ACIT, CHENNAI V. M/s. Manasarovar Mineral Water Ltd., CHENNAI

ITA 720/CHNY/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 4471 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2001-2002
• Appeal Filed On: 14-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D ANAND
• Assessee Lawyers: P B SEKARAN
• Keywords: Capital asset; Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH B CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, AM AND SHRI GEORGE MATHAN, JM I.T.A. NO. 720/MDS/2010] A Y: 2001-02 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE IV(1), CHENNAI 600 034. VS M/S MANASAROVAR MINERAL WATER LTD., 69, THYAGAPPA MUDALI STREET, KILPAUK, CHENNAI 600 010. PAN : AACCM8776M (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI P.B. SEKARAN DEPARTMENT BY : SHRI D. ANAND O R D E R PER ABRAHAM P. GEORGE, AM IN THIS APPEAL OF THE REVENUE, THERE ARE FOUR GROU NDS OF WHICH GROUNDS NO.1 AND 4 ARE GENERAL NEEDING NO ADJUDICAT ION. 2. VIDE ITS GROUND NO.2, GRIEVANCE OF THE REVENUE I S THAT THE CIT(A) DELETED A DISALLOWANCE OF RS.17,85,850/- MAD E BY THE A.O. TOWARDS 50% DEPRECIATION ON PACKING MATERIALS. ITA NO. 720/MDS/2010 2 3. ACCORDING TO REVENUE, DEPRECIATION ADMISSIBLE ON CONTAINERS MADE OF PLASTIC USED AS RE-FILLS WAS AT THE RATE OF 50% AND THE ASSESSEES BUSINESS BEING MANUFACTURE OF MINERAL WA TER, PLASTIC CONTAINERS HAD TO BE TREATED AS CAPITAL ASSETS. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTED BY THE A.O. THAT ASSESSEE HAD PURCHASED PACKING MATERI ALS FROM 8 SUPPLIERS AND 4 OF THEM DID NOT CONFIRM SALE TOTALL ING RS.12,75,887/-. ACCORDING TO HIM, ASSESSEE HAD CLAIMED 100% DEPRECI ATION ON PLASTIC CONTAINERS WHEREAS IT WAS ELIGIBLE ONLY FOR 50% DEPRECIATION. ASSESSEE WAS PUT ON NOTICE ON THESE ASPECTS WHEREUP ON IT REPLIED THAT FOR MANUFACTURING MINERAL WATER AND SELLING IT , VARIOUS TYPES OF CONTAINERS LIKE POUCH, PET GLASSES, CANS AND BOTTLE S WERE REQUIRED. ACCORDING TO ASSESSEE, EXCEPT FOR CANS, ALL OTHER C ONTAINERS WERE SOLD ALONG WITH WATER. EVEN THE CANS WOULD NOT LAS T FOR MORE THAN 3-4 ROUNDS OF REFILLING AND IN VIEW OF ISI REGULATIONS, IT HAD TO BE REPLACED OFTEN. ASSESSEE ALSO POINTED OUT THAT THE CLOSING STOCK AND OPENING STOCK OF THE ASSESSEE INCLUDED ALL THESE PACKING MA TERIALS AND THEREFORE, THESE COULD BE CONSIDERED ONLY AS TRADIN G ITEMS. ASSESSEE, THEREFORE, SERIOUSLY OBJECTED CONSIDERING SUCH ITEMS AS ITA NO. 720/MDS/2010 3 CAPITAL GOODS. A.O. NOTING THAT THE ASSESSEE WAS U NABLE TO PRODUCE ANY EVIDENCE FOR ITS CLAIM OF PURCHASE OF CONTAINER S, MADE 50% DISALLOWANCE THEREON. HE MADE A FURTHER ADDITION O F RS.12,75,887/- FOR WANT OF CONFIRMATION FROM FOUR PARTIES WHO HAD SOLD THE PACKING MATERIALS TO THE ASSESSEE. 5. ASSAILING THE ABOVE BEFORE THE CIT(A), ASSESSEE SUBMITTED THAT THE CONTAINERS WERE USED IN THE NORMAL COURSE OF TR ADING ACTIVITY AND THE DISALLOWANCE WAS ARBITRARY. ACCORDING TO ASSES SEE, THE PURCHASES WERE DISALLOWED AND THIS WAS UNREASONABLE . SUBMISSION OF THE ASSESSEE BEFORE THE CIT(A) WAS THAT CONFIRMA TIONS WERE ALREADY GIVEN DURING THE COURSE OF SCRUTINY PROCEED INGS AND THESE WERE ALL RUNNING ACCOUNTS. HENCE, ACCORDING TO ASS ESSEE, THE ADDITIONS MADE WERE NOT CALLED FOR ESPECIALLY AS TH E PURCHASES AND SALES WERE ACCEPTED BY THE SALES TAX AUTHORITIES. CIT(A) WAS OF THE OPINION THAT THE PLASTIC CONTAINERS IN WHICH ASSESS EE SOLD WATER COULD NOT BE CONSIDERED AS PLASTIC REFILL AND SUCH CANS W HICH INDIVIDUALLY COSTED LESS THAN RS.5000 WERE ELIGIBLE FOR WRITE OF F AS REVENUE EXPENSES AND COULD NOT BE CONSIDERED AS CAPITAL OUT GO. VIS--VIS THE ADDITION MADE FOR CREDITORS, THE LD. CIT(A) WAS OF THE OPINION THAT THE PURCHASES HAVING BEEN FOUND GENUINE JUST FOR WANT O F CONFIRMATION ITA NO. 720/MDS/2010 4 THE BALANCES IN CREDITORS ACCOUNT WHICH WERE CONTIN UING COULD NOT HAVE BEEN ADDED BACK. HE THUS DELETED THE DISALLOW ANCE AS WELL AS THE ADDITION. 6. NOW, BEFORE US THE LD. D.R. STRONGLY SUPPORTED T HE ORDER OF THE A.O. AND SUBMITTED THAT THE CANS USED BY THE ASSESS EE FOR SUPPLY OF WATER WAS RECYCLED AND THEREFORE THE PURCHASES WERE CAPITAL OUTGO. VIS--VIS THE ISSUE OF ADDITION FOR WANT OF CONFIRM ATION, THE LD. D.R. WAS OF THE OPINION THAT THE CONFIRMATIONS WERE NEVE R FILED BEFORE THE A.O. 7. PER CONTRA, THE LD. A.R. STRONGLY SUPPORTED THE ORDER OF THE LD. CIT(A). 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. ASSESSEE WAS MANUFACTURING AND SELLING MINERAL WATER. MINERAL WATER CANNOT BE SOLD WITHOU T CONTAINERS. SUCH CONTAINERS CAN BE CANS, CAN BE BOTTLES, CAN BE POUC HES. THE CANS SO GIVEN ALONG WITH WATER MAY OR MAY NOT COME BACK. NO CUSTOMER CAN BE FORCED TO GIVE BACK THE CAN SINCE HE PAYS FO R THE WATER AS WELL AS THE CAN. WHEN ONE PURCHASES MINERAL WATER, HE P AYS FOR BOTH THE WATER AS WELL AS THE CONTAINER. SOME OF THE CONTAI NERS MAY COME ITA NO. 720/MDS/2010 5 BACK AND COULD BE REFILLED. BUT, IF AN ASSESSEE ON THIS ASSUMPTION TREATS THE COST OF PURCHASE OF SUCH CONTAINERS AS A CAPITAL ASSET, IT WOULD BE FOOL HARDY. NONE OF THESE CAN BE ASSETS O F THE ASSESSEE. IT MAY OR MAY NOT COME BACK. EVEN IF IT COMES BACK, A SSESSEE WILL HAVE TO REFILL WATER AND GIVE IT BACK. WE ARE AT A LOSS TO UNDERSTAND HOW SUCH TRADING ITEM COULD BE CONSIDERED AS CAPITA L ASSET BY THE ASSESSING OFFICER. JUST BECAUSE A COMMODITY COULD BE RECYCLED, IT WOULD NOT MAKE IT A CAPITAL ASSET. ASSESSEE HAD AL L ALONG TREATED AS A PART OF ITS TRADING STOCK. THIS BEING THE CASE, WE ARE OF THE OPINION THAT THE CIT(A) HAD RIGHTLY DELETED THE DISALLOWANC E. IN SO FAR AS THE ADDITION FOR WANT OF CONFIRMATION IS CONCERNED, THE RE IS NO DISPUTE THAT SUCH CONFIRMATIONS WERE FILED BY THE ASSESSEE BEFOR E THE CIT(A). IT MIGHT BE TRUE THAT THESE CONFIRMATIONS WERE NOT AVA ILABLE BEFORE THE ASSESSING OFFICER. BUT, THESE WERE NOT LOAN CREDIT ORS BUT ONLY TRADE CREDITORS ARISING OUT OF PURCHASE OF CONTAINERS. T HERE IS ALSO NO DISPUTE THAT THESE WERE RUNNING ACCOUNTS AND THE TR ANSACTIONS WERE CONTINUING. JUST BECAUSE THE ASSESSEE COULD NOT PR ODUCE THE CONFIRMATION FOR THE OUTSTANDING CREDIT BALANCE ARI SING OUT OF PURCHASE TRANSACTIONS, WHICH WERE THE RUNNING ACCOU NTS, ADDITIONS COULD NOT HAVE BEEN DONE. WE ARE THEREFORE OF THE OPINION THAT THE ITA NO. 720/MDS/2010 6 CIT(A) HAS RIGHTLY DELETED THIS ADDITION ALSO. IN A NUTSHELL, THERE IS NOTHING TO INTERFERE IN THE ORDER OF THE CIT(A). 9. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. ORDER WAS PRONOUNCED ON 23 RD JULY, 2010. SD/- SD/- ( GEORGE MATHAN) ( ABRAHAM P.GEORGE ) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 23 RD JULY, 2010. KRI. COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE