M/s Lakra Fabrics (P) Ltd., Ludhiana V. ACIT, Ludhiana

ITA 505/CHANDI/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2371 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-05-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 25-04-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 09-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMARVEER SINGH
• Keywords: Depreciation; Audit objection; Additional depreciation
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE SHRI T.R.SOOD, ACCOUNTANT MEMBER AND MS SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 505/CHD/2011 ASSESSMENT YEAR: 2006-07 M/S LAKRA FABRICS (P) LTD. VS. THE ACIT, FOCAL POINT LUDHIANA CIRCLE -1 LUDHIANA PAN NO. AAACL3892L (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUDHIR SEHGAL RESPONDENT BY : SHRI AMARVEER SINGH DATE OF HEARING : 25/04/2013 DATE OF PRONOUNCEMENT : 10/05/2013 ORDER PER T.R.SOOD, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER DATED 17/03/2011 OF CIT- I, LUDHIANA. 2. IN THIS APPEAL, VARIOUS GROUNDS HAVE BEEN RAISED BUT AT THE TIME OF HEARING, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THA T ONLY DISPUTE BEFORE US IS WHETHER LD. COMMISSIONER HAS PASSED THE REVISIONAR Y ORDER U/S 263 CORRECTLY OR NOT. 2 3. AFTER HEARING BOTH THE PARTIES, WE FIND THAT UPO N EXAMINATION OF RECORDS BY LD. COMMISSIONER, IT WAS NOTED THAT THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE ACT WAS ERRONEOUS AND PRE- JUDICIAL TO THE INTEREST OF REVENUE BECAUSE ASSESSING OFFICER HAS W RONGLY ALLOWED THE ADDITIONAL DEPRECIATION ON THE NEW MACHINERY PURCHA SED. ACCORDINGLY, THE SHOW CAUSE NOTICE WAS ISSUED AND IN RESPONSE TO THE SAME, IT WAS SUBMITTED THAT ASSESSEE HAD ACQUIRED TWO NEW MACHIN ES NAMELY TERROT AND FUKUHARA MACHINES ON 11.4.2005. IT WAS POINTED OUT THAT SINCE THE CONDITIONS PRESCRIBED U/S 32(I)(IIA) OF THE ACT WAS TO ACQUIRE AS WELL AS INSTALL MACHINERY AND THE SAME COULD HAVE BEEN INST ALLED BEFORE THE SAME LANDED IN INDIA. IT WAS FURTHER SUBMITTED THA T PROCEEDINGS U/S 263 HAVE BEEN INITIATED IN VIEW OF THE INTERNAL AUD IT OBJECTION WHICH IS NOT VALID IN VIEW OF DECISION OF TRIBUNAL IN THE CA SE OF R.S. WAREHOUSING LUDHIANA VS THE ITO LUDHIANA (ITA NO. 3 10/CHD/2011- ITAT CHANDIGARH BENCH). THE LD. COMMISSIONER AFTE R EXAMINING THE SUBMISSIONS OBSERVED THAT ASSESSEE HAD NOT INSPECTE D THE RECORDS AND HAD NO MEANS TO KNOW WHETHER AUDIT OBJECTION WAS TH ERE OR NOT AND THEREFORE, IT WAS NOT CORRECT ON THE PART OF ASSESS EE TO RAISE THE ISSUE OF INITIATION OF REVISIONARY PROCEEDINGS IN VIEW OF AU DIT OBJECTION. ON MERITS, HE OBSERVED HE OBSERVED VIDE PARA 2.6 AS UN DER:- 2.6 I HAVE NOTED THAT THE TERROT MACHINE WAS ACQUI RED BY THE ASESSEE VIDE LC DATED 19.01.2005. FUKUHARA MACHINE WAS ACQUIRED BY THE ASSESSEE VIDE LC DATED 20.01.2005. THE INVOICE NO. 9037 DATED FEB. 23, 2005 OF FUKUHARA INDUSTRIAL AND TRADING CO. LTD. JAPAN IS ABOUT THE TWO SETS OF FUKUHARA CI RCULAR 3 KNITTING MACHINES. THIS IS (CIF ICD LUDHIANA). THER E IS COMMERCIAL ADVICE WITH INVOICE NO. 31810 DATED 10.0 2.2005 AND HAS BEEN SENT TO LUDHIANA VIA NAVA SHEVA, INDIA. TH E DEBIT ADVICE FOR PAYMENT IS OF DATED 18.03.2005 FOR FUKUH ARA MACHINE AND DEBIT ADVICE FOR PAYMENT DATED 18.03.2005 IS FO R TERROT MACHINE. ALTHOUGH, THE DELIVERY OF THE MACHINE WAS TAKEN IN APRIL FROM LUDHIANA PORT, THE FACT REMAINS THAT THESE MAC HINES WERE SENT TO LUDHIANA ON IRREVOCABLE AGREEMENT AND THEY WERE SOLD AND MONEY PAID IN THE YEAR ENDING MARCH, 2005 ONLY. MACHINES WERE NO DOUBT SOLD. THEREFORE, IT WOULD NOT MATTER WHETHER THE ASSESSEE GOT THESE MACHINES IN HIS POSSESSION AND I NSTALLED THEM IN THE MONTH OF APRIL OR LATER ON. IT ALSO DOESNT MATTER TO OUR CASE, WHETHER MACHINES ARE PUT TO USE OR NOT. THE O NLY THING WHICH MATTERS AS OF NOW IS THAT THESE MACHINES WERE ACQUIRED BY THE ASSESSEE IN THE ACCOUNTING PERIOD 01.04.2004 TO 31.03.2005, WHICH IS RELEVANT TO THE ASSESSMENT YEAR 2005-06. I HAVE ALREADY STATED (SUPRA) THAT EVEN THE PAYMENTS WERE MADE IN THIS PERIOD THROUGH THE BOOKS OF ACCOUNT. THIS MONEY STANDS TRA NSFERRED DURING THIS PERIOD AS CAN BE SEEN FROM THE ABOVE DE TAILS OF THE LC FOR BOTH THE MACHINERIES AND DEBIT NOTES OF THE STA TE BANK OF INDIA. IN THIS VIEW OF THE MATTER, THERE DOESNT EX IST ANY DOUBT THAT THE ASSESSEE HAD PURCHASED THE MACHINERY, ACQU IRED THE MACHINERY AND HAS ALSO MADE THE PAYMENT OF THESE MA CHINES WITH FULL RISK COVER BEFORE 31.03.2005. THIS LEAVES NO D OUBT THAT THE CONDITION AS LAID DOWN IN SECTION 32(1)(IIA) THAT I N THE CASE OF ANY MACHINERY OR PLANT, WHICH HAS BEEN ACQUIRED, IN STALLED AFTER THE 31 ST DAY OF MARCH, 2005, IS NOT FULFILLED AS THE FIRST LIMB OF THIS CONDITION REGARDING ACQUIRED HAS NOT BEEN FULFILLED. HENCE, I REJECT ALL THE ARGUMENTS ADVANCED BY THE AR IN THIS REGARD AND CONCLUDE THAT THE AOS ACTION IN ALLOWING THIS DEDU CTION HAS RESULTED INTO AN ERRONEOUS ORDER WHICH HAS CAUSED P REJUDICE TO 4 THE REVENUE. THE ASSESSMENT ON THIS ISSUE IS SET-AS IDE TO BE DONE DENOVO AFTER GIVING PROPER OPPORTUNITY TO THE ASSES SEE. 4. BEFORE US, LD. COUNSEL FOR THE ASSESSEE REFERRED TO VARIOUS DOCUMENTS AND SUBMITTED THAT ENQUIRIES WERE MADE BY ASSESSING OFFICER IN RESPECT OF THIS ITEM AND REPLIES WERE DU LY GIVEN BY THE ASSESSEE. HE PARTICULARLY REFERRED TO PAGE 43 OF T HE PAPER BOOK, WHICH IS COPY OF THE INVOICE OF FUKUHARA CIRCULAR KNITTIN G MACHINE. THE INVOICE ITSELF CLEARLY SHOWS THAT SUPPLY IS MADE ON CIF BASIS WHICH MEANS SHIPPING COST UP TO SHIP, INSURANCE AND FREIG HT WERE TO BE PAID BY THE SUPPLIER AND ASSESSEE WOULD BECOME THE OWNER OF THE MACHINE AFTER THE SAME IS DELIVERED IN INDIA AT THE DRY POR T IN LUDHIANA. THE BILL OF ENTRY OF THIS MACHINE IS CLEARLY STAMPED BY THE CUSTOMS DEPARTMENT ON 11.4.2005. HE THEN REFERRED TO PAGE 44, WHICH IS COPY OF THE TOLL RECEIPT WHICH CLEARLY INDICATE THE DATE I.E. 11 TH APRIL. THE SAME IS CASE WITH TERROT MACHINE, THE COPY OF THE I NVOICE IS AT PAGES 46 TO 47 OF THE PAPER BOOK. THIS FACT CLEARLY SHO WS THAT MACHINE WAS ACQUIRED AFTER 11.4.2005. IN ANY CASE, THE LANGUAG E OF SECTION 32(1)(IIA) VERY CLEARLY SAYS THAT ASSESSEE IS ENTI TLED FOR ADDITIONAL DEPRECIATION IF THE NEW MACHINERY HAS BEEN ACQUIRED AND INSTALLED AFTER 31.3.2005. THE LD. COMMISSIONER HAS MISDIRECTED HI MSELF BY HOLDING THAT MACHINE HAS BEEN ACQUIRED BEFORE 31.3.2005 ONL Y ON THE BASIS OF OPENING OF L/CS BY THE ASSESSEE. HE HAS TOTALLY IG NORED THE REQUIREMENT REGARDING INSTALLATION. THE LD. COUNSEL ALSO RELIED UPON THE FOLLOWING DECISIONS:- 5 A) CIT V CHAWLA TRUNK HOUSE 139 ITR 182 (P&H) B) M/S SURINDRA ENTERPRISES VS ITO WARD VI(3) LUDHIANA (ITA NO. 1259/CHD/2009 - ITAT CHANDIGARH BENCH. 5. ON THE OTHER HAND, THE LD. DR REFERRED TO THE PR OVISIONS OF SECTION 32(1)(IIA) OF THE ACT AND POINTED OUT THAT ONE OF THE IMPORTANT CONDITION FOR ALLOWING THE ADDITIONAL DEPRECIATION IS THAT MACHINERY HAS BEEN ACQUIRED AFTER 31.3.2005. IN CASE BEFORE US, T HE MACHINERY WAS ACQUIRED IN THE MONTH OF FEBRUARY 2005 AND THE THE INVOICES HAVE BEEN MADE IN THE MONTH OF FEBRUARY, 2005, E.G. IN CASE O F FUKUHARA CIRCULAR KNITTING MACHINE THE INVOICE NO. 9037 WAS DATED FEB RUARY 23, 2005, A COPY OF WHICH IS PLACED T PAGE 43 OF THE PAPER BOOK . IT HAS NOT BEEN DENIED THAT ASSESSEE HAD OPENED IRREVOCABLE L/CS AN D PAYMENT WAS MADE ACCORDINGLY. THEN, HE REFERRED TO SECTION 20 OF THE SALES OF GOODS ACT, 1930 WHICH PROVIDES THAT WHERE THERE WAS AN UNCONDITIONAL CONTRACT OF SALE OF SPECIFIC GOODS IN A DELIVERABLE STATE, THE PROPERTY IN SUCH GOODS PASSES TO THE BUYER WHEN THE CONTRACT IS MADE, AND SINCE THE ASSESSEE HAS ACQUIRED THE PROPERTY BEFORE 31.3.2005 , IT WAS ELIGIBLE FOR GRANT OF ADDITIONAL DEPRECIATION. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY AND FIND FORCE IN THE SUBMISSIONS IN THE SUBMISSIONS OF LD. COUNSE L OF THE ASSESSEE. SECTION 32(1)(IIA) READ AS UNDER:- [(IIA) IN THE CASE OF ANY NEW MACHINERY OR PLANT (OTHER THAN SHIPS AND AIRCRAFT), WHICH HAS BEEN ACQUIRED AND INSTALLED AF TER THE 31ST DAY OF MARCH, 2005, BY AN ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURE OR 6 PRODUCTION OF ANY ARTICLE OR THING, A FURTHER SUM E QUAL TO TWENTY PER CENT OF THE ACTUAL COST OF SUCH MACHINERY OR PLANT SHALL BE ALLOWED AS DEDUCTION UNDER CLAUSE (II) : PROVIDED THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF (A) ANY MACHINERY OR PLANT WHICH, BEFORE ITS INSTA LLATION BY THE ASSESSEE, WAS USED EITHER WITHIN OR OUTSIDE INDIA BY ANY OTHE R PERSON; OR (B) ANY MACHINERY OR PLANT INSTALLED IN ANY OFFICE PREMISES OR ANY RESIDENTIAL ACCOMMODATION, INCLUDING ACCOMMODATION IN THE NATURE OF A GUEST-HOUSE; OR (C) ANY OFFICE APPLIANCES OR ROAD TRANSPORT VEHICL ES; OR (D) ANY MACHINERY OR PLANT, THE WHOLE OF THE ACTUA L COST OF WHICH IS ALLOWED AS A DEDUCTION (WHETHER BY WAY OF DEPRECIAT ION OR OTHERWISE) IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION OF AN Y ONE PREVIOUS YEAR;] 7. THIS PROVISION WAS INSERTED BY FINANCE ACT, 2005 TO GRANT FURTHER INCENTIVE, IF ANY MACHINERY ETC WAS ACQUIRED AND INSTALLED AFTER 31 ST MARCH, 2005 IT IS TO BE SEEN THAT MACHINERY ON WHI CH ASSESSEE BECOME ELIGIBLE FOR ADDITIONAL DEPRECIATION WAS REQUIRED N OT ONLY TO BE ACQUIRED BUT ALSO INSTALLED AFTER A PARTICULAR DATE I.E. 31.3.2005. SIGNIFICANTLY, BETWEEN THE WORDS ACQUIRED AND INSTA LLED, THE CONJUNCTION USED IS AND AND NOT OR WHICH MEANS BOTH THE CONDITIONS I.E ACQUISITION AND INSTALLATION HAS TO TAKE PLACE AFTER THE SPECIFIC DATE FOR GETTING ELIGIBILITY TO ADDITIONAL DEPRECIATION. IN THE CASE BEFORE US, NO DOUBT THE MACHINERY HAS BEEN INVOICED BY THE JAP NESE COMPANY ON 23.2.2005 AGAINST THE L/C WHICH WAS OPENED IN JANUA RY, 2005. THIS MEANS THE PAYMENT WAS MADE SOMEWHERE IN JANUARY OR FEBRUARY 2005 7 DEPENDING UPON THE TERMS OF THE L/C BUT THE INVOICE HAS BEEN MARKED AS CIF WHICH MEANS COST UP TO SHIPPING, INSURANCE AND FREIGHT CHARGES WERE TO BE PAID BY THE SUPPLIER OF THE MACHINERY. T HAT MEANS THE RISK IN THE PROPERTY WAS BEING BORNE EITHER BY THE SUPPL IER OR BY THE INSURANCE COMPANY TILL IT WAS DELIVERED TO THE CUST OMER I.E. THE ASSESSEE. SECTION 20 OF THE SALE OF GOODS ACT, 193 0 READS AS UNDER:- 20. SPECIFIC GOODS IN A DELIVERABLE STATE. - WHERE THERE IS AN UNCONDITIONAL CONTRACT FOR THE SALE OF SPECIFIC GOO DS IN A DELIVERABLE STATE, THE PROPERTY IN THE GOODS PASSES TO THE BUYER WHEN THE CONTRACT IS MADE, AND IT IS IMMATERIAL WHE THER THE TIME OF PAYMENT OF THE PRICE OR THE TIME OF DELIVERY OF THE GOODS, OR BOTH, IS POSTPONED. 8. NO DOUBT THIS PROVISION SPECIFICALLY MENTIONS TH AT IF THERE WAS AN UNCONDITIONAL CONTRACT OF SALE OF SPECIFIED GOODS I N DELIVERABLE STATE THEN PROPERTY IN THE GOODS WOULD PASS ON TO BUYER O N THE DATE OF CONTRACT. HOWEVER, NO WRITTEN CONTRACT HAS BEEN ADD UCED BEFORE US TO SHOW SUCH AN INTENTION. SINCE THE INVOICE IS ON THE BASIS OF CIF AND MOREOVER THE BILL OF ENTRY HAS BEEN ENDORSED BY THE CUSTOMS DEPARTMENT ON 11.4.2005 AND OCTROI RECEIPT IS ALSO DATED 11.4.2005, THE ONLY POSSIBLE CONCLUSION IS THAT MACHINE WAS AC QUIRED AFTER THIS DATE WHICH IS IN ANY CASE AFTER 31.3.2005. AS OBSE RVED EARLIER, EVEN IF FOR THE SAKE OF ARGUMENT IT IS ASSUMED THAT PROPERT Y IN THE MACHINE WAS PASSED ON TO THE ASSESSEE EARLIER SOMEWHERE IN FEBR UARY 2005, EVEN THEN THE SAME WAS NOT INSTALLED BY THE ASSESSEE BEC AUSE INSTALLATION HAS NOT BEEN POSSIBLE UNLESS AND UNTIL MACHINE ARRIVES IN PHYSICAL STATE IN 8 THE FORM OF MACHINERY. FROM THE OCTROI RECEIPT AND BILL OF ENTRY FOR SHOWING DATE OF ENTRY OF GOODS IN THE COUNTRY BY TH E CUSTOMS DEPARTMENT MAKES IT CLEAR THAT MACHINE COULD BE INS TALLED ONLY AFTER THAT DATE I.E. 11.4.2005. IN VIEW OF THESE FACTS, IN OUR OPINION THE ASSESSEE HAS ACQUIRED AND INSTALLED THE MACHINERY A FTER 31.3.2005, THEREFORE, ENTITLED TO ADDITIONAL DEPRECIATION AS PER PROVISIONS SECTION 32(1) (IIA) OF THE ACT. ACCORDINGLY, WE QUASH THE REVISIONARY ORDER PASSED BY LD. COMMISSIONER. 9. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 10 TH DAY OF MAY, 2013. SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 10 TH MAY, 2013 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR TRUE COPY BY ORDER ASSISTANT REGISTRAR