Visteon Automotive Systems India Private Limited, Chengalput V. ACIT, CHENNAI

CO 15/CHNY/2016

• Counselvise Citation: [2016] 123 COUNSELVISE.COM (IT) 2617 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 29 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 21-12-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 19-12-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 22-01-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: N V BALAJI
• Keywords: Depreciation; Business expenditure; Revenue expenditure; Capital expenditure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI . , . , BEFORE SHRI ABRAHAM P. GEORGE , ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./I.T.A. NO. 2239/MDS/2015 & C.O.NO.15/MDS/2016 (IN ITA NO.2239/MDS/2015) / ASSESSMENT YEAR : 2010-2011 THE ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 3(2) CHENNAI. VS. M/S. VISTEON AUTOMATIVE SYSTEMS INDIA PVT. LTD, KEELAKARANAI VILLAGE, MALROSAPURAM POST, MARAIMALAI NAGAR, CHENGALPATTU DISTRICT, TAMIL NADU 603 204. [PAN AAACM 6890R] ( / APPELLANT) (RESPONDENT/ CROSS OBJECTOR) DEPARTMENT BY : SHRI. A.V. SREEKANTH, IRS, JCIT. ! '# $ % /RESPONDENT BY : SHRI. N.V. BALAJI, ADVOCATE & $ '( /DATE OF HEARING : 19-12-2016 )* $ '( /DATE OF PRONOUNCEMENT : 21-12-2016 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER: THESE ARE APPEAL AND CROSS OBJECTION FILED BY THE REVENUE AND ASSESSEE RESPECTIVELY DIRECTED AGAINST AN ORDE R DATED 10.09.2015 OF THE COMMISSIONER OF INCOME-TAX (APPEALS)- 11, CHENNAI. ITA NO. 2239/15 & CO 15/16. :- 2 -: 2. APPEAL FILED BY THE DEPARTMENT IS DELAYED BY THREE DAYS. CONDONATION PETITION HAS BEEN FILED. REASON SHOWN FOR THE DELAY SEEMS TO BE JUSTIFIED. LD. AUTHORISED REPRESENTATIV E DID NOT RAISE ANY SERIOUS OBJECTION. DELAY IS CONDONED. APPEAL IS A DMITTED. 3. FACTS APROPOS ARE THAT ASSESSEE ENGAGED IN THE BUS INESS OF MANUFACTURING AND SELLING MOTOR VEHICLE PARTS, HAD FILED RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR DISCLOSING INCOME OF ?1,41,43,14,595/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTED BY THE LD. ASSESSING OFFICER THAT ASSESSE E HAD DEBITED A SUM OF ?20,21,20,000/- AS POWER AND FUEL CHARGES. FROM THE BREAK- UP OF EXPENDITURE FURNISHED BY THE ASSESSEE LD. ASS ESSING OFFICER NOTED THAT THE ABOVE SUM INCLUDED ?5,61,20,000/- PA ID TO ONE M/S. FORD INDIA PVT. LTD. ASSESSEE WAS REQUIRED TO JUSTI FY THE ABOVE PAYMENTS. IN REPLY, IT WAS STATED BY THE ASSESSEE THAT IT HAD LEASED OUT A PROPERTY FROM M/S. FORD INDIA PVT. LTD, THRO UGH A LEASE DEED DATED 15.01.2001 WHICH WAS RENEWED ON 15.06.2007. AS PER ASSESSEE, IT WAS MANUFACTURING PARTS/ ACCESSORIES FROM THE FACTORY IN THE SAID LEASED PROPERTY AND M/S. FORD INDIA PVT. LTD. WAS SUPPLYING ELECTRICITY FOR THE FACTORY THROUGH AN AGREEMENT CA LLED SHARED SERVICES AGREEMENT DATED 08.06.2007. AS PER ASSESSEE, THE SA ID AGREEMENT WAS DUE FOR EXPIRY ON 31.12.2008 AND M/S. FORD INDI A PVT. LTD. HAD ISSUED A TERMINATION NOTICE ON 10.04.2008 TO THE AS SESSEE, RELYING ON ITA NO. 2239/15 & CO 15/16. :- 3 -: ARTICLE 13 OF THE AGREEMENT. M/S. FORD INDIA PVT. L TD. INTIMATED THE ASSESSEE THAT IT REQUIRED ELECTRICITY PRODUCED BY I T FOR ITS OWN EXPANSION AND THEREFORE COULD NOT MEET THE NEEDS OF THE ASSESSEE FROM 1 ST JANUARY, 2009. ASSESSEE THEREUPON REQUESTED THE M /S. FORD INDIA PVT. LTD. TO CONTINUE THE SUPPLY OF ELECTRICI TY AND ALSO AGREED TO FUND A PART OF THE ADDITIONAL INFRASTRUCTURE THAT WAS TO BE REQUIRED TO BE INSTALLED BY IT FOR CONTINUING THE SUPPLY OF EL ECTRICITY TO THE ASSESSEE. AS PER ASSESSEE, M/S. FORD INDIA PVT. LT D. ACCEPTED THE SAID REQUEST AND REQUIRED THE ASSESSEE TO PAY A SUM OF ? 5,61,20,000/- BEING A PART OF THE TOTAL COST OF ?20,21,20,000/- T HAT WAS REQUIRED FOR SETTING UP THE ADDITIONAL POWER INFRASTRUCTURE. AS SESSEE HAD PAID SUCH SUM AND CLAIMED SUCH AMOUNT AS REVENUE OUTGO U/S.37 (1) OF THE ACT. HOWEVER, LD. ASSESSING OFFICER WAS OF THE OPINION T HAT THE CLAIM COULD NOT BE ALLOWED. ACCORDING TO HIM, ADDITIONAL POWER INFRASTRUCTURE CREATED GAVE ENDURING BENEFIT TO M/S. FORD INDIA P VT. LTD. AND IT WAS NOT A ROUTINE BUSINESS EXPENDITURE. THE SAID INFRA STRUCTURE FACILITY WAS SHOWN AS AN ASSET BY THE M/S. FORD INDIA PVT. LTD. IN ITS BOOKS OF ACCOUNTS. AS PER LD. ASSESSING OFFICER CAPITAL EXP ENDITURE COULD NOT BECOME A REVENUE EXPENDITURE JUST FOR A REASON TH AT IT WAS INCURRED IN CONNECTION WITH BUSINESS ACTIVITIES OR FOR EFFI CIENTLY CARRYING OUT DAY TO DAY BUSINESS. FURTHER, AS PER ASSESSING OF FICER INFRASTRUCTURE INSTALLED BY THE M/S. FORD INDIA PVT. LTD. WAS NOT WHOLLY AND ITA NO. 2239/15 & CO 15/16. :- 4 -: EXCLUSIVELY FOR THE BUSINESS OF THE ASSESSEE. AS PER LD. ASSESSING OFFICER EVEN IF ASSESSEE RECEIVED ELECTRICITY IN FU TURE FROM M/S. FORD INDIA PVT. LTD. IT WOULD BE SEPARATELY GOVERNED BY FRESH SHARED SERVICES AGREEMENTS. THUS, HE HELD THAT ?5,61,20,0 00/- CLAIMED BY THE ASSESSEE AS REVENUE OUTGO COULD NOT BE ALLOWED. HE DISALLOWED THE CLAIM. 4. AGGRIEVED, THE ASSESSEE MOVED IN APPEAL BEFORE LD. COMMISSIONER OF INCOME TAX (APPEALS). ARGUMENT OF THE ASSESSEE WAS THAT THE PAYMENT DID NOT RESULT IN CREATION OF ANY NEW ASSET OR ANY ENDURING BENEFIT. AS PER ASSESSEE, PAYMENT ONL Y ENSURED UNINTERRUPTED SUPPLY OF ELECTRICITY WHICH WOULD HAV E BEEN OTHERWISE TERMINATED BY M/S. FORD INDIA PVT. LTD. ON 1 ST JANUARY, 2009. LD. COMMISSIONER OF INCOME TAX (APPEALS) AFTER GOING TH ROUGH THE SUBMISSION OF THE ASSESSEE, ECHOING THE SAME VIEW T AKEN BY THE LD. ASSESSING OFFICER HELD THAT THE OUTGO WAS CAPITAL E XPENDITURE. HOWEVER, HE HELD THAT IT RESULTED IN CREATION OF A N INTANGIBLE ASSET FOR THE ASSESSEE AND ASSESSEE WAS ELIGIBLE FOR DEPRECIA TION THEREON. THUS, HE DIRECTED THE LD. ASSESSING OFFICER TO ALLOW DEPR ECIATION ON THE SUM OF ?5,61,20,000/-. 5. NOW BEFORE US, REVENUE IS ASSAILING THE ORDER OF TH E LD. COMMISSIONER OF INCOME TAX (APPEALS) IN SO FAR AS H E DIRECTED ALLOWANCE OF DEPRECIATION TREATING THE CAPITAL EXP ENDITURE AS RESULTING ITA NO. 2239/15 & CO 15/16. :- 5 -: IN AN INTANGIBLE ASSET. ON THE OTHER HAND, ASSES SEE IN ITS CROSS OBJECTION IS AGGRIEVED ON THE DISALLOWANCE OF THE CLAIM AS CAPITAL EXPENDITURE. 6. OPENING THE ARGUMENTS, LD. DEPARTMENTAL REPRESENTAT IVE SUBMITTED THAT CREATION OF ADDITIONAL INFRASTRUCTUR E FOR SUPPLYING ELECTRICITY RESULTED IN ENDURING BENEFIT TO M/S. FO RD INDIA PVT. LTD AS WELL AS THE ASSESSEE. AS PER THE LD. DEPARTMENTAL R EPRESENTATIVE THIS HOWEVER DID NOT RESULT IN CREATION OF ANY INTANGIBL E ASSET FOR THE ASSESSEE. THE ASSET REMAINED IN THE BOOKS OF M/S. FORD INDIA PVT. LTD. THUS ACCORDING TO HIM, LD. COMMISSIONER OF IN COME TAX (APPEALS) THOUGH HE WAS CORRECT IN UPHOLDING THE EX PENDITURE AS CAPITAL OUTGO, ERRED IN DIRECTING THE LD. ASSESSING OFFICER TO GRANT DEPRECIATION THEREON. 7. PER CONTRA, AND IN SUPPORT OF ITS CROSS OBJECTION, LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT WHEN THE O UTGO DID NOT CREATE ANY ASSET FOR THE ASSESSEE IT WAS A REVENUE EXPENDITURE ALLOWABLE U/S.37(1) OF THE ACT. 8. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. THERE IS NO DISPUT E THAT THERE WAS A AGREEMENT BETWEEN ASSESSEE AND M/S. FORD INDIA PVT. LTD BY WHICH LATTER LEASED OUT A PROPERTY TO THE ASSESSEE. THER E IS ALSO NO DISPUTE ITA NO. 2239/15 & CO 15/16. :- 6 -: THAT M/S. FORD INDIA PVT. LTD WAS TO SUPPLY ELECTR ICITY TO THE ASSESSEE FOR THE FACTORY IN THE LEASED PROPERTY BASED ON A SHARED SERVICES AGREEMENT. THAT M/S. FORD INDIA PVT. LTD HAD GIVE N NOTICE TO THE ASSESSEE FOR TERMINATING THE SHARED SUPPLY AGREEME NT W.E.F. 1 ST JANUARY, 2009 IS ALSO NOT DOUBTED. ELECTRICITY WA S AN ESSENTIAL INPUT FOR CARRYING ON THE MANUFACTURING ACTIVITY OF THE A SSESSEE AND THERE CAN BE NO TWO OPINIONS ON THIS. TO ENSURE SUPPLY OF UNINTERRUPTED ELECTRICITY, ASSESSEE HAD TO AGREE WITH M/S. FORD I NDIA PVT. LTD TO PART FINANCE THE TOTAL COST OF ADDITIONAL POWER INFRASTR UCTURE TO BE ESTABLISHED BY M/S. FORD INDIA PVT. LTD. M/S. FORD INDIA PVT. LTD WOULD NOT HAVE SUPPLIED ELECTRICITY AFTER 1 ST JANUARY, 2009 BUT FOR ASSESSEE AGREEING TO PART FINANCE THE COST OF THE PROJECT FO R ESTABLISHING ADDITIONAL POWER INFRASTRUCTURE. HOWEVER, IT IS AL SO AN ADMITTED POSITION THAT ADDITIONAL POWER INFRASTRUCTURE CREA TED WAS THE SOLE PROPERTY OF M/S. FORD INDIA PVT. LTD AND ASSESSEE HAD NO OWNERSHIP OVER ANY PART OF THE SAID ASSET. THE ONLY BENEFIT ASSESSEE DERIVED WAS SUPPLY OF UNINTERRUPTED ELECTRICITY, WITHOUT W HICH IT COULD HAVE NOT FUNCTIONED. IN THIS SITUATION, THE SAID EXPEND ITURE IN OUR OPINION CAN ONLY BE TREATED AS REVENUE EXPENDITURE WHICH EN SURED CONTINUED ELECTRICITY SUPPLY. THE PAYMENT DID NOT RESULT IN ANY ENDURING BENEFIT BUT ONLY ENABLED THE ASSESSEE TO CARRY ON ITS DAY TO DAY ACTIVITIES. JUST BECAUSE ADDITIONAL POWER INFRASTRUCTURE WAS AN ASSE T IN THE HAND OF ITA NO. 2239/15 & CO 15/16. :- 7 -: THE M/S. FORD INDIA PVT. LTD, WE CANNOT SAY THAT AM OUNT GIVEN BY THE ASSESSEE TO M/S. FORD INDIA PVT. LTD WAS A CAPITAL OUTGO. THE EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS OF THE ASSESSEE AND IT DID NOT CREATE ANY ASSET FOR THE A SSESSEE. IT ONLY ENSURED CONTINUED SUPPLY OF ELECTRICITY WITHOUT IN TERRUPTION. IN SUCH CIRCUMSTANCES, IN OUR OPINION, THE EXPENDITURE WAS RIGHTLY CLAIMED BY THE ASSESSEE AS REVENUE OUTGO. LOWER AUTHORITIES I N OUR OPINION FELL IN ERROR IN DISALLOWING THE CLAIM. WE THEREFORE, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DIRECT THE LD. ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSEE. 9. IN THE RESULT, CROSS OBJECTION OF THE ASSESSEE ARE ALLOWED. APPEAL OF THE REVENUE HAS EFFECTIVELY BECOME INFRUC TUOUS AND IS DISMISSED. ORDER PRONOUNCED ON WEDNESDAY, THE 21 ST DAY OF DECEMBER, 2016, AT CHENNAI. SD/- ( . ) (G. PAVAN KUMAR) ' # / JUDICIAL MEMBER SD/- ( . ) (ABRAHAM P. GEORGE) $ # / ACCOUNTANT MEMBER +& / CHENNAI , / DATED: 21ST DECEMBER, 2016 KV - $ './ 0/' / COPY TO: 1 . '# / APPELLANT 3. 1' () / CIT(A) 5. /45 '6 / DR ITA NO. 2239/15 & CO 15/16. :- 8 -: 2. ! '# / RESPONDENT 4. 1' / CIT 6. 57 8& / GF