Kalyani Carpenters Special Steels Ltd., Pune V. Addl. CIT, Pune

ITA 1131/PUN/2010

• Counselvise Citation: 113124514 RSA 2010
• Duration Of Justice: 3 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 22-05-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 12-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S P WALIMBE
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Search and seizure; Opportunity of being heard; Additional depreciation; Question of law; Non-deduction of tax; Wrong claim; Reason to believe; Revenue expenditure; Capital expenditure
• Section: 143(3); 194C; 147; 148; 37; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI R.S. PADVEKAR, JUDICIAL MEMBER, AND SHRI R.K. PANDA, ACCOUNTANT MEMBER. ITA.NO.2207/PN/2012 (ASSESSMENT YEAR : 2004-05) KALYANI CARPENTER SPECIAL STEELS LTD., 72-76, MUNDHWA, PUNE-411036 .. APPELLANT PAN NO. AABCK1779L VS. ADDL.CIT, RANGE-11, PUNE .. RESPONDENT ITA.NO.2045/PN/2012 (ASSESSMENT YEAR : 2004-05) ADDL.CIT, CIRCLE-11, PUNE .. CROSS OBJECTOR VS. KALYANI CARPENTER SPECIAL STEELS LTD., 72-76, MUNDHWA, PUNE-411036 PAN NO. AABCK1779L .. APPELLANT IN THE APPEAL ITA.NO.1131/PN/2010 AND ITA NO.1577/PN/2011 (ASSESSMENT YEARS : 2006-07 AND 2007-08) KALYANI CARPENTER SPECIAL STEELS LTD., 72-76, MUNDHWA, PUNE-411036 .. APPELLANT PAN NO. AABCK1779L VS. ADDL.CIT, RANGE-11, PUNE .. RESPONDENT APPLICANT BY : SHRI NIKHIL PATHAK RESPONDENT BY : SHRI S.P. WALIMBE DATE OF HEARING : 05-03-2014 DATE OF PRONOUNCEMENT : 12-03-2014 2 ORDER PER R.K.PANDA, AM : ITA NO.2207/PN/2012 AND ITA NO.2045/PN/2012 ARE CRO SS APPEALS. THE FIRST ONE IS FILED BY THE ASSESSEE AN D THE SECOND ONE FILED BY THE REVENUE AND ARE DIRECTED AGAINST THE ORDERS DAT ED 26-03-2012 OF THE CIT(A)-I PUNE RELATING TO ASSESSMENT YEAR 2004-05. 2. ITA NO.1131/PN/2010 IS ARISING OUT OF THE ORDER DATED 16-11-2009 OF THE CIT(A)-I, PUNE RELATING TO ASSESSMENT YEAR 2 006-07. 3. ITA NO.1571/PN/2011 FILED BY THE ASSESSEE IS DIR ECTED AGAINST THE ORDER DATED 10-07-2011 OF THE CIT(A)-I, PUNE RELATI NG TO A.Y. 2007-08. SINCE COMMON ISSUES ARE INVOLVED IN ALL THESE APPEA LS, THEREFORE, THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY TH IS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NO.1131/PN/2010 (BY ASSESSEE) (A.Y. 2006-07 : 4. THIS IS A RECALLED MATTER. IN THIS CASE, THE TR IBUNAL HAS PASSED THE ORDER FOR A.Y. 2006-07 VIDE ITA NO.1131/PN/2010 ORD ER DATED 27-08- 2012. SUBSEQUENTLY, THE ASSESSEE FILED A MISCELLAN EOUS APPLICATION STATING THAT THE ADDITIONAL GROUND RAISED BY THE AS SESSEE RELATING TO ADDITIONAL DEPRECIATION WAS NOT ADJUDICATED BY THE TRIBUNAL. ACCORDINGLY, THE TRIBUNAL VIDE ORDER DATED 08-01-2014 IN M.A. NO .124/PN/2013 RECALLED THE ORDER FOR THE LIMITED PURPOSE OF ADJUD ICATING THE ADDITIONAL GROUND RELATING TO ADDITIONAL DEPRECIATION. 3 4.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE HAS DEBITED OTHER EXPENSES OF RS.1,36,88,47,631/- WHICH INCLUDES EXPE NDITURE ON PURCHASE OF ROLLING MILL ROLL OF RS.1,98,80,552/-. INSTEAD OF CLAIMING DEPRECIATION @80% ON SUCH ROLLING MILL ROLL THE ASSESSEE HAD CL AIMED THE SAME AS REVENUE EXPENDITURE. IN THE ASSESSMENT THE ASSESSI NG OFFICER RELYING ON VARIOUS DECISIONS TREATED THE SAME AS CAPITAL EXPEN DITURE AND ALLOWED DEPRECIATION @80% WHICH COMES TO RS.1,59,04,442/-. ACCORDINGLY, HE MADE ADDITION OF RS.39,76,110/- TO THE TOTAL INCOME OF THE ASSESSEE. IN APPEAL THE LD.CIT(A) UPHELD THE ACTION OF THE ASSES SING OFFICER. THE ASSESSEE PREFERRED AN APPEAL AGAINST THE SAME. THE ASSESSEE SIMULTANEOUSLY HAS ALSO FILED AN ADDITIONAL GROUND WHICH READS AS UNDER : THE APPELLANT SUBMITTED THAT ASSUMING WITHOUT ADMITTI NG THAT THE EXPENDITURE INCURRED ON REPLACEMENT OF ROLLING MILL ROLLS WAS A CAPITAL EXPENDITURE, THE LD. AO OUGHT TO HAVE ALLOWED ADDIT IONAL DEPRECIATION ON THE SAME AS PER SECTION 32(1)(IIA). 4.2 THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ROLLING MILL ROLLS ARE UTILISED IN THE MANUFACTURING PROCESS. H E SUBMITTED THAT ASSESSEE FULFILS ALL THE CONDITIONS OF SECTION 32(1)(IIA). HE ACCORDINGLY SUBMITTED THAT THE ASSESSEE SHOULD BE GRANTED ADDITIONAL DEPR ECIATION OF 20% OVER AND ABOVE THE NORMAL DEPRECIATION OF 80% ALREADY GR ANTED BY THE ASSESSING OFFICER. 4.3 THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHE R HAND SUBMITTED THAT THE ISSUE RELATING TO CLAIM OF ADDITIONAL DEPR ECIATION WAS NOT BEFORE THE ASSESSING OFFICER OR THE CIT(A). ONLY BEFORE TH E TRIBUNAL, THE ASSESSEE TOOK AN ADDITIONAL GROUND FOR CLAIMING ADD ITIONAL DEPRECIATION. HOWEVER, WHETHER THE ASSESSEE FULFILS THE CONDITION S FOR CLAIMING 4 ADDITIONAL DEPRECIATION HAS NOT BEEN EXAMINED/ADJUD ICATED BY THE ASSESSING OFFICER OR THE CIT(A). THEREFORE, IN THE INTEREST OF JUSTICE, THE MATTER SHOULD BE RESTORED TO THE FILE OF THE ASSESS ING OFFICER TO VERIFY AS TO WHETHER THE ROLLING MILL ROLLS ARE INDEPENDENT M ACHINERY OR TOWARDS REPAIRS AND REPLACEMENT. 4.4 THE LD. COUNSEL FOR THE ASSESSEE IN HIS REJOIND ER SUBMITTED THAT HE HAS NO OBJECTION IF THE ISSUE IS RESTORED TO THE FI LE OF THE ASSESSING OFFICER. 5. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES. THE ISSUE RELATING TO THE ADDITIONAL DEPRECIATION O N ROLLING MILL ROLLS WAS NEITHER BEFORE THE ASSESSING OFFICER NOR BEFORE THE CIT(A). WE THEREFORE DEEM IT PROPER TO RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO VERIFY AS TO WHETHER THE ASSESSEE FU LFILS THE CONDITIONS PRESCRIBED U/S.32(1)(2)(IIA) FOR CLAIMING ADDITIONA L DEPRECIATION OR NOT. THE ASSESSING OFFICER SHALL DECIDE THE ISSUE AS PER LAW AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOL D AND DIRECT ACCORDINGLY. THE ADDITIONAL GROUND RAISED BY THE A SSESSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.2207/PN/2012 (BY ASSESSEE) (A.Y. 2004-05) : 6. GROUND OF APPEAL NOS. 1.1 TO 1.3 RELATE TO THE O RDER OF THE CIT(A) IN UPHOLDING THE RE-ASSESSMENT PROCEEDINGS U/S.147 OF THE I.T. ACT. 6.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE COMPANY FILED ITS RETURN OF INCOME ON 30-10-2004 DECLARING TOTAL INCO ME OF RS.18,50,66,330/-. THE ASSESSING OFFICER VIDE ORDE R DATED 18-12-2006 5 ASSESSED THE TOTAL INCOME AT RS.18,58,91,360/- U/S. 143(3) OF THE I.T. ACT. SUBSEQUENTLY, THE ASSESSING OFFICER ISSUED NOTICE U /S.148 OF THE ACT BY RECORDING THE FOLLOWING REASONS : SCRUTINY ASSESSMENT IN THE CASE, FOR A.Y. 2004-05 WAS CO MPLETED VIDE ORDER U/S.143(3) DATED 18/12/2006. THE ASSESSEE COMPANY WAS ENGAGED IN MANUFACTURING OF HIGH QUALITY STEEL. RETURNED IN COME DECLARED OF RS.18,50,66,330/- HAS BEEN ASSESSED AT RS.18,58,91,360/- . THE ADDITION OF RS.7,39,493/- WAS ON ACCOUNT OF DISALLOWANCES OUT OF PR IOR PERIOD EXPENSES (RS.3,54,979/-), GARDEN MAINTENANCE EXPENSES (R S.99,860/-) & CONTRIBUTION TO SICKNESS RELIEF FUND (RS.2,84,654/-). 2. FOR THE A.Y. THE ASSESSEE HAD DEBITED AN AMOUNT OF RS.2,27,78,000/- IN PROFIT & LOSS ACCOUNT ON ACCOUNT O F ROLLS AND MOULDS ETC. WRITTEN OFF (AS 100% WRITE OFF) WHICH IS AN EXPE NDITURE OF CAPITAL NATURE. 3. AN ANOTHER CASE NAMELY KALYANI FORGE LIMITED IS HA VING IDENTICAL ISSUE INVOLVED FOR THE SAME A.Y. AND THEREIN ASSESSMENT U/ S.143(3) HAD BEEN COMPLETED ON 28/03/2006, WHEREIN THE EXPENDITU RES ON DIES OF RS.2,23,77,323/- WERE DISALLOWED AND ADDED BACK TO BU SINESS INCOME BY TREATING AS CAPITAL EXPENDITURE. (LATER ON THE SAID ADDITION WAS CONFIRMED BY CIT(APPEALS) WHEREAS DELETED BY ITAT, FURTHER APPE AL U/S.260A HAS BEEN FILED BY CIT-I, PUNE BEFORE THE HIGH COURT, MU MBAI ON 04/01/2010 AND THE MATTER IS PENDING FOR DECISION BEFORE THE HON BLE HIGH COURT. 4. HENCE, IN PRESENT CASE, THE EXPENDITURE OF RS.2,27, 78,000/- DEBITED ON ACCOUNT OF ROLLS & MOULDS ETC. WRITTEN OFF IS BEING CAPITAL EXPENDITURE, NEED TO BE DISALLOWED AND ADDED BACK TO BUSINESS INCOME AFTER ALLOWING DEPRECIATION AT APPLICABLE RATE OF 15% PLUS 20% (PL ANT & MACH. PLUS NEW MACH.) (TOTALLING TO RS.79,72,300/-). 5. IN VIEW OF ABOVE, I AM OF THE BELIEF THAT INCOME OF RS.1,48,05,700/- (IE.. 2,27,78,000/- (-) 79,72,300/- CHARGEABLE TO T AX HAS BEEN UNDER ASSESSED FOR THE A.Y. 2004-05, IN THE MEANING OF SECTION 147(C) OF THE INCOME TAX ACT, 1961. 6.2 THE ASSESSEE OBJECTED TO SUCH RE-OPENING OF ASS ESSMENT ON THE GROUND THAT THE ASSESSMENT WAS ALREADY COMPLETED U/ S.143(3) OF THE ACT ON 18-12-2006 AND MORE THAN 4 YEARS HAD ELAPSED FRO M THE COMPLETION OF THE ASSESSMENT YEAR AND THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS REQUIRE D FOR COMPLETION OF THE ASSESSMENT. HOWEVER, THE ASSESSING OFFICER REJECTE D SUCH OBJECTIONS ON THE GROUND THAT THERE WAS A FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE 6 FULLY AND TRULY ALL THE MATERIAL FACTS AS PER THE P ROVISIONS OF SECTION 147 AND 148 ETC. AND THEREFORE REOPENING IS VALID. 6.3 BEFORE CIT(A) THE ASSESSEE CITED VARIOUS DECISI ONS AND SUBMITTED THAT SINCE THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR COMPLETI ON OF THE ASSESSMENT AND SINCE THE NOTICE HAS BEEN ISSUED AFTER COMPLETION O F THE ORIGINAL ASSESSMENT U/S.143(3) AFTER A PERIOD OF MORE THAN 4 YEARS, THEREFORE, THE RE-ASSESSMENT PROCEEDINGS INITIATED BY THE ASSESSIN G OFFICER IS VOID AB- INITIO. HOWEVER, THE LD.CIT(A) ALSO WAS NOT SATISF IED WITH THE ARGUMENTS ADVANCED BY THE ASSESSEE AND UPHELD THE RE-ASSESSME NT PROCEEDINGS INITIATED BY THE ASSESSING OFFICER. WHILE DOING SO , HE NOTED THAT THE PROVISIONS OF SECTION 147 AFTER SUBSTITUION W.E.F. 1-4-1989 GRANTS WIDE POWERS TO THE ASSESSING OFFICER EVEN TO COVER CASES WHERE ASSESSEE HAD FULLY DISCLOSED MATERIAL FACTS. ACCORDING TO HIM, THE ONLY CONDITION FOR ACTION U/S.147 IS THAT THE ASSESSING OFFICER SHOULD HAVE REASON TO BELIEVE THAT INCOME HAD ESCAPED ASSESSMENT. SUCH BELIEF CA N BE REACHED IN ANY MANNER AND IS NOT QUALIFIED BY A PRE-CONDITION OF F AITH AND TRUE DISCLOSURE OF MATERIAL FACTS BY ASSESSEE AS WAS AVAILABLE IN O LD SECTION 147(A). THE ONLY RESTRICTION AVAILABLE IS IN PROVISO AND EVEN THAT CAN BE CONSIDERED TO HAVE VERY RESTRICTIVE USE BECAUSE OF EXISTENCE O F EXPLANATION 1, 2 AND 3. HE FURTHER NOTED THAT IN THE PRESENT CASE THERE IS NO DISPUTE TO THE FACT THAT THE ISSUE WAS NOT CONSIDERED BY THE ASSESSING OFFIC ER WHILE COMPLETING THE ORIGINAL ASSESSMENT. THE ASSESSING OFFICER HAS RELIED ON THIS FACT AS WELL AS THE EXPLANATION (1) WHILE MAKING THE RE-ASS ESSMENT. 7 DISTINGUISHING VARIOUS DECISION CITED BEFORE HIM TH E LD.CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER IN TAKING RECOU RSE TO SECTION 147. 6.4 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASS ESSEE IS IN APPEAL BEFORE US. 6.5 THE LD. COUNSEL FOR THE ASSESSEE STRONGLY OPPOS ED THE ORDER OF THE CIT(A). HE SUBMITTED THAT THE ORIGINAL ORDER U/S.1 43(3) FOR THE A.Y. 2004-05 WAS PASSED ON 18-12-2006. THEREFORE, AS PE R THE PROVISO TO SECTION 147 THE LAST DATE FOR ISSUE OF NOTICE U/S.1 48 EXPIRES ON 31-03-2009. HOWEVER, THE ASSESSING OFFICER HAS ISSUED NOTICE U/ S.148 ON 05-04-2010. REFERRING TO THE REASONS RECORDED FOR ISSUING NOTIC E U/S.148 HE SUBMITTED THAT THERE IS NO ALLEGATION BY THE ASSESSING OFFICE R THAT THERE WAS ANY FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE MAT ERIAL FACTS FULLY AND TRULY FOR COMPLETION OF THE ASSESSMENT. REFERRING TO THE COPY OF THE AUDITED ACCOUNTS FOR THE YEAR ENDED 31-03-2004 (A COPY OF W HICH IS PLACED AT PAPER BOOK PAGES 22 TO 35) THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO SCHEDULE 19 OF THE PROFIT AND LOSS ACCOUNT WHICH SHOWS DEPRECIATION AND WRITE OFF ETC. HE SUBMITTED THAT THE ASSESSEE HAD CLEARLY MENTIONED THEREIN ROLLS AND MOULDS ETC. WRI TTEN OFF AT RS.2,27,78,000/-. HE SUBMITTED THAT THE ASSESSING OFFICER WAS FULLY AWARE OF THE WRITE OFF OF ROLLS AND MOULDS ETC. 6.6 REFERRING TO THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF M/S. ALFA LAVAL INDIA LTD. VIDE ITA NO.1499 /PN/2012 ORDER DATED 16-12-2013, A COPY OF WHICH IS PLACED AT PAPER BOOK PAGES 26 TO 36 HE SUBMITTED THAT THE TRIBUNAL IN THE SAID DECISION FO LLOWING THE DECISION OF 8 HONBLE BOMBAY HIGH COURT IN THE CASE OF TITANOR CO MPONENTS LTD. VS. ACIT REPORTED IN 343 ITR 183 HAS HELD THAT THE RE-O PENING U/S.147 IS NOT JUSTIFIED AFTER LAPSE OF 4 YEARS FROM THE RELEVANT ASSESSMENT YEAR WHEN THE ORIGINAL ASSESSMENT IS COMPLETED U/S.143(3) AND THE RE IS NO ALLEGATION BY THE ASSESSING OFFICER THAT THERE WAS FAILURE ON THE PART OF THE ASSESSEE TO FULLY AND TRULY DISCLOSE ALL MATERIAL FACTS NECESSA RY FOR THE ASSESSMENT. HE ACCORDINGLY SUBMITTED THAT THIS BEING A COVERED MAT TER, THE FIRST ISSUE RAISED IN GROUNDS OF APPEAL CHALLENGING THE VALIDIT Y OF THE RE-ASSESSMENT PROCEEDINGS SHOULD BE DECIDED IN FAVOUR OF THE ASSE SSEE. 6.7 THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHE R HAND HEAVILY RELIED ON THE ORDER OF THE CIT(A). HE SUBMITTED TH AT IN THE ORIGINAL ASSESSMENT PROCEEDING THERE IS NO DISCUSSION AT ALL ABOUT WRITE OFF OF ROLLS AND MOULDS ETC. THEREFORE, THE ASSESSING OFFICER I S FULLY JUSTIFIED UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE IN REOPENIN G THE ASSESSMENT AND THE LD.CIT(A) WAS FULLY JUSTIFIED IN UPHOLDING THE ORDER OF THE ASSESSING OFFICER. 7. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND THE ORIGINAL AS SESSMENT IN THE INSTANT CASE WAS COMPLETED U/S.143(3) ON 18-12-2006 AND THE NOTICE U/S.148 WAS ISSUED ON 05-04-2010. FROM THE REASONS RECORDED U/ S.148, WE FIND THERE IS NO ALLEGATION BY THE AO THAT THERE WAS ANY FAILU RE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL F ACTS NECESSARY FOR COMPLETION OF THE ASSESSMENT. FROM THE COPY OF THE ANNUAL AUDITED 9 ACCOUNTS, WE FIND THE ASSESSEE IN SCHEDULE 19 - DEP RECIATION AND WRITE OFF ETC. HAS CLEARLY DISCLOSED ROLLS AND MOULDS ETC. W RITTEN OFF - RS.2,27,78,000/- TREATING THE SAME AS REVENUE EXPE NDITURE. WE FIND THE ASSESSING OFFICER WHILE REOPENING THE CASE HAS RELI ED ON THE ASSESSMENT IN THE CASE OF SOME OTHER COMPANY NAMELY KALYANI FORGE LTD. WHERE EXPENDITURE ON DIES AMOUNTING TO RS.2.24 CRORES WER E DISALLOWED AND ADDED BACK TO BUSINESS INCOME BY TREATING THE SAME AS CAPITAL EXPENDITURE. IT IS SEEN FROM THE REASONS RECORDED BY THE ASSESSING OFFICER THAT THE SAID ADDITION WAS CONFIRMED BY THE CIT(A) WHEREAS THE SAME WAS DELETED BY THE ITAT AND THE REVENUE HAS PREFERRED A N APPEAL BEFORE THE HONBLE HIGH COURT AGAINST THE ORDER OF THE TRIBUNA L DELETING THE ADDITION. 7.1 WE FIND THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF TITANOR COMPONENTS LTD. (SUPRA) HAS OBSERVED AS UNDER : 4. ACCORDING TO THE LEARNED COUNSEL, THE REVENUE I S ENTITLED TO ISSUE SUCH A NOTICE IF THE AO HAS REASON TO BELIEVE THAT INC OME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT BY REASON OF THE FAILURE ON THE PAR T OF THE ASSESSEE (A) TO MAKE A RETURN UNDER S. 139 OR (B) IN RESPONSE T O A NOTICE ISSUED UNDER SUB-S. (1) OF S. 142 OR S. 148 OR (C) TO DISCLOSE F ULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR THAT ASSESSMENT YEAR. SINCE T HE FIRST TWO CONDITIONS ARE NOT PLEADED BY THE RESPONDENTS, IT IS T HE SUBMISSION OF THE PETITIONER THAT THE NOTICE IS WHOLLY UNWARRANTED AND INVALID SINCE THERE IS NO ALLEGATION WHATSOEVER THAT THE PETITIONER HAS FAIL ED TO DISCLOSE ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT. THIS SUBMISSION CAN BE CONSIDERED ONLY WITH REFERENCE TO THE REASONS PUT FORT H BY THE RESPONDENTS FOR ISSUING THE NOTICE. THE LETTER DT. 27TH JAN., 2005, INTER ALIA, STATES THAT THE AO HAS REASONS TO BELIEVE THAT INCOME HA S ESCAPED ASSESSMENT BECAUSE THE PETITIONER HAS WRONGLY CLAIMED DED UCTION UNDER S. 80-IA IN RESPECT OF INCOME WHICH WAS NOT DERIVED FROM THE INCOME OF THE PETITIONERS UNIT OF KUNDAIM. FURTHER, THAT LONG-TER M CAPITAL GAINS HAVE BEEN WRONGLY CLAIMED BY THE ASSESSEE WHICH HAVE BEEN WR ONGLY CONSIDERED FOR THE SET OFF OF THE UNIT OF KUNDAIM WHI CH HAS RESULTED IN ESCAPEMENT OF INCOME. NOWHERE HAS THE AO STATED THAT T HERE IS ANY FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT. HAVING REGARD TO THE PURPOSE OF THE SECTION, WE ARE OF THE VIEW THAT THE POWER CONFERRED BY S. 147 D OES NOT PROVIDE A FRESH OPPORTUNITY TO THE AO TO CORRECT AN INCORRECT ASSESSMEN T MADE EARLIER UNLESS THE MISTAKE IN THE ASSESSMENT SO MADE IS THE RESULT OF A FAILURE OF 10 THE ASSESSEE TO FULLY AND TRULY DISCLOSE ALL MATERIAL FAC TS NECESSARY FOR ASSESSMENT. INDEED, WHERE THE ASSESSEE HAS FULLY DISCLOSED ALL THE MATERIAL FACTS, IT IS NOT OPEN FOR THE AO TO REOPEN THE ASSESSME NT ON THE GROUND THAT THERE IS A MISTAKE IN ASSESSMENT. MOREOVER, IT IS NECESSARY FOR THE AO TO FIRST OBSERVE WHETHER THERE IS A FAILURE TO DISCLOSE FUL LY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT AND HAVING OBSERVED THAT THERE IS SUCH A FAILURE TO PROCEED UNDER S. 147. IT MU ST FOLLOW THAT WHERE THE AO DOES NOT RECORD SUCH A FAILURE HE WOULD NOT BE ENTITLED TO PROCEED UNDER S. 147. AS OBSERVED EARLIER, THE AO HAS NOT RECO RDED THE FAILURE ON THE PART OF THE PETITIONER TO FULLY AND TRULY DISCLO SE ALL MATERIAL FACTS NECESSARY FOR THE ASST. YR. 1997-98. WHAT IS RECORDED IS THAT THE PETITIONER HAS WRONGLY CLAIMED CERTAIN DEDUCTIONS WHICH HE WAS NO T ENTITLED TO. THERE IS A WELL KNOWN DIFFERENCE BETWEEN A WRONG CLA IM MADE BY AN ASSESSEE AFTER DISCLOSING ALL THE TRUE AND MATERIAL FACTS AND A WRONG CLAIM MADE BY THE ASSESSEE BY WITHHOLDING THE MATERIAL FACTS F ULLY AND TRULY. IT IS ONLY IN THE LATTER CASE THAT THE ASSESSING OFFICER WOULD BE ENTITLED TO PROCEED UNDER S. 147. WE ARE SUPPORTED IN THIS VIEW BY A DECISION OF A DIVISION BENCH OF THIS COURT IN HINDUSTAN LEVER LTD. VS. R.B. WADKAR, ASSTT. CIT (2004) 190 CTR (BOM) 166 : (2004) 268 ITR 332 ( BOM) WHERE IN A SIMILAR CASE THE DIVISION BENCH HELD THAT REASON THAT T HERE WAS A FAILURE TO DISCLOSE FULLY AND TRULY THAT ALL MATERIAL FACTS MUST B E READ AS RECORDED BY THE AO AND IT WOULD NOT BE PERMISSIBLE TO DELETE OR A DD TO THOSE REASONS AND THAT THE AO MUST BE ABLE TO JUSTIFY THE SAME BASED ON MATERIAL RECORD. THE DIVISION BENCH OBSERVED AS FOLLOWS (PAGE 338): 'HE MUST DISCLOSE IN THE REASONS AS TO WHICH FACT OR MAT ERIAL WAS NOT DISCLOSED BY THE ASSESSEE FULLY AND TRULY NECESSARY FOR ASSE SSMENT OF THAT ASSESSMENT YEAR, SO AS TO ESTABLISH THE VITAL LINK BETWEEN THE REASONS AND EVIDENCE.' WE FIND IN THE CIRCUMSTANCES THAT THE IMPUGNED NOTICE IS NOT SUSTAINABLE AND IS LIABLE TO BE QUASHED AND SET ASIDE. ACCORDINGLY, THE WRIT PETITION IS ALLOWED IN TERMS OF PRAYER CLS. (A) AND (C). 7.2 WE FIND THE PUNE BENCH OF THE TRIBUNAL IN THE C ASE OF ALFA LAVAL (INDIA) LTD. (SUPRA) FOLLOWING THE ABOVE DECISION H AS HELD THE RE-OPENING OF ASSESSMENT UNDER SUCH CIRCUMSTANCES AS BAD IN LA W. 7.3 SINCE IN THE INSTANT CASE THERE IS NO ALLEGATIO N BY THE ASSESSING OFFICER IN THE NOTICE ISSUED U/S.148 THAT THERE WA S FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERI AL FACTS NECESSARY FOR COMPLETION OF THE ASSESSMENT, THEREFORE, RESPECTFUL LY FOLLOWING THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F TITANOR COMPONENTS LTD. (SUPRA) WE HOLD THAT RE-ASSESSMENT PROCEEDINGS ARE VOID 11 AB-INITIO. WE, THEREFORE, SET-ASIDE THE ORDER OF L D.CIT(A) ON THIS ISSUE AND THE GROUNDS RAISED BY THE ASSESSEE ON THIS ISSU E ARE ALLOWED. 8. GROUNDS OF APPEAL NO.2.1 TO 2.4 BY THE ASSESSEE READ AS UNDER : 2.1 WITHOUT PREJUDICE TO GROUND NO.1 ABOVE, THE LD . CIT(A)-I, PUNE ERRED IN CONFIRMING THE DISALLOWANCE OF EXPENDITURE OF RS.88,89,074/- INCURRED ON REPLACEMENT OF ROLLING MILL ROLLS TREATI NG THE SAME AS CAPITAL EXPENDITURE. 2.2 HE ERRED IN NOT APPRECIATING THAT THE SAID EXPEN DITURE WAS INCURRED BY THE APPELLANT COMPANY EVERY YEAR AND WAS INCURRED ON REPLACEMENT OF ROLLS. FURTHER MERELY BECAUSE THE RATE OF DEPRECIATI ON IS PRESCRIBED ON ROLLING MILL ROLLS IN APPENDIX-I TO INCOME TAX RULES, IT DOES NOT NECESSARILY MEAN THAT REVENUE EXPENDITURE INCURRED ON REPLACEME NT OF ROLLS WOULD BE CAPITAL EXPENDITURE. 2.3 THE LD.CIT(A)-I, PUNE ERRED IN NOT FOLLOWING TH E RATIO OF THE FOLLOWING DECISIONS : A. CIT VS. MALHOTRA INDUSTRIAL CORPROATION (2002) 254 ITR 635 B. CIT VS. MYSORE SPUN CONCRETE PIPE PVT. LTD. (1992) 194 ITR 159 C. CIT VS. JAGATJI INDUSTRIES LTD. (2000) 241 ITR 556 (DEL.) 2.4 WITHOUT PREJUDICE TO ABOVE, THE LD.CIT(A)-I, PU NE ERRED IN NOT DIRECTING THE LD. ASSESSING OFFICER TO ALLOW ADDITIONAL DEPRECIATION, IF ANY, ON THE ADDITIONS TO ROLLING MILL ROLLS AS PER THE PRO VISION OF SECTION 31(1)(IIA) OF THE INCOME TAX ACT, 1961. 8.1 THE LD. COUNSEL FOR THE ASSESSEE DID NOT PRESS GROUNDS OF APPEAL NO.2.4 FOR WHICH LD. DEPARTMENTAL REPRESENTATIVE HA S NO OBJECTION. ACCORDINGLY, GROUNDS OF APPEAL NO.2.4 IS DISMISSED. SO FAR AS GROUNDS OF APPEAL NO.2.1 TO 2.3 ARE CONCERNED THE SAME RELATES TO TREATING REPLACEMENT OF ROLLING MILL ROLLS AS CAPITAL EXPEN DITURE AS AGAINST REVENUE EXPENDITURE CLAIMED BY THE ASSESSEE. WE FI ND THE ISSUE STANDS DECIDED AGAINST THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2006-07 VIDE ITA NO.1131/PN/2010 ORDER DATED 27- 08-2012 WHEREIN THE ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE BY TREATING SUCH EXPENDITURE AS CAPITAL EXPENDITURE. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE AND IN ABSENCE OF ANY 12 CONTRARY MATERIAL BROUGHT TO OUR NOTICE, THE ABOVE GROUNDS OF APPEAL NO.2.1 TO 2.3 ARE DISMISSED. 9. GROUNDS OF APPEAL NO.3 BEING GENERAL IN NATURE I S DISMISSED. ITA NO.2045/PN/2012 (BY REVENUE) (A.Y. 2004-05) : 10. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE COMPANY HAD DEBITED AN AMOUNT OF RS.2,27,78,000/- IN PROFIT AND LOSS ACCOUNT ON ACCOUNT OF ROLLS AND MOULDS ETC. WHICH IT HAD WRITT EN OFF IN SCHEDULE 19 OF THE ANNUAL REPORT UNDER THE HEAD DEPRECIATION AND WRITE OFF ETC. ACCORDING TO THE ASSESSING OFFICER THE SAME IS CAPI TAL IN NATURE. HE, THEREFORE, ASKED THE ASSESSEE COMPANY TO EXPLAIN AS TO WHY THE EXPENDITURE CLAIMED AS ROLLS AND MOULDS ETC. WRITTE N OFF AMOUNTING TO RS.2,27,78,000/- SHOULD NOT BE DISALLOWED AFTER ALL OWING DEPRECIATION AT THE APPLICABLE RATE WHICH COMES TO RS.79,72,300/-. REJECTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASSESSEE THE ASSESSING OF FICER TREATED THE EXPENDITURE AMOUNTING TO RS.227.78 LAKHS ON ROLLS A ND MOULDS ETC. WRITTEN OFF AS CAPITAL IN NATURE AND ALLOWED DEPRECIATION O N ROLLING MILLS @80% AND ALLOWED DEPRECIATION ON MOULDS ETC. @ 25%. THE DETAILED WORKING OF THE ASSESSING OFFICER IS AS UNDER : PARTICULARS AMOUNT (RS.) RATE OF DEPRECIATION AMOUNT OF DEPRECIATION RMS-ROLLING MILL ROLLS WRITTEN OFF DURING THE YEAR 88,89,074/- 80% 71,11,259/- MOULDS, PLATES, TRUMPETS WRITTEN OFF DURING THE YEAR 1,38,89,025/- 25% 34,72,256/- TOTAL ROLLS AND MOULDS WRITTEN OFF DURING THE YEAR 2,27,78,099/- - 1,05,83,515/- 13 10.1 IN APPEAL THE LD.CIT(A) HELD THAT THE EXPENDIT URE ON THE ROLLS IS A CAPITAL EXPENDITURE AND IS NOT AN ALLOWABLE EXPENDI TURE EITHER U/S.31 OR SECTION 37 OF THE I.T. ACT. HE ACCORDINGLY UPHELD THE TREATMENT GIVEN BY THE ASSESSING OFFICER ALLOWING ONLY DEPRECIATION AN D NOT TREATING THE SAME AS REVENUE EXPENDITURE. 10.2 SO FAR AS THE ALLOWABILITY OF EXPENDITURE ON P URCHASE OF MOULDS ETC., THE LD.CIT(A), FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF KALYANI FORGE LTD. VIDE ITA NO.1004/PN/2008 FOR A.Y . 2005-06, DIRECTED THE AO TO TREAT THE SAME AS REVENUE EXPEND ITURE. 10.3 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE RE VENUE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS : 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-T AX (APPEALS) IS CONTRARY TO LAW AND TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LD.CIT(A) GROSSLY ERRED IN TREATING THE 'WRITE OFF' OF 'MOULDS' OF RS.1,38,89,025/- AS REVENUE EXPENDITURE INSTEAD OF TREATING THE SAME AS CAPITAL EXPENDITURE AS HAD BEEN DONE IN THE ASSESSMENT. 3. THE LD.CIT(A) GROSSLY ERRED IN FAILING TO APPRECIA TE THAT THE ASSESSEE HAD REPLACED THE MOULDS IN ENTIRETY AND HAD NO T MERELY RENEWED OR REPLACED PARTS THEREOF; AND, THEREFORE, SUCH WHOLE -SCALE REPLACEMENT COULD BY NO MEANS BE TREATED AS 'CURRENT REPAIRS' SO IS TO BE ELIGIBLE FOR DEDUCTION U/S.31(L) OR AS BUSINESS EXPENDITURE DEDUCTIBL E U/S.37(L). 4. THE LD.CIT(A) GROSSLY ERRED IN DISTINGUISHING THE MO ULDS FROM THE ROLLS AND IN FAILING TO APPRECIATE THAT AS THE ASSESSEE H AD REPLACED BOTH THE ROLLS AS WELL AS THE MOULDS IN LIKE MANNER, DISALLOWANCE OF THE CLAIM ON ACCOUNT OF MOULDS SHOULD HAVE BEEN GIVEN THE SAME TREA TMENT AS THE DISALLOWANCE ON ACCOUNT OF ROLLS WAS GIVEN. 5. THE LD.CIT(A) GROSSLY ERRED IN NOT APPLYING THE DE CISION OF THE HON'BLE KERALA HIGH COURT IN THE CASE OF DY. COMMISSIO NER OF INCOME-TAX VS. STN TEXTILES LTD., 257 ITR 161, TO REPLACEMENT OF MOULDS WHEREAS THE SAID DECISION WAS SQUARELY APPLICABLE. 14 6. FOR THESE AND SUCH OTHER GROUNDS AS MAY BE URGED AT THE TIME OF HEARING, THE ORDER OF THE LEARNED COMMISSIONER OF INC OME-TAX(APPEALS) MAY BE VACATED AND THAT OF THE ASSESSING OFFICER BE REST ORED. 7. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND ANY OR ALL THE GROUNDS OF APPEAL. 11. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND THE ASSESSEE CLA IMED THE MOULDS, PLATES, TRUMPETS ETC. AMOUNTING TO RS.1,38,89,025/- AS REVE NUE EXPENDITURE WHICH WAS DISALLOWED BY THE ASSESSING OFFICER TREAT ING THE SAME AS CAPITAL EXPENDITURE IN NATURE AND ALLOWED DEPRECIAT ION @25%. WE FIND THE LD.CIT(A) FOLLOWING THE DECISION OF THE TRIBUNA L IN THE CASE OF KALYANI FORGE LTD. (SUPRA) DIRECTED THE ASSESSING O FFICER TO ALLOW THE SAME AS REVENUE EXPENDITURE. WE FIND THE PUNE BENC H OF THE TRIBUNAL IN THE CASE OF KALYANI FORGE LTD. (SUPRA) WHILE DECIDI NG AN IDENTICAL ISSUE HAS ALLOWED THE CLAIM OF THE ASSESSEE BY OBSERVING AS UNDER : 2. AS IS EVIDENT FROM THE GROUNDS ITSELF LD.CIT(A) HAS RELIED UPON THE ORDERS OF HIS PREDECESSORS PERTAINING TO ASSESSMENT YEAR 20 03-04 AND 2004-05. THE RELEVANT OBSERVATIONS AS GATHERED FROM T HE IMPUGNED ORDER IS REPRODUCED BELOW : '3.1 DURING THE COURSE OF APPELLATE PROCEEDINGS, IT W AS SUBMITTED BY THE LEARNED A.R THAT THE FACTUAL AND LEGAL POSITI ON IN THE PRESENT CASE IS THE SAME AS THAT FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR SO ALSO THE SUBMISSIONS OF THE APPELLANT. 3.2 THE LEARNED ADDL. CIT HAS DISCUSSED THIS ISSUE IN PAR A 3 OF THE ASSESSMENT ORDER. THE DISALLOWANCE IS MADE ON THE SAM E REASONING AND CONCLUSIONS AS IN THE IMMEDIATELY PRECEDI NG ASSESSMENT YEARS IN THE ASSESSEE'S OWN CASE WHEREIN SIMILAR DISALLOWANCE WAS MADE WHICH WAS UPHELD BY THE CIT(A) A T THE APPELLATE STAGE. 15 3.3 I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE A PPELLANT AND PERUSED MATERIAL ON RECORD. THIS ISSUE AROSE FOR ASS ESSMENT YEAR 2003-04 IN CASE OF THE APPELLANT WHERE FOR REASO NS GIVEN IN PARA 7 OF THE APPELLATE ORDER DT.11/10/2006 UNDER A PPEAL NO.PN/CIT(A)-I/AC CIR-1(1)/PN/77/06-07 IT HAS BEEN H ELD THAT ACTION OF THE ASSESSING OFFICER IS JUSTIFIED ON FACTS AND IN ACCORDANCE WITH THE LAW, WHICH WAS ALSO UPHELD IN ASSESSM ENT YEAR 2004-05. SINCE THE FACTUAL AND LEGAL POSITION ON TH E ISSUE IS THE SAME AS LIKE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR S, FOLLOWING THE DECISION OF THIS OFFICE FOR A.Y. 2003-0 4 AS CONTAINED IN PARA 7 OF THE ORDER DT.11/10/2006 IT IS HELD THAT TH E ACTION OF THE ASSESSING OFFICER IS JUSTIFIED ON FACTS AND IN ACCORDANCE WITH LAW AND DOES NOT CALL FOR ANY INTERFERENCE. GROUNDS NO. 2 & 3 ARE HELD TO HAVE NOT MERIT AND THEY FAIL. 3. NOW BEFORE US AN ORDER OF ITAT 'A' BENCH PUNE IN ASSESSES OWN CASE FOR A.Y 2003-04 BEARING ITA NO. 1407/PN/2006 DA TED 29-05-2009 WHEREIN VIDE PARA 5 6 & 7 IT WAS HELD AS UNDER : 5. WE FIND THAT, IN THE PRESENT CASE, THE ASSESSEE HAS GIVEN EVIDENCE OF THE FACT THAT THE ACTUAL USEFUL LIKE OF THE DIES IS LESS THAN 12 MONTHS, AND NO DEFECTS HAVE BEEN FILED IN THE CERT IFICATE TO THAT EFFECT ISSUED BY THE ASSESSEES AUDITOR. THE NATURE OF A SSESSEES WORK, I.E. MANUFACTURES VARIOUS TYPES OF SMALL FORGINGS, IS SUCH THAT DIES, WHICH ARE MADE AS PER CUSTOMER SPECIFICATIONS, ARE REQUIRED TO BE MADE WHICH HAVE LIMITED LIFE. AS TO WHAT IS T HE ACTUAL LIFE OF DIES IS ESSENTIALLY A QUESTION OF FACT AND MERELY BECAUS E THE ASSESSEE HAS AMORTIZED THE SAME FOR A PERIOD OF THREE YEA RS IN PAST, IT CANNOT BE SAID THAT THE LIFE OF THE DIES IS LESS THAN ONE YEAR EVEN AT PRESENT. WE HAVE ALSO TAKEN NOTE OF THE DETAILS FILED BY THE ASSESSEE IN THE PAPER BOOK WHICH SHOWS THAT OVER 90% OF T HE DIES ARE WORN OUT, EVEN AFTER CARRYING OUT RESINKING TO ADD TO THE LIFE OF THE DIES, WITHIN ONE YEAR. IN THESE CIRCUMSTANCES, CLAI M OF THE ASSESSEE CANNOT BE SIMPLY BRUSHED ASIDE, AS WAS DONE BY THE AUTHORITIES BELOW. 6. THE VERY FOUNDATION OF THE STAND OF THE AUTHORITI ES BELOW IS THUS UNSUSTAINABLE IN LAW. WE ARE ALIVE TO THE FACT T HAT THE ABOVE OBSERVATIONS WERE MADE IN THE CASE OF A PUBLIC SECTOR C ORPORATION IN WHICH, AS SPECIFICALLY OBSERVED BY THEIR LORDSHIPS, M ALAFIDES WERE RULED OUT, BUT, IN OUR CONSIDERED VIEW, THESE OB SERVATIONS WOULD EQUALLY APPLY TO THE SITUATION BEFORE US IN WHI CH DEVIATION FROM THE PAST ACCOUNTING PRACTICES IS JUSTIFIED BY THE FACTS OF THE CASE AND THE SAME METHOD HAS BEEN CONSISTENTLY FOLLOWED IN SUBSEQUENT YEARS. IN ANY CASE, THIS CHANGE IS NOT OUT OF TUNE WITH GROUND REALTIES OF BUSINESS AS EVIDENT FROM THE FOLLOWIN G OBSERVATIONS BY A COORDINATE BENCH IN THE CASE OF SUNB EAM AUTO LTD. VS. CIT (2006) 100 TTJ 209 WHEREIN OUR DISTINGUI SHED COLLEAGUES HAVE OBSERVED AS UNDER : EXPENSES ON REPLACEMENT OF WORN OUT DIES WHICH ADMIT TEDLY HAD A LIFE SPAN OF APPROXIMATELY ONE YEAR CANNOT BE TREATE D AS CAPITAL EXPENDITURE AND, THEREFORE, CIT WAS NOT JUSTIFIED IN PASSING ORDER U/S.263 ON THE GROUND THAT THE A.O. ALLOWED DEDUCTIO N FOR THE SAME AS REVENUE EXPENDITURE, MORE SO WHEN THE CIT HIMSELF C OULD NOT COME TO A DEFINITE FINDING THAT THE SAID EXPENDITURE WAS A CAPITAL EXPENDITURE. 16 7. IN VIEW OF THE ABOVE DISCUSSIONS, AS ALSO BEARING IN M IND ENTITY OF THE CASE, WE ARE OF THE CONSIDERED VIEW THA T THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN DECLINING THIS CHANGE IN ACCOUNTING POLICY OF THE ASSESSEE, AND IN THUS DECLINING DEDUCTION, AS REVENUE EXPENDITURE, OF THE SAME. WE, THEREFORE, DIRECT THE AO TO DELETE THE IMPUGNED DISALLOWANCE. 4. WE HAVE NO REASON TO DEVIATE FROM THE VIEW ALREAD Y TAKEN BY A RESPECTED COORDINATE BENCH IN ASSESSEES OWN CASE. FOLLOW ING THE ABOVE CITED DECISION FOR THIS YEAR AS WELL WE HEREBY DIRECT TO ALLOW THE CLAIM. GROUNDS ALLOWED. 11.1 WE FIND THE REVENUE HAS NOT ACCEPTED THE DECIS ION OF THE TRIBUNAL AND HAS FILED AN APPEAL BEFORE THE HONBLE HIGH COU RT WHICH IS STILL PENDING. FROM THE ABOVE, IT IS CLEAR THAT THE REVE NUE HAS FILED THE PRESENT APPEAL JUST TO KEEP THE MATTER ALIVE. 11.2 SO FAR AS THE DECISION OF HONBLE KERALA HIGH COURT IN THE CASE OF S.T.N. TEXTILES LTD. REPORTED IN 257 ITR 161 AS REL IED ON BY THE REVENUE IN THE GROUNDS IS CONCERNED, WE FIND THE FACTS IN T HAT CASE ARE COMPLETELY DIFFERENT. THE ASSESSEE IN THAT CASE HAD CLAIMED T HE DEDUCTION OF A SUM OF RS.11,11,600/- ON REPLACEMENT OF ELECTRIC CONTROL P ANEL AS CURRENT REPAIRS WHICH WAS REJECTED BY THE ASSESSING OFFICER . THE CLAIM WAS ALLOWED BY THE CIT(A) AND UPHELD BY THE TRIBUNAL. ON FURTHER APPEAL BY THE DEPARTMENT, THE HONBLE HIGH COURT HELD THAT WHAT H AD BEEN DONE IN THIS CASE WAS THAT AN OLD EQUIPMENT WAS REPLACED WITH A NEW EQUIPMENT AND THEREFORE THE SAME COULD NOT BE SAID AS CURRENT REP AIR OF THE EQUIPMENT. FINALLY, THE HONBLE HIGH COURT RESTORED THE ISSUE TO THE TRIBUNAL TO CONSIDER THE SECOND QUESTION OF LAW FORMULATED BY T HE REVENUE WHICH READS AS UNDER : 2. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE IS THAT THE EXPENDITURE OF RS.11,11,600/- INCURRED ON REPLACEMENT OF ELECTRIC CONTROL PANEL A CAPITAL EXPENDITURE? 17 THEREFORE, THE DECISION RELIED ON BY THE REVENUE IN THE GROUNDS OF APPEAL IS NOT AT ALL APPLICABLE TO THE FACTS OF THE PRESEN T CASE AND IS DISTINGUISHABLE. IN THIS VIEW OF THE MATTER AND RE SPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL CI TED (SUPRA) THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. ITA NO.1577/PN/2011 (BY ASSESSEE) (A.Y. 2007-08) : 12. GROUNDS OF APPEAL NO.1.1 AND 1.2 BY THE ASSESSE E READ AS UNDER : 1.1 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- I, PUNE ERRED IN CONFIRMING THE DISALLOWANCE OF EXPENDITURE OF RS. 10,33,853/- U/S. 40(A)(IA) OF THE INCOME TAX ACT, 1961 IN RESPECT OF SHORT DEDUCTION OF TAX. 1.2 HE ERRED IN NOT APPRECIATING THAT SECTION 40(A) (IA) DOES NOT PROVIDE FOR DISALLOWANCE IN CASE OF SHORT DEDUCTION OF TAX. 12.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSE SSING OFFICER OBSERVED FROM ANNEXURE-XIV TO THE TAX AUDIT REPORT THAT THER E IS SHORT DEDUCTION OF TDS OF RS.1,07,428/- U/S.194C AND RS.16,349/- U/ S.194A. THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE EXPENDITURE CORRESPONDING TO SUCH SHORT DEDUCTION SHOULD NOT BE DISALLOWED U/S.40(A)(IA) OF THE I. T. ACT. IT WAS SUBMITTED B Y THE ASSESSEE COMPANY THAT THE AUDITORS HAVE INADVERTENTLY REPORTED WRONG AMOUNTS OF SHORTFALL AND THE CORRECT AMOUNT OF SHORT DEDUCTION WORKS OUT TO RS.19,148/- U/S.194C AND RS.16.349/- U/S.194A. IT WAS FURTHER EXPLAINED THAT SECTION 40(A)(IA) DOES NOT PROVIDE FOR DISALLOWANCE IN CASE OF SHORT DEDUCTION. HOWEVER, THE ASSESSING OFFICER REJECTED THE ABOVE E XPLANATION OF THE ASSESSEE. ACCORDING HIM SHORTFALL MEANS SOME TAX H AS BEEN DEDUCTED AND SOME HAS NOT BEEN DEDUCTED WHICH AMOUNTS TO NON-DED UCTION OF TDS TO 18 THAT EXTENT. THEREFORE, THE PROVISIONS OF SECTION 40(A)(IA) ARE TO BE APPLIED CORRECTLY IN THIS CASE. THE ASSESSING OFFICER ACC ORDINGLY DISALLOWED THE EXPENDITURE OF RS.10,33,853/- WHICH HE WORKED OUT O N THE BASIS OF REVISED AMOUNTS OF SHORTFALL AS SUBMITTED BY THE ASSESSEE. IN APPEAL THE LD.CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICE R. 12.2 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE AS SESSEE IS IN APPEAL BEFORE US. 13. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE FIND AN I DENTICAL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN THE CASE OF BHARAT FORGE LTD. VS. ADDL.CIT. WE FIND THE TRIBUNAL VIDE ITA NO.340/PN/2012 ORDER DAT ED 30-09-2013 FOR A.Y. 2007-08 HAD DECIDED AN IDENTICAL ISSUE IN FAVO UR OF THE ASSESSEE BY OBSERVING AS UNDER : 17. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. OSTENSIBLY, THE POINT MADE OUT BY THE ASSESSEE, IS TO THE EFFECT THAT SE CTION 40(A)(IA) OF THE ACT CAN BE INVOKED ONLY IN CASES WHERE THERE IS A NON- DEDUCTION OF TAX AT SOURCE AND NOT IN CASES WHERE THERE IS SHORT-DEDUCTION OF TAX AT SOURCE. IN THE PRESENT CASE, THE CHARGE MADE BY THE ASSESSING OFFIC ER IS THAT ASSESSEE HAS NOT DEDUCTED TAX AT APPROPRIATE RATE UNDER SECTI ON 194C OF THE ACT. WITHOUT GOING INTO THE MERITS OF THE RIVAL CLAIMS, FO R THE PRESENT, IT IS SUFFICIENT TO OBSERVE THAT THE ASSESSEE HAS BEEN HELD TO BE AN ASSESSEE IN DEFAULT FOR THE REASON THAT IT DEDUCTED TAX AT SOURC E ON PAYMENTS MADE BY WAY OF DIE REPAIRS AND MOTOR REWINDING EXPENSES WHICH WAS LOWER THAN THE RATE PRESCRIBED IN LAW, AS PER THE VIEW OF THE ASSE SSING OFFICER. THE CONTROVERSY IS AS TO WHETHER IN SUCH A SITUATION, PROVISI ONS OF SECTION 40(A)(IA) OF THE ACT CAN BE ATTRACTED SO AS TO DISALLO W THE CORRESPONDING EXPENDITURE, WHICH ACCORDING TO THE ASSESSING OFFICER H AS SUFFERED DEDUCTION AT LOWER RATE OF TAX AT SOURCE. 18. TO ANSWER THE AFORESAID CONTROVERSY, ONE MAY NOTI CE THE CRUCIAL EXPRESSION IN SECTION 40(A)(IA) OF THE ACT WHICH PRESC RIBES THAT THE EXPENDITURE SPECIFIED THEREIN SHALL BE DISALLOWED ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TA X HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID ON O R BEFORE THE DUE DATE 19 SPECIFIED IN SUBSECTION (1) OF SECTION 139. CLEARLY, THE PHRASEOLOGY TO SECTION 40(A)(IA) OF THE ACT SEEKS TO DISALLOW AN EXPE NDITURE ONLY IN SITUATIONS WHERE THE TAX IS DEDUCTIBLE AT SOURCE AND SUC H TAX HAS NOT BEEN DEDUCTED OR AFTER DEDUCTION HAS NOT BEEN PAID AS PER THE PERIOD PRESCRIBED THEREIN. THE PHRASEOLOGY USED IN SECTION 40 (A)(IA) OF THE ACT CLEARLY REMOVES FROM ITS PURVIEW CASES WHERE TAX HAS BEE N SHORT- DEDUCTED. THEREFORE, THE INFERENCE DRAWN BY THE CIT (A) IS BORNE OUT OF A PLAIN READING OF SECTION 40(A)(IA) OF THE ACT. MORE OVER, THE DECISIONS OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF SANDVIK ASI A LTD. VS. JCIT 146 TTJ 644 (PUNE); AND, ALSO THE MUMBAI BENCH OF THE TR IBUNAL IN THE CASE OF CHANDABHOY & JASSOBHOY VIDE ITA NO.20/MUM?2010 DATED 08.07.2011 SUPPORT THE AFORESAID PREMISE. THUS, IN THE PRESENT CASE THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT ARE NOT ATTRACTED AS TH IS IS A CASE OF SHORT- DEDUCTION OF TAX AT SOURCE UNDER SECTION 194C OF THE ACT AND NOT A CASE OF NON-DEDUCTION OF TAX AT SOURCE. THE DISALLOWANCE OUT OF DIE REPAIRS AND MOTOR REWINDING EXPENSES IS HEREBY SET-ASIDE. 13.1 RESPECTFULLY FOLLOWING THE DECISION OF THE TRI BUNAL IN THE CASE OF BHARAT FORGE LTD. (SUPRA) AND IN ABSENCE OF ANY CON TRARY MATERIAL BROUGHT TO OUR NOTICE, WE SET-ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE MA DE U/S.40(A)(IA) IN RESPECT OF SHORT DEDUCTION OF TAX. GROUNDS OF APPE AL NO.1.1 AND 1.2 BY THE ASSESSEE ARE ACCORDINGLY ALLOWED. 14. GROUNDS OF APPEAL NO.2.1 AND 2.2 BY THE ASSESSE E ARE AS UNDER : 2.1 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- I, PUNE ERRED IN CONFIRMING THE DISALLOWANCE OF SOFTWARE UPGRADATI ON EXPENSES AS CAPITAL EXPENDITURE. 2.2 HE ERRED IN NOT APPRECIATING THAT THE UPGRADATI ON EXPENSES DID NOT MAKE AVAILABLE THE BENEFITS OF ENDURING NATURE AND T HAT MERE ENTRY OF 'COMPUTER SOFTWARE' INTO APPENDIX I TO INCOME TAX R ULES, 1962 DID NOT NECESSARILY MEAN THAT ALL SOFTWARE EXPENSES HAVE TO BE C OMPULSORILY TREATED AS CAPITAL EXPENDITURE. 14.1 AFTER HEARING BOTH THE SIDES WE FIND THE ASSES SEE HAS INCURRED COMPUTER SOFTWARE EXPENSES OF RS.17,40,969/- WHICH HAS BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT UNDER THE HEAD MISCELL ANEOUS EXPENSES. FROM THE VARIOUS DETAILS FURNISHED BY THE ASSESSEE THE AO NOTED THAT THE SAME INCLUDES AN AMOUNT OF RS.7,54,391/- TOWARDS TH E FOLLOWING : 20 14.2 ACCORDING TO THE AO THESE EXPENSES ARE IN NATU RE OF CAPITAL EXPENDITURE WHICH HAS BEEN INCURRED BY THE ASSESSEE FOR PURCHASE OF COMPUTER SOFTWARE. THEREFORE, HE ALLOWED DEPRECIAT ION ON THE ABOVE @60% WHICH COMES TO RS.4,52,635/-. IN APPEAL THE L D.CIT(A) FOLLOWING THE ORDER OF HIS PREDECESSOR FOR A.Y. 2006-07 IN AS SESSEES OWN UPHELD THE ACTION OF THE AO. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 14.3 WE FIND AN IDENTICAL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2006-07. WE FIND THE TRIBUNAL VIDE ITA NO.1131/PN/2010 ORDER DATED 27-08-2012 FOR A.Y. 200 6-07 HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY OBSERVING AS UNDER : 5. CONSIDERING ABOVE SUBMISSION AND HAVING GONE THROUG H THE DECISIONS RELIED UPON WE FIND THAT THE LD. CIT (A) HA S UPHELD THE VIEW OF THE AO TREATING EXPENDITURE INCURRED ON INSTALLATION OF WINDOWS XP SOFTWARE AS OF ENDURING BENEFIT FOLLOWING THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF AMWAY INDIA ENTERPRISES V S. DCIT (2008) 111 ITD 112 DELHI (SB). THE LD. CIT (A) HAS OBSERVED THAT THE WINDOWS XP VERSION PROVIDES AN ENDURING BENEFIT TO AN ASSESSEE OVER A PERIOD OF TIME, SAY MORE THAN TWO YEARS. THE CONTENTION OF THE ASSESSEE R EMAINED THAT THE EXPENDITURE INCURRED ON INSTALLATION / UPGRADATION O F SOFTWARE ENABLE THE FASTER AND MORE EFFICIENT WORKING OF COMPUTERS. SUCH UPGRADATION ALSO BECOMES OBSOLETE IN A MATTER OF 1-2 YEARS IN THESE TIME S OF RAPID TECHNOLOGICAL ADVANCEMENT. IT WAS CONTENDED THAT THE ASSESSEE COMPANY HAS NOT ACQUIRED ANY NEW OPERATING SYSTEM FOR THE COMP UTERS BUT MERELY UPGRADED THE EXISTING OPERATING SYSTEM AND THEREFORE, IT CANNOT BE HELD THAT THE ASSESSEE HAS ACQUIRED ANY CAPITAL ASSET. WE ARE A FRAID THE LD. CIT(A) HAS FAILED TO APPRECIATE THE DECISION OF HON'B LE MADRAS HIGH COURT SR.NO. PARTICULARS AMOUNT (RS.) B. SOFTWARE FOR MATERIALS 25,275/- C. SOFTWARE FOR QMS, EWQMS 4,16,000/- D. FINANCIAL SOFTWARE LICENSE PURCHASE (E FORM 1 WIZARD) 5,616/- E. GRAPHICAL USER INTERFACE-BUSINESS PROCESS RE-ENGINEERING SOFTWARE-PAID TO KSPL 75,000/- F. DEVELOPMENT OF SOFTWARE CHARGES FOR TIME OFFICE SYSTEM AND SUCH OTHER SOFTWARE PAID TO KSPL 2,32,500/- 21 IN THE CASE OF CIT VS. SOUTHERN ROADWAYS LTD. (SUPRA) AND THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL, IN THE CASE OF AMWAY INDIA ENTERPRISES VS. DCIT (SUPRA) IN PROPER PROSPECTIVE. THE HON'BLE MADR AS HIGH COURT IN THE CASE OF CIT VS. SOUTHERN ROADWAYS LTD. (SUPRA) HAS BEE N PLEASED TO OBSERVE THAT THE EXPENSES INCURRED BY INSTALLATION OF SO FTWARE PACKAGES IN THE PRESENT COMPUTER WORLD, WHICH RESOLVES ON THE MODE RN COMMUNICATION TECHNOLOGY ENABLES THE ASSESSEE TO CARRY O N ITS BUSINESS OPERATIONS EFFECTIVELY, EFFICIENTLY, SMOOTHLY AND PRO FITABLY. HOWEVER, SUCH SOFTWARE ITSELF DOES NOT WORK ON A STAND ALONE BASIS. IT HAS TO BE FITTED TO A COMPUTER SYSTEM TO WORK. SUCH SOFTWARE ENHANCES THE EFF ICIENCY OF THE OPERATION. IT IS AN AID IN THE MANUFACTURING PROCESS R ATHER THAN THE TOOL ITSELF. THEREFORE, THE PAYMENT FOR SUCH APPLICATION OF SOFTWARE, THOUGH THERE IS AN ENDURING BENEFIT, DOES NOT RESULT IN ACQUI SITION OF ANY CAPITAL ASSET AND IT MERELY ENHANCES THE PRODUCTIVITY OR EFFIC IENCY AND HENCE, HAS TO BE TREATED AS REVENUE EXPENDITURE, HELD THE HON'B LE HIGH COURT. IN THAT CASE THE ASSESSEE HAD CLAIMED THE EXPENDITURE INCURRED O N SOFTWARE PACKAGE AS REVENUE EXPENDITURE BUT THE SAME WAS DISALLO WED BY THE REVENUE. THE HON'BLE HIGH COURT WHILE DISPOSING OFF T HE APPEAL HAS ALSO BEEN PLEASED TO OBSERVE THAT THE CONCEPT OF ENDURING BENEFIT MUST RESPOND TO THE CHANGING ECONOMIC REALITIES OF THE BU SINESS. THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF AMWAY INDIA ENT ERPRISES VS. DCIT (SUPRA) HAS OBSERVED THAT COMPUTER SOFTWARE HAS NOT BEE N DEFINED IN THE ACT BUT IN NOTE 7 TO APPENDIX-I TO THE IT RULES, IT HAS BEEN EXPLAINED TO INCLUDE COMPUTER PROGRAMME RECORDED ON ANY DISK, TAP E, PERFORATED MEDIA OR OTHER INFORMATION STORAGE DEVICE. THE QUESTI ON AS TO WHETHER THE EXPENDITURE IS IN CAPITAL OR REVENUE FIELD CANNOT BE DECIDED ON THE BASIS OF OWNERSHIP TEST ALONE AND THE FUNCTIONAL TEST BECOMES MO RE IMPORTANT AND RELEVANT. THE TRIBUNAL OBSERVED FURTHER THAT GENERAL MODE IS TO ACQUIRE COMPUTER SOFTWARE ON A LICENSE BUT THAT BY ITSELF WILL NOT BE SUFFICIENT TO CONCLUDE THE SAID EXPENDITURE AS REVENUE EXPENDITURE, IF ON APPLICATION OF THE FUNCTIONAL TEST, IT IS FOUND THAT THE EXPENDITURE OPERATES TO CONFER A BENEFIT IN THE CAPITAL FIELD. WHERE THE LIFE OF THE COMPUTER SOFTWARE IS SHORTER (SAY LESS THAN 2 YEARS), IT MAY BE TREATED AS RE VENUE EXPENDITURE. HOWEVER, THAT BY ITSELF WILL NOT MAKE THE EXPENDITU RE INCURRED ON SOFTWARE AS CAPITAL IN NATURE AND THE FUNCTIONAL TEST ALSO NEEDS TO BE SATISFIED. WHAT IS MATERIAL TO CONSIDER IS THE NATURE OF THE ADVANTAGE IN A COMMERCIAL SENSE. IF THE ADVANTAGE CONSISTS MERELY IN F ACILITATING THE ASSESSEE'S TRADING OPERATIONS OR ENABLING THE MANAGEMENT AND CONDUCT OF THE ASSESSEE'S BUSINESS TO BE CARRIED ON MORE EFFICIENTLY O R MORE PROFITABLY WHILE LEAVING THE FIXED CAPITAL UNTOUCHE D, THE EXPENDITURE WOULD BE ON REVENUE ACCOUNT, EVEN THOUGH THE ADVANT AGE MAY ENDURE FOR AN INDEFINITE FUTURE, HELD THE TRIBUNAL. THE TRIBUN AL HELD FURTHER THAT THE NEXT FACTOR TO BE CONSIDERED IS DEGREE OF ORGANIZATI ONAL CHANGES. MORE RADICAL THE CHANGES, THE MORE LIKELY THE EXPENDITURE WILL BE CAPITAL AND THE CHANGES ARE LIKELY TO BE MOST RADICAL WHEN OPERATIONS PREVIOUSLY CARRIED ON MANUALLY ARE COMPUTERIZED UPGRADING THE SOFTWARE WILL NOT NECESSARILY CAUSE THE EXPENDITURE IN QUESTION TO BE CAPITAL. THE TRIBUNAL HELD THAT THESE CRITERIA NEED TO BE APPLIED TO DETERMINE THE E XACT NATURE OF THE EXPENDITURE INCURRED BY THE ASSESSEE FOR ACQUIRING DIFF ERENT SOFTWARES INDEPENDENTLY. THE LD. CIT (A) THUS IN OUR VIEW WAS N OT JUSTIFIED IN TREATING THE CLAIMED EXPENDITURE AS CAPITAL IN NATUR E ON THE BASIS THAT AS PER THE PRINCIPLE LAID DOWN BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF AMWAY ENTERPRISES THE WINDOW XP PROVIDES AN ENDURIN G BENEFIT TO THE ASSESSEE OVER A PERIOD OF TIME, SAY MORE THAN 2 YEARS. T HE LD. CIT (A) HAS NOT APPLIED THE DECISION OF THE SPECIAL BENCH IN THE CASE OF AMWAY INDIA ENTERPRISES (SUPRA) IN ITS TOTALITY. THE SPECIAL BENCH OF THE TRIBUNAL WHILE HOLDING THAT WHERE LIFE OF THE COMPUTER SOFTWARE IS SH ORTER (SAY LESS THAN 2 YEARS) IT MAY BE TREATED AS REVENUE EXPENDITURE, HAS F URTHER HELD THAT THE 22 LIFE OF THE COMPUTER SOFTWARE BY ITSELF WILL NOT MAK E THE EXPENDITURE INCURRED ON SOFTWARE AS CAPITAL IN NATURE AND THE FUN CTIONAL TEST ALSO NEEDS TO BE SATISFIED. THE SPECIAL BENCH HAS HELD THAT WHAT IS MATERIAL TO CONSIDER IS THE NATURE OF ADVANTAGE IN A COMMERCIAL SE NSE. IF THE ADVANTAGE CONSISTS MERELY IN FACILITATING THE ASSESSEE'S TRADING OPER ATIONS OR ENABLING THE MANAGEMENT AND CONDUCT OF THE ASSESSEE'S BU SINESS TO BE CARRIED ON MORE EFFICIENTLY OR MORE PROFITABLY WHIL E LEAVING THE FIXED CAPITAL UNTOUCHED, EXPENDITURE, IS TO BE ON REVENUE ACCOUNT EVEN THOUGH THE ADVANTAGE MADE ENDURE IN AN INDEFINITE FUTURE. WHEN WE CONSIDER FACTS OF THE PRESENT CASE IN VIEW OF THE ABOVE FINDIN GS OF HON'BLE MADRAS HIGH COURT AND THE SPECIAL BENCH WE FIND THAT THE E XPENDITURE INCURRED ON UPGRADATION OF THE SOFTWARE BY REPLACING THE EARLIE R VERSION WITH WINDOWS XP THOUGH MAY ENDURE THE ADVANTAGE FOR MAY BE MORE THAN 2 YEARS BUT THE ADVANTAGE CONSISTS MERELY IN FACILITATING THE ASSESSE E'S TRADING OPERATIONS OR ENABLING THE MANAGEMENT AND CONDUCT OF ASSESSEE'S BUSINESS TO BE CARRIED ON MORE EFFICIENTLY OR MORE PRO FITABLY WHILE LEAVING THE FIXED CAPITAL UNTOUCHED, HENCE IN VIEW OF THE D ECISIONS OF SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF AMWAY INDIA ENT ERPRISES, THE EXPENDITURE WOULD BE OF REVENUE ACCOUNT. WE THUS HEL D THAT THE CLAIMED EXPENDITURE OF RS.2,39,950/- AS REVENUE IN NATURE WAS JUSTIFIED. THE GROUND NOS. 1.1 AND 1.2 ARE THUS ALLOWED. 14.4 RESPECTFULLY FOLLOWING THE DECISION OF THE TRI BUNAL IN ASSESSEES OWN CASE IN THE IMMEDIATELY PRECEDING ASSESSMENT YE AR AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE, WE SET -ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO ALLOW TH E CLAIM OF SOFTWARE UPGRADATION EXPENSES AS REVENUE IN NATURE. GROUNDS OF APPEAL NO. 2.1 AND 2.2 BY THE ASSESSEE ARE ACCORDINGLY ALLOWED. 15. GROUNDS OF APPEAL NO. 3.1 AND 3.2 BY THE ASSESS EE READ AS UNDER : 3.1 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - I, PUNE ERRED IN CONFIRMING THE DISALLOWANCE OF DEPRECIATION OF RS. 60,633/- ON THE SUPERSONIC OXYGEN LANCING MACHINE BY ALLOWING DEPREC IATION @ 15% AS AGAINST 80% AS CLAIMED BY THE APPELLANT COMPANY. 3.2 HE ERRED IN NOT APPRECIATING THAT SUPERSONIC OXY GEN LANCING MACHINE WAS A PART AND PARCEL OF 'EMULSION BURNER' CA TEGORIZED UNDER THE HEAD ENERGY SAVING DEVICES IN APPENDIX-I TO THE INC OME TAX RULES AND ELIGIBLE FOR DEPRECIATION @80% AND THE APPELLANT CO MPANY HAD CLAIMED THE DEPRECIATION BASED ON CHARTERED ENGINEERS CERTI FICATE. 23 15.1 AFTER HEARING BOTH THE SIDES WE FIND THIS ISSU E IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSE ES OWN CASE FOR A.Y. 2006-07. WE FIND THE TRIBUNAL AT PARA 8 AND 9 OF T HE ORDER HAS DISCUSSED AND OBSERVED AS UNDER : 8. HAVING GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW WE FIND THAT THE AO HAS DENIED THE CLAIMED DEPRECIATION @ 80 % ON THE DEVICE SUPERSONIC OXYGEN LANCING MACHINE ON THE BASIS THAT IT IS NOT LISTED IN THE 'ENERGY SAVING DEVICES' LISTED IN APPENDIX-I, RULE 5, ITEM NO. III (VIII) (IX) OF THE IT RULES. AS PER THE ASSESSING OFFICER FOR THE PUR POSE OF CATEGORIZING ANY ITEM AS 'ENERGY SAVING DEVICE' IT SHOULD HAVE A D IRECT CONNECTION WITH THE SAVING OF ENERGY CONSUMPTION IN AS MUCH AS THEY EI THER DIRECTLY PRODUCE ENERGY OR REDUCE ELECTRICITY CONSUMPTION DIR ECTLY. THE AO WAS OF THE OPINION THAT SUPERSONIC OXYGEN LANCING MACHINE I S NOT A MACHINE OR DEVICE THAT DIRECTLY REDUCE ENERGY OR POWER CONSUMPT ION AND ACCORDINGLY NOT ELIGIBLE FOR DEPRECIATION @ 80%. THE AO HELD TH E DEVICE IN THE CATEGORY OF 'PLANT AND MACHINERY' AND ACCORDINGLY R ESTRICTED THE APPLICATION OF DEPRECIATION @ 15%. THIS ACTION OF TH E AO HAS RESULTED IN THE DISALLOWANCE OF RS.12,12,661/- BEING EXCESS DEPRECI ATION CLAIMED. ON PERUSAL OF PART - III (8) (IX) OF APPENDIX -I TO INC OME TAX RULES, 1962, WE FIND THAT 80% DEPRECIATION HAS BEEN PROVIDED ON BURN ERS IN CLAUSE 'F'. SUCH BURNERS HAVE BEEN SHOWN CONSISTING OF (A) 0 - 10% EXCESS AIR BURNERS, (B) 'EMULSION BURNERS', AND (C) BURNERS USING AIR WITH HIGH PRE-HEAT TEMPERATURE (ABOVE 300 C). 9. THE CONTENTION OF ASSESSEE REMAINED THAT THE SUPE RSONIC OXYGEN LANCING SYSTEM PURCHASE BY IT RESULTS IN SAVING OF EN ERGY CONSUMPTION AND IS A PART AND PARCEL OF 'EMULSION BURNER' AS SPEC IFIED HEREINABOVE. THE LD. CIT (A) HAS DEALT WITH THE ISSUE IN DETAIL TO WHICH WE FULLY CONCUR WITH SINCE UNDISPUTEDLY THE SUPERSONIC OXYGEN LANCING M ACHINE IS NOT INCLUDED IN THE LIST OF 'ENERGY SAVING DEVICES' MENTION ED IN RULE, 5 APPENDIX - I, PART 'A' (8) (IX) OF INCOME TAX RULES, 1962, FOR THE PURPOSE OF HIGHER RATE OF DEPRECIATION. IT IS ALSO NOT AN 'EMULSIO N BURNER', AS LISTED UNDER ITEM (B) OF CATEGORY T' OF 'ENERGY SAVING DEVICE S' MENTIONED IN RULE 5, APPENDIX - I PART 'A' (8) (IX) OF IT RULES AS IT IS ONLY A DEVICE TO INJECT OXYGEN AT A PARTICULAR SPEED INTO THE FURNESH, WHICH INDIRECTLY RESULTS IN EFFICIENT UTILIZATION OF ELECTRIC POWER IN THE FURNESH. WE THUS FULLY CONCUR WITH THE FINDING OF THE LD. CIT (A) THAT THE SUPERSONIC OXYGEN LANCING SYSTEM ONLY FACILITATES EFFICIENT UTILIZATION OF E LECTRIC POWER IN THE FURNESH BY USE OF ANOTHER FORM OF ENERGY I.E. OXYGEN AND THEREFORE, IT WOULD NOT FALL IN THE CATEGORY OF 'ENERGY SAVING DEVIC ES' AS CONTEMPLATED ITEM (8) (IX) OF APPENDIX - I OF IT RULES. THE FIRST AP PELLATE ORDER IN THIS REGARD IS THUS UPHELD. 15.2 RESPECTFULLY FOLLOWING THE DECISION OF THE TRI BUNAL IN ASSESSEES OWN CASE IN THE IMMEDIATELY PRECEDING ASSESSMENT YE AR AND IN ABSENCE OF 24 ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE BY THE LD. COUNSEL FOR THE ASSESSEE THE ABOVE GROUNDS ARE DISMISSED. 16. GROUNDS OF APPEAL NOS. 4.1 TO 4.3 BY THE ASSESS EE ARE AS UNDER : 4.1 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - I, PUNE ERRED IN CONFIRMING THE DISALLOWANCE OF EXPENDITURE OF RS.2,05 ,38,545/- INCURRED ON REPLACEMENT OF ROLLING MILLS ROLLS TREATING THE SAME AS CAPITAL EXPENDITURE. 4.2 HE ERRED IN NOT APPRECIATING THAT THE SAID EXPENDIT URE WAS INCURRED BY THE APPELLANT COMPANY EVERY YEAR AND WAS INCURRED ON REPLACEMENT OF ROLLS. FURTHER MERELY BECAUSE THE RA TE OF DEPRECIATION IS PRESCRIBED ON ROLLING MILL ROLLS IN APPENDIX I TO INCOME TAX RULES, IT DOES NOT NECESSARILY MEAN THAT REVENUE EXPENDITURE INCURRED ON REPLACEMENT OF ROLLS WOULD BE CAPITAL EXPENDITURE. 4.3 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - I, PUNE ERRED IN NOT FOLLOWING THE DECISION OF PUNJAB & HARYANA HIGH C OURT IN THE CASE OF CIT V. MALHOTRA INDUSTRIAL CORPORATION (2002) 254 ITR 635 (P&H) AND THE RATIO OF THE DECISION OF KARNATAKA HIGH COURT IN THE CA SE OF CIT V. MYSORE SPUN CONCRETE PIPE PVT. LTD. (1992) 194 ITR 159 (KAR .). 16.1 AFTER HEARING BOTH THE SIDES, WE FIND THE ABOV E ISSUES STANDS DECIDED AGAINST THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2006-07. WE FIND THE TRIBUNAL VI DE ITA NO.1131/PN/2010 ORDER DATED 27-08-2012 AT PARA 15 O F THE ORDER HAS DECIDED THE ISSUE AGAINST THE ASSESSEE BY OBSERVING AS UNDER : 15. CONSIDERING THE ABOVE SUBMISSION WE FIND THAT THE A UTHORITIES BELOW HAVE DENIED THE CLAIMED EXPENDITURE AS REVENUE IN NATURE MAINLY ON THE BASIS THAT UPTO ASSESSMENT YEAR 2002-03, THE DEPRECIATION WAS PROVIDED ON THE ROLLS AT 100% BUT SUBSEQUENTLY THE R ATE OF DEPRECIATION ON THE SAID ROLLS WAS REDUCED FROM 100% TO 80% FROM THE ASSESSMENT YEAR 2003-04 ONWARDS. IT WAS HELD THAT ONCE AN ITEM OF ASSET IS INCLUDED IN THE APPENDIX-I OF THE IT RULES IT IS OF NO CONSEQUENCE WHETHER THAT AN ASSET WAS ACQUIRED PRIOR TO THE COMMENCEMENT OF THE B USINESS OR AFTER THE COMMENCEMENT OF THE BUSINESS AND THE ASSET HAS TO BE TREATED AS FIXED ASSET AND ONLY DEPRECIATION CAN BE ALLOWED ON THE VA LUE OF THE ASSET. IT WAS OBSERVED THAT THE ITEM OF IRON & STEEL INDUSTRIE S ROLLING MILL ROLL FINDS PLACE AT ITEM 8 (VII) IN APPENDIX-I OF THE IT RULE S AND DEPRECIATION AT HIGHER RATE OF 80% IS PROVIDED THEREIN, IN RESPECT OF SA ID ITEM, WHICH INDICATES THAT THE LEGISLATURE IS FULLY AWARE OF THE PO SITION THAT WEAR AND TEAR OF THE ROLLS USED IN THE STEEL INDUSTRY IS MORE AND REQUIRES FREQUENT 25 REPLACEMENT, THUS THE EXPENDITURE CANNOT BE TREATED AS REVENUE IN NATURE. THE LD.CIT(A) HAS OBSERVED THAT THE DECISION OF HONB LE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. MALHOTRA (SUPRA) RE LIED UPON BY THE ASSESSEE, IS RELATING TO THE EARLIER ASSESSMENT YEAR, I.E. BEFORE THE ASSESSMENT YEAR 2003-04 WHEN THE RATE OF DEPRECIATION ON THE SAID ROLLS WAS PROVIDED AT 100% AND IN THAT CONTEXT, IT WAS HELD THAT THE EXPENDITURE ON FREQUENT REPLACEMENT OF ROLLS WOULD CONSTITUTE CU RRENT REPAIRS. CONSIDERING THESE FACTS IN TOTALITY WE DO NOT FIND REASO N TO DEVIATE FROM THE FINDINGS OF THE AUTHORITIES BELOW. THE OTHER DECISIO NS RELIED UPON BY THE LD.AR ARE ALSO RELATED TO THE A.YS PRIOR TO A.Y. 2003-04. WE HOWEVER, FIND SUBSTANCE IN THE ALTERNATIVE ARGUMENT OF THE LD.A R THAT IN CASE THE EXPENDITURE CLAIMED IS HELD CAPITAL IN NATURE THE AO MAY BE DIRECTED TO ALLOW DEPRECIATION @80% WHICH IS AS PER APPENDIX-I OF TH E IT RULES. WE DIRECT THE AO ACCORDINGLY. 16.2 RESPECTFULLY FOLLOWING THE DECISION OF THE TRI BUNAL IN ASSESSEES OWN CASE AND IN ABSENCE OF ANY CONTRARY MATERIAL BR OUGHT TO OUR NOTICE, THE ABOVE GROUNDS BY THE ARE DISMISSED. 17. THE ASSESSEE HAS ALSO TAKEN ADDITIONAL GROUND W HICH READS AS UNDER: THE APPELLANT SUBMITS THAT ASSUMING WITHOUT ADMITTING THAT THE EXPENDITURE INCURRED ON REPLACEMENT OF ROLLING MILL ROL LS WAS A CAPITAL EXPENDITURE, THE LD. ASSESSING OFFICER OUGHT TO HAVE A LLOWED ADDITIONAL DEPRECIATION ON THE SAME AS PER SECTION 32(1)(IIA). 17.1 AFTER HEARING BOTH THE SIDES THE ADDITIONAL GR OUND RAISED BY THE ASSESSEE IS ADMITTED FOR ADJUDICATION. 17.2 WE FIND SIMILAR ADDITIONAL GROUND HAS BEEN TAK EN BY THE ASSESSEE VIDE ITA NO.1131/PN/2010 FOR A.Y. 2006-07. WE HAVE ALREADY DECIDED THE ISSUE AND GROUNDS HAS BEEN RESTORED TO THE FILE OF THE ASSESSING OFFICER WITH CERTAIN DIRECTIONS. FOLLOWING THE SAME RATIO, THE ADDITIONAL GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL P URPOSES. 18. IN THE RESULT, ITA NO.1131/PN/2010 FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES, ITA NO.2207/PN/2012 FILED BY THE ASSESSEE IS PARTLY ALLOWED, ITA NO.2045/PN/2012 FILED BY THE RE VENUE IS DISMISSED 26 AND ITA NO.1577/PN/2011 FILED BY THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 12-03-2014. SD/- SD/- (R.S.PADVEKAR ) ( R. K. PANDA ) JUDICIAL MEMBER ACCOUNTANT MEMBER SATISH PUNE, DATED 12 TH MARCH , 2014 COPY OF THE ORDER IS FORWARDED TO: 1. THE ASSESSEE 2. THE DEPARTMENT 3. THE CIT(A)-I, PUNE 4. THE CIT-I, PUNE 5. THE DR B BENCH, PUNE. 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, PUNE