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2016 (7) TMI 1179 - ITAT KOLKATA

2016 (7) TMI 1179 - ITAT KOLKATA - TMI - Disallowance of depreciation - CIT(A) delted the addition admitting additional evidence - Held that:- A reading of Rule 46-A(2) & (3) of the Rules shows that it was mandatory on the part of the CIT(A) before admitting additional evidence as well as before taking into account any additional evidence produced before CIT(A) to afford opportunity to examine the evidence so produced and to allow opportunity to produce any evidence in rebuttal of such evidence. .....

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fficient to carry out the job work charges claimed by the Assessee. - For the reasons given above, we are of the view that the order of the CIT(A) on this issue requires to be set aside and the issue needs to be looked into afresh by the AO in the light of the observations as set out above. We hold and direct accordingly. The AO will afford opportunity of being heard to the Assessee before deciding the issue. - Decided in favour of revenue - ITA No. 1240/Kol/2013 - Dated:- 11-5-2016 - Shri P .....

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ssessee. The grounds of appeal raised by the revenue read thus: 1. That on the facts and circumstances of the case the Ld. CIT(A) has erred in law in directing the A.O. to delete the addition of ₹ 7099318/- on account of depreciation by accepting assessee s submission based on electricity bills, although no such bill were furnished before the AO, without allowing any opportunity to the AO for verification of the same in violation of Rule - 46A. 2. That on the facts and circumstances of the .....

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b work charges of ₹ 18 lakhs and claimed depreciation of ₹ 74.60 lakhs. The depreciation claimed as deduction u/s.32 of the Income Tax Act, 1961 (Act) was as follows: Block of Assets Plant & Machinery @ 15% Rs.67,78,828 Block of Assets Furniture & Fixtures @ 10% ₹ 73,106 Block of Assets computer, computer software @ 60% ₹ 5,43,458 Rs.74,60,392 The components of Block of Assets Plant and Machinery was motor car, cycle, two wheelers, generator (pre-operative expense .....

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nnexure to this order for better appreciation of facts. 4. It can be seen from the Schedule of fixed assets and depreciation annexed to the balance sheet that the factory building was yet to be completed and was shown as capital work in progress. The AO was of the view that one of the requirements for claiming depreciation u/s.32 of the Act was that the assets on which depreciation is being claimed ought to have been put to use for the purpose of business of the Assessee. The AO called upon the .....

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y building of ₹ 393.97 lakhs incurred and capitalized upto 31.3.2008 ₹ 367.79 lakhs was incurred upto 31.3.2007. The Assessee claimed that during AY 2007-08 the completed area of factory building was utilized and production was carried out therein. The Assessee further explained that since factory building was not completed as a whole, the same was not capitalized in the books of accounts of AY 2007-08. 6. The AO however was of the view that the opening value of the factory building .....

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-. According to the AO the fuel and power charges would have been paid only for running generator to supply electricity to carry out work of construction of factory building and erection of plant and machinery. The AO was of the view that without putting the machinery and plant the Assessee ought not to have capitalized their value in the books of accounts and claimed depreciation therein. The AO therefore disallowed claim of the Assessee for depreciation except depreciation on motor car, cycle .....

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submitted that the process of setting up the unit was started in the financial year 2005- 06 and around June, 2006, the machining section of the unit was made operational. The Assessee further claimed that the machineries on which depreciation was claimed had been installed in the machine shop and were used for the purpose of doing job work for outside parties. The Assessee pointed out from the depreciation chart filed under the Act for claiming depreciation that depreciation on plant and machin .....

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rom June 2006 which seems to be near impossible is not correct. In this regard it was submitted that opening w.d.v of factory building as on 1.4.06 was ₹ 59.61 lakh and further expenditure of ₹ 73.10 lakh in April 2006 and ₹ 20.47 lakh in May 2006. In effect, the assessee had already incurred an expenditure of ₹ 153.181akh by May 2006. It was submitted that the assessee has started the activities in its industrial unit in a phased manner and during the asst year 2007-08, .....

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7,754/- on plant and machinery of ₹ 1,92,19,931/- only which were installed and used by the assessee in its machine shop and other plant and machinery such as weighing machine, generator, pumps etc. used by the assessee for carrying out the activities in its machine shop. The AO also has failed to appreciate the fact that a part of the factory building was operational by June 2006 and the fact that the area required by the machine shop is much less as compared to the total area required fo .....

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verification. It was also submitted that the observations of the AO that power and fuel expense of ₹ 1,75,340/- appears to be very low and was for the generator is again not correct. In this regard it was submitted that Out of the power expenditure of ₹ 1,75,340/-, ₹ 2,896/- represents electric charges for office electricity, ₹ 97,977/- electric charges for running of machine shop and ₹ 74,.467/- incurred for purchase of diesel used for running the generator for ge .....

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job work charges of ₹ 18. 151akh. 10. It was further submitted that the observations of the AO that it remains unexplained how the capitalization of other plant/machinery work was done without the help of power. In this regard, the Assessee drew attention of CIT(A) to Schedule 4(B) to the Balance sheet clearly and that it discloses that ₹ 5,360/- electricity charges and ₹ 38,976/- power & fuel as part of the pre-operative expenses allocated to the capitalization of Plant & .....

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he AO has also disallowed the claim of depreciation on the following assets without assigning any reason even though all the under mentioned assets were used by the assessee for the purpose of its business: Asset Description Depreciable Value (Rs.) Depreciation (Rs.) Computer 749502 321828 Computer Software 738767 221630 Furniture & Fixtures 436337 38357 Office Equipments 223437 17509 Office Equipments 137600 6880 Electrical accessories 143886 7560 Mobiles 43990 2801 Office Premises 1068492 .....

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ow is concerned in the future years when the assessee makes profit since the assessee would have to pay tax u/s 115J8 as because out of the above loss of ₹ 671.67 lakh depreciation loss constitutes ₹ 564.49 lakh. It was therefore contended that the disallowance of depreciation of ₹ 70,99,318/- was arbitrary and based on surmises which are contrary to the facts of the case. 13. The CIT(A) agreed with the submissions of the Assessee and deleted the disallowance of depreciation as .....

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simple machinery to give the iron castings of final tough before packing and shipping. The machine room does not consist of any heavy machinery or furnace which requires extensive activity of installation and electricity consumption. As will appear from the nature of machinery in the machine room, only final touches are required to be given to the Iron Castings. The machinery pertain to machine room was purchased during April and May, 2007 has not been doubted by the A.O. What has also been dou .....

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CNC machine. What has been overlooked by the A.O. is that electric power charges to the extent of ₹ 5,01,470/- has been paid to the electricity Board for the entire factory. However, for running machine shop, electric charges of ₹ 97,977/- has been shown and for running the generator, diesel charges of ₹ 74,467/- has been shown. As machining tools are not heavy duty machinery, the electrical and generator charges for power was sufficient to take care of job work of the appellan .....

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hine room at the end of the manufacturing process for finishing of the product. This machinery can be installed and put to use almost immediately upon their receipt. Two months time before job work began in June,2006 i.e. April and May, 2006 are held to be sufficient time for installation of simple machinery if' the machine room. To sum up, when the purchase of machinery is not doubted and neither is the resultant job work doubted, there is no ground to doubt the installation of machinery in .....

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at the conclusions of the CIT(A) that the assets on which depreciation was claimed were in fact put to use by the Assessee for the purpose of its business during the previous year, was based on additional evidence which were taken cognizance by the CIT(A) in violation of Rule 46-A of the Income Tax Rules, 1962 (Rules). He reiterated the stand of the AO as reflected in the order of assessment. 15. The learned counsel for the Assessee submitted that the CIT(A) came to the conclusion that the machi .....

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the paper book filed by the Assessee were shown to the AO in the course of assessment proceedings. In this regard our attention was drawn to page 8 and 9 of the paper book of the Assessee wherein the record of proceedings before the AO have been filed. Perusal of the same shows that on 3.11.2009, the A/R of the Assessee appeared before the AO and filed certain details and produced books of accounts. The AO raised a specific query and asked for submissions as to how the plant and machinery were .....

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he AO for verification. His further submission was that the case of the revenue is only based on violation of Rule 46A of the Rules and in view of the circumstances pointed out as above, the appeal of the revenue should be dismissed. In all other respects he relied on the order of the CIT(A). 16. We have given a very careful consideration to the rival submissions. Admittedly before the AO there was no whisper by the Assessee regarding the electricity charges of ₹ 5,01,470/- paid to Tamilna .....

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charges as it emanates from the record is that a sum of ₹ 2,23,403 incurred as expenditure on power and fuel and another sum of ₹ 5,01,470 was incurred as electricity charges for the factory in Tamil Nadu were treated as part of the pre operative expenses incurred during the previous year ended 31.3.2006 pending allocation as at 31.3.2006 allocated to machine shop fixed assets during the year ended 31.3.2007. The Assessee had claimed as deduction in the profit & loss account a s .....

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ceipts from job work were not doubted by the AO and that the machineries in the machine shop were not heavy duty machinery and that the electricity and power generator charges shown in the profit and loss account was sufficient to carry out the job work. The CIT(A) has also observed that the machineries in the machine room were purchased in April and May, 2006 and would not require much time for their assembly and use and therefore the claim of the Assessee that the machineries were put to use f .....

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y evidence, whether oral or documentary, other than the evidence produced by him during the course of proceedings before the Assessing Officer, except in the following circumstances, namely:- (a) where the Assessing Officer has refused to admit evidence which ought to have been admitted; or (b) where the appellant was prevented by sufficient cause from producing the evidence which he was called upon to produce by the Assessing Officer; or (c) where the appellant was prevented by sufficient cause .....

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ner (Appeals) or, as the case may be, the Commissioner (Appeals)] shall not take into account any evidence produced under sub-rule (1) unless the Assessing Officer has been allowed a reasonable opportunity- (a) to examine the evidence or document or to cross-examine the witness produced by the appellant; or (b) to produce any evidence or document or any witness in rebuttal of the additional evidence produced by the appellant. (4) Nothing contained in this rule shall affect the power of the Deput .....

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