M/S IVES DRUGS (IDNDIA) PVT. LTD., Indore V. THE ADDL. CIT RANGE-1, Indore

ITA 436/IND/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 5992 (ITAT-INDORE)
• Duration Of Justice: 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-01-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 04-01-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 02-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJIB JAIN
• Assessee Lawyers: JATIN SEHGAL S; PULKIT TARE
• Keywords: Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE . . , . . , # BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI O.P. MEENA, ACCOUNTANT MEMBER IVES DRUGS (INDIA) PVT. LTD. 504 CHETAK CENTER R N T MARG INDORE VS. ADDL CIT RANGE - 1, INDORE / / / / APPELLANT / / / / RESPONDENT .../ PAN:AAACI 3931R / / / / APPELLANT BY SHRI PULKIT TARE AND SHRI JATIN SEHGAL ADVOCATES / / / / RESPONDENT BY SHRI RAJIB JAIN JCIT , SR. DR / / / / DATE OF HEARING 04.01.2017 / / / / DATE OF PRONOUNCEMENT 11.01.2017 . . /. I.T.A. NO.436 /IND/2016 % % / ASSESSMENT YEAR:2005-06 M/S.IEVS DRUGS(INDIA) PVT.LTD./I.T.A.NO. 436/IND/20 16/A.Y.05-06 P AGE 2 OF 9 / / / / O R D E R PER O.P. MEENA, ACCOUTANT MEMEBR. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-I, INDORE [HER EINAFTER REFERRED TO AS THE CIT (A)] DATED 17.10.2014. THIS APPEAL PERTAINS TO ASSESSMENT YEAR 2005-06 AS AGAINST APPE AL DECIDED IN RESPECT OF ASSESSMENT ORDER DATED 18.12. 2007 PASSED U/S. 143(3) OF INCOME TAX ACT, 1961(HEREIN AFTER REFERRED TO AS 'THE ACT) BY THE ADDL CIT RANGE-1, I NDORE [HEREINAFTER REFERRED TO AS THE AO]. THE ASSESSEE H AS TAKEN FOLLOWING GROUNDS OF APPEAL:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OUT OF CONSUMPTION OF INPUTS. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF EXPENDITURE INCURRED AS LINE CHARGES. M/S.IEVS DRUGS(INDIA) PVT.LTD./I.T.A.NO. 436/IND/20 16/A.Y.05-06 P AGE 3 OF 9 3. GROUND NO. 1 RELATES TO SUSTAINING LOSS OF RS. 4, 41,154/- ON ACCOUNT OF EXCESS CONSUMPTION OF BOTTLE S IN PRODUCTION. 4. THE FACTS APROPOS OF THIS GROUND ARE THAT THE ASSES SEE HAS SHOWN PRODUCTION LOSS OF 1,30,396 BOTTLES VALUED AT RS. 4,41,154/- THE AO WORKED OUT A CHART AS GIVEN IN PARA 03.1 OF ASSESSMENT ORDER AND NOTED THAT AVERAGE LOSSES IN BOTTLES WAS MORE THAN 5% WHICH WAS CONSIDERED TO BE QUITE EXCESSIVE, NOR IT WAS SATISFACTORILY EXPLAINED BY THE ASSESSEE, HENCE, RS . 2,22,077/- BEING 50% OF THE SAME WAS DISALLOWED. SIMILARLY, THE AO WORKED OUT LOSS OF 8.56% IN RUBBER CORK WHICH WAS CONSIDERED TO BE EXCESSIVE, HENCE, DISALLOWANCE OF RS. 1,12,563/- WAS MADE BEING EXCESS RUBBER CORK USED. FURTHER, LOSSES IN ALUMINUM SEAL WAS FOUND TO BE 8.64% OF THE PRODUCTION HENCE, AFTER ALLOWING 1% LOSS AS REASONABLE, EXCESS ALUMINUM LOSS OF RS. 1,04,180/- WAS DISALLOWED. THUS, TOTAL LOSS O F RS. 4,41,154/- WAS ADDED TO TOTAL INCOME. M/S.IEVS DRUGS(INDIA) PVT.LTD./I.T.A.NO. 436/IND/20 16/A.Y.05-06 P AGE 4 OF 9 5. BEING, AGGRIEVED THE ASSESSEE FILED AN APPEAL BEFOR E THE LD. CIT (A). 6. THE LD. CIT (A) NOTED TO THE AO HAS ALLOWED 50% L OSS OF GLASS BOTTLES CLAIMED AT RS. 4,44,154/- AND DISALLOWED RS. 2,22,077/- . SIMILARLY LOSS OF RS. 2,15,975 PIECES OUT OF WHICH 1,90,785 WAS ALLOWED AND PIECES OF 1,25,563 VALUED AT RS. 1,12,563/- WAS DISALLOWED AND LOSS OF ALUMINUM OF RS. 1,04,180/- WAS DISALLOWED AS THE APPELLANT COULD NOT PROVIDE EXPLANATION AS TO HOW LOSSES CLAIMED ARE NOT EXCESSI VE. ACCORDINGLY, THE LD. CIT (A) HAS CONFIRMED THE SAME . 7. BEING, AGGRIEVED THE ASSESSEE FILED THIS APPEAL BEF ORE THE TRIBUNAL. 8. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING OF INTRAVENOUS FLUIDS AND MEDICINES. THE IV FLUIDS ARE MEDICINES, WHICH ARE DIRECTLY INJE CTED IN THE VEINS, HENCE, EXTREME CAUTION, AND SAFETY IS ADHERED TO, THEREFORE, IN SUCH TEDIOUS PROCESS DAMAGES, LOSSES IN GLASS BOTTLES IS INEVITABLE. M/S.IEVS DRUGS(INDIA) PVT.LTD./I.T.A.NO. 436/IND/20 16/A.Y.05-06 P AGE 5 OF 9 SIMILARLY, THE RUBBER CORK IS USED AS CAP OF THE BO TTLES, WHICH IS BEFORE ITS USE CHEMICAL COATING IS GIVEN AN D IF FALL IN GROUND THEN SAME IS NOT USED FOR SAFETY PURPOSE. HENCE, LOSS CLAIMED IS REASONABLE. THE LEARNED COUNSEL ALSO SUBMITTED THAT IN ALUMINUM SEA L LOSSES ARE REASONABLE AS THE ALUMINUM SEAL IS VERY THIN AND RESULTS IN LOSSES DURING HANDLING AND SEAL ING OPERATION. THE LEARNED COUNSEL POINTED OUT THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE IN ITS OWN CASE FOR THE ASSESSMENT YEAR 2004-05 BY ORDER DTD. 27.03.2007 OF LD. CIT (A)-I INDORE (IT-473/06-07/4 10 WHEREIN IN PARA 4 AT PAGE 6 , THE LD. CIT (A) HAS CATEGORICALLY DEALT WITH THE ISSUE. SUCH DISALLOWANCE OF LOSSES WERE DELETED BY THE LD. CIT (A) IN A.Y. 199 2-93 WHICH WERE ALSO UPHELD BY TRIBUNAL IN THE CASE OF THE ASSESSEE FOR A.Y. 1992-93 IN I.T.A. NO.573/IND/1995 DTD. 17.12.1999 AGAINST WHICH NO APPEAL BEFORE THE HON`BLE HIGH COURT HAS BEEN FILED BY THE REVENUE. 9. THE LEARNED SR. D.R. SUPPORTED THE ORDER OF LOWER AUTHORITIES. M/S.IEVS DRUGS(INDIA) PVT.LTD./I.T.A.NO. 436/IND/20 16/A.Y.05-06 P AGE 6 OF 9 10. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND HAVE PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE AO HAS PROCEEDED TO DISALL OW THE LOSSES BY COMPUTING NUMBER OF BOTTLES, CORKS AN D ALUMINUM SEAL USED AND CONSUMED AND, ACCORDINGLY COMPUTED DISALLOWANCES FOR THE DIFFERENCE BEING 50% OF CLAIM. THE AO HAS NOT POINTED OUT ANY DEFECTS IN MAINTENANCE OF BOOKS OF ACCOUNTS AND RECORDS MAINTAINED BY THE ASSESSEE NOR CITED ANY COMPARABLE CASES, THAT LOSSES CLAIMED WERE EXCESSIVE. NOR BASE D HIS FINDING ON G.P. RATE. THE AO ALSO NOT REJECTED BOOKS OF ACCOUNTS TO SHOW AS TO HOW BOOKS OF ACCOUNTS MAINTAINED ARE NOT RELIABLE. WE ALSO FIND THAT THE LD. CIT (A) APPEAL HAS DELETED SUCH DISALLOWANCE IN APPEAL FOR A.Y. 2004-05 IN THE CASE OF THE ASSESSEE . WE FURTHER FIND THAT SUCH DISALLOWANCE OF LOSSES MADE B Y THE AO IN A.Y. 1992-93 WERE ALSO DELETED BY THE LD. CIT (A) AND REVENUE`S APPEAL FOR THAT ASSESSMENT YEAR W AS ALSO DISMISSED BY THE COORDINATED BENCH OF THIS TRIBUNAL IN THE CASE OF DCIT VS. IVES DRUGS (I) PVT . M/S.IEVS DRUGS(INDIA) PVT.LTD./I.T.A.NO. 436/IND/20 16/A.Y.05-06 P AGE 7 OF 9 LTD. IN I.T.A. NO.573/IND/1995 DTD. 17.12.1999 AGAINST THIS ISSUE NO APPEAL WAS FILED BY THE REVENU E BEFORE THE HON`BLE HIGH COURT. IN VIEW OF THIS MATTE R, WE ARE OF THE CONSIDERED OPINION THAT THE AO WAS NOT JUSTIFIED IN MAKING SUCH DISALLOWANCE OF LOSSES WITH OUT GIVING PLAUSIBLE REASONS AND AFTER REJECTION OF BO OKS OF ACCOUNTS. CONSIDERING THESE FACTS AND CIRCUMSTANCES , ALL THE ABOVE DISALLOWANCE ARE DELETED WHICH ARE ALS O COVERED BY DECISION OF LD. CIT (A) FOR A.Y. 2004-05 AND HON`BLE TRIBUNAL IN THE ASSESSEE`S OWN CASE. ACCORDINGLY, THE DISALLOWANCE OF RS. 4,41,154 IS DELETED. THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 11. GROUND NO. 2 RELATES TO DISALLOWANCE OF RS. 41,250/- BEING LOAD INCREASE LINE CHARGES, WHICH ACCORDING TO THE AO WERE IN THE NATURE OF CAPITAL EXPENDITURE. 12. THE LD. CIT (A) CONFIRMED THE SAME BY HOLDING THAT THESE ARE LINKED TO INCREASE IN ELECTRIC LOAD WHICH HAS AN ENDURING BENEFIT FOR FUTURE YEARS. LOAD INCREASE LINE M/S.IEVS DRUGS(INDIA) PVT.LTD./I.T.A.NO. 436/IND/20 16/A.Y.05-06 P AGE 8 OF 9 GOES IN TO CHANGE AND REPLACEMENT OF LINE BY HIGHER CAPACITY LINES, WHICH HAVE ENDURING BENEFIT; HENCE, THE AO WAS RIGHT. 13. BEFORE US, THE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT HON`BLE BOMBAY HIGH COURT IN CIT VS. EXCEL INDUSTRIES LTD. [1980] 4 TAXMAN 89(BOM) HAS CATEGORICALLY DEALT WITH THE ISSUE IN FAVOUR OF THE ASSESSEE AND HELD THAT THE AMOUNT PAID BY THE ASSESSEE WAS FOR THE CONSTRUCTION OF AN OVERHEAD SUPPLY LINE, WHICH ALWAYS REMAINED THE PROPERTY OF TH E BOARD AND HENCE, PAYMENT WAS REVENUE EXPENDITURE. SIMILARLY IN MAFATLAL FINE SPG. & WVG. CO. LTD. VS. CIT [1993] 69 TAXMAN 385(BOM) IT WAS HELD THAT CONTRIBUTION MADE BY THE ASSESSEE COMPANY TO THE GUJARAT ELECTRICITY BOARD TOWARDS THE LYING OF ADDITIONAL CIRCUIT LINE IN ORDER TO MEET INCREASED DEMAND OF THE ASSESSEE COMPANY WAS ALLOWABLE EXPENSES. 14. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND HAVE PERUSED THE MATERIAL AVAILABLE ON M/S.IEVS DRUGS(INDIA) PVT.LTD./I.T.A.NO. 436/IND/20 16/A.Y.05-06 P AGE 9 OF 9 RECORD. WE FIND THAT EXPENDITURE WAS INCURRED TOWARD S INCREASE IN LINE CHARGES PAID TO ELECTRICITY COMPAN Y, WHICH CANNOT BE CONSIDERED AS CAPITAL EXPENDITURE IN THE HANDS OF THE ASSESSEE AS THERE IS ASSETS CREATE D IN THE HANDS OF THE ASSESSEE. FURTHER, SUCH TYPES OF DISALLOWANCES OF EXPENDITURE WERE HELD TO BE REVENUE IN NATURE BY HON`BLE BOMBAY HIGH COURT IN THE CASE LAWS AS CITED AS ABOVE BY THE LEARNED COUNSEL FOR TH E ASSESSEE. THEREFORE, DISALLOWANCE OF RS. 41,250/- IS DELETED. ACCORDINGLY, GROUND NO. 2 IS ALLOWED. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D. 16. THE ORDER PRONOUNCED IN THE OPEN COURT ON 11 .01.2017 . SD/- (..) (D.T.GARASIA) JUDICIAL MEMBER SD/- (..) (O.P.MEENA) ACCOUNTANT MEMBER / DATED : 11 TH JANUARY, 2017/OPM