Asst. Commissioner of Income Tax, Cent. Circle-3(2)., Hyderabad. V. GVK Gautami Power Limited., Hyderabad.

ITA 1245/Hyd/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 4863 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB-B
• Next Hearing Date: 21-11-2019
• Assessment Year: 2012-2013
• Appeal Filed On: 17-07-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITRA
• Assessee Lawyers: V SIVA KUMAR
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 143(3); 264; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B , HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NO. 1245/HYD/2017 ASSESSMENT YEAR: 2012 - 13 ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE - 3(2), HYDERABAD. VS. M/S. GVK GAUTAMI POWER LIMITED, HYDERABAD. PAN: AACG 7612 D (APPELLANT) (RESPONDENT) ASSESSEE BY: SRI V. SIVA KUMAR REVENUE BY: SRI RAJAT MITRA, DR DATE OF HEARING: 21/11/2019 DATE OF PRONOUNCEMENT: 18 /0 2 /2020 ORDER PER A. MOHAN ALANKAMONY, AM.: THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF THE LD. CIT(A) - 11, HYDERABAD IN APPEAL NO.094/CC - 3(2),HYDERABAD/CIT(A) - 11/15 - 16, DATED 28/2/2017 PASSED U/S. 143(3) R.W.S 250(6) OF THE ACT FOR THE A.Y. 2012 - 13. 2. THE REVENUE HAS RAISED THE FOLLOWI NG GROUNDS IN ITS APPEAL: 1. THE LD. CIT(A) HAS ERRED IN ALLOWING THE ASSESSEES APPEAL TREATING THE REPAIRS OF ROADS AND CLEANING OF RESERVOIR AS REVENUE EXPENDITURE. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS JUSTIFI ED IN TREATING THE REPAIRS TO READS AND CLEANING OF RESERVOIR AND REMOVAL OF DEBRIS AS REVENUE EXPENDITURE IGNORING 2 THE FACT THAT THERE IS GOING TO BE ENDURING BENEFIT OUT OF THESE ACTIVITIES AND THE SAME ARE NOT ROUTINE AND REGULAR ACTIVITIES. 3. ANY OTHE R GROUND OR GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A LIMITED COMPANY ENGAGED IN THE BUSINESS OF POWER GENERATION FILED ITS RETURN OF INCOME FOR THE AY 2012 - 13 ON 26/9/2012. THEREAFTER, T HE CASE WAS TAKEN UP FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED U/S. 143(3) ON 31/3/2015 WHEREIN AMONG CERTAIN DISALLOWANCES THE LD. AO ALSO DISALLOWED THE CLAIM OF EXPENDITURE TOWARDS REPAIRS TO INTERNAL ROADS OF RS. 1,07,57,547 AND RS. 2,27,91,987 TOW ARDS CLEANING OF RAW WATER RESERVOIR AND REMOVAL OF DEBRIS FROM THE SAME. BEFORE THE LD. AO THE ASSESSEE HAD EXPLAINED THAT EXPENDITURE OF RS. 1,07,57,547 WAS INCURRED FOR REPAIRING THE INTERNAL ROADS IN THE FACTORY PREMISES AND THE RESIDENTIAL COLONY OF THE STAFF OWNED BY THE ASSESSEE BY WAY OF CLEANING AND REMOVING DUST ON THE ROAD WITH COMPRESSOR, REAPPLYING TACT COAT, CHIPS SEAL COAT, BITUMEN AND PROVIDING TOP FINISHING COAT. WITH RESPECT TO EXPENDITURE INCURRED TOWARDS CLEANING OF RAW WATER RESERVOIR THE ASSESSEE HAD EXPLAINED THAT THE AMOUNT WAS SPENT TOWARDS REMOVAL OF DEBRIS FROM THE RESERVOIR AND REMOVING SILT FROM THE CANALS SUPPLYING WATER TO THE PLANT FROM THE RESERVOIR ETC. . H OWEVER, THE LD. AO WAS OF THE VIEW THAT THE EXPENDITURE INCURRED BY THE ASSESSEE BRINGS ENDURING BENEFIT YEAR AFTER YEAR TO THE ASSESSEE AND THEREFORE THE SAME HAS TO BE TREATED AS CAPITAL EXPENDITURE. ACCORDINGLY, THE LD. AO DISALLOWED THE CLAIM OF EXPEN DITURE BUT ALLOWED DEPRECIATION OF RS. 10,13,195 @ 3 3.02%. ON APPEAL, THE LD. CIT (A) ALLOWED THE ENTIRE EXPENDITURE CLAIMED AS DEDUCTION TREATING IT AS REVENUE IN NATURE BY OBSERVING AS UNDER: 5. IN THE ASSESSMENT COMPLETED, THE AO DISALLOWED THE EXPEND ITURE INCURRED TOWARDS REPAIRS TO INTERNAL ROADS AND CLEANING OF RAW WATER RESERVOIR AND REMOVAL OF DEBRIS TOTALLING RS. 3,35,49,534/ - ON THE GROUD THAT THE SAID EXPENDITURE GIVEN ENDURING BENEFIT THE ASSESSEE. DURING THE COURSE OF APPEAL PROCEEDINGS, WIT H THE REGARD TO THE ISSUE OF REPAIRS TO INTERNAL ROADS, THE ASSESSEE SUBMITTED THAT THE FACTORY WAS SET UP OVER AN AREA OF 264 ACRES AND THE INTERNAL ROADS RUN INTO 8.6 KMS. THE ASSESSEE FURTHER SUBMITTED THAT THE FACTORY IS SITUATED IN EAST GODAVARI DIST RICT OF ANDHRA PRADESH WHERE THE BLACK COTTON SOIL MAKES MAINTENANCE OF ROADS PARTICULARLY DIFFICULT. THEY GET SPOILED DURING RAINY SEASON AND AS A RESULT OF WHICH EXTENSIVE REPAIRS ARE REQUIRED TO THE INTERNAL ROADS. AS REGARDS CLEANING OF RESERVOIR, TH E ASSESSEE SUBMITTED THAT THE ALREADY CONSTRUCTED RESERVOIR IS USED FOR COOLING TURBINES IN THE FACTORY AND DURING RAINY SEASON, THE TURBINES GET SPOILED DUE TO THE WATER DRAWN FROM SAMALKOT CANAL, WHICH CONTAINS MUD AND WASTE MATERIAL. 5.1. PERUSED THE SU BMISSIONS OF THE ASSESSEE AND THE ORDER OF THE ASSESSMENT. IT IS AN UNDISPUTED FACT THAT THE FACTORY OF THE ASSESSEE WAS ESTABLISHED AND RUNNING AND THE BUSINESS OF THE ASSESSEE IS POWER GENERATION. DURING THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASS ESSEE SPENT AMOUNT FOR REPAIRS OF THE INTERNAL ROADS AND CLEANING OF WATER RESERVOIR USED FOR COOLING TURBINES. THE MONEY SPENT WAS NOT SO MUCH TO BRING ABOUT ANY ASSET OR ADVANTAGE OF ENDURING BENEFIT BUT TO RUN THE BUSINESS OF THE ASSESSEE EFFICIENTLY, WITHOUT HINDRANCE. SIMILARLY, UNLESS CONTINUOUS UPKEEP AND MAINTENANCE IS PROVIDED FOR, THE SILT OF WATER RESERVOIRS COULD AFFECT THE TURBINES, WHICH ARE VITAL FOR THE POWER GENERATION PLANT, THEREBY LEADING TO DOWN TIME. THUS, THE EXPENDITURE SPENT FOR REPAIRS OF INTERNAL ROADS AND CLEANING OF RESERVOIRS ON THE FACTS OF THIS YEAR HAS TO BE TREATED AS WHOLLY AND EXCLUSIVELY SPENT FOR THE BUSINESS OF THE ASSESSEE AS ANY OTHER OPERATIONAL REQUIREMENT. NO NEW ASSET HAS THEREBY COME INTO EXISTENCE, NOTWITHST ANDING THE MAGNITUDE OF THE EXPENDITURE. THE CLAIM OF REVENUE EXPENDITURE IS, THEREFORE, UPHELD. FURTHER, DEPRECIATION GRANTED, IF ANY, SHOULD BE ADDED BACK. ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. 4. AT THE OUTSET, WE DO NOT FIND A NY INFIRMITY IN THE ORDER OF THE LD. CIT (A). THE ACTIVIT IES CONDUCTED BY THE ASSESSEE TOWARDS WHICH THE EXPENDITURE IS INCURRED IS NOT IN DISPUTE. IF SUCH EXPENDITURE IS NOT INCURRED IT IS OBVIOUS THAT IT WILL ERODE THE PRODUCTIVITY OF THE ASSESSEE 4 AND FURTHER DEPLETE THE VALUE OF THE ASSET S OF THE ASSESSEE . THE REASON FOR THE DISALLOWANCE OF THE EXPENDITURE BY THE LD.AO IS JUST BECAUSE THE BENEFIT OF THESE EXPENDITURE WILL BE AVAILABLE TO THE ASSESSEE FOR THE SUCCEEDING YEARS ALSO . HOWEVER, WHILE ARRIVING AT SUCH CONCLUSION THE LD.AO FAILED TO REALIZE THAT THE CONCEPT OF DEFERRED REVENUE EXPENDITURE IS NOT APPLICABLE WHILE COMPUTING THE INCOME OF THE ASSESSEE FOR THE PURPOSE OF THE ACT. THEREFORE, THOUG H THE BENEFIT OVER - FLOWS TO THE ASSESSEE FOR THE SUBSEQUENT YEARS , THE ENTIRE EXPENDITURE IS ALLOWABLE AS DEDUCTION FOR THE RELEVANT ASSESSMENT YEAR IN WHICH SUCH EXPENDITURE IS INCURRED. NEEDLESS TO MENTION THAT WITHOUT INCURRING SUCH EXPENDITURES IT WOUL D NOT HAVE BEEN POSSIBLE FOR THE ASSESSEE TO ACTIVELY CONDUCT ITS BUSINESS FOR THE RELEVANT ASSESSMENT YEAR. FURTHER IT IS EVIDENT THAT BY INCURRING SUCH EXPENDITURE THE ASSESSEE HAS NOT CREATED ANY NEW ASSET. THE ENTIRE EXPENDITURE IS INCURRED ONLY FOR MAINTE NANCE AND REPAIRS OF THE EXISTING ASSET S . THEREFORE, WE DO NOT FIND IT NECESSARY TO INTERFERE WITH THE ORDER OF THE LD. CIT (A) ON THE SE ISSUES. HENCE, THE APPEAL OF THE REVENUE IS DEVOID OF MERITS. 5. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 18 TH FEBR UARY, 2020. SD/ - SD/ - (P. MADHAVI DEVI) ( A. MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED: 18 TH FEBRUARY , 2020 5 OKK COPY TO: - 1) M/S. GVK GAUTAMI POWER LTD, 156 - 159, PAIGAH HOUSE, SP ROAD, HYDERABAD. 2) ACIT, CENTRAL CIRCLE - 3(2), 7 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD 500 004. 3) THE CIT (A) - 11, HYDERABAD. 4) PR. CIT (CENTRAL), HYDERABAD. 5) THE DR, ITAT, HYDERABAD 6) GUARD FILE