING TO LAW AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE GROUND TAKEN BY THE REVENUE IS, THEREFORE, PARTLY A LLOWED FOR STATISTICAL PURPOSES. 9. GROUND NO.2 IS AGAINST EXCLUSION OF EXCISE DUTY , CENTRAL SALES-TAX AND STATE SALES-TAX IN THE TOTAL TURNOVER FOR THE PURPO SE OF WORKING DEDUCTION U/S.80HHC. 10. THE BRIEF FACTS OF THE ABOVE ISSUE ARE THAT THE AO INCLUDED EXCISE DUTY, MST AND GST IN THE TOTAL TURNOVER OF THE ASSESSEE F OR THE PURPOSE OF WORKING OF DEDUCTION U/S.80HHC. ON APPEAL, THE LD. CIT(A), FOL LOWING THE DEICISON OF THE HONBLE JURISDICTIONAL HIGH COURT IN SUDARSHAN CHEM ICALS LTD. (245 ITR 769) (BOM), DIRECTED THE AO TO REDUCE EXCISE DUTY, CENTR AL SALES-TAX AND STATE SALES-TAX FROM THE TOTAL TURNOVER WHILE CALCULATING DEDUCTION U/S.80HHC OF THE ACT. 11. AT THE TIME OF HEARING, THE LD. D.R. SUPPORTS T HE ORDER OF THE A.O. 12. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSE SSEE RELIED ON THE ORDER OF THE LD. CIT(A). 13. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE R IVAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD, WE ARE OF THE OPI NION THAT THE ISSUE INVOLVED IN THE PRESENT CASE IS NO MORE RES INTEGRA AND IS COVE RED BY THE DECISIONS OF HONBLE APEX COURT IN THE CASE OF CIT VS. LAKSHMI M ACHINE WORKS (290 ITR 667) (SC) AND CIT VS. CATAPHARMA INDIA P.LTD. (292 ITR 6 41) WHEREIN IT HAS BEEN HELD THAT EXCISE DUTY AND SALES-TAX WOULD NOT FORM PART OF THE TOTAL TURNOVER ITA NOS.851-4514-3430/M/08 ECHJAY INDUS. P.LTD. 5 WHILE COMPUTING DEDUCTION U/S.80HHC OF THE ACT. RES PECTFULLY FOLLOWING THE AUTHORITATIVE PRONOUNCEMENT OF THE HONBLE APEX COU RT, WE ARE INCLINED TO UPHOLD THE FINDING OF THE LD. CIT(A) IN DIRECTING T HE AO TO REDUCE EXCISE DUTY, CENTRAL SALES-TAX AND STATE SALES-TAX FROM THE TOTA L TURNOVER WHILE COMPUTING DEDUCTION U/S.80HHC OF THE ACT. THE GROUND TAKEN B Y THE REVENUE IS, THEREFORE, REJECTED. 14. GROUND NO.3 IS AGAINST THE DIRECTION OF THE LD. CIT(A) TO REDUCE THE DISALLOWANCE OF RS.2.50 LAKHS AS AGAINST RS.5 LAKHS MADE BY THE AO ON ACCOUNT OF ELECTRICITY EXPENSES IN WORKING OUT THE PROFIT O F THE UNIT TO CLAIM DEDUCTION U/S.80IB. 15. THE BRIEF FACTS OF THE ABOVE ISSUE DISCUSSED B Y THE AO IN PARA-4 AT PAGE 7 OF THE ASSESSMENT ORDER ARE REPRODUCED AS UNDER : 4. DEDUCTION U/S.80 IB: (A) THE ASSESSEE HAS SET UP A UNIT KNOWN AS AXIAL CLOSED DIE ROLLING LINE ALSO KNOWN AS AGW UNIT IN J ULY AUGUST 1993 RELEVANT TO THE ASSESSMENT YEAR 1994-95 . THE SUBJECT ASSESSMENT YEAR IS THE 10 TH YEAR OF ITS CLAIM. THE ASSESSEE HAS FILED THE PROFIT AND LOSS ACCOUNT PREPARED FOR THIS UNIT SEPARATELY WORKING OUT A PRO FIT OF RS.10,02,50,490/- AND 30% OF THE SAME HAS BEEN CLAIMED AS DEDUCTION U/S.80IB. AS SEEN FROM THE PRO FIT AND LOSS ACCOUNT OF THE UNIT FILED, ALTHOUGH THE OVERHEAD EXPENSES HAVE BEEN PROPORTIONATELY DEBITED AND CONSIDERED (SINCE THE COMPANY HAS THREE UNITS A ND VARIOUS OVERHEADS ARE COMMON SUCH AS INTEREST COSTS , GENERAL STAFF AND ADMINISTRATIVE EXPENSES ETC.) IN WORKING OUT THE PROFITS OF THE UNIT, GENERAL ELECTR ICITY EXPENSES IS SEEN TO HAVE NOT BEEN DEBITED AT ALL IN THE ACCOUNT. THE ASSESSEE HAS WORKED OUT ELECTRICITY CONSUMPTION FOR EACH OF THE MACHINERY IN THE SAID U NIT AND DEBITED TO THE PROFIT AND LOSS ACCOUNT BUT NO EXPENSE FOR THE GENERAL ELECTRICITY USE SUCH AS LIG HTING, AIR CONDITIONING ETC., HAS BEEN DEBITED. THIS WAS S AME IN THE PREVIOUS YEAR WHEN THE AO ESTIMATED AN AMOUNT O F RS.5,00,000 TO BE DEBITED TO THE PROFIT AND LOSS A CCOUNT AND ACCORDINGLY HE REDUCED THE PROFITS FOR THE PURP OSE OF SECTION 80IB. IN APPEAL, THE CIT(A) IN HIS ORDER FO R THE ASSESSMENT YEAR 2002-03 ALTHOUGH UPHELD THE ACTION OF THE AO IN DEBITING A PART OF THE GENERAL LIGHTING EXPENSES TO THE PROFIT AND LOSS ACCOUNT OF THE INDU STRIAL ITA NOS.851-4514-3430/M/08 ECHJAY INDUS. P.LTD. 6 UNIT, HE REDUCED THE AMOUNT TO RS.2,50,000 HOLDING SUCH AMOUNT AS REASONABLE. HOWEVER, I ESTIMATE AN AMOUNT OF RS.5,00,000/- ATTRIBUTABLE TO SUCH GENERA L LIGHTING ETC., AND ACCORDINGLY THE NET PROFITS ON W HICH THE DEDUCTION IS CLAIMED IS REDUCED BY THE SAID AMOUNT OF RS.5,00,000. 16. ON APPEAL, THE LD. CIT(A), FOLLOWING THE APPELL ATE ORDER FOR THE ASSTT. YEAR 2001-02, REDUCED THE DISALLOWANCE TO RS.2.50 LAKHS AND ALLOWED A RELIEF OF RS.2.50 LAKHS TO THE ASSESSEE. 17. AT THE TIME OF HEARING, THE LD. D.R. SUPPORTS T HE ORDER OF THE AO. 18. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSE SSEE RELIED ON THE ORDER OF THE LD. CIT(A). 19. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THERE IS NO DISPUTE THAT IN THE ASSTT. YEAR 2001-02 THE LD. CIT(A) HAS REDUC ED THE DISALLOWANCE TO RS.2.50 LAKHS AS AGAINST RS.5 LAKHS MADE BY THE AO. WE FURTHER FIND THAT THE TRIBUNAL IN THE REVENUES APPEAL IN ITA NO.909/MUM/ 06 FOR ASSTT. YEAR 2002-03 DATED 30-04-2010 (SUPRA) HAS CONSIDERED THE SIMILAR ISSUE AND IN THE ABSENCE OF ANY CONTRARY MATERIAL, UPHELD THE ORDER OF THE LD. CIT(A). THIS BEING SO, AND IN THE ABSENCE OF ANY DISTINGUISHING FEATURES BROUGHT ON RECORD BY THE REVENUE AND KEEPING IN VIEW THE RULE OF CONSISTENCY, WE DE CLINE TO INTERFERE WITH THE ORDER PASSED BY THE LD. CIT(A) IN REDUCING THE AD H OC DISALLOWANCE TO RS.2.50 LAKHS AS AGAINST RS.5 LAKHS MADE BY THE AO. THE GRO UND TAKEN BY THE REVENUE IS, THEREFORE, REJECTED. ITA NO.4514/MUM/07 (AY : 2004-05): 20. AT THE TIME OF HEARING, BOTH THE PARTIES HAVE A GREED HAT THE ISSUES IN GROUND NO.1 AND 2 ARE SIMILAR TO GROUND NOS. 2 AND 1 FOR ASSTT. YEAR 2003-04. THEREFORE, THE PLEA TAKEN IN THAT APPEAL MAY BE CON SIDERED WHILE DECIDING THE APPEAL FOR THE YEAR UNDER CONSIDERATION. ITA NOS.851-4514-3430/M/08 ECHJAY INDUS. P.LTD. 7 21. THAT BEING SO, AND IN THE ABSENCE OF ANY DISTIN GUISHING FEATURE BROUGHT ON RECORD BY THE PARTIES, WE, KEEPING IN VIEW OF OUR F INDING RECORDED IN PARA 13 AND 8 OF THIS ORDER, DIRECT THE AO TO FOLLOW OUR FINDIN GS RECORDED IN THE AFORESAID PARAS OF THIS ORDER. WE HOLD AND ORDER ACCORDINGLY . THE GROUND NO.1 TAKEN BY THE REVENUE IS, THEREFORE, REJECTED AND GROUND NO. 2 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.3430/MUM/08 (AY: 2005-06) : 22. AT THE TIME OF HEARING, BOTH THE PARTIES HAVE A GREED THAT THE ISSUE IN GROUND NO.1 IS SIMILAR TO GROUND NO. 1 FOR ASST T. YEAR 2003-04. THEREFORE, THE PLEA TAKEN IN THAT APPEAL MAY BE CONSIDERED WHILE D ECIDING THE APPEAL FOR THE YEAR UNDER CONSIDERATION. 23. THAT BEING SO, AND IN THE ABSENCE OF ANY DISTIN GUISHING FEATURE BROUGHT ON RECORD BY THE PARTIES, WE, KEEPING IN VIEW OF OUR F INDING RECORDED IN PARA 8 OF THIS ORDER, DIRECT THE AO TO FOLLOW OUR FINDING REC ORDED IN THE AFORESAID PARA OF THIS ORDER. WE HOLD AND ORDER ACCORDINGLY. GROUND T AKEN BY THE REVENUE IS, THEREFORE, PARTLY ALLOWED FOR STATISTICAL PURPOSES. 24. IN THE RESULT, THE REVENUES APPEALS STAND PART LY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THE 29TH DAY OF JUNE, 2011. SD/- SD/- (J. SUDHAKAR REDDY) (D.K. AGARWAL) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI: 29TH JUNE , 2011. NG: COPY TO : ITA NOS.851-4514-3430/M/08 ECHJAY INDUS. P.LTD. 8 1. DEPARTMENT. 2.ASSESSEE. 3 CIT(A)-XXVIII,MUMBAI. 4 CIT-3,MUMBAI. 5.DR, E BENCH,MUMBAI. 6.MASTER FILE. (TRUE COPY) BY ORDER, ASST.REGISTRAR, ITAT, MUMBAI. ITA NOS.851-4514-3430/M/08 ECHJAY INDUS. P.LTD. 9 DETAILS DATE INITIALS DESIGNA TION 1. DRAFT DICTATED ON 23-06-11 SR.PS/ 2. DRAFT PLACED BEFORE AUTHOR 27-06-11 SR.PS/ 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/ AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/ 6. KEPT FOR PRONOUNCEMENT ON SR.PS/ 7. FILE SENT TO THE BENCH CLERK SR.PS/ 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9. DATE ON WHICH FILE GOES TO THE AR 10. DATE OF DISPATCH OF ORDER