Gujarat Chemical Port Terminal Company Ltd., Bharuch V. The Dy.CIT, Circle-1(1), Baroda

ITA 2414/AHD/2015

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 2313 (ITAT-SURAT)
• Duration Of Justice: 2 year(s) 9 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-05-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 12-08-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D D YADAV
• Assessee Lawyers: SANKET BASKHI
• Keywords: Depreciation; Initiation of penalty proceedings; Revenue expenditure; Capital expenditure
• Section: 147; 148; 143(3); 37(1)

Judgement Text

GUJARAT CHEMICAL PORT TERMINAL CO. LTD VS. DCIT /I.T.A. NO.2414/AHD/2015/A.Y.2011-12 PAGE 1 OF 8 , , IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCH, SURAT . . , . . , BEFORE SHRI C.M.GARG, JUDICIAL MEMBER AND SHRI O.P.MEENA, ACCOUNTANT MEMBER . . ./I.T.A NO.2414/AHD/2015/SRT /ASSESSMENT YEAR : 2011-12 GUJARAT CHEMICAL PORT TERMINAL COMPANY LTD., PO. LAKHIGAM, VIA DAHEJ DISTRICT, BHARUCH 392 130. PAN: AAACG 6861A VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(1), BARODA. APPELLANT /RESPONDENT /ASSESSEE BY SHRI SANKET BASKHI, CA /REVENUE BY SHRI D.D.YADAV SR.DR / DATE OF HEARING: 22.05.2018 /PRONOUNCEMENT ON 23.05.2018 /O R D E R PER O. P. MEENA, ACCOUTANT MEMBER: 1. THIS APPEAL FILED BY ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD.COMMISSIONER OF INCOME TAX(APPEALS)-1, [CIT(A)], VADODARA DATED 05.06.2015 FOR THE ASSESSMENT YEAR 2011-12 UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). GUJARAT CHEMICAL PORT TERMINAL CO. LTD VS. DCIT /I.T.A. NO.2414/AHD/2015/A.Y.2011-12 PAGE 2 OF 8 2. GROUND NO.1 RELATES TO CONFIRMING THE ACTION OF THE LD.COMMISSIONER OF INCOME TAX (APPEALS) IN DISALLOWING REPAIRS AND MAINTENANCE EXPENSES OF RS. 14,22,840/- ON THE GROUND THAT IT IS CAPITAL IN NATURE DESPITE THE FACT THAT NO ENDURING BENEFIT WAS AVAILABLE TO THE ASSESSEE. 3. SUCCINCT FACTS ARE THAT THE ASSESSEE COMPANY HAS CLAIMED RS.1,16,79,270/- AS REPAIRS TO PLANT AND MACHINERY. ON VERIFICATION OF THE DETAILS, THE ASSESSING OFFICER (AO) WAS OF THE VIEW THAT VARIOUS EXPENDITURE AS DETAILED IN THE TABLE GIVEN AT ASSESSMENT ORDER PAGE 2 IN RESPECT OF 17 ITEMS AGGREGATING TO THE AMOUNT OF RS.50,72,199/- ARE RELATES TO WORK CARRIED OUT BY THE ASSESSEE WHICH ARE DEFINITELY CAPABLE OF GIVING BENEFITS OF ENDURING NATURE, THEREFORE, BY PLACING RELIANCE ON THE DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF SAURASHTRA BOTTLING PVT LTD. 232 ITR 270 AND ALSO SUPREME COURT DECISION IN THE CASE OF BALLIMAL NAVAL KISHOR VS. CIT 224 ITR 414 (SC) EXPENDITURE UNDER THE HEAD REPAIRS AND MAINTENANCE WAS HELD AS NOT ALLOWABLE U/S.37(L) BECAUSE THE WORDS IN PARENTHESIS OF SECTION 37(1) EXCLUDED THOSE ITEMS OF EXPENDITURE WHICH EXPRESSLY FALL IN SECTION 30 TO 36. THE AO FURTHER OBSERVED THAT THE ASSESSEE COMPANY IN PREVIOUS YEAR I.E. 2009- 10 HAS AGREED TO THE SAME ADDITION AND THE FACTS AND NATURE OF GUJARAT CHEMICAL PORT TERMINAL CO. LTD VS. DCIT /I.T.A. NO.2414/AHD/2015/A.Y.2011-12 PAGE 3 OF 8 ALL THE EXPENDITURE ARE SIMILAR THAT OF PREVIOUS YEAR. THEREFORE, THE AO ,TREATED THE CLAIM OF RS.50,72,199/- IN RESPECT OF ITEM 17 AS GIVEN IN TABLE AT ASSESSMENT ORDER AS CAPITAL IN NATURE AND AFTER ALLOWING DEPRECIATION THEREON AT RS.4,76,838/- MADE ADDITION OF RS.45,95,361/-. 4. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE CIT(A). THE CIT(A) AFTER EXAMINING THE REPLY TO THE ASSESSEE IN RESPECT OF EACH ITEMS OF EXPENDITURE CAME TO THE CONCLUSION THAT EXPENDITURE OF RS.2,77,400/-, RS. 1,30,532/-, RS.2,21,600/-, RS.5,57,900/- AND RS.2,35,408/- TOTALING TO RS. 14,22,840/- ARE CAPITAL IN NATURE. THE CIT(A) WAS OF THE VIEW THAT FABRICATION / ERECTION OF PORT MACHINERY INCLUDING PIPE LINE CANNOT BE SAID TO BE IN THE NATURE OF REPAIRING. THE WORDS FABRICATION AND REPAIRS ARE DIFFERENT FROM EACH OTHER. FABRICATION AND REPAIRS CANNOT BE SIMILAR TO EACH OTHER. FABRICATION MEANS CONSTRUCTION OR MANUFACTURE. IN OTHER WORDS, FABRICATION MEANS SOMETHING WHICH IS FABRICATED OR MANUFACTURED. IF THE ASSESSEE'S REPRESENTATIVE HIMSELF HAS USED THE 'WORD FABRICATION' THEN IT CANNOT BE SAID THAT FABRICATION WAS DONE OF ANY EXISTING ASSETS. AS A RESULT OF FABRICATION, ONLY NEW ASSET WILL COME INTO EXISTENCE AND THERE CANNOT BE FABRICATION OF ANY EXISTING ASSET. IN VIEW OF THESE FACTS, THE CIT(A) HELD THAT THE EXPENDITURE OF RS. 14,22,840/- IS OF CAPITAL IN NATURE AND GUJARAT CHEMICAL PORT TERMINAL CO. LTD VS. DCIT /I.T.A. NO.2414/AHD/2015/A.Y.2011-12 PAGE 4 OF 8 THEREFORE, THE AO IS DIRECTED TO ALLOW THE DEPRECIATION ON THESE CAPITAL EXPENDITURE INCURRED FOR FABRICATION / ERECTIONS OF THE ASSET AT THE APPLICABLE RATE AND ADDED BACK THE REMAINING AMOUNT TO THE TOTAL INCOME OF THE APPELLANT. HOWEVER, THE BALANCE ADDITION OUT OF TOTAL ADDITION MADE BY THE AO WAS DELETED. 5. BEING AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THIS TRIBUNAL. AT THE OUTSET, THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF TRIBUNAL IN ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 2002-03 TO 2006-07 IN ITA NO.3115 TO 3120 AND 3077 TO 3079/AHD/2011 DATED 13.11.2017. HOWEVER, WHEN A QUERY WAS RAISED TO THE COUNSEL BY BENCH THAT HOW THE ISSUE IS COVERED BY THE DECISION OF TRIBUNAL. THE AR REFERRED PARA 12 OF THE ORDER OF THE TRIBUNAL AND CLAIMED THAT ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE, BUT NOT ABLE TO SHOW HOW FABRICATION IS COVERED BY SAID ORDER. 6. ON THE OTHER HAND, THE LD.SENIOR DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF THE LOWER AUTHORITIES AND SUBMITTED THAT THE LD.COUNSEL IS NOT ABLE TO POINT OUT AS TO HOW THE AMOUNT SPENT ON FABRICATION AND NEW PIPE LINE ARE COVERED BY THE ORDER OF THE TRIBUNAL. GUJARAT CHEMICAL PORT TERMINAL CO. LTD VS. DCIT /I.T.A. NO.2414/AHD/2015/A.Y.2011-12 PAGE 5 OF 8 7. WE HAVE CONSIDERED THE FACTS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE GONE THROUGH THE ORDER OF THE TRIBUNAL IN THE CASE OF ASSESSEE (SUPRA) DATED 13.11.2017 AND FOUND THAT THE TRIBUNAL HAS OBSERVED THAT THE ASSESSEE HAD MOVED ITS FRO TANKS FROM ONE PLACE TO ANOTHER BY WAY OF CRANES AND SHAFTS IN ORDER TO COLLECT CHEMICAL FROM INCOMING CARGO AND FOR HAVING REPLACED EXISTING NAPTHA PIPELINE FROM THE JETTY TO TANK. THERE IS NO MATERIAL ON RECORD INDICATING ANY INCREASE IN ASSESSEES ALREADY INSTALLED CAPACITY IN BOTH THE ABOVE STANCES. THEREFORE, THE TRIBUNAL HELD THE EXPENDITURE TO BE OF REVENUE IN NATURE. HOWEVER, IN THE CASE OF PRESENT CASE, THE FACTS HAS BROUGHT OUT BY THE LD.CIT(A) WHICH IN RESPECT OF FABRICATION/ERECTION OF PORT MACHINERY, HENCE THE EXPENDITURE INCURRED IN THE FIELD OF CAPITAL. THE LD.CIT(A) OBSERVED THAT EXPENDITURE HAS BEEN INCURRED IN RELATION TO FABRICATION AND ERECTION IN FORM OF NEW ASSET AND LAYING NEW PIPE LINE AND STRUCTURE FOR MAINTAINING THE JETTY IN WORKING CONDITION, THEREFORE SUCH FABRICATION EXPENDITURE MEAN SOMETHING WHICH IS FABRICATED OR MANUFACTURED. THE ASSESSEE HIMSELF HAS USED THE 'WORD FABRICATION' THEN IT CANNOT BE SAID THAT FABRICATION WAS DONE OF ANY EXISTING ASSETS. THEREFORE, AS A RESULT OF FABRICATION NEW ASSET WILL COME INTO EXISTENCE, HENCE, THE EXPENDITURE OF RS. 14,22,840/- INCURRED ON SUCH ACCOUNT WOULD BE IN CAPITAL IN NATURE GIVING RISE TO ENDURING BENEFIT AS HELD BY GUJARAT CHEMICAL PORT TERMINAL CO. LTD VS. DCIT /I.T.A. NO.2414/AHD/2015/A.Y.2011-12 PAGE 6 OF 8 HON'BLE SUPREME COURT IN THE CASE OF BALLIMAL NAVAL KISHOR VS. CIT 224 ITR 414 (SC) WHEREIN IT HAS BEEN EMPHASIZED THAT THE EXPENDITURE UNDER HEAD REPAIRS AND MAINTENANCE WITHIN THE PURVIEW OF CAPITAL EXPENDITURE WERE THE EXPENDITURE INCURRED GIVES ENDURING BENEFIT. THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT THE CIT(A) HAS CORRECTLY UPHELD THE ADDITION TO THE EXTENT OF RS.14,22,840/- TO THE EXPENDITURE AFTER ALLOWING DEPRECIATION THEREON IN ACCORDANCE WITH LAW. THE CLAIM OF THE ASSESSEE THAT ISSUE IS COVERED BY THE DECISION OF TRIBUNAL IS DISTINGUISHABLE ON THE FACTS THAT THE TRIBUNAL HAS CONSIDERED THAT THE REVENUE EXPENDITURE INCURRED IN RESPECT OF EXPENDITURE INCURRED IN PAINTING WORK OF THE PIPE LINES FOR MAINTAINING THE TANKS AND RESTORING CHEMICALS THEREIN AS COULD BE SEEN FROM THE FINDINGS RECORDED BY THE CIT(A) FOR THE ASSESSMENT YEAR 2006-07. THEREFORE, THIS TYPE OF EXPENDITURE ARE NOT COVERED BY THE ORDER OF THE TRIBUNAL, HENCE, THIS GROUND OF ASSESSEE IS DISMISSED. 8. GROUND NO.2 RELATES TO CONFIRMING ACTION OF THE ASSESSING OFFICER (AO) IN RESTRICTING DEPRECIATION OF ELECTRICAL INSTALLATION TO 10% INSTEAD OF 15% CLAIMED BY THE ASSESSEE AND THEREBY CONFIRMING THE ADDITION OF RS. 17,21,558/-. GUJARAT CHEMICAL PORT TERMINAL CO. LTD VS. DCIT /I.T.A. NO.2414/AHD/2015/A.Y.2011-12 PAGE 7 OF 8 9. AT THE OUTSET, THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF TRIBUNAL IN THE ASSESSEE'S OWN CASE IN ITA NO.3077 TO 3079 AND 3115 TO 3120/AHD/2011 DATED 13.11.2017. THE LD.SENIOR DEPARTMENTAL REPRESENTATIVE HAS ALSO CONCURRED WITH THE SUBMISSION OF THE LD.COUNSEL OF THE ASSESSEE. 10. WE HAVE CONSIDERED FACTS AND FIND THAT THE TRIBUNAL IN THE AFORESAID CASE (SUPRA) IN PARA 9 HAS OBSERVED AS UNDER : '9. LEARNED DEPARTMENTAL REPRESENTATIVE FAILS TO DISPUTE THE CRUCIAL FACT THAT THE ASSESSEE HAD IN FACT DISCLOSED ALL ITS DEPRECIATION DETAILS IN FORM 3CD ANNEXURE 1A. HER CASE HOWEVER IS THAT SECTION 149(L)(B) ENVISAGES TIME LIMIT FOR ISSUING SECTION 148 NOTICE TO BE BETWEEN FOUR YEARS TO SIX YEARS SQUARELY APPLIES IN FACTS OF THE INSTANT CASE. WE FIND NO MERIT IN THE INSTANT ARGUMENT AS THE ABOVE STATUTORY PROVISION DOES NOT OPERATE AS AN EXCEPTION TO SECTION 147 (FIRST PROVISO). IT IS NOT A PROVISO TO PROVISO IN OTHER WORDS. LEARNED DEPARTMENTAL REPRESENTATIVE FURTHER FAILS TO DISPUTE THAT THE QUESTION WHETHER OR NOT A PORT TERMINALS JETTY / TRESTLE IS TO BE TREATED AS PLANT AND MACHINERY IS NOT MORE RES INTEGRA SINCE THIS TRIBUNAL'S CO-ORDINATE BENCH DECISION IN KANDIA PORT TRUST CASE (2007) 104 ITD 1 (RJT) HAS HELD SUCH ASSETS TO BE PLANT AND MACHINERY ENTITLED FOR 25% RATE OF DEPRECIATION. HON'BLE JURISDICTIONAL HIGH COURT HAS UPHELD THE SAID VIEW IN REVENUE'S TAX APPEAL NO.1942 OF2006 DECIDED ON 05.07.2016. WE THEREFORE FIND NO REASON TO ACCEPT IN REVENUE'S ARGUMENTS SEEKING TO TREAT ASSESSEE'S JETTY & TRESTLE AS BUILDING BLOCK OF ASSETS INSTEAD OF PLANT AND MACHINERY IN ALL CASES ON MERITS AS WELL. ITS APPEAL TTA NO.3115, 3116, 3117, 3118 & 3119/AHD/2011 ARE ACCORDINGLY DECLINED.' 11. SINCE THE FACTS OF THE PRESENT CASE ARE IDENTICAL, THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT THE ASSESSEE IS ELIGIBLE FOR DEPRECIATION @15% INSTEAD OF 10% ALLOWED BY THE AO IN RESPECT OF JETTY & TRESTLE, ACCORDINGLY THE ASSESSING OFFICER IS DIRECTED TO ALLOW DEDUCTION OF GUJARAT CHEMICAL PORT TERMINAL CO. LTD VS. DCIT /I.T.A. NO.2414/AHD/2015/A.Y.2011-12 PAGE 8 OF 8 DEPRECIATION OF RS.17,21,558/- CLAIMED @5% OUT OF 10%. THIS GROUND OF APPEAL IS THEREFORE ALLOWED. 12. GROUND NOS. 3, 4 AND 5 ARE RELATED TO CHARGING OF INTEREST U/S.244A, 234D WHICH ARE CONSEQUENTIAL IN NATURE. HENCE, THE AO WILL ALLOW CONSEQUENTIAL EFFECT OF CHARGING OF INTEREST, SO FAR INITIATION OF PENALTY PROCEEDINGS U/S.271(1)(C) OF THE ACT IS CONCERNED IT IS PREMATURE AT THIS STAGE, HENCE, SAME IS DISMISSED. ACCORDINGLY, GROUND NOS. 3, 4 AND 5 ARE DISMISSED. 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 14. THE ORDER PRONOUNCED IN THE OPEN COURT ON 23-05.2018. SD/- SD/- ( . . ) /(C.M. GARG) ( . . ) /(O.P.MEENA) /JUDICIAL MEMBER / ACCOUNTANT MEMBER / SURAT: / DATED : 23 RD MAY, 2018 / SGR COPY SENT TO- ASSESSEE/AO/PR. CIT/ CIT (A)/ ITAT (DR)/GUARD FILE OF ITAT. BY ORDER / / TRUE COPY / / ASSISTANT REGISTRAR, SURAT