ACIT, CHENNAI V. Nexus electro steel Ltd., CHENNAI

ITA 1420/CHNY/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81128 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 1 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-08-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 21-07-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 26-06-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: GURU BHASHYAM
• Assessee Lawyers: B RAMAKRISHNAN
• Keywords: Revenue expenditure

Judgement Text

, , IN THE INCOME-TAX APPELLATE TRIBUNAL A BENCH, CHE NNAI . . . , . !' !' !' !' , # # # # $% $% $% $% $& $& $& $& BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT & SHRI V. DURGA RAO, JUDICIAL MEMBER $ . / I.T.A.NO.1420/MDS/2013 # ' '' / ASSESSMENT YEAR :2008-09 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE IV(4), CHENNAI. VS. M/S. NEXUS ELECTRO STEEL LTD., 202, SHIVALAYA, BLOCK C, 16 ETHIRAJ SALAI, CHENNAI 600 008. [PAN :AABCN4224H] ( () () () () / APPELLANT ) ( *+() *+() *+() *+() / RESPONDENT ) () , $ / APPELLANT BY : SHRI GURU BHASHYAM, JCIT *+() , $ / RESPONDENT BY : SHRI B. RAMAKRISHNAN, C.A. $ , -. / DATE OF HEARING : 21.07.2014 /0' , -. /DATE OF PRONOUNCEMENT : 18.08.2014 1 1 1 1 / O R D E R PER V. DURGA RAO, JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) V, CHENNAI DATED 18.03.2013 RELEVANT TO THE ASSESSMENT YEAR 2008-09. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO. 14 1414 142 22 20 00 0/M/ /M/ /M/ /M/13 1313 13 2 2. THIS APPEAL OF THE REVENUE WAS RECALLED AT THE INSTANCE OF THE ASSESSEE BY ORDER DATED 02.05.2014 IN M.P. NO. 63/M DS/2014 TO ADJUDICATE THE FOLLOWING GROUNDS OF APPEAL: 3.1 THE LEARNED CIT(A) ERRED IN DIRECTING THE ASSE SSING OFFICER TO ALLOW THE CLAIM OF .33,92,043/- AS REVENUE EXPENDITURE AFTER VERIFICATION THAT THE ASSESSEE HA S NOT UNDERTAKEN THE MANUFACTURING OF ANY NEW PRODUCT IN THE NEW UNIT OR NO NEW LINE OF BUSINESS HAS BEEN UNDERTAKEN BY THE ASSESSEE IN THE NEW UNIT. 3.2 THE LEARNED CIT(A) FAILED TO APPRECIATE THAT TH E EXPENSES INCURRED IN THE NEW UNIT EARLIER TO THE COMMENCEMENT OF MANUFACTURING PROCESS IN THE NEW UNIT HAVE TO BE CAPITALIZED AND THE NEW BUSINESS OF THE ASSESSEE CANNOT BE SAID TO BE AN EXTENSION OF T HE EXISTING BUSINESS. 3.3 THE LD. CIT(A) OUGHT TO HAVE NOTED THAT THE ASS ESSEE ITSELF HAVING CAPITALISED THE SAID EXPENDITURE IN I TS BOOKS OF ACCOUNTS, COULD NOT CLAIM IT AS REVENUE OUTGOES, IN THE COMPUTATION OF INCOME STATEMENT. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, IN THE COMPUTATION OF INCOME, HAS CLAIMED AN AMOUNT OF .33,92,043/- AS REVENUE EXPENDITURE. HOWEVER, THE ABOVE AMOUNT HAS ALREADY BEEN CAPITALISED IN THE BOOKS OF ACCOUNTS. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE DEVELOPED NE W UNIT IN BOMBAY AND THE EXPENDITURE INCURRED WAS IN CONNECTION WITH THE DEVELOPMENT OF NEW UNIT. AS PER THE COMPUTATION OF INCOME, IT I S IN THE NATURE OF I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO. 14 1414 142 22 20 00 0/M/ /M/ /M/ /M/13 1313 13 3 REGULAR MAINTENANCE AND ESTABLISHMENT CHARGES. THE EXPENDITURE INCURRED HAS THE COLOUR OF THE REVENUE, BUT ULTIMAT ELY WAS FOR WHICH THE EXPENSES HAVE BEEN INCURRED IS TO GET AN ASSET I.E. FACTORY. IN ASSESSEES CASE, THE NEW UNIT WAS BEING FORMED AND THEREFORE ALL IMPORTS INCLUDING EXPENSES IN THE NATURE OF REVENUE WHICH HAS BEEN INCURRED FOR THE PURPOSE OF CONSTRUCTING NEW UNIT A ND HAS TO BE CAPITALISED ALONG WITH ASSETS UNDER CONSTRUCTION. A NY EXPENDITURE INCURRED IN RESPECT OF ANY ASSET IS TO BE CAPITALIZ ED TILL COMES INTO USAGE. ACCORDINGLY, THE CLAIM OF THE ASSESSEE WAS R EJECTED. 4. MATTER WENT IN APPEAL BEFORE THE LD. CIT(APPEAL S) AND AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD . CIT(APPEALS) HAS ALLOWED THE CLAIM OF THE ASSESSEE BY OBSERVING AS U NDER: 7.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPE LLANT VIS-A-VIS THE FACTS OF THE CASE AND THE REASONING OF THE APPELLAN T. THE AO HAS NOT BROUGHT OUT ANY MATERIAL ON RECORD TO SHOW THAT THE APPELLANT HAS UNDERTAKEN THE MANUFACTURING OF ANY NEW PRODUCT IN THE NEW UNIT OR ANY NEW LINE OF BUSINESS HAS BEEN UNDERTAKEN BY THE APPELLANT IN THE NEW UNITS. THE APPELLANT HAS CLAIMED THAT IT HAS ME RELY EXTENDED THEIR MANUFACTURING CAPACITY IN RESPECT OF ALREADY EXISTI NG OF THE PRODUCT WHICH IS BEING MANUFACTURED BY THE APPELLANT. IT HA S SET UP NEW UNIT AT KASNE, THANE DISTRICT OF MAHARASHTRA FOR MANUFACTUR ING SAME LINE OF PRODUCT. EVEN THOUGH THE NEW FACTORIES CAN BE CONSI DERED AS SEPARATE UNIT, IT IS NOTHING BUT EXTENSION OF THE EXISTING B USINESS UNITS. THE JURISDICTIONAL AND OTHER COURTS HAVE HELD THAT EXPE NDITURE INCURRED IN EXTENSION OF THE BUSINESS AND THERE IS UNITY OF CON TROL AND MANAGEMENT AND INTERLACING OF UNITS IS OF REVENUE NATURE AND I S AN ALLOWABLE DEDUCTION. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO. 14 1414 142 22 20 00 0/M/ /M/ /M/ /M/13 1313 13 4 RESPECTFULLY FOLLOWING THE JURISDICTIONAL HIGH COUR T DECISION IN THE CASE OF CIT V. RANE (MADRAS) LTD. (SUPRA), I DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF RS. 33,92,043/- AS REVENUE EX PENDITURE AFTER VERIFICATION OF THE FACTS THAT APPELLANT HAS NOT UN DERTAKEN THE MANUFACTURING OF ANY NEW PRODUCT IN THE NEW UNIT OR NO NEW LINE OF BUSINESS HAS BEEN UNDERTAKEN BY THE APPELLANT IN TH E NEW UNIT. 5. ON BEING AGGRIEVED, THE REVENUE IS IN APPEAL BE FORE US. 6. THE LD. DR HAS POINTED OUT THAT THE ASSESSEE HA S STARTED CONSTRUCTING A NEW INDUSTRIAL UNIT AT BOMBAY AND TH E NEW UNIT WHICH WAS STARTED BY THE ASSESSEE WAS NOT THE EXTENSION O F THE BUSINESS OF THE ASSESSEE. HE FURTHER SUBMITTED THE CASE LAW CON SIDERED BY THE LD. CIT(APPEALS) IN THE CASE OF CIT V. RANE (MADRAS) LT D.93 ITR 459 HAS NO APPLICATION OF THE CASE. 7. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSE SSEE HAS STRONGLY SUPPORTED THE ORDER PASSED BY THE LD. CIT(APPEALS). 8. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE L D. CIT(APPEALS), IN HIS ORDER HAS OBSERVED THAT THE ASSESSEE HAS CLAIME D IT AS MERELY EXTENDING THEIR MANUFACTURING CAPACITY IN RESPECT O F ALREADY EXISTING OF THE PRODUCT, WHICH IS BEING MANUFACTURED BY THE ASS ESSEE. IT HAS SET UP NEW UNIT AT KASNE, THANE DISTRICT OF MAHARASHTRA FOR MANUFACTURING I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO. 14 1414 142 22 20 00 0/M/ /M/ /M/ /M/13 1313 13 5 OF SAME LINE OF PRODUCTS. EVEN THOUGH THE NEW FACTO RIES CAN BE CONSIDERED AS SEPARATE UNIT, IT IS NOTHING BUT EXTE NSION OF THE EXISTING BUSINESS UNITS. WITH THE ABOVE OBSERVATION AND BY F OLLOWING THE DECISION IN THE CASE OF CIT V. RANE (MADRAS) LTD. ( SUPRA), THE LD. CIT(APPEALS) DIRECTED THE ASSESSING OFFICER TO ALLO W THE CLAIM OF THE ASSESSEE. IN THIS CASE, THE ASSESSING OFFICER HAS G IVEN A SPECIFIC FINDING THAT THE ASSESSEE HAS DEVELOPED A NEW UNIT AT BOMBAY AND THE EXPENDITURE INCURRED WAS IN CONNECTION WITH NEW UNI T. THIS IS NOTHING ON RECORD THAT THE EXPENDITURE INCURRED BY THE ASSE SSEE WAS IN CONNECTION WITH THE EXTENSION OF EXISTING UNIT. EVE N BEFORE US, NO MATERIAL WAS PLACED ON RECORD TO SHOW THAT THE EXPE NDITURE INCURRED BY THE ASSESSEE WAS FOR THE PURPOSE OF EXTENSION OF TH E EXISTING BUSINESS OF THE ASSESSEE. SO FAR AS CASE LAW RELIED ON BY TH E LD. CIT(APPEALS) IS CONCERNED, THE HONBLE MADRAS HIGH COURT HAS HELD T HAT THE EXPENDITURE INCURRED IN SETTING UP NEW FACTORY VIS- -VIS EXTENSION OF EXISTING UNIT, EXPENDITURE CAN BE CONSIDERED AS REV ENUE EXPENDITURE. IN THIS CASE, THERE IS NOTHING ON RECORD THAT THE N EW UNIT SET UP AT BOMBAY WAS AN EXTENSION OF BUSINESS OF THE ASSESSEE . THEREFORE, FOR THE ABOVE REASONS, THE ORDER PASSED BY THE LD. CIT( APPEALS) IS I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO. 14 1414 142 22 20 00 0/M/ /M/ /M/ /M/13 1313 13 6 REVERSED ON THIS ISSUE AND THE GROUND RAISED BY THE REVENUE IS ALLOWED. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS ALLOWED. ORDER PRONOUNCED ON MONDAY, THE 18 TH OF AUGUST, 2014 AT CHENNAI. SD/ - SD/ - ( . . . ) (DR. O.K. NARAYANAN) / VICE-PRESIDENT ( . !' !' !' !' ) (V. DURGA RAO) # # # # $% $% $% $% / JUDICIAL MEMBER CHENNAI, DATED, THE 18.08.2014 VM/- 1 , *#-23 43'- /COPY TO: 1. () / APPELLANT, 2. *+() / RESPONDENT, 3. 5 ( ) /CIT(A), 4. 5 /CIT, 5. 36! *#-# /DR & 6. !' 7 /GF.