The Asstt. Commissioner of Income Tax, Circle-1, Bharuch V. M/s. Gujarat Narmada Valley Fertilizers & Chemicals Ltd., Bharuch

ITA 2902/AHD/2016

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 1959 (ITAT-SURAT)
• Duration Of Justice: 1 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-10-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2004-2005
• Appeal Filed On: 08-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 6; 143(3); 250

Judgement Text

ACIT-BHARUCH V. NARMADA VALLEY FERTILIZERS & CHEMICALS LTD. /I.T.A. NO.2902 & 2903 /AHD/2016/A.Y.04-05 & 05-06 PAGE 1 OF 10 , , INCOM TAX APPELLATE TRIBUNAL-SURAT-BENCH-SURAT . . , . . , BEFORE C .M. GARG, JUDICIAL MEMBER AND O. P. MEENA, ACCOUNTANT MEMBER . . ./ I.T.A NOS. 2902 &2903/AHD/2016/SRT /ASSESSMENT YEARS: 2004-05 & 2005-06 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE- 1, BHARUCH. V S . GUJARAT NARMADA VALLEY FERTILIZERS & CHEMICALS LTD., P. O. NARMADA NAGAR, BHARUCH 392 015. [PAN: AAACG 8372 Q] APPELLANT /RESPONDENT ASSESSEE BY SHRI SANJAY R. SHAH, CA REVENUE BY SHRI VINOD KUMAR, SR. D.R. DATE OF HEARING 23.10.2018 DATE OF PRONOUNCEMENT 24 .10.2018 /ORDER PER O. P. MEENA, ACCOUNTANT MEMBER 1. THESE ARE TWO APPEALS AT THE INSTANCE OF THE REVENUE ARE DIRECTED AGAINST AN SEPARATE ORDERS BOTH DATED 22.08.2016 PASSED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-3, VADODARA (IN SHORT THE CIT (A)) FOR THE ASSESSMENT YEAR2004-05 AND 2005-06 RESPECTIVELY. ACIT-BHARUCH V. NARMADA VALLEY FERTILIZERS & CHEMICALS LTD. /I.T.A. NO.2902 & 2903 /AHD/2016/A.Y.04-05 & 05-06 PAGE 2 OF 10 ITA NO.2902/AHD/2016/ FOR A.Y. 2004-05(BY REVENUE): 1. SOLE GROUND RAISED BY THE REVENUE READ AS UNDER : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT (A) ERRED IN HOLDING THAT HUGE MACHINERY WORTH RS.1,36,77,287 WERE REPLACEMENT ITEMS OF EXISTING ASSETS AND HENCE, , DELETING THE ADDITION DISREGARDING THE FINDINGS OF A.O. AND RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS SRI MANGAYARKARASI MILLS (P.) LTD. 315 ITR 114 (SC) WHEREIN LAW WAS DECLARED BY THE APEX COURT THAT REPLACEMENT OF OLD MACHINERIES WITH NEW ONE WOULD CONSTITUTE BRINGING INTO EXISTENCE A NEW ASSET OF ENDURING BENEFIT TO THE ASSESSEE, THUS IS CAPITAL IN NATURE. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE RETURN OF INCOME WAS FILED ON 01.11.2004 DECLARING LOSS OF RS.2,10,08,26,180/-. THE ASSESSMENT WAS MADE UNDER SECTION 143(3) R.W.S. 254 ON 29.12.2006 BY DETERMINING TOTAL INCOME OF RS.3,27,46,19,313/-. AN APPEAL WAS FILED BEFORE THE CIT(A) WHO ALLOWED PART RELIEF. THEREAFTER AN APPEAL WAS FILED BEFORE THE TRIBUNAL. THE ITAT, AHMEDABAD D BENCH VIDE ITS ORDER IN ITA NO.1464/AHD/2007 DATED 30.12.2011 HAS SET-ASIDE THE ISSUE REGARDING DISALLOWANCE OF CAPITAL EXPENDITURE OF RS.1,36,77,287/- TO THE FILE OF THE AO. IN VIEW OF THIS, SET-ASIDE PROCEEDINGS WERE TAKEN UP IN PURSUANCE OF ORDER OF ITAT BY THE AO, AND IT WAS HELD THAT EXPENDITURE OF RS.1,36,77,287/- HAS BEEN INCURRED IN RESPECT OF ASSEMBLY OF ROTOR TURBINE EXPENDITURE INCURRED ON PART OF X-1301 OF TURBINE, EXPENDITURE OF RS.21,53,101/- WERE IN RESPECT OF GEAR SHAFT WITH GEAR PART, RS.35,24,800/- WERE IN ACIT-BHARUCH V. NARMADA VALLEY FERTILIZERS & CHEMICALS LTD. /I.T.A. NO.2902 & 2903 /AHD/2016/A.Y.04-05 & 05-06 PAGE 3 OF 10 RESPECT OF NOZZLE RING WHICH AND EXPENDITURE OF RS.35,02,523/- IN RESPECT OF 415 V., 3 PHH , PMCC FOR CHIP WAS TREATED AS CAPITAL EXPENDITURE ON THE GROUNDS THAT THESE PARTS ARE GIVING ENDURING BENEFITS TO THE ASSESSEE. 3. BEING AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A) WHO AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE HAS OBSERVED THAT THE ASSESSEE HAS FILED CHARTERED ENGINEERING CERTIFYING TURBINE ROTOR ASSEMBLY, GEAR SHAFT WITH GEAR PART , NOZZLES RING , 415 V., 3000A 3 PHH PMCC FOR CHP ARE THE PART OF MAIN MACHINE NOT CAPABLE OF FUNCTIONING INDEPENDENTLY. THE EXPENDITURE ON REPLACEMENT OF ROTOR ASSEMBLY HAS ALREADY BEEN TREATED AS REVENUE EXPENDITURE BY CIT(A) IN THE APPELLANTS OWN CASE FOR A.Y.2010-11 THEREFORE, DELETED THE ADDITION IN RESPECT OF THESE TWO ITEMS CONSIDERING THE SAME AS ALLOWABLE REVENUE EXPENDITURE. THE CIT(A) WAS OF THE VIEW THAT THESE PARTS ARE FOR REPLACEMENT FOR EXISTING PARTS OF THE TURBINES AND NO NEW ASSET HAS COME INTO EXISTENCE. SIMILARLY, WITH REGARD TO GEAR SHAFT, GEAR PART AND NOZZLES WERE HELD TO BE INCURRED FOR REPLACEMENT OF EXISTING ASSETS WHICH HAD BECOME OBSOLETE / GOT DAMAGE AND THEIR REPLACEMENT WAS NECESSARY TO ACIT-BHARUCH V. NARMADA VALLEY FERTILIZERS & CHEMICALS LTD. /I.T.A. NO.2902 & 2903 /AHD/2016/A.Y.04-05 & 05-06 PAGE 4 OF 10 RESTORE THE EXISTING FACILITIES TO THE SMOOTH RUNNING AND ORIGINAL STATE OF EFFICIENCY. FURTHER, SUCH EXPENDITURE WERE ALREADY BEEN HELD TO BE REVENUE EXPENDITURE BY THE CIT(A) IN THE APPELLANTS OWN CASE FOR A.Y. 2010-11. IN VIEW OF THESE FACTS AND THE DECISION QUOTED BY THE APPELLANT, THE AO WAS DIRECTED TO TREAT ABOVE NET EXPENDITURE OF RS.1,36,77,287/- AFTER ALLOWING DEPRECIATION AS REVENUE EXPENDITURE. 4. BEING AGGRIEVED, THE REVENUE FILED THIS APPEAL BEFORE THE TRIBUNAL. THE LD. DEPARTMENTAL REPRESENTATIVE (DR) SUBMITTED THAT THE CIT(A) WAS NOT JUSTIFIED IN TREATING THE CAPITAL EXPENDITURE AS REVENUE EXPENDITURE. FURTHER, THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. SRI MANGAYARKARASI MILLS PVT. LTD. 315 ITR 114 (SC) HAS HELD THAT REPLACEMENT OF OLD MACHINE WITH NEW ONE WILL CONSTITUTE BRINGING INTO EXISTENTIAL OF NEW ASSET OF ENDURING BENEFIT OF THE ASSESSEE. 5. PER CONTRA, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF ITAT, SURAT BENCH IN ITA NO.1363/AHD/2013 FOR A.Y. 2009-10 VIDE PARA 13 TO 17 [PAPER BOOK, PAGE 81-82] AND ORDER OF TRIBUNAL OF SURAT BENCH IN ACIT-BHARUCH V. NARMADA VALLEY FERTILIZERS & CHEMICALS LTD. /I.T.A. NO.2902 & 2903 /AHD/2016/A.Y.04-05 & 05-06 PAGE 5 OF 10 I.T.A.NO. 1060/AHD/2015 A.Y. 2003-04 DTD. 27.09.2018 (COPY FILED) IN ASSESSEE`S OWN CASE. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND FIND THAT THE ISSUE IS COVERED BY THE EARLIER ORDERS OF ITAT IN ITA NO.1363/AHD/2013 DATED 17.05.2018 FOR A.Y.2009-10 AND EARLIER ORDERS AS MENTIONED IN THE ORDER OF TRIBUNAL IN PARA 13 TO 17 WHICH READS AS UNDER: 13. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE INCURRED EXPENSES OF CONSUMPTION AND REPLACEMENT OF STORES AND SPARES OF RS.9,548.68 LAKHS AND CLAIMED THE SAME AS REVENUE EXPENDITURE. HOWEVER, OUT OF THAT, THE ASSESSING OFFICER (AO) HAS DISALLOWED RS.3,00,96,651/- TREATING IT AS CAPITAL EXPENDITURE AFTER ALLOWING THE DEPRECIATION OF RS.45,14,498/- THEREON. THE AO HAS MADE DISALLOWANCE OF NET AMOUNT RS.2,55,82,153/- ON THE GROUND THAT THE ITEMS ARE IN THE NATURE OF INDEPENDENT MACHINE AND AVERAGE LIFE SPAN IS 5 YEARS OR MORE AND IN ONE ITEM LIFE SPAN IS 20 YEARS WHICH SUGGESTS THAT THESE ITEMS CAN BE USED INDEPENDENTLY. 14. THE ASSESSEE WENT IN TO APPEAL BEFORE THE CIT(A). THE CIT(A) AFTER EXAMINING THE FACTS OF THE CASE AND ITEMS OF MACHINERY TO REPLACE COMPONENT AND RELYING ON VARIOUS CASE LAWS EXAMINED THE EXPLANATION OF THE ASSESSEE AND ON THE BASIS OF EXPLANATION FURNISHED BY THE ASSESSEE, DELETED THE ADDITIONS DISALLOWANCE MADE BY THE AO. 15. BEING AGGRIEVED, THE REVENUE HAS FILED THIS APPEAL BEFORE US. THE LD.CIT-DR STRONGLY RELIED ON THE ORDERS OF THE AO. 16. ON THE OTHER HAND, THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS COVERED BY EARLIER YEARS ORDER OF ITAT IN ASSESSEES OWN CASE FOR A.Y. 2008-09. FURTHER IN THE PAST A.Y. 2000-01, 2002-03 WHEN THE MATTER RESTORED TO AO IT WAS ACCEPTED AS REVENUE EXPENDITURE BY AO IN SET-ASIDE PROCEEDINGS (PAGE 8 OF CIT(A) ORDER) AND THE AUTHORISED REPRESENTATIVE (AR) HAS PLACED RELIANCE ON THE DECISION AS RELIED ON BY THE CIT(A) IN PARA 4.3 OF HIS ORDER. 17. WE HAVE CONSIDERED THE FACTS AND PERUSED MATERIAL AVAILABLE ON RECORD AND FOUND THAT THE AO HAS ACCEPTED THIS ISSUE IN ITS SET- ASIDE ASSESSMENT ORDER FOR A.Y. 1999-2000 PASSED U/S.143(3) READ WITH ACIT-BHARUCH V. NARMADA VALLEY FERTILIZERS & CHEMICALS LTD. /I.T.A. NO.2902 & 2903 /AHD/2016/A.Y.04-05 & 05-06 PAGE 6 OF 10 SECTION 250 OF THE ACT DATED 29.12.2009 (PAPER BOOK, PAGE 630 PARA 4.5 OF THE ORDER). SINCE, THE REVENUE HAS ACCEPTED THIS ISSUE IN THE SET- ASIDE ASSESSMENT PROCEEDINGS, THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A). ACCORDINGLY, THIS GROUND OF REVENUE IS DISMISSED. 7. WE ALSO FIND THAT THE ISSUE IS COVERED AGAINST THE REVENUE BY ORDER OF THIS BENCH. SINCE THE ISSUE IS COVERED AGAINST THE REVENUE BY THE ABOVE ORDER OF TRIBUNAL AS WELL AS BY THE TRIBUNAL SURAT BENCH IN I.T.A.NO. 1060/AHD/2015 A.Y. 2003-04 DTD. 27.09.2018. THEREFORE, FOLLOWING THE SAME WE DISMISSED THE APPEAL OF REVENUE ON THIS GROUND. FURTHER, RELIANCE PLACED IN THE CASE OF SRI MANGAYARKASI MILLS (P) LTD (SUPRA) IS NOT APPLICABLE, AS IN THAT CASE REPLACEMENT OF OLD MACHINERY WITH NEW MACHINERY WAS TREATED AS CAPITAL EXPENDITURE, WHEREAS, IN THE INSTANT CASE, THERE IS REPLACEMENT OF DAMAGED PART IN VIEW OF CHARTERED ENGINEERING CERTIFICATE IN RESPECT OF TURBINE ROTOR ASSEMBLY, GEAR SHAFT WITH GEAR PART , NOZZLES RING , 415 V, 3000A 3 PHH PMCC FOR CHP ARE THE PART OF MAIN MACHINE NOT CAPABLE OF FUNCTIONING INDEPENDENTLY, HENCE, FACTS ARE DISTINGUISHABLE. THEREFORE, THE APPEAL OF THE REVENUE IN RESPECT OF GROUND NO.1 IS DISMISSED. 8. IN THE RESULT, APPEAL OF REVENUE FOR A.Y. 2003-04 IS DISMISSED. ITA NO.2903/AHD/2016/ FOR A.Y. 2005-06 (BY REVENUE): ACIT-BHARUCH V. NARMADA VALLEY FERTILIZERS & CHEMICALS LTD. /I.T.A. NO.2902 & 2903 /AHD/2016/A.Y.04-05 & 05-06 PAGE 7 OF 10 9. GROUNDS RAISED BY THE REVENUE READ AS UNDER : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN HOLDING THAT HUGE MACHINERY WORTH RS.1,62, 00,365 WERE REPLACEMENT ITEMS OF EXISTING ASSETS AND HENCE, , DELETING THE ADDITION DISREGARDING THE FINDINGS OF A.O. AND RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS SRI MANGAYARKARASI MILLS (P.) LTD. 315 ITR 114 (SC) WHEREIN LAW WAS DECLARED BY THE APEX COURT THAT REPLACEMENT OF OLD MACHINERIES WITH NEW ONE WOULD CONSTITUTE BRINGING INTO EXISTENCE A NEW ASSET OF ENDURING BENEFIT TO THE ASSESSEE, THUS IS CAPITAL IN NATURE. 10. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE RETURN OF INCOME WAS FILED ON 28.11.2003 DECLARING INCOME OF RS.3,24,79,04,760/-. THE ASSESSMENT WAS MADE U/S.143(3) ON 31.12.2007 BY DETERMINING TOTAL INCOME OF RS.3,37,65,04,740/-. AN APPEAL WAS FILED BEFORE THE CIT(A) WHO ALLOWED PART RELIEF. THEREAFTER AN APPEAL WAS FILED BEFORE THE TRIBUNAL. THE ITAT, AHMEDABAD D BENCH VIDE ITS ORDER IN ITA NO.1464/AHD/2007 DATED 30.12.2011 HAS SET-ASIDE [PARA 19, PAGE 13] THE ISSUE REGARDING DISALLOWANCE OF CAPITAL EXPENDITURE OF RS.1,62,00,365/- TO THE FILE OF THE AO. IN VIEW OF THIS, SET-ASIDE PROCEEDINGS WERE TAKEN UP IN PURSUANCE OF ORDER OF ITAT BY THE AO, AND IT WAS HELD THAT EXPENDITURE OF RS.1,62,00,365/- HAS BEEN INCURRED IN RESPECT OF CONVERSION FOR PUMP BLOCK , SET OF IMPELLERS , NARAXNO WAS TREATED AS CAPITAL EXPENDITURE ON THE GROUNDS THAT THESE PARTS ARE GIVING ENDURING BENEFITS TO THE ASSESSEE. ACIT-BHARUCH V. NARMADA VALLEY FERTILIZERS & CHEMICALS LTD. /I.T.A. NO.2902 & 2903 /AHD/2016/A.Y.04-05 & 05-06 PAGE 8 OF 10 11. BEING AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE LD. CIT (A) WHO AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE HAS OBSERVED THAT THE ASSESSEE HAS FILED CHARTERED ENGINEERING CERTIFYING TURBINE ROTOR ASSEMBLY, GEAR SHAFT WITH CONVERSION FOR PUMP BLOCK, SET OF IMPELLERS AND NARXNO ARE THE PART OF MAIN MACHINE NOT CAPABLE OF FUNCTIONING INDEPENDENTLY. THEREFORE, THE ADDITION IN RESPECT OF THESE THREE ITEMS CONSIDERING THE SAME AS ALLOWABLE REVENUE EXPENDITURE. THE CIT (A) WAS OF THE VIEW THAT THESE PARTS ARE FOR REPLACEMENT FOR EXISTING PARTS OF THE TURBINES AND NO NEW ASSET HAS COME INTO EXISTENCE, HENCE, THESE WERE HELD TO BE INCURRED FOR REPLACEMENT OF EXISTING ASSETS WHICH HAD BECOME OBSOLETE / GOT DAMAGE AND THEIR REPLACEMENT WAS NECESSARY TO RESTORE THE EXISTING FACILITIES TO THE SMOOTH RUNNING AND ORIGINAL STATE OF EFFICIENCY. IN VIEW OF THESE FACTS AND THE DECISION QUOTED BY THE APPELLANT, THE AO WAS DIRECTED TO TREAT ABOVE NET EXPENDITURE OF RS.1,62,00,365/- AFTER ALLOWING DEPRECIATION AS REVENUE EXPENDITURE. 12. THE LD. D.R. VEHEMENTLY SUPPORTED THE ORDER OF THE AO WHEREAS THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF TRIBUNAL ITAT, SURAT BENCH IN ACIT-BHARUCH V. NARMADA VALLEY FERTILIZERS & CHEMICALS LTD. /I.T.A. NO.2902 & 2903 /AHD/2016/A.Y.04-05 & 05-06 PAGE 9 OF 10 ITA NO.1363/AHD/2013 FOR A.Y. 2009-10 VIDE PARA 13 TO 17 [PAPER BOOK, PAGE 81-82] AND ORDER OF TRIBUNAL OF SURAT BENCH IN I.T.A.NO. 1060/AHD/2015 A.Y. 2003-04 DTD. 27.09.2018 (COPY FILED) IN ASSESSEE`S OWN CASE. 13. WE HAVE HEARD THE RIVAL CONTENTIONS AND FIND THAT THE ISSUE IS COVERED BY THE EARLIER ORDERS OF ITAT IN ITA NO.1363/AHD/2013 DATED 17.05.2018 FOR A.Y.2009-10 AND EARLIER ORDERS AS MENTIONED IN THE ORDER OF TRIBUNAL IN PARA 13 TO 17 AND TRIBUNAL OF SURAT BENCH IN I.T.A.NO. 1060/AHD/2015 A.Y. 2003-04 DTD. 27.09.2018 (COPY FILED) IN ASSESSEE`S OWN CASE. SINCE FACTS OF THIS YEAR ARE ALSO SAME AS IN A.Y. 2004-05 AS DISCUSSED ABOVE FOR THE ASSESSMENT YEAR 2004- 05 BY US. THEREFORE, FOLLOWING THE SAME WE DISMISSED THE APPEAL OF REVENUE ON THIS GROUND. FURTHER, RELIANCE PLACED IN THE CASE OF SRI MANGAYARKASI MILLS (P) LTD (SUPRA) IS NOT APPLICABLE, AS IN THAT CASE REPLACEMENT OF OLD MACHINERY WITH NEW MACHINERY WAS TREATED AS CAPITAL EXPENDITURE, WHEREAS, IN THE INSTANT CASE, THERE IS REPLACEMENT OF DAMAGED PART OF CONVERSION FOR PUMP BLOCK , SET OF IMPELLERS, NARAXNO, HENCE, FACTS ARE DISTINGUISHABLE. THEREFORE, THE APPEAL OF THE REVENUE IN RESPECT OF GROUND NO.1 IS DISMISSED. ACIT-BHARUCH V. NARMADA VALLEY FERTILIZERS & CHEMICALS LTD. /I.T.A. NO.2902 & 2903 /AHD/2016/A.Y.04-05 & 05-06 PAGE 10 OF 10 14. IN THE RESULT, APPEAL OF REVENUE FOR A.Y. 2005-06 IS DISMISSED. 15. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED FOR THE ASSESSMENT YEAR 2004-05 AND AZSSESSMENT YEAR 2005-06. 16. THE ORDER PRONOUNCED IN THE OPEN COURT ON 24-10-2018 . SD/- SD/- ( . . /C.M. GARG) ( . . / O.P.MEENA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER / SURAT, DATED : 24 TH OCTOBER , 2018/ O.P.M COPY OF ORDER SENT TO- ASSESSEE/AO/PR. CIT/ CIT (A)/ ITAT (DR)/GUARD FILE OF ITAT. BY ORDER / / TRUE COPY / / ASSISTANT REGISTRAR, SURAT