Appeal details
Counselvise Citation
34724914 RSA 2008
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 11 month(s) 17 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
31-05-2011
Appeal Filed By
Department
Order Result
Partly Allowed
Bench Allotted
DB
Next Hearing Date
23-03-2011
Assessment Year
2005-2006
Appeal Filed On
13-06-2008
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT BEFORE SH. A.L. GEHLOT, ACCOUNTANT MEMBER AND SH. N .R.S. GANESAN, JUDICIAL MEMBER I.T.A. NOS. 347/RJT/2008 ASSESSMENT YEARS:2005-06 THE ASSTT. COMMR. OF INCOME-TAX, VS. M/S. FRIENDS SALT WORKS & GANDHIDHAM CIRCLE. ALLIED INDUSTRIES, GANDHIDHAM. GANDHIDHAM (APPELLANT) (RESPONDENT) C.O. NO.46/RJT/2008 (ARISING OUT OF ITA NO.347RJT/2008) ASSESSMENT YEAR 2005-06 M/S. FRIENDS SALT WORKS & VS. ASSTT. COMMR. OF IN COME-TAX, ALLIED INDUSTRIES, GANDHIDHAM CIRCLE, GANDHIDHAM. GANDHIDHAM. (APPELLANT) (RESPONDENT) I.T.A. NOS. 292/RJT/2008 ASSESSMENT YEARS:2004-05 THE DY. COMMR. OF INCOME-TAX, VS. M/S. FRIENDS SAL T WORKS & GANDHIDHAM CIRCLE. ALLIED INDUSTRIES, GANDHIDHAM (APPELLANT) (RESPONDENT) I.T.A. NO.248/RJT/2008 ASSESSMENT YEAR: 2004-05 M/S. FRIENDS SALT WORKS & VS. ASSTT. COMMR. OF IN COME-TAX, ALLIED INDUSTRIES, GANDHIDHAM CIRCLE, GANDHIDHAM. GANDHIDHAM. (APPELLANT) (RESPONDENT) DEPARTMENT BY: SH. L.D. BHARTI, DR ASSESSEE BY: SH. K.C. THAKER, ADVOCATE ITA 248, 292 & 347/RJT/2008 CO 46/RJT/2008 2 ORDER PER N.R.S. GANESAN, JM THESE THREE APPEALS AND ONE C.O. TWO APPEALS FILED BY THE REVENUE AND ANOTHER APPEAL AND C.O. FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDERS OF THE CIT(A), RAJKOT, DATED 25.03.2008 & 29 .02.2008 FOR THE ASSESSMENT YEARS 2005-06 & 2004-05 RESPECTIVELY. SINCE THE ISS UES INVOLVED IN ALL THESE APPEALS AND C.O. ARE IDENTICAL, THESE WERE HEARD TO GETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CO NVENIENCE. 2. FIRST, WE TAKE UP REVENUES APPEAL IN ITA NO. 34 7(RAJ)/2008 FOR THE ASSESSMENT YEAR 2005-06. THE FIRST GROUND OF APPEAL RELATES TO DISALLOWANCE OF DEPRECIATION ON THE STORAGE TANK. 2.1. SH. L.D. BHARTI, THE LD. DR, SUBMITTED THAT TH E ASSESSEE CLAIMED DEPRECIATION ON THE STORAGE TANK AT THE RATE APPLIC ABLE TO PLANT AND MACHINERY, THEREFORE, THE A.O. VIDE LETTER DATED 19.12.2007 AS KED THE ASSESSEE TO SHOW CAUSE WHY THE STORAGE TANK SHOULD NOT BE TREATED AS BUILDING. THE ASSESSEE EXPLAINED BEFORE THE A.O. THAT STORAGE TANK HAS TO BE CONSIDERED AS PLANT AND MACHINERY, THEREFORE, DEPRECIATION HAS TO BE GRANTE D AT THE RATE APPLICABLE TO PLANT AND MACHINERY. HE FURTHER REFERRING TO THE OR DER OF THE A.O. SUBMITTED THAT THE STORAGE TANK IS USED FOR STORING GOODS AND STOR AGE TANK CANNOT BE TREATED AS PLANT AND MACHINERY. THE A.O. AFTER EXAMINING THE F UNCTIONAL TEST FOUND THAT THE BUILDING APPARATUS WHICH IS EMPLOYED FOR STORING LIQUID GOODS HAS TO BE TREATED AS BUILDING AND NOT PLANT AND MACHINERY. THE STORAG E TANKS USED BY THE ASSESSEE FOR OIL/PETROLEUM PRODUCTS ON VARIOUS PAR TIES TEMPORARILY FOR THE PURPOSE OF MARKETING THE SAME IN THE COURSE OF ITS BUSINESS ACTIVITY. THE ASSESSEE HAS NOT STORED ANY OF THE PETROLEUM PRODUC TS FOR ITS OWN USE IN THE TRADING ACTIVITY. THE PETROLEUM PRODUCTS BELONGS TO OTHERS WERE STORED IN THE STORAGE TANKS. THEREFORE, SUCH STORAGE TANKS CANNOT BE CLASSIFIED AS PLANT AND MACHINERY. HOWEVER, THE LD. CIT(A), FOUND THAT THE ASSESSEE CONSTRUCTED ITA 248, 292 & 347/RJT/2008 CO 46/RJT/2008 3 STORAGE TANKS OF DIFFERENT CAPACITY ON THE LAND TAK EN ON LEASE. ALL SUCH TANKS WERE INTER-CONNECTED WITH THE PIPELINE LAID DOWN FR OM LIQUID OIL JETTY AT THE KANDLA PORT TO THE STORAGE TANKS OF THE ASSESSEE. THE LD. CIT(A), HOWEVER, TREATED THE OIL STORAGE TANK AS PLANT AND MACHINERY AND DIRECTE D THE A.O. TO GRANT DEPRECIATION @ 25%. SUCH STORAGE TANK CANNOT BE TR EATED AS PLANT AND MACHINERY. THE ASSESSEE MIGHT USE STORAGE TANK IN T HE COURSE OF THEIR BUSINESS ACTIVITIES. HOWEVER, NO BUSINESS WAS CARRIED ON WI TH STORAGE TANK. THEREFORE, THE ASSESSEE IS NOT ELIGIBLE FOR DEPRECIATION AT THE RA TE APPLICABLE TO PLANT AND MACHINERY. 2.2. ON THE CONTRARY, SH. K.C. THAKER, THE LD. COUN SEL FOR THE ASSESSEE, SUBMITTED THAT STORAGE TANKS WERE SPECIFICALLY DESI GNED FOR STORING OIL/PETROLEUM PRODUCTS. REFERRING TO VARIOUS CASE LAWS OF VARIOU S HIGH COURTS, WHICH WERE REFERRED IN THE WRITTEN SUBMISSION FILED BEFORE TH E LD. CIT(A), THE LD. COUNSEL POINTED OUT THAT THE ASSESSEE SPECIFICALLY DESIGNED STORAGE TANKS FOR THE PURPOSE OF STORING OIL/PETROLEUM PRODUCTS AND EACH TANK IS INTERCONNECTED WITH KANDLA PORT FOR STORAGE. SUCH A STRUCTURE CANNOT BE CONSID ERED TO BE AN ORDINARY BUILDING. THE LD. COUNSEL FOR THE ASSESSEE, FURTHER , SUBMITTED THAT THE LD. CIT(A) AFTER FOLLOWING THE ORDER OF THIS TRIBUNAL IN THE CASE OF ACIT VS. FRIENDS OIL & CHEMICAL TERMINALS (P) LTD., MAITRI, (IN ITA NO.169 0/RJT/2005 FOR THE A.Y. 2002- 03) DATED 18.5.2007, HAS FOUND THAT THE STORAGE TA NK HAS BE TREATED AS PLANT AND MACHINERY. 2.3. WE HAVE CONSIDERED THE RIVAL CONTENTIONS OF E ACH PARTIES AND PERUSED THE MATERIAL ON RECORD. THE ISSUE RAISED FOR OUR CONSI DERATION IS WHETHER STORAGE TANK IS A PLANT AND MACHINERY OR IT IS AN ORDINARY BUILDING. THERE ARE CONFLICTING JUDICIAL DECISIONS TO TREAT A PARTICULAR BUILDING A S PLANT AND MACHINERY. HOWEVER, THE HONBLE APEX COURT, IN THE CASE OF COMMISSIONER OF INCOME-TAX VS. ANAND THEATRES (2000) 244 ITR 192, CONSIDERED THIS ISSUE ELABORATELY AND IN FACT, SETTLED THE DISPUTE ONCE FOR ALL. THE HONBLE APEX COURT, AFTER CONSIDERING VARIOUS JUDGMENTS OF THE HIGH COURTS AND THE PROVISIONS O F SECTION 32 OF THE INCOME-TAX ITA 248, 292 & 347/RJT/2008 CO 46/RJT/2008 4 ACT, 1961, APPROVED THE PRINCIPLE LAID DOWN BY THE HOUSE OF LORDS IN THE CASE OF IRC VS. SCOTTISH AND NEWCASTLE BREWERIES LTD. (1982 ) 55 TC 282. THEREFORE, THE HONBLE APEX COURT SETTLED THE CONTROVERSY ONCE FO R ALL WHETHER BUILDING CAN BE TREATED AS PLANT OR MACHINERY. WE FIND THAT THE LOW ER AUTHORITIES HAD NO OCCASION TO CONSIDER THIS JUDGMENT OF THE HONBLE APEX COUR T, IN THE CASE OF CIT VS. ANAND THEATRES (SUPRA). PRESUMABLY, THE ATTENTION O F THE LOWER AUTHORITIES MIGHT NOT HAVE BEEN INVITED TO THE JUDGMENT OF THE APEX C OURT, IN THE CASE OF CIT VS. ANAND THEATRES (SUPRA). THEREFORE, IN OUR OPINION, THE LOWER AUTHORITIES HAS TO RECONSIDER THE ISSUE IN THE LIGHT OF LAW LAID DOWN BY THE HONBLE APEX COURT, IN THE CASE OF CIT VS. ANAND THEATRES (SUPRA). ACCORDI NGLY, WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND REMAND THE MATTER TO T HE FILE OF THE A.O. THE AO SHALL RECONSIDER THE ISSUE AFRESH IN THE LIGHT OF T HE LAW LAID DOWN BY THE HONBLE APEX COURT, IN THE CASE OF CIT VS. ANAND THEATRES ( SUPRA) AND DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW AFTER AFFORDING REASO NABLE OPPORTUNITY TO THE ASSESSEE. 3. THE NEXT ISSUE RAISED FOR OUR CONSIDERATION IS D ISALLOWANCE OF LEASE RENT PAYABLE TO KANDLA PORT TRUST. 3.1. SH. L.D. BHARTI, THE LD. DR, CONTENDED THAT TH E ASSESSEE HAD CLAIMED LEASE RENT PAYABLE TO KANDLA PORT TRUST AT RS.32,97 ,765/-. THE LD. DR, STATED THAT THE LEASE PERIOD WAS NOT EXTENDED, THEREFORE, THE LIABILITY IS CONTINGENT LIABILITY AND, THEREFORE, IT CANNOT BE ALLOWED. HE FURTHER POINTED OUT THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTI NG. THEREFORE, UNLESS LEASE RENT IS PAYABLE, IT CANNOT BE CLAIMED AS DEDUCTION WHILE COMPUTING TAXABLE INCOME. 3.2. ON THE CONTRARY, SH. K.C. THAKER, THE LD. COUN SEL FOR THE ASSESSEE SUBMITTED THAT ADMITTEDLY, THE ASSESSEE TOOK THE LA ND FROM KANDLA PORT TRUST. AFTER EXPIRY OF THE LEASE PERIOD, THE ASSESSEE APPL IED FOR EXTENSION/RENEWAL. DURING THE PENDENCY OF THE APPLICATION FOR RENEWAL OF LEASE, THE LEASE RENT IS ITA 248, 292 & 347/RJT/2008 CO 46/RJT/2008 5 PAYABLE TO KANDLA PORT TRUST. SINCE THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THE RENT PAYABLE TO KANDLA PORT TRUS T, WAS CLAIMED AS DEDUCTION. THE LD. COUNSEL, FURTHER, SUBMITTED THAT SINCE THE ASSESSEE WAS ADMITTEDLY IN POSSESSION OF LAND AFTER EXPIRY OF LEASE PERIOD, IR RESPECTIVE OF THE FACT WHETHER THE ASSESSEE WAS PURSUING FOR EXTENSION/RENEWAL OF LEASE RENT WITH KANDLA PORT TRUST, THE ASSESSEE HAS TO PAY AGREED RENT FOR TH E PERIOD, FOR WHICH THE ASSESSEE WAS IN POSSESSION OF THE PROPERTY. 3.3. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMI TTED THAT IN FACT, KANDLA PORT TRUST AGREED TO EXTEND LEASE PERIOD FOR A FURT HER PERIOD OF 30 YEARS SUBJECT TO PERMISSION THAT MAY BE GRANTED BY THE GOVT. OF I NDIA. THEREFORE, THE ASSESSEE HAS LIABILITY TO PAY LEASE RENT TO KANDLA PORT TRU ST. ON QUERY FROM THE BENCH, WHETHER RESOLUTION PASSED BY KANDLA PORT TRUST WAS ACCEPTABLE TO THE GOVT. OF INDIA, THE LD. COUNSEL SUBMITTED THAT SUBSEQUENTLY LEASE PERIOD WAS EXTENDED/RENEWED BY THE GOVT. OF INDIA AND THE ASSE SSEE HAD PAID ENTIRE LEASE RENT. ACCORDINGLY, THE LD. CIT(A), WAS JUSTIFIED I N DIRECTING THE A.O. TO TREAT THE AMOUNT PAYABLE TO KANDLA PORT TRUST TOWARDS LEASE RENT AND ALLOW DEDUCTION THEREOF. 3.4. WE HAVE CONSIDERED THE RIVAL CONTENTIONS OF EA CH PARTIES AND GONE THROUGH THE MATERIAL PLACED ON RECORD. IT IS NOT IN DISPUTE THAT THE ASSESSEE WAS LESSEE AND THE LEASE PERIOD EXPIRED ON 9 TH APRIL, 2004. THE ASSESSEES APPLICATION FOR RENEWAL OF LEASE IS PENDING BEFORE THE MINISTRY OF SHIPPING. IN FACT, KANDLA PORT TRUST, PASSED RESOLUTION FOR REN EWAL OF LEASE FOR A FURTHER PERIOD OF 30 YEARS SUBJECT TO APPROVAL THAT MAY BE GRANTED BY THE GOVT. OF INDIA. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE CONTINU ES IN CONTROL AND POSSESSION OF LEASE HOLD LAND. EVEN AFTER THAT THE SAID LAND WAS NOT TAKEN OVER BY KANDLA PORT TRUST. THEREFORE, THE LD. CIT(A) RIGHTLY HELD IRRES PECTIVE OF THE FACT WHETHER LEASE PERIOD WAS EXTENDED OR NOT, THE ASSESSEE HAS NECESS ARILY TO PAY DAMAGE FOR OCCUPATION OF PROPERTY AFTER THE EXPIRY OF THE LEAS E PERIOD. NORMALLY DAMAGES FOR USER OF THE PROPERTY AFTER EXPIRY OF LEASE PERIOD, WOULD BE AN AMOUNT, PAYABLE AS ITA 248, 292 & 347/RJT/2008 CO 46/RJT/2008 6 RENT DURING THE LEASE PERIOD. DURING THE ASSESSMENT YEAR UNDER CONSIDERATION, ADMITTEDLY, THE ASSESSEE WAS IN POSSESSION OF THE P ROPERTY. THEREFORE, IN OUR OPINION, THE ASSESSEE HAS A LIABILITY TO PAY THE A MOUNT. SINCE THE ASSESSEE IS MAINTAINING ACCOUNTS ON MERCANTILE SYSTEM, THE LIAB ILITY IS TO BE DEDUCTED WHILE COMPUTING TAXABLE INCOME. IT IS NOT IN DISPUTE THAT SUBSEQUENTLY LEASE PERIOD WAS RENEWED, IN PURSUANCE TO THE APPROVAL GRANTED BY TH E GOVT. OF INDIA. THEREFORE, THE LD. CIT(A), WAS RIGHT IN TREATING THE AMOUNT PA YABLE TO KANDLA PORT TRUST TOWARDS LEASE RENT AS AN ASCERTAINED LIABILITY. IN VIEW OF THE ABOVE DISCUSSION, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A ) AD THE SAME IS CONFIRMED. THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 4. THE NEXT GROUND OF APPEAL RELATES TO RESTRICTING THE ADDITION TO RS. 1,34,370/- AS AGAINST ADDITION OF RS. 2,68,740/- O N ACCOUNT OF DISALLOWANCE OF PERSONAL EXPENSES. 4.1. THE LD. DR, SUBMITTED THAT THE AO DISALLOWED R S.2,68,740/- BEING 10% OF THE TOTAL TRAVELING EXPENSES, TELEPHONE EXPENSES AN D VEHICLE EXPENSES. HOWEVER, ON APPEAL BY THE ASSESSEE, THE LD. CIT(A), RESTRICTED THE DISALLOWANCE TO 5% INSTEAD OF 10%. THE LD. DR, SUBMITTED THAT T HE DISALLOWANCE MADE BY THE AO AT 10% IS VERY REASONABLE, THEREFORE, THE LD. CI T(A) IS NOT JUSTIFIED IN RESTRICTING THE DISALLOWANCE AT 5%. 4.2. THE LD. COUNSEL FOR THE ASSESSEE, SUBMITTED TH AT PARTNERS/DIRECTORS OF THE ASSESSEE-FIRM ARE ALSO PARTNERS IN VARIOUS OTHER GR OUPS. MOREOVER, THEY HAVE OTHER SOURCE OF INCOME. THEREFORE, IT CANNOT BE SAI D THAT TRAVELING, TELECOMMUNICATION AND VEHICLE EXPENSES ARE RELATABL E TO PERSONAL EXPENDITURE. HE FURTHER SUBMITTED THAT THE LD. CIT(A) OUGHT TO H AVE DELETED THE ENTIRE ADDITION OF RS. 2,68,740/-. 4.3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF EI THER PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ASSESSEE CLAIMED ITA 248, 292 & 347/RJT/2008 CO 46/RJT/2008 7 RS.26,87,402/- TOWARDS VEHICLE, TELECOMMUNICATION A ND TRAVELING EXPENSES. THE AO FOUND THAT THE ELEMENT OF PERSONAL USER CANNOT BE RULED OUT. THEREFORE, HE DISALLOWED 10% OF THE EXPENSES AT RS.2,68,740/-. HO WEVER, ON APPEAL BY THE ASSESSEE, THE LD. CIT(A), RESTRICTED THE SAME TO 5 %, WHEN THE ASSESSEE HAD USED VEHICLES FOR BUSINESS PURPOSE. THE USER OF TH E SAME BY THE PARTNERS/DIRECTORS FOR PERSONAL USE CANNOT BE RULED OUT. THEREFORE, THE AUTHORITIES BELOW HAS TO ESTIMATE PERSONAL USE OF T HE EXPENSES ON REASONABLE BASIS. THE LD. CIT(A), IN EXERCISE OF POWERS DISAL LOWED 5%, IN THE ABSENCE OF ANY OTHER MATERIAL ON RECORD. WE ARE OF THE CONSIDE RED OPINION THAT THE LD. CIT(A), WAS JUSTIFIED IN RESTRICTING THE DISALLOWAN CE TO 5%. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) A ND CONFIRM THE DISALLOWANCE MADE BY HIM AT 5%. THIS GROUND OF APPEAL OF THE RE VENUE IS ALSO DISMISSED. 5. THE NEXT GROUND OF APPEAL IS WITH REGARD TO DISA LLOWANCE OF DEPRECIATION ON VEHICLES AT RS. 27,383/-. 5.1. THE LD. DR, SUBMITTED THAT THE ASSESSEE CLAIME D DEPRECIATION ON THE MOTOR BUS, SCOOTER & TRACTOR TROLLEYS ETC. AT 25%. HE SUBMITTED THAT ALL THESE ASSETS WERE FORMING PART OF ASSESSMENT. THEREFORE, THE AO FOUND THAT THE ASSESSEE IS ENTITLED FOR DEPRECIATION @ 20% AND NOT AT 25%. THEREFORE, EXCESS DEPRECIATION CLAIMED TO THE EXTENT OF RS. 76,587/- WAS DISALLOWED BY THE A.O. HOWEVER, ON APPEAL BY THE ASSESSEE, THE LD. CIT(A), FOUND MOTOR BUS, SCOOTERS & TRACTOR TROLLEYS CANNOT BE TREATED AS MOTOR CAR. SINCE NO SPECIFIC RATE WAS GIVEN IN RESPECT OF MOTOR BUS, SCOOTERS AND TRACTOR TROLLEYS ETC., THE ASSESSEE IS ENTITLED FOR DEPRECIATION @ 25%. 5.2. THE LD. DR, FURTHER SUBMITTED THAT INCOME-TAX RULES PRESCRIBES HIGHER RATE OF DEPRECIATION ONLY IN RESPECT OF HEAVY VEHIC LE WHICH WAS USED FOR HIRING . THE VEHICLE USED BY THE ASSESSEE FOR ITS OWN BUSINE SS, IS ENTITLED FOR DEPRECIATION AT 20% AND NOT AT 25%. ITA 248, 292 & 347/RJT/2008 CO 46/RJT/2008 8 5.3. ON THE CONTRARY, SH. K.C. THAKER, THE LD. COUN SEL FOR THE ASSESSEE CONTENDED THAT THE MOTOR CARS OTHER THAN THOSE USED IN THE BUSINESS OF RUNNING THEM ON HIRE ARE ENTITLED FOR DEPRECIATION @ 20%. THE MACHINERY AND PLANT WHICH DO NOT FALL IN THE CATEGORY OF MOTOR CARS AND MOTOR BUSES ARE ENTITLED FOR DEPRECIATION @ 25%. THE LD. COUNSEL FURTHER SUBMIT TED THAT MOTOR CARS, MOTOR JEEP AND TRACTOR TROLLEYS MAY NOT FALL IN THE CATE GORY OF MOTOR BUS AND MOTOR CAR RUNNING ON HIRE. THEREFORE, IT HAS TO BE CONSIDERED AS MACHINERY AND PLANT FOR THE PURPOSE OF ALLOWING DEPRECIATION @ 25%. 5.4. WE HAVE HEARD BOTH THE PARTIES, CONSIDERED THE RIVAL SUBMISSIONS AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THE ISSUE ARISES FOR OUR CONSIDERATION IS WHETHER MOTOR BUS CUM SCOOTER AND TRACTOR TROLLEYS ARE AKIN TO MOTOR CAR OR NOT. THE LD. CIT(A) FOUND THAT MOTOR B US, SCOOTERS AND TRACTOR TROLLEYS ARE NOT AKIN TO MOTOR CAR. THEREFORE, DEPR ECIATION RATE APPLIED FOR MOTOR CARS IS NOT APPLICABLE TO MOTOR BUSES, SCOOTERS AND TRACTOR TROLLEYS. WE FIND THAT APPENDIX-1 OF RULE 5 OF THE INCOME TAX RULES, 1962, WHICH IS APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. THERE IS NO EN TRY FOR THE ASSETS, SUCH AS MOTOR BUS, SCOOTERS AND TRACTOR TROLLEYS, WHICH ARE USED BY THE ASSESSEE FOR THEIR OWN BUSINESS. THE LD. CIT(A), AFTER EXTRACTING THE DEPRECIATION TABLE APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION HAS RIG HTLY FOUND THAT MOTOR CAR, MOTOR BUS, SCOOTER AND TRACTOR TROLLEY DO NOT FALL UNDER APPENDIX-1(A) (III) SUB ITEM (2) & (3), SINCE THE SAME WAS RUNNING ON HIRE . FROM THE ASSESSMENT ORDER, IT APPEARS THAT SO FAR AS JEEP WAS CONCERNED, THE A SSESSEE WAS AGREED WITH THE A.O. FOR DEPRECIATION @ 20%. THE JEEP IS A MOTOR CA R WHICH FALLS UNDER CLAUSE 2 OF APPENDIX-1. THEREFORE DEPRECIATION WAS ALLOWED AT 20%. HOWEVER, MOTOR BUS, SCOOTERS AND TRACTOR TROLLEYS MAY NOT FALL IN CLAUS E (2) & (3). NO SPECIFIC CLAUSE GIVEN FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, THEREFORE, IT FALLS IN CLAUSE (3). IN VIEW OF THE ABOVE, WE ARE OF THE CONSIDERE D OPINION THAT THE ASSESSEE IS ENTITLED FOR 25% DEPRECIATION IN RESPECT OF MOTOR B US, SCOOTERS AND TRACTOR TROLLEYS. ACCORDINGLY, WE DO NOT FIND ANY INFIRMIT Y IN THE ORDER OF THE LD. CIT(A) AND THE SAME IS CONFIRMED. THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. ITA 248, 292 & 347/RJT/2008 CO 46/RJT/2008 9 6. THE LAST GROUND OF APPEAL IS WITH REGARD TO REST RICTION OF DISALLOWANCE OF VARIOUS CASH EXPENSES BY THE CIT(A) TO RS.5,43,453/ - AS AGAINST RS.21,73,810/-. 6.1. WE HAVE HEARD BOTH THE LD. DR AND LD. COUNSEL FOR THE ASSESSEE AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE HAS CL AIMED MISCELLANEOUS EXPENDITURE TO THE EXTENT OF RS. 1,08,69,052/-. THE AO FOUND THAT THE ENTIRE PAYMENT WAS MADE IN CASH AND NO PROPER VOUCHERS WER E MAINTAINED. THE A.O. HAS ALSO FOUND THAT THE PAYMENTS WERE NOT VERIFIABL E. ACCORDINGLY, THE AO DISALLOWED 20% OF THE TOTAL EXPENDITURE TO THE EXT ENT OF RS.21,73,810/-. HOWEVER,THE LD. CIT(A), RESTRICTED THE DISALLOWANCE TO 5% INSTEAD OF 20%. IT IS NOT IN DISPUTE THAT THE PAYMENTS WERE MADE IN CASH AND THE ASSESSEE HAS NOT MAINTAINED PROPER VERIFIABLE VOUCHERS, THEREFORE, T HE AO WAS REASONABLE IN ESTIMATING DISALLOWANCE. SINCE THE FIRST APPELLATE AUTHORITY IN EXERCISE OF ITS DISCRETION ESTIMATED THE DISALLOWANCE AT 5%, NO CO GENT AND CREDIBLE MATERIAL FOUND ON RECORD TO SUGGEST THAT THE DISCRETION EXE RCISED BY THE CIT(A) IS NOT JUSTIFIED. IN THE ABSENCE OF ANY MATERIAL, WE DO NO T FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY. AC CORDINGLY, WE UPHOLD THE SAME AND DISMISS THIS GROUND OF APPEAL OF THE REVENUE. 7. NOW WE SHALL DEAL WITH C.O. NO.46(RAJ)/2008 ( A RISES OUT OF ITA NO.347(RAJ)/2008 FOR THE ASSESSMENT YEAR 2005-06. THE FIRST GROUND OF APPEAL IS WITH REGARD TO DISALLOWANCE OF 5% OF THE TRAVELI NG, TELE-COMMUNICATION AND VEHICLE EXPENSES. THIS ISSUE HAS BEEN DISCUSSED BY US IN DETAIL WHILE DECIDING THE APPEAL OF THE DEPARTMENT (SUPRA), WHEREBY WE HA VE UPHELD THE DISALLOWANCE MADE BY THE CIT(A). ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) AND DISMISS THE GROUND RAISED B Y THE ASSESSEE IN THE C.O. 8. THE NEXT GROUND OF APPEAL IS WITH REGARD TO DISA LLOWANCE OF 5% OF MISC. LABOUR EXPENSES. THIS ISSUE HAS ALSO BEEN ELABORATE LY DISCUSSED IN THE DEPARTMENTAL APPEAL, WHEREBY WE HAVE UPHELD THE DI SCRETIONARY EXERCISE MADE BY THE CIT(A), IN THE ABSENCE OF ANY PROPER VOUCHER S. THEREFORE, WE DO NOT FIND ITA 248, 292 & 347/RJT/2008 CO 46/RJT/2008 10 ANY INFIRMITY IN THE ORDER OF THE LOWER AUTHORITY A ND THE SAME IS CONFIRMED. THIS GROUND OF THE C.O. IS ALSO DISMISSED. 9. THE GROUND NOS. 3 & 4 RAISED IN THE C.O. ARE GEN ERAL IN NATURE AND DO NOT REQUIRE ANY ADJUDICATION. 10. NOW WE PROCEED TO DECIDE APPEAL OF THE DEPARTM ENT IN ITA NO.292(RAJ)/2008 FOR THE A.Y. 2004-05. THE FIRST I SSUE RAISED FOR OUR CONSIDERATION IS DISALLOWANCE OF RS.1,50,000/- ON A CCOUNT OF PENALTY. 10.1. SH. L.D. BHARTI, THE LD. DR, SUBMITTED THAT THE ASSESSEE WAS GRANTED LICENCE TO STORE SOLVENT CARGO UNDER THE ESSENTIA L COMMODITIES ACT, 1995. THE ASSESSEE HAS TO STORE SOLVENT CARGO ONLY IN THE PLA CE WHERE LICENCE WAS GRANTED. HOWEVER, THE ASSESSEE STORED SOLVENT CARGO IN THE PLACE OTHER THAN LICENCED PLACE. THEREFORE, PENALTY WAS IMPOSED FOR STORING SOLVENT CARGO IN ANOTHER PLACE. THIS PENALTY IS LEVIED FOR VIOLATION OF THE STATUTORY PROVISIONS. HOWEVER, THE LD. CIT(A), DELETED THE DISALLOWANCE ON THE GROUND THAT THE PENALTY IS ONLY FOR VIOLATION OF CONTRACTUAL LIABILITY. THE LICENCE WA S GRANTED BY THE DISTRICT COLLECTOR UNDER THE STATUTORY PROVISIONS AND THE ASSESSEE CAN NOT STORE SOLVENT CARGO IN OTHER PLACE THAN THE LICENCED PLACED. THEREFORE, IT IS NOT VIOLATION OF CONTRACTUAL CONTRACT BUT STATUTORY PROVISIONS. THEREFORE, THE P ENALTY IS LEVIED FOR VIOLATION OF STATUTORY PROVISIONS, AS SUCH, IT CANNOT BE ALLOWE D WHILE COMPUTING INCOME. 10.2. ON THE CONTRARY, THE LD. COUNSEL FOR THE ASSE SSEE SUBMITTED THAT BECAUSE OF SOME MISTAKE, CERTAIN QUANTITY OF GOODS WERE STO RED IN A PLACE OTHER THAN THOSE FOR WHICH LICENSE WAS GRANTED AND THE SAME WE RE CONFISCATED. IN LIEU OF CONFISCATION, THE ASSESSEE HAS PAID MARKET VALUE O F THE SOLVENT CARGO. THE LD. COUNSEL FURTHER SUBMITTED THAT THIS IS ONLY A BREAC H OF CONTRACTUAL LIABILITY. HE SUBMITTED THAT THE LD. CIT(A), HAS RIGHTLY ALLOWED THE CLAIM OF THE ASSESSEE BY HOLDING THAT THE AMOUNT CLAIMED WAS NOT IN THE NATU RE OF STATUTORY PENALTY, BUT WAS FOR CONTRACTUAL FAILURE ON THE PART OF THE ASSE SSEE. ITA 248, 292 & 347/RJT/2008 CO 46/RJT/2008 11 10.3. WE HAVE CONSIDERED THE RIVAL CONTENTIONS OF E ITHER PARTIES AND PERUSED THE RECORD. ADMITTEDLY, LICENCE TO STORE SOLVENT CARGO WAS GRANTED BY THE DISTRICT COLLECTOR UNDER THE PROVISIONS OF ESSENTIAL COMMOD ITIES ACT. STORAGE OF SOLVENT CARGO IN THE PLACE OTHER THAN THE LICENCED PLACE I S PUNISHABLE OFFENCE UNDER THE LAW. THEREFORE, WE ARE UNABLE TO ACCEPT THE CONTENT ION OF THE ASSESSEE THAT IT IS ONLY BREACH OF CONTRACT. THE SOLVENT CARGO HAS TO B E NECESSARILY STORED ONLY IN THE PLACE WHERE LICENCE IS GRANTED. IF IT IS STORED IN OTHER PLACE THAN THE LICENCED PLACE, THE ASSESSEE HAS TO BE PROSECUTED AND PENALI ZED. THEREFORE, PENALTY LEVIED BY THE DISTRICT COLLECTOR IS FOR VIOLATION OF STORAGE OF SOLVENT CARGO IN THE PLACE OTHER THAN THE LICENCED PREMISES. THEREFORE, IT MAY NOT BE RIGHT TO SAY THAT IT IS A CONTRACTUAL FAILURE. ONCE, THE PENALTY IS P ENAL IN NATURE FOR VIOLATION OF STATUTORY PROVISIONS, IT CANNOT BE ALLOWED UNDER SE CTION 37 OF THE ACT. THEREFORE, WE ARE UNABLE TO UPHOLD THE ORDER OF THE LOWER AUTH ORITY. ACCORDINGLY THE ORDER OF CIT(AQ) IS SET ASIDE AND THAT OF THE AO IS RESTORED . 11. THE NEXT GROUND OF APPEAL IS WITH REGARD TO THE ADDITION OF RS.2,73,006, WHICH WAS RESTRICTED BY THE CIT(A) TO RS.1,36,503/ -. ON ACCOUNT OF EXPENSES TOWARDS, TRAVELING, TELECOMMUNICATION AND VEHICLES. 11.1 WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTEN TIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND T HAT THE A.O. DISALLOWED 10% OF THE TRAVELING , TELECOMMUNICATION AND VEHICLES E XPENSES ON THE GROUND THAT PERSONAL USE OF THE VEHICLES CANNOT BE RULED OUT. HOWEVER, THE LD. CIT(A) RESTRICTED THE DISALLOWANCE TO 5% OF THE EXPENSES. THIS ISSUE WAS CONSIDERED ELABORATELY BY US WHILE DECIDING THE APPEAL OF THE REVENUE FOR THE ASSESSMENT YEAR 2005-06. WE FIND THAT IN THE ABSENCE OF ANY MA TERIAL, DISCRETION MADE BY THE LD. CIT(A) TO RESTRICT DISALLOWANCE AT 5% CANN OT BE INTEFERRED. SIMILARLY, FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, WE HAVE NO MATERIAL ON RECORD. THEREFORE, IN OUR OPINION, THE LD. CIT(A), HAS RIG HTLY RESTRICTED THE DISALLOWANCE AT 5%. THIS GROUND OF APPEAL OF THE REVENUE IS DISM ISSED. ITA 248, 292 & 347/RJT/2008 CO 46/RJT/2008 12 12. THE NEXT ISSUE FOR OUR CONSIDERATION IS WITH RE GARD TO RESTRICTING THE DISALLOWANCE TO RS.2,03,036/- AS AGAINST RS.10,15 ,181/- ON ACCOUNT OF STONE PITCHING AND ROAD REPAIRING. 12.1. WE HAVE HEARD THE LD. DR AND LD. COUNSEL FOR THE ASSESSEE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE A.O. DISALLOW ED RS. 10,15,181/- ON THE GROUND THAT MANIPULATION CANNOT BE RULED OUT IN RES PECT OF CASH EXPENDITURE. HOWEVER, THE LD. CIT(A), FOUND THAT THE EXPENDITURE INCURRED BY THE ASSESSEE WAS SUBJECT TO AUDIT AND THE ASSESSEE WAS MAINTAINI NG VOUCHERS FOR EXPENDITURE. THE AO SIMPLY DISALLOWED CLAIM OF THE ASSESSEE ON T HE BASIS OF RATIO OF THE EXPENDITURE AGAINST PRODUCTION OF SALT. THE CONTENT ION OF THE ASSESSEE IS THAT RATIO OF THE EXPENDITURE AND PRODUCTION OF THE SALT CANNOT BE COMPARED FOR DISALLOWANCE. THE LD. CIT(A), FOUND THAT IN THE ABS ENCE OF ANY SUBSTANTIVE EVIDENCES FOR THE CLAIM OF HIGHER EXPENDITURE, HE R ESTRICTED THE DISALLOWANCE TO 20% OF RS.10,15,181/-. THE FACT REMAINS THAT THE AS SESSEE HAS MAINTAINED VOUCHERS. THE AO DISALLOWED EXPENDITURE ONLY BY C OMPARING THE SAME INCOME INCURRED BY THE ASSESSEE FOR THE PREVIOUS YEAR. THE LD. CIT(A), FOUND THAT THE DISALLOWANCE MADE BY THE A.O. IS HIGHLY EXCESSIVE, THEREFORE, HE RESTRICTED THE SAME TO 20%. IN THE ABSENCE OF ANY MATERIAL, WE DO NOT FIND ANY MERIT IN THE APPEAL OF THE REVENUE. ACCORDINGLY , THE ORDER OF THE CIT(A) IS CONFIRMED AND THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 13. SIMILARLY, IN RESPECT OF MISC. LABOUR EXPENSES, THE A.O. DISALLOWED 10%. HOWEVER, THE LD. CIT(A) RESTRICTED THE SAME TO 5%. IN THE ABSENCE OF ANY OTHER MATERIAL, WE DO NOT FIND ANY REASON TO INTERFERE WI TH THE DISCRETIONARY EXERCISE OF THE CIT(A) TO RESTRICT THE EXPENDITURE TO 5%. 14. NOW, COMING TO ASSESSEES APPEAL IN ITA NO.248( RAJ)/2008 FOR THE A.Y. 2004-05. THE FIRST GROUND OF APPEAL IS WITH REGARD TO DEDUCTION UNDER SECTION 80HHC OF THE ACT. THE LD. COUNSEL FOR THE ASSESSEE PLEADED THAT DEPB/DFRC ITA 248, 292 & 347/RJT/2008 CO 46/RJT/2008 13 LICENCES HAS TO BE CONSIDERED FOR DEDUCTION UNDER S ECTION 80HHC OF THE ACT. PLACING RELIANCE ON THE DECISION OF MUMBAI BENCH IN THE CASE OF BRILLIANT INTERNATIONAL VS. ASSTT. COMMISSIONER OF INCOME-TAX 2011-TIOL-159-ITAT-MUM, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT SAL E PROCEEDS OF DEPB /DFRC HAS TO BE CONSIDERED AS PROFIT ARISING OUT OF EXPOR T. 14.1. ON THE CONTRARY, THE LD. DR, SUBMITTED THAT D EPB/DFRC WAS NOT ON ACCOUNT OF EXPORT BUT IT IS A CASE OF SCHEME OF THE GOVT. THEREFORE, SALE PROCEEDS OF DEPB/DFRC CANNOT BE CONSIDERED AS PROFI T ARISING OUT OF EXPORT. 14.2. WE HAVE CONSIDERED THE RIVAL CONTENTIONS OF EACH PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ADMITTEDLY, DEPB/DFR C RECEIVED BY THE ASSESSEE BECAUSE OF THE SCHEME OF THE GOVT. UNDER SECTION 80 HHC OF THE ACT. THE ASSESSEE IS ENTITLED FOR DEDUCTION ONLY IN RESPECT OF SALE PROCEEDS RECEIVED IN INDIA BY CONVERTIBLE FOREIGN EXCHANGE. THEREFORE, W HATEVER RECEIVED BECAUSE OF THE SCHEME OF THE GOVT. MAY BE RELATED TO THE BUSIN ESS OF THE ASSESSEE, BUT IT IS NOT DERIVED FROM EXPORT. WE HAVE ALSO CAREFULLY GO NE THROUGH ORDER OF MUMBAI BENCH IN THE CASE OF BRILLIANT INTERNATIONAL VS ACI T (SUPRA). THE MUMBAI BENCH HAS NOT DECIDED THE ISSUE AT ALL. THE MUMBAI BENCH HAS SIMPLY REMANDED BACK THE MATTER WITHOUT EXPRESSING ANY OPINION. THEREFO RE, THE DECISION OF THE MUMBAI BENCH MAY NOT BE OF ANY ASSISTANCE TO THE AS SESSEE. THEREFORE, THE LD. CIT(A) HAS RIGHTLY FOUND THAT THE ASSESSEE IS NOT E NTITLED FOR ANY RELIEF UNDER SECTION 80HHC OF THE ACT IN RESPECT OF DFRC. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LOWER AUTHORITY AND THE SAME IS CONFIR MED. THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 15. THE ASSESSEE HAS RAISED TWO MORE GROUNDS WITH R EGARD TO DISALLOWANCE MADE BY THE AO ON ACCOUNT OF STONE PITCHING AND ROA D REPAIRING EXPENSES AND MISC. LABOUR EXPENSES. THESE ISSUES WERE ELABORATEL Y DISCUSSED AND CONSIDERED WHILE DECIDING THE APPEAL OF THE REVENUE FOR THE A SSESSMENT YEAR 2005-06. IN THE ABSENCE OF ANY MATERIAL, WE FIND THAT THE ESTIM ATION MADE BY THE CIT(A), ITA 248, 292 & 347/RJT/2008 CO 46/RJT/2008 14 CANNOT BRUSHED ASIDE. FOR THE YEAR UNDER CONSIDER ATION, NO COGENT AND CORROBORATIVE MATERIAL IS ON RECORD. THEREFORE, TH ERE IS NO REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY. ACCORDINGLY, THE SAME IS CONFIRMED AND THESE GROUNDS OF APPEAL ARE DISMISSED. 16. IN THE RESULT, BOTH THE APPEALS FILED BY THE RE VENUE IN ITA NOS. 347(RAJ)/2008 & 292(RAJ)/2008 ARE PARTLY ALLOWED FO R STATISTICAL PURPOSES, THE C.O. NO.46(RAJ)/2008 AS WELL AS APPEAL FILED BY TH E ASSESSEE IN ITA NO. 248(RAJ)/2008 ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST MAY, 2011 (A.L. GEHLOT) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 31 ST MAY, 2011 /SKR/ COPY TO : 1) THE APPELLANT: M/S. FRIENDS SALT WORKS & ALLIED INDUSTRIES, GANDHIDHANM. 2) THE RESPONDENT ACIT/DCIT, GANDHIDHAM 3) THE CIT(A) 4) THE CIT 5) THE DR TRUE COPY BY ORDER (ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, RAJKOT BENCH, RAJKOT
