T.Sajida Banu, L/R of Sakvai Abdul Rasheed, CHENNAI V. Additional CIT, CHENNAI

ITA 336/CHNY/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64508 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-11-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 29-10-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 16-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K E B RANGARAJANJR STA NDING
• Assessee Lawyers: G BASKAR
• Keywords: Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER A ND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ITA NO. 336/MDS/2012 ASST. YEAR : 2006-07 T. SAJIDA BANU, L/R OF SAKVAI ABDUL RASHEED, NO.12, KATTUR SADAYAPPAN STREET, PERIAMET, CHENNAI 600 003. PAN : AAEPA4214E. (APPELLANT) V. THE ADDL. COMMISSIONER OF INCOME TAX, RANGE X, CHENNAI. (RESPONDENT) APPELLANT BY : SHRI G. BASKAR, ADVOC ATE RESPONDENT BY : SHRI KEB RANGARAJAN, JR. STANDI NG COUNSEL DATE OF HEARING : 29 OCT 2012 DATE OF PRONOUNCEMENT : 15 NOV 2012 O R D E R PER CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-IV, CHEN NAI, DATED 12.12.2011 IN APPEAL NO.137/08-09/A-IV UNDER SEC.14 3(3) OF THE I.T. ITA 336/MDS/12 2 ACT FOR THE ASST. YEAR 2006-07. THE SOLITARY ISSUE FOR CONSIDERATION BEFORE US IN THIS APPEAL IS THAT THE COMMISSIONER O F INCOME TAX (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF E .5,97,000/- MADE BY THE ASSESSING OFFICER BEING THE AMOUNT CONTRIBUT ED BY THE ASSESSEE FOR SETTING UP OF COMMON EFFLUENT TREATMEN T PLANT AT RANIPET. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A MANUFACTURER AND EXPORTER OF LEATHER AND THIS FACTO RY IS LOCATED IN RANIPET. THE ASSESSEE PAID AN AMOUNT OF E.5.97 LAKH S TO RANIPET INFRASTRUCTURE DEVELOPMENT ORGANISATION LTD. (RIDO) TOWARDS CONTRIBUTION FOR THE INSTALLATION OF REVERSE OSMOSI S PLANT AND SLUDGE MANAGEMENT PROJECT UNDER INDUSTRIAL INFRASTRUCTURE UPGRADATION SCHEME. THE ASSESSEE JOINED RIDO AS ONE OF THE MEM BERS TO INSTALL COMMON EFFLUENT TREATMENT PLANT AS PER THE REQUIREM ENTS OF GOVT. THE RIDO HAS ALSO GOT A SUBSIDY OF 75% FROM CENTRAL GOVT., UNDER CLUSTER DEVELOPMENT SCHEME. THE CONTRIBUTION OF TH E MEMBERS OF RIDO AND THE SUBSIDY WERE UTILIZED ONLY TO ESTABLIS H A COMMON EFFLUENT TREATMENT PLANT BY WAY OF INSTALLING REVER SE OSMOSIS PLANT AND SLUDGE MANAGEMENT PROJECT. THE ASSESSEE CLAIME D THIS ITA 336/MDS/12 3 CONTRIBUTION AS AN ALLOWABLE EXPENDITURE IN COMPUTI NG ITS INCOME. HOWEVER, THE ASSESSING OFFICER WAS OF THE OPINION T HAT THE CONTRIBUTION MADE BY THE ASSESSEE AMOUNTING TO E.5, 97,000/- CANNOT BE TREATED AS REVENUE EXPENDITURE BECAUSE T HE ASSESSEE DERIVES ENDURING BENEFIT OUT OF IT. AGGRIEVED, THE ASSESSEE AGITATED THE ISSUE BEFORE COMMISSIONER OF INCOME TAX (APPEAL S). THE COMMISSIONER OF INCOME TAX (APPEALS) RELYING ON THE DECISION OF HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF JASWANT TRADING CO. VS. CIT (212 ITR 293), CONFIRMED THE ACTION OF THE AS SESSING OFFICER HOLDING THAT THE SAID EXPENDITURE CANNOT BE ALLOWED AS DEDUCTION. THE COMMISSIONER OF INCOME TAX (APPEALS) FURTHER HE LD THAT THE ASSESSEE IS NOT ENTITLED FOR DEPRECIATION ALSO BECA USE THE ASSESSEE IS NOT THE OWNER OF THE PLANT. FURTHER AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US AGAINST THE ORDER OF THE COMMISSIO NER OF INCOME TAX (APPEALS). 3. THE COUNSEL FOR THE ASSESSEE SUBMITS BEFORE US THAT THE CASE LAW RELIED UPON BY THE COMMISSIONER OF INCOME TAX (APPEALS) DECIDED BY HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF JASWANT TRADING CO. VS. CIT (SUPRA) IS NOT APPLICABLE TO TH E FACTS OF THE ITA 336/MDS/12 4 ASSESSEES CASE. HE SUBMITS THAT EVEN THE GOVT. OF INDIA GRANTED A SUBSIDY OF ABOUT 50% OF THE TOTAL COST TOWARDS SETT ING UP OF THE COMMON EFFLUENT TREATMENT PLANT. THE COUNSEL FOR THE ASSESSEE SUBMITS THAT ON IDENTICAL FACTS THE CHENNAI C BEN CH OF THE TRIBUNAL IN THE CASE OF ACIT V. TM ABDUL RAHMAN & SONS [10 I TR (TRIB) 272], WHILE DISMISSING THE APPEAL OF THE REVENUE HAS HELD THAT THIS EXPENDITURE COULD BE TREATED AS AN EXPENDITURE INCU RRED ON ACCOUNT OF BUSINESS EXIGENCY AND GAVE RELIEF TO THE ASSESSE E. 4. THE DEPARTMENTAL REPRESENTATIVE, ON THE OTHER H AND, STRONGLY SUPPORTED THE ORDERS OF THE AUTHORITIES BE LOW. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD INCLUDING THE IMPUGNED ORDER. WE HAVE ALSO PERUSED THE CASE LAW RELIED UPON BY THE COUNS EL FOR THE ASSESSEE. A CAREFUL PERUSAL OF THE ORDER OF THIS T RIBUNAL CITED SUPRA REVEALS THAT THE ISSUE IS SQUARELY COVERED IN FAVOU R OF THE ASSESSEE IN AS-MUCH-AS THIS TRIBUNAL ALLOWED THE CONTRIBUTION TO RANIPUT INFRASTRUCTURE DEVELOPMENT ORGANISATION PVT. LTD., AS REVENUE EXPENDITURE HOLDING THAT THE RATIO OF THE DECISION OF HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF JASWANT TRADING CO. VS. CIT ITA 336/MDS/12 5 (SUPRA) IS NOT APPLICABLE TO THE FACTS OF THE ASSES SEES CASE. WHILE HOLDING SO, THE TRIBUNAL HELD AS UNDER :- 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE M ATERIAL AVAILABLE ON RECORD. THE ASSESSEE IS RUNNING A TANN ERY WHICH GENERATES EFFLUENTS. AS PER THE GOVERNMENT REGULATI ONS, THE ASSESSEE HAS TO MAKE NECESSARY PROVISION FOR THE DI SPOSAL OF EFFLUENTS TO PREVENT POLLUTION. ONE COMPANY, NAMELY , M/S. TALCO RANIPET TANNERY EFFLUENT TREATMENT CO. LTD. (RANITE C), A PUBLIC LIMITED COMPANY AND REGISTERED UNDER THE COMPANIES ACT, IS APPROVED BY THE GOVERNMENT FOR THE INSTALLATION OF A COMMON EFFLUENT TREATMENT PLANT UNDER THE INFRASTRUCTURE U PGRADATION SCHEME. THE PROFESSIONAL COST OF THE PROJECT WAS ES TIMATED AT RS. 4,879 LAKHS. THE ASSESSEE HAS CLAIMED RS. 34,36,236 UNDER THE HEAD EFFLUENT PLANT REPAIR AND MAINTENANCE EXPENSES . ON PERUSAL OF THE DETAILS, IT WAS FOUND THAT THE ABOVE AMOUNT INCLUDES THE FOLLOWING PAYMENTS :- (RS.) '1. RANIPET INFRASTRUCTURE DEVELOPMENT ORGANISATION P. LTD. 12,41,000 2. TREATED STORAGE DISPOSAL FACILITY 11,48,000 23,89,000 ' 4. THE ABOVE PAYMENTS WERE MADE ON VARIOUS DATES TO R ANITEC TOWARDS THE PROJECT COST OF THE COMPANY WHICH IS ON E OF THE COMMON EFFLUENT TREATMENT PLANTS INSTALLED FOR THE REVERSE OSMOSIS PLANT AND TSDF PROJECT (TREATMENT, STORAGE FACILITY) UNDER THE INDUSTRIAL INFRASTRUCTURE UPGRADATION SCHEME. I T WAS FOUND THAT THE MEMBERS HAVE JOINED TOGETHER AND DECIDED T O INSTAL COMMON EFFLUENT TREATMENT PLANT AS PER THE REQUIREM ENTS OF THE GOVERNMENT. THE PROJECT HAD ALSO GOT A SUBSIDY FROM CENTRAL GOVERNMENT UNDER CLUSTER DEVELOPMENT SCHEME. THE AS SESSEE HAS CLAIMED THIS EXPENDITURE AS REVENUE IN NATURE W HEREAS THE ASSESSING OFFICER HAS TREATED THE SAME AS CAPITAL I N NATURE. THE CASE OF THE ASSESSEE IS THAT THESE EXPENSES BEING I NCURRED FOR THE PURPOSE OF WATER POLLUTION CONTROL AND SOLID WASTE CONTROL; AND THE ITA 336/MDS/12 6 COMPANY BEING ELIGIBLE FOR 100 PER CENT. DEPRECIATI ON, THIS ENTIRE EXPENDITURE HAS BEEN CLAIMED AS REVENUE EXPENDITURE . THE ASSESSING OFFICER FOUND THAT THIS AMOUNT WAS PAID T OWARDS CAPITAL OF RANITEC WHO IS THE AGENT ACTING ON BEHALF OF A N UMBER OF ENTREPRENEURS IN INSTALLING PLANT WHICH IS GIVING E NDURING BENEFITS TO ALL THE UNITS. IT WAS ALSO FOUND THAT IN CASE TH E TREATMENT PLANT WAS INSTALLED BY THE ASSESSEE ITSELF THE ENTIRE EXP ENDITURE WOULD HAVE BEEN CAPITALISED. THE ASSESSING OFFICER, THUS, DID NOT ALLOW THIS CLAIM AND ALSO DID NOT FIND IT ELIGIBLE FOR DE PRECIATION ON THE ASSETS BECAUSE IT IS NOT FOUND TO BE THE OWNER OF T HE ASSETS. IN ARRIVING AT THE ABOVE CONCLUSION, THE ASSESSING OFF ICER ALSO RELIED ON THE DECISION OF THE HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF JASWANT TRADING CO. V. CIT [1995] 212 ITR 293 (RAJ). HOWEVER, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HA S RELIED ON THE SHOW-CAUSE NOTICE ISSUED BY THE TAMIL NADU POLL UTION CONTROL BOARD VIDE WHICH THE ASSESSEE IS REQUIRED COMPULSOR ILY TO COMPLY WITH THE CONDITIONS LAID DOWN THEREIN TO CONTINUE I TS BUSINESS. THE CONDITIONS INCLUDE THE FOLLOWING : '1. THE UNIT SHALL CO-OPERATE WITH THE CETP IN IMPL EMENTING THE DIRECTIONS AS ISSUED BY THE BOARD FOR INSTALLATION OF MEMBRANCE TECHNOLOGIES, R.O REJECTS MANAGEMENT AND SCIENTIFIC SECURED LAND TILL SITE AND FURNISH THE M EMBERSHIP AFTER OBTAINING CLEARANCE FROM THE GOVERNMENT OF IN DIA. 2.THE UNIT SHALL IMPLEMENT THE WASTE MINIMISATION TECHNOLOGIES IN ORDER TO REDUCE THE POLLUTION LOAD. 3.THE UNIT SHALL OPERATE AND MAINTAIN THE PRE-TREA TMENT PLANT EFFICIENTLY. 4.THE UNIT SHALL KEEP GOOD HOUSEKEEPING. 5.THE UNIT SHALL ENSURE THAT THE PRODUCT MANUFACTU RED AND QUANTITY OF TRADE EFFLUENT DISCHARGED WITHIN THE CO NSENTED QUANTITY AT ALL TIMES. 6.THE UNIT SHALL UTILISE THE BUFFING AND SHAVING D UST FOR FURTHER BENEFICIAL USE TO LEATHER BOARD INDUSTRIES.' ITA 336/MDS/12 7 5. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) H AS ALSO RELIED ON THE FOLLOWING DECISIONS : JT. CIT V. DEVERSONS INDUSTRIES LTD. [2007] 104 ITD 171 (AHD.); AND CYANAMID AGRO LTD. V. ADDL. CIT [2009] 121 TTJ (MUM.) 606. 6. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) H AS DISTINGUISHED THE CASE OF JASWANT TRADING CO. ( SUPRA ) BECAUSE IN THAT CASE THE RIICO WAS ACTING AS A CATALYST AGENT ON BEHALF OF NUMBER OF ENTREPRENEURS IN INSTALLING THE PLANT WHI CH HAD GIVEN AN ENDURING BENEFIT TO ALL THE UNITS WHEREAS IN THE ASSESSEE'S CASE, THE PLANT IS NOT OWNED BY THE ASSESSEE. THERE FORE, HE HAS DELETED THE ADDITION OF RS. 23,89,000. BUT THE REMA INING AMOUNT OF RS. 41,701 DISALLOWED UNDER SECTION 40(A)(IA) HA S BEEN SUSTAINED AS THIS GROUND WAS NOT PRESSED DURING THE COURSE OF APPEAL OF HEARING. 7. AFTER HEARING BOTH SIDES, WE ARE CONVINCED THAT TH E RATIO OF THE DECISION OF THE HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF JASWANT TRADING CO. ( SUPRA ) IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. THE RATIO OF OTHER DECISIONS, A COPY OF WHICH HAS ALSO BEEN FILED BEFORE US RENDERED IN THE CASE OF DEVERSONS INDUSTRIES LTD. ( SUPRA ) AND THAT OF HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT V. VELUMANICKAM LODGE [2009] 317 ITR 338, ARE DIRECTLY ON THE ISSUE. SINCE THE TANNERY UNIT SITUA TED AT RANIPET HAS JUST COMPLIED WITH THE DIRECTIONS OF THE TAMIL NADU POLLUTION CONTROL BOARD SO AS TO RUN THE UNIT AND THEREBY CON TRIBUTING ITS SHARE TO RANITEC WOULD AMOUNT TO REVENUE EXPENDITUR E ONLY BECAUSE IT IS NECESSARY FOR THE SURVIVAL OF THE BUS INESS OF THE ASSESSEE-COMPANY. WE ARE IN AGREEMENT WITH THE LEAR NED COMMISSIONER OF INCOME-TAX (APPEALS) THAT THIS CAN BE TREATED AS AN EXPENDITURE INCURRED ON ACCOUNT OF BUSINESS EXIG ENCY. WE, THEREFORE, CONFIRM THE IMPUGNED DELETION. 6. IN THE CASE ON HAND, THE ASSESSING OFFICER AS W ELL AS THE COMMISSIONER OF INCOME TAX (APPEALS) RELYING ON THE DECISION OF THE HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF JASWANT TRADING CO. VS. ITA 336/MDS/12 8 CIT(SUPRA) HELD THAT THE CONTRIBUTION PAID BY THE A SSESSEE TO RIDO IS IN THE NATURE OF CAPITAL EXPENDITURE. HOWEVER, THE CO-ORDINATE BENCH OF THIS TRIBUNAL ON IDENTICAL FACTS, AFTER CONSIDE RING THE DECISION OF THE HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF JA SWANT TRADING CO. VS. CIT (SUPRA) HELD THAT THE SAID CONTRIBUTION IS AN ALLOWABLE EXPENDITURE. THEREFORE, RESPECTFULLY FOLLOWING TH E ABOVE DECISION, WE HOLD THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION OF THE AMOUNT CONTRIBUTED BY THE ASSESSEE FOR SETTING UP OF COMMO N EFFLUENT TREATMENT PLANT AS THE EXPENDITURE WAS INCURRED ON ACCOUNT OF BUSINESS EXIGENCY AND, THEREFORE, ALLOWABLE AS DEDU CTION. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. 8. ORDER PRONOUNCED IN OPEN COURT AFTER HEARING O N THURSDAY, THE 15 TH DAY OF NOVEMBER 2012, AT CHENNAI. SD/- SD/- ( ABRAHAM P GEORGE) (CHALLA NAGENDRA PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED : 15 TH NOVEMBER 2012. JLS. ITA 336/MDS/12 9 COPY TO:- (1) APPELLANT (2) RESPONDENT (3) CIT(A), CHENNAI (4) CIT, CHENNAI (5) D.R. (5) GUARD FILE