ACIT 6(1), MUMBAI V. IVP LTD, MUMBAI

ITA 3242/MUM/2012

• Counselvise Citation: 324219914 RSA 2012
• Duration Of Justice: 1 year(s) 3 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 18-07-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 10-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: O P SINGH
• Keywords: Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH I , MUMBAI BEFORE SHRI P.M. JAGTAP , ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDICIAL MEMBER ITA NO. 32 42/MUM/2012 ASSESSMENT YEAR : 200 8 - 0 9 ASSISTANT COMMISSIONER, CIRCLE 6(1), R.NO.5 0 6, 5 TH FLOOR, AAY AKAR BHAVAN, M.K. ROAD, MUMBAI 400 020 VS. M/S. IVP LTD. S.N. REDIJ MARG, CHORUPDEO, MUMBAI - 400 033 PAN: AAAC I 0 992A (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI O.P. SINGH, D.R. REVENUE BY : SHRI DIVYESH I. SHAH SHRI RAVI SAWANA DATE OF HEARING : 18 .07.13 DATE OF PRONOUNCEMENT : 28.08.13 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A) DATED 27.02.12 REL EVANT TO ASSESSMENT YEAR 200 8 - 09 . 2. THE GROUND S OF APPEAL ARE REPRODUCED AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.1,11,16,343/ - ON ACCOUNT OF WRITING OFF OF CAPITAL WIP WITHOUT APPRECIATING THE FACTS THAT THE SAID EXPENDITURE WAS CAPITAL IN NATURE AND THE SAME FACTS WERE CERTIFIED BY THE STATUTORY AUDITORS ALSO. 2. THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF TH E ASSESSING OFFICER BE RESTORED. 3. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. ITA NO.32 42/12 M/S. IVP LTD. 2 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF REFINED OIL , V A NASPATI, FOUNDRY CHEMICALS AND INDUSTRIAL CERAMICS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAD WRITTEN OFF AN AMOUNT OF RS.1,11,16,343/ - BEING CAPITAL EXPENDITURE. THIS FACT WAS STATED IN THE TAX AUDIT REPORT FILED WITH THE RETURN OF INCOME. SINCE THE ASSESSEE HAD NOT OFFERED THIS AMOUNT FOR TAX AND HAD ALSO NOT GIVEN ANY SATISFACTORY EXPLANATION, THE AO ADDED THIS AMOUNT TO THE TOTAL INCOME OF THE ASSESSEE. THE ASSESSEE PREFERRED APPEAL BEFO R E THE CIT(A). BEFORE THE CIT (A), THE SUBMISSIONS OF THE ASSESSEE HAD BEEN THAT IN EARLIER YEARS, THE ASSESSEE USED TO PURCHAS E HYDROGEN GAS FROM OUTSIDE PARTIES FOR VANASPATI DIVISION FOR THE PURPOSE OF MANUFACTURE OF VANASPATI. IN ORDER TO SAVE THE COST, IT WAS DECIDED TO PUT ALONG WITH THE DEODORIZATION PLANT, A HYDROGENATION PLANT ALSO. HENCE, A CONSOLIDATED CONTRACT WAS ENTERED INTO WITH DESMAT CHEMFOOD ENGINEERING PVT. LTD. O N JUNE 18, 1997 FOR DETAILED DESIGN AND ENGINEERING, PROCUREMENT AND SUPPLY OF EQUIPMENTS AND FOR PROVIDING OF ERECTION AND COMMISSIONING, SUPERVISORY SERVICES AND TECHNICAL SERVICES IN A PROFESSIONAL MANNER FOR DEODORIZING PROJECT AS WELL AS THE HYDROGENATION PROJECT. DEODORIZATION PLANT WAS COMPLETED AND COMMISSIONED IN THE YEAR 1999 - 2000. HOWE VER, THERE WAS NO PRO GRESS ON HYDROGENATION PROJECT. AS THE VANASPATI DIVISION WORKING HAD STARTED DETERIORATING AND THE COMPANY WAS ALSO FACING THREAT ON ACCOUNT OF FREE IMPORT OF VANASPATI ALLOWED BY THE GOVERNMENT FROM NEPAL AND SRI LANKA, THE PRODUCTI ON OF VANASPATI WAS BECOMING UNVIABLE. ALSO THE LABOUR COST HAD INCREASED SUBSTANTIALLY. HOWEVER, THE ASSESSEE COMPANY WAS CLOSELY OBSERVING THE SITUATION AND WAS WAITING FOR APPROPRIATE OPPORTUNITY FOR THE COMMISSIONING OF THE PLANT. THE BURDEN INCREAS ED ON ACCOUNT OF INCREASE OF LEVY OF ADDITIONAL SPECIAL DUTY ON IMPORT OF CRUDE AND REFINED OIL WAS THE BASIC RAW MATERIAL FOR MANUFACTURING OF VANASPATI. THE PRODUCTION OF VANASPATI THEREFORE STARTED REDUCING AND TIME HAD COME I.E. IN THE YEAR 2005 - 06, T HE COMPANY HAD TO TAKE THE DECISION TO CLOSE DOWN ITS MANUFACTURING ACTIVITY OF VANASPATI. THUS UNDER THESE CIRCUMSTANCES, A COMMERCIAL DECISION WAS TAKEN BY THE MANAGEMENT NOT TO PROCEED FURTHER WITH THE IMPLEMENTATION OF ITS HYDROGENATION PLANT AND TO W RITE OFF THE CAPITAL WORK IN PROGRESS ON THIS ACCOUNT IN ITA NO.32 42/12 M/S. IVP LTD. 3 THE YEAR 2007 - 08. AS THE COMPANY WAS HAVING FULL - FLEDGED FACILITY OF MANUFACTURING OF VANASPATI, THE DECISION TO INSTALL THE HYDROGENATION PLANT WAS EARLIER TAKEN. HOWEVER WHEN T HE CIRCUMSTANCES CHA NGED SUBSEQUENTLY, COMPELLING THE COMPANY TO ABANDON THIS PROJECT AND THEREFORE IT WAS WRITTEN OFF AS AN EXPENSE NECESSARY FOR THE PURPOSE OF BUSINESS AS THE OTHER BUSINESSES OF THE COMPANY LIKE MANUFACTURING OF FOUNDRY CHEMICALS WERE ALREADY THERE AND THE COMPANY DECIDED TO CONCENTRATE MORE ON THE BUSINESS OF OTHER DIVISIONS TO IMPROVE ITS PROFITABILITY. IT WAS FURTHER SUBMITTED B Y THE ASSESSEE THAT THE SAID AMOUNT WAS IN THE NATURE OF AN ADVANTAGE IN A COMMERCIAL SENSE. THE ADVANTAGE MERELY CONSISTED OF FACILITATING THE ASSESSEES TRADING OPERATIONS OR ENABLING THE MANAGEMENT TO CONDUCT THE ASSESSEES BUSINESS MORE EFFICIENTLY EVEN THOUGH THE ADVANTAGE MAY HAVE ENDURED FOR AN INDEFINITE FUTURE. T HE ASSESSEES EXPENDITURE WAS PART OF THE COST OF IMPROVIN G, OPERATING AND MAINTAINING THE PROFIT EARNING APPARATUS AND NOT TOWARDS THE COST OF ACQUIRING THE PROFIT EARNING APPARATUS. THEREFORE THE EXPENDITURE WAS IN THE REVENUE FIELD AND WAS NOT THE EXPENDITURE INCIDENTAL TO THE ACQUISITION OF PROFIT EARNING AP PARATUS. 4. THE LD. CIT(A) AFTER APPRECIATION OF THE FACTS ON THE FILE AND THE SUBMISSIONS OF THE ASSESSEE ON THE ISSUE AGREED WITH THE SUBMISSIONS OF THE ASSESSEE THAT THE EXPENDITURE INCURRED TOWARDS ESTABLISHMENT OF HYDROGENATION PLANT WAS PART OF THE COST OF IMPROVING, OPERATING AND MAINTAINING ITS PROFIT EARNING APPARATUS AND NOT TOWARDS THE COST OF ACQUIRING THE PROFIT EARNING APPARATUS APPEARS TO BE LOGICAL AND ACCEPTABLE. THEREFORE THE CLAIM OF THE ASSESSEE THAT THE EXPENDITURE WAS IN THE REVENUE FIELD AND WAS NOT THE EXPENDITURE INCIDENTAL TO THE ACQUISITION OF PROFIT EARNING APPARATUS WAS ACCEPTED. THE LD. CIT(A) WHILE ACCEPTING THE CLAIM OF THE ASSESSE E ALSO RELIED UPON CERTAIN CASE LAWS IN THIS RESPECT AS MENTIONED IN THE RELEVANT PARA GRAPH S OF THE ORDER UNDER APPEAL. 5. THE LD. DR BEFORE US COULD NOT BRING ANY NEW FACT OR LAW BEFORE US WHICH MAY JUSTIFY THE DEPARTURE FROM THE FINDINGS GIVEN BY THE FIRST APPELLATE AUTHORITY. THE ORDER OF THE CIT(A) IS A WELL REASONED ORDER PASSED AFTER APPRECIA TION OF FACTUAL AND ITA NO.32 42/12 M/S. IVP LTD. 4 LEGAL POSITION RELATING TO THE ISSUE UNDER CONSIDERATION. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE FIRST APPELLATE AUTHORITY. HENCE , THERE IS NO MERIT IN THE APPEAL OF THE R EVENUE AND ACCORDINGLY THE SAME IS HEREBY DISMISSED. 6 . IN THE RESULT, THE APPEAL OF THE REVENUE IS HEREBY DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28.08. 2013. SD/ - SD/ - ( P.M. JAGTAP ) ( SANJAY GARG ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 28.08. 2013. * KISHORE COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT ( A) CONCERNED, MUMBAI THE DR C BENCH //TRUE COPY// [ BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.