ACIT, New Delhi V. M/s. Orient Ceramics & Industries Ltd., New Delhi

ITA 900/DEL/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61623 (ITAT-DELHI)
• Duration Of Justice: 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-04-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 23-04-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 22-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R S NEGI
• Keywords: Depreciation; Capital expenditure
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E DELHI BEFORE SHRI R.P. TOLANI AND SHRI K.G. BANSAL ITA NO. 900(DEL)/2012 ASSESSMENT YEAR: 2008-09 ASSISTANT COMMISSIONER OF ORIE NT CERAMICS & INDUSTRIES INCOME-TAX, CIRCLE 13(1), VS. LTD ., IRIS HOUSE, NEW DELHI. 16, BUSINESS CENTRE, NANGAL RAYA, NEW DELHI-46. PAN: AAACO0305P (APPELLANT) (RESPONDENT) APPELLLANT BY : SHRI R.S. NEGI, SR. D.R. RESPONDENT BY : SHRI SALIL AGGARWAL, ADVOCATE & SHRI SHAILESH GUPTA, C.A. DATE OF HEARIN G : 23.04.2012 DATE OF PRONOU NCEMENT: 23.04.2012. ORDER PER K.G. BANSAL : AM ONE OF THE GROUNDS TAKEN BY THE ASSESSEE BEFORE THE CIT(APPEALS)- XVI, NEW DELHI, WAS THAT THE ASSESSING OFFICER ERRED IN DISALLOWING THE DEPRECIATION AMOUNTING TO RS. 34,39,584/- IN RESPEC T OF WRITTEN DOWN VALUE (WDV) OF THE CUSTOMS DUTY AMOUNTING TO RS. 4,41,14, 803/- PAID AND CAPITALIZED IN ASSESSMENT YEAR 2005-06. THE LD. CIT(APPEALS) ALLOWED THIS GROUND. IT HAS BEEN MENTIONED IN PARAGRAPH NO. 2.1 OF THE IMPUGNED ORDER THAT THE ISSUE HAS BEEN DECIDED IN FAVOUR O F THE ASSESSEE BY THE DECISIONS OF THE CIT(APPEALS), ITAT AND DELHI H IGH COURT FOR ITA NO. 900(DEL)/2012 2 ASSESSMENT YEARS 2005-06 AND 2006-07. THUS, THE SE DECISIONS WERE FOLLOWED BY HIM. AGGRIEVED BY THIS ORDER, THE REVE NUE HAS FILED APPEAL BEFORE US IN WHICH FOLLOWING TWO GROUNDS HAVE BEEN TAKEN UP:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN ALLOWING RELIEF OF RS. 34,39,584/- ON ACC OUNT OF DEPRECIATION ON CUSTOM DUTY PAYMENT DURING THE YEAR UNDER CONSI DERATION. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN OVERLOOKING THE FACT THAT THOUGH SIMILA R ISSUE WAS RAISED DURING A.Y. 2005-06 AND 2006-07 AND DECIDED IN F AVOUR OF THE ASSESSEE BY THE HONBLE HIGH COURT OF DELHI, BUT T HE CUSTOMS AUTHORITIES HAVE ALSO IMPOSED A HEAVY PENALTY ON THE FORGERY COMMITTED BY CLEARING AGENTS ON BEHALF OF THE A SSESSEE. THE LD. CIT(A) FAILED TO APPRECIATE THAT THE ASSESSEE HA D PAID THE ADDITIONAL CUSTOMS DUTY UNDER PROTEST AND THAT THE CUSTOMS DEPARTMENT HAD NOT TAKEN A FINAL DECISION IN THE MATTER AND HENCE IT WOULD BE PREMATURE TO ADD THIS AMOUNT TO THE COST OF PLANT AND MACHINERY FOR THE PURPOSE OF DEPRECIATION U/S 32 OF THE INCOME-TAX ACT, 1961. 2. THE LD. DR SUBMITS THAT THE CUSTOMS AUTHORITY HAD ALSO IMPOSED A HEAVY PENALTY ON ACCOUNT OF FORGERY COMMITTED BY C LEARING AGENTS ON BEHALF OF THE ASSESSEE. THE ASSESSEE HAD PAID ADDITION AL CUSTOMS DUTY UNDER PROTEST AND THE CUSTOMS DEPARTMENT HAS NOT TAKEN A FINAL VIEW IN THE MATTER. THEREFORE, IT WOULD BE PREMATURE TO AD D THIS AMOUNT TO THE COST OF MACHINERY AND PLANT. THE AMOUNT HAS BEEN SHOWN AS ADVANCE IN THE ACCOUNTS. THEREFORE, IT ALSO CANNOT BE SAID THAT THE AMOUNT HAS BEEN CAPITALIZED IN THE BOOKS. ITA NO. 900(DEL)/2012 3 2.1 IN REPLY, THE LD. COUNSEL FOR THE ASSESSEE R EFERRED TO VARIOUS DECISIONS OF THE TRIBUNAL AND THE HIGH COURT, WHICH HAVE BEEN PLACED IN THE PAPER BOOK FROM PAGE NOS. 1 TO 32. THE DECISION OF THE HIGH COURT IN ITA NOS. 65 AND 66 OF 2011 20.01.2011 HAS BEEN PLACED IN THE PAPER BOOK FROM PAGE NOS. 28 TO 32. THE DECISION IN SO FAR AS ISSUE AT HAND IS CONCERNED IS REPRODUCED BELOW FOR READY REFERENCE:- 3 IN SO FAR AS THE FIRST ITEM OF ADDITION IS C ONCERNED, THE BACKGROUND OF THE FACTS IS THAT THE ASSESSEE COMPAN Y HAD IMPORTED MACHINERY UNDER DUTY EXEMPTION CERTIFICATE ISSUED BY THE MINISTRY OF FINANCE. BECAUSE OF THIS CERTIFICAT E ISSUED IN FAVOUR OF THE ASSESSEE, THE ASSESSEE DID NOT PAY AN Y CUSTOM DUTY ON THE IMPORT OF THE SAID MACHINERY. HOWEVER, IN TH E ASSESSMENT YEAR 2004-05, THE CUSTOM DEPARTMENT DISP UTED THE SAID CERTIFICATE AND ISSUED SHOW CAUSE NOTICE TO TH E ASSESSEE AND CALLED UPON THE ASSESSEE TO PAY THE DIFFERENTIA L AMOUNT OF CUSTOM DUTY AND DEMAND OF `4,25,34,028 WAS MADE IN THIS BEHALF. THE ASSESSEE PAID THIS AMOUNT WITHOUT PREJU DICE TO ITS CONTENTION THAT THE CERTIFICATE ISSUED BY THE MINIS TRY OF FINANCE WAS VALID, LEGAL AND PROPER AND NO SUCH CUSTOM DUTY WAS PAID. WHILE PAYING THE CUSTOM DUTY, THE ASSESSEE HAS CONT ESTED THE SHOW CAUSE NOTICE ISSUED BY THE CUSTOM DEPARTMENT A ND THESE PROCEEDINGS ARE STILL PENDING. SINCE THE AMOUNT OF `4,25,34,028 WAS PAID BY THE ASSESSEE IN THE AFORESAID MANNER, T HE ASSESSEE CAPITALIZED THE COST OF MACHINERY BY ADDING THE SAI D PAYMENT TO THE COST OF MACHINERY AND ON THAT BASIS, DEPRECIATI ON @ 25% ON THE SAID ADDITION WAS CLAIMED TO THE COST OF MAC HINERY AS WELL. THE ASSESSING OFFICER (AO) DISALLOWED THE DEP RECIATION ON THE AFORESAID ADDITION. 4. THE QUESTION, IN THESE CIRCUMSTANCES, AROSE AS T O WHETHER THE ASSESSEE WHO HAD MADE THE PAYMENT IN THE MEANTIME W OULD BE ENTITLED TO ADD THE SAME TO THE COST OF PLANT AND M ACHINERY AND CLAIM DEPRECIATION THEREON. ITA NO. 900(DEL)/2012 4 5. THE CIT (A) AS WELL AS THE TRIBUNAL WHILE ACCEPT ING THE COURSE OF ACTION TAKEN BY THE ASSESSEE IN CLAIMING DEPRECIATION ON THE SAID AMOUNT AS WELL RELIED UPON THE JUDGMENT S, I.E., COMMISSIONER OF INCOME-TAX, BOMBAY CITY I VS. MESSRS. SHOORJI VALLABHDAS AND CO. 46, ITR 144 (SC); TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. VS. COMMISSIONER OF INCOME TAX 227 ITR 172 (SC); KEDARNATH JUTE MANUFACTURING CO. LTD. VS. COMMISSIONER OF INCOME TAX 82 ITR 363 AND SUTLEJ COTTON MILLS LTD. VS. COMMISSIONER OF INCOME TAX 116 ITR 1 (SC) WHEREIN IT IS HELD THAT EVEN IF THE LIABILITY IS CH ALLENGED AND THE LEGAL PROCEEDINGS ARE PENDING, ONCE THE AMOUNT HAS GONE OUT OF THE COFFERS OF THE ASSESSEE, THE ASSESSEE WOULD BE ENTITLED TO CAPITALIZE THE SAME. THE TRIBUNAL WHILE DEALING WIT H THESE JUDGMENTS HELD AS UNDER: AT THE OUTSET WE ARE CONVINCED WITH THE ARGUMENTS MADE BY SHRI SALIL AGGARWAL, ADVOCATE, THAT MERE BOOK ENTRI ES ARE NOT DECISIVE OF ANY INCOME. THE QUESTION IS WHETHER A R ECEIPT OF MONEY IS TAXABLE OR NOT, WHETHER CERTAIN DEDUCTIONS FROM THAT RECEIPT ARE PERMISSIBLE IN LAW OR NOT, THE QUESTION HAS TO BE DECIDED ACCORDING TO THE PRINCIPLES OF LAW AND NOT IN ACCORDANCE WITH THE BOOK ENTRIES FOR THE ACCOUNTING PRACTICE SINCE THE ACCOUNTING PRACTICE CANNOT OVERRIDE THE P ROVISIONS OF THE ACT. THESE VIEWS ARE FORTIFIED BY THE JUDGMENT OF VARIOUS COURTS OF LAW IN THE CASES OF TUTICORIN ALKALI CHEM ICALS AND FERTILIZERS LTD. V. CIT (1997) 227 ITR 172 (SC), KE DARNATH JUTE MANUFACTURING CO. LTD. V. CIT (1971) 82 ITR 363 (SC ), SUTLEJ COTTON MILLS LTD. V. CIT (1979) 116 ITR 1 (SC) AND CIT V. SHOORJI VALLABHDAS AND CO. (1962) 46 ITR 144 (SC). THERE IS NOTHING ON RECORD PLACED BY THE DEPARTMENTAL REPRES ENTATIVE TO ESTABLISH THAT THE APPEAL HAS BEEN FILED BY THE ASS ESSEE AGAINST ANY ORDER OF THE CUSTOMS DEPARTMENT. THE EXPLANATIO N, THEREFORE, APPEARS TO BE SATISFACTORY THAT ON THE D IRECTIONS ISSUED BY THE CUSTOMS DEPARTMENT, THE PAYMENT OF CU STOMS DUTY HAS BEEN MADE THOUGH THE SAME HAS BEEN SHOWN A S ADVANCE OR A NOTE HAS BEEN APPENDED IN THE ACCOUNTS FOR CONTINGENT LIABILITY. THEREFORE, IN OUR VIEW THE AS SESSEE HAS MADE THE PAYMENT OF CUSTOMS DUTY ONLY WHEN THE LIAB ILITY HAS ACCRUED ON IT. SINCE THE CUSTOMS DUTY HAS BEEN PAID TO ACQUIRE ITA NO. 900(DEL)/2012 5 THE PLANT AND MACHINERY AND THEREFORE, IT HAS TO BE CAPITALISED, MOREOVER, THERE IS NO DISPUTE TO THE FACT THAT SUCH EXPENDITURE CANNOT BE CAPITALISED AS OBSERVED BY THE ASSESSING OFFICER IN HIS ORDER IN PARAGRAPH 2.3. THE OBLIGATION TO PAY THE E XCISE DUTY AROSE DURING THE IMPUGNED YEAR AND THEREFORE, THE L IABILITY TO PAY THE AMOUNT HAD ACCRUED TO THE ASSESSEE DURING T HE YEAR ITSELF AND THE SAID LIABILITY CANNOT BE SAID TO BE CONTINGENT AND CANNOT BE SAID TO BE AN ADVANCE PAYMENT. THE ORDER OF THE LEARNED COMMISSIONER (APPEALS) IS A REASONED ORDER, WHO HAS RIGHTLY ACCEPTED THE CONTENTION AND EXPLANATION OF THE ASSESSEE AND HAS RIGHTLY ALLOWED THE CLAIM OF THE ASSESSEE F OR CAPITALISATION OF THE PAYMENT OF EXCISE DUTY AMOUNT ING TO RS. 4,25,34,027 AND HAS RIGHTLY DIRECTED THE ASSESSING OFFICER TO ALLOW THE DEPRECIATION ON THE SAID AMOUNT. WE FIND NO INFIRMITY IN THE ORDER OF THE LEARNED COMMISSIONER (APPEALS). THUS GROUND NO. 1 OF THE REVENUE IS DISMISSED. 2.2 THE LD. SENIOR DR HAS NOT BEEN ABLE TO DISTIN GUISH THE FACTS OF THE CASE. THE ISSUE IS ALSO NO LONGER RES-INTEGRA. T HEREFORE, FOLLOWING THE DECISION OF THE HONBLE HIGH COURT, IT IS HELD TH AT THE ASSESSEE IS ENTITLED TO DEDUCT DEPRECIATION ALLOWANCE ON THE WDV OF T HE AMOUNT REPRESENTING CAPITAL EXPENDITURE ON ACCOUNT OF PAYMENT OF CUSTO MS DUTY. 3. IN THE RESULT, THE APPEAL IS DISMISSED. SD/- SD/- (R.P. TOLANI) (K.G. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER SP SATIA ITA NO. 900(DEL)/2012 6 COPY OF THE ORDER FORWARDED TO:- ORIENT CERAMICS & INDUSTRIES LTD., NEW DELHI. ACIT, CIRCLE 13(1), NEW DELHI. CIT(A) CIT, THE D.R., ITAT, NEW DELHI. ASSISTANT REGISTRAR.