L.K. India Pvt.Ltd.,, Baroda vs Department Of Income Tax

The DCIT, M/s. L.K. India Pvt. Ltd, Cir. 1(2), 328/23, Rasulabad Road, Baroda Vs Village, Jarod, (Appellant) Tal. W aghodia, Baroda Gujarat-391510 PAN: AAACL3236C (Respondent)

Revenue by: Shri Roop Chand, Sr. D.R. Assessee by: Shri M.K. Swadia, A.R.

Date of hearing : 04-03-2015 Date of pronouncement : 13-03-2015

आदे श/ORDER

PER : ANIL CHATURVEDI, ACCOUNTANT MEMBER:-

This is the Revenue's appeal against the order of Ld. CIT(A)-I, Baroda dated 04-08-2011 for A.Y. 2006-07.

I.T.A No. 2714/Ahd/2011 A.Y. 2006-07 Page No 2 DCIT vs. M/s. L.K. India Pvt Ltd

2. The relevant facts as culled out from the material on record are as under.

3. The asssessee is a company stated to be engaged in the business of manufacturing and sales of electrical and electronics items. Assessee electronically filed its return of income for A.Y. 2006-07 on 31-12-2006 showing total income at Rs. Nil. The case was selected for scrutiny and thereafter the assessment was framed u/s. 143(3) vide order dated 23-12- 2009 and the total income before set off of carry forward losses was determined at Rs. 92,19,134/-. Aggrieved by the order of AO, Assessee carried the matter before Ld. CIT(A), who vide order dated 04-08-20011 allowed the appeal of the assessee. Aggrieved by the aforesaid order of Ld. CIT(A), Revenue is now in appeal before us and has filed the following grounds:

" 1. On the facts and in the circumstances of the case and in law, the Ld.CTT(Appeals) erred in deleting the addition of Rs 78,91,350/- by allowing depreciation on moulds @ 30% as against 15% allowable on the dies and moulds used for manufacturing electric and electronic goods by treating the manufacturing facility of the assessee as rubber and plastic goods factory in terms of Appendix-I to rule 5 of the Income-tax rules, 1962, ignoring the fact that, in common commercial practice, factories producing electric and electronic goods are not known as a rubber and plastic goods factories.

2. On the facts and in the circumstances of the case and in law, the Ld.CIT(Appeals) erred in deleting the addition of Rs 2,62,184/- made u/s.36(i)(va) r.w.s. 2(24)(x) on account of disallowance of Employee's Contribution to Provident Fund not paid within the due date (including the grace period) ignoring the fact that as per provisions of section 2(24)(x) of the Act the employees' contribution is first treated as income, and then is allowed as expense if it is paid within the time provided under Provident Fund Act. Employees' contribution being of the nature of trust money, is to be allowed only If paid before the due date as provided in the Provident Fund. That I.T.A No. 2714/Ahd/2011 A.Y. 2006-07 Page No 3 DCIT vs. M/s. L.K. India Pvt Ltd

being the position, the employee's contribution if not paid within the due date mentioned under Provident Fund Act is not allowable u/s.36(1)(va) of the Act."

Ground No. 1 is with respect to deletion on depreciation on moulds at 30%.

4. During the course of assessment proceedings, AO noticed that Assessee had claimed depreciation on dies and moulds at 30% on the ground that it was involved in the manufacturing of plastic goods and was therefore eligible for higher depreciation, AO on the other hand was of the view that the final products of the company are electrical products and part of which comprises of plastic and other part being electrical circuits made up of copper and aluminum. He was of the view that the benefit of 30% depreciation is available only to those industries which are manufacturing exclusive plastic products. He also noticed that on identical facts for A.Y. 2004-05 and 2005-06, the AO had restricted the claim of depreciation on dies and moulds to the rate of depreciation applicable to plant and machinery. He accordingly, relying on the assessment order for A.Y. 2004-05 and 2005-06 restricted the depreciation on dies and moulds at 15% instead of 30% as claimed by the assessee and accordingly disallowed the excess depreciation worked out by him at Rs. 78,91,350/-. Aggrieved by the order of AO, Assessee carried the matter before Ld. CIT(A). Ld. CIT(A) by following the decision of Hon'ble ITAT in assessee's own case, allowed the appeal of the assessee by holding as under:-

"2. First Ground of appeal is regarding disallowance of depreciation of Rs. 78,91,350/- on Dies and Moulds. As rightly pointed out by the appellant, this ground of appeal is covered by Hon'ble ITAT's decision in appellant's favour in A.Y. 2001-02. The ITAT, Ahmedabad through order dated 04-10-2007, upheld CIT(A)'s decision that moulds in question were used for manufacture of I.T.A No. 2714/Ahd/2011 A.Y. 2006-07 Page No 4 DCIT vs. M/s. L.K. India Pvt Ltd

plastic goods and were eligible for higher depreciation. ITAT relied upon decision of ITAT, Bangalore in the case of BPL Refrigeration Ltd., 272 ITAT 47 (Bangalore) (80) and Kinetic Honda Motors Ltd,. 72 TTJ 72 (Pune). Following the decision of jurisdictional ITAT in Appellant's case, depreciation on dyes and moulds claimed at the rate of 30% is directed to be allowed and disallowance of Rs. 78,91,350/- is cancelled."

5. Aggrieved by the order of Ld. CIT(A), Revenue is now in appeal before us.

6. Before us, Ld. DR relied on the order of AO. On the other hand, Ld. AR reiterated the submissions made before AO and Ld. CIT(A) and further submitted that on identical facts the asssesse has been allowed depreciation at 30% in A.Y. 2001-02 to 2004-05. He also placed on record the copy of the aforesaid order. He thus supported the order of Ld. CIT(A).

7. We have heard the rival submissions and perused the material on record. The issue in the present case is allowability of higher depreciation dies and moulds. We find that Ld. CIT(A) had decided the issue in favour of Assessee by relying on the Hon'ble Tribunal's decision in Assessee's own case for A.Y. 2001-02. We further find that the Co-ordinate Bench of Tribunal in A.Y. 2001-02 in ITA No. 488/Ahd/2007 order dated 4th October, 2007 had decided the issue by holding as under:-

"8. Before me, the appellant has reiterated what had been submitted before the AO. In addition, it has been stated that "the principle raw material for manufacturing these goods in the form of plastic granules. The plastic granules are loaded into ejection moulding machines. These machines are general purpose plastic processing machines. The granules are converted into liquid form and then the same are given a definite shape through different kinds of ejection moulds, dyes and tools. These plastic components are assembled together to make switches and sockets. We therefore, submit that I.T.A No. 2714/Ahd/2011 A.Y. 2006-07 Page No 5 DCIT vs. M/s. L.K. India Pvt Ltd

the basic raw materials for manufacturing goods are plastic and the final product is also made of plastic ". The appellant has relied upon the decision of ITAT Bangalore in the case of BPL Refrigeration Ltd Vs. ACIT, 272 ITR 47 (Bangalore) (AT) art Kinetic Honda Motor Ltd., Vs. Jt. CIT 72 TTJ 72 (Puns ITAT).

9. 1 have considered the rival submissions and perused the case law. The main objection of the AO is that the end product manufactured by the appellant are not plastic product and plastic is merely a component of the electrical and electronic items manufactured by the company. It is observed that the basis of classification adopted by the AO is against reason. Hon 'ble ITAT Bangalore have held in the case of BPL Sanyo Utilities and Appliance Limited which observations have been quoted in the case of BPL Refrigeration Ltd. (supra) that "once the moulds are used for manufacture of rubber and plastics goods parts though in a component factory manufacturing washing machine, vaccum cleaners etc., the assessee is eligible for deduction at higher rate of depreciation i.e. 40%". Following the said order, it is held that the appellant is entitled to depreciation i.e. 40% for the moulds. The Assessing Officer is directed to recomputed the depreciation on moulds accordingly."

3. We have heard rival submissions and perused material available on record. In the given facts and circumstances, Madras High Court's judgment in the case of CIT Vs. Falcon Wires P. Ltd., (supra) is not applicable to the facts of the assessee's case, in our view, Tribunal Judgment in the case of BPL Refrigeration Ltd. and Kinetic Honda Motor Ltd. (supra) are applicable to the assessee's case, respectfully following them, we uphold order of the CIT(A) allowing higher depreciation at the rate of 40% on moulds."

8. We also find that in A.Y. 2003-04 and 2007-08 similar issue was decided by the Co-ordinate Bench of Tribunal in favour of the assessee by relying on the decision of Tribunal in assessee's own case for A.Y. 2001-

02. Before us, Revenue has not brought any contrary binding decision in its support nor could controvert the findings of CIT(A). In view of these I.T.A No. 2714/Ahd/2011 A.Y. 2006-07 Page No 6 DCIT vs. M/s. L.K. India Pvt Ltd

facts, we find no reason to interfere with the order of CIT(A) and thus this ground of revenue is dismissed.

Second ground is with respect to deletion of addition on account of delayed payment on employee's contribution to provident fund.

9. During the course of assessment proceedings, AO noticed that Employee's contribution to provident fund for the month of August and October, 2005 was paid after the prescribed due dates. AO was of the view that the case of delay in depositing the employees' contribution in P.F. account beyond the due dates are covered by s. 36(1)(va) r.w.s. 2(24)(x) and are therefore not allowable. He accordingly made an addition of Rs. 2,62,184/-. Aggrieved by the order of AO, Assessee carried the matter before CIT(A) who deleted the addition by holding as under:

"3.1 In appeal, it was submitted that the employees' contribution to P.F. for the month of August, 2005 was made on 23.09.2005 as against due date on 20.09.2005 (including the grace period) and for the month of October, 2005 paid on 24.11.2005 as against due date on 20.11.2005 (including grace period). Appellant relied upon decisions as under in its support:-

- CIT v Sabari Enterprise (2008) 298 ITR 141 (Kar)

-CIT v M N Chari (2009) 310 ITR 445 (Kar)

-Kuber Hings (P) Ltd ITO (2009) 120 TTJ 284 (Delhi)

-Fluid Air (India) Ltd v DCIT (1997) 63 ITD 182 (Mum)

-Madras Radiators and Pressings Ltd v DCIT (1996) 59 ITD 515 (Mad)/(1996) 56 TTJ (Mad) 662

3.2. I have considered the matter. Since employees' contributions to PF were paid before due date of filing of return, disallowance of Rs. 2,62,184/- is cancelled. Reliance is placed on Hon'ble ITAT, Ahmedabad's decision in ITA No. 2608/Ahd/2008 in the case of Gujarat Containers Ltd in this regard."

10. Aggrieved by the order of CIT(A), Revenue is now in appeal before us.

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11. Before us, Ld. DR submitted that that the issue of delayed payment of employees' contribution of provident fund has now been decided in favour of the Revenue by Hon'ble Gujarat High Court in the case of CIT vs. Gujarat State Road Transport Corporation (2014) 366 ITR 170. He thus supported the order of AO. Ld. AR on the other hand submitted that assessee has deposited the contribution before filing of return of income and therefore it was allowable. He thus supported the order of CIT(A).

12. We have heard the rival submissions and perused the material on record. In the present case, it is an admitted fact that the amount of Employees contribution towards provident fund for August and October, 2005 has been deposited beyond the due dates prescribed under the relevant Act. The Hon'ble Gujarat High Court in the case of Gujarat State Road Transport Corporation in ITA No 637/AHD/20I3 has concluded that where sum received by Assessee from any of his employees as contribution to Provident Fund and/or ESI Fund was not credited by Assessee to employee's account in relevant fund or funds on or before due date as per explanation to s. 36(1)(va), the Assessee shall not be entitled to deduction thereof.

13. In view of the undisputed fact that the Employees share of contribution of Provident fund was paid after the prescribed due date, and following the decision of Hon'ble Gujarat High Court in the case of Gujarat State Road Transport Corporation (supra), we are of the view that the AO was justified in disallowing the belated payments and thus this ground of Revenue is allowed.

I.T.A No. 2714/Ahd/2011 A.Y. 2006-07 Page No 8 DCIT vs. M/s. L.K. India Pvt Ltd

14. In the result, the appeal of the Revenue is partly allowed.

Order pronounced in open court on the date mentioned hereinabove at caption page

Sd/- Sd/-

(MUKUL KR. SHRAWAT) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad : Dated 13/03/2015 ak

आदे श क ूितिल प अमे षत / Copy of Order Forwarded to:-

1. Assessee

2. Revenue

3. Concerned CIT

4. CIT (A)

5. DR, ITAT, Ahmedabad

6. Guard file.

By order/आदे श से,

उप/सहायक पंजीकार आयकर अपीलीय अिधकरण, अहमदाबाद