ACIT, CHENNAI v. M/s. Farida Leatherware Pvt Limited, CHENNAI

ITA 738/CHNY/2008 | 2004-2005
Pronouncement Date: 21-01-2011 | Result: Dismissed

Appeal Details

RSA Number 73821714 RSA 2008
Assessee PAN AAACF4708P
Bench Chennai
Appeal Number ITA 738/CHNY/2008
Duration Of Justice 2 year(s) 9 month(s) 10 day(s)
Appellant ACIT, CHENNAI
Respondent M/s. Farida Leatherware Pvt Limited, CHENNAI
Appeal Type Income Tax Appeal
Pronouncement Date 21-01-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 21-01-2011
Date Of Final Hearing 13-01-2011
Next Hearing Date 13-01-2011
Assessment Year 2004-2005
Appeal Filed On 10-04-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL BENCH A CHENNAI BEFORE SHRI U.B.S. BEDI JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE ACCOUNTANT MEMBER .. I.T.A. NO. 253/MDS/2007 & 738/MDS/2008 ASSESSMENT YEARS : 2003-04 & 2004-05 THE ASSISTANT COMMISSIONER OF INCOME-TAX COMPANY CIRCLE-II(1) CHENNAI. V. M/S. FARIDA LEATHERWARE PVT. LTD. 162 PERIYAR EVR HIGH ROAD CHENNAI-600 084. (PAN : AAACF4708P) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SHAJI P. JACOB RESPONDENT BY : SHRI D. ANAND O R D E R PER ABRAHAM P.GEORGE ACCOUNTANT MEMBER : THESE ARE APPEALS FILED BY THE REVENUE AGAINST THE ORDERS OF CIT(APPEALS) FOR RESPECTIVE ASSESSMENT YEARS. SINCE THE ISSUE R AISED IN BOTH THE APPEALS IS ESSENTIALLY SIMILAR THESE APPEALS ARE DISPOSED OF THROUGH THIS CONSOLIDATED ORDER. 2. FACTS FOR ASSESSMENT YEAR 2003-04 ARE TAKEN AS R EPRESENTATIVE OF THE ISSUES RAISED AND HENCE THESE ALONE ARE SUMMARIZED HEREUNDER. 3. ASSESSEE ENGAGED IN MANUFACTURE OF SHOE COMPONEN TS HAD DURING THE RELEVANT PREVIOUS YEARS PURCHASED MOULDS AND SPARES FOR MANUFACTURING RUBBER AND PLASTIC SHOES SOLES AND THE COST THEREOF WAS CL AIMED AS REVENUE OUTGOES. I.T.A. NOS.253/MDS/2007 & 738/MDS/2008 2 ASSESSING OFFICER WAS OF THE OPINION THAT THESE EXP ENSES CHARGED UNDER THE HEAD REPAIRS & MAINTENANCE WAS FOR ACQUIRING PLAN T AND MACHINERY WHICH WAS ELIGIBLE FOR 40% DEPRECIATION. HE THEREFORE DISALL OWED THE CLAIM BUT ALLOWED DEPRECIATION AT 40% THEREON. 4. IN ITS APPEAL BEFORE CIT(A) CLAIM OF THE ASSESSE E WAS THAT DEPRECIATION RATE OF 40% PRESCRIBED IN APPENDIX TO THE INCOME TA X RULES GIVING THE DEPRECIATION RATES WAS FOR MOULDS USED IN RUBBER AN D PLASTIC FACTORIES AND ASSESSEE ON THE OTHER HAND WAS ENGAGED IN MANUFACTU RE OF SHOE COMPONENTS. POLYURETHANE SOLES MANUFACTURED WERE NEITHER A PLAS TIC OR RUBBER PRODUCT BUT WAS A DIFFERENT TYPE OF PETRO PRODUCT AS PER THE A SSESSEE. FURTHER AS PER THE ASSESSEE MANY OF THE ITEMS CONSIDERED FOR DISALLOWA NCE BY THE ASSESSING OFFICER WAS SPARES AND ALL THESE WERE PART OF CONSUMABLES. ASSESSEE ALSO FILED DETAILS OF THE WORK OUT OF ITS CLAIM. 5. LEARNED CIT(A) WAS APPRECIATIVE OF THE CONTENTI ONS OF THE ASSESSEE. ACCORDING TO HIM JURISDICTIONAL HIGH COU RT DECISION IN CIT VS. JANAKIRAM MILLS (275 ITR 403) HAD HELD THAT EXPENSE S ON REPLACEMENT OF MACHINERY AND SPARE PARTS WERE REVENUE EXPENSES. F URTHER AS PER THE LEARNED CIT(A) THE MOULDS USED IN RUBBER AND PLASTIC GOODS INDUSTRIES FOR WHICH 40% RATE WAS SPECIFIED IN APPENDIX I OF INCOME TAX RULE S 1962 COULD NOT BE APPLIED FOR MOULDS USED FOR MANUFACTURE BY FOOTWEAR INDUSTR Y. HE THUS ALLOWED THE APPEALS OF THE ASSESSEE. I.T.A. NOS.253/MDS/2007 & 738/MDS/2008 3 6. NOW BEFORE US LEARNED DR ASSAILING THE ORDER OF THE CIT(A) SUBMITTED THAT JURISDICTIONAL HIGH COURTS DECISION IN JANAKIRAM M ILLS CASE (SUPRA) WAS REVERSED BY THE APEX COURT IN THE CASE OF SARAVANA SPINNING MILLS P. LTD. (293 ITR 201) AND HENCE ONE OF THE MAIN REASONINGS GIVEN BY THE L EARNED CIT(A) HAD COME TO A NAUGHT. ACCORDING TO HIM APPENDIX I TO INCOME TA X RULES 1962 HAVING SPECIFIED 40% DEPRECIATION RATE FOR MOULDS BY NECE SSARY IMPLICATION THESE COULD NOT BE CLAIMED AS A REVENUE OUTGO. LEARNED DR ALSO POINTED OUT THAT INSOFAR AS ASSESSMENT YEAR 2003-04 WAS CONCERNED SOME OF THE MOULDS PURCHASED AFTER THE LAST DATE OF RELEVANT PREVIOUS YEAR WAS ALSO GI VEN DEDUCTION. 7. PER CONTRA LEARNED DR SUBMITTED THAT HON'BLE AP EX COURT IN ITS LATER DECISION IN CIT V. RAMARAJU SURGICAL COTTON MILLS ( 294 ITR 328) HELD THAT UNLESS THERE IS INCREASE IN PRODUCTION CAPACITY COST OF RE PLACEMENT OF MACHINERY WOULD NOT BE A CAPITAL OUTGO. LEARNED COUNSEL ALSO EXPLA INED THAT THE MOULDS USED FOR MANUFACTURING POLYURETHANE SOLES LASTED AT BEST FO R 20 000 IMPRESSION AND HENCE THESE WERE PURE CONSUMABLE ITEMS. THERE WAS NO ADDITION TO PRODUCTION CAPACITY NOR ANY ENDURING BENEFIT TO THE ASSESSEE O N ACCOUNT OF PURCHASE OF SUCH MOULDS AND SPARES. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE ORDERS. THE DETAILS OF MOULD AND SPARES PURCHASED BY THE ASSESS EE DURING PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2003-04 WHICH WERE NOT ALLOWED AS REVENUE I.T.A. NOS.253/MDS/2007 & 738/MDS/2008 4 OUTGOES BY THE ASSESSING OFFICER BUT ALLOWED DEPRE CIATION AT 40% WERE AS UNDER: 31.08.02 ` 22 600 16.10.02 ` 86 035 30.11.02 ` 5 25 000 14.12.02 ` 4 16 000 31.01.03 ` 41 000 19.02.03 ` 34 240 31.03.03 ` 1 54 045 31.03.03 ` 1 23 517 30.04.03 ` 1 33 905 30.04.03 ` 8 74 109 31.05.03 ` 1 26 288 31.05.03 ` 1 26 283 29.06.03 ` 8 47 630 29.06.03 ` 7 43 379 29.6.03 ` 8 46 890 31.7.03 ` 1 38 106 30.11.03 ` 48 823 31.12.03 ` 1 19 730 31.12.03 ` 4 96 873 9. ONE OBVIOUS POINT THAT WE NOTE IS THAT THE PURCH ASES WERE OCCURRING REPEATEDLY OR ALMOST EVERY MONTH AND IN SOME MONTHS A NUMBER OF TIMES. IF THE ITEMS GAVE ANY ENDURING BENEFIT FOR THE ASSESSE E THEN IT NEED NOT HAVE BEEN PURCHASED SO OFTEN. THE SPREAD OF THE OUTGOES MANIFESTS IN ITSELF WHICH I.T.A. NOS.253/MDS/2007 & 738/MDS/2008 5 MORE SWINGS TOWARDS A CONSUMABLE NATURE THAN ANY PE RMANENT NATURE. EVEN IF THESE WERE MOULDS THESE WERE NOT HAVING A SIGNIFIC ANT DURABILITY TO BE CLASSIFIED AS AN ASSET. 10. ASSESSEE ITSELF HAD RETURNED AN INCOME OF ` 72 00 800/- FOR ASSESSMENT YEAR 2003-04 AND ` 68 63 066/- FOR ASSESSMENT YEAR 2004-05. THE VOLU ME OF BUSINESS WAS SIGNIFICANT AND THE NUMBER OF SOLES CH URNED OUT BY IT COULD HAVE BEEN SUBSTANTIAL. WHEN PRODUCTION VOLUMES ARE HIGH IT WOULD ONLY BE LOGICAL TO SAY THAT MOULDS AND SPARES USED FOR MANUFACTURE OF SUCH SOLES WOULD SUFFER ACCELERATED WEARING OUT AND REPLACEMENT OF SUCH WO RN OUT MOULDS WOULD NOT RESULT ANY ENDURING BENEFIT OR SUBSTANTIAL INCREASE IN CAPACITY. THERE IS NO CASE FOR THE REVENUE THAT THERE WAS ANY CAPITAL INVESTME NT MADE BY THE ASSESSEE IN THE RELEVANT PREVIOUS YEARS ON ANY MAJOR MACHINERY INDICATING ANY INCREASE IN PRODUCTION CAPACITY. IT WOULD ALSO BE HIGHLY ILLOG ICAL TO COMPARE SUCH MOULD WITH SPINDLES USED IN A COTTON MILL. IN OUR OPINION THE PURCHASED ITEMS WERE ONLY PART OF THE CONSUMABLES USED BY THE ASSESSEE IN THE PROC ESS OF ITS MANUFACTURE WITHOUT RESULTING IN ANY ACCRETION TO ITS CAPITAL A SSETS. AS FOR THE RELIANCE PLACED BY THE LEARNED DR ON THE ITEM MOULD APPEARING IN APPENDIX I OF INCOME TAX RULES WHICH IS THE DEPRECIATION TABLE AS RIGHTLY POINTED OUT BY THE LEARNED CIT(A) THE MOULDS MENTIONED THEREIN WERE QUALIFIE D WITH THE WORD USED IN RUBBER AND PLASTIC GOODS INDUSTRIES AND HENCE CANN OT BE EXTENDED TO INCLUDE I.T.A. NOS.253/MDS/2007 & 738/MDS/2008 6 MOULDS USED IN EVERY TYPE OF INDUSTRY. WE THUS DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDERS OF THE CIT(A) IN THIS REG ARD. 11. HOWEVER INSOFAR AS ASSESSMENT YEAR 2003-04 IS CONCERNED DETAILS OF PURCHASES CULLED OUT FROM THE ASSESSMENT ORDER REP RODUCED AT PARA 8 ABOVE SHOW THAT SOME PURCHASES SPILLED BEYOND 31-03-2003. THIS ASPECT THEREFORE REQUIRES A RE-VISIT BY THE ASSESSING OFFICER SO AS TO CORRECTLY WORK OUT THE ALLOWABLE EXPENSES FOR THE RESPECTIVE ASSESSMENT YE ARS. ASSESSEE SHALL BE ENTITLED TO CLAIM THE EXPENSES AS REVENUE OUTGO IN THE YEAR IN WHICH IT WAS INCURRED. 12. THEREFORE FOR ASSESSMENT YEAR 2003-04 APPEAL OF THE REVENUE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES WHEREAS FOR ASSESSMENT YEAR 2004-05 ITS APPEAL IS DISMISSED. 13. THE ORDER WAS PRONOUNCED IN THE COURT ON 21-01 -2011. SD/- SD/- (U.B.S. BEDI) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI DATED THE 21 ST JANUARY 2011. H. COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE