S.D.S. Electronics Pvt. Ltd., Chandigarh V. DCIT, Chandigarh

ITA 691/CHANDI/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 8481 (ITAT-CHANDIGARH)
• Duration Of Justice: 4 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-09-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 07-07-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 24-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N K SAINI
• Keywords: Depreciation
• Section: 43B; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES A CHANDIGARH BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND MS SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.691/CHD/2010 ASSESSMENT YEAR: 2006-07 M/S S.D.S. ELECTRONICS PVT LTD., VS. THE DCIT, CHANDIGARH CIRCLE 1(1), CHANDIGARH PAN NO. AABCS9990D (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI AJAY JAIN RESPONDENT BY: SHRI N.K.SAINI ORDER PER SUSHMA CHOWLA, JM THE APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF CIT(A), CHANDIGARH DATED 26.2.2010 RELATING TO ASSESSMENT Y EAR 2006-07 AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF THE I.T. ACT. 2. THE GROUND NO.1 RAISED BY THE ASSESSEE, BEING GE NERAL, IS DISMISSED. 3. THE GROUND NO.2 RAISED BY THE ASSESSEE IS AS UND ER:- 2. THAT THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF DEPRECIATION AMOUNTING TO RS. 467040/- MADE BY ASSESSING OFFICER ON ACCOUNT OF ALLOCATION OF DEPRECIATION ON ASSETS OTHER THAN PLA NT & MACHINERY BETWEEN ELIGIBLE & NON ELIGIBLE UNIT WITHOUT APPRECIATING THE FACT THAT UNIT NOT ELIGIBL E FOR DEDUCTION U/S 80 IC HAS SEPARATE BLOCK OF ASSET & EXISTED PRIOR TO ESTABLISHMENT OF UNIT ELIGBLE FOR DEDUCTION U./S 80 IC. 2 4. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT T HE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF SAF ETY AND SECURITY EQUIPMENTS. THE ASSESSEE IS CARRYING ON ITS BUSINES S WITH HEAD OFFICE AT CHANDIGARH AND UNITS AT PANCHKULA AND PARWANOO. T HE INCOME OF PARWANOO UNIT WAS CLAIMED EXEMPT U/S 80 IC OF THE A CT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF EXPENSES OF BOTH THE UNITS. THE ASSESSE E SUBMITTED THAT THE HEAD OFFICE AT CHANDIGARH AND THE UNITS AT PANCHKUL A & PARWANOO WERE COMMISSIONED AND THE EXPENSES HAD BEEN ALLOCATED IN THE RATIO OF SALES OF BOTH THE UNITS. THE ASSESSING OFFICER NOTED THAT T HE ASSESSEE HAD CLAIMED DEPRECIATION ON PLANT AND MACHINERY AT RS. 8,35,493 /- IN PANCHKULA UNIT. THE SAID DEPRECIATION PERTAINS TO OFFICE AND INFRAS TRUCTURE OF HEAD OFFICE. THE SAID INFRASTRUCTURE AS PER THE ASSESSING OFFICE R WAS JOINTLY USED FOR BOTH THE UNITS I.E. PANCHKULA AND PARWANOO. THE A SSESSING OFFICER NOTED FROM THE PERUSAL OF THE ALLOCATION OF EXPENSES CARR IED ON BY THE ASSESSEE, ALLOCATION OF EXPENSES ON ACCOUNT OF DEPRECIATION H AD NOT BEEN MADE TO BOTH THE UNITS. SINCE THE EXPENDITURE WAS ALLOCATE D BY THE ASSESSEE TO THE EXTENT OF 55.9%, RS. 4,67,040/- OF RS. 8,35,493/ - WAS COMPUTED AS PERTAINING TO PARWANOO UNIT. THE ASSESSEE WAS HEL D TO HAVE CLAIMED EXCESS EXPENDITURE ON ACCOUNT OF DEPRECIATION IN RE SPECT OF PARWANOO UNIT AND THE SAID EXPENDITURE WAS DISALLOWED AND AD DED TO THE INCOME OF THE ASSESSEE. 5. THE CIT(A) ON PERUSAL OF THE DETAILS OF FIXED AS SETS PERTAINING TO PARWANOO UNIT FOUND THAT THERE WERE ONLY TWO ASSETS AT THE SAID UNIT I.E. PLANT & MACHINERY AND THE PLOT / SHED. THE CIT(A) NOTED THAT EVIDENTLY DEPRECIATION PERTAINING TO OFFICE AND INFRASTRUCTUR E WAS CLAIMED WITHOUT ALLOCATING IT TO THE RESPECTIVE UNITS AT PANCHKULA AND PARWANOO. THE CIT(A) FURTHER HELD THAT THE FACTS AND CIRCUMSTANCE S INDICATED THAT THE 3 INFRASTRUCTURE HAD BEEN JOINTLY USED FOR BOTH THE U NITS SINCE A UNIT COULD NOT BECOME FUNCTIONAL WITHOUT THESE INFRASTRUCTURE FACILITIES. THE CONTENTION OF THE ASSESSEE THAT DEPRECIATION HAD BE EN CLAIMED ON THE BASIS OF ASSETS INSTALLED AT PARWANOO AND PANCHKULA UNITS MAY BE CORRECT BUT IN THE ABSENCE OF ANY EVIDENCE PRODUCED TO SHOW THAT P ARWANOO UNIT HAD ITS OWN INFRASTRUCTURE FACILITIES, THE ORDER OF THE ASS ESSING OFFICER IN DISALLOWING DEPRECIATION AMOUNTING TO RS. 4,67,040/ - WAS UPHELD BY THE CIT(A). 6. THE ASSESSEE IS IN APPEAL AND HAS RAISED THE ISS UE BY WAY OF GROUND NO.2. THE LEARNED AR SUBMITTED THAT THE GROUND OF A PPEAL IS WITH REGARD TO THE ALLOCATION OF DEPRECIATION ON FURNITURE AND FIXTURES. IT WAS POINTED OUT BY THE LEARNED AR FOR THE ASSESSEE THAT THE ASS ESSEE HAD SEPARATE UNITS WITH SEPARATE LIST OF FIXED ASSETS. THE LEARNED AR FURTHER BROUGHT TO OUR NOTICE THAT THE UNIT AT PANCHKULA WAS ALREADY IN EX ISTENCE AND THE PARWANOO UNIT WAS ESTABLISHED LATER. THE LEARNED D R FOR THE REVENUE POINTED OUT THAT THE LIST OF FIXED ASSETS IS ENCLOS ED AT PAGE 22 OF THE PAPER BOOK FILED BY THE ASSESSEE AND THE DEPRECIATION ON THE ASSETS INSTALLED IN THE ADMINISTRATIVE OFFICE HAVE NOT BEEN ALLOCATED T O THE PARWANOO UNIT. THE LEARNED AR IN REJOINDER FURTHER POINTED OUT THA T THE ASSESSING OFFICER HAD TAKEN NOTE OF THE DEPRECIATION AS BROUGHT OUT U NDER THE COMPANYS ACT. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS. THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION WAS CA RRYING ON ITS ACTIVITIES AT TWO DIFFERENT UNITS I.E. PANCHKULA UNIT AND PARW ANOO UNIT WITH HEAD OFFICE AT CHANDIGARH. THE ASSESSEE WAS CLAIMING E XEMPTION U/S 80IC OF THE ACT IN RESPECT OF PARWANOO UNIT. THE ASSESSEE HAD MAINTAINED SEPARATE PROFIT AND LOSS ACCOUNT AND BALANCE SHEET FOR THE PARWANOO UNIT 4 AND DURING THE YEAR UNDER CONSIDERATION HAD CLAIMED DEPRECIATION OF RS. 16,815/- AS PER THE COMPANYS ACT. THE COPY OF THE PROFIT AND LOSS ACCOUNT AND BALANCE SHEET IS ENCLOSED AT PAGES 8 & 9 OF THE PAPER BOOK. THE LIST OF FIXED ASSETS IS ENCLOSED AT PAGE 10 OF THE PAPER BOOK AND THE ASSETS SHOWN BY THE ASSESSEE IN THE PARWANOO UNIT I NCLUDE PLANT AND MACHINERY AND PLOT / SHEET. THE TOTAL DEPRECIATION HAS BEEN CLAIMED AT PLANT AND MACHINERY AND DEBITED TO THE PROFIT AND L OSS ACCOUNT. THE DEPRECIATION COMPUTED UNDER THE PROVISIONS OF THE I NCOME TAX ACT IS WORKED OUT TO RS. 47,521/- AS PER THE LIST ENCLOSED AT PAGE 11 OF THE PAPER BOOK. THE PROFIT AND LOSS ACCOUNT AND BALANCE SHEET OF THE PANCHKULA UNIT IS ENCLOSED AT PAGE 15 & 16 OF THE PAPER BOOK WITH THE LIST OF FIXED ASSETS AT PANCHKULA UNIT PLACED AT PAGES 18 OF THE PAPER B OOK. THE TOTAL DEPRECIATION CLAIMED ON THE ASSETS DURING THE YEAR ENDING MARCH 31 , 2006 WAS RS. 9,01,280/-, AS PER THE COMPANYS ACT. THE LIST OF ASSETS INCLUDE AIR-CONDITIONER, BUILDING, CAR, COMPUTER, CYCLE, FA X MACHINE, FURNITURE & FIXTURES, MOBILE PHONE, OFFICE EQUIPMENT, PAGER, PH OTOCOPIER, TELEVISION, WATER COOLER, WATER FILTER IN ADDITION PLANT AND MA CHINERY AND PLOT. THE DEPRECIATION COMPUTED UNDER THE PROVISIONS OF INCOM E TAX ACT IS TABULATED AT PAGE 22 OF THE PAPER BOOK. THE ASSESS EE HAD COMPUTED THE DEDUCTION U/S 80IC OF THE ACT ON THE NET PROFIT OF THE PARWANOO UNIT UNDER WHICH IT HAD CLAIMED DEPRECIATION AS PER INCO ME TAX AMOUNTING TO RS. 47,521/-. THE SAID COMPUTATION OF DEDUCTION U/ S 80IC OF THE ACT IS PLACED AT PAGE 23 OF THE PAPER BOOK. THE ASSESSEE HAD CLAIMED THE EXPENSES OF THE HEAD OFFICE AT CHANDIGARH AND DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS, THE SUBMISSIONS OF THE ASSE SSEE AS NOTED BY THE ASSESSING OFFICER AT PAGE 4 OF THE ASSESSMENT ORDER WAS THAT THE HEAD OFFICE OF BOTH THE UNITS IS COMMON AND THE EXPENSES OF THE COMPANY HAD BEEN ALLOCATED IN THE RATIO OF SALE OF BOTH THE UNI TS. IN VIEW OF THE ADMISSION OF THE ASSESSEE THAT THE EXPENSES OF THE COMPANY HAD BEEN 5 ALLOCATED IN THE RATIO OF SALE OF BOTH THE UNITS, T HE CONSEQUENT IS THAT EVEN THE CLAIM OF DEPRECIATION ON ASSETS UTILIZED FOR IN FRASTRUCTURE FACILITIES IS TO BE ALLOCATED TO BOTH THE UNITS IN THE SAME RATIO AS THAT OF THE EXPENSES. WE ARE IN CONFORMITY WITH THE ORDER OF THE AUTHORIT IES BELOW THAT THE DEPRECIATION TO THE EXTENT OF THE SALES RATIO OF BO TH THE UNITS IS TO BE ALLOCATED TO THE INDIVIDUAL UNITS FOR COMPUTING THE PROFITS OF THE AFORESAID UNITS. HOWEVER, THE ALLOCATION OF THE DEPRECIATION SHOULD BE MADE ON ACCOUNT OF DEPRECIATION CLAIMED UNDER THE INCOME TA X ACT. IN ORDER TO VERIFY, AND ALLOW THE CLAIM OF THE ASSESSEE, WE RE MIT THIS LIMITED ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER TO RE-DE TERMINE THE DEPRECIATION ON ACCOUNT OF ASSETS OTHER THAN PLANT AND MACHINERY , BUILDING AND TOOLS / DIES / FIXTURES. THE GROUND NO.2 RAISED BY THE AS SESSEE IS THUS ALLOWED FOR STATISTICAL PURPOSES. 8. THE GROUND NO.3 RAISED BY THE ASSESSEE IS AS UND ER:- 3. THAT THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THAT ROYALTY PAID TO DRDO MINISTRY OF DEFENCE IS COVERED UNDER THE PROVISION OF SECTION 43B OF INCOME TAX AC T WITHOUT APPRECIATING THE FACT THAT THE APPELLANT HA S TAKEN KNOW HOW FROM DRDO & HAS NOT PAID ROYALTY AS FEE OR TAXES OR STATUTORY OBLIGATION. 9. THE LEARNED AR FOR THE ASSESSEE POINTED OUT THAT THE ISSUE IS COVERED BY THE ORDER OF THE TRIBUNAL IN THE CASE OF M/S PUNJAB STATE FOREST CORPN LTD., CHANDIGARH VS. ADDL. CIT IN ITA NO. 693/CHANDI/2008. THE LEARNED DR PLACED RELIANCE ON THE ORDER OF THE AUTHORITIES BELOW AND FAILED TO POINT OUT ANY CONTR ARY DECISION. 10. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS MADE THE PROVISIONS OF ROYALTY AND TECHNICAL FEE TO THE TUNE OF RS. 6,11,000/-. THE S AID ROYALTY / TECHNICAL FEE WAS NOT PAID BY THE ASSESSEE AND AS PER THE ASS ESSING OFFICER, THE NON 6 PAYMENT BY THE STATUTORY DUE DATES RESULTED IN THE DISALLOWANCE OF THE SAID AMOUNT IN THE HANDS OF THE ASSESSEE. BEFORE THE CI T(A), THE PLEA OF THE ASSESSEE THAT THE ROYALTY PAYABLE TO DRDO, MINISTR Y OF DEFENCE WAS NOT COVERED UNDER THE PROVISIONS OF THE SECTION 43B OF THE ACT, WAS REJECTED BY THE CIT(A) AND THE ORDER OF THE ASSESSING OFFICE R WAS UPHELD. 11. WE FIND THAT SIMILAR ISSUE OF PAYMENT OF ROYALT Y PAYABLE TO FOREST DEPARTMENT AROSE BEFORE THE TRIBUNAL IN THE CASE OF M/S PUNJAB STATE FOREST CORPN. LTD, CHANDIGARH VS. ADDL CIT IN ITA NO. 693/CHANDI/2008 RELATING TO ASSESSMENT YEAR 2005-06, WHEREIN THE TR IBUNAL VIDE ITS ORDER DATED 26.3.2002 ALLOWED THE CLAIM OF THE ASSESSEE. IT WAS HELD THAT THE CLAIM OF DEDUCTION IN RESPECT OF LIABILITY INCURRED OF ROYALTY PAYABLE WAS AN ALLOWABLE DEDUCTION DESPITE THE PROVISIONS CONTA INED IN SECTION 43-B OF THE ACT. FOLLOWING THE ABOVE SAID RATIO, WE DIREC T THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSEE IN RESPECT OF RO YALTY PAYABLE TO DRDO MINISTRY OF DEFENCE, AS NOT BEING HIT BY THE PROVIS IONS OF SECTION 43B OF THE ACT. THE GROUND NO.3 RAISED BY THE ASSESSEE IS THUS ALLOWED. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 29 TH DAY OF SEPTEMBER, 2010. SD/- SD/- (G.S.PANNU) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 29 TH SEPTEMBER, 2010 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR 7