Farmson Pharmaceuticals Gujarat Ltd., Baroda V. The ACIT.,Circle-1(2), Baroda

ITA 666/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 85676 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 30-01-2015
• Assessment Year: 2002-2003
• Appeal Filed On: 03-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ROOP CHAND SR DR
• Keywords: Reopening of assessment; Capital asset; Depreciation; Revenue expenditure; Reassessment proceedings; Capital expenditure
• Section: 147

Judgement Text

, B IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER ./ ITA NO.666 AND 667/AHD/2011 / ASSTT. YEAR: 2002-03 AND 2003-04 FARMSON PHARMACEUTICALS GUJARAT PVT. LTD. 28-35, GIDC INDUSTRIAL ESTATE NANDESARI, BARODA. PAN : AAACF 3358 B VS ACIT 1(2) BARODA. ! / (APPELLANT) '# ! / (RESPONDENT) ASSESSEE(S) BY : SHRI MILIN MEHTA, AR REVENUE BY : SHRI ROOPCHAND, SR-DR / DATE OF HEARING : 30/01/2015 / DATE OF PRONOUNCEMENT: 19/02/2015 $%/ O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER: THESE ARE APPEALS FILED BY THE ASSESSEE AGAINST SEPARATE ORDERS OF THE CIT( A)-I, BARODA BOTH DATED 14.12.2010 FOR ASSTT.YEARS 2002-03 AND 2003-0 4 RESPECTIVELY. ITA NO.666/AHD/2011 ASSTT.YEAR 2002-03. 2. THE GROUND NOS.1 AND 2 OF THE APPEAL IN THE ASST T.YEAR 2002-03 READ AS UNDER: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE ASS ESSING OFFICER IN INVOKING THE PROVISIONS OF THE SECTION 147 OF THE A CT, 1961 AND COMPLETING THE ASSESSMENT, COMMENCED UNDER INVALID EXERCISE OF POWERS U/S 147 OF THE ACT. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE ASSESSIN G OFFICER IN CONTINUING WITH REASSESSMENT PROCEEDINGS REJECTING THE OBJECTIONS RAISED BY THE APPELLANT DURING THE COURSE OF PROCEE DINGS. ITA NO.666 AND 667/AHD/2011 2 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE ASS ESSING OFFICER IN MAKING DISALLOWANCE / ADDITIONS / ADJUSTMENTS IN IS SUES OTHER THAN THE ISSUES ON WHICH REOPENING OF ASSESSMENT IS MADE. 3. AT THE TIME OF HEARING, THE AR OF THE ASSESSEE S UBMITTED THAT HE IS NOT PRESSING THE ABOVE GROUNDS OF THE APPEAL, HE NCE, THEY ARE DISMISSED FOR WANT OF PROSECUTION. 4. THE GROUND NO.3 OF THE APPEAL OF THE ASSESSEE FO R ASSTT.YEAR 2002-03 READS AS UNDER: THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) E RRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE ASSESSIN G OFFICER IN NOT ALLOWING 100% DEPRECATION AND RESTRICTING THE SAME TO 25% ON POLLUTION CONTROL EQUIPMENTS DESPITE THE FACT THAT IT WAS SHOWN THAT THE SAID ITEMS ARE COVERED BY APPENDIX - 1 TO THE INCOME TAX RULES, 1961. 5. BRIEF FACTS OF THE CASE ARE THAT THE AO OBSERVED THAT THE ASSESSEE HAS CLAIMED DEPRECIATION ALLOWANCE AT 100% ON POLLUTION CONTROL EQUIPMENT, WHICH WHEN VERIFIED, DO NOT MATCH WITH T HE PRESCRIBED RATES OF DEPRECIATION ALLOWANCE OF THE POLLUTION CONTROL EQUIPMENTS IN THE RELEVANT APPENDIX PROVIDED IN I.T.RULES. SINCE THE ASSESSEE FAILED TO PROVIDE ANY EXPLANATION OR SUBMIT DOCUMENTS SUPPORT ING ITS CLAIM, THE AO RESTRICTED THE DEPRECIATION TO 25% AS AGAINST 10 0% CLAIMED BY THE ASSESSEE. 6. ON APPEAL, THE CIT(A) CONFIRMED THE ACTION OF TH E AO BY OBSERVING THAT AS THE EQUIPMENTS ARE NOT INDICATED IN APPENDIX-1 OF THE DEPRECIATION TABLE AND NOT BEING INCLUSIVE DEFINITI ON, HIGHER DEPRECIATION CAN BE PROVIDED ONLY IN RESPECT OF THE ITEMS CLEARL Y INDICATED IN THE APPENDIX. 7. BEFORE US, THE AR OF THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE CIT(A) AND ARGUED THAT THE ASSETS F ORMED PART OF THE POLLUTION CONTROL SYSTEM AND ARE PART OF DEWATERING SYSTEM OF THE ITA NO.666 AND 667/AHD/2011 3 ASSESSEE USED FOR SLUDGE DEWATERING OF THE EFFLUENT S AND THEN RECOVERY OF THE FINAL PRODUCT, AND THEREFORE, THE DEPRECIATI ON FOR THE ADDITION OF THE MACHINERY AT 100% IS ALLOWABLE. 8. DR SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES . 9. WE FIND THAT NONE OF THE LOWER AUTHORITIES HAS G IVEN ANY FINDING THAT WHETHER FILTER PRESS STRUCTURE, POLYPROPYLENEN PLATES, END PLATES, PRESSURE PLATES & WASH PLATES, MICRO PULVERIZER, VE RTICAL CHEMICAL TANK, CHEMICAL STORAGE TANK, PREOPERATIVE EXPENSES AND FI LTER PRESS WITH PLATES ARE PART OF MECHANICALLY SKIMMED OIL AND GRE ASE REMOVAL SYSTEM OR NOT. THE AO HAS SIMPLY STATED THAT THE DESCRIPT ION OF THE EQUIPMENTS PURCHASED BY THE ASSESSEE DID NOT MATCH WITH DESCRIPTION GIVEN IN RULE. HE HAS NOT BROUGHT ON RECORD EVEN T HE DETAILS OF THE EQUIPMENTS PURCHASED, MUCH LESS, THE REASON FOR HIS ARRIVING AT THE CONCLUSION THAT THE SAME DOES NOT MATCH WITH THE DE SCRIPTION GIVEN IN THE RULE. THE AO HAS NOT STATED ANYTHING ABOUT THE FUNCTIONALITY OF THE EQUIPMENTS PURCHASED BY THE ASSESSEE. IN THE ABSEN CE OF THE SAME, WE ARE NOT IN A POSITION TO ADJUDICATE THE ISSUE CO MPLETELY. WE, THEREFORE, SET ASIDE THE ORDERS OF THE LOWER AUTHOR ITIES ON THIS ISSUE AND REMIT THE MATTER BACK TO THE FILE OF THE AO FOR PRO PER VERIFICATION AND TO RECORD A CLEAR FINDING AS TO WHETHER THE EQUIPMENTS PURCHASED BY THE ASSESSEE ARE PART OF MECHANICALLY SKIMMED OIL AND G REASE OR NOT, AND THEREAFTER, RE-ADJUDICATE THE ISSUE AS PER LAW. NE EDLESS TO MENTION THAT HE SHALL ALLOW REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE BEFORE ADJUDICATING THE ISSUE AFRESH. THUS, THIS GROUND O F APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 10. GROUND NO.4 OF THE APPEAL OF THE ASSESSEE IS AS UNDER: 4 . THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN HO LDING THAT LOSS OF RS. 8,33,576/-BEING LOSS ON ACCOUNT OF DISC ARDED ASSETS IS NOT A REVENUE LOSS AND ALSO NOT A CAPITAL LOSS AND THEREFORE NOT ALLOWABLE UNDER THE ACT AT ALL. ITA NO.666 AND 667/AHD/2011 4 4.1 THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN REJECTING THE CLAIM OF THE APPELLANT THAT THE LOSS ARISING ON ACC OUNT OF DISCARDING OF CAPITAL WORK-IN-PROGRESS IS REVENUE L OSS. 4.2 WITHOUT PREJUDICE TO ABOVE THE LEARNED COMMISSI ONER OF INCOME TAX (APPEALS) ERRED IN FACT AND IN LAW IN HO LDING THAT THE LOSS IS NOT A CAPITAL LOSS AND THEREBY NOT ALLOWING SET OFF OF SHORT TERM CAPITAL LOSS OF RS. 8,33,576/- AGAINST SHORT T ERM CAPITAL GAIN OF RS. 6,83,205/- AS PER PROVISION OF SECTION 70(2) OF THE ACT. 4.3 WITHOUT PREJUDICE TO ABOVE THE LEARNED COMMISSI ONER OF INCOME TAX (APPEALS) ERRED IN FACT AND IN LAW IN CO NFIRMING THE ACTION OF THE ASSESSING OFFICER IN NOT ALLOWING CAR RY FORWARD OF CAPITAL LOSS OF RS. 8,33,576/-. 11. BRIEF FACTS OF THE CASE ARE THAT THE AO OBSERVE D THAT THE ASSESSEE HAS DEBITED RS.13,33,840/- IN RESPECT OF DISCARDED AND SOLD ASSETS AND IN ITS COMPUTATION OF TOTAL INCOME ONLY A SUM OF RS .5,00,264/- WAS ADDED BACK AND THE BALANCE AMOUNT OF RS.8,33,576/- WAS NOT INCLUDED. ACCORDINGLY TO THE AO, THE AMOUNT OF RS.8,33,576/- CLAIMED BY THE ASSESSEE AS CAPITAL LOSS WAS INCLUDED IN THE TOTAL INCOME, SINCE THE LOSS ARISING FROM SALE OF DISCARDED ASSETS WOULD HAVE TO BE TREATED AS CAPITAL IN NATURE IN VIEW OF PROVISIONS OF SECTIONS 50 AND 43(6)(C) OF THE ACT. 12. ON APPEAL, THE CIT(A) DISMISSED THE APPEAL OF T HE ASSESSEE BY OBSERVING AS UNDER: 6.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF T HE CASE, THE SUBMISSIONS OF THE APPELLANT AND THE ASSESSMENT ORD ER. IT HAS BEEN ADMITTED THAT THE COMPANY FACED SERIOUS POLLUTION P ROBLEMS IN 2001 AND IT CHANGED ITS MANUFACTURING PROCESS ON PHENOL ROUT E TO PNCB ROUTE AND THE MACHINERIES UNDER CWIP WERE TESTED AND FOUND NO T SUITABLE FOR THE NEW PROCESS. IT HAS ALSO BEEN STATED BEFORE THE A O THAT PROCESS OF CHANGE IN TECHNOLOGY BEGAN IN 2001 BUT THESE MACHI NERY COULD NOT BE PUT TO USE AS IN THE TESTING STAGE ITSELF THESE WER E FOUND UNSUITABLE. IT HAS ALSO BEEN ADMITTED THAT NO DEPRECIATION HAS BEE N CLAIMED ON THESE ASSETS. AS PER APPELLANT ITSELF THE MACHINERIES WER E SHOWN AS CAPITAL WORK IN PROGRESS AND WERE LATER ON DISCARDED AND WR ITTEN OFF. IN MY VIEW THE LOSS ARISING FROM SCRAPPING OF THE CAPITAL WORK IN PROGRESS IS NOTHING BUT SUNK COST OF A FAILED VENTURE AND IS NEITHER RE VENUE NOR CAPITAL LOSS. IN THE CASE OF MOHAN MEAKINS BREWARIES LTD. V. CIT, 227 ITR 878 (HP), IT WAS HELD THAT LOSS IN RESPECT OF MILK PLANT DISC ARDED AND WRITTEN OFF ITA NO.666 AND 667/AHD/2011 5 DURING THE PREVIOUS YEAR WAS NOT ALLOWABLE U/S.45. THE ALTERNATE PLEA OF THE APPELLANT THAT THE CAPITAL LOS BE ALLOWED TO BE CARRIED FORWARD IS THUS REJECTED. THE GROUND NO.4 IS DISMISSED. 13. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSE SSEE DEBITED RS.13,33,840/- IN ITS PROFIT & LOSS ACCOUNT UNDER T HE HEAD DISCARDED AND OLD ASSETS, AND WHILE COMPUTING THE TOTAL INCO ME ADDED ONLY RS.5,00,264/- TO THE NET PROFIT AS PER THE PROFIT & LOSS ACCOUNT. THE AO OBSERVED THAT IN VIEW OF PROVISION OF SECTION 43(6) (C) OF THE ACT, SUCH CAPITAL LOSS DEBITED IN PROFIT & LOSS ACCOUNT IS NO T ALLOWABLE. 14. ON APPEAL, THE CIT(A) CONFIRMED THE ACTION OF T HE AO. 15. BEFORE US, THE AR OF THE ASSESSEE COULD NOT POI NT OUT ANY SPECIFIC ERROR IN THE ORDER OF THE AO. WE FIND THAT AS PER THE PROVISIONS OF SECTION 43(6)(C) OF THE ACT, WHILE COMPUTING THE WR ITTEN DOWN VALUE OF BLOCK OF ASSETS, ONLY SCRAP VALUE OF DISCARDED ASSE TS IS REDUCED FROM THE WDV AND THE REMAINING VALUE IS TREATED AS WDV ON WH ICH DEPRECIATION IS DULY ALLOWED TO THE ASSESSEE. THEREFORE, THE ASS ESSEE AGAIN CANNOT BE PERMITTED TO CLAIM DEDUCTION IN RESPECT OF ENTIR E WDV OF THE DISCARDED ASSETS. WE DO NOT FIND ANY ERROR IN TH E ORDERS OF THE LOWER AUTHORITIES, AND THEREFORE, THIS GROUND OF THE APPE AL IS DISMISSED. 16. THE GROUND NO.5 OF THE ASSESSEES APPEAL IS AS UNDER: 5. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE ASS ESSING OFFICER IN INITIATING PENALTY PROCEEDINGS U/S 271(L)(C) OF THE INCOME TAX ACT, 1961. 17. WE FIND THAT SINCE THE GROUND REGARDING INITIAT ION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT BEIN G PREMATURE AT THIS STAGE, THE SAME IS DISMISSED AS SUCH. ITA NO.667/AHD/2011 ASSTT.YEAR 2003-04. ITA NO.666 AND 667/AHD/2011 6 18. THE GROUND NO.1 OF THE APPEAL READS AS UNDER: 1. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN HOLDING THAT LOSS OF RS. 73,43,678/-BEING LOSS ON ACCOUNT OF DIS CARDED ASSETS IS NOT A REVENUE LOSS AND ALSO NOT A CAPITAL LOSS AND THEREFORE NOT ALLOWABLE UNDER THE ACT AT ALL. 1.1 THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN REJECTING THE CLAIM OF THE APPELLANT THAT THE LOSS ARISING ON ACC OUNT OF DISCARDING OF CAPITAL WORK-IN-PROGRESS IS REVENUE L OSS. 1.2 THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN HOLDING THAT THE LOSS IS NOT A CAPITAL LOSS AND THEREFORE NO SET OFF OR CARRY FORWARD CAN BE ALLOWED. 19. BRIEF FACTS OF THE CASE ARE THAT THE AO OBSERVE D THAT THE ASSESSEE HAS CLAIMED RS.73,43,678/- FOR LOSS ON SALE/WRITE O FF OF THE FIXED ASSETS OF CAPITAL WORK-IN-PROGRESS. THE AO DID NOT ACCEP T THE ASSESSEES EXPLANATION THAT THE ASSETS WERE NEVER PUT TO USE B UT THESE WERE PUT TO USE ONLY FOR TEST PURPOSE FOR SOME TIME AND DUE TO THE PROBLEM OF POLLUTION THE ENTIRE TECHNOLOGY HAD TO BE CHANGED A ND AS THE ALTERNATIVE USE WAS NOT POSSIBLE, THE MACHINERIES WERE SCRAPED. ACCORDING TO THE AO, THERE WERE DEDUCTIONS IN THE CAPITAL WORK IN PR OGRESS AND UNDER THE HEAD LABORATORY EQUIPMENTS, BUT ADDITIONS WERE NOTI CED UNDER THE HEAD PLANT & MACHINERY AND POLLUTION CONTROL EQUIPMENTS. THE ASSESSEE HAS NOT FURNISHED ANY EVIDENCE/DOCUMENTS TO JUSTIFY THE CHANGE IN THE MANUFACTURING PROCESS. THEREFORE, THE AO CONCLUDED THAT THE WRITTEN OFF OF FIXED ASSETS WERE OF CAPITAL NATURE AND THE AMOUNT OF RS.73,43,678/- WERE ADDED TO THE TOTAL INCOME. 20. ON APPEAL, THE CIT(A) DISMISSED THE APPEAL OF T HE ASSESSEE AS UNDER: 4.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE SUBMISSIONS OF THE APPELLANT AND THE ASSESSMENT ORD ER. IT HAS BEEN ADMITTED FACT THAT THE COMPANY FACED SERIOUS P OLLUTION PROBLEMS IN 2001 AND IT CHANGED ITS MANUFACTURING P ROCESS FROM PHENOL ROUTE TO PNCB AND THE MACHINERIES UNDER CWIP WERE TESTED AND FOUND NOT SUITABLE FOR THE NEW PROCESS. IT HAS ALSO ITA NO.666 AND 667/AHD/2011 7 BEEN STATED BEFORE THE AO THAT PROCESS OF CHANGE IN TECHNOLOGY BEGAN IN 2001 BUT THESE MACHINERIES COULD NOT BE P UT TO USE AS IN THE TESTING STAGE ITSELF THESE WERE FOUND UNSUIT ABLE. IT HAS ALSO BEEN ADMITTED THAT NO DEPRECIATION HAD BEEN CLAIMED ON THESE ASSETS. AS PER APPELLANT ITSELF TH E MACHINERIES WERE SHOWN AS CAPITAL WORK IN PROGRESS AND WERE LATER ON DISCARDED AND WRITTEN OFF. IN MY VIEW THE LOSS ARISING FROM SCRAPPING OF THE CAPITAL WORK IN PROGRESS IS NOTHING BUT SUNK COST OF FAILED VENTURE AND IS NEITHER REVENUE OR CAPITAL LOSS. I N THE CASE OF MOHAN MEAKINS BREWARIES LTD V CIT, 227 ITR 878 (HP) , IT WAS HELD THAT LOSS IN ASPECT OF MILK PLANT DISCARDED AN D WRITTEN OFF DURING THE PREVIOUS YEAR WAS NOT ALLOWABLE U/S 45. THE ALTERNATE PLEA OF THE APPELLANT THAT THE CAPITAL LOSS BE ALLO WED TO BE CARRIED FORWARD IS THUS REJECTED. GROUNDS 1 & 2 ARE DISMISS ED. 21. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES, AND MATERIAL AVAILABLE ON RECORD . IN THE INSTANT CASE, THE ASSESSEE IS ENGAGED IN MANUFACTURING AND SALE O F PARACETAMOL. THE ASSESSEE DEBITED RS.73,43,678/- IN THE PROFIT & LOS S ACCOUNT UNDER THE HEAD LOSS ON ACCOUNT OF DISCARDED ASSETS AND CLAI MED DEDUCTION FOR THE SAME. THE ASSESSEE EXPLAINED BEFORE THE AO AS UNDER: DURING THE PERIOD UNDER CONSIDERATION WE IDENTIFIE D AND SCRAPED SOME OF THE ASSETS WHICH WERE NOT AVAILABLE FOR USE IN BUSINESS. ACCORDINGLY AN AMOUNT OF RS. 1349840/- WAS BOOKED A S LOSS IN ASSETS IN BOOKS OF ACCOUNTS OF THE ASSESSEE, OUT OF WHICH RS. 500264/- WAS DISALLOWED IN COMPUTATION BY THE ASSES SEE COMPANY. IN RESPECT OF THIS TRANSACTION WE WOULD LIKE TO MEN TION THAT A DC SET HAVING COST OF RS. 551264/- WAS SOLD BY US FOR RS. 51000/-. LOOKING TO THE PROVISIONS OF THE IT ACT WE REDUCED REALIZED AMOUNT OF RS. 51000/- FROM THE BLOCK OF ASSETS AND AT THE SAME TIME LOSS OCCURRED ON THIS ASSETS OF RS. 500264/- W AS DISALLOWED IN THE COMPUTATION BY THE ASSESSEE. HERE WE WOULD L IKE TO MENTION THAT TOTAL ASSETS HAVING W.D.V. OF RS.83357 6/- WAS IDENTIFIED AS SCRAP AND DISCARDED BY THE COMPANY. H OWEVER THE SAME WAS NOT SOLD BY THE ASSESSEE COMPANY AND IT RE MAINED WITH THE ASSESSEE AS THE SAME WAS NOT SOLD BY US WE REDU CED REALIZABLE VALUE OF THE SCRAP FROM THE BLOCK OF RES PECTIVE ASSETS. HERE WE WOULD LIKE TO MENTION THAT AFTER VERIFICATI ON AND PROPER INQUIRY WE ASCERTAINED W.D.V. AS REALIZABLE VALUE O F THE ASSETS AND THEREFORE THE SAME AMOUNT WAS REDUCED FROM THE BLOC K OF ASSETS. WE MOST RESPECTFULLY SUBMIT THAT WE HAVE RIGHTLY AP PLIED ITA NO.666 AND 667/AHD/2011 8 PROVISIONS OF IT ACT AND CORRECT INCOME WAS WORKED OUT BY US. OUR CONTENTION OF REDUCING SCRAP VALUE OF THE UNSOL D DISCARDED ASSETS IS ALSO CONFIRMED BY MADRAS HIGH COURT IN TH E CASE OF CIT V/S. ASHOKA BETEL NUT CO. PVT. LTD. (125 TAXMAN 321 ). HERE WE WOULD LIKE TO MENTION THAT WE WILL CREDIT SCRAP VAL UE AS AND WHEN IT WOULD BE SOLD AND CREDIT OF THE SAME WILL BE GIV EN IN P&L ACCOUNT AND SUBSEQUENTLY THE SAME WILL BE OFFERED F OR TAX. THE AO TREATED THE SAID AMOUNT AS CAPITAL EXPENDITU RE, AND THEREFORE, DID NOT ALLOW AS BUSINESS DEDUCTION. FURTHER, THE AO ALSO DID NOT ALLOW DEPRECIATION ON THE SAID AMOUNT ON THE GROUND THAT THE RELEVANT ASSET WAS NEVER PUT TO USE IN THE BUSINESS OF THE ASSESSE E. 22. ON APPEAL, THE CIT(A) CONFIRMED THE ACTION OF T HE AO. 23. BEFORE US, THE AR EXPLAINED THAT NEW ASSETS WER E PURCHASED, BUT THE SAME WERE NOT FOUND SUITABLE FOR THE BUSINESS O F THE ASSESSEE, AND THEREFORE, THE SAME WAS DISCARDED AND WRITTEN OFF I N THE PROFIT & LOSS ACCOUNT. HE RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF EMPIRE JUTE CO. LTD., 124 ITR 1 (SC) AND SU BMITTED THAT THE HONBLE SUPREME COURT IN THAT CASE HELD THAT THERE MAY BE CAUSE, WHERE EXPENDITURE, EVEN IF INCURRED FOR OBTAINING A DVANTAGE OF ENDURING BENEFIT, MAY, NONETHELESS, BE ON REVENUE ACCOUNT AN D THE TEST OF ENDURING BENEFIT MAY BREAK DOWN. IT IS NOT EVERY AD VANTAGE OF ENDURING NATURE ACQUIRED BY AN ASSESSEE THAT BRINGS THE CASE WITHIN THE PRINCIPLE LAID DOWN IN THIS TEST. WHAT IS MATERIAL TO CONSIDE R IS THE NATURE OF THE ADVANTAGE IN A COMMERCIAL SENSE AND IT IS ONLY WHER E THE ADVANTAGE IS IN THE CAPITAL FIELD THAT THE EXPENDITURE WOULD BE DISALLOWABLE ON AN APPLICATION OF THIS TEST. HE ALSO RELIED ON THE FO LLOWING DECISIONS: I) DCIT VS. ASSAM ASBESTOS LTD., 263 ITR 357 (GAU) II) CIT VS. JYOTI ELECTRIC MOTORS LTD. 173 CTR 20 (GUJ) /255 ITR 345(GUJ) III) INDO RAMA SYNTHETICS (I) LD. VS. CIT, 228 CTR 278 ( DEL) IV) CIT VS. PRIYA VILLAGE ROADSHOWS LTD., 228 CTR 271 ( DEL) ITA NO.666 AND 667/AHD/2011 9 V) CIT VS. COROMANDAL FERTILIZERS, 166 CTR 405 (AP) VI) ITO VS. JACOB PUCADY, 143 ITR 459 (AHD) THE AR CONTENDED THAT IN THE ABOVE QUOTED DECISIONS , IT HAS BEEN HELD THAT THE COST OF FAILED PROJECT IS ALLOWABLE AS REV ENUE EXPENDITURE. 24. ON THE OTHER HAND, DR SUPPORTED THE ORDERS OF T HE LOWER AUTHORITIES. 25. WE FIND THAT DETAILS OF PURCHASE OF MACHINERY, WHICH WAS CLAIMED TO HAVE BEEN DISCARDED, WERE NOT BROUGHT ON RECORD. FROM THE RECORDS BEFORE US, IT IS NOT CLEAR AS TO WHEN THE MACHINERY IN QUESTION WAS PURCHASED AND WHAT WAS THE ACTUAL COST OF MACHINERY . FURTHER, FROM THE MATERIAL BEFORE US, IT IS ALSO NOT CLEAR WHETHE R THE SAID MACHINE WAS ACTUALLY SOLD OUT DURING THE YEAR AS SCRAP BY THE A SSESSEE OR NOT. IN OUR CONSIDERED VIEW, IF THE MACHINERY HAS NOT FORME D PART OF THE BLOCK OF ASSETS, AND WAS ACTUALLY SOLD OUT DURING THE YEA R, THEN THE LOSS SO SUFFERED BEING INCIDENTAL TO THE BUSINESS OF THE AS SESSEE, AND AS NO CAPITAL ASSET OF ENDURING NATURE HAS BEEN ACQUIRED BY THE ASSESSEE, BECAUSE OF THE SAID LOSS, THE SAME IS ALLOWABLE AS BUSINESS DEDUCTION TO THE ASSESSEE. 26. HOWEVER, IF THE MACHINE PURCHASED FOR THE BUSIN ESS WAS NOT USED FOR BUSINESS, BUT FOUND TO BE UNSUITABLE, AND THERE AFTER SOLD OUT BY THE ASSESSEE DURING THE RELEVANT YEAR, THEN THE ACTUAL LOSS ACCRUED TO THE ASSESSEE DURING THE RELEVANT YEAR, AND EVEN THOUGH, THE NOTIONAL LOSS HAS BEEN PROVIDED IN THE BOOKS OF ACCOUNTS, BUT TIL L THE ACTUAL LOSS TAKES PLACE, THE SAME IS NOT ALLOWABLE TO THE ASSESSEE. THE ACTUAL LOSS WILL ACCRUE TO THE ASSESSEE IN THE YEAR IN WHICH SUCH UN USED MACHINES WERE ACTUALLY SOLD OUT BY THE ASSESSEE. IN OUR CONSIDER ED VIEW, IT SHALL BE IN THE INTEREST OF JUSTICE TO RESTORE THIS ISSUE BACK TO THE FILE OF AO FOR PROPER VERIFICATION, AND THEREAFTER, ADJUDICATION A FRESH IN THE LIGHT OF THE DISCUSSION MADE HEREINABOVE. THE AO SHALL ALLOW R EASONABLE ITA NO.666 AND 667/AHD/2011 10 OPPORTUNITY OF HEARING TO THE ASSESSEE, AND ASSESSE E IS ALSO DIRECTED TO COOPERATE WITH THE AO AND FURNISH NECESSARY DETAILS TO THE AO AS AND WHEN CALLED UPON TO DO SO BY THE AO. THUS, THIS GR OUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. 27. THE GROUND NO.2 OF THE APPEAL IS AS UNDER: 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE ASS ESSING OFFICER IN ALLOWING DEPRECIATION @ 25% AS AGAINST CLAIMED BY T HE APPELLANT @ 100% ON POLLUTION CONTROL EQUIPMENTS AND THEREBY MAKING DISALLOWANCE OF RS. 49,35,483/-. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE ASS ESSING OFFICER IN CONSIDERING REPAIRING EXPENSES TO PLANT AND MACHINE RY OF RS. 81,180/- AS CAPITAL EXPENDITURE AND THEREBY MAKING DISALLOWANCE OF SUCH EXPENDITURE AFTER ALLOWING DEPRECIATION ON THE SAME. 28. BRIEF FACTS OF THE CASE ARE THAT THE AO OBSERVE D THAT THE ASSESSEE HAD CLAIMED DEPRECIATION ALLOWANCE AT 100% ON POLLU TION CONTROL EQUIPMENT WHICH WHEN VERIFIED DO NOT MATCH WITH THE PRESCRIBED RATES OF DEPRECIATION ALLOWANCE OF THE POLLUTION CONTROL EQUIPMENTS IN THE RELEVANT APPENDIX PROVIDED IN I.T.RULES. THEREFORE , THE AO RESTRICTED THE DEPRECIATION ALLOWANCE TO 25% AS AGAINST 100% C LAIMED BY THE ASSESSEE AND MADE ADDITION OF RS.11,31,340/- TO THE INCOME OF THE ASSESSEE. 29. ON APPEAL, THE CIT(A) CONFIRMED THE ACTION OF T HE AO OBSERVING THAT THESE EQUIPMENTS ARE NOT INDICATED IN APPENDIX -1 OF THE DEPRECIATION TABLE AND NOT BEING INCLUSIVE DEFINITI ON, HIGHER DEPRECIATION CAN BE PROVIDED ONLY IN RESPECT OF ITEMS CLEARLY IN DICATED IN THE APPENDIX. 30. BEFORE US, THE AR OF THE ASSESSEE REITERATED TH E SUBMISSIONS MADE BEFORE THE CIT(A) AND ARGUED THAT THE ASSETS F ORMED PART OF THE ITA NO.666 AND 667/AHD/2011 11 POLLUTION CONTROL EQUIPMENT BEING MECHANICALLY SKIM MED OIL AND GREASE REMOVAL SYSTEM. 31. DR SUPPORTED THE ORDERS OF THE LOWER AUTHORITIE S. 32. WE FIND THAT NONE OF THE LOWER AUTHORITIES HAS GIVEN ANY FINDING THAT WHETHER CHEMICAL FEED SYSTEM AND MIXING EQUIPM ENTS, MECHANICAL FLOCCULATOR AND MECHANICAL REACTORS, AIR STRIPPING SYSTEM AND DEWATERING SLUDGE ARE PART OF MECHANICALLY SKIMMED OIL AND GREASE REMOVAL SYSTEM OR NOT. FURTHER, AR OF THE ASSESSEE HAS ALSO NOT BROUGHT ANY MATERIAL TO SUBSTANTIATE THE CONTENTION RAISED BY HIM. THE AO HAS SIMPLY STATED THAT THE DESCRIPTION OF THE EQ UIPMENTS PURCHASED BY THE ASSESSEE DID NOT MATCH WITH DESCRIPTION GIVE N IN RULE. HE HAS NOT BROUGHT ON RECORD EVEN THE DETAILS OF THE EQUIP MENTS PURCHASED, MUCH LESS, THE REASON FOR HIS ARRIVING AT THE CONCL USION THAT THE SAME DOES NOT MATCH WITH THE DESCRIPTION GIVEN IN THE RU LE. THE AO HAS NOT STATED ANYTHING ABOUT THE FUNCTIONALITY OF THE EQUI PMENTS PURCHASED BY THE ASSESSEE. IN THE ABSENCE OF THE SAME, WE ARE N OT IN A POSITION TO ADJUDICATE THE ISSUE COMPLETELY. WE, THEREFORE, SE T ASIDE THE ORDERS OF THE LOWER AUTHORITIES ON THIS ISSUE AND REMIT THE M ATTER BACK TO THE FILE OF THE AO FOR PROPER VERIFICATION AND TO RECORD A C LEAR FINDING AS TO WHETHER THE EQUIPMENTS PURCHASED BY THE ASSESSEE AR E PART OF MECHANICALLY SKIMMED OIL AND GREASE REMOVAL SYSTEM OR NOT, AND THEREAFTER, RE-ADJUDICATE THE ISSUE AS PER LAW. NE EDLESS TO MENTION THAT HE SHALL ALLOW REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE BEFORE ADJUDICATING THE ISSUE AFRESH. THUS, THIS GROUND O F APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 33. THE GROUND NO.3 OF THE ASSESSEES APPEAL IS AS UNDER: THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE ASSESSIN G OFFICER IN CONSIDERING REPAIRING EXPENSES TO PLANT AND MACHINE RY OF RS. ITA NO.666 AND 667/AHD/2011 12 81,180/- AS CAPITAL EXPENDITURE AND THEREBY MAKING DISALLOWANCE OF SUCH EXPENDITURE AFTER ALLOWING DEPRECIATION ON THE SAME. 34. THE BRIEF FACTS OF THE CASE ARE THAT THE AO DIS ALLOWED A SUM OF RS.2,95,387/- TREATING THE SAME TO BE CAPITAL EXPEN DITURE IN RESPECT OF FABRICATION AND ENGINEERING WORK TO THE PLANT IN FA CTORY PREMISES ON THE GROUND THAT SUCH EXPENDITURE HAD GIVEN DIFFERENT AN D ENDURING ADVANTAGE TO THE ASSESSEE. 35. ON APPEAL, THE CIT(A) HELD THAT A PERUSAL OF TH E MANUFACTURING PROCESS AND THE NATURE OF EXPENSES, IN HIS OPINION, THE EXPENDITURE OF RS.29,500/- ON CENTRIFUGAL PUMP AND RS.51,680/- ON FIRING CHAMBER IN THE NATURE OF CAPITAL EXPENDITURE, AS THESE ITEMS W ERE CAPABLE OF INDEPENDENT FUNCTIONING AND HAVING ENDURING LIFE. THEREFORE, HE RESTRICTED THE DISALLOWANCE OF THESE TWO AMOUNTS AN D DELETED THE BALANCE EXPENSES AS REVENUE EXPENDITURE, AND ALSO D IRECTED THE AO TO WORK OUT THE DEPRECIATION ACCORDINGLY. 36. AR OF THE ASSESSEE SUBMITTED THAT THE ITEMS REP LACED ARE PART OF THE MACHINERY, AND THEREFORE, ALLOWABLE AS REVENUE EXPENDITURE. THESE ITEMS CANNOT BE USED INDEPENDENTLY. THE EXPENDITUR E WAS INCURRED FOR EFFICIENT FUNCTIONING OF PLANT, AND NOT FOR ACQUIRI NG OF ANY NEW ASSET. THE EXPENDITURE WAS INCURRED FOR REPLACEMENT OF OLD ITEMS, WHICH WERE WORN OUT. HE ALSO RELIED ON THE DECISION OF THE HO NBLE SUPREME COURT IN THE CASE OF CIT VS. SARAVANA SPINNING MILLS PVT. LTD., 293 ITR 201 (SC) AND SUBMITTED THAT HONBLE SUPREME COURT HAS H ELD THAT THE BASIC TEST WHETHER THE EXPENDITURE WAS REVENUE OR CAPITAL IN NATURE, WAS TO FIND OUT WHETHER THE EXPENDITURE WAS INCURRED TO PR ESERVE AND MAINTAIN AN ALREADY EXISTING ASSET AND THE EXPENDITURE MUST NOT BE TO BRING A NEW ASSET INTO EXISTENCE OR TO OBTAIN A NEW ADVANTA GE. 37. DR, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. ITA NO.666 AND 667/AHD/2011 13 38. WE FIND THAT THE DISALLOWANCE WAS CONFIRMED BY THE CIT(A) BY GIVING A CATEGORICAL FINDING THAT THE EXPENDITURE O F RS.29,500/- ON CENTRIFUGAL PUMP AND RS.51,680/- ON FIRING CHAMBER WAS CAPITAL IN NATURE, AS THE ITEMS WERE CAPABLE OF INDEPENDENT FU NCTIONING AND HAVING ENDURING LIFE. NO SPECIFIC ERROR IN THE FIN DINGS OF THE CIT(A) COULD BE POINTED OUT BY THE AR OF THE ASSESSEE BY B RINGING ANY MATERIAL ON RECORD. NO MATERIAL WAS ALSO BROUGHT ON RECORD TO SHOW THAT THE EXPENDITURE IN QUESTION WAS INCURRED TOWARDS PRESER VING AND MAINTAINING AN ALREADY EXISTING ASSET. HENCE, WE D O NOT FIND ANY GOOD REASON TO INTERFERE WITH THE ORDER OF THE CIT(A), W HICH IS CONFIRMED, AND THIS GROUND OF THE ASSESSEE IS DISMISSED. 39. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE COURT ON THURSDAY THE 19 TH FEBRUARY, 2015 AT AHMEDABAD. SD/- SD/- ( SHAILENDRA KUMAR YADAV ) JUDICIAL MEMBER ( N.S. SAINI) ACCOUNTANT MEMBER AHMEDABAD; DATED 19/2/2015 $% & ''() *$)' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ! / CONCERNED CIT 4. ! ( ) / THE CIT(A), AHMEDABAD 5. $%& '' , , )*++ / DR, ITAT, AHMEDABAD 6. &,- . / GUARD FILE. $% + / BY ORDER, ,/ - ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD