Income Tax Appellate Tribunal - Ahmedabad
Raviraj Foils Ltd.,, Ahmedabad vs The Addl. Cit, Range-5,, Ahmedabad on 6 September, 2018
आयकर अपील य अ धकरण, अहमदाबाद यायपीठ 'ch' अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
" B " BENCH, AHMEDABAD
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BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER
And Ms. MADHUMITA ROY, JUDICIAL MEMBER
आयकर अपील सं./I.T.A. No. 2664/Ahd/2015
( नधा रण वष / Assessment Year : 2011-12)
Raviraj Foils Ltd., बनाम/ ACIT,
702, Saffron Building, Vs. Range-5
th
7 Floor, Panchvati Char Ahmedabad.
Rasta, Ambawadi,
Ahmedabad - 380 006
थायी ले खा सं . /जीआइआर सं . / PAN/GIR No. : AAACR 7333 J
(अपीलाथ /Appellant) .. ( यथ / Respondent)
अपीलाथ ओर से/ Appellant by : Shri P. M. Mehta & Gulab Thaker, A.R.
यथ क ओर से/Respondent by: Shri Mudit Nagpal, Sr. D.R.
ु वाई क तार ख/
सन Date of Heari ng 11/07/2018
घोषणा क तार ख /Date of Pronounce ment 06/09/2018
आदे श / O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the assessee against the order of the Commissioner of Income Tax(Appeal)-9, Ahmedabad [CIT(A) in short] vide appeal no.CIT(A)-9/136/Addl. CIT. Rang/14-15 dated 19-07-2015 arising in the matter of assessment order passed under s.143(3) of the Income Tax Act, 1961(here-in-after referred to as "the Act") dated 28.03.2014 relevant to Assessment Year (AY) 2011-12.
ITA No.2664/Ahd/2015Raviraj Foils Ltd. vs. ACIT A.Y. 2011-12 -2-
2. The grounds of appeal raised by the Revenue are as under:-
"1. In law and in the facts and circumstances of the appellant's case, the Ld. CIT(A) has grossly erred in rejecting Grounds No. 1 of the appellant's appeal before him challenging the validity of the assessment order passed u/s. 143(3) of the Act, passed by ACIT Range- 5, Ahmedabad.
2. In law and in the facts and circumstances of the appellant's case the Ld. CIT(A) has grossly erred in confirming disallowance of late payment of provident fund amounting to Rs. 28,816/- when no such disallowance is called for. It may be deleted.
3. In law and in the facts and circumstances of the appellant's case the Ld. CIT(A) has erred in confirming notional interest of Rs.57,949, treating it as interest capitalized on work-in-progress, when no such disallowance is called for. It may be deleted.
4. In law and in the facts and circumstances of the appellant's case the Ld. CIT(A) has erred in confirming disallowance purchase of Stores amounting to Rs.9,34,104/- considering the same to be capital expenditure and allowing deprecation on it, when no such disallowance is called for. It may be deleted. 4.1 In law and in the facts and circumstances of the appellant's case the Ld. CIT(A) ought to have appreciated that expenditure incurred by appellant has not resulted into any enduring benefit and are of recurring in nature hence such expenditure need to be allowed as revenue expenditure.
5 In law and in the facts and circumstances of the appellant's case, the Ld. CIT(A) has erred in charging interest u/s. 234A, 234B, 234C and 234D of the Act, when no such interest is chargeable. It may be deleted.
6 The appellant craves leave to add, alter, amend and/or withdraw any of the ground or grounds either before or at the time of hearing of the appeal."
3. At the outset, ld. Counsel for the assessee submitted that he has been instructed by the assessee not to press ground no.1. Therefore, we reject the same as not pressed.
ITA No.2664/Ahd/2015Raviraj Foils Ltd. vs. ACIT A.Y. 2011-12 -3-
4. The second issue raised by the assessee in the ground no. 2 is that ld CIT(A) erred in confirming the order of AO by disallowing the late payment made to employees provident fund for Rs.28,816/- only.
On verification of accounts, the AO noticed that the assessee has not deposited the employee's contribution to PF of Rs. 28,816/- within the due date prescribed under the relevant Act. The AO, after considering judgment of the Hon'ble jurisdictional High Court in the case of Gujarat State Road Transport Corporation, 366 ITR 170 disallowed the claim and added the same to the total income of the assessee. In the first appeal before the ld.CIT(A), disallowance was confirmed. Hence the assessee is further before the Tribunal on this issue.
5. Heard both the sides and perused the materials available on record. We note that the Tribunal on number occasions has decided the similar issue by following the judgment of jurisdictional High Court in the case of Gujarat State Road Transport Corporation Ltd. (supra) against the assessee. The jurisdictional High Court in the above case held that where assessee did not deposit employees' contribution in the relevant fund before the due date prescribed in Explanation to section 36(1)(va), no deduction would be admissible even though he deposits same before due date under section 43B. Hence we are not inclined to interfere in the order of the Revenue authorities on this issue. Thus the ground of appeal of the assessee is dismissed.
ITA No.2664/Ahd/2015Raviraj Foils Ltd. vs. ACIT A.Y. 2011-12 -4-
6. The next issue raised by the assessee in ground no.3 is that ld CIT(A) erred in confirming the order of AO by disallowing the interest on the notional basis for Rs.57,949/- only.
7. The AO during the assessment proceedings observed that the assessee had shown the capital work-in-progress for Rs. 52,69,990/- only. It was also observed that the assessee at the same time had incurred interest expenses on the borrowed fund. Accordingly, the AO was of the view that the borrowed fund must have been utilized in the capital work- in-progress and accordingly, the amount of proportionate interest expenses requires to be disallowed.
The AO also observed that the accumulated loss exceeds the own capital of the assessee. Therefore, the borrowed fund has been used in the capital work-in-progress. Thus, the AO worked out the amount of proportionate interest expenses at Rs.57,949/- and added to the total income of the assessee u/s 36(i)(iii) of the Act.
8. Aggrieved, assessee preferred an appeal to ld. CIT(A) who confirmed the order of AO by observing as under:
"7. Decision I have perused the detailed observations made by the A.O. I find that the A.O. has given a factual finding with regard to disallowance of depreciation. The appellant apparently has not offered any rebuttal to the AOs finding. Accordingly, the disallowance amounting to Rs.57,949/- is sustained. Since this ground is dismissed the A.O. is directed to allow depreciation on such capital work-in-progress when it is put to use."ITA No.2664/Ahd/2015
Raviraj Foils Ltd. vs. ACIT A.Y. 2011-12 -5- Being aggrieved by the order of Ld CIT(A) assessee is in the second appeal before us. The ld AR before us filed a paper book, which is running from pages 1 to 81 and left the issue at the discretion of the Bench.
On the other hand, ld DR vehemently supported the order of authorities below.
9. We have heard the rival contentions and perused the materials available on record. The issue in the present case relates whether the borrowed fund has been utilized in the capital work-in-progress shown in the balance sheet as on 31st March 2011. As per the lower authorities, the borrowed fund has been utilized in the capital work-in-progress in view of the fact that the accumulated loss of the assessee exceeds the fund of the assessee. The ld AR for the assessee before us has not advanced any argument on this issue. Therefore, we have no alternative except to confirm the order of lower authorities. Hence, the ground of appeal of the assessee is dismissed.
10. The next issue raised by the assessee is that ld CIT(A) erred in holding the purchase of stores amounting to Rs. 9,34,104/- as capital expenditure eligible for depreciation.
11. The assessee during the year has incurred an expense of Rs.13,35,612/- on the purchases of stores. The AO during the assessment proceedings observed that the store's materials are in the nature of giving enduring benefit to the assessee. Therefore same should be classified as ITA No.2664/Ahd/2015 Raviraj Foils Ltd. vs. ACIT A.Y. 2011-12 -6- capital expenditure, and accordingly the same is entitled to depreciation. On a questioned by the AO, the assessee failed to substantiate that the expenses incurred on the stores are not capital expenditure. Therefore, the AO treated the store's expenses amounting to Rs.13,35,612/- as capital expenditure which needs to be capitalized and is entitled for depreciation. Thus, the AO disallowed the same after giving depreciation allowance u/s 32 of the Act amounting to Rs.4,01,508/- only disallowed the remaining amount to Rs. 9,01,508/- (13,35,612 - 4,01,508) and added to the total income of the assessee.
12. Aggrieved, assessee preferred an appeal to ld. CIT(A). The assessee before the ld CIT(A) submitted as under:
"The nature and function of each machinery/part purchased can be explained as under:
(i) International Mach dies: The assessee company had purchased converter for ultrasonic welding machine and ultrasonic generator total amounting to Rs.7,14,000/- from International Mach dies. These parts are used in Foil separator machine in the factory by replacing the old one therefore these are not of capital nature as it requires frequent replacement and is just an integral part of a machine.
(ii) Amee power Drives: The assessee company had purchased Siemens make DIGITAL AC DC Drive amounting to Rs.2,75,640/- (Including tax & duties) from Amee power Drives which was installed in Rolling Mill. The same new Digital AC DC Drive was installed in rolling mill which was replaced with old one and is the integral pan for functioning of rolling mill therefore this is not of capital nature.
(iii) Alfa Therm Limited: The assessee company had purchased 2 Heat exchanger for Air Heater amounting to Rs.217070/-
(Including tax & duties) from Alfa Therm Limited. This was ITA No.2664/Ahd/2015 Raviraj Foils Ltd. vs. ACIT A.Y. 2011-12 -7- installed in hot air generator of coating machine which was replaced with old one and is the integral pan for functioning of air heater therefore this is not of capital nature.
(iv) Alteem Instruments; The Assessee company had purchased Line Guide System Model No. ALG8224 with Stroboscope and Hard- chrom pipe amounting to Rs.1,28,902/- (Including tax & duties) from Alteem .Instruments. This was installed in Foil Slitting Machine as one of the part thus it is the integral part for functioning of foil slitting machine therefore this is not of capital nature.
It is submitted that as per AS-10, "Accounting for Fixed Assets", Machinery parts and spares are usually charged to the profit and loss statement as and when consumed."
The ld CIT(A) after considering the submission of the assessee allowed relief to the assessee in part by observing as under:
"13. Decision I have perused the order passed by the A.O. and the submissions made in this regard. I have also seen the paper book filed wherein on page-75 to page-80 bills of such expenditure incurred are enclosed. For the sake of ready reference the bill nos. alongwith the description of machinery purchased is reproduced below:-
Pg,no.of Description Amount Rs.
Paper
book
75 Converter for ultrasonic welding machine 7,18,000
and ultrasonic generator
76 Siemens make Digital DC Drive 2,38,000
77 Heat Exchanger for Air Heater 1,00,000
78 Heat Exchanger with cover Complete SS 90,000
to be replaced with old heat exchanger
79 Line Guide System with Stroboscope 1,03,000
80 Linear Bearing Assembly 7,300
ITA No.2664/Ahd/2015
Raviraj Foils Ltd. vs. ACIT
A.Y. 2011-12
-8-
Perusal of such bills and its descriptions indicates that all these are new machineries brought by the assessee except the machinery described in page-80 amounts to Rs. 7,300/-. The mere glance in the description is sufficient to conclude that such expenditure are capital in nature giving enduring benefit to the manufacturing or production process of the appellant company. The AOs view is correct in holding such expenditure to be capital expenditure Except for Rs.7,300/-, evident on page-80 of paper book which should be treated as revenue expenditure. The balance is taken as a capital expenditure on which the resultant depreciation is to be allowed as per law. This ground is partly allowed."
Being aggrieved by the order of ld CIT(A) assessee is in the second appeal before us. The ld. AR before us submitted that the expenses were incurred on the stores material in connection with the parts of the machinery. Therefore, there is no question of capitalizing the same. The ld. AR in support of his claim drew our attention on the bills of stores purchases which are placed on Pages 76 to 81 of the paper book. On the other hand, ld DR vehemently supported the order of authorities below.
13. We have heard the rival contentions and perused the materials available on record. The assessee during the year has incurred expenses on the purchase of material for Rs. 13,35,612/- which were treated by the AO as capital in nature. Accordingly, the same was disallowed after allowing depreciation thereon. The view taken by the AO was subsequently confirmed by the ld CIT(A).
On perusal of the balance sheet, it was noted that the assessee had shown a gross value of fixed Assets amounting to Rs.22,79,63,523/- which ITA No.2664/Ahd/2015 Raviraj Foils Ltd. vs. ACIT A.Y. 2011-12 -9- appears quite substantial. Besides, we also note that the assessee is engaged in manufacturing activity. Thus, it is purchasing and using the spare parts in the machinery on a regular basis. Comparing the value of the machinery shown by the assessee in its balance sheet with the purchase of stores during the year the amount of stores purchase is insignificant.
We also note that the assessee before the ld CIT(A) has claimed that all the materials purchases are representing the part of the machinery but the ld CIT(A) without finding out any defect in the submission of the assessee has held that the store's purchase is representing capital expenditure. The ld CIT(A) has drawn his conclusion that the stores purchase represents the capital expenditure on the basis of the bills which in our opinion is not correct. The bills cannot be conclusive evidence to hold that the purchase of stores is capital expenditure. We also find support and guidance from the judgment of Hon'ble Gujarat High Court in the case of PCIT vs. Banco Aluminium Ltd. reported in 93 taxmann.com 52, wherein, it was held as under:
"A perusal of the record shows that both the Tribunal and the Commissioner (Appeals) have recorded concurrent findings of facts to the effect that the dies and tools as well as the machinery spares were consumable in nature and have accordingly held the expenditure to be revenue in nature. The fact that in earlier years such expenditure had been treated as revenue expenditure by the revenue has also been taken into consideration. Having regard to the concurrent finding of facts recorded by the Commissioner (Appeals) and the Tribunal, it cannot be said that the conclusion arrived at by the Tribunal that the expenditure incurred on dies and tools and machinery spares was revenue in nature, suffers from any legal infirmity so as to give rise to any question of law, ITA No.2664/Ahd/2015 Raviraj Foils Ltd. vs. ACIT A.Y. 2011-12
- 10 -
much less, a substantial question of law warranting interference. The appeal, therefore, fails and is accordingly dismissed."
From the above, we conclude that the purchase of stores is representing revenue expenditure and no disallowance can be made treating them as capital expenditure. It is also pertinent to note that the AO will disallow the relief given to the assessee by way of providing depreciation on the purchase of stores and will allow the deduction on account of purchase of stores made by the assessee during the year. Hence, the ground of appeal of the assessee is allowed.
14. In the result, the appeal of the assessee is partly allowed.
This Order pronounced in Open Court on 06/09/2018
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(MADHUMITA ROY) (WASEEM AHMED)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 06/09/2018
PritiYadav, 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. संबं'धत आयकर आयु)त / Concerned CIT
4. आयकर आयु)त(अपील) / The CIT(A)- 9, Ahmedabad.
5. ,वभागीय /त/न'ध, आयकर अपील य अ'धकरण, अहमदाबाद / DR, ITAT, Ahmedabad.
6. गाड4 फाईल / Guard file.
आदे शानुसार/BY ORDER, स या,पत /त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad