DCIT, Tiruppur V. Adisankara Spinning Mills P Ltd., Tiruppur

ITA 608/CHNY/2013

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4605 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 28-08-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 08-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S DASGUPTA
• Assessee Lawyers: T BANUSEKAR
• Keywords: Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER I.T.A. NO. 608/MDS/2013 (ASSESSMENT YEAR : 2009-10) THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE, TIRUPUR. (APPELLANT) V. M/S ADISANKARA SPINNING MILLS P. LTD., 207/86, MANGALAM ROAD, KARUVAMPALAYAM, TIRUPUR. PAN : AABCA 5198 B (RESPONDENT) APPELLANT BY : SHRI S. DAS GUPTA, JCIT RESPONDENT BY : SHRI T. BANUSEKAR , CA DATE OF HEARING : 28.08.2013 DATE OF PRONOUNCEMENT : 30.08.2013 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE REVENUE, ITS GRIEVANC E IS THAT CIT(APPEALS) ALLOWED THE CLAIM OF EXPENDITURE OF ` 1,37,14,859/- INCURRED IN ACQUIRING COMPACT DRAFTING SYSTEM AS RE VENUE OUTGO. AS PER REVENUE, CIT(APPEALS) HAD NOT PROPERLY CONSIDER ED THE DECISION I.T.A. NO. 608/MDS/13 2 OF HON'BLE APEX COURT IN THE CASE OF CIT V. MANGAYA RKARASI MILLS P. LTD. (315 ITR 114). 2. WE HAVE PERUSED THE ORDERS AND HEARD THE LD. CO UNSELS. ASSESSEE HAD CLAIMED EXPENDITURE INCURRED ON COMPAC T DRAFTING SYSTEM AS A REVENUE OUTGO, WHICH WAS DISALLOWED BY THE ASSESSING OFFICER. ASSESSING OFFICER HAD RELIED ON THE DECIS ION OF HON'BLE APEX COURT IN THE CASE OF MANGAYARKARASI MILLS P. LTD. ( SUPRA) FOR MAKING THE DISALLOWANCE. ASSESSEES APPEAL BEFORE CIT(APP EALS) WAS SUCCESSFUL. CIT(APPEALS) HELD EXPENDITURE INCURRED ON COMPACT DRAFTING SYSTEM WAS IN THE NATURE OF REVENUE OUTGO IN VIEW OF THE DECISION OF CO-ORDINATE BENCH OF THIS TRIBUNAL IN T HE CASE OF SUDHAN SPINNING MILLS PVT. LTD. V. ITO IN I.T.A. NO. 1848/ MDS/2011. AS MENTIONED BY LD. CIT(APPEALS), THE ISSUE REGARDING CLAIM RELATING TO COMPACT DRAFTING SYSTEM HAD COME UP BEFORE THIS TRI BUNAL IN THE CASE OF SUDHAN SPINNING MILLS PVT. LTD. (SUPRA). T HE SAME ISSUE WAS ALSO CONSIDERED BY THIS TRIBUNAL IN THE CASE OF ACI T V. PRABHU SPINNING MILLS PVT. LTD. IN I.T.A. NO. 593/MDS/2013 DATED 9 TH JULY, 2013. THE CO-ORDINATE BENCH OF THIS TRIBUNAL HAD H ELD AT PARA 6 OF ITS ORDER, AS UNDER:- I.T.A. NO. 608/MDS/13 3 6. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENT ATIVE OF BOTH THE SIDES AND HAVE PERUSED THE ORDERS OF TH E AUTHORITIES BELOW AS WELL AS THE CASE LAWS RELIED O N BY THE REPRESENTATIVES OF BOTH THE SIDES. WE FIND THAT TH E ISSUE IN HAND HAS ALREADY BEEN ADJUDICATED BY THE CO-ORDINAT E BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE AY. 200 7-08 IN ITA NO. 1847/MDS/2011 (SUPRA) WHEREIN THE TRIBUNAL HAS DISCUSSED IN DETAIL THE PROCESS OF COMPACT SPINNING SYSTEM TO DETERMINE THE NATURE OF EXPENDITURE. THE RELEVANT EXTRACT OF THE ORDER OF THE TRIBUNAL IS RE-PRODUCED HERE IN BELOW: 11. AFTER COGITATING THE RIVAL STANDS IN THE LIGHT OF THE OBTAINING EVIDENCE/FACTS/CIRCUMSTANCES OF THE CASE, WE HAVE F OUND THAT DURING THE YEAR THE ASSESSEE-COMPANY HAD INSTALLED A NEW TECHNOLOGY CALLED COMPACT SPINNING SYSTEM. TO UND ERSTAND THE EXACT NATURE OF THIS EXPENDITURE WE HAVE TO EXAMINE THE PROCESS INVOLVED IN THIS CASE. THE YARN FROM THE STAGE OF S IMPLEX IS SENT TO DRAFTING BEFORE SPINNING. THE DRAFTING SYSTEM IS S ITUATED IN THE RING FRAMES. THE CONVENTIONAL DRAFTING SYSTEM HAS BEEN R EPLACED WITH THE LATEST, STATE-OF-THE-ART GADGET CALLED COMPACT SPINNING. AFTER EXAMINING THE RELEVANT DETAILS, WE HAVE FOUND THAT THIS IS A SINGLE PIECE GADGET WHICH IS FIXED TO EACH SPINDLE. IT IS NOT A MACHINERY BY ITSELF BUT ONLY AN ATTACHMENT TO THE MACHINE ( LIKE MANUAL ANALOG WALL CLOCK IS FIXED WITH BATTERY OPERATED SYSTEM). IT HAS BEEN CLAIMED AS REVENUE EXPENDITURE. THE OLD DRAFTING SY STEMS HAVE BECOME SCRAP ON REPLACEMENT. THE LD. A.R HAS TAKEN US THROUGH A SET OF COLOUR PHOTOGRAPHS TO ILLUSTRATE THE NATURE AND WORKING OF THIS 'COMPACT SPINNING SYSTEM'. IT IS SEEN FROM THE RECO RDS [PAPER BOOK PAGE 5] THAT THE ASSESSEE HAD PURCHASED 33 NUMBER O F RING FRAMES AND 18 RING FRAMES FITTED WITH GADGETS. THE COMPANY HAS PURCHASED 18 NUMBER OF SETS, AS ONE SET IS REQUIRED FOR ONE R ING FRAME. THUS, TOTAL NUMBER OF GADGETS FOR 18 RING FRAMES COMES TO 20,736 AND THE RATE PER GADGET SO PURCHASED COMES TO RS. 4,079/-. WE HAVE SEEN THE COMMERCIAL INVOICES ENCLOSED IN THE PAPER BOOK AND FOUND THE I.T.A. NO. 608/MDS/13 4 SUBMISSION OF THE LD. A.R TO BE CORRECT.WE HAVE FOU ND THAT DURING THE YEAR THE ASSESSEE-COMPANY HAS INSTALLED NEW TEC HNOLOGY GADGETS CALLED 'COMPACT SPINNING SYSTEM'. THE YARN FROM THE STAGE OF SIMPLEX IS SENT THROUGH THE DRAFTING FOR S PINNING BY RING FRAMES. THE DRAFTING SYSTEM IS SITUATED IN THE RIN G FRAMES. THE CONVENTIONAL DRAFTING SYSTEM IS REPLACED WITH THE L ATEST, STATE OF THE ART GADGET CALLED COMPACT SPINNING. THIS IS A SI NGLE PIECE GADGET AND THIS IS FIXED TO EACH SPINDLES. EACH GADGETS C OST RS. 4,100/- EACH BECAUSE THE ASSESSEE HAS PURCHASED 37,296 SUC H GADGETS IN 37 SETS[BATCHES] FOR RS. 15.39 CRORES. THUS, IT IS NOT A MACHINERY BY ITSELF BUT ONLY AN ATTACHMENT TO THE EXISTING MACHI NE. WE HAVE UNDERSTOOD THAT THIS GADGET CANNOT FUNCTION INDEPEN DENTLY. IT FUNCTIONS ONLY AND ONLY IF IT IS FIXED IN THE SPIND LES. EACH RING FRAME COMES WITH CONVENTIONAL DRAFTING GADGET AS WE HAVE UNDERSTOOD FROM THE PICTOGRAPH AND PHOTOGRAPHS PRODUCED BY THE LD. A.R. THEREFORE, IN ORDER TO PRODUCE HIGH QUALITY OF YARN , THE CONVENTIONAL TYPE IS REPLACED WITH THE LATEST, HI-TECH GADGET. IT WAS BROUGHT TO OUR NOTICE AND IT WAS FOUND FOR A FACT THAT ALL THE RIN G FRAMES HAVE NOT BEEN REPLACED WITH THE LATEST GADGET. ONLY CERTAIN NUMBER OF RING FRAMES ARE FITTED WITH THIS NEW GADGET AND THE REMA INING CONTINUED TO MANUFACTURE EARLIER QUALITY OF YARN CATERING TO THE REQUIREMENT OF LOWER STRATA OF THE SOCIETY. OUT OF 50 RING FRAM ES, ONLY 37 RING FRAMES ARE FITTED WITH THIS GADGET AND THE REMAININ G ARE RUNNING WITH CONVENTIONAL GADGET. THIS FACT WAS ALSO FOUND TO B E UNDENIABLE AND TO BE CORRECT. IT WAS ALSO FOUND TO BE A FACT THAT THE OLD DRAFTING SYSTEMS SIMPLY BECOME SCRAP ON REPLACEMENT AND CANN OT BE USED AGAIN AS SUCH. WE ARE CONVINCED THAT THE YARN NORM ALLY CONTAINS HAIRY SUBSTANCE LIKE BRISTLES ON THE SIDE OF THE THREAD AND WHEN THIS YEARN IS SENT THROUGH THE 'COMPACT SPINNING SYSTEM' , THESE HAIRY SUBSTANCES ARE REMOVED AND YARN GETS A SHINING. MA NUFACTURING PREMIUM QUALITY OF YARN WHICH FETCHES HIGHER PRICE IN THE MARKET AND ATTRACTS HIGH INCOME GROUP CUSTOMERS. WE HAVE ALSO UNDERSTOOD I.T.A. NO. 608/MDS/13 5 THE NEED FOR INSTALLING THESE COMPACT SPINNING SYST EMS BECAUSE THESE ARE USED IN MANUFACTURE OF T SHIRTS AND THE M ANUFACTURERS OF T SHIRTS NEED SUCH PREMIUM BRAND PRODUCTS. THIS CH ANGE WAS NECESSITATED TO COMPETE IN THE MARKET AND THIS STEP OF THE ASSESSEE CANNOT BE TAKEN AS A SURPRISE BUT HAS TO B E TREATED AS TAKEN IN BUSINESS EXIGENCY. WHEN A QUESTION REGARD ING LIFE OF THESE GADGETS WAS PUT TO THE LD. A.R, HE STATED THAT EACH GADGET ITSELF CONSIST OF MANY SMALL PARTS AND EACH PART IS ASSEMB LED TOGETHER TO HAVE ONE SINGLE GADGET SO, THEY ARE SUBJECT TO HEAV Y WEAR AND TEAR DUE TO CONTINUOUS RUNNING. IT WAS BROUGHT TO OUR N OTICE WITH CERTITUDE THAT THESE GADGETS REQUIRE CONSTANT REPLA CEMENT ALMOST AFTER FOUR YEARS AT THE MAXIMUM. WE FIND THAT THE TRIBUNAL WHILE ADJUDICATING THE MA TTER HAS ALSO TAKEN INTO CONSIDERATION VARIOUS CASE LAWS DECIDED BY THE HONBLE SUPREME COURT OF INDIA INCLUDING ASSAM BENGAL CEMENT CO. LTD., VS. CIT REPORTED AS 27 ITR 34 (SC); EMPIRE JUTE CO. LTD., VS. CIT REPORTED AS 124 ITR 1 (SC); ALEMBIC CHEMICAL WORKS CO. LTD., VS. CIT REPORTED AS 177 ITR 377 (SC); AND THE ORDER OF THE TRIBUNAL IN THE CASE OF M/S. VIJAYESWARI TEXTILES LTD., IN ITA NO. 963/MDS/2011 FOR AY. 2006-07 DATED 23-08-2011. THE CO- ORDINATE BENCH OF THE TRIBUNAL AFTER DISCUSSING THE FACTS OF THE CASE AND THE AFORESAID DECISIONS OF THE HONBLE APE X COURT CAME TO THE CONCLUSION THAT THE EXPENDITURE INCURRED BY THE ASSESSEE ON INTRODUCING THE COMPACT SPINNING SYSTEM IS REVEN UE IN NATURE AND IS THUS AN ALLOWABLE EXPENDITURE. 3. WE ARE, THEREFORE, OF THE OPINION THAT CIT(APPEA LS) WAS JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE BASED ON THE DECISIONS OF THIS TRIBUNAL. NO INTERFERENCE IS REQUIRED. 4. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED. I.T.A. NO. 608/MDS/13 6 ORDER WAS PRONOUNCED IN THE COURT ON FRIDAY, THE 30 TH OF AUGUST, 2013, AT CHENNAI. SD/- SD/- (CHALLA NAGENDRA PRASAD) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 30 TH AUGUST, 2013. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)-II, COIMBATORE (4) CIT-III, COIMBATORE (5) D.R. (6) GUARD FILE