M/s Vishal Infrastructures Ltd., Hyderabad V. DCIT, Hyderabad

ITA 1653/HYD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3157 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 25-05-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 12-11-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: E S NAGENDRA PRASAD
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 143(3); 2

Judgement Text

ITA 1653/HYD/ 2008. M/S. VISHAL INFRASTRUCTAURES LTD., SECUNDERABAD . 1 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI G.C. GUPTA, VICE-PRESIDENT AND SHRI AKBER BASHA, ACCOUNTANT MEMBER ITA NO.1653/HYD/08 : A SSTT. YEAR: 2005- 06 M/S. VISHAL INFRASTRUCTURES LTD., MARREDPALLY, SECUNDERABAD. PAN: AABCM 3918 R VS DCIT, CIR-3(3), HYDERABAD. (APPELLANT) (RESPONDENT) APPELLANT BY : SRI PVSS PRASAD RESPONDENT BY : SRI E.S. NAGENDRA PRASAD O R D E R PER AKBER BASHA, ACCOUNTANT MEMBER: THIS APPEAL IS FILED BY THE ASSESSEE IS DIRECTED AGAINS T THE ORDER OF THE CIT (A)-IV, HYDERABAD DATED 31-7-2008 PERTAINING TO THE ASSESSMENT YEAR 2005-06. 2. GROUNDS RAISED BY THE ASSESSEE READ AS FOLLOWS:- 1. THE CIT(A) ERRED IN LAW IN ACCEPTING THE RECLASSIFICAT ION MADE BY THE DCIT IN RESPECT OF EXPENDITURE AGGREGATIN G TO ITA 1653/HYD/ 2008. M/S. VISHAL INFRASTRUCTAURES LTD., SECUNDERABAD . 2 RS.44,45,650 CLAIMED BY THE ASSESSEE AS REVENUE IN NATURE TO CAPITAL NATURE. 2. THE LEARNED CIT (A) OUGHT TO HAVE CONSIDERED THE CONTENTION OF THE ASSESSEE AND TREATED SUCH EXPENDITURE AS REVENUE IN NATURE AND ALLOWED THE SAME TO BE DEDU CTED WHILE ARRIVING AT THE TAXABLE PROFIT. 3. THE LEARNED CIT (A) OUGHT TO HAVE ACCEPTED THE ASSESSE E'S GROUNDS AND GRANTED THE RELIEF SOUGHT FOR. 4. THE LEARNED CIT (A) ERRED IN LAW IN CONCURRING WI TH THE VIEWS OF THE LEARNED DCIT WHICH ARE LEGALLY UNSUSTAINA BLE. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF ENGINEERING AND CONSTRUCTION. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE HAS FILED IT S RETURN OF INCOME ON 1-11-2005 DECLARING A TOTAL INCOME OF RS.2 ,73,42,080. THE RETURN WAS PROCESSED BY THE ASSESSING OFFICER UNDER SECTIO N 143(1) OF THE ACT ON 6-3-2006. SUBSEQUENTLY, THE CASE HAS BEEN SELECTED FOR SCRUTINY. IN RESPONSE TO THE NOTICES ISSUED UND ER SECTION 143(2) AND 142(1), THE REPRESENTATIVE OF THE ASSESSEE COM PANY APPEARED AND FILED THE INFORMATION CALLED FOR BEFOR E THE ASSESSING OFFICER. AN ORDER OF ASSESSMENT WAS PASSED ON 26-11-2007 UN DER SECTION 143(3) OF THE ACT DETERMINING THE BUSINESS INCOM E AFTER MAKING SOME DISALLOWANCE OF EXPENDITURE INCURRED BY THE ASSESSEE AT RS.3,04,40,307 BESIDES THE LTCG OF RS.8,55,803 AS AGAINS T THE RETURNED INCOME OF RS.2,73,42,080. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE WENT IN APPEAL BEFORE THE CI T (A). ON APPEAL, THE CIT (A) CONFIRMED THE ACTION OF THE ASSESSIN G OFFICER ON THE ISSUE RELATING TO THE DISALLOWANCE OF EXPENDITURE INCUR RED ON SHUTTERING MATERIALS TREATING THE SAME AS CAPITAL EXPEN DITURE AT ITA 1653/HYD/ 2008. M/S. VISHAL INFRASTRUCTAURES LTD., SECUNDERABAD . 3 RS.44,45,650. FURTHER AGGRIEVED BY THE FINDINGS AND T HE DECISION OF THE CIT (A), THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS AN ENGINEERING AND CONSTRUCTION COMPANY HAVING CLIENTS IN GOVERNMENT, PUBLIC SECTOR AND PRIVATE SECTOR AND IT IS CARRYING VARIED WORKS LIKE CONSTRUCTION OF BRIDGES, AIRPORT, RUNWAYS, ROA D LAYING, GENERAL CLEARANCE AND ELECTRIFICATION, CONSTRUCTION OF BUI LDINGS ETC. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD CARR IED OUT WORK OF CONSTRUCTION OF SUB-ASSEMBLY INTEGRATION AND TEST FACILITY AT TERLS, THUMA, THIRUVANATHAPURAM FOR DEPARTMENT OF S PACE, GOVERNMENT OF INDIA. IN THIS CONNECTION, THE ASSESSEE HA D PROCURED IRON AND STEEL ROLLS AND PIPES AND RELATED MATERIALS COST ING RS.44,45,650 TO PREPARE SHUTTERING AND SCAFFOLDING MATE RIALS FOR USE IN THE CONSTRUCTION OF THE BUILDING. THEREFORE THIS EXPE NDITURE WAS CLAIMED AS REVENUE EXPENDITURE IN THE PROFIT & LOSS ACCOU NT. IT WAS FURTHER CONTENDED THAT THE ISRO BUILDING PROJECT WAS A LLOTTED TO THE ASSESSEE ON 12-3-2004 AND WAS SCHEDULED FOR COMPLETION WITH IN 6 MONTHS. HOWEVER, THERE WAS A DELAY IN THE EXECUTION OF THE WORKS RESULTING IN ESCALATION OF COST OF CEMENT AND STEEL. SINCE THE CLIENT DID NOT COME FORWARD TO SHARE THE BURDEN, OF INCREASE IN COST S THE WORKS COULD NOT BE CARRIED ON AND THE PROJECT HAS NOT BEEN FI NISHED EVEN NOW AND AS A RESULT, THE IRON AND STEEL IS LYING CORRODED AT THE SITE AND IS NOT FIT FOR FURTHER USE. IT WAS FURTHER CONTENDED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE STEEL ROLLS ARE CUT INTO LENGTHS AS PER DRAWING AND WELDED WITH ANGLES AND OTHER ATTACHMENTS AND A LAR GE NUMBER OF SUCH SHUTTERING ARE REQUIRED FOR THE WORK. THE PIPES AR E ALSO CUT AND JOINED TOGETHER TO GET MORE LENGTH. IN NORMAL CONSTR UCTION, WOODEN POLES ARE BEING USED FOR SCAFFOLDING AND STEEL SHEETS ARE WOODEN ITA 1653/HYD/ 2008. M/S. VISHAL INFRASTRUCTAURES LTD., SECUNDERABAD . 4 PLANKS ARE USED FOR SHUTTERING. IN THE CASE UNDER CONSIDE RATION WOOD COULD NOT BE USED FOR THE SAID PURPOSE AS THE CEILING OF THE BUILDING IS AS HIGH AS 45 FT. THE MATERIAL USED FOR SCAFFOLDING WAS OF SPECIAL NATURE AND THE MATERIALS WERE NOT EXPECTED TO LAST BEY OND THE WORK PERIOD. HENCE THE COST OF THE MATERIAL CANNOT BE CONSIDER ED AS CAPITAL EXPENDITURE AS THE MATERIAL GOT CONSUMED DURING THE P ROCESS OF CONSTRUCTION. EVEN THE BANKERS DID NOT ACCEPT THE STOCK O F THESE MATERIALS FOR THEIR WORKING CAPITAL LIMITS AS ITS LIFE IS VERY SHORT. HENCE, THERE IS ENDURING OR LASTING BENEFIT TO THE ASSESSEE ON THIS COUNT. THIS NOT A FIXED ASSET AND THE EXPENDITURE INCUR RED ONLY FOR THE PURPOSE OF BUSINESS. THE LEARNED COUNSEL FOR THE ASSESSEE F ILED DETAILED WRITTEN SUBMISSIONS BEFORE US HOLDING THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IS IN THE NATURE OF REVENUE EXPE NDITURE. IN THIS REGARD, HE RELIED ON THE FOLLOWING DECISIONS:- I) CIT VS. SHREE NARASIMHA TEXTILES (238 ITR 351 )(M AD.) II) CIT VS. HINDUSTAN TIMES (241 ITR 509 (DEL.) III) CIT VS. CO-OPERATIVE SUGARS LIMITED (235 ITR 34 3) (KER.) IV) EMPIRE JUTE CO. LTD. VS. CIT ( 124 ITR 1) (SC) V) CIT VS. MYSORE SPUN CONCRETE PIPE PVT. LTD. (194 ITR 1 59) (KAR) VI) CIT VS. JAGTJIT INDUSTRIES LIMITED (241 ITR 556) (DE L.) VII) CIT VS. PANDOM CONSTRUCTORS (P) LTD. ( 186 TAXMAN 303) (HARYANA) THE LEARNED COUNSEL FOR THE ASSESSEE ALSO FURNISHED A STATEM ENT PERTAINING THE DETAILS OF STORES CONSUMED DURING THE ASSESSM ENT YEAR UNDER CONSIDERATION AND ALSO SHUTTERING MATERIALS DETAI LS AND ITA 1653/HYD/ 2008. M/S. VISHAL INFRASTRUCTAURES LTD., SECUNDERABAD . 5 SUBMITTED THAT THE COST OF SHUTTERING SHEET IS NOT MORE THAN RS.750. EVEN IF THE PIPES WERE ALSO CUT AND JOINED TOGETHER TO GET MORE LENGTH, ALSO COSTED LESS THAN RS.1000/-. IT IS SUBMITTED THAT AS PE R THE EARLIER INCOME-TAX PROVISION, DEPRECIATION WAS ALLOWED AT 100 % IF THE COST OF THE PLANT AND MACHINERY WAS LESS THAN RS.5000/-. ACCORD INGLY, THE ASSESSEE WAS BEING ALLOWED 100% DEPRECIATION IN RESPECT OF SCAFFOLDING AND SHUTTERING MATERIALS WHICH COSTS LESS THAN RS. 5000 INDIVIDUALLY. HE FINALLY SUBMITTED THAT THE DECISION OF THE ALLAHABAD HIGH COURT IN THE CASE OF HARIJAN EVAM NIRBAL VARG A VAS NIGAM LIMITED VS. CIT (229 ITR 776) AS RELIED ON BY THE CIT (A) IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE AS IN THAT CASE THE ASSESSEE WAS IN THE LINE OF HOUSING CONSTRUCTION. 5. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REP RESENTATIVE RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 6. WE HAVE CONSIDERED THE SUBMISSIONS OF THE RIVAL PA RTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD INCLUDING THE WRITTEN SUBMISSIONS FILED BY THE LEARNED COUNSEL FOR THE ASSESSEE. WE FIND THAT THE CIT (A), WHILE CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN TREATING THE EXPENDITURE IN QUESTION AS CAPITAL EXPEND ITURE, FOLLOWED THE DECISION OF THE ALLAHABAD HIGH COURT IN THE CASE OF HARIJAN EVAM NIRBAL VARG AVAS NIGAM LIMITED (SUPRA). EVEN THOUGH THE ASSESSEE, IN THAT CASE, WAS IN THE LINE OF HOUSING CONSTRUCTION, THE RATIO LAID DOWN BY THE ALLAHABAD HIGH COURT IS SQUARELY APPLICABL E TO THE ISSUE UNDER CONSIDERATION, WHEREAS THE LEARNED COUNSEL FOR THE ASSESSEE HAS NOT BROUGHT ANY DIRECT JUDGMENT ON RECORD TO SUPPORT H IS CONTENTION. THE SHUTTERING MATERIAL WAS NORMALLY USED TO SUPPORT TH E ROOF WHEN CONCRETE WAS BEING LAID ON IT. LIKEWISE, SCAFFOLDING MAT ERIAL ALSO USED ITA 1653/HYD/ 2008. M/S. VISHAL INFRASTRUCTAURES LTD., SECUNDERABAD . 6 TO SUPPORT THE SHUTTERING MATERIAL AND BOTH THESE ITEM S WERE NOT ITEMS OF CONSUMABLE STORES AS THEY WERE RETRIEVED AFTER THE PROJECT IS OVER AND AGAIN USED ELSEWHERE I.E, IN SOME OTHER PROJE CT. IT IS IN THE NATURE OF TOOL WITH THE HELP OF WHICH CONSTRUCTION WAS BEING DONE. INDIVIDUAL PIECE OF SHUTTERING MATERIAL, EVEN THOUGH COSTS LESS THAN RS.1000/- CANNOT PERFORM THE SAME FUNCTION AS WAS PERFORM ED BY THE PIECES COLLECTIVELY. HENCE, IN OUR CONSIDERED VIEW, SCAFFOLDI NG AND SHUTTERING MATERIAL IS JUST LIKE A PLANT AND MACHINERY AND THE SAME IS TO BE TREATED AS CAPITAL EXPENDITURE IN NATURE. THE REFORE, THE AUTHORITIES BELOW ARE RIGHT IN TREATING THE EXPENDIT URE AS CAPITAL EXPENDITURE AND ALLOWING THE DEPRECIATION AT THE PRE SCRIBED RATES FOR PLANT AND MACHINERY. WE DO NOT SEE ANY INFIRMITY IN T HE ORDER OF THE CIT (A) AND THE SAME IS CONFIRMED. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED. ORDER WAS PRONOUNCED IN THE COURT ON 30-6-2010. SD/- G.C.GUPTA SD/- AKBER BASHA VICE PRESIDENT ACCOUNTANT MEMBER. DT/- 30TH JUNE, 2010 COPY FORWARDED TO: 1. PRASAD & PRASAD, CAS, 30 & 31, FIRST FLOOR REDDY HOSTE L SHOPPING COMPLEX, TILAK ROAD, ABIDS, HYDERABAD. 2 DCIT, CIR-3(3), HYDERABAD. 3. 4. THE CIT, AP, HYDERABAD., CIT(A)-IV, HYDERABAD. DR, ITAT, HYDERABAD. JMR* ITA 1653/HYD/ 2008. M/S. VISHAL INFRASTRUCTAURES LTD., SECUNDERABAD . 7