ACIT CIR 4(2), MUMBAI V. GUPTA SYNTHETICS LTD, MUMBAI

ITA 1009/MUM/2011

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2174 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 10 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 09-12-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 03-02-2011
• Result in Favour of: Set Aside
• Court: TRIBUNAL
• Department Lawyers: ANU KRISHNA AGGARWAL
• Keywords: Capital asset; Depreciation; Additional depreciation; Revenue expenditure; Capital expenditure

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI . . , , BEFORE S/SHRI B.R.BASKARAN, ACCOUNTANT MEMBER AND SHRI SANDEEP GOS AIN, JUDICIAL MEMBER ./ I.T.A. NO. 1009 /MUM/ 201 1 ( / ASSESSMENT YEAR : 20 07 - 08 ) ASSTT. COMMISSIONER OF INCOME TAX, 4(2), ROOM NO.642, 6 TH FLOOR,, AYAKAR BHAVAN, M K ROAD, MUMBAI - 400020 / VS. M/S GUPTA SYNTHETICS LTD., 326, SARDAR GRUH BUILDING, 198, L T ROAD, MUMBAI - 400002 ./ PAN : ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN. : AAACG8559P / APPELLANT BY : MS.ANU KRISHNA AGGARWAL, / RESPONDENT BY : SHRI SATISH R MODY / DATE OF HEARING : 9 .12. 2015 / DATE OF PRONOUNCEMENT : 9. 12. 2015 O R D E R PER B.R.BASKARAN,AM : THE APPEAL FILED BY THE RE VENUE IS DIRECTED AGAINST THE ORDER DATED 3.11.2010 PASSED BY LD CIT(A) - 1 1, MUMBAI FOR THE ASSESSMENT YEAR 20 07 - 08 , WHEREIN THE REVENUE IS ASSAILING THE DECISION OF LD CIT(A) ON THE FOLLOWING ISSUES : A ) DEPRECIATION ALLOWABLE ON THE ELECTRICAL FITTINGS; B ) EXPE NSES INCURRED ON FEASIBILITY REPORT OF NYLON PROJECT; AND C ) PROFESSIONAL FEES PAID FOR INCREASE OF TERM LOAN. ITA NO. 1009 / MUM/ 20 11 2 2. WE HEARD THE PARTIES AND PERUSED THE RECORD. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF POLYESTER TEX TURIZED YARN, POLYESTER TWI STER YARN. 3. THE FIRST ISSUE RELATES TO DISALLOWANCE OF DEPRECIATION CLAIMED ON ELECTRICITY FITTINGS AT A HIGHER RATE. THE ASSESSEE CLAIMED DEPRECIATION AT THE R ATE OF 15% FOR THE ELECTRICAL FITTINGS TREATING THE SAME AS PLANT AND MACHINERY AND ALSO C LAIMED ADDITIONAL DEPRECIATION AT THE RATE OF 20 % . THE AO TOOK THE VIEW THAT THE ELECTRICAL FITTINGS IS REQUIRED TO BE TREATED AS AN ITEM FALLING IN THE GROUP OF FURNITURE & FITTINGS AND HENCE DEPRECIATION IS ALLOWABLE AT 10 % . ACCORDINGLY HE RESTRICTED T HE DEPRECIATION TO 10% AND ALSO DISALLOWED THE CLAIM OF ADDITIONAL DEPRECIATION. THE LD. CIT ( A), HOWEVER , ACCEPTED THE CONTENTION S OF THE ASSESSEE THAT THE ELECTRIC AL FITTINGS FORM ED PART OF PLANT AND MACHINERY AND HENCE IT SHOULD BE TREATED AS PLANT AND MACHINERY ONLY. ACCORDINGLY, HE ALLOWED THE CLAIM OF THE ASSESSEE. 4. AT THE TIME OF HEARING, THE LD. AR REITERATED THE SAME CONTENTIONS AS MADE BEFORE THE LD. CIT(A). ON THE CONTRARY, THE LD. DR SUBMITTED THAT THE CLAIM OF THE ASSESSEE THAT THE ELECTR ICAL FITTINGS FORM ED PART OF THE PLANT AND MACHINERY HAS NOT BEEN PROPERLY DEMONSTRATED BEFORE THE AO. ACCORDINGLY, HE SUBMITTED THAT THE FACTUAL ASPECT RELATING TO THE SAID CLAIM NEEDS TO BE EXAMINED AT THE END O F THE AO . 5. WE FIND MERIT IN THE SUBMI SSIONS OF LD. DR. ACCORDINGLY, WE SET ASIDE THE ORDER OF T HE LD. CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE AO WITH A DIRECTION TO EXAMINE THE CLAIM OF THE ASSESSEE AN D TAKE APPROPRIATE DECISION IN ACCORDANCE WITH LAW. THE ASSESSEE IS ALSO DIRECTED TO FURNISH THE RELEVANT DETAILS IN SUPPORT OF ITS CONTENTION. 6. THE NEXT ISSUE RELATES TO THE DISALLOWANCE OF CLAIM OF EXPENSES INCURRED FOR OBTAINING FEASIBILITY REPORT OF NYLON PROJECT. THE ASSESSEE ITA NO. 1009 / MUM/ 20 11 3 PROPOSED TO ESTABLISH A NYLON TYRE MAN UFACTURING FACILITY AND HENCE OBTAINED FEASIBILITY REPORT BY INCURRING A SUM OF RS.13,04,410/ - . THE ASSESSEE CLAIMED THE SAME AS REVENUE EXPENDITURE BY PLACING RELIANCE ON THE FOLLOWING DECISIONS: I) CIT V/S GRAPHITE INDIA LTD - 221 ITR 420; II) HINDUSTAN ALLUMINIM CORPORATION LTD V/S CIT - 55 CTR 237; AND III) ASIATIC OXYGEN LTD V/S CIT - 190 ITR 328 IV) CIT V/S COROMANDEL FERTILIZER (105 TAXMAN 409) (AP) 7. THE AO DID NOT ACCEPT THE CONTENTION S OF THE ASSESSEE AND HELD THAT THE EXPENDITURE INCURRED FOR O BTAINING FEASIBILITY REPORT FOR NEW PROJECT IS A CAPITAL EXPENDITURE. ACCORDINGLY, HE DISALLOWED THE CLAIM OF THE ASSESSEE. THE LD.CIT(A), HOWEVER, ALLOWED THE CLAIM OF THE ASSESSEE BY FOLLOWING THE DECISION S RELIED UPON BY THE ASSESSEE. 8 . BEFORE US, T HE LD.AR SUBMITTED THAT THE VIEW TAKEN BY THE LD. CIT(A) IS FURTHER SUPPORTED BY THE FOLLOWING CASE LAW: I) BINANI CEMENT LTD V/S CIT (2015) 118 DTR 0061 (CAL);AND II) COMMISSIONER OF INCOME - TAX V/S NIRMAL LTD ( 367 ITR 12 (GUJ) = (2014) 52 TAXMANN.COM 88(GUJ) THE LD. AR SUBMITTED THAT THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF BINANI CEMENT LTD ( SUPRA) HAS HELD THAT THE EXPENDITURE INCURRED FOR PREPARATION OF FEASIBI LITY REPORT WILL BE ALLOWABLE AS DEDUCTION EVEN IF THE PROJECT IS ABANDONED. 9 . THE LD. DR, ON THE CONTRARY, PLACED RELIANCE ON THE ORDER OF AO. 1 0 . HAVING HEARD THE RIVAL CONTENTIONS , WE NOTICE THAT THE VIEW TAKEN BY THE LD. CIT(A) ON THIS ISSUE IS SUPP ORTED BY THE VARIOUS DECISION OF HONBLE HIGH COURTS REFERRED ABOVE. ACCORDINGLY , WE DO NOT FIND ANY REASON TO INTERFERE WITH HIS ORDER ON THIS ISSUE. ITA NO. 1009 / MUM/ 20 11 4 1 1 . THE NEXT ISSUE RELATES TO DISALLOWANCE OF PROFESSIONAL FEES PAID FOR ENHANCING THE TERM LOAN OF THE ASSESSEE. THE ASSESSEE HAD PAID PROFESSIONAL FEE FOR ENHANCING THE TERM LOAN AND THE AO TREATED THE SAME AS CAPITAL EXPENDITURE . B UT THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE WITH THE FOLLOWING OBSERVATIONS : 6.2. I HAVE CAREFULLY GONE THROUGH THE ORDER OF THE AO AND ALSO THE SUBMISSIONS AS MADE BY THE AUTHORIZED REPRESENTATIVE OF THE APPELLANT COMPANY ONE THE ABO V E ISSUE. THIS ISSUE IS A SETTLED ISSUE. THE INTEREST PAID FOR ACQUIRING A CAPITAL ASSET IN A RUNNING BUSINESS WAS HELD ALLOWABLE AS A REVENUE EXPENDITURE IN CIT V/S KASTHURI AND SONS (2000) 241 ITR 412 (MAD) BASED ON A POINT ESTABLISHED IN INDIA CEMENT LTD V/S CIT (1966) 60 ITR 52(SC) WHERE EXPENSES INCURRED FOR MOBILIZING CAPITAL FOR A RUNNING BUSINESS WAS FOUND DEDUCTIBLE. SIMILARLY , WHERE UPFRONT FREES WAS PAID FOR OBTAINING A LOAN, THOUGH FOR PURCHASE OF MACHINERY, WILL BE DEDUCTIBLE AS A REVENUE EXPENDITURE WHERE, SUCH MACHINERY WAS USED FOR RUNNING A BUSINESS, IT WAS SO HELD IN CIT V/S SRI MEENAKSHI MILLS LTD (2007) 290 ITR 107 (MAD). IN VIEW O F THESE DECISI ONS AND THE CA S E LAW CITED BY THE AUTHORITIES REPRESENTATIVE , I AM CONVINCED THAT SUCH EXPENDITURE IS ALLOWABLE AS A REVENUE EXPENDITURE . THEREFORE, THE AO IS DIRECTED TO DELETE THE ADDITION MADE IN THIS REGARD. WE HEARD T HE PARTIES ON THIS ISSUE AND WE ARE OF THE VIEW THAT THE LD. CIT(A) HAS TAKEN A JUDICIOUS VIEW O N THE MA T TER AND ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE WITH IT ON THIS ISSUE. 1 2 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS TREATED AS P ARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 9TH DECEMBER, 2015 SD SD ( / SANDEEP GOSAIN ) ( . . / B.R.BASKARAN) / JUDICIAL MEMBER /ACCOUNTANT MEMBER MUMBAI ; DATED . 9TH DEC,2015 ITA NO. 1009 / MUM/ 20 11 5 . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) , /ITAT, MUMBAI