Ambika Cotton Mills Ltd., CHENNAI V. JCIT, Coimbatore

ITA 22/CHNY/2015

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7728 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 1 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-02-2017
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 08-02-2017
• Assessment Year: 1998-1999
• Appeal Filed On: 07-01-2015
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: G BASKAR
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . , . , BEFORE SHRI M. BALAGANESH , ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY, J UDICIAL MEMBER ./ I.T.A.NO. 22/MDS/2015 / ASSESSMENT YEAR : 1998 - 99 M/S. AMBIKA COTTON MILLS LTD., 9A, VALLUVAR STREET, SIVANANDA COLONY, COIMBATORE 641 012. [PAN: AABC A8985E ] VS. THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I ( 3 ), C OIMBATORE 641 018 . ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI G. BASKAR , ADVOCATE / RESPONDENT BY : SHRI A.V. SREEKANTH, JCIT / DATE OF HEARING : 0 8 . 02 .201 7 / DATE OF P RONOUNCEMENT : 16. 02 .201 7 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : TH IS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) II , COIM BATORE , DATED 0 5 . 11 .201 4 RELEVANT TO THE ASSESSMENT YEAR 1998 - 99 . THE ONLY EFFECTIVE GROUND RAISED IN THE APPEAL OF THE ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN REJECTING THE ASSESSEE S CLAIM OF AN AMOUNT OF .3,35,55,752/ - BEING EXPENDITURE INCURRED O N REPLACEMENT OF CONE WINDERS. I.T.A . NO . 22 /M/ 1 5 2 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 2 7 .11. 1998 ADMITTING AN INCOME OF .51,33,823/ - . THE RETURN FILED BY THE ASSESSEE WAS PROCESSED UNDER SECTION 115JA OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT] ACCEPTING THE INCOME ADMITTED BY THE ASSESSEE ON 05.02.1999. THEREAFTER, THE CASE OF THE ASSESSEE WAS SELECTED FOR LIMITED SCRUTINY AND NOTICE UNDER SECTION 143(2) OF THE ACT WAS ISSUED. IN RESPONSE THERETO, THE AR OF THE ASSESSEE APPEARED BEFORE THE ASSESSING OFFICER AND FURNISHED THE ADDITIONAL DETAILS AS CALLED FOR. AFTER EXAMINING THE DETAILS FILED BY THE ASSESSEE, THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT ON 30.03.1999 BY MAKING VARIOUS DISALLOWANCES/ADDITION. THE A SSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) AND CHALLENGED AGAINST THE DISALLOWANCE OF .3,35,55,752/ - BEING EXPENDITURE INCURRED ON REPLACEMENT OF CONE WINDERS. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND FACTS OF THE CASE, THE LD . CIT(A) SUSTAINED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 3. IN VIEW OF THE JUDGEMENT OF THE HON BLE SUPREME COURT DATED 23.03.2009, REMITTING THE COMMON ISSUE FOR TREATING CERTAIN EXPENDITURE AS CAPITAL OR REVENUE TO THE LD. CIT(A), THE ASSESS EE PREFERRED AN APPEAL BEFORE THE LD. CIT(A). IN PURSUANCE TO THE JUDGEMENT OF THE HON BLE SUPREME COURT, THE LD. CIT(A) HAS RECONSIDERED THE ENTIRE ISSUE AND ALSO CONSIDERED THE I.T.A . NO . 22 /M/ 1 5 3 SUBMISSIONS MADE BY THE ASSESSEE. AFTER CONSIDERING THE SUBMISSIONS OF THE AS SESSEE, THE LD. CIT(A) HAS OBSERVED THAT THE AUTO CONER ALSO HELP THE ASSESSEE BY WAY OF SAVINGS IN LABOUR COST WHEN MANUAL CONERS ARE REPLACED BY AUTO CONERS. THERE IS ALSO SAVINGS IN MAN POWER COST, TIME, AND THEREBY PRODUCTIVITY. THE ASSESSEE HAS MADE USE OF NEW TECHNOLOGY TO IMPROVE ON HIS PRODUCTIVITY. THIS IS CLEARLY AN ENDURING BENEFIT TO THE ASSESSEE. WITH THE ABOVE OBSERVATION AND BY FOLLOWING THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF CIT V. MANGAYARKARASI 182 TAXMAN 1471 , THE LD. CIT(A) HAS HELD THAT THE ABOVE EXPENDITURE SHOULD BE TREATED AS CAPITAL EXPENDITURE AND DIRECTED THE ASSESSING OFFICER TO ALLOW DEPRECIATION AS PER APPLICABLE RATE FROM THE DATE OF INSTALLATION AND THUS, DISMISSED THE APPEAL FILED BY THE ASSESSEE. 4. O N BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE TRIBUNAL. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE CASE LAW RELIED ON BY THE ASSESSEE, THE TRIBUN AL VIDE HIS ORDER IN I.T.A. NO. 1285/MDS/2013 DATED 03.10.2013 DISMISS ED THE APPEAL FILED BY THE ASSESSEE. AGAINST THE ORDER OF THE TRIBUNAL, THE ASSESSEE FURTHER WENT IN APPEAL BEFORE THE HON BLE MADRAS HIGH COURT. VIDE ITS ORDER IN T.C.A. NO. 132 OF 2014 DATED 07.05.2014, THE HON BLE MADRAS HIGH COURT SET ASIDE THE I.T.A . NO . 22 /M/ 1 5 4 ORDER O F THE TRIBUNAL AND RESTORED THE MATTER BACK TO THE FILE OF THE LD. CIT(A) FOR FRESH CONSIDERATION. 5. AFTER RECONSIDERING THE ENTIRE FACTS OF THE CASE, DECISION OF THE TRIBUNAL, JUDGEMENT OF THE HON BLE SUPREME COURT IN THE CASE OF CIT V. MANGAYARKARAS I (SUPRA), THE LD. CIT(A) HAS HELD THAT THE PURCHASE OF AUTO CONERS, CHERRY DRAW FRAME, OVERHEAD CLEANERS, ETC. AMOUNTING TO .3,35,55,752/ - IS TO BE TREATED AS CAPITAL EXPENDITURE AND DIRECTED THE ASSESSING OFFICER TO ALLOW DEPRECIATION AS PER APPLICABLE RATE FROM THE DATE OF INSTALLATION AND DISMISSED THE APPEAL FILED BY THE ASSESSEE. 6. ON BEING AGGRIEVED, THE ASSESSEE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. THE LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY ARGUED THAT THE PLANT AND MACHINERIE S REPLACED BY THE ASSESSEE ARE TECHNICAL/ MECHANICAL IN NATURE AND AUTHORITIES BELOW CANNOT IDENTIFY WHETHER THE MACHINERIES CAN GIVE ENDURING BENEFIT OR NOT. IT WAS ALSO SUBMITTED THAT IF THE MACHINERIES PURCHASED BY THE ASSESSEE CAN LONG LAST EVER, THEN THE ASSESSEE WOULD NOT HAVE GONE FOR REPLACEMENT OF THE SAME WITH NEW ONE. MOREOVER, HE ARGUED THAT NO TECHNICAL REPORT IS AVAILABLE WITH THE AUTHORITIES BELOW TO TREAT THE EXPENDITURE INCURRED BY THE ASSESSEE AS CAPITAL IN NATURE. THUS, THE LD. COUNSEL FO R THE ASSESSEE HAS PRAYED THAT THE EXPENDITURE INCURRED BY THE ASSESSEE SHOULD BE TREATED AS REVENUE IN NATURE. I.T.A . NO . 22 /M/ 1 5 5 7. ON THE OTHER HAND, THE LD. DR HAS SUBMITTED THAT SUITABLE DEPRECIATION HAS BEEN PROVIDED UNDER THE ACT TO THE PLANT AND MACHINER Y PROCURED AND INSTALLED BY THE ASSESSEE AND THEREFORE, HE ARGUED THAT THE ORDERS OF AUTHORITIES BELOW SHOULD BE SUSTAINED. 8. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IN THE A SSESSMENT ORDER THE ASSESSING OFFICER HAS NOTICED THAT THE ASSESSEE HAS CLAIMED REVENUE EXPENDITURE TOWARDS COST OF REPLACEMENT OF MACHINERY TO THE EXTENT OF .3,35,55,752/ - . AFTER CONSIDERING THE ENTIRE FACTS OF THE CASE, WE OBSERVED THAT THE AUTHORITIES BELOW HAVE CAME TO A CONCLUSION THAT THE REPLACEMENT OF MACHINERY AMOUNTS TO AN ENDURING BENEFIT TO THE ASSESSEE. IF PARTICULAR MACHINERY CAN PERMANENTLY GIVE BENEFIT TO THE ASSESSEE, THE QUESTION OF REPLACEMENT OF SUCH MACHINERY DOES NOT ARISE. ANY MAN MADE MACHINERY CANNOT SUSTAIN FOR LONGER DURATION TO GIVE ENDURING BENEFIT UNTIL AND UNLESS, A TECHNICALLY QUALIFIED PERSON NE L CAN EXAMINE AND GIVE THE REPORT T HAT THE MACHINERY REPLACED BY THE ASSESSEE CAN GIVE ENDURING BENEFIT TO THE ASSESSEE OR NOT. UNDER THE ABOVE FACTS AND CIRCUMSTANCES, WE DIRECT THE ASSESSEE TO ENGAGE A TECHNICAL EXPERT TO EXAMINE AND TO SUBMIT THE REPORT TO THE ASSESSING OFFICER AS TO WHE THER THE MACHINERIES REPLACED BY THE ASSESSEE CAN GIVE ENDURING BENEFIT OR NOT. AFTER CROSS EXAMINING THE TECHNICAL REPORT/TECHNICAL EXPERT, THE ASSESSING OFFICER IS DIRECTED TO DECIDE I.T.A . NO . 22 /M/ 1 5 6 WHETHER THE EXPENDITURE INCURRED BY THE ASSESSEE IS CAPITAL IN NATURE O R REVENUE IN NATURE AFTER ALLOWING SUFFICIENT OPPORTUNITIES OF HEARING TO THE ASSESSEE. 9 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED ON THE 16 TH FEBRUARY , 201 7 AT CHENNAI. SD/ - SD/ - ( M. BALAGANESH ) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 16 . 02 .201 7 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.