M/s. Sri Nagananthana Mills Ltd., CHENNAI V. ACIT, Madurai

ITA 695/CHNY/2010

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 6538 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 24-05-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 13-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K E B RENGARAJAN
• Assessee Lawyers: V JAGADISAN
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH A CHENNAI BEFORE SHRI U.B. BEDI, J.M. AND SHRI N.S. SAINI, AM .. I.T.A. NO. 695/MDS/2010 ASSESSMENT YEAR 2004-05 M/S SRI NAGANANTHANA MILLS LTD VAKKANANGUNDU POST ARUPPUKOTTAI TALUK VIRUDHUNAGAR DISTRICT PAN AACCS 4927 K VS. THE A.C.I.T COMPANY CIRCLE 1, NO. 2 RATHINASAMY NADAR ROAD, MADURAI (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI V. JAGADISAN DEPARTMENT BY : SHRI K.E.B. RENGARAJAN O R D E R PER N.S. SAINI, A.M :- THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER PASSED BY THE LD. CIT(A), MADURAI DATED 16.03.2010 FOR ASSESSMENT YEAR 2004-05. PAGE 2 OF 7 I.T.A. NO 695/MDS/2010 2. THE ASSESSEE HAS TAKEN FOUR GROUNDS OF APPEAL. HOWEVER, THE SOLE ISSUE INVOLVED IN THIS APPEAL IS THAT THE COMM ISSIONER OF INCOME-TAX [APPEALS] ERRED IN HOLDING THAT DISALLOW ANCE OF ` 12,11,943/- BEING COST OF REPLACEMENT OF J143 YARN SLICER IS NOT REVENUE BUT CAPITAL IN NATURE. 3. AFTER HEARING THE RIVAL SUBMISSIONS AND PERUSING THE ORDERS OF THE AUTHORITIES BELOW AND MATERIAL ON RECORD, WE FI ND THAT THE UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE MANUFACTURE AND SALE OF COTTON YARN. DURING THE YE AR UNDER CONSIDERATION, THE ASSESSEE PURCHASED YARN CLEANER AND YARN SLICER MACHINERIES BOTH TOTALING ` . 16,15,792/-. ASSESSEE TREATED THE ABOVE AMOUNT AS CAPITAL IN NATURE IN ITS BOOKS OF A CCOUNT, BUT WHILE COMPUTING TAXABLE INCOME, CLAIMED SAME AS REVENUE D EDUCTION. IN THE OPINION OF THE ASSESSING OFFICER, THESE WERE IN DEPENDENT ASSETS OF ENDURING NATURE AND, THEREFORE, NOT ELIGIBLE FOR DEDUCTION AS REVENUE EXPENDITURE. ASSESSING OFFICER, THEREFORE, TREATED THE EXPENDITURE OF ` 16,15,792/- INCURRED ON PURCHASE OF ABOVE MACHINERIES AS CAPITAL EXPENDITURE AND AFTER ALLOWI NG DEPRECIATION PAGE 3 OF 7 I.T.A. NO 695/MDS/2010 @ 25% AMOUNTING TO ` 4,03,947/- DISALLOWED ` 12,11,843/- AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. 4. ON APPEAL BEFORE THE COMMISSIONER OF INCOME-TAX [APPEALS], THE ASSESSEE SUBMITTED THAT THERE WAS NO INCREASE I N THE INSTALLED CAPACITY OF THE ASSESSEE AND THE ADDITION OF MACHIN ERY OF ASSESSEE WAS ONLY AN ATTACHMENT TO THE EXISTING MACHINERY AN D CLAIM OF THE ASSESSEE TO TREAT THE COST OF MACHINERY AS REVENUE EXPENDITURE U/S 37 OF THE ACT WAS ALLOWABLE. IT WAS ALSO SUBMITTED THAT THE COMPANY HAD INSTALLED THESE MACHINERIES TO WARD OFF HEALTH HAZARDS. IT WAS FURTHER SUBMITTED THAT THESE TWO M ACHINERIES, EVEN OTHERWISE ALSO, FALL UNDER POLLUTION CONTROL DEVICE S AND ARE ELIGIBLE FOR 100% DEPRECIATION. 5. THE COMMISSIONER OF INCOME-TAX [APPEALS], AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, HELD AS UNDER: TO ALLOW THE CLAIM OF THE ASSESSEE U/S 37 OF THE ACT , THE EXPENDITURE SHOULD NOT BE CAPITAL IN NATURE. THE ADDI TION OF YARN CLEANER AND YARN SLICER BY THE APPELLANT BROUG HT A NEW ASSET FOR THE BUSINESS AND IT GIVES AN ENDURING ADVAN TAGE TO PAGE 4 OF 7 I.T.A. NO 695/MDS/2010 THE BUSINESS OF THE APPELLANT. THEREFORE, THE EXPEN DITURE ON THE ADDITION OF MACHINERY DOES NOT FIT IN THE PROVI SIONS OF SECTION 37(1) OF THE ACT. THE APPELLANT ITSELF ADM ITTED THAT THEY ARE NEW MACHINES ADDED AS UPGRADATION OF TECHN OLOGY AND NOT REPLACEMENT. THEY WILL NOT ALSO FIT IN TO POLLUTION CONTROL DEVICE DEFINITION COMPLETELY. THEREFORE, I AM OF THE OPINION THAT THE CLAIM OF TREATING THE COST OF MACH INERY AS REVENUE EXPENDITURE IS NOT CORRECT AND HENCE REJECT ED. 6. BEFORE US, THE LD. A.R. REITERATED THE SUBMISSIO NS MADE BEFORE THE COMMISSIONER OF INCOME-TAX [APPEALS] AND RELIED ON SEVERAL DECISIONS INCLUDING THE FOLLOWING : 1 . 315 ITR 14 CIT VS. MANGAYARKARASI MILLS [P] LTD 2. 302 ITR 338 [BOM] NEW SHORROCK SPG & MFG. CO. LTD VS. CIT 7. THE LD. D.R. SUPPORTED THE ORDERS OF THE AUTHORI TIES BELOW. 8. WE FIND THAT THE ASSESSEE HAS NOT BROUGHT ON REC ORD ANY MATERIAL TO SHOW THAT THESE TWO MACHINERIES WERE PU RCHASED BY IT WERE NOT CAPABLE OF INDEPENDENT FUNCTION AND THEY W ERE MERELY PART OF EXISTING MACHINE. FURTHER, IT IS NOT THE C ASE OF THE ASSESSEE PAGE 5 OF 7 I.T.A. NO 695/MDS/2010 THAT THE MACHINERY ACQUIRED WERE REPLACEMENT OF EXI STING MACHINERY. WE ARE OF THE CONSIDERED OPINION THAT T O DETERMINE WHETHER AN EXPENDITURE IS CAPITAL IN NATURE OR REVE NUE IN NATURE, THERE IS NO SINGLE TEST WHICH CAN BE APPLIED UNIVER SALLY. IT DEPENDS UPON THE COMPLETE FACTS AND CIRCUMSTANCES OF THE CA SE. IT CANNOT ALWAYS BE HELD THAT AN EXPENDITURE THOUGH INCURRED FOR ACQUISITION OF AN ASSET BUT SIMPLY BECAUSE AN EXPENDITURE DID N OT RESULT IN INCREASING PRODUCTION CAPACITY OF THE ASSESSEE CAN SUCH EXPENDITURE BE HELD AS REVENUE IN NATURE. IN OUR OPINION, IN T HE FACTS AND CIRCUMSTANCES OF THE INSTANT CASE, AS ACQUISITION O F TWO MACHINERY IN QUESTION RESULTED IN ENDURING BENEFIT TO THE ASS ESSEE, RELEVANT EXPENDITURES ARE CAPITAL IN NATURE AS HELD BY THE L OWER AUTHORITIES. THE CASE LAWS CITED BY THE ASSESSEE IN THIS CONNECT ION ARE DISTINGUISHABLE ON FACTS AND ARE NOT SQUARELY APPLI CABLE TO THE FACTS OF THE CASE AS THOSE CASES RELATE TO REPLACEMENT OF AN ASSET AND NOT FOR ACQUIRING OF ANY NEW PLANT AND MACHINERY CAPABL E OF INDEPENDENT FUNCTIONS. 9. ALTERNATE ARGUMENT OF THE ASSESSEE BEFORE THE CO MMISSIONER OF INCOME-TAX [APPEALS] WAS THAT THE MACHINERIES AC QUIRED BY IT ARE PAGE 6 OF 7 I.T.A. NO 695/MDS/2010 POLLUTION CONTROL DEVICES AND ELIGIBLE FOR 100% DEP RECIATION. WE FIND THAT THE COMMISSIONER OF INCOME-TAX [APPEALS] NEGATED THE ABOVE ARGUMENT OF THE ASSESSEE BY SIMPLY HOLDING TH AT THE MACHINERIES DO NOT FIT INTO POLLUTION CONTROL DEVIC ES COMPLETELY WITHOUT GIVING ANY DETAILS OR PASSING A SPEAKING OR DER. FURTHER, IT IS OBSERVED THAT THIS ALTERNATE CONTENTION OF THE ASSE SSEE WAS ALSO NOT EXAMINED BY THE ASSESSING OFFICER AS THE CLAIM OF T HE ASSESSEE BEFORE HIM WAS THAT THE MACHINERIES IN QUESTION REP RESENT EXPENDITURE ALLOWABLE U/S 37(1) OF THE ACT. HOWEVE R, SINCE WE HAVE HELD THAT THE SAID EXPENDITURE IS CAPITAL IN N ATURE, THE ABOVE ALTERNATE ARGUMENT OF THE ASSESSEE IS REQUIRED TO B E VERIFIED AND ADJUDICATED UPON. IN THE ABOVE CIRCUMSTANCES, WE A RE OF THE CONSIDERED OPINION THAT IT SHALL BE FAIR AND JUST T O RESTORE THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO VERIFY WHETHER MACHINERIES IN QUESTION ARE ELIGIBLE FOR DE PRECIATION @ 100% OR NOT AND THEREAFTER ADJUDICATE THE ISSUE AFR ESH AS PER LAW. IT IS NEEDLESS TO MENTION THAT THE ASSESSING OFFICE R SHALL ALLOW PROPER OPPORTUNITY OF HEARING TO THE ASSESSEE BEFOR E ADJUDICATING THE ISSUE AFRESH. PAGE 7 OF 7 I.T.A. NO 695/MDS/2010 10. IN THE RESULT, APPEAL FILED BY THE ASSESSEE STA NDS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 27 TH MAY, 2011. SD/- SD/- ((U.B.S BEDI ) (N.S. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 27 TH MAY, 2011. VL COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE