M/s Nagarjuna Fertilizers and Chemicals Limited, Hyderabad V. ADDL.CIT, Hyderabad

ITA 645/HYD/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3316 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 06-04-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 28-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: IT PERTAINS TO A; CIT HYDE RABAD DATED
• Keywords: Depreciation; Charitable institution; Opportunity of being heard; Revenue expenditure; Capital expenditure
• Section: 143(3); 12AA; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI G.C.GUPTA, VICE PRESIDENT AND SHRI AKBE R BASHA, ACCOUNTANT MEMBER ITA NO.645/HYD/2010 : ASSESSMENT YEAR 2 006-07 M/S NAGARJUNA FERTILIZERS AND CHEMICALS LIMITED, PUNJAGUTTA, HYDERABAD. (PAN:AAACN 6616 J) VS ADDL. CIT, RANGE-16, HYDERABAD. (APPELLANT) (RESPONDENT) APPELLANT: SHRI S/SHRI CS SUBRAHMANYAM & V. SIVAKUM AR RESPONDENT: SHRI M.S. CHANDRAS EKHAR O R D E R PER G.C. GUPTA, VICE PRESIDENT:- THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGA INST THE ORDER UNDER SECTION 263 OF THE ACT BY THE CIT, HYDE RABAD DATED 29-3-2010 AND IT PERTAINS TO THE ASSESSMENT YEAR 20 06-07. 2. THE GROUNDS OF APPEAL OF THE ASSESSEE CENTERS AR OUND THE ISSUE OF VALIDITY OF THE ORDER PASSED BY THE CIT UN DER SECTION 263 OF THE INCOME-TAX ACT, 1961. ITA NO. 645 OF 2010 NAGARJUNA FERTILIZERS & CHEM. LTD., HYD. ====================== 2 3. THE LEARNED COUNSEL FOR THE ASSESSEE HAS FILED WRITTEN SUBMISSIONS ALONG WITH COPIES OF JUDGMENTS OF VARIO US COURTS IN SUPPORT OF ITS CASE. HE SUBMITTED THAT THE COMPAN Y MANUFACTURING UREA WITH MANUFACTURING PLANT AT KAKI NADA IN ANDHRA PRADESH, HAS CLAIMED EXPENDITURE OF RS.15.66 CRORES FOR REPLACEMENT OF BI-METALLIC STRIPPER UNDER THE HEAD CONSUMPTION OF STORES & SPARES. HE SUBMITTED THAT THE ASSESSING OFFICER HAS ASKED THE ASSESSEE TO SUBMIT DETAILS OF EXPENDITURE EXCEEDING RS. 1 LAKH DURING THE RELEVANT PERIOD AND THE SAME WAS COMPLIED WITH. THE ASSESSEE HAS FILED COPIES OF LEDGER ACCOUNTS ET C., AS DIRECTED BY THE ASSESSING OFFICER. IT IS SUBMITTED THAT BI-M ETALLIC STRIPPER IS AN INTEGRAL PART OF THE WHOLE MACHINERY USED FOR MA NUFACTURING UREA AND THEREFORE THE EXPENDITURE INCURRED IS REVE NUE IN NATURE. IT IS SUBMITTED THAT THE ASSESSING OFFICER HAS TAKE N POSSIBLE VIEW AND ACCORDINGLY THE ORDER OF THE CIT PASSED UNDER S ECTION 263 OF THE ACT SETTING ASIDE THE ASSESSMENT IS NOT VALID. HE RELIED ON THE RATIO OF THE DECISION OF HONBLE SUPREME COURT IN MALABAR INDUSTRIAL CO. LTD VS. CIT (243 ITR 83) (SC) AND ALSO THE DECISION OF HYDERABAD TRIBUNAL IN RUPENDER KUMAR JAIN VS. CIT-V, HYDERABA D IN ITA NO.764/HYD/04 DATED 12-9-2008 AND OF CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. PRABHU SPINNING MILLS (P) L TD., 172 TAXMAN 136 (BANG) (MAG). IT IS SUBMITTED THAT THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. SARAVANA SPINNING MILL S PVT. LTD. (293 ITR 201) CITED BY THE REVENUE IS DISTINGUISHABLE ON FAC TS. ITA NO. 645 OF 2010 NAGARJUNA FERTILIZERS & CHEM. LTD., HYD. ====================== 3 4. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS OPPOSED THE SUBMISSIONS OF THE L EARNED COUNSEL FOR THE ASSESSEE AND SUBMITTED THAT THE RAT IO OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F SARAVANA SPINNING MILLS PVT. LTD., (SUPRA) IS APPLICABLE TO THE FACTS OF THE PRESENT CASE. HE SUBMITTED THAT THE BI-METALLIC STRIPPER R EPLACED BY THE ASSESSEE IS OF ENDURING BENEFIT AS ITS CAPACITY IS MORE THAN THE OLD MACHINERY REPLACED BY THE ASSESSEE AND THE SAME IS CLEARLY CAPITAL IN NATURE. HE REFERRED TO THE RELEVANT PARAS OF THE O RDER OF THE CIT IN SUPPORT OF THE CASE OF THE REVENUE THAT THE ASSESSM ENT ORDER PASSED BY THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. HE SUBMITTED THAT THE REPLACEMENT OF BI-M ETALLIC STRIPPER IS NOT IN THE NATURE OF CURRENT REPAIRS AS IT HAS A SP ECIFIC AND INDEPENDENT FUNCTIONING TO PERFORM IN THE UNIT OF THE ASSESSEE. HE SUBMITTED THAT THE ISSUE WAS NOT PROPERLY CONSIDERED AND DECIDED BY TH E ASSESSING OFFICER AND HE HAS FAILED TO EXAMINE THE MATTER IN A PROPER PERSPECTIVE. HENCE, HE RELIED ON THE ORDER OF THE CIT. 5. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES, GONE THROUGH THE ORDERS OF THE CIT A ND THE ASSESSMENT ORDER AND THE WRITTEN SUBMISSIONS FILED BY THE ASSESSEE. WE FIND THAT THE ASSESSEE IS A COMPANY M ANUFACTURING UREA WITH MANUFACTURING PLANT AT KAKINADA IN ANDHRA PRADESH. THE ASSESSEE HAS FILED ITS RETURN OF INCOME DECLARI NG AN INCOME OF RS.136.86 CRORES AND THE ASSESSMENT WAS COMPLETED O N SCRUTINY ASSESSMENT UNDER SECTION 143(3) OF THE ACT AT AN EN HANCED INCOME OF RS.146.42 CRORES. THE COMMISSIONER OF IN COME-TAX ITA NO. 645 OF 2010 NAGARJUNA FERTILIZERS & CHEM. LTD., HYD. ====================== 4 EXERCISED HIS POWERS UNDER SECTION 263 OF THE ACT A ND SET ASIDE THE ISSUE OF ALLOWABILITY OF REPLACEMENT OF BI-META LLIC STRIPPER TO THE ASSESSING OFFICER WITH A DIRECTION TO TREAT THE SAME AS CAPITAL EXPENDITURE AND ALLOW THE DEPRECIATION THEREON. WE FIND THAT THE BI-METALLIC STRIPPER COULD NOT MAKE ANY INDEPENDENT FUNCTIONING OF ITS OWN IN MANUFACTURE OF FERTILIZERS ETC., WAS IN FACT INTEGRAL PART OF THE WHOLE PLANT AND MACHINERY OF THE ASSESSEE IN THE MANUFACTURING PROCESS OF UREA. THE ASSESSEE HAS FIL ED A CHART OF THE PLANT AND MACHINERY USED IN THE MANUFACTURING P ROCESS WHICH IS ANNEXED AS D-3 ALONG WITH WRITTEN SUBMISSIONS BE FORE US TO SHOW THAT THE REPLACED METALLIC STRIPPER COULD NOT FUNCTION INDEPENDENTLY IN THE MANUFACTURING PROCESS. ACCORD INGLY, EVEN IF THE ASSESSEE DERIVED AN ENDURING BENEFIT FROM THE R EPLACED BI- METALLIC STRIPPER BEYOND THE RELEVANT ACCOUNTING PE RIOD, IT COULD NOT BE SAID THAT THE EXPENDITURE CLAIMED FOR REPLAC EMENT WOULD NOT BE OF REVENUE IN NATURE. WE FIND THAT BI-METAL LIC STRIPPER COULD NOT FUNCTION IN ITS ISOLATION OF THE ENTIRE SET OF PLANT AND MACHINERY USED BY THE ASSESSEE IN ITS MANUFACTURING PROCESS. WE FIND THAT THERE WAS NO INCREASE IN THE INSTALLED CAPACITY OF THE ASSESSEES PLANT EVEN AFTER THE REPLACEMENT OF BI-METALLIC STR IPPER. 6. WE FIND THAT THE ASSESSING OFFICER, DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, HAS ISSUED A NOTIC E ON 26-11- 2007 TO THE ASSESSEE TO FILE THE DETAILS OF EXPENDI TURE CLAIMED EXCEEDING RS.1 LAKH AND ALSO A COPY OF LEDGER ACCOU NT. THE INFORMATION ASKED FOR WAS COMPLIED WITH BY THE ASSE SSEE. THE ASSESSING OFFICER WHILE FRAMING THE ASSESSMENT ORDE R IN THIS CASE IN ITA NO. 645 OF 2010 NAGARJUNA FERTILIZERS & CHEM. LTD., HYD. ====================== 5 THE SCRUTINY ASSESSMENT PROCEEDINGS, HAS RECORDED BY WAY OF NOTE NOT TO THE ASSESSEE AS UNDER:- DURING THE COURSE OF ASSESSMENT PROCEEDING, IT IS OBSERVED THAT THE ASSESSEE HAS CLAIMED EXPENDITURE OF RS.15. 56 CRORES FOR REPLACEMENT OF BIMETALLIC STRIPPER UNDER THE HE AD CONSUMPTION OF STORES AND SPARES. THE ASSESSEE W AS ASKED TO FURNISH THE DETAILS OF THIS EXPENDITURE ALONG WI TH A CLEAR NOTE ON NATURE OF THE EXPENDITURE CLAIMED. IN THIS REGARD, PLANT DIAGRAM WAS OBTAINED AND THE WORKING OF THE B IMETALLIC STRIPPER IS STUDIED. THE BIMETALLIC STRIPPER IS PA RT OF THE INTEGRATED FERTILIZER PLANT AND IT HAS GOT NO INDEP ENDENT FUNCTION SO AS TO QUALIFY AS A SEPARATE ASSET. IN THE CASE OF SARAVANA SPINNING MILLS VS. CIT, THE APEX COURT HEL D THAT IN ALLOWING THE EXPENDITURE FOR MACHINERY REPAIR, WHAT MATTERS IS THE INDIVIDUAL FUNCTIONALITY OF AN ASSET AND WHE THER SUCH EXPENDITURE IS REVENUE OR CAPITAL HAS NO RELEVANCE. IN THE LIGHT OF THIS VIEW, THE PLANT OPERATIONS AND THE FU NCTION OF BIMETALLIC STRIPPER ARE EXAMINED. THE BIMETALLIC S TRIPPER IS NOT WORKING PROPERLY, THE PLANT OPERATIONS WOULD CO ME TO STANDSTILL. THUS, EVEN THOUGH THE REPLACEMENT OF B Y METALLIC STRIPPER HAS ENDURING BENEFIT, THE METALLIC STRIPPE R CANNOT BE CONSIDERED AS AN INDEPENDENT ASSET. IN VIEW OF THIS , THIS EXPENDITURE IS ALLOWED AS REVENUE EXPENDITURE. BY READING THE ABOVE NOTE MAKES IT CLEAR THAT THE I SSUE OF ALLOWABILITY OF REPLACEMENT OF BI-METALLIC STRIPPER WAS CONSIDERED BY THE ASSESSING OFFICER AND HE WAS OF THE CONSIDER ED VIEW THAT BI- METALLIC STRIPPER IS AN INTEGRAL PART AND HAS GOT N O INDEPENDENT FUNCTION SO AS TO QUALIFY AS A SEPARATE ASSET AND H AS NO INDEPENDENT FUNCTION AND PART OF THE INTEGRAL PROCE SS OF THE MANUFACTURING ACTIVITY AND THEREFORE THE SAME IS AL LOWABLE AS REVENUE EXPENDITURE. WE FIND THAT THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD VS. CIT ITA NO. 645 OF 2010 NAGARJUNA FERTILIZERS & CHEM. LTD., HYD. ====================== 6 (SUPRA) AND VARIOUS OTHER DECISIONS OF THE TRIBUNAL CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE APPLIES TO THE F ACTS OF THE INSTANT CASE OF THE ASSESSEE. THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. SARAVANA SPINNING MILLS PVT. LTD., (SUPRA) CITED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE IS DISTINGUISHABLE ON FACTS. IT IS NOW WELL SETTLED THAT WHEN THE ASS ESSING OFFICER ADOPTS ONE OF THE COURSES PERMISSIBLE IN LAW OR WHE RE TWO VIEWS ARE POSSIBLE AND THE ASSESSING OFFICER HAS TAKEN ON E VIEW WITH WHICH THE CIT DOES NOT AGREE, IT COULD NOT BE TREAT ED AS ERRONEOUS ORDER, PREJUDICIAL TO THE INTERESTS OF REVENUE UNLE SS THE VIEW TAKEN BY THE ASSESSING OFFICER WAS UNSUSTAINABLE IN LAW. IN THIS CASE, IT COULD NOT BE SAID THAT THE VIEW TAKEN BY THE ASSESS ING OFFICER IN SCRUTINY ASSESSMENT WAS PERVERSE OR UNSUSTAINABLE I N LAW OR WAS NOT A POSSIBLE VIEW. IN THIS VIEW OF THE MATTER, W E ARE OF THE CONSIDERED OPINION THAT THE ORDER OF THE CIT PASSED UNDER SECTION 263 OF THE ACT IS NOT SUSTAINABLE IN LAW AND ACCORD INGLY THE SAME IS CANCELLED. HENCE, THE GROUNDS RAISED BY THE ASS ESSEE ARE ALLOWED. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER WAS PRONOUNCED IN THE COURT ON 27-05-2011. SD/- SD/- (AKBER BASHA) (G.C. GUPTA ) ACCOUNTANT MEMBER VICE PRESIDEN T DT. 27-05-2011. ITA NO. 645 OF 2010 NAGARJUNA FERTILIZERS & CHEM. LTD., HYD. ====================== 7 COPY FORWARDED TO: 1. 2. 3. 4. M/S. NAGARJUNA FERTILISERS & CHEMICALS LIMITED, 8-2 -248, NAGARJUNA HILLS, PUNJAGUTTA, HYDERABAD. ADDL. CIT, RANGE-16, HYDERABAD. CIT-IV, HYDERABAD. THE DR, ITAT, HYDERABAD. JMR* ITA NO. 645 OF 2010 NAGARJUNA FERTILIZERS & CHEM. LTD., HYD. ====================== 8 ITA NO. 645 OF 2010 NAGARJUNA FERTILIZERS & CHEM. LTD., HYD. ====================== 9 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI G.C.GUPTA, VICE PRESIDENT AND SHRI AKBE R BASHA, ACCOUNTANT MEMBER ITA NO.1258/HYD/2010 : ASSESSMENT YEAR 2007-08 SRI PARAMESWARA REDDY, HYDERABAD. (PAN: AAXPA 5793 K) VS ACIT, CIR-6(1), HYDERABAD. (APPELLANT) (RESPONDENT) APPELLANT: SHRI A.V. RAGHU RAM RESPONDENT: SMT. NIVEDITA BISW AS O R D E R PER AKBER BASHA, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGA INST THE ORDER OF THE DIT (EXEMPTIONS), HYDERABAD DATED 20-7 -2010. 2. AT THE OUTSET, IT APPEARS THAT THE LEARNED DIT (EXEMPTIONS) PASSED HIS ORDER REFUSING REGISTRATION TO THE TRUST UNDER SECTION 12AA OF THE ACT WITHOUT GIVING MANDATORY OPPORTUNI TY OF BEING HEARD TO THE ASSESSEE AS REQUIRED UNDER THE PROVIS O TO SECTION 12AA (1)(B) OF THE ACT. HENCE, IN THE INTEREST OF JUSTICE, WE ITA NO. 645 OF 2010 NAGARJUNA FERTILIZERS & CHEM. LTD., HYD. ====================== 10 RESTORE THIS ISSUE OF REGISTRATION OF THE TRUST UND ER SECTION 12AA OF THE ACT TO THE FILE OF THE DIT (E) FOR FRESH CONSID ERATION IN ACCORDANCE WITH LAW AFTER AFFORDING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE ALSO DIRECT THE TRUST TO CO-OP ERATE WITH THE DEPARTMENT FOR EXPEDITIOUS DISPOSAL OF THE APPLICAT ION. 3. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TRE ATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER WAS PRONOUNCED IN THE COURT ON 11 - 03-2011. SD/- SD/- (G.C. GUPTA) (AKBER BASHA) VICE PRESIDENT ACCOUNTANT MEMBER DT. 11 03-2011. COPY FORWARDED TO: 1. 2. 3. SREE PINNAMANENI SRI RAMADASU CHARITABLE TRUST, 5-6 - 526/4, HYDERABAD ROAD, SARASWATI NAGAR, NIZAMABAD. DIT (EXEMPTIONS), AAYAKAR BHAVAN, HYDERABAD. THE DR, ITAT, HYDERABAD. JMR* ITA NO. 645 OF 2010 NAGARJUNA FERTILIZERS & CHEM. LTD., HYD. ====================== 11 , AS DIRECTED BY THE ASSESSING OFFICER. IT IS SUBMI TTED THAT THE BI- METALLIC STRIPPER IS AN INTEGRAL PART OF THE WHOLE MACHINERY USED FOR MANUFACTURING UREA AND THEREFORE THE EXPENDITUR E INCURRED IS REVENUE IN NATURE. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS HERE BY DISMISSED. ORDER WAS PRONOUNCED IN THE COURT ON 25- 03-2011. SD/- SD/- (G.C. GUPTA) (AKBER BASHA) VICE PRESIDENT ACCOUNTANT MEMBER DT. 25 03-2011. COPY FORWARDED TO: 1. 2. 3. DCIT, CIR-5(1), 6 TH FLOOR, AAYAKAR BHAVAN, HYDERABAD. SHRI B. MOHANA REDDY, 8-2-310/R/14, ROAD NO.14, BANJARA HILLS, HYDERABAD. CIT (A)-V, HYDERABAD. ITA NO. 645 OF 2010 NAGARJUNA FERTILIZERS & CHEM. LTD., HYD. ====================== 12 4. 5. CIT, AP, HYDERABAD. THE DR, ITAT, HYDERABAD. JMR* IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI G.C.GUPTA, VICE PRESIDENT AND SHRI AKBE R BASHA, ACCOUNTANT MEMBER ITA NO.1258/HYD/2010 : ASSESSMENT YEAR 2007-08 SRI PARAMESWARA REDDY, HYDERABAD. (PAN: AAXPA 5793 K) VS ACIT, CIR-6(1), HYDERABAD. (APPELLANT) (RESPONDENT) APPELLANT: SHRI A.V. RAGHU RAM RESPONDENT: SMT. NIVEDITA BISW AS O R D E R PER AKBER BASHA, ACCOUNTANT MEMBER: ITA NO. 645 OF 2010 NAGARJUNA FERTILIZERS & CHEM. LTD., HYD. ====================== 13 THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGA INST THE ORDER OF THE DIT (EXEMPTIONS), HYDERABAD DATED 20-7 -2010. 2. AT THE OUTSET, IT APPEARS THAT THE LEARNED DIT (EXEMPTIONS) PASSED HIS ORDER REFUSING REGISTRATION TO THE TRUST UNDER SECTION 12AA OF THE ACT WITHOUT GIVING MANDATORY OPPORTUNI TY OF BEING HEARD TO THE ASSESSEE AS REQUIRED UNDER THE PROVIS O TO SECTION 12AA (1)(B) OF THE ACT. HENCE, IN THE INTEREST OF JUSTICE, WE RESTORE THIS ISSUE OF REGISTRATION OF THE TRUST UND ER SECTION 12AA OF THE ACT TO THE FILE OF THE DIT (E) FOR FRESH CONSID ERATION IN ACCORDANCE WITH LAW AFTER AFFORDING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE ALSO DIRECT THE TRUST TO CO-OP ERATE WITH THE DEPARTMENT FOR EXPEDITIOUS DISPOSAL OF THE APPLICAT ION. 3. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TRE ATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER WAS PRONOUNCED IN THE COURT ON 11 - 03-2011. SD/- SD/- (G.C. GUPTA) (AKBER BASHA) VICE PRESIDENT ACCOUNTANT MEMBER DT. 11 03-2011. COPY FORWARDED TO: 1. SREE PINNAMANENI SRI RAMADASU CHARITABLE TRUST, 5-6 - 526/4, HYDERABAD ROAD, SARASWATI NAGAR, NIZAMABAD. ITA NO. 645 OF 2010 NAGARJUNA FERTILIZERS & CHEM. LTD., HYD. ====================== 14 2. 3. DIT (EXEMPTIONS), AAYAKAR BHAVAN, HYDERABAD. THE DR, ITAT, HYDERABAD. JMR*