M/s. Southern Alloy Foundries Pvt. Ltd., CHENNAI V. ACIT, CHENNAI

ITA 2383/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4321 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-06-2017
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 03-05-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 18-08-2016
• Court: TRIBUNAL
• Department Lawyers: SUPRIYO PAL
• Assessee Lawyers: K S B ALAKRISHNAN
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 263

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI , ! ' ! # . $% & '( BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NO.2383/MDS./2016 / ASSESSMENT YEAR : 2006-07 M/S.SOUTHERN ALLOY FOUNDRIES P. LTD., 1B, JVL TOWERS, 117, NELSON MANICKAM ROAD, AMINJIKARAI, CHENNAI-29. VS. THE ACIT, COMPANY CIRCLE VI(3), CHENNAI 600 034. [PAN AAACS 5060 R ] ( )* / APPELLANT) ( +,)* /RESPONDENT) / APPELLANT BY : MR.K.S.BALAKRISHNAN,ADVOCATE /RESPONDENT BY : MR.SUPRIYO PAL, JCIT, DR / DATE OF HEARING : 03 - 0 5 - 2017 / DATE OF PRONOUNCEMENT : 02.06 - 2017 - / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-15, CHENN AI DATED 27.05.2016 PERTAINING TO ASSESSMENT YEAR 2006-07. 2. THE MAIN GRIEVANCE OF THE ASSESSEE IN ITS APPEAL IS WITH REGARD TO CHALLENGING THE ORDER OF LD.CIT(A) IN DIR ECTING THE AO TO ADD ITA NO.2383/MDS./16 :- 2 -: ` 10,35,717/- BEING REPLACEMENT OF SOME PORTION OF TH E MACHINERY TO THE INCOME OF ASSESSEE. 3. THE FACTS OF THE ISSUE ARE THAT THE ASSESSEE HE REIN CLAIMED AN AMOUNT OF ` 10,35,717/- AS REPLACEMENT OF ITEM OF MACHINERY IN ITS RETURN OF INCOME. THE AO ALLOWED THE SAME WHILE PAS SING THE ASSESSMENT ORDER U/S.143(3) OF THE ACT ON 24.12.200 8 ACCEPTING THE RETURN OF INCOME. LATER, THE MISTAKE, IN THIS ORDER , OF ADOPTING THE RETURN OF INCOME AT ` 2,97,25,382/- WAS RECTIFIED VIDE ORDER U/S.154 OF THE ACT DATED 08.02.2010. FURTHER, THERE WAS A PROC EEDING U/S.263 OF THE ACT BY CIT-3 VIDE HIS ORDER DATED 07.03.2011 WH EREIN HE HAS GIVEN A DIRECTION TO LD. ASSESSING OFFICER TO ADD ` 10,35,717/- BEING A REPLACEMENT OF SOME PORTION OF MACHINERY TO THE INC OME OF ASSESSEE. AGGRIEVED WITH THE DIRECTION OF THE LD. CIT, THE AS SESSEE CARRIED THE APPEAL TO THE TRIBUNAL IN ITA NO.825/MDS./2011 AND THE SAME WAS DISPOSED OFF BY THE TRIBUNAL ON 16.03.2012 BY OBSER VING HEREIN UNDER:- 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAIL ABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSEE HAD IN CURRED ` 5,33,490/- ON INDUCTION MELTING FURNACE WHOSE ELECT RICAL CONTROL PANEL REQUIRED FREQUENT REPAIRS DUE TO FAIL URE OF PARTS AND THAT IT WAS OUTDATED. THE ASSESSEE REPLACED T HE OLD ELECTRICAL CONTROL PANEL WITH A NEW CONTROL PANEL. FURTHER, THE ASSESSEE INCURRED ` 68,013/- ON AN INDUCTION MELTING FURNACE ITA NO.2383/MDS./16 :- 3 -: FOR INSTALLING A COOLING TOWER FOR COOLING WATER AS THE ONE UNDER USE WAS OLD AND OUTDATED AND COULD NOT BE PUT INTO USE ANY MORE AND ITS EFFICIENCY WAS ALSO REDUCED REQUIRING REPLACEMENT. FURTHER THE ASSESSEE INCURRED EXPENDITURE OF ` 1,39,566/- ON AN EOT CRANE WHICH WAS MORE THAN 35 YEARS OLD AND T HE HOIST OF THE CRANE WAS BEING REGULARLY MAINTAINED AND USE D. THE HOIST COULD NOT BE PUT INTO USE ANY FURTHER AND NEE DED REPLACEMENT. THEREFORE, A NEW WIRE ROPE HOIST WAS PROCURED TO REPLACE THE SAME. THE ASSESSEE INCURRED EXPENDITU RE OF ` 2,02,566/- ON EOT CRANE USED FOR HANDLING THE CASTI NG FOR GAS CUTTING. THE CRANE WAS MORE THAN 25 YEARS OLD AND COULD NOT BE PUT TO USE ANY FURTHER AND NEEDED REPLACEMENT. THEREFORE, A NEW WIRE ROPE HOIST WAS PROCURED WHICH REPLACED T HE SAME. FURTHER THE ASSESSEE INCURRED ` 1,08,935/- ON A HOIST USED FOR HANDLING THE PATTERN FOR INSPECTION WHICH WAS VERY OLD AND COULD NOT BE PUT TO USE ANY FURTHER AND NEEDED REPL ACEMENT. THEREFORE, A NEW WIRE ROPE HOIST WAS PURCHASED WHIC H REPLACED THE SAME. THE ASSESSEE ALSO INCURRED AN EXPENDITU RE OF ` 1,36,599/- ON A HOIST USED FOR HANDLING THE CASTING FOR LOADING INTO THE SHOT BLASTING MACHINE. THIS HOIST HAD BEC OME VERY OLD AND COULD NOT BE USED ANY FURTHER AND NEEDED REPLAC EMENT. THEREFORE, A NEW WIRE ROPE HOIST WAS PROCURED AND T HE SAME WAS REPLACED. THE LD. A.R OF THE ASSESSEE SUBMITT ED THAT AFTER EXAMINING THESE DETAILS, THE ASSESSING OFFICER HAS ACCEPTED THE IMPUGNED EXPENDITURE AS REVENUE EXPENDITURE. THE L D. CIT WAS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 263 OF THE ACT TO CONCLUDE THAT THE SAID EXPENDITURE IS CAPITAL IN NATURE. 7. WE FIND THAT IT IS A SETTLED POSITION OF LAW THA T PROVISIONS OF SECTION 263 CAN BE INVOKED BY THE LD. CIT WHEN THE ORDER PASSED BY THE ASSESSING OFFICER IS BOTH ERRONEOUS A ND ITA NO.2383/MDS./16 :- 4 -: PREJUDICIAL TO THE INTERESTS OF THE REVENUE. FURTH ER, WHEN A VIEW TAKEN BY THE ASSESSING OFFICER IN THE ASSESSME NT ORDER IS NOT TENABLE THEN THE ORDER PASSED BY THE ASSESSING OFFICER CAN BE HELD AS ERRONEOUS. IN THE INSTANT CASE, THE LD. CIT HELD THE ORDER OF THE ASSESSING OFFICER AS ERRONEOUS AND PRE JUDICIAL TO THE INTERESTS OF THE REVENUE BY OBSERVING AS UNDER: 3 THE SUBMISSIONS OF THE ASSESSEE HAVE BEEN CONSIDERED CAREFULLY. IT IS CLEAR THAT THE REPLACEM ENT OF THESE ITEMS OF MACHINERY DID NOT RESULT IN THE CREATION OF A SHORT TERM ADVANTAGE TO THE ASSESSEE. ON THE OTHER HAND, IT GIVES THE PURCHASER AN ENDURING BENEFIT OF BETTER AND MOR E EFFICIENT PRODUCTION OVER A PERIOD OF TIME. THUS, REPLACEMENT OF MACHINERY, AS IN THE INSTANT CASE, CANNOT BE CLASSI FIED AS REVENUE IN NATURE. HENCE, THE ASSESSEE'S CLAIM OF DEDUCTION U/S.37 IS NOT TENABLE. AS REGARDS, THE CONTENTION, RAISED IN THE COURSE OF HEARING, THAT THE EXPENDITURE IS MORE OR LESS IN THE NATURE OF REPAIRS, IT WOULD BE RELEVANT TO NOTE THAT THE HON'BLE APEX COURT IN ITS DECISION IN CIT V. SARAVA NA SPINNING MILLS (P) LTD. (293 ITR 201) HAS MENTIONED TWO EXCE PTIONS IN WHICH REPLACEMENT COULD AMOUNT TO CURRENT REPAIRS, NAMELY: WHERE OLD PARTS ARE NOT AVAILABLE IN THE MARKET, OR WHERE OLD PARTS HAVE WORKED FOR 50-60 YEARS. IN THE INSTANT C ASE, THE ASSESSEE HAD NOT CLAIMED EITHER OF THE ABOVE STATED EXCEPTIONS. HENCE, THE ASSESSEE'S CLAIM OF DEDUCTIO N U/S.31 OF THE I.T.ACT CANNOT ALSO BE ACCEPTED. 8. WE FIND THAT THE LD. A.R OF THE ASSESSEE COULD NOT POINT OUT ANY SPECIFIC ERROR IN THE ORDER OF THE LD. CIT. IT IS NOT IN DISPUTE THAT THE EXPENDITURE IN QUESTION WAS FOR REPLACING THE MACHINES WITH NEW ONES. AS NO ERROR IN THE ORDER OF THE LD. CIT COULD BE POINTED OUT, WE DO NOT FIND FORCE IN THE ABOVE ARGU MENT OF THE ASSESSEE. ITA NO.2383/MDS./16 :- 5 -: 9. HOWEVER, AS THE EXPENDITURE IN QUESTION HAS BEE N TREATED AS CAPITAL EXPENDITURE BY THE LD. CIT, THE ASSESSEE IS ENTITLED FOR DEPRECIATION IN RESPECT THEREOF. WE, THEREFORE, MO DIFY THE ORDER OF THE LD. CIT TO THAT EXTENT. THUS, THE GRO UNDS OF APPEAL OF THE ASSESSEE ARE PARTLY ALLOWED. 4. IN THE MEANTIME, THE AO PASSED THE ORDER ON 30. 09.2011 IN CONFORMITY WITH THE ORDER OF LD.CIT U/S.263 OF THE ACT. AGGRIEVED BY THE ORDER OF LD. ASSESSING OFFICER, THE ASSESSEE CA RRIED THE APPEAL BEFORE THE LD.CIT(A). ON APPEAL, THE LD.CIT(A) VIDE HIS ORDER DATED 27.05.2016 OBSERVED AS FOLLOWS:- 5.3. THE HONBLE ITAT HAS GIVEN SPECIFIC FINDINGS IN THE CASE OF THE APPELLANT THAT THE EXPENDITURE IS A CAPITAL EXP ENDITURE AND DEPRECIATION IS TO BE ALLOWED ON IT. RESPECTFULLY F OLLOWING THE DIRECTION OF THE HONBLE ITAT AS CITED ABOVE, THE A CTION OF AO IN TREATING ` 10,35,717/- AS CAPITAL EXPENDITURE IS UPHELD AND HE IS DIRECTED TO ALLOW DEPRECIATION AS PER THE RULES. TH E GROUNDS OF APPEAL ARE PARTLY ALLOWED. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE PLEA OF THE LD.A.R IS THAT AMOUNT OF ` 10,35,717/- TO BE ALLOWED AS A REVENUE EXPENDITURE AND RELIANCE PLAC ED BY THE LD.CIT(A) ON THE JUDGEMENT OF APEX COURT IN THE CAS E OF CIT VS. SARAVANA SPINNING MILLS P. LTD. (293 ITR 201)(SC) W HICH IS NOT CORRECT. ACCORDING TO HIM, THE EXPENDITURE IS ALLOWABLE EXPE NDITURE U/S.37 OF ITA NO.2383/MDS./16 :- 6 -: THE ACT OR SEC.31 OF THE ACT. IN OUR OPINION, THE A RGUMENT OF THE LD.A.R IS TOTALLY MISCONCEIVED. THIS ISSUE IS ALREADY SET TLED BY THE TRIBUNAL VIDE ITS ORDER DATED 16.03.2012 CITED SUPRA AND THE TRIBUNAL HAS GIVEN A CATEGORICAL FINDING IN ITS ORDER IN PARA 8 & 9 T HAT THE EXPENDITURE IS CAPITAL EXPENDITURE AND THE ASSESSEE IS ONLY ENTIT LED FOR DEPRECIATION ON IT. NOW, THE LD.A.R CANNOT RE-ARGUE THE SETTLED ISSUE AND THIS TRIBUNAL HAS NO POWER TO REVIEW THE EARLIER ORDER O F TRIBUNAL , WHICH WAS REACHED THE FINALITY. ACCORDINGLY, THIS GROUND RAISED BY THE ASSESSEE IS REJECTED. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. ORDER PRONOUNCED ON 02 ND JUNE, 2017, AT CHENNAI. SD/ - SD/ - ! ' # . $ %& ' ( DUVVURU RL REDDY ) ) & / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER () / CHENNAI *+ / DATED: 02 ND JUNE, 2017. K S SUNDARAM +,-- ./-0/ / COPY TO: - 1 . / APPELLANT 3. - 1-!' / CIT(A) 5. /23- 4 / DR 2. / RESPONDENT 4. - 1 / CIT 6. 3&-5 / GF