The Dy. CIT, Circle-1(1), Vadodara V. Belgium Glass & Ceramics P. Ltd., Vadodara

ITA 549/AHD/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 2513 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 04-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B L MEENA
• Assessee Lawyers: MUKAND BAKSHI
• Keywords: Depreciation; Tax effect; Revenue expenditure; Capital expenditure
• Section: 250

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL, B BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ITA NO.549/AHD/2016 ASSTT.YEAR 2010-11 THE DCIT, CIR.1(1)(1) VADODARA. VS BELGIUM GLASS & CERAMICS P.LTD. PADRA-JAMBUSAR ROAD NR. VILLAGE-DABHASA VADODARA 391 440. PAN : AAACB 8651 P ITA NO.599 AND 600/AHD/2016 ASSTT.YEAR 2010-11 AND 2011-12 BELGIUM GLASS & CERAMICS P.LTD. PADRA-JAMBUSAR ROAD NR. VILLAGE-DABHASA VADODARA 391 440. VS THE DCIT, CIR.1(1)(1) VADODARA. ( APPLICANT ) ( RESPONENT ) ASSESSEE BY : SHRI MUKAND BAKSHI, AR REVENUE BY : SHRI B.L. MEENA, SR.DR / DATE OF HEARING : 21/02/2019 / DATE OF PRONOUNCEMENT: 11/03/2019 &'/ O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: IN THE ASSTT.YEAR 2010-11 ASSESSEE AND THE REVENUE ARE IN CROSS APPEALS AGAINST ORDER OF THE LD.CIT(A)-1, VADODARA DATED 3.12.2015, WHEREAS IN THE ASSESSMENT YEAR 2011-12 ASSESSEE ALONE IS IN APPEAL AGAINST THE ORDER OF THE LD.CIT(A) DATED 3.12.2015. ITA NO.549, 599 AND 600/AHD/2016 DCIT VS. BELGIUM GLASS & CERAMICS P.LTD. 2 2. AS FAR AS APPEAL OF THE REVENUE IS CONCERNED, TH E LD.COUNSEL FOR THE ASSESSEE AT OUTSET SUBMITTED COMPUTATION SHEET SHOW ING THAT BY VIRTUE OF RELIEF GRANTED BY THE LD.CIT(A) TAX EFFECT INVOLVED IN THE APPEAL IS ONLY RS.15,02,883/-, WHICH IS BELOW MONETARY LIMIT STIPU LATED BY THE CBDT VIDE INSTRUCTION BEARING NO.3 OF 2018 DATED 11.08.2018 F OR FILING APPEAL BEFORE THE ITAT BY THE REVENUE. TAX EFFECT CALCULATED BY THE ASSESSEE IS AS UNDER: SR. NO. GROUNDS OF APPEALS AMOUNT (RS.) GROUNDS OF APPEAL RAISED BY THE DEPARTMENT A.Y. 201 0-11 1 DELETION OF INCOME ON ALLEGED UNACCOUNTED TURNOVER BASED ON THE INFORMATION CONSEQUENT TO SEARCH BY EXCISE AUTHORITIES AND REPORT OF DGCEI. (BEING 20% PRO FIT ON ALLEGED UNACCOUNTED SALES OF RS.1,55,18,975/-) 31,03,795 2 ALLOWANCE OF 25 % OUT OF REPAIRS & MAINTENANCE EXPE NSES HOLDING THE SAME TO BE REVENUE IN NATURE AS AGAINST THE ACTION OF THE LD. A.O. IN TREATING THE SAME AS CAPITAL EXPENDITURE, (OUT OF RS.52,70,999/- INCURRED FOR REPAIRS & MAINTENANCE TO PLANT & MACHINERY) 13,17,750 3 TOTAL 44,21,545 4 TAX PAYABLE @30% 13,26,464 5 ADD : SURCHARGE @10% 1,32,646 6 TOTAL TAX 14,59,110 7 ADD : EDUCATION CESS @3% 43,773 8 TOTAL TAX PAYABLE ON RS.44,21,545/- 15,02,883 3. THE LD.COUNSEL FOR THE ASSESSEE ACCORDINGLY PRAY ED THAT THE TAX EFFECT ON IMPUGNED ADDITION BEING BELOW RS.20 LAKHS, THEREFOR E, THE PRESENT APPEAL IS NOT MAINTAINABLE AT THE THRESHOLD. THE LD.DR HAS N OT DISPUTED APPLICABILITY OF ABOVE CIRCULAR CITED BY THE LD.COUNSEL FOR THE ASSE SSEE, AND HAS NOT POINTED OUT WHETHER THE CASE OF THE REVENUE FALL WITHIN THE AMB IT OF EXCEPTIONS PROVIDED IN THE CIRCULAR OR NOT. THUS, KEEPING IN VIEW THE ABOVE CBDT CIRCULAR, WHICH IS APPLICABLE TO PENDING APPEALS ALSO, AND PROVISIO NS OF SECTION 268A OF THE INCOME TAX ACT, WE ARE OF THE VIEW THAT THE APPEAL OF THE REVENUE DESERVES TO BE DISMISSED. IT IS ACCORDINGLY DISMISSED. 4. HOWEVER, IT IS OBSERVED THAT IN CASE ON RE-VERIF ICATION AT THE END OF THE AO IT COMES TO THE NOTICE THAT THE TAX EFFECT IS MO RE OR REVENUES CASE FALLS ITA NO.549, 599 AND 600/AHD/2016 DCIT VS. BELGIUM GLASS & CERAMICS P.LTD. 3 WITHIN THE AMBIT OF EXCEPTIONS PROVIDED IN THE CIRC ULAR, THEN THE DEPARTMENT WILL BE AT LIBERTY TO APPROACH THE TRIBUNAL FOR REC ALL OF THIS ORDER. SUCH APPLICATION SHOULD BE FILED WITHIN THE TIME PERIOD PRESCRIBED IN THE ACT. 5. NOW WE TAKE APPEALS OF THE ASSESSEE FOR THE ASSE SSMENT YEARS 2010- 11 AND 2011-12. 6. ASSESSEE HAS TAKEN FOUR GROUNDS OF APPEAL IN EAC H ASSESSMENT YEAR. IN BRIEF, ITS SOLE GRIEVANCE IS THAT THE LD.CIT(A)H AS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.39,53,249/- OUT OF RS.52,70,999/ - AND DISALLOWANCE OF RS.28,55,917/- OUT OF RS.38,07,890/- IN THE ASSTT.Y EAR 2010-11 AND 2011-12 RESPECTIVELY BY TREATING THEM AS UNEXPLAINED EXPEND ITURE INCURRED IN THE CAPITAL FIELD INSTEAD OF TREATING THEM IN THE REVEN UE ACCOUNT FOR REPAIRS AND MAINTENANCE TO PLANT & MACHINERY. THE FACTS ON ALL VITAL POINTS ARE COMMON IN BOTH THE ASSESSMENT YEARS. BASICALLY, THE LD.CI T(A) HAS PASSED ORDER IN THE ASSTT.YEAR 2011-12 AND THAT ORDER HAS BEEN FOLLOWED IN THE ASSTT.YEAR 2010- 11. THOUGH BOTH ORDERS HAVE BEEN PASSED SIMULTANEO USLY, THEREFORE, FOR THE SAKE OF REFERENCE WE TAKE FACTS FROM THE ASSTT.YEAR 2011-12. 7. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S FILED ITS RETURN OF INCOME ON 30.9.2011 DECLARING TOTAL INCOME AT RS.4, 26,42,260/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT A ND NOTICE UNDER SECTION 143(2) WAS ISSUED AND SERVED UPON THE ASSESSEE. TH E LD.AO OBSERVED THAT ON PERUSAL OF THE ACCOUNTS IT REVEALED THAT THE ASSESS EE HAS DEBITED EXPENDITURE OF RS.38,71,001/-; RS.99,08,739; AND RS.1,44,81,689/- ON ACCOUNT OF REPAIRS AND MAINTENANCE IN THE ASSTT.YEARS 2009-10 TO 2011-12. SIMILARLY, HE CONSIDERED TURNOVER IN ALL THESE THREE YEARS, THE VALUE OF THE PLANT & MACHINERY AND PERCENTAGE OF REPAIRS. HE OBSERVED THAT PERCENTAGE OF REPAIRS IN COMPARISON TO VALUE OF PLANT & MACHINERY WAS 60.93% AND 31.58% IN THE ASSTT.YEAR ITA NO.549, 599 AND 600/AHD/2016 DCIT VS. BELGIUM GLASS & CERAMICS P.LTD. 4 2010-11 AND 2011-12. THUS, HE CONFRONTED THE ASSES SEE TO SHOW AS TO WHY THESE EXPENDITURE SHOULD NOT BE CONSTRUED AS INCURR ED IN THE FIELD OF CAPITAL, BECAUSE ACCORDING TO THE UNDERSTANDING OF THE AO, T HIS MAJOR REPAIR WOULD GIVE RISE TO ENDURING BENEFIT TO THE ASSESSEE IN TH E PLANT & MACHINERY. IN RESPONSE TO THE QUERY OF THE AO, THE ASSESSEE SUBMI TTED WRITTEN SUBMISSIONS, WHEREIN IT HAS POINTED OUT AS UNDER: '.... THE MAJOR EXPENDITURE IS INCURRED IN THE REPL ACEMENT OF FIRE BRICKS AND STRUCTURES MADE OUT OF STEEL AND SS & MS PLATES AND OTHER ASSESSORIES WHICH ARE INSTALLED AT THE FURNAC E. THE COMPANY IS MANUFACTURING GLAZE FRIT WHICH REQUIRES HEATING OF THE RAW MATERIAL , IN THE PROCESS OF MANUFACTURING UPTO 150 0 C. THIS HEATING AT SUCH HIGH TEMPERATURES DAMAGES THE FIRE TUNNELS MADE FROM FIRE BRICKS AND ALSO STRUCTURES MADE OUT OF STEEL AND SS & MS PLATES AD OTHER ACCESSORIES THEREOF. THESE FIRE BRICKS AND A SHORT LIFE DUE TO TEMPERATURE UP TO 1500C AND REQUIRED TO BE REPLACED WHENEVER THE SAME IS DAMAGED BY CRACKS OR BREAKAGE OF STEEL/SS & MS STRUCTURES. THE CRACK AND THE BREAKAGE RESULT INTO LEAKAGE OF H EAT AND THE TEMEPERATURE INSIDE THE FURNACE IS NOT UNIFORM AND CONSTANT RESULTING INTO THE DAMAGE OF THE PRODUCTS. THE HIGH TEMPERATURE OF HEAT ALSO DAMAGE THE STEEL STRUCTURE AND THAT ALSO REQUIRES REPLACEMENTS AND REPAIRS ON A CONTINUOUS BASIS INCL UDING PARTS AND ACCESSORIES ETC...... 8. THE LD.AO MADE DETAILED ANALYSIS OF EACH EXPENDI TURE AND THEREAFTER TREATED THE EXPENDITURE TO THE EXTENT OF RS.38,07,8 90/- IN THE CAPITAL FIELD AND DISALLOWED THE SAME. IN THE ASSTT.YEAR 2010-11, HE SIMILARLY TREATED THE EXPENDITURE TO THE EXTENT OF RS.52,70,999/- IN THE CAPITAL FIELD. DISSATISFIED WITH THE ACTION OF THE AO, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD.CIT(A). IT HAS REITERATED ITS STAND AND POINTED OUT NATURE OF PLANT & MACHINERY AS WELL AS NATURE OF ITS MANUFACTURING AC TIVITY. ACCORDING TO THE ASSESSEE, ITS PLANT AND MACHINERY IS QUITE OLD, WHI CH HAS GIVEN RISE TO A LOT OF WEAR AND TEAR AND THEREFORE CONTINUOUS REPLACEMENT OF FIRE BRICKS, SS AND MS PLATES AND OTHER ACCESSORIES. THE LD.CIT(A) HAS CA LLED FOR REMAND REPORT FROM THE AO BECAUSE THE ASSESSEE HAS SUBMITTED CERTAIN N EW DETAILS. THEREAFTER HE ITA NO.549, 599 AND 600/AHD/2016 DCIT VS. BELGIUM GLASS & CERAMICS P.LTD. 5 RECORDED A FINDING THAT REPAIRS CARRIED OUT BY THE ASSESSEE IS TO THE EXTENT OF 43% OF THE PLANT & MACHINERY WHICH AMOUNTS TO MAJOR REPLACEMENT AND CONSTRUED AS BRINGING OF A NEW ASSET. HE ACCORDING LY DISALLOWED 25% OF THE EXPENDITURE OUT OF THE TOTAL CLAIMED BY THE ASSESSE E. THE FINDING RECORDED BY THE LD.CIT(A) READS AS UNDER: 5.3. I HAVE CONSIDERED THE FACTS OF THE CASE, OBSE RVATIONS OF THE AO AS WELL AS REMAND REPORT AND THE SUBMISSIONS OF THE APPELLANT THE EXPENDITURES DISALLOWED BY THE AO AS REVENUE EXPEND ITURES ARE IN THE NATURE OF PURCHASE OF MS STEEL PLATES, ANGLES, SHAP ES, BARS, FLANGES ETC. THE AO HAS MADE A DETAILED ANALYSIS OF THE EXPENDIT URE ON REPAIRS AND MAINTENANCE INCURRED BY THE APPELLANT COMP ANY IN ITS OWN CASE FOR DIFFERENT FINANCIAL YEARS AS WELL AS OTHE R COMPANIES INVOLVED IN SIMILAR LINE OF BUSINESS AS THAT OF THE APPELLAN T COMPANY. AFTER THIS ANALYSIS, THE AO HAS GIVEN A FINDING THAT THE REPAIR AND MAINTENANCE EXPENSES BEING CLAIMED BY THE APPELLA NT COMPANY ARE ON A MUCH HIGHER SIDE. IN THE SUBMISSIONS MADE DURI NG THE COURSE OF THE APPELLATE PROCEEDINGS, THE APPELLANT HAS SUBMITTED THAT SUCH COMPUTATION CAN BE MADE ONLY IN RESPECT OF THE T OTAL AMOUNT OF INVESTMENT MADE IN THE PLANT AND MACHINERY AND NO T ON THE BASIS OF WRITTEN DOWN VALUE. ACCORDINGLY A FR ESH COMPUTATION WAS FURNISHED BY THE APPELLANT ON WHICH THE AO HAS ALS O FURNISHED HIS REMAND REPORT. IN THE REMAND REPORT, THE AO HAS COM PUTED RATIO OF REPAIRS AND MAINTENANCE EXPENSES TO THE TOTAL INVES TMENT IN CASE OF ALL THE COMPANIES. A PERUSAL OF THIS COMPUTATION SHOWS THAT THIS RATIO IS STILL ABNORMALLY HIGH IN THE CASE OF THE APPELLANT COMPANY. IT IS 43% IN THE CASE OF THE APPELLANT COMPANY AS COMPARED TO 2% TO 6% IN THE CASE OF OTHER COMPANIES. THE AO HAD ALSO POINTED OUT THE FACT THAT IN THE EARLIER YEAR, THE EXCISE AUDIT HAD POINTED OUT THAT THE APPELLANT COMPANY WAS CONSTRUCTING A NEW SHADE BUT THE MATERI ALS UTILIZED IN THE SAME WAS BEING CLAIMED AS REVENUE EXPENDITURE. THE PLEA OF THE APPELLANT AGAINST THIS OBSERVATION IS THAT NO SUCH OBSERVATION HAS BEEN MADE FOR THE CURRENT FINANCIAL YEAR. BUT THE FACT R EMAINS THAT SOME INCRIMINATING OBSERVATIONS WERE MADE AGAINST THE AP PELLANT COMPANY. HENCE THE EXPENDITURE INCURRED BY THE APPELLANT COM PANY ON PURCHASE OF THESE MATERIALS CANNOT BE HELD TO BE FOR THE PUR POSES OF REPAIRS AND MAINTENANCES ONLY. 5.3.1. AT THE SAME TIME, FROM THE DETAILS FURNISHED BY THE APPELLANT IT IS EVIDENT THAT A PART OF SUCH STATE MATERIALS ARE REQ UIRED FOR THE REPAIR AND MAINTENANCE OF ITS KILNS. HENCE THE ENTIRE EXPE NDITURE CANNOT BE HELD TO BE DISALLOWABLE AS REVENUE EXPENDITURE. KEE PING IN VIEW THE ITA NO.549, 599 AND 600/AHD/2016 DCIT VS. BELGIUM GLASS & CERAMICS P.LTD. 6 NATURE OF BUSINESS OF THE APPELLANT COMPANY, IT IS HELD THAT 25% OF SUCH EXPENSES CAN BE ALLOWED AS REVENUE EXPENDITURE AS N EEDED FOR THE PURPOSES OF REPAIR OF PLANTS AND MACHINERIES. THE D ISALLOWANCE OF BALANCE EXPENDITURE AS MADE BY THE AO IS UPHELD. TH E APPELLANT GETS PART RELIEF ACCORDINGLY. 9. BEFORE US, THE LD.COUNSEL FOR THE ASSESSEE REITE RATED HIS CONTENTIONS AS WERE RAISED BEFORE THE AO. ON THE OTHER HAND, THE LD.DR RELIED UPON THE ORDERS OF THE REVENUE AUTHORITIES. 10. SECTION 31 OF THE INCOME TAX ACT PROVIDES ALLOW ANCE OF EXPENDITURE TOWARDS CURRENT REPAIRS TO THE PLANT & MACHINERY AN D FURNITURE AS WELL AS INSURANCE EXPENDITURE INCURRED UPON IT. IT CONTEMP LATES THAT EXPENDITURE FOR REPAIRS SHALL BE ON ACCOUNT OF CURRENT REPAIRS AND SHALL NOT INCLUDE ANY EXPENDITURE IN THE NATURE OF CAPITAL EXPENDITURE. THUS, IF AN ASSESSEE HAS CARRIED OUT NECESSARY REPAIRS, WHICH FALLS WITHIN T HE CATEGORY OF CURRENT REPAIRS, THEN THE EXPENDITURE WOULD BE ALLOWED TO T HE ASSESSEE. IN THE CASE OF CIT VS. SESA RESOURCES LTD., 250 TAXMANN.COM 182, H ONBLE BOMBAY HIGH COURT FOUND THAT THE ASSESSEE WAS ENGAGED IN MINING AND MINERAL PROCESS FOR EXPORTS, SHIPPING AND STEVEDORING. THE ASSESSEE HA D INCURRED EXPENDITURE ON REPAIRS OF TWO MARINE VESSELS WHICH HAS BEEN DISALL OWED, BUT THE LD.CIT(A) TREATED SUCH REPAIRS AS CURRENT REPAIRS, AND IT WAS ALLOWED. HONBLE HIGH COURT HAS OBSERVED THAT IN ORDER TO KEEP THE VESSEL SEA-WORTHY, IF CERTAIN EXPENDITURE WERE INCURRED, THEN THAT WOULD NOT RESU LT IN INCREASE OF CAPACITY OF VESSELS OR ANY NEW ADVANTAGE OR ANY CAPITAL ASSE T WILL COME INTO EXISTENCE. HENCE, SUCH EXPENDITURE IS ALLOWABLE TO THE ASSESSE E. HOWEVER, IN THE CASE OF CIT VS. SARVANA SPG. MILLS P.LTD., 293 ITR 201, HON BLE SUPREME COURT FIND THAT IN A TEXTILE MILL THERE WERE SEVERAL DEPA RTMENTS, AND EACH DEPARTMENT THERE ARE SEVERAL MACHINES PERFORMING DIFFERENT FUN CTIONS, IN SUCH SITUATION REPAIRS/SUBSTITUTION OF AN OLD MACHINE WOULD NOT CO ME WITHIN THE DEFINITION OF CURRENT REPAIRS. IN OTHER WORDS, IF THE EXPENDIT URE INCURRED BY THE ASSESSEE ITA NO.549, 599 AND 600/AHD/2016 DCIT VS. BELGIUM GLASS & CERAMICS P.LTD. 7 WOULD NOT RESULT IN REPLACEMENT OF OLD MACHINERY WI TH NEW, THEN IT MAY COME WITHIN THE AMBIT OF CURRENT REPAIR, BUT EXPENDITURE ON SUCH A MAGNITUDE WHICH ULTIMATELY REPLACES FULL MACHINERY WITHIN ONE OR TW O YEARS, THEN IT WOULD NOT COME UNDER CONCEPT OF CURRENT REPAIR. THE AO HAS OBSERVED THAT THE ASSESSEE HAS INCURRED EXPENDITURE TO THE EXTENT OF 60.93% OF THE VALUE OF THE MACHINERY IN THE ASSTT.YEAR 2010-11 AND 31.58% IN A .Y.2011-12, MEANING THEREBY, BY WAY OF THIS METHOD, ALMOST 92% EXPENDIT URE WERE INCURRED IN TWO YEARS ON THE VALUE OF THE PLANT & MACHINERY. IT AM OUNTS TO REPLACEMENT. THE LD.CIT(A) IN THIS BACKGROUND HAS RIGHTLY OBSERVED T HAT OTHER COMPANIES IN SIMILAR LINE WERE INCURRED EXPENDITURE TO THE EXTEN T OF 2% TO 6%, WHEREAS THE ASSESSEE HAS INCURRED EXPENDITURE AT 43%. THE LD.C IT(A) RIGHTLY UPHELD DISALLOWANCE OF EXPENDITURE PARTLY BY TREATING IT I N THE CAPITAL FIELD. WE DO NOT FIND ANY ERROR IN THE ORDER OF THE LD.CIT(A) IN BOTH YEARS ON THIS ISSUE. 11. AN ALTERNATIVE CONTENTION HAS BEEN RAISED THAT IN CASE EXPENDITURE IS NOT ALLOWED AS REVENUE EXPENDITURE, THEN DEPRECIATION O N THE DISALLOWED AMOUNT BE GRANTED TO THE ASSESSEE. WE REMIT THIS ASPECT T O THE FILE OF THE AO. HE WILL WORK OUT AND GRANT DEPRECIATION TO THE ASSESSEE ON THE ADDITION MADE BY DISALLOWING THE CURRENT REPAIRS. THIS ALTERNATIVE CONTENTION OF THE ASSESSEE IS ACCEPTED. 12. IN VIEW OF THE ABOVE DISCUSSION, APPEAL OF THE REVENUE IS DISMISSED FOR WANT OF TAX EFFECT, WHEREAS THE APPEALS OF THE ASSE SSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 11 TH MARCH, 2019 AT AHMEDABAD. SD/- (AMARJIT SINGH) ACCOUNTANT MEMBER SD/- (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 11/03/2019