DCIT Range-I, Moradabad V. Mentha & Allied Products Ltd,

ITA 3291/DEL/2008

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 8472 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-07-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 13-07-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 05-11-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G S SAHOTA
• Assessee Lawyers: S KRISHNAN
• Keywords: Depreciation; Revenue expenditure; Capital expenditure; Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : E : NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI B.R. KAUSHIK, ACCOUNTANT MEMBER ITA NOS. 3243 & 3291/DEL/2008 ASSESSMENT YEARS : 2004-05 & 2005-06 DCIT, RANGE-I, MORADABAD. VS. M/S MENTHA & ALLIED PRODUCT LTD., RAHE RAZA, CIVIL LINES, RAMPUR. PAN: AABCM8940P (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S. KRISHNAN, ADVOCATE REVENUE BY : SHRI G.S. SAHOTA, SR. DR O R D E R PER I.P. BANSAL, JUDICIAL MEMBER: THESE ARE APPEALS FILED BY THE REVENUE. THEY ARE DIRECTED AGAINST TWO SEPARATE ORDERS OF THE CIT (A) DATED 25 TH JULY, 2008 AND 14 TH AUGUST, 2008 FOR ASSESSMENT YEARS 2004-05 & 2005-06. GROUNDS OF APPE AL IN BOTH THE APPEALS READ AS UNDER:- ASSESSMENT YEAR : 2004-05 1. THE COMMISSIONER OF INCOME TAX (APPEALS), BAREI LLY HAS ERRED IN LAW AND UNDER THE CIRCUMSTANCES OF THE CAS E IN ALLOWING RELIEF TO THE ASSESSEE AT RS.23,47,819/- O N A/C OF UNDER VALUATION OF CLOSING STOCK. 2. THE COMMISSIONER OF INCOME TAX (APPEAL), BAREIL LY HAS ERRED IN LAW AND UNDER THE CIRCUMSTANCES OF THE CAS E IN TREATING SUM OF RS.3,91,416/- AS BEING REVENUE EXPE NDITURE WHICH WAS RIGHTLY TREATED BY THE ASSESSING OFFICER AS BEING ITA NOS.3243 & 3291/DEL/2008 2 CAPITAL EXPENDITURE. 3. ORDER OF COMMISSIONER OF INCOME TAX (APPEAL) MA Y BE SET ASIDE, RESTORING ITS ASSESSMENT ORDER PASSED BY THE A.O. 4. ANY OTHER GROUND, WHICH MAY BE TAKEN DURING THE COURSE OF THE APPELLATE PROCEEDINGS. ASSESSMENT YEAR : 2005-06 1. THE COMMISSIONER OF INCOME TAX (APPEALS), BAREI LLY HAS ERRED IN LAW AND UNDER THE CIRCUMSTANCES OF THE CAS E IN ALLOWING RELIEF TO THE ASSESSEE AT RS.13,55,831/- O N A/C OF UNDER VALUATION OF CLOSING STOCK. 2. THE COMMISSIONER OF INCOME TAX (APPEAL), BAREIL LY HAS ERRED IN LAW AND UNDER THE CIRCUMSTANCES OF THE CAS E IN TREATING SUM OF RS.8,47,089/- AS BEING REVENUE EXPE NDITURE WHICH WAS RIGHTLY DISALLOWED BY THE ASSESSING OFFIC ER AS BEING CAPITAL EXPENDITURE. 3. ORDER OF COMMISSIONER OF INCOME TAX (APPEAL) MA Y BE SET ASIDE, RESTORING ITS ASSESSMENT ORDER PASSED BY THE A.O. 4. ANY OTHER GROUND, WHICH MAY BE TAKEN DURING THE COURSE OF THE APPELLATE PROCEEDINGS. 2. GROUND NO.1 IN BOTH THE APPEALS ARE COMMON. THI S HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE LD. CIT (A) FOLLOWING THE ORDER OF THE ITAT IN THE CASE OF THE ASSESSEE ITSELF. IT HAS ALSO BEEN MENT IONED IN THE ORDER OF THE LD. CIT (A) THAT AGAINST THE ORDER OF THE TRIBUNAL THE DEPARTMENT HAD FILED AN APPEAL BEFORE THE HONBLE ALLAHABAD HIGH COURT WHICH WAS D ISMISSED VIDE ORDER DATED 24 TH APRIL, 2003. SIMILAR ADDITION MADE BY THE DEPARTM ENT HAS BEEN CONSISTENTLY DELETED BY ITAT FOR ASSESSMENT YEARS 1988-89 TO 200 0-01 LEAVING BEHIND ASSESSMENT YEAR 1999-2000. THE LD. AR OF THE ASSES SEE HAS PRODUCED BEFORE US ORDER OF THE TRIBUNAL FOR ASSESSMENT YEAR 2003-0 4 IN THE CASE OF THE ASSESSEE WHEREIN ON THE FIRST GROUND OF APPEAL FILE D BY THE REVENUE AGITATING DELETION OF SIMILAR ADDITION IT WAS OBSERVED BY THE TRIBUNAL THAT SIMILAR ADDITIONS WERE DELETED BY THE TRIBUNAL IN 1997-98, 1998-99 AN D 2002-03 AND IT WAS OBSERVED THAT VALUATION MADE BY THE ASSESSEE IN CLO SING STOCK WAS IN ITA NOS.3243 & 3291/DEL/2008 3 ACCORDANCE WITH ACCOUNTING STANDARD-2 PRESCRIBED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA WHICH REQUIRES THE ASSESSEE T O EXCLUDE INDIRECT COST FOR THE PURPOSE OF VALUATION OF INVENTORY. IT WAS OBSERVED THAT SO LONG AS THE METHOD OF ACCOUNTING AND METHOD OF VALUATION IS ON THE BASIS OF RECOGNIZED METHODS AND NO CONTRARY METHOD HAS BEEN PRESCRIBED UNDER INCOM E-TAX ACT, 1961, THE VALUATION DONE BY THE ASSESSEE WAS ACCEPTABLE AS SU CH. FOR THE SAKE OF CONVENIENCE THE OBSERVATIONS OF THE TRIBUNAL WITH R EGARD TO THIS GROUND AS CONTAINED IN PARA 2 TO 5 IS REPRODUCED: - 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANU FACTURING AND TRADING OF MENTHOL AND ITS ALLIED PRODUCTS. IT HAS FOUR UNITS. 3. THE FIRST GROUND OF APPEAL IS AGAINST DELETION O F ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF VALUAT ION OF CLOSING STOCK. 4. THE ASSESSING OFFICER MADE AN ADDITION OF RS.7,7 7,495/- IN THE MENTHOL UNIT TREATING THE INTEREST AS COST OF PRODU CTION AND CORRESPONDINGLY INCREASING THE VALUE OF FINISHED G OODS AND WORK- IN-PROGRESS. 5. WE FIND THAT SIMILAR ADDITIONS HAVE BEEN MADE IN EARLIER YEARS I.E., 1997-98, 1998-99 AND 2002-03. IN ALL THESE Y EARS THE TRIBUNAL HAVE HELD THAT THE INTERNET COST SHALL NOT FORM PAR T OF COST FOR THE PURPOSE OF VALUING CLOSING STOCK I.E., FINISHED GOO DS AND WORK-IN- PROGRESS. WE ALSO FIND THAT THE VALUATION OF CLOSI NG STOCK IS IN ACCORDANCE WITH ACCOUNTING STANDARD-2 PRESCRIBED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA IN THIS REGARD WH ICH ALSO REQUIRES THE ASSESSEE TO EXCLUDE INDIRECT COST FOR THE PURPO SE OF VALUATION OF INVENTORY. SO LONG AS THE METHOD OF ACCOUNTING AND METHOD OF VALUATION IS ON THE BASIS OF RECOGNIZED METHOD AND NO CONTRARY METHOD HAS BEEN PRESCRIBED UNDER THE INCOME-TAX ACT , THE VALUATION AS DONE BY THE ASSESSEE SHALL BE ACCEPTED AS SUCH. ACCORDINGLY, GROUND NO.1 IS DISMISSED. 3. IN THE PRESENT CASE, AFTER HEARING BOTH THE PART IES, WE FOUND THAT WHILE WORKING OUT THE VALUE OF THE CLOSING STOCK THE DEPA RTMENT HAS ADDED THE INTEREST ON BANK LOAN AND DEPRECIATION WHILE BY TREATING THE M AS COST OF CONVERSION. THIS ADDITION IS BEING MADE BY THE REVENUE FROM ASSESSME NT YEAR 1988-89 ONWARDS ITA NOS.3243 & 3291/DEL/2008 4 AND THE VALUATION DONE BY THE ASSESSEE HAS BEEN ACC EPTED BY THE CIT (A) AS WELL AS THE TRIBUNAL AND THE ORDER OF ITAT HAS BEEN CONFIRMED BY HONBLE ALLAHABAD HIGH COURT ALSO. 4. IN THIS VIEW OF THE SITUATION, RESPECTFULLY FOLL OWING THE EARLIER ORDERS OF THE TRIBUNAL WHICH HAVE BEEN CONFIRMED BY HON'BLE HIGH COURT, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT (A) VIDE WHICH IMPUGNED AD DITION HAS BEEN DELETED. WE DISMISS THIS GROUND FOR BOTH THE YEARS. 5. GROUND NO.2 IN BOTH THE APPEALS ALSO RAISE A COM MON ISSUE WHERE THE ASSESSING OFFICER HAS TREATED THE EXPENSES INCURRED UNDER THE HEAD PLANT REPAIR AND MAINTENANCE AS CAPITAL EXPENDITURE. THE NATUR E OF EXPENDITURE AS DESCRIBED IN THE ORDER OF THE LD. CIT (A) IS ELECTR IC MOTOR, WATER PUMP, MONO BLOCK PUMP, VACUUM PUMP, COMPRESSORS AND S.S. SHEE T COIL FOR ASSESSMENT YEAR 2004-05 AND FOR ASSESSMENT YEAR 2005-06 THESE ARE IN THE NATURE OF WATER PUMP, VACUUM BOOSTER, COMPRESSORS, DIGITAL TEMPERAT URE CONTROLLER AND OVERHAULING CHARGES OF GENERATOR. THESE HAVE BEEN CONSIDERED TO BE EXPENDITURE OF REVENUE NATURE BY THE LD. CIT (A) BE CAUSE THESE WERE NOT INDEPENDENT MACHINES, BUT THESE WERE PARTS TO BE FI TTED IN MACHINES USED BY THE ASSESSEE IN THE MANUFACTURING PROCESS. WHILE DELET ING THE ADDITION, THE LD. CIT (A) HAS RELIED ON THE DECISION OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. RENU SAGAR POWER COMPANY LTD.(2008) 298 ITR 94 (ALL) WHEREIN IT HAS BEEN HELD THAT EXPENDITURE INCURRED ON REPLACEMENT OF PA RT ITEMS OF TURBINE ROLLER IS REVENUE EXPENDITURE. THE DEPARTMENT IS AGGRIEVED W ITH SUCH DELETION, HENCE, HAS FILED THESE GROUNDS FOR BOTH THE YEARS. 6. LD. DR RELYING ON THE ORDER OF ASSESSING OFFICER PLEADED THAT THE EXPENDITURE INCURRED BY THE ASSESSEE UNDER THE HEAD MACHINERY REPAIR WAS IN THE NATURE OF CAPITAL EXPENDITURE AND, THEREFORE, T HE LD. CIT (A) WAS WRONG IN DELETING THE DISALLOWANCE. ITA NOS.3243 & 3291/DEL/2008 5 7. ON THE OTHER HAND, REFERRING TO THE DETAILS, IT WAS PLEADED BY LD. AR THAT THE EXPENSES INCURRED BY THE ASSESSEE WAS ON CERTAI N PARTS OF MACHINERY AND THESE PARTS COULD NOT BE USED ON STAND ALONE BASIS AND, THUS, THESE COULD NOT BE HELD TO BE OF CAPITAL NATURE AND LD. CIT (A) HAS RI GHTLY DELETED THE ADDITION ON THE GROUND THAT THESE WERE WITH REGARD TO REPLACEABLE P ARTS OF THE MACHINERY. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIO NS IN THE LIGHT OF THE MATERIAL PLACED BEFORE US. WE HAVE CAREFULLY GONE THROUGH THE DETAILS WHICH ARE MENTIONED IN THE ASSESSMENT ORDER AND BRIEFLY DESCR IBED IN THE ORDER OF THE LD. CIT (A). NONE OF THE EXPENDITURES HAS BEEN SHOWN T O HAVE BEEN INCURRED ON ANY MACHINERY ON STAND ALONE BASIS. TO HOLD THAT A PARTICULAR EXPENDITURE IS CAPITAL EXPENDITURE, IT IS NECESSARY TO SHOW THAT A NY ENDURING BENEFIT HAS ACCRUED TO THE ASSESSEE. THERE IS NO MATERIAL ON R ECORD TO SUGGEST THAT BY REPLACEMENT OF THESE PARTS THE ASSESSEE HAD DERIVED ANY ENDURING BENEFIT AS THE MACHINERY OF WHICH SUCH PARTS ARE REPLACED IS SAID TO BE USED IN THE MANUFACTURING PROCESS. IN THE ABSENCE OF ANY SUCH MATERIAL, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT (A) VIDE WHICH SUCH ADD ITIONS HAVE BEEN DELETED FOR THE RESPECTIVE YEARS. THIS GROUND OF THE REVENUE F OR BOTH THE YEARS IS DISMISSED. 9. ACCORDINGLY, APPEALS FOR BOTH THE YEARS FILED BY THE REVENUE ARE DISMISSED. 10. IN THE RESULT, THE APPEALS FILED BY THE DEPARTM ENT ARE DISMISSED. . 11. THE ORDER PRONOUNCED IN THE OPEN COURT ON 16.07 .2009. [B.R. KAUSHIK] [I.P. BANSAL] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED, 16.07.2009. DK ITA NOS.3243 & 3291/DEL/2008 6 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES