M/s Rudraksh Detergent & Chemical P. Ltd., GANDHIDHAM V. The Asstt. Commr. Income Tax, GANDHIDHAM

ITA 630/RJT/2014

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1116 (ITAT-RAJKOT)
• Duration Of Justice: 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-05-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 20-05-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 05-11-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AVINASH KUMAR
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure
• Section: 143(3); 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH , RAJKOT BEFORE SHRI SHAILEND RA K UMAR YADAV, JUDICIAL MEMBER, AND SHRI N. S. SAINI , ACCOUNTANT MEMBER . ITA. NO. 630 / RJT /20 14 (ASSESSMENT YEAR: 2010 - 11 ) M/S. RUDRAKSH DETERGENT & CHEMICAL PV T. LTD., SURVEY NO. 157, VILLAGE PADANA, GANDHIDHAM. APPELLANT VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, GANDHIDHAM CIRCLE, GANDHIDHAM - KUTCH. RESPONDENT PAN: AA DCR0839C / BY APPELLANT : SHRI VIMAL DESAI , C.A. / BY RESPONDENT : SHRI AVINASH KUMAR , D.R. / DATE OF HEARING : 20 . 0 5 .2015 / DATE OF PRONOUNCEMENT : 28 . 0 5 .201 5 ORDER PER SHAILENDRA KUMAR YADAV, J.M: TH I S APPEAL HAS BEEN FILED BY ASSESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - II , RAJKOT , DATED 14 . 1 0 . 20 1 4 ON THE FOLLOWING GROUND S : I T A NO. 630 / RJT / 1 4 , A.Y. 2010 - 11 [ M/S. RUDRAKSH DETERGENT & CHEMICAL PVT. LTD. VS. ACIT] PAGE 2 1. THE ASSESSMENT ORDER U/S.143(3) IS BAD IN LAW. 2. THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AS WELL AS ON FACTS IN MAKING ADDITION OF RS.45,02,151/ - TREATING THE REPAIRS AND MAINTENANCE EXPENSES AS CAPITAL IN NATURE. THE LD. CIT(A) HAS ERRED IN SUSTAINING THE SAME TO THE EXTENT OF RS.38,35,751/ - . 2. ASSESSEE IS A PRIVATE LIMIT ED COMPANY ENGAGED IN BUSINESS OF MANUFACTURING OF DETERGENT SOAP AND POWDER AND TRANSPORTATION. ASSESSING OFFICER HAS DISALLOWED RS.45,02,151/ - AS CAPITAL EXPENDITURE AFTER ALLOWING DEPRECIATION @ 10%. 2.1 MATTER WAS CARRIED BEFORE THE CIT(A) WHO HAS DIS MISSED THE APPEAL VIDE ORDER DATED 10.09.2014 AND APPEAL WAS FILED BEFORE US INTER ALIA IN FORM NO.36 COMMUNICATION OF SAID ORDER OF 10.09.2014 HAS BEEN MENTIONED AS 09.10.2014 WHICH IS APPEARING WRONG . 2.2 MEANWHILE, SECTION 154 APPLICATION WAS MOVED B EFORE CIT(A) WHO HAS GRANTED PARTIAL RELIEF TO ASSESSEE I.E. CIT(A) HAS ALLOWED RS.6,66,400/ - U/S.154 WHILE AT THE SAME TIME, CIT(A) IN SECTION 154 PROCEEDING HAS DISALLOWED THE ALLOWABILITY OF RS.12,27,752/ - VIDE ITS ORDER DATED 14.10.2014. SO, THE GRIEVA NCE OF ASSESSEE REMAINED WITH REGARD TO SUSTAINING ADDITION TO THE EXTENT OF RS.38,35,751/ - WHICH COMPRISES OF RS.12,27,752/ - AND RS.26,80,000/ - . AS STATED ABOVE, RS.12,27,752/ - HAS BEEN DISALLOWED BY CIT(A) IN SECTION 154 PROCEEDING WHILE RS.26,80,000/ - HAS ALREADY BEEN DISALLOWED I T A NO. 630 / RJT / 1 4 , A.Y. 2010 - 11 [ M/S. RUDRAKSH DETERGENT & CHEMICAL PVT. LTD. VS. ACIT] PAGE 3 BY CIT(A) IN RESPONSE TO APPELLATE ORDER ARISING FROM ORDER U/S. 143(3) . DUE TO ORDER OF SECTION 154 BY CIT(A) DATED14.10.2014 SITUATION HAS CHANGE D. T HE ISSUE OF RS.12,27,752/ - PERTAINING TO REPAIR OF INTERNAL ROAD IN FACTORY IS ARISING FROM THE ORDER OF CIT(A) U/S. 154 PROCEEDING, WHICH WAS NOT AVAILABLE AT THE TIME OF FILING APPEAL BEFORE US AND ISSUE OF RS.26,80,000/ - IS ARISING FROM THE ORIGINAL ORDER. SINCE APPEAL IS NOT ARISING BEFORE US OF SECTION 154, SO IT WILL NOT APP ROPRIATE FOR US TO PASS ORDER ON SAID ISSUE OF RS.12,27,752/ - WHICH HAS EMERGED FROM THE ORDER OF CIT(A) U/S. 154. THE APPEAL IS NOT MAINTAINABLE IN PRESENT FORM. SO, WE DISMISS THE SAME VIS A VIS ISSUE OF RS.12,27,752/ - . HOWEVER, A SSESSEE I S AT LIBERTY TO TAKE APPROPRIATE REMEDY WITH REGARD TO RS.12,27,752/ - . 2.3 COMING TO THE ISSUE OF DEPRECIATION ON RS.26,80,000/ - WHICH IS PERTAINING TO CONSTRUCTION OF ROAD CONNECTING ASSESSEE S FACTORY TO MAIN ROAD OF STATE. IN THIS REGARD, WE FIND THAT HON BLE RAJ ASTHAN HIGH COURT IN CASE OF COMMISSIONER OF INCOME - TAX VS. HINDUSTAN ZINC LTD. [2010] ITR 478 (RAJASTHAN), OBSERVED THAT IN CASE, ADVANTAGE CONSISTS MERELY IN FACILITATING, ASSESSEE S TRADING OPERATIONS OR IN ENABLING MANAGEMENT IN CONDUCT OF ASSESSEE S B USINESS TO BE CARRIED ON MORE EFFICIENTLY OR MORE PROFITABLY WHILE LEAVING THE FIXED CAPITAL UNTOUCHED, EXPENDITURE WOULD BE ON REVERSE ACCOUNT, EVEN THOUGH ADVANTAGE MAY ENDURE FOR AN INDEFINITE FUTURE. WE ALSO FIND THAT ITAT, CUTTACK BENCH IN CASE OF DE PUTY I T A NO. 630 / RJT / 1 4 , A.Y. 2010 - 11 [ M/S. RUDRAKSH DETERGENT & CHEMICAL PVT. LTD. VS. ACIT] PAGE 4 COMMISSIONER OF INCOME - TAX VS. TATA SPONGE IRON LTD. [2004] 90 ITD 138 (CUTTACK) HELD AS UNDER: IT IS CRYSTAL CLEAR FROM THE GUIDELINES OF GOVERNMENT OF INDIA , REGARDING DEVELOPMENT OF RAILWAY SHEDS/SIDINGS BY PRIVATE INVESTMENTS IN RAILWAY PREMISES, THAT THE FACILITIES SO CREATED WOULD BELONG TO THE INDIAN RAILWAYS. THE INVESTORS WILL NOT BE ELIGIBLE FOR ANY RETURN/CONCESSION IN LIE U OF SUCH USE OF THESE ASSETS BY THE RAILWAY. THE INVESTORS WILL ALSO NOT QUALIFY FOR ANY PREFERENTIAL TREATMENT IN THE MATTER OF UTILISATION OF THESE ASSETS. THE FACILITY (GOODS SHED/SIDING) AND ALL ITS EQUIPMENTS AND APPURTENANCES WILL BECOME THE PROPERTY OF THE RAILWAY ADMINISTRATION AND THE INVESTOR(S) WILL HAVE NO CLAIM TO THESE ASSETS. INVESTMENT IN SUCH ASSETS WILL N OT ENTITLE THE INVESTOR(S) TO ANY RIGHTS WHATSOEVER WITH REGARD TO THE RAILWAY LAND ON WHICH THEY ARE CREATED. IN THE INSTANT CASE, THE RAILWAY SIDING SO INSTALLED BY THE ASSESSEE HAD NO DOUBT GIVEN A LONG - TERM RIGHT FOR ITS USE, BUT THE EXPENDITURE DID N OT BRING ANY ASSET TO THE ASSESSEE. IT IS ALSO CLEAR THAT THE INDIAN RAILWAY ALSO RESERVED THE RIGHT TO CLOSE THE SIDINGS IF THE SAME BECAME FINANCIALLY OR OPERATIONALLY UNSUSTAINABLE AT SOME STAGE BY GIVING NOTICE OF NINETY DAYS. THERE COULD BE NO DOUBT T HAT THE CONSTRUCTION OF THE SHEDS FACILITATED THE BUSINESS OPERATION OF THE ASSESSEE AND ENABLED THE MANAGEMENT AND CONDUCT OF ASSESSEE'S BUSINESS TO BE CARRIED ON MORE EFFICIENTLY AND PROFITABLY. THERE WAS ALSO NO DOUBT THAT THE ADVANTAGE SECURED FOR THE BUSINESS OF THE ASSESSEE WAS OF LONG DURATION, BUT IT WAS NOT AN ADVANTAGE IN THE CAPITAL FIELD, BECAUSE NO TANGIBLE OR INTANGIBLE ASSET WAS ACQUIRED BY THE ASSESSEE, NOR WAS THERE ANY ADDITION TO OR EXPANSION OF PROFIT MAKING APPARATUS OF THE ASSESSEE - COM PANY. THE EXPENDITURE WAS INCURRED BY THE ASSESSEE MERELY FOR THE PURPOSE OF FACILITATING THE CONDUCT OF ITS BUSINESS AND MAKING IT MORE EFFICIENT AND PROFITABLE AND, THEREFORE, IT WAS CLEARLY AN EXPENDITURE ON REVENUE ACCOUNT. THE ALLOWABILITY OF AN EXPEN DITURE AS A REVENUE OR CAPITAL WA S NOT TO BE JUDGED FROM THE METHOD OF ACCOUNTING I T A NO. 630 / RJT / 1 4 , A.Y. 2010 - 11 [ M/S. RUDRAKSH DETERGENT & CHEMICAL PVT. LTD. VS. ACIT] PAGE 5 ADOPTED BY THE ASSESSEE BUT IT IS TO BE JUDGED AS PER THE PROVISIONS OF THE ACT . IT WA S NOT THE CASE OF THE REVENUE THAT EVERY YEAR THE ASSESSEE WAS INCURRING SUCH TYPE OF E XPENSES WHICH HAS NOT BEEN CAPITALISED IN THE BOOKS OF ACCOUNTS AS PER THE METHOD OF ACCOUNTING REGULARLY FOLLOWED BY IT, BUT IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD DEVIATED FROM THE METHOD OF ACCOUNTING FOR CLAIMING THESE EXPENSES AS REVENUE EX PENSES. THE ASSESSING OFFICER HAD UNNECESSARILY GIVEN SO MUCH STRESS ON THE METHOD OF ACCOUNTING , WHICH WA S NOT RELEVANT AT ALL FOR ALLOWING OR DISALLOWING SUCH EXPENSES UNDER THE ACT. THE ASSESSING OFFICER HA D PROCEEDED ON THE ASSUMPTION THAT TANGIBLE ASS ET WAS CREATED, BUT NEITHER TANGIBLE NOR INTANGIBLE ASSET WAS CREATED AND THE EXPENDITURE INCURRED WAS FOR GETTING ADVANTAGE OF LONG - TERM NATURE WHICH WAS NOT IN THE CAPITAL FIELD. E VEN THOUGH THERE WA S AN ADVANTAGE OF ENDURING NATURE AT THE SAME TIME THE ADDITION WA S NOT IN THE CAPITAL FIELD BUT WAS MERELY MEANT FOR FACILITATING THE ASSESSEE'S TRADE OPERATION AND ENABLING THE MANAGEMENT AND CONDUCT OF THE BUSINESS TO BE CARRIED ON MORE EFFICIENTLY AND PROFITABLY WHILE LEAVING FIXED CAPITAL UNTOUCHED. ACCO UNTING ENTRY IS NOT DECISI VE FOR CONSIDERING AN ASSESSEE'S CLAIM UNDER THE ACT WHICH IS A SEPARATE CODE IN ITSELF. THUS , THE ACCOUNTANCY IS NOT SINE QUA NON IN DETERMINING THE TAXABILITY OR OTHERWISE OF AN INCOME OR DEDUCIBILITY OR OTHERWISE OF ANY ITEM OF EXPENDITURE. AS THE ASSESSEE - COMPANY HAS NO RIGHT/TITLE ON THE RAILWAY SIDING S , IT WAS TO WRITE - OFF THE EXPENDITURE ON CONSTRUCTING THE RAIL W AY SIDING S OVER A PERIOD OF FIVE YEARS. AS PER THE GUIDANCE NOTE ISSUED BY THE ICAI, WHERE THE CAPITAL EXPENDITURE IS NOT REPRESENTED BY ASSETS, THE COMPANY HAS THE OPTION OF DISCLOSING THE SAME AS CAPITAL EXPENDITURE OR CAPITALIZE THE EXPENDITURE ALONGWITH OTHER ASSETS TO BE WRITTEN OFF OVER A PERIOD OF FIVE YEARS ; THE ASSESSEE - COMPANY HAD CHOSEN THE LAT T ER OPTION. T HE EXPENDITURE I N QUESTION HAD BEEN UNDOUBTEDLY INCURRED NOT IN RELATION TO ASSETS OWNED BY THE COMPANY OR TO ACQUIRE ANY NEW ASSET, BUT IN ORDER TO FACILITATE MOVEMENT OF MATERIALS FOR THE BUSINESS OPERATION OF THE ASSESSEE. THE EXPENDITURE THEREFORE, DID NOT RESULT IN I T A NO. 630 / RJT / 1 4 , A.Y. 2010 - 11 [ M/S. RUDRAKSH DETERGENT & CHEMICAL PVT. LTD. VS. ACIT] PAGE 6 ACQUISITION OF CAPITAL ASSETS. T HE ADVANTAGE OBTAINED BY THE ASSESSEE CONSISTED IN FACILITATING THE ASSESSEE'S BUSINESS OPERATION OR ENABLING THE MANAGEMENT AND CONDUCT OF THE ASSESSEE'S BUSINESS TO BE CARRIED ON MORE EFFICIENTLY AND MORE PR OFITABLY WHILE LEAVING THE FIXED CAPITAL UNTOUCHED. THUS THE EXPENDITURE WAS ON THE REVENUE ACCOUNT EVEN THOUGH THE SAME M IGHT ENDURE FOR A LONG PERIOD. THEREFORE, THE EXPENDITURE HAD BEEN INCURRED BY THE ASSESSEE - COMPANY ONLY TO RUN ITS BUSINESS MORE EFF ICIENTLY AND ADVANTAGEOUSLY AND IT WAS NOT IN RELATION TO ASSETS OWNED BY THE COMPANY OR TO ACQUIRE ANY NEW ASSET BUT IN ORDER TO FACILITATE MOVEMENT OF MATERIALS FOR THE BUSINESS OPERATION OF THE ASSESSEE - COMPANY. THUS THE EXPENDITURE DID NOT RESULT IN AC QUISITION OF CAPITAL ASSET AND HENCE, BY NO STRETCH OF IMAGINATION COULD BE TREATED AS EXPENDITURE FOR CREATION OF AN ASSET OF ENDURING NATURE. THEREFORE, THE EXPENDITURE IN QUESTION WAS ALLOWABLE AS REVENUE EXPENDITURE. WE FURTHER FIND THAT ITAT, JODHP UR BENCH IN CASE OF DEPUTY COMMISSIONER OF INCOME - TAX VS. HINDUSTAN ZINC LTD. [2002] 77 TTJ 352 (JODH.) HELD AS UNDER: 18. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT SUCH DEDUCTION OF 1/3 RD EXPENDITURE IS BEING ALLOWED BY THE AO IN THE PAST T WO YEARS. DURING THE LAST YEAR HE HAS OBJECTED TO THE DECISION OF HIS PREDECESSOR. THE CIT(A) HAS ALSO HELD THAT THE EXPENDITURE IS ALLOWED AS PER PAST PRACTICE. THE LEARNED CIT HAS RELIED UPON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF MA DRAS INDUSTRIAL INVESTMENT CORPN. LTD. V. CIT (SUPRA). KEEPING IN VIEW THE FACTS OF THE CASE, ON DECLINE TO INTERFERE WITH THE IMPUGNED ORDER OF CIT(A) ON THIS COUNT. 19. IN THE RESULT, THIS APPEAL OF THE REVENUE IS DISMISSED. IN VI EW OF ABOV E , WE ARE OF THE VIEW THAT DEPRECIATION CAN BE ALLOWED TO ASSESSEE IRRESPECTIVE OF OWNERSHIP OF ASSET ON WHICH I T A NO. 630 / RJT / 1 4 , A.Y. 2010 - 11 [ M/S. RUDRAKSH DETERGENT & CHEMICAL PVT. LTD. VS. ACIT] PAGE 7 CONSTRUCTION WAS RAISED . THE TEST OF ALLOWABILITY OF DEPRECIATION IS THAT IT SHOULD HAVE BEEN USED DURING BUSINESS OF ASSESSEE. IN VIEW OF THIS, ASSESSIN G OFFICER IS DIRECTED TO ALLOW DEPRECIATION ON CONSTRUCTION OF ROAD ON OUTSIDE ITS INDUSTRY/FACTORY AMOUNTING TO RS.26,80,000/ - . 3 . IN THE RESULT, APPEAL FILED BY ASSESSEE IS PARTLY ALLOWED AS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT ON THIS THE 28 TH DAY OF MA Y , 201 5 . SD/ - SD/ - (N. S. SAINI) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER RAJKOT : DATED 28 /0 5 /2015 TRUE COPY S K SINHA COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, RAJKOT . 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT, RAJKOT