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2017 (2) TMI 951 - AT - Income TaxDeduction claim raised u/s.80IB denied - whether or not the assessee is a small industrial undertaking u/s.80IB(3) of the Act in view of the fact that cost of its plant and machinery for the year under consideration comes to ₹ 92,92,711/- in excess of ₹ 60lacs? - Held that - We find from the paper book that small scale industrial scheme comprised in pages 23 to 28 prescribe such an investment limit to be of ₹ 60lacs in the year 1991 as revised to ₹ 300lacs in December 1997. We also notice at page 14 of the paper book that assessee s concern M/s. Nandeshwari Packaging manufacturing HDPE / P.P. bags at Vatva has already been treated as a small scale industrial undertaking by the District Industries Centre, Ahmedabad Authority. Learned Departmental Representative fails to rebut all this factual position. We thus hold that the assessee s industrial undertaking in question is a small scale industry so as to be eligible for Section 80IB deduction in question - Decided in favour of assessee. Manufacturing and administrative expenses disallowance - Held that - CIT(A) was correct to restrict the impugned disallowance to 10% of the telephone and vehicle expenses only as per his order in assessment year 2005-06. Both the learned representatives thus indicate that the said findings on the very issue in preceding assessment year have attained finality for want of challenge. We appreciate this fair stand to confirm the ld. CIT(A) s action under challenge in the instant ground raised at Revenue s and assessee s behest. Disallowing deduction claim raised u/s.80IB - the assessee filed its audit report/form 10CCB in course of the lower appellate proceedings than that with its return - Held that - CIT vs. Punjab Financial Corporation 2001 (12) TMI 50 - PUNJAB AND HARYANA High Court has overruled its former decision hereinabove to conclude that such an audit report need not be mandatorily filed with a return of income. There is admittedly no other objection on part of the CIT(A) to decline the impugned deduction claim. We accept assessee s arguments accordingly to direct the Assessing Officer to delete the impugned disallowance. Disallowance of expenditure in the nature of consumption of stores and spares - Held that - The item of expenses to be in the nature of grooved sleeve with water cooling jacket, plastic extension spares in the nature of screw & barrel and cheese winders; respectively. We afforded ample opportunity to learned Departmental Representative to prove from the case records that the same in any way amounted to purchase of altogether new machines or the said items have resulted in increase in assessee s production in question. He failed to point out any such material. We thus observe that the impugned items are nothing but regular wear and tear replacements to assessee s already existing machinery liable to be treated as revenue expenditure. We accordingly accept assessee s instant substantive ground and direct the Assessing Officer to delete the impugned disallowance.
Issues Involved:
1. Validity of reopening assessment. 2. Deduction claim under Section 80IB. 3. Disallowance of manufacturing and administrative expenses. 4. Unexplained unsecured loan addition. 5. Disallowance of miscellaneous expenses. 6. Disallowance of expenditure on consumption of stores and spares. 7. Disallowance of telephone, vehicle, and miscellaneous expenses. Detailed Analysis: Assessment Year 2005-06 (Assessee’s Appeal ITA No.323/Ahd/2012): 1. Validity of Reopening Assessment: - The assessee did not press for this legal ground, and it was rejected as not pressed. 2. Deduction Claim under Section 80IB: - The assessee challenged the disallowance of ?37,65,479/- under Section 80IB. The Assessing Officer disallowed the deduction, treating the assessee's plant and machinery cost as exceeding the threshold limit for a small-scale industrial undertaking. - The CIT(A) upheld the disallowance, stating the appellant did not fulfill conditions laid down in sub-section 3 of Section 80IB, as the manufacturing started beyond the stipulated period. - The Tribunal found that the investment limit for a small-scale industrial undertaking was revised to ?300 lacs in December 1997, and the assessee's concern was already treated as a small-scale industrial undertaking by the District Industries Centre, Ahmedabad. The Tribunal directed the Assessing Officer to delete the disallowance, accepting the assessee’s substantive ground. Assessment Year 2006-07 (Revenue’s Appeal ITA No.1380/Ahd/2011 + C.O. No.138/Ahd/2011): 3. Disallowance of Manufacturing and Administrative Expenses: - The Revenue challenged the CIT(A)'s decision to restrict the disallowance of ?57,85,114/- to 1/10th of telephone and vehicle expenses. The assessee also sought to delete the remaining 10% disallowance. - The Tribunal confirmed the CIT(A)'s action, noting the findings on the issue in the preceding assessment year had attained finality. 4. Unexplained Unsecured Loan Addition: - The Revenue contested the deletion of ?25 lacs obtained from Shri Sevantibhai Kanjibhai Patel. The Assessing Officer’s remand report accepted the loan transaction as genuine. - The Tribunal upheld the CIT(A)’s deletion of the addition, confirming the genuineness of the loan transaction. 5. Disallowance of Miscellaneous Expenses: - The assessee challenged the disallowance of 10% of miscellaneous expenses amounting to ?13,705/-. The CIT(A) followed his action from the preceding assessment year. - The Tribunal found no reason to adopt a different approach and rejected this ground. 6. Deduction Claim under Section 80IB: - The assessee contested the disallowance of ?38,50,685/- under Section 80IB, which was upheld by the CIT(A) due to the late filing of the audit report. - The Tribunal noted the Punjab & Haryana High Court’s full bench decision, which stated that the audit report need not be mandatorily filed with the return of income. The Tribunal directed the Assessing Officer to delete the disallowance. Assessment Year 2009-10 (Assessee’s Appeal ITA No.1140/Ahd/2013): 7. Disallowance of Expenditure on Consumption of Stores and Spares: - The assessee challenged the disallowance of ?23,42,000/- treated as capital expenditure. The CIT(A) upheld the disallowance, stating the expenses provided enduring benefits. - The Tribunal observed that the items were regular wear and tear replacements and should be treated as revenue expenditure, directing the deletion of the disallowance. 8. Disallowance of Telephone, Vehicle, and Miscellaneous Expenses: - The assessee contested the disallowance of 1/10th of these expenses aggregating to ?7,66,237/-. The Tribunal confirmed the lower appellate findings, maintaining judicial consistency. Conclusion: - The assessee partly succeeded in its appeals ITA Nos.323/Ahd/2012 & 1140/Ahd/2013 and cross objection 138/Ahd/2011. - The Revenue’s sole appeal ITA No.1380/Ahd/2011 was dismissed.
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