Cosmic Drugs & Chemicals Pvt. Ltd., Baroda V. The Dy.CIT., Circle-1(1), Baroda

ITA 254/AHD/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51005 (ITAT-AHMEDABAD)
• Duration Of Justice: 10 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 16-12-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 01-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Assessee Lawyers: S N SOPARKAR
• Keywords: Depreciation; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH AHMEDABAD (BEFORE SHRI BHAVNESH SAINI, JM AND SHRI A. MOHAN A LANKAMONY, AM) ITA NO. 254 AND 255/AHD/2011 A. Y.: 2005-06 AND 2006-07 COSMIC DRUGS & CHEMICALS PVT. LTD., S. NO.248, AT & POST RANIA, SANKARDA BHADRAVA ROAD, TALUKA SALVI, DIST. BARODA VS THE D. C. I. T., CIRCLE -1(1), BARODA PA NO. AABCC 0267 D (APPELLANT) (RESPONDENT) APPELLANT BY SHRI S. N. SOPARKAR, AR RESPONDENT BY SHRI B. L. YADAV, DR DATE OF HEARING: 16-12-2011 DATE OF PRONOUNCEMENT: 23-12-2011 O R D E R PER BHAVNESH SAINI: BOTH THE APPEALS BY THE SAME ASSESSEE ARE DIRECTED AGAINST COMMON ORDER OF THE L EARNED CIT(A)-I, BARODA DATED 24 TH NOVEMBER, 2010 FOR ASSESSMENT YEARS 2005-06 AND 2006-07. 2. ON GROUNDS NO.1 AND 2 IN BOTH THE APPEALS, THE A SSESSEE CHALLENGED CONFIRMATION OF DISALLOWANCE OF RS.6,07, 272/- AND RS.7,36,747/- INCURRED FOR REPAIRS AND MAINTENANCE. THE AO AFTER FOLLOWING THE ORDER OF ASSESSMENT YEAR 2004-05, TRE ATED THE EXPENSES IN RESPECT OF REPAIRS OF FACTORY BUILDING AS CAPITAL EXPENDITURE. THUS AFTER ALLOWING DEPRECIATION THE A DDITIONS WERE ITA NO.254 AND 255/AHD/2011 COSMIC DRUGS & CHEMICALS PVT. LTD. VS DCIT, CIRCLE- 1 (1), BARODA 2 ACCORDINGLY MADE IN BOTH THE ASSESSMENT YEARS IN A SUM OF RS.5,76,908/ AND RS.6,99,910/- RESPECTIVELY. 3. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT THE ASSESSEE IS CARRYING ON BUSINESS OF MANUFACTURING OF BULK DRUGS WHICH IS CONTROLLED BY DRUG CONTROL ACT. UNDER THE ACT STRIN GENT CONDITIONS ON SELECTION OF SITE, CONSTRUCTION OF BUILDING, USE OF MACHINERY, STORAGE SPACE ETC. HAVE BEEN LAID DOWN AND THAT BY FURTHER AMENDMENT A REVISED PLAN HAS BEEN GIVEN TO THE MANUFACTURER TO CARRY OUT CHANGES AND THAT IN VIEW OF COMMERCIAL EXPEDIENCY ALTERATIO NS HAVE BEEN CARRIED OUT IN THE PREMISES AS PER THE REVISED NORM S SUCH AS CHANGE IN FLOORING, CHANGES IN PACKAGING AND FINISHED GOOD S STORAGE AREA, LABORATORY ETC. IT WAS, THEREFORE, SUBMITTED THAT E XPENDITURE WAS IN THE NATURE OF REPAIRS AND SHOULD BE ALLOWED AS REVE NUE EXPENDITURE. THE LEARNED CIT(A) HOWEVER, DID NOT ACCEPT THE CONT ENTION OF THE ASSESSEE AND DISMISSED BOTH THE APPEALS OF THE ASSE SSEE. HIS FINDINGS IN PARA 4.3 OF THE APPELLATE ORDER ARE REP RODUCED AS UNDER: 4.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE SUBMISSIONS OF THE APPELLANT AND THE ASSESSMENT ORD ERS. A PERUSAL OF THE GOODS MANUFACTURING PRACTICES GUIDEL INES (GMP) INDICATE THAT THESE ENTAIL GUIDELINES FOR FOU NDATION, TYPE OF MATERIAL, NATURE OF WALLS, FLOORS AND CEILING, D RAINAGE AREAS, CHANGE ROOMS ETC. AND THAT SUCH FACTORS NECESSITATE AN OVERHAUL OF THE PREMISES AND THE CHANGES HAVE LONG TERM IMPACT AND PRESENT BENEFITS IN TERMS OF EFFICIENT F UTURE OPERATION OF THE APPELLANT. THE ACTION OF THE AO IN TREATING THE EXPENDITURE AS CAPITAL IS JUSTIFIED AND THE NET ADD ITIONS OF RS.5,76,908/- AND RS.6,99,910/- FOR THE TWO ASSESSM ENT YEARS ARE CONFIRMED. ITA NO.254 AND 255/AHD/2011 COSMIC DRUGS & CHEMICALS PVT. LTD. VS DCIT, CIRCLE- 1 (1), BARODA 3 4. THE LEARNED COUNSEL FOR THE ASSESSEE AT THE OUTS ET SUBMITTED THAT THE AO HAS NOT GIVEN ANY FINDING IN THE ASSESS MENT ORDERS UNDER APPEAL AND MERELY FOLLOWED THE REASONS INCORPORATED IN ASSESSMENT YEAR 2004-05 WHILE MAKING THE DISALLOWANCE. HE HAS FURTHER SUBMITTED THAT IN ASSESSMENT YEAR 2004-05 THE LEARN ED CIT(A) VIDE ORDER DATED 12-05-2008 ALLOWED THE SIMILAR CLAIM OF THE ASSESSEE HOLDING IT TO BE REVENUE IN NATURE. COPY OF THE ORD ER IS FILED AT PAGE 13 OF THE PAPER BOOK AND SUBMITTED THAT REVENUE HAS ACCEPTED THE ORDER OF THE LEARNED CIT(A) BECAUSE NO FURTHER APPE AL IS PREFERRED EITHER BEFORE THE TRIBUNAL OR BEFORE ANY OTHER AUTH ORITY. HE HAS ALSO RELIED UPON THE ORDER OF ITAT AHMEDABAD B BENCH I N THE CASE OF ENVIRO TECHNOLOGY LTD. IN ITA NO.1644/AHD/2009 DATE D 14-10-2011 IN WHICH SIMILAR ADDITION HAS BEEN ALLOWED BY THE L EARNED CIT(A) AND CONFIRMED BY THE TRIBUNAL. ON THE OTHER HAND, THE L EARNED DR REPLIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMIT TED THAT APPEAL IN ASSESSMENT YEAR 2004-05 MIGHT NOT HAVE BEEN FILED D UE TO SMALLNESS OF THE ISSUE. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND MAT ERIAL ON RECORD. THE AO IN THE ASSESSMENT YEARS UNDER APPEAL MAINLY FOLLOWED THE REASONS FOR MAKING THE DISALLOWANCE WI CH WERE NOTED IN THE ASSESSMENT YEAR 2004-05. THE ASSESSEE PLEADED T HAT EXPENSES WERE INCURRED FOR REPAIRS AND MAINTENANCE WHICH WER E CURRENT REPAIRS IN NATURE. THE AO HAS NOT GIVEN ANY OTHER REASONS A ND MADE THE ADDITION. IN THE ASSESSMENT YEAR 2004-05, THE LEARN ED CIT(A) SET ASIDE THE ORDER OF THE AO VIDE ORDER DATED 12-05-20 08 (PB-13) IN WHICH THE LEARNED CIT(A) IN PARA 4.2 FOUND THAT REP AIRS WERE CARRIED ITA NO.254 AND 255/AHD/2011 COSMIC DRUGS & CHEMICALS PVT. LTD. VS DCIT, CIRCLE- 1 (1), BARODA 4 OUT BY THE ASSESSEE TO THE FACTORY BUILDING WHICH W ERE MAINLY REPAIRS OF WALLS AND FLOORS. IT WAS FURTHER FOUND THAT IT I S NOT A CASE OF THE AO THAT NEW FACTORY BUILDING WAS CONSTRUCTED, THUS IT CANNOT BE SAID THAT EXPENDITURE RELATED IN A NEW OR DIFFERENT ADVANTAGE . IT WAS FURTHER FOUND BY THE LEARNED CIT(A) THAT EXPENDITURE INCURR ED WAS ONLY TO PRESERVE AND MAINTAIN THE EXISTING FACTORY BUILDIN G AND THUS WAS ALLOWED AS REVENUE EXPENDITURE. ADMITTEDLY, THE ORD ER OF THE LEARNED CIT(A) DATED 12-05-2008 FOR ASSESSMENT YEAR 2004-05 IS NOT FURTHER CHALLENGED BEFORE THE TRIBUNAL AND AS SUCH THE MATT ER IN ISSUE REACHED FINALITY BETWEEN BOTH THE PARTIES. SINCE TH E ISSUE IS SAME AND NO SPECIFIC FINDING IS GIVEN BY THE AO IN THE A SSESSMENT YEARS UNDER APPEAL BECAUSE HE HAS MERELY FOLLOWED THE REA SONS GIVEN IN ASSESSMENT YEAR 2004-05 WHICH NO LONGER SURVIVE, WO ULD NOT BE A VALID GROUND TO SUSTAIN THE ADDITION. IT IS WELL SE TTLED LAW THAT REVENUE AUTHORITIES SHALL HAVE TO FOLLOW THE RULE OF CONSIS TENCY. WE ARE FORTIFIED IN OUR VIEW BY THE JUDGMENT OF THE HONBL E M. P. HIGH COURT IN THE CASE OF GODAVARI CORPORATION LTD., 156 ITR 8 35, JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF RADHASWAMY SATSANG, 100 CTR 267, JUDGMENT OF THE HONBLE SUPREME COURT IN T HE CASE OF SATISH RAMANLAL SHAH, 249 ITR 221 AND THE JUDGMENT OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF VIKASH C HEMI GUM INDIA, 276 ITR 32. CONSIDERING THE ABOVE DISCUSSIO NS, WE DO NOT JUSTIFY THE ORDERS OF THE AUTHORITIES BELOW IN MAKI NG OR SUSTAINING THE ADDITIONS ON THIS ISSUE. WE ACCORDINGLY SET ASIDE T HE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ADDITIONS. IN THE RESULT, GROUNDS NO.1 AND 2 OF THE APPEALS OF THE ASSESSEE IN BOTH THE AS SESSMENT YEARS ARE ALLOWED. ITA NO.254 AND 255/AHD/2011 COSMIC DRUGS & CHEMICALS PVT. LTD. VS DCIT, CIRCLE- 1 (1), BARODA 5 6. GROUND NO.3 IN BOTH THE APPEALS IS REGARDING LEV Y OF INTEREST U/S 234B AND 234D OF THE IT ACT WHICH ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE ARE MANDATORY AND CONSEQUE NTIAL IN NATURE AND ARE ACCORDINGLY DISMISSED. 7. GROUND NO.4 IN BOTH THE APPEALS IS REGARDING INI TIATION OF PENALTY PROCEEDINGS U/S 271 (1) (C) OF THE IT ACT W HICH IS DIFFERENT PROCEEDINGS AND IS PREMATURE AND AS SUCH REJECTED. 8. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR, ITAT, AHMEDABAD