M/s. Steelco Gujarat Ltd., Ahmedabad V. The Dy.CIT.,Circle-8, Ahmedabad

ITA 4161/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5744 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-07-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 14-07-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 20-11-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S N SOPARKAR
• Keywords: Depreciation; Unabsorbed depreciation; Set aside
• Section: 234B; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHR I N.S.SAINI, ACCOUNTANT MEMBER DATE OF HEARING :14-7-10 DRAFTED ON: 14-7-10 ITA NO. 4161 /AHD/2007 ASSESSMENT YEAR :2004-05 STEELCO GUJARAT LTD., PLOT NO.2,G..D.C.ESTATE, N.H.NO.8, PALEJ, DIST. BHARUCH VS. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-8, AJANTA COMMERCIAL CENTRE, ASHRAM ROAD, AHMEDABAD. PAN/GIR NO. : AADCS 0880 L (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI S.N.SOPARKAR. RESPONDENT BY: SHRI ANIL KUMAR, D.R. O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF THE EARNED COMMISSIONER OF INCOME TAX (APPEALS)-XIV,AHM EDABAD DATED 11-07-2007. 2. THE GROUND NO.1 TO 4 READS AS UNDER :- 1. THE LD. C.I.T. (A) IS NOT JUSTIFIED IN CONFIRMI NG THE APPLICATION OF THE SECTION 115JB OF THE ACT ON THE APPELLANT, A SICK COMPANY REGISTERED WITH BIFR. - 2 - 2. THE LD. C.I.T. (A) IS NOT JUSTIFIED IN CONFIRMIN G ADJUSTMENT OF EXTRA-ORDINARY ITEMS OF CAPITAL REDUC TION RESERVE AGAINST UNABSORBED DEPRECIATION AND BROUGHT FORWARD BUSINESS LOSS PURSUANT TO BIFR RESTRUCTURIN G SCHEME. THESE ITEMS OF CREDITS ARE NOT ITEMS OF REVENUE NAT URE AND, THEREFORE, REQUIRED TO BE IGNORED WHILE CALCULATING BOOK PROFIT FOR MAT PURPOSES UNDER SECTION 115JB OF THE ACT. 3. THE LD. C.I.T. (A) IS NOT JUSTIFIED IN CONFIRMIN G NO ALLOWANCE OF SET OFF OF LOWER OF THE BROUGHT FORWAR D BOOK LOSS AND UNABSORBED DEPRECIATION AS PER THE BOOKS OF ACC OUNTS MAINTAINED BY THE APPELLANT AGAINST THE BOOK PROFIT DETERMINED BY HIM. 4. THE LD. C.I.T. (A) IS NOT JUSTIFIED IN CONFIRMIN G THE ADJUSTMENT OF BROUGHT FORWARD BOOK LOSS AND UNABSOR BED DEPRECIATION WHILE QUANTIFYING THE BOOK PROFIT UNDE R SECTION 115JB OF THE ACT. 2. THOUGH THE ASSESSEE HAS TAKEN FOUR DIFFERENT GR OUNDS AS MENTIONED ABOVE RELATING TO THE ISSUE OF COMPUTATIO N OF BOOK PROFIT UNDER SECTION 115JB BUT AT THE TIME OF THE HEARING OF THE APPEAL BEFORE US THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAD MADE ONLY ONE COMMON SUBMISSION WHICH IS AS FOL LOWS. 3. AT THE OUTSET THE LEARNED AUTHORISED REPRESENTAT IVE OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD SUBMITTED BEFORE THE LEARNED ASSESSING OFFICER IN ASSESSMENT YEAR 2003-0 4 THAT THE ASSESSEE WAS A SICK INDUSTRIAL COMPANY WITHIN THE M EANING OF SECTION 3(1)(O) OF THE SICK INDUSTRIAL COMPANIES (S PECIAL PROVISIONS) ACT, 1985 (SICA FOR SHORT).THE SCHEME FOR ITS REHAB ILITATION AND RESTRUCTURING HAS BEEN APPROVED BY THE BOARD FOR IN DUSTRIAL FINANCE AND RECONSTRUCTION (BIFR FOR SHORT) VIDE ITS ORDER DATED 13-8-2001. - 3 - AFTER GIVING EFFECT TO THE SAID RESTRUCTURING SCHEM E, THE NET WORTH OF THE APPELLANT COMPANY BECAME POSITIVE AS ON 31-3-20 03. THEREFORE, THE EXEMPTION UNDER SECTION 115JB EXPLANATION 1(VII ) WAS AVAILABLE TO THE ASSESSEE TILL THE ASSESSMENT YEAR 2003-04. T HE LEARNED ASSESSING OFFICER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND TREATED THE COMPANY AS NOT COVERED UNDER BIFR AND L EVIED TAX ON MAT AS PER PROVISIONS OF SECTION 115JB OF THE ACT. HE SUBMITTED THAT THE TRIBUNAL IN THE ASSESSMENT YEAR 2003-04 IN ITA NOS.178 & 349/AHD/2007 ORDER DATED 14-5-2010 HELD THAT THE AS SESSEE WAS A SICK INDUSTRIAL UNDERTAKING AND ITS PROFITS ARE TO BE EXCLUDED FROM THE BOOK PROFIT TILL THE ASSESSMENT YEAR 2003-04 WH EN THE NET WORTH BECAME POSITIVE. HE THEREFORE, SUBMITTED THAT THE M ATTER HAS TO BE RESTORED BACK TO THE FILE OF THE LEARNED ASSESSING OFFICER FOR RE- COMPUTING THE MAT AND UNABSORBED DEPRECIATION AND L OSS AS PER BOOKS OF ACCOUNTS IN VIEW OF THE DECISION OF THE TR IBUNAL IN ASSESSMENT YEAR 2003-04. THE LEARNED DEPARTMENTAL REPRESENTATIVE ALSO AGREED WITH THE CONTENTION OF T HE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE. 4. AFTER HEARING THE RIVAL SUBMISSIONS AND PERUSING THE MATERIAL AVAILABLE ON RECORD WE FIND THAT THE ASSESSEE HAS C ATEGORICALLY ADMITTED BEFORE US THAT THE PROVISIONS OF SECTION 1 15JB ARE APPLICABLE TO THE ASSESSEE COMPANY DURING THE YEAR UNDER CONSIDERATION IN VIEW OF THE FACT THAT ITS NET WORT H HAS BECOME POSITIVE IN THE PREVIOUS YEAR RELEVANT TO THE ASSES SMENT YEAR 2003- 04. FURTHER BOTH THE PARTIES BEFORE US AGREED THAT THE COMPUTATION PORTION OF SECTION 115JB IS TO BE RESTORED TO THE F ILE OF THE LEARNED - 4 - ASSESSING OFFICER AS THE SAME REQUIRES RE-COMPUTATI ON IN VIEW OF THE TRIBUNAL ORDER IN ASSESSMENT YEAR 2003-04. WE THER EFORE, RESTORE THE ISSUE OF COMPUTATION OF BOOK PROFIT IN ACCORDAN CE WITH THE PROVISIONS OF SECTION 115JB BACK TO THE FILE OF THE LEARNED ASSESSING OFFICER. THEREFORE, THE ABOVE GROUNDS OF APPEAL ARE PARTLY ALLOWED AS ABOVE. 5. GROUND NO.5 READS AS UNDER :- 5. THE LD. C.I.T.(A) IS NOT JUSTIFIED IN CONFIRMIN G DISALLOWANCE OF DEPRECIATION AMOUNTING TO RS.12,09, 665/-. 6. AT THE TIME OF HEARING BOTH THE PARTIES BEFORE U S AGREED THAT THE ISSUE IS COVERED BY THE ORDER OF THE TRIBUNAL I N ASSESSEES OWN CASE IN THE ASSESSMENT YEAR 2003-04 DATED 14-5-2010 PASSED IN ITA NOS. 178 AND 349/AHD/2007. IN THE ASSESSMENT YEAR 2003-04 ON THE SIMILAR ISSUE THE TRIBUNAL OBSERVED AS UNDER :- 16. GROUND NO.8 OF THE ASSESSEES APPEAL READS AS UNDER : 8. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF LEARNED ASSESSING OFFICER IN DISALLOWING DEPRECIATION AMOUNTING TO RS.16,12,886/ -. 17. WITH REGARD TO GROUND NO.8 IT IS STATED BY THE LEARNED COUNSEL THAT BY THE LEARNED COUNSEL THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE IT AT IN ASSESSEES OWN CASE WHEREIN, THE ITAT HELD THAT ON ACCOUNT OF WAIVER OF OUTSTANDING PRINCIPLE AMOUNT OF LOAN THE COST OF THE FIXED ASSET CANNOT BE REDUCED. WE FIND THAT THE ITA T HAS CONSIDERED THIS ISSUE IN ASSESSEES OWN CASE FOR AS SESSMENT YEAR 2002-03 VIDE ITA NO.1050/AHD/2006. IN THIS ORD ER THE ITAT HELD AS UNDER : - 5 - WHEN WE APPLY THE ABOVE PRINCIPLES TO THE FACTS OF THE PRESENT CASE, WE NOTICE THAT WIPRO FINANCE LTD. IS OF THE ENTION TO RECOVER THE LOAN FROM THE ASSESSEE. IT WA S NOT GIVEN AS TO MEET OUT THE COST OF ANY PLANT AND MACHINERY PARTLY, FULLY DIRECTLY OR INDIRECTLY. AS PER PAGE 4922 OF ADV. LAW LEXICON, WAIVER WOULD MEAN VOLUNTARY RELINQUISHMENT OF A LEGAL RIGHT OR ADVANT AGE BENEFIT, CLAIM OR PRIVILEGE. THUS, ACT OF WAIVER WO ULD COME POSTERIOR WHEREAS GRANT AND SUBSIDY ARE INTERI OR OF THE TRANSACTION, I.E., PURCHASES OF PLANT AND MACHINERY IN THE PRESENT CASE. THE REIMBURSEMENT IS ALWAYS POSTERIOR TO THE TRANSACTION (OF PURCHASE OF PLANT AND MACHINERY.) THEREFORE, THE WAIVER OF LOAN IS AL SO NOT EQUIVALENT TO REIMBURSEMENT AND THEREFORE WILL NOT FALL UNDER THE CATEGORY OF REIMBURSEMENT. WAIVER IS ALSO NOT EQUIVALENT TO GRANT OR SUBSIDY. THUS, TH E WAIVER DOES NOT FALL INTO EITHER OF THE THREE TERMS USED IN EXPLANATION 10 OR PROVISO THEREOF. FURTHER THERE HAS TO BE DIRECT NEXUS OF LOAN WITH PURCHASE OF PLANT A ND MACHINERY. IN THE PRESENT CASE, PLANT AND MACHINERY ARE ALREADY COSTING PRIOR TO TAKING THE LOAN. THEREFORE , GRANT OF LOAN BY WIPRO FINANCE LTD., CANNOT BE RELATED TO THE PURCHASE OF PLANT AND MACHINERY. THEREFORE, IT CANN OT BE INFERRED THAT IT WAS GIVEN TO MEET THE COST OF P LANT AND MACHINERY. ONCE, THE SUM OF RS.86,02,061/- WAIV ED BY WIPRO FINANCE LTD. AS OTS, CANNOT BE RELATED TO PURCHASE OF PLANT AND MACHINERY, IT CANNOT BE REDUC ED FROM THE COST FOR THE PURPOSES OF REDUCING ALLOWABL E DEPRECIATION. 18. THAT, IN THE YEAR UNDER CONSIDERATION THE ASSESSING OFFICER HAS TO ALLOW THE DEPRECIATION ON THE W.D.V. AS BROUGHT FORWARD FROM THE EARLIER YEAR. WE THEREFORE DIRECT HIM TO ALLOW THE DEPRECIATION ON W.D.V. AS WORKED OUT AFTER GIVING EFFECT TO THE ABO VE ORDER OF ITAT IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2002-03. - 6 - 7. IN THE PRESENT YEAR OF APPEAL THE FACTS ARE THAT THE ASSESSEE RECEIVED CAPITAL SUBSIDY OF RS.86,02,061/- FROM M/S / WIPRO FINANCE LTD., AGAINST PURCHASE OF MACHINERY IN ASSESSMENT Y EAR 1998-99. THE ASSESSEE CLAIMED DEPRECIATION ON THE TOTAL PURCHASE VALUE BUT THE LEARNED ASSESSING OFFICER RELYING ON THE PROVISIONS OF SECTION 43 READ WITH EXPLANATION 10 DISALLOWED THE DEPRECIATI ON ON THE AMOUNT OF CAPITAL SUBSIDY OF RS.86,02,061/-. THE LE ARNED COMMISSIONER OF INCOME TAX (APPEALS) FOLLOWING HIS ORDER FOR ASSESSMENT YEAR 2002-03 AND 2003-04 UPHELD THE ACTI ON OF THE LEARNED ASSESSING OFFICER IN ALLOWING THE DEPRECIAT ION TO THE ASSESSEE ON THE AMOUNT OF CAPITAL SUBSIDY RECEIVED ON THE PURCHASE OF MACHINERY. THUS, THE FACTS OF THE CASE IN THE YEAR UNDER APPEAL ARE IDENTICAL TO THE FACTS THAT WERE BEFORE THE TRI BUNAL IN ASSESSMENT YEAR 2003-04. HENCE RESPECTFULLY THE ORD ER OF THE TRIBUNAL FOR ASSESSMENT YEAR 2003-04 WE SET ASIDE T HE ORDERS OF THE LOWER AUTHORITIES AND DIRECT THE LEARNED ASSESSING OFFICER TO ALLOW THE DEPRECIATION ON WD.V. AS WORKED OUT AFTER GIVIN G EFFECT TO THE ORDER OF THE TRIBUNAL PASSED IN ASSESSMENT YEAR 200 2-03. THEREFORE, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 8. GROUND NO.6 READS AS UNDER :- 6. THE LD. C.I.T. (A) IS NOT JUSTIFIED IN CONFIRMIN G FOISTING OF DEPRECIATION AMOUNTING TO RS.55,16,670/- ON THE NEW GALVANIZING UNIT. 9. THE BRIEF FACTS ARE THAT THE LEARNED ASSESSING O FFICER OBSERVED THAT THE ASSESSEE HAS MADE ADDITION OF A GALVANIZIN G UNIT DURING THE - 7 - YEAR FROM WHICH IT HAS PRODUCED 609 MT. TON OF GALV ANIZED STEEL AND THE SALES HAS BEEN MADE FOR RS.2,15,81,908/-. THE A SSESSEE CLAIMED DEPRECIATION ON THE NEW UNIT BY CONTENDING THAT IT HAS MADE PROFIT ON SALES OF GALVANIZED STEEL, BUT IT WAS ONLY IN TH E NATURE OF TRIAL RUN AND NO FULL SCALE COMMERCIAL PRODUCTION HAS COMMENC ED. THE LEARNED ASSESSING OFFICER APPLYING THE PROVISIONS O F EXPLANATION 5 TO SECTION 32(1) OF THE I.T. ACT AND CALCULATED THE DE PRECIATION OF RS.55,16,670/- AND ALLOWED THE SAME TO THE ASSESSEE . 10. ON AN APPEAL FILED BEFORE THE LEARNED COMMISSIO NER OF INCOME TAX (APPEALS) THE ASSESSEE SUBMITTED IT HAS ONLY MADE TRIAL PRODUCTION AND HENCE DEPRECIATION WAS NOT CLAIMED A ND THE SAME CANNOT BE FORCED UPON THE ASSESSEE. THE LEARNED COM MISSIONER OF INCOME TAX (APPEALS) OBSERVING THAT THE ASSESSEE HA S MADE PRODUCTION AND SALES OF A SIZABLE AMOUNT WHICH SUGG ESTS THAT IT HAS USED ITS PLANT AND MACHINERY FOR PRODUCTION AND AS PER EXPLANTION-5 TO SECTION 32(1) THE DEPRECIATION HAS TO BE CALCULA TED AND ALLOWED TO THE ASSESSEE DISMISSED THE GROUND OF APPEAL OF THE ASSESSEE OBSERVING THAT THE ACTION OF THE LEARNED ASSESSING OFFICER IN FORCING THE DEPRECIATION WAS IN ORDER. 11. AT THE TIME OF THE HEARING THE LEARNED AUTHORIS ED REPRESENTATIVE OF THE ASSESSEE VERY FAIRLY CONCEDED THAT THIS GROUND HAS TO BE DECIDED AGAINST THE ASSESSEE. THEREFORE, THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 12. GROUND NO.7 READS UNDER:- - 8 - 7. THE LD. C.I.T.(A) IS NOT JUSTIFIED IN CONFIRMING THE LEVY OF INTEREST UNDER SECTIONS 234B AND 234C OF THE ACT PA RTICULARLY WHEN THE INCOME WAS COMPUTED UNDER SECTION115JB OF THE ACT. 13. AT THE TIME OF HEARING THE LEARNED AUTHORISED R EPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THIS ISSUE WAS TO BE DECIDED AGAINST THE ASSESSEE IN VIEW OF THE DECISION OF AHMEDABAD S PECIAL BENCH OF THE TRIBUNAL IN THE CASE OF A.C.I.T. VS. ASHIMA SYN TEX LTD., (2009) 120 TTJ (AHD)(SB) 721 WHEREIN IT WAS HELD THAT INTEREST UNDER SECTION S 234B AND 234C WILL BE CHARGEABLE EVEN IN THE CASE W HERE INCOME HAS BEEN DETERMINED UNDER SECTION 115JB OF THE ACT . IN VIEW OF THE ABOVE THIS GROUND OF APPEAL OF THE ASSESSEE IS DISM ISSED. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 16 TH DAY OF JULY, 2010. SD/- SD/- (BHAVNESH SAINI) ( N.S. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; ON THIS 16 TH DAY OF JULY, 2010 PATKI - 9 - AHMEDABAD; ON THIS 16 TH DAY OF JULY, 2010 PATKI COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE. 2. THE DEPARTMENT. 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)- 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD DATE INITIALS 1. DRAFT DICTATED ON 14-07-2010 2. DRAFT PLACED BEFORE AUTHORITY 15-07-2010 3. DRAFT PROPOSED & PLACED JM BEFORE THE SECOND MEMBER 15-07-2010 4. DRAFT DISCUSSED/APPROVED 15-07-2010 JM/AM BY SECOND MEMBER 5. APPROVED DRAFT COMES TO P.S. 15-07-2010 6. KEPT FOR PRONOUNCEMENT ON 16-07-2010 7. FILE SENT TO THE BENCH CLERK 16-07-2010 8. DATE ON WHICH FILE GOES TO THE 9. DATE OF DISPATCH OF ORDER - 10 - - 11 - COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)- 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD DATE INITIALS 1. DRAFT DICTATED ON --------------- --------- ---------- 2. DRAFT PLACED BEFORE AUTHORITY --------------- ------------------- 3. DRAFT PROPOSED & PLACED --------------- ------ ------------- JM BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED --------------- ----- -------------- JM/AM BY SECOND MEMBER 5. APPROVED DRAFT COMES TO P.S ---------------- -- ------------------ 6. KEPT FOR PRONOUNCEMENT ON ---------------- --- ----------------- 7. FILE SENT TO THE BENCH CLERK ---------------- -------------------- 8. DATE ON WHICH FILE GOES TO THE ---------------- -------------------- 9. DATE OF DISPATCH OF ORDER ---------------- --- ------------------