Chennai Petroleum Corpn. Ltd., CHENNAI V. DCIT, CHENNAI

ITA 720/CHNY/2015

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 2663 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 07-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M N MAURYA IRS
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Reopening of assessment; Depreciation; Difference of opinion; Change of opinion; Revenue expenditure; Reassessment proceedings; Capital expenditure
• Section: 143(3); 142(1); 37(1); 147; 148

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , . ! , '!# BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A. NO.720/MDS/2015 ' $ %$ / ASSESSMENT YEAR : 2008-2009. M/S. CHENNAI PETROLEUM CORPORATION LTD, 536, ANNA SALAI, TEYNAMPET, CHENNAI 600 018 VS. THE DEPUTY COMMISSIONER OF INCOME TAX, LTU CHENNAI 600101. [PAN AAACM 4392C ] ( / APPELLANT) ( /RESPONDENT) &' ( ) / APPELLANT BY : SHRI. R. VIJAYARAGHAVAN, ADVOCATE *+&' ( ) /RESPONDENT BY : SHRI. M.N. MAURYA, IRS, CIT. ( , / DATE OF HEARING : 16-02-2016 -.% ( , / DATE OF PRONOUNCEMENT : 26-02-2016 / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER : THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AG AINST ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-VII, CH ENNAI IN ITA NO.30/2013-14/LTU(A), DT 13.02.2015 FOR THE ASSESSM ENT YEAR 2008- ITA NO. 720/MDS/2015. :- 2 -: 2009 PASSED U/S.143 R.W.S. 147 AND 250 OF THE INCO ME TAX ACT, 1961 (HEREIN AFTER REFERRED TO AS THE ACT). 2. THE ASSESSEE HAS RAISED TWO SUBSTANTIVE GROUNDS AGA INST COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE REOPENING OF ASSESSMENT DUE TO CHANGE OF OPINION AND COMMISSIONE R OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF EXPENDITURE OF:40,98,880/- ON CONSTRUCTION OF COMPOUND WALL IN PLACE OF REPLACEMENT OF BARBED WIRE FENCING AS CAPITAL EXPEN DITURE. 3. THE BRIEF FACTS OF THE CASE THAT THE ASSESSEE COMPA NY IS A SUBSIDIARY OF INDIAN OIL CORPORATION LIMITED WHICH HOLDS 51.89% EQUITY SHARES OF ASSESSEE COMPANY AND ALSO A MIN IRATNA OF CENTRAL PUBLIC SECTOR ENTERPRISE AND WAS FORMERLY KNOWN AS MADRAS REFINERIES LIMITED AND THE ASSESSEE COMPANY SHARES ARE ALSO HE LD BY GOVERNMENT OF INDIA. THE ASSESSEE COMPANY IS THE S ECOND LARGEST REFINERY IN SOUTH INDIA AND HAS TWO REFINERIES, ONE AT MANALI AND SECOND BEING CAUVERY BASIN AT NAGAPATTINAM AND IN T HE BUSINESS OF REFINING CRUDE INTO PETROLEUM & PETRO-CHEMICAL PROD UCTS. THE ASSESSEE COMPANY BEING GOVERNMENT COMPANY IS SUBJEC T TO SUPPLEMENTARY AUDIT OF THE FINANCIAL STATEMENTS UND ER SEC.619(3)(B) OF THE COMPANIES ACT. FOR THE ASSESSMENT YEAR 2008-09, THE ASSESSEE FILED E-RETURN OF INCOME ON 29.09.2008, DECLARING G ROSS INCOME OF ITA NO. 720/MDS/2015. :- 3 -: :1659,19,70,683/- AND AFTER CONSIDERING DEDUCTIONS U/S. CHAPTER VIA, TAXABLE INCOME WORKED OUT TO :858,63,68,998/- AND A SSESSMENT U/S.143(3) OF THE ACT WAS COMPLETED ON 30.11.2010. FURTHER ASSESSEE INCOME WAS DETERMINED UNDER U/SEC.143(3) R.W.S 154 OF THE ACT BY ORDER DATED 20.01.2011 AT :1696,65,08,090. ON APPE AL TO CIT(A), CONSEQUENTIAL ORDER GIVING EFFECT TO COMMISSIONER O F INCOME TAX (APPEALS) ORDER, THE TOTAL INCOME WAS DETERMINED AT :887,13,47,945/- ON 17.11.2011. SUBSEQUENTLY, TH E DEPARTMENT NOTICED THE INCOME ESCAPING ASSESSMENT AND NOTICE U/S.148 DATED 28.03.2013 WAS ISSUED AND IN COMPLIANCE TO NOTICE THE ASSESSEE FILED E-RETURN OF INCOME ON 11.04.2013 DECLARING THE SAME INCOME OFFERED IN THE ORIGINAL RETURN OF INCOME AND FURTHER NOTIC E U/S.143(2) AND 142(1) OF THE ACT WAS ISSUED. THE ASSESSING OFFICER HAS RECORDED REASONS FOR REOPENING OF ASSESSMENT AT PAGE NO.2 O F THE ORDER AS UNDER:- 'IN THE CASE OF M/S. CHENNAI PETROLEUM CORPORATION LIMITED, FOR A.Y.2008-09, IT WAS OBSERVED FROM THE COMPUTATION STATEMENT FOR INCOME TAX PURPOSE THAT CLAIM OF RS.40,98,880 WAS MADE AS EXPENDITURE ON REPLACEMENT OF FENCING WHICH WAS NOT DEBITED TO P&L ACCOUNT. THE EXPENDITURE BEING A VALUE ADDITION TO THE ASSET BUILDING, THE SAME REQUIRES TO BE CAPITALISED FOR INCOME-TAX PURPOSE ALSO AND ONLY DEPRECIATION AT APPLICABLE RATES IS TO BE ALLOWED.' ITA NO. 720/MDS/2015. :- 4 -: IN RESPONSE TO THE NOTICE, THE ASSESSEE FILED A REP LY AND OBJECTIONS FOR REOPENING OF ASSESSMENT AT PAGE NO.2 AS UNDER:-. IT IS SUBMITTED THAT CPCL HAS DISCLOSED ALL MATERIAL FACTS FULLY AND TRULY FOR THE PURPOSE OF ASSESSMENT IN RESPECT OF EXPENDITURE TOWARDS REPLACEMENT OF FENCING OF RS.40,98,880 BY DISCLOSING IT AS AN ITEM OF DEDUCTION IN THE STATEMENT OF INCOME FOR INCOME TAX PURPOSE PRODUCED TO THE DEPARTMENT DURING THE SCRUTINY ASSESSMENT. THUS, THE PRIMARY FACTS NECESSARY FOR ASSESSMENT WERE FULLY AND TRULY DISCLOSED AND THERE WAS NO CONCEALMENT OF FACTS. THE ASSESSING OFFICER WHO HAS ORIGINALLY ASSESSED OUR ASSESSMENT HAS CONSCIOUSLY CONSIDERED THE FACTS AND ARRIVED AT A DECISION. HENCE, THE REASSESSMENT PROCEEDINGS CANNOT BE TAKEN MERELY BECAUSE THE SUBSEQUENT AO CHANGES HIS OPINION OR TAKES A DIFFERENT VIEW. BUT THE LD.ASSESSING OFFICER RELIED ON THE APEX COU RT DECISIONS AND ALSO OBJECTIONS OF THE ASSESSEE AND DISPOSED OFF BY ORDE R DATED 22.01.2014. SUBSEQUENTLY, THE ASSESEEES LD. AUTH ORISED REPRESENTATIVE AND CHIEF MANAGER(FINANCE ) AND SR. OFFICER (FINANCE) ATTENDED THE HEARING PROCEEDINGS AND THE ASSESSEE C OMPANY FILED WRITTEN SUBMISSIONS DATED 20.02.2014 REITERATING TH E CONTENTIONS ON THE ISSUE. THE ASSESSING OFFICER CONSIDERED THE SU BMISSIONS AND MADE ASSESSMENT BUT ON THE ISSUE OF CLAIM OF EXPENDITUR E OF :40,98,880/- BEING CONSTRUCTION OF COMPOUND WALL IN REPLACEMENT OF BARBED WIRE FENCING. SUCH EXPENDITURE WAS CAPITALIZED AND DEPR ECIATION WAS ALLOWED. THE ASSESSEE COMPANY RELIED ON THE SUPREME COURT DECISIONS ITA NO. 720/MDS/2015. :- 5 -: ON REOPENING OF ASSESSMENT AS A CHANGE OF OPINION, BUT IN ORIGINAL ASSESSMENT REPLACEMENT OF COMPOUND WALL WAS NOT DIS CUSSED AND THERE IS NO CHANGE OF OPINION. THE LD. ASSESSING O FFICER RELIED ON THE DECISION OF SUPREME COURT IN THE CASE OF KALYANJI MAVJI & COMPANY VS. CIT 102 ITR 287 AND OTHER VARIOUS HIGH COURTS DECIS IONS I.E. (I) HIGH COURT OF MUMBAI IN THE CASE OF EXPORT CREDIT GUARA NTEE CORPORATION OF INDIA LTD. VS. ADDL. CIT 30 TAXMAN. COM 211 (201 3) (II) GUJARAT HIGH COURT IN THE CASE OF PRAFUL CHUNILAL PATEL AND VASANTH CHUNILAL PATEL VS. ACIT 236 ITR 832 (III) HIGH COURT OF DELH I IN THE CASE OF HONDA SIEL POWER PRODUCTS LTD VS. DCIT 197 TAXMAN 4 15 (IV) HIGH COURT OF BOMBAY IN THE CASE OF YUVARAJ VS. UNION OF INDIA (BOM) 315 ITR 84 AND CO-ORDINATE BENCH DECISION IN THE CASE O F CHENNAI PETROLEUM CORP. LTD IN ITA NO.66/11-12/LTU(A), DA TED 08.01.2013 AND THE OBJECTIONS OF THE ASSESSEE AND PASSED RE-AS SESSMENT ORDER. ON OTHER DISPUTED ISSUE OF DISALLOWANCE, THE ASSESS EE FILED A LETTER ON 19.02.2014 EXPLAINING THE REASONS AT PAGE NO.4 OF THE ORDER AS UNDER:- 'IT IS TO BE NOTED THAT SEC.30 APPLIES ONLY FOR REP AIRS OF BUILDING / PREMISES. CPCL HAS NOT CLAIMED THE EXPENDITURE ON CONSTRUCTION OF COMPOUND WALL AT CAUVERY BASIN REFINERY AS REPAIRS TO EXISTING BUILD ING / PREMISES BECAUSE THE EXISTING BARBED WIRE FENCING IS NEITHER A BUILDING / PREMISE. IT IS TO BE NOTED THAT THE CASE LAW QUOTED BY THE INCOME TAX DEPARTMENT IN THE SUPREME COURT CASE - ITA NO. 720/MDS/2015. :- 6 -: CIT V. MANGAYARKARASI MILLS (P) LTD - 315 ITR 114 I S RELATED TO REPLACEMENT OF RING FRAME IN THE EXISTIN G TEXTILE MACHINERY AND HENCE IT IS COVERED U/S 31 OF THE INCOME TAX ACT WHICH RELATES TO REPAIRS TO PLAN T & MACHINERY. CPCL HAS CLAIMED THE REPLACEMENT OF FENCING AS REVENUE EXPENDITURE U/S 37(1) OF THE INCOME TAX ACT , WHEREIN, ANY EXPENDITURE NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAIN OF BUSINESS OR PROFESSION. CPCL HAS RELIED ON THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. SOUTHERN ROADWAYS LTD (304 ITR 84), WHEREIN, A SIMILAR ISSUE HAS BEEN ADDRESSED.' THE ASSESSING OFFICER CONSIDERED THE ASSESSEES SUB MISSIONS AND TREATED THE EXPENDITURE AS CAPITAL IN NATURE AS IT DOES NOT SATISFY THE CONDITIONS OF REVENUE, THE LD. AUTHORISED REPRESENT ATIVE SUBMITTED THAT THE HONBLE APEX COURT IN THE CASE OF CIT VS. MANGAYARKARASI MILLS (P) LTD 315 ITR 114 HELD THOUGH ACCOUNTING PRACTICES MAY NOT BE THE BEST GUIDE IN DETERMINING THE NATURE OF EXPENDITURE , THE FACT THAT THE ASSESSEE TRATED THE EXPENDITURE AS AN ADDITION TO THE EXISTING ASSETS SHOWS THAT THE CLAIM FOR DEDUCTION UNDER THE INCOME TAX ACT WAS MADE MERELY TO DIMINISH THE TAX BURDEN AND NOT UNDE R THE BELIEF THAT IT WAS ACTUALLY EXPENDITURE. THE LD. AUTHORISED REP RESENTATIVE RELIED ON THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CA SE OF CIT VS. SOUTHERN ROADWAYS LTD 304 ITR 84 BUT ASSESSING OFFICER DISTINGUISHED THE ITA NO. 720/MDS/2015. :- 7 -: DECISION CITED BY THE ASSESSEE AS PERTAINING TO ASS ESSMENT YEAR 1995- 96 AND 1997-98, SINCE THERE IS AMENDMENT TO SEC. 30 OF THE ACT WITH EFFECT FROM 01.04.2004 AND EXPLANATION WAS INSERTED THAT THE AMOUNT PAID ON ACCOUNT OF COST OF REPAIRS IN THE NATURE O F CAPITAL EXPENDITURE CANNOT BE ALLOWED. THE ASSESSING OFFICER HELD THE CURRENT REPAIRS AS THE REPAIRS UNDERTAKEN IN THE NORMAL COURSE OF USE R FOR THE PURPOSE OF PRESERVATION, MAINTENANCE OR PROPER UTILIZATION OF ASSETS OR FOR RESTORING IT TO ITS ORIGINAL CONDITION. SUCH REPAIR S DOES NOT BRING INTO EXISTENCE OF NEW ASSET NOR OBTAIN A NEW OR DIFFEREN T ADVANTAGE. THE ASSESSEE HAS REPLACED THE BARBED WIRE FENCING TO CO NSTRUCT COMPOUND WALL FOR ENTIRE FACTORY PREMISES AND EXISTING FOUND ATION WAS REMOVED AND NEW FOUNDATION OF STONES LAID WERE OLD ASSET IS REPLACED AND NEW ASSET HAS COME INTO EXISTENCE, AND SUCH NEW ASSET W ILL HAVE ENDURING BENEFIT. CONSIDERING THE FACTS AND LEGAL POSITION OF EXPENDITURE :40,98,880/- CLAIMED, THE ASSESSING OFFICER HAS DI SALLOWED THE SAME AS THE CONSTRUCTION OF COMPOUND WALL WAS COMPLETED ON 01.08.2007 AND THE ASSET IS PUT TO USE FOR MORE THAN 180 DAYS AND ALLOWED DEPRECATION @10% AND BALANCE ADDED TO THE INCOME AN D PASSED ORDER U/S.143(3) R.W.S. 147 DATED 27.02.2014. AGGRIEVED T HE ASSESSEE FILED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (AP PEALS). ITA NO. 720/MDS/2015. :- 8 -: 4. IN THE APPELLATE PROCEEDINGS, THE LD. AUTHORISED REPRESENTATIVE REITERATED HIS SUBMISSIONS ON THE IS SUE OF REASSESSMENT PROCEEDINGS AND VALIDITY AND ON THE CLAIM OF REPLA CEMENT OF BARBED WIRE FENCING WITH NEW COMPOUND WALL. THE LD. COM MISSIONER OF INCOME TAX (APPEALS) UPON SUBMISSIONS OF THE ASSESS EE AND ALSO FINDINGS OF THE ASSESSING OFFICER ON THE ISSUE OF R EOPENING OF ASSESSMENT U/S.147 MADE A DETAILED FINDINGS AND REL IED ON THE DECISIONS, OBSERVED AT PAGE NO.5 OF THE ORDER AS UN DER;- FOR THE ABOVE PROPOSITION, THE ASSESSEE RELIED ON THE SUPREME COURT DECISIONS IN THE CASE OF CIT VS. KELVINATOR INDIA LIMITED (2010) 320 ITR 561 AND CIT VS BHANJI LAVJI (1971) 79 ITR 582. THE A O REJECTED THE CONTENTION OF THE ASSESSEE BY RELYING ON THE CASE LAWS MENTIONED EARLIER IN THIS ORDER. 4.1 WHAT IS REQUIRED FOR REASSESSMENT JURISDICTION I S A PRIMA-FACIE INFERENCE OF ESCAPEMENT OF INCOME. IN THIS CASE, TH E ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT ORIGINALLY ON 30.11.2010. NOTICE U/S 148 WAS ISSUED ON 28.03.2013 I.E. WITHIN FOUR YEARS FROM THE END O F THE RELEVANT AY. TH EREFORE FIRST PROVISO TO SEC. 14 7 OF THE ACT IS APPLICABLE TO THE FACTS OF THE CASE. MOREOVER CLAUSE (I) OF (C) TO EXPLANATION 2 TO SEC.147 OF THE ACT IS ALSO APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE CASE. SINCE THE REASSESSMENT PROCEEDINGS WERE INITIATED WITHIN FOUR YEARS, THE DECISION OF ITAT, MUMBAI BENCH IN THE CASE OF CIBA INDIA PVT. LIMITED VS ITO (2009) 318 ITR (AT) 71(MUMBAI) IS APPLICABLE. RELIANCE IS ALSO PLACED ON THE FOLLOWING DECISIONS: 1. CONSOLIDATED PHOTO AND FINVEST LIMITED VS ACIT (2006) 281 ITR 394(DELHI). 2. GRUH FINANCE LIMITED VS JCIT (ASST)(2000) 243 ITA NO. 720/MDS/2015. :- 9 -: ITR 482 (GUJ). 3. INNOVATIVE FOODS LTD. VS UNION OF INDIA AND OTHERS (2013) 356 ITR . 389 (KER). IN VIEW OF THE ABOVE FACTUAL POSITION AS WELL AS TH E DECISIONS OF VARIOUS COURTS, I AM OF THE CONSIDERED VIEW THAT THE RE-OPENING OF ASSESSMENT IS VALID AND NO ERROR/MISTAKE WAS COMMITTED BY THE AO. THE GROUNDS OF APPEAL ON THIS ISSUE ARE DISMISSED. AND DISMISSED THE GROUND. THE LD. COMMISSIONER OF I NCOME TAX (APPEALS) ON THE ISSUE OF EXPENDITURE BEING CAPITA L OR REVENUE. THE ASSESSEE INCURRED :40,98,880/- AS REVENUE EXPENDITU RE FOR REPLACEMENT OF FENCING AS PER THE FINDINGS OF THE A SSESSING OFFICER. THE FOUNDATION OF BARBED WIRE FENCING WAS REMOVED AND NEW FOUNDATION WAS LAID DOWN WHICH INTERALIA BRINGS A N EW ASSET AND THE BENEFIT IS ENDURING IN NATURE. THE ASSESSEE COMPAN Y HAS CONSTRUCTED THE COMPOUND WALL AT CAUVERY BASIN REFINERY, NAGAP ATINAM AND THE DECISIONS RELIED BY THE COMPANY ARE DISTINGUISHED BY THE ASSESSING OFFICER AND THE LD.CIT(A) RELIED ON THE DECISIONS O F KARNATAKA HIGH COURT IN THE CASE OF SENAPATHY SYNAMS INSULATIONS PVT. LTD VS. CIT (2001) 248 ITR 656 AND ALSO JURISDICTIONAL HIGH COU RT DECISION IN THE CASE OF CIT VS. BINNY LIMITED (1995) 215 ITR 536 BASED ON THE OBSERVATIONS OF JURISDICTIONAL HIGH COURT THE LD. C OMMISSIONER OF INCOME TAX (APPEALS) HAS CONCURRED WITH THE FINDING S OF THE ASSESSING ITA NO. 720/MDS/2015. :- 10 -: OFFICER AND TREATED THE EXPENDITURE AS CAPITAL IN N ATURE AND CONFIRMED THE ORDER OF ASSESSING OFFICER. AGGRIEVED BY THE OR DER OF COMMISSIONER OF INCOME TAX(A) THE ASSESSEE ASSAILED AN APPEAL BE FORE THE TRIBUNAL. 5. BEFORE THE TRIBUNAL, THE LD. AUTHORISED REPRESENTAT IVE REITERATED HIS SUBMISSIONS MADE BEFORE THE ASSESSIN G OFFICER AND IN APPELLATE PROCEEDINGS. ON THE GROUND OF CHALLENGING OF REOPENING OF ASSESSMENT U/S.147, THE LD. AUTHORISED REPRESENTATI VE SUBMITTED THAT ASSESSEE HAS FURNISHED ALL MATERIALS BEFORE THE AS SESSING OFFICER IN THE ORIGINAL ASSESSMENT PROCEEDINGS AND ASSESSMENT WAS COMPLETED ON 30.11.2010. THE ISSUE HAS ARISED ONLY BECAUSE OF CHANGE OF OPINION AND NOT WITH NEW SET OF FACTS AND THE ASSES SEE RELIED ON THE DECISION OF APEX COURT IN CIT VS KELVINATOR INDIA L IMITED (SUPRA). ON THE ISSUE OF DISALLOWANCE THE ASSESSEE INCURRED AN AMOUNT OF :40,98,880/- ON REPLACEMENT OF BARBED WIRE FENCING WITH NEW COMPOUND WALL CONSTRUCTED AT CAUVERY BASIN REFINERY , NAGAPATTINAM AND THE COMPOUND WALL WAS CONSTRUCTED TO PREVENT TR ESPASSERS AND THIEVES FROM ENTERING INTO BUSINESS PREMISES AND TH E DOMINANT PURPOSE WAS TO SAFEGUARD THE PROPERTY IN THE PREMI SES AND THE EXPENDITURE IS NOT ENDURING BENEFIT AND FALLS WITHI N THE RESIDUAL PROVISION U/S.37(1) OF THE ACT, WERE EXPENDITURE H AS BEEN INCURRED ITA NO. 720/MDS/2015. :- 11 -: WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND NOT CAPITAL EXPENDITURE AND SUPPORTED HIS ARGUMENTS WITH THE JU RISDICTIONAL HIGH COURT DECISION OF SOUTHERN ROADWAYS LTD (SUPRA) AND PRAYED FOR ALLOWED THE APPEAL . 6. CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE RELIED ON THE FINDINGS OF THE ASSESSING OFFICER AND SUPPORTED THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) AND OPPOSED TO THE SUBMISSIONS. 7. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL ON RECORD AND JUDICIAL DECISIONS CITED. THE LD. AUTHO RISED REPRESENTATIVE ARGUED THAT THE ASSESSMENT IS BAD IN LAW CONSIDERIN G MATERIALS AND PARTICULARS SUBMITTED IN THE ORIGINAL ASSESSMENT A ND SUCH DISALLOWANCE IS ONLY CHANGE OF OPINION. WE ON PERUSAL OF ASSES SMENT ORDER FOUND THAT DISPUTED DISALLOWANCE ON THE ISSUE OF ALLOWABI LITY OF EXPENDITURE OF REPLACEMENT OF COMPOUND WALL WAS NOT DISCUSSED A S REFERRED AT PAGE NO.3 OF ASSESSMENT ORDER. SINCE THERE IS NO O PINION WAS FORMED AT THE TIME OF REGULAR ASSESSMENT U/S.143(3) OF THE ACT COMPLETED ON 30.11.2010 AND THE ASSESSEE HAS FILED OBJECTIONS T O REOPENING OF THE ACT AND LD. ASSESSING OFFICER CONSIDERED THE OBJECT ION OF THE ASSESSEE ON THE REOPENING OF ASSESSMENT AND DISPOSED OFF BY SEPARATE ORDER ITA NO. 720/MDS/2015. :- 12 -: DATED 22.01.2014. CONSIDERING THE CIRCUMSTANCES AND ALSO SUBMISSIONS OF THE ASSESSEE AND FINDINGS OF THE LD. COMMISSIONE R OF INCOME TAX (APPEALS), WE ARE OF THE OPINION THAT THERE IS NO I NFIRMITY IN THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS) AND THE REFORE WE ARE NOT INCLINED TO INTERFERE WITH THE ORDER OF COMMISSIONE R OF INCOME TAX (APPEALS) AND DISMISS THE APPEAL ON THE GROUND OF R E-ASSESSMENT. 8. ON THE GROUND OF DISALLOWANCE OF EXPENDITURE :40, 98,880/-, THE LD. AUTHORISED REPRESENTATIVE VEHEMENTLY ARGUED THAT SUCH EXPENDITURE INCURRED TO REPLACE THE EXISTING BARBED WIRE FENCING TO PROTECT THE PROPERTY FROM TRESPASSERS AND THIEVES A ND NEW COMPOUND WALL WAS MADE ON A SEPARATE PLATFORM AND ASSESSEE H AS INCURRED EXPENDITURE IN REMOVAL OF THE EXISTING FOUNDATION O F BARBED WIRE FENCING AS THE COMPOUND WALL WAS CONSTRUCTED AT CAU VERY BASIN REFINERY AND THOUGH THE ASSET HAS BEEN CREATED BUT THE PURPOSE IS NOT OF ENDURING BENEFIT AND SUCH EXPENDITURE HAS TO BE DISTINGUISHED BASED ON THE FUNCTIONAL TEST. RELIANCE PLACED BY T HE ASSESSEE ON THE DECISION OF MARGAYARAKARASI MILLS (P) LTD (SUPRA ) WERE THE REPLACEMENT OF RING FRAME IN THE EXISTING TEXTILE MACHINERY IS A REVENUE EXPENDITURE RELATES TO REPAIRS TO PLANT AND MACHINE RY. THE ASSESSEE HAS CONSIDERED REPLACEMENT OF BARBED WIRE FENCING A S REVENUE ITA NO. 720/MDS/2015. :- 13 -: EXPENDITURE AND CLAIMED DEDUCTION U/S.37(1) OF THE ACT WHICH IS WHOLLY AND EXCLUSIVELY USED FOR THE PURPOSE OF BUSI NESS. THE LD. AUTHORISED REPRESENTATIVE SUPPORTED HIS ARGUMENTS W ITH THE JURISDICTIONAL HIGH COURT DECISION WHICH SQUARELY C OVERS THE CASE OF SOUTHERN ROADWAYS LTD (SUPRA) WERE SIMILAR ISSUE WAS DEALT . ON COMPARISON WITH THE PROVISIONS OF SEC.37(1) AND THE NATURE OF EXPENDITURE AND THE TREATMENT OF EXPENDITURE IN TH E BOOKS OF ACCOUNTS ALSO FACTUAL CIRCUMSTANCES AND APEX COURT DECISIONS RELIED BY THE ASSESSEE THE EXPENDITURE TAKES THE CHARACTERIST IC OF REVENUE IN NATURE THOUGH LD. ASSESSING OFFICER IN HIS ORDER HA S MENTIONED THAT THIS DECISION IS NOT APPLICABLE FOR THE ISSUE IN DI SPUTE AS IT PERTAINING TO ASSESSMENT YEAR 1995-96 AND 1997-98 AND DUE TO AMEN DMENT IN SEC.30 OF THE ACT. CONSIDERING THE FACTUAL CIRCUMST ANCES THE CLAIM OF THE ASSESSEE FALL UNDER RESIDUAL SEC. OF 37(1) WER E THE EXPENDITURE HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PU RPOSE OF BUSINESS AND EXPENDITURE BEING A REPLACEMENT COST TO THE EXI STING ASSET WHICH SATISFY THE FUNCTIONAL TEST OF REVENUE EXPENDITURE AND ALSO FOLLOW THE JURISDICTIONAL HIGH COURT DECISION CIT VS. SOUTHERN ROADWAYS LTD (MAD) (SUPRA ), THE LORDSHIP OBSERVED AT PAGE NO.18 OF PAGE 91 T HAT WHEN AN IDENTICAL QUESTION WHETHER THE EXPENSES INCURRED FOR REPLACING THE OLD BARBED WIRE FENCE AROUND THE COMPOUND BY A COMPOUND WALL IS A REVENUE EXPENDITURE OR CAPITAL EXPENDITURE CAME UP ITA NO. 720/MDS/2015. :- 14 -: FOR CONSIDERATION BEFORE THE KARNATAKA HIGH COURT I N CIT VS. B.V. RAMACHANDRAPPA & SONS (1991) 97 CTR (KAR) 180 : (1991) 191 ITR 34 (KAR), APPLYING THE W ELL- SETTLED PRINCIPLES LAID DOWN BY THE HOUSE OF LORDS, PRIVY COUNCIL, APEX COURT AS WELL AS BY THE DECISIO N OF SEVERAL OTHER HIGH COURTS, REFERRED SUPRA, THE KARNATAKA HIGH COURT HELD AS FOLLOWS : ' .. THE PURPOSE OF THE FENCE AROUND THE BUSINESS PREMISES WAS TO PREVENT TRESPASSERS AND THIEVES FROM ENTERING INTO THE BUSINESS PREMISES; THE DOMINANT PURPOSE WAS TO SAFEGUARD THE PROPERTY IN THE PREMISES. THE MATERIALS IN THE PREMISES WERE PART OF THE BUSINESS ASSETS OF THE ASSESSEE. IN THIS CONTEXT, THE COMPOUND WALL COULD NOT BE TREATED IN ISOLATION. IT WAS PART OF THE BUSINESS PREMISES AND WHEN ONLY A PART OF THE PREMISES WAS REPLACED, PRIMA FACIE, IT WOULD BE A CASE OF REPAIR. THE IDENTITY OF THE ENTIRE ASSET AS A WHOLE WAS NOT AFFECTED AT ALL. THE WORKS CARRIED OUT CONTRIBUTED TO THE BETTER AND SAFER UTILISATION OF THE EXISTING BUSINESS PREMISES ASSET. THE WORKS EFFECTED, WHEN CONSIDERED IN PROPORTION TO THE ENTIRE BUSINESS PREMISES, DID NOT RESULT IN SIGNIFICANT REPLACEMENT SO AS TO ALTER THE CHARACTER OF THE BUSINESS PREMISES. THEREFORE, THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE EXPENDITURE INCURRED ON REPLACEMENT OF THATCHED ROOF WITH ASBESTOS SHEETS AND BARBED WIRE FENCE WITH COMPOUND WALL WAS REVENUE EXPENDITURE.' CONSIDERING THE RATIO OF HIGH COURT, WE SET ASID E THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) ON THIS GROUND AND DIRECT THE ASSESSING OFFICER TO ALLOW THE DEDUCTION OF REPLACE MENT OF BARBED WIRE ITA NO. 720/MDS/2015. :- 15 -: FENCING WITH COMPOUND WALL AS REVENUE EXPENDITURE. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED. ORDER PRONOUNCED ON FRIDAY, THE 26TH DAY OF FEBRU ARY, 2016, AT CHENNAI. SD/- SD/- ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER ( . ! ) (G. PAVAN KUMAR) /JUDICIAL MEMBER / CHENNAI / / DATED:26.02.2016 KV 0 ( *',12 32%, / COPY TO: 1 . &' / APPELLANT 3. 4, () / CIT(A) 5. 278 *',' / DR 2. *+&' / RESPONDENT 4. 4, / CIT 6. 89$ : / GF