TMI Blog2016 (8) TMI 1168X X X X Extracts X X X X X X X X Extracts X X X X ..... er. Thus, the appeal filed by the assessee is allowed. Addition made on account of excess claim of power and fuel (diesel expenditure) - Held that:- Admitted, in the present case, Books of accounts of the assessee are subject to statutory audit. As the turnover of the company exceeded the prescribed limits, the assessee’s case is covered under section 44AB of the Act. The assessee has also filed the 44AB Audit Report before the Assessing Officer and he has not found any mistake in the books of accounts maintained by the assessee. He has also not rejected assessee's books of account. For making any addition, Assessing Officer should find necessary material evidence from the assessee's books of account or make use of any other information available through internal or external sources. However, in this case, estimated addition was made by the Assessing Officer on the basis of comparative data culled out from others. Under the above facts and circumstances, we are of the considered opinion that the ld. CIT(A) has rightly deleted the estimated addition and we find no reason to interfere with the above findings of the ld. CIT(A). - Decided against revenue Addition made towards ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee filed its return of income for the assessment year 2011-12 on 23.09.2011 declaring total income of ₹.2,98,68,587/-. The case of the assessee was selected for scrutiny and the assessment was completed under section 143(3) of the Act accepting the return filed by the assessee. 4. On perusal of the records, the ld. CIT was of the opinion that the assessment passed under section 143(3) of the Act dated 27.02.2014 was apparently erroneous and prejudicial to the interest of Revenue since the Assessing Officer has allowed the claim of balance additional depreciation of ₹.8,03,233/- i.e., @ 10%, for the machinery purchased and used for less than 180 days during the previous year and accordingly, he issued notice under section 263 of the Act to the assessee. After considering the submissions of the assessee vide its reply dated 04.03.2015, the ld. CIT has observed that normally the additional depreciation would be available only in the year in which the new plant and machinery is first put to use and therefore, the claim of the assessee for additional depreciation in the second year of purchase/use of the machinery is not in consonance with the provisions of sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by this Tribunal in M/s Automotive Coaches Components Ltd. (supra) and found that the assessee is entitled for remaining 10% additional depreciation during the subsequent year. In fact, this Tribunal observed as follows:- 5. We have considered the rival submissions on either side and perused the relevant material available on record. Section 32(1)(iia) provides for additional depreciation at the rate of 20%. The Assessing Officer allowed 10% of additional depreciation in respect of the plant and machinery purchased during the year under consideration. The Assessing Officer found that the additions to fixed assets were made in the second half of the financial year, therefore, 50% of additional depreciation has been claimed. The balance 50% was carried forward in the next year. The Assessing Officer found that the additional depreciation is allowable only during the year in which the machinery was installed and used for business of the assessee. There is no provision in the Income-tax Act for carry forward of the additional depreciation to the subsequent assessment year. This issue was examined by the Cochin Bench of this Tribunal in Apollo Tyres Ltd. v. ACIT (supra). The Coch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sum equal to 20% of the actual cost of the machinery and plant shall be allowed as a deduction. It is not in dispute that the assessee has acquired and installed the machinery after 31-03-2005. It is also not in dispute that the assessee is engaged in the manufacture of article or thing. Therefore, the assessee is eligible for additional depreciation which is equivalent to 20% of the actual cost of such machinery. The dispute is the year in which the depreciation has to be allowed. The assessee has already claimed 10% of the depreciation in the earlier assessment year since the machinery was used for less than 180 days and claiming the balance 10% in the year under consideration. Section 32(1)(iia) does not say that the year in which the additional depreciation has to be allowed. It simply says that the assessee is eligible for additional depreciation equal to 20% of the cost of the machinery provided the machinery or plant is acquired and installed after 31-03-2005. Proviso to section 32(1)(iia) says that if the machinery was acquired by the assessing during the previous year and has put to use for the purpose of business less than 180 days, the deduction shall be restricted to 50 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to make the provision meaningful while granting the additional allowance. This additional benefit is to give impetus to industrialization and the basic intention and purpose of these provisions can be reasonably and liberally held that the assessee deserves to get the benefit in full when there is no restriction in the statute to deny the benefit of balance of 50% when the new machinery and plant were acquired and used for less than 180 days. One time benefit extended to assessee has been earned in the year of acquisition of new machinery and plant . It has been calculated @15% but restricted to 50% only on account of usage of these plant machinery in the year of acquisition. In section 32(1)(iia), the expression used I shall be allowed . Thus, the assessee had earned the benefit as soon as he had purchased the new machinery and plant in full but it is restricted to 50% in that particular year on account of period usages. Such restrictions cannot divest the statutory right. Law does not prohibit that balance 50% will not be allowed in succeeding year. The extra depreciation allowable u/s 32(1)(iia) in an extra incentive which has been earned and calculated in the year of acquis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt opined that the proviso would not restrain the assessee from claiming the balance of the benefit of additional depreciation in the subsequent assessment year. Accordingly, confirmed the order of the Bangalore Bench of this Tribunal. In fact, the Karnataka High Court has observed as follows:- 7. Clause (iia) of Section 32(1) of the Act, as it now stands, was substituted by the Finance Act, 2005, applicable with effect from 0l.04.2006. Prior to that, a proviso to the said Clause was there, which provided for the benefit to be given only to a new industrial undertaking, or only where a new industrial undertaking begins to manufacture or produce during any year previous to the relevant assessment year. 8. The aforesaid two conditions, i.e., the undertaking acquiring new plant and machinery should be a new industrial undertaking, OF that it should be claimed in one year, have been done away by substituting clause (iia) with effect from 01.0.2006. The grant of additional depreciation, under the aforesaid provision, is for the benefit of the assessee and with the purpose of encouraging industrialization, by either setting up a new industrial unit or by expanding the existing u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of additional depreciation during the year under consideration. 5. In view of the above, this Tribunal is of the considered opinion that the assessee is eligible for remaining 10% additional depreciation under Section 32(1)(iia) of the Act. The orders of the lower authorities are set aside and the Assessing Officer is directed to allow the balance 50% depreciation, namely, 10% additional depreciation during the year under consideration. 7. In view of the above detailed order of the Tribunal, we are of the considered opinion that the ld. CIT was not correct in holding that the assessee is not eligible to claim 10% additional depreciation for the machinery purchased and used for less than 180 days during the previous year. Accordingly, we set aside the order passed by the ld. CIT under section 263 of the Act and restore that of the Assessing Officer. Thus, the appeal filed by the assessee is allowed. 8. Coming to the Revenue s appeal in I.T.A. No. 26/Mds/2016 for the assessment year 2009-10, the Revenue has raised two effective grounds viz., (i) the ld. CIT(A) has erred in deleting the addition made on account of excess claim of power and fuel (diesel expenditure) and (ii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of power and fuel the Assessing Officer has prepared a chart contained the details relating to power and Fuel Expenditure (claimed by the 14 mills in Virudhunagar District) viz: (a) Gross turnover (b) Power and fuel expenditure debited (c) Percentage of power and fuel expenditure claimed by the assessee with reference to its gross turnover (d) Average power and fuel percentage of 14 mills (e) The difference between average and claim (f) The diesel expenditure claimed for generation of electricity (g) Cost of diesel for production of per unit electricity (h) Average cost of 14 mills and (i) The difference between average and claim 9.4 From the chart, the Assessing Officer noted that the average cost of diesel for production of per unit electricity in the case of the assessee was ₹.10.24 whereas the average consumption of diesel per unit for production of 14 mills was only ₹.10.12. Therefore, the Assessing Officer was of the view that in the normal conditions, the average cost of production of electricity by diesel generator cannot vary and hence the claim of diesel expenditure of the assessee was considered excessive. Therefore, the excess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at is required which results in higher power consumption. Assessee is manufacturing of high quality yarn (with high CSP) and therefore has reported high power consumption. It is incorrect to use a single arithmetic mean to standardize power consumption across mills that produce yarn with completely different CSP profiles. (iii) Post spinning processes are an important part of textile manufacture. These are value-adding processes that were not traditionally undertaken. Needless to say, the plant and machinery required to run these processes are highly sophisticated and are power intensive. Some of these machines are cheese winders, two-for-one twisters, Auto-corners, yarn doubling machines etc. These specialized machines also consume a lot of electricity. The assessee has a well spread out post-spinning facility with high capacity using he above plant and machinery. (iv) The SITRA power consumption norms that have been used by the Assessing Officer do not consider post-spinning processes. This is flawed. (v) The Assessing Officer has considered only 14 mills (all which were selected scrutiny for the Asst. Year in question). First of all, these 14 mills chosen are not repre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f account or make use of any other information (about Assessee) available through internal or external sources. Comparison of power consumption figures of industries in similar line of business is not the correct method for making additions in Assessee's case. Such an addition is an estimated one. Estimation addition, in view, cannot be sustained sincea. Assessing Officer has not rejected Assessee's books of accounts and b. Addition was made on the basis of comparative data culled out from others (i.e. extraneous to Assessee). c. Bench marking based on indicative results in fraught with risk and inherent chance of getting false (meaningless) results. In view of the above, the estimated disallowance made by the Assessing Officer is not sustainable and the same is deleted. 9.6 Admitted, in the present case, Books of accounts of the assessee are subject to statutory audit. As the turnover of the company exceeded the prescribed limits, the assessee s case is covered under section 44AB of the Act. The assessee has also filed the 44AB Audit Report before the Assessing Officer and he has not found any mistake in the books of accounts maintained by the assessee. He has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;.20,25,489/-. The total purchase value of 38 sample purchases ₹.4,07,93,047 The total purchase price (100%) ₹.13,25,07,092 Percentage of sample 30.786 Excess price paid for total purchase (20,25,489 x 100) /30.786 ₹. 65,79,350 On the basis of random sampling as discussed above, out of the total purchase price, the Assessing Officer has arrived at ₹.65,70,350/- as excess purchase price paid by the assessee in comparison to the monthly average price as announced by CAI and added to the total income of the assessee. 10.3 The assessee carried the matter in appeal before the ld. CIT(A). By filing detailed written submissions, the AR of the assessee has strongly contended before the ld. CIT(A) that the Assessing Officer resorted to estimated addition without pin-pointing the specific defects even though the assessee maintained regular books of accounts and tax audit was filed. It was also submitted that the assessee has made payment in respect of cotton purchases only by means of account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in a market. A spot market on the other hand, is a physical and tangible exchange that enables a buyer to make an informed decision on the spot and the price is then determined considering the various parameters mentioned above. v) A buyer's standing, his credit worthiness, purchase volume, delivery terms and a plethora of other parameters play a role in the price that is ultimately paid. An efficient buyer will consider a mix of these factors and ultimately choose the optimal quality of cotton at the best available price for these parameters. vi) Commercial expediency must be decided from business man's point of view. In the case of CIT Vs. Sales Magnesite Pvt. Ltd.[1995] 214 ITR Page 1 (Bombay), Hon'ble Bomay High Court held as under :- The question whether it was necessary commercially expedient or not is a question that has to be decided from the point of view of the businessman and not by the subjective standard of reasonableness of the revenue. In view of the above, I hold that the estimated disallowance made by the Assessing Officer is not sustainable as it was not established by the Assessing Officer with reference to specific defects in the books ..... X X X X Extracts X X X X X X X X Extracts X X X X
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