DCIT, UDAIPUR V. M/s. Bhanvi Agro P. Ltd., UDAIPUR

ITA 398/JODH/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70313 (ITAT-JODHPUR)
• Duration Of Justice: 3 year(s) 5 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 13-11-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 18-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR DEEPAK SEHGAL LD
• Keywords: Depreciation; Additional depreciation
• Section: 194C; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER ITA NO.398/JU/2010 ASSESSMENT YEAR: 2007-08 DY. COMMISSIONER OF INCOME TAX, VS. M/S. BHANVI AGR O P. LTD., CIRCLE-2, UDAIPUR. 421, PANCHRATNA COMPLEX, BEDLA ROAD, UDAIPUR. (PAN: AABCB 7328 N). (APPELLANT) (RESPONDENT) APPELLANT BY : DR. DEEPAK SEHGAL, LD. CIT RESPONDENT BY : SHRI MAHESH GEHLOT DATE OF HEARING : 13.11.2013 DATE OF PRONOUNCEMENT : 28.11.2013 ORDER PER HARI OM MARATHA, JUDICIAL MEMBER: THIS APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2007 -08 IS DIRECTED AGAINST THE ORDER OF LD. CIT(A), UDAIPUR, DATED 31.03.2010. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE COMPANY IS ENGAGED IN THE PRODUCTION OF MAIDA, ATTA , SUJI AND BRAN FR OM WHEAT. THE ASSESSEE TREATS THE ACTIVITIES CARRIED ON BY IT AS MANUFACTURING OR PRODUCTION ACTIVITY, CONSISTING OF SEVERAL PROCESSES WHICH ARE INTEGRALLY CONNECTED. AS PER THE ASSESSEE, SPECIFIC AND 2 ITA NO.398/JU/2010 A.Y. 2007-08 SOPHISTICATED MACHINERY IS USED IN THE PROCESS OF M AIDA ETC. AND THE RAW MATERIAL WHEAT IS CONVERTED INTO A SEPARATE IDENTIFIABLE AND DISTINCT COMMERCIAL ARTICLE/THING. FOR A.Y. 2007-08 THE ASSESSEE COMPA NY FILED ITS RETURN OF INCOME ON 31.10.2007 ALONG WITH A COPY OF AUDITED ACCOUNTS AN D TAX AUDIT REPORT. THE A.O. COMPLETED HIS ORDER ON 31.12.2009 AND DETERMINED TO TAL INCOME ATRS.1,40,53,336/- AS AGAINST NET INCOME DISCLOSED AS PER AUDIT REPORT RS.35,21,700/-. AGGRIEVED, THE ASSESSEE FILED APPEAL AND THE LD. CIT(A) GAVE A PAR T RELIEF. NOW THE REVENUE IS AGGRIEVED AND HAS FILED THIS APPEAL BY TAKING THE F OLLOWING TWO GROUNDS :- ON THE FACTS AND IN THE PRESENT CIRCUMSTANCES OF T HE CASE, THE LD. CIT(A) HAS ERRED IN: 1. ALLOWING CLAIM OF ADDITIONAL DEPRECIATION OF RS. 1,44,761/-. 2. DELETING THE DISALLOWANCES OF RS.99.96,103/- OUT OF TOTAL ADDITION OF RS.1,00,60,103/- U/S 40(A)(IA) OF THE I.T. ACT O N NON DEDUCTIN OF TDS. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE CAR EFULLY EXAMINED THE ENTIRE RECORDS. THE FACTS OF FIRST GROUND PERTAINING TO A LLOWANCE OF CLAIM OF ADDITIONAL DEPRECIATION OF RS.1,44,761/- ARE THAT THE ASSESSEE HAS CLAIMED ADDITIONAL DEPRECIATION AT RS.1,44,761/- QUA ROLLER FLOUR MILL ON WHICH DEPRECIATION HAS BEEN CLAIMED AT RS.92,762/-. THE ASSESSEE HAS ALSO CLAI MED DEPRECIATION ON OTHER MISCELLANEOUS FIXED ASSETS AT RS.51,999/-. THE JUS TIFICATION FOR THIS CLAIM AS GIVEN TO A.O. THROUGH REPLY DATED 03.12.2009, IT WAS SUBM ITTED THAT THE PROCESS INVOLVED IN ASSESSEES COMPANY IS THAT OF MANUFACTURING AND IN THE LIGHT OF THE DECISIONS OF 3 ITA NO.398/JU/2010 A.Y. 2007-08 ITAT, HYDERABAD BENCH IN THE CASE OF DCIT VS. SHRI SAI ROLLER FLOUR MILLS PVT. LTD. IN ITA NO.1440/HYD/2008 DATED 30.01.2009 AND T HAT OF HONBLE APEX COURT IN THE CASE OF RAJASTHAN FLOUR MILLS VS. STATE OF RAJASTHAN 91 STC 408 (S.C.) IT HAS BEEN ASCERTAINED THAT THE ASSESSEE IS ENTITLED TO ADDITIONAL DEPRECIATION ON MACHINERY INVOLVED IN THE PROCESS OF ASSESSEE COMPA NY. HOWEVER, THE A.O. BY RELYING ON THE DERISION OF HONBLE SUPREME COURT IN THE CASE OF SACS EAGLES CHICORI VS. CIT, 255 ITR 178 (S.C.) HAS COME TO THE CONCLUSION THAT THIS IS NOT A MANUFACTURING ACTIVITY. FINALLY THE A.O. HAS REJEC TED THE CLAIM OF ADDITIONAL DEPRECIATION. 4. CONTRARY TO THE ABOVE, THE LD. CIT(A) AFTER FOLL OWING HIS ORDER PERTAINING TO A.Y. 2004-05 IN WHICH YEAR ACCORDING TO HIM THE FAC TS ARE OBTAINING IN THIS YEAR WERE EXACTLY IDENTICAL, THEREFORE, HE HAS DELETED T HE IMPUGNED ADDITION. NOW THE LD. DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED BEFOR E US THAT THE FACTS OF A.Y. 2004-05 MAY NOT BE IDENTICAL TO THE FACTS OF THIS Y EAR. THE LD. A.R. RELIED ON THE FOLLOWING DECISIONS :- I) DCIT VS. SHRI SAI ROLLER FLOUR MILLS PVT. LTD. IN ITA NO.1440/HYD/2008 DATED 30.01.2009. II) RAJASTHAN FLOUR MILLS VS. STATE OF RAJASTHAN, 91 STC 408 (S.C.) 5. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE ARE CONVINCED THAT THE PROCESS OF CONVERSION OF WHEAT INTO ATTA, MAIDA ETC. HAS BEEN HELD TO BE MANUFACTURING 4 ITA NO.398/JU/2010 A.Y. 2007-08 ACTIVITY AS DISTINCT AND NEW ARTICLE OR THING HAVIN G SEPARATE COMMERCIAL IDENTITY IS PRODUCED IN THE PROCESS. ACCORDINGLY, WE CONFIRM T HE IMPUGNED DELETION AND DISMISS GROUND NO.1 OF REVENUES APPEAL. 6. THE FACTS APROPOS GROUND NO.2 ARE THAT DURING TH E RELEVANT PERIOD THE ASSESSEE HAS PAID FREIGHT CHARGES AMOUNTING TO RS.1 ,00,60,103/- AND HAS DEBITED THE SAME IN THE P&L ACCOUNT UNDER THE HEAD OUTWARD TRANSPORT EXPENSES. THESE AMOUNTS HAVE BEEN PAID ON 3 ACCOUNTS AS UNDER : (A) FOR GOODS SUPPLIED BY THE HEAD OFFICE OF THE A SSESSEE ON ACCOUNT OF SALES WITHIN RAJASTHAN. (B) ON ACCOUNT OF TRANSFER OF GOODS TO THE SALE DE POT IN GUJARAT AND (C) ON ACCOUNT OF SALE FROM GUJARAT DEPOT TO OTHER PARTIES. 7. THE ASSESSEE HAS CHARGED GROSS MOUNT OF SALES IN ITS SALE BILLS AND HAS DEDUCTED FREIGHT CHARGES WITH THE DIRECTION THAT FR EIGHT IS TO BE PAID BY THE RECEIVER/CONSIGNEE AND AFTER DEDUCTING THE FREIGHT SO PAID THE BALANCE IS TO BE PAID TO THE ASSESSEE. THE ASSESSEE HAS BEEN CLAIMING EX PENDITURE IN ITS BOOKS OF ACCOUNT FOR FREIGHT PAYMENT. ACCORDING TO THE A.O. , THE ASSESSEE WAS REQUIRED TO DEDUCT TAX AT SOURCE UNDER SECTION 194C OF THE ACT ON THESE PAYMENTS. SINCE THE ASSESSEE HAS FAILED TO DEDUCT THE TAX, IT HAS BEEN HELD TO BE ASSESSEE IN DEFAULT AND ON ACCOUNT OF VIOLATION OF PROVISIONS OF SECTION 40 (A)(IA) OF THE ACT. THE A.O. HAS DISALLOWED THE ENTIRE FREIGHT PAYMENT AND ADDED THE SAME UNDER SECTION 40(IA) OF 5 ITA NO.398/JU/2010 A.Y. 2007-08 THE ACT. IN APPEAL, THE ASSESSEE REITERATED THE SA ME POINTS RAISED BEFORE THE A.O. ELABORATELY AND AFTER CONSIDERING THE SAME THE LD. CIT(A) HAS DELETED RS.99,96,103/- BY HOLDING THAT IN RESPECT OF FREIGH T PAYMENT OF RS.64,000/,- ONLY THE ASSESSEE WAS REQUIRED TO DEDUCT TAX AT THE RATE OF 2%. THIS PAYMENT IS PERTAINING TO TRANSFER OF GOODS TO SALE DEPOT AND T HE ASSESSEE HAS NOT DEDUCTED TDS. ACCORDINGLY, HE HAD CONFIRMED ADDITION OF RS. 64,000/- ONLY. 8. BEFORE US, BOTH THE PARTIES HAVE REITERATED THEI R EARLIER STAND. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE HAVE NOTICED THAT THE GIST OF REVENUES SUBMISSION IS THAT ON THE ENTIRE PAYMENT THE ASSESS EE WAS REQUIRED TO DEDUCT TAX UNDER THE PROVISION OF SECTION 194C AS IT HAS CLAIM ED THIS EXPENDITURE IN ITS BOOKS OF ACCOUNT FOR FREIGHT PAYMENT. THE GIST OF A.R.S SUBMISSION CAN BE SUMMARIZED AS UNDER :- (A) THAT THE SALE TRANSACTION IS COMPLETED AS AND WHEN THE SALE BILL IS MADE. (B) THAT THE GOODS ARE TAKEN BY THE BUYER AT TH EIR OWN RISK, THE FACT OF WHICH IS ALSO MENTIONED IN THE SALE BILL. (C) THAT AS PER THE ACCOUNTING SYSTEM OF THE AS SESSEE THE FREIGHT AMOUNT IS NOTIONALLY ADDED IN THE SALE AMOUNT AND T HE SAME AMOUNT IS REFLECTED AS FREIGHT TO PAY ON THE OTHER SIDE. THIS IS DONE AS PER THE TRADE PRACTICE. HOWEVER, THE PARTY TO WHOM THE GOODS HAVE BEEN SOLD IS DEBITED BY THE NET AMOUNT OF SALE ONLY AND THE SAME AMOUNT IS RECEIVED ALSO FROM THE RESPECTIVE PARTIES BY ACCOUNT PAYEE C HEQUE. 6 ITA NO.398/JU/2010 A.Y. 2007-08 (D) THAT SIMILARLY, THE NET AMOUNT IS DEBITED A S PURCHASE BY THE BUYERS IN THEIR BOOKS OF ACCOUNT AND FREIGHT IS DEBITED AS FREIGHT EXPENSES BY THE BUYER. THE BUYER DEBITS THE ASSESSEE COMPANY'S ACCO UNT BY THE NET AMOUNT ONLY AND THE FREIGHT EXPENSES IS DEBITED BY THE BUYER BEING THEIR RESPONSIBILITY. (E) THAT THE RISK OF TRANSPORTATION IS OF THE B UYER AND THE TRANSPORTER IS THE AGENT OF BUYER AND NOT THE SELLER. (F) THAT SINCE, THE EXPENDITURE IS BOOKED BY T HE BUYER, THE FREIGHT PAYMENT IS MADE BY THE BUYER AND THE PERSON RESPONSIBLE IN THE CASE OF 'FREIGHT TO PAY' IS BUYER; THE SOLE RESPONSIBILITY OF DEDUCTION OF TAX AT SOURCE IS THAT OF THE BUYER. (G) THAT THE TRANSPORTER HIMSELF IS A TAXPAYER. FURTHER HE HAS PAID TAX ON HIS INCOME. H) THAT AS REGARDS FREIGHT CHARGES ON STOCK TRANSFE R FROM UDAIPUR OF FREIGHT OFFICE TO SALES DEPOT, THE TOTAL AMOUNT OF FREIGHT IS RS.15,37,440/- THE DETAIL OF WHICH IS SUBMITTED HEREWITH IN WHICH EACH GR IS LESS THAN RS.20,000/- AND YEARLY TOTAL OF WHICH IS LESS THAN RS.50,000/- EXCEPT IN ONE CASE WHEREIN THE PAYMENT DURING THE WHOLE YEAR IS RS.64,000/- WHICH EXCEEDS THE PRESCRIBED LIMIT OF RS.50,000/-ON WHICH TAX HAS NOT BEEN DEDUCTED DUE TO THE CLERICAL MISTAKE AND ON WH ICH TAX WILL BE DEDUCTED AND PAID IN DUE COURSE. (I) THAT WITHOUT PREJUDICE TO ALL ABOVE, THE SECTIO N 40 IS APPLICABLE ONLY IN CASE OF SECTION 30 TO 38. HOWEVER, THE APP ELLANT HAS ITS INCOME UNDER SECTION 28 OF THE ACT. 9. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE HAVE FOUND THAT THE ASSESSEE SOLD ITS GOODS FROM ITS H.O. SITUATED AT UDAIPUR AND ALS O FROM ITS SALE DEPOT SITUATED AT VANPUR (GUJARAT). THE ASSESSEE WAS SELLING ITS GOO DS TO CUSTOMERS SITUATED IN RAJASTHAN AND OUTSIDE THE STATE OF RAJASTHAN. IN T HE BOOKS THE ASSESSEE HAS SHOWN 7 ITA NO.398/JU/2010 A.Y. 2007-08 SALE AMOUNT AND HAS PREPARED THE SALE BILLS ACCORDI NGLY. THE GOODS HAVE BEEN SUPPLIED ON THE BASIS OF FREIGHT TO PAY BY THE CO NSIGNEE IN ALL CASES. THE ASSESSEE WOULD DISPATCH THE GOODS THROUGH TRUCK AND THEREAFTER IT IS THE RISK OF THE CONSIGNEE AND NOT THE CONSIGNER I.E. THE ASSESSEE. THESE GOODS SALE AMOUNT INCLUDES THE FREIGHT CHARGES WHICH ARE NOT TO BE PA ID BY THE ASSESSEE, THE NET AMOUNT OF FREIGHT CHARGES IS TO BE PAID BY THE CONS IGNEE AND THE SAME HAS BEEN NOTIONALLY DEBITED IN THE P&L ACCOUNT. RESULTANTLY , THE EFFECT COMES TO NIL. ADMITTEDLY THE ASSESSEE HAS NEITHER RECEIVED THE FR EIGHT AMOUNT NOR PAID THE SAME. THE ASSESSEE HAS BEEN FOLLOWING THIS METHOD REGULAR LY. HOWEVER, IN THE CASE OF RS.64,000/- PAID BY THE ASSESSEE WHICH IS DEBITED T O THE P&L ACCOUNT, THE SITUATION BECOMES DIFFERENT AND THE LD. CIT(A) HAS CORRECTLY APPLIED SECTION 194C OF THE ACT TO THAT PAYMENT. ACCORDINGLY, WE CONFIRM THE IMPUG NED FINDING AND DISMISS GROUND NO.2 OF REVENUES APPEAL. 10. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. (ORDER PRONOUNCED IN THE OPEN COURT ON 28.11.2013) SD/- SD/- (N.K. SAINI) (HARI OM MARATHA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 28 TH NOVEMBER, 2013 8 ITA NO.398/JU/2010 A.Y. 2007-08 PBN/* COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT (APPEALS) CONCERNED 4. CIT CONCERNED 5. D.R., ITAT, JODHPUR BENCH, JODHPUR 6. GUARD FILE. BY ORDER ASSISTANT REGISTRAR INCOME-TAX APPELLATE T RIBUNAL, JODHPUR