M/s. Scorpio Tiles Pvt.Ltd, Cochin V. ACIT, Kollam

ITA 478/COCH/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52246 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2011
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 13-09-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 10-08-2010
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRABHA
• Assessee Lawyers: PREETHA S NAIR ADV
• Keywords: Capital asset; Depreciation; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND SANJAY AROR A, AM I.T.A. NO. 478/COCH /2010 ASSESSMENT YEAR:2005-06 SCORPIO TILES PVT. LTD., 15/571, K.P. ROAD, ADOOR - 691 523 [PAN:AATFS 8736N] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1, KOLLAM. (ASSESSEE-APPELLANT) (REVENUE- RESPONDENT) ASSESSEE BY SMT. PREETHA S.NAIR, ADV.-AR REVENUE BY MS. S. VIJAYAPRABHA, JR. DR DATE OF HEARING 13/09/2011 DATE OF PRONOUNCEMENT 26/09/2011 O R D E R PER SANJAY ARORA, AM: THIS IS AN APPEAL BY THE ASSESSEE ARISING OUT OF T HE ORDER BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, TRIVANDRUM (`CIT(A) FOR SH ORT) DATED 14.6.2010, DISMISSING THE ASSESSEES APPEAL CHALLENGING THE ORDER U/S. 154 OF THE INCOME-TAX ACT, 1961 ('THE ACT' HEREINAFTER) DATED 11.3.2009 PASSED IN ITS CASE FOR THE ASSESSMENT YEAR (A.Y.) 2005-06. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FILED ITS RETURN FOR THE YEAR ON 29.10.2005 AT AN INCOME OF ` 2663680/-, WHICH STOOD PROCESSED VIDE INTIMATION U/ S. 143(1) DATED 20.12.2006 AT THE RETURNED INCOME. SU BSEQUENTLY, IT WAS OBSERVED BY THE ASSESSING OFFICER (AO) THAT THE ASSESSEE HAD CLAIME D DEPRECIATION AT THE RATE OF 40% ON `MOULDS. DEPRECIATION AT THAT RATE WAS ALLOWABLE, UNDER THE RELEVANT SCHEDULE, ONLY FOR MOULDS USED IN THE RUBBER AND PLASTIC GOODS INDUSTR Y, WHILE THE ASSESSEE WAS IN THE BUSINESS OF MANUFACTURE (AND SALE) OF TILES. THE AS SESSEES EXPLANATION, I.E., FOR CLAIMING DEPRECIATION AT A HIGHER RATE, TENDERED VIDE ITS WR ITTEN SUBMISSIONS DATED 25.2.2009, THAT I.T.A. NO. 478/COCH/2010 (ASSTT. YEAR: 2005-06) 2 THE MOULDS COME IN CONTACT WITH THE CONCRETE MIXTUR E, SO THAT THEY HAVE A LIMITED LIFE, WAS ALSO NOT ACCEPTABLE, AS THERE WAS NO EXCEPTION FOR THE SAME. IN FACT, THE MOULDS WERE MADE OF RUBBER AND DO NOT COME IN CONTACT WITH CORR OSIVE CHEMICALS IN THE PROCESS OF MANUFACTURE. ACCORDINGLY, DEPRECIATION THEREON WAS RESTRICTED TO 25%, THUS DISALLOWING THE BALANCE 15%, AMOUNTING TO ` 691333/-. THE SAME STOOD CONFIRMED IN APPEAL FOR TH E SAME REASON. AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL. 3.1 BEFORE US, IT WAS VEHEMENTLY CONTENDED BY THE LD. AR, WITH REFERENCE TO A CERTIFICATE DATED 30.7.2010 FROM A RUBBER TECHNOLOGIST, THAT THE MOULDS USED I N THE TILE INDUSTRY GET DAMAGED DUE TO CONTACT AND REACTION WI TH THE ALKALINE MATERIALS USED IN CEMENT MIXTURE, AS WELL AS DUE TO THE HEAT GENERATE D DURING THE CEMENT SETTING PROCESS. THE SAME HAVE A SERVICE LIFE OF TWO YEARS. AS SUCH , THE CLAIM OF DEPRECIATION AT THE RATE OF 40% WAS PERFECTLY JUSTIFIED. THE HONBLE HIGH CO URT IN THE CASE OF CIT VS. MALERKOTLA STEELS AND ALLOYS P. LTD. , 336 ITR 49 (P&H) HAS CONFIRMED THE ENTIRE COST OF MOULDS AS A REVENUE EXPENDITURE BY TREATING IT AS A CONSUMABLE ITEM. FURTHER, NO ADJUSTMENT HAS BEEN MADE ON THIS ACCOUNT IN THE INTIMATIONS U/S. 143(1) FOR THE SUBSEQUENT YEARS, WHEREIN DEPRECIATION AT THE RATE OF 30%, I.E., THE RATE EXI GIBLE FOR THE RELEVANT YEAR/S, HAS BEEN CLAIMED. THE LD. DR, ON THE OTHER HAND, WOULD SUBMI T THAT THE ASSESSEES CLAIM FOR THE COST OF THE MOULDS AS A REVENUE EXPENDITURE, MADE W ITH REFERENCE TO THE DECISION IN THE CASE OF CIT VS. MALERKOTLA STEELS AND ALLOYS P. LTD. (SUPRA), IS OUTSIDE THE SCOPE OF THE APPEAL, AS THE ASSESSEE HAD ITSELF TREATED THE SAME AS A CAPITAL ASSET, CLAIMING DEPRECIATION THEREON. THE ONLY ISSUE THAT THEREFORE SURVIVES, AN D FORMS THE SUBJECT MATTER OF THE APPEAL, IS THE CORRECT RATE OF DEPRECIATION, I.E., 40%, AS CLAIMED BY THE ASSESSEE, OR 25%, AS ALLOWED BY THE REVENUE. AGAIN, THERE WAS NO SCOP E FOR INTERFERENCE, AS THE DEPRECIATION UNDER THE ACT HAS TO BE NECESSARILY AL LOWED AT THE RATE/S AS PRESCRIBED UNDER THE RELEVANT SCHEDULE. THE CASE LAW RELIED UPON BY THE ASSESSEE BEFORE THE LD. CIT(A), I.E., QUA THE DEPRECIATION RATE, IN THE CASE OF SARASWATI INDUSTRIAL SYNDICATE LTD. VS. CIT (1999) 152 CTR 470 (SC), RELATES TO AYS 1970-71 TO 1977-78 . IT IS WELL KNOWN THAT DEPRECIATION RATES ARE SUBJECT TO REVISION FROM TIM E TO TIME, AND IT IS ONLY THE RATES AS I.T.A. NO. 478/COCH/2010 (ASSTT. YEAR: 2005-06) 3 PRESCRIBED BY THE DEPRECIATION SCHEDULE (APPENDIX I U/R. 5) APPLICABLE FOR THE RELEVANT YEAR, WHICH IS RELEVANT. 3.2 THE LD. AR WAS, AT THIS STAGE, SPECIFICALLY QUE STIONED BY THE BENCH IN RESPECT OF THE ASSESSEES PLEA FOR THE CLAIM OF THE ENTIRE COS T OF THE MOULDS; IT HAVING ITSELF CLAIMED ONLY DEPRECIATION ON MOULDS. IT WAS CONCEDED TO BY HER THAT THE ASSESSEES CASE, BOTH BEFORE THE TRIBUNAL AS ALSO BEFORE THE REVENUE AUTH ORITIES, IS ONLY WITH REFERENCE TO THE RATE OF DEPRECIATION ELIGIBLE ON THE MOULDS. 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 4.1 THE CLAIM FOR THE COST OF MOULDS, APART FROM BEING IN CONTRADICTION TO THE ASSESSEES CLAIM FOR DEPRECIATION PER ITS RETURN, IS ALSO INCO NSISTENT WITH ITS CASE INASMUCH AS IT CONTINUES TO CLAIM DEPRECIATION ON THE MOULDS FOR T HE SUBSEQUENT YEARS AS WELL, INCLUDING ON THE WRITTEN DOWN VALUE THEREOF AS CARRIED FORWAR D FROM THE CURRENT YEAR. THE SAME, THUS, ONLY NEEDS TO BE STATED TO BE REJECTED. 4.2 WITH REGARD TO ITS CLAIM FOR DEPRECIATION AL LOWANCE, WITHOUT DOUBT, THE SAME, IN TERMS OF SEC. 32(1), IS ALLOWABLE ONLY AT THE RATES PRESCRIBED UNDER THE RELEVANT SCHEDULE, AND WHERE NO SPECIFIC RATE STANDS DEFINED THEREBY F OR A PARTICULAR PLANT AND MACHINERY, THE GENERAL RATE OF 25% THERE-FOR WOULD HOLD. ALSO, NO RELIANCE COULD BE PLACED ON THE INTIMATIONS FOR THE SUBSEQUENT YEARS AS, FIRSTLY, T HE ASSESSSEE ADMITTEDLY HAS CLAIMED DEPRECIATION ONLY AT THE APPLICABLE RATE/S, I.E., A S PER THE RELEVANT APPENDIX AND, SECONDLY, THERE IS NO EXAMINATION OR VERIFICATION OF THE CLAI M/S ON PROCESSING THE RETURN U/S. 143(1). 4.3 SO, HOWEVER, QUITE APART FROM THE MERITS OF THE RESPECTIVE CASES OF THE OPPOSING SIDES, I.E., QUA DEPRECIATION, EVEN AS OBSERVED DURING THE HEARING, WE ARE UNABLE TO SEE AS TO HOW AN `ADJUSTMENT TO THE RETURNED INCOME ON AC COUNT OF DEPRECIATION COULD BE MADE IN RECTIFICATION OF AN INTIMATION U/S. 143(1). THIS IS AS, WITH EFFECT FROM 01.6.1999, THE ASSESSING AUTHORITY IS PRECLUDED FROM EFFECTING ANY PRIMA FACIE ADJUSTMENT TO THE RETURNED INCOME. THE PURVIEW OF THE ASSESSING OFFICER (AO) WHILE PROCESSING A RETURN OF INCOME I.T.A. NO. 478/COCH/2010 (ASSTT. YEAR: 2005-06) 4 U/S. 143(1), AS PER LAW AS IT STOOD AT THE RELEVANT TIME, I.E., PRIOR TO ITS AMENDMENT BY THE FINANCE ACT, 2008, IS TO COMPUTE THE TAX OR INTERES T AS FOUND DUE ON THE BASIS OF THE RETURN, AND EITHER RAISE A DEMAND OR GRANT A REFUND , AS THE CASE MAY BE. IN FACT, WHERE EITHER NO SUM IS PAYABLE BY THE ASSESSEE OR A REFUN D IS DUE TO HIM, NO INTIMATION U/S. 143(1) IS REQUIRED TO BE ISSUED, AND THE ACKNOWLEDG MENT OF THE RETURN IS ITSELF MANDATED BY LAW TO BE A DEEMED INTIMATION ( PROVISO TO S. 143(1)). THIS ISSUE STANDS ALSO EXPLAINED AND DISCUSSED BY THE TRIBUNAL (COCHIN BENCH) PER IT S DECISION IN THE CASE OF TRAVANCORE TITANIUM PRODUCTS LTD. VS. ACIT (I.T.A NOS. 134 & 135/COCH/2009 DATED 17.8.2011). THE LD. DR, OBJECTED TO THIS BY STATING THAT THE AS SESSEE HAD AT NO STAGE CHALLENGED THE VALIDITY OR THE JURISDICTION OF THE AO FOR EFFECTIN G THE IMPUGNED RECTIFICATION, WHICH IS SPECIFICALLY PROVIDED FOR IN RESPECT OF AN INTIMATI ON U/S. 143(1) BY SEC. 154(1)(B). WE DO NOT CONSIDER THE SAID OBJECTION AS VALID FOR THE RE ASON THAT THE TRIBUNAL IS NOT BOUND, IN DECIDING AN ISSUE BEFORE IT, BY THE GROUNDS RAISED BY THE PARTIES, AND ITS MANDATE IS TO DECIDE THE ISSUE BEFORE IT IN ACCORDANCE WITH THE L AW [REFER, INTER ALIA , CIT V. MAHALAKSHMI MILLS CO. LTD . (1985) 160 ITR 920 (SC); KERALA CHEMICALS & PROTEINS LTD. V. CIT , 235 ITR 467 (KER.)]. AS SUCH, AS LONG AS BOTH THE PARTIES, AND MORE PARTICULARLY THE PARTY BEING PREJUDICED THEREBY, IS ALLOWED A PR OPER OPPORTUNITY TO STATE ITS CASE IN REBUTTAL, THE TRIBUNAL IS NOT CONFINED TO THE GROUN DS ASSUMED BY THE PARTIES BEFORE IT. WITH REGARD TO THE REFERENCE TO S. 154(1)(B), WE MAY CLA RIFY THAT THERE IS NO QUARREL WITH THE PROPOSITION THAT AN INTIMATION (OR A DEEMED INTIMAT ION) U/S. 143(1) IS RECTIFIABLE U/S. 154. HOWEVER, EVEN AS EXPLAINED DURING HEARING, WHAT IS NOT PERMISSIBLE U/S. 143(1), COULD NOT POSSIBLY BE ACHIEVED INDIRECTLY THROUGH RECOURSE TO SECTION 154. IT IS ONLY THAT OUGHT TO BE DONE, I.E., U/S. 143(1), WHICH, WHERE OMITTED TO BE DONE, OR DONE INCORRECTLY, WHOLLY OR PARTLY, THAT WOULD CONSTITUTE A `MISTAKE APPARENT FROM RECORD, RECTIFIABLE U/S. 154. WE DECIDE ACCORDINGLY. I.T.A. NO. 478/COCH/2010 (ASSTT. YEAR: 2005-06) 5 5. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED. SD/- SD/- (N.R.S.GANESAN) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: 26TH SEPTEMBER, 2011 GJ COPY TO: 1. M/S. SCORPIO TILES PVT. LTD., 15/571, K.P. ROAD, ADOOR - 691 523 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE -1, KOLLAM. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, TRIV ANDRUM 4. THE COMMISSIONER OF INCOME-TAX, TRIVANDRUM. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE .