IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD "B" BENCH (BEFORE S/SHRI G.D. AGARWAL, VICE-PRESIDENT AND MAHAVIR SINGH, JUDICIAL MEMBER) ITA.No.870/Ahd/2007 and ITA No.2807/Ahd/2009 Asstt.Year : 2004-2005 and 2006-2007 Fairdeal Filaments Ltd. Vs. DCIT, Cir.1 3rd Floor, Dawar Chambers Surat. Nr.Sub Jail, Ring Road Surat. (Appellant) (Respondent) Assessee by : Shri R.N.Vepari Revenue by : Smt.Neeta Shah ORDER
PER G.D. AGARWAL, VICE-PRESIDENT: These are two appeals by the assessee against the orders of the CIT(A) dated 31-1-2007 for A.Y.2004-2005 and dated 15-9-2009 for A.Y.2006-2007 arising out of the orders of the Assessing Officer under Section 143(3) of the Income Tax Act, 1961. Since grounds raised in both the appeals are common, for the sake of convenience, we dispose of both the appeals by this common order.
ITA No.870/Ahd/2007 for A.Y.2004-2005
2. The first ground raised in this appeal reads as under:
"1. The ld.CIT(A) erred in confirming rant of depreciation on machinery in weaving sector at lower rate when the appellant was entitled to depreciation at higher rate as per the prescribed rules."
3. At the time of hearing before us, it is stated by the learned counsel that the assessee had purchased plant and machinery used in textile industry under TUFS (Technology Upgradation Fund Scheme) and therefore it is entitled to 50% depreciation as per Appendix-I, Part-A, III (6). That the AO denied the assessee's claim of depreciation on the ground that the assessee is only in the business of texturising, twisting of yarn and is neither weaving nor manufacturing garments. He has stated that after texturising and twisting, the ITA.No.870/Ahd/2007 and ITA No.2807/Ahd/2009 assessee is utilising yarn for the purpose of weaving and thereby manufacturing grey cloth. That on the similar facts, various Benches of the ITAT has allowed the depreciation at the rate of 50%. In support of this contention, he relied upon the decision of the ITAT in the case of Bipinchandra Mohanlal Gajjar Vs. ITO, ITA No.3128/Ahd/2008 dated 18-2-2009. This decision was followed in the case of Nangalia Sizers P.Ltd. Vs. DCIT, ITA No.2214/Ahd/2008. The learned DR on the other hand relied upon the orders of the authorities below and she stated that the assessee is not in the business of weaving and therefore it is not entitled to higher rate of depreciation. Therefore, she submitted that the order of the CIT(A) should be sustained.
4. We have carefully considered the arguments of both the sides and perused material placed before us. The AO reproduced Rules under which the assessee has claimed depreciation at the rate of 50%. For ready reference we reproduce the same as under:Appendix-I, Part-A, III. Machinery & Plant :-Sr.No. MACHINERY AND PLANT Depreciation allowance as percentage of written down value. Sr. Machinery and plant, used in weaving 50 No.6 processing and garment sector of textile industry, which is purchased under TUFS on or after the 1st day of April, 2001 but before the 1st day of April, 2004 and is put to use before the 1st day of April, 2004".
Thus, the assessee is entitled to depreciation at the rate of 50% on the plant & machinery used in weaving processing and garment sector of textile industry which is purchased under TUFS. In the case of the assessee it is not in dispute that the plant & machinery in respect of which the assessee has claimed depreciation at the rate of 50% were purchased under TUFS between the period 1-4-2001 to 31-3-2004. As per the AO these machineries purchased under -2- ITA.No.870/Ahd/2007 and ITA No.2807/Ahd/2009 TUFS were utilized for the purpose of texturising and twisting activity and therefore the same does not fall within the category of allowability of 50% depreciation. We find that identical issue is considered by the ITAT in the case of Nangalia Sizers Pvt. Ltd. (supra) wherein the ITAT following the case of Vipinchandra Mohanlal Gajjar (supra) held that the assessee is entitled to depreciation @ 50%. The relevant portion of the decision of the ITAT reads as under:"5.3 The learned AR of the assessee further submitted that vide its Order dated 18-02-2009 in the case of Bipinchandra Mohanlal Gajjar (supra) the ITAT Ahmedabad 'D' Bench allowed the appeal observing as under:"7. We have considered rival submissions, gone through the facts and circumstances and also orders of the tax authorities. It is apparent from the record that the AO has restricted the depreciation at the rate of 25% by observing that as per Rule 5 of the IT Act, depreciation was allowable @50% only on those machinery and plant, which are actually used in weaving process and not on machinery used for twisting process. On perusal of the appendix-1 of the Income Tax Rules, it is evident that this particular machinery should be used in weaving sector and does not restrict that it should be used in weaving process of the textile industry. Since admittedly, the twister machine was used by weaving sector of textile industry, depreciation on the said machinery at the rate of 50% should be allowed. The assessee undertakes all the activities right from twisting of yarn to weaving to make final grey cloth. List of machineries mentioned in the schedule published by the Ministry of Textile and referred to above state multiple purpose and usage of twister machines. We find that tax authorities have not justified in denying the claim of the assessee for depreciation on the twister machine at the rate of 50%, and therefore, we set aside their respective orders and allow the claim of the assessee".
5.4 The learned AR of the assessee submitted that the above decision of the Tribunal is squarely applicable to the facts of the present case and therefore, the claim of the assessee may be allowed.
6. Shri R. P. Ghosh, learned DR relied on the orders of the lower authorities.-3-
ITA.No.870/Ahd/2007 and ITA No.2807/Ahd/2009
7. After hearing the learned representatives of both the parties, we find that the issue is squarely covered in favour of the assessee and against the Revenue by the decision of ITAT Ahmedabad 'D' Bench in the case of Bipinchandra Mohanlal Gajjar Vs. ITO, W-6(1), Surat in ITA No. 3128/Ahd/2008 dated 18-02-2009 relating to AY 2005-06. The issue raised by the assessee in this appeal is similar to that of the case of Bipinchandra Mohanlal Gajjar (supra). Respectfully following the order of the Tribunal in the case of Bipinchandra Mohanlal Gajjar (supra), we hold that since admittedly, the twisting machine was used by weaving sector of textile industry, depreciation on the said machinery @50% should be allowed. We accordingly, allow the ground of appeal."
5. The learned DR has tried to distinguish the above decision on the ground that the assessee is not in the business of weaving. However, we find that in the assessment order itself the AO at page no.1 of the assessment order has mentioned that the business of the assessee is that of manufacturing of the grey fabrics, sizing texturing and twisting of yarn. At page no.3 of the assessment order, there is quantitative detail of the using of texturised yarn or twisted yarn for the purpose of weaving. The same is reproduced below:
a. Texturised yarn transfers in TFO 350.050 kg.
b. Texturised Yarn transferred to 1896.92 kg.
Weaving Unit c. TFO yarn transfer in Weaving Unit 164251.17 kg. d. Total Captive Used in Weaving 166148.08 kg.
Unit=(b+c) From the above it is evident that the assessee has utilized the twisted/texturised yarn for the purpose of weaving of grey cloth. It was also pointed by the learned DR at the time of hearing that the entire yarn was not utilized for the purpose of weaving, but was partly sold in the market. In our opinion, even if the yarn was partly utilized for the purpose of making grey cloth, the assessee is using plant & machinery for the purpose of weaving. On the above facts decision of the ITAT in the case of Nangalia Sizers Pvt. Ltd. (supra) would be squarely applicable. Respectfully following the same, we direct the AO to -4- ITA.No.870/Ahd/2007 and ITA No.2807/Ahd/2009 allow depreciation on the plant & machinery purchased by the assessee under TUFS @ 50%.
6. Ground No.2 of the assessee is against the charging of interest under Section 234B of the Act. The same is admitted to be consequential. We therefore direct the AO to re-compute the interest after final determination of income.
ITA No.2807/Ahd/2009 for A.Y.2006-2007
7. Ground No.1 of the assessee is similar to Ground No.1 for the assessment year 2004-2005. For the detailed discussion in para-4 & 5, we allow Ground no.1 of the assessee's appeal.
8. Ground No.2 reads as under:
"On the facts and circumstances of the case, the ld.CIT(A) erred in not allowing the relief brought forward depreciation."
10. At the time of hearing before us, no argument was advanced with regard to ground no.2. Accordingly, the same is to be treated as not pressed.
11. Ground No.3 is against charging of interest under Section 234B. We direct the AO to re-compute the same in accordance with the law after final determination of the income.
12. In the result, the assessee's appeals are partly allowed.
Order pronounced in Open Court on 23rd April, 2010.
Sd/- Sd/- (MAHAVIR SINGH) (G.D. AGARWAL) JUDICIAL MEMBER VICE-PRESIDENT Place : Ahmedabad Date : 23-04-2010 -5-
ITA.No.870/Ahd/2007 and ITA No.2807/Ahd/2009 Vk* Copy of the order forwarded to:
1) : Appellant 2) : Respondent 3) : CIT(A) 4) : CIT concerned 5) : DR, ITAT. BY ORDER AR, ITAT, AHMEDABAD -6-