M/s Friends Salt Works & Allied Industries, GANDHIDHAM V. The ACIT, Gandhidham Circle, GANDHIDHAM

ITA 935/RJT/2010

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 7364 (ITAT-RAJKOT)
• Duration Of Justice: 1 year(s) 7 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-12-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 13-12-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 20-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: YOGESH PANDE
• Assessee Lawyers: K C THAKER
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, RAJKOT BENCH, RAJKOT. BEFORE SHRI T. K. SHARMA (JM) AND SHRI A. L. GEHL OT AM). ITA NO. 935/RJT./2010. (ASSESSMENT YEAR 2006-07) M/S. FRIENDS SALT WORKS & VS. THE A.C.I.T., ALLIED INDUSTRIES, GANDHIDHAM CIRCLE, PLOT NP.18, SECTOR-8, PLOT NO.32, SECTOR-3, GANDHIDHAM-KUTCH. GANDHIDHAM-KUTCH. PAN:AAAFF2067N.. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI YOGESH PANDE, D. R. ASSESSEE BY : SHRI K. C. THAKER.. DATE OF HEARING : 13-12-2011. DATE OF PRONOUNCEMENT : 22-12-2011. O R D E R. PER A. L. GEHLOT (A.M.) : THIS APPEAL BY THE ASSESSEE IS FILED AGAINST THE APPELLATE ORDER OF COMMISSIONER OF INCOME TAX (APPE ALS)-II, RAJKOT DATED 26-02- 2010 FOR ASSESSMENT YEAR 2006-07. 2. THE FIRST GROUND RAISED IN THE APPEAL IS IN RESP ECT OF DEPRECIATION ON A STORAGE TANKS. 3. THE BRIEF FACTS OF THE FIRST GROUND ARE THAT THE AO DISALLOWED THE DEPRECIATION CLAIM OF ASSESSEE ON LIQUID STORAGE TA NKS TO THE EXTENT OF RS.1,22,02,908/- BY RESTRICTING THE DEPRECIATION AT THE ATE OF 10% INSTEAD OF 15% CLAIMED BY THE ASSESSEE. THE CIT(A) CONFIRMED THE ACTION OF THE AO WHEREIN, HE HAS TAKEN STORAGE TANKS AS BUILDING AND ALLOWED DEP RECIATION ACCORDINGLY. ITA 935-RJT-2010. A.Y. 2006-07. 2 4. THE LD. A.R. SUBMITTED THAT IN EARLIER YEAR A.Y. 2005-06 VIDE ITA NO.347/RJT/2008 AND OTHERS ORDER DATED 31-05-20011, THE ITAT HAS SENT BACK TO THE FILE OF THE AO WITH A DIRECTION TO RECONSIDER T HE ISSUE AFRESH IN THE LIGHT OF LAW LAID DOWN BY THE APEX COURT IN THE CASE OF CIT VS. ANAND THEATRES 244 ITR 192(SC). THE LD. A.R. FURTHER SUBMITTED THAT THE A PEX COURT IN AN ANOTHER JUDGMENT IN THE CASE OF CIT VS. KARNATAKA POWER COR PORATION 247 IT 268(SC) HELD THAT THE JUDGMENT IN THE CASE OF ANAND THEATRE S CANNOT BE READ SO BROADLY. IN THAT JUDGMENT, THE QUESTION BEFORE THE COURT WAS WHETHER A BUILDING THAT WAS USED AS A HOTEL OR CINEMA THEATER COULD BE GIVEN DE PRECIATION ON THE BASIS THAT IT WAS A PLANT AND IT WAS IN RELATION TO THAT QUESTION THAT THE COURT CONSIDERED THE ISSUED AND COME TO A CONCLUSION THAT A BUILDING WHI CH WAS USED AS A HOTEL OR CINEMA THEATRE COULD NOT BE GIVEN DEPRECIATION ON T HE BASIS THAT IT WAS A PLANT. THE LD. A.R SUBMITTED THAT THE JUDGMENT OF ANAND TH EATRES WAS FOR A LIMITED PURPOSE AND CANNOT BE APPLIED OTHERWISE. THE LD. D .R. ON THE OTHER HAND, SUBMITTED THAT FUNCTIONAL TEST OF STORAGE TANK IS R EQUIRED TO BE EXAMINED. THEREFORE, THE ITAT HAS RIGHTLY SENT BACK MATTER TO THE FILE OF THE AO. 5. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES, RECORD PERUSED. WE FIND THAT THE ITAT IN ASSESSEES OWN CASE OF A.Y .2005-06 ITA NO.37/RJT/2008 DATED 31-05-2011, THE MATTER HAS BEEN SENT BACK TO THE FILE OF THE AO WITH CERTAIN DIRECTIONS TO EXAMINE THE ISSUE IN THE LIG HT OF THE LAW LAID DOWN BY THE HONBLE APEX COURT IN THE CASE OF CIT VS. ANAND THE ATRES (SUPRA). WE FIND THAT THE ITAT HAS ALSO GIVEN DIRECTION TO DECIDE THE ISS UE AFRESH IN ACCORDANCE WITH LAW. TO MAINTAIN CONSISTENCY, WE FOLLOW THE EARLIE R ORDER OF THE ITAT AND IN THE LIGHT OF THE FACTS, WE ARE ALSO SENDING THE ISSUE T O THE FILE OF THE AO WITH AN IDENTICAL DIRECTION AND WITH A CLARIFICATION THAT W HILE EXAMINING THE ISSUE IN THE LIGHT OF THE JUDGMENT OF CIT VS. ANAND THEATRES, TH E AO WILL ALSO CONSIDER THE OTHER JUDGMENTS OF THE APEX COURT ON THE ISSUE INCL UDING THE JUDGMENT CITED BY THE LD. A..R. THE AO ALSO CONSIDER OTHER SUBMISSIO NS OF ASSESSEE AND WILL DECIDE THE ISSUE AFTER PROVIDING REASONABLE OPPORTU NITY OF HEARING TO THE ASSESSEE. ITA 935-RJT-2010. A.Y. 2006-07. 3 6. THE SECOND GROUND IS IN RESPECT OF DISALLOWANCE OF RS.23,34,602/- PAYABLE TO KANDLA PORT TRUST TOWARDS LEASE RENT AS CONTINGENT LIABILITY. 7. THE BRIEF FACTS OF THE GROUND ARE THAT DURING TH E ASSESSMENT PROCEEDING, THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED LEASE PAYABLE TO KANDA PORT TRUST RS.23,34,602/-. THE AO WAS OF THE VIEW THAT IT WAS CONTINGENT LIABILITY ON THE GROUND THAT THE QUANTUM OF LIABILITY CANNOT BE KNOW N EVEN WITH THE FAIR ESTIMATION IN TIME OF CRYSTALLIZATION OF SUCH LIABILITY. THER E WERE SERIES OF DISPUTES IN THE CASE. THE CIT(A) MADE FURTHER VERIFICATION FROM KA NDLA PORT TRUST AND FOUND THAT THE ASSESSEE HIMSELF STATED THAT THE ASSESSEE EXPEC TED TO PAY THE LEASE RENT ONLY AFTER GETTING A DEMAND NOT FROM THE ACCOUNTS D EPARTMENT. THE CIT(A) WAS OF THE VIEW THAT TH LIABILITY HAS NOT BEEN ACCRUED TO THE ASSESSEE AS THE RENEWAL OF LEASE OR LAND UNDER QUESTION WAS PENDING BEFORE THE MINISTRY OF SHIPPING IN DELHI. THE CIT(A) ACCORDINGLY, CONFIRMED THE ACTIO N OF THE AO.. 8. AT THE OUTSET, THE LD. A.R. SUBMITTED THAT THE P ROPERTY WAS USED FOR THEPURPOSE OF BUSINESS. HE FURTHER SUBMITTED THAT THIS ISSUE COVERS IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT IN THE ASSESSE ES OWN CASE FOR A.Y.2005- 06, ITA NO.347/RJT/2008 ORDER DATED31-05-2011. THE RELEVANT FINDING OF THEE ITAT IS REPRODUCED AS BELOW:- 3.4. WE HAVE CONSIDERED THE RIVAL CONTENTIONS OF E ACH PARTIES AND GONE THROUGH THE MATERIAL PLACED ON RECORD. IT IS NOT IN DISPUTE THAT THE ASSESSEE WAS LESSEE AND THE LEASE PERIOD EXPIRED ON 9 TH APRIL, 2004. THE ASSESSEES APPLICATION FOR RENEWAL OF LEASE IS PEN DING BEFORE THE MINISTRY OF SHIPPING. IN FACT, KANDLA PORT TRUST, PASSED RE SOLUTION FOR RENEWAL OF LEASE FOR A FURTHER PERIOD OF 30 YEARS SUBJECT TO A PPROVAL THAT MAY BE GRANTED BY THE GOVT. OF INDIA. IT IS ALSO NOT IN D ISPUTE THAT THE ASSESSEE CONTINUES IN CONTROL AND POSSESSION OF LEASE HOLD L AND. EVEN AFTER THAT THE SAID LAND WAS NOT TAKEN OVER BY KANDLA PORT TRUST. THEREFORE, THE LD. CIT(A) RIGHTLY HELD IRRESPECTIVE OF THE FACT WHETHE R LEASE PERIOD WAS EXTENDED OR NOT, THE ASSESSEE HAS NECESSARILY TO P AY DAMAGE FOR OCCUPATION OF PROPERTY AFTER THE EXPIRY OF THE LEAS E PERIOD. NORMALLY DAMAGES FOR USER OF THE PROPERTY AFTER EXPIRY OF LE ASE PERIOD, WOULD BE AN AMOUNT, PAYABLE AS RENT DURING THE LEASE PERIOD. DU RING THE ASSESSMENT YEAR UNDER CONSIDERATION, ADMITTEDLY, THE ASSESSEE WAS IN POSSESSION OF THE PROPERTY. THEREFORE, IN OUR OPINION, THE ASSES SEE HAS A LIABILITY TO PAY ITA 935-RJT-2010. A.Y. 2006-07. 4 THE AMOUNT. SINCE THE ASSESSEE IS MAINTAINING ACCOU NTS ON MERCANTILE SYSTEM, THE LIABILITY IS TO BE DEDUCTED WHILE COMPU TING TAXABLE INCOME. IT IS NOT IN DISPUTE THAT SUBSEQUENTLY LEASE PERIOD WAS R ENEWED, IN PURSUANCE TO THE APPROVAL GRANTED BY THE GOVT. OF INDIA. THER EFORE, THE LD. CIT(A), WAS RIGHT IN TREATING THE AMOUNT PAYABLE TO KANDLA PORT TRUST TOWARDS LEASE RENT AS AN ASCERTAINED LIABILITY. IN VIEW OF THE ABOVE DISCUSSION, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A ) AND THE SAME IS CONFIRMED. THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 9. AFTER HEARING LEARNED D.R., WE FIND THAT FACTS A RE IDENTICAL TO A.Y.2005-06 THEREFORE, WE FOLLOW THE ABOVE ORDER OF THE ITAT AN D IN THE LIGHT OF THE FACT THIS GROUND OF APPEAL IS DECIDED IN FAVOUR OF THE ASSESS EE. 10. THE THIRD GROUND IS IN RESPECT OF DISALLOWANCE OF RS.3,65,650/- OUT OF LABOUR EXPENSES. 11. THE BRIEF FACTS OF THIS GROUND ARE THAT THE AO DISALLOWED 5% OF LABOUR EXPENSES. LIKE FACTORY MATIKAM, TALAB KAM AND MAFA R REPAIRING EXPENSES ON THE GROUND THAT THESE EXPENSES WERE MADE IN CASH AND NO T VERIFIABLE. THE CIT(A) CONFIRMED THE ACTION OF THE AO. 12. THE LD. A.R. SUBMITTED THAT IN A.Y.2005-06, THE ITAT HAS DECIDED THE ISSUE AGAINST THE ASSESSEE. AFTER HEARING LD. D.R. WE FIND THAT IN A.Y.2005-06, THE ITAT HAS DECIDED THE IDENTICAL ISSUE VIDE ORDER DATED 31-05-2011 SUSTAINING THE 5% DISALLOWANCE ON THE GROUND THAT THE CIT(A) H AS RIGHTLY EXERCISED POWER IN ABSENCE OF PROPER VOUCHERS OF EXPENSES INCLUDES. TH E ITAT HELD THAT 5% DISALLOWANCE IS JUSTIFIED. SINCE THE FACTS ARE IDE NTICAL TO MAINTAIN CONSISTENCY, WE FOLLOW THE ORDER OF THE ITAT AND IN THE LIGHT OF TH AT, THIS GROUND OF ASSESSEE IS DISMISSED. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 22-12-2011. SD/- SD/- ( T. K. SHARMA ), ( A. L. GEHLOT ), JUDICIAL MEMBER. ACCOUNTANT MEMBER. RAJKOT. DATED 22-12-2011. ITA 935-RJT-2010. A.Y. 2006-07. 5 NVA/ COPY TO:- 1.M/S. FRIENDS SALT WORKS & ALLIED INDUSTRIES, GAND HIDHAM. 2.THE ACIT., GANDHIDHAM CIRCLE, GANGHIDHAM. 3.THE C.I.T.(A)-II, RAJKOT. 4.THE C.I.T., RAJKOT. 5.THE D.R., ITAT, RAJKOT. TRUE COPY. BY ORDER, ASSTT. REGISTRAR, ITAT,RAJKOT.