Hinduja Foundries Ltd., CHENNAI V. ACIT, CHENNAI

ITA 1561/CHNY/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7923 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 07-01-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 07-07-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PATHLAVATH PEERYA
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Capital asset; Business expenditure; Revenue expenditure; Capital expenditure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , . !' , $ % BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO.1561/MDS/2015 ' (' / ASSESSMENT YEAR : 2007-08 M/S HINDUJA FOUNDRIES LTD., (FORMERLY KNOWN AS M/S ENNORE FOUNDRIES LTD.), KATHIVAKKAM HIGH ROAD, ENNORE, CHENNAI - 600 034 PAN : AAACE 1078 K V. THE ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 2, CHENNAI - 600 034. (*+/ APPELLANT) (,-*+/ RESPONDENT) *+ . / / APPELLANT BY : SH. R. VIJAYARAGHAVAN, ADVOCATE ,-*+ . / / RESPONDENT BY : SH. PATHLAVATH PEERYA, CIT 0 . 1$ / DATE OF HEARING : 07.01.2016 2!( . 1$ / DATE OF PRONOUNCEMENT : 19.02.2016 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) 6, CHENN AI, DATED 18.03.2015 AND PERTAINS TO ASSESSMENT YEAR 2007-08. 2 I.T.A. NO.1561/MDS/15 2. SH. R. VIJAYARAGHAVAN, THE LD.COUNSEL FOR THE AS SESSEE, SUBMITTED THAT THE ASSESSEE INCURRED AN EXPENDITURE OF ` 2,01,14,335/- TOWARDS EXPANSION OF THE EXISTING BUS INESS AND CLAIMED THE SAME AS REVENUE EXPENDITURE. HOWEVER, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE EXPENDITURE INCURRED BY THE ASSESSEE WAS WITH REGAR D TO SETTING UP OF NEW FOUNDRY AND THE OPERATION OF THE FOUNDRY HAS NOT COMMENCED DURING THE YEAR UNDER CONSIDERATION. THE REFORE, THE EXPENDITURE INCURRED PRIOR TO COMMENCEMENT OF OPERA TION OF INDUSTRY SHOULD BE CAPITALIZED. THEREFORE, THE ASS ESSING OFFICER FOUND THAT THE EXPENSES CANNOT BE ALLOWED AS REVENU E EXPENDITURE. PLACING RELIANCE ON THE JUDGMENT OF MADRAS HIGH COU RT IN CIT V. RANE (MADRAS) LIMITED (293 ITR 459), THE LD.COUNSEL SUBMITTED THAT THE EXPENDITURE AND WAGES CONNECTED WITH EXPAN SION OF THE BUSINESS HAS TO BE ALLOWED AS BUSINESS EXPENDITURE. ACCORDING TO THE LD. COUNSEL, BECAUSE OF INTERCONNECTION OF MANA GEMENT, FINANCIAL, ADMINISTRATIVE AND PRODUCTION ASPECTS, T HE EXPENDITURE HAS TO BE CONSTRUED AS REVENUE IN NATURE. A SIMILA R VIEW HAS BEEN TAKEN BY THE MADRAS HIGH COURT IN SAKTHI SUGARS LIM ITED IN TC(A) NO.411 OF 2004 DATED 10.08.2010. 3 I.T.A. NO.1561/MDS/15 3. ON THE CONTRARY, SH. PATHLAVATH PEERYA, THE LD. DEPARTMENTAL REPRESENTATIVE, SUBMITTED THAT DURING THE COURSE OF ASSESSMENT, THE ASSESSING OFFICER FOUND THAT THERE WAS INCREASE IN THE CAPITAL WORK IN PROGRESS. THE ASSESSEE CLAIMED BEFORE THE ASSESSING OFFICER THAT SETTING UP OF A NEW GREY IRO N CASTING FOUNDRY WAS IN PROGRESS. THE CAPITAL EXPENDITURE INCURRED WITH SUCH FOUNDRY WAS SHOWN UNDER THE HEAD CAPITAL WORK IN PROGRESS . THE ASSESSEE HAS ALSO CLARIFIED THAT THE ASSESSEE HAS N OT COMMENCED THE OPERATION DURING THE YEAR UNDER CONSIDERATION. THE ENTIRE EXPENDITURE WAS CAPITALIZED IN THE BOOKS OF ACCOUNT AND SHOWN UNDER THE HEAD CAPITAL WORK IN PROGRESS. HOWEVER , WHILE COMPUTING THE TAXABLE INCOME, THE ASSESSEE HAS DEDU CTED A SUM OF ` 2,01,14,335/- IN THE COMPUTATION OF TOTAL INCOME. REFERRING TO SECTION 36(1)(III) OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'), THE LD. D.R. POINTED OUT THAT THE INTEREST ON BORROWED FUNDS, THOUGH IT IS REVENUE IN NATURE, CANNOT BE ALLOWED AS REVENUE EXP ENDITURE WHEN THE BORROWED CAPITAL WAS FOR AN EXPANSION OF EXISTI NG BUSINESS TILL THE ASSET WAS FIRST PUT TO USE. THEREFORE, ACCORDI NG TO THE LD. D.R., THE ENTIRE COST OF EXPENDITURE, INCLUDING INTEREST, SALARY, WAGES, HAS TO BE CAPITALIZED TILL THE INDUSTRY COMMENCES ITS O PERATION. ONCE IT COMMENCES ITS OPERATION, THEN NATURALLY THE EXPENDI TURE LIKE SALARY, 4 I.T.A. NO.1561/MDS/15 WAGES, INTEREST, HAS TO BE ALLOWED AS REVENUE EXPEN DITURE. IN THE CASE BEFORE US, ACCORDING TO THE LD. D.R., THE ASSE SSEE HAS NOT COMMENCED ITS OPERATION, THEREFORE, WHATEVER NATURE OF EXPENDITURE, IT HAS TO BE CAPITALIZED IN VIEW OF SE CTION 36(1)(III) OF THE ACT. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. ADMITTEDLY, THE ASSESSEE INCURRED THE EXPENDITURE FOR EXPANSION OF ITS EXISTING BUSINESS AND THE EXPENDITURE INCURRED BY THE ASSESS EE WAS SHOWN IN THE BOOKS OF ACCOUNT AS WORK IN PROGRESS IN TH E CAPITAL ASSET. HOWEVER, WHILE COMPUTING THE TAXABLE INCOME, THE AS SESSEE CLAIMED THE EXPENDITURE TO THE EXTENT OF ` 2,01,14,335/- AS REVENUE EXPENDITURE. 5. WE HAVE CAREFULLY GONE THROUGH THE JUDGMENT OF M ADRAS HIGH COURT IN RANE (MADRAS) LIMITED (SUPRA). THE M ADRAS HIGH COURT EXAMINED THE ISSUE ON IDENTICAL CIRCUMSTANCES AND FOUND THAT WHEN THE INDUSTRY IS SET UP AS EXTENSION OF EXISTIN G BUSINESS, THE DEDUCTION CLAIMED BY THE ASSESSEE WITH REGARD TO EX PENDITURE INCURRED IN CONNECTION WITH NEW UNIT, EVEN THOUGH I T IS INDEPENDENT, BECAUSE OF INTERCONNECTION OF MANAGEMENT, FINANCIAL , 5 I.T.A. NO.1561/MDS/15 ADMINISTRATIVE, PRODUCTION ASPECTS, HAS TO BE CONST RUED AS REVENUE IN NATURE AND THEREFORE, LIABLE FOR DEDUCTION WHILE COMPUTING THE TAXABLE INCOME. IN THE CASE BEFORE US, THE ASSESSE E IS CLAIMING PAYMENT OF INTEREST, INSURANCE, LOAN PROCESSING FEE S, TRAVELLING AND CONVEYANCE, PROFESSIONAL AND CONSULTANCY CHARGES AN D OTHER EXPENDITURES INCLUDING SALARY AND WAGES. THE LOWER AUTHORITIES HAD NO OCCASION TO CONSIDER THE JUDGMENT OF MADRAS HIGH COURT IN RANE (MADRAS) LTD. (SUPRA) . THEREFORE, THIS TRIBUNAL I S OF THE CONSIDERED OPINION THAT THE DETAILS OF THE EXPENDITURE HAVE TO BE CONSIDERED IN THE LIGHT OF JUDGMENT OF MADRAS HIGH COURT IN RANE (MADRAS) LTD. (SUPRA) AND OTHER STATUTORY PROVISIONS OF THE INCOM E-TAX ACT. SINCE THE LOWER AUTHORITIES HAVE NOT EXAMINED THE DETAILS OF THE EXPENDITURE INCURRED, AND IN VIEW OF THE JUDGMENT O F MADRAS HIGH COURT IN RANE (MADRAS) LTD. (SUPRA), THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE RECO NSIDERED BY THE ASSESSING OFFICER. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE ENTIRE ISSUE IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL REC ONSIDER THE ISSUE AFRESH AND THEREAFTER DECIDE THE SAME IN ACCORDANCE WITH LAW AFTER GIVING REASONABLE OPPORTUNITY TO THE ASSESSEE. 6 I.T.A. NO.1561/MDS/15 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 19 TH FEBRUARY, 2016 AT CHENNAI. SD/- SD/- (. !' ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) $ / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 4 /DATED, THE 19 TH FEBRUARY, 2016. KRI. . ,156 76(1 /COPY TO: 1. *+ /APPELLANT 2. ,-*+ /RESPONDENT 3. 0 81 () /CIT(A)-6, CHENNAI 4. 0 81 /CIT-II, CHENNAI 5. 69 ,1 /DR 6. :' ; /GF.