ACIT, Coimbatore V. M/s. Kannappan Iron and Steel Co. Pvt. Ltd., Coimbatore

ITA 1600/CHNY/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52161 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2008-2009
• Appeal Filed On: 03-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K E B RENGARAJAN JR
• Keywords: Revenue expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENT AND SHRI GEORGE MATHAN, JUDICIAL MEMBER I.T.A. NO.1600/MDS/2011 ASSESSMENT YEAR : 2008-09 ASSISTANT COMMISSIONER OF OF INCOME TAX, COMPANY CIRCLE- I(2), COIMBATORE. VS. M/S. KANNAPPAN IRON AND STEEL CO. PVT. LTD., 9/110, KALIDAS ROAD, RAMNAGAR, COIMBATORE-641 009. PAN:AABCK2974P (APPELLANT) (RESPONDENT) APPELLANT BY : MR. K.E. B.RENGARAJAN, JR. STANDING COUNSEL RESPONDENT BY : MR. SAROJ K UMAR PARIDA, ADVOCATE DATE OF HEARING : 12 TH DECEMBER, 2011 DATE OF PRONOUNCEMENT : 12 TH DECEMBER, 2011 O R D E R PER DR.O.K.NARAYANAN, VICE-PRESIDENT: THIS APPEAL FILED BY THE REVENUE RELATES TO THE ASSESSMENT YEAR 2008-09. THE APPEAL IS DIRECTED AG AINST THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-I AT COIMBATORE DATED 13.07.2011 AND ARISES OUT OF THE ASSESSMENT COMPLETED UNDER SECTION 143(3) OF THE IN COME TAX ACT, 1961. ITA NO.1600/M DS/2011 2 2. THE ASSESSEE IS CONVERTING SCRAP IRON INTO MS ST EEL. IN THE PREVIOUS YEAR RELEVANT TO THE IMPUGNED ASSESSME NT YEAR, THE ASSESSEE PROCEEDED FURTHER TO IMPROVE THE VALUE ADDITION BY CONVERTING MS STEEL AGAIN INTO TMT STEEL. IN THA T PROCESS, THE ASSESSEE HAD INCURRED AN EXPENDITURE OF ` 88,75,000/-. THIS AMOUNT WAS CLAIMED AS A DEDUCTION UNDER THE HE AD PRODUCT DEVELOPMENT EXPENDITURE. THE ASSESSING AU THORITY HAD DISALLOWED THIS CLAIM ON THE GROUND THAT THIS A MOUNT OF EXPENDITURE WAS CAPITAL IN NATURE. IN FIRST APPEAL, THE COMMISSIONER OF INCOME TAX(APPEALS) ACCEPTED THE CONTENTION OF THE ASSESSEE AND DIRECTED THE ASSESSI NG AUTHORITY TO TREAT THE EXPENDITURE AS REVENUE AND A LLOWED THE SAME AS DEDUCTION. THE REVENUE IS AGGRIEVED AND THE REFORE THE SECOND APPEAL IS BEFORE US. 3. THE VERY SAME ISSUE WAS CONSIDERED IN ASSESSEES OWN HANDS FOR IMMEDIATELY PRECEDING ASSESSMENT YEAR 200 7-08. AFTER CONSIDERING THE ISSUE IN A REASONABLY DETAILE D MANNER THE TRIBUNAL HELD THAT THE EXPENDITURE WAS REVENUE IN NATURE AND THEREFORE, THE COMMISSIONER OF INCOME TAX(APPEA LS) WAS ITA NO.1600/M DS/2011 3 JUSTIFIED IN DELETING THE ADDITION MADE BY THE ASSE SSING AUTHORITY. 4. WHEN THIS ORDER OF THE TRIBUNAL DATED 2 ND NOVEMBER, 2010 PASSED IN ITA NO.1569/MDS/2010 WAS PLACED BEFO RE US IN THE COURSE OF HEARING, SHRI K.E.B.RENGARAJAN, LE ARNED STANDING COUNSEL APPEARING FOR THE REVENUE, CONTEND ED THAT THE ISSUE HAS TO BE EXAMINED AFRESH IN THE LIGHT OF THE RECENT JUDGEMENT OF THE HONBLE DELHI HIGH COURT IN THE CA SE OF COMMISSIONER OF INCOME TAX VS. HARIG CRANK SHAFTS L TD., 325 ITR 304. DUTIFULLY THIS DECISION WAS CONSIDERED . IN THAT CASE THE ASSESSEE HAD INCURRED CERTAIN EXPENDITURE FOR PRODUCT DEVELOPMENT WHICH WAS TREATED AS DEFERRED REVENUE EXPENDITURE. ACCORDINGLY A DEDUCTION OF 10% OF THE EXPENDITURE WAS ALLOWED BY ASSESSING AUTHORITY. IN AN ASSESSMENT OF SUBSEQUENT ASSESSMENT YEAR, THE ASSES SING AUTHORITY ATTEMPTED TO GIVE DEDUCTION UNDER SECTION 35D TREATING THE EXPENDITURE AS PRELIMINARY EXPENSES. THE TRIBUNAL HELD THAT THE EXPENDITURE WAS NOT IN THE N ATURE OF PRELIMINARY EXPENSES AND THEREFORE THE SAME CANNOT BE CONSIDERED AS A DEDUCTION UNDER SECTION 35D AND THE ITA NO.1600/M DS/2011 4 EXPENSES WERE INCURRED AND THE CLAIM WAS GENUINE, T HE DEDUCTION SHOULD HAVE BEEN ALLOWED BY THE ASSESSING AUTHORITY. THE ABOVE DECISION OF THE TRIBUNAL HAS B EEN CONFIRMED BY THE HONBLE HIGH COURT IN THE ABOVE JU DGEMENT. WE HAVE TO SEE THAT THE HONBLE HIGH COURT HAS NOT LAID DOWN ANY PROPOSITION OF LAW IN THE ABOVE DECISION. THEY HAVE HELD THAT THE EXPENDITURE CLAIMED BY THE ASSESSEE WAS PR ODUCT DEVELOPMENT EXPENDITURE AND THE SAME CANNOT BE TREA TED AS PRELIMINARY EXPENSES AND THEREFORE THE SAME CANNOT BE CONSIDERED FOR PIECEMEAL DEDUCTION AVAILABLE UNDER SECTION 35D. THE COURT ALSO HAS NOT MADE ANY OBSERVATION TH AT THE EXPENDITURE WAS CAPITAL IN NATURE. IN THOSE CIRCUMS TANCES, THE HONBLE HIGH COURT AGREED WITH THE FINDING OF THE T RIBUNAL THAT THE EXPENDITURE SHOULD BE ALLOWED AS AN ITEM GOVERN ED BY SECTION 37. THE ABOVE STATED JUDGEMENT IN NO WAY DISAPPROVES THE ORDER OF THE TRIBUNAL PASSED IN ASS ESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING ASSESSMENT Y EAR 2007-08 ON WHICH THE ASSESSEE HAS PLACED RELIANCE. 5. IN ITS EARLIER DECISION, THE TRIBUNAL HAS EXAMIN ED THE VARIOUS COMPONENTS OF THE EXPENDITURE AND FOUND THA T ALL ITA NO.1600/M DS/2011 5 THOSE ITEMS INDIVIDUALLY ARE REVENUE IN NATURE. THE TRIBUNAL FOUND THAT THE EXPENDITURES WERE NOT INCURRED FOR S ETTING UP OF ANY BUSINESS OR INITIATING AN EXPANSION PROGRAMME. THE EXPENDITURES WERE INCURRED AS A MEASURE OF VALUE AD DITION AND FOR COMPETING IN THE MARKET. THERE WAS NO BASIC IMPROVEMENT IN THE FUNDAMENTAL CHARACTER OF PRODUC T ALREADY MANUFACTURED AND PROCESSED BY THE ASSESSEE. IT WAS IN THE LIGHT OF THOSE FINDINGS, THE TRIBUNAL HAS HELD THAT THE DISPUTED EXPENDITURES WERE IN FACT REVENUE IN NATURE. 6. WE FIND THAT THE DECISION OF THE TRIBUNAL FOR TH E EARLIER ASSESSMENT YEAR 2007-08 IS APPLICABLE TO THE PRESEN T CASE AS WELL AND ACCORDINGLY THE PRESENT APPEAL FILED BY TH E REVENUE IS LIABLE TO BE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF HEARING ON MONDAY, THE 12 TH DECEMBER, 2011 AT CHENNAI. SD/- SD/- (GEORGE MATHAN) ( DR. O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED THE 12 TH DECEMBER, 2011. SOMU ITA NO.1600/M DS/2011 6 COPY TO: (1) APPELLANT ( 4) CIT(A) (2) RESPONDENT (5) D.R. (3) CIT (6) G.F.