Benzo Products (I) Pvt.Ltd., Ahmedabad V. The Income tax Officer,Wadrd-1(2), Ahmedabad

ITA 89/AHD/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9289 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 10-07-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 09-01-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M K
• Assessee Lawyers: J P SHAH
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A AHMEDABAD BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER, AND SHRI D. C. AGRAWAL, ACCOUNTANT MEMBER ITANO.89/AHD/2009 ASSESSMENT YEAR: 2005-06 DATE OF HEARING:10.7.09 DRAFTED:26.8.09 BENZO PRODUCTS (I) PVT. LTD., PLOT NO.3204, PHASE IV, GIDC INDL. ESTATE, VATVA, AHMEDABAD, PAN NO.AABCB2591E V/S . INCOME TAX OFFICER, WARD-1(2), AHMEDABAD (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI J.P. SHAH, AR RESPONDENT BY:- SHRI M.K. PANDIT, SR. DR O R D E R PER MAHAVIR SINGH, JUDICIAL MEMBER:- THIS APPEAL BY THE ASSESSEE IS ARISING OUT OF THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-VI, AHMEDABAD IN APPEAL NO. CIT(A)- VI/WARD1(2)/189/07-08 DATED 07-11-2008. THE ASSESS MENT WAS FRAMED BY THE ITO, WARD-1(2), AHMEDABAD U/S.143(3) OF THE INC OME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR THE ASSE SSMENT YEAR 2004-05 VIDE HIS ORDER DATED 11-12-2007. 2. THE FIRST ISSUE IN THIS APPEAL OF THE ASSESSEE I S AGAINST THE ORDER OF CIT(A) IN UPHOLDING THE DISALLOWANCE OF REPAIR OF F ACTORY BUILDING, ELECTRICAL FITTINGS AND PLANT & MACHINERY DAMAGED DUE TO BLAST IN THE ADJOINING FACTORY BY ITA NO.89/AHD/2009 A.Y. 2005-06 BENOZO PRODUCTS (I) P. LTD. V. ITO, WD-1(2), ABD PAGE 2 STATING THE REASON THAT THE SAME IS IN CAPITAL IN N ATURE. FOR THIS, THE ASSESSEE HAS RAISED THE FOLLOWING GROUND NO.1 :- 1. THE C.I.T. (APPEALS) ERRED IN UPHOLDING THE DIS ALLOWANCE OF THE REPAIRS OF R.12,68,774/- OF FACTORY BUILDING, ELECT RICAL FITTINGS AND PLANT & MACHINERY DAMAGED BECAUSE OF THE BLAST IN THE ADJOI NING FACTORY. 3. THE BRIEF FACTS ARISING OUT OF THE ORDERS OF THE LOWER AUTHORITIES ARE THAT THE ASSESSING OFFICER DURING THE COURSE OF ASSESSME NT PROCEEDINGS NOTICED THAT THERE IS INCREASE IN REPAIR & MAINTENANCE EXPE NSES FROM RS.3,48,315/- TO RS.12,68,774/- IN THE RELEVANT ASSESSMENT YEAR. THE ASSESSEE WAS REQUIRED TO SUBMIT THE DETAILS OF REPAIR & MAINTENANCE AND A LSO EXPLAINED THE REASON FOR INCREASE. THE ASSESSEE SUBMITTED COPY OF ACCOUN T AND ALSO REASON FOR INCREASE BY STATING AS UNDER:- THERE WAS A MAJOR BLAST IN ADJACENT FACTORY OF KPC L INDUSTRIES ON 21.07.2004, WHICH EXTREMELY DAMAGED PIPELINE, WIRIN G, BUILDING AND SEMI FINISH RAW MATERIAL OF ASSESSEES FACTORY. A C OPY OF PANCHNAMA REPORTED ARE CENTRAL EXCISE DEPARTMENT CONDUCTED BY SUPERINTENDENT CENTRAL EXCISE IS ENCLOSED HEREWITH. THE REPAIRS TO FACTORY BUILDING, PLANT AND MACHINERY AND EQUIPMENTS WAS TO RESTORE T HE, FACTORY IN ORIGINAL WORKING ORDER AND HENCE THEY ARE DEBITED T O RESPECTIVE REPAIRING EXPENSES. THE ASSESSEE WAS FURTHER REQUIRED TO PRODUCE BILLS & VOUCHERS BY STATING THE REASON THAT THE REPAIRS AND MAINTENANCE EXPENDITURE S ARE INCURRED FOR RECONSTRUCTION OF FACTORY BUILDING AND WHY THE SAME SHOULD NOT BE CAPITALIZED. THE ASSESSEE REPLIED VIDE LETTER DATED 04-12-2007, THE SAME IS BEING REPRODUCED FROM THE ASSESSMENT ORDER AS IT IS:- ..THE COMPANY WAS REQUIRED TO INCUR HEAVY REPAIRS & MAINTENANCE EXPENSES AS THERE WAS DAMAGE TO ITS FACTORY BUILDIN G ALONG WITH ELECTRICAL FITTINGS AND ITS PLANT & MACHINERIES. WE HAVE GIVEN COPY OF BILLS OF SUCH REPAIRS, WHICH ARE IN THE NATURE OF R ESTORATION OF DAMAGED PLANT TO ITS ORIGINAL WORKING CONDITION. WE GIVE HE REUNDER THE ACTUAL REPAIRING EXPENSES AS AGAINST THE GROSS BLOCK OF AS SET UNDER THE RESPECTIVE HEADING:- ASSETS GROSS BLOCK AMOUNT IN RS. FACTORY BUILDING 15,46,183 6,10,643 ELECTRICAL FITTING 2,43,085 47,645 ITA NO.89/AHD/2009 A.Y. 2005-06 BENOZO PRODUCTS (I) P. LTD. V. ITO, WD-1(2), ABD PAGE 3 PLANT & MACHINERY 21,31,669 6,10,486 TOTAL 12,68,774 EACH OF THE REPAIRING BILL WILL SHOW THAT THERE ARE MINOR PURCHASES & LABOUR CHARGES FOR CURRENT REPAIRING. NO NEW MACHIN E WAS PURCHASED NOR ANY ADDITIONAL BUILDING OR SPACE WAS CREATED. T HERE WAS NO INCREASE TO PLANT CAPACITY, NO INNOVATION TO CUT TH E PRODUCTION COST OR PROCESS OF MANUFACTURING. WE THEREFORE SUBMIT THAT THERE IS NO ELEMENT OF CAPACITY EXPANSION IN ABOVE REPAIRING EXPENSES. ACCORDINGLY, THE ASSESSING OFFICER DISALLOWED THE S AME AS CAPITAL AND ALSO ALLOWED THE DEPRECIATION ON THE SAME BY STATING THE REASON THAT THE ASSESSEE HAS INCURRED HEAVY REPAIRS AND MAINTENANCE EXPENSES TO RESTORE THE DAMAGED ASSETS TO BRING THEM INTO WORKING CONDITION S. ACCORDING TO HIM, THE SUCH REPAIRS CANNOT BE TERMED AS CURRENT REPAIRS AL LOWABLE U/S.31 OF THE ACT. HIS REASONING WAS THAT U/S.31 OF THE ACT THE CURREN T REPAIRS ARE THOSE THAT ARE INDEED PERIODICAL AND WHICH CANNOT BE ALLOWED TO BE ACCUMULATED. HE ALSO STATED THAT SUCH EXPENSES ARE DONE TO PRESERVE AND MAINTAIN THE EXISTING ASSETS AND THUS REPAIRING OR RESTORATION BY RECONST RUCTION OR REPLACEMENT OF SUBSIDIARY PARTS OR THE WHOLE. THE ASSESSING OFFICE R ADMITTED THAT IN THE PRESENT CASE THE DAMAGED ASSET OF THE COMPANY WAS R ESTORED BY HEAVY REPAIRS WHICH AMOUNT TO RENEWAL. AGGRIEVED, AGAINS T THE ACTION OF THE ASSESSING OFFICER, THE ASSESSEE PREFERRED APPEAL BE FORE THE CIT(A). THE CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICE R BY GIVING FOLLOWING FINDING IN PAGE-8 & 9 :- THUS, THE EXPENDITURE INCURRED ARE MORE THAN THE V ALUE OF ASSET. WITH THE RESULT, THE SAME IS NOT IN THE NATURE OF CURREN T REPAIRS, IF RESULTS, IN ENDURING BENEFIT TO THE APPELLANT FOR YEARS. FURTHE R, WITH THESE REPAIRS; ALMOST NEW MACHINERY HAS BEEN DEVELOPED, CAPABLE OF PERFORMING THE SAME FUNCTIONING WITH GREATER EFFICIENCY. THUS, THE EXPENDITURE INCURRED BY THE APPELLANT ARE NOT IN THE NATURE OF CURRENT R EPAIRS BUT, BY ALL MEANS THE EXPENDITURE IN QUESTION IS CAPITAL EXPEND ITURE IN NATURE. [BALLIMEL NAVAKISHORE & OTHERS V. CIT (224 ITR 414 (SC )]. KEEPING IN VIEW THE AFORESAID FACTS, CIRCUMSTANCES AND JUDICIAL PRONOUNCEMENT, THE ASSESSING OFFICER HAS RIGHTLY CA PITALIZED THE APPELLANTS CLAIM OF REPAIRS. FURTHER, AFTER ALLOWI NG THE DEPRECIATION ON TOTAL AMOUNT AT THE ADMISSIBLE RATE (I.E. @ 10% IN THE CASE OF FACTORY BUILDING; @ 15% IN THE CASE OF ELECTRICAL FITTINGS AND @ 25% IN THE CASE ITA NO.89/AHD/2009 A.Y. 2005-06 BENOZO PRODUCTS (I) P. LTD. V. ITO, WD-1(2), ABD PAGE 4 OF PLANT AND MACHINERY), THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE BALANCE AMOUNT OF RS.10,47,942/- AND ADDED BACK TO THE TOTAL INCOME OF THE APPELLANT. WITH THE RESULT, THE ACTION OF TH E ASSESSING OFFICER IS CONFIRMED ON THIS GROUND. HENCE THE APPEAL IS DISMI SSED ON THIS GROUND. AGGRIEVED, AGAINST THE ACTION OF THE CIT(A), THE AS SESSEE PREFERRED SECOND APPEAL BEFORE US. 4. BEFORE US LD. COUNSEL FOR THE ASSESSEE, SHRI J.P . SHAH, FIRST OF ALL, TAKEN US TO THE ASSESSMENT ORDER AND STATED THAT TH E FINDINGS OF THE ASSESSING OFFICER ARE CONTRADICTORY AND STATED THAT THE REASO NING OF THE ASSESSING OFFICER THAT HEAVY REPAIRS & MAINTENANCE HAS BEEN C ARRIED OUT TO RESTORE THE DAMAGE ASSETS TO BRING THEM INTO WORKING CONDITION AND SUBSEQUENTLY STATING THAT HEAVY REPAIRS AMOUNTS TO RENEWAL AND ACCORDING LY CAPITAL IN NATURE ARE CONTRADICTORY. LD. COUNSEL FOR THE ASSESSEE STATED THAT HEAVY REPAIRS & MAINTENANCE WAS REQUIRED AS THERE WAS DAMAGED TO IT S FACTORY BUILDING INCLUDING ELECTRICAL FITTINGS AND ITS PLANT & MACHI NERY BY THE REASON THAT THERE WAS A BLAST IN THE ADJOINING FACTORY PREMISES OF M/ S. KPCL INDUSTRIES ON 21- 07-2004. THE LD. COUNSEL FOR THE ASSESSEE BEFORE U S PRODUCED THE COPY OF NATIONAL INSURANCE CO. LETTER DATED 01-10-2004 BY W HICH THE CLAIM OF THE ASSESSEE WAS REJECTED AND ALSO THE PANCHNAMA OF SUP ERINTENDENT OF CENTRAL EXCISE, AUTHORITIES, DIVISION. III, AHMEDABAD I AN D HE REFERRED TO PARA-2 AND 3 OF PANCHNAMA. HE CATEGORICALLY STATES THAT THERE WAS BLAST IN THE FACTORY PREMISES OF M/S. KPCL INDUSTRIES ON 21-07-2004 AND DUE TO WHICH DAMAGE WAS CAUSED AT ASSESSEES FACTORY INCLUDING THE ENTI RE ROOFS, WALLS OF THE PRODUCTION PLANT OF THE FACTORY. IN VIEW OF THESE FACTS, THE LD. COUNSEL FOR THE ASSESSEE FURTHER STATED THAT THE ASSESSEE HAS ONLY CARRIED OUT REPAIRS AND MAINTENANCE TO THE DAMAGED FACTORY BUILDING ALONG W ITH ELECTRICAL FITTINGS AND ITS PLANT & MACHINERY AND FURTHER NO NEW MACHINERY WAS PURCHASED NOR ANY ADDITIONAL BUILDING OR SPACE WAS CREATED. HE FURTHE R STATED EVEN THERE WAS NO INCREASE IN PLANT CAPACITY, NO INCREASE IN PRODUCTI ON CAPACITY, NO CUT IN THE PRODUCTION COST OR PROCESS OF MANUFACTURING. ACCORD INGLY, THE EXPENSES ITA NO.89/AHD/2009 A.Y. 2005-06 BENOZO PRODUCTS (I) P. LTD. V. ITO, WD-1(2), ABD PAGE 5 INCURRED IN REPAIR AND MAINTENANCE OF THE DAMAGED F ACTORY BUILDING, ELECTRICAL FITTINGS AND PLANT AND MACHINERY ARE NOTHING BUT RE VENUE EXPENDITURE. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTATIVE RELIED ON THE ASSESSMENT ORDER AS WELL AS THE ORDER OF CIT(A). 5. AFTER HEARING THE RIVAL CONTENTIONS AND GOING TH ROUGH THE FACTS OF THE CASE, WE FIND THAT THERE WAS A BLAST AT THE FACTORY PREMISES OF M/S. KPCL INDUSTRIES ON 21-07-2004 AND THIS FACT EMERGED OUT OF PANCHNAMA OF CENTRAL EXCISE DEPARTMENT PREPARED BY SUPERINTENDENT OF CEN TRAL EXCISE DEPARTMENT, RANGE-II, AHMEDABAD. THE RELEVANT PARAS OF THE SAID PANCHNAMA READS AS UNDER:- THE OFFICERS OF CENTRAL EXCISE INFORM WE PANCHAAS THAT THERE WAS A BLAST AT THE FACTORY PREMISES OF M/S. KPCL INDUSDTR IES ON 21.07.2004, WHICH ALSO CAUSED DAMAGE AT M/S. BENZO PRODUCTS (I) PVT. LTD. AND THAT THEY INTEND TO CARRY OUT THE VERIFICATION / INVENTO RY OF THE RAW MATERIALS AND FINISHED GOODS AT M/S. BENZO PRODUCTS (I) PVT. LTD. AND REQUESTED WE PANCHAS TO REMAIN AS WITNESS TO THE SAID PROCEED INGS, TO WHICH WE THE PANCHASE GAVE OUT CONSENT. THEREAFTER THE OFFICERS OF CENTRAL EXCISE, ALONG WI TH WE PANCHAS AND SHRI RAMESHBHAI PRABHUDAS PATEL, ENTER THE PRODUCTI ON / PLANT AREA OF M/S. BENZO PRODUCTS (I) PVT. LTD. ON ENTERING IT IS FOUND THAT THE ENTIRE ROOF AND WALL OF THE PRODUCTION PLANT OF THE FACTOR Y IS BADLY DAMAGED. THE OFFICERS OF CENTRAL EXCISE BEFORE WE PANCHAS AS KED SHRI RAMESHBHAI PRABHUDAS PATEL ABOUT THE CAUSE OF THE B LAST, TO WHICH SHRI RAMESHBHAI P PATEL INFORMED THAT AT ABOUT 1.30 A.M. ON 21.07.2004 THE S.S. VESSEL OF M/S. KPCL INDUSTRIES BLASTED DUE TO EXCESS PRESSURE AND TEMPERATURE WHICH ALSO CAUSED D AMAGE TO M/S. BENZO PRODUCTS (I) P. LTD. SHRI RAMESHBIAI P. PATEL FURTHER STATED THAT DUE TO THE BLAST THE PIPELINES AND WIRING OF THE MA CHINERIES OF ENTIRE FACTORY OF M/S. BENZO PRODUCTS (I) P. LTD., GOT DAM AGED, WHICH DAMAGED THE RAW MATERIALS UNDER PROCESS. SHRI RAME SHBHAI P. PATEL FURTHER BEFORE WE PANCHAS INFORMED THE CENTRAL EXCI SE OFFICERS THAT THE BLAST IN THE FACTORY PREMISES OF M/S. KPCL INDUSTRI ES DAMAGED THE PLANT MACHINERIES OF M/S. BENZO PRODUCTS (INDIA) P. LTD. AS IT WAS LOCATED ADJACENTLY AND STATED THAT HE HAD ALSO INFORMED THE LOCAL POLICE AUTHORITIES ABOUT THE BLAST. THE OFFICERS OF CENTRA L EXCISE ALONG WITH WE PANCHAS AND SHRI RAMESHBHAI P PATEL WENT AROUND THE FACTORY PREMISES CONSISTING OF OFFICE ROOM, PLANT ROOM, BOI LER ROOM, DRYER ROOM AND EFFLUENT TREATMENT PLANT ROOM AND FOUND THAT TH E BLAST HAD SEVERELY ITA NO.89/AHD/2009 A.Y. 2005-06 BENOZO PRODUCTS (I) P. LTD. V. ITO, WD-1(2), ABD PAGE 6 EFFECTED THE ENTIRE FACTORY PREMISES AS DAMAGES COU LD BE SEEN ON PLANT, MACHINERY AND THE BUILDING. WE FIND FROM THE ABOVE THAT THERE WAS A BLAST AT TH E FACTORY PREMISES OF M/S. KPCL INDUSTRIES ON 21-07-2004 AND THE ASSESSING OFF ICER HAS CONSIDERED THAT THE HEAVY REPAIR AND MAINTENANCE CARRIED OUT TO RES TORE THE DAMAGED ASSETS TO BRING THEM INTO WORKING CONDITIONS. ONCE THIS F INDING COMES, THE EXPENSES INCURRED ON REPAIR AND MAINTENANCE CANNOT BE DISALL OWED AS CAPITAL IN NATURE. FURTHER THERE IS NOTHING ON RECORD THAT THE ASSESSE E AS INCREASED THE CAPACITY OF PRODUCTION OF THE PLANT OR THERE IS QUALITATIVE CHANGE IN PRODUCT OF THE ASSESSEE. WE FURTHER FIND THAT THE EXPENSES ARE DON E TO PRESERVE AND MAINTAIN THE EXISTING ASSETS AND THE REPAIR IS ON A CCOUNT OF RESTORATION BY RENEWAL OR REPLACEMENT OF THE DAMAGED ASSETS TO BRI NG THEM INTO WORKING CONDITIONS. ACCORDINGLY, WE ALLOW THE CLAIM OF THE ASSESSEE AND THIS ISSUE OF THE ASSESSEES APPEAL IS ALLOWED. 6. THE NEXT ISSUE IN THIS APPEAL OF THE ASSESSEE IS AGAINST THE ORDER OF CIT(A) IN CONFIRMING THE DISALLOWANCE OF DEDUCTION OF RS.76,527/- BEING ADDED IN THE VALUE OF CLOSING STOCK OF THE FINISHED GOODS . FOR THIS, THE ASSESSEE HAS RAISED THE FOLLOWING GROUND NO.2 :- 2. THE C.I.T. (APPEALS) ERRED IN NOT GIVING THE DE DUCTION OF RS.76,527/- BEING EXCISE DUTY ADDED IN THE VALUE OF CLOSING STO CK OF THE FINISHED GOODS WHICH WAS PAID OFF BEFORE THE DUE DATE OF THE FILING OF THE RETURN FOR ASST. YEAR-2005-06. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESS EE HAS ADDED AN AMOUNT OF RS.91,839/- ON ACCOUNT OF DIFFERENCE IN VALUATIO N OF INVENTORIES AS ON 31-03- 2005 U/S.145A OF THE ACT. THE ASSESSEE ALSO CLAIME D DEDUCTION OF RS.76,527/- U/S.43B OF THE ACT BY STATING THAT THE GOODS LYING IN STOCK AS ON 31-03-2005 TO THE EXTENT OF THAT DUTY HAVE BEEN CLE ARED AND THE EXCISE DUTY OF RS.76,527/- THEREON HAS BEEN PAID ON OR BEFORE 31-0 8-2005. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE AS THE SAME IS ALLOWED ON ACTUAL PAYMENT ONLY IN VIEW OF THE AMENDED PROVISION OF SE CTION 145A OF THE ACT BY ITA NO.89/AHD/2009 A.Y. 2005-06 BENOZO PRODUCTS (I) P. LTD. V. ITO, WD-1(2), ABD PAGE 7 THE FINANCE NO.2 ACTS, 1998 WITH EFFECT FROM 1-4-19 99. THE ASSESSEE CLAIMED THAT THIS DEDUCTION IS AVAILABLE ONLY IN THE YEAR O F ACTUAL PAYMENT OF EXCISE DUTY. IT WAS THE CLAIM OF THE ASSESSEE THAT EXCISE DUTY WAS PAID OR ADJUSTED AS MODVAT CREDIT OR BEFORE 31-08-2005, THAT IN THE REL EVANT ASSESSMENT YEAR 2006-07. IF THIS THE CASE, THE ASSESSING OFFICER WI LL ALLOW THIS CLAIM IN THE ASSESSMENT YEAR 2006-07 AND NOT IN ASSESSMENT YEAR 2005-06, I.E. THE RELEVANT ASSESSMENT YEAR. ACCORDINGLY, THIS ISSUE O F THE ASSESSEES APPEAL IS DISMISSED. 8. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 28/08/2009 SD/ SD/- (D.C.AGRAWAL) (MAHAVIR SIN GH) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD, DATED : 28/08/2009 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- VI, AHMEDABAD 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD