ACIT, Patiala V. M/s Punjab Tractors Ltd., Mohali

ITA 499/CHANDI/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68422 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 03-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Keywords: Depreciation; Competent authority; Revenue expenditure; Capital expenditure
• Section: 5(2); 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A, CHANDIGARH BEFORE SHRI T.R. SOOD, A.M AND MS. SUSHMA CHOWLA, J M ITA NO. 499/CHD/2013 ASSESSMENT YEAR : 2005-06 A.C.I.T. CIRCLE, PATIALA V PUNJAB TRACTORS LTD. SAS NAGAR MOHALI AAACP8578 K ITA NO. 461/CHD/2013 ASSESSMENT YEAR : 2005-06 PUNJAB TRACTORS LTD V A.C.I.T. CIRCLE, SAS NAGAR PATIALA MOHALI AAACP8578 K (APPELLANT) (RESPONDENT) DEPARTMENT BY SHRI MANJIT SINGH ASSESSEE BY: SHRI SUMEET KHURANA DATE OF HEARING 8.8.2013 DATE OF PRONOUNCEMENT 23.8.2013 O R D E R PER T.R.SOOD, A.M THESE APPEALS ARE DIRECTED AGAINST THE ORDER DATED 21.2.2012 OF THE LD. CIT(A), PATIALA. THESE WERE H EARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2 ITA NO. 499/CHD/2013 REVENUES APPEAL 2 IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLOWI NG GROUNDS: 1 IN THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 1,65,56,701/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF CLAIM OF ACCELERATED DEPRECIATION WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE FAILED TO JUSTIFY ITS CLAIM FOR HIGHER RAT E OF DEPRECIATION EVEN ON INELIGIBLE ARTICLES/THINGS AGA INST THE SPIRIT OF RULE 5(2) OF THE IT RULES, `1962 AND THE DEPARTMENT APPEAL IS PENDING ON THIS ISSUE FOR THE ASSESSMENT YEAR 2006-07 WITH THE HON'BLE JURISDICTIONAL HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH. 2 IN THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 30,29,737/- MADE BY THE ASSESSING OFFICER ON ACCOUN T OF DISALLOWANCE OF EXPENDITURE INCURRED, INTEREAL IA, ON PURCHASE OF NEW ITEMS LIKE REPLACEMENT OF COMPRESSO R, SUBMERSIBLE MOTOR, T25 TOUCH PROBE, 3PHASE 30HP AC MOTOR, IGBT MODULE ETC. IGNORING THE FACT THAT MOST OF THE ITEMS PURCHASED BY THE APPELLANT WERE NEW IDENTIFIABLE ASSETS. 3 IN FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A ) HAS ERRED IN HOLDING THE ACQUISITION OF NEW ASSETS FOR REPLACEMENT OF EXISTING ASSETS AS CURRENT REPAIRS, THOUGH THE HON'BLE SUPREME COURT IN CASES OF CIT V. SRI MANGAYARKARSHI MILLS (P) LTD., 315 ITR 114 & CI T V. SARVANA SPINNING MILLS (P) LTD., 293 ITR 201 HAS HE LD THAT REPLACEMENT OF MACHINERY WAS CAPITAL EXPENDITU RE AND COULD NOT BE TREATED AS CURRENT REPAIRS. 4 IT IS PRAYED THAT THE ORDER OF THE LD. CIT(A) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 3. GROUND NO. 1 - AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE AO NOTICED T HAT THE ASSESSEE HAS CLAIMED ACCELERATED HIGHER DEPRECIATIO N UNDER RULE 5(2) AND THEREFORE, THE ASSESSEE WAS ASKED TO 3 SUBSTANTIATE THE CLAIM. IN RESPONSE TO THIS QUERY, THE ASSESSEE SUBMITTED A REPLY DATED 11.10.2010 WHICH I S AS UNDER: ASSESSEE COMPANY HAD CLAIMED ACCELERATED DEPRECIATION U/S 32 OF INCOME-TAX ACT, 1961 R.W.RUL E 5(2) OF I.T. RULES, 1962. THE TEXT OF RULE 5(2) IS PRODUCED HEREWITH AS A READY REFERENCE: WHERE ANY NEW MACHINERY OR PART IS INSTALLED DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1 ST DAY OF APRIL, 1988 FOR THE PURPOSES OF BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING AND SUCH ARTICLE OR THING- (A) IS MANUFACTURED OR PRODUCED BY USING ANY TECHNOLOGY (INCLUDING ANY PROCESS) OR OTHER KNOW-HOW DEVELOPED IN, OR (B) IS AN ARTICLE OR THING INVENTED IN, A LABORATORY OWNED OR FINANCED BY THE GOVERNMENT OR A LABORATORY OWNED BY A PUBLIC SECTOR COMPANY OR A UNIVERSITY OR AN INSTITUTION RECOGNIZED IN THIS BEHALF BY THE SECRETARY, DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH, GOVERNMENT OF INDIA. SUCH PLANT OR MACHINERY SHALL BE TREATED AS A PART OF BLOCK OF ASSETS QUALIFYING FOR DEPRECIATION AT THE RATE OF (40) PERCENT OF WRITTEN DOWN VALUE, IF THE FOLLOWING CONDITIONS ARE FULFILLED, NAMELY:- (I) THE RIGHT TO US SUCH TECHNOLOGY (INCLUDING ANY PROCESS)OR OTHER KNOW-HOW OR TO MANUFACTURE OR PRODUCE SUCH ARTICLE OR THING HAS BEEN ACQUIRED FROM THE OWNER OF SUCH LABORATORY OR ANY PERSON DERIVING TITLE FROM SUCH OWNER; (II) THE RETURN FURNISHED BY THE ASSESSEE FOR HIS INCOME, OR THE INCOME OF ANY OTHER PERSON IN RESPECT OF WHICH HE IS ASSESSABLE, FOR AN PREVIOUS YEAR IN WHICH THE RESEARCH (DSIR) MINISTRY OF SCIENCE AND TECHNOLOGY, GOVERNMENT OF INDIA. A COPY OF RECOGNITION OF OUR R&D 4 CENTRE BY THE SECRETARY, DEPARTMENT OF SCIENTIFIC A ND INDUSTRIAL RESEARCH, GOVERNMENT OF INDIA FOR RELEVA NT ASSESSMENT YEAR IS ATTACHED AS ANNEXURE I. FURTHER, THE DEPARTMENT OF SCIENTIFIC AND INDUSTRIA L RESEARCH (DSIR) MINISTRY OF SCIENCE & TECHNO LOGY, GOVERNMENT OF INDIA HAD ALSO ISSUED US THE CERTIFIC ATE FOR CLAIMING ACCELERATED DEPRECIATION ALLOWANCE UND ER RULE 5(2) OF THE I.T. RULE, 1962 ON 4 TH JANUARY, 2006 PERTAINING TO FINANCIAL YEAR 2004-05 (ASSESSMENT YE AR 2005-06) AND THE COPY OF THE SAME HAS BEEN ENCLOSED HEREWITH AS ANNEXURE 2 FOR YOUR PERUSAL. THUS, IN OUR CASE, ALL THE REQUIREMENTS OF RULE 5(2 ) OF THE I.T. RUBLES HAVE BEEN COMPLIED WITH AND ACCORDINGLY THE ACCELERATED DEPRECIATION IS CORREC TLY CLAIMED BY THE ASSESSEE-COMPANY IN ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2005-06. THE ASSESSING OFFICER REJECTED THIS REPLY ON THE BA SIS THAT THE ASSESSEE HAS NOT FURNISHED ANY SUPPORTING EVIDE NCE I.E. REQUISITE CERTIFICATE FROM THE COMPETENT AUTHORITY. HE FURTHER OBSERVED THAT IN ANY CASE HIGHER DEPRECIATION ALLOW ANCE WAS NOT ALLOWED IN ASSESSMENT YEAR 2006-07 ALSO. 4 ON APPEAL THE LD. CIT(A) ALLOWED HIGHER DEPRECIAT ION ON THE BASIS OF THE ORDER OF THE TRIBUNAL FOR ASSESSME NT YEAR 2006-07 AND OTHER YEARS IN ITA NO. 107/CHD/2010. 5 BEFORE US, THE LD. DR FOR THE REVENUE STRONGLY RE LIED ON THE ORDER OF ASSESSING OFFICER. 6 ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESS EE SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAV OUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL VIDE PARA 23. HE ALSO SUBMITTED THAT IT IS WRONG ON THE PART OF THE ASSES SING OFFICER TO STATE THAT NO EVIDENCE WAS FILED. IN TH IS REGARD HE REFERRED TO PAGE 1 TO 3 OF THE PAPER BOOK WHICH IS A COPY OF 5 THE LETTER SUBMITTED BEFORE THE ASSESSING OFFICER O N 11.10.2010 WHICH INCLUDED A CERTIFICATE FROM THE DE PARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH. 7 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY AN D FIND FORCE IN THE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE. IN THE LETTER DATED 11.10.2010 IT HAS BEEN STATED B Y THE ASSESSEE AS UNDER: FURTHER, THE DEPARTMENT OF SCIENTIFIC AND INDUSTRI AL RESEARCH (DSIR) MINISTRY OF SCIENCE & TECHNOLOGY, GOVERNMENT OF INDIA HAD ALSO ISSUED US THE CERTIFI CATE FOR CLAIMING ACCELERATED DEPRECIATION ALLOWANCE UND ER RULE 5(2) OF THE I.T. RULES, 1962 ON 4 TH JANUARY 2006 PERTAINING TO FINANCIAL YEAR 2004-05 (ASSESSMENT YE AR 2005-06_ AND THE COPY OF THE SAME HAS BEEN ENCLOSED HEREWITH AS ANNEXURE 2 FOR YOUR PERUSAL. FURTHER IDENTICAL ISSUE CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSE SSMENT YEAR 2006-07 IN ITA NO. 107/CHD/201. THIS ISSUE CA ME UP FOR CONSIDERATION AND THE SAME HAS BEEN ADJUDICATED VIDE PARA 23 TO 25 WHICH IS AS UNDER: 23 WE HAVE CAREFULLY PERUSED THE RIVAL SUBMISSIONS , FACTS OF THE CASE AND THE RELEVANT RECORDS AND HAVE ALSO CAREFULLY PERUSED RULE 5(2) OF I.T RULES. THE CERTIFICATE (P.B-II) ISSUED BY THE MINISTRY OF SCIE NCE AND TECHNOLOGY, DEPARTMENT OF SCIENTIFIC & INDUSTRI AL RESEARCH, NEW DELHI DATED15.6.2007, WHEREBY IN PARA 4 OF THE SAID CERTIFICATE, IT IS CERTIFIED THAT IT IS CERTIFIED THAT OUT OF THE CLAIMS MADE IN PARA 3 ABO VE, PLANT AND MACHINERY INSTALLED AT A COST OF RS. 1,11,99,571/- DURING THE FINANCIAL YEAR 2005-06, AR E FOR IMPROVED DESIGN OF TRACTORS IN THE PLANT SET UP FOR THE MANUFACTURE OF AGRICULTURAL TRACTORS, HARVESTE R COMBINES AND INDUSTRIAL FORKLIFTS BASED ON TECHNOLO GY ORIGINALLY ACQUIRED FROM CENTRAL MECHANICAL ENGINEERING RESEARCH INSTITUTE, DURGAPUR (CMERI) AN D IMPROVEMENTS MADE THEREON BASED ON THEIR OWN IN HOUSE R&D EFFORTS. 6 24 SIMILARLY, A REFERENCE WAS MADE BY THE LD. A.R T O PAGE 13 OF THE PAPER BOOK WHICH CONTAINS A LETTER D ATED 6.5.2003 WHEREBY MINISTRY OF SCIENCE & TECHNOLOGY, GOVERNMENT OF INDIA, DEPARTMENT OF SCIENTIFIC & INDUSTRIAL RESEARCH, NEW DELHI HAD ACCORDED RENEWA L OF RECOGNITION TO THE IN-HOUSE R&D UNIT OF THE ASSESSEE, UPTO 31.3.2006. 25 HAVING REGARD TO THE CLEAR CONTENTS OF THESE TWO LETTERS, EMANATING FROM THE MINISTRY AS ALSO TO RUL E 5(2) OF THE I.T. RULES IT IS EVIDENT THAT ASSESSEE SATISFIED THE REQUISITE CONDITIONS FOR ACCELERATED DEPRECIATION AND THE REVENUE FAILED TO BRING EVIDEN CE ON RECORD TO REBUT SUCH EVIDENCES. ACCORDINGLY FINDINGS OF THE LD. CIT(A) CANNOT BE SUSTAINED AND THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. FOLLOWING THE ABOVE WE DECIDE THIS ISSUE AGAINST TH E REVENUE. 8 GROUNDS NO. 2 & 3 AFTER HEARING BOTH THE PARTIE S WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSI NG OFFICER HAS EXAMINED THE DETAILS OF REPAIR AND MAIN TENANCE IN BUILDING AND PLANT. ACCORDING TO HIM SOME OF TH ESE ITEMS WERE OF CAPITAL NATURE AND ACCORDINGLY A SUM OF RS. 30,29,737 WAS DISALLOWED BY TREATING THE SAME AS CA PITAL EXPENDITURE AND ALLOWING ONLY DEPRECIATION. 9 ON APPEAL, THE LD. CIT(A) DELETED THE ADDITION ON THE BASIS OF ORDER OF THE TRIBUNAL FOR ASSESSMENT YEAR 2004-05 IN ITA NO. 594/CHD/2009 AND 107/CHD/2010. 10 BEFORE US, THE LD. DR FOR THE REVENUE SUPPORTED THE ORDER OF THE ASSESSING OFFICER. 11 ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESS EE SUBMITTED THAT THIS ISSUE HAS BEEN ADJUDICATED IN T HE EARLIER 7 YEARS BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE TH ROUGH ITA NO. 270/CHD/CHD/2006. 12 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY. WE FIND THAT THIS ISSUE CAME UP FOR CONSIDERATION BEFORE TH E TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 270/CHD/2006 AND THE SAME HAS BEEN ADJUDICATED VIDE PARA 17 & 18 WHICH ARE AS UNDER: 17 -WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE RECORD. THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD CLAIMED OFFICE UPKEEPMENT EXPENS ES TO THE TUNE OF RS. 13.30 LACS, BUILDING REPAIR AND MAINTENANCE EXPENSES TO THE TUNE OF RS. 125.9 LACS AND MACHINERY REPAIRS TO THE TUNE OF RS. 158.44 LAC S. THE ASSESSING OFFICER AS PER THE DETAILS AT PAGE 4 OF THE ASSESSMENT ORDER HAD DISALLOWED RS. 2,37,137/- ON ACCOUNT OF EXPENDITURE INCURRED ON PURCHASE OF CARPETS/CURTAINS. THE ASSESSEE ON VARIOUS DATES AS DETAILED AT PAGE 4 OF THE ASSESSMENT ORDER HAD PURCHASED CARPETS/CURTAINS TOTALING TO RS. 2,37,237 /-, WHICH WERE DISALLOWED BY THE ASSESSING OFFICER BEIN G CAPITAL IN NATURE. THE CLAIM OF THE ASSESSEE IS TH AT THE AFORESAID EXPENDITURE WAS THE REPLACEMENT OF EARLIE R ASSET AND WAS ALLOWABLE AS A REVENUE EXPENDITURE. T HE ASSESSEE HAD FURTHER CLAIMED MACHINERY REPAIR EXPENDITURE AND A SUM OF RS. 58,302/- WAS INCURRED FOR PROVIDING AND FIXING OF CEILING FANS. THE SAME WAS ALSO HELD TO BE CAPITAL EXPENDITURE BY THE ASSESSING OFF ICER. OUT OF THE REPAIR & MAINTENANCE OF THE BUILDING, TH E ASSESSING OFFICER DISALLOWED RS. 18,03,271/- BEING SPENT ON PROVIDING FLOOR TILES, PURCHASE OF MARBLES , ASSEMBLY SHOP WORK AND PAINT SHOP ETC. AS BEING CAPITAL IN NATURE. 18 FROM THE PERUSAL OF RECORD, WE FIND THAT THE EXPENDITURE WAS INCURRED BY THE ASSESSEE ON RENOVATION OF FLOORS, CEILING, PAINTING ETC. THE EXPENDITURE IS DULY ALLOWABLE IN THE HANDS OF ASSES SEE BEING CURRENT REPAIRS. THE EXPENDITURE INCURRED ON PURCHASE OF CARPETS BEING REPLACEMENT OF EXISTING A SST IS AN ALLOWABLE EXPENDITURE. SUCH EXPENDITURE INCU RRED BY THE ASSESSEE CANNOT BE REGARDED AS CAPITAL EXPENDITURE, WHERE THE DAME IS IN THE NATURE OF REP AIR AND REPLACEMENT. WE ARE IN CONFORMITY WITH THE 8 FINDINGS OF EH LD. COMMISSIONER OF INCOME TAX(A) TH AT IN THE ABSENCE OF ANY FINDING OF THE ASSESSING OFFI CER OF COMING INTO EXISTENCE OF NEW ASSET, THERE WAS N O MERIT IN THE SAID DISALLOWANCE OUT OF REPAIR EXPENS ES. WE CONFIRM THE ORDER OF THE LD. CIT(A) IN ALLOWING THE CLAIM OF THE ASSESSEE TO THE EXTENT OF RS. 20,98,81 0/- AND DISMISS THE GROUND NO. 2 RAISED BY THE REVENUE. 13 WE FURTHER FIND THAT THIS ORDER HAS ALSO BEEN FO LLOWED IN ASSESSMENT YEAR 2006-07 IN ITA NO. 107/CHD/2010. W E HAVE ALSO PERUSED THE DETAILS OF VARIOUS ITEMS GIVE N BY THE ASSESSING OFFICER AND WE ARE FULLY SATISFIED THAT T HE ITEMS MENTIONED BY THE ASSESSING OFFICER IS OF REVENUE NA TURE. ACCORDINGLY FOLLOWING THE ABOVE ORDER OF THE TRIBU NAL IN ASSESSEES OWN CASE WE DECIDE THIS ISSUE AGAINST TH E REVENUE. 14 IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ITA NO. 461/CHD/2013 ASSESSEES APPEAL AT THE TIME OF HEARING THIS APPEAL WAS WITHDRAWN. ACCORDINGLY THIS APPEAL IS DISMISSED AS WITHDRAWN. 15 IN THE RESULT, APPEAL NO. 499/CHD/2013 OF THE RE VENUE AND APPEAL NO. 461/CHD/2013 OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23.8.2013 SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 23.8.2013 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/THE DR 9