Income Tax Appellate Tribunal - Ahmedabad
Dcit, Circle-1, , Ahmedabad vs Ahmedabad Packaging Industries Ltd.,, ... on 1 May, 2017
आयकर अपील
य अ धकरण, अहमदाबाद यायपीठ 'डी', अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
" D " BENCH, AHMEDABAD
सव ी एस.एस.गोदारा, या यक सद य एवं द प कुमार के डया, लेखा सद य के सम ।
BEFORE SHRI S.S. GODARA, JUDICIAL MEMBER &
SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER
आयकर अपील सं./I.T.A. No.2375/Ahd/2013 - AY 2010-11
&
Cross Objection No.49/Ahd/2014 - AY 2010-11
( i n IT A No.2375/Ahd/2013 - AY 2010-11 )
The DCIT बनाम/ M/s.Ahmedabad Packaging
Circle-1 Vs. Industries Ltd.
Ahmedabad A/2-326, Phase-II, GIDC
Industrial Estate, Vatva,
Ahmedabad
थायी ले खा सं . /जीआइआर सं . / PAN/GIR No. :AABCA 6006 A
(अपीलाथ' /Appellant) .. ( (यथ' / Respondent) &
Cross Objector
Revenue by : Shri Dinesh Singh, Sr.DR
Assessee by : Shri S.N. Divatia, AR
ु वाई क+ तार ख /
सन Date of Hearing 24/04/2017
घोषणा क+ तार ख /Date of Pronounce ment 01/ 05/2017
आदे श / O R D E R
PER PRADIP KUMAR KEDIA, AM:
The Revenue has filed appeal against the order of the Commissioner of Income Tax(Appeals)-6, Ahmedabad [CIT(A) in short] dated 23/07/2013 arising out of assessment order passed under section ITA No.2375/Ahd/2013 (By Revenue)& CO No.49/Ahd/2014 (By Assessee) DCIT vs. Ahmedabad Packaging Inds.Ltd.
Asst.Year - 2010-11 -2- 143(3) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") dated 08/03/2013 for the Assessment Year (AY) 2010-11.
2. The grounds of appeal raised by the Revenue read as under:-
1. "The CIT(A) has erred in law and on facts by considering the Capital expenditure of Rs.21.63 lacs for renovation of factory building as revenue expenditure3. As per provisions of section 30(a)(ii), only expenses for current repairs are allowable as deduction. While deciding the issue, CIT(A) has overlooked the fact that the expenses incurred have given benefit of enduring nature to the assessee.
2. The CIT(A) has erred in law and on facts in deleting the addition of Rs.15.17 lacs towards unutilized Cenvat Credit despite the fact that the assessee followed exclusive method of valuing inventory in contravention of section 145A which mandates inclusive method."
3. The Assessee has also filed Cross Objections in the aforesaid revenue's appeal which read as under:-
1.1. The Ld.CIT(A) has erred in and or on facts in confirming the disallowance of Rs.50,000. The claim should be allowed as business loss u/s.28.
1.2. The Ld.CIT(A) has erred in confirming the disallowance of Rs.43.835 u/s.14A.ITA No.2375/Ahd/2013 (By Revenue)&
CO No.49/Ahd/2014 (By Assessee) DCIT vs. Ahmedabad Packaging Inds.Ltd.
Asst.Year - 2010-11 -3-
4. Ground No.1 of Revenue's appeal relates to determination of nature of expenditure incurred for renovation of factory building. It is the contention of Assessing Officer (AO) that expenditure incurred Rs.21.63 lakhs for repair and renovation of the factory building is capital expenditure and thus not eligible for deduction in terms of section 30(a)(ii) of the Act.
4.1. In the course of hearing, the Ld.DR for the Revenue referred to the assessment order and submitted that the assessee has inter alia incurred Rs.21.63 lakhs on account of building repairs and interest incurred thereon which is not in the nature of revenue expenditure and therefore no permissible deduction. The Ld.DR submitted that typically, the assessee has incurred small amount on repairs in the past ranging between Rs.60,000/- to Rs.2,70,000/- per annum as against heavy expenditure incurred this year. The Ld.DR further submitted that the expenditure incurred during the year are in the nature of major repairs of the building premises. The Ld.DR referred to the assertions made by the AO and submitted that the assessee has carried out renovation of the factory building involving re-plastering, re-flooring, re-placement of doors, re-plumbing, which cannot be characterized as current repairs. The Ld.DR also referred to the bills and submitted that some expenditure have been incurred towards basic restructuring of building including replacement of RCC columns. The Ld.DR accordingly submitted that ITA No.2375/Ahd/2013 (By Revenue)& CO No.49/Ahd/2014 (By Assessee) DCIT vs. Ahmedabad Packaging Inds.Ltd.
Asst.Year - 2010-11 -4- the expenditure incurred are bringing endurance value to the premises and are in the nature of capital expenditure on which the assessee is entitled to depreciation as already allowed.
4.2. The Ld.AR, on the other hand, referred to the details of repairs to the building of different phase and submitted that the factory building is in the chemical zone which is subject to relatively more damage and wear and tear. The building shed was taken on lease from GIDC before almost 27 years back and no major repairs were carried out in last 20 years. The large scale repairs as incurred were overdue for number of years to maintain the operational efficiency. The Ld.AR submitted that no new assets have come into existence by outlay towards repairs. All the expenses incurred towards repair are revenue in nature.
4.3. We have examined the issue carefully and perused the record. The limited controversy is whether the repair expenditure so incurred by the assessee represents capital expenditure or a revenue expenditure. Having considered the nature of work executed by the assessee, we observe that the amount spent cannot be said to be a capital expenditure as made out by the revenue. The expenditure might have secured some enduring benefit to the assessee because of the renovation. However, the test of enduring benefit per se is not a certain or conclusive test and cannot be applied blindly and mechanically with regard to the particular facts and ITA No.2375/Ahd/2013 (By Revenue)& CO No.49/Ahd/2014 (By Assessee) DCIT vs. Ahmedabad Packaging Inds.Ltd.
Asst.Year - 2010-11 -5- circumstances of the given case. The assessee has spent money on replacement of flooring, plastering, doors, plumbing etc. Such amount incurred in strengthening of existing layout cannot be regarded as a capital expenditure. The expenditure on repairs of the building is merely incurred to refurnish and renovate the existing structure and is not in the nature of creation of a capital asset. No structural changes is shown to have been made by the assessee while incurring such expenditure. A repair ordinarily involves renewal and restoration of the existing wear and tear. Such expenditure, in our view, is in the nature of current repair in spite of major expenses alleged to have been incurred. Thus, we find no merit in the plea of the revenue on this score.
4.4. Ground No.1 of Revenue's appeal is accordingly dismissed.
5. Ground No.2 of Revenue's appeal concerns alleged contravention of section 145A while valuing the closing stock for determination of taxable income of the assessee. The AO found that unutilized CENVAT credit of Rs.15,17,765/- has not been included in the valuation of closing stock of raw-material and thereby the taxable income of the assessee- company is underreported to this extent. He accordingly added unutilized CENVAT credit of 15.17 lakhs to the total income of the assessee in terms of section 145A of the Act.
ITA No.2375/Ahd/2013 (By Revenue)&CO No.49/Ahd/2014 (By Assessee) DCIT vs. Ahmedabad Packaging Inds.Ltd.
Asst.Year - 2010-11 -6- 5.1. In first appeal, the CIT(A) found that the action of the assessee remains tax neutral by following the exclusive method of accounting for the purpose of valuation of closing stock. The CIT(A) after relying upon several judicial pronouncements to this effect found merit in the grievances of the assessee. The CIT(A) also noticed the decision of the Hon'ble Delhi High Court in the case of CIT vs. Mahavir Alluminium Ltd. 297 ITR 77 (Delhi) for the proposition that when there is adjustment in the valuation of closing stock, to give effect to section 145A of the Act, the opening stock also has to be simultaneously increased by any tax, duty, cess or fee actually paid or incurred with reference to such stock. if the same has not been added for the purpose of valuation in the account. The CIT(A) also took note of the guidance note of ICAI. Reliance was also placed on the decision of the Coordinate Bench of the Tribunal viz.ACIT vs. Kankal (India) Pvt.Ltd. 46 SOT 120 to hold in favour of assessee.
5.2 The Revenue agitated the findings of CIT(A) before Tribunal.
5.3. On perusal of the orders of the authorities below and on consideration of rival submissions on the issue, we find no reason to interfere with the order of the CIT(A). The CIT(A) has found the entire exercise to be revenue neutral. Secondly, to give effect to section 145A, both the opening stock and closing stock are required to be ITA No.2375/Ahd/2013 (By Revenue)& CO No.49/Ahd/2014 (By Assessee) DCIT vs. Ahmedabad Packaging Inds.Ltd.
Asst.Year - 2010-11 -7- simultaneously brought in parity as a matter of legitimate expectation. We also take note of the decision of the Coordinate Bench of the Tribunal in the case of Dy.CIT vs. Balvant Lallubhai Rotliwala in ITA No.1885/Ahd/2011 dated 01/02/2016 relied upon by the assessee where on similar facts, addition made under s.145A was deleted by the ITAT. The guidance note issued by the ICAI also supports the case of the assessee for the proposition that there is no impact on ultimate profit by resorting to exclusive method of accounting for the purpose of valuation of stock as adopted by the Assessee. The Revenue has not brought on record anything contrary to the assertions made by the CIT(A) in favour of assessee. In consequence, we decline to interfere with the order of the CIT(A).
5.4. As a result, ground No.2 of Revenue's appeal is dismissed.
6. In the result, appeal of the Revenue is dismissed.
Assessee's Cross Objection No.49/Ahd/2014 - AY 2010-11 (arising out of ITA No.2375/Ahd/2013 - AY 2010-11).
7. As per ground No.1 of the Cross Objection, the assessee has expressed its dissatisfaction for disallowance of Rs.50,000/- claimed as bad debt by the AO and sustained by the CIT(A).
ITA No.2375/Ahd/2013 (By Revenue)&CO No.49/Ahd/2014 (By Assessee) DCIT vs. Ahmedabad Packaging Inds.Ltd.
Asst.Year - 2010-11 -8- 7.1. The Ld.AR for the assessee submitted that the aforesaid amount was given as advance in the ordinary course of business to M/s.Gujarat Agencies Corporation about 10 years back. The amount written off as 'bad debt' during the year is thus allowable deduction under s.36(1)(vii) r.w.s. 36(2) of the Act. The Ld.AR submitted in the alternative that the aforesaid claim ought to have been allowed as 'business loss' under s.28 of the Act.
7.2. We do not find any merit in either of the contentions. The assessee has not been able to prove that the impugned amount was given as advance for business purpose except for bald assertions made to this effect. Therefore the nature of alleged advance given is not known. Hence, whether the debt was attributable to trade or commerce of the assessee is not known at the first place. The claim towards bad debts has been therefore rightly rejected by the Revenue. The alternative ground towards business loss also does not merit acceptance for the similar reason. The loss is required to be proved to be emanating from business of the assessee. Secondly, the loss is required to be proved to have been crystallized during the year. No material or evidence has been brought on record to this effect. Thus, ground No.1 of the Cross Objection of the assessee is devoid of merit.
ITA No.2375/Ahd/2013 (By Revenue)&CO No.49/Ahd/2014 (By Assessee) DCIT vs. Ahmedabad Packaging Inds.Ltd.
Asst.Year - 2010-11 -9- 7.2. Ground No.1 of the Cross Objection is dismissed.
8. Ground No.2 of the Cross Objection concerns disallowance of Rs.43,835/- under s.14A of the Act. The Ld.AR for the assessee pointed out that the assessee has earned a meager dividend income of Rs.8,212/- which is exempt from tax. He relied upon the decision of the Hon'ble High Court of Delhi in the case of Joint Investments Pvt.Ltd. vs. CIT reported in 372 ITR 692 (Delhi) and submitted that estimation for disallowance under s.14A should be restricted to the tax free dividend income. Given the fact that some judicial pronouncements support the proposition of assessee, while some others do not, we are leaned towards plea of Assessee. The disallowance under s.14A is accordingly restricted to the extent of dividend income earned. Resultantly, ground No.2 of the Cross Objection is partly allowed.
9. As a result, Cross Objection filed by the assessee is partly allowed.
ITA No.2375/Ahd/2013 (By Revenue)&CO No.49/Ahd/2014 (By Assessee) DCIT vs. Ahmedabad Packaging Inds.Ltd.
Asst.Year - 2010-11
- 10 -
10. In the combined result, the appeal of the Revenue is dismissed, whereas Cross Objection filed by the assessee is partly allowed.
This Order pronounced in Open Court on 01 / 05/2017
Sd/- Sd/-
(एस.एस.गोदारा) ( द प कुमार के डया)
या यक सद य लेखा सद य
( S.S. GODARA ) ( PRADIP KUMAR KEDIA )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 01/ 05 /2017
ट .सी.नायर, व. न.स./T.C. NAIR, Sr. PS
आदे श क त ल!प अ"े!षत/Copy of the Order forwarded to :
1. अपीलाथ' / The Appellant
2. (यथ' / The Respondent.
3. संबं5धत आयकर आयु7त / Concerned CIT
4. आयकर आयु7त(अपील) / The CIT(A)-6, Ahmedabad
5. 8वभागीय त न5ध, आयकर अपील य अ5धकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड फाईल / Guard file.
आदे शानुसार/ BY ORDER, //स(या8पत त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad
1. Date of dictation .. 25.4.17 (dictation-pad pages attached at the end of this appeal-file)
2. Date on which the typed draft is placed before the Dictating Member ...25.4.17
3. Other Member...
4. Date on which the approved draft comes to the Sr.P.S./P.S.................
5. Date on which the fair order is placed before the Dictating Member for pronouncement......
6. Date on which the fair order comes back to the Sr.P.S./P.S.......1.5.17
7. Date on which the file goes to the Bench Clerk.....................1.5.17
8. Date on which the file goes to the Head Clerk..........................................
9. The date on which the file goes to the Assistant Registrar for signature on the order..........................
10. Date of Despatch of the Order..................