Gulbrandsen Chemicals Pvt. Ltd., Baroda V. The Dy.CIT.,Circle-1(1), Baroda

ITA 915/AHD/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8192 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 15-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Keywords: Capital asset; Depreciation; Unabsorbed depreciation
• Section: 143(3); 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH (BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER) ITA. NOS: 915 & 917/AHD/2015 (ASSESSMENT YEAR: 2007-08 & 2008-09) GULBRANDSEN CHEMICALS PVT. LTD., ON COASTAL HIGHWAY, P.O. MUJPUR, TAL. PADRA, VADODARA- 391440 V/S THE DY. COMMISSIONER OF INCOME TAX, CIRCLE1(1), BARODA (APPELLANT) (RESPONDENT) PAN: AABCG0812A APPELLANT BY : SHRI MUKUND BAKSHI, AR RESPONDENT BY : SHRI V.K. SINGH, SR. D.R. ( )/ ORDER DATE OF HEARING : 27 -03-201 8 DATE OF PRONOUNCEMENT : 08 -06-2018 PER MAHAVIR PRASAD, JUDICIAL MEMBER 1. THESE TWO APPEALS BY THE ASSESSEE ARE DIRECTED AGAI NST THE ORDER OF THE LD. CIT(A)-I, BARODA DATED 13.11.2014 & 14.11.2014 PERT AINING TO A.YS. 2007-08 & 2008-09 AND FOLLOWING GROUNDS HAVE BEEN TAKEN: ITA NOS. 915 & 917/AHD/2015 . A.YS. 2007-0 8 & 2008-09 2 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) I, BARODA HAS ERRED IN LAW AND IN FACTS IN UPHOLDING THE ACTION OF THE LD. AO IN THE REASSESSM ENT MADE U/S. 147 R.W.S. 143(3) IN SUBJECTING TO TAX THE AMOUNT ON DEPRECIATION OF RS. 21,39.973/-. THE DEPRECIATION WAS ALLOWED IN THE ASSESSMENT MADE U/S. 143(3) ON 0 2.02.2011 AND THAT SUCH DISALLOWANCE IS MADE MERELY ON THE CHANGE OF OPINIO N AND HENCE COULD NOT HAVE BEEN DISALLOWED IN THE REASSESSMENT. THE CLAIM MAY PLEA SE BE ALLOWED AS MADE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A)-I HAS ERRED IN LAW AND IN FACTS IN CONFIRMIN G THE DISALLOWANCE OF RS.21,39,973/- (BEING 15% OF RS.1,42,66,483/-) CLAI MED AS DEPRECIATION ON THE AMOUNT OF COST OF PLANT & MACHINERY INCURRED AS REI MBURSEMENT TO GULBRANDSEN CHEMICALS INC., USA OF RS. 1,42,66,483/-. THE CLAIM AS MADE BY THE APPELLANT OUGHT TO BE ALLOWED AND IS SO PRAYED. 3. THE LD. CIT(A) HAS FURTHER ERRED IN LAW AND IN FACTS IN HOLDING THAT THE CLAIM OF DEPRECIATION OF RS. 21,39,973/- MADE BY THE APPE LLANT AMOUNTS TO FILING OF INACCURATE PARTICULARS SO AS TO JUSTIFY THE LEVY OF PENALTY U/S. 271(L)(C). 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A)-I HAS ERRED IN LAW AND IN HOLDING THAT CLAIM OF SET O FF OF UNABSORBED DEPRECIATION / LOSS MADE IN THE RETURN OF INCOME BASED ON SUCH CLAIMS M ADE IN THE RETURNS OF INCOME OF EARLIER ASSESSMENT YEARS COULD NOT BE MADE. ACCORDI NG TO THE LD. CIT(A), THE ACTION OF THE APPELLANT IN CLAIMING THE SET OFF OF UNABSOR BED LOSS / DEPRECIATION OF AMOUNT OTHER THAN AS ASSESSED BY THE LD. A.O. (THOUGH DISP UTED BEFORE APPELLATE AUTHORITIES) AMOUNTS TO FURNISHING OF INACCURATE PARTICULARS OF INCOME SO AS TO JUSTIFY THE LEVY OF PENALTY U/S. 271(L)(C). THE INITIATION OF PENALTY I N THIS RESPECT IS PRAYED TO BE QUASHED. 5. THE APPELLANT CRAVES LIBERTY TO ADD, ALTER, AMEN D, REVISE OR SUBSTITUTE ANY OF THE GROUND(S) OF APPEAL CONTAINED HEREINABOVE. ITA NOS. 915 & 917/AHD/2015 . A.YS. 2007-0 8 & 2008-09 3 2. FACTS OF THE CASE ARE THAT DURING THE YEAR UNDER CO NSIDERATION, ASSESSEE COMPANY HAS ACCOUNTED FOR AN AMOUNT OF RS.1,42,66,4 83/- TO PLANT AND MACHINERY ACCOUNT OF DEBIT NOTE RAISED BY GULBRANDS EN CHEMICALS INC., USA(GCI) 3. THE EXPENDITURE PERTAINS TO PROFESSIONAL FEES FOR S ETTING UP OF THE PLANT, THE TRAVELLING COST OF THE ARCHITECTS ETC. WHICH WERE I NCURRED BY GCI AND PAID BY THEM ON ASSESSEE'S BEHALF TO THE EXTERNAL THIRD PAR TIES DURING THE PERIOD FORM 2000 TO 2002. THE ASSESSEE HAS SET UP ITS PLANTS DU RING THE PERIOD OF 2000 TO 2002 IN INDIA. IN THIS PHASE, THE ASSESSEE HAD VERY LIMITED ORGANIZATIONAL AND FINANCIAL RESOURCES. SO, GCI ASSISTED ASSESSEE IN P LANT SET UP PHASE ENGAGING EXTERNAL SERVICE PROVIDERS (SUCH AS PLANT CONSULTAN T, ARCHITECT, ETC). GCI HAD ALSO MADE PAYMENTS TO THEM ON BEHALF OF THE ASSESSE E AND THE ASSESSEE WAS TO REIMBURSE THE SAME TO GCI. HOWEVER, THE EXACT AMOUN TS OF THE SAME WERE TO REIMBURSE THE SAME TO GCI. HOWEVER, THE EXACT AMOUN T OF THE SAME WAS NOT KNOWN TILL THE DATE GCI RAISED A DEBIT NOTE ON THE ASSESSEE FOR SUCH REIMBURSEMENT. 4. IT IS A WELL ESTABLISHED ACCOUNTING POLICY AS PER A S-16 ISSUED BY ICAI THAT ANY EXPENDITURE INCURRED IN RELATION TO CREATION OF A C APITAL ASSET SHOULD BE CAPITALIZED TO THE RELEVANT ASSET. THE SAME CAN BE INFERRED FROM THE NOTES FORMING PART OF ACCOUNTS, THAT THE COMPANY ALSO CAP ITALIZES THE AMOUNT SPENT FOR SETTING UP OF THE PLANTS TO THE RESPECTIVE PLAN TS ACCOUNT. ACCORDINGLY, IN THE F.Y.2006-07 WHEN ASSESSEE RECEIVED DEBIT NOTES FOR SUCH REIMBURSEMENT, IT CAPITALIZED THIS AMOUNT OFRS.1,42,66,483/- AS PLANT AND MACHINERY. ITA NOS. 915 & 917/AHD/2015 . A.YS. 2007-0 8 & 2008-09 4 5. SINCE THE DEBIT NOTE WAS RECEIVED AT THE TIME OF IN CURRING OF THE EXPENSE, THE SAME WAS ACCOUNTED FOR IN THE YEAR IN WHICH THE AMO UNT WAS FINALIZED AND ACCORDINGLY THE SAME HAS BEEN CAPITALIZED. A NOTE T O THIS EFFECT THAT THE ASSESSEE HAS CAPITALIZED SUCH EXPENSES AND CLAIMED DEPRECIATION ACCORDINGLY IS GIVEN IN THE TAX AUDIT REPORT. 6. THE SAID NOT GIVEN IN THE TAX AUDIT REPORT IS REPRO DUCED BELOW: 'ADDITIONS SHOWN BEFORE 30/09/06, WAS ACTUALLY MADE DURING THE FINANCIAL YEARS 2000-01, 2001-02 & 2002-03, HENCE ADDITIONAL CLAIM@20%NOT CLAIMED ON THIS AMOUNT. 7. ON PERUSAL OF THE NOTICE, IT IS FOUND THAT IT WAS A LLEGED THAT THE ASSESSEE HAS NEITHER REDUCED THE AMOUNT FORM THE COST OF ASSET N OR DISALLOWED THE DEPRECIATION. IT WAS NOT UNDERSTOOD, AS TO WHY THE ASSESSEE SHOULD REDUCE THE AMOUNT FROM THE COST OF ASSET AND WHY DEPRECIATION TO BE DISALLOWED. 8. THE NOTE HAS BEEN GIVEN TO CLARIFY THE FACT THAT TH E ASSESSEE HAS CAPITALIZED THE AMOUNT OF EXPENSE WHICH WERE INCURRED EARLIER AND N OT REIMBURSED EARLIER, ARE PAID TO THE PRINCIPAL COMPANY ON RAISING THEIR CLAI M BY WAY OF DEBIT NOTE. 9. CONSIDERING THE ABOVE SUBMISSION, SINCE THE EXPENSE HAS BEEN CLAIMED AS PER THE LAW, THE SAME SHOULD BE ALLOWED, TO THE ASSESSE E COMPANY. 10. SUBMISSION OF THE ASSESSEE COMPANY HAS BEEN PERUSED AND IS NOT FOUND TO BE ACCEPTABLE. IN VIEW OF SECTION 43A OF IT ACT, THE C OST OF THE ASSET WAS REQUIRED TO BE REDUCED BY THE AMOUNT OF REIMBURSEMENT. THE A SSESSEE COMPANY FAILED ITA NOS. 915 & 917/AHD/2015 . A.YS. 2007-0 8 & 2008-09 5 TO REDUCE THE AMOUNT OF REIMBURSEMENT FROM COST OF ASSET. IN THIS WAY THE ASSESSEE COMPANY CLAIMED THE FOLLOWING EXCESS DEPRE CIATION. PLANT & MACHINERY (ANHYDROUS &TTC PLAN 1- APR.06 RS.99,66,564 PLANT & MACHINERY (PILOT PLANT AA LAB) L-APR .06 RS. 14,76,613 PLANT & MACHINERY (MOR PLANT) L-APR.06 RS. 28,23,306 RS. 1,42,66,483 11. THIS RESULTED EXCESS DEPRECIATION OF 21,39,973 (15% OF RS. 1,42,66,483 ) WAS CLAIMED BY THE ASSESSEE WHICH IS DISALLOWED AND ADD ED BACK TO THE TOTAL INCOME OF THE ASSESSEE AND MADE ADDITION OF RS. 21,39,973/ -. 12. AGAINST THE SAID ADDITION, ASSESSEE PREFERRED FIRST STATUTORY APPEAL BEFORE THE LD. CIT(A) WHO DISMISSED THE APPEAL OF THE APPELLANT. 13. WE HAVE GONE THROUGH THE RELEVANT RECORD IN THE IMP UGNED ORDER. WE FIND THAT THE EXPENDITURE OF RS. 1,42,66,483/- WERE PERTAININ G TO PROFESSIONAL FEES FOR SETTING-UP OF THE PLANT AND THE TRAVELLING COST OF THE ARCHITECTS ETC. WHICH WERE INCURRED BY GULBRANDSEN CHEMICALS INC., USA, AND WE RE PAID BY IT ON BEHALF OF THE APPELLANT TO EXTERNAL THIRD PARTIES DURING THE PERIOD FROM 2000 TO 2002. WE NOTICED THAT BEFORE THE AO THAT IT HAD SET-UP ITS P LANTS DURING THE PERIOD OF 2000 TO 2002 IN INDIA. AS PER THE APPELLANT IN THIS PHASE, IT HAD VERY LIMITED ORGANIZATIONAL AND FUNCTIONAL RESOURCES AND THEREFO RE GULBRANDSEN CHEMICALS INC., USA ASSISTED IT IN PLANT SET UP PHASE ENGAGIN G EXTERNAL SERVICE PROVIDERS (SUCH AS PLANT CONSULTANT, ARCHITECT ETC.). WE HOLD THAT ANY EXPENDITURE INCURRED IN RELATION TO CREATION OF A CAPITAL ASSET SHOULD BE CAPITALIZED TO THE RELEVANT ASSET. WE CAN SEE APPELLANT ACCORDINGLY I T ALSO CAPITALIZED THE AMOUNT OF RS. 1,42,66,483/- SPENT FOR SETTING UP OF THE PL ANTS TO THE RESPECTIVE PLANTS ITA NOS. 915 & 917/AHD/2015 . A.YS. 2007-0 8 & 2008-09 6 ACCOUNT IN FY 2006-07 WHEN IT RECEIVED DEBIT NOTES FROM GULBRANDSEN CHEMICALS INC., USA FOR SUCH REIMBURSEMENT. THEY MA DE THE PAYMENT. 14. IN FACT, A.O. HAS INVOKED SECTION 43A ON THE BASIS OF MISCONCEPTION IN AS MUCH AS RECEIPT OF RS. 14266483/- WAS FOR REIMBURSE MENT FROM THE COMPANY AND SAME WAS THE DEBIT TO THE COMPANY AND THIS ASPE CT IS NOT DISPUTED. ON ACCOUNT OF AFORESAID DISCUSSION, WE ALLOW THE APPEA L OF THE APPELLANT AND DIRECT THE A.O. TO ALLOW EXCESS DEPRECIATION OF RS. 213997 3/-. 15. IN VIEW OF THE ABOVE DISCUSSION, WE ALLOW THIS GROU ND OF APPEAL. 16. SO FAR GROUND NO. 3 & 4 ARE CONCERNED; SAME ARE PRE MATURE AND NEED NOT TO THE ADJUDICATED BY US AT THIS STAGE. 17. SO FAR IN ITA NO. 917/AHD/2015 IS CONCERNED, ONLY F IGURE AND ASSESSMENT YEAR IS DIFFERENT OTHERWISE CONTENTS ARE SAME. THER EFORE, THIS APPEAL IS ALSO ALLOWED. IN THE TERMS HAS BEEN DISCUSSION IN ITA NO . 915/AHD/2015. 18. IN THE RESULT, BOTH THE APPEALS ARE ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 08- 06- 2018 SD/- SD/- (PRAMOD KUMAR) (MAHAVIR PRASAD) ACCOUNTANT MEMBER TRUE COPY JUDICIAL MEMBER AHMEDABAD: DATED 08/06/2018 RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT.