ACIT, CHENNAI V. M/s. Tanfac Industries Limited, CHENNAI

ITA 664/CHNY/2009

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 1072 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 9 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 10-02-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 06-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K E B RENGARAJAN JUNIOR
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH D CHENNAI (BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER) ..... I.T.A. NO. 658 / MDS/2009 ASSESSMENT YEAR : 2003-04 M/S TANFAC INDUSTRIES LTD., OXFORD CENTRE, I FLOOR, 66, C.P. RAMASWAMY ROAD, ALWARPET, CHENNAI - 600 018. PAN : AAACT2591A (APPELLANT) V. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE III(1), CHENNAI - 600 034. (RESPONDENT) I.T.A. NO. 664 / MDS/2009 ASSESSMENT YEAR : 2003-04 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE III(1), CHENNAI - 600 034. (APPELLANT) V. M/S TANFAC INDUSTRIES LTD., OXFORD CENTRE, I FLOOR, 66, C.P. RAMASWAMY ROAD, ALWARPET, CHENNAI - 600 018. (RESPONDENT) ASSESSEE BY : SHRI SAROJ KUMAR PARIDA REVENUE BY : SHRI K.E.B. RENGARAJAN, JUNIOR STANDING COUNSEL O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : THESE ARE CROSS APPEALS OF THE ASSESSEE AND REVENU E RESPECTIVELY AGAINST THE ORDER DATED 27.12.2008 OF COMMISSIONER OF INCOME TAX (APPEALS)-III, CHENNAI, FOR THE IMPUGNED ASSESSMENT YEAR. I.T.A. NO. 658/MDS/09 I.T.A. NO. 664/MDS/09 2 2. GRIEVANCE OF THE ASSESSEE IS THAT A.O. HELD THE EXPENSES INCURRED BY THE ASSESSEE FOR REPLACING EXISTING MAC HINERY AS CAPITAL EXPENDITURE AND THIS WAS CONFIRMED BY THE CIT(APPEA LS). 3. SHORT FACTS APROPOS ARE THAT ASSESSEE MANUFACTUR ING FLUORINE BASED CHEMICALS, HAD FILED RETURN DECLARING A LOSS OF ` 6,67,05,570/- FOR THE IMPUGNED ASSESSMENT YEAR. DURING THE COURS E OF ASSESSMENT PROCEEDINGS, A.O. NOTED THAT ASSESSEE HAD CLAIMED R EPAIRS AND MAINTENANCE COST OF ` 2,51,72,226/- FOR ITS H.F. REACTOR. EXPLANATION OF THE ASSESSEE WAS THAT THERE WAS NO INCREASE IN C APACITY DUE TO REPLACEMENT OF MACHINERY AND IT WAS ONLY REVAMPING OF EXISTING MACHINERY AND EXPENSES INCURRED FOR KEEPING THE PLA NT IN GOOD RUNNING CONDITION. HOWEVER, THE A.O. WAS OF THE OP INION THAT THE NEW MACHINERY, NAMELY, H.F. REACTOR WAS INSTALLED AND T HE COST THEREOF BEEN CAPITALIZED BY THE ASSESSEE IN ITS ACCOUNT, IT CLEARLY SHOWED THAT THERE WAS AN ACQUISITION OF ASSET WITH ENDURING BEN EFIT. ACCORDING TO A.O., INCREASE IN CAPACITY OF PRODUCTION WAS NOT TH E RELEVANT CRITERIA AND EXPENSES INCURRED FOR ACQUISITION OF CAPITAL AS SET COULD NOT BE ALLOWED AS REVENUE EXPENDITURE. HE, THEREFORE, DIS ALLOWED THE CLAIM OF ` 2,51,72,226/- ON REPAIRS AND MAINTENANCE. NEVERTH ELESS, HE ALLOWED DEPRECIATION OF 25% THEREOF. I.T.A. NO. 658/MDS/09 I.T.A. NO. 664/MDS/09 3 4. IN ITS APPEAL BEFORE CIT(APPEALS), ARGUMENT OF T HE ASSESSEE WAS THAT THERE WERE THREE REACTORS BEING USED BY IT FOR THE MANUFACTURING PROCESS. ACCORDING TO ASSESSEE, THER E WAS A PRE- REACTOR WHERE THE FIRST STAGE OF REACTION WAS CARRI ED OUT AND THEREAFTER THE PRODUCTION FROM THE FIRST REACTOR WAS PUSHED IN TO THE H.F. REACTOR AND H.F. GAS PRODUCED THEREFROM WAS THEREAFTER PURI FIED AND SUCH PURIFIED GAS FED IN THE ALF3 REACTOR OF PRODUCING T HE FLUORINE PRODUCTS. ACCORDING TO ASSESSEE, THE H.F. REACTOR WAS ONLY THE PART OF A SYSTEM AND THE HOLLOW CYLINDRICAL SHELL OF SUC H REACTOR ALONE WAS REPLACED AND THERE WAS NO INCREASE IN CAPACITY. AS PER THE ASSESSEE, THIS WAS ONLY REPAIRS AND MAINTENANCE CAR RIED OUT ON A REACTOR WHICH WAS OLD AND PURCHASED IN 1985. THOUG H THE ASSESSEE PLACED RELIANCE ON THE DECISION OF HON'BLE APEX COUR T IN THE CASE OF CIT V. RAMARAJU SURGICAL COTTON MILLS (2007) 294 IT R 328 (SC) FOR ALLOWING CLAIM UNDER SECTION 37 OF THE INCOME-TAX A CT, 1961 (HEREINAFTER CALLED AS THE ACT) AND IF IT WAS NOT ALLOWABLE UNDER SECTION 31 OF THE ACT, LD. CIT(APPEALS) WAS NOT IMP RESSED. ACCORDING TO HIM, THE CLAIM OF THE ASSESSEE WAS RIGHTFULLY RE JECTED BY THE A.O. 5. NOW, BEFORE US, THE LEARNED A.R. STRONGLY ASSAIL ING THE ORDER OF LD. CIT(APPEALS), SUBMITTED THAT THERE WAS NO INCRE ASE IN CAPACITY ON ACCOUNT OF MAINTENANCE WORK DONE IN H.F. REACTOR, W HICH WAS ONLY A PART OF THE INTEGRATED PRODUCTION SYSTEM. ACCORDIN G TO HIM, THE LAW I.T.A. NO. 658/MDS/09 I.T.A. NO. 664/MDS/09 4 LAID DOWN BY THE APEX COURT IN THE CASE OF RAMARAJU SURGICAL COTTON MILLS (SUPRA) CLEARLY APPLIED AND THERE BEING NO IN CREASE IN PRODUCTION CAPACITY, EXPENDITURE CANNOT BE ALLOWED. PER CONTR A, THE LEARNED D.R. SUPPORTED THE ORDER OF THE CIT(APPEALS). 6. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL C ONTENTIONS. THE CASE OF RAMARAJU SURGICAL COTTON MILLS (SUPRA), WAS CONSIDERED BY THE HON'BLE APEX COURT AGAIN IN THE CASE OF CIT V . SRI MANGAYARKARASI MILLS P. LTD. (2009) 315 ITR 114 (SC ) AND AFTER REFERRING TO THE DECISION OF RAMARAJU SURGICAL COTT ON MILLS (SUPRA) AS WELL AS THAT OF CIT V. SARAVANA SPINNING MILLS (P) LTD. 293 ITR 201 (SC), REMITTED THE MATTER BACK TO THE JURISDICTIONA L HIGH COURT FOR CONSIDERING WHETHER THE CLAIM OF THE ASSESSEE COULD BE ALLOWED BASED ON THE PRINCIPLES LAID DOWN IN THE ABOVE MENT IONED DECISIONS. IN THE CASE OF CIT V. INDIRA COTTON MILLS (TCA 559 OF 2004 DATED 15.12.2009), HON'BLE JURISDICTIONAL HIGH COURT HAD REMITTED THE QUESTION OF ALLOWANCE ON REPLACEMENT BACK TO THE CI T(APPEALS) FOR TAKING DECISION BASED ON THE PRINCIPLES LAID DOWN B Y HON'BLE APEX COURT IN THE DECISIONS MENTIONED SUPRA. HERE ALSO THE CRUCIAL QUESTION IS WHETHER THE REPAIRS STATED TO BE CARRIE D OUT BY THE ASSESSEE AND CONSIDERED BY THE A.O. AS REPLACEMENT OF MACHINERY, WOULD LEAD TO INCREASE IN PRODUCTION CAPACITY OR CO ULD ONLY BE CONSIDERED AS REVENUE OUTGO. THIS HAS TO BE EXAMIN ED IN THE LIGHT OF I.T.A. NO. 658/MDS/09 I.T.A. NO. 664/MDS/09 5 PRINCIPLES LAID DOWN BY HON'BLE APEX COURT IN THE VA RIOUS DECISIONS MENTIONED SUPRA. THEREFORE, IN ACCORDANCE WITH THE DIRECTIONS GIVEN BY THE JURISDICTIONAL HIGH COURT IN INDIRA COTTON M ILLS (SUPRA), WE ARE OF THE OPINION THAT THE MATTER NEEDS TO BE REVISITE D BY THE CIT(APPEALS). WE, THEREFORE, SET ASIDE THE ORDER O F THE CIT(APPEALS) AND REMIT THE MATTER BACK TO HIM FOR CONSIDERATION AFRESH IN THE LIGHT OF VARIOUS DECISIONS MENTIONED SUPRA. 8. APPEAL OF THE ASSESSEE IS, THEREFORE, ALLOWED FO R STATISTICAL PURPOSES. 9. NOW, WE CONSIDER THE CROSS APPEAL OF THE REVENUE . SOLE GRIEVANCE RAISED BY THE REVENUE IS THAT CIT(APPEALS ) DELETED THE INTEREST LEVIED BY THE ASSESSING OFFICER UNDER SECT ION 234D OF THE ACT. 10. WHEN THE ISSUE CAME UP, LEARNED D.R. SUBMITTED THAT HON'BLE KERALA HIGH COURT IN THE CASE OF CIT V. KERALA CHEM ICALS AND PROTEINS LTD. (2010) 323 ITR 584 (KER) HAD HELD THA T SECTION 234D WOULD BE APPLICABLE FROM 1.6.2003 BEING THE DATE ON WHICH THE SAID SECTION CAME INTO FORCE. ACCORDING TO HIM, THEREFO RE, FROM 1.6.2003 ONWARDS SUCH INTEREST WAS CHARGEABLE. I.T.A. NO. 658/MDS/09 I.T.A. NO. 664/MDS/09 6 11. PER CONTRA, THE LEARNED A.R. SUBMITTED THAT SEC TION 234D INTRODUCED BY THE FINANCE ACT 2003 WITH EFFECT FROM 1 ST JUNE, 2003, AS HELD BY SPECIAL BENCH OF THIS TRIBUNAL IN THE CA SE OF ITO V. EKTA PROMOTERS (P.) LTD. (2008) 305 ITR (AT) 1 (DELHI) ( SB), WOULD BE APPLICABLE ONLY FROM ASSESSMENT YEAR 2004-05. AS P ER THE LEARNED A.R., THIS DECISION OF THE SPECIAL BENCH WAS APPROV ED BY HON'BLE DELHI HIGH COURT IN THE CASE OF DIT V. JACABS CIVIL INCORPORATED (2010) 235 CTR (DEL) 123. 12. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. THE QUESTION HERE IS WHETHER SECTION 234D IS APPLIC ABLE FROM 1.6.2003 BEING THE DATE OF ITS INTRODUCTION IN THE INCOME-TAX ACT OR ONLY FROM ASSESSMENT YEAR 2004-05. HON'BLE KERALA H IGH COURT HELD THAT SUCH INTEREST WOULD BE CHARGED FROM 1.6.2003 B EING THE DATE OF INTRODUCTION OF SECTION 234D IN THE ACT. HOWEVER, HON'BLE DELHI HIGH COURT IN THE CASE OF JACABS CIVIL INCORPORATED (SUP RA) HELD THAT SECTION 234D WAS APPLICABLE ONLY FROM ASSESSMENT YE AR 2004-05 ONWARDS AND NOT FOR ANY EARLIER ASSESSMENT YEAR. I N OTHER WORDS, HON'BLE DELHI HIGH COURT AFFIRMED THE VIEW TAKEN BY THE SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF EKTA PROMOTER S (P.) LTD. (SUPRA). SINCE THERE ARE CONFLICTING DECISIONS OF TWO HIGH C OURTS, ONE OF WHICH HAS APPROVED THE DECISION TAKEN BY SPECIAL BENCH OF THIS TRIBUNAL, WE PREFER TO GO BY THE DECISION OF THAT HIGH COURT WHICH HAS APPROVED I.T.A. NO. 658/MDS/09 I.T.A. NO. 664/MDS/09 7 THE SPECIAL BENCHS VIEW. HENCE, WE FIND NO ERROR IN THE ORDER OF LD. CIT(APPEALS) WHEREBY HE HELD THAT INTEREST UNDER SE CTION 234D COULD NOT BE CHARGED ON THE ASSESSEE FOR THE IMPUGNED ASS ESSMENT YEAR. 13. APPEAL OF THE REVENUE IS, THEREFORE, DISMISSED. 14. TO SUMMARIZE, APPEAL FILED BY THE ASSESSEE IS A LLOWED FOR STATISTICAL PURPOSES WHEREAS THAT OF THE REVENUE IS DISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON 18 TH FEBRUARY, 2011. SD/- SD/- (U.B.S. BEDI) (ABRAHAM P. GEO RGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 18 TH FEBRUARY, 2011. KRI. COPY TO: (1) ASSESSEE (2) RESPONDENT (3) CIT(A)-III, CHENNAI (4) CIT, CHENNAI-I, CHENNAI (5) D.R. (6) GUARD FILE