DCIT, New Delhi V. M/s. Indian Compressor Ltd., New Delhi

ITA 758/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65840 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 15-10-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 07-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Additional depreciation
• Section: 80G

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: C NEW DELHI BEFORE SHRI UBS BEDI, JM AND SHRI J.SUDHAKAR REDDY, A.M. ITA NO: 758/DEL/2011 ASSESSMENT YEAR : - 2007-08 DCIT, CIRCLE 11(1) VS. M/S INDIAN COMPRESSOR LTD. NEW DELHI 33 & 35, OKHLA INDUSTRIAL ESTATE NEW DELHI ITA NO: 5371/DEL/2011 ASSESSMENT YEAR : - 2008-09 M/S INDIAN COMPRESSOR LTD. VS. DCIT, CIRCLE 11(1) 33 & 35, OKHLA INDUSTRIAL ESTATE NEW DELHI NEW DELHI ITA NO: 5772/DEL/2011 ASSESSMENT YEAR : - 2007-08 DCIT, CIRCLE 11(1) VS. M/S INDIAN COMPRESSOR LTD. NEW DELHI 33 & 35, OKHLA INDUSTRIAL ESTATE NEW DELHI (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI AROOP KUMAR SINGH, SR.D.R. RESPONDENT: SHRI ANIL SHARMA, ADV. O R D E R PER BENCH ITA 758/DEL/2011 IS A REVENUE`S APPEAL FOR THE AY 2007-08. ITA NO. 5371/DEL/11 AND ITA NO.5772/DEL/11 ARE CROSS APPEALS FOR THE AY 2008-09. AS ISSUES ARISING IN ALL THESE APPEALS ARE COMMON, FOR THE SAKE OF CONVENIENCE, THEY ARE HEARD TOGETHER AND DISPOSE D OF BY WAY OF THIS COMMON ORDER. 2 2. FACTS OF THE CASE IN BRIEF:- THE ASSESSEE IS A C OMPANY AND IS ENGAGED IN THE BUSINESS OF MANUFACTURING, TRADING, LEASING AND MAINTENANCE OF COMPRESSORS AND PUMPS. 3. THE FIRST ISSUE THAT ARISES FOR OUR CONSIDERATIO N IS CLAIM OF ADDITIONAL DEPRECIATION OF PLANT AND MACHINERY. THE ASSESSEE H AS INSTALLED PLANT AND MACHINERY IN THE FACTORY PREMISES OF THE CUSTOMERS OF THE ASSESSEE COMPANY SUCH AS BHEL-HARIDWAR, GREEN GASSES LTD.-LU CKNOW, HALDIRAMS MANUFACTURING COMPANY, GURGAON, ETC. 4. THE AO HELD THAT THE TRANSACTIONS IN QUESTION AR E LEASE TRANSACTIONS, WHEREIN THE ASSESSEE MERELY REMAINS T HE OWNER OF THE ASSETS BUT THE ACTUAL USER OF THE MACHINERY IS THE CUSTOME R AT WHOSE PREMISES THESE MACHINERY IS INSTALLED. THAT THE PRIMARY MOT IVE BEHIND THE TRANSACTION IS TO EARN LEASE RENT/HIRE CHARGES. AFT ER EXTRACTING S.32(1)(II A) THE AO CAME TO A CONCLUSION THAT THE ASSESSEE IS NO T ENTITLED TO ADDITIONAL DEPRECIATION. AGGRIEVED THE ASSESSEE CARRIED THE MA TTER IN APPEAL. 5. THE FIRST APPELLATE AUTHORITY ALLOWED THE CLAIM OF THE ASSESSEE BY FOLLOWING THE DECISIONS OF THE HON`BLE SUPREME COUR T IN THE CASE OF CIT VS. SHAN FINANCE LTD. 231 ITR 308 (S.C.) AND CIT VS. MA HARASHTRA APEX 234 ITR 482 (KAR.). AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US. 6. THE LD. DR MR. AROOP KUMAR SINGH SUPPORTED THE O RDER OF THE AO AND ARGUED THAT, WHEN MACHINERY IS GIVEN ON LEASE, IT IS NOT USED FOR ONE`S OWN BUSINESS AND HENCE THE ASSESSEE WILL NOT BE ENT ITLED TO ADDITIONAL 3 DEPRECIATION. HE RELIED ON THE DECISION OF HON`BLE GUJARAT HIGH COURT IN TAX APPEAL NO. 1295/2009 IN THE CASE OF CIT-II VS E LCON FIN LEASE AND INDUSTRIES P.LTD. DT. 6.9.2011 AS WELL AS THE DECIS ION IN THE CASE OF BHAGAWATHI APPLIANCES VS ITO 337 ITR 286 IN ITA NO. 100/2000 JUDGEMENT DT. 4.1.2011. 7. THE LD.COUNSEL FOR THE ASSESSEE MR. ANIL SHARMA ON THE OTHER HAND SUBMITTED THAT THE ASSESSEE SATISFIES ALL THE CONDI TIONS SPECIFIED IN SEC.32(1)(II A) OF THE INCOME TAX ACT, 1961 FOR TH E REASON THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF AN ARTICLE OR THING AND THE PLANT AND MACHINERY HAS BEEN ACQUIRED AND INSTA LLED AFTER 31.03.2012. HE FURTHER ARGUED THAT THE MACHINERY I NSTALLED WAS GIVEN ON LEASE TO COMPANIES WHICH WERE ALSO ENGAGED IN THE MANUFACTURE AND PRODUCTION OF ARTICLE OR THINGS. REFERRING TO THE D ECISION IN THE CASE OF BHAGAWATHI APPLIANCES VS ITO 337 ITR 286 IN ITA NO. 100/2000 JUDGEMENT DT. 4.1.2011 (SUPRA) THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE FACTS ARE DIFFERENT FOR THE REAS ON THAT BOTH BHAGAWATHI APPLIANCES VS ITO (SUPRA) AND CIT-II VS ELCON FIN L EASE AND INDUSTRIES P.LTD. (SUPRA)) WERE DEALING WITH A CASE WHERE HIGH ER RATE OF DEPRECIATION WAS CLAIMED ON THE GROUND THAT THE ASSESSEE WAS RUN NING THE SAME ON HIRE AND WHERE AS IN THE CASE ON HAND THE ASSESSEE CLAIMED ADDITIONAL DEPRECIATION UNDER SECTION 32(1)(II A) OF THE INCO ME TAX ACT, 1961. HE RELIED ON THE FOLLOWING CASE LAWS AND SUBMITTED THA T THE ISSUE IS SQUARELY COVERED IN HIS FAVOUR WHICH IS UPHELD BY THE HON`BL E SUPREME COURT. 4 A. CIT VS. SHAAN FINANCE P.LTD. (1998) 231 ITR 308 (SC) B. FIRST LEASING COMPANY OF INDIA LTD. VS. CIT, 24 4 ITR 234(MAD.) C. CIT VS. MAHARASHTRA APEX CORPORATION LTD. 234 I TR 484(KAR.) 8. AFTER HEARING RIVAL CONTENTIONS WE HOLD AS FOLLO WS:- S.32 (1) : IN RESPECT OF DEPRECIATION OF (I) BUILDINGS, MACHINERY, PLANT OR FURNITURE, BEING TANGIBLE ASSETS; (II) KNOW-HOW, PATENTS, COPY RIGHTS, TRADE MARKS, L ICENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATU RE, BEING INTANGIBLE ASSETS ACQUIRED ON OR AFTER THE 1 ST DAY OF APRIL,1998, OWNED, WHOLLY OR PARTLY, BY THE ASSESSEE AND USED FOR THE PURPOSES O F THE BUSINESS OR PROFESSION, THE FOLLOWING DEDUCTION SHALL BE ALLOWE D- (I) IN THE CASE OF ASSETS OF AN UNDERTAKING ENGAGED IN GENERATION OR GENERATION AND DISTRIBUTION OF POWER, SUCH PERCENTA GE ON THE ACTUAL COST THEREOF TO THE ASSESSEE AS MAY BE PRESCRIBED), (II) (IN THE CASE OF ANY BLOCK OF ASSETS, SUCH PERC ENTAGE ON THE WRITTEN DOWN VALUE THEREOF AS MAY BE PRESCRIBED) S.32(1)(II A) IN THE CASE OF ANY NEW MACHINERY OR P LANT (OTHER THAN SHIPS AND AIR CRAFT), WHICH HAS BEEN ACQUIRED AND INSTALL ED AFTER THE 31 ST DAY OF MARCH, 2005, BY AN ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING (OR IN THE ;BUSI NESS OF GENERATION OR GENERATION AND DISTRIBUTION OF POWER), A FURTHER SU M EQUAL TO TWENTY PER CENT OF THE ACTUAL COST OF SUCH MACHINERY OR PLANT SHALL BE ALLOWED AS DEDUCTION UNDER CLAUSE (II). PROVIDED A PLAIN READING OF THE SECTION SHOWS THAT IT STIPU LATES THE FOLLOWING CONDITIONS, WHICH ARE TO BE FULFILLED, IF THE ASSES EE IS TO BE ENTITLED FOR ADDITIONAL DEPRECIATION. A. THE NEW MACHINERY OR PLANT SHOULD BE ACQUIRED AND I NSTALLED AFTER 31.03.2005. B. THE ASSESSEE SHOULD BE ENGAGED IN THE BUSINESS OF M ANUFACTURING OR PRODUCTION OF ANY ARTICLE OR THING. 5 9. IT IS NOT THE CASE OF THE REVENUE THAT THE ASS ESSEE FALLS WITHIN THE PROVISO TO THIS SECTION. THERE IS NO DISPUTE THAT THE ASSESSEE IN THIS CASE SATISFIES BOTH THE ABOVE CONDITIONS. THE SECTION DO ES NOT STIPULATE THAT THE ASSESSEE SHOULD USE THE PLANT AND MACHINERY IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE. THUS WE C ANNOT READ SUCH A CONDITION INTO THE SECTION. 10. COMING TO THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF BHAGAWATHI APPLIANCES VS ITO (SUPRA) AND CIT-II VS ELCON FIN LEASE AND INDUSTRIES P.LTD. (SUPRA), WE FIND THAT IN THESE CA SES THE HON`BLE COURT WAS CONCERNED WITH ENTRY NUMBER III (2)(II) OF APPE NDIX 1 TO THE INCOME TAX RULES WHICH GIVE THE TABLE OF RATES AT WHICH THE DE PRECIATION IS ALLOWABLE U/S.32(1)(II A)OF THE INCOME TAX ACT, 1961. THIS IS NOT A CASE OF ALLOWANCE U/S.32(1)(II A) OF THE INCOME TAX ACT, 1961 WHICH D EALS WITH ADDITIONAL DEPRECIATION AS COMPARED TO A HIGHER RATE OF DEPREC IATION. THE ISSUE WAS, WHICH OF THE PRESCRIBED RATES THAT HAS TO BE APPLIE D. THUS IN OUR VIEW THE CASE LAWS DO NOT SUPPORT THE CASE OF THE REVENUE. 11. ON THE OTHER HAND THE HON`BLE MADRAS HIGH COURT IN THE CASE OF FIRST LEASING COMPANY OF INDIA LTD. VS CIT, 244 ITR 234 MADRAS HAS HELD THAT THE ASSESSEE WOULD BE ENTITLED TO ADDITIONAL D EPRECIATION UNDER SECTION 32(1)(II A) OF THE INCOME TAX ACT, 1961 ON THE LEASED ASSETS. 12. IN THE CASE OF CIT VS. HI TECH ARAI LTD. 321 ITR 477 (MADRAS) IT HAS HELD THAT THE PROVISION OF S.32(1)(II A) OF THE INCOME TAX ACT, 1961 6 DOES NOT STATE THAT THE SETTING UP OF A NEW MACHINE RY OR PLANT, WHICH WAS ACQUIRED AND INSTALLED UP TO MARCH 31 ST ,2002, SHOULD HAVE ANY OPERATIONAL CONNECTIVITY TO THE ARTICLE OR THING TH AT WAS ALREADY BEING MANUFACTURED BY THE ASSESSEE. THEREFORE, THE CONTE NTION THAT THE SETTING UP OF A WIND MILL HAS NOTHING TO DO WITH THE INDUS TRY NAMELY MANUFACTURE OF OIL SEEDS ETC. IS TOTALLY NOT GERMAN E TO THE SPECIFIC PROVISION CONTAINED IN S.32(1)(II A) OF THE INCOME TAX ACT, 1961. 13. RESPECTFULLY APPLYING THE PROPOSITIONS LAID DOW N IN THESE CASE LAWS TO THE FACTS OF THIS CASE WE UPHOLD THE ORDER OF TH E CIT(A) AND WE DISMISS THIS GROUND OF REVENUE. 14. GROUND NO 2 IS ON THE ISSUE OF ALLOWING THE DED UCTION U/S 80G OF THE INCOME TAX ACT, 1961. THE ASSESSEE HAS MADE DON ATION TO AUROVILLE FOUNDATION, UNDER THE MINISTRY OF HRD, GOVT. OF IND IA, IT CLAIMED DEDUCTION U/S35 (1)(II) 0F THE INCOME TAX ACT, 1961 IN ITS RETURN OF INCOME. AS THE APPLICATION FOR RENEWAL OF EXEMPTI ON U/S.35(1)(II) MADE BY ARAVALI FOUNDATION, WAS NOT DISPOSED OF BY THE CBDT , THE ASSESSEE WAS UNABLE TO PRODUCE THE NOTIFICATION RENEWING THE EXE MPTION BEYOND 31.03.2006. HENCE ITS CLAIM WAS DENIED. THE ASSESS EE MADE AN ALTERNATE CLAIM FOR DEDUCTION U/S 80G. THE FOUNDATION HAD BEE N GRANTED RENEWAL OF APPROVAL U/S 80G BY THE CIT, PONDI VIDE ORDER DT. 0 7.03.2005 FOR THE PERIOD 01.04.2005-31.03.2010. THE CIT UP[HELD THAT ORDER OF THE AO 7 DENYING DEDUCTION U/S 35 (1)(II) OF THE ACT. THE AL TERNATE CLAIM OF THE ASSESEE WAS ALLOWED. AGGRIEVED REVENUE IS IN APPEAL BEFORE US. 15. THE CONTENTION OF THE LD.D.R. IS THAT THE COMMI SSIONER OF INCOME TAX (APPEALS) VIOLATED RULE 46A BY ADMITTING ADDIT IONAL EVIDENCE AND NOT GIVING AN OPPORTUNITY FOR THE AO TO EXAMINE THE SAM E. HE CLAIMS THAT THE FUNDS COLLECTED U/S 35(1)(II) ARE SEPARATELY EARMAR KED AS COMPARED TO FUNDS COLLECTED U/S 80G AND BOTH CANNOT BE MIXED OR INTERMINGLED 16. THE LD.COUNSEL FOR THE ASSESSEE ON THE OTHER HA ND SUBMITS THAT ADDITIONAL GROUND CAN BE RAISED BY THE ASSESSEE B EFORE THE APPELLATE AUTHORITY. HE RELIED ON THE FOLLOWING CASE LAW. MOHAN MEAKINS LTD. VS CIT, 348 ITR 109 DELHI 17. AFTER HEARING RIVAL CONTENTIONS, WE ARE OF THE CONSIDERED OPINION THAT THE FIRST APPELLATE AUTHORITY WAS RIGHT IN ADM ITTING THE ALTERNATE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 80G. NEVER THELESS THERE IS VIOLATION OF RULE 46A, AS THE COMMISSIONER OF INCOM E TAX (APPEALS) HAS ADMITTED A CERTIFICATE DT. 26 TH OCTOBER,2010 GIVEN BY THE FOUNDATION, WITHOUT GIVING THE AO AN OPPORTUNITY TO EXAMINE THE SAME. AS A CONSEQUENCE WE DEEM IT FIT AND PROPER TO SET ASIDE THE ISSUE TO THE FILE OF AO FOR FRESH ADJUDICATION IN ACCORDANCE WITH LAW. 18. GROUND NO.5 READS AS UNDER. 8 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN D ELETING THE ADDITION OF RS.96,527/- ON ACCOUNT OF EXCESS INTEREST PAID U/S4 0A(2)(B) OF THE INCOME TAX ACT, 1961. 19. AFTER HEARING BOTH THE PARTIES, WE FIND THAT TH E CIT(A) HAS DEALT WITH THE ISSUE AT PARA 19 OF HIS ORDER. THE ISSUE IS TH E ASSESSEE WAS PAYING INTEREST @ 10% TO TWO PARTIES I.E. M/S GIVETAKE TR ADE & CREDITS P.LTD. AND M/S NIPRO TREXIM P.LTD. AND WHEREAS IT WAS PAYI NG INTEREST AT 8% TO THE DIRECTORS OF THE COMPANY SHRI GL DIDWANIA, SHRI HEMANT DIDWANIA AND MS. NANDITA DIDWANIA. THE DIFFERENCE OF 2% WAS DISALLOWED. THE CIT(A) IN HIS ORDER AT PARA 19 HELD AS FOLLOWS. I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE ASSE SSEE AND THE REASONING GIVEN BY THE LD.AO FOR MAKING THE DISALLO WANCE. THE LD.AO HAS FAILED TO MAKE OUT A CASE THAT FUNDS AT A LOWER RAT E OF INTEREST THAN 10% WERE AVAILABLE IN THE MARKET. IN THE LIGHT OF THE CASE LAWS RELIED UPON BY THE ASSESSEE, I DO NOT FIND ANY JUSTIFICATION IN TH E DISALLOWANCE OF INTEREST @ 2%. THE ASSESSEE COMPANY HAS PAID INTEREST TO BANK S @ 13%, WHICH IS INDICATIVE OF THE FACT THAT THE FUNDS WERE NOT AVAI LABLE IN THE ;MARKET AT A RATE LOWER THAN 10%. THE MUMBAI BENCH OF THE APPEL LATE TRIBUNAL HAS HELD THE RATE OF 15% TO BE REASONABLE IN ASSESSMENT YEAR 2006-07. I FIND NO SUBSTANCE IN THE DISALLOWANCE MADE BY THE LD.AO. A CCORDINGLY, I DELETE THE DISALLOWANCE OF RS.96,527/-. THE ASSESSEE GETS A R ELIEF OF RS.96,527/-. 20. WE FIND NO INFIRMITY IN THE SAME. 21. IN THE RESULT THE APPEAL OF THE REVENUE IS ALLO WED IN PART. 22. COMING TO THE CROSS APPEALS FOR THE AY 2008-09, WE HOLD AS FOLLOWS:- ITA 5371/DEL/2011 IS ASSESSEES APPEAL. GROUND NO.1 TO 1.3 IS ON THE ISSUE OF ADDITIONAL DEPRECIATION CLAIMED U/S 31(1)(II)(A) OF THE ACT. AS BOTH THE PARTIES AGREED THAT THE ISSUE AND FACTS ARE SAME AS IN THE 9 ASSESSMENT YEAR 2007-08, CONSISTENT WITH THE VIEW T AKEN THEREIN, WE ALLOW THE CLAIM OF THE ASSESSEE. 23. GROUND NO.2 : LD.COUNSEL SUBMITS THAT IN VIEW O F THE SMALLNESS OF THE AMOUNT, HE DOES NOT PRESS THE SAME, ON THE COND ITION THAT IT DOES NOT BECOME A PRECEDENT. HENCE WE DISMISS THIS GROUND A S NOT PRESSED. 23. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALL OWED IN PART. 24. ITA 5772/DEL/2011: THIS IS REVENUES APPEAL ON THE FOLLOWING GROUNDS. 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A0 ERRED IN DELETING THE ADDITION OF RS.22,32,614/- MA DE ON ACCOUNT OF DISALLOWANCE OF CLAIM OF WEIGHTED DEDUCTION U/S35(1 )(III) OF THE INCOME TAX ACT, 1961. 2. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEN D ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARING. 25. THIS GROUND IS WRONGLY TAKEN AS THE COMMISSIONE R OF INCOME TAX (APPEALS) HAS NOT DELETED THE ADDITION MADE UNDER S ECTION 32(1)(III) OF THE INCOME TAX ACT, 1961. THE AMOUNT QUOTED IN THE GRO UND ALSO IS WRONG. THE LD.DR ADMITS THAT THIS IS A MISTAKE AND SUBMITT ED THAT, THE ISSUE RELATED TO THE REVISED CLAIM UNDER SECTION 80G OF THE INCOME TAX ACT, 1961 WHICH THE COMMISSIONER OF INCOME TAX (APPEALS) ALLOWED. THE LD.COUNSEL FOR THE ASSESSEE FAIRLY DID NOT DISPUTE THE SAME. AS SIMILAR ISSUE WAS CONSIDERED AND ADJUDICATED IN THE FY 2 007-08 CONSISTENT WITH THE VIEW TAKEN THEREIN, WE SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING 10 OFFICER, FOR FRESH ;ADJUDICATION IN ACCORDANCE WITH LAW. WE MAKE IT CLEAR THAT THE ASSESSEES CLAIM HAS BEEN RIGHTLY ADMITTED BY THE LD.CIT(A). 26. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALL OWED IN PART. 27. IN THE RESULT THE APPEAL OF THE REVENUE AND THE CROSS APPEALS ARE ALLOWED IN PART. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST OCTOBER, 2012. SD/- SD/- (U.B.S. BEDI) (J.SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBE R DATED: THE 31 ST OCTOBER, 2012 *MANGA COPY OF THE ORDER FORWARDED TO: 1. APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT (A); 5.DR; 6.GUARD FILE BY ORDER DY. REGISTRAR 11 1. DATE OF DICTATION: 2. DRAFT PLACED BEFORE THE AUTHOR ON: 3. DRAFT PROPOSED AND PLACED BEFORE SECOND MEMBER ON: 4. DRAFT DISCUSSED/APPROVED BY THE SECOND MEMBER ON: 5. APPROVED DRAFT CAME TO SR.P.S. ON: 6. DATE OF PRONOUNCEMENT : 7. FILE SENT TO BENCH CLERK ON : 8. DATE ON WHICH FILE GIVEN TO HEAD CLERK ON: 9. DATE OF DISPATCHING THE ORDER ON :