IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: `E', NEW DELHI
BEFORE SH. SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER
AND
SH. O.P. KANT, ACCOUNTANT MEMBER
ITA No.4976/Del/2014
Assessment Year: 2008-09
McCain Foods India Pvt. Ltd., Vs. DCIT,
C-6 SDA Commercial Circle-6(1), New Delhi
Complex, New Delhi
PAN :AAACM4861G
(Appellant) (Respondent)
And
ITA No.5754/Del/2014
Assessment Year: 2008-09
DCIT, Vs. McCain Foods India Pvt.
Circle -6(1), New Delhi Ltd.,
C-6 SDA Commercial
Complex, New Delhi
PAN :AAACM4861G
(Appellant) (Respondent)
And
ITA No.4977/Del/2014
Assessment Year: 2009-10
McCain Foods India Pvt. Ltd., Vs. DCIT,
C-6 SDA Commercial Circle -6(1), New Delhi
Complex, New Delhi
PAN :AAACM4861G
(Appellant) (Respondent)
Assessee by Sh. Sumeet Sareen, CA
Department by Sh. Gaurav Sharma, Sr.DR
Date of hearing 30.08.2018
Date of pronouncement 23.10.2018
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ITA Nos.4976/Del/2014; 5754/Del/2014 &
4977/Del/2014
ORDER
PER O.P. KANT, AM:
The cross appeals of the assessee and the Revenue for
assessment year 2008-09 are directed against order dated
16/07/2014 passed by the Ld. Commissioner of Income-tax
(Appeals)-IX, New Delhi [in short `the Ld. CIT(A)']. The appeal of
the assessee for assessment year 2009-10 has been preferred
against order dated 17/07/2014 passed by the same Ld. CIT(A).
As common and identical grounds are involved in the appeals,
same were heard together and disposed off by way of this
consolidated order for convenience.
ITA Nos. 4976/Del/2014 (Assessee) & 5754/Del/2014 (Revenue)
2. First, we take up the cross appeals of the assessee and the
Revenue for assessment year 2008-09. The grounds raised in ITA
No. 4976/Del/2014 by the assessee are reproduced as under:
"That, on the facts and circumstances of the case and in
law, the Ld. Commissioner of Income-tax (Appeals)-IX, New
Delhi ["CIT(A)"], erred in concurring with the view of the
assessing officer and thereby upholding the disallowance
of excess depreciation (of Rs.27,28,319/-) and additional
depreciation (of Rs.1,09,13,279/-) aggregating to
Rs.1,36,41,598/- claimed by the appellant, on the ground
that the electrical fittings are covered under the category of
`Furniture and Fixtures' and do not form part and parcel of
`Plant & Machinery'."
2.1 The grounds raised in ITA No.5754/Del/2014 by the
Revenue are reproduced as under:
1. Whether on the facts and circumstances of the case & in
law, the Ld. CIT(A) erred in deleting the disallowance
made by the AO of Rs. 27,75,932/- by grossly ignoring the
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ITA Nos.4976/Del/2014; 5754/Del/2014 &
4977/Del/2014
reasons advanced by the assessing officer and totally
relying upon the decision of his predecessor in assessee's
case for earlier assessment years?
2. Whether on the facts and circumstances of the case & in
law, the Ld. CIT(A) erred in allowing relief to the assessee
by deleting the disallowance of depreciation claim of the
assessee on building amounting to Rs. 1,84,37,305/- by
relying upon the additional evidence accepted and without
giving opportunity to the assessing officer as per
provisions of Rule 46A.?
3. That the order of the Ld. CIT(A) is erroneous and is not
tenable on facts and in law.
4. That the grounds of appeal are without prejudice to each
other.
5. That the appellant craves leave to add, alter, amend or
forego any ground(s) of the appeal raised above at the time
of the hearing.
3. Briefly stated facts of the case as culled out from the order
of the lower authorities are that the assessee company was
incorporated on 22/03/1996 and was engaged in the business of
frozen foods, mainly frozen `french fries' , which were sold mainly
to "McDonald" and retailed through various grocery shops. For
the year under consideration, the assessee filed return of income
on 30/09/2008, declaring loss of Rs.24,82,07,887/-. The case
was selected for scrutiny and notice under section 143(2) of the
Income-tax Act, 1961 (in short `the Act') was issued and complied
with. The assessment under section 143(3) of the Act was
completed on 12/12/2011 after making certain
additions/disallowances to the returned income (loss). Aggrieved,
the assessee filed appeal before the Ld. CIT(A), who partly allowed
the appeal. Aggrieved by the order of the Ld. CIT(A), both the
assessee and the Revenue are in appeal before the Tribunal
raising the respective grounds as reproduced above.
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ITA Nos.4976/Del/2014; 5754/Del/2014 &
4977/Del/2014
4. In the sole ground, the assessee has raised the issue of not
allowing depreciation of Rs.27,28,319/- and additional
depreciation of Rs.1,09,13,279/- aggregating to Rs.1,36,41,598/-
on the electrical fittings/installation.
4.1 The facts qua the issue in dispute are that from the Tax
Audit Report (TAR) filed by the assessee, the Assessing Officer
observed addition to electric installation. The Assessing Officer
found that the assessee included the said electric installation
under the category of `plant and machinery' and claimed
depreciation at the rate of 15% amounting to Rs.81,84,959/-.
According to the Assessing Officer, as the depreciation rates
prescribed under section 32 of the Act vide new Appendix I,
under Rule 5 of Income-tax Rules, 1962 (in short `the Rules")
depreciation at the rate of the 10% is applicable on tangible
assets for `furniture and fixtures' which includes electrical fitting.
The `electrical fittings' have been further clarified to include
electrical wiring, switches, sockets, other fittings and fan etc.
Thus, in view of the Assessing Officer, the `electrical installation'
was eligible for depreciation at the rate of 10% only. He worked
out the excess depreciation disallowable amounting to
Rs.27,28,319/-. Further, the Assessing Officer observed claim of
the assessee of additional depreciation at the rate of 20% on the
above `electrical installation'. According to the Assessing Officer,
as per section 32(iia) of the Act additional depreciation is
allowable only on new plant and machinery and the electrical
installation not being part of plant and machinery, the additional
depreciation was not allowable. Accordingly, he disallowed the
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ITA Nos.4976/Del/2014; 5754/Del/2014 &
4977/Del/2014
claim of the additional depreciation of Rs.1,09,13,279/- of the
assessee.
4.2 Before the Ld. CIT(A), the assessee submitted that the assets
under the category of electrical fitting comprised of electrical
transformer and its fittings, industrial lighting, plugs, site
electricity cost, which are part and parcel of plant and machinery.
The assessee submitted that accounts of the assessee were
audited by a reputed firm affiliated to "Price Water House
Coopers" and thus proper regard should be given to the Audit
Report and depreciation should be allowed at the rate of 15%
instead of 10% allowed by the Ld. AO. The Ld. CIT(A), however,
rejected the claim of the assessee holding that electrical fittings
are independent of plant and machinery installed and same can
be used for several machines at the same time. The Ld. CIT(A)
observed that when a plant or machine is replaced, the electrical
fitting of the building and the connection to the main transformer
remain the same and does not move along with the `plant and
machinery'. Thus according to him, the electrical installations
stands as a separate asset and cannot be treated at par with
plant and machinery.
4.2 Before us, the Ld. counsel of the assessee filed a paper book
containing pages 1 to 44 and submitted that the Ld. CIT(A) has
not understood the nature of expenditure incurred. The Ld.
counsel submitted a summary of the total expenditure incurred of
Rs.5,47,70,995/-. The Ld. counsel also referred to details of the
expenses filed on page 39 to 40 of the paper book. In view of the
submission, the Ld. counsel submitted that the entire
expenditure was incurred by the assessee towards plant and
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ITA Nos.4976/Del/2014; 5754/Del/2014 &
4977/Del/2014
machinery setting up and automation work. According to him, the
entire plant works on an integrated model and the process from
start to finish is fully automated. He submitted that expenditure
incurred is integral part of plant and machinery and without said
installation, the plant and machinery cannot function and
therefore accordingly, the depreciation at the rate of 15% and
additional depreciation at the rate of 20% should be allowed on
the electric installation. The Ld. counsel alternatively submitted
that issue may be restored to the file of the Assessing Officer for
verifying each expenditure covered under the category of electric
installation so as to confirm that same is integral part of plant
and machinery.
4.3 The Ld. DR, on the other hand, relied on the order of the
lower authorities and submitted that it cannot be established
from the detail of the expenses that electric installations are
integral part of plant and machinery.
4.4 We have heard the rival submissions and perused the
relevant material on record, including the details of assets filed in
the paper book of the assessee. The summary of the items of
electrical installation submitted by the assessee is reproduced as
under:
Type of Expenses Vendor S.No. Amount (Rs)
Plant Automation
expenses Vendor S.No 1 2,90,53,003
Control Cable and Power Vendor S.No 2, 3 and 4 1,83,10,329
Work to integrate and
connect the assembly
line, Power Factor
Automation and High
Voltage Installation work
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ITA Nos.4976/Del/2014; 5754/Del/2014 &
4977/Del/2014
Power Charges paid to Vendor S.No 5 and 10 27,93,404
Uttar Gujarat Vidyut
Board and Gujarat
Electricity Board during
Plant commissioning and
Trial runs
Heat Trace System for full Vendor S.No 6 and 11 21,14,712
assembly line - Supply
and Supervision costs
Electrical Engineering Vendor S.No 9 554,912
Design Costs
Labour costs for Vendor S.No 7 611,317
Electrical Work
Other electrical work Vendor S. No 8 and 12 13,33,318
connected to Plant and to 20
Machinery Set up.
GRAND TOTAL 5,47,70,995
4.5 The claim of the assessee that these items of electrical
fittings form part of "plant and machinery" whereas according to
the Revenue same falls under the category of "furniture and
feature". It is evident from the above table that expenses have
been incurred on power charges paid to Gujarat electricity board,
engineering design and labour cost for electrical work. On perusal
of page 39 to 40 of the paper book, we find that assessee has paid
Rs.5,59,899/- for false ceiling, Rs.5,54,490/- paid for electricity
cost during plant commissioning and trial, Rs.45,486/- for
boundary and leveling of electric post etc. Thus, from these
details, it cannot be ascertained that expenses have been
incurred specific to any plant and machinery and the electric
installation is integral part of the Plant and Machinery. In view of
the above facts and circumstances and considering the
alternative prayer of the assessee, we feel it appropriate to
restore this issue to the file of the Ld. Assessing Officer, to verify
each item of expenditure claimed under the category of "electrical
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ITA Nos.4976/Del/2014; 5754/Del/2014 &
4977/Del/2014
installation" along with bills and vouchers and if required,
commission may be issued to an "Electrical Engineer" for
verifying whether the items of electrical installation constitute
integral part of plant and machinery, and then the issue in
dispute may be decided in accordance with law. It is needless to
mention that the assessee shall be afforded adequate opportunity
of being heard. The sole ground of the appeal of the assessee is
accordingly allowed for statistical purposes.
5. The ground No. 1 of the appeal of the Revenue relates to
disallowance of Rs.27,75,932/- made by the Assessing Officer
holding that the seed development or agronomic expenditure is
capital expenditure in nature. The assessee incurred expenses on
improvement of the quality of the potato grown in India which
inter alia also included seed development, better production
method, lease rental of land, fertilizers, pesticides, irrigation cost
expenses, labour and tractors expenses etc. According to the
assessee, those expenses were incurred wholly and exclusively for
the purpose of the business of the company and being directly
related to its business, allowable as business deduction. The
Assessing Officer observed that in assessment year 2002-03 this
expenditure was treated as capital expenditure, which was
confirmed by first appellate authority; however, the Tribunal
allowed the claim of the assessee. The appeal filed by the Revenue
before the Hon'ble High Court was dismissed on account of low
tax effect and, thus, to keep the issue alive he made the addition
in dispute.
5.1 The Ld. CIT(A) following the decision of the Tribunal deleted
the addition observing as under:
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ITA Nos.4976/Del/2014; 5754/Del/2014 &
4977/Del/2014
"5.3 The reason given by the AO and the submission of the appellant
are considered. As held by AO, the issue allowability of seed
development/agronomy expenditure as Revenue expenditure has
never became final as the issue has not been decided on merits by
the higher judicial authorities. However, there is no reference made
to the Hon'ble High Court against the order of the Hon'ble ITAT in
assessee's case for A Y. 2006-07. Thus, as on date, as per record,
the order of my Ld. Predecessor CIT(A) and the order of the Hon'ble
ITAT on this issue is good in law. If there is any decision received
from the Hon'ble High Court on this issue, the AO may follow the
decision accordingly. In the order of Ld. CIT(A) for A.Y 2006-07 in
assessee's own case, it is held that since the potatoes grown have
been sold for more than Rs 2 crores and the receipt is offered for
taxation, this is a trading operation and accordingly, the expenses
incurred should be considered as revenue. Confirming the order of
Ld. CIT(A), the Hon'ble ITAT in ITA No. 4671/Del/2009 vide order
dated 28.02.2011, it is held that, "it can be very well concluded that
these expenses are directly related to the business activity of the
assessee. Hence, the expenditure involved has to be allowed as
revenue expenditure.". In view of the decision of the Hon'ble ITAT in
this case, the addition made is deleted and the ground of appeal is
allowed."
5.2 Before us, the Ld. DR relied on the order of the Assessing
Officer and submitted that expenses incurred are for the enduring
benefit and, therefore, liable to be treated as capital expenditure,
not to be allowed as business expenditure.
5.3 On the contrary, the Ld. counsel of the assessee submitted
that in assessment year 2007-08 also, the Tribunal endorsed the
addition deleted by the Ld. CIT(A) and in further appeal, the
Hon'ble Delhi High Court affirmed the finding of the Tribunal.
According to the Ld. counsel, the issue in dispute, is thus
squarely covered in favour of the assessee.
5.4 We have heard the rival submission and perused the
relevant material on record. The assessee has submitted a copy of
the decision dated 13/11/2017 of the Hon'ble Delhi High Court
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ITA Nos.4976/Del/2014; 5754/Del/2014 &
4977/Del/2014
(ITA 965/2017) in the case of the assessee for assessment year
2007-08. The relevant finding of the Hon'ble High Court is
reproduced as under:
"3. The second question relates to seed
development/agronomy expenditure which was treated as
capital in nature by the AO. The CIT(A) took a contrary
position; that was endorsed by the ITAT being pure finding
of fact. The Court is of the opinion that no substantial
question of law arises."
5.5 In view of the above facts, it is evident that issue in dispute
has been decided in favour of the assessee by the Tribunal and
which has been affirmed by the Hon'ble High Court holding the
same as mere finding of fact. Thus, respectfully following the
above, we uphold the finding of the Ld. CIT(A) on the issue in
dispute. The ground No.1 of the appeal of the Revenue is
accordingly dismissed.
6. In ground No. 2, the Revenue has challenged deletion of
disallowance of depreciation on building amounting to
Rs.1,84,37,305/- by relying on the additional evidences
submitted by the assessee. The contention of the Revenue is that
the Assessing Officer has not been provided opportunity to
examine the additional evidences, as required under Rule 46A of
the Income-tax Rules, 1962 (in short `the Rules').
6.1 The facts qua the issue in dispute are that on the issue of
disallowance of depreciation in dispute, the assessee filed
additional evidences before the Ld. CIT(A), which he forwarded to
the Assessing Officer. The Assessing Officer objected to admission
of the additional evidences but he did not furnish any comment
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ITA Nos.4976/Del/2014; 5754/Del/2014 &
4977/Del/2014
on the merit of the additional evidences. The Ld. CIT(A) accepted
the additional evidences, however, did not provide opportunity to
the Assessing Officer to give his comment on the merit of the
additional evidences. The relevant finding of the Ld. CIT(A) on the
issue in dispute is reproduced as under:
"7.3 The reason given by AO, and the submission of the appellant
are considered. The appellant submitted four documents to prove the
case.
i. Copies of electricity bills
ii. Letter to Dy. Director, Industrial Safety & Health written by
appellant
iii. Copy of Machinery Installation Certificate by a Chattered
Engineer.
iv. A copy of the certificate given by Chattered Engineer regarding
completion of the building as on 20.03.2007.
The documentary evidences to substantiate the claim of depreciation
on the building submitted u/r 46A are admissible at the appellate
stage as the appellant as these documents are crucial for deciding
the case. The documents furnished by the appellant can be admitted
under Rule 46A to decide the issues involved on merit. In the case of
CIT vs. Virgin Securities Credits P. Ltd. (2011) 332 ITR 396 (Del.) the
jurisdictional High Court held that evidence crucial in disposal of
case can be admitted. Since, the documents filed by the appellant
before the CIT(A) are of the nature that may advance the interest of
justice and show that there was no justification for addition made,
the same need to be admitted and considered. The documents have
evidentiary value and hence, these are admissible u/r 46A. In view
of the fact that, admission of additional evidence is not equal to
giving the relief it only provides an appellant an added and honest
chance of being examined on merits. Since there is no more power of
set aside to CIT(A), additional evidence becomes crucial in taking
decisions. It can be seen from the assessment order that at no point
of time the AO made any attempt to comment on the quality of
evidence furnished u/r 46A and no show cause notice was issued to
appellant regarding proposed addition.
The appellant also argued that, the AO allowed the depreciation on
plant and machinery installed in building and used for the
manufacturing purpose. Thus, disallowing the claim of depreciation
on building is in clear contradiction of the AO's action itself and this
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ITA Nos.4976/Del/2014; 5754/Del/2014 &
4977/Del/2014
substantiates that disallowance of depreciation on building is made
on conjectures & surmises disregarding the good and positive
evidences furnished. Since, the plant and machinery have been put
to use and production processes carried out, the preponderance of
probability regarding completion of the building is more an in favour
of the appellant. The AO also failed to bring into record any evidence
to contradict the fact that the building was not completed. In the
facts and circumstances of the case, the addition made is deleted
and the ground of appeal is allowed."
6.2 Before us the Ld. DR submitted that in view of the decision
of the Hon'ble Delhi High Court in the case of CIT Vs Manish
Buildwell Private Limited (245 CTR 397), wherever additional
evidences are admitted at the first appellate stage, without
providing opportunity to the Assessing Officer for furnishing his
comments and without any verification at his end, the
requirement of Rule 46A(3) are not satisfied. Accordingly, he
submitted that issue in dispute may be restored back either to
the Ld. CIT(A) or to the Assessing Officer.
6.3 The Ld. counsel, on the other hand, submitted that the Ld.
CIT(A) duly forwarded the additional evidences filed by the
assessee to the Assessing Officer, and, therefore, the Ld. CIT(A)
cannot be faulted for deciding the issue after considering the
submissions of the assessee.
6.4 We have heard the rival submissions and perused the
relevant material on record. The undisputed fact in the case is
that the Assessing Officer objected admission of additional
evidence and the Ld. CIT(A) after admitting the additional
evidences, has not sought any comment from the Assessing
Officer on the merit of the additional evidences. In identical
circumstances, the Hon'ble Delhi High Court in the case of
Manish Buildwell P. Ltd. (supra) has observed as under:
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ITA Nos.4976/Del/2014; 5754/Del/2014 &
4977/Del/2014
"24. In the present case, the CIT(A) has observed that the additional
evidence should be admitted because the assessee was prevented
by adducing them before the AO. This observation takes care of cl.
(c) of sub-r. (1) of r. 46A. The observation of the CIT(A) also takes
care of sub-r. (2) under which he is required to record his reasons for
admitting the additional evidence. Thus, the requirement of sub-rs.
(1) and (2) of r. 46A have been complied with. However, sub-r. (3)
which interdicts the CIT(A) from taking into account any evidence
produced for the first time before him unless the AO has had a
reasonable opportunity of examining the evidence and rebut the
same, has not been complied with. There is nothing in the order of
the CIT(A) to show that the AO was confronted with the confirmation
letters received by the assessee from the customers who paid the
amounts by cheques and asked for comments. Thus, the end result
has been that additional evidence was admitted and accepted as
genuine without the AO furnishing his comments and without
verification. Since this is an indispensable requirement, we are of the
view that the Tribunal ought to have restored the matter to the CIT(A)
with the direction to him to comply with sub-r. (3) of r. 46A. In our
opinion and with respect, the error committed by the Tribunal is that
it proceeded to mix up the powers of the CIT(A) under sub- s. (4) of s.
250 with the powers vested in him under r. 46A. The Tribunal seems
to have overlooked sub-r. (4) of r. 46A [sic-s. 250] which itself takes
note of the distinction between the powers conferred by the CIT(A)
under the statute while disposing of the assessee's appeal and the
powers conferred upon him under r. 46A. The Tribunal erred in its
interpretation of the provisions of r. 46A vis-à-vis s. 250(4). Its view
that since in any case the CIT(A), by virtue of his coterminous
powers over the assessment order, was empowered to call for any
document or make any further enquiry as he thinks fit, there was no
violation of r. 46A is erroneous. The Tribunal appears to have not
appreciated the distinction between the two provisions. If the view of
the Tribunal is accepted, it would make r. 46A otiose and it would
open up the possibility of the assessees' contending that any
additional evidence sought to be introduced by them before the
CIT(A) cannot be subjected to the conditions prescribed in r. 46A
because in any case the CIT(A) is vested with coterminous powers
over the assessment orders or powers of independent enquiry under
sub-s. (4) of s. 250. That is a consequence which cannot at all be
countenanced.
25. For the above reasons, we answer the substantial questions of
law framed in para 21 above, in favour of the Revenue and against
the assessee. The issue relating to the addition of Rs. 1,61,67,600
made under s. 68 of the Act is restored to the CIT(A) who shall
comply with the requirements of r. 46A and take a fresh decision on
the merits of the addition in accordance with law."
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ITA Nos.4976/Del/2014; 5754/Del/2014 &
4977/Del/2014
6.5 In view of the above decision, the matter required to be
restored to the file of the Ld. CIT(A) for complying the
requirements of Rule 46A(3) and provide opportunity to the
Assessing Officer. However, while dealing with the earlier ground,
we have restored the issue in dispute involved in that ground to
the file of the Assessing Officer. Thus, to avoid simultaneous
proceedings at multiple levels, we feel it appropriate to restore
this issue also to the file of the Assessing Officer along with
direction to the assessee to produce all evidences on the issue in
dispute before the Assessing Officer. The Assessing Officer,
thereafter may decide the issue in dispute in accordance with law
after providing adequate opportunity of being heard to the
assessee. The ground No. 2 of the appeal of the Revenue is
accordingly allowed for statistical purposes.
7. Grounds no. 3 & 4 are general in nature, hence not required
to adjudicate upon.
ITA No.4977/Del/2014
8. Now, we take up the appeal of the assessee having ITA No.
4977/Del/2014 for assessment year 2009-10. The sole ground
raised by the assessee is reproduced as under:
"That, on the facts and circumstances of the case and in law, the
Learned Commissioner of Income-Tax (Appeals)-lX, New Delhi
["CIT(A)"], erred in concurring with the view of the assessing officer
and thereby upholding the disallowance of excess depreciation of
Rs. 4,19,478/- claimed by the appellant, on the ground that the
electrical fittings are covered under the category of `Furniture and
Fixtures' and do not form part and parcel of `Plant & Machinery' by
following the rationale adopted as per the Assessment order in the
previous assessment year i.e. 2008-09."
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ITA Nos.4976/Del/2014; 5754/Del/2014 &
4977/Del/2014
8.1 The above ground being identical to the ground raised by the
assessee in ITA No.4976/Del/2014 for assessment year 2008-09,
which we have adjudicated in earlier paras, we restore the issue
in dispute to the file of the Assessing Officer along with the
direction to the assessee to produce all necessary details and
evidences in support of its claim before the Assessing Officer. The
Assessing Officer is directed to decide the issue in accordance
with law after providing adequate opportunity of being heard to
the assessee. The ground of the appeal is accordingly allowed for
statistical purposes.
8. In the result, both the appeals of the assessee are allowed
for statistical purposes and the appeal of the Revenue is partly
allowed for statistical purposes.
Order is pronounced in the open court on 23rd October, 2018.
Sd/- Sd/-
SUDHANSHU SRIVASTAVA O.P. KANT
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 23rd October, 2018.
RK/-(D.T.D.)
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR
Asst. Registrar, ITAT, New Delhi
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