DCIT, Circle-2(1), Hyderabad, Hyderabad V. India Leaf Spring Manufacturing Company Private Limited, Secunderabad, Secunderabad

ITA 970/HYD/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2521 (ITAT-HYDERABAD)
• Duration Of Justice: 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-10-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 06-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: N VENKATA ADITYA
• Keywords: Depreciation; Unabsorbed depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI S. RIFAUR RAH MAN, ACCOUNTANT MEMBER ITA NOS. 969 & 970/HYD/2017 (AYS 2009 - 10 & 2010 - 11) DCIT, CIRCLE - 2(1), HYDERABAD. VS. M/S. INDIA LEAF SPRING MANUFACTURING COMPANY PRIVATE LIMITED, SECUNDERABAD - 003. PAN: AAACI4542E (APPELLANT) (RESPONDENT) FOR ASSESSEE: SHRI N. VENKATA ADITYA FOR REVENUE : SHRI SUNKU SRINIVAS, DR DATE OF HEARING : 24.10 .2017 DATE OF PRONOUNCEMENT : 24.10 .2017 ORDER PER D. MANMOHAN, VP: THESE APPEALS BY REVENUE ARE DIRECTED AGAINST ORDERS PASSED BY LD. CIT(A) - 9, HYDERABAD AND THEY PERTAIN TO AYS 2009 - 10 AND 2010 - 11. 2. IN RESPECT OF A.Y. 2009 - 10, REVENUE RAISED FOLLOWING GROUNDS: - 1. LD. CIT(A) ERRED IN BOTH ON FACTS AND IN LAW. 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WHETHER THE LD. CIT(A) IS CORRECT IN DIRECTING THE A.O. TO DELETE THE ADDITION MADE BY DISALLOWANCE OF EXPENDITURE ON RAW MATERIAL EVEN THOUGH THE ASSESSEE HAS CLAIMED UNEXPE CTEDLY HIGH INPUT COST BUT WITH VERY LOW TURNOVER WHEN THERE IS NO SUBSTANTIAL INCREASE IN COST OF PROCURING RAW MATERIAL? 3. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WHETHER THE LD. CIT(A) IS CORRECT IN DIRECTING THE A.O. TO DELETE THE ADDITION MADE ON DIFFERENCE IN SALE OF SCRAP EVEN THOUGH THE ASSESSEE DID NOT ATTRIBUTE VALID REASONS FOR SALE OF SCRAP AT LESS THAN MARKET RATE? 4. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WHETHER THE LD. CIT(A) IS CORRECT IN ALLOWING THE UNABSORBED DEPRECIATION OF AY S 1998 - 99 TO 2001 - 02 AS AGAINST THE PRINCIPLE LAID DOWN BY ITAT BOMBAY SPECIAL BENCH IN THE CASE OF M/S. TIMES GUARANTEE LIMITED? 3. FOR A.Y. 2010 - 20 11, ONLY ONE SUBSTANTIAL GROUND W AS URGED WHICH READS AS UNDER: - 2 IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WHETHER THE LD. CIT(A) IS CORRECT IN ALLOWING THE UNABSORBED DEPRECIATION OF AYS 1998 - 99 TO 2001 - 02 AS AGAINST THE PRINCIPLE LAID DOWN BY ITAT BOMBAY SPECIAL BENCH IN THE CASE OF M/S. TIMES GUARANTEE LIMITED? 4. F ACTS NECESSARY FOR DISPOSAL OF APP EALS ARE STATED IN BRIEF. ASSESSEE - COMPANY IS ENGAGED IN MANUFACTURING OF AUTOMOBILE SPARE PARTS. FOR THE A.Y. 2009 - 10 IT DECLARED TOTAL LOSS OF RS. 9 CRS WHEREAS ASSESSMENT WAS COMPLETED TAKING INTO CONSIDERATION TAX PAYABLE ON LONG TERM CAPITAL GAINS. 5. DURING ASSESSMENT PROCEEDINGS IT WAS OBSERVED THAT ASSESSEES RAW MATERIAL CONSUMPTION, PERCENTAGE TO SALE DURING THE YEAR UNDER CONSIDERATION, IS 97.67% AS AGAINST 81 - 84% IN PREVIOUS ASSESSMENT YEARS. A.O. CALLED UPON ASSESSEE TO EXPLAIN AS TO WHY THE RE WAS INCREASE IN CONSUMP TION OF RAW MATERIAL. IN REPLY IT WAS STATED THAT ASSESSEE - COMPANY IS IN THE PROCESS OF WIN DING UP AND TURNOVER WAS REDUCED FROM RS. 32 CRS TO RS. 3 CRS. DUE TO FINANCIAL PROBLEMS, ASSESSEE - COMPANY WAS COMPELLED TO CLOSE THE BUS INESS AND HAD TO SELL FINISHED PRODUCTS AT LESSER PRICE AND THUS MOST OF THE RAW MATERIAL WAS DISPOSED OF AT SCRAP VALUE; BESIDES THAT THERE WAS NO PRODUCTION THROUGHOUT THE YEAR. A.O. REJECTED THE CONTENTION OF ASSESSEE. 6. DURING THE APPELLATE PROCEED INGS IT WAS SUBMITTED THAT THE ASSESSEE FURNISHED DETAILS OF PURCHASES AND ALL EXPENDITURE AND THE A.O. , HAVING NOT NOTICED ANY DISCREPANC IES , THE RESULTS SHOWN BY ASSESSEE SHOULD NOT HAVE BEEN DOUBTED. IT WAS ALSO SUBMITTED THAT THE RATES OF FINISH ED GOO DS HAVE GONE DOWN AND ASSESSEE HAD TO SELL THE FINISHED GOODS AT A LESSER PRICE TO SMALL ER DEALERS TO SUSTAIN PRODUCTION. IN FACT PRODUCTION HAS GONE DOWN BY 90% . 7. LD. CIT(A) VERIFIED THE FACTS AND NOTICED THAT THERE WAS SUBSTANTIAL DECREASE IN PRODUCTION APART FROM THE FACT THAT THE COMPANY WAS IN SERIOUS FINANCIAL TROUBLES AND SUBSEQUENTLY CLOSED DOWN. THIS BEING THE LAST YEAR OF PRODUCTION, ASSESSEE HAD TO EITHER SELL OFF MOST OF THE RAW MATERIAL OR MANUFACTURE THE REMAINING RAW MATERIAL INTO FINISHED GOODS AND DISPOSE OF THE SAME AS DISTRESS SALE. IT WAS ALSO OBSERVED THAT A.O. HAVING NOT NOTICED A SINGLE DISCREPANCY IN THE PRODUCTION DETAILS SUBMITTED BY ASSESS EE, HE OUGHT NOT TO HAVE DISALLOWED 14.05% OF RAW MATERIAL CONSUMPTION, WITHOUT ANY BASIS. THEREFORE HE DELETED THE ADDITION ON WHICH THE REVENUE PREFERRED AN APPEAL VIDE GROUND NO.2. 8. SIMILARLY ASSESSEE HAS SHOWN 72 METRIC TONS (MT) OF SCRAP AT AN AVERAGE RATE OF 20,444/ - PER MT. A.O. ESTIMATED THE SALE PRICE AT RS. 25,000/ - PER MT AND SOUGHT 3 TO ADD THE SAME AS INCOME. THE PLEA OF ASSESSEE , THAT THERE BEING NO DISCREPANCY IN SALE OF SCR AP , EST IMATING THE SALE VALUE FOR SCRAP IS NOT IN ACCORDANCE WITH LAW WAS REJECTED BY A.O. BEFORE THE FIRST APPELLATE AUTHORITY IT WAS CONTENDED THAT A.O. MADE AN ADDITION WITHOUT GIVING ANY BASIS. LD. CIT(A) HAVING ACCEPTED THE F ACTUAL MATRIX OF THE CASE, DELE TED THE ADDITION REFERABLE TO SALE OF SCRAP AND THUS THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL , VIDE GROUND NO.3. 9. THE LAST ISSUE PERTAINS TO ALLOWING OF UNABSORBED DEPRECIATION OF AYS 1998 - 1999 TO 2001 - 2002. A.O. DID NOT ALLOW THE DEPRECIATION TO BE SET OFF AGAINST SHORT TERM CAPITAL GAINS, BY PLACING RELIANCE UPON DECISION OF THE ITAT, SPECIAL BENCH IN THE CASE OF TIMES GUARANTEE LTD WHEREAS , LD. CIT(A) RELIED UPON DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF GENERAL MOTORS PVT LTD (354 ITR 244) TO CONCLUDE THAT DEPRECIATION RELATING TO AYS 1998 - 1999 CAN BE CARRIED FORWARD AND AS SESSEE CAN CLAIM SET OFF OF SAME AGAINST CURRENT YEAR S INCOME . LD COUNSEL FOR THE ASSESSEE ALSO RELIED UPON A DECISION OF THE ITAT, HYDERABAD BENCH IN THE CASE OF GAYATRI CAPITAL LTD (ITA NO. 427/HYD/2015) AND PHENO PLAST LTD (ITA NOS. 1478 & 180/HYD/2013). 10. LD. CIT(A) OBSERVED THAT DECISION OF THE ITAT, SPECIAL BENCH IN THE CASE OF TIMES GUARANTEE LTD WAS DISTINGUISHED BY HONBLE GUJARAT HIGH COURT WHEREBY IT WA S STATED THAT THE RESTRICTION IS NOT VALID AND UNABSORBED DEPRECIATION CAN BE SET OFF AGAINST PROFITS AND GAINS OF SUBSEQUENT YEARS. LD. CIT(A) RELIED UPON A CIRCULAR ISSUED BY CBDT (CIRCULAR NO.762, DATED 08.02.1998 AS WELL AS CIRCULAR NO. 14 OF 2001 ) TO HOLD THAT UNABSORBED DEPRECIATION OF EARLIER YEARS CAN BE CARRIED FORWARD TO SUCCEEDING YEARS WITHOUT ANY TIME LIMIT. AGGRIEVED, REVENUE IS IN APPEAL BEFORE THE TRIBUNAL VIDE GROUND NO.4 IN THE GROUNDS OF APPEAL. 11. AT THE TIME OF HEARING LD COUNSEL FOR THE ASSESSEE PLACED HEAVY RELIANCE ON THE DECISION S OF THE ITAT, HYDERABAD BENCH TO SUBMIT THAT UNDER IDENTICAL CIRCUMSTANCES , THE ITAT, HYDERABAD BENCH IN THE CASE OF PHENO PLAST LTD (ORDER DATED 30.06.2015) DECIDED THE ISSUE IN FAVOUR OF ASSESSEE AND REQUESTED FOR EXTENDING THE SAME RELIEF EVEN IN THIS YEAR. 12. WE HAVE HEARD LD COUNSEL FOR THE ASSESSEE AND PERUSED RECORD. WE HAVE ALSO HEARD LD DR IN THIS REGARD. THE FACT THAT ASSESSEE - COMPANY WAS ON THE VERGE OF CLOSURE AND IT HAD TO DISPOSE OF THE EXISTING RAW MATERIAL AND FINISHED PRODUCTS AS DISTRESS SALE COULD NOT BE DISPUTE D AND IN FACT A.O. DID NOT FIND A SINGLE DISCREPANCY 4 IN PRODUCTION DETAILS SUBMITTED BY ASSESSEE. HA VING REGARD TO THE CIRCUMSTANCES, LD. CIT(A) SET ASIDE THE DISALLOWANCE MADE BY A.O. BOTH IN RESPECT OF DISALLOWANCE OF RAW MATERIAL CONSUMPTION AS WELL AS WITH REGARD TO SALE OF SCRAP. UNDER THESE CIRCUMSTANCES, WE DO NOT FIND ANY ERROR IN THE ORDER PASS ED BY LD. CIT(A) AND THEREFORE, GROUNDS NO. 2 AND 3 RAISED BY THE REVENUE ARE HEREBY REJECTED. AS REGARDS GROUND NO.4 IT IS NOT IN DISPUTE THAT THE ITAT, HYDERABAD BENCH HAD BEEN TAKING A CONSISTENT STAND THAT DEPRECIATION CAN BE CARRIED FORWARD FROM EARL IER YEARS WITHOUT ANY TIME LIMIT. LD DR COULD NOT PLACE ANY CONTRARY DECISION ON THIS ASPECT EXCEPT STATING THAT THE ISSUE IS COVERED BY DECISION OF THE ITAT, MUMBAI SPECIAL BENCH OVERLOOKING THE FACT THAT VARIOUS BENCHES OF THE TRIBUNAL FOLLOWED THE LATT ER DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF GENERAL MOTORS PVT LTD (354 ITR 244) AND ALSO THE CIRCULARS ISSUED BY CBDT (CIRCULAR NO.762, DATED 08.02.1998 AND CIRCULAR NO.14, DATED 22.11.2001). HAVING REGARD TO THE CIRCUMSTANCES, WE DO NOT FIN D ANY INFIRMITY IN THE ORDER OF LD. CIT(A). ACCORDINGLY GROUND NO.4 URGED FOR A.Y. 2009 - 10 IS HEREBY DISMISSED. IN FACT FOR A.Y. 2010 - 2011, THE ONLY GROUND URGED BEFORE US IS REGARDING ALLOWABILITY OF CARRIED FORWARD UNABSORBED DEPRECIATION. FACTS BEING THE SAME, WE DISMISS THE APPEAL FILED BY REVENUE. 13. IN THE RESULT, APPEALS FILED FOR AYS 2009 - 10 AND 2010 - 11 ARE HEREBY DISMISSED. PRONOUNCED ACCORDINGLY IN THE OPEN COURT ON 24 TH OCTOBER, 2017. S D / - S D / - (S. RIFAUR RAHMAN ) (D. MANMOHAN ) ACCOUNTANT MEMBER VICE PRESIDENT HYDERABAD, DATED: 24 TH OCTOBER , 2017 OKK, SR.PS COPY TO 1. M/S. INDIA LEAF SPRING MANUFACTURING COMPANY LIMITED, 61 - A, M.G. ROAD, SECUNDERABAD - 500003. 2. DCIT, CIRCLE - 2(1), 5 TH FLOOR, R.NO.514, SIGNATURE TOWERS, KONDAPUR, HYDERABAD. 3. CIT(A) - 9, HYDERABAD. 4. PR. CIT - 2, HYDERABAD . 5. D.R. ITAT A BENCH, HYDERABAD. 6. GUARD FILE