DCIT, New Delhi V. M/s. Micron Instruments Pvt. Ltd., New Delhi

ITA 1227/DEL/2012

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 8837 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-01-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 15-01-2015
• Assessment Year: misc
• Appeal Filed On: 12-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R M MEHTA
• Assessee Lawyers: P DAM KANUNJHA
• Keywords: Capital asset; Revised return; Revenue expenditure; Capital expenditure
• Section: 142(1)

Judgement Text

ITA NO.1227/DEL/2012 ASSTT.YEAR: 2008-09 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES E NEW DELHI BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND SHRI CHANDRAMOHAN GARG, JUDICIAL MEMBER ITA NO. 1227/DEL/2012 ASSTT.YEAR: 2008-09 DY.DIRECTOR OF INCOME TAX, VS MICRON INSTU MENTS PVT. LTD., CIRCLE-6(1), 4/90, CONNAUGHT CIRCUS, NEW DELHI. NEW DELHI. (PAN: AAACM0386Q) (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI R.M. MEHTA, ADV. RESPONDENT BY: SHRI P.DAM KANUNJHA, SR. DR O R D E R PER CHANDRAMOHAN GARG, J.M. THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A)-IX, NEW DELHI DATED 25.11.2011 IN APPEAL NO. 26/10-11 FOR AY 2008-09. ALTHOUGH THE REVENUE HAS RAISED AS MANY A S FIVE GROUNDS IN THIS APPEAL BUT EXCEPT MAIN GROUND NO. 2, OTHER GROUNDS ARE ARGUMENTATIVE AND SUPPORTIVE TO THE MAIN GROUND NO. 2 WHICH READS AS UNDER:- 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING TH E DEDUCTION OF INTEREST OF RS.1,36,17,335/- AS REVENUE EXPENDIT URE EVEN THOUGH THE SAME WAS NEVER CLAIMED BY THE ASSESSEE I N THE RETURN OF INCOME. ITA NO.1227/DEL/2012 ASSTT.YEAR: 2008-09 2 2. BRIEF FACTS GIVING RISE TO THIS APPEAL ARE THAT THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF MANUFACTURING OF PRE CISION INSTRUMENTS MAINLY FOR THE MINISTRY OF DEFENCE, GOVT. OF INDIA, BRITISH AEROSPACE, UK AND FOR GE MED. THE ASSESSEE FILED A RETURN OF INCOME OF RS.27.9.2008 DECLARING AN INCOME OF RS.3,97,79,640 AND THE SAME WAS PROCES SED U/S 143(1) OF THE INCOME TAX ACT, 1961. SUBSEQUENTLY, THE CASE WAS S ELECTED FOR SCRUTINY THROUGH CASS AND STATUTORY NOTICES U/S 143(2) OF TH E ACT AND 142(1) OF THE ACT, ALONG WITH DETAILED QUESTIONNAIRE, WERE SERVED ON THE ASSESSEE. THE AO NOTICED THAT THE ASSESSEE PAID RS.2,66,97,900 TO WARDS PERMISSION FROM THE GOVERNMENT UNDER A NEW POLICY ALLOWED THE LAND TO BE USED FOR ANY OTHER PURPOSE BESIDES RUNNING A FACTORY INCLUDING T HE COMMERCIAL/SERVICE ACTIVITIES ON PAYMENT OF CERTAIN AMOUNT. THE SAID AMOUNT OF INSTALMENT WAS INCLUSIVE OF INTEREST OF RS.1,36,17,335/-. THE AO ALSO NOTICED THAT THE ASSESSEE DID NOT MAKE CLAIM IN THE RETURN OF INCOME BUT LATER PUT FORTH THE CLAIM OF INTEREST AS REVENUE EXPENDITURE THOUGH A L ETTER FILED DURING THE ASSESSMENT PROCEEDINGS AS IT WAS NOT CLAIMED IN THE PROFIT AND LOSS ACCOUNT. THE AO AFTER DETAILED DELIBERATIONS HELD THAT THE AMOUNT OF INSTALMENT INCLUSIVE OF INTEREST WAS CAPITAL IN NAT URE AND CANNOT BE ALLOWED AS REVENUE EXPENDITURE TO THE ASSESSEE. THE AO ALS O OBSERVED THAT THE CLAIM OF REVENUE EXPENDITURE PERTAINING TO INTEREST PAID IN THE INSTALMENT HAD NOT BEEN MADE IN THE RETURN, THEREFORE, THE SAM E IS NOT ALLOWABLE. ITA NO.1227/DEL/2012 ASSTT.YEAR: 2008-09 3 3. BEING AGGRIEVED BY THE ABOVE ASSESSMENT ORDER, T HE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) WHICH WAS ALL OWED ON THIS ISSUE. NOW, THE AGGRIEVED REVENUE IS BEFORE THIS TRIBUNAL WITH THE MAIN GROUND AS REPRODUCED HEREINABOVE. 4. WE HAVE HEARD ARGUMENTS OF BOTH THE SIDES AND CA REFULLY PERUSED THE RELEVANT MATERIAL PLACED ON RECORD BEFORE US. LD. DR SUBMITTED THAT IN VIEW OF DECISION OF HONBLE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD. VS CIT 284 ITR 323 SC, THE AO IS NOT EMPOWERED TO ENTERTAIN ANY CLAIM OF THE ASSESSEE WHICH COULD NOT BE PLACED IN THE RETUR N OF INCOME OR BY WAY OF A REVISED RETURN. LD. DR FURTHER SUBMITTED THAT TH E CIT(A) ERRED IN ALLOWING THE DEDUCTION OF INTEREST AS REVENUE EXPEN DITURE EVEN THOUGH THE SAME WAS NEVER CLAIMED BY THE ASSESSEE, EITHER IN T HE RETURN OF INCOME OR BY WAY OF REVISED RETURN OF INCOME. LD. DR FURTHER CONTENDED THAT THE ASSESSEE COULD HAVE CLAIMED IT BY WAY OF A REVISED RETURN DURING THE COURSE OF ASSESSMENT PROCEEDINGS ONLY AND CIT(A) WAS NOT E MPOWERED TO ALLOW THE SAME DURING THE FIRST APPELLATE PROCEEDINGS. L D. DR VEHEMENTLY CONTENDED THAT THE CIT(A) WAS NOT JUSTIFIED IN ALLO WING THE INTEREST AS REVENUE EXPENDITURE EVEN THOUGH THE SAME HAS BEEN I NCURRED IN RESPECT OF CAPITAL ASSET AS PER FACTS AND CIRCUMSTANCES OF THE CASE. LD. DR FINALLY PRAYED THAT THE IMPUGNED ORDER MAY BE SET ASIDE BY RESTORING THAT OF THE AO. ITA NO.1227/DEL/2012 ASSTT.YEAR: 2008-09 4 5. REPLYING TO THE ABOVE, LD. COUNSEL OF THE ASSESS EE SUPPORTING THE IMPUGNED ORDER SUBMITTED THAT IN THE CASE OF GOETZE (INDIA) LTD. VS CIT (SUPRA), THE HONBLE APEX COURT DID NOT IMPINGE ON THE POWER OF THE TRIBUNAL AND THE FIRST APPELLATE AUTHORITY. LD. CO UNSEL FURTHER CONTENDED THAT THE ASSET WAS ALREADY IN EXISTENCE AND THE BUS INESS OF THE ASSESSEE WAS RUNNING FROM THE SAME FACTORY, THEREFORE, THE INTER EST PAID ALONG WITH INSTALMENT TOWARDS CONVERSION CHARGES OF LAND CANNO T BE CAPITALIZED. LD. COUNSEL HAS FURTHER DRAWN OUR ATTENTION AND SUBMITT ED THAT THE PAYMENT OF INTEREST ON THE INSTALMENT OF PRINCIPAL AMOUNT IN T HIS CASE IS AKIN TO THE PAYMENT OF THE SAME ON LOANS TAKEN FOR THE ACQUISIT ION OF FIXED ASSETS LIKE VEHICLE, MACHINERY ETC. AND, THEREFORE, INTEREST PA ID ON LOANS TAKEN FOR FIXED ASSET IS ALLOWABLE AS REVENUE EXPENDITURE. 6. ON CAREFUL CONSIDERATION OF ABOVE RIVAL SUBMISSI ONS, AT THE OUTSET, WE NOTE THAT THE CIT(A) ALLOWED THE APPEAL OF THE ASSE SSEE ON THIS ISSUE WITH FOLLOWING OBSERVATIONS, FINDINGS AND CONCLUSION:- 4.10 I HAVE CONSIDERED THE FINDINGS RECORDED BY T HE ID. AO AS PER THE ASSESSMENT ORDER, THE SUBMISSIONS MADE B Y THE ID. AR AND THE FACTS OF THE CASE ON RECORD. THE MAIN IS SUE IS AS TO WHETHER THE INTEREST OF RS.1,36,17,335/- IS REVENUE OR CAPITAL IN NATURE? AS EXPLAINED ABOVE IT IS ADMITTED THAT T HE INTEREST WAS PAID IN RESPECT OF THE CONVERSION CHARGES PAYAB LE FOR THE LAND, WHERE THE ONLY FACTORY OF THE APPELLANT FROM WHICH THE BUSINESS IS CARRIED ON AND CONTINUES TO BE CARRIED ON TILL DATE, IS SITUATED. THE AMOUNT OF CONVERSION CHARGES HAVE ALREADY BEEN CAPITALIZED AND THE ISSUE AT HAND IS ONLY AS R EGARDS THE ALLOWABILITY OF THE INTEREST PAID ON THE INSTALLMEN TS OF THE ITA NO.1227/DEL/2012 ASSTT.YEAR: 2008-09 5 PRINCIPLE AMOUNT. THE APPELLANT SUBMITTED THAT THE APPELLANT'S FACTORY IS SITUATED ON THE INDUSTRIAL S ITE NO 143 B IN INDUSTRIAL AREA PHASE I CHANDIGARH. THE CHANDIGA RH U.T. ADMINISTRATION UNDER A NEW POLICY ALLOWED THE LAND TO BE USED FOR ANY OTHER PURPOSE BESIDES RUNNING A FACTOR Y INCLUDING THE COMMERCIAL/SERVICE ACTIVITIES ON PAYM ENT OF A CERTAIN SUM OF MONEY. AS IT WAS A SCHEME OPEN FOR A FIXED TIME, THE APPELLANT THOUGHT IT COMMERCIALLY PRUDENT TO AVAIL OF THE SCHEME. THE APPELLANT DECIDED TO OPT FOR THE SCHEME AS IT WOULD GIVE IT GREATER FLEXIBILITY TO ADD ADDI TIONAL AREA IN THE FACTORY FOR ITS OFFICE AND OTHER USE. THERE WAS NO PLAN FOR DEMOLISHING OR STOPPING THE OPERATION OF THE FACTOR Y AT THE AFORESAID LAND AND THE PRODUCTION IS CONTINUING FRO M THE SAME PLACE TILL DATE. IT IS PERTINENT TO NOTE THAT THE APPELLANT'S BUSINESS IS IN EXISTENCE AND THE VERY L AND FOR WHICH CONVERSION FEE WAS PAID IS THE ONLY MANUFACTU RING/ PRODUCTION FACILITY OF THE APPELLANT FROM WHERE THE BUSINESS IS BEING RUN FOR THE LAST OVER 30 YEARS. 4.11 THE CAPITALIZATION OF THE CONVERSION CHARGES W AS MADE AS THE LAND IS CAPABLE OF BEING USED FOR COMMERCIAL AND OTHER PURPOSES. BUT AS THE ASSET IS ALREADY IN EXIS TENCE AND THE BUSINESS IS RUNNING FROM THE SAME VERY FACTORY, THE INTEREST PAID CANNOT BE CAPITALIZED. INSTEAD IT IS A REVENUE EXPENSE AND HENCE THE SUM OF RS.1,36,17,335/- IS AL LOWED TO BE DEDUCTED FROM THE TOTAL INCOME. THE PAYMENT OF I NTEREST ON THE INSTALLMENTS OF PRINCIPLE AMOUNT IN THIS CAS E IS AKIN TO THE PAYMENT OF THE SAME ON LOANS TAKEN FOR ACQUISIT ION OF FIXED ASSETS LIKE VEHICLES, MACHINERY, ETC. WHEN TH E INTEREST PAID ON LOANS TAKEN FOR FIXED ASSETS, IS ALLOWED AS REVENUE EXPENDITURE, I SEE NO REASON AS TO WHY THE SAME SHO ULD BE TREATED OF CAPITAL IN NATURE ON THE CASE UNDER CONS IDERATION. IT IS TRITE THAT NOTWITHSTANDING TREATMENT OF A PAR TICULAR ITEM IN THE BOOKS OF ACCOUNT, WHETHER THE EXPENSE I S REVENUE OR NOT HAS TO BE DECIDED ON THE NATURE OF THE EXPEN SE. THEREFORE, EVEN THOUGH SAID INTEREST AMOUNT WAS CAP ITALIZED IN THE BOOKS OF ACCOUNT ERRONEOUSLY, WHICH WAS LATE R RECTIFIED IN THE BOOKS OF ACCOUNT DURING FINANCIAL YEAR 2009- 10, THE NATURE OF THE EXPENSE IS REVENUE AND THE SA ME IS A DEDUCTIBLE EXPENDITURE. THE AO IS, THEREFORE, DIREC TED TO ALLOWED THE CLAIM OF RS.1,36,17,335/- ON ACCOUNT OF INTEREST ITA NO.1227/DEL/2012 ASSTT.YEAR: 2008-09 6 MADE BY THE APPELLANT. THE GROUND NO. 2 IS ACCORDIN GLY ALLOWED TO THE APPELLANT. 7. UNDER PECULIAR FACTS AND CIRCUMSTANCES OF THE PR ESENT CASE AND THE CONCLUSION OF THE CIT(A), AS MENTIONED HEREINABOVE, IT IS NOT IN DISPUTE THAT THE ASSESSEE PAID INSTALMENT TOWARDS CONVERSION CHA RGES OF LAND AND THE ASSET WAS ALREADY IN EXISTENCE AND THE BUSINESS OF THE ASSESSEE WAS RUNNING FROM THE VERY SAME FACTORY PREMISES. LD. COUNSEL O F THE ASSESSEE FAIRLY ACCEPTED THAT THE ASSESSEE NEITHER MADE ANY CLAIM I N THE ORIGINAL RETURN NOR FILED ANY REVISED RETURN AND THE INTEREST WAS ALSO NOT FOUND PLACED IN THE P&L ACCOUNT BUT THE ASSESSEE PRESSED HIS CLAIM BY W AY OF LETTER FILED BEFORE THE AO DURING THE ASSESSMENT PROCEEDINGS. IN VIEW OF DECISION OF HONBLE APEX COURT IN THE CASE OF GOETZE (INDIA) LTD. VS CI T (SUPRA), THE AO IS NOT EMPOWERED TO ENTERTAIN ANY CLAIM OUT OF RETURN OF I NCOME WHICH COULD NOT FIND PLACE IN THE ORIGINAL RETURN OF INCOME OR OTHE RWISE THAN BY REVISED RETURN BUT IN THE SAME DECISION, HONBLE APEX COURT MADE IT CLEAR THAT THIS DID NOT IMPINGE ON THE POWER OF THE TRIBUNAL. HOWE VER, WE ARE OF THE CONSIDERED OPINION THAT SINCE THE ASSET I.E. FACTOR Y PREMISES WAS ALREADY IN USE OF ASSESSEE, THEREFORE, THE INTEREST PAID ALONG WITH INSTALMENT TOWARDS CONVERSION OF CHARGES OF LAND CANNOT BE TREATED AS CAPITAL EXPENDITURE AND THE SAME CANNOT BE HELD TO BE CAPITAL EXPENDITURE. THUS, WE ARE OF THE OPINION THAT THE CIT(A) WAS RIGHT IN HOLDING THAT T HE INTEREST EXPENDITURE ITA NO.1227/DEL/2012 ASSTT.YEAR: 2008-09 7 CANNOT BE CAPITALIZED AND THE SAME WAS ALLOWABLE AS REVENUE EXPENDITURE. ACCORDINGLY, WE ARE OF THE CONSIDERED OPINION THAT THE CIT(A) WAS RIGHT IN ALLOWING THE APPEAL OF THE ASSESSEE ON THIS ISSUE A ND WE ARE UNABLE TO SEE ANY AMBIGUITY, INFIRMITY OR ANY OTHER VALID REASON TO INTERFERE WITH THE ORDER OF THE CIT(A). 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27.01.2015. SD/- SD/- (G.D. AGRAWAL) (CHANDRAMOHAN GAR G) VICE PRESIDENT JUDICIAL MEMBER DT. 27TH JANUARY 2015 GS COPY FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. C.I.T.(A) 4. C.I.T. 5. DR BY ORDER AS STT. REGISTRAR