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TMI Blog2019 (4) TMI 1285X X X X Extracts X X X X X X X X Extracts X X X X ..... siness or trade, the amount received by the assessee on account of sales tax remission, was held to be capital in nature. - Decided against revenue Disallowance on expenditure of Repairs Maintenance to the Plant Machinery u/s.37(1) - provision of expenses as on end of FY - no bills and vouchers were produced - AO observed that he could not also verify whether Section 40(a)(ia) had any application - HELD THAT:- On 07.02.2014, the AO had required the assessee to furnish its explanation as to why the repairs expenses should not be disallowed on the ground of being capital in nature. It thus appeared that even by AO's own admission he had required the assessee to explain the nature of the expenditure i.e. whether capital or revenue. We note that nowhere the AO stated that he had required the assessee to produce original bills vouchers but had required the assessee to explain the nature of expenditure, whether these are being revenue or capital. Hence, disallowance on ad hoc basis without any cogent reasons is not justifiable We note that in the accounting parlance, unpaid expenditure for which liability has accrued is described as provision under mercantile system ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deleted the addition. - Decided against revenue. - ITA No.1930/Kol/2016 - - - Dated:- 15-3-2019 - Shri A.T. Varkey, JM And Dr.A.L.Saini, AM For the Assessee : Shri P.K. Srihari, CIT, ld. DR For the Respondent : ShriD. S Damle, FCA, ld.AR ORDER PER DR. ARJUN LAL SAINI, AM: The captioned appeal filed by the Revenue, pertaining to assessment year 2010 11, is directed against the orders passed by the Commissioner of Incometax (Appeals) 4, Kolkata in Appeal No.1132/CIT(A) 4/Circle 10/Kol/14 15, dated 18 07 2016, which in turn arises out of an order passed by the Assessing Officer u/s. 143(3)/144Cof the Income Tax Act, 1961 (in short, the Act ), dated29 03 2014. 2. Grounds of appeal raised by the Revenue are as follows: 1. Whether the Ld. CIT(A) was correct in deleting addition of the ₹ 8,65,69,694/- claimed by the assessee without going to the fact that the amount of sale tax of ₹ 8,65,96,694/- out of total collection during the period by the assessee was not deposited within the due date of filing return? 2. Whether the Ld. CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made its revised claim following the orders of jurisdictional High Court and some other High Courts as well as, the orders of ITAT also. However, the copy of the scheme obtained and placed on record. The scheme is perused and the option exercised by the assessee to take the benefit of the said scheme is considered and observed as follows: (i) As per clause 10 to the West Bengal Incentive Scheme 1999 (page no.17 of the scheme declared by WBIDC Ltd.) under the head Sales Tax, there are two ways to avail the incentive scheme. The assessee has opted the benefit available vide Clausel0.1.1 to the West Bengal Incentive Scheme 1999 which is reproduced as under: A new unit for its approved project shall be eligible for deferred payment of sales tax due for payment by it or alternatively for remission of sales tax due for payment by it for the period and subject to ceiling as mentioned below depending on location of the unit. Out of said two ways, the assesse has finally agreed to avail the benefit of remission of sales tax due for payment by the unit below the caption Group B under Clause 10.1.1.The period and quantum of inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be taxed as revenue item u/s.43B of I. T. Act, 1961. But due to the benevolent scheme of the state government, the assessee has not deposited which ultimately helped the assessee to reduce the trading liability by way of remission following the provision as laid down in section 41(1)(a) of I. T. Act, 1961. Without prejudice to the above the benefit allowed to the assessee in the garb of remission of sales tax, convertible into money and is arisen from business in consequence of sale proceeds is covered by the term and conditions laid down in section 28(iv) of I. T. Act, 1961 and to be taxed accordingly. In this way the claim of the assessee was rejected and added back ₹ 8,65,96,694/ in the return of income of the assessee. 6. Aggrieved by such order of the AO, the assesse preferred an appeal before the ld. CIT(A), who deleted the addition. Aggrieved, the Revenue is in appeal before us. 7. The Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. Whereas, ld Counsel relied on the order passed by the ld CIT(A). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the State of West Bengal with various incentives and subsidies. As per Scheme, the incentives were to be given for setting up of new units or expansion of the existing units and the same was not to facilitate the trade or business of the industries. It was noted that the West Bengal Industrial Development Corporation Ltd. vide letter no. INC(99)/EC 87(8) dated 4th June 2002 had issued Eligibility Certificate to the assessee for setting up a new unit for the manufacture of blended LPG at Block Sutahata Block Post Office Haldia 721602, Police Station Bhabhanipur District Midnapur (E). As per the approval letter, the assessee company was granted incentives in the form of remission of sales tax and waiver of electricity duty for setting up the unit at Haldia. As per the Scheme. the incentive was provided for setting up of new unit, but the mode of calculation of incentive was sales tax paid/collected by the assessee. In view of the facts and circumstances, we note that the subsidy/incentive was not given to the assessee for the purpose of assisting in carrying on business or trade by way of refund of sales tax nor was there any cessation of liability on account of payment of sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of brevity. Whereas, ld Counsel relied on the order passed by the ld CIT(A). 13. After giving our thoughtful consideration to the submission of the parties and perusing the judicial decisions relied upon by the Ld. Counsel, we find that the issue involved in the present two grounds raised by Revenue is no longer res integra. We note that the AO could have ventured into estimation only after rejecting the books of accounts of the assessee u/s 145(3) and thereafter by best judgment assessment u/s 144 of the Act. Here in this case, the AO has not passed any order u/s 144 of the Act. The AO thus without rejecting the books of account of the assessee has gone for estimation on suspicion and conjectures that the assessee may be inflating its expenses. While scrutinizing the expenditure if the expenses claimed are not having any nexus to the business of the assessee or if there is deficiency in the vouchers or there is no bills supporting the incurrence of an expenditure, at the most expenses to the extent that are not supported by the vouchers can be held to be non genuine and can be disallowed by the AO; and item wise the AO could have disallowed the expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce, unpaid expenditure for which liability has accrued is described as provision under mercantile system of accounting. Copies of the bills produced by assessee during the assessment stage for verification also established that the amount shown as provision for repairs maintenance related to services which were performed for and upto March 2010 and therefore under the mercantile system of accounting, the assessee was entitled to claim deduction since expenditure pertained to the previous year ending on 31.03.2010. Therefore, we note that there was no justification for the AO to disallow ₹ 46,66,208/ . That being so, we decline to interfere in the order passed by ld CIT(A), his order on this issue is hereby upheld and grounds of appeal raised by the Revenue is dismissed. 16. Ground No. 3 raised by the Revenue reads as follows: 3. Whether the Ld. CIT(A) was correct in deleting the disallowance on additionaldepreciation claimed by the assessee to the extent of ₹ 42,17,995/- without going to the fact that the assessee is not engaged in manufacturing activity in terms of section 2(29BA) of the I.T. Act, 1961 ? 17. Brief fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. From the audited accounts, we note that during the relevant year, the assessee was engaged both in trading and manufacturing activities. The assessee had purchased propane butane both for trading purposes as well as for manufacturing LPG. The assessee made disclosures in its accounts in respect of its trading activities and manufacturing activities separately. Even in the Tax Audit Report as well as in the audited financial statements, the assessee had made separate quantitative disclosures with regard to its trading manufacturing operations and in the impugned order the AO has not disputed or disapproved these audited figures. The ld Counsel had explained in detail the production process employed for production of LPG. The ld Counsel has explained that the propane and butane are stored in special conditions which are heated separately through various stages. These two materials which exist in gas form are then processed in manner where they are condensated and are reduced from gas to liquid form in scientific manner. For undertaking the transformation of butane propane into liquid form and then to obtain Liquefied Natural Gas, the assessee has to employ scie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he process or operation of making goods or any material produced by hand. by machinery or by other agency; by the hand, by machinery, or by art. The production of articles for use from raw or prepared materials by giving such materials new forms, qualities, properties or combinations, whether by hand labour or machine . Thus by process of manufacture something is produced and brought into existence which is different from that, out of which it is made in the sense that the thing produced is by itself a commercial commodity capable of being sold or supplied. The material from which the thing or product is manufactured may necessarily lose its identity or may become transformed into the basic or essential properties. (See Dy. CST (Law), Board of Revenue (Taxes) Coca Fibres [1992] Supp. 1 SCC 290). 4. Manufacture implies a change but every change is not manufacture, yet every change of an article is the result of treatment,labour and manipulation. Naturally, manufacture is the end result of one or more processes through which the original commodities are made to pass. The nature and extent of processing may vary from one class to another. There may be several stages o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g and processing mineral ore Mineral ore is not excluded by the Eleventh Schedule. The only question is whether such business is one of manufacture or production of ore. The issue had arisen before different High Courts over a period of time. The High Courts have held that the activity amounted to 'production' and answered the issue in question in favour of the assessee. The High Court of Andhra Pradesh did so in CIT v. Singareni Collieries Co. Ltd. [1996J 221 ITR 48, the Calcutta High Court in Khalsa Brothers v. CIT [1996] 217 ITR 185 and CIT v. Mercantile Construction Co. [1994]74 Taxman 41 (Cal.) and the Delhi High Court in CIT v. Univmin .) Ltd. [1993] 202 ITR 825. The Revenue has not questioned any of these decisions, at least not successfully, and the position of law. therefore, was taken as settled. The reasoning given by the High Court, in the decisions noted by us earlier, is in our opinion, unimpeachable. This Court had as early as in 1961, in Chrestian Mica Industries Ltd. v. State of Bihar [1961] 12 STC 150, defined the word production' Albeit, in connection with the Bihar Sales Tax Act, 1947. The definition was adopted from the meaning asc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Supreme Court in several decisions, we have no hesitation in holding that the assessee was engaged in manufacture or production of an article or thing and therefore it was eligible for claiming additional depreciation u/s 32(1 )(iia) of the Act. That being so, we decline to interfere in the order passed by ld CIT(A), his order on this issue is hereby upheld and grounds of appeal raised by the Revenue is dismissed. 22. The Last effective ground is relating to deletion of disallowance of ₹ 2,61,600/ made by AO u/s. 40(a)(ia) of the Act. 23. The brief facts qua the issue are that during the course of scrutiny proceedings it was noticed by AO that the assessee company has failed to deduct the tax on total payment of ₹ 2,61,600/ on account of rent made to Sri Nihar Ranjan Dhar (Rs.87,204/ ), Smt. Ruby Dhar (Rs.87,204/ ) and Sri Sandip Dhar (Rs.87,204/ ) for hiring the flat no.1B at 1/393, Gariahat Road (South), Kolkata 700068 (Office and Parking Space). The assessee has explained that the liability for deduction of tax under section 194I ofI.T. Act, 1961 is not attracted in this case due to co ownership of the property and all of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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