R.M. Mohite Textiles Ltd., Kolhapur V. AddL.CIT, Range-1, Kolhapur, Kolhapur

ITA 134/PUN/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 66906 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-04-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 24-01-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ANN KAPTHUAMA
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 234B; 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE: SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO.134/PN/2012 ASSESSMENT YEAR : 2007 - 08 R.M. MOHITE TEXTILES LTD., 240 B, MOHITE HOUSE GENERAL THORAT MARG, TARABAI PARK, KOLHAPUR VS. ADDL. CIT, RANGE-1, KOLHAPUR (APPELLANT) (RESPONDENT) PAN NO. AABCR3410K APPELLANT BY: SHRI KISHORE PHADKE RESPONDENT BY: MS. ANN KAPTHUAMA DATE OF HEARING : 03-04-2013 DATE OF PRONOUNCEME NT : 15-04-2013 ORDER PER R.S. PADVEKAR, JM:- THIS APPEAL IS FILED BY THE ASSESSEE CHALLENGING THE IMPUGN ED ORDER OF THE LD.CIT(A), KOLHAPUR DATED 25-11-2011 FOR THE A.Y. 2007-08. THE ASSESSEE HAS TAKEN THE GROUND NO. 1 WHICH READS AS UNDER: THE LEARNED CIT(A), KOLHAPUR ERRED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OF RS.8,12,05,928/- BEING REN OVATION / MODERNIZATION / REPLACEMENT OF RINGFRAMES AND SPIND LES AND TREATING THE SAME AS CAPITAL EXPENDITURE. 2. THE FACTS IN BRIEF ARE AS UNDER. THE ASSESSEE COMPA NY IS ENGAGED IN THE MANUFACTURE OF COTTON YARN TOWELS AND KNIT FABRIC. FOR THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS CLAIMED THE REVENUE EXPE NDITURE OF RS.8,12,05,928/- ON ACCOUNT OF REPLACEMENT OF SPINDLES, THE S AID AMOUNT WAS CAPITALIZED IN THE BOOKS OF ACCOUNT. 3. HOWEVER, IN THE COMPUTATION THE SAID EXPENDITURE WAS CLAIMED AS REVENUE EXPENDITURE. THE EXPENDITURE WAS IN RESPECT OF REPLACEMENT OF BLOW ROOM MACHINERY, DRAW FRAMES, SPEED FRAMES, RING FR AMES, 2 ITA NO.134/PN/2012, R.M. MOHITE TEXTILES LTD., KOLH APUR DOUBLING MACHINERY AND LAB EQUIPMENT. AS OBSERVED BY TH E ASSESSING OFFICER AS MANY AS 8000 SPINDLES ARE REPLACED IN RING FRAME S. THE SAID EXPENDITURE WAS DISALLOWED BY THE ASSESSING OFFICER BUT IT A PPEARS THAT AS PER PROVISIONS OF LAW DEPRECIATION WAS ALLOWED. THE LD. CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 4. WE HAVE HEARD THE PARTIES. THE LEARNED COUNSEL IS FAIR ENOUGH TO SUBMIT THAT THE ISSUES STAND COVERED AGAINST THE ASSES SEE BY THE DECISION OF THE HON'BLE TRIBUNAL IN THE ASSESSEES OWN CA SE FOR THE A.YS. 2005-06 & 2006-07. THE LEARNED COUNSEL FILED THE COPY O F THE TRIBUNAL ORDER IN ITA NOS. 136 AND 831/PN/2009 DATED 29-02-201 2 WHICH IS PLACED ON RECORD. WE FIND THAT IDENTICAL ISSUE HAS BEEN DE CIDED BY THE TRIBUNAL IN ASSESSED OWN CASE IN PRECEDING YEARS AND TH E OPERATIVE PART OF THE DECISION IS AS UNDER: 10. HAVING CONSIDERED THE RIVAL POSITIONS, IN OUR VIE W, THE ISSUE STANDS FULLY COVERED BY THE JUDGMENT OF THE HON'BLE SU PREME COURT IN THE CASE OF SHRI MANGYARKARASI MILLS (P) LTD. (SUPRA). TH E ISSUE BEFORE THE HON'BLE SUPREME COURT WAS WITH REGARD TO THE EXPE NDITURE INCURRED ON REPLACEMENT OF MACHINERY IN A TEXTILE MILL. THE ASSESSEE HAD CLAIMED THE EXPENDITURE AS A REVENUE EXPENDITURE , WHICH WAS EXPLAINED TO BE ON REPLACEMENT OF PARTS OF THE SPIN NING MILL ON THE STRENGTH OF SECTION 37(1) OF THE ACT. THE HON'BLE SUPR EME COURT, FIRSTLY ADDRESSED THE QUESTION AS TO WHETHER INDIVIDUAL MACH INERY IN A TEXTILE MILL IS AN INDEPENDENT ITEM OR MERELY A PART OF A COMPLETE SPINNING MILL, WHICH ONLY TOGETHER ARE CAPABLE OF MANUF ACTURE, AS THERE IS NO INTERMEDIATE MARKETABLE PRODUCT PRODUCED. ON THIS ASPECT, IT REFERRED TO THE EARLIER JUDGMENT OF THE HON'BLE SU PREME COURT IN THE CASE OF SARVANA SPINNING MILLS (P) LTD. (SUPRA) AND HELD T HAT EACH MACHINE IN A TEXTILE MILL SHOULD BE TREATED INDEPENDEN TLY AS SUCH AND NOT AS A MERE PART OF AN ENTIRE COMPOSITE MACHINERY OF THE SPINNING MILL. ACCORDING TO THE HON'BLE APEX COURT, IT CAN AT B EST BE CONSIDERED PART OF AN INTEGRATED MANUFACTURE PROCESS EMPLOYED I N A TEXTILE MILL. THEREAFTER, WITH REGARD TO THE NATURE OF THE EXPENDITU RE, IT HELD AS UNDER: 17. WE ARE OF THE PINION THAT THE EXPENDITURE OF TH E ASSESSES IN THIS CASE IS CAPITAL IN NATURE AND THERE IS SUFFICIE NT JUDICIAL PRECEDENT TO SUPPORT THIS VIEW. IN THE CASE OF TRAVANCORE COCHIN CHEMICALS LTD. VS. CIT 1977 CTR (SC) 148 : (1997) (SIC-1977) 2 SCC 20 THIS COURT HELD THAT EXPENDITURE IS OF A CAPITAL NATURE WHEN IT AMOUNTS TO AN ENDURING ADVANTAGE FOR THE BUSINESS AND REPAIR IS DIFFERENT FROM BRINGING A NEW ASSET FOR THE BUSINESS. FURTHER, IN LAKSHMIJI SUGAR MILLS (P) CO. VS. CIT AIR 1972 SC 159 IT HAS BEEN HELD BY THIS COURT THAT B RINGING INTO EXISTENCE A NEW ASSET OR AN ENDURING BENEFIT FOR TH E ASSESSEE AMOUNTS TO CAPITAL EXPENDITURE. WE HAVE ALREADY EXPLAINED WH Y REPLACEMENT, IN THIS CASE, AMOUNTS TO BRINGING INTO EXISTENCE A NEW ASSET AND A/SO AN 3 ITA NO.134/PN/2012, R.M. MOHITE TEXTILES LTD., KOLH APUR ENDURING BENEFIT FOR THE ASSESSEE. IT IS CLEAR THEN THAT EXPENDITURE OF THE ASSESSEE HERE IS NOT OF A REVENUE NATURE AND THUS, C ANNOT BE CLAIMED AS A DEDUCTION UNDER S. 37 OF THE ACT.' IN VIEW OF THE AFORESAID, IN OUR VIEW, THE LOWER AUTH ORITIES MADE NO MISTAKE IN REJECTING THE CLAIM OF THE ASSESSEE THAT THE COST OF RING FRAMES AND BALANCING MACHINES WAS A REVENUE EXPENDIT URE UNDER SECTION 37(1) OF THE ACT. QUITE CLEARLY, AS PER THE HON' BLE APEX COURT, THE EXPENDITURE INCURRED ON REPLACEMENT OF INDIVIDUA L MACHINERIES IN A SPINNING MILL, WHICH IS ALSO CASE BEFORE US, AMOUNTS T O BRINGING INTO EXISTENCE NOT ONLY A NEW ASSET, BUT ALSO AN ENDURING BENEFIT TO THE ASSESSEE WHICH QUALIFIES TO BE REGARDED AS A 'CAPITA L EXPENDITURE' AND THUS NOT ALLOWABLE UNDER SECTION 37(1) OF THE ACT. A S A CONSEQUENCE, WE THEREFORE UPHOLD THE ACTION OF THE RE VENUE AND THE ASSESSEE HAS TO FAIL ON THIS ASPECT. 11. IN SO FAR AS THE RELIANCE PLACED BY THE ASSESSEE ON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF RAMARAJU SURGICAL COTTON MILLS & ORS. (SUPRA) IS CONCERNED, THE SAME IN OUR VIEW D OES NOT HELP THE CASE OF THE ASSESSEE. THE ISSUE BEFORE THE HON'B LE SUPREME COURT RELATED TO EXPENDITURE INCURRED ON REPLACEMENT OF MA CHINERIES. THE HON'BLE SUPREME COURT NOTED ITS EARLIER JUDGMENT IN TH E CASE OF SRAVANA SPINNING MILLS (P) LTD (SUPRA), BUT WITHOUT EXPRE SSING ANY OPINION ON THE RIVAL CONTENTIONS, SET-ASIDE THE MATTE R TO THE COMMISSIONER OF INCOME-TAX (APPEALS) FOR DISPOSAL AFRE SH IN ACCORDANCE WITH LAW. NO DOUBT THE ISSUE BEFORE THE HO N'BLE SUPREME COURT RELATED TO A CLAIM UNDER SECTION 37(1) OF THE ACT; SO HOWEVER, AS THE MATTER HAS MERELY BEEN SET-ASIDE TO THE FILE OF T HE COMMISSIONER OF INCOME-TAX (APPEALS), NO PROPOSITION, MUCH LESS CONTR ARY TO THE PROPOSITION RELIED UPON BY US FOLLOWING THE JUDGMENT IN THE CASE OF SHRI MANGYARKARASI MILLS (P) LTD. (SUPRA) HAS BEEN LAID DOWN BY THE HON'BLE COURT. WE, THEREFORE, FOLLOWING THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF SHRI MANGYARKARASI UPH OLD THE PLEA OF THE REVENUE AND THE ASSESSEE FAILS ON THIS GROUND. 5. WE, THEREFORE, FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSE SSEE OWN CASE FOR THE A.YS. 2005-06 AND 2006-07 CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND DISMISS THE GROUND NO. 1. 6. GROUND NO. 2 READS AS UNDER: THE LEARNED CIT(A), KOLHAPUR ERRED IN LAW AND ON FACTS IN CONFIRMING THE LEVY OF INTEREST U/S. 234B AMOUNTING RS.11,30,107/. 7. THE LEARNED COUNSEL SUBMITS THAT THE INTEREST IS NOT P ROPERLY CALCULATED AND HENCE, SUITABLE DIRECTION MAY BE GIVEN TO C OMPUTE THE INTEREST IN ACCORDANCE WITH LAW BUT NOTHING HAS BEEN PLAC ED BEFORE US TO SUPPORT THE CONTENTION OF THE LEARNED COUNSEL. HENCE, WE DO NOT FIND ANY 4 ITA NO.134/PN/2012, R.M. MOHITE TEXTILES LTD., KOLH APUR MERIT IN THE ARGUMENT OF THE LEARNED COUNSEL AND GROUND NO. 2 IS ALSO DISMISSED. 8. IN THE RESULT, THE ASSESSEES APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 15-04-2013 SD/- SD/- (G.S. PANNU) (R.S. PADVEKAR) ACCOUNTANT MEMBER JUDICIAL MEMBER RK/PS PUNE, DATED: 15 TH APRIL, 2013 COPY TO 1 ASSESSEE 2 DEPARTMENT 3 THE CIT(A) , KOLHAPUR 4 THE CIT ( C ) , PUNE 5 THE DR, ITAT, A BENCH, PUNE . 6 GUARD FILE. //TRUE COPY// BY ORDER PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL PUNE