M/s A & A Modular Systems, Solan V. ITO, Solan

ITA 401/CHANDI/2015

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1588 (ITAT-CHANDIGARH)
• Duration Of Justice: 4 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-08-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 15-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Keywords: Depreciation; Additional depreciation; Onus to prove
• Section: 143(3); 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MRS. ANNAPURNA MEHROTRA, ACCOUNTANT MEMBER ITA NO.401/CHD/2015 ASSESSMENT YEAR:2010-11 M/S A&A MODULAR SYSTEMS, VS. THE ITO, PLOT NO. 149-150, WARD-4 VILL- SAINSIWALA SOLAN PO- BAROTIWALA BADDI PAN NO. AAJFA3565H (APPELLANT) (RESPONDENT) APPELLANT BY : SH. VINEET KRISHAN RESPONDENT BY : SH. MANJIT SINGH DATE OF HEARING : 17/08/2015 DATE OF PRONOUNCEMENT : 25/08/2015 ORDER PER ANNAPURNA MEHROTRA A.M. THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT (A), SHIMLA, H.P. DT. 13/02/2015. 2. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL: 1. THAT THE ORDER PASSED UNDER SECTION 250(6) BY THE L D. COMMISSIONER OF INCOME TAX (APPEALS), SHIMLA (H.P.)IN APPEAL NO. IT /53/13-14/SML DATED 13.02.2015 IS CONTRARY TO LAW AND FACTS OF THE CASE . 2. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LD. COMMISSIONER OF INCOME TAX (APPEALS) GRAVELLY ERRED IN UPHOLDING TH E ACTION OF THE LD. ASSESSING OFFICER IN DENYING APPELLANT BENEFIT OF S UBSTANTIAL EXPANSION UNDERTAKEN BY THE APPELLANT AND 100% DEDUCTION UNDE R SECTION 80IC FOR UNDERTAKING SUBSTANTIAL EXPANSION DURING THE YEAR. 3. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LD. COMMISSIONER OF INCOME TAX (APPEALS) GRAVELLY ERRED IN UPHOLDING TH E ACTION OF THE LD. ASSESSING OFFICER IN DENYING 100% DEDUCTION UNDER S ECTION 80IC OF THE INCOME TAX ACT, 1961 AND RESTRICTING IT TO 25% ONLY . 2 4. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LD. COMMISSIONER OF INCOME TAX (APPEALS) GRAVELLY ERRED IN UPHOLDING TH E ACTION OF THE LD. ASSESSING OFFICER IN DISALLOWING THE EXPENSES OF RS . 4,71,597/- AND ADDING THE SAME TO THE TAXABLE INCOME OF THE APPELLANT. 5. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LD. COMMISSIONER OF INCOME TAX (APPEALS) GRAVELLY ERRED UPHOLDING THE A CTION OF LD. ASSESSING OFFICER IN NOT ALLOWING THE ADDITIONAL DEPRECIATION OF RS. 1,57,71,549/- ON INVESTMENT OF RS. 8,01,10,667/- CLAIMED BY THE APPE LLANT, ALTHOUGH APPELLANT FULFILLED ALL THE CONDITION LAID DOWN UND ER SECTION 32 PERTAINING TO THE ADDITIONAL DEPRECIATION. 6. THAT THE APPELLANT CRAVES TO ADD, AMEND OR ALTER AN Y GROUND OF APPEAL BEFORE OR AT THE TIME OF HEARING OF APPEAL WITH THE PERMISSION OF THE HONBLE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH. 3. BRIEFLY STATED, E-RETURN DECLARING INCOME OF RS. 8,29,150/- WAS FILED BY THE ASSESSEE ON 30/09/2010, AFTER CLAIMING DEDUCTION UN DER SECTION 80IC AMOUNTING TO RS. 94,80,228/-. ASSESSMENT WAS FRAMED U/S 143(3) ON 22-03-2013, AT AN INCOME OF RS.80,64,966/- AFTER RESTRICTING DEDUCTION U/S 80IC TO RS.22,54,41 2/-, BEING 25% OF THE ELIGIBLE PROFITS, AS AGAINST RS. 94,80,228/- BEING100 % OF THE ELIGIBLE PROFITS ,AS CLAIMED BY THE ASSESSE AND FURTHER MAKING ADDITION OF RS. 4,7 1,597/-, ON ACCOUNT OF EXPENSES CLAIMED TO HAVE BEEN INCURRED FOR JOB WORK FOR THE REASONS THAT NO DETAIL OF THE SAME WAS SUBMITTED AND HENCE THE SAME WERE TO BE TREATED AS UNEXPLAINED AND NON VERIFIABLE. FURTHER THE AO REJE CTED THE CLAIM OF THE ASSESSE FOR ADDITIONAL DEPRECIATION ON THE INVESTMENT OF PL ANT & MACHINERY AMOUNTING TO RS. 1,57,71,549/- ON AN INVESTMENT OF 8,01,10,66 7/- BY TREATING IT AS A SHAM CLAIM, AND AN AFTERTHOUGHT OF THE ASSESSEE CONSIDE RING THE FACT THAT DEDUCTION UNDER SECTION 80IC WOULD NOT BE ALLOWED TO THE ASSE SSE. THE LD. CIT(A) VIDE HER ORDER DT. 13/02/2015 REJECTED THE APPEAL OF THE ASS ESSE AND UPHELD ALL ADDITIONS AND DISALLOWANCES MADE TO THE INCOME OF THE ASSESSE . 4. AGGRIEVED AGAINST THE ORDER OF LD. CIT(A) THE AS SESSEE FILED AN APPEAL BEFORE US. 5. GROUND NO.1 &6 BEING GENERAL IN NATURE NEED NO A DJUDICATION. 6. GROUND NO. 2 AND 3 ARE AGAINST THE RESTRICTION OF THE CLAIM OF THE ASSESSE OF DEDUCTION UNDER SECTION 80IC TO 25% AS AGAINST 100% CLAIMED BY IT. 3 7. BRIEFLY STATED THE FACTS IN THE PRESENT CASE AR E THAT THE ASSESSEE FIRM DERIVED INCOME FROM MANUFACTURING OF MODULAR KITCHE NS AND MODULAR FURNITURE. THE ASSESSEE FIRM HAD STARTED OPERATION / ACTIVITY OF BUSINESS WITH EFFECT FROM 12/10/04 I.E FROM THE AY 2005-06 AND CLAIMED 100% DEDUCTION OF ITS PROFITS, U/S 80 IC, FOR FIVE YEARS UP TO AY 2009-10. THEREAFTER IT UNDERTOOK SUBSTANTIAL EXPANSION DURING FY 2009-10, AND CLAIMED DEDUCTION U/S 80IC @100% FROM THE A.Y 2010-11, BY RE-FIXING THE INITIAL ASSESSMENT YE AR AS AY 2010-11.THE AO RESTRICTED THE DEDUCTION @ 25% CONSIDERING IT TO BE THE SIXTH ASSESSMENT YEAR AND THE FACT THAT 80IC DEDUCTION FOR LAST 5 YEARS I N THE CASE OF THE ASSESSE HAD TO BE PROVIDED @25% ONLY.THE CIT(A) UPHELD THE REST RICTION OF DEDUCTION BY HOLDING THAT IT WOULD BE INAPPROPRIATE TO ALLOW REF IXING OF INITIAL YEAR AFTER SUBSTANTIAL EXPANSIONS AFTER FIXING THE INITIAL YEA R U/S 80IC ON ACCOUNT OF COMMENCEMENT OF BUSINESS WITHIN A WINDOW OF 07-01-2 003 TO 01-04-2012 . 8. DURING THE COURSE OF HEARING BEFORE US, THE AR A DMITTED THAT THE ISSUE IS COVERED BY THE DECISION OF ITAT CHANDIGARH BENCH IN THE CASE OF M/S HYCRON ELECTRONICS VS. ITO IN ITA NO. 798/CHD/2012 DT. 27/ 05/2015, AGAINST THE ASSESSEE. SINCE THE ISSUE AS WELL AS CONTENTIONS REMAIN THE S AME AS HAS BEEN DECIDED IN THE CASE OF M/S HYCRON ELECTRONICS VS. I TO IN ITA NO. 798/CHD/2012 DT. 27/05/2015,FOLLOWING THE SAME WE D ECIDE THIS ISSUE AGAINST THE ASSESSE. 9. GROUND NO. 4 IS AGAINST DISALLOWANCE OF RS. 4,71 ,597/- MADE ON ACCOUNT OF DIFFERENCE IN INCOME AND EXPENDITURE ST ATEMENT ON ACCOUNT OF JOB WORK. THE ASSESEE HAD MAINTAINED SEP ARATE INCOME AND EXPENDITURE ACCOUNT FOR THE JOB WORK. DURING TH E YEAR THE ASSESSEE CLAIMED TO HAVE RECEIVED 80,91,856/- AS JO B WORK INCOME 4 AND HAD SET OFF VARIOUS EXPENSES SUCH AS JOB WORK C HARGES (71,31,195/-), SALARY (3,70,865/-), TRAVELING EXPEN SES (32,679/-) VEHICLE RUNNING EXPENSES (RS. 48,501/-). IN ABSENCE OF DETAILS AND BASIS OF COMPUTATION OF EXPENSES ON ACCOUNT OF PRI NTING AND STATIONARY, TELEPHONE, POSTAGE ETC.AN ADDITION OF RS. 4,71,597/- WAS MADE TO THE INCOME OF THE ASSESSEE. THE LD. CIT(A) UPHELD THE ADDITION FOR WANT OF SUBSTANTIATION OF THE EXPENSES . 10. DURING THE COURSE OF HEARING BEFORE US THE AR P LEADED THAT ALL THESE EXPENSES HAD BEEN INCURRED FOR THE PURPOSE OF BUSINESS OF MANUFACTURING AND WERE THEREFORE ALLOWABLE. 11. ON THE OTHER HAND THE DR PLACED RELIANCE ON TH E ORDER OF THE LD.CIT(A) AND CONTENDED THAT SINCE THE ASSESSEE HAD FAILED TO SUBSTANTIATE THAT THESE EXPENSES WERE INCURRED FOR MANUFACTURING ACTIVITY, THE CLAIM OF THE ASSESSEE WAS NOT LIABLE TO BE ALLOWED. 12. WE HAVE HEARD THE REPRESENTATIVES OF BOTH THE P ARTIES AND PERUSED THE ORDERS OF AUTHORITIES BELOW AND ALSO THE DOCUMENTS PLACED BEFORE US. 13. WE FIND THAT DURING THE IMPUGNED ASSESSMENT YEA R THE ASSESSEE HAD CLAIMED CERTAIN EXPENSES ON ACCOUNT O F PRINTING AND STATIONARY, TELEPHONE POSTAGE ETC. AMOUNTING TO RS. 4,71,597/- AGAINST ITS JOB WORK INCOME OF RS. 80,91,856/-. NO DETAILS OF THESE EXPENSES WERE SUBMITTED NOR THE BASIS OF COMPUTATIO N GIVEN, EITHER DURING ASSESSMENT PROCEEDINGS OR THE APPELLATE PROC EEDINGS. IT IS SETTLED LAW THAT FOR THE PURPOSE OF CLAIMING AN EXP ENDITURE THE BURDEN OF PROVING THAT THE EXPENDITURE HAS BEEN INC URRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS IS ON T HE ASSESSEE. RELIANCE PLACED ON JASWANT TRADING COMPANY AND ANIL TRADING COMPANY VS. CIT [1995], 212 ITR 24, ASSAM PESTICIDE S AND AGRO 5 CHEMICALS VS. CIT [1997] 227 ITR 846 AND VOLTAS LTD . VS. CIT [1994] 207 ITR 47, 54. 14. IN THE PRESENT CASE, THE ASSESSEE HAS NOT DISC HARGED THIS ONUS. NO DETAILS OR ANY OTHER EVIDENCES HAVE BEEN PRODUCE D BY THE ASSESSEE TO SUBSTANTIATE ITS CLAIM OF EXPENDITURE. BUT CONSIDERING THE FACT THAT CERTAIN EXPENSES ON ACCOUNT OF POSTAGE, PRINTING AND STATIONARY AND TELEPHONE EXPENSES ARE INVARIABLY IN CURRED IN ANY BUSINESS, IN THE INTEREST OF JUSTICE WE FIND 20% OF THE EXPENSES CLAIMED BY THE ASSESSE TO BE REASONABLE AND HENCE A LLOW AN AMOUNT OF RS. 94,320/- AS AGAINST RS.4,71,597/- CLA IMED BY THE ASSESSE.A.O IS HEREBY DIRECTED TO RESTRICT THE DISA LLOWANCE TO RS. 3,77,277/- AS AGAINST DISALLOWANCE OF RS. 4,71,597/ - MADE BY HIM. 15. GROUND NO. 5 IS AGAINST THE DISALLOWANCE OF AD DITIONAL DEPRECIATION OF RS. 1,57,71,549/- ON INVESTMENT OF RS. 8,01,10,668/- CLAIMED BY THE ASSESSEE DURING THE ASSESSMENT PROCE EDINGS. THE FACT RELATING TO THE ISSUE IS THAT THE ASSESSE E DID NOT FILE ANY CLAIM IN RESPECT OF ADDITIONAL DEPRECIATION ON INVE STMENT OF RS. 8,01,10,668/- IN THE RETURN OF INCOME AND HAD CLAIM ED THE SAME FOR THE FIRST TIME DURING THE ASSESSMENT PROCEEDINGS . THE AO REJECTED THE CLAIM OF THE ASSESSEE BY TREATING IT AS A SHAM CLAI M, AN AFTERTHOUGHT OF THE ASSESSEE CONSIDERING THE FACT THAT DEDUCTION UNDER SECTION 80IC WOULD NOT BE ALLOWED TO THE ASSESSEE. THE CIT(A) UPHELD THE DISA LLOWANCE OF CLAIM BY HOLDING THAT IT WAS NOT CLEAR WHETHER THE CONDITION LAID DOWN IN THE PROVISO TO SECTION 32(IIA) WERE FULFILLED OR NOT IN THE CASE O F THE ASSESSEE. THE LD. CIT(A) STATED THAT SINCE NEITHER FORM 3CD NOR FORM 10CCB M ENTIONED ANY ASSET 6 ELIGIBLE FOR ADDITIONAL DEPRECIATION THE ASSESSEES CLAIM FOR ADDITIONAL DEPRECIATION WAS NOT MAINTAINABLE. 16. BEFORE US AR PLEADED THAT THE CLAIM FOR DEPRECI ATION UNDER SECTION 32 IS A MANDATORY CLAIM WHICH IS TO BE ALLOWED TO THE ASSES SEE EVEN IF SAME HAS NOT BEEN CLAIMED IN THE RETURN OF INCOME. THE AR SUBMIT TED THAT ALL DETAILS REGARDING THE CLAIM FOR ADDITIONAL DEPRECIATION WER E FILED BEFORE THE AO DURING THE ASSESSMENT PROCEEDINGS ITSELF VIDE LETTER DT 20 -03-2013 ,IN RESPONSE TO THE A.OS LETTER DT 11-03 2013 ASKING THE ASSESSEE TO F URNISH THE CALCULATION OF DEPRECIATION AND REVISED DEPRECIATION CHART SHOWING THE WDV AS ON 31/03/2010 AFTER THE CLAIMING OF ADDITIONAL DEPRECIATION. 17. THE DR RELIED ON THE ORDER OF THE CIT(A). 18. WE HAVE HEARD THE REPRESENTATIVES OF BOTH THE P ARTIES AND PERUSED THE ORDERS OF AUTHORITIES BELOW AND ALSO THE DOCUMENTS PLACED BEFORE US. 19. WE FIND THAT THE CLAIM OF THE ASSESSE FOR ADDIT IONAL DEPRECIATION HAS BEEN REJECTED FOR THE REASON THAT IT WAS NOT VE RIFIABLE. THE CIT(A) WHILE REJECTING THE CLAIM OF THE ASSESSE HAS HELD AT PARA 7 OF HIS ORDER AS FOLLOWS: 7. THE ISSUE IS PERTAINING TO ALLOWABILITY OF ADDI TIONAL DEPRECIATION U/S 32(IIA) OF RS. 1,57,71,549/-. AS E VIDENT FROM THE FACTS OF THE CASE, THE ASSESSEE DID NOT FILE AN Y CLAIM IN RESPECT OF A INVESTMENT OF RS. 8,01,10,668/- U/S 32 (II) IN RETURN OF INCOME. A.O. DISALLOWED THE SAME AS ASSSESSEE CL AIMED IT TO SUBSEQUENTLY, ONCE HE REALIZED THAT ASSESSEES C LAIM U/S 80IC IS NOT ADMISSIBLE ON THE BASIS OF SUBSTANTIAL EXPANSION. DURING APPELLATE PROCEEDINGS, ASSESSEE ARGUED THAT INVESTMENT IN PLANT & MACHINERY AND USE FOR THE PUR POSE OF BUSINESS OF MANUFACTURING HAS NOT BEEN DENIED BY A. O. AND IT MANDATORY TO PROVIDE DEPRECIATION U/S 32 WHETHER ASSESSEE CLAIMS IT OR NOT. THE BURDEN OF PROOF TO JUSTIFY A NY CLAIM PRIMARILY LIES UPON ASSESSEE. ASSESSEE ALSO FILED C OPY OF FORM 3CD AND COPY OF FORM 10CCB FOR CLAIM OF DEDUCTION U /S 80IC. AS PER FORM 3CD DETAILS OF DEPRECIATION ALLOW ABLE (ANNEXURE-A) DOES NOT REFLECT ANY MENTION OF ASSETS ELIGIBLE FOR ADDITIONAL DEPRECIATION. SIMILARLY THE FORM NO. 10CCB IN COLUMN NO. 26(E) REFLECT VALUE OF TOTAL WDV OF PLAN T AND MACHINERY USED IN BUSINESS, AS ON 31.03.2010, TO BE RS. 9,47,15,967/- AND DOES NOT REFLECT ANY SUCH ASSETS ELIGIBLE FOR ADDITIONAL DEPRECIATION. THUS THE CLAIM OF ADDITION AL DEPRECIATION U/S 32(IA) IS NOT SUBSTANTIATED WITH E ITHER OF THE CERTIFICATES. IT IS NOT CLEAR WHETHER THE CONDITION LAID DOWN IN 7 PROVISO TO 32(IIA) ARE FULFILLED OR NOT IN CASE OF ASSESSEE. ASSESSEE RELIED UPON VARIOUS CASE LAWS WHICH ARE FA CTUALLY AND CIRCUMSTANTIALLY DIFFERENT FROM FACTS OF THE AS SESSEES CASE ESPECIALLY IN LIGHT OF FACT THAT ASSESSEES CL AIM IS NOT MAINTAINABLE IN VIEW OF AUDITORS REPORT U/S 44AB I N FORM 3CD AND FORM 10CCB. THE CLAIM OF ASSESSEE BEING NON VER IFIABLE IN NATURE, IS NOT MAINTAINABLE. THUS THIS GROUND OF APPEAL IS DISMISSED. HOWEVER OUR ATTENTION WAS INVITED TO THE FACT THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSEE HAD VIDE HIS LETTER DT. 20 .03.2013 SUBMITTED DETAILS OF ADDITIONAL DEPRECIATION IN RES PONSE TO THE A.OS LETTER DT 11-03 2013 ASKING THE ASSESSEE TO FURNISH THE CALCULATION OF DEPRECIATION AND REVISED DEPRECIATION CHART SHOWING THE WDV AS O N 31/03/2010 AFTER THE CLAIMING OF ADDITIONAL DEPRECIATION. MOREOVER COMP LETE BOOKS OF ACCOUNTS WERE ALSO PRODUCED DURING ASSESSMENT PROCE EDINGS. BUT IT APPEARS THAT DESPITE ALL DETAILS FILED, THE CLAIM O F THE ASSESSEE WAS NOT VERIFIED. WE THEREFORE CONSIDER IT PROPER TO SE ND THE ISSUE OF CLAIM OF ADDITIONAL DEPRECIATION BACK TO THE A.O.TH E A.O IS HEREBY DIRECTED TO VERIFY THE CLAIM OF THE ASSESSE IN THE LIGHT OF CONDITIONS PRESCRIBED U/S 32(1)(IIA) AND THE PROVISO THERETO A ND PASS APPROPRIATE ORDER IN ACCORDANCE WITH LAW AFTER GIVI NG THE ASSESSE DUE OPPORTUNITY OF HEARING. THE ASSESSE IS FREE TO FILE ANY OTHER EVIDENCES IN SUPPORT OF HIS CLAIM. IT IS PERTINENT TO MENTION, THAT THOUGH THE ASSESSE E MAY NOT HAVE CLAIMED ADDITIONAL DEPRECIATION IN ITS RETURN OF IN COME, IT CAN STILL BE ALLOWED THE SAME BY VIRTUE OF EXPLANATION 5 OF SECT ION 32 WHICH STATES CLEARLY AS FOLLOWS: EXPLANATION 5- FOR THE REMOVAL OF DOUBTS, IT IS H EREBY DECLARED THAT THE PROVISIONS OF THIS SUB-SECTION SHALL APPLY WHETHER OR NOT THE ASSESSEE HAS CLAIMED THE DEDUCTION IN RESPECT OF DE PRECIATION IN COMPUTING HIS TOTAL INCOME. 8 IN VIEW OF THE SAME WE HOLD THAT THE ASSESSEE IS EN TITLED TO CLAIM ADDITIONAL DEPRECIATION U/S 32(I)(IIA) SUBJECT TO V ERIFICATION OF FULFILLMENT OF CONDITION PROVIDED IN PROVISIONS OF SECTION 32(I)(IIA). 20. THIS GROUND OF APPEAL OF THE ASSESSE IS THEREFO RE ALLOWED FOR STATISTICAL PURPOSES. 21. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 25/08/2015 SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 25/08/2015 AG COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR