The DCIT, Circle-1(1), Baroda V. Banco Aluminium Ltd., Baroda

ITA 2545/AHD/2012

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6310 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 4 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-04-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 21-02-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 08-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: OM PRAKASH MEENA
• Assessee Lawyers: MILAN MEHTA
• Keywords: Depreciation; Question of law; Revenue expenditure; Capital expenditure
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH BEFORE: SHR I RAJPAL YADAV , JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER BANCO ALUMINIUM LTD. BILL, NEAR BHAILI RAILWAY STATION, PADRA ROAD, BARODA - 391410, PAN: AAACB8629B (APPELLANT) VS THE DCIT, CIRCLE - 1(1), AAYKAR BHAVAN, RACE COURSE, VADODARA (RESPONDENT) THE DCIT, CIRCLE - 1(1), AAYKAR BHAVAN, RACE COURSE, VADODARA (APPELLANT) VS BANCO ALUMINIUM LTD. BILL, NEAR BHAILI RAILWAY STATION, PADRA ROAD, BARODA - 391410, PAN: AAACB8629B (RESPONDENT) REVENUE BY : S H RI OM PRAKA SH MEENA , SR. D . R. ASSESSEE BY: S H RI MILAN MEHTA , A.R. DATE OF HEARING : 21 - 02 - 2 017 DATE OF PRONOUNCEMENT : 06 - 04 - 2 017 / ORDER I T A NO . 2433 / A HD/20 12 A SSES SMENT YEAR 200 9 - 10 ITA NO. 25 45 /AHD/20 12 A SSESSMENT YEAR 200 9 - 10 I.T.A NO. 2433 & 25 45 /AHD/2012 A.Y. 2009 - 10 PAGE NO BANCO ALUMINIUM LTD. VS. DCIT 2 P ER : AMARJIT SINGH, ACCOUNTANT MEMBER : - THIS CROSS APPEAL FILED BY ASSESSEE AND REVENUE FOR A.Y. 2009 - 10 , AR I SE FROM ORDER O F THE CIT(A) - I, BARODA DATED 23 - 08 - 2012 IN APPEAL NO. CAB / I/307/11 - 12 , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . ITA NO. 2433/AHD/2012 (ASSESSEE S APPEAL) 2. THE ASSESSEE HAS RAISE D FOLLOWING SUBSTANTIVE GROUND OF APPEAL: - 1. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN CONSIDERING CO NSUMPTION OF MACHINERY SPARES OF RS.13,49,877/ - AS CAPITAL EXPENDITURE INSTEAD OF REVENUE EXPENDITURE. 2 . THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMING THE AC TION OF THE A.O. IN DISALLOWING DEDUCTION U/S. 80IB(4) OF THE INCOME TAX ACT, 1961 AMOUNTING TO RS. 37,80,015/ - . 3. IN THIS CASE THE RETURN OF INCOME DECLARING INCOME OF RS.3, 03,11,580 WAS FILED ON 28TH OF SEPTEMBER 2009. SUBSEQUENTLY THE CASE WAS SELECTED UNDER SCHEDULING BY ISSUING OF A NOTICE UNDER SECTION 143(2) OF THE ACT ON 19T H AUGUST 2010. DURING THE COURSE OF ASSESSMENT PROCEEDINGS T HE ASSESSING OFFICER OBSERVED THAT TOOLS AND SPARES TO MACHINER IES ARE PART OF MACHINER IES . HE ALSO NOTICED THAT THESE ITEMS CANNOT BECOME O BSOLE T E AFTER USE . THERE FORE , THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSSESSEE BY I.T.A NO. 2433 & 25 45 /AHD/2012 A.Y. 2009 - 10 PAGE NO BANCO ALUMINIUM LTD. VS. DCIT 3 CONSIDERING THE EXPENDITURE OF RS. 19,72,210/ - AS CAPITAL EXPENDITURE IN RESPECT OF SPARES TO MACHINERY AFTER ALLOWING DE PRECIATION . 4. AGGRIEVED AGAINST THE ORDER OF THE ASSESSING OFFICER ON THIS ISSUE , THE AS SESSE PREFERRED APPEAL BEFORE THE LD. LD. CIT(A). THE LD. CIT(A) HAD RESTRICTED THE DISALLOWANCE TO THE AMOUNT OF RS. 13, 49 , 877/ - BY OBSERVING AS UNDER: - 2.2.1 GROUND OF APPEAL REGARDING TREATMENT OF CONSUMPTION OF MACHINERY SPARES AS CAPITAL EXPENDITURE THEREBY MAKING ADDITION OF RS. 19,72,160/ - (NET OF DEPRECIATION) IS NOW TAKEN UP. THE EXPENDITURE IN QUESTION COMPRISED OF 8 ITEMS AS TABULATED ON PAGE 5 OF THE ASSESSMENT ORDER. APPELLANT'S SUBMISSIONS IN THIS REGARD HAVE BEEN CONSIDERED BY ME AND IT IS SEEN THAT SOME OF THE ITEMS WERE NEITHER TOWARDS REPAIRS NOR THE SAME APPEAR TO BE TOWARDS REPLACEMENT OF WORN - OUT PARTS, AS CLAIMED BY APPELLANT. THESE ITEMS APPEAR TO BE FRESH ADDITIONS TO PLANT & MACHINERY. SOME OF THESE ITEMS APPEAR TO BE CAPABLE OF I NDEPENDENT FUNCTIONING AS WELL. SUCH ITEMS ARE ITEM NO. 4 I.E. RECUPERATER FOR MELTING FURNACE (RS.2,22,574/ - ) FOR REDUCING ENERGY CONSUMPTION IN FUEL FIRED FURNACE, ITEM NO.8 I.E. ALIEN BRADLEY MAKE PLC SYSTEM (RS.5,90,135/ - ), IT EM NO.3 I.E. BURNER CONTROLLER, FLAME DETECTOR, BILLET HEATER ETC. (RS.1,49,835/ - ) AND ITEM NO.7 I.E. EXTRUSION TOOL CONTAINER (RS.3,87,333/ - ) - THESE ITEMS CONSTITUTE CAPITAL EXPENDITURE AND CANNOT BE CONSIDERED TO BE TOWARDS 'CURRENT REPAIRS'. IT IS HELD THAT ITEM NOS. 3,4,7 & 8 TOTALLING TO RS.13,49,877/ - WERE RIGHTLY CONSIDERED TO BE OF CAPITAL NATURE BY THE ASSESSING OFFICER. IN RESPECT OF REMAINING ITEMS, APPELLANT'S CONTENTION THAT THE EXPENDITURE WAS TOWARDS SMALL ITEMS, WHICH WERE SPARES OR TOWARD S REPAIRS IS ACCEPTED AND THE EXPENDITURE TOWARDS THE SAME IS HELD TO BE REVENUE EXPENDITURE. ASSESSING OFFICER IS DIRECTED TO MODIFY THE ADDITION MADE ACCORDINGLY. 5. DURING THE COURSE OF APPELLATE PROCEEDINGS, LD. COUNSEL CONTENDED THAT THESE ARE THE P ARTS/SPARES AND NOT A CAPITAL ITEMS. I.T.A NO. 2433 & 25 45 /AHD/2012 A.Y. 2009 - 10 PAGE NO BANCO ALUMINIUM LTD. VS. DCIT 4 ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF THE LD. CIT(A). 6. AFTER HEARING BOTH THE SIDES AND PERUSAL OF MATERIAL ON RECORD, WE HAVE GONE THROUGH THE DETAILS PERTAINING TO THE SP ECIFIC NATURE OF MACHINE PARTS AS PER AVAILABLE ON RECORD. WE COULD NOT FIND ANY CONCRETE SPECIFICATION INDICATING THAT ALL THESE PARTS/SPARES ARE NOT A CAPITAL ITEMS. WE FIND THAT THE LD. CIT(A) HAS PROVIDED COMPLETE ANALYSIS OF FUNCTIONING OF THESE ITE MS AND HE HAS RESTRICTED THE ADDITION TO THE AMOUNT OF RS. 13,49,877/ - AFTER TREATING THE EXPENDITURE TOWARDS SMALL ITEMS, SPARE/REPAIR AS REVENUE EXPENDITURE, THEREFORE, WE DISINCLINED TO INTERFERE IN THE FINDINGS OF THE LD. CIT(A). GROUND NO. 2 7. THI S GROUND APPEAL OF THE ASSESSEE SIMILAR TO THE GROUND OF APPEAL WE HAVE DECIDED IN FAVOUR OF THE ASSESSEE IN THE CASE OF BANCO PRODUCT INDIA LTD.FOR A.Y.2008 - 09. THE LD. COUNSEL OF THE ASSESSEE HAS CONTENDED THAT THIS ISSUE IN QUESTION WAS COVERED IN FAVOU R OF THE ASSESSEE BY THE DECISION OF THE ITAT, AHMEDABAD IN THE CASE OF ALEMBIC LTD AND THE HON BLE HIGH COURT OF GUJARAT ISSUE IN THE CASE OF ALEMBIC LTD IN TAX APPEAL NO. 471 OF 2009. IN THIS CONNECTION, WE HAVE NOTICED THAT CO - ORDINATED BENCH OF ITAT A HMEDABAD VIDE ITA NO. 1912/AHD/2012 DATED 09 - 12 - 2016 IN THE CASE OF ALEMBIC LTD ON THE SIMILAR ISSUE HAS DECIDED AS UNDER: - I.T.A NO. 2433 & 25 45 /AHD/2012 A.Y. 2009 - 10 PAGE NO BANCO ALUMINIUM LTD. VS. DCIT 5 17.1 LD. COUNSEL FOR THE ASSESSEE CONTENDS THAT THE ISSUE IN QUESTION STANDS COVERED IN FAVOUR OF THE ASSESSEE IN ITS OWN CASE BY T HE JUDGMENT OF HON BLE GUJARAT HIGH COURT VIDE A CONSOLIDATED ORDER DATED 20.07.2016 IN TAX APPEAL NO. 471 TO 474 OF 2009, IN TAX APPEAL NO. 471 AND 473, THE COMMON QUESTION OF LAW REFERRED TO BY THE REVENUE IS AS UNDER: - WHETHER THE APPELLATE TRIBUNAL WAS RIGHT IN LAW AND ON FACTS IN NOT APPRECIATING THAT DEDUCTION U/S 80IA(4) IS NOT ALLOWABLE TO THE ASSESSEE FOR GENERATING POWER FOR CAPTIVE CONSUMPTION? 17.2 THE ITAT ALLOWED THE ASSESSEE S CLAIM U/S 80IA(4) AT THE RATE OF SELLING PRICE CHARGED BY GU JARAT STATE ELECTRICITY BOARD AND OTHER DISTRIBUTING COMPANIES FROM ITS CAPTIVE POWER PLANT. AGAINST THE ORDER OF THE TRIBUNAL, THE REVENUE PREFERRED THE APPEAL BEFORE THE HON BLE GUJARAT HIGH COURT AND THE ABOVE QUESTION OF LAW WAS FRAMED. THE HON BLE GUJARAT HIGH COURT WHILE HOLDING IN FAVOUR OF ASSESSEE, RELIED ON A HOST OF JUDGMENTS INCLUDING ACIT, BHARUCH CIRCLE, BHARUCH VS. PRAGATI GLASS WORKS PVT LTD DECIDED ON 25.09.2012 AND CIT VS. SHAH ALLOYS LTD, DECIDED ON 22.11.2011 IN TAX APPEAL NO.2092 OF 2010. THE HON BLE GUJARAT HIGH COURT FURTHER RELIED ON THE JUDGMENT OF CALCUTTA HIGH COURT IN THE CASE OF CIT VS. KANORIA CHEMICALS & INDUSTREIS LTD, [2013] 35 TAXMANN.COM 566 (CALCUTTA), WHEREIN THE COURT HAS HELD AS UNDER: - IT IS PRICE AT WHICH ASSES SEE TRANSFERRED ELECTRICITY GENERATED BY IT ELIGIBLE BUSINESS TO ITS OTHER BUSINESS WHICH WOULD BE CONSIDERED FOR PURPOSE OF COMPUTATION OF PROFITS AND GAINS OF ELIGIBLE BUSINESS IN TERMS OF SECTION 80 - IA(8) AND NOT LESSER PRICE AT WHICH SURPLUS ELECTRICIT Y WAS SOLD TO ELECTRICITY BOARD. 17.3 RELYING ON ALL THESE JUDGMENTS, BY DETAILED OBSERVATIONS, THE HON BLE GUJARAT HIGH COURT UPHELD THE CLAIM OF THE ASSESSEE AND DISMISSED THE REVENUE S GROUND IN THIS BEHALF BY FOLLOWING OBSERVATIONS: - 11. WE HAVE CO NSIDERED THE SUBMISSIONS MADE BY THE LEARNED COUNSEL FOR THE PARTIES. WE HAVE ALSO CONSIDERED THE CASE LAWS CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE. TAKING INTO CONSIDERATION THE JUDEMENTS OF THIS COURT AND OTHER HIGH COURTS, CITED ABOVE, WE ARE OF T HE OPINION THAT THE TRIBUNAL HAS RIGHTLY ALLOWED THE CLAIM OF THE ASSESSEE. IN THAT VIEW OF THE MATTER, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF I.T.A NO. 2433 & 25 45 /AHD/2012 A.Y. 2009 - 10 PAGE NO BANCO ALUMINIUM LTD. VS. DCIT 6 THE TRIBUNAL. THEREFORE, WE ANSWER QUESTION (C) AND (D) IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 17.4 THE LD. DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE AUTHORITIES BELOW. 18. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IN VIE W OF THE HON BLE GUJARAT HIGH COURT JUDGMENT ON THE SAME ISSUE IN ASSESSEE S OWN CASE, THE ISSUE IN QUESTION THAT THE ASSESSEE IS ELIGIBLE FOR COMPUTATION OF DEDUCTION U/S 80IA(4) ON THE RATES CHARGED BY IT AT SELLING PRICE IS NO MORE RES INTEGRA. RESPECT FULLY FOLLOWING THE HON BLE GUJARAT HIGH COURT JUDGMENT IN ASSESSEE S OWN CASE (SUPRA), THIS GROUND OF THE ASSESSEE IS ALLOWED. 8. WE HAVE ALREADY DECIDED THE SIMILAR MATTER IN FAVOUR OF ASSESSEE IN THE A.Y.2008 - 09 IN THE CASE OF BANCO ALUMINIUM LTD.. IN VIEW OF THE ABOVE STATED FACTS AND LEGAL FINDINGS, RESPECTFULLY FOLLOWING THE HON BLE GUJARAT HIGH COURT IN THE CASE OF ALEMBIC LTD. AS SUPRA WE ALLOW THIS GROUND OF THE ASSESSEE . 9. THE GROUNDS NUMBER 3 TO 4 ARE CONNECTED TO THE GROUND NUMBER 2 AS ADJUDICATED ABOVE AND GROUNDS OF APPE AL 5 TO 6 ARE OF GENERAL NATURE. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. I TA NO. 25 45/AHD/2012 (REVENUE S APPEAL) 11 . THE REVENUE HAS RAISED FOLLOWING SUBSTANTIVE GROUND OF APPEAL: - I.T.A NO. 2433 & 25 45 /AHD/2012 A.Y. 2009 - 10 PAGE NO BANCO ALUMINIUM LTD. VS. DCIT 7 1(A) . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID CIT (APPEALS) ERRED IN TREATING THE EXPENDITURE OF RS. 74,45,539/ - ON DIES AND TOOLS AS REVENUE EXPENDITURE INSTEAD OF CAPITAL EXPENDITURE WITHOUT APPRECIATING THAT THESE ARE PARTS OF T HE MACHINERY IN VIEW OF THE NATURE OF BUSINESS OF THE ASSESSEE WHEREIN THE ASSESSEE HAS TO KEEP THE DIES FOR CERTAIN SPECIFICATION AND DESIGN AND THUS, THEY DO NOT LOSE ITS IDENTITY AFTER UTILIZATION. 1(B). THE ID. CIT(A) ERRED IN DELETING THE ADDITION ON THE GROUND THAT THESE ARE HAVING SHORT LIFE WITHOUT APPRECIATING THAT USEFUL LIFE OF THE ASSETS MAY BE CRITERIA FOR PRESCRIBING THE RATE OF DEPRECIATION, BUT IT CANNOT BE REGARDED TO BE CRITERIA FOR DECIDING WHETHER THE EXPENDITURE ON THE ASSET IS REVENUE OR CAPITAL NATURE. 12 . THE ASSESSING OFFICER HAD MADE ADDITION OF RS. 74,45,539/ - TREATING EXPENSES CLAIMED ON DIES AND TOOLS AS REVENUE EXPENSES. THE LD. CIT(A) HAD DELETED THE ADDITION MADE BY THE ASSESSING OFFICER BY OBSERVING AS UNDER: - 2.2 I HAVE CONSIDERED FACTS OF THE CASE AND APPELLANT'S SUBMISSIONS. APPELLANT IS IN THE BUSINESS OF MANUFACTURING ALUMINUM EXTRUDED SECTIONS REQUIRING USE OF DIES OF DIFFERENT SIZES AS PER CUSTOMER'S SPECIFICATIONS. DUE TO FREQUENT CHANGE IN DESIGN OF PRODUCTS AND HEAVY WEAR & TEAR AT THE TIME OF, USE, LIFE OF DIES & TOOLS UNDER CONSIDERATION WAS VERY SHORT. APPELLANT HAD ALL ALONG CLAIMED CONSUMPTION OF DIES AS REVENUE EXPENDITURE AND THERE WAS NO MAJOR CHANGE IN THE COST OF DIES & TOOLS AS A PROPORTION OF TURNOVER IN THE YEAR UNDER APPEAL VIS - A - VIS PRECEDING YEAR, WHERE NO SUCH DISALLOWANCE WAS MADE IN THE ASSESSMENT. AS POINTED OUT BY APPELLANT, PROCEEDINGS U/S. 263 ON THIS ISSUE WERE DROPPED BY CIT FOR A.Y. 1996 - 97 AND DISALLOWANCE ON THIS ISSUE IN A.Y.1997 - 98, M ADE BY THE A.O. WAS CANCELLED BY CIT(APPEALS). THEREAFTER, APPELLANT'S TREATMENT OF CONSUMPTION OF DIES & TOOLS AS REVENUE EXPENDITURE HAS BEEN ACCEPTED BY THE REVENUE IN SUCCEEDING ASSESSMENT YEARS. CONSIDERING THE FACT THAT DIES & TOOLS WERE OF CONSUMABL E NATURE DUE TO HAVING SHORT LIFE AND IN EARLIER YEARS ACCEPTED BY REVENUE TO BE SO, IT IS HELD THAT EXPENDITURE ON DIES & TOOLS WAS OF REVENUE NATURE. ADDITION OF RS.74,45,539/ - ON THIS COUNT IS DELETED. I.T.A NO. 2433 & 25 45 /AHD/2012 A.Y. 2009 - 10 PAGE NO BANCO ALUMINIUM LTD. VS. DCIT 8 1 3 . DURING THE COURSE OF APPELLATE PROCEEDINGS, T HE LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF THE ASSESSING OFFICER. ON THE OTHER HAND, LD. AUTHORIZED REPRESENTATIVE SUPPORTED THE ORDER OF THE LD. CIT(A) AND CONTENDED THAT CONSUMPTION OF DIE AND TOOLS ARE OF THE NATURE OF REVENUE EXPENDITUR E. 1 4 . WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD. WE NOTICED THAT IN THE BUSINESS OF MANUFACTURING ALUMINUM THERE IS A REQUIR EMENT OF US ING DIES OF DIFFERENT SIZES. WE FURTHER NOTICED THAT THE SIMILAR ISSUE WAS RAISED IN THE DEPAR TMENT PROCEEDINGS U/S. 263 FOR ASSESSMENT YEAR 1996 - 97 WHICH WAS DROPPED AND FOR THE ASSESSMENT YEAR 1997 - 98 THE LD. CIT(A) HAD DELETED THE SIMILAR ADDITION . AFTER C ONSIDERING ABOVE MENTIONED FACTS AND FI NDINGS WE FIND THAT IT HAS BEEN ESTABLISHED THAT DIES TOOLS WERE OF CONSUMABLE NATURE HAVING SHORT SPAN OF LIFE . WE HAVE ALSO CONSIDERED THAT IN EARLIER YEARS THESE FACTS WERE ACCEPTED BY THE REVENUE , THEREFORE , WE DISMISS THE APPEAL OF THE RE V ENUE. 15 . IN THE COMBINED RESULT , THE APPEAL OF THE ASSESSE E IS PARTLY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 06 - 04 - 201 7 SD/ - SD/ - ( RAJPAL YADAV ) ( AMARJIT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 06 /04 /2017 I.T.A NO. 2433 & 25 45 /AHD/2012 A.Y. 2009 - 10 PAGE NO BANCO ALUMINIUM LTD. VS. DCIT 9 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,