Damodhar Cement & Slag Ltd.(Since merged with ACC Ltd.), Kolkata V. A.C.I.T., Circle-6, Kolkata,

ITA 1692/KOL/2009

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4112 (ITAT-KOLKATA)
• Duration Of Justice: 7 year(s) 2 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-12-2016
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 27-10-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 30-09-2009
• Court: TRIBUNAL
• Assessee Lawyers: MA NISH SHETH
• Keywords: Depreciation; Revenue expenditure
• Section: 234B; 115JB; 131; 11

Judgement Text

I.T.A. NOS. 1692 & 1693/KOL./2009 ASSESSMENT YEARS: 2004-2005 & 2005-2006 PAGE 1 OF 13 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA C BENCH, KOLKATA BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI N.V. VASUDEVAN, JUDICIAL MEMBER I.T.A. NOS. 1692 & 1693/KOL/ 2009 ASSESSMENT YEARS: 2004-2005 & 2005-2006 DAMODHAR CEMENT & SLAG LIMITED,.................... .........................APPELLANT (SINCE MERGED WITH ACC LIMITED), 9, BRABOURNE ROAD, KOLKATA-700 001 [PAN: AAACT 1507 C] -VS.- ASSISTANT COMMISSIONER OF INCOME TAX,.............. .....................RESPONDENT CIRCLE-6, KOLKATA, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 APPEARANCES BY: SHRI MANISH SHETH, A.R., FOR THE ASSESSEE SHRI RAJAT KUMAR KUREEL, JCIT, SR. D.R., FOR THE DEPARTMENT DATE OF CONCLUDING THE HEARING : OCTOBER 27 , 2016 DATE OF PRONOUNCING THE ORDER : DECEMBER 02, 2016 O R D E R PER SHRI P.M. JAGTAP, A.M .: THESE TWO APPEALS FILED BY THE ASSESSEE ARE DIRECTE D AGAINST TWO SEPARATE ORDERS BOTH DATED 06.07.2009 PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-VI, KOLKATA FOR ASSESSMENT YEA RS 2004-05 AND 2005-06 AND SINCE THE ISSUES INVOLVED THEREIN ARE C OMMON, THE SAME HAVE BEEN HEARD TOGETHER AND ARE BEING DISPOSED OF BY A SINGLE CONSOLIDATED ORDER. 2. FIRST WE SHALL TAKE UP THE APPEAL OF THE ASSESSE E FOR A.Y. 2004-05 BEING ITA NO. 1692/KOL/2009, GROUND NO. 1 OF WHICH INVOLVES THE ISSUE RELATING TO THE ADDITION OF RS.35,74,793/- MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE D. CIT(APPEALS) UNDER SECTION 41(1) ON ACCOUNT OF THE AMOUNT TRANSFERRED BY THE ASSESSEE FROM CAPITAL RESERVE TO PROFIT & LOSS ACCOUNT. I.T.A. NOS. 1692 & 1693/KOL./2009 ASSESSMENT YEARS: 2004-2005 & 2005-2006 PAGE 2 OF 13 3. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY, W HICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF CEMENT. IN THE FIN ANCIAL YEAR 1996-97, THE FINANCIAL INSTITUTIONS HAD WAIVED THE INTEREST DUE FROM THE ASSESSEE- COMPANY PURSUANT TO THE REVIVAL OR REHABILITATION S CHEME SANCTIONED BY BIFR IN AUGUST, 1996. THE SAID INTEREST INCLUDED AN AMOUNT OF RS.646.78 LAKHS, WHICH HAD BEEN CAPITALIZED IN THE EARLIER YE ARS SINCE THE SAME WAS RELATED TO THE CONSTRUCTION PERIOD. THE ASSESSEE-CO MPANY HAD TRANSFERRED THE SAID AMOUNT OF RS.646.78 LAKHS TO THE CAPITAL R ESERVE IN F.Y. 1996-97. THE AMOUNT SO TRANSFERRED THEN WAS REVERSED IN THE SUBSEQUENT YEARS BY CREDITING THE SAME TO THE PROFIT & LOSS ACCOUNT OF THE SUBSEQUENT YEARS EQUIVALENT TO DEPRECIATION CHARGED OVER THE REMAINI NG LIFE OF RESPECTIVE ASSETS ON WHICH INTEREST WAS CHARGED AND CAPITALIZE D IN EARLIER YEARS. DURING THE YEAR, SUCH AMOUNT TO THE EXTENT OF RS.35 ,74,793/- WAS TRANSFERRED BY THE ASSESSEE FROM THE CAPITAL RESERV E ACCOUNT AND CREDITED TO THE PROFIT & LOSS ACCOUNT. IN THE COMPU TATION OF THE TOTAL INCOME, THE SAID AMOUNT WAS CLAIMED TO BE EXEMPT BY THE ASSESSEE IN TERMS OF A REVIVAL SCHEME APPROVED BY BIFR, WHEREBY THE INCOME TAX DEPARTMENT WAS ASKED TO ALLOW THE RELIEF IN TERMS O F SECTION 41(1) OF THE INCOME TAX ACT, 1961 IN RESPECT OF ALL WAIVERS AGRE ED BY FINANCIAL INSTITUTIONS, CEMENT CORPORATION OF INDIA AND OTHER CREDITORS. THE ASSESSING OFFICER, HOWEVER, NOTED THAT SUCH RELIEF WAS ALLOWED BY THE BIFR SUBJECT TO THE CONDITION THAT THE ASSESSEE-COM PANY HAS TO APPLY TO THE CBDT FOR CONSIDERATION OF RELAXATION FOR GRANT OF EXEMPTION UNDER SECTION 41(1) IN RESPECT OF WAIVER OF INTEREST AGRE ED BY LENDERS. IN THIS REGARD, IT WAS SUBMITTED BY THE ASSESSEE-COMPANY TH AT IT HAD ALREADY APPLIED TO CBDT FOR SUCH RELAXATION/EXEMPTION ON 03 .08.2001 ITSELF BUT NO ORDER WAS PASSED BY THE CBDT. THE ASSESSING OFFI CER, HOWEVER, FOUND THAT THERE WAS A FAILURE ON THE PART OF THE ASSESSE E TO PURSUE THE MATTER WITH THE CBDT AND KEEPING IN VIEW THE SAME AS WELL AS IN THE ABSENCE OF ANY SPECIFIC ORDER PASSED BY THE CBDT, THE BENEFIT IN TERMS OF SECTION 41(1) WAS DISALLOWED BY HIM AND THE AMOUNT OF RS.35 ,74,793/- WAS ADDED BY HIM TO THE TOTAL INCOME OF THE ASSESSEE. I.T.A. NOS. 1692 & 1693/KOL./2009 ASSESSMENT YEARS: 2004-2005 & 2005-2006 PAGE 3 OF 13 4. THE ADDITION OF RS.35,74,793/- MADE BY THE ASSES SING OFFICER ON ACCOUNT OF THE AMOUNT TRANSFERRED FROM CAPITAL RESE RVE TO PROFIT & LOSS ACCOUNT WAS CHALLENGED BY THE ASSESSEE IN THE APPEA L FILED BEFORE THE LD. CIT(APPEALS) AND SINCE THE SUBMISSION MADE BY THE A SSESSEE IN SUPPORT OF ITS CASE ON THIS ISSUE WAS NOT FOUND ACCEPTABLE BY HIM, THE LD. CIT(APPEALS) PROCEEDED TO CONFIRM THE ADDITION MADE BY THE ASSESSING OFFICER ON THIS ISSUE FOR THE FOLLOWING REASON GIVE N IN HIS IMPUGNED ORDER:- I HAVE GONE THROUGH THE SUBMISSIONS OF THE APPELLA NT AND THE VARIOUS DOCUMENTS FILED ME. AS SEEN FROM 159 CT R (ST) 148. ORDER DATED 161H FEBRUARY. 2000; CBDT PASSED O RDER U/S.119(2)(A): WHERE IT DIRECTS THAT: WHEREVER THE ORDER OF BIFR IN AN APPROVED SCHEME OF RECONSTRUCTION/REHABILITATION- (I) DIRECTS THAT THE RELIEFS BE ALLOWED UNDER THE I NCOME TAX ACT, 1961, THE EFFECT TO SUCH ORDERS BE GIVEN IMMED IATELY; (II) RECOMMENDS THAT THE RELIEFS UNDER THE INCOME T AX ACT, 1961 MAY BE CONSIDERED BY THE CENTRAL GOVERNMENT TH E RELIEF IS TO BE ALLOWED TO THE ASSESSEE IF DURING C OURSE OF THE PROCEEDINGS BEFORE THE BIFR. THE VIEWS OF THE INCOM E TAX DEPARTMENT HAS BEEN CONSIDERED BY THE BIFR. HOWEVER , IF THE ORDERS OF THE BIFR HAS BEEN PASSED WITHOUT MAKI NG INCOME TAX DEPARTMENT A PARTY OR WITHOUT GIVING A C HANCE TO THE INCOME TAX DEPARTMENT TO SUBMIT ITS VIEWS, T HE EFFECT OF BIFR RECOMMENDATIONS IS TO BE GIVEN ONLY AFTER T HE RECOMMENDATIONS OF THE BIFR ARE CONSIDERED BY THE C BDT. AS SEEN FROM THE ORDER OF BIFR IN CASE NO. 502/94 CBDT IS TO CONSIDER ALLOWING DSCL TO CARRY FORWARD ALL ITS ACCUMULATED LOSSES IN DSCL FOR FURTHER PERIOD OF 8 YEARS AND TO GRANT EXEMPTION UNDER SECTION 41(1} OF INCOME TA X ACT 1961 IN RESPECT OF WAIVERS AGREED BY FINANCIAL INST ITUTIONS, CCI AND OTHER CREDITORS. IT IS SEEN HERE THAT THE O RDER OF THE BIFR HAS BEEN PASSED WITHOUT MAKING INCOME TAX DEPARTMENT A PARTY OR WITHOUT GIVING A CHANCE TO TH E I.T. DEPARTMENT TO SUBMIT ITS VIEWS. UNDER THESE CIRCUMS TANCES, THE EFFECT OF BIFR RECOMMENDATIONS IS TO BE GIVEN E FFECT ONLY AFTER THE RECOMMENDATIONS OF THE BIFR ARE CONSIDERE D BY CBDT. AS A CONSEQUENCE, THE APPELLANT APPLIED TO CBDT, TO GRANT EXEMPTION FROM THE PROVISIONS OF SECTION 41(1 ). HOWEVER, THE APPELLANT COULD NOT GET ANY ORDER FROM CBDT. IN VIEW OF THE ABOVE, I FULLY AGREE WITH THE ACTION OF THE AO. THE GROUND OF APPEAL IS DISMISSED. I.T.A. NOS. 1692 & 1693/KOL./2009 ASSESSMENT YEARS: 2004-2005 & 2005-2006 PAGE 4 OF 13 5. THE LD. COUNSEL FOR THE ASSESSEE, AT THE OUTSET, INVITED OUR ATTENTION TO THE RELEVANT PORTION OF THE IMPLEMENTATION SCHED ULE ANNEXED TO THE BIFR ORDER TO POINT OUT THAT THE CBDT WAS TO GRANT THE EXEMPTION UNDER SECTION 41(1) OF THE INCOME TAX ACT, 1961 IN RESPEC T OF WAIVER AGREED BY FINANCIAL INSTITUTIONS, CEMENT CORPORATION OF INDIA AND OTHER CREDITORS AND WAS TO CONSIDER ALLOWING CARRY FORWARD OF ALL T HE ACCUMULATED LOSSES IN THE CASE OF THE ASSESSEE FOR A FURTHER PERIOD OF EIGHT YEARS. HE CONTENDED THAT THE APPROVAL OF CBDT THUS WAS NOT RE QUIRED TO BE OBTAINED BY THE ASSESSEE FOR CLAIMING EXEMPTION UND ER SECTION 41(1) AND SUCH APPROVAL AS PER THE IMPLEMENTATION SCHEME/SCHE DULE OF BIFR WAS REQUIRED ONLY FOR CARRY FORWARD OF ITS ACCUMULATION LOSSES FOR A FURTHER PERIOD OF EIGHT YEARS. HE SUBMITTED THAT THE ASSESS EE-COMPANY, HOWEVER, STILL APPLIED FOR THE RELIEF GIVEN IN TERMS OF SECT ION 41(1) TO THE CBDT ON 06.06.1997 ITSELF BUT DESPITE THE REMINDER SENT IN AUGUST, 2001 DID NOT GET ANY ORDER FROM CBDT. HE ALSO REFERRED TO THE RE LEVANT PORTION OF THE BIFR SANCTIONED SCHEME AT PAGE NO. 30 OF THE PAPER BOOK TO POINT OUT THAT THE SCHEME FRAMED BY BIFR WAS AT THE CONSENT O F ALL THE PARTIES CONCERNED INCLUDING CBDT. HE CONTENDED THAT NO SEPA RATE APPROVAL OF CBDT, THEREFORE, WAS REQUIRED FOR THE ASSESSEE TO C LAIM THE BENEFIT UNDER SECTION 41(1) AND THE DENIAL OF SUCH BENEFIT BY THE AUTHORITIES BELOW FOR WANT OF THE CBDT APPROVAL IS NOT JUSTIFIED. 6. THE LD. D.R., ON THE OTHER HAND, CONTENDED THAT ALL THE SUBMISSIONS NOW MADE ON BEHALF OF THE ASSESSEE HAVE ALREADY BEE N CONSIDERED BY THE LD. CIT(APPEALS) WHILE DENYING THE CLAIM OF THE ASS ESSEE FOR BENEFIT UNDER SECTION 41(1) VIDE HIS IMPUGNED ORDER AND THEREFORE , NOTHING IS LEFT TO BE CONSIDERED WHICH CAN GO IN FAVOUR OF THE ASSESSEE O N THIS ISSUE. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALS O PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERV ED THAT AS PER THE IMPLEMENTATION SCHEDULE OF THE SANCTIONED SCHEME OF BIFR, THE I.T.A. NOS. 1692 & 1693/KOL./2009 ASSESSMENT YEARS: 2004-2005 & 2005-2006 PAGE 5 OF 13 GOVERNMENT OF INDIA-CBDT AS ONE OF THE PARTIES CONC ERNED WAS ASSIGNED TO ACCOMPLISH THE FOLLOWING TASK:- TASK TO BE ACCOMPLISHED COMPLIANCE SCHEDULE TO CONSIDER ALLOWING THE DCSL TO CARRY FORWARD ALL ITS ACCUMULATED LOSSES IN DCSL FOR A FURTHER PERIOD OF EIGHT YEARS WITHIN TEN WEEKS FROM RECEIPT OF APPLICATION FROM THE COMPANY. TO GRANT EXEMPTION UNDER SECTION 41(1) OF INCOME TAX ACT, 1961 IN RESPECT OF WAIVERS AGREED BY FIS, CCI AND OTHER CREDITORS. - AS ABOVE - THE CBDT THUS WAS TO GRANT EXEMPTION UNDER SECTION 41(1) TO THE ASSESSEE WITHIN TEN WEEKS FROM THE RECEIPT OF APPLI CATION AND ALTHOUGH SUCH APPLICATION WAS MADE BY THE ASSESSEE ON 06.06. 1997 ITSELF AND FURTHER REMINDER WAS ALSO SENT ON 3 RD AUGUST, 2001, NO ORDER GRANTING SUCH EXEMPTION WAS APPARENTLY ISSUED BY THE CBDT. A S RIGHTLY POINTED OUT BY THE ASSESSEE IN THIS REGARD, THE CBDT WAS TO GRANT SUCH EXEMPTION AS PER THE BIFR ORDER AND THERE WAS NO SUCH DISCRET ION GIVEN TO THE CBDT TO CONSIDER AND GRANT THE RELIEF AS IT WAS DONE SPE CIFICALLY FOR ALLOWING BENEFIT IN TERMS OF CARRY FORWARD OF ALL ACCUMULATE D LOSSES OF THE ASSESSEE-COMPANY FOR A FURTHER PERIOD OF EIGHT YEAR S. MOREOVER, AS SPECIFICALLY MENTIONED IN CLAUSE 8.1 OF THE SANCTIO NED SCHEME OF BIFR, ALL THE PARTIES CONCERNED INCLUDING CBDT HAD GIVEN THEI R CONSENT FOR THE SCHEME FINALLY SANCTIONED BY BIFR AND KEEPING IN VI EW THE SAME AS WELL AS THE SPECIFIC CONTENTS OF THE IMPLEMENTATION SCHE DULE, WE ARE OF THE VIEW THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN DENYING THE BENEFIT TO THE ASSESSEE IN TERMS OF SECTION 41(1) AS GIVEN BY BIFR IN TERMS OF THE SANCTIONED SCHEME. IN THAT VIEW OF THE MATTER, WE D ELETE THE ADDITION MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(APPEALS) ON THIS ISSUE AND ALLOW GROUND NO.1 OF THE ASSESSEES APPEAL. 8. THE ISSUE INVOLVED IN GROUND NO.2 OF THE ASSESSE ES APPEAL RELATES TO THE DISALLOWANCE MADE BY THE ASSESSING OFFICER A ND CONFIRMED BY THE I.T.A. NOS. 1692 & 1693/KOL./2009 ASSESSMENT YEARS: 2004-2005 & 2005-2006 PAGE 6 OF 13 LD. CIT(APPEALS) ON ACCOUNT OF DEPRECIATION ON CRIT ICAL SPARES AND THE GROUNDS RAISED BY THE ASSESSEE ON THIS ISSUE READ A S UNDER:- 2(A). THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN CONFIRMING THE DISALL OWANCE OF DEPRECIATION ON CRITICAL SPARES OF RS.11,25,490/-. 2(B). THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND WITHOUT PREJUDICE TO GROUND NO. 2(A) TAKEN HEREINABOVE, THE LD. CIT(APPEALS) ERRED IN NOT ALLO WING CRITICAL SPARES PURCHASED DURING THE YEAR OF RS.19, 91,820/- AS REVENUE EXPENDITURE. 9. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSE E-COMPANY HAD CAPITALIZED THE CRITICAL SPARES REQUIRED FOR ITS VA RIOUS MACHINERIES AND CLAIMED DEPRECIATION THEREON AMOUNTING TO RS.11,25, 490/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE CLAIM OF THE ASSESSEE FOR SUCH DEPRECIATION WAS EXAMINED BY THE ASSESSING OFFICER AND ON SUCH EXAMINATION HE RECORDED HIS FINDINGS AS UNDER:- (I) THE I.T. RULES DOES NOT SPECIFY ANY RATE OF DEPRECIATION ON SPARES. (II) EARLIER THE SPARES WERE INCLUDED IN STORES AND SPARES A/C AND ONLY THE CONSUMED AMOUNT WERE CHARGED AS REVENUE. (III) CHANGE IN ACCOUNTING STANDARD CANNOT CHANGE THE CHARACTER OF ANY PARTICULAR ITEM OR ITS UTILITY TO BUSINESS. ON THE BASIS OF THE ABOVE FINDINGS AS WELL AS KEEPI NG IN VIEW THE STAND TAKEN ON A SIMILAR ISSUE IN ASSESSEES OWN CASE FOR THE EARLIER YEARS, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSES SEE FOR DEPRECIATION ON CRITICAL SPARES. HE HELD THAT THE ASSESSEE FOR INCO ME-TAX PURPOSE HAS TO FOLLOW THE METHOD OF ACCOUNTING CONSISTENTLY AND SH OULD CLAIM THE DEDUCTION ON ACCOUNT OF SPARES ON CONSUMPTION BASIS . IN THE ABSENCE OF SPECIFIC DATA/DETAILS IN THIS REGARD, HE ASSUMED TH AT THE VALUE OF SPARES ACTUALLY USED HAS ALREADY BEEN CLAIMED BY THE ASSES SEE AS DEDUCTION AND NOTHING FURTHER IS REQUIRED TO BE ALLOWED AS DEDUCT ION. I.T.A. NOS. 1692 & 1693/KOL./2009 ASSESSMENT YEARS: 2004-2005 & 2005-2006 PAGE 7 OF 13 10. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF ITS CLAIM FOR DEPRECIATION ON CRITICAL SPARES WAS CHALL ENGED BY THE ASSESSEE IN THE APPEAL FILED BEFORE THE LD. CIT(APPEAL) AND SINCE THE SUBMISSIONS MADE BY THE ASSESSEE IN SUPPORT OF ITS CASE ON THIS ISSUE WAS NOT FOUND ACCEPTABLE BY HIM, THE LD. CIT(APPEALS) PROCEEDED T O CONFIRM THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOU NT OF ASSESSEES CLAIM FOR DEPRECIATION ON CRITICAL SPARES FOR THE FOLLOWI NG REASONS GIVEN IN HIS IMPUGNED ORDER:- I HAVE GONE THROUGH THE SUBMISSIONS OF THE APPELLA NT. AS SEEN FROM AS 10 ISSUED BY THE COUNCIL OF ICAI FOR F IXED ASSETS PROVIDES AS FOLLOWS: 'STAND BY EQUIPMENT AND SERVICING EQUIPMENT ARE NOR MALLY CAPITALIZED MACHINERY SPARES ARE USUALLY CHARGED TO THE PROFIT AND LOSS STATEMENT AS AND WHEN CONSUMED. HOW EVER, IF SUCH SPARES CAN BE USED ONLY IN CONNECTION WITH AN ITEM OF FIXED ASSETS AND THEIR USE IS EXPECTED TO BE IRR EGULAR, IT MAY BE APPROPRIATE TO ALLOCATE THE TOTAL COST ON A SYSTEMIC BASIS OVER A PERIOD NOT EXCEEDING THE USEFUL LIFE O F THE PRINCIPAL ITEM'. THE COUNCIL OF ICAI HAS ALSO ISSUED ACCOUNTING STAN DARDS INTERPRETATION (ASI) 2 FOR THE PURPOSE OF ELUCIDATI NG AS TO THE MACHINERY SPARES WHICH ARE COVERED UNDER THE ACCOUNTING STANDARDS (AS) 2 AND (AS) 10 AND WHAT SH OULD BE THE ACCOUNTING FOR MACHINERY SPARES UNDER THE RESPECTIVE STANDARDS IN THIS CONTEXT, IT MAY BE PER TINENT TO NOTE THE FOLLOWING - 1) WHETHER TO CAPITALIZE A MACHINERY SPARE UNDER AS 10 OR NOT WILL DEPEND ON THE FACTS AND CIRCUMSTANCES OF E ACH CASE. HOWEVER, THE MACHINERY TYPES OF THE FOLLOWING TYPES SHOULD BE CAPITALIZED BEING OF THE NATURE OF CAPITA L SPARES/INSURANCE SPARES. (I) MACHINERY SPARES WHICH ARE SPECIFIC TO A PARTIC ULAR ITEM OF FIXED ASSET, I.E. THEY CAN BE USED ONLY IN CONNECTION WITH A PARTICULAR ITEM OF FIXED ASSET AND - (II) THEIR USE IS EXPECTED TO BE IRREGULAR. 2) MACHINERY SPARES OF THE NATURE OF CAPITAL SPARES / INSURANCE SPARES SHOULD BE CAPITALIZED SEPARATELY A T THE TIME OF THEIR PURCHASE, WHETHER PROCURED AT THE TIM E OF PURCHASE OF THE FIXED ASSET CONCERNED OR SUBSEQUENT LY. THE TOTAL COST OF SUCH CAPITAL SPARES/INSURANCE SPARES SHOULD I.T.A. NOS. 1692 & 1693/KOL./2009 ASSESSMENT YEARS: 2004-2005 & 2005-2006 PAGE 8 OF 13 BE ALLOCATED ON A SYSTEMATIC BASIS OVER A PERIOD NO T EXCEEDING THE USEFUL LIFE OF THE PRINCIPAL ITEM, LE . THE FIXED ASSET TO WHICH THEY RELATE. FOLLOWING THE (ASI) 2, AR WAS ASKED TO PRODUCE THE DETAILS OF THE MACHINERY SPARES SPECIFIC TO A PARTICULAR IT EM OF FIXED ASSET AND ALSO TO PROVE WHETHER THEIR USE IS IRREGULAR. THE A.R. WAS ALSO ASKED TO SUBSTANTIATE ITS CLAIM, BY SHOWING INSTANCES TO PROVE THE USE OF SPACES ITS IR REGULAR I.E. ANY INSTANCE, THEY WERE PUT TO USE IN THE EARL IER YEARS BECAUSE OF SUDDEN FAILURE OF SPARES. THE LD. A.R PR ODUCED ONLY THE LIST OF SUCH SPARES ASSESSMENT YEAR WISE. THE AR COULD NOT EXPLAIN OR PROVE THAT THEY ARE EMERGENCY SPARES. GOING BY THE DESCRIPTION GIVEN BY THE APPELLANT, NO NE OF THESE SPARES QUALIFY TO BE EMERGENCY SPARES/CAPITAL SPARES AS DISCUSSED UNDER AS 10. THE APPELLANT COULD NOT E XPLAIN THAT THESE SPARES ARE SPECIFIC TO A PARTICULAR ITEM OF FIXED ASSETS. THE LD. AR. WAS ON!Y DESCRIBING THE SPARES WITH RELATION TO CEMENT MILL 1 AND CEMENT MILL 2. IT IS ALSO NOT EXPLAINED PROVED THAT THEIR USE IS EXPECTED TO BE I RREGULAR. THE GEAR BOX UNITS, CONTROL DIAPHRAGM BEARING BUSH, STARTER COIL FOR MOTOR [AY. 03-04]. 1250 KW MOTOR 6 .6 KV (ASSTT. YEAR 04-05), ARE SEPARATE SPARES OF GENERAL USE BY THEMSELVES AND CANNOT BE TREATED/CATEGORIZED AS EMERGENCY/CRITICAL SPARES OF A FIXED ASSET. IN MY V IEW THEY ARE NOT RELATED TO ANY FIXED ASSET. THE LD. AR. ALS O COULD NOT EXPLAIN THAT THEY BELONG TO ANY FIXED ASSET. IN VIEW OF THIS, IT IS DIFFICULT TO ACCEPT THE CONTENTION OF T HE APPELLANT THAT THE SPARES IN ISSUE WERE EMERGENCY SPARES. THE MAIN DRIVE MOTOR I.E. 1250 KW MOTOR 6.6. KV CANNOT BE AN EMERGENCY SPACE RELATING TO ANY FIXED ASSETS. IN MY OPINION, THE APPELLANT DID NOT SATISFY THE CONDITIO N OF ACCOUNTING STANDARDS INTERPRETATION (ASI) 2 AS DISC USSED EARLIER. HENCE THE GROUNDS OF APPEAL ARE DISMISSED . 11. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES O N THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON REC ORD. IT IS OBSERVED THAT THE CONDITIONS FOR CAPITALIZING THE RELEVANT SPARES CLAIMED TO BE CRITICAL AND CLAIMING DEPRECIATION THEREON ARE NOT SATISFIED BY THE ASSESSEE IN THE PRESENT CASE, INASMUCH AS, IT HAS FAILED TO PROVE E ITHER BEFORE THE AUTHORITIES BELOW OR EVEN BEFORE US THAT THE SAID S PARES WERE MEANT SPECIFICALLY FOR A PARTICULAR ITEM OF FIXED ASSET A ND THEIR USE IS EXPECTED TO BE IRREGULAR. IN THIS REGARD, ONLY THE LIST OF S PARES WAS FURNISHED BY THE ASSESSEE AND AS RIGHTLY POINTED OUT BY THE LD. CIT( APPEALS) FROM THE I.T.A. NOS. 1692 & 1693/KOL./2009 ASSESSMENT YEARS: 2004-2005 & 2005-2006 PAGE 9 OF 13 DESCRIPTION GIVEN THEREIN, THE SAID SPARES WERE OF GENERAL USE WHICH COULD NOT BE TREATED /CATEGORIZED AS EMERGENCY/CRIT ICAL SPARES OF ANY FIXED ASSET. AS MENTIONED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER, SUCH SPARES WERE INCLUDED BY THE ASSESSEE-CO MPANY ITSELF IN THE STORES AND SPARES ACCOUNT IN THE EARLIER YEARS AND THE SAME WERE CLAIMED AS REVENUE EXPENDITURE ON CONSUMPTION BASIS. NO EXP LANATION WHATSOEVER HAS BEEN OFFERED ON BEHALF OF THE ASSESSEE FOR CHAN GING THIS METHOD OF ACCOUNTING FOLLOWED IN THE EARLIER YEARS. ON THE OT HER HAND, THE ASSESSEE IN GROUND NO. 2(B) HAS RAISED AN ALTERNATIVE CLAIM THAT THE DEDUCTION ON ACCOUNT OF THE SPARES CLAIMED TO BE CRITICAL BE ALL OWED AS REVENUE EXPENDITURE. AS NOTED BY THE ASSESSING OFFICER, THE SPECIFIC DATA/DETAILS IN THIS REGARD WERE NOT FURNISHED BY THE ASSESSEE A ND IN THE ABSENCE OF THE SAME, HE PROCEEDED TO ASSUME THAT THE AMOUNT IN QUESTION WAS ALREADY CLAIMED BY THE ASSESSEE IN THE CONSUMPTION OF STORES AND SPARES. WE ARE UNABLE TO APPROVE THIS APPROACH OF THE ASSES SING OFFICER. IN OUR OPINION, THE FACTUAL POSITION AS TO WHETHER THE VAL UE OF CRITICAL SPARES WAS INCLUDED BY THE ASSESSEE IN THE CONSUMPTION OF STOR ES AND SPARES IS VERIFIABLE FROM THE RELEVANT RECORD AND THE ASSESSI NG OFFICER SHOULD HAVE COME TO A SPECIFIC FINDING BY CARRYING OUT SUCH VER IFICATION INSTEAD OF MAKING ANY ASSUMPTION. WE, THEREFORE, ACCEPT THE AL TERNATIVE CLAIM OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO ALLOW THE EXPENDITURE INCURRED BY THE ASSESSEE ON CRITICAL SPARES ON ACTU AL CONSUMPTION BASIS AFTER VERIFYING THE RELEVANT RECORD. THE MATTER IS ACCORDINGLY RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR DECIDING THE SAME AFRESH AFTER GIVING THE ASSESSEE PROPER AND SUFFICIENT OPPORTUNITY OF B EING HEARD. GROUND NO. 2(A) OF THE ASSESSEES APPEAL IS ACCORDINGLY DISMIS SED, WHILE GROUND NO. 2(B) IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES . 12. IN GROUND NO. 3 OF ITS APPEAL FOR A.Y. 2004-05, THE ASSESSEE- COMPANY HAS CHALLENGED THE ACTION OF THE AUTHORITIE S BELOW IN NOT EXCLUDING THE AMOUNT OF RS.35,74,793/- TRANSFERRED FROM CAPITAL RESERVE TO PROFIT & LOSS ACCOUNT IN COMPUTING BOOK PROFIT U NDER SECTION 115JB OF THE ACT. I.T.A. NOS. 1692 & 1693/KOL./2009 ASSESSMENT YEARS: 2004-2005 & 2005-2006 PAGE 10 OF 13 13. WHILE COMPUTING THE BOOK PROFIT OF THE ASSESESE -COMPANY UNDER SECTION 115JB OF THE ACT, THE SUM OF RS.35,74,793/- EQUIVALENT TO DEPRECIATION CHARGE TRANSFERRED FROM CAPITAL RESERV E AND CREDITED TO THE PROFIT & LOSS ACCOUNT WAS INCLUDED BY THE ASSESSING OFFICER. ON APPEAL, THE LD. CIT(APPEALS) UPHELD THE ACTION OF THE ASSES SING OFFICER BY OBSERVING THAT THE AMOUNT IN QUESTION TRANSFERRED F ROM CAPITAL RESERVE COULD NOT BE REDUCED FROM THE BOOK PROFIT AS PER EX PLANATION (1) BELOW SECTION 115JB(2) SINCE THE SAID RESERVE WAS NOT CRE ATED BY DEBITING THE PROFIT & LOSS ACCOUNT AND IT WAS CREATED PRIOR TO 0 1.04.1997. 14. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES O N THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON REC ORD. THE ADJUSTMENTS THAT ARE PERMISSIBLE WHILE COMPUTING THE BOOK PROFI T UNDER SECTION 115JB, ARE ENUMERATED IN EXPLANATION (1) BELOW SUB- SECTION (2) OF SECTION 115JB AND CLAUSE (I) OF THE SAID EXPLANATIO N, WHICH IS RELEVANT IN THE PRESENT CONTEXT, READS AS UNDER:- ( I ) THE AMOUNT WITHDRAWN FROM ANY RESERVE OR PROVISIO N (EXCLUDING A RESERVE CREATED BEFORE THE 1 ST DAY OF APRIL, 1997 OTHERWISE THAN BY WAY OF A DEBI T TO THE PROFIT AND LOSS ACCOUNT), IF ANY SUCH AMOUNT IS CREDITED TO THE PROFIT AND LOSS ACCOUNT: PROVIDED THAT WHERE THIS SECTION IS APPLICABLE TO AN ASSESSE E IN ANY PREVIOUS YEAR, THE AMOUNT WITHDRAWN FROM RESERVES CREATED OR PROVISIONS MADE IN A PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 1997 SHALL NOT BE REDUCED FROM THE BOOK PROFIT UNLESS THE BOOK PROFIT OF SUCH YEAR HAS BEEN INCREASED BY THOSE RESERVES OR PROVISIONS (OUT OF WHICH THE SAID AMOUNT WAS WITHDR AWN) UNDER THIS EXPLANATION OR EXPLANATION BELOW THE SECOND PROVISO TO SECTION 115JA, AS THE C ASE MAY BE. THE NET PROFIT AS SHOWN IN THE PROFIT & LOSS ACCOUN T FOR THE RELEVANT PREVIOUS YEAR THUS IS LIABLE TO BE REDUCED AS PER C LAUSE (I) OF EXPLANATION (1) TO SECTION 115JB BY THE AMOUNT WITHDRAWN FROM A NY RESERVE OR PROVISION, IF ANY SUCH AMOUNT IS CREDITED TO THE PR OFIT & LOSS ACCOUNT. HOWEVER, IF THE RELEVANT RESERVE IS CREATED BEFORE THE 1 ST DAY OF APRIL, 1997 OTHERWISE THAN BY WAY OF DEBIT TO THE PROFIT & LOSS ACCOUNT, SUCH REDUCTION IS NOT TO BE ALLOWED AS PER THE ADJUSTMEN T PERMISSIBLE IN TERMS OF CLAUSE (I) OF EXPLANATION (1) TO SECTION 115JB. IN THE PRESENT CASE, THE RELEVANT CAPITAL RESERVE WAS CREATED BY THE ASSESSE E-COMP.ANY BEFORE THE I.T.A. NOS. 1692 & 1693/KOL./2009 ASSESSMENT YEARS: 2004-2005 & 2005-2006 PAGE 11 OF 13 1 ST DAY OF APRIL, 1997 OTHERWISE THAN BY WAY OF DEBIT TO THE PROFIT & LOSS ACCOUNT AS PER THE SPECIFIC FINDING RECORDED BY THE LD. CIT(APPEALS) IN HIS IMPUGNED ORDER AND THERE IS NOTHING BROUGHT ON RECO RD ON BEHALF OF THE ASSESSEE TO REBUT OR CONTROVERT THE SAID FINDING. W E, THEREFORE, FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE LD. CIT(APPE ALS) UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN NOT REDUCING THE AMOUNT OF RS.35,74,793/- WITHDRAWN BY THE ASSESSEE FROM THE C APITAL RESERVE AND CREDITED TO THE PROFIT & LOSS ACCOUNT AS THE SAID C APITAL RESERVE WAS CREATED BY THE ASSESSEE BEFORE THE 1 ST DAY OF APRIL, 1997 OTHERWISE THAN BY WAY OF DEBIT TO THE PROFIT & LOSS ACCOUNT. GROUN D NO. 3 OF THE ASSESSEES APPEAL FOR A.Y. 2004-05 IS ACCORDINGLY D ISMISSED. 15. GROUNDS NO. 4 & 5 RAISED BY THE ASSESSEE IN ITS APPEAL FOR A.Y. 2004- 05 ARE NOT PRESSED BY THE LD. COUNSEL FOR THE ASSES SEE AT THE TIME OF HEARING BEFORE US. THE SAME ARE ACCORDINGLY DISMISS ED AS NOT PRESSED. 16. NOW WE TAKE UP THE APPEAL OF THE ASSESSEE FOR A .Y. 2005-06 BEING I.T.A. NO. 1693/KOL/2009, IN WHICH THE FOLLOWING GR OUNDS ARE RAISED BY THE ASSESSEE:- (1) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (APPEALS) WAS NOT JUSTIFIED IN CONFIRMI NG THE ACTION OF THE A.O. OF NOT ALLOWING THE CLAIM OF RS.35,74,793/- ON ACCOUNT OF AMOUNT TRANSFERRED FRO M CAPITAL RESERVE TO PROFIT & LOSS ACCOUNT AS NOT TAX ABLE U/S 41(1). 2(A). THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF DEPRECIATION ON CRITICAL SPARES OF RS.11,25,490/-. 2(B). THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND WITHOUT PREJUDICE TO GROUND NO. 2(A) TAKEN HERE -IN- ABOVE, THE LD. CIT(APPEALS) ERRED IN CONFIRMING THE ACTION OF THE A.O. OF NOT ALLOWING CRITICAL SPARES PURCHAS ED DURING THE YEAR OF RS.6,10,532/ - AS REVENUE EXPENDITURE. I.T.A. NOS. 1692 & 1693/KOL./2009 ASSESSMENT YEARS: 2004-2005 & 2005-2006 PAGE 12 OF 13 (3). THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(APPEALS) GROSSLY ERRED IN CONFIRMING TH E NON EXCLUSION OF THE AMOUNT TRANSFERRED FROM CAPITAL RE SERVE TO PROFIT & LOSS ACCOUNT OF RS.35,74,793/- IN COMPUTIN G BOOK PROFIT UNDER SECTION 115JB OF THE ACT. (4). THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(APPEALS) WAS NOT JUSTIFIED IN CONFIRMIN G THE LEVY OF INTEREST U/S. 234B AND 234C ON THE TAX COMP UTED ON BOOK PROFIT UNDER SECTION 115JB OF THE ACT. (5). THAT THE APPELLANT CRAVES LEAVE TO ADD, AMEND, MODIFY, RESCIND, SUPPLEMENT OR ALTER ANY GROUNDS AS STATED HERE-IN- ABOVE EITHER BEFORE OR AT THE TIME OF HEARING OF TH E APPEAL. 17. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USED THE RELEVANT MATERIAL AVAILABLE ON RECORD, IT IS OBSERVED THAT T HE ISSUES RAISED BY THE ASSESSEE IN GROUNDS NO. 1 TO 3 OF ITS APPEAL FOR A. Y. 2005-06 ARE SIMILAR TO THAT OF A.Y. 2004-05, WHICH HAS ALREADY BEEN DIS POSED OF BY US. FOLLOWING OUR CONCLUSION DRAWN IN A.Y. 2004-05, WE ALLOW GROUND NO. 1 OF THE ASSESSEES APPEAL AND DISMISS GROUNDS NO. 2( A) AND 3. GROUND NO. 2(B) IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES WHILE GROUNDS NO. 4 & 5 ARE DISMISSED AS NOT PRESSED. 18. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON DECEMBER 02, 2016. SD/- SD/- (N.V. VASUDEVAN) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT ME MBER KOLKATA, THE 2 ND DAY OF DECEMBER, 2016 COPIES TO : (1) DAMODHAR CEMENT & SLAG LIMITED, (SINCE MERGED WITH ACC LIMITED), 9, BRABOURNE ROAD, KOLKATA-700 001 (2) ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-6, KOLKATA, AAYAKAR BHAWAN, I.T.A. NOS. 1692 & 1693/KOL./2009 ASSESSMENT YEARS: 2004-2005 & 2005-2006 PAGE 13 OF 13 P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 (3) COMMISSIONER OF INCOME TAX(APPEALS)-VI, KOLKAT A; (4) COMMISSIONER OF INCOME TAX- , KOLKATA, (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.