The DCIT, Circle-1(1), Baroda V. Gujarat Alkalies & Chemicals Ltd., Baroda

ITA 2551/AHD/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 94701 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 31-08-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 08-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Revenue expenditure
• Section: 143(3); 14A; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH AHMEDABAD BEFORE S/SHRI KUL BHARAT, JM, & MANISH BORAD, AM . ITA NO. 2551/AHD/2012 ASST. YEAR: 2009-10 DCIT, CIRCLE-1(1), BARODA. VS GUJARAT ALKALIES & CHEMICALS LTD., PO- PETROCHEMICALS, DIST. BARODA. (APPELLANT) (RESPONDENT) PA NO.AAACG8896M APPELLANT BY SHRI SANJAY AGRAWAL, CIT,DR RESPONDENT BY SHRI SUNIL TALATI, AR DATE OF HEARING: 2/9/2015 DATE OF PRONOUNCEMENT: 19/11/2015 O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER. THIS APPEAL OF REVENUE IS DIRECTED AGAINST THE ORD ER OF CIT(A)- I, BARODA, IN APPEAL NO.CAB-I/283/11-12, DATED 31.8 .2012. ASSESSMENT WAS FRAMED UNDER SECTION 143(3) OF THE I NCOME-TAX AC, 1961 (IN SHORT THE ACT) BY DCIT, CIR.1(1), BARODA, FOR ASST. YEAR 2009-10. FOLLOWING GROUNDS ARE RAISED IN THIS APPEA L BY REVENUE :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) ERRED IN DELETING THE ADDITION OF RS.2,2 6,90,000/- (NET OFF DEPRECIATION) MADE ON ACCOUNT OF DISALLOWA NCE OF EXPENDITURE FOR REPLACEMENT OF RE-MEMBRANING CELLS- II DISREGARDING THE DECISION OF THE HONBLE SUPREME CO URT IN THE CASE OF CIT VS. SARAVANA SPINNING MILLS (P) LTD. (2 007) 293 ITR 201 (SC) ITA NO. 2551/AHD/2012 ASST. YEAR 2009-10 2 2. THE APPELLANT CRAVES LEAVE TO ADD TO, AMEND OR A LTER THE ABOVE GROUNDS AS MAY BE DEEMED NECESSARY. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT ASSESS EE IS A LIMITED COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING AN D TRADING OF CHEMICALS AND GENERATION OF POWER. RETURN OF INCOME WAS FILED ON 23.9.2009 DECLARING TOTAL INCOME OF RS.88,18,01,350 /- AND THEREAFTER THE RETURN OF INCOME WAS REVISED ON 6.9.2010. THE C ASE WAS SELECTED FOR SCRUTINY AND NOTICE U/S 143(2) WAS ISSUED ON 19 .8.2010 AND DULY SERVED. THE ASSESSMENT WAS COMPLETED BY THE ASSESSI NG OFFICER AT A TOTAL INCOME OF RS.162,29,20,947/-. VARIOUS ADDITIO NS WERE MADE BUT THE ISSUE IN THE APPEAL OF REVENUE IS AGAINST DELET ION OF DISALLOWANCE OUT OF REVENUE OF CLAIM OF REPLACEMENT COST OF RE-M EMBRANING IN MEMBRANCE CELLS-III MADE BY LD. CIT(A). 3. DURING ASSESSMENT PROCEEDINGS ASSESSING OFFICER OBSERVED THAT ASSESSEE HAS CLAIMED REPLACEMENT COST OF REMEM BRANING IN MEMBRANCE CELL-II, BARODA AMOUNTING TO RS.7,18,67,0 80/-. LOOKING TO THE NATURE AND VOLUME OF EXPENDITURE AND LIFE OF TH E COMPONENT RANGING BETWEEN 3 TO 5 YEARS, ASSESSING OFFICER DEE MED IT FIT TO TREAT THIS EXPENDITURE OF RS. 7,18,67,080/- AS CAPITAL EX PENDITURE AND ACCORDINGLY AFTER ALLOWING DEPRECIATION OF RS.2,51, 53,478/- FROM THE TOTAL COST OF REMEMBRAINING IN MEMBRANCE CELL-II A T RS. 7,18,67,080/- ADDED RS.4,67,13,601/- (RS. 7,18,67,080/- (-) RS.2, 51,53,478/-) TO THE INCOME OF THE ASSESSEE. AGGRIEVED, ASSESSEE WEN T IN APPEAL BEFORE CIT(A) WHO DELETED THE ADDITION MADE BY ASSE SSING OFFICER ITA NO. 2551/AHD/2012 ASST. YEAR 2009-10 3 FOLLOWING THE DECISION OF CO-ORDINATE BENCH IN APPE LLANTS OWN CASE FOR ASST. YEARS 1999-2000 AND 2000-01. 4. AGGRIEVED, REVENUE IS NOW IN APPEAL BEFORE THE T RIBUNAL. THE LD. DR RELIED ON THE ORDER OF ASSESSING OFFICER AND ALSO REFERRED TO THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F CIT VS. SARAVANA SPINNING MILLS (P) LTD. (2007) 293 ITR 201 (SC). 5. ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE SU BMITTED THAT THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESS EE BY THE HONBLE JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE IN TAX APPEAL NOS.798 & 799 OF 2010 VIDE ORDER DATED 19/01/2015. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. BEFORE EXAMINING THE ISSUE WE WOULD LIKE TO MENTION THAT THERE SEEMS TO BE A MISTAKE IN THE GROUNDS OF APPEA L TAKEN UP BY THE REVENUE IN RELATION TO AMOUNT MENTIONED. THE ADDITI ON MADE BY ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF REV ENUE OF CLAIM ON REPLACEMENT COST OF REMEMBRAINING IN MEMBRANCE CELL -II IS AT RS.4,67,13,601/- WHEREAS THE AMOUNT MENTIONED BY TH E REVENUE IN ITS GROUND NO.1 FOR THE IMPUGNED DELETION IS RS.2,2 6,90,000 (NET OFF DEPRECIATION) AND THAT AMOUNT OF DISALLOWANCE MADE BY ASSESSING OFFICER U/S 14A AS PER PARA 4 OF HIS ORDER AT RS. R S.2,26,90,000/- HAS BEEN WRONGLY INSERTED IN THIS GROUND AND THE SAME N EEDS TO BE REPLACED BY CORRECT FIGURE I.E. RS.4,67,13,601/-. T HE LD. DR HAS ACCEPTED THE MISTAKE AND NOW WE PROCEED WITH THE GR OUND OF REVENUE AGAINST ACTION OF CIT(A) IN DELETING THE AD DITION OF RS. ITA NO. 2551/AHD/2012 ASST. YEAR 2009-10 4 RS.4,67,13,601/- MADE ON ACCOUNT OF DISALLOWANCE O F EXPENDITURE FOR REPLACEMENT COST OF REMEMBRAINING IN MEMBRANCE CELL -III. 7. THE ABOVE ISSUE CAME UP BEFORE THE TRIBUNAL IN A SSESSEES OWN CASE FOR ASST. YEAR 2003-04 WHEREIN THE CO-ORDI NATE BENCH DECIDED THE ISSUE IN FAVOUR OF ASSESSEE ON THE BASI S THAT ASSESSING OFFICER HAS HIMSELF ALLOWED THE CLAIM OF ASSESSEE I N ASST. YEARS 1993-94 AND 1995-96. 8. FURTHER SIMILAR ISSUE IN ASSESSEES OWN CASE HAS BEEN DECIDED IN ASSESSEES FAVOUR BY HONBLE JURISDICTIONAL HIGH COURT IN TAX APPEAL NOS.798 & 799 OF 2010 WHEREIN VIDE ORDER DAT ED 19/01/2015, HONBLE COURT HAS ELABORATELY DISCUSSED THE ISSUE A LONG WITH APPLICATION OF FACTS IN ASSESSEES CASE TO THE DECI SION OF HONBLE APEX COURT REFERRED BY LD. DR IN THE CASE OF CIT VS . SARAVANA SPINNING MILLS (P) LTD. (SUPRA). THE RELEVANT PORTI ON OF THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IS REPRODUCED BEL OW :- 8. WE MAY RECORD THAT IN THE DECISION OF THE APEX COURT IN CASE OF SARAVANA SPINNING MILLS P.LTD. (SUPRA), THE APEX CO URT OBSERVED AT PARA 13 ON PAGE 208 AND 209, THE RELEVANT OF WHICH, READS AS UNDER:- 'AN ALLOWANCE IS GRANTED BY CLAUSE (I) OF SECTION 31 IN RESPECT OF AMOUNT EXPENDED ON CURRENT REPAIRS TO MACHINERY, PLANT OR FURNITURE USED FOR THE PURPOSES OF BUSINESS, IRRESP ECTIVE OF WHETHER THE ASSESSEE IS THE OWNER OF THE ASSETS OR HAS ONLY USED THEM. THE EXPRESSION 'CURRENT REPAIRS' DENOTES REPA IRS WHICH ARE ATTENDED TO WHEN THE NEED FOR THEM ARISES FROM THE VIEWPOINT OF A BUSINESSMAN. THE WORD 'REPAIR' INVOL VES RENEWAL. HOWEVER, THE WORDS USED IN SECTION 31(I) A RE 'CURRENT REPAIRS'. THE OBJECT BEHIND SECTION 31(I) IS TO PRE SERVE AND MAINTAIN THE ASSET AND NOT TO BRING IN A NEW ASSET. IN OUR VIEW, ITA NO. 2551/AHD/2012 ASST. YEAR 2009-10 5 SECTION 31(I) LIMITS THE SCOPE OF ALLOWABILITY OF E XPENDITURE AS DEDUCTION IN RESPECT OF REPAIRS MADE TO MACHINERY, PLANT OR FURNITURE BY RESTRICTING IT TO THE CONCEPT OF 'CURR ENT REPAIRS'. ALL REPAIRS ARE NOT CURRENT REPAIRS. SECTION 37(1) ALLO WS CLAIMS FOR EXPENDITURE WHICH ARE NOT OF CAPITAL NATURE. HOWEVE R, EVEN SECTION 37(1) EXCLUDES THOSE ITEMS OF EXPENDITURE W HICH EXPRESSLY FALLS IN SECTIONS 30 TO 36. THE EFFECT IS TO DELIMIT THE SCOPE OF ALLOWABILITY OF DEDUCTIONS FOR REPAIRS TO THE EXTENT PROVIDED FOR IN SECTIONS 30 TO 36. TO DECIDE THE AP PLICABILITY OF SECTION 31(I) THE TEST IS NOT WHETHER THE EXPENDITU RE IS REVENUE OR CAPITAL IN NATURE, WHICH TEST HAS BEEN WRONGLY A PPLIED BY THE HIGH COURT, BUT WHETHER THE EXPENDITURE IS 'CURRENT REPAIRS'. THE BASIC TEST TO FIND OUT AS TO WHAT WOULD CONSTIT UTE CURRENT REPAIRS IS THAT THE EXPENDITURE MUST HAVE BEEN INCU RRED TO 'PRESERVE AND MAINTAIN' AN ALREADY EXISTING ASSET, AND THE OBJECT OF THE EXPENDITURE MUST NOT BE TO BRING A NE W ASSET INTO EXISTENCE OR TO OBTAIN A NEW ADVANTAGE.' AFTER OBSERVING THE AFORESAID, WHEN THE APEX COURT FURTHER EXAMINED THE FACTS OF THE SAID CASE, IT WAS FOUND THAT EACH MACHINE INCLUDING THE RING FRAME WAS AN INDEPENDENT AND SEPARATE MACHINE CAPABLE OF INDEPENDENT AND SPECIFIC FUNCTION AND, THEREFORE, T REATED THE EXPENDITURE AS CAPITAL IN NATURE. SUCH IS NOT THE F ACT SITUATION IN THE PRESENT CASE BECAUSE NO MATERIAL IS REFERRED TO BY THE A.O. NOR BY THE C.I.T. (APPEALS) LEADING TO THE CONCLUSION THAT THE MEMBRANE ITSELF CAN BE TREATED AS A SEPARATE AND INDEPENDENT MACHIN E. UNDER THESE CIRCUMSTANCES, IT APPEARS TO US THAT RELIANCE PLACE D UPON THE DECISION BY THE A.O. WHILE MAKING DEPARTURE FROM THE EARLIER VIEW TAKEN WAS ERRONEOUS. 9. THE TRIBUNAL IN THE IMPUGNED ORDER AT PARAGRAPH NO.11.1 HAS OBSERVED THUS:- '11.1. THE AFORESAID DECISION HAS BEEN FOLLOWED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THEIR SUBSEQUENT DECIS ION IN LALLUDAS CHILDREN TRUST V/S. C.I.T., 251 ITR 50(GUJ ). SIMILAR VIEW HAS BEEN TAKEN IN THE OTHER DECISIONS RELIED U PON ON BEHALF OF THE ASSESSEE AS ALSO IN SEVERAL CASES INCLUDING IN ARIHANT BUILDERS DEVELOPERS & INVESTORS (P) LTD. V. ITAT (2 005) 277 ITR 239 (MP), ASSTT. C.I.T. V/S. GENDALAL HAZARILAL & CO. ITA NO. 2551/AHD/2012 ASST. YEAR 2009-10 6 (2003) 263 ITR 679 (MP), C.I.T. V/S. NEO POLY PACK (P) LTD. (2000) 245 ITR 492 (DELHI), 4. DHANSIRAM AGARWALLA V/S. C.I.T. (1996) 217 ITR 4 (GAUHATI). C.I.T. V/S. SHIV SAGAR ESTATE (2002) 257 ITR 59 (SC). UNION OF INDIA V/S. SATISH PANNALAL SHAH (2001) 249 ITR 221 (SC). IN THE CASE OF CWT V/S. M.K. GUPTA (1990) 185 ITR 393 (DELHI). SINCE I N THE CASE UNDER CONSIDERATION, THE AO HIMSELF HAS ALLOWED THE CLAIM IN THE AY 1993- 94, CREATING THE EXPENDITURE REVENUE I N NATURE WHILE NO CHANGE OF FACTS AND CIRCUMSTANCES HAVE BEE N POINTED OUT ON BEHALF OF THE REVENUE IN THE YEARS UNDER CON SIDERATION, WE ARE OF THE OPINION THAT THE AO IS NOT JUSTIFIED IN DEPARTING FROM HIS PREVIOUS DECISION IN THE AY 1993-94, IN TH E ABSENCE OF MATERIAL CIRCUMSTANCES OR REASONS FOR SUCH DEPARTUR E. THEREFORE, GROUND NO.4 IN THE APPEAL FOR THE AY 199 9- 2000 & GROUND NO.2 IN THE AY 2000-01 ARE ALLOWED. 10. IF THE OBSERVATIONS ARE FURTHER CONSIDERED IN L IGHT OF THE ABOVEREFERRED DECISION OF THE APEX COURT IN CASE OF EXCEL INDUSTRIES LTD. (SUPRA), WE DO NOT FIND THAT THE APPROACH ON T HE PART OF THE DEPARTMENT TO TAKE UP A DIFFERENT STAND IN ABSENCE OF ANY MATERIAL OR VALID REASON COULD BE SAID AS JUSTIFIED. THE CONSIS TENCY EXPECTED ON THE PART OF THE REVENUE IN TAXATION MATTER IS NOT U NKNOWN BUT RATHER IS EXPECTED SO AS TO MAKE THE ASSESSEE AWARE ABOUT THE TAXABLE LIABILITY. WE DO NOT MEAN TO SAY THAT IF THE LEGAL POSITION IS CHANGED OR THERE IS COGENT MATERIAL AVAILABLE, THE REVENUE CANNOT TAKE A DIFFERENT STAND OR MAKE A VALID DEPARTURE BUT AT THE SAME TIME, IN ABS ENCE OF ANY SUCH CIRCUMSTANCES, NAMELY, ANY MATERIAL LEADING TO DIFF ERENT CONCLUSION OR CHANGE IN LEGAL POSITION, THE CONSISTENCY ON THE PA RT OF THE REVENUE SHOULD BE ADHERED TO. 11. THE TRIBUNAL HAS TAKEN THE SAME VIEW ON THE PAR T OF THE CONSISTENCY OF THE DEPARTMENT. HENCE, WE FIND THAT THE SAME CANNOT BE FAULTED WITH. 12. THE ATTEMPT TO CONTEND THAT LIFE OF MEMBRANE WO ULD BE SPREAD OVER FROM 3 TO 5 YEARS OR THAT THE AMOUNT INVOLVED FOR REPLACEMENT OF MEMBRANE IS HUGE AND, THEREFORE, THE DEPARTURE ON T HE PART OF THE REVENUE COULD BE SAID AS JUSTIFIED, IN OUR VIEW, CA NNOT BE COUNTENANCE FOR TWO REASONS. ONE IS THAT THE AMOUNT INVOLVED WOULD NOT MAKE DIFFERENCE FOR CHARGABILITY OF THE TAX BUT THE NATURE OF ITA NO. 2551/AHD/2012 ASST. YEAR 2009-10 7 EXPENDITURE WOULD BE RELEVANT FOR THE CHARGABILITY OF TAX. IT HARDLY MATTERS WHETHER THE AMOUNT IS MORE OR LESS. FURTHER , ON THE ASPECT OF LIFE OF THE MEMBRANE, NOTHING IS REFERRED TO BY THE A.O. NOR BY C.I.T. (APPEALS) THAT EARLIER, SUCH ASPECT, NAMELY, LIFE O F THE MEMBRANE SPREAD OVER FROM 3 TO 5 YEARS WAS NOT CONSIDERED OR IT HAD MISSED OR OTHERWISE. 13. IN THE RESULT, THE QUESTION IS ANSWERED IN FAVO UR OF THE ASSESSEE AGAINST THE REVENUE. HENCE, ORDER PASSED BY THE TRI BUNAL IS NOT INTERFERED WITH. 9. RESPECTFULLY FOLLOWING THE DECISION OF HONBLE J URISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE, WE FIND NO INFIR MITY IN THE ORDER OF CIT(A) AND ACCORDINGLY DELETE THE ADDITION OF RS.4, 67,13,601/- AND IN THE ALTERNATIVE ALLOW THE COST OF REMEMBRAINING IN MEMBRANCE CELL-II AT RS.7,18,67,080/- AS REVENUE EXPENDITURE. THE GRO UND RAISED BY THE REVENUE IS DISMISSED. 10. IN THE RESULT, APPEAL FILED BY THE REVENUE IS D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 15/11/2015 SD/- SD/- (KUL BHARAT) JUDICIAL MEMBER (MANISH BORAD) ACCOUNTANT MEMBER DATED _19/11/2015. MAHATA/- ITA NO. 2551/AHD/2012 ASST. YEAR 2009-10 8 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 ASST. REGISTRAR, ITAT, AHMEDABAD 1. DATE OF DICTATION: 6/11/2015 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 9/11/2015 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 19/11/2015 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: