Sri Varadaraja Textiles Pvt.Ltd., Coimbatore V. ACIT, Coimbatore

ITA 759/CHNY/2012

• Counselvise Citation: 75921714 RSA 2012
• Duration Of Justice: 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 13-12-2012
• Assessment Year: 1994-1995
• Appeal Filed On: 11-04-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Question of law; Revenue expenditure; Capital expenditure
• Section: 143(3); 37

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL A BENCH, CHENNAI. BEFORE ABRAHAM P. GEORGE, ACCOUNTANT MEMBER & SHRI S.S. GODARA, JUDICIAL MEMBER I.T.A. NOS. 759, 760 AND 761/MDS/2012 ASSESSMENT YEARS: 1994-95, 1996-97 AND 2001-02 SRI VARADARAJA TEXTILES PVT. LTD., 335-A, AVINASHI ROAD, PEELAMEDU, COIMBATORE 641 004. [PAN:AADCS4875M] VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE II, COIMBATORE. (APPELLANT) (RESPONDENT) APPELLANT BY : NONE RESPONDENT BY : SHRI SHAJI P. JACOB, ADDL.CIT DATE OF HEARING : 1 3 . 12 .201 2 DATE OF PRONOUNCEMENT : 13.12.2012 ORDER PER BENCH THESE THREE APPEALS OF THE ASSESSEE ARISE FROM DIF FERENT ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS) I, COIMBATORE DATED 29.02.2012 AND 13.01.2012 IN ITA NO. 363/10-11, 364/10-11 AND 362/ 10-11 FOR THE ASSESSMENT YEARS 1994-95, 1996-97 AND 2001-02 RESPE CTIVELY; IN PROCEEDINGS UNDER SECTION 143(3) R.W.S. 260(1) OF T HE INCOME TAX ACT 1961 [IN SHORT THE ACT]. 2. AFTER PERUSING THE GROUNDS IN ALL APPEALS, WE F IND THAT THE SOLE GRIEVANCE OF THE ASSESSEE IS REGARDING EXPENSES ON REPLACEMENT OF RING SPINNING FRAMES WHICH HAVE BEEN HELD TO BE CAPITAL EXPENDITURE BY THE I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .75 7575 759 99 9- -- -76 7676 761 11 1/M/ /M/ /M/ /M/12 1212 12 2 CIT(A). FOR THE SAKE OF CONVENIENCE AND BREVITY, WE TAKE UP I.T.A. NO. 759/MDS/2012 FOR THE ASSESSMENT YEAR 1994-95 AS LE AD CASE. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S A PUBLIC LIMITED COMPANY RUNNING A SPINNING MILL WITH INSTALLED CAPA CITY OF 30660 SPINDLES FOR THE IMPUGNED ASSESSMENT YEAR. IT HAD FILED ITS RET URN ON 30.11.1994 DECLARING TOTAL INCOME OF ` .1,16,09,839/- WHICH WAS PROCESSED UNDER SECTION 143(1)(A) ON 02.12.1994 AND REFUND AMOUNT OF ` .13,994/- WAS ADJUSTED TOWARDS TAX ARREARS OF ASSESSMENT YEAR 1990-91. IN SCRUTINY PROCEEDINGS, THE ASSESSING OFFICER N OTICED THAT THE ASSESSEE HAD CLAIMED AN AMOUNT OF ` .22,81,689/- AS EXPENDITURE. ITS PLEA IN SUPPORT WAS THAT 3 OLD RING FRAMES HAD BEEN REPLACE D BY THE NEW ONES. IT HAD ALSO FILED THE DETAILED INVOICE, ETC. IN SUPPOR T. THE ASSESSEE ALSO SUBSTANTIATED ITS PLEA BY STATING THAT IN ASSESSMEN T YEAR 1981-82 ALSO, THE TRIBUNAL HAD DECIDED THE ISSUE IN ITS FAVOUR. HOW EVER, THE ASSESSING OFFICER WAS NOT CONVINCED WITH ASSESSEES SUBMISSIONS AND O BSERVED THAT EACH ASSESSMENT YEAR IS DIFFERENT AND THE PRINCIPLE OF R ES JUDICATA WOULD NOT APPLY IN THE ASSESSMENT PROCEEDINGS. ACCORDINGLY, BY HOLD ING THAT THE AMOUNT CLAIMED WAS CAPITAL EXPENDITURE, HE ADDED THE SAME IN ASSESSEES TOTAL INCOME VIDE ASSESSMENT YEAR DATED 27.03.1997 WITH C LARIFICATION THAT THE ASSESSEE WOULD BE ENTITLED FOR ADMISSIBLE RATE OF D EPRECIATION. 4. AS THE RECORD OF THE CASE SUGGEST THE ISSUE TRA VELLED UPTO THE HONBLE I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .75 7575 759 99 9- -- -76 7676 761 11 1/M/ /M/ /M/ /M/12 1212 12 3 SUPREME COURT. PER CIT(A) ORDER IN CIVIL APPEAL NO. 1461/08, THEIR LORDSHIPS OF THE HONBLE APEX COURT RESTORED THE MA TTER BACK TO THE FILE OF THE CIT(A). WE DEEM IT APPROPRIATE TO REPRODUCE THE OPERATIVE PARA AS UNDER: ACCORDINGLY, WE ACCEPT THESE APPEALS AND REMIT THE M TO CIT(APPEALS) WHO IS DIRECTED TO DISPOSE OF THE MATT ER IN ACCORDANCE WITH LAW AND IN TERMS OF THE DIRECTION GIVEN IN THE ABOVE JUDGEMENT IN THE CASE OF RAMARAJU SURGICAL COTTON MILLS. NO ORDE R TO COST. IN FURTHER TO THE DIRECTION ABOVE SAID, THE CIT(A) AGAIN TOOK UP THE MATTER AND AFTER CONSIDERING THE CASE LAW OF CIT V. RAMARA JU SURGICAL COTTON MILLS & ORS (2007) 294 ITR 328 (SC) AS WELL AS THE DECISI ON OF THE HONBLE APEX COURT IN THE CASE OF SRI MANGYARKARASI MILLS (P) LT D. (2009) 315 ITR 114(SC), HAS TURNED DOWN THE CONTENTION OF THE ASSE SSEE BY HOLDING THAT THE EXPENDITURE IN QUESTION IS CAPITAL IN NATURE. IT IS IN THIS BACKDROP OF THE FACTS THAT THE ASSES SEE IS IN APPEAL. 5. TODAY, THE AR OF THE ASSESSEE HAS MOVED AN ADJO URNMENT PETITION FOR ADJOURNING THE CASE, WHICH READS AS UNDER: SUB: REQUEST FOR ADJOURNMENT THE ABOVE APPEALS ARE POSTED FOR HEARING BEFORE THE HONBLE A BENCH ON 13 TH DECEMBER, 2012. DUE TO UNAVOIDABLE CIRCUMSTANCES, THE UNDERSIGNED W ILL NOT BE ABLE TO BE PRESENT TO REPRESENT THE APPELLANT, FOR THE HEAR ING ON 13.12.2012. HENCE, IT IS REQUESTED THAT THE HEARING OF THE ABOV E APPEALS, MAY PLEASE BE ADJOURNED AND REPOSTED TO SOME OTHER DATE CONVEN IENT TO THE HONBLE BENCH AND OBLIGE. I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .75 7575 759 99 9- -- -76 7676 761 11 1/M/ /M/ /M/ /M/12 1212 12 4 THE INCONVENIENCE CAUSED, TO THE HONBLE BENCH, IN THIS REGARD, IS VERY MUCH REGRETTED. PERUSAL OF THE FILE REVEALS THAT THE INSTANT APPEA L WAS CLUBBED WITH OTHER CASES OF THE ASSESSEE ON 11.06.2012 AT THE RE QUEST OF THE AR. THEREAFTER THE CASE HAS BEEN ADJOURNED TO 27.06.201 2, 10.09.2012, 30.10.2012 AND 22.11.2012. ON EACH OCCASION, THE PR OCEEDINGS RECORD SUGGESTS THAT THE ASSESSEE HAS BEEN SEEKING ADJOURN MENT ON ONE PRETEXT OR THE OTHER. THEREFORE, WE ARE NOT INCLINED TO ACCEPT THE ADJOURNMENT PETITION AND THE SAME IS HEREBY REJECTED. 6. ON BEHALF OF THE REVENUE, THE DR HAS ALREADY PL ACED ON RECORD THE DECISION OF THE COORDINATE BENCH IN I.T.A. NO. 754/ MDS/2012 DATED 12.09.2012 TITLED THE KUMARAN MILLS LTD. V. ACIT. D URING THE COURSE OF HEARING AS WELL, IT HAS BEEN STATED THAT THE MATTER IS SQUARELY COVERED BY THE SAME. 7. WE HAVE CONSIDERED NECESSARY FACTS AND CIRCUMST ANCES OF THE CASE AND ALSO GONE THROUGH THE FINDINGS OF THE ASSESSING OFFICER AS WELL AS CIT(A). UNDISPUTEDLY, THE STRIFE BETWEEN THE PARTIE S IS THAT THE ASSESSEE CLAIMS THAT THE EXPENSES ON REPLACEMENT OF THREE RI NG SPINNING FRAMES AS REVENUE EXPENDITURE, WHICH IN TURN IS OPPOSED BY TH E REVENUE. WE NOTICE THAT THE SAME ISSUE HAD ARISEN BEFORE THE COORDINAT E BENCH (SUPRA), WHEREIN ONE OF US [SHRI ABRAHAM P. GEORGE, ACCOUNTA NT MEMBER PRESIDED I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .75 7575 759 99 9- -- -76 7676 761 11 1/M/ /M/ /M/ /M/12 1212 12 5 OVER THE BENCH] AND THE ISSUE IN QUESTION STANDS DE CIDED IN FAVOUR OF THE REVENUE BY OBSERVING AS UNDER: 5. WE HAVE HEARD BOTH THE SIDES, PERUSED THE RECOR DS AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE O NLY ISSUE FOR ADJUDICATION BEFORE US IS WHETHER THE EXPENDITURE I NCURRED FOR THE PURPOSE OF REPLACEMENT OF DRAW FRAME IS REVENUE EXP ENDITURE OR CAPITAL EXPENDITURE. THE LEARNED CIT(APPEALS) BY C ONSIDERING THE ENTIRE FACTS OF THE CASE AND ALSO THE DECISIONS OF VARIOUS HIGH COURTS AND THE HON'BLE SUPREME COURT INCLUDING THE DECISION IN THE CASE OF CIT V. RAMARAJU SURGICAL COTTON MILLS L TD. (SUPRA) AND BY FOLLOWING THE DECISION IN THE CASE OF CIT V. MANGARKARASI MILLS LTD. (SUPRA) HAS HELD THAT REPLACEMENT OF DRA W FRAME IS A CAPITAL EXPENDITURE. FOR THAT PROPOSITION THE HON' BLE SUPREME COURT HAS RELIED ON THE DECISIONS IN THE CASE OF TR AVANCORE COCHIN CHEMICALS LTD. V. CIT (106 ITR 900) (SC) AND LAKSHM IJI SUGAR MILLS P. CO. V. CIT AIR 1972 SC 159 AND OBSERVED TH AT IT HAS BEEN HELD BY THIS COURT THAT BRINGING INTO EXISTENC E A NEW ASSET OR AN ENDURING BENEFIT FOR THE ASSESSEE AMOUNTS TO CAP ITAL EXPENDITURE. WE HAVE ALREADY EXPLAINED WHY REPLACEM ENT, IN THIS CASE, AMOUNTS TO BRINGING INTO EXISTENCE A NEW ASSE T AND ALSO AN ENDURING BENEFIT FOR THE ASSESSEE IT IS CLEAR THEN THAT THE EXPENDITURE OF THE ASSESSEE HERE IS NOT OF A REVENU E NATURE AND THUS, CANNOT BE CLAIMED AS A DEDUCTION UNDER SECTIO N 37 OF THE ACT.. 6. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CAS E OF CIT, MADURAI V. MADURA COATS (2012) 205 TAXMAN 357 (MADR AS) HAS OBSERVED AS UNDER : 11. WHEN THE TAX CASE APPEALS CAME UP FOR CONSIDER ATION IT IS SUBMITTED BY THE LEARNED COUNSEL FOR THE APPELLANT/REVENUE THAT WITH REGARD TO THE SUBSTANTI AL QUESTION OF LAW 1 AND 2 THEY ARE COVERED AS PER THE JUDGMENT OF THIS COURT DATED 25-04-2011 IN TAX CASE (APPEALS) NOS. 71 AND 72 OF 2008. 12. IN VIEW OF THE ABOVE, FOLLOWING THE SAME, THE SUBSTANTIAL QUESTION OF LAW 1 AND 2 RAISED IN THIS TAX CASE I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .75 7575 759 99 9- -- -76 7676 761 11 1/M/ /M/ /M/ /M/12 1212 12 6 APPEAL ARE ANSWERED AGAINST THE ASSESSEE AND IN FAV OUR OF THE REVENUE. 13. WITH REGARD TO THE THIRD SUBSTANTIAL QUESTION OF LAW, IT IS SUBMITTED BY THE LEARNED COUNSEL FOR THE APPELLA NT THAT WHEN EACH OF THE MACHINERY IN QUESTION SUCH AS RING FRAMES, DRAW FRAMES AND SPEED FRAME IS PURCHASED FO R THE FIRST TIME, THEN IT IS A CAPITAL ASSET, ON WHIC H DEPRECIATION SHOULD BE GRANTED. WHEREAS, IT IS SUB MITTED THAT THE SALE OF A WORN OUT MACHINERY AND REPLACEME NT THEREOF BY NEW MACHINERY CAN ONLY BE TREATED AS RED UCTION AND ADDITION TO THE BLOCK OF ASSETS, WHICH IS A PAR T OF REPLACEMENT. IT IS ALSO SUBMITTED THAT WHILE UNDER THE LAW, AS IT STOOD PRIOR TO 1988-89, THE FACT OF TREATING THE ENTIRE MILL AS AN INTEGRATED UNIT MAY HAVE HAD THE EFFECT OF TREATING THE REPLACEMENT OF MACHINERY AS REPLACEMENT OF PART S OF A LARGER WHOLE AND THUS TREATED AS REVENUE EXPENDITUR E AND ONCE THE CONCEPT OF BLOCK OF ASSETS HAS BEEN BROUGH T IN BY THE PARLIAMENT FROM THE ASSESSMENT YEAR 1988-89, WH ETHER THE MILL IS AN INTEGRATED WHOLE OR NOT, WHETHER THE REPLACEMENT OF MACHINES RESULTED IN INCREASED CAPAC ITY OR NOT, WILL HAVE NO BEARING AND WHEN ANY ITEM BELONGI NG TO THE BLOCK IS REMOVED, ITS VALUE IS REDUCED AND IF A NY NEW ITEM COMES IN ITS PLACE, ITS VALUE IS ADDED TO THE BLOCK. IN VIEW OF THE ABOVE, IT IS SUBMITTED THAT THE THIRD S UBSTANTIAL QUESTION OF LAW IS ALSO COVERED AS PER THE JUDGMENT OF THIS COURT DATED 25.04.2011 IN TAX CASE (APPEALS) NOS. 7 1 & 72 OF 2008. IN VIEW OF THE SAID SUBMISSION MADE BY THE LEARNED COUNSEL FOR THE APPELLANT, WE HOLD THAT THE THIRD QUESTION OF LAW IS ALSO ANSWERED IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. 7. IN VIEW OF THE DECISIONS OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT V. RAMARAJU SURGICAL COTTON MILLS LTD. (SUPRA), CIT V. SRI MANGAYARKARASI MILLS P. LTD. (SUPRA) AND THE DE CISION OF THE HONOURABLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT, MADURAI V. MADURA COATS (SUPRA), WE FIND NO INFIRMITY IN TH E ORDER PASSED I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .75 7575 759 99 9- -- -76 7676 761 11 1/M/ /M/ /M/ /M/12 1212 12 7 BY THE LEARNED CIT(APPEALS). HIS ORDER IS ACCORDIN GLY CONFIRMED AND THE APPEAL OF THE ASSESSEE IS DISMISSED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DIS MISSED. AFTER HAVING GIVEN OUR THOUGHTFUL CONSIDERATION ON THE ISSUE INVOLVED IN THE LIGHT OF THE OBSERVATIONS OF THE COORDINATE BENCH, WE ARE OF THE OPINION THAT THE RINGS REPLACEMENT EXPENDITURE IN Q UESTION IS CAPITAL IN NATURE INSTEAD OF REVENUE EXPENDITURE AS CLAIMED BY THE ASSESSEE. THEREFORE, WE HOLD THAT THE CIT(A) HAS RIGHTLY AFFI RMED THE FINDINGS OF THE ASSESSING OFFICER. ACCORDINGLY, WE UPHOLD THE SAME. I.T.A. NOS. 760 AND 761/MDS/2012 [A.Y. 1996-97 & 20 01-02] 8. IN BOTH THE APPEALS OF THE ASSESSEE, THE SOLE G RIEVANCE RAISED IN THE GROUNDS IS THE SAME AS RAISED IN THE APPEAL I.T.A. NO. 759/MDS/2012 DECIDED HEREINABOVE. WE HAVE ALSO GONE THROUGH THE FACTS OF THE CASES AS WELL. HENCE, WE AFFIRM THE ORDER OF THE CIT(A) IN T HESE CASES AS WELL. 9. TO SUM UP, ALL THE THREE APPEALS OF THE ASSESSE E ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF H EARING ON THURSDAY, THE 13 TH OF DECEMBER, 2012 AT CHENNAI. SD/- SD/- (ABRAHAM P. GEORGE) ACCOUNTANT MEMBER (S.S. GODARA) JUDICIAL MEMBER CHENNAI, DATED, THE 13.12.2012 VM/- TO: THE ASSESSEE//A.O./CIT(A)/CIT/D.R.