Appeal details
Counselvise Citation
[2011] 134 COUNSELVISE.COM (IT) 9739 (ITAT-HYDERABAD)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 7 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
25-03-2011
Appeal Filed By
Department
Order Result
Partly Allowed
Bench Allotted
B
Next Hearing Date
30-12-2010
Assessment Year
2006-2007
Appeal Filed On
18-03-2010
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI G.C. GUPTA, VP & SHRI CHANDRA POOJARI, AM I.T.A. NO. 410/HYD/2010 (ASSESSMENT YEAR 2006-07) THE DCIT, CIRCLE 16(3) HYDERABAD VS. M/S. PITTI LAMINATIONS LTD. HYDERABAD PAN: AABCP2275L APPELLANT RESPONDENT APPELLANT BY: SMT. SUBHA SREE ANANTA KRISHNAN RESPONDENT BY: SHRI LAMINIWAS SHARMA O R D E R PER CHANDRA POOJARI, AM: THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-V, HYDERABAD DATED 23.12.2009 FOR THE ASSESS MENT YEAR 2006- 07. 2. THE REVENUE RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF AE B CARD PAYMENTS AMOUNTING TO RS. 32,63,328 IGNORING THE FACT THAT THE ASSESSEE HAD ALREADY CLAIMED HUGE EXPENDITURE THROUGH CARD PAYMENTS UNDER THE HEAD SALES PROMOTION EXPENSES AND NO EVIDENCE WAS PRODUCED BY THE ASSESSEE IN SUPPORT THAT THE EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE P0URPOSE OF BUSINESS. 2. THE CIT(A) ERRED IN HOLDING THAT THERE WAS NO EVIDENCE TO SHOW THAT THE EXPENDITURE THROUGH AEB CARD PAYMENTS WAS PERSONAL IN NATURE THOUGH THERE WERE SPECIFIC INSTANCES OF EXPENDITURE WHICH WAS PERSONAL IN NATURE AND THOUGH ASSESSEE FAILED TO FURNISH DETAILS OF EXPENDITURE FOR AN AMOUNT OF RS. 10,58,307 TOWARDS TRAVEL ABROAD. 3. THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF DEPRECIATION ON ADDITION TO PLANT AND MACHINERY I.T.A. NO. 410/HYD/2010 M/S. PITTI LAMINATIONS LTD. ===================== 2 THOUGH IT WAS SPECIFICALLY MENTIONED IN THE DIRECTORS REPORT THAT ONGOING EXPANSION CUM MODERNIZATION OF PROJECT WAS TO BE COMMENCED ON APRIL 2006 AND DUE TO DELAY IN ARRIVAL OF SOME MACHINERY WAND IN COMPLETION OF CIVIL WORKS THE COMMERCIAL PRODUCTION WAS EXPECTED TO BE STARTED BY 30.06.2006. 3. THE FIRST ISSUE RELATES TO DISALLOWANCE PERTAINING TO PAYMENTS MADE THROUGH AMERICAN EXPRESS BANK (AEB) CARD AMOUN TING TO RS. 32,63,328. THE CIT(A) OBSERVED THAT THE ASSESSING OFFICER GAVE A FINDING THAT THE DETAILS OF EXPENDITURE FOR GOING O VERSEAS WERE NOT FURNISHED BY THE ASSESSEE. THE STATEMENTS GIVEN BY THE ASSESSEE SHOW THAT THE EXPENDITURE IS TOWARDS VISITS TO GERM ANY, SRI LANKA, FRANCE, CANADA, ETC., BY THE DIRECTORS. SINCE THER E IS NO EVIDENCE TO SHOW THAT THESE WERE PERSONAL VISITS AND ALL THE AB OVE DETAILS HAVE BEEN CERTIFIED BY THE AUDITORS, THE CIT(A) HELD THA T THE EXPENDITURE IS INCURRED ON ACCOUNT OF BUSINESS TRIPS BY THE DIRECT ORS TO VARIOUS COUNTRIES. THE CIT(A) DELETED THIS ADDITION AS THE RE IS NO EVIDENCE TO SHOW THAT ANY EXPENDITURE MADE THROUGH THE CREDIT C ARDS WAS PERSONAL IN NATURE. THE LEARNED DR SUBMITTED BEFORE US THAT THE ASSESSEE HAS NOT FURNISHED THE VOUCHER RELATING TO THIS EXPENDITURE AND THE EXPENDITURE IS REQUIRED TO BE EXAMINED WITH REFERENCE TO THE VOUCHERS. SHE RELIED THE REMAND REPORT OF THE ASSE SSING OFFICER AND THIS ISSUE IS CANNOT BE CONSIDERED AS A COVERED ISS UE BY THE ORDER OF THE TRIBUNAL DATED 28.8.2009 IN ITA NO.607/H/2009 I N ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2005-06 AS THE FACTS I N THE PRESENT YEAR IS ENTIRELY DIFFERENT. ON THE OTHER HAND, THE AR S UBMITTED THAT THE I.T.A. NO. 410/HYD/2010 M/S. PITTI LAMINATIONS LTD. ===================== 3 ASSESSEE COMPANY HAS TAKEN A CREDIT CARD IN THE NAM E OF TOP MANAGEMENT AND EXPENDITURE IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND THE ISSUE IS SQUARELY C OVERED BY THE ORDER OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2005-06 IN ASSESSEES OWN CASE. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED MATERIAL ON RECORD AND WE HAVE ALSO CAREFULLY GONE THROUGH THE REMAND REPORT OF THE ASSESSING OFFICER ON THIS ISSUE. THE ASSESSEE H AS NOT FURNISHED THE DETAILS OF EXPENSES TO THE TUNE OF RS.1058307/- FUR THER CERTAIN EXPENSES ARE REQUIRED TO BE EXAMINED WITH REFERENCE TO THE VOUCHERS TO ASCERTAIN THE NATURE OF EXPENDITURE I.E., PERSON AL OR BUSINESS. AS SUCH, WE CANNOT CONSIDER THIS ISSUE AS COVERED BY T HE ORDER OF THE TRIBUNAL CITED SUPRA. HENCE WE SET ASIDE THE ISSUE TO FILE OF ASSESSING OFFICER FOR FRESH CONSIDERATION. THE ASSESSEE IS DI RECTED TO PRODUCE THE VOUCHERS/BILLS PERTAINS TO THIS EXPENDITURE BEFORE THE ASSESSING OFFICER. THIS GROUND OF THE REVENUE IS PARTLY ALLOW ED. 5. WITH REGARD TO DISALLOWANCE OF DEPRECIATION ASSESSE ES CLAIM OF DEPRECIATION ON ADDITIONS MADE TO PLANT AND MACH INERY WAS DISALLOWED ON THE GROUND THAT AS PER THE DIRECTORS REPORT, THE ONGOING EXPANSION-CUM-MODERNISATION PROJECT WAS TO BE COMMENCED IN APRIL, 2006 AND DUE TO DELAY IN ARRIVAL OF SOME MACHINERY AND IN COMPLETION OF CIVIL WORKS, THE COMMERCIAL PRODUCTIO N WAS EXPECTED TO START BY 30.06.2006. WHEN THE ASSESSEE WAS ASKED T O FILE PROOF THAT THE MACHINERY WAS INSTALLED AND USED DURING THE YEA R, VIDE ITS REPLY I.T.A. NO. 410/HYD/2010 M/S. PITTI LAMINATIONS LTD. ===================== 4 DATED 16.12.2008, IT WAS STATED THAT DOCUMENTARY EV IDENCE LIKE ENTRIES OF RG23 RECORDS, INVOICE COPIES WERE ATTACH ED. BUT THE ASSESSING OFFICER STATED THAT NO SUCH COPIES OF INV OICES AND FORM RGP-23 WERE FILED IN SUPPORT OF ITS CLAIM. THE ASS ESSING OFFICER REJECTED THE CLAIM OF DEPRECIATION AS THE INFORMATI ON FILED BY THE ASSESSEE DOES NOT CONCLUSIVELY PROVES THAT THE ASSE SSEE HAD ACQUIRED THE MACHINERY AND OTHER FIXED ASSETS WHICH WERE PUT TO USE DURING THE F.Y. 2005-06 AND THE STATEMENT OF THE DIRECTOR THAT STATED THERE WAS DELAY IN COMPLETION OF CIVIL WORK AND HENCE COM MERCIAL PRODUCTION WILL BE COMMENCED FROM JUNE, 2006. IN V IEW OF THE ABOVE, THE ASSESSING OFFICER HELD THAT THE ASSESSEES CLAI M OF DEPRECIATION ON PLANT AND MACHINERY TO THE TUNE OF RS. 2,34,98,590 WAS NOT ALLOWABLE ON ACCOUNT OF NON COMMERCIAL PRODUCTION DURING THE A.Y. 2006-07. DURING THE APPEAL PROCEEDINGS BEFORE THE CIT(A) THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER HAS NOT VERIFI ED THE INFORMATION PROPERLY. SOME MACHINERY HAD BEEN INSTALLED AND PU T TO USE. THE MACHINERY WHICH HAS NOT BEEN INSTALLED WAS SHOWN AS CAPITAL WORKS IN PROGRESS. THE ASSESSEE GAVE REFERENCE OF THE ORDER S OF THE PREDECESSOR OF THE CIT(A) IN ITA NO. 0311/DC-16(3)/ CIT(A)-V/2007-08 DATED 12.03.2009 AND THE ORDER OF THIS TRIBUNAL IN ITA NOS. 607 & 619/HYD/09 DATED 28.8.2009 FOR A.Y. 2005-06 ON THIS ISSUE, WHEREIN THE TRIBUNAL SIMILAR ISSUE WAS ADJUDICATED UPON AND DECIDED IN FAVOUR OF THE ASSESSEE. I.T.A. NO. 410/HYD/2010 M/S. PITTI LAMINATIONS LTD. ===================== 5 6. AFTER CAREFULLY EXAMINING ALL THE DOCUMENTARY EVIDE NCE AND THE ARGUMENTS OF THE ASSESSEE, THE CIT(A) HELD THAT IT IS CORRECT THAT PLANT AND MACHINERY AND CIVIL WORKS WHICH WERE IN T HE PROCESS OF INSTALLATION AND HAVE NOT BEEN PUT TO USE ARE SHOWN AS CAPITAL WORKS IN PROGRESS. A LOOK AT THE FORM RG-23 C SHOWS THAT THE NEW MACHINERY AND PLANTS HAD BEEN INSTALLED ON VARIOUS DATES STARTING FROM SEPTEMBER, 2005. SPECIFIC DETAILS FOR ITEMS P URCHASED AND INSTALLED HAVE BEEN GIVEN BY THE ASSESSEE. IN THE FACT OF THE DETAILS FILED, IT IS SEEN THAT THE ADDITIONS SHOWN UNDER DI FFERENT CATEGORIES OF ASSETS RELATE TO THE EXISTING PLANTS, ETC., OF THE ASSESSEE. THE ASSESSING OFFICER WAS ABLE TO SHOW THAT THE INSTALL ED PLANT AND MACHINERY HAS NOT BEEN USED DURING THE YEAR AT ALL. RELYING ON THE ORDER OF CIT(A) IN ITA NO. 0311/DC-16(3)/CIT(A)-V/2 007-08 DATED 12.03.2009 (SUPRA) AND THE ORDER OF THIS TRIBUNAL I N ITA NOS. 607 AND 619/HYD/09 DATED 28.8.2009 FOR THE A.Y. 2005-06 ON THE SAME ISSUE, THE CIT(A) HELD THAT THE DEPRECIATION CLAIMED BY TH E ASSESSEE IS ALLOWABLE AND ACCORDINGLY DELETED THE ADDITION MADE BY THE ASSESSING OFFICER IN THIS REGARD. AGGRIEVED, THE REVENUE IS IN APPEAL. 7. WE HAVE HEARD BOTH THE PARTIES AND ALSO PERUSED T HE MATERIAL ON RECORD. U/S 32 OF THE INCOME TAX ACT, DEPRECIATION ALLOWED, IN COMPUTING THE INCOME OF THE ASSESSEE IN RESPECT OF PLANT AND MACHINERY OWNED BY THE ASSESSEE AND USED FOR TH E PURPOSE OF BUSINESS. THE WORDS USED FOR THE PURPOSE OF BUSI NESS OBVIOUSLY MEAN USED FOR THE PURPOSE OF ENABLING THE ASSESSEE CARRY ON THE I.T.A. NO. 410/HYD/2010 M/S. PITTI LAMINATIONS LTD. ===================== 6 BUSINESS OR PROFESSION. IN OTHER WORDS, THE MACHIN ERY MUST BE USED, IN WHATEVER SENSE THAT WORD IS TAKEN, FOR THE PURPO SE OF BUSINESS WHICH IS ACTUALLY CARRIED ON BY THE ASSESSEE AT LEA ST FOR A PART OF THE ACCOUNTING YEAR CONCERNED. IF THE MACHINERY HAS N OT AT ALL BEEN USED AT ANY TIME DURING THE ACCOUNTING YEAR, NO DEPRECIA TION CAN BE CLAIMED IN RESPECT OF THEM. THE EXPRESSION USED FOR THE PURPOSE OF BUSINESS IN THIS PROVISION MEANS USED FOR THE PUR POSE OF BUSINESS DURING THE ACCOUNTING YEAR. FOR CLAIMING THE DEPR ECIATION, THE EMPHASIS IS ON THE USER OF THE ASSET IN BUSINESS OF THE ASSESSEE. THERE MUST BE ACTUAL, EFFECTIVE AND REAL USER IN TH E COMMERCIAL SENSE AND THE USER MUST BE SO LINKED WITH THE BUSINESS TH AT IT CAN BE SAID THAT THERE IS AN IMMEDIATE NEXUS BETWEEN THE USER A ND THE BUSINESS. IN THE ABOVE BACKGROUND, WE HAVE EXAMINED THE FACTS OF THE CASE. AS SEEN FROM THE DIRECT REPORT , IT IS MENTIONED AT PA GE NO.15 AS FOLLOWS: STATUS ON EXPLANSION PROJECT IT MAY BE RECALLED THAT THE COMPANY HAS TAKEN UP AN EXPANSION CUM-MODERNISATION PROGRAMME TO CATER TO THE UPSURGE IN THE DEMAND FROM THE DOMESTIC AND OVERSEAS CUSTOMERS AND ALSO TO MEET THE REQUIREMENTS OF THE NEW DOMESTIC AND OVERS EAS CUSTOMERS WHO ARE EXPECTED TO START SOURCING FROM T HE COMPANY. THE ON GOING EXPANSION-CUM-MODERNISATION PROJECT WA S TO BE COMMISSIONED IN APRIL, 2006. DUE TO DELAY IN THE A RRIVAL OF SOME MACHINERY AND THE CONSEQUENTIAL DELAY IN COMPLETION OF CIVIL WORKS, THE COMMERCIAL PRODUCTION IS NOW EXPECTED TO START BY 30 TH JUNE, 2006. THE FUNDS FOR THE EXPANSION CUM MODERN ISATION PROGRAMME HAVE ALREADY BEEN TIED UP. TERM LOANS HAVE BEEN SANCTIONED FOR RS.1080 LAKHS A ND THE COMPANY MADE A PREFERENTIAL ISSUE FOR A SUM OF RS.1 440 LAKHS DURING THE YEAR UNDER REVIEW TO PART FINANCE THE O N GOING PROJECT. SOME OF THE MACHINERY HAVE ALREADY BEEN PUT UP TO U SE AND THE COMPANY IS DERIVING OPERATIONAL BENEFIT OF THE SAME . I.T.A. NO. 410/HYD/2010 M/S. PITTI LAMINATIONS LTD. ===================== 7 8. FROM THE ABOVE PART OF THE DIRECT REPORT IT IS CLEAR THAT THE EXPANSION-CUM-MODERNISATION PROGRAMME WAS NOT C OMMISSIONED IN THE ASSESSMENT YEAR UNDER CONSIDERATION AND SC HEDULED TO COMMENCE FROM JUNE, 2006. CONTRARY TO THIS, THE LE ARNED AR SUBMITTED THAT THE SALE WAS INCREASED TO 10035 MT.. FROM 6521 MT. AS COMPARED TO EARLIER YEAR. FURTHER, THERE WAS A GRO WTH RATE OF 54% AND THE COMPANYS INCOME HAS ALSO GONE UP TO RS.950 8.73 LAKHS FROM RS.5516. 25 LAKHS AS COMPARED TO PREVIOUS YEAR. AC CORDING TO HIM, THE MODERNISATION IS A CONTINUOUS PROCESS AND ACTUA LLY THE ADDITIONAL MACHINERY ACQUIRED BY THE ASSESSEE WAS PUT TO USE. HE ALSO PLACED RELIANCE ON THE ORDER OF THE TRIBUNAL DATED 28.8.2 009 IN ASSESSEES OWN CASE IN ITA NO.607 & 619/H/2009 FOR THE ASSESS MENT YEAR 2005-06. IN OUR OPINION, THE RELIANCE PLACED BY T HE LEARNED AR IS MISPLACED AND THE ORDER OF THE TRIBUNAL IS WITH REF ERENCE TO ALLOWABILITY OF DEPRECIATION ON THE EXISTING PLANT AND OFFICE AND FACTORY BUILDING OF THE ASSESSEE AND NOT IN RELATIO N TO THE ASSETS OF THE PLANT NO.2 AND ALSO THE TRIBUNAL CONFIRMED THE FAC T THAT THE ASSESSING OFFICER HAS NOT ESTABLISHED THAT THE ASSESSEE CLAIM ED DEPRECIATION IN RESPECT OF ASSETS WHICH ARE EITHER FALLING UNDER PL ANT NO.2 OR NOT USED DURING THE PREVIOUS YEAR FOR BUSINESS PURPOSE. BUT IN THE PRESENT CASE, THE ASSESSING OFFICER HAS GIVEN CLEAR CUT FIN DINGS THAT COMMERCIAL PRODUCTION OF THE ASSESSEE WAS STARTED ON 13.4.2005 WITH THE PLANT AND MACHINERY INSTALLED DURING THE FINANCIAL YEAR 2 004-05. BUT THE ASSETS INCLUDING THE PLANT AND MACHINERY WHICH HAS PURCHASED DURING THE FINANCIAL YEAR 2005-06 WERE NOT PUT TO USE FOR COMMERCIAL PRODUCTION AS THE ASSESSEE ITSELF HAD STATED THAT E XPANSION PROGRAMME WAS NOT UNDERTAKEN IN A SEPARATE PLANT BU T CARRIED OUT IN THE SAME EXISTING PLANT AND THERE WAS NO CHANGE IN THE BUSINESS ACTIVITY AND MANUFACTURING OPERATION. THIS IS SUPP ORTED BY THE ASSESSEES LETTER DATED 26.12.2008. FURTHER, THE A SSESSEE HAS FILED WITH THIS LETTER BEFORE THE ASSESSING OFFICER DOCUM ENTARY EVIDENCE LIKE ENTRIES OF RG-23 RECORDS, INVOICE COPIES. HOWEVER, THE ASSESSING I.T.A. NO. 410/HYD/2010 M/S. PITTI LAMINATIONS LTD. ===================== 8 OFFICER NOT EXAMINED THESE FACTS. EVEN THE CIT(A) NOT EXAMINED FACTS OF PUTTING THE MACHINERY INTO USE. HE HAS JUST GON E BY THE EARLIER ORDERS OF THE TRIBUNAL AND FORMED THE OPINION IN FA VOUR OF THE ASSESSEE. IN OUR OPINION, IT IS THE DUTY OF THE AS SESSEE TO PROVE THAT THE MACHINERIES ARE ACTUALLY PUT INTO USE AND IT IS NOT THE DUTY OF THE ASSESSING OFFICER TO PROVE THE MACHINERIES WERE PUT INTO USE. ACCORDINGLY, WE FEEL IT APPROPRIATE TO SET ASIDE TH E ISSUE TO THE FILE OF ASSESSING OFFICER WITH A DIRECTION TO THE ASSESSEE TO SUBSTANTIATE ITS CLAIM WITH THE DOCUMENTARY EVIDENCE THAT THE MACHIN ERIES WERE ACTUALLY PUT INTO USE FOR THE PURPOSE OF BUSINESS I N THE ASSESSMENT YEAR UNDER CONSIDERATION. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS P ARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH MARCH, 2011. SD/- (G.C. GUPTA) VICE PRESIDENT SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED 25 TH MARCH, 2011 TPRAO COPY FORWARDED TO: 1. THE DCIT, CIRCLE 16(3), 6 TH FLOOR, AAYAKAR BHAVA N, BASHEERBAGH, HYDERABAD. 2. M/S. PITTI LAMINATIONS LTD., 6 - 3 - 648/401, 4 TH FLOOR, PADMAJA LANDMARK, SOMAJIGUDA, HYDERABAD. 3. THE CIT(A) - V , HYDERABAD. 4 THE CIT - I V , HYDERABAD 5. THE DR B BENCH, ITAT, HYDERABAD
