M/s Bajaj Consumer Care Ltd, Hyderabad V. ACIT, Hyderabad

ITA 365/HYD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 9820 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-02-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2004-2005
• Appeal Filed On: 13-03-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K E SUNIL BABU
• Assessee Lawyers: A V RAGHURAM
• Keywords: Capital asset; Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B ', HYDERABAD BEFORE SHRI G.C.GUPTA, VICE PRESIDENT AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ITA NO.365/HYD/09 : ASSESSMENT YEAR 2004-05 M/S. BAJAJ CONSUMER CARE LTD., HYDERABAD. ( PAN AAACD 8001 D ) V/S. ASSTT. COMMISSIONER OF INCOME- TAX, CIRCLE 1(3), HYDERABAD (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI A.V.RAGHURAM RESPONDENT BY : SHRI K.E.SUNIL BABU O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDE R OF THE COMMISSIONER OF INCOME-TAX(APPEALS)-II, HYDERABAD DATED 16.1.2009 FOR THE ASSESSMENT YEAR 2004-05. 2. FIRST GROUND OF APPEAL OF THE ASSESSEE IN THIS APPEA L READS AS UNDER- 1. UNDER THE FACTS AND CIRCUMSTANCES OF THE CAS E LEARNED. COMMISSIONER OF INCOME-TAX(APPEALS) HAS ERRED IN CO NFIRMING THE ACTION OF ASSESSING OFFICER IN REDUCING THE AMO UNT OF INVESTMENT SUBSIDY OF RS.20,00,000/- RECEIVED BY TH E ASSESSEE FORM THE OPENING WDV OF ASSETS AND THEREBY REDUCING THE DEPRECIATION BY RS.2,70,999/-. 3. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE COMPAN Y, ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING O F AYURVEDIC MEDICINES AND COSMETICS, HAS RECEIVED AN AMOUNT OF RS.20,00,000 AS I NVESTMENT SUBSIDY RELEASED BY THE GOVERNMENT OF ANDHRA PRADESH. WHEN THE ASSESSING ITA NO.365./HYD/09 M/S. BAJAJ CONSUMER CARE LTD., HYD 2 OFFICER PROPOSED TO REDUCE THIS AMOUNT OF SUBSIDY FROM T HE WRITTEN DOWN VALUE OF THE ASSETS OR TREAT THE SAME AS REVENUE RECEIPT , IN TERMS OF S.43(1) OF THE INCOME TAX ACT, 1961, IT WAS EXPLAINED BY THE A SSESSEE THAT THE SUBSIDY IN QUESTION WAS NOT RELATED TO THE PURCHASE OF AN Y ASSET AND THEREFORE, IT WAS NOT LIABLE TO BE REDUCED FROM THE ACTUAL COST OF ANY ASSET. IT WAS SUBMITTED THAT THE SUBSIDY RECEIVED WAS IN THE NA TURE OF A PECUNIARY ASSISTANCE TO THE ENTREPRENEUR FROM THE GOVERNMENT TO E NCOURAGE ESTABLISHMENT OF INDUSTRIES IN THE STATE OF ANDHRA PRA DESH, AND NOT FOR THE ACQUISITION OF ANY ASSET. IN THE CIRCUMSTANCES, ACCORDING TO THE ASSESSEE, THIS AMOUNT WAS NOT DEDUCTIBLE FROM THE COST OF THE A SSETS. NOT CONVINCED WITH THE EXPLANATION OF THE ASSESSEE, THE ASSESSING OFFICER REDUCED THE AMOUNT OF SUBSIDY RECEIVED BY THE ASSESSEE FORM THE COST O F FIXED ASSTS AND ALLOWED DEPRECIATION ONLY ON THE BALANCE W.D.V. OF TH E ASSETS. THIS RESULTED IN DISALLOWANCE OF DEPRECIATION CLAIMED BY THE ASSESSEE TO THE EXTENT OF RS.2,70,999. ON APPEAL, THE CIT(A) CONFIRMED THE AC TION OF THE ASSESSING OFFICER IN DISALLOWING PART OF THE DEPRECIATION CLAIME D, ON THIS COUNT. HENCE, THIS SECOND APPEAL BY THE ASSESSEE. 4. LEARNED COUNSEL FOR THE ASSESSEE REITERATING THE CONTE NTIONS URGED BEFORE THE LOWER AUTHORITIES SUBMITTED THAT THE SUBSIDY RECEIVED BY THE ASSESSEE WAS NOT LINKED TO THE PURCHASE OF ANY CAPITAL ASSE T BY THE ASSESSEE, BUT AS BY WAY OF CONFERRING A PECUNIARY BENEFIT ON T HE ASSESSEE FOR SETTING UP AN INDUSTRY IN A BACKWARD AREA, AND AS SUCH THE SAME CANNOT BE REDUCED FROM THE VALUE OF W.D.V. OF THE FIXED ASSETS. HE RELI ED ON THE DECISION OF VISAKHAPTNAM BENCH OF THE TRIBUNAL IN THE CASE OF SASIS RI EXTRACTIONS LTD. V/S. ACIT (122 ITD 428), BESIDES THE DECISIONS RELIED UPO N BY THE ASSESSEE BEFORE THE LOWER AUTHORITIES. THE LEARNED DEPARTMENT AL REPRESENTATIVE, ON THE OTHER HAND, STRONGLY RELIED ON THE ORDERS OF THE LOWER AUTHORITIES AND ITA NO.365./HYD/09 M/S. BAJAJ CONSUMER CARE LTD., HYD 3 SUBMITTED THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFI CER AND CONFIRMED BY THE CIT(A) BE SUSTAINED. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSE D THE ORDERS OF THE LOWER AUTHORITIES. WE FIND FROM THE ORDERS OF THE LOWER AUTHORITIES THAT THE ASSESSEE HAS RECEIVED THE SUBSIDY IN QUESTION IN TE RMS OF THE POLICY DOCUMENT TITLED TARGET-2000, NEW INDUSTRIAL POLICY, 1 995 SCHEME, BY WAY OF STATE INCENTIVES FOR SETTING UP OF NEW INDUSTRIES. TH E QUANTUM OF SUBSIDY HAS BEEN WORKED OUT AT 20% OF THE FIXED CAPITAL INVES TMENT, NOT EXCEEDING RS.20 LAKHS. WE FIND THAT THIS ISSUE IS COVERED IN FAVO UR OF THE ASSESSEE WITH THE DECISION OF THE VISAKHAPATNAM BENCH OF THE TR IBUNAL IN THE CASE OF SASISRI EXTRACTIONS LTD. (SUPRA). WE FIND THAT IN THA T CASE BEFORE THE VISAKHAPATNAM BENCH OF THE TRIBUNAL, ASSESSEE RECEIVED SUB SIDY UNDER THE VERY SCHEME UNDER WHICH THE ASSESSEE BEFORE US IN THIS APPEA L HAS RECEIVED. THE TRIBUNAL, AFTER CAREFUL PERUSAL OF THE SCHEME IN QU ESTION, HELD THAT THE INCENTIVE IN THE FORM OF SUBSIDY COULD NOT BE CONSIDERED AS A PAYMENT DIRECTLY OR INDIRECTLY TO MEET ANY PORTION OF THE ACTU AL COST, AND THUS, IT FELL OUTSIDE THE KEN OF THE EXPLANATION 10 TO S.43(1) AND THEREFORE, FOR THE PURPOSE OF COMPUTING DEPRECIATION ALLOWABLE TO THE ASSESSE E, THE SUBSIDY AMOUNT COULD NOT BE REDUCED FROM THE COST OF THE CAPITAL ASSET. THE TRIBUNAL IN THAT ASSESSEE HAS ALSO CONSIDERED THE AMENDED PROVISIONS OF LAW, BY VIRTUE OF INSERTION OF EXPLANATION 10 BELOW S.43(1). IN T HE ABSENCE OF ANY DECISION TO THE CONTRARY BROUGHT TO OUR NOTICE, WE ACCEPT THE CO NTENTION OF THE ASSESSEE, AND DIRECT THE ASSESSING OFFICER TO ALLOW THE DEPRE CIATION ALLOWANCE TO THE ASSESSEE WITHOUT REDUCING THE OPENING W.D.V. OF T HE ASSETS BY THE AMOUNT OF SUBSIDY OF RS.20,00,000 RECEIVED BY THE ASSESSE E. FIRST GROUND OF THE ASSESSEE IN THIS APPEAL IS ACCORDINGLY ALLOWED. ITA NO.365./HYD/09 M/S. BAJAJ CONSUMER CARE LTD., HYD 4 6. SECOND GROUND OF THE ASSESSEE IN THIS APPEAL READS AS FOLLOWS- 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE LD. COMMISSIONER OF INCOME-TAX(APPEALS) HAS ERRED IN CONFIRMING THE DIS ALLOWANCE OF DEPRECIATION OF RS.6,85,662/- MADE BY ASSESSING OFFICER BY RESTRICTING THE CLAIM OF DEPRECIATION ON ELECTRICAL FITTINGS AT 15% INSTEAD OF 25% DESPITE THE FACT THAT THESE ELECTRIC AL FITTINGS WERE INCLUDED IN THE BLOCK OF ASSETS CARRYING RATE OF DEPRECIATION OF 25% PRIOR TO PRESCRIPTION OF SEPARA TE RATE OF 15% DEPRECIATION ON ELECTRICAL FITTINGS. 7. FACTS OF THE CASE IN RELATION TO THIS GROUND ARE TH AT THE ASSESSING OFFICER HAS WORKED OUT THE DISALLOWANCE IN RESPECT OF ELE CTRICAL FITTINGS AT 15% AS AGAINST THE CLAIM OF THE ASSESSEE WORKED OUT AT 25 %. THIS RESULTED IN DISALLOWANCE OF DEPRECIATION CLAIMED BY THE ASSESSEE, TO THE EXTENT OF RS.6,85,662. ON APPEAL, THE CIT(A) CONFIRMED THE SAID DISALLOWANCE. HENCE, ASSESSEE PREFERRED THE PRESENT APPEAL ON THIS ISSUE. 8. LEARNED COUNSEL FOR THE ASSESSEE, REITERATING THE CONT ENTIONS URGED BEFORE THE LOWER AUTHORITIES SUBMITTED THAT THE ELECTRICAL FITTINGS UNDER THE HEAD CONSISTED OF FITTINGS USED WITH THE PLANT AND M ACHINERY ONLY AND THEREFORE THEY ARE INSEPARABLE PART OF PLANT AND MACH INERY. HE SUBMITTED THAT ALL THE ASSETS UNDER THAT HEAD WERE CAPITALIZED UP TO 31.3.2003 IN THE BLOCK OF ASSETS QUALIFYING FOR DEPRECIATION AT 25%, VIZ . PLANT AND MACHINERY. TILL 31.3.2003, HE SUBMITTED THE ELECTRICAL FITTINGS WE RE NOT CONSIDERED AS PART OF FURNITURE AND FITTINGS, BUT CONSIDERED AS PLANT AND MACHINERY. HE SUBMITTED THAT IT WAS ONLY BY THE INCOME-TAX (24 TH AMENDMENT) RULES, 2002 WITH EFFECT FROM 1.4.2003 IN THE TABLE OF RATES AT W HICH DEPRECIATION IS ADMISSIBLE, ELECTRICAL FITTINGS INCLUDED IN THE FURNIT URE AND FITTINGS. IN THE CIRCUMSTANCES, IT WAS CLAIMED THAT DEPRECIATION WAS CORRECTLY WORKED OUT AT 25% BE ELECTRICAL FITTINGS. LEARNED DEPARTMENTAL REPR ESENTATIVE ON THE OTHER HAND, STRONGLY SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES, AND ITA NO.365./HYD/09 M/S. BAJAJ CONSUMER CARE LTD., HYD 5 PLEADED THAT ELECTRICAL FITTINGS WERE NEVER CONSIDERED A S PART OF PLANT AND MACHINERY UNDER THE DEPRECIATION SCHEDULE FOR TANGIBLE ASSETS. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. THE QUESTION BEFORE US IS WHETHER THE ELECTRICAL FITTINGS, EVEN IF USED WITH THE PLANT AND MACHINERY, A RE INSEPARABLE PART OF THE PLANT AND MACHINERY AND HAVE TO BE CLASSIFIED AS PLA NT AND MACHINERY IN THE BLOCK OF ASSETS ELIGIBLE FOR DEPRECIATION AT 25%. WE FIND THAT THE ASSESSING OFFICER HELD THE VIEW THAT ELECTRICAL FITTINGS H AVE NEVER BEEN CONSIDERED AS A PART OF PLANT AND MACHINERY UNDER THE D EPRECIATION SCHEDULE FOR TANGIBLE ASSETS. HE ALSO NOTED THAT THE ASSESSEE ITSELF , VIDE ANNEXURE C TO FORM 3CD REPORT HAS CLAIMED DEPRECIATION ON ELECTRIC AL FITTINGS AT 15% ONLY, IN RESPECT OF PERSONAL CARE PRODUCT DIVISION. W E FIND NO INFIRMITY IN THE ACTION OF THE ASSESSING OFFICER IN RESTRICTING THE DEP RECIATION IN RESPECT OF ELECTRICAL FITTINGS TO 15% AS AGAINST 25% CLAIMED BY THE ASSESSEE, WHICH IS STRICTLY IN CONFORMITY WITH THE SPECIFIC PROVISIONS OF LAW. EVEN IF THE CLAIM OF THE ASSESSEE FOR DEPRECIATION AT HIGHER RATE HAS BEEN ACCEP TED IN EARLIER YEARS, THAT DOES NOT CONFER ANY RIGHT IN THE ASSESSEE FOR PERPETUATION OF THAT MISTAKE IN THE SUCCEEDING YEARS. EVEN AS THE AUDIT REPO RT IN FORM 3CD FOR THE YEAR UNDER APPEAL, IN RESPECT OF ELECTRICAL FITTING S RELATING TO PERSONAL CARE PRODUCT DIVISION, DEPRECIATION ON ELECTRICAL FITTI NGS HAS BEEN CLAIMED BY THE ASSESSEE ITSELF AT 15% ONLY AND NOT AT 25%. IN THIS VIEW OF THE MATTER, WE FIND NO JUSTIFICATION TO INTERFERE WITH THE ORDER S OF THE LOWER AUTHORITIES ON THIS ISSUE. WE ACCORDINGLY UPHOLD THE ORDER OF THE CIT( A) AND REJECT THE SECOND GROUND OF THE ASSESSEE IN THIS APPEAL. ITA NO.365./HYD/09 M/S. BAJAJ CONSUMER CARE LTD., HYD 6 10. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 11.2.2011 SD/- SD/- (G.C.GUPTA) (CHANDRA POOJARI) VICE PRESIDENT ACCOUNTANT MEMBER DT/- 11TH FEBRUARY, 2011 COPY FORWARDED TO: 1. M/S. BAJAJ CONSUMER CARE LTD., 17-1-204-8 SAIDABAD , HYDERABAD 500 059. 2. ASSTT COMMISSIONER OF INCOME-TAX, CIRCLE 1(3), HYDERA BAD 3. COMMISSIONER OF INCOME-TAX(APPEALS), II HYDERABAD 4. COMMISSIONER OF INCOME-TAX-I HYDERABAD 5. THE DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S