CHOUDHARY EXPORTS, MUMBAI V. ACIT 18(1), MUMBAI

ITA 5791/MUM/2010

• Counselvise Citation: 579119914 RSA 2010
• Duration Of Justice: 1 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 13-02-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 16-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARTHA SARATHI NAIK
• Assessee Lawyers: RAJAN R V ORA
• Keywords: Depreciation; Business expenditure; Additional depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER, A ND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO. 5791/MUM./2010 (ASSESSMENT YEAR : 2007-08 ) M/S. CHOUDHARY EXPORTS A-BLOCK (BASEMENT) SHIV SAGAR ESTATE DR. A.B. ROAD, WORLI MUMBAI 400 018 PAN AACFC6777E .. APPELLANT V/S ASSTT. COMMISSIONER OF INCOME TAX CIRCLE-18(1), MUMBAI .... RESPONDENT ASSESSEE BY : MR. RAJAN R. VORA REVENUE BY : MR. PARTHASARATHI NAIK DATE OF HEARING 13.02.2012 DATE OF ORDER 22.02.2012 O R D E R PER J. SUDHAKAR REDDY, A.M. THIS APPEAL PREFERRED BY THE ASSESSEE, IS DIRECTED AGAINST THE IMPUGNED ORDER DATED 31 ST MAY 2010, PASSED BY THE COMMISSIONER (APPEALS)XXIX, MUMBAI, FOR ASSESSMENT YEAR 2007-08 , ON THE FOLLOWING GROUND:- 1. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDIT ION ON ACCOUNT OF ADDITIONAL DEPRECIATION ON WIND MILL PURCHASED D URING THE YEAR AT CHOUDHARY EXPORTS ITA NO.5791/MUM./2010 2 DHULE, MAHARASHTRA, AMOUNTING TO ` 57,28,703 ON THE GROUND THAT ELECTRICITY IS NEITHER AN ARTICLE NOR A THING. 2. FACTS IN BRIEF:- THE ASSESSEE IS A PARTNERSHIP FIRM AND THE ASSESSING OFFICER HAS DESCRIBED THE NATURE OF BUSINESS AT COL . 10 OF THE ASSESSMENT ORDER AS MANUFACTURING AND TRADING WOOLEN CARPETS AND ELECT RICITY GENERATION BY WIND MILLS. THE ASSESSEE CLAIMED ADDITIONAL DEPRECIATION @ 80% ON A WIND MILL AT DHULE. THE ASSESSING OFFICER DISALLOWED THE SAME BY HOLDING THAT THERE SHOULD BE MANUFACTURE AND PRODUC TION OF ANY ARTICLE OR THING FOR CLAIMING ADDITIONAL DEPRECIATION UNDER SE CTION 32(1) CLAUSE (IIIA). HE HELD THAT THE PRODUCTION OF ELECTRICITY BY ANY S TRETCH OF IMAGINATION CAN BE CALLED AN ARTICLE OR THING AND THAT ELECTRICITY IS NOT EXCISABLE AS GOOD , WHICH IS A TERM MUCH WIDER IN CONNOTATION THEN THE TERM ARTICLE . 3. ON APPEAL, THE FIRST APPELLATE AUTHORITY CONFIRMED THE FINDINGS OF THE ASSESSING OFFICER BY HOLDING AT PARA-3.3, AS FOLLOW S:- 3.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE, ARGUMENTS OF THE ASSESSING OFFICER AND THE WRITTEN SUBMISSIONS O F THE AUTHORISED REPRESENTATIVE OF THE APPELLANT. THE INSURANCE PREMIUM PAID ON THE LIFE OF THE PARTN ER HAS TO BE ALLOWED AS BUSINESS EXPENDITURE FOR THE FOLLOWING R EASONS. (A) KEYMAN INSURANCE PREMIUM IS AN ALLOWABLE BUSINE SS EXPENSE PROVIDED BY THE ACT ITSELF. ONLY THING TO BE DECIDE D IS THAT THE WHETHER THE TWO PARTNERS, WHOSE LIVES HAVE BEEN INSURED ARE KEYMEN OF THE BUSINESS OR NOT. IT CAN BE SEEN THAT THEY ARE MANAG ING PARTNERS AND CERTAINLY THEIR LIFE IS OF PRIMARY IMPORTANCE TO TH E BUSINESS. DURING THE INSURANCE PERIOD THE FIRM REMAINS PROTECTED FROM AN Y CONTINGENCY. THE ARGUMENT OF THE ASSESSING OFFICER THAT PARTNERS HIP WILL CONTINUE EVEN AFTER DEATH OF THE MANAGING PARTNERS IS NOT TE NABLE. EVEN IF THE FIRM EXISTS BEYOND THE PERIOD OF LIFE OF PARTNERS I TS BUSINESS WILL BE DRASTICALLY AFFECTED WITH THE LOSS OF MANAGING PART NERS. THERE IS LIKELY LOSS OF INCOME, REVENUE OR BUSINESS. (B) THE INSURANCE PREMIUM PAID FOR KEYMAN INSURANCE POLICY IN THE CASE OF A FIRM FOR ITS PARTNERS, HAS BEEN HELD AS A LLOWABLE BUSINESS EXPENSES IN THE CASE OF MODI MOTORS, ITA NO.6900/M/ 2006 BY HONBLE ITAT MUMBAI. IN THE CASE OF B.N.EXPORTS ITA NO.2714 OF 2009 DATED 31 .2.2010 THE HONBLE HIGH COURT OF BOMBAY HAS ALS O HELD THAT THE PREMIUM PAID FOR PARTNERS LIVES IN KEYMAN INSURANCE POLICY IS AN ALLOWABLE BUSINESS EXPENDITURE. CHOUDHARY EXPORTS ITA NO.5791/MUM./2010 3 (C) THE PARTNERS ARE SEPARATE AND IDENTIFIABLE ENTI TIES AND CANNOT BE HELD AS IDENTICAL WITH THE FIRM. SALARY AND REMUNER ATION RECEIVED FROM THE FIRM ARE TAXED IN THE HANDS OF THE PARTNERS. (D) ACCORDING TO THE SCHEME OF THE KEYMAN INSURANCE POLICY THE RECEIPTS ON MATURITY ARE TAXABLE IN THE HANDS OF TH E FIRM. THEREFORE PREMIUM EXPENSES, IF ANY, ALSO HAS TO BE ALLOWED IN THE HANDS OF THE FIRM. THEREFORE, THE PREMIUM PAID AMOUNTING TO ` 1 CRORE IS AN ALLOWABLE EXPENDITURE AND CANNOT BE ALLOWED. THE DI SALLOWANCE IS DELETED . 4. BEFORE US, THE LEARNED COUNSEL, MR. RAJAN R. VORA, REPRESENTING THE ASSESSEE, SUBMITTED THAT THE UNDISPUTED FACTS IS TH AT THE ASSESSEE IS MANUFACTURING WOOLEN CARPETS AND THAT THIS IS MANUF ACTURE OF AN ARTICLE OR THING . HE RELIED ON THE FOLLOWING CASE LAWS FOR THE PROP OSITION THAT WHEN AN ASSESSEE WAS ALREADY ENGAGED IN THE BUSINESS OF MAN UFACTURE OR PRODUCTION OF ANY ARTICLE OR THING , THEN ADDITIONAL DEPRECIATION SHOULD BE ALLOWED, A S SECTION 32(1)(IIA), DOES NOT REQUIRE THAT THE ASSES SEE SHOULD HAVE OPERATIONAL CONNECTIVITY OF NEW MACHINERY OR PLANT TO THE ARTICLE OR THING THAT WAS ALREADY BEEN MANUFACTURED BY THE ASSESSEE. CIT V/S VTM LTD., (2009) 319 ITR 336 (MAD.); CIT V/S HI TECH ARAI LTD., (2010) 321 ITR 477 (MAD. ); AND CIT V/S TEXMO PRECISION CASTINGS (2010) 321 ITR 481 (MAD.) 5. HE FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAD ALLOWED THE CLAIM OF THE ASSESSEE BOTH FOR THE EARLIER ASSESSMENT YEA R AS WELL AS THE LATER ASSESSMENT YEAR AND EVEN ON THE PRINCIPLE OF CONSIS TENCY AND CERTAINTY, THE CLAIM OF THE ASSESSEE HAS TO BE ALLOWED. 6. LEARNED DEPARTMENTAL REPRESENTATIVE, MR. PARTHASARA THI NAIK, REPRESENTING THE REVENUE, OPPOSED THE CONTENTIONS O F THE ASSESSEE AND SUBMITTED THAT GENERATION OF ELECTRICITY IS NOT MAN UFACTURE OF ARTICLE OR THING . HE FURTHER SUBMITTED THAT THE CASE LAWS RELIED UP ON BY THE ASSESSEE ARE THE CASE LAWS WHERE THE POWER GENERATION IN QUE STION WAS OF CAPTIVE UNIT UNLIKE THE CASE OF THE ASSESSEE. ON THE ARGUMENT TH AT SIMILAR DEPRECIATION CHOUDHARY EXPORTS ITA NO.5791/MUM./2010 4 HAS BEEN ALLOWED IN THE EARLIER YEAR AND SUBSEQUENT YEAR, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT RESJUDIC ATA DOES NOT APPLY TO THE INCOME TAX PROCEDURE. 7. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON A PERUSAL OF THE P APERS ON RECORD, AS WELL AS THE CASE LAWS CITED BEFORE US, WE HOLD AS FOLLOW S:- 8. THE ASSESSING OFFICER, IN HIS ORDER, HAS RECORDED T HAT THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURE AND TRADING OF WOOLEN C ARPETS. THE HONBLE MADRAS HIGH COURT IN TEXMO PRECISION CASTINGS (SUPR A), CONSIDERED THE IDENTICAL SITUATION AND HELD AS FOLLOWS:- FOR THE APPLICATION OF S. 32(1)(IIA) WHAT IS REQUIR ED TO BE SATISFIED IS THAT THE SETTING UP OF A NEW MACHINERY OR PLANT SHO ULD HAVE BEEN ACQUIRED AND INSTALLED AFTER 31ST MARCH, 2002 BY AN ASSESSEE, WHO WAS ALREADY ENGAGED IN THE BUSINESS OF MANUFACTURE OR P RODUCTION OF ANY ARTICLE OR THING AND THERE IS NO REQUIREMENT THAT T HE SETTING UP OF A NEW MACHINERY OR PLANT SHOULD HAVE ANY OPERATIONAL CONNECTIVITY TO THE ARTICLE OR THING THAT WAS ALREADY BEING MANUFAC TURED BY THE ASSESSEE . 9. SIMILAR IS THE DECISION IN HI TECH ARAI LTD. (SUPRA ) AND VTM LTD. (SUPRA). THE REVENUE HAS NOT BROUGHT ANY CONTRARY D ECISION TO OUR NOTICE. IT IS ALSO NOT THE CASE OF THE REVENUE THAT THE ASSESS EE HAS NOT MANUFACTURED WOOLEN CARPETS AND DHURRIES. ON THIS FACTUAL MATRIX , WE RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY THE HONBLE MADRAS HIGH COUR T AND ALLOW THE GROUND RAISED BY THE ASSESSEE. 10. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22.2.2012 SD/- R.S. PADVEKAR JUDICIAL MEMBER SD/- J. SUDHAKAR REDDY ACCOUNTANT MEMBER MUMBAI, DATED: 22 ND FEBRUARY 2012 CHOUDHARY EXPORTS ITA NO.5791/MUM./2010 5 COPY TO : (1) THE ASSESSEE; (2) THE RESPONDENT; (3) THE CIT(A), MUMBAI, CONCERNED; (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, C BENCH, ITAT, MUMBAI. TRUE COPY BY ORDER PRADEEP J. CHOWDHURY ASSISTANT REGISTRAR SR. PRIVATE SECRETARY ITAT, MUMBAI BENCHES, MUMBAI DATE INITIAL 1. DRAFT DICTATED ON 17.2.2012 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 20.2.2012 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 20.2.2012 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 20.2.2012 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 20.2.2012 SR.PS 6. DATE OF PRONOUNCEMENT 22.2.2012 SR.PS 7. FILE SENT TO THE BENCH CLERK 22.2.2012 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER