ACIT, Ludhiana V. M/s Abhishek Industries Ltd., Ludhiana

ITA 531/CHANDI/2009

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5371 (ITAT-CHANDIGARH)
• Duration Of Justice: 4 year(s) 7 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-01-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 23-12-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 18-05-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JYOTI KUMARI
• Keywords: Capital asset; Business income; Depreciation; Bad and doubtful debts; Revised return; Revenue expenditure; Capital expenditure
• Section: 143(3); 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES A, CHANDIGARH BEFORE SHRI T.R.SOOD, ACCOUNTANT MEMBER AND MS SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 490/CHD/2009 ASSESSMENT YEAR:2006-07 M/S ABHISHEK INDUSTRIES LTD., VS THE JCIT, 85, INDUSTRIAL AREA A, RANGE 1, LUDHIANA. LUDHIANA. PAN NO. ----------- & ITA NO. 531/CHD/2009 ASSESSMENT YEAR : 2006-07 THE ACIT, VS M/S ABHISHEK INDUSTRIES LTD. CIRCLE - I, 85, INDUSTRIAL AREA A, LUDHIANA LUDHIANA. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ASHWANI KUMAR DEPARTMENT BY: SMT. JYOTI KUMARI DATE OF HEARING : 30.12.2013 DATE OF PRONOUNCEMENT : 17.01.2014 ORDER PER SUSHMA CHOWLA, JM THE CROSS-APPEALS HAVE BEEN FILED BY THE ASSESSEE AND THE REVENUE AGAINST THE ORDER OF THE CIT(APPEALS), LUDHIANA DAT ED 27.02.2009 RELATING TO ASSESSMENT YEAR 2006-07 AGAINST THE ORD ER PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961. 2. THE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLID ATED ORDER FOR THE SAKE OF CONVENIENCE. 2 3. THE ASSESSEE HAS RAISED THE FOLLOWING REVISED GR OUNDS OF APPEAL: 1. THAT ORDER PASSED UNDER SECTION 250(6) BY THE L D. CIT(APPEALS)-I LUDHIANA IS AGAINST LAW AND FACTS ON THE FILE IN AS MUCH AS HE WAS NOT JUSTIFIED TO UPHOLD : (A) THE ACTION OF THE LD. ASSESSING OFFICER TO TREAT A SUM OF RS. 7,84,56,517/- REPRESENTING SUBSIDY ON ACCOUNT OF SALES TAX AS A REVENUE RECEIPT. (B) IN TREATING THE AMOUNT OF SALES TAX SUBSIDY AS INCOME FROM OTHER SOURCES AS AGAINST BUSINESS INCOME. 2. THAT THE LD. CIT(APPEALS) WAS FURTHER NOT JUSTIF IED TO ARBITRARILY UPHOLD : (A) THE DISALLOWANCE OF RS. 3,69,383/- OUT OF INTER EST ACCOUNT BY RESORT TO PROVISION OF SECTION 36(1)(III ). (B) ADDITION OF RS. 34,737/- ON ACCOUNT OF NON- FURNISHING OF EVIDENCE ON ACCOUNT OF FEES FOR PROFESSIONAL AT RS. 28,125/- AND CONTRACTORS AT RS. 6612/-. 3. THAT THE LD. CIT(APPEALS) WAS FURTHER GRAVELY ER RED IN UPHOLDING THE ACTION OF THE LD. ASSESSING OFFICER I N DISALLOWING A SUM OF RS. 22,87,620/- AND RS. 81,64, 545/- PERTAINING TO SUBSIDIARY OF COMPANY M/S ABHISHEK INDUSTRIES INC. USA ON ACCOUNT OF LONG TERM INVESTM ENTS AND LOANS. 4. THAT HE GRAVELY ERRED IN NOT ADJUDICATING GROUND NO. 5 RAISED BEFORE HIM AS TO THE NATURE OF SALES TAX SUB SIDY AS TO WHETHER THE SAME IS INCOME FROM BUSINESS OR F ROM OTHER SOURCES. 4. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : 1. THAT THE LD. CIT(APPEALS) HAS ERRED IN LAW AND FACTS OF THE CASE IN DELETING THE ADDITION ON ACCOUNT OF DISALLOWANCE ON ACCOUNT OF COMPUTER SOFTWARE EXPENS ES AMOUNTING TO RS. 5,25,000/- MADE BY THE ASSESSING OFFICER BY TREATING THIS AMOUNT AS CAPITAL EXPENDIT URE INSTEAD OF REVENUE EXPENDITURE AS CLAIMED BY THE ASSESSING OFFICER. 2. THAT THE LD. CIT(APPEALS) HAS ERRED ON FACTS AND CIRCUMSTANCES OF THE CASE IN DELETING THE ADDITION ON ACCOUNT OF DISALLOWANCE OF RS. 1,25,25,321/- MADE B Y THE ASSESSING OFFICER. THE AMOUNT WAS WRITTEN OFF BY THE ASSESSEE COMPANY BEING THE DEBIT BALANCE OF SUBSIDIARY COMPANY NAMELY ABHISHEK INDS. INC, USA. 3. THAT THE LD. CIT(APPEALS) HAS ERRED IN LAW AND FACT S OF CASE IN DELETING THE ADDITION OF RS.2.43 CRORES MAD E BY THE ASSESSING OFFICER ON ACCOUNT OF EXPENSES RELATI NG TO 3 FEEDER LINES FOR CANAL WATER TREATMENT AND FOR SERV ICE LINES TO PSEB, TAPA BY CONSIDERING THESE EXPENSES A S CAPITAL EXPENDITURE INSTEAD OF REVENUE EXPENDITURE CLAIMED BY THE ASSESSEE. 5. THE LD. AR FOR THE ASSESSEE FAIRLY POINTED OUT T HAT THE GROUND NO. 1(A) AND GROUND NO. 2(A) ARE DECIDED AGAINST THE AS SESSEE BY THE JURISDICTIONAL HIGH COURT IN CIT VS ABHISHEK INDUS RIES REPORTED IN 286 ITR 1 (P&H). IT WAS FURTHER POINTED OUT BY THE LD. AR FOR THE ASSESSEE THAT FORM NO. 8 I.E. DECLARATION UNDER SECTION 158A (1) OF THE INCOME TAX ACT HAS ALREADY BEEN FILED BY THE ASSESSEE CLAI MING THAT IDENTICAL QUESTIONS OF LAW WERE PENDING BEFORE THE HON'BLE SU PREME COURT OF INDIA. 6. THE LD. DR FOR THE REVENUE POINTED OUT THAT THE REPORT OF THE ASSESSING OFFICER IS AVAILABLE ON RECORD. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE IN GROUND NO. 1(A) RAISED BY THE ASSESSEE IS AGAINST THE TREATMENT OF THE SALES TAX SUBSIDY RECEIVED BY THE ASSESSEE W HICH HAS BEEN HELD TO BE A REVENUE RECEIPT IN THE HANDS OF THE ASSESSEE. THE ISSUE IN GROUND NO. 2(A) IS AGAINST THE DISALLOWANCE OF INTEREST RE LATABLE TO INTEREST FREE ADVANCES MADE BY THE ASSESSEE BY INVOKING THE PROVI SIONS OF SECTION 36(1)(III) OF THE ACT. BOTH THESE ISSUES WERE BEFOR E THE HON'BLE PUNJAB & HARYANA HIGH COURT IN ASSESSEE'S OWN CASE RELATING TO ASSESSMENT YEAR 1993-94 AND THE ISSUES WERE DECIDED AGAINST THE ASS ESSEE, AGAINST WHICH APPEAL IS PENDING BEFORE THE HON'BLE SUPREME COURT OF INDIA. THE ASSESSEE HAS FILED THE DECLARATION IN FORM NO. 8 UN DER THE PROVISIONS OF SECTION 158A(1) OF THE ACT UNDER WHICH IT HAS BEEN DECLARED THAT THE SAID QUESTIONS OF LAW ARE PENDING BEFORE THE HON'BLE SUP REME COURT AND THE DECISION IN THE SAID CASE MAY BE APPLIED FOR ADJUDI CATING ISSUES RAISED 4 VIDE GROUND NO. 1(A) AND 2(A) OF THE GROUNDS OF APP EAL. IN VIEW OF THE DECLARATION MADE BY THE ASSESSEE, WE DISMISS THE GR OUND NOS. 1(A) AND 2(A) RAISED BY THE ASSESSEE AGAINST THE ASSESSEE SU BJECT TO THE DECLARATION MADE BY THE ASSESSEE UNDER SECTION 158A(1) OF THE A CT. IDENTICAL ISSUES ARE PENDING BEFORE THE HON'BLE SUPREME COURT AND TH E SAID RATIO WOULD BE SQUARELY APPLICABLE TO THE QUESTIONS OF LAW RAIS ED BY THE ASSESSEE VIDE GROUND NOS. 1(A) AND 2(A) OF THE APPEAL. 8. THE ISSUE IN GROUND NO. 1(B) RAISED BY THE ASSES SEE IS AGAINST THE TREATMENT OF SALES TAX SUBSIDY AS INCOME FROM OTHER SOURCES AS AGAINST BUSINESS INCOME SHOWN BY THE ASSESSEE. 9. THE LD. AR FOR THE ASSESSEE POINTED OUT THAT IDE NTICAL ISSUE AROSE BEFORE THE TRIBUNAL IN ASSESSEE'S CASE RELATING TO ASSESSMENT YEAR 2004- 05 AND THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. 10. THE LD. DR FOR THE REVENUE PLACED RELIANCE ON T HE ORDERS OF THE AUTHORITIES BELOW. 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE TRIBUNAL IN ITA NO. 321/CHD/2009 AND ITA 259/CHD/20 09 IN CROSS APPEALS FILED BY THE ASSESSEE AND REVENUE RELATING TO ASSESSMENT YEAR 2004-05 VIDE ORDER DATED 27.09.2011, VIDE PARAS 23 & 24 HAD HELD THAT 90% OF THE AMOUNT OF SALES TAX SUBSIDY IS NOT TO BE EXCLUDED FROM THE PROFITS OF BUSINESS FOR THE PURPOSE OF COMPUTING DE DUCTION UNDER SECTION 80HHC OF THE ACT, IMPLYING THEREBY THAT THE SAID RE CEIPTS WERE TREATED AS BUSINESS INCOME OF THE ASSESSEE. THE ASSESSEE V IDE GROUND NO. 1(B) IS AGGRIEVED BY THE TREATMENT OF SALES TAX SUBSIDY AS INCOME FROM OTHER SOURCES IN THE HANDS OF THE ASSESSEE BY THE AUTHORI TIES BELOW FOR THE YEAR UNDER CONSIDERATION. FOLLOWING THE SIMILAR REASONIN G AS IN THE EARLIER YEARS, WE DIRECT THE ASSESSING OFFICER TO TREAT THE SALES TAX SUBSIDY AS 5 INCOME FROM THE BUSINESS IN THE HANDS OF THE ASSESS EE. THE GROUND NO. 1(B) RAISED BY THE ASSESSEE IS, THUS ALLOWED. 12. THE ISSUE IN GROUND NO. 2(B) IS AGAINST ADDITIO N OF RS. 34,737/-. THE ASSESSING OFFICER HAD RECEIVED CERTAIN AIR INFO RMATION AND AS PER PARA 10 AT PAGE 15 OF THE ASSESSMENT ORDER, HE FOUN D THAT THE INFORMATION SUPPLIED BY THE AIR DID NOT CORRESPOND TO THE EXPEN DITURE SHOWN BY THE ASSESSEE AND CONSEQUENTLY ADDITION OF RS. 34,737/- WAS MADE IN THE HANDS OF THE ASSESSEE WHICH INCLUDED PROFESSIONAL F EE AT RS. 28,125/- AND PAYMENT OF CONTRACTS AT RS.6612/-. THE ASSESSE E HAS FAILED TO RECONCILE THE SAME AND CONSEQUENTLY ADDITION OF RS. 34,737/- IS UPHELD. THE GROUND NO. 2(B) RAISED BY THE ASSESSEE IS THUS, DISMISSED. 13. THE ISSUE IN GROUND NO. 3 RAISED BY THE ASSESSE E IS AGAINST THE ADDITION MADE OF RS. 22,87,620/- AND RS. 81,64,540/ - PERTAINING TO THE SUBSIDIARY OF THE ASSESSEE COMPANY. 14. THE REVENUE HAS ALSO RAISED GROUND OF APPEAL NO . 2 AGAINST THE DELETION OF ADDITION ON ACCOUNT OF DISALLOWANCE OF RS. 125,25,321/- BEING THE DEBIT BALANCE OF SUBSIDIARY COMPANY WRITT EN OFF BY THE ASSESSEE. AS THE FACTS RELATING TO BOTH GROUND NO. 3 RAISED BY THE ASSESSEE AND GROUND NO. 2 RAISED BY THE REVENUE ARE IDENTICAL, WE PROCEED TO DECIDE THE SAID TWO GROUNDS OF APPEAL HE REIN AFTER. 15. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD WRITTEN OFF RS. 22, 977,486/-, REPRESENTING LOANS AND ADVANCES AMOUNTING TO RS. 81 ,64,545/-, DEBTS AMOUNTING TO RS. 125,25,321/- AND INVESTMENT OF RS. 22,87,620/- IN ABHISHEK INDUSTRIES INC USA. THE SAID COMPANY I.E. ABHISHEK INDUSTRIES INC USA WAS WHOLLY SUBSIDIARY OF THE ASS ESSEE. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD MADE AN INVESTMENT OF RS. 6 22,87,620/- ON 50000 COMMON STOCK OF USD ONE EACH I N ABHISHEK INDUSTRIES INC USA AND IS REFLECTED AS INVESTMENT U NDER SCHEDULE-VI OF THE BALANCE SHEET. THE LOSS ARISING FROM THE SAME WAS HELD TO BE NOT ALLOWABLE AS REVENUE EXPENDITURE UNDER SECTION 37(1 ) OF THE ACT. FURTHER, THE COMPANY HAD WRITTEN OFF LOANS AND ADVA NCES AMOUNTING TO RS. 81,64,540/- AND DEBTS AMOUNTING TO RS. 125,25,3 21/-. THE ASSESSEE HAD FAILED TO GIVE ANY EVIDENCE DURING THE ASSESSME NT PROCEEDINGS FOR WRITING OFF OF THESE ADVANCES AND DEBTS. FURTHER, THE ASSESSEE FAILED TO GIVE ANY JUSTIFIABLE REASONS FOR WRITING OF THE INV ESTMENTS, LOANS AND ADVANCES AND DEBTS AND HENCE, THE SAME WERE ADDED B ACK AS INCOME OF THE ASSESSEE BY THE ASSESSING OFFICER. 16. THE CIT(APPEALS) HELD THAT THE WRITING OFF OF I NVESTMENT OF RS. 22,87,629/- AND LOANS AND ADVANCES OF RS. 81,64,545 /- WERE ADMITTEDLY CAPITAL, HENCE, COULD NOT BE WRITTEN OFF AS BAD DEB TS UNDER SECTION 36(1)(VII) OF THE ACT. HOWEVER, IN RESPECT OF THE SUNDRY DEBTS WRITTEN OFF AT RS. 1.25 CR, THE CIT(APPEALS) HELD THAT AS P ER THE AMENDED PROVISIONS OF SECTION 36(1)(VII) OF THE ACT, WHERE ONCE THE DEBT IS WRITTEN OFF IN THE BOOKS OF ACCOUNT, THE SAME IS TO BE ALLOWED AS DEDUCTION. THE CIT(APPEALS) NOTES THAT THOUGH THE ASSESSEE HAD NOT BROUGHT ON RECORD ANY MATERIAL TO SHOW EFFORTS BEIN G MADE TO RECOVER THE SAID AMOUNT, BUT THE DEDUCTION IN RESPECT OF THE SA ME COULD NOT BE DISALLOWED. THE ASSESSEE IS IN APPEAL AGAINST THE ABOVE ADDITION MADE BY THE CIT(APPEALS) AND THE REVENUE IS IN APPEAL AG AINST THE RELIEF GRANTED BY THE CIT(APPEALS). 17. THE LD. AR FOR THE ASSESSEE POINTED OUT THAT TH E AMOUNTS WERE ADVANCED TO THE SUBSIDIARY COMPANY AND WAS BUSINESS LOSS ALLOWABLE TO THE ASSESSEE. 7 18. THE LD. DR FOR THE REVENUE ON THE OTHER HAND, P OINTED OUT THAT THE SAID ISSUE WAS COVERED AGAINST THE ASSESSEE IN VIEW OF THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN HASIMARA INDUS TRIES LTD. VS CIT & ANOTHER 230 ITR 927 (S.C). IN RESPECT OF THE REL IEF GRANTED BY THE CIT(APPEALS), IT WAS POINTED OUT BY THE LD. DR FOR THE REVENUE THAT THERE WAS NO EVIDENCE THAT LOANS WERE BAD. RELIANCE WAS PLACED ON EMBASSY CLASSIC (P) LTD. & ANR VS ACIT (2011) 7 ITR (TRIB) 287 (BANG) AND DCIT VS INDIA THERMIT CORPN, LTD. 56 ITD 307 (DEL). 19. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE ARISING BEFORE US IS IN RELATION TO THE INVES TMENT, LOAN AND ADVANCES AND DEBTS WRITTEN OFF RELATING TO THE SUBS IDIARY OF THE ASSESSEE I.E. M/S ABHISHEK INDUSTRIES INC USA. DURING THE Y EAR UNDER CONSIDERATION, THE ASSESSEE HAD WRITTEN OFF RS. 22, 977,486/-, REPRESENTING LOANS AND ADVANCES AMOUNTING TO RS. 81 ,64,545/-, DEBTS AMOUNTING TO RS. 125,25,321/- AND INVESTMENT OF RS. 22,87,620/- IN ABHISHEK INDUSTRIES INC USA. THE CASE OF THE ASSES SEE WAS THAT THE SAID ADVANCES WERE BUSINESS ADVANCES MADE BY THE AS SESSEE DURING THE COURSE OF ITS BUSINESS AND ONCE THE SAID ADVANCES W ERE NOT RECOVERED AND WERE WRITTEN OFF, THE SAME WERE TO BE ALLOWED AS BU SINESS LOSS. THE FIRST ADVANCE UNDER CONSIDERATION IS INVESTMENT OF RS. 22 ,87,629/- WHICH IN- TURN IS INVESTED BY THE ASSESSEE IN THE SHARES OF T HE SAID SUBSIDIARY COMPANY. THE SAID AMOUNT WAS DECLARED AS INVESTMEN T UNDER SCHEDULE- VI OF THE BALANCE SHEET OF THE ASSESSEE AND WRITE O FF OF SUCH ADVANCE IS CAPITAL IN NATURE AND CANNOT BE ALLOWED AS REVENUE EXPENDITURE. SIMILARLY, WRITE OFF OF LOANS AND ADVANCES MADE BY THE ASSESSEE TO ITS SUBSIDIARY COMPANY TOTALING RS. 81,64,545/- CANNOT BE ALLOWED AS AN EXPENDITURE UNDER SECTION 36(1)(VII) OF THE ACT AS THERE IS NO ELEMENT OF REVENUE IN SUCH WRITE OFF AND IT IS PURELY A CAPITA L EXPENDITURE WHICH IS 8 NOT ALLOWABLE IN THE HANDS OF THE ASSESSEE. THE AM ENDED PROVISIONS OF SECTION 36(1)(VII) OF THE ACT I.E. THE TREATMENT OF WRITE OFF BAD DEBTS IS TO BE READ ALONGWITH THE PROVISIONS OF SECTION 36(2 ) OF THE ACT UNDER WHICH IT IS PROVIDED THAT ALL SUCH RECEIPTS WHICH H AVE BEEN DECLARED BY THE ASSESSEE AS ITS INCOME IN THE YEAR OF THE WRITE OFF OR IN ANY OF THE EARLIER YEARS, CAN BE ALLOWED AS A BAD DEBT ON ITS WRITE OFF IN THE BOOKS OF ACCOUNT. THE LOANS AND ADVANCES TO THE SUBSIDIA RY COMPANY CANNOT BE ALLOWED AS A DEDUCTION UNDER SECTION 36(1)(VII) OF THE ACT AS THE CONDITIONS LAID DOWN IN SECTION 36(2) OF THE ACT AR E NOT FULFILLED. WE FIND SUPPORT FROM THE RATIO LAID DOWN BY THE HON'BL E SUPREME COURT IN HASIMARA INDUSTRIES LTD. V CIT & ANOTHER (SUPRA). 20. NOW COMING TO THE LAST ITEM OF WRITE OFF I.E. S UNDRY DEBTS OF RS.1.25 CR. THE ASSESSEE CLAIMS THAT THE SAID DEBT S WERE WRITTEN OFF DURING THE YEAR UNDER CONSIDERATION AND WERE ALLOWA BLE UNDER SECTION 36(1)(VII) OF THE ACT. THE ASSESSING OFFICER HAD D ISALLOWED THE CLAIM OF THE ASSESSEE AS NO EVIDENCE WAS FILED FOR WRITING O FF OF THE DEBTS. THE CIT(APPEALS) HAS ALLOWED THE CLAIM OF THE ASSESSEE IN VIEW OF THE AMENDED PROVISIONS OF SECTION 36(1)(VII) OF THE ACT . WE ARE IN CONFORMITY WITH THE FINDINGS OF THE CIT(APPEALS) TH AT THE AMOUNT WRITTEN OFF AS BAD DEBTS IS TO BE ALLOWED AS DEDUCTION IRRE SPECTIVE OF THE ASSESSEE HAVING MADE ANY EFFORTS TO HAVE RECOVERED THE SAME. AS PER THE AMENDED PROVISIONS OF THE ACT, MERE WRITE OFF OF TH E BAD DEBT IS TO BE ALLOWED AS A DEDUCTION BUT THE SAID DEDUCTION OF BA D DEBT WRITTEN OFF IS TO BE ALLOWED SUBJECT TO FULFILLMENT OF THE PROVISI ONS OF SECTION 36(2) OF THE ACT. FROM THE PERUSAL OF THE ORDER OF THE CIT( APPEALS), WE FIND THAT THE ASSESSEE HAS FAILED TO BRING ON RECORD ANY EVID ENCE TO ESTABLISH ITS CLAIM OF HAVING FULFILLED THE CONDITIONS LAID DOWN IN SECTION 36(1)(VII) READ WITH SECTION 362) OF THE ACT. IN VIEW THEREOF , WE RESTORE THIS ISSUE 9 BACK TO THE FILE OF ASSESSING OFFICER TO VERIFY THE CLAIM OF THE ASSESSEE I.E. WRITE OFF OF THE BAD DEBTS UNDER SECTION 36(1) (VII) OF THE ACT AND ALSO TO VERIFY WHETHER SUCH DEBTS WERE DECLARED AS REVENUE RECEIPTS IN THE RELEVANT YEARS TO WHICH THEY RELATE I.E. WHETHE R THE CONDITIONS LAID DOWN IN SECTION 36(2) OF THE ACT HAVE BEEN FULFILLE D BY THE ASSESSEE. THE ASSESSING OFFICER SHALL AFFORD REASONABLE OPPOR TUNITY OF HEARING TO THE ASSESSEE WHO IN TURN SHALL FURNISH COMPLETE EVI DENCE WITH REGARD TO ITS CLAIM OF DEDUCTION. THUS, THE GROUND NO. 3 RAI SED BY THE ASSESSEE IS DISMISSED AND THE GROUND NO. 2 RAISED BY THE REVENU E IS ALLOWED FOR STATISTICAL PURPOSES. 21. THE GROUND NO. 4 RAISED BY THE ASSESSEE IS LINK ED TO GROUND NO.1(B) RAISED BY THE ASSESSEE AND IN VIEW OF OUR A LLOWING GROUND NO. 1(B), GROUND NO. 4 ALSO STANDS ALLOWED. 22. NOW COMING TO GROUND NO. 1 RAISED BY THE REVENU E, THE ISSUE IS AGAINST DELETION OF ADDITION MADE ON ACCOUNT OF EXP ENSES OF COMPUTER SOFTWARE AMOUNTING TO RS. 5,25,000/-. 23. THE LD. DR FOR THE REVENUE POINTED OUT THAT IN VIEW OF THE AMENDED PROVISIONS OF THE ACT UNDER WHICH COMPUTER IS DEFIN ED TO INCLUDE COMPUTER SOFTWARE, THE ORDER OF THE CIT(APPEALS) NE EDS TO BE REVERSED. 24. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. AS PER NEW APPENDIX-I EFFECTED FROM ASSESSMENT YEAR 20 03-04 ONWARDS, ITEM NO. 5 UNDER PART A-III, MACHINERY AND PLANT, I T IS PROVIDED THAT COMPUTERS INCLUDE COMPUTER SOFTWARE. IN VIEW OF TH E AMENDED PROVISIONS OF THE ACT, THE ASSESSEE IS ENTITLED TO DEPRECIATION @ 60% ON THE COMPUTER SOFTWARE. ACCORDINGLY, WE REVERSE ORD ER OF CIT(APPEALS) IN THIS REGARD AND UPHOLD THE ADDITION MADE BY THE ASSESSING OFFICER. 10 THE ASSESSEE IS ENTITLED TO DEPRECIATION @ 60% ON T HE COST OF COMPUTER SOFTWARE. THE GROUND NO. 1 RAISED BY THE REVENUE IS THUS, ALLOWED. 25. THE GROUND NO. 2 RAISED BY THE REVENUE IS ALREA DY ADJUDICATED ALONGWITH GROUND NO. 3 RAISED BY THE ASSESSEE AND T HE SAME IS ALLOWED FOR STATISTICAL PURPOSES. 26. THE ISSUE IN GROUND NO. 3 RAISED BY THE REVENUE IS AGAINST THE DELETION OF ADDITION OF RS.2.43 CR. 27. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD CLAIMED EXPENDITURE ON ACCOUNT OF EXPENSES RELATING TO FEEDER LINES FOR CANAL WATER T REATMENT OF RS.1,10,00,000/- AND PAYMENT MADE TO PSEB FOR ELECT RIC SERVICE LINE AMOUNTING TO RS.1.33 CR. THE SAID EXPENDITURE WAS CLAIMED IN THE REVISED RETURN OF INCOME FILED ON 20.03.2008. BEF ORE THE ASSESSING OFFICER, IT WAS EXPLAINED BY THE ASSESSEE THAT BOTH THE FEEDER LINES FOR CANAL WATER TREATMENT AND POWER SERVICE LINE OF ELE CTRICITY DID NOT BECOME THE PROPERTY OF THE ASSESSEE COMPANY AND DED UCTION WAS CLAIMED PLACING RELIANCE ON SERIES OF JUDICIAL DECISIONS. THE ASSESSING OFFICER OBSERVED THAT THE SUM OF RS.1.10 CR WAS PAID BY THE ASSESSEE AS SECOND INSTALMENT FOR THE PURPOSE OF CONSTRUCTION OF FEEDE R LINES FOR CANAL WATER TREATMENT WHICH WOULD PROVIDE WATER TO THE ASSESSEE COMPANY OVER THE NEXT YEARS. AS THE BENEFIT OF THE SAID EXPENSES WAS OF ENDURING NATURE, THE ASSESSING OFFICER HELD THAT THE AMOUNT WAS TO B E TREATED AS CAPITAL EXPENDITURE. SIMILARLY, THE SUM OF RS. 1.33 CR PAI D TO PSEB FOR ERECTION OF 66 KV POWER LINE FROM DHAULA COMPLEX TO SANGHERA COMPLEX OF THE ASSESSEE WAS HELD TO HAVE BEEN PAID FOR CREATION OF FIXED ASSETS IN THE NATURE OF POWER SERVICE LINE ONLY. THE ASSESSING O FFICER HELD THAT AS THE AMOUNT HAD BEEN SPENT FOR CREATION OF ASSETS WHICH WOULD BE UTILIZED 11 ONLY WHEN THE ASSETS WERE MADE FULLY OPERATIONAL, T HE AMOUNT WAS HELD TO BE CAPITAL IN NATURE AS THE SAID ASSETS HAD NOT BECOME OPERATIONAL. THE ASSESSING OFFICER HELD THAT NO DEPRECIATION WAS ALLOWABLE ON THE SAID CAPITAL WORK IN PROGRESS. 28. BEFORE THE CIT(APPEALS), THE CONTENTION OF THE ASSESSEE WAS THAT THE ASSETS CREATED BY SPENDING THE AMOUNT IN QUESTI ON DID NOT BECOME THE PROPERTY OF THE ASSESSEE AND RATHER THE OWNERSHIP L IES WITH THE STATE GOVERNMENT. THE LD. AR FOR THE ASSESSEE PLACED RELI ANCE ON THE DECISION OF CIT(APPEALS) IN ASSESSEE'S OWN CASE RELATING TO ASSESSMENT YEAR 1999-2000 UNDER WHICH THE SAID ADDITION WAS DELETED IN TURN RELYING ON THE RATIO LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN CIT V PANBARI TEA CO. LTD. 151 ITR 726 (P&H). THE CIT( APPEALS) HELD THAT AS THE ASSETS IN QUESTION DID NOT BECOME THE PROPER TY OF THE ASSESSEE, THE AMOUNTS INCURRED FOR CREATION OF THESE ASSETS WAS T O BE ALLOWED AS A REVENUE EXPENDITURE IN THE HANDS OF THE ASSESSEE. 29. THE LD. DR FOR THE REVENUE POINTED OUT THAT THE ASSESSING OFFICER IN PARAS 10 TO 12 HAVE CONSIDERED THE ISSUE AND GIV EN A FINDING THAT THE AMOUNT HAS BEEN PAID AS CAPITAL WORK IN PROGRESS ON WHICH DEPRECIATION IS NOT ALLOWABLE. IN VIEW THEREOF, WHERE THE ASSES SEE HAS MADE THE PAYMENT FOR ACQUISITION OF ASSET, WHICH HAS ENDURIN G ADVANTAGE TO THE ASSESSEE AND THEN SAME IS NOT TO BE ALLOWED AS AN E XPENDITURE. RELIANCE WAS PLACED ON CIT VS SHREYANS INDUSTRIES LTD. 303 I TR 393 (P&H) AND TRAVANCORE COCHIN CHEMICALS LTD. VS CIT 106 ITR 900 (S.C). 30. THE LD. AR FOR THE ASSESSEE POINTED OUT THAT TH E EXPENDITURE INCURRED BY THE ASSESSEE WAS IN THE COURSE OF CARRY ING ON OF THE BUSINESS AND THE SAME WAS ALLOWABLE AS AN EXPENDITURE. IT W AS FURTHER POINTED OUT BY THE LD. AR FOR THE ASSESSEE THAT THE HON'BLE SUPREME COURT IN 12 SHREYANS INDUSTRIES LTD. VS CIT 314 ITR 302 HAS RESTORED THE MATTER BACK TO THE HON'BLE HIGH COURT TO RE-DECIDE THE ISS UE WHICH WAS DECIDED AGAINST THE ASSESSEE BY THE HON'BLE PUNJAB & HARYAN A HIGH COURT REPORTED IN SHREYANS INDUSTRIES LTD. VS CIT (SUPRA) . FURTHER RELIANCE WAS PLACED ON CIT VS PANBARI TEA CO. 151 ITR 726 (P&H), CIT VS ASSOCIATED CEMENT CO. LTD. 172 ITR 257 (S.C) AND AL SO CIT VS DART MFG. INDIA (P) LTD.175 TAXMAN 6 (DELHI). IT WAS FUR THER POINTED OUT BY THE LD. AR FOR THE ASSESSEE THAT THE QUESTION OF WO RK IN PROGRESS WOULD ARISE IF THE EXPENDITURE WAS CAPITAL IN NATURE AND IF THE EXPENDITURE WAS REVENUE IN NATURE, THE SAME MERITS TO BE ALLOWED. 31. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE HAD CLAIMED EXPENDITURE OF RS. 1,10,00,000 /- CLAIMED TO BE INCURRED ON FEEDER CANAL WATER TREATMENT AND PAYMEN T OF RS. 1.33 CR BEING PAYMENT MADE TO PSEB FOR ELECTRIC SERVICE LIN ES. THE ASSESSEE HAD FILED WRITTEN SUBMISSIONS BEFORE THE ASSESSING OFFICER WITH REGARD TO HIS CLAIM OF EXPENDITURE TOTALING RS.2.43 CR. THE SAID WRITTEN SUBMISSIONS ARE INCORPORATED UNDER SUB-PARA (B) AT PAGES 10 & 11 OF THE ASSESSMENT ORDER. THE PERUSAL OF THE SAID SUBMISSIO NS REFLECT THAT THE SUM OF RS. 1,10,00,000/- WAS PAID TO EXECUTIVE ENGI NEER, SANGRUR (PUNJAB). FOR FEEDER LINES FOR USING CANAL WATER IN THE PAPER PLANT OF THE COMPANY AND THE EXPENDITURE OF RS. 1,33,00,000/- WA S PAID TO PSEB, TAPA, PUNJAB FOR ERECTION OF 66 KV POWER SERVICE LI NES FROM DHAULA COMPLEX TO SANGHERA COMPLEX OF THE ASSESSEE COMPANY . IT WAS FURTHER SUBMITTED BY THE ASSESSEE BEFORE THE ASSESSING OFFI CER AS UNDER : FURTHER AS DESIRED THE BELOW MENTIONED DOCUMENTS A RE ENCLOSED HEREWITH :- (A) COPY OF LETTER DATED 22 ND JUNE, 2005 FROM EXECUTIVE ENGINEER, SANGRUR FOR DEPOSIT OF 2 ND INSTALLMENT AMOUNTING TO RS. 60.00 LACS. 13 (B) COPY OF LETTER DATED 7 TH MAY, 2005 FROM CHIEF ENGINEER/COMMERCIAL (SALES DIRECTORATE), PUNJAB STA TE ELECTRICITY BOARD, PATIALA FOR PAYMENT OF RS. 1.33 CRORE. 32. THE PLEA OF THE ASSESSEE BEFORE THE CIT(APPEALS ) WAS THAT THE ASSESSEE COMPANY DOES NOT ACQUIRE OWNERSHIP OF ANY PROPERTY BY SPENDING AMOUNT FOR FEEDER LINES FOR CANAL WATER TR EATMENT AND POWER SERVICE LINES OF ELECTRICITY AS THE OWNERSHIP LIES WITH THE STATE GOVT. AND DO NOT BELONG TO THE ASSESSEE COMPANY SO THE EXPEND ITURE IS PURELY OF REVENUE NATURE. 33. ADMITTEDLY, THE ASSESSEE DOES NOT BECOME OWNER OF THE SAID ASSETS BUT THE ISSUE ARISING BEFORE US IS WHETHER IN CASE WHERE THE SO CALLED ASSET HAS NOT COME INTO EXISTENCE, THE EXPENDITURE INCURRED ON THE SAME I.E. INSTALMENTS PAID FOR BRINGING THE SAME INTO EX ISTENCE BEING CAPITAL WORK IN PROGRESS, ARE TO BE ALLOWED AS AN EXPENDITU RE IN THE HANDS OF THE ASSESSEE. THE ASSESSING OFFICER HAS GIVEN A FINDIN G THAT THE SAID ASSETS ARE CAPITAL ASSETS BUT NO DEPRECIATION IS TO BE ALL OWED ON SUCH ASSETS AS THE SAME ARE CAPITAL WORK IN PROGRESS. THE PLEA OF THE LD. AR FOR THE ASSESSEE BEFORE US IS THAT THE EXPENDITURE IS ALLOW ABLE AS A REVENUE EXPENDITURE AND THERE IS NO QUESTION OF BEING HELD AS CAPITAL WORK IN PROGRESS. IN CASES WHERE THE ASSET IS UNDER CONSTR UCTION I.E. THE FINAL ASSET HAS NOT COME INTO EXISTENCE, THE AMOUNTS PAID IN INSTALMENTS FOR BRINGING INTO EXISTENCE SUCH ASSETS, CANNOT BE ALLO WED AS A REVENUE EXPENDITURE IN THE YEAR IN WHICH THE ASSET HAS NOT COME INTO EXISTENCE. THE ALLOWABILITY OF THE EXPENDITURE IN THE YEAR OF THE ASSET COMING INTO EXISTENCE HAS TO BE SEEN WHEN THE SAID ASSET COMES INTO EXISTENCE. HOWEVER, COMPLETE FACTS ARE NOT AVAILABLE ON RECORD AND IN ORDER TO ADJUDICATE THE ISSUE, WE ARE OF THE VIEW THAT BASIC FACTS RELATING TO THE ISSUE OF ALLOWABILITY OF EXPENDITURE TOTALING RS. 2 .33 CR NEEDS TO BE 14 CULLED OUT FROM THE RECORD. IN ORDER TO ADJUDICATE THE ISSUE OF ALLOWABILITY OF THE SAID EXPENDITURE, WE ARE OF THE VIEW THAT NECESSARY EVIDENCE IN THIS REGARD IS TO BE FILED BY THE ASSES SEE TO ESTABLISH ITS CASE THAT IT IS NOT MERE WORK IN PROGRESS AND ON THE OTH ER HAND, THE AMOUNT HAS ACTUALLY BEEN SPENT FOR BRINGING INTO EXISTENCE THE SAID ASSET. IN THE TOTALITY OF THE ABOVESAID FACTS, IN ORDER TO ADJUDI CATE THE ALLOWABILITY OF CLAIM OF EXPENDITURE, WE REMIT THIS ISSUE BACK TO T HE FILE OF ASSESSING OFFICER AND DIRECT THE ASSESSEE TO FURNISH COMPLETE INFORMATION IN THIS REGARD BEFORE THE ASSESSING OFFICER WHO IN TURN WIL L DECIDE THE SAID ISSUE. REASONABLE OPPORTUNITY OF HEARING SHALL BE AFFORDED TO THE ASSESSEE. THE GROUND NO. 3 RAISED BY THE REVENUE IS THUS ALLOWED FOR STATISTICAL PURPOSES. 34 IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE AND THE REVENUE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 17 TH DAY OF JANUARY, 2014. SD/- SD/- (T.R.SOOD) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 17 TH JANUARY,2014 POONAM COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR BY ORDER ASSISTANT REGISTRAR, ITAT, CHANDIGARH