Income Tax Appellate Tribunal - Delhi
Jindal Poly Films Ltd., New Delhi vs Department Of Income Tax
ITA NOS. 3540-3541/Del/2012
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "D", NEW DELHI
BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER
AND
SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER
I.T.A. Nos. 3540 & 3541/Del/2012
A.YRS. : 2005-06 & 2007-08
Asstt. Commissioner of Income Tax, vs. M/s Jindal Poly Films Ltd.,
Central Circle-22, Plot No. 12, Sector-B-1,
New Delhi Local Shopping Complex,
Vasant Kunj,
New Delhi - 110 070
(PAN: AAACJ7650E)
(Appellant ) (Respondent )
Assessee by : Sh. S.R. Wadhwa, Adv.
Department by : Sh. D.K. Mishra, C.I.T.(D.R.)
ORDER
PER SHAMIM YAHYA: AM These appeals by the Revenue are directed against the orders of the Ld. Commissioner of Income Tax (Appeals), Meerut pertaining to assessment years 2005-06 & 2007-08 respectively. Since some of the grounds raised are common and connected and these appeals were heard together, they are being consolidated and disposed of by way of this common order.
2. One common issue raised is that Ld. Commissioner of Income Tax (A) has erred in deleting the disallowance made by the Assessing Officer on account of excess claim of deduction u/s. 10B of the I.T. Act.
3. Since the facts are identical on this issue, we are adjudicating the same with reference to the orders of the authorities below for assessment year 2005-06.
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4. In this case in Order u/s. 154 /143(3), the Assessing Officer observed that deduction u/s. 10B of the I.T. Act claimed by the assessee was excessively allowed. As per the Assessing Officer assessee claimed deduction u/s. 10B of the I.T. Act amounting to Rs. 9,37,06,400/- as under:-
Profit of undertaking*Export sales Total sales of undertaking 128399316*1005058967 = Rs. 9,37,06,400/-
1377161904 4.1 Assessing Officer noted that the total sales of the undertaking were ` 1440319143/-. Assessee took total sales at Rs. 1377161904/-
only after deducting excise duty of Rs. 63157239/- involved in the sales. Assessing Officer referred to the provisions of section 10B and issued notice u/s. 154 saying that for working the proportionate deduction u/s. 10A domestic sales have to be considered at figures inclusive of Excise Duty charged thereon. The Assessing Officer distinguished the provisions of section 80HHC(3) of the Act as relied upon by the assessee to explain the term turnover u/s. 10B(4). Assessing Officer did not accept the contention of the assessee and made the impugned disallowance.
5. Upon assessee's appeal Ld. Commissioner of Income Tax (A) held as under:-
"I have considered the facts of the case, findings of the Assessing Officer, submissions of the appellant and the judicial pronouncement of the Hon'ble Supreme Court in 2 ITA NOS. 3540-3541/Del/2012 Lakshmi Machine Works. I am of the considered opinion that the provisions of Section 10B(4) are similar to the provisions contained in Section 80HHC(3)(a) and, therefore, the judgement of the Hon'ble Apex Court in Lakshmi Machine Works (Supra) is squarely applicable for computation of total turnover u/s. 10B(4). In view of the facts, I hold that the appellant has rightly calculated the amount of deduction u/s. 10B without considering the Excise Duty on indigenous sales as part of the total turnover for the purpose of computing eligible profits. For this reason, there was no mistake apparent from record in assessment order u/s. 143(3) dated 27.1.2008 and, therefore, the action of the Assessing Officer to withdraw deduction u/s. 10B u/s. 154 is set aside and the disallowance / addition of Rs. 41,08,977/- is hereby deleted."
6. Against the above Order the Revenue is in appeal before us.
7. We have heard the rival contentions in light of the material produced and precedent relied upon. We find that it is the submission of the assessee that both section 80HHC & 10B deal with computation of deduction of total income on account of export profits. The manner of computation of export profit for the purpose of section 10B is given in section 10B(4) for the exports of 100% export oriented units while it is given in section 80HHC(3)(a) for exports by others. Both the computational provisions are identical. Furthermore, we find that the format of computation of deduction are also identical. Under such circumstances, we agree with the Ld. Commissioner of Income Tax (A) 3 ITA NOS. 3540-3541/Del/2012 that the case is squarely covered in favour of the assessee by the decision of the Hon'ble Apex Court in the case of C.I.T. vs. Lakshmi Machine works 290 ITR 667. In this case it was held that the excise duty and sales tax have be excluded from the total turnover. It was inter-alia held that since the export turnover does not include excise duty, so the total turnover should also not include excise duty. Furthermore, ITAT, Visakhapatna in Miracle Software Systems India (P) Ltd. vs. ACIT (2001) 59 DTR 333 (Viz) has held that under similar provisions of section 10A and following the decision of the Hon'ble Bombay High Court in C.I.T. vs. Sudershan Chemicals Industries Ltd. (2000) 245 ITR 769 (Bom.), affirmed by the Hon'ble Supreme Court in C.I.T. vs. Lakshmi Machine Works (Supra), the communication charges in the case of software exports will not be included in the export turnover nor in the total turnover. We further agree with the contention that section 145A(1) requires that the excise duty should be taken into account for determination of income and not for the purpose of computation of export profit.
7.1 Furthermore, we also agree with the assessee's contention that the above cannot be construed as apparent mistake liable to be rectified u/s. 154 of the I.T. Act. In this regard, reference has been made to the decision of the Hon'ble Supreme Court in T.S. Balram, ITO vs. Vokart Brothers & Others (1971) 82 ITR 50 (SC) that "a mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivably be two opinions". In the background of the aforesaid discussions and precedents, we do not find any infirmity in the order of the Ld. Commissioner of Income Tax (A), accordingly, we uphold the same.
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8. Another issue raised in I.T.A. No. 3541/Del/2012 (A.Y. 2007-08) is that the Ld. Commissioner of Income Tax (A) erred in deleting the disallowance of Rs. 19831337/- made by the Assessing Officer on account of depreciation on plant and machinery of non-functional units.
9. In this case the Assessing Officer found that two units of the assessee situated at Gulaothi were not functional and the same were not run in preceding year as well as in succeeding year. The Assessing Officer disallowed the depreciation of assets of the said two units amounting to Rs. 1,98,31,337/- holing that as the plant and machinery was not actually used for the purpose of business during the year, the depreciation thereon cannot be allowed. He further held that keeping the machinery ready for use is not sufficient to allow depreciation on plant and machinery.
10. Before the Ld. Commissioner of Income Tax (A) assessee submitted firstly that keeping the plant and machinery in ready to use condition is equivalent to use and for that reason the depreciation is allowable. Secondly, that the plant and machinery being part of block of assets, the depreciation is allowable with reference to the block without segregating a particular asset individually. Ld. Commissioner of Income Tax (A) held as under:-
"I have considered the facts of the case, findings of the Assessing Officer, submissions of the appellant and the cases relied upon by the Assessing Officer as well as appellant. The facts of Oswal Agro Mills Ltd's case are more or less similar to the fact of the case of the appellant. In Oswal Agro Mills Ltd's case, on unit situated at Bhopal 5 ITA NOS. 3540-3541/Del/2012 was closed. The Hon'ble Delhi High Court held that the passive user cannot be extended to such limits where the unit did not function for six years and the plea of the assessee that the non user of assets should be treated as temporary non user cannot be accepted. However, the court held that the depreciation was allowable on the basis of concept of block of assets. The head note of the said judgement is reproduced as under:-
"Depreciation-User of business-Block of assets vis-a- vis closure of one unit-actual user of asset in a particular year is not necessary- Even passive user qualifies for depreciation - Passive user is to be understood in the sense that the asset is ready for use but could not be used for a part of the year or even the whole year- However, in the instant case, the entire Bhopal unit of the assessee company came to a standstill and there is complete halt in its functioning from assessment year 1997-98 onwards - There is no sign of this unit becoming functional - Passive user cannot be extended to such absured limits - Even when the word 'used' is interpreted in a wider sense to mean 'ready to use', the same cannot be stretched to the limits of non-user for a number of years. Plea of the assessee that the non user of the assets of the Bhopal unit for six years should be treated as temporary non user cannot be accepted. However, as per section 32 as amended by the Taxation Laws (Amendment) Act, 1986, depreciation is allowable on 6 ITA NOS. 3540-3541/Del/2012 the block of assets and the Revenue cannot segregate a particular asset therefrom on the ground that it was not put to use. Fact that ss. 32(1)(ii) and 41(2) have been substituted by the scheme of reducing the sale proceeds of a depreciable asset from the WDV of the block of assets strengthens the view that now only the detail of "block of assets" is to be maintained and not separate detail for each asset. Thus, the contention of the Revenue that use of each and every asset is essential for claiming depreciation even when a particular asset forms part of a "block of assets" is to be maintained and not separate detail for each asset. Thus, the contention of the Revenue that use of each and every asset is essential for claiming depreciation even when a particular asset forms part of a "block of assets" cannot be accepted. Therefore, the claim of depreciation was allowable on the basis of the concept of "block of assets".
In the appellant's case, even if the closure of the two units is accepted as a permanent closure rejecting appellant's submission to the effect of temporary non-user, in that case too the depreciation cannot be disallowed as the block of assets was in use during the year and the finding of the Assessing Officer that the plant and machinery is separate block of assets not put to use cannot be sustained. The plant and machinery installed at the said two units also form part of block of assets consisting of all the units of the appellant.
7ITA NOS. 3540-3541/Del/2012 In view of the above, I respectfully following the judgements of Hon'ble Delhi High court in the case of Oswal Agro Mills Ltd. and M/s Bharat Aluminum Co. Ltd. reported as 197 Taxman 25 and 187 Taxman 111 respectively delete the disallowance of depreciation of Rs. 1,98,31,337/-."
11. Against the above order the Revenue is in appeal before us.
12. We have heard the rival contentions in light of the material produced and precedent relied upon. We find that the first case of the assessee in this case is that plant and machinery of these two units were kept ready for use and as such the depreciation was admissible. However, this fact has been disputed by the Revenue on the ground that the closure was not of temporary nature. However, the Assessing Officer has not given any finding in this regard. Nevertheless, we find that the issue is squarely covered in favour of the assessee by the decision of Hon'ble Jurisdictional High Court in the case of C.I.T. vs. Oswal Agro Mills Ltd., wherein it was expounded that every item of the assets for being part of the block of assets need not actually be used. The Hon'ble Jurisdictional High Court observed in para 33 as under:-
"Having regard to this legislative intent contained in the aforesaid amendment, it is difficult to accept the submissions of the Ld. Counsel for the Revenue that for allowing depreciation, user of each and every asset is essential even when a particular asset forms part of block of assets. Acceptance of this contention would mean that the assessee is to be directed to maintain the details of each asset separately and that would frustrate the very purpose for which the amendment was brought about. It is also 8 ITA NOS. 3540-3541/Del/2012 essential to point out that the Revenue is not put to any loss by adopting such method and allowing depreciation on a particular asset, forming part of the block of assets even when that particular asset is not used in the relevant assessment year. Whenever such an asset is sold, it would result in short term capital gain which would be exigible to tax and for this reason, we say that there is no loss to Revenue either."
13. We find that the exposition from the aforesaid case law is directly applicable in this case. Accordingly, we do not find any infirmity in the order of the Ld. Commissioner of Income Tax (A), therefore, we affirm the same.
14. In the result, both the appeals filed by the Revenue stand dismissed.
Order pronounced in the open court on 26/4/2013.
Sd/- Sd/-
[A.D. JAIN]
JAIN] [SHAMIM YAHYA]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Date 26/4/2013
"SRBHATNAGAR"
Copy forwarded to: -
1. Appellant 2. Respondent 3. CIT 4. CIT (A)
5. DR, ITAT
TRUE COPY
By Order,
Assistant Registrar,
ITAT, Delhi Benches
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ITA NOS. 3540-3541/Del/2012
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