DCIT, Circle -1, Dindigul V. Shri Renuga Textiles Ltd. , Chennai

ITA 2142/CHNY/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 4902 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 30-01-2018
• Assessment Year: 2004-2005
• Appeal Filed On: 01-09-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MRS S VIJAYA PRABHA
• Keywords: Revenue expenditure; Capital expenditure
• Section: 80HHC

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH: CHENNAI . , ' , % & BEFORE SHRI ABRAHAM P.GEORGE, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER ./ ITA NO.2142/MDS/2017 %' ' /ASSESSMENT YEAR: 2004-05 THE DY. COMMISSIONER OF INCOME- TAX, CIRCLE-1, DINDIGUL. VS. M/S.SHRI RENUGA TEXTILES- LTD., THROUGH THE OFFICIAL LIQUIDATOR, NO.29, CORPORATE BHAVAN, 2 ND FLOOR, RAJAJI SALAI, PARRYS, CHENNAI-600 001. [PAN: AADCS 8242 G ] ( ( /APPELLANT) ( )*( /RESPONDENT) DEPARTMENT BY : MRS.S.VIJAYA PRABHA, JCIT ASSESSEE BY : NONE 4 /DATE OF HEARING : 30.01.2018 4 /DATE OF PRONOUNCEMENT : 30.01.2018 / O R D E R PER GEORGE MATHAN , JUDICIAL MEMBER : ITA NO.2142/MDS/2017 IS AN APPEAL FILED BY THE REV ENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEAL S)-15, CHENNAI, IN ITA NO.37/AY 2004-05/CIT(A)-15/2013-14 DATED 06.04. 2017 FOR THE AY 2004-05. 2.0 SMT. S.VIJAYA PRABHA, JCIT, REPRESENTED ON BEHA LF OF THE REVENUE AND NONE REPRESENTED ON BEHALF OF THE ASSESSEE. ITA NO.2142/MDS/2017 :- 2 -: 3.0 IN THE REVENUES APPEAL, THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: 1. THE ORDER OF THE CIT(A) IS OPPOSED TO LAW, ON TH E FACTS AND IN THE CIRCUMSTANCES OF THE CASE. 2.1 THE CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS.1,29,42,054/- MADE TOWARDS RE-PLACEMENT OF RING FRAMES ON THE GROUND IT REPRESENTS REVENUE EXPENDITURE. 2.2 THE CIT(A) OUGHT TO HAVE SEEN THAT RE-PLACEMENT OF RING FRAMES BY ITSELF CONSTITUTED AN INDEPENDENT MACHINE WITH INDEPENDENT FUNCTION, A ND THUS THE REPLACEMENT HAS RESULTED IN GIVING ENDURING ADVANTAGE TO THE ASSESSEE AND TH EREFORE, THE EXPENDITURE INCURRED IN THIS REGARD CANNOT COME WITHIN THE EXPRESSION CURR ENT REPAIRS. 2.3 THE CIT(A) OUGHT TO HAVE SEEN THAT RING FRAMES WHICH ARE COMPLETE SPINNING MACHINES CONSISTING OF SEVERAL SPINDLES ARE A SEPARATE MACHI NERY BY ITSELF AND NOT PART OF A MACHINERY. THE REPLACEMENT OF WORN OUT MACHINERY WI TH NEW MACHINERY RESULTS IN AN ENDURING BENEFIT TO THE ASSESSEE. THE NEW MACHINES INSTALLED ARE TECHNOLOGICALLY MORE ADVANCED THAN THE OLD REPLACED MACHINERY AND MORE E FFICIENT IN TERMS OF QUANTITY AND QUALITY OF OUTPUT AND HENCE OUGHT TO HAVE SUSTAINED THE ADDITION MADE BY THE ASSESSING OFFICER. 2.4 THE CIT(A) OUGHT TO HAVE FOLLOWED THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT VS SARAVANA SPINNING MIS LTD (223 ITR 201) WHICH IS SQUARELY APPLICABLE TO THE FACTS OF THE CASE AND HENCE OUGHT TO HAVE SUSTAINED THE ACTI ON OF THE ASSESSING OFFICER. 3. THE CIT(A) HAS ERRED IN HOLDING THAT THE 3 RD PROVISO OF 8OHHC IS NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION ON THE GROUND THE COMPANY DID NOT EARN ANY PROFIT ON SALE OF DEPB AND THEREFORE THE COMPANY IS ELIGIBLE DEDUCTIO N U/S.8OHHC FOR THE EXPORT INCOME IT HAD DERIVED. 3.1 THE CIT(A) OUGHT TO HAVE SEEN THAT SINCE THERE IS NO PROFIT ON SALE OF DEPB, IT HAS TO BE EXCLUDED FOR COMPUTING THE PROFIT OF THE BUSINES S AS IT IS IN THE CATEGORY OF OTHER RECEIPTS OF SIMILAR NATURE. HENCE 90% OF THE DEPB HAS TO BE EXCLUDED FOR ARRIVING THE PROFIT OF THE BUSINESS AND MOREOVER SINCE THE DEPB RATE IS HIGHER THAN THE RATE OF DUTY DRAWBACK, THE ASSESSEE IS NOT ENTITLED FOR DEDUCTIO N U/S.8OHHC. 4. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE AD DUCED AT THE TIME OF HEARING IT IS PRAYED THAT THE ORDER OF THE CIT(A) MAY BE REVERSED AND THAT OF THE ASSESSING OFFICER RESTORED. 4.0 GROUND NOS.1 & 4 ARE GENERAL IN NATURE. 5.1 IN REGARD TO GROUND NOS.2.1 TO 2.4, IT IS SUBMI TTED BY THE LD.DR THAT THE ISSUE AGAINST THE ACTION OF THE LD.CIT(A) IN DELETING THE ADDITION MADE BY THE AO TREATING THE REPLACEMENT OF THE RING FRAMES AS CAPITAL EXPENDITURE. IT WAS SUBMITTED THAT THE ISSUE IS NO W COVERED BY THE ITA NO.2142/MDS/2017 :- 3 -: DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F SARAVANA SPINNING MILLS LTD., REPORTED IN 293 ITR 201. 5.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. 5.3 A PERUSAL OF THE DECISION OF THE HONBLE SUPREM E COURT IN THE CASE OF SARAVANA SPINNING MILLS LTD., (SUPRA) REFERRED T O SUPRA SHOWS THAT THE HONBLE SUPREME COURT HAS HELD AS FOLLOWS: (III) THAT EACH MACHINE INCLUDING THE RING FRAME WAS AN INDEPENDENT AND SEPARATE MACHINE CAPABLE OF INDEPENDENT AND SPECIFIC FUNCTION AND, T HEREFORE, THE EXPENDITURE INCURRED FOR REPLACEMENT THEREOF WOULD NOT COME WITHIN THE MEANI NG OF CURRENT REPAIRS. THE REPLACEMENT OF THE RING FRAME CONSTITUTED SUBSTITUT ION OF AN OLD ASSET BY A NEW ASSET, AND, THEREFORE, THE EXPENDITURE INCURRED BY THE ASSESSEE DID NOT FALL WITHIN THE MEANING OF CURRENT REPAIRS IN SECTION 31(I). 5.4 RESPECTFULLY FOLLOWING THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF SARAVANA SPINNING MILLS LTD., THE FINDI NGS OF THE LD.CIT(A) ON THIS ISSUE STANDS REVERSED AND THAT OF THE AO RESTO RED. 6.1 IN REGARD TO GROUND NOS.3 & 3.1, IT WAS SUBMITT ED BY THE LD.DR THAT THE ISSUE WAS AGAINST THE ACTION OF THE LD.CIT(A) I N HOLDING THAT THE (III) PROVISION OF 80HHC WAS NOT APPLICABLE ON THE GROUND THAT THE ASSESSEE DID NOT EARN ANY PROFIT ON THE SALE OF THE DEPB AND CON SEQUENTLY, THE ASSESSEE WAS NOT ENTITLED FOR THE BENEFIT OF DEDUCT ION U/S.80HHC ON THE EXPORT INCOME REPRESENTING THE DEPB CREDIT. IT WAS A SUBMISSION THAT THE DEPB LICENCE HAD NOT BEEN SOLD AND CONSEQUENTLY, JU ST BECAUSE, THERE IS A CREDIT OF THE DEPB VALUE, IT WOULD NOT ENTITLE THE ASSESSEE TO THE BENEFIT OF ITA NO.2142/MDS/2017 :- 4 -: DEDUCTION U/S.80HHC IN RESPECT OF THE SAID VALUE AS THERE WAS NO EXPORT INCOME FROM SALE. IT WAS A SUBMISSION THAT THE ORD ER OF THE LD.CIT(A) WAS LIABLE TO BE REVERSED. 6.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. 6.3 AS IT IS NOTICED THAT THERE WAS NO PROFIT ON TH E SALE OF DEPB, THE SAME WOULD HAVE TO BE EXCLUDED FOR COMPUTING THE PR OFITS OF THE BUSINESS IN VIEW OF THE EXPLANATION (BAA) TO SEC.80HHC. THI S BEING SO, THE FINDINGS OF THE LD.CIT(A) ON THIS ISSUE STANDS REVERSED AND THAT OF THE AO RESTORED. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE S TANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON JANUARY 30, 2018, AT CHENNAI. SD/- SD/ - ( . ) ( ABRAHAM P.GEORGE ) /ACCOUNTANT MEMBER ( ' ) (GEORGE MATHAN) % /JUDICIAL MEMBER /CHENNAI, 9 /DATED: JANUARY 30, 2018. TLN 4 )%:; <; /COPY TO: 1. ( /APPELLANT 4. = /CIT 2. )*( /RESPONDENT 5. ; )%% /DR 3. = ( ) /CIT(A) 6. ' /GF