Dy. CIT Cen Kolhapur, Kolhapur V. Star Oxo Chem P. Ltd, Kolhapur

ITA 176/PUN/2012

• Counselvise Citation: 17624514 RSA 2012
• Duration Of Justice: 1 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 31-01-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MAHENDRA MEHTA
• Assessee Lawyers: MUKESH VERMA
• Keywords: Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES A, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NOS. 175 & 176/PN/2012 (ASSESSMENT YEARS: 2007-08 & 2008-09) DY. COMMISSIONER OF INCOME TAX (CENTRAL) CIRCLE, KOLHAPUR . APPELLANT VS. STAR OXO CHEM PVT. LTD. PLOT NO. 438, A/P CHIPRI, JAYSINGPUR, TAL SHIROL, DIST. - KOLHAPUR PAN : AACCS5540G . RESPONDENT APPELLANT BY : MR. MUKESH VERMA RESPONDENT BY : MR. MAHENDRA MEHTA & MR. BHARAT SHAH DATE OF HEARING : 27-05-2013 DATE OF PRONOUNCEMENT : 31-05-2013 ORDER PER BENCH BOTH THE CAPTIONED APPEALS BY THE REVENUE ARE DIRE CTED AGAINST TWO SEPARATE ORDERS OF THE COMMISSIONER OF INCOME TAX ( APPEALS), KOLHAPUR DATED 24.11.2011 WHICH, IN TURN, HAVE ARISEN FROM T WO RESPECTIVE ORDERS DATED 28.12.2010 PASSED BY THE ASSESSING OFFICER, UNDER S ECTION 143(3) READ WITH SECTION 153A(B) OF THE INCOME TAX ACT, 1961 (IN SHO RT THE ACT), PERTAINING TO THE ASSESSMENT YEARS 2007-08 & 2008-09 RESPECTIVELY . 2. SINCE BOTH THE APPEALS RELATE TO THE SAME ASSESS EE AND INVOLVE CERTAIN COMMON ISSUES, THEY HAVE BEEN CLUBBED AND HEARD TOG ETHER AND ARE BEING DISPOSED-OFF BY WAY OF A CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. ITA NOS. 175 & 176/PN/2012 STAR OXO CHEM PVT. LTD. A.YS. 2007-08 & 2008-09 3. FIRST, WE SHALL TAKE UP THE APPEAL OF THE REVENU E PERTAINING TO THE ASSESSMENT YEAR 2007-08 IN WHICH THE SOLITARY GRIEV ANCE OF THE REVENUE IS THAT THE CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT E XPENDITURE OF RS.79,32,018/- INCURRED FOR SHIFTING THE OXALIC ACID AND DE-OXALIC ACID PLANT TO ANKLESHWAR IN GUJARAT WAS A REVENUE EXPENDITURE AND NOT CAPITAL E XPENDITURE, AS CONTENDED BY THE ASSESSING OFFICER. 4. IN BRIEF, THE FACTS ARE THAT THE ASSESSEE IS A C OMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 AND IS INTER-ALIA ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF CHEMICALS ETC.. THE ASSESSEE WAS MANUFACTURING OXALIC ACID, DE-OXALIC ACID AND ETHAN OL IN ITS MANUFACTURING PLANT LOCATED AT CHIPRI, JAYSINGPUR, DISTRICT KOLHA PUR, MAHARASHTRA. DURING THE YEAR UNDER CONSIDERATION, ASSESSING OFFICER NOTICED THAT ASSESSEE HAD CLAIMED PLANT SHIFTING EXPENSES OF RS.79,32,018/- BY WAY OF DEBIT TO PROFIT AND LOSS (P&L) ACCOUNT. ON BEING SHOW-CAUSED, ASSES SEE EXPLAINED THAT THE EXPENSES WERE INCURRED IN THE COURSE OF SHIFTING TH E OXALIC ACID AND DE-OXALIC ACID MANUFACTURING PLANT FROM CHIPRI, JAYSINGPUR, D ISTRICT KOLHAPUR, MAHARASHTRA TO ANKLESHWAR IN GUJARAT. THE ASSESSEE EXPLAINED THAT THERE WAS RESISTANCE FROM THE LOCAL POPULATION FOR THE WATER POLLUTION BEING CAUSED BY THE MANUFACTURING OPERATIONS AND THEREFORE ASSESSEE WAS FORCED TO RELOCATE THE PLANT AND SUCH RELOCATION EXPENSES WERE CLAIMED AS REVENUE EXPENDITURE. THE ASSESSING OFFICER HOWEVER HELD THAT THE SAID EX PENDITURE WAS CAPITAL IN NATURE AS IT RESULTED IN OBTAINING AN ENDURING ADVA NTAGE TO THE ASSESSEE. ACCORDINGLY, THE SUM OF RS.79,32,018/- WAS ADDED TO THE RETURNED INCOME, AGAINST WHICH ASSESSEE PREFERRED AN APPEAL BEFORE T HE CIT(A). 5. IN APPEAL BEFORE THE CIT(A), ASSESSEE CONTENDED THAT ASSESSEE WAS FORCED TO SHUT-DOWN IN CHIPRI, JAYSINGPUR, DISTRICT KOLHAPUR, MAHARASHTRA AND SHIFT TO ANOTHER SITE IN GUJARAT FOR ITS VERY SURVI VAL AND THEREFORE THE EXPENDITURE WAS LIABLE TO BE CONSIDERED AS A REVENU E EXPENDITURE. THE ITA NOS. 175 & 176/PN/2012 STAR OXO CHEM PVT. LTD. A.YS. 2007-08 & 2008-09 ASSESSEE ALSO BROUGHT TO THE NOTICE OF THE CIT(A) T HE FACTORS WHICH FORCED THE ASSESSEE TO SHIFT ITS MANUFACTURING OPERATIONS FROM CHIPRI, JAYSINGPUR, DISTRICT KOLHAPUR, MAHARASHTRA TO ANOTHER SITE IN GUJARAT. T HE CIT(A) HAS SINCE UPHELD THE CLAIM OF THE ASSESSEE BY RELYING UPON THE JUDGE MENT OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. ROYAL SUPE R FABRICS 304 ITR 78 (MAD.), WHICH ACCORDING TO HIM HAS BEEN RENDERED UN DER IDENTICAL CIRCUMSTANCES. AGAINST THE DECISION OF THE CIT(A), IN DIRECTING THE ASSESSING OFFICER TO TREAT THE IMPUGNED EXPENDITURE AS A REVE NUE EXPENDITURE, REVENUE IS IN APPEAL BEFORE US. 6. BEFORE US, THE LEARNED CIT(DR) APPEARING FOR THE REVENUE HAS REFERRED TO THE DISCUSSION MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER WHEREIN RELIANCE HAS BEEN PLACED ON THE JUDGEMENT O F THE HONBLE SUPREME COURT IN THE CASE OF SITALPUR SUGAR WORKS LTD. VS. CIT (1963) 49 ITR 160 (SC) FOR THE PROPOSITION THAT AN EXPENDITURE INCURRED IN DISMANTLING, REFITTING AN EXISTING PLANT AT A BETTER SITE WAS LIABLE TO BE TR EATED AS A CAPITAL EXPENDITURE. IT WAS THEREFORE CONTENDED THAT CONSIDERING THE FAC T THAT THE EXPENSE OF SHIFTING OF THE PLANT WAS IN CAPITAL FIELD, THE SAM E COULD NOT BE TREATED AS A REVENUE EXPENDITURE, AS HELD BY THE CIT(A). 7. ON THE OTHER HAND, THE LEARNED COUNSEL APPEARING FOR THE RESPONDENT- ASSESSEE HAS RELIED UPON THE ORDER OF THE CIT(A) WH O HAS FOLLOWED THE JUDGEMENT OF THE HONBLE MADRAS HIGH COURT IN THE C ASE OF CIT VS. ROYAL SUPER FABRICS (SUPRA). AS PER THE LEARNED COUNSEL, THE FACTS AND CIRCUMSTANCES IN THE PRESENT CASE ARE IDENTICAL TO THOSE BEFORE THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. ROYAL SUPE R FABRICS (SUPRA) AND THEREFORE THE CIT(A) MADE NO MISTAKE IN DELETING TH E ADDITION MADE BY THE ASSESSING OFFICER. ITA NOS. 175 & 176/PN/2012 STAR OXO CHEM PVT. LTD. A.YS. 2007-08 & 2008-09 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. AT THE OUTSET, IT MAY BE NOTED THAT THE REASONS WHICH PREVAILED WITH THE ASSESSEE TO SHIFT ITS MANUFACTURING FACILITY ARE NOT IN DISPUTE. IN PARA 34 OF THE ORDER OF THE CIT(A), THE FACTORS WHICH LEAD THE ASSESSEE TO SHIFT ITS MA NUFACTURING OPERATIONS RELATING TO THE OXALIC ACID AND DE-OXALIC ACID MANU FACTURING PLANT HAVE BEEN ENUMERATED. IT EMERGES THAT THE LOCAL RESIDENTS OF VILLAGE CHIPRI, WHERE THE PLANT OF THE ASSESSEE WAS LOCATED, OBJECTED TO THE MANUFACTURING OPERATIONS ON THE GROUND THAT IT WAS CAUSING WATER POLLUTION. THE CIT(A) HAS NOTICED THAT THE VILLAGERS HAD PASSED A RESOLUTION TO THAT EFFEC T AND THERE WAS A LOCAL RESISTANCE LEADING TO HUNGER STRIKE, AGITATION, ETC . WHICH RESULTED IN DAMAGE TO THE PROPERTY OF THE ASSESSEE. IT IS ALSO BROUGHT OU T BY THE CIT(A) THAT TEHSILDAR, TALUKA- SHIROL ALSO ISSUED AN ORDER REQU IRING THE ASSESSEE TO CLOSE DOWN ITS UNIT. THE AFORESAID FACTORS BROUGHT OUT BY THE CIT(A) WHICH WERE ALSO BEFORE THE ASSESSING OFFICER, ARE NOT IN DISPUTE. F ACTUALLY SPEAKING, IT WOULD BE APPROPRIATE TO DEDUCE THAT ASSESSEE TOOK THE DEC ISION TO SHIFT ITS MANUFACTURING OPERATIONS FROM CHIPRI TO ANOTHER SIT E AT ANKLESHWAR IN GUJARAT IN ORDER TO CONTINUE ITS MANUFACTURING OPERATIONS U NHINDERED. IN OTHER WORDS, THE SHIFTING OF THE MANUFACTURING OPERATIONS WAS CA RRIED OUT TO AVOID COMPLETE SHUT DOWN AND SURVIVAL OF ITS BUSINESS OF MANUFACTU RING OXALIC ACID AND DE- OXALIC ACID. IN THIS BACKGROUND, IN OUR VIEW, THE C IT(A) WAS CORRECT IN APPLYING THE RATIO OF THE JUDGEMENT OF THE HONBLE MADRAS HI GH COURT IN THE CASE OF CIT VS. ROYAL SUPER FABRICS (SUPRA). IN THE CASE BEFORE THE HONBLE MADRAS HIGH COURT, ASSESSEE WAS ENGAGED IN THE BUSINESS OF DYEI NG OF CLOTH AT ITS FACTORY IN KOVILPATTI. IT INCURRED EXPENDITURE ON SHIFTING OF ITS FACTORY FROM KOVILPATTI TO CUDDALORE, AND SUCH EXPENDITURE WAS CLAIMED AS REVE NUE EXPENDITURE. ASSESSEES CLAIM WAS HELD TENABLE BY THE HONBLE HI GH COURT BY NOTICING THAT THE ASSESSEE DID NOT HAVE ANY OPTION BUT TO SHIFT T HE FACTORY DUE TO OPPOSITION BY THE PUBLIC AGAINST THE DISCHARGE OF POLLUTANTS I NTO THE SEWAGE SYSTEM. THE HONBLE HIGH COURT OPINED THAT IN CASE WHERE THE VE RY SURVIVAL OF THE ASSESSEES FACTORY WAS IN DANGER THE QUESTION OF AP PLYING THE TEST OF ENDURING ITA NOS. 175 & 176/PN/2012 STAR OXO CHEM PVT. LTD. A.YS. 2007-08 & 2008-09 ADVANTAGE WOULD NOT ARISE AND THEREFORE THE EXPENDI TURE INCURRED BY THE ASSESSEE ON SHIFTING THE FACTORY WAS HELD TO BE REV ENUE EXPENDITURE. 9. IN OUR CONSIDERED OPINION, FACTUALLY IN THE PRES ENT CASE THERE IS NO DISPUTE THAT HAVING REGARD TO THE RESISTANCE BY THE LOCAL PEOPLE OF CHIPRI AND ISSUANCE OF ORDER BY THE TEHSILDAR, TALUKA SHIROL REQUIRING THE ASSESSEE TO CLOSE DOWN ITS UNIT, ASSESSEE DID NOT HAVE ANY OPTI ONS BUT TO SHIFT ITS MANUFACTURING OPERATIONS TO ANOTHER PLACE IN ORDER TO ENSURE CONTINUITY OF ITS BUSINESS. THEREFORE, FOLLOWING THE PARITY OF REASON ING LAID DOWN BY THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. ROYAL SUPE R FABRICS (SUPRA) THE AFORESAID EXPENDITURE HAS BEEN RIGHTLY TREATED TO B E A REVENUE EXPENDITURE BY THE CIT(A), WHICH WE HEREBY AFFIRM. 10. IN SO FAR AS THE RELIANCE PLACED BY THE LEARNED CIT(DR) ON THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF SITALPUR SUGAR WORKS LTD. VS. CIT (SUPRA) IS CONCERNED THE SAME, IN OUR VIEW DOES NOT HELP THE CASE OF REVENUE. THE HONBLE SUPREME COURT IN THE CASE O F SITALPUR SUGAR WORKS LTD. VS. CIT (SUPRA) WAS DEALING WITH A SITUATION W HERE THE SHIFTING OF FACTORY WAS DONE IN ORDER TO IMPROVE ITS BUSINESS INASMUCH AS EXPENDITURE ON DISMANTLING AND REFITTING THE EXISTING PLANT AT A B ETTER SITE WAS INCURRED. FACTUALLY, THE HONBLE SUPREME COURT NOTED THAT EXP ENDITURE WAS INCURRED IN SETTING-UP THE CONCERN WITH A GREATER ADVANTAGE FOR THE TRADE THAN IT HAD IN THE PREVIOUS SET-UP AND THEREFORE, THE EXPENDITURE INCU RRED FOR SUCH BETTER ADVANTAGE WAS HELD TO BE A CAPITAL EXPENDITURE. IN THE PRESENT CASE, AS HAS BEEN NOTED EARLIER, THE EXPENDITURE ON DISMANTLING AND REFITTING OF THE PLANT AT CHIPRI AND RELOCATING AT ANKLESHWAR IN GUJARAT HAS BEEN INCURRED PRIMARILY IN ORDER TO ENSURE SURVIVAL OF THE BUSINESS IN VIEW OF THE RESISTANCE FROM THE LOCAL POPULATION OF CHIPRI. THEREFORE, THE FACT SITUATION IN THE CASE BEFORE US IS QUALITATIVELY DIFFERENT FROM THAT BEFORE THE HONBL E SUPREME COURT IN THE CASE OF SITALPUR SUGAR WORKS LTD. VS. CIT (SUPRA). PERTI NENTLY, THE HONBLE MADRAS ITA NOS. 175 & 176/PN/2012 STAR OXO CHEM PVT. LTD. A.YS. 2007-08 & 2008-09 HIGH COURT IN THE CASE OF ROYAL SUPER FABRICS (SUPR A) HAS ALSO DISTINGUISHED THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE C ASE OF SITALPUR SUGAR WORKS LTD. VS. CIT (SUPRA) ON THE GROUND THAT THE H ONBLE SUPREME COURT WAS NOT DEALING WITH A SITUATION WHERE EXPENDITURE ON D ISMANTLING AND REFITTING OF FACTORY WAS INCURRED IN ORDER TO FACILITATE THE VER Y SURVIVAL OF THE FACTORY. IN THIS MANNER, THE RELIANCE PLACED BY THE LEARNED CIT(DR) IN THE CASE OF SITALPUR SUGAR WORKS LTD. VS. CIT (SUPRA) DOES NOT HELP THE CASE OF THE REVENUE. ACCORDINGLY, THE IMPUGNED ORDER OF THE CIT(A) IS HE REBY AFFIRMED AND THE REVENUE HAS TO FAIL. 11. IN THE RESULT, APPEAL OF THE REVENUE IN ITA NO. 175/PN/2012 FOR THE ASSESSMENT YEAR 2007-08 IS HEREBY DISMISSED. 12. NOW, WE MAY TAKE UP THE APPEAL OF THE REVENUE IN ITA NO.176/PN/2012 PERTAINING TO THE ASSESSMENT YEA R 2008-09 WHEREIN TWO GROUNDS OF APPEAL RAISED BY THE REVENUE. 13. THE FIRST ISSUE IN THE APPEAL IS WITH REGARD TO THE DISMANTLING EXPENDITURE OF RS.21,07,784/- WHICH HAS BEEN HELD B Y THE CIT()A TO BE A REVENUE EXPENDITURE AS AGAINST THE CAPITAL EXPENDIT URE HELD BY THE ASSESSING OFFICER. 14. IT WAS A COMMON POINT BETWEEN THE PARTIES THAT THE IMPUGNED EXPENDITURE RELATED TO THE SHIFTING OF EXISTING OXA LIC ACID AND DE-OXALIC ACID PLANT FROM CHIPRI TO ANKLESHWAR IN GUJARAT AND THE DISPUTE REGARDING THE NATURE OF SUCH EXPENDITURE HAS BEEN DEALT WITH BY U S IN THE PRECEDING PARAGRAPHS IN THE APPEAL OF THE REVENUE FOR THE ASS ESSMENT YEAR 2007-08 (SUPRA). THE RIVAL CONTENTIONS REMAIN THE SAME, THE REFORE OUR DECISION IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007-08 (SU PRA) IS CLEARLY APPLICABLE ON THIS ISSUE ALSO. RESULTANTLY, THE ORD ER OF THE CIT(A) IN TREATING ITA NOS. 175 & 176/PN/2012 STAR OXO CHEM PVT. LTD. A.YS. 2007-08 & 2008-09 THE IMPUGNED EXPENDITURE ON DISMANTLING OF THE PLAN T AT CHIPRI FOR RELOCATING TO ANKLESHWAR IN GUJARAT AS REVENUE EXPENDITURE IS HER EBY AFFIRMED. THUS, ON THIS GROUND REVENUE FAILS. 15. THE LAST GROUND IN THE APPEAL OF THE REVENUE IS WITH REGARD TO THE ADHOC DISALLOWANCE OF RS.7,06,553/- MADE BY THE ASS ESSING OFFICER, WHICH HAS SINCE BEEN DELETED BY THE CIT(A). AS PROPER DIS CUSSION IN PARA 8 OF THE ASSESSMENT ORDER IT IS NOTICED THAT THE ASSESSING O FFICER DISALLOWED 20% OF THE EXPENDITURE OF RS.32,66,563/- INCURRED ON FREIG HT & COOLING, LABOUR, OFFICE, CONVEYANCE EXPENSES, CAR HIRE, VEHICLE MAIN TENANCE AND TELEPHONE EXPENSES ON THE GROUND THAT THEY WERE INCURRED FROM PERSONAL AND NON- BUSINESS PURPOSE. IN THIS MANNER, DISALLOWANCE OF R S.7,06,553/- WAS MADE. THE CIT(A) NOTICED THAT NO DISALLOWANCE WAS WARRANT ED INASMUCH AS THE ASSESSEE HAD PRODUCED THE RELEVANT BOOKS OF ACCOUNT AND SUPPORTING DOCUMENTS IN RESPECT OF THE EXPENSES INCURRED. THE CIT(A) FURTHER NOTICED THAT THE ACCOUNTS OF THE ASSESSEE WERE AUDITED AND EVEN IN THE SEARCH ACTION UNDER SECTION 132(1) OF THE ACT CARRIED OUT, NO DIS CREPANCIES WERE FOUND WITH REGARD TO THE IMPUGNED EXPENDITURE. ACCORDINGLY, TH E ENTIRE DISALLOWANCE WAS DELETED. 16. BEFORE US, THE LEARNED CIT(DR) HAS REFERRED TO THE DISCUSSION MADE BY THE ASSESSING OFFICER IN SUPPORT OF THE CASE OF THE REVENUE WHEREAS THE LEARNED REPRESENTATIVE OF THE ASSESSEE SUPPORTED TH E ORDER OF THE CIT(A) FOR THE REASONS CONTAINED THEREIN. 17. HAVING CONSIDERED THE RIVAL SUBMISSIONS AND PER USING THE ORDERS OF THE RESPECTIVE LOWER AUTHORITIES, WE FIND THAT THE CIT( A) MADE NO MISTAKE IN DELETING THE IMPUGNED ADDITION, AS THE IMPUGNED DIS ALLOWANCE HAS BEEN MADE BY THE ASSESSING OFFICER ON MERE SURMISES AND CONJE CTURES. THE ASSESSING OFFICER HAS NOT REFERRED TO ANY MATERIAL OR EVIDENC E TO SUGGEST THAT ANY ITA NOS. 175 & 176/PN/2012 STAR OXO CHEM PVT. LTD. A.YS. 2007-08 & 2008-09 PARTICULAR EXPENSE WAS INCURRED FOR PERSONAL OR NON -BUSINESS PURPOSE. THEREFORE, WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A) ON THIS ASPECT WHICH IS HEREBY AFFIRMED. 18. RESULTANTLY, BOTH THE APPEALS OF THE REVENUE AR E DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST MAY, 2013. SD/- SD/- (R.S. PADVEKAR) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED: 31 ST MAY, 2013 SUJEET COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A), KOLHAPUR; 4) THE CIT, KOLHAPUR; 5) THE DR, A BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// PRIVATE SECRETARY I.T.A.T., PUNE.