The ACIT, 3(1), Bhopal V. M/s RVR Technologies Ltd., Raisen

ITA 7/IND/2011

• Counselvise Citation: 722714 RSA 2011
• Duration Of Justice: 9 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 24-10-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 14-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANADI VERMA
• Assessee Lawyers: H P VERMA
• Keywords: Depreciation
• Section: 32

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI R.C. SHARMA, ACCOUNTANT MEMBER ITA NOS. 7 & 8/IND/2011 A.YS. 2005-06 & 2006-07 ASSTT. COMMISSIONER OF INCOME TAX 3(1) BHOPAL ... APPELLANT VS RVR TECHNOLOGIES LTD., MANDIDEEP, RAISEN ... RESPONDENT APPELLANT BY : SHRI ANADI VERMA, CIT/DR RESPONDENT BY : S/SHRI H.P. VERMA & ASHISH GOYAL DATE OF HEARING : 12.12.2011 DATE OF PRONOUNCEMENT : 12.12.2011 O R D E R PER JOGINDER SINGH AGGRIEVED BY THE DIFFERENT ORDERS DATED 15.10.2010 OF THE LD. CIT(A)-II, BHOPAL, THE REVENUE IS IN APPEAL FOR ASSESSMENT 2 YEARS 2005-06 & 2006-07, ON THE COMMON GROUND THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. FIRST APPELLATE AUTHORITY ERRED IN ALLOWING RELIEF OF RS.1,65,59,29 4 & RS.1,54,15,661/-, RESPECTIVELY, OUT OF THE CLAIMED DEPRECIATION OF THE UNITS. 2. DURING HEARING OF THESE APPEALS, THE LD. CIT/DR SHRI ANADI VERMA DEFENDED THE ASSESSMENT ORDER BY SUBMIT TING THAT THE SAME MACHINERY WAS HIRED AND PUT TO USE. O UR ATTENTION WAS INVITED TO PAGE 1 AND PAGE 2 OF THE A SSESSMENT ORDER. RELIANCE WAS PLACED IN MAHAVIR COLD STORAGE VS. CIT (188 ITR 91) (SC), CIT VS. NORTHERN INDIA IRON & ST EEL CO. LTD. (211 ITR 370) (DEL), CIT VS. UDAIPUR MINERAL DEVELO PMENT SYNDICATE P. LTD. (269 ITR 263) (RAJ). ON THE OTHER HAND, SHRI H.P. VERMA AND SHRI ASHISH GOYAL, LEARNED COUNSEL F OR THE ASSESSEE DEFENDED THE IMPUGNED ORDER BY INVITING OU R ATTENTION TO VARIOUS PAGES OF THE PAPER BOOK. 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL AVAILABLE ON FILE. THE FACTS, IN BRIEF , ARE THAT THE 3 ASSESSEE COMPANY STARTED ITS BUSINESS OF MANUFACTUR ING AND SALES OF TUBES IN THE YEAR 1986 IN THE NAME OF M/S. RALSON TUBES LTD., LATER ON CHANGED TO RVR TECHNOLOGIES LT D. THE NEW UNIT FOR MANUFACTURING AND EXPORT OF THE TUBES WAS STARTED IN THE YEAR 1999. THE OLD UNIT WAS STARTED IN 1986. THE ASSESSEE STOPPED MANUFACTURING IN UNIT NO.1 AS THE NEW UNIT WAS SET UP IN 1999. THE OLD UNIT WAS LEASED OUT TO ITS SISTER CONCERN M/S. RALSON INDUSTRIES LTD. AT THE ANNUAL R ENT OF RS.15 LACS FOR A PERIOD OF TEN YEARS STARTING FROM 1999, MEANING THEREBY, UNIT NO.1 WAS RENTED OUT WHEREAS THE ASSES SEE CONTINUED TO MANUFACTURE AND EXPORTS THE TUBES FROM UNIT NO.2. THE ASSESSEE THUS CLAIMED THE DEPRECIATION ON UNIT NO.1 (OLD UNIT) WHICH WAS LEASED OUT TO SISTER CONCERN ON ANN UAL RENTAL OF RS.15 LACS. THE LD. ASSESSING OFFICER DISALLOWED TH E CLAIMED DEPRECIATION ON THE PLEA THAT THE HIRE CHARGES/RENT AL CHARGES ARE TOWARDS LOWER SIDE COMPARED TO CLAIMED DEPRECIA TION. THUS, THE CLAIMED DEPRECIATION WAS ADDED TO THE INC OME OF THE ASSESSEE. 4 3.1 IDENTICALLY, FOR ASSESSMENT YEAR 2006-07, THE C LAIMED DEPRECIATION OF RS.1,54,17,241/- WAS ADDED TO THE I NCOME OF THE ASSESSEE. IN THIS YEAR ALSO, THE HIRING CHARGES ARE TO THE TUNE OF RS.15 LACS PER ANNUM. 4. ON APPEAL, THE LD. CIT(A) WAS OF THE VIEW THAT T HE LD. ASSESSING OFFICER WAS NOT JUSTIFIED IN DISALLOWING THE CLAIMED DEPRECIATIONS. WE FIND THAT THERE IS A FINDING IN T HE IMPUGNED ORDER THAT THE ASSESSEE ACTUALLY CLAIMED THE DEPREC IATION TO THE TUNE OF RS.77,03,444/- (RS.1580 IN THE OLD UNIT AND RS.77,01,864 IN THE NEW UNIT). THIS TOTALLING MISTA KE WAS NOT CONTROVERTED BEFORE US BY EITHER SIDE. THE DEPRECIA TION CHART FOR ASSESSMENT YEAR 2006-07 OF BOTH THE UNITS AND THE C OMBINED DEPRECIATION IS REPRODUCED HEREUNDER: WDV AS ON 1.4.2005 ADDITION DEPRECIATION CLAIMED BY APPELLANT WDV AS ON 1.4.2006 OLD UNIT NO.1 (PROCESSING UNIT) 10535.60 NIL 1580.34 8955.26 OLD UNIT NO.2 (PROCESSING UNIT) 49677882.40 3335749.00 7701863.53 45311767.86 COMBINED FIGURE OF BOTH THE UNITS 49688418.00 3335749.00 7703443.88 45320723.13 5. THERE IS AN UNCONTROVERTED FINDING THAT ON EARLI ER ASSESSMENT YEARS, THE DEPARTMENT HAD BEEN ALLOWING THE 5 DEPRECIATION TO THE ASSESSEE ON BOTH THE UNITS. NOW , QUESTION ARISES WHETHER DEPRECIATION CAN BE ALLOWED ON THE U NIT WHICH HAS BEEN RENTED OUT TO SISTER CONCERN? THE OBVIOUS REPLY IS YES, BECAUSE IF ANY MANUFACTURING ACTIVITY IS DON E OR EVEN THE MACHINERY IS KEPT READY FOR USE, DEPRECIATION HAS T O BE ALLOWED. EVEN OTHERWISE, EVEN IF IT IS PRESUMED THA T THE ASSESSEE DID NOT FIND THE OLD MACHINERY VIABLE TO R UN THE BUSINESS, IT WAS LEASED OUT TO THE SISTER CONCERN O N AN ANNUAL RENTAL OF RS.15 LACS, THEREFORE, IT IS THE INCOME O F THE ASSESSEE AND IT IS A DIFFERENT QUESTION WHETHER IT IS INCOME FROM BUSINESS OR FROM OTHER SOURCES BUT DEPRECIATION HAS TO BE AL LOWED BECAUSE DEPRECIATION ALLOWANCE IS A CONCESSION GRAN TED BY THE STATE WHILE COMPUTING THE INCOME RELEVANT TO A WHOL ESOME FISCAL ADMINISTRATION. DEPRECIATION REPRESENTS THE DIMINUTION IN THE VALUE OF THE ASSET WHEN APPLIED TO THE PURPOSE OF MAKING PROFIT OR GAIN. DEPRECIATION IS THUS RELATED TO AN ASSET AND IS A NOTIONAL LOSS AS AGAINST ACTUAL LOSS IN THE SENSE O F OUTGOING OF A BUSINESS, MEANING THEREBY, IT IS A STATUTORY ALLO WANCE. IT CAN BE SAID THAT IT IS NOT MERELY EXPRESSLY TO DIMINUTI ON IN THE VALUE 6 OF THE ASSET BY REASON OF WEAR & TEAR. ALLOWANCE CA N BE CLAIMED IF THE ASSET IN QUESTION IS SHOWN TO BE CAP ABLE DIMINUTION IN THE VALUE ON ACCOUNT OF ANY FACTUM KN OWN TO THE PREVAILING ACCOUNTING OR COMMERCIAL PRACTICE. OUR V IEW IS FORTIFIED BY THE FOLLOWING JUDICIAL PRONOUNCEMENTS: CIT VS. ALPS THEATRE (65 ITR 377) (SC); PARTHAS TRUST VS. CIT (169 ITR 334) (KER) (FB); CIT VS. R.J. TRIVEDI & SONS (183 ITR 420) (MP); CIT VS. REFRIGERATION & ALLIED IND. LTD. (113 TAXMA N 103) (DEL); 6. THE HON'BLE GAUHATI HIGH COURT IN CIT VS. INDIA TEA & TIMBER TRADING COMPANY (221 ITR 857) EVEN WENT TO T HE EXTENT THAT EVEN PASSIVE USE IS SUFFICE FOR CLAIMIN G DEDUCTION U/S 32 OF THE ACT. IDENTICAL RATIO WAS LAID DOWN BY HON'BLE P & H HIGH COURT IN CIT VS. NAHAR EXPORTS LTD. (163 ITR 5 18). THE RATIO LAID DOWN IN CIT VS. BLEND WELL BOTTLES P. LT D. (323 ITR 18) (KAR) FURTHER SUPPORTS THE CASE OF THE ASSESSEE . 7. WE ARE AWARE THAT THERE ARE CONTRARY VIEWS ALSO WHEREIN IT WAS HELD THAT THE WORD USED DENOTES ACTUALLY USE AND NOT MERELY READY FOR USE WHICH IS SUPPORTED BY DINESH K UMAR 7 GULAB CHAND AGRAWAL (267 ITR 768) (BOM), DCIT VS. YELLAMMA DASAPPA HOSPITAL (290 ITR 353) (KAR), CIT VS. SUSHRID GEIGY LTD. (133 ITR 884) (GUJ). IN THE CASE OF UDAIPUR MINERAL DEVELOPMENT SYNDICATE P. LTD. (SUPRA) RELIE D UPON BY THE LD. CIT/DR IS ON THE ISSUE WHERE NO BUSINESS WA S CARRIED IN THE ACCOUNTING YEAR. HOWEVER, IN THE PRESENT APPEAL , THE MACHINERY WAS LEASED OUT TO SISTER CONCERN. WHEREAS IN THE CASE OF THE MAHAVIR COLD STORAGE (SUPRA), THE ISSUE BEFORE THE HON'BLE COURT WAS UNITY OF OWNERSHIP AND USER OF AS SET IN THE BUSINESS AND DISRUPTION AS THE EARLIER BUSINESS WAS TAKEN OVER BY THE NEW FIRM WHICH EXISTED SIMULTANEOUSLY WITH O THER BRANCHES OF THE OLD BUSINESS. THE HONBLE APEX COUR T DECLINED TO GO INTO THE QUESTION WHETHER THE APPELLANT BECAM E THE OWNER BY ACQUIRING THE RIGHT TO THE MACHINERY, THEREFORE, THESE JUDICIAL PRONOUNCEMENTS MAY NOT HELP THE REVENUE. 8. HOWEVER, IF THE TOTALITY OF THE FACTS ARE ANALYS ED, THEN IT CAN BE SAID THAT THE PURPORT OF THE OBJECT OF THE L AW RELATING TO THE DEPRECIATION AS ENVISAGED U/S 32 HAS TO BE MEAN INGFULLY INTERPRETED, CONSISTENT WITH THE OBJECT. WHEN THE A SSESSEE 8 BONA FIDE INSTALLS THE MACHINERY AND DUE TO HIS MIS FORTUNE, IT BECOMES DEFECTIVE AND NON-FUNCTIONAL OR THE ASSESSE E THINKS THAT IT IS NOT PROFITABLE TO RUN THE BUSINESS THROU GH SUCH MACHINES, IT CANNOT BE SAID THAT IT IS NOT PUT TO U SE FOR THE PURPOSES OF THE BUSINESS. MEANING THEREBY, THE DISC ARDED MACHINERY WAS USED FOR BUSINESS PURPOSES IN EARLIER YEARS FOR WHICH DEPRECIATION HAS BEEN ALLOWED. THE HON'BLE PU NJAB HIGH COURT IN CIT VS. SARVESHWAR NATH NIGAM (48 ITR 853) EVEN WENT TO THE EXTENT THAT TO CLAIM DEPRECIATION, IT I S NOT NECESSARY THAT THE FACTORY SHOULD BE WORKED BY THE ASSESSEE H IMSELF AND IT IS ENOUGH IF THE FACTORY IS WORKED BY THE ASSESS EE AS A LICENSEE OR AS A HIRER. EVEN THERE IS A FINDING IN THE ASSESSMENT ORDER THAT IN EARLIER YEARS, UNIT NO.1 (OLD UNIT) W AS ENGAGED IN THE MANUFACTURING OF TYRES & TUBES AND DEPRECIATION WAS ALLOWED. EVEN OTHERWISE, IF THE PROFIT & LOSS ACCOU NT (PAGE 11 OF THE PAPER BOOK) FOR THE YEAR ENDING ON 31.3.2009 IS ANALYSED, WE FIND THAT THE COST OF MATERIAL CONSUMED AS ON31. 3.2004 IS FOR RS.54,79,10,071/- AND AS ON 31.3.2005, IT WAS F OR RS.49,10,07,540/-. THE MANUFACTURING EXPENSES HAVE BEEN 9 SHOWN AT RS.31,54,939/- (AS ON 31.3.2005) AND RS.50 ,27,492/- (AS ON 31.3.2004) ALONG WITH ADMINISTRATIVE EXPENSE S, PERSONAL EXPENSES, SELLING EXPENSES AND OTHER CHARGES. THERE FORE, WE FIND NO INFIRMITY IN THE STAND OF THE LD. CIT(A) ON THIS ISSUE. THE SAME IS AFFIRMED. FINALLY, THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER WAS PRONOUNCED IN THE OPEN IN THE PRESENCE O F LEARNED REPRESENTATIVES FROM BOTH THE SIDES AT THE CONCLUSION OF THE HEARING. SD SD (R.C.SHARMA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 12.12.2011 COPY TO: APPELLANT, RESPONDENT, CIT, CIT(A), DR, GU ARD FILE !VYS!