M B Smelters Private Limited, Hindupur, Hyderabad V. ACIT, Circle-1, Anantapur, Anantapur

ITA 174/HYD/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2585 (ITAT-HYDERABAD)
• Duration Of Justice: 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-09-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 06-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: L R AMJI RAO
• Assessee Lawyers: A V RAGHURAM
• Keywords: Capital receipt; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 174/HYD/2017 ASSESSMENT YEAR: 2011-12 MB SMELTERS PVT. LTD., HINDUPUR PAN AABCM 3936 F VS. ASST. COMMISSIONER OF INCOME-TAX, CIRCLE 1, HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AV RAGHURAM REVENUE BY : SHRI L. RAMJI RAO DATE OF HEARING : 23-08-2017 DATE OF PRONOUNCEMENT : 22-09-2017 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX(A), KURNO OL, DATED 28-11- 16 FOR AY 2011-12. 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSE SSEE COMPANY DERIVES INCOME FROM MANUFACTURING OF FERRO ALLOYS A ND FILED ITS RETURN OF INCOME FOR THE AY 2011-12 ON 28/09/2011 ADMITTIN G TOTAL INCOME OF RS. 2,79,31,437/-. THE CASE WAS SELECTED FOR SCRUTI NY AND ASSESSMENT WAS COMPLETED U/S 143(3) ON 26/03/2014 A SSESSING THE INCOME AT RS. 2,90,56,437/- BY MAKING ADDITION OF R S. 11,25,000/- TOWARDS DEVELOPMENT CHARGES AS CAPITAL EXPENDITURE. 2.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A SSESSEE WAS ASKED TO PRODUCE THE LEDGER EXTRACT OF POWER CHARGE S DEBITED TO THE PROFIT AND LOSS ACCOUNT. ON PERUSAL OF THE SAME, TH E AO NOTICED THAT 2 ITA NO. 174/H/17 M.B. SMELTERS PVT. LTD. THE ASSESSEE HAD PAID AN AMOUNT OF RS.11,25,000/- O N 22/11/2010 TO SAO, OPERATIONS, APCPDCL, ANANTAPUR TOWARDS ADDITIO NAL 750 KVA POWER DEVELOPMENT CHARGES. WHEN THE ASSESSEE WAS AS KED TO EXPLAIN WHY THIS EXPENDITURE SHOULD NOT BE TREATED AS REVENUE EXPENDITURE, IT HAD FILED A LETTER DATED 10/03/2014 RELYING ON CERTAIN CASE-LAWS, ALONG WITH OTHER DOCUMENTS. 2.2 THE AO OBSERVED THAT IN THE INSTANT CASE, THE ORDER OF THE ANDHRA PRADESH CENTRAL POWER DISTRIBUTION COMPANY L IMITED (APCPDCL) BEARING MEMO NO. SE/0/ATP/CM.1/GL(4)/A/HT /D.NO/ 2010 WAS PERUSED AND NOTICED THAT THE CAPITAL EXPEN DITURE TO BE INCURRED IS BEING CHARGED TO THE ACCOUNTS UNDER THE CAPITAL RECEIPTS AND EXPENDITURE DISTRIBUTION SYSTEM - CAPITAL WORKS IN PROGRESS. THE ASSESSEE WAS LEVIED DEVELOPMENT CHARGES OF RS.11,25 ,000/- AND CONSUMPTION DEPOSIT CHARGES OF RS.11,25,000/-. THE HT METERING COST IS NIL. 2.3 THE AO OBSERVED THAT IN RESPECT OF THE DEVELOP MENT CHARGES, THE ASSESSEE ITSELF MENTIONS THAT THIS IS FOR A CON TRACTED LOAD OF 750KVA BEING CHARGED AT RS.1,500 PER KVA PER SHIFT. THIS DEVELOPMENT CHARGE IS ALSO IN THE NATURE OF A DEPOS IT THAT IS COLLECTED, THERE IS NO AGREEMENT WHEREIN THE SERVIC E LINE CHARGES ARE BEING BORNE BY THE ASSESSEE. AO NOTED THAT IT IS NO T BEARING THE EXPENDITURE OF ANY EQUIPMENT OF THE ELECTRICITY BOA RD WHICH IS USED TO TRANSMIT POWER TO THE ASSESSEE. THE AO, THEREFORE, HELD THAT THESE CHARGES ARE NOT IN THE NATURE OF A REVENUE EXPENDIT URE AND THE ABOVE SAID DEVELOPMENT CHARGES OF RS. 11,25,000/- INCLUDE D IN THE POWER CHARGES DEBITED TO THE PROFIT AND LOSS ACCOUNT. HE, ACCORDINGLY, DISALLOWED THE SAID DEVELOPMENT CHARGES OF RS. 11,2 5,000/-. 3. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE CIT(A) AND THE CIT(A) CONFIRMED THE DISA LLOWANCE MADE BY THE AO. 3 ITA NO. 174/H/17 M.B. SMELTERS PVT. LTD. 4. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE I S IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE LEARNED CIT(A) CONFIRMING THE O RDER OF THE AO MAKING ADDITION OF RS.11,25,000 IS NOT ONLY ERRO NEOUS BOTH ON FACTS AND IN LAW BUT IS PERVERSE HAVING BEEN PAS SED WITHOUT APPLICATION OF MIND. 2. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTIO N OF THE AO THOUGH IT WAS SPECIFICALLY BROUGHT TO HIS NOTICE TH ROUGH WRITTEN SUBMISSIONS THAT THE AMOUNT SO PAID IS NOT A DEPOSI T, BUT HAS BEEN PAID TO APCPDL TOWARDS SERVICE LINE CHARGES FO R GETTING ADDITIONAL POWER, WHICH IS A REVENUE EXPENDITURE RE LYING ON VARIOUS JUDICIAL DECISIONS AND AN EQUAL AMOUNT HAS BEEN PAID SEPARATELY BY THE ASSESSEE TOWARDS DEPOSIT. 3. THE LEARNED CIT (A) ERRED IN OBSERVING THAT THE ASSESSEE HAS NOT PUT FORTH ELABORATELY THE FACTS WITH REGARD TO PAYMENT OF SERVICE LINE C1ARGES AMOUNTING TO RS. 11,25,000 IGN ORING THE WRITTEN SUBMISSIONS MADE DURING THE COURSE OF ASSES SMENT PROCEEDINGS AS WELL AS WRITTEN 'SUBMISSIONS FILED B EFORE HIM. 5. LD. AR OF THE ASSESSEE SUBMITTED THAT BEFORE THE REVENUE AUTHORITIES THE ASSESSEE CLARIFIED THAT THE COMPANY HAD PAID TWO SEPARATE AMOUNTS, VIZ., I) RS. 11,25,000/- TO APCDP CL TOWARDS INITIAL POWER CONSUMPTION DEPOSIT WHICH IS REFUNDABLE & INT EREST BEARING DEPOSIT, FOR GETTING SANCTION OF ADDITIONAL LOAD OF POWER FOR MANUFACTURING AND II) RS. 11,25,000/- PAID TOWARDS DEVELOPMENT CHARGES, WHICH IS MANDATORY FOR ADDITIONAL SUPPLY. HE SUBMITTED THAT THE MARKET DEMAND FOR THE ASSESSEES PRODUCTS WERE ON RISE, THE PRODUCTION CAPACITY WAS NOT SUFFICIENT TO MEET THE DEMAND AND, THEREFORE, THE COMPANY DECIDED TO INCREASE MANUFACT URING CAPACITY AND FOR THIS PURPOSE EXTRA POWER WAS REQUIRED. HE S UBMITTED THAT THE ASSESSEE SOUGHT THE PERMISSION FROM APCPDCL TO DRAW MORE POWER FOR THEIR PRODUCTION AND APCPDCL SANCTIONED THE EXT RA POWER, FOR WHICH THE ASSESSEE PAID DEVELOPMENT CHARGES @ 1500/ - PER KVA FOR 11 KV SUPPLY. HE SUBMITTED THAT THIS AMOUNT IS NOT REFUNDABLE AND THE CONSUMERS HAVE NO CLAIM ON SUCH AMOUNT WHATSOEVER, EVEN IF THE POWER SUPPLY IS DISCONNECTED BY THE DEPARTMENT OR S URRENDERED BY THE CONSUMER. IN SUPPORT OF HIS SUBMISSION, HE BROU GHT TO OUR NOTICE 4 ITA NO. 174/H/17 M.B. SMELTERS PVT. LTD. THE COMMUNICATION FROM APCPDCL THAT THE DEVELOPMENT CHARGES ARE NOT REFUNDABLE. THE SAME WAS PLACED AT PAGES 15-17 OF PAPER BOOK. LD. AR CONTENDED THAT THE AO MADE THE ADDITION OF R S. 11,25,000/- ON THE PRESUMPTION THAT THIS AMOUNT WAS REFUNDABLE DEPOSIT AND HENCE IT SHOULD NOT BE ALLOWABLE AS REVENUE EXPEND ITURE. HE RELIED ON THE FOLLOWING CASES: 1. EMPIRE JUTE CO. LTD. VS. CIT, [1960] 124 ITR 1 2. SARABHAI M. CHEMICALS PVT. LTD. VS. CIT, [1981] 127 ITR 74 3. CIT VS. KARAM CHAND PREM CHAND PVT. LTD. [1993] 200 ITR 281 6. LD. DR RELIED ON THE ORDERS OF REVENUE AUTHORITI ES. 7. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL FACTS ON RECORD. THE DEVELOPMENT CHARGES OF RS. 11,25,000 /- PAID BY THE ASSESSEE TO APCPDCL FOR DRAWING EXTRA POWER, WAS DI SALLOWED BY THE AO ON THE GROUND THAT THE SAID AMOUNT WAS REFUN DABLE TO THE ASSESSEE. THE CONTENTION OF THE ASSESSEE IS THAT TH E SAID AMOUNT IS A REVENUE EXPENDITURE INCURRED FOR THE PURPOSE OF INC REASING MANUFACTURING CAPACITY, FOR WHICH EXTRA POWER IS RE QUIRED. IN THE CASE OF SARABHAI M. CHEMICALS PVT. LTD. (SUPRA), TH E HONBLE GUJARAT HIGH COURT HAS HELD AS UNDER: THE POWER LINES THROUGH WHICH THE SUPPLY WAS BEING RECEIVED WERE INADEQUATE FOR THE INCREASED SUPPLY OF ELECTRI CAL ENERGY AND THE NEW POWER LINES WERE LAID. THE NEW LINES BELONG ED TO THE ELECTRICITY BOARD AND UNDER THE TERMS OF THE AGREEM ENT IT WAS OPEN TO THE ELECTRICITY BOARD TO UTILISE THESE LINE S FOR SUPPLYING ELECTRICAL ENERGY TO OTHER CONSUMERS ALSO. THE ASSE SSEE-COMPANY WAS IN MANUFACTURING BUSINESS FOR A NUMBER OF YEARS AND THIS PAYMENT WAS NOT AN INITIAL OUTLAY FOR OBTAINING ELE CTRICAL ENERGY BUT WAS SPENT BY IT FOR GETTING INCREASED SUPPLY OF ELECTRICAL ENERGY. IT MUST ALSO BE POINTED OUT THAT THE AMOUNT OF RS. 58,062 WAS OVER AND ABOVE THE REGULAR CHARGES FOR THE ELEC TRICAL ENERGY CONSUMED BY THE ASSESSEE-COMPANY. THE EXPENDITURE W AS REVENUE EXPENDITURE INCURRED BY THE ASSESSEE- COMPANY FOR T HE PURPOSE OF AUGMENTING THE PROFITABILITY OF ITS PROFIT-MAKING S TRUCTURE. WHILE DELIVERING THE JUDGMENT, THE HONBLE GUJARAT HIGH COURT REFERRED THE JUDGMENT OF HONBLE SUPREME COURT IN T HE CASE OF EMPIRE JUTE CO. LTD., VS. CIT, 124 ITR 1. RESPECTFULLY FOL LOWING THE SAID RATIO OF THE HONBLE GUJARAT HIGH COURT AND THE CONFIRMAT ION FROM 5 ITA NO. 174/H/17 M.B. SMELTERS PVT. LTD. APCPDCL THAT THE DEVELOPMENT CHARGES ARE NOT REFUND ABLE, WE SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE AO TO ALLOW THE AMOUNT OF RS. 11,25,000/- PAID BY THE ASSESSEE TOWARDS DEVELO PMENT CHARGES, AS REVENUE EXPENDITURE. ACCORDINGLY, GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . PRONOUNCED IN THE OPEN COURT ON 22 ND SEPTEMBER, 2017. SD/- SD/- (D. MANMOHAN) (S. RIFAUR RAHMAN ) VICE PRESIDENT AC COUNTANT MEMBER HYDERABAD, DATED: 22 ND SEPTEMBER, 2017. KV COPY TO:- 1) MB SMELTERS PVT. LTD., C/O S/SHRI K. VASANTKUMAR , AV RAGHURAM, P. VINOD & M. NEELIMA DEVI, ADVOCATES, 610 BABUK HAN ESTATE, BASHEERBAGH, HYDERABAD 500 001. 2) ACIT, CIRCLE 1, ANANTAPUR 3) CIT(A), KURNOOL 4 PR. CIT, KURNOOL 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 6) GUARD FILE