2023 (10) TMI 446 - AT - Income Tax

Higher rate of depreciation on moulds - moulds used by the vendors and not by the assessee directly - manufacturing of rubber and plastic goods done by the vendors - Revenue s contention was that since the assessee is a two-wheeler manufacturer, the depreciation @ 30% is not available to the assessee as the assessee is not a rubber/plastic manufacturer - HELD THAT - As decided in Honda Motorcycle Scooter India (P.) Ltd. 2016 (10) TMI 634 - ITAT DELHI it is immaterial whether the plastic /rubber moulds were used in the factory premises of the assessee or vendors. Prime requirement is that moulds should be owned by the assessee, the same should be part of block assets shown by the assessee and these were put to use for the purpose of business of the assessee and the three requisite conditions have been fulfilled by the assessee in the present case and thus it is entitled to claim depreciation @ 30% which was rightly allowed by the ld. CIT(A). Decided in favour of assessee. Addition of excise duty not recovered from sales - According to Ld. AO the assessee has got benefit of CENVAT on one hand and has shown reduced income by excluding excise duty not recovered from sales, therefore, expenses claimed in the profit and loss account on account of excise duty not recovered from the sales is not allowable - HELD THAT - We note that Ld. AO got confused between the two items; CENVAT/MODVAT and excise duty which are two different items and cannot be co-related. We are fully concurred with the finding of Ld. CIT(A) that one is expense while the other is a credit or prepaid tax which can be adjusted by offsetting the same with the excise duty payable and Ld. AO has failed to notice the difference between the two. Accordingly, we uphold the order of Ld. CIT(A) by holding that excise duty not recovered from sales as debited to the profit and loss account is a deductible item u/s 37 of the Act. Accordingly, the appeal of the Revenue is dismissed by upholding the order of Ld. CIT(A).

Summary

Issues:
1. Disallowance of excess depreciation claimed on moulds.
2. Addition of excise duty not recovered from sales.

Issue 1: Disallowance of excess depreciation claimed on moulds

The assessee appealed against the disallowance of Rs. 1,89,44,933/- by the Commissioner of Income-tax (Appeals) regarding excess depreciation claimed on moulds. The Assessing Officer restricted the depreciation to 15% as the moulds were not used exclusively in rubber and plastic factories. The Tribunal noted a similar case where depreciation was allowed at a higher rate for moulds used in plastic goods manufacturing. The Tribunal held that the assessee, as the owner of the moulds used for manufacturing plastic and rubber goods, was entitled to claim depreciation at 30%. The Tribunal set aside the Commissioner's order and directed the Assessing Officer to allow the depreciation at 30%.

Issue 2: Addition of excise duty not recovered from sales

The Revenue challenged the deletion of the addition made by the Assessing Officer in respect of excise duty not recovered from sales amounting to Rs. 9,30,00,000/-. The Assessing Officer disallowed the claimed expense on the grounds of availing double benefit through CENVAT/MODVAT credit and excise duty claim. However, the Commissioner of Income-tax (Appeals) allowed the appeal, stating that excise duty not recovered from sales is a tax deductible item under Section 37 of the Act. The Tribunal upheld the Commissioner's decision, emphasizing that CENVAT/MODVAT and excise duty are distinct items and the excise duty not recovered from sales is a deductible expense. Consequently, the Revenue's appeal was dismissed, and the assessee's appeal was allowed.

This judgment addresses the issues of disallowance of excess depreciation on moulds and addition of excise duty not recovered from sales. The Tribunal ruled in favor of the assessee in both matters, allowing the claimed depreciation at 30% for the moulds and recognizing the excise duty not recovered from sales as a deductible expense under Section 37 of the Act.