ESPI Industries & Chemicals Pvt. Ltd., Hyderabad, Hyderabad V. ACIT, Circle-17(1), Hyderabad, Hyderabad

ITA 353/HYD/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2700 (ITAT-HYDERABAD)
• Duration Of Justice: 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 28-02-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SUMAN MALIK
• Keywords: Depreciation; Additional depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 353/HYD/2017 ASSESSMENT YEAR: 2012 - 2013 ESPI INDUSTRIES AND CHEMICALS PVT LTD., HYDERABAD. [PAN: AAACE 4541 M] VS ACIT, CIRCLE - 17(1), HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI K.C. DEVDAS FOR REVENUE : SMT. SUMAN MALIK, DR DATE OF HEARING : 23.01.2018 DATE OF PRONOUNCEMENT : 25 .01.2018 O R D E R PER B. RAMAKOTAIAH, AM THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A) - 5, HYDERABAD DATED 28.12.2016 ON THE ISSUE OF CLAIM OF ADDITIONAL DEPRECIATION OF RS. 38,65,088/ - . 2. ASSESSEE HAS CLAIMED DEPRECIATION TO AN EXTENT OF RS. 1,22,67,294/ - WHI CH INCLUDE S ADDITIONAL DEPRECIATION ON PLANT & MACHINERY TO THE TUNE OF RS. 38,65,088/ - . ASSESSING OFFICER IN THE COURSE OF SCRUTINY NOTICED THAT THE FIXED ASSETS CLAIMED AS PLANT & MACHINERY ARE IN FACT PURCHASE OF PARTS OR SPARES OF PLANT & MACHINERY AND CANNOT BE CONSIDERED AS FULL - FLEDGED PLANT & MACHINERY SO AS TO ALLOW ADDITIONAL DEPRECIATION. AFTER TAKING THE ARGUMENTS OF THE ASSESSEE - COMPANY A.O. GAVE A FINDING THAT PARTS PURCHASED BY THE ASSESSEE CANNOT BE CONSIDERED AS NEW MACHINERY AND DISALL OWED THE 2 ADDITIONAL DEPRECIATION CLAIMED, WHILE ALLOWING THE DEPRECIATION AS SUCH ON THE ADDITIONS TO PLANT & MACHINERY. 3. ON AN APPEAL BEFORE THE LD. CIT(A) IT WAS CONTENDED THAT IN THE BUSINESS OF MANUFACTURING OF BULK DRUGS AS JOB WORK FOR VARIOUS OTHE R COMPANIES , ASSESSEE HAS TO ADD CERTAIN ADDITIONAL PLANT & MACHINERY BY WAY OF CENTRIFUGAL MACHINES, WEIGHING MACHINES, LABORATORY EQUIPMENT ETC., ON WHICH ASSESSEE HAS CLAIMED ADDITIONAL DEPRECIATION AND THESE ARE NOT PART S AND SPARES OF PLANT & MACHINER Y. LD. CIT(A) AFTER ANNEXING THE DETAILS OF SUCH ASSETS GAVE A FINDING THAT THE MACHINERY TO BE REGARDED AS A UNIT; SPARE PARTS, HOWEVER COSTLY THEY MAY BE, COULD NOT BE REGARDED AS OBJECTS OF CLAIM IN THAT BEHALF . SINCE NORMAL DEPRECIATION IS ALLOWED ON THE ADDITIONS TO PLANT & MACHINERY, THE ADDITIONAL DEPRECIATION IS NOT ALLOWED AS SUCH MACHINERY IS NOT A SELF - CONTAINED UNIT CAPABLE OF BEING PUT TO USE INDEPENDENTLY. HE GAVE A FINDING THAT PARTS INSTALLED BY THE ASSESSEE DO NOT SATISFY THAT TEST. AGG RIEVED, ASSESSEE HAS RAISED THE PRESENT APPEAL. 4. REFERRING TO THE DETAILS IN THE SCHEDULES AND SUBMISSIONS MADE BEFORE THE AUTHORITIES , IT WAS THE SUBMISSION OF THE LD COUNSEL FOR THE ASSESSEE THAT ASSESSEE HAS INSTALLED ADDITION AL PLANT & MACHINERY AND IS ELIGIBLE FOR ADDITIONAL DEPRECIATION. THE CONTENTION THAT THESE ARE SPARE PARTS IS NOT CORRECT AS THEY ARE NEW MACHINERY PURCHASED BY THE ASSESSEE AND ADDED TO THE EXISTING PLANT & MACHINERY. IT WAS SUBMITTED THAT IN THE PROCESS OF CHEMICALS , ASSESSEE HAS TO INSTALL THIS MACHINERY AND SO THEY ARE ELIGIBLE FOR ADDITIONAL DEPRECIATION AS OTHER CONDITIONS ARE SATISFIED. IT WAS ALSO ALTERNATIVELY CONTENDED THAT IF THE ASSESSEES INSTALLATION OF MACHINERY , IS NOT CONSIDERED AS PLANT & MACHINERY , THEN ASSES SEE WOULD BE ELIGIBLE FOR 100% ALLOWANCE AS REPAIRS AS THEY ARE CONSIDERED AS SPARE PARTS . 3 5. LD. DEPARTMENTAL REPRESENTATIVE HOWEVER RELIED ON THE ORDERS OF THE AUTHORITIES. 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE DOCUMENTS PLACED ON RECORD AND THE ORDERS. THE ISSUE IS WHETHER THE ADDITIONS TO PLANT & MACHINERY , AS LISTED BY THE LD. CIT(A) IN THE FORM OF ANNEXURES IN THE IMPUGNED ORDER , WOULD SATISFY THE CONDITIONS OF ALLOWANCE OF ADDITIONAL DEPRECIATION. IT IS TRUE THAT ASSESSEE HAS PURCHASED GYRO SCREENS, CENTRIFUGAL PROCESS PUMPS, GENERATORS, WEIGHING MACHINES, AIR CONDITIONERS AND OTHER ITEMS AS LISTED BY THE LD. CIT(A) IN THE ORDER BUT THESE ARE ALL NEW ITEMS AND ADDED TO THE EXISTING MACHINERY AND NOT A NEW MACHINERY OR PLANT AS SUCH. IT IS INTERESTING TO NOTE THAT A CERTIFICATE GIVEN BY THE ENGINEER AT THE TIME OF INSTALLATION PLACED ON RECORD IS AS UNDER: - THIS IS TO CERTIFY THAT, WE M/S. ESPI INDUSTRIES & CHEMICALS PRIVATE LIMITED, HYDERABAD PROCURED AND INSTALLED VARIOUS EQUIPMENT SUCH AS PLANT & MACHINERY, AIR - CONDITIONING / AIR HANDLING SYSTEM, GENERATOR(S), WEIGHING MACHINES, ELECTRICAL EQUIPMENT, CONVEYOR BELT AS ALSO LABORATORY EQUIPMENT TO THE TUNE OF RS. 2,40,26,482/ - DURING THE FINANCIAL YEAR 2011 - 12 I.E., ASSESSM ENT YEAR 2012 - 13. THE DETAILED STATEMENT EQUIPMENT WISE IS ATTACHED HEREWITH. FURTHER THIS IS TO CERTIFY THAT ALL THESE EQUIPMENTS, CHANGE / SPARE PARTS ARE IN RELATION TO MANUFACTURE OF THE PRODUCTS NAMELY BULK DRUGS AS ALSO PHARMACEUTICAL FORMULATIONS A S OUR UNIT I AND II. THESE EQUIPMENTS ARE REQUIRED FOR UPGRADATION AND TO MEET THE CHANGING GOOD MANUFACTURING PRACTICES (GMP) IN PHARMA INDUSTRY. (UNDERLINED BY US) 6.1. THUS THE COMPANY ITSELF CATEGORISED VARIOUS ASSETS PURCHASED AS EQUIPMENTS , CHANGE / SPARE PARTS AND SO EVEN IF THEY ARE NOT CONSIDERED AS SPARE PARTS, THEY CANNOT BE CONSIDERED AS INDIVIDUAL PLANT & MACHINERY WHICH CAN OPERATE INDEPENDENTLY SO AS TO CONSIDER THEM AS MACHINERY FOR THE PURPOSE OF ADDITIONAL DEPRECIATION. ACCORDI NGLY, IT IS ONE OF FACTUAL VERIFICATION AND AS ASSESSEE HAS NOT CONVINCED US THAT 4 THESE ARE INDEED , INDEPENDENT PLANT & MACHINERY, THE CLAIM OF ADDITIONAL DEPRECIATION CANNOT BE ALLOWED. 7. THE ALTERNATE CLAIM THAT THESE ARE TO BE CONSIDERED FOR ALLOWANCE AT 100% AS REVENUE IS ALSO NOT ALLOWABLE AS THE REPAIRS CAN ONLY BE ALLOWED. THESE ARE NOT REPAIRS BUT THESE ARE ADDITIONAL EQUIPMENTS PURCHASED IN RELATION TO THE MANUFACTURING ACTIVITY FOR EITHER UPGRADATION OR TO MEET THE CHANG ING MANUFACTURING PRACTICES IN PHARMA INDUSTRY. SINCE ASSESSEE HAS CLAIMED THERE AS ADDITIONS TO THE FIXED ASSETS, THERE IS NO NEED TO CONSIDER THEM AS REPAIRS AND ALLOW THEM AT 100%. IN VIEW OF THE ABOVE, THE ALTERNATIVE CONTENTION OF THE ASSESSEE WAS ALSO NOT ALLOWABLE. 8. IN THE RESULT, THE GROUNDS RAISED BY THE ASSESSEE ARE REJECTED. APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH JANUARY, 2018. SD/ - SD/ - ( SMT. P. MADHAVI DEVI ) ( B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED: 25 TH JANUARY, 2018 OKK, SR.PS COPY TO 1. ESPI INDUSTRIES & CHEMICALS PVT LTD., M - 7/2, KAKATIYANAGAR, STREET NO.1, HABSIGUDA, HYDERABAD - 1. 2. ACIT, CIRCLE 1 7(1), HYDERABAD. 3. CIT (A) - 5, HYDERABAD. 4. PR. CIT - 5 , HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE