Siemens Limited, Mumbai V. DCIT, CHENNAI

ITA 285/CHNY/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8966 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2016
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 09-06-2016
• Assessment Year: 2003-2004
• Appeal Filed On: 12-02-2016
• Court: TRIBUNAL
• Department Lawyers: VIVEKANDANCIT
• Assessee Lawyers: N DEVANATHAN
• Keywords: Principle of natural justice; Revenue expenditure; Capital expenditure
• Section: 143(3); 263

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI , ! ' . #$ % &' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ITA NO.1186/MDS./2008 / ASSESSMENT YEAR : 2003-04 M/S.SIEMENS BUILDING TECHNOLOGIES PVT LTD ., C/O.SIEMENS LTD.,SUCCESSOR, 272/688,ANNA SALAI, SEETHAKATHI BUSINESS CENTRE,CHENNAI 600 006 VS. THE COMMISSIONER OF INCOME TAX I, CHENNAI -34. [PAN AAACD 1235 B ] ( () / APPELLANT) ( *+() /RESPONDENT) I.T.A.NO.285/MDS./2016 / ASSESSMENT YEAR : 2003-04 M/S.SIEMENS BUILDING TECHNOLOGIES PVT LTD ., C/O.SIEMENS LTD.,SUCCESSOR, 272/688,ANNA SALAI, SEETHAKATHI BUSINESS CENTRE,CHENNAI 600 006 VS. DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-6(2), CHENNAI-34. [PAN AAACD 1235 B ] ( () / APPELLANT) ( *+() /RESPONDENT) ITA NO.285/MDS./2016 ITA NO.1186/MDS./2008 :- 2 -: / APPELLANT BY : MR.N.DEVANATHAN,ADVOCATE /RESPONDENT BY : MR.VIVEKANDAN,CIT DR / DATE OF HEARING : 09 - 06 - 201 6 / DATE OF PRONOUNCEMENT : 29 - 06 - 2016 , / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THE APPEAL OF THE ASSESSEE IN ITA NO.1186/MDS./20 08 IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF I NCOME-TAX, CHENNAI-1 DATED 28.03.2008 PASSED U/S.263 OF THE AC T PERTAINING TO ASSESSMENT YEAR 2003-04 AND ANOTHER APPEAL NO. ITA NO.285/MDS./2016 BY THE ASSESSEE ARE DIRECTED AGAIN ST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(A)-15, CHENN AI DATED 18.11.2015 PASSED CONSEQUENT TO ORDER U/S. 143(3) R .W.S.263 OF THE ACT PERTAINING TO ASSESSMENT YEAR 2003-04. SINCE IS SUES INVOLVED IN BOTH THE ASSESSEES APPEALS ARE COMMON IN NATURE, T HESE APPEALS ARE CLUBBED TOGETHER, HEARD TOGETHER, DISPOSED OFF BY T HIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. ORIGINALLY, THE AO WHILE FRAMING THE ASSESSMEN T ORDER U/S.143(3) OF THE ACT VIDE ORDER DATED 31.03.2006 A LLOWED PROFESSIONAL CHARGES INCURRED FOR THE ISSUE OF OPTIONALLY FULLY CONVERTIBLE DEBENTURES AT ` 40 LAKHS. ACCORDING TO CIT IN HIS ORDER DATED 28.0 3.2008 PASSED U/S.263 OF THE ACT OBSERVED THAT THE SAID EXPENDITU RE IS A CAPITAL EXPENDITURE IN VIEW OF THE JUDGMENT OF SUPREME COUR T IN THE CASE OF ITA NO.285/MDS./2016 ITA NO.1186/MDS./2008 :- 3 -: BROOKE BOND INDIA LTD REPORTED IN 225 ITR 798(SC). AS THE ASSESSEE IS INITIALLY ISSUED 1% OF OPTIONALLY CONVERTIBLE DEBEN TURES, THESE WERE WITHIN FEW MONTHS CONVERTED INTO EQUITY SHARES AND SHARE PREMIUM. THE INTENTION OF ASSESSEE WAS TO ISSUE THROUGH EQUI TY SHARES AS SUCH HE SET ASIDE THE ASSESSMENT ORDER AND DIRECTED THE AO TO CONSIDER AS CAPITAL EXPENDITURE. CONSEQUENT TO THE DIRECTION O F THE CIT U/S.263 OF THE ACT, THE AO PASSED CONSEQUENTIAL ORDER U/S.143( 3) R.W.S263 OF THE ACT ON 26.12.2008. AGAINST THIS CONSEQUENTIAL ORDE R, ASSESSEE CARRIED THIS APPEAL BEFORE THE CIT(A). THE CIT(A) CONFIRME D THE ACTION OF THE AO VIDE ITS ORDER DATED 18.11.2015. AGAINST THE ORD ER OF CIT PASSED U/S.263 OF THE ACT AS WELL AS ORDER OF CIT(A) PASSE D CONSEQUENT TO THE ORDER UNDER SEC.263 OF THE ACT, THE ASSESSEE IS IN APPEAL BEFORE US. 3. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE MAIN PLEA OF THE LD.A.R IS THAT THE EXP ENDITURE INCURRED FOR RAISING THE DEBENTURE IS A REVENUE EXPENDITURE AND IT CANNOT BE EQUATED TO EXPENDITURE INCURRED FOR RAISING THE SHA RE CAPITAL. FOR THIS PURPOSE, HE RELIED ON THE JUDGMENTS OF MADRAS HIGH COURT IN THE CASE OF CIT VS. SOUTHERN PETROCHEMICAL INDUSTRIES CORPOR ATION LTD. REPORTED IN 311 ITR 212(MAD.), IN CIT VS. SRI MEENAKSHI MILL S LTD REPORTED IN (2007) 290 ITR 107(MAD.) AND IN CIT VS. INDIA CEMEN TS LTD., REPORTED IN 47 ITR 438(MAD.). FURTHER, LD.A.R PLACED RELIANC E IN THE JUDGMENT OF APEX COURT IN THE CASE OF INDIA CEMENTS LTD. VS. CI T REPORTED IN 60 ITA NO.285/MDS./2016 ITA NO.1186/MDS./2008 :- 4 -: ITR 52 SC AND THE JUDGMENT OF MADRAS HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX (APPEALS) VS. L&T INFRAS TRUCTURE DEVELOPMENT PROJECTS LTD. IN TC NO.87/2010 DATED 03 .06.2013. 3.1 REGARDING INVOKING THE PROVISIONS OF THE SECTI ON 263 OF THE ACT, IN OUR OPINION, THIS IS COVERED AGAINST THE ASSESSE E BY JUDGMENT IN THE CASE OF SIEMENS ENGINEERING AND MANUFACTURING LTD V S. UOI REPORTED IN AIR 1976 SC 1785. IT IS SETTLED LAW THAT WHILE M AKING ASSESSMENT ON ASSESSEE, THE ITO ACTS IN A QUASI-JUDICIAL CAPAC ITY. AN ASSESSMENT ORDER IS AMENABLE TO APPEAL BY THE ASSESSEE AND TO REVISION BY THE COMMISSIONER UNDER SECTIONS 263 AND 264. THEREFORE, A REASONED ORDER ON A SUBSTANTIAL ISSUE IS LEGALLY NECESSARY. THE JUDGMENTS ON WHICH RELIANCE WAS PLACED BY THE LEARNED COUNSEL FO R THE ASSESSEE ALSO POINTS TO THE SAME DIRECTION. THEY HAVE HELD THAT O RDERS, WHICH ARE SUBVERSIVE OF THE ADMINISTRATION OF REVENUE, MUST B E REGARDED AS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE R EVENUE. IF THE ASSESSING OFFICERS ARE ALLOWED TO MAKE ASSESSMENTS IN AN ARBITRARY MANNER, AS HAS BEEN DONE IN THE CASE BEFORE US, THE ADMINISTRATION OF REVENUE IS BOUND TO SUFFER. IF WITHOUT DISCUSSING T HE NATURE OF THE TRANSACTION AND MATERIALS ON RECORD, THE ASSESSING OFFICER HAD MADE CERTAIN ADDITION TO THE INCOME OF THE ASSESSEE, THE SAME WOULD HAVE BEEN CONSIDERED ERRONEOUS BY ANY APPELLATE AUTHORIT Y AS BEING VIOLATIVE OF THE PRINCIPLES OF NATURAL JUSTICE WHIC H REQUIRE THAT THE ITA NO.285/MDS./2016 ITA NO.1186/MDS./2008 :- 5 -: AUTHORITY MUST INDICATE THE REASONS FOR AN ADVERSE ORDER. WE FIND NO REASON WHY THE SAME VIEW SHOULD NOT BE TAKEN WHEN A N ORDER IS AGAINST THE INTERESTS OF THE REVENUE. AS A MATTER O F FACT SUCH ORDERS ARE PREJUDICIAL TO THE INTERESTS OF BOTH THE PARTIE S, BECAUSE EVEN THE ASSESSEE IS DEPRIVED OF THE BENEFIT OF A POSITIVE F INDING IN HIS FAVOUR, THOUGH HE MAY HAVE SUFFICIENTLY ESTABLISHED HIS CAS E. 3.2. IN VIEW OF THE FOREGOING, IT CAN SAFELY BE SA ID THAT AN ORDER PASSED BY THE ASSESSING OFFICER BECOMES ERRONEOUS A ND PREJUDICIAL TO THE INTERESTS OF THE REVENUE UNDER SECTION 263 IN T HE FOLLOWING CASES: (I) THE ORDER SOUGHT TO BE REVISED CONTAINS ERROR OF REASONING OR OF LAW OR OF FACT ON THE FACE OF IT. (II) THE ORDER SOUGHT TO BE REVISED PROCEEDS ON INCORREC T ASSUMPTION OF FACTS OR INCORRECT APPLICATION OF LAW . IN THE SAME CATEGORY FALL ORDERS PASSED WITHOUT APPLYING THE PRINCIPLES OF NATURAL JUSTICE OR WITHO UT APPLICATION OF MIND. (III) THE ORDER PASSED BY THE ASSESSING OFFICER IS A STEREOTYPE ORDER WHICH SIMPLY ACCEPTS WHAT THE ASSESSEE HAS STATED IN HIS RETURN OR WHERE HE FAILS TO MAKE THE REQUISITE ENQUIRIES OR EXAMINE THE GENUINENESS OF THE CLAIM WHICH IS CALLED FOR IN THE CIRCUMSTANCES OF THE CASE. IN VIEW OF THIS, EXERCISING JURISDICTION U/S.263 O F THE ACT BY CIT IS JUSTIFIED. HOWEVER, ON MERIT, THE ISSUE IN DISPUTE WITH REGARD TO THE EXPENDITURE INCURRED FOR ISSUE OF DEBENTURE WAS COM E BEFORE THE MADRAS HIGH COURT IN THE CASE OF CI VS. FIRST LEASI NG CO. OF INDIA LTD. REPORTED IN [2007] 292 ITR 110 (MAD) WHEREIN H ELD AS FOLLOWS:- ITA NO.285/MDS./2016 ITA NO.1186/MDS./2008 :- 6 -: 12. A DIVISION BENCH OF THIS COURT IN THE CASE OF CIT V. TUBE INVESTMENTS OF (INDIA) LTD. REPORTED IN [2003] 261 ITR 753, HELD THAT PRO-RATA ANNUAL ALLOCATION OF PREMIUM PAYABLE ON REDEMPTION OF DEBENTURES ALLOWED BY THE TRIBUNAL IS IN ACCORDA NCE WITH THE LAW LAID DOWN BY THE APEX COURT IN THE CASE OF MADRAS I NDUSTRIAL INVESTMENT CORPORATION LTD. V. CIT REPORTED IN [199 7] 225 ITR 802. 13. SIMILAR VIEW WAS ALSO TAKEN BY THE CALCUTTA HIG H COURT IN THE CASE OF NATIONAL ENGINEERING INDUSTRIES LTD. V. CIT REPORTED IN [1999] 236 ITR 577 WHEREIN IT HAS BEEN HELD AS FOLL OWS: (HEADNOTE) 'THERE IS NO DISTINCTION BETWEEN A DISCOUNT AND A P REMIUM. THE RESULT IN BOTH IS THAT SOMETHING OVER AND ABOVE THE FACE VALUE AND THE SPECIFIED INTEREST IS PAID, THE ACCOUNTING PROCEDURE IN ONE CASE BEING BY WAY OF A PRELIMINARY DEDUCTION FROM THE MENTIONED AMOUNT, AND THE ACCOUN TING PROCEDURE IN THE OTHER CASE BEING AN ADDITION AT TH E END OVER THE PRESCRIBED AND MENTIONED FACE VALUE AMOUNT . THE EXTRA PREMIUM IS TO BE SPREAD OVER ALL THE YEARS WH ICH ARE OCCUPIED BETWEEN THE DATE OF ISSUE AND THE DATE OF ULTIMATE REDEMPTION.' (EMPHASIS SUPPLIED) 14. APPLYING THE RATIO LAID DOWN IN THE CASE OF MAD RAS INDUSTRIAL INVESTMENT CORPORATION LTD. V. CIT REPORTED IN [199 7] 225 ITR 802 (SC) AND IN THE CONTEXT OF THE RATIO LAID DOWN IN T HE CASE OF NATIONAL ENGINEERING INDUSTRIES LTD. V. CIT REPORTED IN [199 9] 236 ITR 577 (CAL), WHEREUNDER IT IS HELD THAT THERE IS NO DISTI NCTION BETWEEN DISCOUNT AND PREMIUM, THE DISCOUNT ON DEBENTURES AS WELL AS THE PREMIUM PAYABLE ON ACTUAL REDEMPTION ON DEBENTURES IN FUTURE YEARS AND THE EXPENDITURE INCURRED FOR ISSUE OF SUC H DEBENTURES ARE ALL HELD TO BE REVENUE EXPENDITURE, ENTITLED TO BE SPREAD OVER THE PERIOD OF DEBENTURES AND CONSEQUENTLY, ALLOWABLE AS DEDUCTION IN A PARTICULAR ASSESSMENT YEAR. ITA NO.285/MDS./2016 ITA NO.1186/MDS./2008 :- 7 -: IN VIEW OF THIS ON MERIT, THE ISSUE IS REMITTED BAC K TO THE FILE OF LD. ASSESSING OFFICER TO DECIDE AFRESH IN THE LIGHT OF ABOVE JUDGEMENT OF JURISDICTIONAL HIGH COURT. 4. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSE E ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH JUNE, 2016, AT CHENNAI. SD/ - SD/ - ! ' . # $% & ( DUVVURU RL REDDY ) ) % / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER '( / CHENNAI )*+ / DATED: 29 TH JUNE, 2016 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