M/s Oswal FM Hammerle Textiles Ltd., Ludhiana V. ACIT, Ludhiana

ITA 36/CHANDI/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7011 (ITAT-CHANDIGARH)
• Duration Of Justice: 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2008-2009
• Appeal Filed On: 05-01-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAVI SARANGA L
• Keywords: Depreciation
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND SHRI B.R.R. KUMAR, ACCOUNTANT MEMBER ITA NO.36/CHD/2017 ASSESSMENT YEAR: 2008-09 M/S OSWAL FM HAMMERLE VS. THE ACIT TEXTILES LTD. CIRCLE -1, LUDHIANA 341-K-1, MUNDIAN KHURD CHANDIGARH ROAD, LUDHIANA PAN NO. AAACO8236F (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE REVENUE BY : SH. RAVI SARANGAL DATE OF HEARING : 05/07/2017 DATE OF PRONOUNCEMENT : 09/08/2017 ORDER PER B.R.R. KUMAR A.M. THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A)- 1, LUDHIANA DT. 14/10/2016. 2. IN THIS APPEAL ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. THAT THE ORDER PASSED BY LD. CIT(A)-I IS AGAINST THE LAW AND FACTS OF THE CASE. 2. THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ORDER OF THE AO IN DISALLOWING 50% OF THE DEPRECIATION ON ASSETS CLAIMED BY THE AP PELLANT. 3. THAT IN CASE OF MACHINERY THE CLAIM OF DEPRECIAT ION CLAIMED AT 50% HAS FURTHER BEEN WRONGLY REDUCED TO 50%. 3. BRIEF FACTS: THE ASSESSING OFFICER DISALLOWED THE DEPRECIATION C LAIMED BY HOLDING THAT NO DEPRECIATION IS ALLOWABLE ON THE 'TRIAL RUN' PRODUC TION AS THE PLANT AND MACHINERY HAS NOT BEEN FULLY CAPITALIZED AND THAT A LL THE MACHINERY WAS NOT FULLY INSTALLED DURING THE RELEVANT YEAR 4. THE CIT(A) ALLOWED THE DEPRECIATION TO THE EXTEN T OF 50% OF THE ELIGIBLE DEDUCTION AS THE ASSETS WERE PUT TO USE FOR LESS TH AN 180 DAYS. 2 5. AGGRIEVED THE REVENUE FILED AN APPEAL BEFORE US. 6. HEARD BOTH THE SIDES. 7. THE LD. DR CONTESTED THAT THAT NO DEPRECIATION I S ALLOWABLE ON THE 'TRIAL RUN' PRODUCTION AS THE PLANT AND MACHINERY HAS NOT BEEN FULLY CAPITALIZED AND THAT ALL THE MACHINERY WAS NOT FULLY INSTALLED DURI NG THE RELEVANT YEAR. 8. THE AR ARGUED THAT THE APPELLANT COMPANY HAD SET UP POWER LOOMS FOR THE MANUFACTURING OF CLOTH DURING THE YEAR. SINCE, THE SAME WERE SENSITIVE TO HUMIDITY, A HUMIDIFICATION PLANT WAS SET UP WHICH D ELAYED THE PRODUCING OF THE FINAL PRODUCT AS PER LAY DOWN STANDARDS. HOWEVER, T HE TECHNICAL PROBLEMS RELATING TO STABILIZATION OF THE SAID PLANT WERE RE CTIFIED AND THE MANUFACTURING AND PRODUCTION EXERCISE DONE WAS THUS TECHNICALLY T ERMED AS 'TRIAL RUN'. THE PRODUCT SO MANUFACTURED FOR THE INTERNATIONAL MARKE T WAS SOLD IN THE DOMESTIC MARKET. THE PRODUCTION OF FINISHED PRODUCT, HOWEVER , SHOWS THAT THE APPELLANT COMPANY HAD PUT ITS PLANT AND MACHINERY AND OTHER B USINESS ASSETS IN A POSITION READY FOR MASS PRODUCTION SUBJECT TO CERTA IN TECHNICALITIES ONLY WHICH WERE CORRECTED. HE FURTHER ARGUED THAT DURING THE YEAR UNDER CONSID ERATION THE APPELLANT COMPANY HAS MANUFACTURED APPROXIMATELY 1,24,083 MET ERS OF GREY FABRIC AND HAS SOLD IT FOR RS. 87.57 LACS. THE CLOSING STOCK H AS BEEN ACCEPTED BY THE ASSESSING OFFICER. FURTHER, THE PURCHASES AND MANUF ACTURING EXPENSES HAVE BEEN ALLOWED. 9. WE FIND THAT THE TWO CONDITIONS LAID DOWN AS PER SEC 32 OF THE ACT FOR DEPRECIATION TO BE CLAIMED I.E. OWNERSHIP AND USAGE WERE FULFILLED AND THE BUSINESS ASSETS WERE USED TO PRODUCE 1,24,083 METER S OF FABRIC. THEREFORE, THERE WAS ACTUAL USAGE OF MACHINERY THOUGH IT MAY HAVE BE EN TECHNICALLY TERMED AS 'TRIAL RUN'. IT HAS BEEN HELD IN THE CASE OF CIT VS . MENTHA AND ALLIED PRODUCTS 336 ITR 297 (ALLAHABAD) THAT A PLANT AND MACHINERY IS ENTITLED FOR DEPRECIATION 3 EVEN IF USED FOR TRIAL PRODUCTION. SIMILAR VIEW WAS TAKEN BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. O.P KHANNA & SONS (1983) 140 ITR 558 (P&H). 10. THEREFORE, THE VIEW TAKEN BY THE ASSESSING OFF ICER IN DISALLOWING DEPRECIATION, CONSIDERING ONLY MACHINERY AS NOT USE D FOR PRODUCTION, IS NOT ACCEPTABLE. HENCE WE DIRECT THE AO TO ALLOW THE DEP RECIATION ON THE MACHINERY PUT TO USE AND ALLOW THE DEPRECIATION FUL LY AND @50% FOR THE MACHINERY WHICH HAS BEEN PUT TO USE FOR LESS THAN 1 80 DAYS TAKING INTO CONSIDERATION THE DATE OF THE ADDITIONS TO WDV. WHI LE DOING SO THE ASSESSING OFFICER SHALL NOT FURTHER REDUCE WHEREIN THE ASSESS EE HAS CLAIMED THE DEPRECIATION @50%. THE AO IS DIRECTLY DIRECTED TO R E COMPUTE THE DEPRECIATION ACCORDINGLY . 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (DIVA SINGH) (B.R.R.KUM AR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 09/08/2017 AG COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR