M/s Reliance Chemotex Industries Ltd., Kolkata V. DCIT, CIR-10(1), KOLKATA, Kolkata

ITA 715/KOL/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4168 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2016
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 28-09-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 22-05-2015
• Court: TRIBUNAL
• Department Lawyers: G MALLIKARJUNA
• Assessee Lawyers: A K GUPTA
• Keywords: Capital asset; Depreciation; Opportunity of being heard; Principle of natural justice; Assessment record; Revenue expenditure; Capital expenditure
• Section: 143(3); 37; 263

Judgement Text

1 ITA NO.715/KOL/2015-M/S. RELIANCE CHEMOTEX INDUSTRI ES LTD. A.Y.2010-11 IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH C KOL KATA [BEFORE HONBLE SHRI N.V.VASUDEVAN, JM & SHRI M.B ALAGANESH, AM ] ITA NO.715/KOL/2015 ASSESSMENT YEAR : 2010-11 M/S. RELIANCE CHEMOTEX INDUSTRIES LTD. -VERSUS- D.C .I.T. , CIRCLE-10(1), KOLKATA KOLKATA (PAN:AABCR3739H) (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI A.K.GUPTA, FCA FOR THE RESPONDENT: SHRI G.MALLIKARJUNA, CIT(DR) DATE OF HEARING : 07.12..2016. DATE OF PRONOUNCEMENT : 09.12.2016. ORDER PER N.V.VASUDEVAN, JM: THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 26.03.2015 OF PR.C.I.T.-4, KOLKATA PASSED U/S 263 OF THE ACT RELA TING TO A.Y.2010-11. 2. THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND DEALING AND EXPORTING OF YARN. FOR A.Y.2010-11, THE ASSESSEE FILED RETURN OF INCOME ON 29.09.2010 DISCLOSING LOSS OF RS.2,47,65,293/-. IN ARRIVING AT THE LOSS FROM THE BUSINESS WHICH WAS DECLARED IN THE RETURN OF INCOME , THE ASSESSEE HAD DEBITED (OR SAY CLAIMED AS A DEDUCTION) A SUM OF RS.1,54,08,480/-. THE AFORESAID SUM DEBITED IN THE PROFIT AND LOSS ACCOUNT WAS A SUM PAID BY THE ASSE SSEE TO RAJASTHAN RAJYA VIDUT PRASARAN NIGAM LTD FOR ELECTRIC INSTALLATION FOR GE TTING ELECTRICITY IN THE ASSESSEES FACTORY. THE ELECTRIC INSTALLATIONS FOR WHICH THE A FORESAID EXPENDITURE WAS INCURRED WERE NOT OWNED BY THE ASSESSEE AND WAS TO BE PROPER TY OF THE NIGAM. THE SUM IN QUESTION WAS ADMITTEDLY INCURRED IN THE PREVIOUS YE AR RELEVANT TO A.Y.2009-10. IN A.Y.2009-10 THE AFORESAID SUM WAS CAPITALISED BY TH E ASSESSEE IN THE BOOKS OF ACCOUNT AND DEPRECIATION OVER SUCH ASSETS WAS CLAIM ED IN A.Y.2009-10. THE SAME IS ALSO EVIDENT FROM NOTE-7 (XI) OF THE SCHEDULE TO AC COUNTS FOR THE YEAR ENDED 31.03.2009. THE SAID NOTE READS AS FOLLOWS :- 2 ITA NO.715/KOL/2015-M/S. RELIANCE CHEMOTEX INDUSTRI ES LTD. A.Y.2010-11 XI) ADDITIONS TO PLANT & MACHINERY AS PER SCHEDULE 4 INCLUDES RS.1,54,08,480/- PAID TO RAJASTHAN RAJYA VIDHYUT PRASARAN PRASARAN N IGAM LTD FOR ELECTRIC INSTALLATIONS NOT REPRESENTED BY PHYSICAL ASSETS OWNED BY THE COM PNY AND DEPRECIATION OVER SUCH ASSETS HAS BEEN CLAIMED IN THE MANNER AND AT THE RA TES SPECIFIED IN SCHEDULE XIV TO THE COMPANIES ACT, 1956. 3. HOWEVER, WHILE FINALISING THE ACCOUNTS FOR TH E YEAR ENDED 31.03.2010 IT WAS FELT CAPITALISATION OF THE SAID AMOUNT OF RS.1,54,08,480 /- IN AY 2009-10 REFERRED TO IN THE EARLIER PARAGRAPH WAS WRONG IN VIEW OF THE ACCOUNTI NG STANDARD AND CERTAIN COURT DECISIONS. AS SUCH THE CAPITALISATION WAS REVERSED AND THE DEPRECIATION PROVIDED THEREON AND CLAIMED IN THE EARLIER YEAR WAS ALSO RE VERSED IN THE BOOKS OF ACCOUNTS FOR AY 2010-11. AS A RESULT OF THE SAME THE SAID SUM W AS CHARGED TO PROFIT & LOSS ACCOUNT FOR THE ASSESSMENT YEAR 2010-11. THE SAID F ACTUAL DETAILS ARE REFLECTED IN NOTE NO.7(XI) TO THE SCHEDULES OF THE ANNUAL ACCOUNTS F OR THE YEAR ENDED 31.03.2010. THE SAID NOTE BEING NOTE NO.7(XI) READS AS FOLLOWS: IN VIEW OF CERTAIN COURT DECISIONS AND TO FALL STR ICTLY IN LINE WITH RELATIVE ACCOUNTING STANDARDS, THE COMPANY HAS THIS YEAR REV ERSED THE CAPITALISATION UNDER THE HEAD PLANT AND MACHINERY IN EARLIER YEA R IN RESPECT OF PAYMENTS OF RS.1,54,08,480/- TO RAJASTHAN RAJYA VIDYUT PRASARAN NIGAM LTD., FOR ELECTRIC INSTALLATIONS (NOT OWNED BY THE COMPANY) AND SO ALS O DEPRECIATION PROVIDED THEREON IN EARLIER YEAR. CONSEQUENTLY SUCH EXPENDI TURE OF RS.1,54,08,480/- HAS THIS YEAR BEEN CHARGED TO PROFIT AND LOSS ACCOUNT A S PER SCHEDULE 19 OF MANUFACTURING COST AND HAS WRITTEN BACK DEPRECIAT ION OF RS.98,704/-. AS A RESULT OF SUCH CHANGE IN METHOD OF ACCOUNTING, THE PROFITS OF THE COMPANY ARE REDUCED BY RS.1,53,10,406/- (NET OF WEITE OF DEPREC IATION) AND SO ALSO THE FIXED ASSETS OF THE COMPANY. THE RELATED LIABILITI ES FOR TAXATION ARE ALSO TO BE ACCORDINGLY AFFECTED, THE AMOUNTS WHEREOF HAVE NOT BEEN ASCERTAINED AND STATED. 4. IN COURSE OF THE ASSESSMENT PROCEEDINGS FOR AY 2010-11, THE ASSESSING OFFICER ENQUIRED ABOUT THE SAID CLAIM OF THE ASSESSEE. THE ASSESSEE FILED LETTERS GIVING ALL THE EVIDENCE FOR THE SAID EXPENSES OF RS. 1,54,08,4 80/- AND IT WAS ALSO EXPLAINED THAT THE SAID EXPENSES WAS PREVIOUSLY DEBITED IN THE PL ANT & MACHINERY ACCOUNT AND IN THIS YEAR THE SAME HAS BEEN TRANSFERRED AND CHARGED TO M ANUFACTURING COST AND THE REFERENCE TO THE NOTE 7(XI) WAS ALSO MADE. THE ASSE SSING OFFICER BEING NOT FULLY 3 ITA NO.715/KOL/2015-M/S. RELIANCE CHEMOTEX INDUSTRI ES LTD. A.Y.2010-11 SATISFIED WITH THE SAID EXPLANATION MADE FURTHER EN QUIRIES. BY ANOTHER LETTER THE SAID CLAIM WAS EXPLAINED WITH REFERENCE TO THE JUDICIAL PRECEDENTS OF GUJARAT, RAJASTHAN AND BOMBAY HIGH COURTS AND COPIES OF THE SAID JUDGE MENTS WERE ALSO FILED. SUBSEQUENTLY AGAIN BY A LETTER DATED 11.12.2012 TH E CASE LAWS RELATING TO CHARGING OF THE SAID SUM TO PROFIT & LOSS ACCOUNT IN RESPECT OF REVERSE CAPITALISATION IN EARLIER YEARS DUE TO THE REASON MENTIONED IN NOTE NO.7(XI) IN SCHEDULE 23 WAS ALSO FILED. 5. THE AO PASSED AN ORDER OF ASSESSMENT U/S 143( 3) OF THE ACT DATED 18.03.2013 WHEREIN THE AMOUNT CLAIMED AS DEDUCTION OF THE SUM OF RS.1,54,08,480/- IN A.Y.2010- 11 WAS NOT DISALLOWED BY THE AO. THERE IS NO DISCUS SION IN THE ORDER OF ASSESSMENT ABOUT THE CLAIM OF ASSESSEE BUT IT IS CLEAR FROM TH E LETTERS WRITTEN BY THE ASSESSEE TO THE AO THAT THIS ISSUE WAS RAISED BY THE AO AND PROPER REPLIES WERE GIVEN BY THE ASSESSEE TO THE QUERIES OF THE AO AND THE AO WAS SEIZED OF T HE ISSUE WHILE CONCLUDING THE ASSESSMENT FOR AY 2010-11. 6. THE CIT IN EXERCISE OF HIS POWERS U/S 263 OF THE ACT WAS OF THE VIEW THAT THE AFORESAID ORDER OF THE AO IN ALLOWING THE CLAIM OF THE ASSESSEE OF DEDUCTION OF A SUM OF RS.1,54,08,480/- WAS ERRONEOUS AND PREJUDICIAL T O THE INTEREST OF THE REVENUE FOR THE REASON THAT REVERSAL OF CAPITALISED EXPENDITURE REL ATING TO AY 2009-10 CANNOT AND WAS NOT AN EXPENDITURE OF THE PREVIOUS YEAR RELEVANT TO A.Y.2010-11 AND THE SAME OUGHT NOT TO HAVE BEEN ALLOWED UNDER THE MERCANTILE SYSTE M OF ACCOUNTING AS A DEDUCTION WHILE COMPUTING INCOME FROM BUSINESS FOR A.Y.2010-1 1. 7. IN REPLY TO THE AFORESAID SHOW CAUSE NOTICE THE ASSESSEE EXPLAINED IN DETAIL THE ACCOUNTING ENTRIES AS WELL AS THE ENQUIRIES MADE BY THE AO BEFORE CONCLUDING THE ASSESSMENT. THE SAID REPLY DATED 23.03.2015 OF THE ASSESSEE TO THE SHOW CAUSE NOTICE DATED 12.03.2015 OF THE CIT U/S 263 OF THE ACT IS P LACED AT PAGES 2 TO 6 OF THE ASSESSEES PAPER BOOK. IN THE SAID REPLY THE ASSES SEE POINTED OUT THE LEGAL POSITION WITH REGARD TO THE EXPENDITURE INCURRED ON ELECTRIC AL INSTALLATION WHICH BY THE TERMS OF THE AGREEMENT WILL BE OWNED BY THE STATE ELECTRICIT Y BOARD AND THAT EXPENDITURE SO INCURRED WAS REVENUE EXPENDITURE ALLOWABLE AS DEDUC TION. THE ASSESSEE CONTENDED THAT THE AO AFTER DUE APPLICATION OF MIND HAS ACCEPTED T HE CLAIM OF THE ASSESSEE. IT WAS POINTED OUT THAT THE VIEW TAKEN BY THE AO IN ALLOWI NG THE CLAIM OF THE ASSESSEE WAS A 4 ITA NO.715/KOL/2015-M/S. RELIANCE CHEMOTEX INDUSTRI ES LTD. A.Y.2010-11 POSSIBLE LEGAL VIEW WHICH WAS TAKEN AFTER FULL AND PROPER ENQUIRIES. IT WAS SUBMITTED THAT THE CIT JUST BECAUSE HE DOES NOT AGREE WITH TH E VIEW OF THE AO CANNOT SEEK TO REVISE THE ORDER OF AO. IN THIS REGARD THE ASSESSEE PLACED RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF MALABAR IN DUSTRIAL CO. LTD. VS CIT 243 ITR 83 AND THE DECISION OF THE HONBLE CALCUTTA HIGH CO URT IN THE CASE OF CIT VS J.L.MORRISON (I)LTD. 366 ITR 593. IN BOTH THE AFORE SAID DECISIONS THE VIEW TAKEN IS THAT IF THE AO TAKES A VIEW WHICH IS PERMISSIBLE IN LAW AND IF THE CIT DOES NOT AGREE WITH SUCH VIEW OR WHERE TWO VIEWS ARE POSSIBLE AND THE AO HAS TAKEN ONE VIEW THAT ALONE WILL NOT BE SUFFICIENT FOR THE CIT TO INVOKE POWERS U/S 263 OF THE ACT. ATTENTION OF THE CIT WAS ALSO BROUGHT TO THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS GABRIEL INDIA LTD. 203 ITR 108 (BOM) WHEREIN IT WAS HELD THAT BY EXERCISING OF POWERS U/S 263 OF THE ACT THE CIT CAN NOT DIRECT MAKING OF A ROWING AND FISHING ENQUIRY. 8. THE CIT HOWEVER DID NOT CONSIDER ANY OF THE SUBMISSIONS AND SET ASIDE THE ORDER OF AO ON THIS ISSUE AND DIRECTED THE AO TO CONSIDER THE ISSUE AFRESH AFTER GIVING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE FO LLOWING WAS THE RELEVANT FINDING AND DIRECTION OF THE CIT IN THE IMPUGNED ORDER: AFTER GOING THROUGH THE FACTS OF THE CASE, AVAILAB LE ASSESSMENT RECORDS AND SUBMISSION OF THE ASSESSEE COMPANY AND AS PER DISCUSSION, I AM OF THE VIEW THAT THE ASSESSEE COMPANY HAD WRONGLY DEBITED THE PRIOR PERIOD EXPENS ES IN THE P&L ACCOUNT FOR THE AY 2010-11. AS THE SAID EXPENSES WAS RELATED TO AY 200 9-10. IN THE SUBMISSION, ASSESSEE ACCEPTED THAT THE SAID EXPENSE WAS RELATED TO AY 20 09-10 AND THEREFORE IT WAS WRONGLY ALLOWED IN AY 2010.11. THEREFORE, THE ORDER DATED 18.03.2013 PASSED U/S 143(3) OF THE I.T ACT BY THE A.O. STANDS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE AND DESERVES TO BE SET ASIDE WITH DIRECTION TO THE AO TO EXAMINE WHETHER THE ASS ETS WERE ACTUALLY PURCHASED IN FY 2009-10 AND INSUE THAT THE ASSETS WERE ACTUALLY PUR CHASED FOR THE PURPOSE OF THE COMPANY AND WERE PUT TO USE. AO. MAY FURTHER EXAMIN E IF THE CLAIM OF ASSESSEE FOR THIS FINANCIAL YEAR 2009-10 IS ALLOWABLE . FURTHER, THE RANGE HEAD IS DIRECTED TO SUPER VISE THE ASSESSMENT PROCEEDINGS PROPERLY. THE ASSESSMENT PROCEEDINGS MAY BE INITIAT ED IN THE FIRST QUARTER OF FINANCIAL YEAR AND TO BE FINALIZED AT THE EARLIEST, WITHOUT W AITING TIME BARRING DATE AND DUE OPPORTUNITY OF BEING HEARD MUST BE GIVEN TO SSESSEE BEFORE FINALIZING ASSESSMENT. 5 ITA NO.715/KOL/2015-M/S. RELIANCE CHEMOTEX INDUSTRI ES LTD. A.Y.2010-11 9. AGGRIEVED BY THE ORDER OF CIT THE ASSESSEE HA S PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 10. WE HAVE HEARD THE SUBMISSIONS OF THE LD. CO UNSEL FOR THE ASSESSEE, WHO REITERATED THE SUBMISSIONS AS WERE MADE BEFORE CIT. IT WAS SUBMITTED BY HIM THAT THE LAW IS WELL SETTLED THAT THE EXPENDITURE INCURRED B Y THE ASSESSEE FOR ELECTRIC INSTALLATIONS FOR THE PURPOSE OF GETTING POWER FOR HIS FACTORY IS TO BE REGARDED AS REVENUE EXPENDITURE. IN THIS REGARD RELIANCE WAS PL ACED BY HIM ON THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS B IRLA JUTE MFG. CO. LTD. 51 TAXMAN 402 (CALCUTTA) WHEREIN IT WAS HELD THAT ALTHOUGH THE COST OF SERVICE LINES AND APPARATUS H AS BEEN BORNE BY THE ASSESSEE, THE BOARD WAS THE OWNER OF SUCH SERVICE LINES AND APPAR ATUS. BY PAYMENT OF THE AMOUNT IN QUESTION, THE ASSESSEE HAS ACQUIRED THE RIGHT TO US E THE SERVICE LINES AND APPARATUS FOR THE PURPOSE OF HAVING ENERGY FROM THE BOARD. BY THE EXPENDITURE IN QUESTION, THE ASSESSEE DID NOT ACQUIRE ANY ASSET. THE SERVICE LIN ES AND APPARATUS DID NOT BELONG TO THE ASSESSEE BUT CONTINUED TO BELONG TO THE BOARD. AN AMOUNT SPENT BY THE ASSESSEE MAY BE DEDUCTIBLE AS A REVENUE EXPENDITURE EVEN THOUGH IT RESULTS IN THE ACQUISITION OF A CAPITAL ASSET BY THE THIRD PARTY. IN THE INSTANT CA SE, THE EXPENDITURE HAD BEEN INCURRED BY THE ASSESSEE ONLY TO RUN ITS OWN BUSINESS MORE P ROFITABLY AND MORE ADVANTAGEOUSLY. THE EXPENDITURE IN QUESTION HAD BEEN INCURRED NOT I N ELATION TO THE ASSETS OWNED BY THE ASSESSEE BUT IN ORDER TO OBTAIN ELECTRIC SUPPLY TO ENABLE THE BUSINESS OPERATIONS OF THE ASSESSEE, THE EXPENDITURE IN QUESTION DID NOT CREAT E ANY ASSET FOR THE ASSESSEE. 11. RELIANCE WAS ALSO PLACED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS ASSOCIATED CEMENT COMPANIES LTD (198 8) 38 TAXMAN 110A(SC) WHEREIN SIMILAR EXPENDITURE INCURRED FOR LAYING A R OAD IN RETURN FOR EXEMPTION FROM PAYMENT OF MUNICIPAL TAXES FOR 15 YEARS WAS HELD TO BE A REVENUE EXPENDITURE. 12. IT WAS SUBMITTED BY HIM THAT IN THE LIGHT OF THE ABOVE JUDICIAL PRONOUNCEMENTS. THE EXPENDITURE IN QUESTION CANNOT BE CONSIDERED AS CAPITAL EXPENDITURE. IT WAS ALSO POINTED OUT THAT THE CIT IN THE IMPUGNED ORDER HAS NOT CONCLUDED THAT THE EXPENDITURE IN QUESTION WAS A CAPITAL EXPENDITURE NOT ALLOWABLE AS DEDUCTION. THE ONLY ISSUE WAS THE YEAR IN WHICH THE EXPENDITURE WAS TO BE ALLOWED . ACCORDING TO HIM THE DEDUCTION IN QUESTION WAS WRONGLY CLAIMED IN A.Y.2009-10. AF TER DUE APPRAISAL OF THE CORRECT LEGAL POSITION, THE CLAIM WAS MADE IN A.Y.2010-11. OUR ATTENTION WAS DRAWN TO THE HONBLE DELHI HIGH COURT IN THE CASE OF VISHNU INDU STRIAL GASES LTD. 229/1988 DATED 6 ITA NO.715/KOL/2015-M/S. RELIANCE CHEMOTEX INDUSTRI ES LTD. A.Y.2010-11 06.05.2008 WHEREIN THE HONBLE DELHI HIGH COURT TOO K A VIEW THAT YEAR IN WHICH DEDUCTION IS ALLOWABLE WOULD BE MATERIAL ONLY WHEN THE RATE OF TAX CHARGEABLE ON THE ASSESSEE IN DIFFERENT YEARS IS DIFFERENT BUT IN A C ASE WHERE TAX IS ATTRACTED AT A UNIFORM RATE IT DOES NOT MATTER AS TO WHETHER DEDUCTION IS ALLOWED IN ONE YEAR OR IN SOME OTHER YEAR. IT WAS FURTHER SUBMITTED THAT THERE IS NO FIN DING IN THE IMPUGNED ORDER BY THE CIT THAT ORDER OF AO WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. IN THIS REGARD ATTENTION WAS DRAWN TO THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF ITO VS DG HOUSING PROJECTS LTD. 343 ITR 329 (DELHI). 13. THE LD. DR RELIED ON THE ORDER OF CIT. ACCOR DING TO HIM THE ACTION OF THE ASSESSEE IN CAPITALISING THE EXPENDITURE IN THE BOO KS OF ACCOUNT IN A.Y.2009-10 IS BY ITSELF AN ADMISSION THAT THE EXPENDITURE IN QUESTIO N WAS A CAPITAL EXPENDITURE. IT WAS EMPHASISED BY HIM THAT ADMITTEDLY EXPENDITURE WAS C LAIMED IN A.Y.2009-10 AND THEREFORE IT CANNOT BE ALLOWED IN A.Y.2010-11. IT W AS SUBMITTED BY HIM THAT THAT THE ASSESSEE FOLLOWED MERCANTILE SYSTEM OF ACCOUNTING. THEREFORE THE CLAIM FOR DEDUCTION BY THE ASSESSEE IN A.Y.2010-11 WAS NOT CORRECT AND THE ACTION OF THE AO IN ALLOWING THE SAID DEDUCTION IN A.Y.2010-11 WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. THEREFORE THE CIT RIGHTLY INVOKED THE PROV ISION U/S 263 OF THE ACT. 14. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS. IT IS NOT IN DISPUTE BEFORE US THAT THE ASSESSEE HAD INCURRED EX PENDITURE TO THE TUNE OF RS.1,54,08,480/- WHICH WAS A PAYMENT MADE TO RAJAST HAN RAJYA VIDHYUT PRASARAN NIGAM LTD., FOR ELECTRIC INSTALLATIONS FOR THE PUR POSE OF SUPPLY OF POWER TO ITS FACTORY PREMISES. IT IS ALSO NOT IN DISPUTE THAT THIS EXPE NDITURE WAS INCURRED IN THE PREVIOUS YEAR RELEVANT TO AY 2009-10. IT IS ALSO NOT IN DIS PUTE THAT IN AY 2009-10, THE ASSESSEE CAPITALIZED THE EXPENDITURE SO INCURRED IN ITS BOOKS OF ACCOUNTS AND CLAIMED DEPRECIATION OF RS.98,074/- ON THE SUM SO CAPITALIZ ED. HOWEVER IN AY 2010-11 THE ASSESSEE WAS APPRAISED OF DECISIONS OF COURTS IN WH ICH IT WAS HELD THAT EXPENDITURE PURPOSE OF LAYING ELECTRIC CABLES AND OTHER TRANSMI SSION LINES TO ITS FACTORY PREMISES FOR CARRYING ON ITS BUSINESS OF MANUFACTURING WAS A LLOWABLE AS REVENUE EXPENDITURE IN THE YEAR IN WHICH THE PLANT STARTS FUNCTIONING. TH E FOLLOWING ARE THE DECISIONS OF VARIOUS HIGH COURTS ON THIS ISSUE: 7 ITA NO.715/KOL/2015-M/S. RELIANCE CHEMOTEX INDUSTRI ES LTD. A.Y.2010-11 (1) CIT VS. GUJARAT MINERAL DEVELOPMENT CORPORATION 132 ITR 377 (GUJARAT) WHEREIN THE FACTS WERE THAT THE ASSESSEE PAID TO TH E GOVERNMENT MONES FOR THE PURPOSE OF LAYING ELECTRIC CABLES AND OTHER TRA NSMISSIONS LINES TO CARRY ON MANUFACTURING ACTIVITIES. THE EXPENDITURE WAS C LAIMED AS REVENUE EXPENDITURE. THE HONBLE GUJARAT HIGH COURT UPHELD THE CLAIM OF THE ASSESSEE AND OBSERVED THAT T HE PECULIAR FEATURE IN THE CASE WAS THAT THE AMOUNT WAS SPENT FOR SECURING ELECTRIC SUPPLY FOR T HE BENEFICIATION PLANT WHICH WAS INTENDED TO ENABLE THE ASSESSEE-COMPANY T O CARRY ON ITS BUSINESS MORE EFFICIENTLY AND MORE PROFITABLY. IT WAS A BUSI NESS WHICH WAS BEING PREVIOUSLY CARRIED ON BY THE ASSESSEE-COMPANY, NAME LY, OF EXTRACTING FLOURSPAR ORE AND SELLING IT BUT IN ORDER TO ENABLE IT TO CARRY ON THAT BUSINESS MORE EFFICIENTLY AND MORE PROFITABLY, THE BENEFICIATION PLANT WAS PROPOSED TO BE INSTALLED AND THE ELECTRIC CABLES AN D SUPPLY LINES WERE LAID FOR THAT BENEFICIATION PLANT AS HAS BEEN POINTED OU T BY THE TRIBUNAL IN ITS ORDER. ONCE THE PURPOSE OF THE BENEFICIATION PLANT IS PROPERLY UNDERSTOOD, IT IS OBVIOUS THAT THE ADVANTAGE CONSISTED MERELY IN F ACILITATING THE CONDUCT OF THE ASSESSEE'S BUSINESS AND ENABLING THE ASSESSEE T O CARRY ON ITS BUSINESS MORE EFFICIENTLY OR MORE PROFITABLY, BUT THE CAPITA L, IN THE SENSE OF THE BLOCK CAPITAL, WAS REMAINING UNTOUCHED BY THE EXPENDITURE OF THIS AMOUNT OF RS. 20.46 LAKHS. HENCE, IN THE COMMERCIAL SENSE, IT WAS NOT AN ADVANTAGE IN THE CAPITAL FIELD. SINCE IT LEFT THE FIXED CAPITAL OF T HE ASSESSEE EMPLOYED FOR THE MAIN BUSINESS OF MINING UNTOUCHED AND THE ADVANTAGE WAS NOT IN THE CAPITAL FIELD, IT COULD NOT BE SAID TO BE AN EXPEND ITURE OF A CAPITAL NATURE. THE FACT THAT CERTAIN ENTRIES WERE MADE OR NOT MADE IN A PARTICULAR YEAR OF ACCOUNT IS TOTALLY IMMATERIAL AND, IN ANY EVENT, SUCH ENTRIES ARE NOT DECISIVE OR CONCLUSIVE OF THE MATTER. THE FACT REMAINS THAT THE ELECTRIC INSTALLATION WAS COMPLETE AND THE SUPPLY STARTED IN DECEMBER, 1968, THAT IS, DURING THE PREVIOUS YEAR RELEVANT TO THE ASST. YR. 1969-70. UNDER THESE CIRCUMSTANCES, THE COMPANY RIGHTLY CLAIMED THAT THI S AMOUNT SHOULD BE ALLOWED BY WAY OF DEDUCTION IN ASST. YR. 1969- 70 (EMPHASIS SUPPLIED) (2) CIT VS. HINDUSTAN ZINC LTD. 221 CTR 637 (RAJAS TAN) WHEREIN IT WAS HELD EXPENDITURE ON ERECTING POWER LINE WHERE POWER LINE REMAINS THE PROPERTY OF ELECTRICITY BOARD, EXPENDITURE INCURRED BY ASSES SEE ON ERECTING THE SAME FOR FACILITATING ROUTINE OPERATIONS AND SMOOTH FUNC TIONING OF ITS BUSINESS WAS ALLOWABLE REVENUE EXPENDITURE AND NO CAPITAL AS SET OR ANY ENDURING BENEFIT OR ADVANTAGE WAS ACQUIRED BY ASSESSEE. (3) MAFATLAL FINE SPG. & WVG.CO.LTD. VS. CIT (1993 ) 69 TAXMAN 0385 (BOMBAY) WHEREIN IT WAS HELD CONTRIBUTION TO ELECTR ICITY BOARD TOWARDS THE 8 ITA NO.715/KOL/2015-M/S. RELIANCE CHEMOTEX INDUSTRI ES LTD. A.Y.2010-11 LAYING OF ADDITIONAL CIRCUIT LINE IN ORDER TO MEET THE INCREASED DEMAND OF THE COMPANY WAS ALLOWABLE UNDER S. 37 AS REVENUE EXPEND ITURE. 15. IN VIEW OF THE AFORESAID DECISIONS AND KEEPING MIND THE RELEVANT ACCOUNTING STANDARDS WHICH MANDATE TREATMENT OF SUCH EXPENDITU RE AS REVENUE EXPENDITURE, THE ASSESSEE REVERSED THE ENTRIES IN THE BOOKS OF ACCOU NTS FOR AY 2010-11 BY DEBITING THE EXPENDITURE OF RS.1,54,08,480 TO THE PROFIT AND LOS S ACCOUNT AND WRITING BACK THE DEPRECIATION CLAIMED IN AY 2009-10 OF RS.98,074/-. IN THE COURSE OF ASSESSMENT PROCEEDINGS FOR AY 2010-11, THE AO MADE ENQUIRES ON ALL THE ABOVE ASPECTS AND WAS APPRAISED ABOUT ALL THESE FACTS AS WELL AS DECISION S OF HONBLE HIGH COURTS ON THE ISSUE. THE AO WAS SATISFIED WITH THE CLAIM OF THE ASSESSEE AND ALLOWED THE CLAIM OF THE ASSESSEE. THOUGH THERE IS NO DISCUSSION IN THE ORDER OF ASSESSMENT ON THIS ASPECT, THE EVIDENCE ON RECORD CLEARLY SHOWS THAT THE AO WA S DULY APPRAISED OF THE FACTUAL AND LEGAL POSITION ON THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF THE SUM OF RS.1,54,08,480/-. THERE WAS THUS DUE APPLICATION O F MIND BY THE AO TO THE ISSUE AND HIS ACTION IN NOT DISALLOWING THE CLAIM OF THE ASSE SSEE ONLY SHOWS THAT HE HAS ACCEPTED THE CLAIM OF THE ASSESSEE. THE VIEW TAKEN BY THE AO IS A POSSIBLE VIEW AND IS IN ACCORDANCE WITH THE VARIOUS DECISIONS OF HON BLE HIGH COURTS ON THIS ISSUE. 16. THE CIT IN THE IMPUGNED ORDER DOES NOT COME TO ANY CONCLUSION THAT THE CLAIM OF THE ASSESSEE IS NOT TO BE ALLOWED AS REVENUE EXPEND ITURE OF AY 2010-11. HIS GRIEVANCE IS THAT THIS WAS A PRIOR PERIOD EXPENDITU RE RELATING TO AY 2009-10 AND THEREFORE OUGHT NOT TO HAVE BEEN ALLOWED AS A DEDUC TION IN AY 2010-11. AS RIGHTLY CONTENDED BY THE LEARNED COUNSEL FOR THE ASSESSEE, IN THAT EVENT THE CIT OUGHT TO HAVE DIRECTED THAT THE ENTIRE CLAIM FOR DEDUCTION OUGHT TO HAVE BEEN ALLOWED IN AY 2009- 10. HAVING NOT DONE SO, THE CIT FURTHER WENT ON TO DIRECT THE AO TO VERIFY WHETHER THE ASSETS WERE ACTUALLY PURCHASED IN FY 2009-10 FO R THE PURPOSE OF THE BUSINESS OF THE ASSESSEE AND WERE PUT TO USE. THE DIRECTION IS NOTHING BUT A DIRECTION TO MAKE FISHING OR A ROVING ENQUIRY, WHICH IS NOT PERMISSIB LE IN PROCEEDINGS U/S.263 OF THE ACT. THE ORDER SOUGHT TO BE REVISED IS THE ORDER O F ASSESSMENT PASSED BY THE AO FOR AY 2010-11 AND ANY DIRECTION TO THE AO IN RELATION TO AY 2009-10 WOULD NOT BE 9 ITA NO.715/KOL/2015-M/S. RELIANCE CHEMOTEX INDUSTRI ES LTD. A.Y.2010-11 APPROPRIATE IN PROCEEDINGS U/S.263 OF THE ACT FOR A Y 2010-11. APART FROM THE ABOVE THE FACTS WITH REGARD TO THE NATURE OF EXPENDITURE AND THE FACT THAT IT WAS ACTUALLY INCURRED ALREADY STOOD EXAMINED BY THE AO. IN ONE OF THE LETTERS FILED BEFORE THE AO IN THE ASSESSMENT PROCEEDINGS FOR AY 2010-11, A COP Y OF WHICH IS PLACED AT PAGE-11 AND 12 OF THE ASSESSEES PAPER BOOK, THE ASSESSEE H AS FURNISHED COPIES OF EVIDENCE FOR ELECTRIC INSTALMENTS EXPENSES THAT WERE DEBITED IN PROFIT AND LOSS ACCOUNT. THEREFORE THE ABOVE DIRECTION OF THE CIT IN OUR VIE W IS CONTRARY TO THE EVIDENCE ON RECORD AND CANNOT BE SUSTAINED. 17. AS POINTED OUT BY THE SUPREME COURT IN MALABAR INDUSTRIAL CO.S CASE (SUPRA), THE PREREQUISITE TO THE EXERCISE OF JURISDICTION BY THE COMMISSIONER SUO MOTU UNDER IT, IS THAT THE ORDER OF THE INCOME-TAX OFFICER IS ERRO NEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE COMMISSIONER HAS TO B E SATISFIED OF TWIN CONDITIONS, NAMELY, (I) THE ORDER OF THE ASSESSING OFFICER SOUG HT TO BE REVISED IS ERRONEOUS; AND (II) IT IS PREJUDICIAL TO THE INTERESTS OF THE REVE NUE. IF ONE OF THEM IS ABSENTIF THE ORDER OF THE INCOME-TAX OFFICER IS ERRONEOUS BUT IS NOT PREJUDICIAL TO THE INTERESTS OF REVENUE OR IF IT IS NOT ERRONEOUS BUT IS PREJUDICIA L TO THE INTERESTS OF REVENUE RECOURSE CANNOT BE HAD TO SECTION 263(1) OF THE ACT . THERE CAN BE NO DOUBT THAT THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVE RY TYPE OF MISTAKE OR ERROR COMMITTED BY THE ASSESSING OFFICER, IT IS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW WILL SATISFY THE REQUIREMENT OF THE ORDER BE ING ERRONEOUS. IN THE SAME CATEGORY FALL ORDERS PASSED WITHOUT APPLYING THE PRINCIPLES OF NATURAL JUSTICE OR WITHOUT APPLICATION OF MIND. THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE REVENUE IS NOT AN EXPRESSION OF ART AND IS NOT DEFINED IN THE ACT. UN DERSTOOD IN ITS ORDINARY MEANING IT IS OF WIDE IMPORT AND IS NOT CONFINED TO LOSS OF TAX. THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE REVENUE HAS TO BE READ IN CONJUNC TION WITH AN ERRONEOUS ORDER PASSED BY THE ASSESSING OFFICER. EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF THE ASSESSING OFFICER CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. FOR EXAMPLE, WHEN AN ITO ADOPTED ONE OF THE COURSES PER MISSIBLE IN LAW AND IT HAS 10 ITA NO.715/KOL/2015-M/S. RELIANCE CHEMOTEX INDUSTRI ES LTD. A.Y.2010-11 RESULTED IN LOSS OF REVENUE; OR WHERE TWO VIEWS ARE POSSIBLE AND THE INCOME-TAX OFFICER HAS TAKEN ONE VIEW WITH WHICH THE COMMISSIO NER DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE IN TERESTS OF THE REVENUE, UNLESS THE VIEW TAKEN BY THE INCOME-TAX OFFICER IS UNSUSTAINAB LE IN LAW. 18. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF G ABRIEL INDIA LTD. (SUPRA) HAS HELD THAT THE POWER OF SUO MOTU REVISION UNDER SUB- S. (1) OF S. 263 IS IN THE NATURE OF SUPERVISORY JURISDICTION AND THE SAME CAN BE EXERCI SED ONLY IF THE CIRCUMSTANCES SPECIFIED THEREIN EXIST. TWO CIRCUMSTANCES MUST EXI ST TO ENABLE THE COMMISSIONER TO EXERCISE POWER OF REVISION UNDER THIS SUB-SECTION, VIZ., (I) THE ORDER IS ERRONEOUS; (II) BY VIRTUE OF THE ORDER BEING ERRONEOUS PREJUDICE HA S BEEN CAUSED TO THE INTEREST OF THE REVENUE. IT HAS, THEREFORE, TO BE CONSIDERED FIRSTL Y AS TO WHEN AN ORDER CAN BE SAID TO BE ERRONEOUS. AN ORDER CANNOT BE TERMED AS ERRONEOU S UNLESS IT IS NOT IN ACCORDANCE WITH LAW. IF AN ITO ACTING IN ACCORDANCE WITH LAW M AKES CERTAIN ASSESSMENT, THE SAME CANNOT BE BRANDED AS ERRONEOUS BY THE COMMISSIONER SIMPLY BECAUSE ACCORDING TO HIM THE ORDER SHOULD HAVE BEEN WRITTEN MORE ELABORA TELY. THIS SECTION DOES NOT VISUALISE A CASE OF SUBSTITUTION OF JUDGMENT OF THE COMMISSIONER FOR THAT OF THE ITO, WHO PASSED THE ORDER, UNLESS THE DECISION IS HELD T O BE ERRONEOUS. 19. THERE CANNOT BE DISPUTE THAT THE NATURE OF THE EXPENDITURE IS REVENUE AND THAT IT OUGHT TO BE ALLOWED AS DEDUCTION. EVEN THE CIT DOE S NOT DISPUTE THIS POSITION. IN SUCH CIRCUMSTANCES, THE ACTION OF THE CIT U/S.263 O F THE ACT IS A REVENUE NEUTRAL EXERCISE AS THE DEDUCTION IN ANY CASE SHOULD BE ALL OWED IN AY 2009-10. THE HONBLE DELHI HIGH COURT IN THE CASE OF VISHNU INDUSTRIAL G ASES (P) LTD. (SUPRA) HAS HELD THAT WHERE DISPUTES ARE IN RELATION TO THE YEAR IN WHICH DEDUCTION IS TO BE ALLOWED AND WHERE THE TAX RATES APPLICABLE ARE SAME IN BOTH THE AYS, THEN THE DEPARTMENT SHOULD NOT RAISES ISSUES AND FRITTER AWAY ITS ENERGIES IN FIGHTING SUCH MATTERS. 20. WE ARE OF THE VIEW THAT IN THE PRESENT CASE TH E VIEW TAKEN BY THE AO IN ALLOWING THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF A SUM OF RS.1,54,08,480/- IS A POSSIBLE VIEW, ESPECIALLY IN THE LIGHT OF THE FACT THAT THE DEPRECIATION CLAIMED AND ALLOWED IN 11 ITA NO.715/KOL/2015-M/S. RELIANCE CHEMOTEX INDUSTRI ES LTD. A.Y.2010-11 AY 2009-10 WAS WRITTEN BACK IN THE ACCOUNTS FOR AY 2010-11. THE CIT THEREFORE COULD NOT HAVE EXERCISED HIS POWERS U/S.263 OF THE ACT TERMING THE ORDER OF THE AO ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE. WE THEREFORE QUASH THE ORDER U/S.263 OF THE ACT AND ALLOW THE APPEAL OF TH E ASSESSEE. 21. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOW ED. O RDER PRONOUNCED IN THE COURT ON 09.12.2016. SD/- SD/- [M.BALAGANESH ] [ N.V.VASUDEVAN ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 09.12.2016. [RG PS] COPY OF THE ORDER FORWARDED TO: 1.M/S. RELIANCE CHEMOTEX INDUSTRIES LIMITED, 14/1B. , EZRA STREET, KOLKATA-700001. 2. D.C.I.T. CIRCLE-10(1), KOLKATA. 3. PR. CIT-4, KOLKATA. 4. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER, ASST. REGISTRAR, ITAT, KOLKATA BENCHES