M/s. Voith Paper Fabrics India Ltd., Aberdeen V. ACIT, Faridabad

ITA 1924/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 3193 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-11-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 24-05-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 02-04-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SANTOSH K AGRAWAL
• Keywords: Capital asset; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: H NEW DELHI BEFORE SHRI G.D. AGRAWAL, HONBLE PRESIDEN T & SHRI K. NARSIMHA CHARY, JUDICIAL MEMBER ITA NO.-1924/DEL/2014 ( ASSESSMENT YEAR: 2008-09) VOITH PAPER FABRICS INDIA LTD. 113-114A, SECTOR-24, ABERDEEN AABCP0441Q VS ACIT CIRCLE II FARIDABAD ASSESSEE BY SH. SANTOSH K. AGRAWAL, CA REVENUE BY SH. AMIT JAIN, SR. DR ORDER PER SHRI K.N. CHARY, J.M. AGGRIEVED BY THE ORDER DATED 16.01.2016 IN APPEAL NO. 291/2010-11 RELEVANT TO THE ASSESSMENT YEAR 2008-09 PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-2, FAR IDABAD (HEREINAFTER FOR SHORT REFERRED TO AS THE LD. CIT( A)), ASSESSEE PREFERRED THIS APPEAL CHALLENGING THE DISALLOWANCE OF SHIFTING EXPENSES OF RS. 30,97,080/-, CONSULTANCY EXPENSES O F RS. 12,35,428/- AND THE ADDITION OF RS. 21,23,877/- ON ACCOUNT OF INCREASED LIABILITY DUE TO EXCHANGE FLUCTUATIONS. DATE OF HEARING 13.11.2017 DATE OF PRONOUNCEMENT 14.11.2017 2 ITA NO. 1924/DEL/2014 2. RELEVANT FACTS ARE THAT THE ASSESSEE IS A COMPAN Y DERIVING INCOME FROM THE BUSINESS OF MANUFACTURING AND SELLI NG OF PAPER MACHINE, CLOTHING FOR PULP, PAPER AND BOARD INDUSTR Y. FOR THE AY 2008-09 THEY HAVE FILED THEIR RETURN OF INCOME ON 2 7.09.2008 DECLARING A TOTAL INCOME OF RS. 11,84,80,960/- AND DURING SCRUTINY AMONG OTHER THINGS AO MADE AN ADDITION OF RS. 30,97 ,080/- BY DISALLOWING THE EXPENSES CLAIMED AS SHIFTING EXPENS ES, RS. 12,35,428/- DISALLOWING THE EXPENSES CLAIMED AS LEG AL AND PROFESSIONAL EXPENSES AND A SUM OF RS. 21,23,877/- ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATIONS IN RESPECT OF LIABILI TIES FOR FIXED ASSETS. IN APPEAL LD. CIT (A) CONFIRMED THE SAME. 3. THOUGH AS MANY AS 11 GROUNDS ARE RAISED BEFORE U S, LD. AR SUBMITTED THAT GROUNDS NO. 1 AND 8 TO 11 ARE GENERA L IN NATURE AND DO NOT REQUIRE ANY SPECIFIC ADJUDICATION, WHERE AS GROUND NO. 7 IS NOT PRESSED. HE ALSO SUBMITTED THAT GROUNDS N O. 4 & 5 ARE CONSEQUENTIAL IN NATURE. 4. IN RESPECT OF GROUND NO. 2 IT IS THE SUBMISSION OF THE LD. AR THAT THE SHIFT OF THE BOILER FROM ONE PLACE TO ANOT HER PREMISES WAS NECESSARY TO SAVE HEAVY CAPITAL EXPENDITURE AND TO AVOID THE 3 ITA NO. 1924/DEL/2014 CONSTRUCTION OF BIGGER SHED AND THE AUTHORITIES BEL OW ERRED IN HOLDING THAT THE SHIFTING EXPENSES WERE INCURRED WI TH A VIEW TO EXPAND THE BUSINESS OF THE ASSESSEE, AS SUCH, THEY ARE CAPITAL IN NATURE. ACCORDING TO HIM BY THIS SIFT OF BOILER FR OM ONE PLACE TO ANOTHER NO ADDITIONAL ENDURING BENEFIT IS CREATED T O THE ASSESSEE, AS SUCH, THE SAME MAY BE ALLOWED AS REVENUE EXPENDI TURE. HE PLACED RELIANCE ON THE DECISIONS REPORTED IN ACIT V S. PRAGA TOOLS LTD., (2013) 23 ITR (TRIB.) 622 (HYD.) FOR THIS PRI NCIPLE, CIT WEST BENGAL VS. KARANPURA DEVELOPMENT CO. LTD. (1983) 14 4 ITR 538 (CAL.), CIT VS. MADURA COATS LTD. (2002) 253 ITR 62 (MAD.) AND CIT VS. BRAKES INDIA LTD. (2007) 161 TAXMAN 47 (MAD.). PER CONTRA, LD. DR PLACED RELIANCE ON THE ORDERS OF THE AUTHORI TIES BELOW. 5. WE HAVE CAREFULLY GONE THROUGH THE RECORD. NOWH ERE IN THE ASSESSMENT ORDER OR IN THE ORDER OF THE FIRST APPEL LATE AUTHORITY, IT IS STATED THAT BY SHIFTING THE BOILER ANY ADDITIONA L ASSET IS CREATED. IT IS ONLY BECAUSE OF THE BUSINESS CONVENIENCE, STA TING THAT IN ORDER TO SAVE HEAVY CAPITAL EXPENDITURE IN THE SHAP E OF CONSTRUCTION OF A BIGGER SHED, THE ASSESSEE SHIFTED THE EXISTING BOILER TO A CONVENIENT PLACE TO PROMOTE THE OPERATI ON OF THE 4 ITA NO. 1924/DEL/2014 MACHINERY IN A PROFITABLE WAY. IT IS NOT THE CASE OF THE AUTHORITIES BELOW THAT THE EXPENDITURE MET BY THE ASSESSEE RESU LTED IN BRINGING INTO EXISTENCE ANY NEW ASSET. IN THE ABSE NCE OF SUCH AN EVENT, WE FIND IT DIFFICULT TO RETURN A FINDING THA T ANY ENDURING BENEFIT RESULTED TO THE ASSESSEE SO AS TO HOLD THAT THE SHIFTING WAS FOR CAPITAL PURPOSE AND THEREBY THE EXPENDITURE IS CAPITAL IN NATURE. THE DECISIONS RELIED UPON BY THE ASSESSEE ARE SQUARELY APPLICABLE TO THE FACTS OF THE CASE AND FACTS OF AL L THESE CASES ARE SIMILAR IN NATURE. WE, THEREFORE, HOLD THAT MERE S HIFTING OF BOILER FROM ONE PLACE TO ANOTHER IN THE CASE ON HAND DID N OT RESULT IN CREATION OF ANY ADDITIONAL ENDURING BENEFIT TO THE ASSESSEE. WE, THEREFORE, HOLD THAT THE EXPENDITURE IN QUESTION IS REVENUE IN NATURE. WE, THEREFORE, ALLOW GROUND NO. 2. 6. NOW COMING TO GROUND NO. 3, AUTHORITIES BELOW FO UND THAT THE PAYMENTS MADE TO M/S NEBB ENGINEERING WAS IN CO NNECTION WITH UP-GRADATION OF FINISHING MACHINE, AS SUCH, TH EY ARE CAPITAL IN NATURE. LD. AR INVITED OUR ATTENTION TO PAGES N O. 34 & 35 OF THE PAPER BOOK. AT PAGE NO. 34 INVOICE, IT IS CLEARLY STATED THAT THE PAYMENT WAS FOR CONSULTANCY CHARGES AFTER INSTALLAT ION OF THE 5 ITA NO. 1924/DEL/2014 FINISHING MACHINE AND PAGE NO. 35 SAYS THAT THE SCO PE OF WORK WAS PROFESSIONAL CONSULTANCY FOR OPERATING AND MAIN TAINING OIL HEATED CYLINDER FOR THE PERIOD FROM 01.04.2007 TO 3 1.03.2008 AND IT WAS AGREED THAT M/S NEBB ENGINEERING WILL PROVID E THIS AS POST INSTALLATION CONSULTANCY SUPPORT. THESE TWO DOCUME NTS ARE ELOQUENT ON THE NATURE OF THE PAYMENT AND THE PAYME NT WAS MADE FOR THE POST INSTALLATION SERVICES TOWARDS MAINTAIN ING AND SMOOTH RUNNING OF THE FINISHING MACHINE FOR A PERIOD OF ON E YEAR AND THE QUESTION OF DERIVING ANY BENEFIT OF ENDURING NATURE DOES NOT ARISE. THE FINDING OF THE AUTHORITIES BELOW THAT THIS EXPE NDITURE IS CAPITAL IN NATURE CANNOT BE SUSTAINED. WE, THEREFORE, ALLO W GROUND NO. 3 AND DIRECT THE AO TO TREAT THIS EXPENDITURE AS REVE NUE EXPENDITURE. 7. ADVERTING TO GROUND NO. 6, IT RELATES TO THE ADD ITION OF RS. 21,23,877/- ON ACCOUNT OF THE DIFFERENCE IN VALUATI ON OF CLOSING BALANCE SHEET OF FOREIGN CREDITORS DUE TO FLUCTUATI ON IN FOREIGN EXCHANGE RATES, WHICH THE ASSESSEE CLAIMED AS DEDUC TION BUT THE AO DISALLOWED THE SAME BY INVOKING PROVISIONS U/S 4 3A OF THE INCOME TAX ACT, 1961 (FOR SHORT CALLED AS THE ACT ). LD. CIT (A) 6 ITA NO. 1924/DEL/2014 FOUND THAT THE INCREASED LIABILITIES ON ACCOUNT OF CAPITAL ASSETS HAVE TO BE GIVEN EFFECT TO IN THE CAPITAL ACCOUNT B Y MAKING APPROPRIATE CHANGE IN THE ACTUAL COST OF CAPITAL AS SET/CAPITAL EXPENDITURE, AND IF THIS IS DONE THERE IS NO CASE F OR CLAIMING INCREASED LIABILITIES ON CAPITAL ACCOUNT BECAUSE OF FOREIGN EXCHANGE FLUCTUATIONS IN THE PROFIT AND LOSS ACCOUNT. ON TH IS PREMISE, THE LD. CIT (A) UPHELD THE ACTION OF THE AO IN INVOKING THE PROVISIONS U/S 43A OF THE ACT. THIS ISSUE IS NO LONGER RES INTEGRA AND IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT OF IND IA IN CIT VS. WOODWARD GOVERNOR INDIA (P) LTD., (2009) 312 ITR 0 254, INCREASE OR DECREASE IN LIABILITY FOR REPAYMENT OF FOREIGN LOAN IN RESPECT OF ACQUISITION OF AN ASSET HAS TO BE TAKEN INTO ACCOUNT TO MODIFY THE FIGURE OF ACTUAL COST IN THE YEAR IN WHI CH THE INCREASE OR DECREASE IN LIABILITY ARISES ON ACCOUNT OF FLUCTUAT ION IN THE RATE OF EXCHANGE, IRRESPECTIVE OF THE DATE OF ACTUAL PAYMEN T IN FOREIGN CURRENCY; AMENDMENT OF S. 43A BY FINANCE ACT, 2002, W.E.F. 1ST APRIL, 2003, IS AMENDATORY AND NOT CLARIFICATORY. HENCE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF T HE LD. CIT (A) ON THIS ASPECT AND ACCORDINGLY DISMISSED THIS GROUND O F APPEAL. 7 ITA NO. 1924/DEL/2014 SINCE, GROUNDS NO. 4 & 5 ARE CONSEQUENTIAL IN NATUR E, WE DO NOT PROPOSE TO SPECIFICALLY ADJUDICATE THE SAME. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED IN PART. ORDER PRONOUNCED IN THE OPEN COURT ON 14.11.2017 SD/- SD/- (G.D. AGRAWAL) (K. NARSIMHA C HARY) PRESIDENT JUDICIAL ME MBER DATED: 14.11.2017 *KAVITA ARORA COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT TRUE COPY ASSISTANT REGISTRAR ITAT NEW DELHI