Commissioner Of Income-Tax, Ludhiana v. M/S Metalman Auto Pvt. Ltd

Income-tax Appeal No.840 of 2010 **** IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH Income-tax Appeal No.840of 2010Date of decision: 11.2.2011 Commissioner of Income-Tax, Ludhiana ...Appellant Versus M/s Metalman Auto Pvt. Ltd. ...Respondent CORAM: HON'BLE MR.JUSTICE ADARSH KUMAR GOEL HON'BLE MR.JUSTICE AJAY KUMAR MITTAL Present: Mr. Rajesh Katoch, Advocate for the appellant. **** ADARSH KUMAR GOEL, J ( Oral). 1.This order will dispose of Income Tax Appeals No.839and 840 of 2010 as it has been stated by the learned counsel for therevenue that both the appeals relate to same assessee and involvesome common questions. 2.ITA No.840 of 2010 has been preferred by the revenueunder Section 260A of the Income Tax Act, 1961 (for short “the Act”)against the order dated 29.1.2010 of the Income Tax AppellateTribunal, Chandigarh Bench 'B', Chandigarh in I.T.A.No.602/CHD/2008 for the assessment year 2004-05 proposing toraise following substantial questions of law:- “i)Whether on the facts and circumstances of thecase, Hon'ble Income Tax Appellate Tribunal is justified in law in allowing deduction u/s 80IB onlabour job receipts ignoring the fact that suchincome is not 'derived from' the eligible business ofindustrial undertaking of the assessee company? ii)The Hon'ble ITAT has not correctly appreciated thefact that appeal against the decision of Hon'ble P &H High Court in the case of M/s Impel Forge Pvt.Ltd. Ludhiana passed in ITA No.543 of 2008 dated5.12.2008 was not filed by the Department beforethe Hon'ble Supreme Court due to the reasons thatthe tax effect involved in that case was less than themonetary limits of Rs.10 lakh for filing SLP as perCBDT Instruction No.5 of 2008 dated 15.5.2008? iii) Whether on the facts and circumstances of thecase, Hon'ble Income Tax Appellate Tribunal isjustified in law in allowing deduction u/s 80IB onother miscellaneous income being misc. receipts,rebate & discount and balances written off etc.whereas such income is not 'derived from' theeligible business of industrial undertaking of theassessee company?case, Hon'ble Income Tax Appellate Tribunal isjustified in law in allowing deduction u/s 80IB onother miscellaneous income being misc. receipts,rebate & discount and balances written off etc.whereas such income is not 'derived from' theeligible business of industrial undertaking of theassessee company? iv)Whether on the facts and circumstances of thecase, Hon'ble Income Tax Appellate Tribunal isjustified in law in allowing depreciation on the assetswhich were not owned by the assessee companycase, Hon'ble Income Tax Appellate Tribunal isjustified in law in allowing depreciation on the assetswhich were not owned by the assessee company but were purchased in the name of MD of thecompany and his wife? v) Whether on the facts and circumstances of thecase, Hon'ble Income Tax Appellate Tribunal isjustified in law in allowing depreciation on electricinstallation @ 25% instead of 15% allowed by theAssessing Officer ignoring the fact that the additionsmade to the electric installation were relating toelectric panels and other accessories which was notfound to be part of plant and machinery? vi) but were purchased in the name of MD of thecompany and his wife? v) Whether on the facts and circumstances of thecase, Hon'ble Income Tax Appellate Tribunal isjustified in law in allowing depreciation on electricinstallation @ 25% instead of 15% allowed by theAssessing Officer ignoring the fact that the additionsmade to the electric installation were relating toelectric panels and other accessories which was notfound to be part of plant and machinery? vi) The Hon'ble ITAT has mis-interpreted the fact thatthe Department has accepted the issue at (v) abovein assessee's own case for the Asstt. Year 2003-04as no appeal against the decision of ld. CIT(A) wasfiled before the Hon'ble ITAT, whereas the fact isthat the appeal against the decision of ld. CIT(A)passed in Appeal No.216-IT/CIT(A)-I/05-06 dated29.4.2008 in assessee's own case for the A.Y.2003-04 on the issue under consideration was not filed bythe Department for the reasons that the tax effectinvolved in that case was less than the monetarylimits for filing appeal before the Hon'ble ITAT asper Board's instruction No.5 of 2008 dated15.5.2008? vii) Whether on the facts and circumstances of the case, Hon'ble Income Tax Appellate Tribunal isjustified in law in allowing exemption on the incomei.e. dividend income which was not claimed asexempt in the return of income filed by the assesseeand the Assessing Officer had rightly not allowedexemption of dividend income u/s 10(35) in view ofthe decision of Hon'ble Supreme Court in the caseof Goetze India Ltd. (204 CTR 182) 3.While assessing the income of the assessee for theassessment year in question, the assessing officer made certainadditions on account of following:- i)Deduction claimed under Section 80IB in respect ofreceipt from the job work/processing charges wasdisallowed on the ground that the said income was notderived from specified industrial undertaking. ii)Deduction under Section 80IB in respect ofmiscellaneous receipts, rebate & discount and balanceswritten off etc. were also disallowed on the ground thatthe same were not derived from eligible business. iii)Deduction under Section 80IB in respect of interestincome was disallowed on the same ground. iv)Depreciation on air conditioners was disallowed onthe ground that same were in the name of M.D. of thecompany and his wife and not in the name of theassessee. v)Depreciation on electrical installations claimed atthe rate applicable to plant and machinery was notallowed on the ground that the electric installations wereseparate from plant and machinery attracting less rate ofdepreciation. vi)Dividend income though exempt under Section 10(35) was not treated as exempt in absence of claim in thereturn following the judgment of Hon'ble Supreme Court inGoetze (India) Ltd. Vs. Commissioner of Income Tax(2006) 204 CTR (SC) 182. 4. The CIT(A) partly allowed claim of the assessee which was upheld by the Tribunal except with regard to interest income andX-objection of the assessee was allowed by recording the followingfindings:- Job Work “Therefore, we affirm the finding of the CIT(Appeals) thatthe job work income has been earned by the assessee bycarrying out manufacturing activities for outside parties,which are similar to those carried on by the assessee formanufacturing products for own sale. As a consequence,it follows that the labour/job work receipts have beenearned by the assessee in the course of manufacturing ofproducts, albeit for an outside party. Merely because thearticle is produced for an outside party, and theassessee earns job work charges thereon, would not 4. The CIT(A) partly allowed claim of the assessee which was upheld by the Tribunal except with regard to interest income andX-objection of the assessee was allowed by recording the followingfindings:- Job Work “Therefore, we affirm the finding of the CIT(Appeals) thatthe job work income has been earned by the assessee bycarrying out manufacturing activities for outside parties,which are similar to those carried on by the assessee formanufacturing products for own sale. As a consequence,it follows that the labour/job work receipts have beenearned by the assessee in the course of manufacturing ofproducts, albeit for an outside party. Merely because thearticle is produced for an outside party, and theassessee earns job work charges thereon, would not disentitle the assessee from being regarded as entitycarrying out manufacturing activity. The said propositionhas been upheld by the Hon'ble Delhi High Court in thecase of Northern Aromatics Ltd. (supra) and theChandigarh Bench of the Tribunal in the case of ImpelForge Pvt. Ltd. (supra) relied upon the judgment of theHon'ble Delhi High Court to hold similarly. Apart from theaforesaid, we find that the Hon'ble Madras High Court inthe case of CIT V Taj Fire works Industries, 288 ITR 92has upheld a similar proposition. In the case before theHon'ble Madras High Court, the assessee was engagedin the business of fireworks. It was doing job work on theraw materials supplied by the customer and on theincome earned, it claimed deductions u/s 80HH and 80Iof the Act.” Miscellaneous Income “The CIT(A) has held that the income so credited by theassessee can be said to be derived from the industrialundertaking so as to fall within the meaning of Section80IB of the Act. In the absence of any adverse materialand smallness of the dispute, we are inclined to affirm theconclusion of the CIT(Appeals) and dismiss the groundraised by the revenue.” -Depreciation on Airconditioners “The asset has been acquired with the funds of the assessee and is being put to use for its businesspurpose. Merely because the invoices are raised in thename of the Managing Director and the wife of theChairman, does not distract from the fact that thebeneficial owner is the assessee and that the assets areput to use for the purposes of the assessee's businessand not for personal use of the Managing Director or theChairman.” Depreciation of electrical installations “In this regard, the facts are that the assessee hadclaimed Depreciation @ 25% on electrical installations,whereas the Assessing Officer allowed the same @ 15%.Accordingly, depreciation to the extent of Rs.3,01,423/-was disallowed by the Assessing Officer. In appeal, theassessee contended that in the earlier assessment yearof 2003-04, the CIT(Appeals) had allowed Depreciationon electrical installations @ 25%. Following theprecedent, CIT(Appeals) held that the 'electricalinstallations' were to be treated as part of the plant andmachinery and depreciation @ 25% was allowable.” xxxxxxxxx “Revenue cannot be permitted to raise an issue inisolation in one year while accepting the finding on thesame issue in assessee's own case of an earlier year. Onthe basis of the aforesaid, we find it expedient to dismiss the ground of appeal raised by the revenue.” Dividend Income xxxxxxxxx “Revenue cannot be permitted to raise an issue inisolation in one year while accepting the finding on thesame issue in assessee's own case of an earlier year. Onthe basis of the aforesaid, we find it expedient to dismiss the ground of appeal raised by the revenue.” Dividend Income “We have carefully perused the judgment of the Hon'bleSupreme Court and find that the same relatges to thepower of the Assessing Officer to entertain a claim notmade in the return of income and therefore, it does notmilitate against the action of the CIT(Appeals) in havingconsidered the impugned claim. In fact, relevant juducialpronouncement on this point is the judgment of theHon'ble jurisdictional High Court in the case of CIT VRewari Central Cooperative Bank Ltd., 263 ITR 598. TheHon'ble High Court in this case, was dealing with aquestion as to whether the CIT(Appeals) was competentto adjudicate upon an issue which did not arise out of theorder appealed and thereby holding that the income of theassessee was exempt u/s 80P of the Act. In that case,the plea raised by the Assessing Officer was that theclaim of exemption u/s 80P was not considered duringassessment proceedings whereas the CIT(Appeals)entertained such claim and held the assessee as entitledto exemption u/s 80P of the Act. The Tribunal had upheldthe stand of the CIT(Appeals) and on further challengebefore the Hon'ble High Court, it was held that failure ofthe assessee to raise the plea of exemption before theAssessing Officer cannot dis-entitle to it to the benefit of a statutory exemption. Considered on similar parity ofreasoning, in the instant case, the claim of the assesseeis in terms of the statutory provision contained in Section10(35) of the Act and the assessee cannot be denied thesame merely because it was not raised before theAssessing Officer. Thus, the CITR (Appeals) made nomistake in entertaining the plea of the assessee forexemption u/s 10(35) of the Act and holding the assesseeeligible for the same.” 4.We have heard learned counsel for the appellant. 5.We are of the view that questions raised in the appealcannot be held to be substantial questions of law. 6.The assessee admittedly did the job work qualifying aseligible business under Section 80IB. On the said issue, view takenby the Tribunal earlier was upheld by this Court vide judgment dated5.12.2008 in case of ITA No.543 of 2008 (The Commissioner of Income tax-I, Ludhiana Vs. M/s Impel Forge and Allied Industries Limited Lud.). The view taken by the Tribunal being consistent withthe earlier view taken by this Court, the said question cannot be heldto be substantial question of law. Miscellaneous receipts fromrebate, discount and balances written off are incidental to the profitsand gains derived from eligible business under Section 80IB. The airconditioners though purchased in the name of the Managing Directorand his wife are for the assessee and were to be used for thebusiness of the assessee and not for personal use of the Managing Director or his wife. Depreciation was, thus, admissible thereon.Electrical installations were part of plant and machinery and even forthe earlier years, the depreciation were allowed. Dividend incomewas statutorily exempt. Mere omission to claim the said exemptionin the return could not debar the assessee from claiming the same.Judgment of Hon'ble Supreme Court in Goetze (India) was notapplicable to such exemption as rightly held by the Tribunal.Accordingly, no substantial question of law arises. 7.In Income Tax Appeal No.839 of 2010 apart from thequestions proposed in Income Tax Appeal No.840 of 2010, followingadditional substantial questions of law have been proposed :- Director or his wife. Depreciation was, thus, admissible thereon.Electrical installations were part of plant and machinery and even forthe earlier years, the depreciation were allowed. Dividend incomewas statutorily exempt. Mere omission to claim the said exemptionin the return could not debar the assessee from claiming the same.Judgment of Hon'ble Supreme Court in Goetze (India) was notapplicable to such exemption as rightly held by the Tribunal.Accordingly, no substantial question of law arises. 7.In Income Tax Appeal No.839 of 2010 apart from thequestions proposed in Income Tax Appeal No.840 of 2010, followingadditional substantial questions of law have been proposed :- “i)Whether on the facts and circumstances of thecase, the Hon'ble Income Tax Appellate Tribunal isjustified in law in allowing assessee to write off 80% of thecost of tools and dies not taking into account the date ofpurchase and without going into the merits of the case? ii)Whether on the facts and circumstances of thecase, the Hon'ble Income Tax Appellate Tribunal isjustified in law in treating designing and consultancycharges on tools and dies as revenue expenditurewhereas actually it is capital expenditure? v)Whether on the facts and circumstances of thecase, the Hon'ble Income Tax Appellate Tribunal isjustified in law in holding that there cannot be apresumption that certain expenditure is bound to have been incurred for earning exempt income when the AOhas rightly held that the assessee is borrowing moneyone one hand at a higher rate of interest and on the otherhand is investing the money for earning interest freeincome and deleting addition made by the AO u/s 14A? 8.In respect of the above questions, the assessing officerheld that the writing off the expenditure on costs of tools and dieshad to be equal to 40% on the analogy of depreciation for half of theyear. The CIT(A) upheld the claim of the assessee which has beenaffirmed by the Tribunal on the ground that the assessee had beenconsistently adopting the same pattern. Tools and dies once put touse lost resale value and could be sold only as scrap. The Tribunalaffirmed the following observations of the CIT(A):- “I have considered the rival contentions carefully. Iagree with the appellant's contention that there is noreason to change the method of accounting regularlyfollowed by it in writing off 80% of tools and diespurchased every year. The appellant has been followedthe method of accounting year after year, which has beenaccepted by the A.O. In earlier years. No new facts havebeen emerged this year which can justify the change inRevenue's stand. Once the tool/die has been put to use,it loses resale value as a tool/die and can only be sold asscrap. That being the case, even if the tool/die is used fora few days, its value will reduce to the scrap value of the product. In the case of Leader Valve Ltd.(supra), theHon'ble Punjab & Haryana High Court have held thatkeeping in view the principle of consistency the Revenuecould not be permitted to raise an issue in isolation onlyfor one year while accepting the findings on the sameissue for other assessee and for other years in the caseof the assessee. Hence, following the principle ofconsistency, the disallowance made by the assessee isvacated. This ground of appeal is allowed.” 9.As regards designing and consultancy charges on toolsand dies being treated as revenue expenses, the assessing officerheld that the said expenditure was required to be capitalised. Onappeal, the claim of the assessee was upheld by the CIT(A) as wellas by the Tribunal. The Tribunal observed:- product. In the case of Leader Valve Ltd.(supra), theHon'ble Punjab & Haryana High Court have held thatkeeping in view the principle of consistency the Revenuecould not be permitted to raise an issue in isolation onlyfor one year while accepting the findings on the sameissue for other assessee and for other years in the caseof the assessee. Hence, following the principle ofconsistency, the disallowance made by the assessee isvacated. This ground of appeal is allowed.” 9.As regards designing and consultancy charges on toolsand dies being treated as revenue expenses, the assessing officerheld that the said expenditure was required to be capitalised. Onappeal, the claim of the assessee was upheld by the CIT(A) as wellas by the Tribunal. The Tribunal observed:- “The CIT(Appeals), in our view correctly inferred that theconsultancy charges is a revenue expenditure incurred inthe course of carrying on the business and the samedoes not loss its revenue character merely because it isincurred in relation to tools/dies. The CIT(Appeals) hasalso noted that the impugned expenditure is related to thework done by the payee during the year. Considering thediscussion made by the CIT(Appeals), we find nojustification for the stand of the Assessing Officer andaccordingly the ground raised by the revenue isdismissed. 10.The assessing officer held that for earning dividendincome, the assessee must be presumed to have incurred someexpenditure which had been disallowed under Section 14A. Onappeal, the CIT(A) held that in absence of evidence of anyexpenditure having been shown to have been incurred, disallowanceunder Section 14A was not justified. This view has been upheld bythe Tribunal. The Tribunal observed :- “25. Ground No.4 is regarding disallowance u/s 14A ofthe Act in relation to the exempt income earned by theassessee. In this regard, the facts are that the assesseehad earned income by way of interest on UTI Bonds anddividend of Rs.54,000/- and Rs.9,30,8912/- respectively,which was exempted from tax. The assessing officerestimated a sum of Rs.1,00,000/- having been incurred bythe assessee for earning such exempt income andaccordingly, made an addition u/s 14A of the Act. Out ofthe sum of Rs.1,00,000/-, Rs.65,000/- was considered asinterest expenditure relatable to the borrowed capitalused for investment in the securities yielding exemptincome and Rs.35,000/- was estimated out of theadministrative expenses. The CIT(Appeals) has deletedthe addition on the ground that the investments havebeen made from funds on which no interest has beenpaid. The CIT(Appeals) also noticed that the AssessingOfficer has not backed his assertion that investments were made from combined finds of the assessee whichcould not be bifurcated. Against the deletion of addition,the Revenue is in appeal before us. 26.Obviously, the issue is to be decided in the light ofthe judgment of the Hon'ble jurisdictional High Court inthe case of Hero Cycles Ltd.(supra). As per the Hon'blejurisdictional High Court, the disallowance u/s 14Arequires a finding of incurrence of expenditure forearning the exempt income. In case no expenditure hasbeen incurred, the disallowance u/s 14A is not justified.In other words, there cannot be a presumption thatcertain expenditure is bound to be incurred for earningthe exempt income. Considered in this light, we find thatthere is no mistake in the order of the CIT(Appeals).Quite clearly, the Assessing officer had only made apresumption that certain expenditures have been incurredfor earning the impugned exempt incomes. Therefore,following the parity of reasoning laid down by the Hon'blejurisdictional High Court in the case of Hero Cycles Ltd.(supra), we affirm the decision of the CIT(Appeals) andaccordingly, ground raised by the revenue is dismissed.”11.We have heard learned counsel for the appellant. 12.The questions raised cannot be held to be substantialquestions of law. 12.The questions raised cannot be held to be substantialquestions of law. 13.As held by the CIT(A) and the Tribunal tools and dies lost their utility after use and the assessee was consistently writing off80% of the costs. The view taken cannot be held to be erroneous.Amount spent on consultancy on tools and dies are obviouslyrevenue expenditure as expenditure on tools and dies itself could notbe treated as capital expenditure. On the issue of disallowanceunder Section 14A presumptive expenditure in absence of actualexpenditure could not be taken into account. The finding of theTribunal is consistent with the earlier view of this Court noted by theTribunal. Thus, no interference is called for.14.Both the appeals are dismissed. (Adarsh Kumar Goel) Judge February 11, 2011Pka (Ajay Kumar Mittal) Judge