M/s Prince Alloys P.Ltd, Palakkad V. ACIT, Palakkad

ITA 294/COCH/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52281 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2011
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2005-2006
• Appeal Filed On: 04-05-2010
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRABHA
• Assessee Lawyers: C R HARISH ITP
• Keywords: Depreciation; Unabsorbed depreciation; Revenue expenditure; Capital expenditure
• Section: 80IB; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND SANJAY AROR A, AM I.T.A NO. 294 /COCH/2010 ASSESSMENT YEAR: 2005-06 PRINCE ALLOYS (P) LTD., 9/78, ANAPPURAMKADU, KINASSERY P.O., PALAKKAD. [PAN:AABCP 3680K] VS. THE ADDL. COMMISSIONER OF INCOME TAX, PALAKKAD RANGE, PALAKKAD. (ASSESSEE-APPELLANT) (REVENUE-RESPONDENT ) I.T.A NO. 295 /COCH/2010 ASSESSMENT YEAR: 2005-06 PRINCE ROLLINGS (P) LTD., 9/77, ANAPPURAMKADU, KINASSERY P.O., PALAKKAD. [PAN:AABCP 3680K] VS. THE ADDL. COMMISSIONER OF INCOME TAX, PALAKKAD RANGE, PALAKKAD. (ASSESSEE-APPELLANT) (REVENUE- RESPONDENT) ASSESSEE BY SHRI C.R.HARISH, ITP REVENUE BY MS. S. VIJAYAPRABHA, JR. DR DATE OF HEARING 18/10/2011 DATE OF PRONOUNCEMENT 30/11/2011 O R D E R PER N.R.S.GANESAN;JM BOTH THE APPEALS BY TWO INDEPENDENT ASSESSEES ARE DIRECTED AGAINST TWO INDEPENDENT ORDERS OF THE CIT(A)-V, KOCHI DATED 29 .3.2010 AND PERTAIN TO THE SAME I.T.A. NOS. 294 & 295/COCH/2010 2 ASSESSMENT YEAR 2005-06. SINCE THE ISSUES ARISING FOR CONSIDERATION ARE COMMON IN BOTH THE APPEALS, THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. 2. THE FIRST ISSUE ARISES FOR CONSIDERATION IN BOTH THE APPEALS IS THE DISALLOWANCE OF SERVICE CONNECTION CHARGES PAID TO THE KERALA STATE ELECTRICITY BOAD. SHRI C.R. HARISH, THE LD. REPRESENTATIVE FOR THE ASSESSEE SUBMITTED T HAT THE ASSESSEE HAS PAID ` 1,80,233/- IN I.T.A NO.294/COCH/2010 AND ` 2,80,211/- IN I.T.A. NO.295/COCH/2010 FOR GETTING ELECTRICITY SERVICE CONNECTION UNDER OYEC SCHEME. THE ASSESSING OFFICER DISALLOWED THE ASSESSEES CLAIM OF SERVICE CONNECTION CHARGES ON THE GROUND THAT IT IS A CAPITAL EXPENDITURE. THE ASSESSING OFFICER PLACED RELIANCE ON THE JUDGMENT OF THE CALCUTTA HIGH COURT IN THE CASE OF RAJENDRA KUMAR BACCHAWAT VS. CIT (2005) 276 ITR 567. REFERRING TO THE JUDGMENT OF THE CALCUTTA HIGH COURT, THE LD. REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE PAID DEVELOPMENT CHARGE S FOR THE PURPOSE OF BECOMING A MEMBER OF THE CALCUTTA STOCK EXCHANGE. IN THIS CAS E, THE LD. REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE PAID CHARGES FOR THE PURPOSE OF GETTING ELECTRICITY SERVICE CONNECTION FOR RUNNING THE BUSINESS PROFITA BLY AND PRODUCTIVELY. THEREFORE, THIS JUDGMENT OF THE CALCUTTA HIGH COURT, ACCORDING TO T HE LD. REPRESENTATIVE FOR THE ASSESSEE IS NOT APPLICABLE TO THE FACTS OF THIS CASE. THE LD. REPRESENTATIVE FOR THE ASSESSEE PLACED RELIANCE ON THE JUDGMENT OF THE GAUHATI HIGH COURT IN THE CASE OF CIT VS.MAKHAN SARMAH SAVAPANDIT (1989) 180 ITR 35 AND SUBMITTED THAT THE ASSESSEE INCURRED AN EXPENDITURE OF ` 45,149/- FOR LAYING DOWN ELECTRICITY LINE. THE GAU HATI HIGH COURT AFTER CONSIDERING THE FACTS OF THE CASE, FOUND THAT THE EXPENDITURE INCUR RED BY THE ASSESSEE FOR LAYING DOWN POWER LINE TO THE EXTENT OF ` 45,149/- WAS A REVENUE EXPENDITURE FOR THE PURPOSE OF RUNNING THE FACTORY EFFICIENTLY. A SIMILAR VIEW WA S TAKEN BY THE GUJARAT HIGH COURT IN THE CASE OF CIT VS. KARAMCHAND PREMCHAND PVT. LTD. (1993) 200 ITR 281. ON THE CONTRARY, MS. S. VIJAYAPRABHA, THE LD. DEPARTMENTA L REPRESENTATIVE SUBMITTED THAT THE ASSESSEE PAID THE AMOUNT TO THE ELECTRICITY BOARD FOR OBTAINING ELECTRICITY CONNECTION TO THE FACTORY OUT OF TURN WHICH IS AN ENDURING BENEFI T TO THE ASSESSEE FOR CARRYING ON THE BUSINESS. THEREFORE, THE LD. DEPARTMENTAL REPRESEN TATIVE SUBMITTED THAT THE ASSESSEE CANNOT CLAIM THE SAME AS REVENUE EXPENDITURE. I.T.A. NOS. 294 & 295/COCH/2010 3 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. THE QUESTION ARISES FOR CONSIDERATION IS WHETHER THE EX PENDITURE INCURRED FOR THE PURPOSE OF GETTING SERVICE CONNECTION IS A REVENUE EXPENDITURE OR A CAPITAL EXPENDITURE. THIS ISSUE WAS CONSIDERED BY THE GUJARAT HIGH COURT IN THE CAS E OF CIT VS. KARAMCHAND PREMCHAND PVT. LTD. (SUPRA). THE GUJARAT HIGH COURT AFTER CONSIDERING I TS EARLIER JUDGMENT IN SARABHAI M. CHEMICALS PVT. LTD. VS. CIT (1981) 127 ITR 127 ITR 71 FOUND THAT THE PAYMENT MADE FOR SECURING THE ELECTRICITY POWER SUP PLY WAS ONLY FOR THE PURPOSE OF RUNNING THE PROFIT MAKING STRUCTURE EFFECTIVELY AND TO INCREASE THE PRODUCTIVITY. THEREFORE, THE PAYMENT TOOK THE CHARACTER OF THE RE VENUE EXPENDITURE. IN OUR OPINION, THIS JUDGMENT OF THE GUJARAT HIGH COURT IS SQUARELY APPLICABLE TO THE FACTS OF THE CASE. A SIMILAR VIEW WAS TAKEN BY GAUHATI HIGH COURT ALSO. 4. WE HAVE GONE CAREFULLY THROUGH THE JUDGMENT OF T HE CALCUTTA HIGH COURT IN THE CASE OF RAJENDRA KUMAR BACCHAWAT VS. CIT (SUPRA). IN THE CASE BEFORE THE CALCUTTA HIGH COURT, THE ASSESSEE HAS PAID DEVELOPMENT CHAR GES TO BECOME A MEMBER OF CALCUTTA STOCK EXCHANGE. IT IS NOT A CASE OF GETTING ELECTR ICITY POWER SUPPLY. THEREFORE, IN OUR OPINION, THE JUDGMENT OF THE CALCUTTA HIGH COURT IN THE CASE OF RAJENDRA KUMAR BACCHAWAT VS. CIT (SUPRA) IS NOT APPLICABLE TO THE FACTS OF THE PRESE NT CASE. RESPECTFULLY FOLLOWING THE JUDGEMENTS OF BOTH THE GUJARAT HIGH C OURT IN THE CASE OF CIT VS. KARAMCHAND PREMCHAND PVT. LTD. (SUPRA) AND THE GAUHATI HIGH COURT IN THE CASE OF CIT VS.MAKHAN SARMAH SAVAPANDIT (SUPRA), WE SET ASIDE THE ORDERS OF THE LOWER AUTH ORITIES AND DIRECT THE ASSESSING OFFICER TO ALLOW THE EXPEN DITURE INCURRED BY THE ASSESSEE FOR GETTING THE ELECTRICITY SERVICE CONNECTION AS REVEN UE EXPENDITURE. 5. THE NEXT ISSUE ARISES FOR CONSIDERATION IS THE C OMPUTATION OF DEDUCTION U/S. 80IB OF THE ACT. SHRI C.R. HARISH, THE LD. REPRESENTATI VE FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS ENTITLED TO DEDUCTION U/S. 80IB. ACCO RDING TO THE LD. REPRESENTATIVE, THE CARRY FORWARD LOSS AND BROUGHT FORWARD UNABSORBED DEPRECI ATION COULD NOT BE SET OFF BEFORE ALLOWING DEDUCTION UNDER SECTION 80IB OF THE ACT. REFERRING TO S. 80B (5) OF THE ACT, THE I.T.A. NOS. 294 & 295/COCH/2010 4 LD. REPRESENTATIVE SUBMITTED THAT THE GROSS TOTAL I NCOME MEANS TOTAL INCOME COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT BEFORE MA KING ANY DEDUCTION UNDER CHAPTER VIA. THE TOTAL INCOME IS DEFINED IN SECTION 2(45) OF THE I.T. ACT. ACCORDINGLY, THE LD. REPRESENTATIVE SUBMITTED THAT THE TOTAL INCOME WOUL D MEAN THE TOTAL INCOME COMPUTED IN THE MANNER LAID DOWN IN SECTION 5 OF THE INCOME TA X ACT. THEREFORE, THE LD. REPRESENTATIVE SUBMITTED THAT THE TOTAL INCOME HAS TO BE COMPUTED IN ACCORDANCE WITH S. 32 TO 43D OF THE INCOME TAX ACT. SECTION 72, WHICH PROVIDES FOR CARRY FORWARD LOSS AND UNABSORBED DEPRECIATION, HAVE TO BE CONSIDERED ONLY AFTER THE PROFITS FOR THE PURPOSE OF S. 80IB ARE ARRIVED AT. THE LD. REPRESENTATIVE PLACED HIS RELIANCE ON THE JUDGMENT OF THE APEX COURT IN THE CASE OF CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. VS. CIT (1978) 113 ITR 84 AND ALSO THE JUDGMENT OF THE APEX COURT IN THE C ASE OF CIT VS. KERALA INDUSTRIAL DEVELOPMENT CORPORATION LTD . (1998) 233 ITR 197. THE LD. REPRESENTATIVE ALSO PLACED RELIANCE ON THE DECISION OF THE CHENNAI BENCH OF T HE TRIBUNAL IN THE CASE OF ACIT V. INDIA CEMENTS LTD . (2008) 306 ITR (AT) 298 (CHENNAI). 6. ON THE CONTRARY, MS. S.VIJAYAPRABHA, THE LD. DEP ARTMENTAL REPRESENTATIVE SUBMITTED THAT SECTION 80AB OF THE INCOME TAX ACT C LEARLY STATES THAT INCOME FOR THE PURPOSE OF DEDUCTION UNDER CHAPTER VIA OF THE ACT, HAS TO BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS THE INCOME TAX ACT. THEREFORE, BEFORE ALLOWING ANY DEDUCTION UNDER CHAPTER VIA, THE INCOME HAS TO BE COMPUTED IN ACCOR DANCE WITH OTHER PROVISIONS OF THE ACT. SECTION. 72 IS ONE OF THE PROVISIONS TO BE CO NSIDERED FOR THE PURPOSE OF COMPUTING THE TAXABLE INCOME. THEREFORE, WHEN THE INCOME NEE DS TO BE COMPUTED UNDER THE PROVISIONS OF THE I.T. ACT, S. 72 HAS TO BE TAKEN I NTO CONSIDERATION AND AFTER ALLOWING SET OFF OF CARRY FORWARD LOSS AND UNABSORBED DEPRECIATI ON, IF THE ASSESSEE HAS ANY POSITIVE INCOME, THEN ONLY THE DEDUCTION AS PROVIDED UNDER C HAPTER VIA IS TO BE ALLOWED. THE LD. REPRESENTATIVE PLACED RELIANCE ON THE JUDGMENT OF A PEX COURT IN THE CASE OF IPCA LABORATORY LTD. VS. DY.CIT (2004) 266 ITR 521. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. THE QUESTION ARISES FOR OUR CONSIDERATION IS WHETHER TH E BROUGHT FORWARD LOSS AND UNABSORBED I.T.A. NOS. 294 & 295/COCH/2010 5 DEPRECIATION IS TO BE ALLOWED BEFORE ALLOWING DEDUC TION U/S. 80IB OR NOT? WE HAVE CAREFULLY GONE THROUGH THE PROVISIONS OF S. 80AB. SECTION 80AB CLEARLY STATES THAT IF THE NATURE OF INCOME SPECIFIED IN THE PROVISIONS OF CHA PTER VIA IS INCLUDED IN THE GROSS TOTAL INCOME, THEN FOR THE PURPOSE OF COMPUTING DEDUCTION , THE INCOME HAS TO BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE INCOME TAX AC T. THE APEX COURT HAD AN OCCASION TO EXAMINE THIS ISSUE ELABORATELY IN IPCA LABORATORY LTD. VS. DY.CIT (SUPRA). THE APEX COURT AFTER CONSIDERING THE PROVISIONS OF CHAPTER V IA, MORE PARTICULARLY S. 80AB, OBSERVED THAT S. 80AB HAS BEEN GIVEN AN OVERRIDING EFFECT OVER ALL OTHER SECTIONS UNDER CHAPTER VIA. THE APEX COURT FOUND THAT S. 80AB MAK ES IT CLEAR THAT THE COMPUTATION OF INCOME IS TO BE MADE IN ACCORDANCE WITH THE PROVISI ONS OF THE INCOME TAX.ACT. ONCE THE INCOME IS TO BE COMPUTED IN ACCORDANCE WITH THE PRO VISIONS OF THE ACT, THEN NOT ONLY THE PROFITS AND LOSS HAVE TO BE TAKEN INTO CONSIDERATIO N BUT THE UNABSORBED DEPRECIATION AND CARRY FORWARD LOSS WHICH COMES UNDER THE PROVISIONS OF SECTION 72 NEEDS TO BE CONSIDERED IN VIEW OF THE JUDGMENT OF IPCA LABORATORY LTD. VS. DY.CIT (SUPRA). OBVIOUSLY, IF S. 72 IS NOT TAKEN INTO CONSIDERATION, IT MAY NOT GIVE TH E CORRECT INCOME OF THE ASSESSEE. AS OBSERVED BY THE APEX COURT, S. 80AB REQUIRES THE AS SESSING OFFICER TO COMPUTE THE INCOME IN ACCORDANCE WITH LAW. THEREFORE, IN OUR O PINION, THE CARRY FORWARD LOSS AND THE UNABSORBED DEPRECIATION HAS TO BE SET OFF BEFORE AL LOWING ANY DEDUCTION U/S. 80IB OF THE ACT. 8. WE HAVE CAREFULLY GONE THROUGH THE JUDGMENT OF T HE APEX COURT IN THE CASE OF CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. VS. CIT (SUPRA). SECTION 80AB WAS INSERTED BY FINANCE ACT (NO. 2), 1981 WITH EFFECT FROM 1.4.198 1. THE JUDGMENT OF THE APEX COURT IN THE CASE OF CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. VS. CIT (SUPRA) WAS DELIVERED ON 11 TH APRIL, 1978, THEREFORE, THE APEX COURT HAD NO OCCA SION TO CONSIDER THE PROVISIONS OF SECTION 80AB OF THE ACT. THEREFORE, IN OUR OPINION , THE JUDGMENT OF THE APEX COURT IN THE CASE OF CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. VS. CIT (SUPRA) MAY NOT BE OF ANY ASSISTANCE.. MOREOVER, THE APEX COURT IN THE CASE OF IPCA LABORATORY LTD. VS. DY.CIT (SUPRA) AFTER CONSIDERING THE PROVISIONS OF 80AB, F OUND THAT THE INCOME HAS TO BE COMPUTED AFTER TAKING INTO CONSIDERATION THE LOSS A LSO. IN VIEW OF THE JUDGEMENT OF THE I.T.A. NOS. 294 & 295/COCH/2010 6 APEX COURT IN THE CASE OF IPCA LABORATORY LTD. VS. DY.CIT (SUPRA), THE JUDGMENT OF THE APEX COURT IN THE CASE OF CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. VS. CIT (SUPRA) MAY NOT BE APPLICABLE TO THE FACTS OF THIS CASE. WE HA VE ALSO CAREFULLY GONE THROUGH THE JUDGMENT OF THE APEX COURT IN THE CASE OF CIT VS. KERALA INDUSTRIAL DEVELOPMENT CORPORATION LTD . (SUPRA). THE ISSUE BEFORE THE APEX COURT IN THAT CASE IS WHETHER DEDUCTION U/S. 36(1)(VII) OF THE I.T. ACT SHOULD BE CALCULATED ON THE TOTAL INCOME BEFORE THE DEDUCTION OF THE AMOUNT ALLOWABLE UNDER THE SEC TION. THE APEX COURT HAD NO OCCASION TO CONSIDER CHAPTER VIA, MORE PARTICULARLY SECTION 80AB OF THE ACT. THEREFORE, THIS JUDGMENT OF THE APEX COURT MAY ALSO NOT BE OF ANY ASSISTANCE TO THE ASSESSEE. WE HAVE ALSO GONE THROUGH THE DECISION OF THE CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF ACIT V. INDIA CEMENTS LTD . (SUPRA). THE CHENNAI BENCH OF THE TRIBUNAL AFTER CONSIDERING THE PROVISIONS OF SECTION 80B(5) FOUND THAT THE GROSS TOTAL INCOME WOULD MEAN TOTAL INCOME COMPUTED IN ACCORDANCE WITH THE P ROVISIONS OF THE ACT BEFORE MAKING ANY DEDUCTION UNDER CHAPTER VIA. THE CHENNAI BENCH OF THE TRIBUNAL, IN OUR OPINION, HAD NO OCCASION TO CONSIDER WHETHER CARRY FORWARD L OSS OR UNABSORBED DEPRECIATION NEEDS TO BE SET OFF BEFORE ALLOWING DEDUCTION UNDER CHAPT ER VIA. IN VIEW OF THIS FINDING, IN OUR OPINION, THE DECISION OF THE CHENNAI BENCH WOUL D ALSO NOT BE APPLICABLE TO THE FACTS OF THE CASE. RESPECTFULLY FOLLOWING THE JUDGMENT O F THE APEX COURT IN THE CASE OF IPCA LABORATORY LTD. VS. DY.CIT (SUPRA), WE CONFIRM THE ORDER OF THE LOWER AUTHORIT IES ON THIS ISSUE. 9. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. SD/- SD/- (SANJAY ARORA) N.R.S.GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER PLACE: ERNAKULAM DATED:30TH NOVEMBER, 2011 GJ COPY TO: 1. PRINCE ALLOYS (P) LTD., 9/78, ANAPPURAMKADU, KIN ASSERY P.O., PALAKKAD. I.T.A. NOS. 294 & 295/COCH/2010 7 2. PRINCE ROLLINGS (P) LTD., 9/77, ANAPPURAMKADU, K INASSERY P.O., PALAKKAD. 3. THE ADDL. COMMISSIONER OF INCOME-TAX, PALAKKAD R ANGE, PALAKKAD. 4. THE COMMISSIONER OF INCOME-TAX (APPEALS)-V, KOCH I.. 5. THE COMMISSIONER OF INCOME-TAX, TRICHUR. 6. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 7. GUARD FILE .