Sri K Raghavendra Rao, Dowlaiswaram V. The ACIT, Circle-1, Rajahmundry

MA 36/VIZ/2009

• Counselvise Citation: [2010] 123 COUNSELVISE.COM (IT) 4542 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 6 month(s) 22 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 23-03-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 05-02-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 01-09-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G S S GOPINATH
• Keywords: Depreciation
• Section: 32

Judgement Text

PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER MA NO.35 & 36/VIZAG/2009 (ARISING OUT OF ITA NOS.500/VIZ/2005 & 218/V IZ/2006) ASSESSMENT YEAR: 2002-03 & 2003-04 K. RAGHAVENDRA RAO, EAST GODAVARI VS. ACIT, CIRCLE-1, RAJAHMUNDRY (APPELLANT) (RESPONDENT) PAN NO:ACPPK 5025 Q APPELLANT BY: SHRI G.V.N. HARI, CA RESPONDENT BY: SHRI G.S.S. GOPINATH, DR ORDER PER SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER : THESE MISCELLANEOUS APPLICATIONS ARE PREFERRED BY THE ASSESSEE AGAINST THE ORDERS OF THE TRIBUNAL IN ITA NOS.500/V IZAG/2005 AND 218/VIZAG/2006 WITH THE SUBMISSION THAT THE TRIBUNA L HAS HELD THAT THE PROFITS ON SALE OF CYLINDERS IS CHARGEABLE TO TAX U /S 41(1) OF THE ACT UNDER PROFITS AND GAIN FROM BUSINESS AFTER HAVING RELIED UPON THE JUDGMENT OF BOMBAY HIGH COURT IN THE CASE OF NECTAR BEVERAGES ( P) LTD., VS. DCIT REPORTED IN (2004) 267 ITR 385. THE LD COUNSEL FOR THE ASSESSEE INVITED OUR ATTENTION TO THE FACT THAT THE SAID BOMBAY HIGH COURT JUDGMENT HAS RECENTLY CAME UP FOR CONSIDERATION BEFORE THE HONB LE SUPREME COURT AND THE HONBLE SUPREME COURT CATEGORICALLY HAS HELD TH AT THE PROFITS FROM SALE OF ASSETS WHOSE COST IS LESS THAN RS.5000/- AND 100 % DEPRECIATION WAS ALLOWED BEFORE THE AMENDMENT BROUGHT BY THE FINANCE ACT, 1995 IS NOT TAXABLE EITHER U/S 41 OR U/S 50 OF THE INCOME-TAX A CT. THE JUDGMENT IS REPORTED IN 2009 AT 314 ITR 314 A COPY OF THE SAME IS PLACED ON THE RECORD FOR PERUSAL. PAGE 2 OF 6 2. THE LD COUNSEL FOR THE ASSESSEE FURTHER CONTENDE D THAT SINCE THE FINDINGS OF THE TRIBUNAL ARE IN CONTRARY TO THE LAW LAID DOWN BY THE APEX COURT, AN ERROR HAS KEPT IN THE ORDER OF THE TRIBUN AL WHICH REQUIRES RECTIFICATION. THE LD COUNSEL FOR THE ASSESSEE FURT HER CONTENDED THAT THE HONBLE SUPREME COURT ALWAYS DECLARE THE LAWS AND I F ANY ORDER IS FOUND CONTRARY TO THE LAW DECLARED BY THE SUPREME COURT, A RECTIFICATION IS REQUIRED TO TUNE IT WITH THE LAW DECLARED BY THE SU PREME COURT. IN SUPPORT OF HIS CONTENTION, HE PLACED RELIANCE ON THE ORDERS OF THE TRIBUNAL IN THE CASE OF JCIT VS. MILTON LTD. 106 ITD 478 IN WHICH I T HAS BEEN HELD THAT THE ORDER PASSED BY THE TRIBUNAL ON THE BASIS OF THE DE CISION OF THE HIGH COURT SUBSEQUENTLY OVERRULED BY THE APEX COURT SUFFERS FR OM MISTAKE APPARENT RECTIFIABLE U/S 254(2) OF THE INCOME-TAX ACT. RELIA NCE WAS ALSO PLACED UPON THE JUDGMENT OF THE KERALA HIGH COURT IN THE CASE O F KIL KOTAGIRI TEA & COFFEE ESTATES CO. LTD., VS. ITAT (1989) & OTHERS 1 74 ITR 579 IN WHICH IT WAS HELD THAT THE ASSESSMENT ORDER BASED UPON THE I NTERPRETATION OF LAW FOUND WRONG SUBSEQUENTLY DISCLOSES MISTAKE APPARENT FROM THE RECORD WHICH IS RECTIFIABLE. 3. THE LD DR ON THE OTHER HAND HAS SUBMITTED THAT U /S 254 (2) ONLY THOSE MISTAKE CAN BE RECTIFIED WHICH ARE APPARENT F ROM THE RECORD. IN SUPPORT OF HIS CONTENTION HE HAS PLACED RELIANCE UP ON THE JUDGMENT OF THE MADRAS HIGH COURT IN THE CASE OF M V ARUNACHALAM VS . CIT 152 ITR 512 AND JUDGMENT OF THE APEX COURT IN THE CASE OF MEPCO INDUSTRIES LTD., VS. CIT IN CIVIL APPEAL NO.7662-7663 OF 2009 ARISING OU T OF THE SLP NO.9979- 9980 OF 2008. 4. WE HAVE HEARD THE RIVAL SUBMISSION AND CAREFULLY PERUSED THE MISCELLANEOUS APPLICATION VIS--VIS THE ORDER OF TH E TRIBUNAL AND WE FIND THAT WHILE DECIDING THE ISSUE ON PROFITS ON SALE OF CYLINDERS ON WHICH DEPRECIATION AT 100% COST WAS ALREADY CLAIMED AS DE DUCTION BY THE PAGE 3 OF 6 ASSESSEE BEFORE 1995-96, THE TRIBUNAL RELIED UPON J UDGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF NECTAR BEVERAGES (P) LTD ., 267 ITR 385 (BOM) AND OTHER ORDERS OF THE TRIBUNAL, AND HELD THAT THE PROFITS ON SALE PROCEEDS OF CYLINDERS WHICH WAS NOT ENTERED THE BLOCK OF ASS ETS ARE DEEMED TO BE THE PROFITS & GAIN FROM BUSINESS AND ACCORDINGLY CH ARGEABLE TO INCOME TAX OF THAT PREVIOUS YEAR U/S 41(1) OF THE ACT. 5. NOW THE VIEW OF THE BOMBAY HIGH COURT IN THE CAS E OF NECTAR BEVERAGES (P) LTD.,VS. DCIT HAS BEEN OVERRULED BY T HE APEX COURT IN WHICH THE APEX COURT HAS HELD THAT THE PROVISO TO SEC. 32 (1)(II) STOOD DELETED W.E.F. 1.4.1996. CONSEQUENTLY BOTTLES, CRATES AND C YLINDERS WHOSE INDIVIDUAL COST DO NOT EXCEED RS.5000/- ALSO CAME TO BE INCLUD ED IN THE BLOCK OF ASSET. THE BOTTLES AND CRATES PURCHASED PRIOR TO 31 ST MARCH, 1995 DID NOT FORM PART OF THE BLOCK OF ASSET, HENCE THE PROFIT ON SAL E OF SUCH ASSETS WERE NOT TAXABLE AS BALANCING CHARGES, NEITHER U/S 41(1) NOR U/S 50. IN RESPECT OF BOTTLES AND CRATES PURCHASED AFTER 1.4.1995 ON ACCO UNT OF DELETION OF PROVISO TO SECTION 32(I)(II), SUCH BOTTLES AND CRAT ES FORMED PART OF BLOCK OF ASSET AND CONSEQUENTLY SUCH ASSETS PURCHASED AFTER 1.4.1995 BECAME EXIGIBLE TO CAPITAL GAIN TAX U/S 50. 6. THROUGH THIS JUDGMENT THE APEX COURT HAS MADE IT AMPLY CLEAR THAT IF THE PURCHASE ARE MADE PRIOR 31 ST MARCH, 1995 IT DID NOT FORM PART OF BLOCK OF ASSETS AND PROFITS ON ITS SALE IS NOT TAXABLE AS BALANCING CHARGES EITHER U/S 41(1) OR U/S 50 OF THE INCOME-TAX ACT. IN THE IN STANT CASE THE CYLINDERS WERE PURCHASED PRIOR TO 31-3-1995 AS SUCH ON ITS SA LE, THE BALANCING CHARGES WOULD NOT BE TAXABLE NEITHER U/S 41(1) NOR U/S 50 OF THE INCOME- TAX ACT. BUT THE TRIBUNAL HELD IT TO BE TAXABLE U/S 41(1) OF THE ACT MEANING THEREBY THE FINDINGS OF THE TRIBUNAL ARE CONTRARY T O THE LAW LAID DOWN BY THE APEX COURT. WE ARE, THEREFORE, OF THE VIEW THAT THE RE IS AN ERROR APPARENT FROM THE ORDER OF THE TRIBUNAL WHICH CALLS FOR RECT IFICATION. ACCORDINGLY WE RECTIFY THE ORDERS OF THE TRIBUNAL AS UNDER: PAGE 4 OF 6 IN ITA NO.500/VIZAG/2005, PARA 27 OF THE TRIBUNAL IS SUBSTITUTED BY THE FOLLOWING PARA. I) 27 WE HAVE HEARD THE PARTIES AND PERUSED THE MATER IAL ON RECORD. IT IS AN ADMITTED FACT THAT THE COST OF EACH CYLINDER IS LESS THAN RS.5000 AND THE SAME DID NOT ENTER BLO CK OF ASSETS AS DEFINED U/S 2(11) OF THE INCOME TAX ACT. T HE WHOLE OF THE COST STOOD WRITTEN OFF TO THE PROFIT A ND LOSS ACCOUNT AND ALLOWED AS DEDUCTION UP TO THE ASSESSME NT YEAR 1995-96 WHICH IS PRIOR TO OMISSION OF FIRST PR OVISO TO SECTION 32(1)(II) OF THE ACT BROUGHT BY THE FINANCE ACT 1995 W.E.F. 1.4.1996. THE ASSETS WERE SOLD AND THE QUESTION ARISE WHETHER THE PROFITS ON SALE OF ASSET S I.E. CYLINDERS ARE TAXABLE U/S 41(1) OR CHARGEABLE TO CA PITAL GAIN U/S 50 OF THE ACT. THE IDENTICAL ISSUE WAS EXAMINED BY THE APEX COURT IN THE CASE OF NECTAR BEVERAGES (P) LTD.,VS DCIT 314 ITR 314 SC IN WHICH THE COURT HAS HELD THAT THE BOTTLES AND CR ATES PURCHASED PRIOR TO 31 ST MARCH, 1995 DID NOT FORM PART OF BLOCK OF ASSETS. HENCE PROFIT ON SALE OF ASSETS WER E NOT TAXABLE AS BALANCING CHARGES NEITHER U/S 41(1) NOR U/S 50 OF THE ACT. THE RELEVANT OBSERVATIONS OF THE APEX C OURT ARE EXTRACTED HERE UNDER: 12 AT THE OUTSET, IT MAY BE NOTED THAT, BY THE ABO VE FINANCE ACT, THE FIRST PROVISO TO SECTION 32(1)(II) STOOD D ELETED, WITH EFFECT FROM APRIL 1, 1996. CONSEQUENTLY, BOTTLES, C RATES AND CYLINDERS WHOSE INDIVIDUAL COST DID NOT EXCEED RS.5 ,000/- ALSO CAME TO BE INCLUDED IN THE BLOCK OF ASSETS. 13. BEFORE US, IN THIS BATCH OF CIVIL APPEALS, WE H AVE FOUR CIVIL APPEALS (CIVIL APPEALS ARISING OUT OF S.L.P. ( C ) NOS. 8002/09 AND 3064/09, CIVIL APPEAL NOS.356-357/06 AND 5858/0 6) WHICH FALL IN THE PERIOD AFTER APRIL 1, 1996. THE LEAD MA TTER IN THIS CATEGORY IS GOA BOTTLING COMPANY PVT. LTD., V. ASST T. CIT (CIVIL APPEAL NOS. 356-357/06). THAT LEAD MATTER IS FOR TH E ASSESSMENT YEAR 1998-99. M/S GOA BOTTLING COMPANY PVT. LTD., I S A COMPANY REGISTERED UNDER THE COMPANIES ACT, 1956, AND IS IN THE BUSINESS OF MANUFACTURE AND SALE OF SOFT DRINKS. FOR THE PUR POSES OF ITS BUSINESS, IT BOUGHT BOTTLES AND CRATES WHOSE COST P ER UNIT DID NOT EXCEED RS.5000. DURING THE YEAR ENDING MARCH 31 , 1998, THE COMPANY RECEIVED A SUM OF RS.6,89,91,901 ON SALE OF SCRAP BOTTLES AND CRATES. THE SALE PROCEEDS WERE SEGREGAT ED IN TWO PARTS: PAGE 5 OF 6 (A) IN RESPECT OF BOTTLES AND CRATES PURCHASED PRIOR TO MARCH 31, 1995; AND (B) THOSE PURCHASED AFTER APRIL 1, 1995. 14. IN THE RETURN OF INCOME FILED, THE SALE PROCEED S RELATING TO BOTTLES AND CRATES PURCHASED AFTER APRIL 1, 1995, W ERE TAKEN INTO CONSIDERATION FOR THE PURPOSE OF COMPUTATION OF SHO RT-TERM CAPITAL GAINS UNDER SECTION 50 WHEREAS THE SALE PRO CEEDS RELATING TO BOTTLES AND CRATES PURCHASED PRIOR TO MARCH 31, 1995, WAS NOT OFFERED FOR SHORT-TERM CAPITAL GAINS ON THE GROUND THAT THE ASSETS STOOD DEPRECIATED AT 100 PER CENT. UNDER THE PROVIS O TO SECTION 32(1)(II) AND HENCE DID NOT FORM PART OF THE BLOCK OF ASSETS. FOR THE REASONS GIVEN HEREINABOVE, WE ARE OF THE VI EW THAT BOTTLES AND CRATES PURCHASED PRIOR TO MARCH 31, 199 5 DID NOT FORM PART OF THE BLOCK OF ASSETS, HENCE, PROFITS ON SALE OF SUCH ASSETS WERE NOT TAXABLE AS A BALANCING CHARGE, NEIT HER UNDER SECTION 41(1) NOR UNDER SECTION 50. IN RESPECT OF B OTTLES AND CRATES PURCHASED AFTER APRIL 1, 1995, ON ACCOUNT OF DELETION OF THE PROVISO TO SECTION 32 (1)(II) (VIDE FINANCE ACT , 1995) SUCH BOTTLES AND CRATES FORMED PART OF BLOCK OF ASSETS A ND CONSEQUENTLY SUCH ASSETS PURCHASED AFTER APRIL 1, 1 995 IN THIS CASE, BECAME EXIGIBLE TO CAPITAL GAINS TAX UNDER SE CTION 50. IN VIEW OF THE JUDGMENT OF THE APEX COURT, WE HOLD T HAT THE PROFITS ON SALE OF CYLINDERS ARE NOT TAXABLE AS BALANCING CHARGES N EITHER U/S 41(1) NOR U/S 50 OF THE ACT. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT (A) AND DELETE THE ADDITION MADE IN THIS REGARD. 7. IN ITA NO.218 OF 2006 PARA NO.7 IS REPLACED BY TH E FOLLOWING PARA: 7. THE IDENTICAL ISSUE HAS BEEN EXAMINED BY US IN THE FOREGOING APPEAL IN ITA NO.500 OF 2005 AND WE HELD THAT THE IMPUGNED AS SETS PURCHASED BEFORE 31-3-1995 DID NOT FORM PART OF THE BLOCK OF ASSETS AND THUS THE SALE OF PROCEEDS REALIZED ON ITS SALE ARE NEITHER T AXABLE U/S 41(1) AND NOR U/S 50 OF THE ACT. WE THEREFORE, FOLLOWING THE SAME HOLD THAT THE PROFITS EARNED ON SALE OF ASSETS ACQUIRED BEFORE 31-3-1995 WHICH DID NOT FORM THE PART OF THE BLOCK OF ASSETS ARE NOT TAXABLE EIT HER U/S 41(1) OR SEC. 50 PAGE 6 OF 6 OF THE IT ACT. WE THEREFORE, SET ASIDE THE ORDER OF THE CIT (A) AND DELETE THE ADDITION MADE IN THIS REGARD. 8. IN THE RESULT BOTH THE MISCELLANEOUS APPLICATIONS OF THE ASSESSEE ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON 23-3-2010. SD/- SD/- (B R BASKARAN) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER PVV/SPS VISAKHAPATNAM, DATE: 23 RD MARCH, 2010. COPY TO 1 K. RAGHAVENDRA RAO, D.NO.18-224, INDUSTRIAL ESTAT E, DOWLAISHWARAM, RAJAHMUNDRY, EAST GODAVARI DISTT. 2 THE ACIT, CENTRAL CIRCLE-1, RAJAHMUNDRY 3 THE CIT RAJAHMUNDRY 4 THE CIT(A), RAJAHMUNDRY 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM