Income Tax Appellate Tribunal - Delhi
Indian Compressors Ltd., New Delhi vs Department Of Income Tax on 31 October, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES: "C" NEW DELHI
BEFORE SHRI UBS BEDI, JM AND
SHRI J.SUDHAKAR REDDY, A.M.
ITA No: 758/Del/2011
Assessment Year : - 2007-08
DCIT, Circle 11(1) vs. M/s Indian Compressor Ltd.
New Delhi 33 & 35, Okhla Industrial Estate
New Delhi
ITA No: 5371/Del/2011
Assessment Year : - 2008-09
M/s Indian Compressor Ltd. vs. DCIT, Circle 11(1)
33 & 35, Okhla Industrial Estate New Delhi
New Delhi
ITA No: 5772/Del/2011
Assessment Year : - 2007-08
DCIT, Circle 11(1) vs. M/s Indian Compressor Ltd.
New Delhi 33 & 35, Okhla Industrial Estate
New Delhi
(Appellant) (Respondent)
Appellant by: Shri Aroop Kumar Singh, Sr.D.R.
Respondent: Shri Anil Sharma, Adv.
ORDER
PER BENCH ITA 758/Del/2011 is a revenue`s appeal for the AY 2007-08. ITA no. 5371/Del/11 and ITA no.5772/Del/11 are Cross Appeals for the AY 2008-09. As issues arising in all these appeals are common, for the sake of convenience, they are heard together and disposed of by way of this common order.
2
2. Facts of the case in brief:- The assessee is a company and is engaged in the business of manufacturing, trading, leasing and maintenance of compressors and pumps.
3. The first issue that arises for our consideration is claim of additional depreciation of plant and machinery. The assessee has installed plant and machinery in the factory premises of the customers of the assessee company such as BHEL-Haridwar, Green Gasses Ltd.-Lucknow, Haldirams Manufacturing Company, Gurgaon, etc.
4. The AO held that the transactions in question are lease transactions, wherein the assessee merely remains the owner of the assets but the actual user of the machinery is the customer at whose premises these machinery is installed. That the primary motive behind the transaction is to earn lease rent/hire charges. After extracting S.32(1)(ii a) the AO came to a conclusion that the assessee is not entitled to additional depreciation. Aggrieved the assessee carried the matter in appeal.
5. The First Appellate Authority allowed the claim of the assessee by following the decisions of the Hon`ble Supreme Court in the case of CIT vs. Shan Finance Ltd. 231 ITR 308 (S.C.) and CIT vs. Maharashtra Apex 234 ITR 482 (Kar.). Aggrieved the revenue is in appeal before us.
6. The Ld. DR Mr. Aroop Kumar Singh supported the order of the AO and argued that, when machinery is given on lease, it is not used for one`s own business and hence the assessee will not be entitled to additional 3 depreciation. He relied on the decision of Hon`ble Gujarat High Court in Tax Appeal No. 1295/2009 in the case of CIT-II vs Elcon Fin Lease and Industries P.Ltd. dt. 6.9.2011 as well as the decision in the case of Bhagawathi Appliances vs ITO 337 ITR 286 in ITA no.100/2000 judgement dt. 4.1.2011.
7. The Ld.Counsel for the assessee Mr. Anil Sharma on the other hand submitted that the assessee satisfies all the conditions specified in sec.32(1)(ii a) of the Income Tax Act, 1961 for the reason the assessee is in the business of manufacture or production of an article or thing and the plant and machinery has been acquired and installed after 31.03.2012. He further argued that the machinery installed was given on lease to companies which were also engaged in the manufacture and production of article or things. Referring to the decision in the case of Bhagawathi Appliances vs ITO 337 ITR 286 in ITA no.100/2000 judgement dt. 4.1.2011 (supra) the Ld. Counsel for the assessee submitted that the facts are different for the reason that both Bhagawathi Appliances vs ITO (supra) and CIT-II vs Elcon Fin Lease and Industries P.Ltd. (supra)) were dealing with a case where higher rate of depreciation was claimed on the ground that the assessee was running the same on hire and where as in the case on hand the assessee claimed additional depreciation under Section 32(1)(ii a) of the Income Tax Act, 1961. He relied on the following case laws and submitted that the issue is squarely covered in his favour which is upheld by the Hon`ble Supreme Court. 4 a. CIT vs. Shaan Finance P.Ltd. (1998) 231 ITR 308 (SC) b. First Leasing Company of India Ltd. vs. CIT, 244 ITR 234(Mad.) c. CIT vs. Maharashtra Apex Corporation Ltd. 234 ITR 484(Kar.)
8. After hearing rival contentions we hold as follows:-
S.32 (1) : In respect of depreciation of -
(i) buildings, machinery, plant or furniture, being tangible assets;
(ii) know-how, patents, copy rights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April,1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deduction shall be allowed-
(i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed),
(ii) (in the case of any block of assets, such percentage on the written down value thereof as may be prescribed) S.32(1)(ii a) in the case of any new machinery or plant (other than ships and air craft), which has been acquired and installed after the 31st day of March, 2005, by an assessee engaged in the business of manufacture or production of any article or thing (or in the ;business of generation or generation and distribution of power), a further sum equal to twenty per cent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii).
Provided...................................."
A plain reading of the section shows that it stipulates the following conditions, which are to be fulfilled, if the assesee is to be entitled for additional depreciation.
a. The new machinery or plant should be acquired and installed after 31.03.2005.
b. The assessee should be engaged in the business of manufacturing or production of any article or thing.
5
9. It is not the case of the revenue that the assessee falls within the proviso to this section. There is no dispute that the assessee in this case satisfies both the above conditions. The section does not stipulate that the assessee should use the plant and machinery in the business of manufacture or production of any article. Thus we cannot read such a condition into the section.
10. Coming to the decision of Hon'ble Gujarat High Court in the case of Bhagawathi Appliances vs ITO (supra) and CIT-II vs Elcon Fin Lease and Industries P.Ltd. (supra), we find that in these cases the Hon`ble Court was concerned with entry number III (2)(ii) of appendix 1 to the income tax rules which give the table of rates at which the depreciation is allowable u/s.32(1)(ii a)of the Income Tax Act, 1961. This is not a case of allowance u/s.32(1)(ii a) of the Income Tax Act, 1961 which deals with additional depreciation as compared to a Higher rate of depreciation. The issue was, which of the prescribed rates that has to be applied. Thus in our view the case laws do not support the case of the Revenue.
11. On the other hand the Hon`ble Madras High Court in the case of First Leasing Company of India Ltd. vs CIT, 244 ITR 234 Madras has held that the assessee would be entitled to additional depreciation under Section 32(1)(ii a) of the Income Tax Act, 1961 on the leased assets.
12. In the case of CIT vs. Hi Tech Arai Ltd. 321 ITR 477 (Madras) it has held that the provision of S.32(1)(ii a) of the Income Tax Act, 1961 6 does not state that the setting up of a new machinery or plant, which was acquired and installed up to March 31st,2002, should have any operational connectivity to the article or thing that was already being manufactured by the assessee. Therefore, the contention that the setting up of a wind mill has nothing to do with the industry namely manufacture of oil seeds etc. is totally not germane to the specific provision contained in S.32(1)(ii a) of the Income Tax Act, 1961.
13. Respectfully applying the propositions laid down in these case laws to the facts of this case we uphold the order of the CIT(A) and we dismiss this ground of revenue.
14. Ground no 2 is on the issue of allowing the deduction u/s 80G of the Income Tax Act, 1961. The assessee has made donation to Auroville Foundation, under the Ministry of HRD, Govt. of India, it claimed deduction u/s35 (1)(ii) 0f the Income Tax Act, 1961 in its return of income. As the application for renewal of exemption u/s.35(1)(ii) made by Aravali foundation, was not disposed of by the CBDT, the assessee was unable to produce the notification renewing the exemption beyond 31.03.2006. Hence its claim was denied. The assessee made an alternate claim for deduction u/s 80G. The foundation had been granted renewal of approval u/s 80G by the CIT, Pondi vide order dt. 07.03.2005 for the period 01.04.2005-31.03.2010. the CIT up[held that order of the AO 7 denying deduction u/s 35 (1)(ii) of the act. The alternate claim of the assesee was allowed. Aggrieved revenue is in appeal before us.
15. The contention of the Ld.D.R. is that the Commissioner of Income Tax (Appeals) violated Rule 46A by admitting additional evidence and not giving an opportunity for the AO to examine the same. He claims that the funds collected u/s 35(1)(ii) are separately earmarked as compared to funds collected u/s 80G and both cannot be mixed or intermingled
16. The Ld.Counsel for the assessee on the other hand submits that additional ground can be raised by the assessee before the Appellate Authority. He relied on the following case law.
Mohan Meakins Ltd. vs CIT, 348 ITR 109 Delhi
17. After hearing rival contentions, we are of the considered opinion that the First Appellate Authority was right in admitting the alternate claim of the assessee for deduction u/s 80G. Nevertheless there is violation of Rule 46A, as the Commissioner of Income Tax (Appeals) has admitted a Certificate dt. 26th October,2010 given by the Foundation, without giving the AO an opportunity to examine the same. As a consequence we deem it fit and proper to set aside the issue to the file of AO for fresh adjudication in accordance with law.
18. Ground no.5 reads as under.
8
"5. On the facts and circumstances of the case and in law, the Commissioner of Income Tax (Appeals) has erred in deleting the addition of Rs.96,527/- on account of excess interest paid u/s40A(2)(b) of the Income Tax Act, 1961."
19. After hearing both the parties, we find that the CIT(A) has dealt with the issue at para 19 of his order. The issue is the assessee was paying interest @ 10% to two parties i.e. M/s Givetake Trade & Credits P.Ltd. and M/s Nipro Trexim P.Ltd. and whereas it was paying interest at 8% to the Directors of the Company Shri GL Didwania, Shri Hemant Didwania and Ms. Nandita Didwania. The difference of 2% was disallowed. The CIT(A) in his order at para 19 held as follows.
"I have considered the submissions made by the assessee and the reasoning given by the ld.AO for making the disallowance. The ld.AO has failed to make out a case that funds at a lower rate of interest than 10% were available in the market. In the light of the case laws relied upon by the assessee, I do not find any justification in the disallowance of interest @ 2%. The assessee company has paid interest to banks @ 13%, which is indicative of the fact that the funds were not available in the ;market at a rate lower than 10%. The Mumbai Bench of the Appellate Tribunal has held the rate of 15% to be reasonable in Assessment Year 2006-07. I find no substance in the disallowance made by the ld.AO. Accordingly, I delete the disallowance of Rs.96,527/-. The assessee gets a relief of Rs.96,527/-."
20. We find no infirmity in the same.
21. In the result the appeal of the Revenue is allowed in part.
22. Coming to the Cross Appeals for the AY 2008-09, we hold as follows:- ITA 5371/Del/2011 is assessee's appeal. Ground no.1 to 1.3 is on the issue of additional depreciation claimed u/s 31(1)(ii)(a) of the Act. As both the parties agreed that the issue and facts are same as in the 9 Assessment Year 2007-08, consistent with the view taken therein, we allow the claim of the assessee.
23. Ground no.2 : Ld.Counsel submits that in view of the smallness of the amount, he does not press the same, on the condition that it does not become a precedent. Hence we dismiss this ground as 'not pressed'.
23. In the result the appeal of the assessee is allowed in part.
24. ITA 5772/Del/2011: This is Revenue's appeal on the following grounds.
"1. On the facts and circumstances of the case and in law, the ld.CIT(A0 erred in deleting the addition of Rs.22,32,614/- made on account of disallowance of claim of weighted deduction u/s35(1)(iii) of the Income Tax Act, 1961.
2. The appellant craves leave to add, alter or amend any ground of appeal raised above at the time of hearing."
25. This ground is wrongly taken as the Commissioner of Income Tax (Appeals) has not deleted the addition made under Section 32(1)(iii) of the Income Tax Act, 1961. The amount quoted in the ground also is wrong. The Ld.DR admits that this is a mistake and submitted that, the issue related to the revised claim under Section 80G of the Income Tax Act, 1961 which the Commissioner of Income Tax (Appeals) allowed. The Ld.Counsel for the assessee fairly did not dispute the same. As similar issue was considered and adjudicated in the FY 2007-08 consistent with the view taken therein, we set aside the issue to the file of the Assessing 10 Officer, for fresh ;adjudication in accordance with law. We make it clear that the assessee's claim has been rightly admitted by the Ld.CIT(A).
26. In the result the appeal of the assessee is allowed in part.
27. In the result the appeal of the Revenue and the Cross Appeals are allowed in part.
Order pronounced in the Open Court on 31st October, 2012.
Sd/- Sd/-
(U.B.S. BEDI) (J.SUDHAKAR REDDY)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: the 31st October, 2012
*manga
Copy of the Order forwarded to:
1. Appellant; 2.Respondent; 3.CIT; 4.CIT(A); 5.DR; 6.Guard File By Order Dy. Registrar 11
1. Date of Dictation:
2. Draft placed before the Author on:
3. Draft proposed and placed before Second Member on:
4. Draft discussed/approved by the Second Member on:
5. Approved draft came to Sr.P.S. on:
6. Date of Pronouncement :
7. File sent to Bench Clerk on :
8. Date on which file given to Head Clerk on:
9. Date of dispatching the Order on: