2012 (11) TMI 161 - AT - Income Tax

Depreciation on machines purchased under TUF scheme of the Govt - Disallowance on account of higher depreciation claimed - @50% v/s 25% - Held that - As decided in assessee s own case for A.Y. 2005-06 relying on Agarwal Rayons Pvt. Ltd. vs. ITO (2010 (7) TMI 808 - ITAT, AHMEDABAD) that in respect of same machinery claim of depreciation at 50% has to be granted - in favour of assessee. Low oil gain - addition to income - Held that - There is no constant percentage of oil gain which can be said to be uniformly obtained by the manufacturers of texturised yarn. The comparable cases have a variation and in some cases it was noted that on account of better overall performance and profits and due to the maintenance of authentic books of account, no further addition was called for. However, in this case, keeping the various percentages of oil gain in this line of business in the various comparable cases an adhoc addition of Rs.2 lacs as against Rs.4,23,037/- done by AO shall serve the purpose to cover up any leakage as also the gap between the two percentage of oil gain noted by the AO - partly in favour of assessee. Disallowance of credit balance of NCCD (CENVAT) being written off - Held that - The assessee had maintained exclusive system of accounting, therefore the duty paid was not debited as a part of the purchases but a separate account was maintained and carried to the balance-sheet. The AED and NCCD were applicable on POY, i.e. raw material. When the finished goods, i.e. texturised yarn is manufactured, the excise is levied in the form of basic duty. The assessee has adopted exclusive method of accounting, therefore debited the net purchases and those were separately recorded in the books of accounts. Thus finding force in assessee s argument because while maintaining the exclusive method of accounting the assessee had a choice to increase the value of the purchases in respect of the duty paid in the form of AED & NCCD, the amount which is now written off being part of the business expenditure, hence allowable under the provisions of the Act - in favour of assessee.

Summary

Issues:
1. Disallowance of higher depreciation claimed on machines purchased under TUF scheme.
2. Addition on account of alleged low oil gain.
3. Disallowance of credit balance of NCCD (CENVAT) being written off.

Issue 1: Disallowance of Higher Depreciation:
The appellant, a manufacturing company, claimed higher depreciation on machinery purchased under the Technology Upgradation Fund Scheme (TUF). The Assessing Officer (AO) disallowed the excess depreciation, but the CIT(A) affirmed it. The ITAT, Ahmedabad noted that previous tribunal decisions supported the appellant's claim for higher depreciation under the TUF scheme. Citing the appellant's own case and other relevant precedents, the ITAT allowed the claim of depreciation at 50%, similar to previous years. Thus, the ground for disallowance of higher depreciation was allowed.

Issue 2: Addition on Account of Low Oil Gain:
The AO made an addition on account of alleged low oil gain by the appellant during the year. The appellant argued that the decrease in oil gain was due to using high-speed machines that consumed less oil. Despite maintaining proper records, the CIT(A) upheld the AO's addition, citing lack of explanation for the decrease in oil gain. The ITAT considered various tribunal decisions showing fluctuating oil gain percentages in similar cases. To address the gap in oil gain percentages, the ITAT allowed a partial relief by making an adhoc addition, partly allowing this ground of appeal.

Issue 3: Disallowance of Credit Balance of NCCD (CENVAT) Being Written Off:
The AO disallowed the writing off of an amount pertaining to NCCD (CENVAT) by the appellant, stating lack of evidence for entitlement to write off the amount. The CIT(A) confirmed this disallowance, considering the amount reflected in the balance sheet not as an allowable expenditure. The ITAT, after reviewing the exclusive accounting method of the appellant and relevant documents, concluded that the written-off amount was a legitimate business expenditure. Therefore, the ITAT reversed the lower authorities' findings and allowed the ground raised by the appellant, partly allowing the appeal.

In conclusion, the ITAT, Ahmedabad partially allowed the appeal of the Assessee, addressing issues related to higher depreciation, low oil gain addition, and the writing off of NCCD (CENVAT) balance. The judgment provided detailed analysis and references to previous tribunal decisions to support the decisions made on each issue.