Income Tax Appellate Tribunal - Ahmedabad
Khemani Distilleries Pvt.Ltd.,, Nani ... vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "D"
[BEFORE SHRI MAH AVIR SINGH,JM AND SHRI A N P AHUJ A, AM]
ITA No.2149/Ahd/2007
(Assessment Year:-2005-06)
M/s Khemani Distilleries V/s Assistant Commissioner of
Pvt. Ltd., Kachigam Road, Income-tax, Vapi Circle,
Ringanwada, Nani Daman Vapi
[PAN:AAACK9738N]
[Appellant] [Respondent]
Assessee by :- Shri Bandish Soparkar,AR
Revenue by:- Shri C K Mishra, DR
O R D E R
A N Pahuja: This appeal by the assessee against an order dated 28- 02-2007 of the ld.CIT(Appeals), Valsad,raises the following grounds-
"1. The Learned Commissioner of Income Tax (Appeals), Valsad [hereinafter referred to as "C.I.T.(A)"], has erred in the facts and circumstances of the case and in law in upholding the depreciation determined by the Assessing Officer ( hereinafter referred to as " A.O.) at Rs.1,36,23,238/- as against depreciation of Rs.1,46,57,811/-
2. The Ld. C.I.T. (A) has failed to folly appreciate the fact that the appellant company had not claimed depreciation for the Assessment Years 1996-97 to 2000-2001 and had claimed depreciation in accordance with the provisions of law for the first time for the Assessment Year 2001- 2002 and subsequently for the Assessment year 2002-2003, 2003-04, 2004-05 and 2005-06.
3. The Ld. C.I.T. (A) has erred in law and in the facts and circumstances of the case in upholding the action of the A-Q, applying ratio of the Bombay High Court judgment in the case of Indian Rayon Corporation Limited vs. C.I.T. 261 ITR 98 despite the fact that the ratio of the said judgment is limited to peculiar facts of that case and is not applicable on the facts of the appellant.
4. The Ld. C.I.T. (A) ought to have appreciated and followed the orders of the Bombay Tribunal in the case of Plastiblends India Ltd. I.T.A. No. 4542/Mum/99 Assessment Year 1996-97 and Kabra Extrusion Technik Ltd. I.T.A. No. 1517/Mum/99 assessment year 1995-96 -wherein Bombay Tribunal had considered the scope and applicability of the aforesaid 2 ITA No.2149/Ahd/2007 Bombay High Court Judgement in the case of Indian Rayon Corporation Limited vs. C.I.T, 261 ITR 98.
5. The Ld. C.I.T. (A) has erred in the facts and circumstances of the case, whilst upholding the order of the A.0. with regard to the claim of depreciation, in not appreciation that the appellant had claimed depreciation first time in A.Y. 2001-2002 and that appellant had not claimed depreciation in the Assessment Years 1996-97 to 2000-2001 [based on the judgement of the Supreme Court in the case of C.I.T. vs. Mahendra Mills 243. ITR. 56(S.C.)] and no depreciation has been allowed u/s. 32 of the Act, in the assessment of those years.
6. The Ld. C.I.T. (A) ought to have held that A.O. was wrong in making the following statement in the order of assessment:
"The application of the aforesaid decision of the Hon'ble Bombay High Court would be relevant for the purpose of correct treatment of allowance of depreciation in cases U/S.80IA/80IB covered under chapter - VIA of the IT. Act, 1961. This would be applicable for assessments prior to assessment year 2002-2003. (underling ours)."
7. The Ld. CILT. (A) has erred in law in upholding the computation of deduction of depreciation made by the AO. by stating that ratio of the Bombay High Court judgment in the case of Indian Rayon Corporation Limited vs. C.LT. 261 ITR 98 was applicable even to prior year; and in computing depreciation for the years 1996-97 to 2001-2002 despite the fact that the appellant had not claimed the same and no depreciation had been allowed u/s. 32 of the Act, to the appellant in those years on assessment.
8. The Ld. C.LT. (A) ought to have appreciated that the Supreme Court in the case of C.I.T. vs. Mahendra Mills (S.C) 243 ITR 56 has held that:
"Allowance of depreciation is calculated on the written down value of the assets, which written down value would be the actual cost of acquisition less the aggregate of all the depreciation "actually allowed" to the assessee for the past years "Actually allowed" does not mean "nationally allowed".
9. The Ld. C.I.T. (A) ought to have appreciated that the amendment to the Income Tax Act by insertion & explanation 5 to Section 32, to overcome ratio of the Supreme Court Judgment in the case of CIT. vs. Mahendra Mills (S.C.) 243 ITR 56; came in to effect only from 01.04.2002.
2 3 ITA No.2149/Ahd/200710. The Ld. C.I.T. (A) ought to have allowed the appellant's claim for depreciation as computed by the appellant in its return of income on the facts and circumstances of the case and in law.
The appellant craves leave to add to ,alter, or amend any of the grounds of appeal at or before the time of hearing of the appeal."
2 Facts, in brief, as per relevant orders are that the return declaring an income of Rs.6,61,75,593/- filed on 28-10-2005 by the assessee, after being processed on 28-02-2006 u/s 143(1) of the Income-tax Act, 1961 [hereinafter referred to as the "Act"] was taken up for scrutiny with the issue of notice u/s 143(2) of the Act on 02- 05-2006. During the course of assessment proceedings, the AO noticed that the assessee claimed deduction u/s 80IB of the Act at the rate of 30% of the eligible profits. Since the manufacturing activity in the industrial undertaking was started by the assessee in the period relevant to AY 1996-97, this was 10 t h year of claim of the said deduction. The AO noticed during the course of assessment proceedings that the assessee did not claim depreciation until the AY 2000-01. However, in the AYs 2001-02 to 2004-05, depreciation was allowed to the assessee taking into consideration the opening W DV of assets right from the beginning i.e. AY 1996-97. On that basis, depreciation in the year under consideration worked out to Rs.1,36,23,238/- as against Rs.1,46,57,811/- claimed by the assessee. Accordingly, relying upon the decision of the Hon'ble Supreme Court in the case of Cambay Electric Supply Co. vs. CIT (1978) 113 ITR 84 (SC) and the decision of the Hon'ble Jurisdictional High Court in the case of Indian Rayon Corporation Ltd. vs. CIT (2003) 261 ITR 98 (Bom) and distinguishing the decisions relied upon on behalf of the assessee in the case of Plastiblends India Ltd. in ITA No.4541/Mum/99 and Kabra Extrusion Technik Ltd. in ITA No.1517/Mum/99, the AO disallowed the excess depreciation to the extent of Rs.10,34,873/- while determining the deduction u/s 80IB of the Act.
3 4 ITA No.2149/Ahd/20073 On appeal, the learned CIT(A) following the decision dated 09-11-2005 of the Special Bench of ITAT in the case of Vahid Paper Converters & Others in ITA No.1686/Ahd/2004, upheld the findings of the AO in the following terms:-
"After going through the detailed findings of the Hon'ble ITAT, Ahmedabad in case of Vahid Paper Converters and others and also after pursuing the ratio laid down by the Bombay High Court as well as Hon'ble Mumbai Tribunal, I am of the view that findings of the Special Bench in case of Vahid Paper Converters and others (Supra) are rationalised and fully applicable to the facts of the case of the appellant and respectfully following that, I am of the view that the Assessing Officer has correctly computed the depreciation and total income of the appellant for granting deduction u/s, 80IB of the Act. The findings of the Assessing Officer and quantum of deduction allowed by AO u/s. 80IB are hereby confirmed."
4 The assessee is now in appeal before us. The learned AR, at the outset, while relying upon the decision dated 28.11.2008 in the assessee's own case for AY 2002-03 and the decision dated 26-03-2010 in the case of M/s Siddharth Corporation in ITA No.866/Ahd/2007 and in the case of M/s Gautam Enterprises in ITA No.867/Ahd/2007, contended that since the assessee did not claim any depreciation for the assessment years until 2000-01, the AO was not justified in thrusting the depreciation of the earlier years, which had not been actually allowed, on the assessee. The learned DR, on the other hand, supported the findings of the CIT(A).
5 W e have heard both the parties and gone through the facts of the case. W e find that the Tribunal in assessee's own case vide order dated 28-11-2008 in ITA No.1885/Ahd/2005 on a similar issue concluded as under:-
9. We have heard the rival submissions and perused the orders of the lower authorities and the material available on record. In the instant case, it is not in dispute that the assessee neither has claimed nor was allowed depreciation in respect of fixed assets used in its industrial unit. During the year under consideration, for allowing depreciation, the assessing officer deducted the value of the depreciation which ought to have been claimed 4 5 ITA No.2149/Ahd/2007 by the assessee in earlier years and which ought to have been allowed to the assessee by the Department in the earlier years. Thus, the dispute before us raised on determining of the written down value of the year under consideration with reference to which depreciation u/s 32 of the Act is to be calculated. We find that the written down value has been defined in section 43(6) of the Act which reads as under:-
6) "written down value"means--
(a) in the case of assets acquired in the previous year, the actual
cost to the assessee;
(b) in the case of assets acquired before the previous year the
actual cost to the assesses less all depreciation actually allowed to him under this Act, or under the Indian Income-tax Act, 1922 (11 of 1922), or any Act repealed by that Act, or under any executive orders issued when the Indian Income-tax Act, 1886 (2 of 1886), was in force:
[Provided that in determining the written down value in respect of buildings, machinery or plant for the purposes of clause (ii) of sub- section (1) of section 32, "depreciation actually allowed" shall not include depreciation allowed under sub-clauses (a), (b) and (c) of clause (vi) of sub-section (2) of section 10 of the Indian Income-tax Act, 1922 (11 of 1922), where such depreciation was not deductible in determining the written down value for the purposes of the said clause (vi);] [(c) in the case of any block of assets, --
(i) in respect of any previous year relevant to the assessment year commencing on the 1st day of April, 1988, the aggregate of the written down values of all the assets falling within that block of assets at the beginning of the previous year and adjusted, --
(A) by the increase by the actual cost of any asset falling within that block, acquired during the previous year;
(B) by the reduction of the moneys payable in respect of any asset falling within that block, which is sold or discarded or demolished or destroyed during that previous year together with the amount of the scrap value, if any, so, however, that the amount of such reduction does not exceed the written down value as so increased; and (C) in the case of a slump sale, decrease by the actual cost of the asset falling within that block as reduced -
(a) by the amount of depreciation actually allowed to him under this Act or under the corresponding 5 6 ITA No.2149/Ahd/2007 provisions of the Indian Income-tax Act, 1922 (11 of 1922) in respect of any previous year relevant to the assessment year commencing before the 1st day of April, 1988; and
(b) by the amount of depreciation that would have been allowable to the assessee for any assessment year commencing on or after the 1st day of April, 1588 as if the asset was the only asset in the relevant block of assets, so, however, that the amount of such decrease does not exceed the written down value;]
(ii) In respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1989, the written down value of that block of assets m the immediately preceding previous year as reduced by the depreciation actually allowed in respect of that block of assets in relation to the said preceding previous year and as further adjusted by the increase or the reduction referred to in item Explanation l.--When in a case of succession in business or profession, an assessment is made on the successor under subsection (2) of section 170 the written down value of any asset or any block of assets] shall be the amount which would have been taken as its written down value if the assessment had been made directly on the person succeeded to.
Explanation 2.-- Where in any previous year, any block of assets is transferred, --
(a) by a holding company to its subsidiary company or by a subsidiary company to its holding company and, the conditions of clause (iv) or, as the case may be, of clause (v) of section 47 are satisfied; or
(b) by the amalgamating company to the amalgamated company in a scheme of amalgamation, and the amalgamated company is an Indian company, then, notwithstanding anything contained in clause (1), the actual cost of the block of assets in the case of the transferee-company or the amalgamated company-, as the case may be,-shall be the written down value of the block of assets as in the case of the transferor-company or the amalgamating company for the immediately preceding previous year as reduced by the amount of depreciation actually allowed in relation to the said preceding previous year.] [Explanation 2A. --Where in any previous year, any asset forming part of a block of assets is transferred by a demerged company to the resulting 6 7 ITA No.2149/Ahd/2007 company, then, notwithstanding anything contained in clause (1), the written down value of the block of assets of the demerged company for the immediately preceding previous year shall be reduced by the [written down value of the assets] transferred to the resulting company pursuant to the demerger.
Explanation 2B. -- Where in a previous year, any asset forming part of a block of assets is transferred by a demerged company to the resulting company, then, notwithstanding anything contained in clause (1), the written down value of the block of assets in the case of the resulting company shall be the [written down value of the transferred assets [***] of the demerged company immediately before the demerger.
Explanation 3.--Any allowance in respect of any depreciation carried forward under sub-section (2) of section 32 shall be deemed to be depreciation "actually a/lowed".
[Explanation 4.--For the purposes of this clause, the expressions "moneys payable" and "sold" shall have the same meanings as in the Explanation below sub-sect/on (4) of section 41.
Explanation 5. -- Where in a previous year, any asset forming part of a block of assets is transferred by a recognised stock exchange in India to a company under a scheme for corporatisation approved by the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), the written down value of the block of assets in the case of such company shall be the written down value of the transferred assets immediately before such transfer.]"
10. A perusal of the above provisions shows that the WDV in respect of depreciation is to be calculated is the actual cost of the asset to the assessee as reduced by the amount of the depreciation actually allowed to the assessee. Now in the instant case, it is not in dispute that in the earlier years no depreciation was allowed to the assessee in respect of the fixed assets in question. The Revenue could not bring on record any material before us to show that though the depreciation was not claimed by the assessee but in fact such depreciation was allowed by the Department as deduction to the assessee in the assessment made in respect of the income of the assessee. In our considered opinion, it is not open to the Revenue to deduct any amount from the cost of the asset to determine the WDV on the ground that such amount should have been claimed by the assessee as depreciation in earlier year. In our considered view, WDV can be ascertained only by reducing the actual depreciation allowed to the assessee in an assessment and not the amount which ought to have been allowed to the assessee. It is the actual depreciation allowed to the assessee which only can be reduced for ascertaining the WDV and not the amount which is notionally allowed to the assessee. Thus, in the absence 7 8 ITA No.2149/Ahd/2007 of any material Drought before us to show that any remedial measure was taken by the Revenue in the earlier assessment years to actually allow the depreciation to the assessee in the year in which the assessee has himself not claimed such depreciation, in our considered view, the notional amount cannot be reduced to ascertain the WDV as per the provisions of section 43(6) of the Act. We, therefore, set aside the orders of the lower authorities and allow the depreciation of ps.3,25,69,030/- as claimed by the assessee as against the depreciation of Rs.2,53,98,048/- allowed to the assessee. Thus, this ground of appeal is allowed."
5.1 The aforesaid decision has subsequently been followed by another Bench in the case of M/s Siddharth Corporation in ITA No.866/Ahd/2007 and in the case of M/s Gautam Enterprises in ITA No.867/Ahd/2007.
6 In the light of the view taken in the aforesaid decisions, including in the assessee's own case for the preceding assessment year, we have no option but to allow ground nos.1, 2 and 10 of the appeal. Since the claim of the assessee has been allowed in their favour, other ground nos.3 to 9 become academic in nature nor even any submissions were made before us by the ld. AR on these grounds. Therefore, these grounds become infructuous and do not survive for our separate adjudication.
7. No additional ground as having been raised in terms of residuary ground, accordingly, the said ground is dismissed.
8 In the result, the appeal is allowed.
Order pronounced in the open court today on 12 -04-2010 Sd/- Sd/-
(MAHAVIR SINGH) (A N P AHUJ A) JUDICI AL MEMBER ACCOUNTANT MEMBER Date : 12-04-2010 8 9 ITA No.2149/Ahd/2007 Copy of the order forwarded to :
1. M/s Khemani Distilleries Pvt. Ltd., Kachigam Road, Ringanwada, Nani Daman
2. The ACIT, Vapi Circle, Vapi
3. CIT concerned
4. CIT(A), Valsad
5. The DR, ITAT,'D' Bench, Ahmedabad
6. Guard File BY ORDER Deputy Registrar Assistant Registrar ITAT, AHMEDABAD 9