2016 (8) TMI 1168 - AT - Income Tax

Revision u/s 263 - withdrawing the claim of balance 10% additional depreciation under section 32(1)(iia) - Held that - As carefully gone through the judgment in Rittal India Pvt. Ltd. (2015 (1) TMI 1248 - KARNATAKA HIGH COURT) held after extracting the provisions of Section 32(1)(iia) of the Act found that beneficial legislation has to be interpreted liberally so as to benefit the assessee. The intention of the legislation is to allow additional benefit. The Karnataka High Court opined that the proviso would not restrain the assessee from claiming the balance of the benefit of additional depreciation in the subsequent assessment year. 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. 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 excess purchase price paid for ginned cotton - Held that - Admittedly in this case the Assessing Officer has not noticed any mistake in the books of accounts maintained and the tax audit report filed by the assessee. It is an admitted fact that each and every mill has a distinct purchase policy depending upon the products manufactured as well as the end use of the yarn and also the strength and colour. Similarly the rates of cotton shall vary with the area of the crop as well as the picking of the crop. Moreover the rate varies with the payment schedule of the mills. Admittedly the assessee purchased the raw materials on credit basis and made the payment on account payee cheques. For working out the price of ginned cotton the Assessing Officer has taken the price declared by the Cotton Association of India which is not applicable to the assessee since the CAI price quoted is for ready money cash price whereas the assessee has purchased the materials on credit basis. In the appellate order the ld. CIT(A) has given a detailed findings over the methodology adopted by the Assessing Officer for estimating the disallowance which cannot be sustainable when the Assessing Officer has not disputed the books of accounts and other particulars filed by the assessee. - Decided against revenue

Summary

Issues Involved:
1. Withdrawal of 10% additional depreciation under section 32(1)(iia) for the assessment year 2011-12.
2. Deletion of addition made on account of excess claim of power and fuel (diesel expenditure) for the assessment year 2009-10.
3. Deletion of addition made towards excess purchase price paid for ginned cotton for the assessment year 2009-10.

Issue-wise Detailed Analysis:

1. Withdrawal of 10% Additional Depreciation:
The assessee, engaged in the manufacture and sale of building products and textiles, claimed additional depreciation under section 32(1)(iia) for machinery used for less than 180 days during the previous year. The CIT issued a notice under section 263, deeming the assessment order erroneous and prejudicial to the Revenue's interest, as additional depreciation should only be allowed in the year the machinery is first put to use. The Tribunal, however, referenced previous decisions, including the case of Fresh & Honest Café Ltd. v. DCIT, where it was established that the remaining 10% additional depreciation could be claimed in the subsequent year. The Tribunal concluded that the CIT's order was incorrect and restored the original assessment order, allowing the additional depreciation claim.

2. Deletion of Addition on Account of Excess Claim of Power and Fuel (Diesel Expenditure):
The assessee, engaged in the manufacture and sale of yarn, faced an addition by the Assessing Officer (AO) who compared the diesel costs for electricity generation with 14 other textile mills and found the assessee's costs excessive. The AO used the South Indian Textiles Research Association (SITRA) norms and industry averages to justify the addition. The CIT(A) deleted this addition, noting that the AO did not find any defects in the books of accounts, which were audited under section 44AB. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO's method of using industry averages without specific evidence from the assessee's records was flawed and not a valid basis for addition.

3. Deletion of Addition Towards Excess Purchase Price Paid for Ginned Cotton:
The AO made an addition based on a comparative analysis of the assessee's purchase prices for ginned cotton against the Cotton Association of India (CAI) prices, determining an excess payment. The CIT(A) deleted this addition, arguing that the AO did not identify specific defects in the books of accounts, which were audited and maintained properly. The Tribunal upheld this decision, noting that the AO's comparison with CAI prices, which are for ready cash purchases, was not appropriate for the assessee's credit purchases. The Tribunal also referenced a similar case, DCIT v. M/s. Sree Karpagambal Mills Ltd., where such an addition was deemed unsustainable.

Conclusion:
The Tribunal allowed the appeal filed by the assessee for the assessment year 2011-12, restoring the original assessment order and permitting the claim for additional depreciation. For the assessment year 2009-10, the Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s deletion of additions related to excess claims of power and fuel expenditure and excess purchase price paid for ginned cotton.