M/s. Chaudhary Steel (P) Ltd, Ghaziabad V. DCIT, Ghaziabad

CO 235/DEL/2010

• Counselvise Citation: [2011] 122 COUNSELVISE.COM (IT) 6732 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 3 month(s) 21 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 02-12-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 17-11-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 12-08-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ROHIT GARG SENIOR
• Assessee Lawyers: M K GIRI S
• Keywords: Depreciation; Additional depreciation; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH B : NEW DELHI) SMT. DIVA SINGH, JUDICIAL MEMBER AND BEFORE SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.2886/DEL./2010 (ASSESSMENT YEAR : 2007-08) DCIT, CIRCLE 1, VS. M/S. CHAUDHARY STEELS (P) LT D., GHAZIABAD. C 205, BSR ROAD INDL. AREA, GHAZIABAD. (PAN : AAACC6174A) CO NO.235/DEL/2010 (IN ITA NO.2886/DEL./2010) (ASSESSMENT YEAR : 2007-08) M/S. CHAUDHARY STEELS (P) LTD., VS. DCIT, CIRCLE 1, C 205, BSR ROAD INDL. AREA, GHAZIABAD. GHAZIABAD. (PAN : AAACC6174A) (APPELLANT) (RESPONDENT) ASSESSEE BY : S/SHRI ANOOP SHARMA & M.K. GIRI, ADV OCATES REVENUE BY : SHRI ROHIT GARG, SENIOR DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER : THE REVENUE HAS FILED THE APPEAL AGAINST THE ORDER OF CIT (APPEALS), GHAZIABAD DATED 16.03.2010 FOR THE ASSESSMENT YEAR 2005-06 WHEREAS THE ASSESSEE FILED THE CROSS OBJECTION AGAINST THE AFOR ESAID ORDER OF THE CIT (APPEALS). ITA NO.2886/DEL./2010 CO NO.235/DEL/2010 2 2. THERE IS A DELAY IN FILING THE APPEAL. WE HAVE H EARD BOTH THE SIDES AND AFTER HEARING, WE CONDONE THE DELAY. 3. THE GROUNDS OF APPEAL TAKEN BY THE REVENUE IN TH E APPEAL IS AS UNDER :- 1. THE LD. CIT (A) HAS ERRED IN LAW & ON FACTS AND CIRCUMSTANCES OF THE CASE OF ENTERTAIN THE FRESH CL AIM OF THE ASSESSEE AT THE APPELLATE STAGE IN TREATING THE PAY MENT MADE TO THE UPPCL AS REVENUE EXPENDITURE WITHOUT CONFRONTIN G THE SAME TO THE A.O., WHEN NO SUCH CLAIM WAS MADE BY TH E ASSESSEE IN ITS RETURN OF INCOME OR IN COURSE OF ASSESSMENT PROCEEDINGS BEFORE THE A.O. 2. THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS AN D CIRCUMSTANCES OF THE CASE TO HOLD THAT PAYMENTS MAD E TO UPPCL IN CONNECTION WITH CONNECTIVITY WITH MAIN LINE OF E LECTRIC SUPPLY WAS REVENUE IN NATURE, WHEN THE ASSESSEE ITSELF HAD SHOWN IT AS A CAPITAL EXPENDITURE IN ITS INCOME TAX RETURNS FOR T HE IMMEDIATELY PRECEDING TWO ASSESSMENT YEARS AND HAD CLAIMED DEPRECIATION THEREON @ 15%. FOR THE YEAR UNDER CON SIDERATION, AS WELL, THE ASSESSEE HAD SHOWN IT AS CAPITAL EXPEN DITURE BUT CLAIMED DEPRECIATION AT ENHANCED RATE OF 80%. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS IN THE CROSS OBJECTION :- GROUND NO.1 THAT WITHOUT PREJUDICE TO THE ALLOWANCE OF ELECTRIC ITY PAYMENTS MADE TO UPPCL AS REVENUE EXPENDITURE. THE SAID EXP ENDITURE IF HELD CAPITAL TO BE IN NATURE; 80% DEPRECIATION O N THE SAME BE ALLOWED. GROUND NO.2 THAT THE LEARNED CIT (APPEALS) SHOULD HAVE ALLOWED DEPRECIATION @ 80% ON TRANSFORMER & ELECTRIC PANELS INSTEAD OF DEPRECIATION ALLOWED @ 15%. ITA NO.2886/DEL./2010 CO NO.235/DEL/2010 3 4. THE ASSESSEE IS A PRIVATE LIMITED COMPANY FILED THE RETURN OF INCOME ON 28.10.2007 DECLARING INCOME OF RS.65,66,370/-. DUR ING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE FILED REVISED COMPUTATION OF INCOME VIDE LETTER DATED 04.11.2008 WHERE THE INCOME WAS REDUCED TO RS .49,87,040/-. THE ASSESSING OFFICER TREATED THE EXPENDITURE ON TRANSF ORMER AND PANELS AS GENERAL CATEGORY OF PLANT AND MACHINERY AND THE DEP RECIATION @ 15% WITH AN ADDITIONAL DEPRECIATION OF 20% WAS ALLOWED AND THE EXCESS CLAIM OF EXPENDITURE OF RS.11,72,173/- WAS DISALLOWED. THE EXPENDITURE ON ELECTRICITY COMMUNICATIONS ON WHICH THE DEPRECATION WAS CLAIMED @ 80% WAS ADDED BACK TOWARDS THE INCOME OF THE ASSESSEE. 5. CIT (A) GRANTED THE RELIEF BY HOLDING THAT THE I TEMS OF ELECTRICITY COMMUNICATIONS WERE NOT OWNED BY THE ASSESSEE BUT B ELONGS TO THE UPPCL AND THE EXPENDITURE IS REVENUE IN NATURE, HENCE THE SAME WAS ALLOWED IN TOTO. 6. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. THE REVENUES CLAIM THAT ASSESSEE HAS MADE FRESH CLAIMS BEFORE THE CIT (A) I N RESPECT OF TREATING THE PAYMENTS MADE TO THE UPPCL AS REVENUE EXPENDITURE I S FACTUALLY INCORRECT. THE ORDER OF THE ASSESSING OFFICER ITSELF SHOWS THA T THE ASSESSEE HAS MADE THIS CLAIM IN THE ASSESSMENT PROCEEDINGS ITSELF WHICH IS CLEAR FROM PARA 11 AND 12 OF THE ASSESSMENT ORDER WHERE THE ASSESSEE HAS MADE A CLAIM THAT THE RIGHT TREATMENT OF EXPENDITURE INCURRED ON ACCOUNT OF ELE CTRICITY CONNECTION WAS IN THE NATURE OF REVENUE EXPENDITURE WHICH HAS BEEN DI SMISSED BY THE ASSESSING ITA NO.2886/DEL./2010 CO NO.235/DEL/2010 4 OFFICER. THEREFORE, THE ISSUE RAISED IN GROUND NO. 1 IS FACTUALLY NOT CORRECT AND THIS GROUND STANDS DISMISSED. 6.1 THE SECOND ISSUE IS AGAINST THE CIT (A)S ORDER HOLDING THAT EXPENDITURE FOR CONNECTIVITY WITH THE MAIN LINE OF ELECTRICITY SUPPLY AS REVENUE IN NATURE. WE HAVE HEARD BOTH THE SIDES O N THE ISSUE. ASSESSEE HAD ENTERED INTO AGREEMENT WITH UPPCL. A COPY OF THE A GREEMENT PLACED IN PAPER BOOK. THE CLAUSE NOS.(4) AND (14) OF THE AGR EEMENT READ AS UNDER :- (4) THE CONSUMER SHALL PROVIDE SUITABLE SWITCHES T O CONTROL HIS APPARATUS AND KEEP HIS PROTECTIVE DEVICES SO GR ADED THAT THESE MAY, IN NORMAL CONDITIONS, OPERATOR, EARLIER THAN THE SUPPLIERS PROTECTIVE DEVICES WHICH SHALL BE SUITAB LE SET SO AS TO MEET THE FULL CONTRACTED LOAD/CONTRACTED DEMAND HAVING REGARD TO THE NORMAL WORKING CONDITION OF THE CONSU MER DECLARED PLANT AND EQUIPMENT. THE SUPPLIER SHALL S UBJECT TO THE CONDITIONS LAID DOWN IN CLAUSE 14 PROVIDE AND INSTA LL SWITCHES INTO THE CONSUMERS SUB-STATION FOR THE PURPOSE OF PROTECTING THE PLANT AND MAINS OF THE SUPPLIER AND THE SUPPLIE R SHALL HAVE THE RIGHT TO REMOVE THE SAME AT HIS OWN EXPENSE ON THE EXPIRATION OR SOONER DETERMINATION OF THIS AGREEMEN T PROVIDED THE CONNECTION HAS BEEN PERMANENTLY DISCONNECTED AF TER SERVING DUE NOTICE ON THE CONSUMER. THESE LAST MEN TIONED SWITCHES AND THE METERING EQUIPMENT SHALL BE UNDER THE CONTROL OF THE SUPPLIER AND THE CONSUMER SHALL MAKE PROVISI ON FOR THEIR SEGREGATION FROM ANY OTHER PART OF THE CONSUMERS A PPARATUS IN SUCH MANNER AS MAY BE REQUIRED BY THE SUPPLIER. (14) THE CONSUMER SHALL PAY IN ADVANCE AN ESTIMATED AMOUNT TO BE INTIMATED BY THE SUPPLIER TO COVER THE COST O F PROVIDING AND INSTALLING THE LINE CONNECTING MAINS AND APPARA TUS EXCLUDING TRANSFORMER AND THE O.C.B. PAYABLE BY THE SUPPLIER BUT SUCH LINE, MAINS AND APPARATUS SHALL REMAIN THE PROPERTY OF THE SUPPLIER, EVEN THOUGH THE COST THEREOF HAS BEEN PAID BY THE CONSUMER. ITA NO.2886/DEL./2010 CO NO.235/DEL/2010 5 THUS, AS PER THE TERMS NO.(4) & (14) OF THE AGREEME NT, THE ASSETS WERE BELONGING TO THE UPPCL ALTHOUGH ASSESSEE INCURRED T HE EXPENDITURE. THIS EXPENDITURE HAS BEEN INCURRED FOR THE ELECTRICITY C ONNECTION FOR RUNNING THE BUSINESS MORE EFFICIENTLY AND PROFITABLY. THE ASSE TS ARE NOT BELONGING TO THE ASSESSEE EVEN AFTER STOPPING THE USE OR THESE BECOM E NON-FUNCTIONAL. THESE ASSETS WERE ALWAYS IN OWNERSHIP OF THE UPPCL ONLY. THEREFORE, THE EXPENDITURE SO INCURRED FOR ELECTRICITY CONNECTION CANNOT BE TERMED AS A CAPITAL EXPENDITURE. IN THE CASE OF CIT VS. SAW PI PES LTD, 300 ITR 35 (DEL.). THE HON'BLE HIGH COURT HAS HELD AS UNDER :- HELD, DISMISSING THE APPEAL (I) THAT THE SERVICE LINES DID NOT BELONG TO THE ASSESSEE BUT TO THE ELECTRICITY B OARD AND WERE LAID SO AS TO ENABLE THE ASSESSEE TO CONDUCT ITS BU SINESS MORE EFFICIENTLY WHICH MIGHT BE AN ENDURING ADVANTAGE BU T WAS INTENDED TO ENABLE THE ASSESSEE TO CARRY ON ITS BUS INESS MORE EFFICIENTLY AND PROFITABLY LEAVING THE FIXED CAPITA L UNTOUCHED. THE BENEFIT THAT THE ASSESSEE GOT WAS OF A COMMERCI AL NATURE AND A BUSINESS ADVANTAGE. THEREFORE, THE EXPENDITU RE INCURRED BY THE ASSESSEE SHOULD BE TREATED AS A REVENUE EXPE NDITURE. IN THAT CASE ALSO, THE SERVICE LINES WERE NOT BELON GING TO THE ASSESSEE BUT TO THE ELECTRICITY BOARD TO ENABLE THE ASSESSEE TO CON DUCT ITS BUSINESS MORE EFFICIENTLY. ALTHOUGH THESE MIGHT BE AN ENDURING A DVANTAGE BUT WAS INTENDED TO ENABLE THE ASSESSEE TO CARRY ON ITS BUSINESS MOR E EFFICIENTLY AND PROFITABLY LEAVING THE FIXED CAPITAL BASE OF ASSESSEE UNTOUCHE D. IN THAT POINT OF VIEW, THE HON'BLE HIGH COURT HELD THAT EXPENDITURE WAS RE VENUE IN NATURE. IN THE ASSESSEES CASE ALSO, THE ASSESSEE HAS MADE THIS EX PENDITURE TO CONDUCT ITS ITA NO.2886/DEL./2010 CO NO.235/DEL/2010 6 BUSINESS MORE EFFICIENTLY AND PROFITABLY. THE FIXE D CAPITAL OF THE ASSESSEE REMAINED UNAFFECTED/ UNTOUCHED. THE OWNERSHIP OF THE ASSETS BELONGING TO THE UPPCL. IN VIEW OF THESE FACTS, THE EXPENDITURE WAS COMMERCIAL IN NATURE AND FOR BUSINESS ADVANTAGE. THEREFORE, WE FIND NO FAULT IN THE ORDER OF THE CIT (APPEALS) AND SUSTAIN THE SAME. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. 8. SINCE WE HAVE DISMISSED THE REVENUES APPEAL, TH E ASSESSEES CROSS OBJECTION BECOMES INFRUCTUOUS. 9. TO SUM UP : THE REVENUES APPEAL IS DISMISSED AN D THE CROSS OBJECTION FILED BY THE ASSESSEE IS DISMISSED AS INFRUCTUOUS. ORDER PRONOUNCED IN OPEN COURT ON THIS 2 ND DAY OF DECEMBER, 2011. SD/- SD/- (DIVA SINGH) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 2 ND DAY OF DECEMBER, 2011 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XIII, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.