Income Tax Appellate Tribunal - Ahmedabad
Lipi Specific Family Trust, Ahmedabad vs Acit,Circle-6,, Ahmedabad on 15 February, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "C" BENCH AHMEDABAD
BEFORE SHRI N. K. BILLAIYA, ACCOUNTANT MEMBER,
AND SHRI S. S. GODARA, JUDICIAL MEMBER.
ITA No. 1380/Ahd/2011 with C.O. No.138/Ahd/2011
(Assessment Year: 2006-2007)
Asstt.CIT / DCIT,
Circle-6, Ahmedabad Appellant
Vs.
Lipi Specific Family Trust,
Plot No.2, Phase-I, GIDC,
Vatva, Ahmedabad Respondent / Cross Objector
&
ITA Nos. 323/Ahd/2012 & 1140/Ahd/2013
(Assessment Year: 2005-06 & 2009-10)
Lipi Specific Family Trust,
Prop. Nandishwari Packaging
Plot No.2, Phase-I, GIDC,
Vatva, Ahmedabad -382445 Appellant
Vs.
Asstt. Commissioner of Income-tax,
Circle-6, Ahmedabad Respondent
PAN: AAATL1302N
राज व क ओर से/By Revenue : Shri Prasoon Kabra, Sr. D.R.
आवेदक क ओर से/By Assessee : Shri S. N. Soparkar & Shri
Himanshu Shah, A.R.
ITA Nos. 1380/Ahd/2011 with C.O. No.138/Ahd/11, 323/Ahd/12 & 1140/Ahd/13
(Lipi Specific Family Trust) A.Ys. 2006-07, 2005-06 & 2009-10 -2-
सन
ु वाई क तार ख/Date of Hearing : 08.02.2017
घोषणा क तार ख/Date of
Pronouncement : 15.02.2017
ORDER
PER S. S. GODARA, JUDICIAL MEMBER
This batch of four cases pertains to assessment years 2005-06, 2006-07 & 2009-10 against the CIT(A)-XI, Ahmedabad's separate orders dated 04.01.2012, 14.03.2011 & 28.03.2013; in appeal no. CIT(A)-XI/365/10-11, CIT(A)-XI/749/08-09 & CIT(A)-XI/247/ACIT.Cir-6/11-12, in proceedings u/s.143(3) r.w.s. 147, Section 144 and u/s. 143(3) of the Income Tax Act, 1961; in short "the Act"; respectively.
We proceed assessment year-wise for the sake of convenience and brevity.
Assessment year 2005-06 (assessee's appeal ITA No.323/Ahd/2012)
2. This assessee's appeal raises two substantive grounds. First one challenges validity of reopening taken recourse to by the assessing authority and upheld the lower appellate proceedings. Shri Soparkar states very fairly at the outset itself that the assessee does not wish to press for this legal ground. We reject the same as not pressed at this stage.
3. The assessee's latter substantive ground challenges correctness of both the lower authorities' action declining its deduction claim of Rs.37,65,479/- raised u/s.80IB of the Act. There is no issue that it has already been held entitled for the very relief in preceding and succeeding assessment years. The Assessing Officer reopened a regular assessment framed in the instant case solely for the reason that its cost of plant and machinery used in business ITA Nos. 1380/Ahd/2011 with C.O. No.138/Ahd/11, 323/Ahd/12 & 1140/Ahd/13 (Lipi Specific Family Trust) A.Ys. 2006-07, 2005-06 & 2009-10 -3- was certified to be of Rs.92,92,711/- (WDV) as per form 10CCB/3CD. He thus sought to treat it as a non small scale industrial undertaking on the ground that its corresponding investments exceeded threshold limit of Rs.60lacs. He proceeded on the same reasoning in the impugned re- assessment as well resulting in the disallowance in question.
4. The CIT(A) upholds Assessing Officer's action as follows:
"4.2 have carefully considered the rival submissions. I have also perused the submissions made by the Ld. A.R. Since deduction u/s. 80IB has been disallowed by the Ld. A.O., it will be pertinent to consider the provisions of section 80IB. The provisions of section 80IB (1) are reproduced as under:
"Where the gross total income of an assessee includes any profits arid gains derived from any business referred to in sub-sections (3) to (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to such percentage and for such number of assessment years as specified in this section"
Unambiguous reading of this section reveals that eligible business has been defined in sub-section 3 to 11, 11(a) and 11(b) of section 80IB. Thus, to claim deduction u/s. 80IB, the appellant has to fulfill conditions laid down in sub-section 3 to 11, 11 (a) and 11(b) of this section. The allowance deduction u/s. 80IB has to be adjudicated keeping these facts in view. As per express provisions of sub-clause
(i) of sub-section 3 to section 80IB, eligible business for claiming deduction u/s. 80IB has to begin manufacture or produce article or thing during the period beginning from 1st day of April, 1991 and ending on 31st day of March, 1995. The appellant being an industrial undertaking has to fulfill these conditions for claiming deduction u/s. 80IB. It is clearly mentioned by the Ld. A.O. that the appellant has started manufacturing in December, 1996. The appellant could not controvert this finding during the appellate proceedings. Since, the appellant has started manufacturing of article or things beyond 31-3-1995, accordingly, in my considered view, the appellant is not entitled to deduction u/s. 80IB as per the provisions of sub-clause (i) to sub-section 3 of section 801B. In sub-clause (ii) of sub-section 3 of section 80IB, there is exception for small scale industrial undertaking. However, it is not the ease of the appellant that the appellant is small scale undertaking.
4.3 During the appellate proceedings, the appellant has placed lot of emphasis on the provisions of sub-section 2 to section 80IB. In my considered view, provisions of sub-section 2 to section 801B define the undertaking which qualify for the deduction u/s 80IB. However, for making an eligible claim for deduction u/s. 80IB, one has to fulfill conditions laid down in sub-section 3 to 11, 11(a) and 11(b) of section 80IB. The appellant does not fulfill the conditions laid down in ITA Nos. 1380/Ahd/2011 with C.O. No.138/Ahd/11, 323/Ahd/12 & 1140/Ahd/13 (Lipi Specific Family Trust) A.Ys. 2006-07, 2005-06 & 2009-10 -4- sub-section 3 to section 80IB and accordingly, it is not eligible to claim deduction u/s.80IB. In view of above, disallowance on deduction u/s.80IB of Rs.37,65,479/- is confirmed. This ground of appeal is dismissed."
5. Heard both sides. The sole dispute between the parties is as to whether or not the assessee is a small industrial undertaking u/s.80IB(3) of the Act in view of the fact that cost of its plant and machinery for the year under consideration comes to Rs.92,92,711/- in excess of Rs.60lacs. We find from the paper book that small scale industrial scheme comprised in pages 23 to 28 prescribe such an investment limit to be of Rs.60lacs in the year 1991 as revised to Rs.300lacs in December 1997. We also notice at page 14 of the paper book that assessee's concern M/s. Nandeshwari Packaging manufacturing HDPE / P.P. bags at Vatva has already been treated as a small scale industrial undertaking by the District Industries Centre, Ahmedabad Authority. Learned Departmental Representative fails to rebut all this factual position. We thus hold that the assessee's industrial undertaking in question is a small scale industry so as to be eligible for Section 80IB deduction in question. We accept assessee's instant substantive ground and direct the Assessing Officer to frame consequential assessment deleting the impugned disallowance. ITA No.323/Ahd/2012 partly succeeds.
Assessment year 2006-07 (Revenue's appeal ITA No. 1380/Ahd/2011 + C.O. No.138/Ahd/2011)
6. The Revenue's first substantive ground in its appeal ITA No.1380/Ahd/2011 pleads that the CIT(A) has erred in law and on facts in directing the Assessing Officer to restrict manufacturing and administrative expenses disallowance of Rs.57,85,114/- to that @1/10th of telephone and vehicle expenses instead of the entire sum in question. The assessee's second ground in its cross objection no.138/Ahd/2011 also seeks to delete the remaining portion of the said disallowance @10% as well. Both the learned ITA Nos. 1380/Ahd/2011 with C.O. No.138/Ahd/11, 323/Ahd/12 & 1140/Ahd/13 (Lipi Specific Family Trust) A.Ys. 2006-07, 2005-06 & 2009-10 -5- representatives point out very fairly that the Assessing Officer had completed a best judgment assessment on 22.12.2008 to invoke the above stated disallowance @25% of assessee's corresponding expenses of Rs.2,31,40,457/-. They point out that the CIT(A) duly associated the Assessing Officer in remand proceedings after the assessee submitted its additional evidence in the course of lower appellate proceedings. And that the Assessing Officer submitted his report as per para 6.1 of the lower appellate order seeking to confirm at least 3% of the disallowance figure hereinabove. This made the CIT(A) to restrict the impugned disallowance to 10% of the telephone and vehicle expenses only as per his order in assessment year 2005-06. Both the learned representatives thus indicate that the said findings on the very issue in preceding assessment year have attained finality for want of challenge. We appreciate this fair stand to confirm the ld. CIT(A)'s action under challenge in the instant ground raised at Revenue's and assessee's behest.
7. The Revenue's latter substantive ground avers that the CIT(A) has erred in deleting unexplained unsecured loan addition of Rs.25lacs obtained from Shri Sevantibhai Kanjibhai Patel. We notice herein as well that the Assessing Officer's remand report in para 7.1 at page 6 of the lower appellate order accepted assessee's evidence in the nature of above creditor's confirmation alongwith PAN details. He himself accepts the said loan transaction to be a genuine one. We thus conclude that the CIT(A) has rightly deleted the impugned addition of Rs.25lacs in the nature of unexplained unsecured loans. The Revenue's instant latter substantive ground as well as its main appeal ITA No.1380/Ahd/2011 is declined.
8. We now proceed to deal with assessee's remaining grounds in its cross objection. Its first substantive ground pleads that both the lower authorities have erred in disallowing 10% of miscellaneous expenses coming to ITA Nos. 1380/Ahd/2011 with C.O. No.138/Ahd/11, 323/Ahd/12 & 1140/Ahd/13 (Lipi Specific Family Trust) A.Ys. 2006-07, 2005-06 & 2009-10 -6- Rs.13,705/-. Learned counsel state herein as well that the CIT(A) has followed his action as in the preceding assessment year to arrive at the impugned disallowance @10% in identical set of circumstances. The same is also stated to have become final in the earlier assessment year. We thus find no reason to adopt a different approach in the impugned assessment year. This ground is accordingly rejected.
9. The assessee's last substantive ground assails correctness of both the lower authorities' action in disallowing deduction claim of Rs.38,50,685/- raised u/s.80IB of the Act. There is no dispute that ld. CIT(A) has upheld the impugned disallowance solely on the ground that the assessee filed its audit report/form 10CCB in course of the lower appellate proceedings than that with its return. He follows hon'ble Punjab & Haryana High Court's decision in CIT vs. Jaideep Industries 180 ITR 81 (P&H) that the same is to be mandatorily filed with the return of income. We notice that the said hon'ble high court's full bench decision in (2002) 254 ITR 6 (P&H) CIT vs. Punjab Financial Corporation has overruled its former decision hereinabove to conclude that such an audit report need not be mandatorily filed with a return of income. There is admittedly no other objection on part of the CIT(A) to decline the impugned deduction claim. We accept assessee's arguments accordingly to direct the Assessing Officer to delete the impugned disallowance. Assessee's C.O. No.138/Ahd/2011 partly succeeds.
Assessment year 2009-10 (assessee's appeal ITA No.1140/Ahd/2013)
10. The assessee's former substantive ground challenges action of both the lower appellate authorities in disallowing its expenditure of claim of Rs.23,42,000/- in the nature of consumption of stores and spares to be capital ITA Nos. 1380/Ahd/2011 with C.O. No.138/Ahd/11, 323/Ahd/12 & 1140/Ahd/13 (Lipi Specific Family Trust) A.Ys. 2006-07, 2005-06 & 2009-10 -7- in nature. We notice at this stage that the lower appellate order elaborately discusses Assessing Officer's finding and assessee's submissions as under:
"4. Vide ground no.3, the appellant has challenged disallowance of expenses of Rs. 27,02,000/- debited under the head stores and spares. The A.O. has treated these expense as capital expenses and allowed depreciation as per the provisions of I.T. Act. The A.O. dealt with this disallowance in para-5 of the assessment order. The A.O. made this disallowance with the following observations :-
"5. Addition on Consumption of Stores and Spares :-
During the year the assessee has claimed 72,23,025/- towards consumption of stores / spares, there was substantial increase in cost compared to earlier year. Up on verification it seen that assessee is claiming certain plant and machinery items under consumption of stores even the bills enclosed in support of his claim, assessee has shown certain items of Plant and machinery .nature which areas under From the detailed submitted by the assessee with regard to cost of consumable stores. Assessee has produced major four bills and summary of bills, which are as under:
Sr. Name of the Suppliers Name of the Assessable Total price /
No. Items / Plant value as per value
invoice including
Excises Duty
and VAT
1 Gujarat Machinery Grooved Sleeve 191000 217075
2 Gujarat Machinery Screw & Barrel 311000 373544
3 Lohia Starlinger Ltd. Cheese Winder 1840000 2147435
4 Met Lee Engineers M.S. Pipes 360000 420589
2702000
From the above it is clear out of four bills produced three bills are in the nature of plant and machinery. Even if it is a spare part it is embedded to a machinery. Regarding M.S. Pipes they are consumable nature which can be stored for utilization in manufacturing process. Thus, after excluding M.S. Pipes from the above list the other three items are utilized in the manufacturing process where in the part are spare or plant or machinery will give longevity more than one year and with the upkeep and maintenances of the said items of spare will generate and injuring benefit to the assessee in terms of its utilization in the business thus the cost of machinery claimed under consumption of stores/spares amounting to "
27,02,2000/-are to be capitalized and the assessee is entitled to depreciation on the said assets. The assessee has already claimed 6,27,767/- towards repairs to machinery. There is every possibility of extended life to the machinery whenever spares and other items were embedded with the machinery. It is further stated that respectfully following the Supreme Court decision in the case of Empire Jute Corporation Ltd. 124 ITR Page 1. Therefore, 27,02,000/- forming part of expenses under head consumption of stores and spares are excluded from that head and ITA Nos. 1380/Ahd/2011 with C.O. No.138/Ahd/11, 323/Ahd/12 & 1140/Ahd/13 (Lipi Specific Family Trust) A.Ys. 2006-07, 2005-06 & 2009-10 -8- considered for addition treating it as capital in nature, while doing so depreciation is granted on the assets mentioned above.
From the above it is clear that assessee is using above machinery towards consumption of spares. Such machinery with that value will definitely give enduring benefit to the assessee, as the longevity of a screw or barrel embedded to the machinery will continue and prolong the existence of the machinery. Therefore the treatment of assessee towards revenue in respect of consumption of stores and spares is patently inadmissible as the usage of the items mentioned by the assessee are not for disposable purpose accordingly certain amount incurred towards the purchase of machinery and spares as per the list furnished by the assessee has to be treated as Capital expenditure in nature, and the same were accordingly considered for the grant of depreciation treating it as plant and machinery and they were used in the manufacturing process. Accordingly deprecation is granted according to the basic cost of the machinery, and other expenses are allowed as revenue for the purpose of above treatment of capital nature.
Accordingly an amount of 27,02,000/- claimed under consumption of spares and stores is treated as capital in nature same is added to the total income.
{Addition of 27,02,000/-}"
4.1 On this issue, appellant vide its letter dated 13.3.2013 submitted as under :-
"Ground No.3: Adding expenses on consumption of stores and spares of Rs.27.02,000/- as capital in nature.
(a) Vide discussion at para 5 of the assessment order, the Ld. Assessing Officer considered consumption of stores and spares as capital expenditure and made disallowance amounting to Rs.27,02,000/-.
(b) The Ld. Assessing Officer held that assessee is using above machinery towards consumption of spares. Such machinery with that value will definitely give enduring benefit to the assessee, as longevity of a screw or barrel embedded to the machinery will continue and prolong the existence of the machinery. The Ld. Assessing Officer has relied on the judgement of Hon'ble Supreme Court in case of Empire Jute Corporation Ltd 124ITR1.
(c) The contentions raised by the Ld. Assessing Officer are wholly illogical, unjustifiable and improper to the facts and circumstances of the appellant's case. The appellant incurred Rs.72,23,025/- towards consumption of stores and spares. The Ld. Assessing officer vide para 5 held purchase of M.S.Pipes Rs.3,60,000/- to be revenue expenditure.
However, while considering disallowance, the same were treated as capital expenditure.
(d) Even otherwise, the said stores and spares were consumed for smooth functioning of plant & machinery in ordinary course of business. Neither it has resulted into being a new plant & machinery, nor has its consumption resulted into providing long term enduring benefit to the appellant. These are the normal repairs and replacement of the parts.
ITA Nos. 1380/Ahd/2011 with C.O. No.138/Ahd/11, 323/Ahd/12 & 1140/Ahd/13(Lipi Specific Family Trust) A.Ys. 2006-07, 2005-06 & 2009-10 -9- These are revenue expenditure. The said expenses were incurred in ordinary course of business.
In the circumstances, may we humbly request Your Honour to delete the said disallowance of Rs.27,02,000/ 4.2 I have carefully considered the rival contentions. It is seen that the A.O. has treated expenses incurred towards grooved sleeve, screw & barrel, cheese winder of Rs. 23,42,000/- as capital in nature. The A.O. was of the opinion that by incurring these expenses the appellant had derived benefits of enduring nature as the life of Plant & Machinery is enhanced. Secondly, the A.O. observed that benefit of these major repairs and maintenance will be enjoyed by the appellant for many years. On the other hand the appellant contended that these are normal repair and maintenance expenses. However, the appellant has failed to file cogent evidences to prove that by incurring these expenses, enduring benefits has not accrued to it. The appellant has made a very general submission which cannot be believed in the absence of documentary evidences. It cannot be believed that every expense debited under the head stores and spares is a revenue expenditure. The description of these expenses indicate that these are apparently full-fledged machines. For example Cheese Winder costing Rs. 18,40,0007-is apparently a new machine as the appellant has failed to file documentary evidences to prove that it forms part of some bigger machine. Since the appellant has failed to controvert the findings of the A.O., accordingly, I am inclined to agree with the contentions of the Ld. A.O. Accordingly, disallowance to the extent of Rs.23,42,000/- is confirmed."
11. Heard both sides reiterating their respective stands. We first of all come to page 15 of the paper book indicating the assessee's plant and machinery to be having value of Rs.4.65crores as on 31.03.2009. We thereafter proceed to pages 105 to 107 of the paper book indicating the item of expenses to be in the nature of grooved sleeve with water cooling jacket, plastic extension spares in the nature of screw & barrel and cheese winders; respectively. We afforded ample opportunity to learned Departmental Representative to prove from the case records that the same in any way amounted to purchase of altogether new machines or the said items have resulted in increase in assessee's production in question. He failed to point out any such material. We thus observe that the impugned items are nothing but regular wear and tear replacements to assessee's already existing machinery liable to be treated as revenue expenditure. We accordingly accept assessee's instant substantive ground and direct the Assessing Officer to delete the impugned disallowance.
ITA Nos. 1380/Ahd/2011 with C.O. No.138/Ahd/11, 323/Ahd/12 & 1140/Ahd/13(Lipi Specific Family Trust) A.Ys. 2006-07, 2005-06 & 2009-10 - 10 -
12. The assessee's latter substantive ground assails correctness of both the lower authorities' action disallowing 1/10th of its telephone, vehicle and miscellaneous expenses aggregating to Rs.7,66,237/-. Both the learned representatives state very fairly herein as well that we have already confirmed identical lower appellate findings in the preceding assessment year by adopting judicial consistency. We appreciate this fair approach and affirm the lower appellate findings under challenge. ITA No.1140/Ahd/2013 is partly accepted.
13. The assessee partly succeeds in its two appeals ITA Nos.323/Ahd/2012 & 1140/Ahd/2013 alongwith cross objection 138/Ahd/2011. The Revenue's sole appeal ITA No.1380/Ahd/2011 is dismissed.
[Pronounced in the open Court on this the 15th day of February, 2017.] Sd/- Sd/-
(N. K. BILLAIYA) (S. S. GODARA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad: Dated 15/02/2017
True Copy
S.K.SINHA
आदे श क त ल
प अ े
षत / Copy of Order Forwarded to:-
1. राज व / Revenue
2. आवेदक / Assessee
3. संबं धत आयकर आय!
ु त / Concerned CIT
4. आयकर आयु!त- अपील / CIT (A)
5. )वभागीय ,-त-न ध, आयकर अपील य अ धकरण, अहमदाबाद /
DR, ITAT, Ahmedabad
6. गाड3 फाइल / Guard file.
By order/आदे श से,
उप/सहायक पंजीकार
आयकर अपील य अ धकरण, अहमदाबाद ।