M/S. BILL FORGE PRIVATE LIMITED,BANGALORE V. THE ASSISTANT COMMISSIONER OF INCOME TAX (LTU), CIRCLE - 1, BANGALORE

ITA 1161/BANG/2019

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Mahindra CIE Automotive Ltd., formerly known as Bill Forge Pvt. Ltd., appealed against the order of the Commissioner of Income Tax (Appeals) - 10, Bangalore, which had partly allowed their appeal against the Assessment Order passed by the Assistant Commissioner of Income Tax, Large Taxpayers Unit, Circle \\u2013 1, Bangalore. The primary issues revolved around the disallowance of depreciation and additional depreciation on various assets, the treatment of certain expenditures as capital rather than revenue, and the addition of unexplained investments based on discrepancies between invoice values and capitalized values in the books. The Tribunal's decision involved restoring several issues to the Assessing Officer for further examination and verification of the assessee's claims and evidence.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 32874 (ITAT-BANGALORE)
• Duration Of Justice: 5 year(s) 5 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2024
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 07-11-2024
• Assessment Year: 2012-2013
• Appeal Filed On: 23-05-2019
• Other Referred Cases: Commissioner of Income Tax vs. Oswal Agro Mills Ltd, Commissioner of Income Tax vs. Sonal Gum Industries, ACIT vs. Indus League Clothing Ltd
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NEERA MALHOTRA
• Assessee Lawyers: NARENDRA SHARMA
• Keywords: Capital asset; Additional evidence; Revenue expenditure; Unexplained expenditure; Depreciation; Additional depreciation; Unexplained investment; Cost of acquisition; Capital expenditure
• Section: 143(3); 143(2); 32; 13

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH BANGALORE BEFORE SHRI MAHARISHI PRASHANT, VICE PRESIDENT AND SHRI PRAKASH CHAND YADAV, JUDICIAL MEMBER SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ITA No.1161/Bang/2019 Assessment Year : 2012-13 Mahindra CIE automotive Ltd., formerly known as Bill Forge Pvt. Ltd., #9C, Hosur Road, Bommasandra Industrial Area, Bangalore – 560 099. PAN : AAACB 8620 J Vs. ACIT (LTU), Circle –1, Bangalore. APPELLANT RESPONDENT Assessee by : Shri. Narendra Sharma, Advocate Revenue by : Mrs. Neera Malhotra CIT DR Date of hearing : 07.11.2024 Date of Pronouncement : 18.11.2024 O R D E R PerPrashant Maharishi, Vice President: 1. This appeal is filed by Mahindra CIE automotive Ltd., formerly known as Bill Forge Pvt. Ltd., (the assessee/appellant) for Assessment Year 2012-13 against the Appellate Order passed by the Commissioner of Income Tax (Appeal) - 10, Bangalore [the learned CIT(A)], dated 28.03.2019 wherein the appeal filed by the assessee against the Assessment Order passed by the Assistant Commissioner of Income Tax, Large Taxpayers Unit, Circle – 1, Bangalore (the learned Assessing Officer), under section 143(3) of the Income Tax Act, 1961 (hereinafter called ‘the Act’) dated 26.03.2015, was partly allowed. ITA No.1161/Bang/2019 Page 2 of 15 2. The assessee is aggrieved with the same and has raised following grounds of appeal: 1. The order of the Learned Appellate Authority (`LAA') is bad in law to the extent it is prejudicial to the Appellant. 2. The LAA erred in not considering the submissions, more specifically, the additional evidence introduced by the Appellant against the order passed by the LAO. 3. The LAA erred in confirming the action of the LAO of disallowing the Appellant's claim of depreciation and additional deprecation: a) Normal depreciation amounting to Rs. 48,04,670/- (Para 5.2.1 of the order) under section 32 on additions to plant and machinery. b) Disallowance of depreciation and additional depreciation amounting to Rs. 57,47,464/-(Para 5.2.3 of the order) on the basis that no reliable evidence has been furnished to establish that the assets have been put to use during the year. c) Depreciation and additional depreciation amounting to Rs. 3,56,07,846/- (Para 5.2.4 of the order) on the basis that the assets have been capitalized prior to the date of invoice. d) Without prejudice to the above ground, the LAA erred in not considering the submission made by the Appellant acknowledging the error crept in capitalising the assets. 4. A. The LAA erred in confirming the addition made by the LAO of treating a sum of Rs. 5,93,500/- being revenue expenditure as capital expenditure. B. Without prejudice to the above ground, the LAA erred in not allowing normal depreciation and additional depreciation on the capitalised value of the assets. 5. The LAA erred in confirming the action of the LAO in adding a sum of Rs. 16,24,491/- as income by treating the differential amount of ITA No.1161/Bang/2019 Page 3 of 15 the value of the asset as per Form 3CD and as per invoice as unexplained investments of the Appellant. 6. The LAA erred in not appreciating the fact that travelling expenditure of Rs. 6,54,487/- is incurred wholly and exclusively for business purpose and undertook additions merely on the basis of surmises by considering an element of personal nature. 3. The brief fact of the case shows that assessee is a company engaged in manufacture of forged auto components, filed its Return of Income (ROI) on 28.09.2012 at a total income of Rs. 14,09,65,540/-. This ROI was picked up for scrutiny by issuing notice under section 143(2) of the Act, on 07.08.2013. The Assessment Order was passed determining total income of the assessee at Rs. 20,15,65,845/- by making several disallowances. The assessee preferred appeal before the learned CIT(A) wherein assessee was granted some relief and appeal was partly allowed. However, still where the additions / disallowances were confirmed, the assessee is aggrieved and has preferred this appeal. 4. Assessee has furnished several compilation and charts during the course of hearing and prior to hearing. In deciding this appeal, we have considered those pages which were referred to before us during hearing. 5. Ground Nos. 1 and 2 of the appeal are general in nature, no specific arguments were advanced and therefore these grounds are dismissed. 6. As per ground number 3 of the appeal the assessee is challenging the disallowance of depreciation. Assessee has also raised an additional ground of appeal connected to this ground. As per ground number 3 assessee is challenging the disallowance of the appreciation on the assets as assessee failed to show that when those assets are put to use. As per additional ground ITA No.1161/Bang/2019 Page 4 of 15 it is challenged that once an asset has entered the block of asset it is neither possible nor it is necessary to consider whether each asset is used in the year and the test of user has to be applied upon the block of the asset as a whole instead of upon an individual asset. Therefore, it was claimed that the additional depreciation and appreciation disallowed by the learned assessing officer and confirmed by the learned CIT – A cannot be upheld. To support his proposition, the assessee has relied on the decision of the honourable Delhi High Court in case of Commissioner of income tax versus Oswal Agro Mills Ltd (2011) 197 taxman 25 (Delhi), decision of the honourable Gujarat High Court in case of Commissioner of income tax versus Sonal Gum Industries (2010) 322 ITR 542 (Gujarat) and decision of the coordinate bench in case of ACIT versus Indus League Clothing Ltd (ITA number 82/Bangalore/2018 dated 17 November 2021. We will proceed to decide the admission as well as adjudication on the ground after deciding ground number 3 of the appeal of the assessee, if warranted. 7. As per ground No. 3(a), the assessee is aggrieved by denial of depreciation of Rs. 48,04,670/-. Brief facts of the case shows that assessee has purchased a machinery with asset code 402414 imported from United Line Agencies, Philadelphia, USA as secondhand machinery. The total value of the machinery was Rs. 6,40,62,268/-. Assessee claimed additional depreciation as well as depreciation on the same machinery. As the assessee purchased secondhand machinery, the additional depreciation was not allowed. However, with respect to the allowability of normal depreciation, the learned AO disallowed the same holding that assessee has failed to prove with evidence that machinery was put to use during the relevant year. The learned CIT(A) also confirmed the disallowance of normal depreciation holding that assessee has not produced any document before the AO or in the appeal proceedings of user of the assets during the year. ITA No.1161/Bang/2019 Page 5 of 15 8. The learned AR submitted that assessee has produced the certificate of Chartered Engineer being installation certificate along with the copies of the invoices by filing additional evidence before the learned CIT(A) for allowability of claim of normal depreciation which was not at all considered by the learned CIT(A). He specifically referred to Page No.209 of the Paper Book wherein installation certificated dated 26.09.2011 was issued by B. K. Narayana Bhagavan, Chartered Engineer, certifying that asset code No.402414 has been installed and put to use for commercial production w.e.f. 26.09.2011. He therefore submitted that assessee should have been granted depreciation on the asset on the basis of above installation certificate. 9. The learned DR vehemently submitted that installation certificate submitted by the assessee of the Chartered Engineer does not help the case of the assessee for the reason that there is nothing mentioned in such installation certificate. 10. We have carefully considered the rival contentions and perused the Orders of the learned lower authorities. In this case, the simple fact shows that assessee has purchased a machinery for a total consideration of Rs.6,40,62,268/-, on which, according to the assessee, the depreciation is allowable for Assessment Year 2012-13 as same was put to use on 26.09.2011. For the purpose of user of the asset, only evidence submitted by the assessee was an installation certificate dated 26.09.2011 of Chartered Engineer. On careful perusal of the certificate of Chartered Engineer, we find that the certificate was issued without pointing out any evidence of user of that asset or showing what is the verification process that has been carried out by the Chartered engineer to certify the date of putting assets in to use. . In fact, the machinery is “Verson Press - Model – 52 – 2000 – 96 – 48T” having various parts and accessories which was combined as asset code No.402414. Therefore, on import of the ITA No.1161/Bang/2019 Page 6 of 15 machinery, all the parts would have been combined and then such machinery would have been installed and then put to use, if any. Further, merely producing the installation certificate without substantiating that on what material and evidence and inspection such certificate has been issued, credence to such certificate could not be given. Therefore, in the interest of justice, one more opportunity is granted to the assessee to substantiate the user of the asset contained in asset code No.402414 that same has been put to use during Financial Year 2011-12 by showing job card, machine card, production report, etc., before the learned AO. The onus is always on the assessee to show that asset is put to use for the claim of depreciation. Therefore, ground No.3(a) of the appeal is restored back to the file of the learned AO with above direction to the assessee. 11. Ground No. 3(b) is also with respect to depreciation on assets contained in item code Nos.402224 and 402249. The learned AO, in paragraph 3.6, noted that assessee has purchased two assets with code Nos.402224 and 402249 on 16.05.2011and 20.05.2011 with capitalization value of Rs.7,90,875/- and Rs.1,36,87,594/-. In the tax audit report, the assessee has not mentioned the date of capitalization of these assets. The learned AO, therefore, did not allow any depreciation as well as the additional depreciation on this sum. Thus, the additional depreciation of Rs.32,53,694/- and the normal depreciation of Rs. 24,62,770/- totaling to Rs. 57,47,464/- was disallowed. The assessee preferred an appeal before the learned CIT(A). The learned CIT(A) noted that assessee has produced installation certificate from Chartered Accountant which is duplicate certificate. Therefore, he held that assessee has not been able to prove with reliable evidence that these machines were actually put to use during the Financial Year. Accordingly, the Order of the learned AO was upheld. ITA No.1161/Bang/2019 Page 7 of 15 12. The learned AR submitted that as the original installation certificate was lost, the assessee obtained duplicate installation certificate was produced and therefore, the assessee should have been granted additional depreciation as well as normal depreciation. 13. The learned DR referred to the remand report and submitted that in both the installation certificates, the signature of the Chartered Engineer is not matching and therefore, as assessee has failed to produce any evidence of the user of the asset, the depreciation and additional depreciation is correctly disallowed. 14. We have carefully considered the rival contentions and perused the Orders of the learned lower authorities. In this case, the asset No.402224 was purchased by the assessee from M/s. Endtec Machines by invoice dated 14.05.2011at a total cost of Rs.7,90,875/-. For the user test of the asset, assessee submitted an installation certificate of B. K. Narayana Bhagavan, Chartered Engineer, dated 24.05.2011 stating that such machinery is put to use on 24.05.2011. For the asset code No.402249, the assessee purchased a machine along with its parts and accessories for Rs.1,56,27,594/- and for the user an installation certificate of the same Chartered Engineer was submitted dated 11.07.2011 that this machine was put to use on 11.07.2011. Assessee claimed depreciation only on the basis of such installation certificate of Chartered Engineer. On perusal of that certificate, we note that t certificates does not speak about what are the evidence were verified by the CE and what is the process of verification carried out to show that installation date is correctly mentioned therein. As the user of the asset, it is demonstrated by submitting only the installation certificate without any evidence of machine card or job work on that machine, as directed in ground No.3(a),we also restore this issue back to the file of learned AO with direction to the assessee to substantiate the user of the asset ITA No.1161/Bang/2019 Page 8 of 15 for claim of depreciation and additional depreciation. Accordingly, this ground of appeal is allowed with above direction. 15. In ground No. 3(c), the learned AO disallowed the claim of depreciation along with additional depreciation of Rs.356,07,846/- in facts stated at paragraph No.3.9, the learned AO has noted that date of addition is mentioned which is prior to the date of invoice. Therefore, additional depreciation and normal depreciation was disallowed. The assessee submitted that the error on the date of capitalization of the fixed assets has occurred due to ERP module implementation and requested to allow depreciation on the basis of recomputation submitted by him. It was also submitted that additional depreciation shall be allowed in the year in which the assets are acquired and installed even if not put to use. The learned CIT(A) called for the remand report and thereafter, the learned CIT(A) held that the assessee has claimed the capitalization of the assets before the date of invoice that means the machinery was put to use before its purchase, which is not possible. He further held that the assessee has also not produced any evidence that the error in the computer module has resulted in the above error. He also rejected the contention of the assessee that even if the machinery is not put to use, additional depreciation is allowable. Accordingly, the action of the learned AO was confirmed. 16. The learned AR submitted that assessee has submitted that there is an error in the computer module of the assessee and further furnished the invoices and also the production log from the ERP and installation certificate to substantiate its claim. Further, the affidavit of the Director of the company was also submitted. It was therefore submitted that as these machines are used during the year, the claim of additional depreciation as well as normal depreciation should have been allowed. ITA No.1161/Bang/2019 Page 9 of 15 17. The learned DR vehemently supported the Orders of the learned lower authorities and submitted that assessee has failed to show any evidence as to how the assets were capitalized in the books of accounts of the assessee prior to the invoice date. It was also submitted that the claim of the computer error was also not substantiated. 18. We have carefully considered the rival contentions and perused the Orders of the learned lower authorities. Admittedly in this case, the assets were capitalized in the books of the assessee prior to the date of purchase invoice. However, that cannot be the only ground for disallowing claim of normal depreciation or additional depreciation to the assessee if the assessee has purchased those assets and used it for the purpose of the business during the year, and error has occurred due to implementation of ERP module. Before the ld Lower authorities, assessee has explained the error is also substantiated with affidavit of the Director. For the purpose of the user of the asset, the assessee has also submitted the invoice as well as the production log from the ERP and installation certificates. Therefore, as these evidences have not been verified by the lower authorities, we restore this ground of appeal back to the file of the learned AO with a direction to the assessee to substantiate that those assets have been put to use during the Financial Year by producing the production log or any other evidences as merely bald installation certificate does not help the case of the assessee. The onus would be on the assessee to substantiate that asset is owned by the assessee and put to use during the year. The learned AO may verify the same and then decide the issue afresh. Accordingly, Ground No 3 ( c ) of Appeal is allowed as indicated above. 19. As we have already restored ground number 3 of the appeal of the assessee back to the file of the learned assessing officer with a direction to the assessee ITA No.1161/Bang/2019 Page 10 of 15 to substantiate that on which date the assets were forced put to use, we do not find it necessary to adjudicate additional ground of appeal, as agreed by the learned authorized representative and the learned CIT DR, for the reason that in the present case the asset has not entered into the Block of assets at all as it is to be determined when assets are first put to use. It is not the case that assets have already entered into the Block of the assets. 20. Ground No. 4 of the appeal is with respect to the disallowance of Rs. 5,93,500/- pertaining to six assets. According to the assessee, this amount relates to exchange difference and freight for the above fixed assets. The assessee has debited these expenditures to the P & L account. The learned AO is of the view that it should have been capitalized. Further, as the assessee has not been able to establish that these machineries were put to use during the year, he disallowed the same. On appeal before the learned CIT(A), it was contested that such expenses may be treated as part of the cost of the assets and allow depreciation thereon. The learned CIT(A) categorically held that these expenditures are capital expenditure and, further, as the depreciation and additional depreciation on the impugned assets are disallowed, same cannot be now allowed to the assessee. 21. The learned authorized representative pressed ground number 4B of the appeal that if the above expenditure is considered as a capital expenditure than on the same also depreciation and additional depreciation should be allowed. He does not want to press ground number 4A of the appeal. 22. The learned CIT DR vehemently submitted that only if such expenditure qualifies the capitalization to the capital asset i.e., fixed assets then only depreciation should be granted. ITA No.1161/Bang/2019 Page 11 of 15 23. We have carefully considered the rival contention and perused the orders of the learned that lower authorities. The dispute in this ground is whether a sum of ₹ 593,500/– is allowable to be capitalized to the fixed assets and then, if eligible, the depreciation thereon and additional depreciation also should be granted or not. Assessee is already agreed and not pressed that such expenditure is revenue in nature. Thus, ground number 4A of the appeal is dismissed. However, if such expenditure is part of the cost of the assets incurred to bring the fixed assets into existence, naturally it should be considered as the cost of acquisition of the asset and assessee is entitled to claim of depreciation and additional depreciation thereon. Therefore, we allow ground number 4B of the appeal and direct the learned assessing officer to grant depreciation on these amounts if assess demonstrate that this expenditure relates to the capital assets on which depreciation and additional depreciation is allowable. 24. Ground number 5 of the income with respect to addition of ₹ 1,624,491/– being the difference in the amount of the cost of the assets as stated in form number 3CD and the amount stated in invoices as unexplained investment of the assessee. During the course of assessment proceedings, the learned assessing officer noted that some of the assets have invoice value higher than the asset value capitalized in the books of account in case of three different type of assets. The learned that assessing officer made the addition of ₹ 16,24,491/– as unexplained investment. When the matter reached before the learned CIT – A the assessee explained that the invoice value and times the excise duty, additional duty levy able under the customs act for which credit is claimed separately. Assessee also submitted reconciliation thereof. However, the learned CIT – A does not find the explanation of the assessee convincing because the assessing officer has taken the figure of the invoice ITA No.1161/Bang/2019 Page 12 of 15 for the purchase of machinery and has not included tax thereon. Therefore, there is no merit. 25. The learned authorized representative submitted that the assessing officer has taken the incorrect figures which the assessee is not able to identify that wherefrom the invoice value is have been taken by the AO. He also submitted a chart before ours showing the reconciliation of the value shown in the invoices as well as the value at which asset is capitalized. It was further stated that when an asset is purchased, invoice value of such asset also contains the amount of excise duty and custom duty et cetera, for which, separate credit is taken by the assessee, therefore, the value of such asset is capitalized at net value of those duties. He therefore submitted that there is no error in the accounting. 26. The learned CIT DR submitted that the assessee could not reconcile the amounts before the learned that lower authorities and therefore the addition was made. 27. We have carefully considered the rival contention and values the orders of the learned lower authorities. We find that the learned assessing officer has noted in three cases of fixed assets where the value of the invoice is higher than the amount at which the asset is capitalized in the books of accounts of the assessee. Such differential amount was added by the learned assessing officer as unexplained expenditure. We find that before ours the assessee has submitted a chart of reconciliation of invoice value as well as the capitalized value in the books of accounts of the assessee. The claim of the assessee is that invoice value includes duties and taxes on such fixed assets forming separate credit claim is available to the assessee, therefore, the value of assets capitalized in the books of accounts as actual cost is net of those duties. We ITA No.1161/Bang/2019 Page 13 of 15 find that if the difference is on account of the above fact, no addition could have been made in the hence of the assessee of unexplained expenditure. However, it is also the claim of the assessee that assessing amount wherefrom the amount of figures taken by the learned assessing officer for working out the amount of unexplained expenditure. In view of this facts, we restore ground number 5 of the appeal of the assessee to the learned assessing officer with a direction to the assessee to substantiate that the difference in the value of invoice of fixed assets and the amount recorded in the books of account is only because of credit of the duties, if so, AO is directed to delete the addition. Accordingly ground number 5 of the appeal is allowed to that extent. 28. Ground number 6 is with respect to the disallowance of travelling expenditure. Assessee has incurred a travelling expenditure of ₹ 10,654,487 out of that the learned assessing officer has disallowed a sum of ₹ 654,487 holding that the expenditure are in the nature of personal expenditure. The learned CIT – A also confirmed the action of the learned assessing officer holding that the element of personal expenditure of director and employees cannot be ruled out in the case of travelling expenses. Therefore, assessee is in before us. 29. The learned authorized official the assessee is a corporate entity and therefore there cannot be any expenditure which is personal in nature. It was further submitted that all those expenditures are incurred by the assessee wholly and exclusively for the purposes of the business of the assessee. It was further submitted that no instances were provided which can even be said to be even the personal expenditure of the employees and directors. It was stated that in absence of any such instance, the disallowance cannot be made. 30. The learned CIT DR supported the orders of the learned lower authorities. ITA No.1161/Bang/2019 Page 14 of 15 31. We have carefully considered the rival contentions and use the orders of the learned lower authorities. Admittedly the case is that the assessee is a corporate entity, therefore there cannot be any personal expenditure incurred by the assessee which can be disallowed in the hence of corporate entity holding it to be personal in nature. It may be a case that in particular expenditure is not wholly and exclusively incurred by the assessee for the purposes of the business. There is no such instance pointed out by the learned lower authorities. In any case personal expenditure of the directors and employees, even if those are incurred, same could not have been disallowed in the hence of the assessee company as it is a staff expenditure or expenditure on employees. Even otherwise a limited company by its very nature cannot have personal expenditure. Thus, we reverse the orders of the learned Lower authorities and direct learned AO to delete the disallowance of Rs.6,54,487/- out of travelling expenditure and allow Ground no 6 of the appeal. 32. In the result appeal is allowed partly to extent indicated above. Pronounced in the open court on the date mentioned on the caption page. Sd/- Sd/- Sd/- (PRAKASH CHAND YADAV) (PRASHANT MAHARISHI) Judicial Member Vice President Bangalore. Dated: 18.11.2024. /NS/* ITA No.1161/Bang/2019 Page 15 of 15 Copy to: 1. Appellants 2. Respondent 3. DRP 4. CIT 5. CIT(A) 6. DR,ITAT, Bangalore. 7. Guard file By order Assistant Registrar, ITAT, Bangalore. "