The ACIT,A'bad, Circle-3, Ahmedabad V. M/s. Manilal & Sons, Ahmedabad

ITA 825/AHD/2011

• Counselvise Citation: 82520514 RSA 2011
• Duration Of Justice: 4 year(s) 5 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 06-08-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 15-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DINESH SINGH
• Keywords: Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH BEFORE: S H RI G. D. AGRAWAL , VICE PRESIDENT A ND SHR I S. S. GODARA , JUDICIAL MEMBER ACIT, AHMEDABAD CIRCLE - 3, AHMEDABAD (APPELLANT) VS M/S. MANILAL & SONS, PLOT NO. 17 - 19, UDAY IN DL ESTATE OPP. ODHAV POLICE STATION, ODHAV, AHMEDABAD PAN: AAEFM9487F (RESPONDENT) REVENUE BY : S H RI DIN ESH SINGH , SR. D . R. ASSESSEE BY: S H RI SUNIL TALATI , A.R. DATE OF HEARING : 06 - 08 - 2 015 DATE OF PRONOUNCEMENT : 20 - 08 - 2 015 / ORDER P ER : S. S. GODA RA , JUDICIAL MEMBER : - THIS R EVENUE S APPEAL FOR A.Y. 2003 - 04 , AR ISES FROM ORDER OF THE CIT(A) - XVI, AHMEDABAD DATED 25 - 01 - 2011 IN APPEAL NO. CIT(A) - XVI / ACIT.CR.3/110/0/ 10 - 11 , IN PROCEEDINGS UNDER SECTION 143(3) R.W.S. 147 OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT. I T A NO . 825 / A HD/20 11 A SSESSMENT YEAR 200 3 - 04 I.T.A NO. 825 /AHD/20 11 A.Y. 2003 - 04 PAGE NO ACIT VS. M/S. MANILAL & SONS 2 2. THE REVENUE S FIRST SUBSTANTIVE GROUND CHALLENGES THE CIT(A) S ORDER DELETING DISALLOWANCE/ADDITION OF RS. 6,51, 333/ - MADE QUA MACHINERY REPAIR EXPENSES. THE ASESSEE - FIRM MANUFACTURES PRECISION PART S . IT CLAIMED THE IMPUGNED EXPENDITUR E ON ACCOUNT OF REPAIRING CHAR GES FOR PLANT AND MACHINERY. THE WRITTEN DOWN VALUE OF PLANT AND MACHINERY AT THE BEGINNING OF THE YEAR WAS RS. 25,88,120/ . THE ASSESSING OFFICER QUOTED CASE LAW OF CIT VS. MAHALAXMI TEXTILE 66 ITR 710 (SC) AND BALLIMAL NAV AL KISHO R (14 97) 90 TAXMAN 402 AND OBSERVED THAT WHERE THE EXPENDITURE I N QUESTION BRINGS INTO EXISTENCE A NEW ASSET OR THE SAME EXCEEDS 20% OF THE WRITTEN DOWN VALUE; IT IS TO BE CAPITALIZED. HE SOUGHT TO DIS ALLOW THE S AME. THE ASSESSEE INTER ALIA PLEAD ED THE IMPUGNED SUM TO HAVE BEEN INCURRED AS NORMAL REPAIR OF VARIOUS MACHINERIES, ENCLOSED BILLS DEMONSTRATING PURCHASE OF MAJOR ITEMS AS BEARINGS, MACHINERY PLANT , BALL SCREW ETC. THE ASSESSING OFFICER WENT BY HIS EARLIER REASONING FOR DISALLOWING/ADDIN G ASSESSEE S CLAIM IN ASSESSMENT ORDER. 3. THE CIT(A) HAS ACCEPTED ASSESSEE S CORRESPONDING GROUND AS FOLLOW: - 3.1 THIS IS REGARDING DISALLOWANCE OF RS. 6,51,333/ - BEING MACHINERY REPAIR EXPENSES. IN THE ASSESSMENT ORDER THE AO HAS STATED THAT THE ASSES SEE HAS CLAIMED THIS EXPENDITURE AS MACHINERY REPAIR EXPENSES. IT WAS NOTICED THAT THE ASSESSEE HAD MADE A CLAIM OF PLANT AND MACHINERY REPAIRS, WHICH NEEDED TO BE CAPITALIZED BECAUSE REPAIR EXPENSES ARE MORE THAN 20% OF THE WDV OF THE ASSETS. THE AO RELIE D ON THE DECISION OF HONORABLE SUPREME COURT IN THE CASE OF MAHALAKSHMI TEXTILE 66 ITR 710, AND THE DECISION OF SUPRE ME COURT IN THE CASE OF BALLIMAL NAVALKISHORE 90 TAXMAN 402. I.T.A NO. 825 /AHD/20 11 A.Y. 2003 - 04 PAGE NO ACIT VS. M/S. MANILAL & SONS 3 THE AO THEREFORE DISALLOWED THE CLAIM AS REVENUE EXPENDITURE AND TREATED THE E XPENDITURE AS CAPITAL EXPENDITURE. 3.2 DURING THE APPELLATE PROCEEDING THE APPELLANT HAS STATED THAT THE AO HAS WRONGLY TAKEN THE ENTIRE EXPENDITURE AS CAPITAL EXPENDITURE. PERUSAL OF THE EXPENDITURE ACCOUNT SHOWS THAT THE EXPENDITURE IS IN RESPECT OF PU RCHASE OF OIL, KEROSENE, DIESEL AND VARIOUS OTHER SMALL EXPENSES. THE TOTAL EXPENDITURE INCURRED TOWARDS KEROSENE, DIESEL AND OIL COMES TO RS. 1,84,464/ - WHICH CANNOT BE REGARDED AS CAPITAL EXPENDITURE BY ANY STRETCH OF IMAGINATION. AS REGARDS MACHINERY PA RTS ARE CONCERNED, THE ASSESSEE IS ENGAGED IN MANUFACTURE OF PRECISION MACHINERY SPARE PARTS, AIR COMPRESSION AND OTHER RELATED ITEMS FOR THE LAST 20 YEARS. THE MACHINERY PURCHASED HAD BECOME OLD AND NEEDED REPAIRS. PERUSAL OF THE MACHINERY MAINTENANCE ACC OUNT SHOWS THAT THE EXPENDITURE INCURRED IS LESS THAN RS. 25,000 EACH ACCEPT IN ONE CASE. THE APPELLANT ARGUED THAT THE DECISION OF HONORABLE SUPREME COURT IN THE CASE OF MAHALAKSHMI TEXTILE AND BALLIMAL NAVALKISHORE RELIED UPON BY THE AO ARE DISTINGUISHAB LE ON FACTS. 3.3 I HAVE CONSIDERED THE SUBMISSION MADE BY THE APPELLANT AND OBSERVATION OF THE AO. I HAVE PERUSED THROUGH THE LEDGER ACCOUNT OF MACHINERY MAINTENANCE ALMOST ALL THE EXPENSES ARE IN RESPECT OF OIL, DIESEL, KEROSENE, BEARINGS AND VARIOUS OT HER MACHINE PARTS OF SMALL SMALL AMOUNT. THE ONLY EXPENDITURE, WHICH IS MORE THAN RS. 25,000/ - IS ON BALL SCREW PART OF THE CNC MACHINE AMOUNTED TO RS. 1,50,277/ - . OTHER BIGGER EXPENSES ARE ON BEARINGS, WHICH ITEMS ARE CLEARLY CONSUMABLES AND MACHINE COVER . NONE OF THESE ITEMS ARE CAPITAL ITEMS, WHICH CAN BE CAPITALIZED. ALL THESE EXPENSES ARE FOR RUNNING THE MACHINERY AND THEREFORE FOR THE CURRENT REPAIRS. THE DECISION RELIED UPON BY THE A.O. ARE NOT APPLICABLE ON THESE FACT S. THE DISALLOWANCE MADE BY THE AO IS DELETED AND THIS GROUND OF APPEAL IS ALLOWED. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE CASE FILE. THE REVENUE SEEKS TO RESTORE THE IMPUGNED DISALLOWANCE OF MACHINERY REPAIR EXPENS ES . THERE IS NO REBUTTAL TO THE CIT(A) S FINDINGS ABOUT K ER OSENE, DIESEL OIL EXPENSES OF RS . 1,84,689/ - (SUPRA). AND ALSO I.T.A NO. 825 /AHD/20 11 A.Y. 2003 - 04 PAGE NO ACIT VS. M/S. MANILAL & SONS 4 THAT EACH HEAD IS OF LESS THAN RS. 25,000/ - EXCEPT IN ONE CASE. PAPER BOOK PAGES 5 - 27 CONTAIN THE CORRESPONDING INVOICES. REVENUE FAILS TO SINGLE OUT A CASE WHEREIN ANY REPAIR ITEM GIVES ENDURING ADVANTAGE OR INCREASES MACHINE CAPACITY. IT QUOTES CASE LAW OF MAHALAXMI TEXTILE AND BALLIMAL NAVALKISHOR (SUPRA) IN SUPPORT. WE FIND THE FORMER JUDICIAL VERDICT UPHELD THE TRIBUNAL S REFERENCE MADE TO THE CONCERNED HIGH COURT AS THE NATURE OF EX PENDITU RE INVOLVED. THE LATTER PRECEDENT HOLDS THAT WHEN PURPOSE OF THE REPAIR IN QUESTION IS OF PRESERVING OR MAINT A IN IN G ALREADY EXISTING ASSET, IT WOULD AMOUNT TO CORREN T REPAIR ONLY. THERE IS NO SUCH RATIO PROPOUNDED THAT AS AND WHEN A REPA IR EXCEEDS 20% OF THE WDV , THE SAME WOULD NEED TO BE CAPITALIZED. THE REVENUE FAILS TO JUSTIFY THE ASS ESSING OFFICER S VIEW ABOVESAID. I TS FIRST SUBSTANTIVE GROUND FAILS. 5. THE REVENUE S SECOND SUBST ANTIVE GROUND ASSAILS CORRECTNESS OF THE CIT(A) S ORDER DELETI NG BAD DEBTS DISALLOWANCE OF RS. 24,80,126/ . THE LOWER APPELLATE FINDINGS COMPRISE OF THE ASSESSING AUTHORITY S OBSERVATION S, ASSESSEE S SUBMISSION AS UNDER : - 4.1 THIS IS REGARDING DISALLOWANCE OF BAD DEBT OF RS. 24, 80, 126/ - . IN THE ASSESSMENT ORDER T HE AO HAS STATED THAT THE ASSESSEE HAS CLAIMED THESE BAD DEBTS BY WRITING OFF THE SAME IN THE BOOKS OF ACCOUNTS, WHICH IS DUE FROM THE CENTRAL PROJECTS AND DEVELOPMENT ORGANIZATION. THE ASSESSEE HAS STATED THAT THESE ARE IRRECOVERABLE AND HAS THEREFORE CLA IMED THE BAD DEBT. THE AO DISALLOWED THE CLAIM SAYING THAT THE TOTAL AMOUNT DUE FROM CENTRAL PROJECT AND ALLOTMENT ORGANIZATION IS RS. 83,80,132/ - BUT THE ASSESSEE HAS WRITTEN OFF ONLY PART AMOUNT OF RS. 24,80,126/ - . THE AO STATED THAT AS THE ENTIRE AMOUNT HAS NOT BEEN WRITTEN OFF AS BAD DEBT THE CLAIM CANNOT BE ALLOWED. THE AO ALSO STATED THAT THE ASSESSEE IS NOT PROVED THAT THE DEBT HAS BECOME BAD. I.T.A NO. 825 /AHD/20 11 A.Y. 2003 - 04 PAGE NO ACIT VS. M/S. MANILAL & SONS 5 4.2 DURING THE APPELLATE PROCEEDING THE APPELLANT HAS STATED THAT THERE IS NO REQUIREMENT THAT THE ASSESSEE HAS TO PROVE THAT THE DEBT HAS BECOME BAD IN VIEW OF THE DECISION OF HONORABLE SUPREME COURT IN THE CASE OF TRF LTD. THE APPELLANT HAS STATED THAT THE AO HAS MISUNDERSTOOD THE FACTS WHEN IT HAS STATED THAT ONLY PART IT HAS BEEN WRITTEN OFF AND NOT FULL. T HE APPELLANT IS MAINTAINING TWO ACCOUNTS ONE IN RESPECT OF GOODS SUPPLIED AND SECOND IN RESPECT OF SECURITY TENDER DEPOSIT WITH THE PURCHASERS. THE APPELLANT HAD SOLD GOODS TO THE CENTRAL PROJECT AND ALLOTMENT ORGANIZATION IN THE FINANCIAL YEAR 1999 - 2000 A ND 2000 - 01 AND AFTER CONSIDERING THE PAYMENTS THAT THE BALANCE WAS RS. 83,80,132/ - CARRIED FORWARD TO THE NEXT YEAR. THE SAID BALANCE IS STILL SHOWN AS OUTSTANDING AS ON 31/03/2004. PRIOR TO THAT THE APPELLANT HAD ALSO DEPOSITED A SUM OF RS. 29, 80, 126/ - A S SECURITY DEPOSIT WITH THE CENTRAL PROJECTS AND DEVELOPMENT ORGANIZATION AS TENDER DEPOSIT. THIS WAS DONE IN RESPONSE TO THE TENDER INVITED BY THE PARTY FOR THE SUPPLY OF GOODS. THE SECURITY DEPOSIT HAS NOT BEEN RETURNED EVEN AFTER MAKING STRENUOUS EFFORT S FOR RECOVERY OF THE AMOUNT. THE CHEQUES ISSUED BY THE DEBTOR WERE DEPOSITED IN THE BANK, BUT THEY WERE BOUNCED FOR WANT OF FUNDS. THE ASSESSEE HAS FILED A CRIMINAL COMPLAINT IN THE COURT OF CHIEF METROPOLITAN MAGISTRATE AHMEDABAD ON 17/06/2002. THE COMPL AINT WAS ALSO FILED WITH THE GANDHINAGAR POLICE STATION ON 29/09/2001. IN VIEW OF THIS REASON AN AMOUNT OF RS. 24, 80, 126/ - WAS CLAIMED AS BAD DEBT. THE APPELLANT HAS FILED COPY OF THE COMPLAINT FILED WITH THE POLICE STATION. THE APPELLANT HAS RELIED ON TH E DECISION OF GUJARAT HIGH COURT IN THE CASE OF GIRISH BHAGWATPRASAD. 256 ITR 772 AND THE DECISION OF DELHI HIGH COURT IN THE CASE OF MORGAN SECURITIES & CREDITS PRIVATE LTD. 292 ITR 339 AS WELL AS THE DECISION OF GUJARAT HIGH COURT IN THE CASE OF PATIDAR GINNING & PRESSING COMPANY 157 ITR 177. THE APPELLANT ALSO RELIED ON THE DECISION OF ALLAHABAD HIGH COURT IN THE CASE OF JAWALAPRASAD RADHAKISHAN 79 ITR 530. THE APPELLANT HAS ALSO RELIED ON THE DECISION OF ITAT AHMEDABAD IN THE CASE OF PARLIGHT SECURITIES LTD. (2010) 3 ITR (TRIB) 628 DATED 05/02/2010 WHEREIN IRRECOVERABLE DEPOSITS MADE WITH THE KOLKATA STOCK EXCHANGE WAS ALLOWED AS DEDUCTION AS BUSINESS LOSS. 4.3 I HAVE CONSIDERED THE SUBMISSION MADE BY THE APPELLANT AND OBSERVATION OF THE AO. DURING THE APPELLATE PROCEEDINGS THE APPELLANT HAD CLAIMED BAD DEBT ONLY IN RESPECT OF SECURITY DEPOSITS MADE WITH THE PARTY AS TENDER DEPOSIT FOR SUPPLY OF GOODS. THE APPELLANT HAS FILED COPIES OF COMPLAINT FILED WITH THE POLICE AND ALSO IN THE COURT. IN VIEW OF THE DECISION OF HONORABLE ITA T. AHMEDABAD I.T.A NO. 825 /AHD/20 11 A.Y. 2003 - 04 PAGE NO ACIT VS. M/S. MANILAL & SONS 6 IN THE CASE OF PARLIGHT SECURITIES LTD. SUPRA THE SECURITY DEPOSITS WHICH IS NOT RECOVERABLE ARE ALLOWABLE AS BUSINESS LOSS. IN THIS CASE, THE HONORABLE ITAT STATED AS UNDER - WHERE BECAUSE OF FINANCIAL CRISIS IN STO CK EXCHANGE, ASSESSEE WROTE OFF IRRECOVERABLE DEPOSIT WITH STOCK EXCHANGE, SUCH LOSS WAS ALLOWABLE AS BUSINESS LOSS; MERE ADJUSTMENT OF DEPOSIT UNDER DIFFERENT HEAD WOULD NOT AMOUNT TO REFUND IN VIEW OF THE ABOUT THE DISALLOWANCE MADE BY THE AO IS DELETED AND THIS GROUND OF APPEAL IS ALLOWED. 6. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH TH E RELEVANT RECORD. THE CASE FILE REVE A LS THAT THE ASSESSEE MAINTAINED TWO ACCOUNTS UNDER THE HEAD S SECURITY LEDGER DEPOSITS AND A RUNNING ONE. ITS FORMER SUM OF SECURITY DEPOSITS COULD NOT BE RECOVERE D DESPITE EXERCISING ALL CIVIL AND PENAL REMEDIES (SUPRA) . THE SAME PROVES NON - RECOVERABILITY THER E OF. THE LOWER APPELLATE AUTHORITY ALSO ALLOWS IT AS A BUSINESS LOSS BY FOLLOWING TRIBUNAL S ORDER (SUPRA). THE R EVENUE FAILS TO POINT OUT ANY DISTINCTION ON FACTS OR QUO TE ANY CASE LAW TO THE CONTRARY. WE AFFIRM THE C IT(A) S ARGUMENT IN TH ESE CIRCUMSTANCES AND REJECT REVENUE S ARGUMENTS . 7. THIS REVENUE S APPEAL DISMISSED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 20 - 08 - 2015 SD/ - SD/ - ( G.D. AGRAWAL ) ( S. S. GODARA ) VICE PRESIDENT JUDICIAL MEMBER AHMEDABAD : DATED 20 /08 /2015 I.T.A NO. 825 /AHD/20 11 A.Y. 2003 - 04 PAGE NO ACIT VS. M/S. MANILAL & SONS 7 AK / COPY OF ORDER FORWARDED TO: - 1. A SSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,