Nuziveedu Swathi Coastal Consortium, Hyderabad V. Asst. Commissioner of Income Tax, Circle-14(1), Hyderabad

ITA 1511/Hyd/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 2783 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-10-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-A
• Next Hearing Date: 27-09-2021
• Assessment Year: 2016-2017
• Appeal Filed On: 07-10-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VENUDHAR GODESI
• Keywords: Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD (THROUGH VIDEO CONFERENCE) BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI S.S.GODARA, JUDICIAL MEMBER ITA NO. A.Y. APPELLANT RESPONDENT 609/HYD/2019 2013-14 M/S.NUZIVEEDU SWATHI COASTAL CONSORTIUM, HYDERABAD [PAN: AAAAN3839R] DY.CIT, CIRCLE-8(1), HYDERABAD 610/HYD/2019 2014-15 ACIT, CIRCLE-8(1), HYDERABAD 611/HYD/2019 2015-16 1511/HYD/2019 2016-17 ACIT, CIRCLE-14(1), HYDERABAD FOR ASSESSEE : SHRI A.V.RAGHURAM, AR FOR REVENUE : SHRI VENUDHAR GODESI, DR DATE OF HEARING : 27-09-2021 DATE OF PRONOUNCEMENT : 26-10-2021 O R D E R PER S.S.GODARA, J.M. : THIS ASSESSEES FOUR APPEALS FOR AYS.2013-14 TO 2016 -17 ARISE AGAINST THE CIT(A)-2 & CIT(A)-6, HYDERABADS O RDER(S) DATED 20-02-2019 & 28-06-2019 (FOR AY.2016-17), IN C ASE NOS.10115, 10351, 10430 & 10458 / 2016-17, 2017-18, 2018- 19 / B3 / CIT(A)-2 & CIT(A)-6, INVOLVING PROCEEDIN GS U/S.143(3) OF THE INCOME TAX ACT, 1961 [IN SHORT, THE ACT]; RESPECTIVELY. ITA NOS. 609, 610, 611 & 1511/HYD/2019 :- 2 -: HEARD BOTH THE PARTIES. CASE FILES PERUSED. 2. WE COME TO ASSESSEES LEAD AY.2013-14S APPEAL ITA NO.609/HYD/2019 RAISING THE FOLLOWING SUBSTANTIVE GRO UNDS: 2.THE COMMISSIONER (APPEALS) ERRED IN SUSTAINING H ALF (50%) OF THE ADHOC DISALLOWANCE OF 25% MADE IN RESPECT OF MISCEL LANEOUS EXPENDITURE AMOUNTING TO RS.40,70,292. HAVING REGAR D TO THE NATURE OF EXPENDITURE. LOCATION AND SCALE OF OPERATIONS AN D THE FACT THAT THERE WAS NO BANKING FACILITY AVAILABLE AT THE SITE OR NEARBY VILLAGES. THE LD. COMMISSIONER (APPEALS) OUGHT TO HAVE DELETE D THE ADHOC DISALLOWANCE MADE BY THE AO. 3.THE COMMISSIONER (APPEALS) ERRED IN HOLDING THE E XPENDITURE INCURRED TOWARDS RAIL AND TRACK CROSS AS CAPITAL EX PENDITURE AND IN DIRECTING ALLOWANCE OF DEPRECIATION ON THE SAME. TH E COMMISSIONER (APPEALS) OUGHT TO HAVE APPRECIATED THAT THE TRACK AND TRACK CROSS ARE USED AND TOTALLY WORN OUT MATERIAL PURCHASED FROM R AILWAYS. AND THEY DO NOT HAVE RESALE VALUE EXCEPT AS A SCRAP EVE N ON THE DATE OF PURCHASE. AND THEREFORE IS ALLOWABLE AS REVENUE EXP ENDITURE IN THE YEAR OF PURCHASE ITSELF. 4.THE FINDINGS OF THE AO AND COMMISSIONER (APPEALS) FOR REJECTING THE CLAIM OF THE APPELLANT OF EXPENDITURE INCURRED TOWA RDS RAIL AND TRACK CROSS AS REVENUE EXPENDITURE ARE INCORRECT. HAVING REGARD TO THE FACT THAT THE APPELLANT CAN ONLY REALISE SCRAP VALUE IN RESPECT OF RAIL AND TRACK CROSS MATERIALS. THE AUTHORITIES BELOW OUGHT TO HAVE ALLOWED THE EXPENDITURE RELATING TO SAME AS REVENUE EXPENDI TURE. 5.THE COMMISSIONER (APPEALS) ERRED IN HOLDING THE E XPENDITURE INCURRED ON CONVEYER BELT (ALONG WITH ROLLERS AND S TRUCTURES) AS CAPITAL EXPENDITURE AND IN DIRECTING ALLOWANCE OF DEPRECIAT ION ON THE SAME. THE COMMISSIONER (APPEALS) OUGHT TO HAVE APPRECIATE D THAT ABOVE MATERIAL DO NOT HAVE RESALE VALUE EXCEPT AS SCRAP E VEN ON THE DATE OF PURCHASE. AND THEREFORE ALLOWABLE AS REVENUE EXPEND ITURE IN THE YEAR OF PURCHASE ITSELF. 6.THE FINDINGS OF THE COMMISSIONER (APPEALS) WHILE REJECTING THE CLAIM OF THE APPELLANT OF EXPENDITURE TOWARDS CONVEYER BE LT AND OTHERS AS REVENUE EXPENDITURE ARE INCORRECT. ITA NOS. 609, 610, 611 & 1511/HYD/2019 :- 3 -: 3. COMING TO THE FORMER ISSUE OF MISCELLANEOUS EXPEND ITURE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND PARTLY UPHELD IN THE CIT(A)S LOWER APPELLATE DISCUSSION, THE LEAR NED COUNSELS SOLE ARGUMENT BEFORE US IS THAT THE SAME INVO LVES VARIOUS HEADS INCURRED AT THE CORRESPONDING CIVIL CON STRUCTION CONTRACTS SITES WHEREIN BANKING FACILITIES ARE NOT ALWA YS AVAILABLE. THE REVENUES ARGUMENT ON THE OTHER HAND I S THAT THE ASSESSEE FAILED TO PROVE ALL THE IMPUGNED EXPENDITU RE HEAD BY FILING ALL THE COGENT SUPPORTIVE EVIDENCE. FACED WITH THIS SITUATION AND MORE SO WHEN BOTH THE PARTIES HAVE FAILED TO JUSTIFY THEIR RESPECTIVE STANDS IN ENTIRETY, WE DEEM IT APPROPRIATE THAT A LUMPSUM ESTIMATED DISALLOWANCE OF 8% ONLY THAN THAT IN ISSUE @25% WOUL D BE JUST AND PROPER. WE ORDER ACCORDINGLY. THE ASSESSEE SUC CEEDS IN PART IN ITS INSTANT IDENTICAL FORMER SUBSTANTIVE GROUND I N ALL THESE YEARS INVOLVING VARYING SUMS SUBJECT TO A RIDER THAT IT SHALL NOT BE TREATED AS A PRECEDENT IN ANY OTHER CASE. NECESSARY COMPUTATION SHALL FOLLOW AS PER LAW. 4. NEXT COMES THE LATTER ISSUE OF CORRECTNESS OF BOTH THE LOWER AUTHORITIES ACTION TREATING THE ASSESSEES REVENU E EXPENDITURE CLAIM(S) AS CAPITAL IN NATURE. THE CIT( A)S DETAILED DISCUSSION TO THIS EFFECT READS AS UNDER: THE AO HAS CAPITALIZED CERTAIN EXPENSES AND THIS I SSUE THE ISSUE OF CAPITALIZATION IS COMMON TO THE PRESENT APPEAL AND THE APPEAL FOR A.Y.2014-15 AND A.Y.2015-16 ALSO. THE AO HAS OBSERVED THAT THE APPELLANT UNDERTAKE CI VIL WORKS OF DRILLING THE UNDERGROUND TUNNEL FOR IRRIGATION PROJ ECT. IT IS OBSERVED BY THE AO THAT THE PROJECT IS BEING UNDERTAKEN FOR THE PAST 5 YEARS. IT IS SEEN DURING THE APPEAL PROCEEDINGS THAT THE P ROJECT IS ONGOING EVEN DURING THE PRESENT F.Y. I.E. RELEVANT TO A.Y.2 019-20 AS CONFIRMED ITA NOS. 609, 610, 611 & 1511/HYD/2019 :- 4 -: BY THE AR. IT IS SEEN THAT THE PROJECT STARTED WAY BACK IN F.Y.2007- 08, WHICH IMPLIES THAT THE PROJECT HAS LASTED FOR M ORE THAN 12 YEARS AND IS STILL ONGOING. THUS, THE PROJECT HAD A LONG PERIOD AND IT IS NOT A PROJECT WHICH WAS A SHORT TERM INITIATIVE. THE AO OBSERVED THAT THE FOLLOWING ITEMS OF RAIL TR ACK (INCLUDING TRACK CROSS AS IT IS PART OF THE RAIL TRACKS), CONV EYER BELT UND ROLLERS AND STRUCTURE (REQUIRED FOR MOVEMENT OF CONVEYER BE LT) WERE CLAIMED AS A REVENUE EXPENDITURE BY THE APPELLANT WHEREAS T HE AO NOTED THAT THE SAME HAS TO BE CAPITALIZED BEING ITEMS OF ENDUR ING NATURE. IN THE A.Y.2013-14, THE ABOVE ITEMS WERE CAPITALIZED AND I N THE SUBSEQUENT A.Y. I.E. A.Y.2014-15 AND 2015-16, ONE MORE ITEM OF VENTILATION DUCTING WAS ALSO CAPITALIZED. THERE WAS NO CLAIM O F VENTILATION DUCTING IN A.Y.2013-14. THE ISSUE REGARDING CAPITALIZATION OF THESE ITEMS A RE DISCUSSED SEPARATELY AS UNDER: 1. RAILS AND TRACK CROSS: THE APPELLANT HAS UNDERTAKEN THE ACTIVITY OF THE CO NSTRUCTION OR TUNNEL. IN SIMPLE PARLANCE, THE APPELLANT NEEDS TO CONSTRUCT A MODEL OF MOVEMENT FOR GOODS AS WELL AS PERSONNEL AS THE T UNNEL PROGRESSES AND ALSO FOR THE EXCAVATION OF THE MATERIAL, AS THE CONSTRUCTION OF TUNNEL PROGRESSES. THE APPELLANT HAS LAID DOWN THE RAIL TRACKS FOR THE SAID PURPOSE AND THE TRACK CROSS (FOR THE JUNCT ION OF TRACKS). THE APPELLANT HAS THUS BOUGHT THE RAILS FROM THE RAILWA YS FOR THIS PURPOSE. THE CLAIM OF THE APPELLANT IS THAT THE RA ILS SO BOUGHT FROM THE INDIAN RAILWAYS WERE USED AND NOT NEW; THEREF ORE, THE SAME WAS CLAIMED AS REVENUE EXPENDITURE. DURING THE COURSE OF APPELLATE PROCEEDINGS ON 19.0 2.2019, THE AR STATED AS UNDER: RAIL TRACKS HAVE NO WEAR AND TEAR AS SUCH, THE CLA IM FOR CAPITALIZATION IS ON ACCOUNT OF THE PURCHASE ITSELF BEING OF USED TRACKS FROM RAILWAY. THE APPELLANT FURTHER STATED IN THE SUBMISSIONS THA T THE SAME WILL HAVE NO VALUE AFTER THEIR USE AND THEREFORE TH E SAME HAS BEEN WRITTEN OFF ON A YEAR TO YEAR BASIS. IT IS IMPORTANT TO NOTE THAT THE RAILS WHICH ARE P URCHASED FOR THE PURPOSES OF LAYING DOWN THE RAILS TRACKS WILL B E IN USE FOR A PERIOD OF MORE THAN 15 YEARS AS CAN BE OBSERVED THA T THE PROJECT IS STILL GOING ON UP TILL NOW. THUS, THE USAGE OF RAI LS IS NOT FOR A SHORT PERIOD OF TIME AND THE RAILS ARE IN THE FORM OF CAP ITAL ASSET AND IS NOT A CONSUMABLE AS SUCH. IT HAS BEEN FURTHER AFFIRMED THAT THERE IS NO WEAR AND TEAR OF THESE RAILS THAT THEY NEED REPLACEMENT VERY OFTEN. JUST BECAUSE THE ITA NOS. 609, 610, 611 & 1511/HYD/2019 :- 5 -: ASSET HAS BEEN USED EARLIER, DOES NOT MAKE IT ELIGI BLE FOR IT TO BE CLAIMED AS A REVENUE EXPENDITURE. IT IS THE INTRIN SIC QUALITY OF THE ASSET, WHICH IS OF RELEVANCE AND NOT WHETHER THE AS SET ACQUIRED HAS BEEN PREVIOUSLY USED OR NUMBER OF TIMES IT HAS HAD PREVIOUS OWNERSHIPS WITH REGARD TO THAT ASSET. IN THE PRESENT CASE THE ASSET WHICH IS THE RAILS A ND CROSS TRACK HAVE BEEN IN USE WITH VERY MARGINAL WEAR AND TEAR, AND ARE ALSO NOT CONSUMABLE ITEMS IN NATURE, THEREFORE THE AO HAS RIGHTLY HELD THE SAME AS CAPITAL EXPENDITURE. THE APPELLANT STATED THAT THE SAME WILL BE OF NO U SE AFTER THE PROJECT IS COMPLETE, IS A STATEMENT OF NOT MUCH CON SEQUENCE OR RELEVANCE, AS THE RAILS CAN AGAINST BE SOLD IN THE OPEN MARKET AS THERE HAS BEEN NOT MUCH WEAR AND TEAR AND EVEN OTHE RWISE THE SAME CAN BE CLAIMED AS A SALE IN THE BLOCK OF ASSET. THE ABOVE ITEMS ARE OF ENDURING NATURE, THEREFORE T HE ACTION OF THE AO HOLDING THE SAME AS A CAPITAL EXPENDITURE IS UPHELD ACCORDINGLY. THE AO IS HOWEVER DIRECTED TO GIVE DEP RECIATION ON THE SAME ACCORDINGLY ON A YEAR TO YEAR BASIS ON SUCH CA PITALIZATION. 2. CONVEYER BELT (ALONG WITH ROLLERS AND STRUCTURES }: AS ALREADY STATED THAT THE APPELLANT IS INTO THE CO NSTRUCTION OF THE TUNNEL, AND IT NEEDS TO MOVE AND REMOVE GOODS O N A REGULAR BASIS AND FOR THE MOVEMENT OF THE SAME, THE APPELLANT HAS LAID DOWN THE CONVEYER BELT. THE CONVEYER BELT IS NOT A CONSUMABL E ITEM. THE APPELLANT HAS MENTIONED THAT THE CONVEYER BELT GETS DAMAGED FREQUENTLY AND HAS TO BE REPLACED. HOWEVER, THE STATEMENT IS DEVOID OF EVIDENCE AND FACTS AS NO CASE HAS BEEN BROUGHT OUT BY THE APPELLANT OF THE DAMAGE AND REPLACEMENT OF CONV EYER BELT ON A FREQUENT BASIS. IT IS SEEN THAT THE APPELLANT HAS N OT BROUGHT OUT ANY EVIDENCE AND FURTHER IF THERE ARE ANY MINOR DAMAGES , THE REPLACEMENT OF THE SAME CAN HE ALLOWED ACCORDINGLY. BUT THE STATEMENT OF THE APPELLANT IS DEVOID OF EVI DENCE AND FACTS AND THE APPELLANT HAS NOT BEEN ABLE TO BRING OUT CONSUMPTION OF CONVEYER BELTS BEYOND ROUTINE REPAIRS. THEREFORE, THE SAME IS REJECTED ACCORDINGLY. THE CONVEYER BELT IS THE INT EGRAL PART OF THE CONSTRUCTION OF TUNNEL AND ALSO AN ESSENTIAL STRUCT URE WHICH IS REQUIRED FOR MOVEMENT. THE PROJECT AS IT HAS BEEN ALREADY STATED THAT IS GOING TO LAST FOR MORE THAN 15 YEARS AND THE COST OF CONVEYER BEL T INCREASE WITH THE INCREASE IN THE LENGTH OF TUNNEL AND THE CONVEY ER BELT INSTALLED AT THE BEGINNING CONTINUES TO BE USED FOR ALL THE 15 Y EARS. THE SAME COROLLARY ALSO APPLIES TO THE ISSUE OF RAILWAY TRAC K ALREADY DISCUSSED ABOVE. ITA NOS. 609, 610, 611 & 1511/HYD/2019 :- 6 -: THUS, THE CONVEYER BELT HAVE ENDURING USAGE AND IS NOT A CONSUMABLE AND IS THE STRUCTURE WHICH IS PERMANENT IN NATURE FOR THE CONSTRUCTION OF TUNNEL, THEREFORE THE SAME HAS BEEN RIGHTLY HELD AS CAPITAL EXPENDITURE BY THE AO ACCORDINGLY. THE AO IS HOWEVER DIRECTED TO GIVE DEPRECIATION ON THE SAME ACCORDINGLY ON A YEAR TO YEAR BASIS ON SUCH CAPITAL IZATION. THE FACTUAL POSITION IS NO DIFFERENT IN REMAINING ASS ESSMENT YEARS WHEREIN THE ONLY DISTINCTION IS THAT OF CORRESPON DING SUMS OF DISALLOWANCE; AS THE CASE MAY BE. 5. LEARNED COUNSEL HAS TAKEN US TO THE ASSESSEES CASE RECORDS AS WELL AS PHOTOGRAPHS OF THE CORRESPONDING R AIL TRACKS AND CONVEYOR BELT SYSTEMS AND SUBMITS THAT BOTH THE LOW ER AUTHORITIES HAVE ERRED IN LAW AND ON FACTS IN TREATING THE ASSESSEES REVENUE EXPENDITURE ITEMS AS CAPITAL IN NA TURE DESPITE THE FACT THAT THE SAME WERE MEANT TO BE KEPT ABANDONED AT SITES FOR THE USE OF THE OWNER OF THE BUSIN ESS ONLY THAN THAT INCURRED FOR DERIVING ENDURING BENEFITS IN ITS OWN HANDS. WE ARE ALSO TAKEN TO THE NECESSARY FACTUAL P OSITION EMANATING FROM THE RELEVANT PHOTOGRAPHS IN PGS.104 TO 12 0 OF THE PAPER BOOK. 6. LEARNED DEPARTMENTAL REPRESENTATIVE FAILS TO DISPUTE TH AT THE FOREGOING CLINCHING FACTS HAVE NOWHERE BEEN CONSI DERED EITHER IN THE COURSE OF ASSESSMENT AS WELL AS IN THE CIT(A)S DETAILED DISCUSSION EXTRACTED IN PRECEDING PARAGRAPHS. WE THEREFORE DEEM IT APPROPRIATE TO RESTORE THE ASSESSEES INSTANT LATTER IDENTICAL ISSUE IN ALL THE FOUR INSTANT APPEALS B ACK TO THE ASSESSING OFFICER FOR HIS AFRESH FACTUAL VERIFICATION AS PER LAW WITHIN THREE EFFECTIVE OPPORTUNITIES OF HEARING SUBJE CT TO THE CONDITION THAT IT SHALL BE THE BURDEN OF THE TAXPAYER ONL Y TO ITA NOS. 609, 610, 611 & 1511/HYD/2019 :- 7 -: PLACE ON RECORD ALL THE RELEVANT FACTS; AT ITS OWN RISK AND RESPONSIBILITY. NO OTHER ARGUMENT HAS BEEN PRESSED BEFORE US. 7. THESE ASSESSEES FOUR APPEALS ARE TREATED AS PARTLY ALLOWED IN ABOVE TERMS. A COPY OF THIS COMMON ORDER BE PLACED IN THE RESPECTIVE CASE FILES. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH OCTOBER, 2021 SD/- SD/- ( A. MOHAN ALANKAMONY ) ( S.S. GODAR A ) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 26-10-2021 TNMM ITA NOS. 609, 610, 611 & 1511/HYD/2019 :- 8 -: COPY TO : 1.M/S.NUZIVEEDU SWATHI COASTAL CONSORTIUM, FLAT NO. 503, KAMIL RESIDENCY, ROAD NO.12, BANJARA HILLS, HYDERAB AD. 2.THE DY.CIT, CIRCLE-8(1), HYDERABAD. 3.THE ACIT, CIRCLE-8(1), HYDERABAD. 4.THE ACIT, CIRCLE-14(1), HYDERABAD. 5.CIT(APPEALS)-2, HYDERABAD. 6.CIT(APPEALS)-6, HYDERABAD. 7.THE PR.CIT-2, HYDERABAD. 8.THE PR.CIT-6, HYDERABAD. 9.D.R. ITAT, HYDERABAD. 10.GUARD FILE.