Ducat Agro Extracts Ltd., Baroda V. The ACIT.,Circle-1(1), Baroda

ITA 615/AHD/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6046 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2004-2005
• Appeal Filed On: 28-02-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Assessee Lawyers: M K PATEL
• Keywords: Depreciation
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL C HATURVEDI, A.M.) I.T. A. NO. 615 /AHD/2011 (ASSESSMENT YEAR: 2004-05) DUCAT AGRO EXTRACTS LTD. DURGA ESTATE, CHHANI ROAD, VADODARA V/S ACIT, CIRCLE-1(1) VADODARA (APPELLANT) (RESPONDENT) PAN: AAACD8078Q APPELLANT BY : SHRI M.K. PATEL. A.R. RESPONDENT BY : SHRI B.L. YADAV D.R. ( )/ ORDER DATE OF HEARING : 16-06-2014 DATE OF PRONOUNCEMENT : 27 -06-2014 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A)-I, BARODA DATED 2.12.2010 FOR A.Y. 2004-05. 2. THE FACTS AS CULLED OUT FROM THE MATERIAL ON REC ORD ARE AS UNDER. 3. ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN TH E BUSINESS OF MANUFACTURING OF SPICE OIL, FLORAL EXTRACTS, MEDICI NAL PLANT EXTRACTS ETC. ASSESSEE FILED ITS RETURN OF INCOME FOR A.Y. 04-05 ON 31.10.2004 DECLARING TOTAL LOSS OF RS. 2,34,99,590/-. THE CASE WAS SELEC TED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED UNDER SECTION 143(3) VIDE ORDER DATED 28.11.2006 AND THE TOTAL LOSS WAS DETERMINED AT RS. 1,71,89,533/-. AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BE FORE CIT(A). CIT(A) VIDE ITA NO 615/ AHD/2011 . A.Y. 2004- 05 2 ORDER DATED 2.12.2010 GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE U S AND HAS RAISED THE FOLLOWING GROUND:- 1. THE LD CIT (A) HAS ERRED IN UPHOLDING THE DISALL OWANCE OF DEPRECIATION MADE BY THE ACIT, CIRCLE (1), VADODARA. THE DEPRECIATION ON THE PLANT AND MA CHINERY IS ALLOWABLE WITH REFERENCE TO THE 'ACTUAL COST'. THE DEPRECIATION IS REQUIRED TO BE CALCULATE D ON THE ACTUAL COST OF THE MACHINERY ARRIVED U/S 43(1) OF THE ACT. THE FIXED ASSET VALUE HAS TO BE A S PER ACCOUNTING STANDARD - 10 ON 'ACCOUNTING FOR FIXED ASSETS' ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI). THE FACT THAT THE APPELLANT COMPANY MADE A POLICE COMPLIANT AGAINST O NE OF DIRECTOR FOR DEFALCATING THE FUNDS OF THE COMPANY; DOES NOT REDUCE THE 'ACTUAL AMOUNT PAID' F OR PLANT & MACHINERY. HENCE THE DEPRECIATION IS TO BE CALCULATED ON THE OPENING WDV OF RS.5,97,03,1 61/- (WITHOUT REDUCING THE QUANTUM AMOUNT OF POLICE COMPLAINT I.E. RS.1,86,00,000/-). TILL DATE COMPANY IS NOT ABLE TO RECOVER ANY AMOUNT FROM THE DIRECTOR. THEREFORE THE DEPRECIATION SHOULD BE ALLO WED AS CLAIMED BY THE APPELLANT. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ON PERUSING OF THE DEPRECIATION CHART, A.O NOTICED THAT ASSESSEE HAS C LAIMED DEPRECIATION IN RESPECT OF PLANT AND MACHINERY ON THE OPENING WDV O F RS. 5,97,03,161. HE ALSO NOTICED THAT AS PER THE NOTES TO THE ACCOUNTS, ASSESSEE HAD FILED A POLICE COMPLAINT AGAINST THE PROFESSIONAL DIRECTOR FOR CON NIVING WITH THE VENDOR FOR OVER-INVOICING OF PLANT AND MACHINERY TO THE EXTENT OF RS.186 LAKHS . ASSESSEE WAS ASKED AS TO WHY THE WDV PLANT AND MACH INERY NOT BE REDUCED BY RS. 186 LAKHS FOR DEPRECIATION PURPOSES AS THE A CTUAL COST WAS LESS BY RS. 186 LAKHS. IN THE ABSENCE OF ANY REPLY FROM THE AS SESSEE, A.O AFTER REDUCING THE VALUE OF PLANT AND MACHINERY BY RS. 186 LAKHS F ROM WDV WORKED OUT THE DEPRECIATION AND THE EXCESS DEPRECIATION OF RS. 46, 50,000/- ON THE OVER INVOICED PORTION WAS DISALLOWED. AGGRIEVED BY THE O RDER OF ASSESSING OFFICER, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) U PHELD THE ORDER OF THE A.O BY HOLDING AS UNDER:- 6.2 IN APPEAL, IT IS ARGUED THAT THE APPELLANT HAD PAID RS.7,60,24,000/- AND THAT IS THE ACTUAL COST O F PLANT AND MACHINERY TO THE APPELLANT AND THAT THE D EPRECIATION SHOULD BE ALLOWED ON THE SAID AMOUNT PAID BY THE APPELLANT. 6.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE, THE SUBMISSIONS OF THE APPELLANT AND THE ASSESSMENT ORDER. THE APPELLANT IS AWARE THAT THE A CTUAL COST OF MACHINERY HAD BEEN INFLATED BY RS.186 LAKHS AND ONE OF THE DIRECTORS OF THE COMPANY HAD B ENEFITED THROUGH THE OVER INVOICING. THUS THE ACTUAL MARKET PRICE OF THE MACHINERY IS LESSER BY R S.186 LAKHS AND THE AO IS JUSTIFIED IN REDUCING THE SAID AMOUNT FROM THE COST OF ASSET FOR PURPOSES OF DEPRECIATION. THE APPELLANT COULD CLAIM BUSINESS LOSS OF RS.186 LAKHS IN THE YEAR IN WHICH THE LOSS IS SHOWN TO HAVE CRYSTALLIZED. GROUND NO.3 IS DISMISSED. 5. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE IS NO W IN APPEAL BEFORE US. ITA NO 615/ AHD/2011 . A.Y. 2004- 05 3 6. BEFORE US THE LD. A.R. SUBMITTED THAT THE MACHIN ERY WAS PURCHASED IN EARLIER YEARS AND LATER IT WAS FOUND BY THE ASSESSEE THAT T HE DIRECTOR HAD INFLATED THE PRICE OF THE MACHINERY. ASSESSEE HAD ALSO FILED A P OLICE COMPLAINT AGAINST THE DIRECTOR WHICH REMAINS UNACTED TILL DATE. HE FURTH ER SUBMITTED THAT THE PAYMENTS MADE FOR THE MACHINERY IN THE PAST HAS NOT BEEN DISPUTED BY THE ASSESSEE AND FURTHER IN EARLIER YEARS THE DEPRECIAT ION HAS ALSO BEEN ALLOWED TO THE ASSESSEE. HE THEREFORE SUBMITTED THAT THERE WAS NO PROVISION IN THE ACT TO REDUCE THE WDV OF THE MACHINERY. HE FURTHER SUBMITTED THAT SINCE THE WDV HAS BEEN ACCEPTED IN EARLIER YEARS, THE ASSESSE E SHOULD BE ALLOWED DEPRECIATION ON THE OPENING WDV. IN THE ALTERNATIV E, THE LD. A.R. SUBMITTED THAT THE ASSESSEE BE ALLOWED THE BUSINESS LOSS OF R S. 186 LACS AS THE ASSESSEE HAS ALSO FILED A POLICE COMPLAINT. HE ALSO RELIED ON THE DECISION IN THE CASE OF CIT VS. ABDUL RAZZAQ AND COMPANY 136 IT R 825. THE LD. D.R. ON THE OTHER HAND SUBMITTED THAT SINCE THE ASSESSEE IT SELF HAS ADMITTED THE PAYMENT MADE FOR PURCHASE OF MACHINERY TO BE INFLAT ED AND THEREFORE NO FURTHER PROOF WAS REQUIRED AND THE A.O HAS RIGHTLY WORKED OUT THE DEPRECIATION AFTER REDUCING THE INFLATED AMOUNT. HE ALSO SUBMITT ED THAT DEPRECIATION IS ALLOWABLE ON THE ACTUAL COST OF MACHINERY AND SINCE THE ACTUAL COST OF MACHINERY IS LESS, THE ORDER OF A.O NEEDS TO BE UPH ELD. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT IN EARLIER YEARS, THE VALUE OF MACHINERY WAS OVER STATED BY RS. 186 LAKHS ON ACCOUNT OF OVER INVOICIN G BY A DIRECTOR OF THE COMPANY. IT IS ALSO A FACT THAT ON THE OVERSTATED A MOUNT DEPRECIATION WAS CLAIMED IN EARLIER YEARS AND AFTER THE DEPRECIATION , IN THE YEAR UNDER REVIEW, THE OPENING WDV OF THE MACHINERY CONTINUED TO HAVE THE EFFECT OF OVER INVOICING. IT IS A SETTLED LAW THAT DEPRECIATION IS ALLOWABLE TO THE ASSESSEE ON THE BASIS OF ACTUAL COST OF THE ASSETS TO IT. ON TH E ISSUE THAT WHERE THE ASSETS HAVE BEEN ACQUIRED IN THE YEAR EARLIER TO THE RELEV ANT ASSESSMENT YEAR AND IN THAT CASE WHETHER COST CAN BE RE-DETERMINED IN LATE R YEARS, WE FIND THAT ITA NO 615/ AHD/2011 . A.Y. 2004- 05 4 HONBLE APEX COURT IN THE CASE OF SAHARAPUR ELECT RIC SUPPLY CO. LTD. VS. CIT (1992) 194 ITR 294 (SC), HAS HELD AS UNDER:- THOUGH,, IN SUBSTANCE, DEPRECIATION OJ AN ASSET FOR ANY ASSESSMENT YEAR IS CALCULATED ON ITS WRITTEN DOWN VALUE WHICH IS NORMALLY CARRIED FORWARD FROM I N EARLIER ASSESSMENT YEAR, THE PHRASEOLOGY OF THE ACT DOES NOT BEAR OUT THE CONTENTION THAT THE ACTUA L COST OF THE ASSET HAS TO BE DETERMINED ONLY ONCE, VIZ., IN THE PREVIOUS YEAR OF ITS ACQUISITION. SECT ION 43(6) SPECIFICALLY DEALS WITH TWO CATEGORIES OF ASSETS (I) THOSE ACQUIRED DURING THE RELEVANT PREVI OUS YEAR, AND (II) THOSE ACQUIRED EARLIER TO THAT. EVEN IN RESPECT OF THE LATTER CLASS OF ASSETS, THE ACT E NVISAGES A COMPUTATION OF THE ACTUAL COST OF THE AS SET AND THE DEDUCTION THEREFROM OF ALL DEPRECIATION ALL OWED IN EARLIER YEARS IN RESPECT OF THAT ASSET. THU S, THE FIRST STEP, STATUTORILY PRESCRIBED, FOR THE DET ERMINATION OF THE WRITTEN DOWN VALUE OF ANY ASSET F OR ANY YEAR, IS FOR THE ASSESSING OFFICER TO DETERMINE ITS ACTUAL COST. THIS IS A MANDATORY STEP WHICH TH E OFFICER CANNOT BE PREVENTED FROM TAKING MERELY BECA USE THE ACTUAL COST OF THE ASSET HAD ALREADY BEEN DETERMINED IN ONE OR MORE EARLIER YEARS. IT HAS FURTHER HELD THAT IN PRINCIPLE, IT IS NOT POSSIBLE TO ACCEPT THE CONTENTION THAT THE ACTUAL COST CANNOT B E DETERMINED YEAR AFTER YEAR ON THE FACTUAL OR LEGA L POSITION APPLICABLE FOR THE RELEVANT PREVIOUS YEAR AND THAT THE ACTUAL COST ONCE DETERMINED CANNOT BE ALTERED . 8. IN THE CASE OF CIT VS. DALMIA DADRI CEMENT LTD. (1980) 125 ITR 510 (DEL.) THE HONBLE HIGH COURT RELYING ON THE DECISION OF A PEX COURT IN THE CASE OF GUZDAR KAJORIA COAL MINES LTD. VS. CIT (1972) 85 IT R 599 (SC) HELD THAT IF CIRCUMSTANCES EXIST SHOWING THAT A FICTITIOUS PRICE HAS BEEN PUT ON THE ASSET OR THERE IS FRAUD OR COLLUSION BETWEEN THE VENDOR A ND THE VENDEE, AND THERE HAS BEEN INFLATION OR DEFLATION OF VALUE FOR ULTERI OR PURPOSE, IT IS OPEN TO THE I.T. AUTHORITIES TO REFUSE DEED OR ALLEGED BY THE A SSESSEE AND TO ASCERTAIN WHAT THE ACTUAL COST WAS. IT FURTHER NOTED THAT WHE N THE LEGISLATURE HAS PREFIXED THE WORD ACTUAL TO THE WORD COST, IT W AS TO LAY EMPHASIS ON THE REALITY AND GENUINENESS THEREOF AND EXCLUDE COLLUSI VE, INFLATED, DEFLATED OR FICTITIOUS COSTS. 9. CONSIDERING THE FACTS IN THE PRESENT CASE THAT THE COST OF PLANT AND MACHINERY WAS OVER INVOICED IN THE YEAR OF ACQUISIT ION WHICH WAS PRIOR TO THE YEAR UNDER REVIEW, AND THE FACT OF OVER INVOICING H AS ALSO BEEN ACCEPTED BY ASSESSEE AND SEEN IN THE LIGHT OF DECISIONS CITED A BOVE, WE ARE OF THE VIEW ITA NO 615/ AHD/2011 . A.Y. 2004- 05 5 THAT A.O WAS FULLY JUSTIFIED IN REDUCING THE OVER I NVOICED AMOUNT OF PLANT AND MACHINERY FOR CALCULATION OF DEPRECIATION. WITH RES PECT TO THE ASSESSEES ALTERNATE CLAIM OF ALLOWING THE BUSINESS LOSS OF RS . 186 LAKHS, WE FIND THAT ON THE OVER INVOICED PORTION, ASSESSEE HAS ALREADY CLA IMED DEPRECIATION AND IT WAS ALSO ALLOWED IN THE PAST AND THEREFORE IN SUCH CIRCUMSTANCES IT CANNOT BE SAID THAT ASSESSEE HAS SAID TO HAVE INCURRED BUSINE SS LOSS OF RS. 186 LACS. FURTHER, CIT(A) HAS NOTED THAT IN THE YEAR UNDER RE VIEW SINCE THE LOSS HAS NOT BEEN CRYSTALLIZED THE ASSESSEE CANNOT CLAIM IT AS B USINESS LOSS BUT HOWEVER, IT CAN CLAIM THE LOSS IN THE YEAR IN WHICH THE SAME GETS CRYSTALLIZED. BEFORE US, LD. A.R. COULD NOT DEMONSTRATE THAT LOSS HAS CRYSTA LLIZED DURING THE YEAR. HOWEVER THE ASSESSEE IS FREE TO MAKE A CLAIM FOR LO SS BEFORE A.O IN THE YEAR IN WHICH THE LOSS CRYSTALLIZED AND THE A.O SHALL TH EREAFTER DECIDE THE ISSUE AS PER LAW. THUS THIS GROUND OF ASSESSEE IS DISMISSED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMIS SED. ORDER PRONOUNCED IN OPEN COURT ON 27 - 06 - 2014. SD/- SD/- (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AH MEDABAD