Areva T & D India Limited, CHENNAI V. DCIT, CHENNAI

ITA 800/CHNY/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4875 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 21-06-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 24-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K E B RENGARAJAN JR STG
• Assessee Lawyers: L V SRINIVASAN; P JAYALAKSHMI
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 143(3); 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH D, CHENNAI B E F O R E DR. O.K.NARAYANAN, VICE PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER .. I.T.A. NOS799 & 800.(MDS)/2010 ASSESSMENT YEARS: 2003-04 & 2004-05 M/S. AREVA T&D INDIA LTD., THE DE PUTY COMMISSIONER 19/1, GST ROAD, PALLAVARAM, VS. OF INCOME-T AX, CHENNAI-600 043. L TU, CHENNAI. PAN AAACG2115R. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI L.V.SRINIVASAN & SMT.P.JAYALAKSHMI RESPONDENT BY: SHRI K.E.B.RENGARAJAN, JR. STG. COUNSEL. O R D E R PER DR.O.K.NARAYANAN, VICE-PRESIDENT: THESE TWO APPEALS ARE FILED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEARS ARE 2003-04 AND 2004-05. THE APPEALS ARE DIRECTED AGAINST THE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS), LARGE TAXPAYER UNIT AT CHENNAI DATE D 9-3-2010 AND ITA NOS.799 &800(MDS)/2010 2 10-3-2010. THEY ARISE OUT OF THE RESPECTIVE ASSESS MENTS COMPLETED UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961. 2. AS FAR AS THE APPEAL FOR THE ASSESSMENT YEAR 20 03-04 IS CONCERNED, THE FIRST ISSUE IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN DISALLOWING THE PROVISIONS M ADE FOR CONTRACT CONTINGENCIES FOR A SUM OF ` 13,64,000/-. 3. SHRI L.V.SRINIVASAN, THE LEARNED AUTHORIZED REP RESENTATIVE APPEARING FOR THE ASSESSEE, HAS ARGUED AT LENGTH ON THIS POINT ON THE BASIS OF THE BINDING NATURE OF THE ACCOUNTING STAND ARDS ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. INSPI TE OF THE ARGUMENTS OF THE LEARNED AUTHORIZED REPRESENTATIVE, WE HAVE T O SEE THAT THE VERY SAME ISSUE WAS ADJUDICATED BY THE A-BENCH OF THIS T RIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2001-02 THROUGH ITS COMMON ORDER DATED 16 TH MAY, 2007 PASSED IN ITA NO.2035(MDS)/2005 AND OTHER APPEALS. THIS ISSUE WA S DECIDED BY THE BENCH AGAINST THE ASSESSEE. THE SAID DECISION IS STILL IN FORCE. THEREFORE, IT IS TO BE FOLLOWED. ACCORDINGLY WE CO NFIRM THE SAID ADDITION AND DECIDE THE ISSUE AGAINST THE ASSESSEE. ITA NOS.799 &800(MDS)/2010 3 4. THE SECOND ISSUE IS AGAINST THE ADDITION ON THE GROUND OF DEPRECIATION ON PLASTIC MOULDS AMOUNTING TO ` 85,578/-. THIS ISSUE ALSO WAS CONSIDERED BY THE TRIBUNAL IN THE ORDER ME NTIONED IN THE ABOVE PARAGRAPH, HOLDING AGAINST THE ASSESSEE. ACC ORDINGLY, THIS GROUND IS ALSO REJECTED AND THE ADDITION IS UPHELD. 5. THE THIRD ISSUE IS DISALLOWANCE OF CONTRIBUTION S MADE BY THE ASSESSEE COMPANY TO CERTAIN WELFARE FUNDS AMOUN TING TO ` 5 LAKHS. THIS ISSUE HAS BEEN REMITTED BACK TO THE AS SESSING OFFICER BY THE TRIBUNAL IN THE VERY SAME ORDER MENTIONED ABOVE . FOLLOWING THE EARLIER ORDER AS CITED ABOVE, THIS ISSUE IS REMITTE D BACK TO THE ASSESSING OFFICER FOR FRESH CONSIDERATION IN THE LI GHT OF THE DIRECTIONS ISSUED BY THE TRIBUNAL IN ITS EARLIER ORDER. 6. THE FOURTH GROUND RAISED BY THE ASSESSEE IS THA T THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN N OT TREATING THE EXPENDITURE IN CONNECTION WITH ERP IMPLEMENTATION A S REVENUE EXPENDITURE. ACCORDING TO THE ASSESSEE, THE EXPENS ES RELATED TO TRAINING AND IMPLEMENTATION OF THE ERP SYSTEM. WE CONSIDERED THIS ISSUE. THE ERP SYSTEM ESTABLISHED BY THE ASSESSEE COMPANY AS A ITA NOS.799 &800(MDS)/2010 4 WHOLE IS A CAPITAL SYSTEM FOR THE BETTERMENT OF THE ADMINISTRATION OF THE ASSESSEES BUSINESS, OUT OF WHICH ENDURING BENE FIT IS CONTEMPLATED. ESTABLISHING SUCH A SUPPORTING SYST EM INVOLVES THREE COMPONENTS, NAMELY, HARDWARE, SOFTWARE AND TRAINING AND IMPLEMENTATION EXPENSES. IT IS THE CASE OF THE ASS ESSEE THAT EVEN IF THE FIRST TWO COMPONENTS WOULD BE CAPITAL IN NATURE , THE THIRD COMPONENT RELATING TO EXPENSES ON TRAINING AND IMPL EMENTATION SHOULD BE TREATED AS REVENUE IN NATURE AND TO BE AL LOWED AS A DEDUCTION IN FULL. WE ARE NOT ABLE TO AGREE WITH T HE ABOVE ARGUMENT. THE ERP SYSTEM IS ESTABLISHED BY THE ASSESSEE AS A WHOLESOME PROJECT. IT IS ONLY WHEN THE PROJECT IS DISSECTED THAT WE COME TO KNOW THAT IT COMPRISES MORE THAN ONE IDENTIFIABLE SEGMEN T. THE FIRST ONE IS HARDWARE; THE SECOND ONE IS SOFTWARE AND THE THIRD ONE IS TRAINING AND IMPLEMENTATION EXPENSES. AS IT IS A WHOLESOME PROJECT, IT IS NOT POSSIBLE TO PICK OUT ONE SEGMENT AND CLAIM IT AS RE VENUE EXPENDITURE. THE ENTIRE EXPENDITURE INCURRED IN AL L THE THREE SCHEMES OF THE PROJECT ULTIMATELY CREATE A CAPITAL FACILITY IN FAVOUR OF THE ASSESSEE AND THEREFORE THE ENTIRE EXPENSES GO TO CO NTRIBUTE IN ESTABLISHING THE SAID CAPITAL FACILITY. THEREFORE, EVEN THOUGH THE PROGRAMME COULD BE DIVIDED INTO THREE SEGMENTS, THE ENTIRE ITA NOS.799 &800(MDS)/2010 5 EXPENDITURE HAS TO BE CONSIDERED TOGETHER AND THE S AME WOULD BE IN THE NATURE OF CAPITAL EXPENDITURE. THEREFORE, THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE CLAIM MADE BY THE ASSESS EE AND GRANTED DEPRECIATION THEREOF. THIS GROUND IS ALSO DECIDED AGAINST THE ASSESSEE. 7. THE FIFTH GROUND RAISED BY THE ASSESSEE IS ON T HE ITEMS OF ADD BACKS MADE BY THE ASSESSING AUTHORITY TO BOOK P ROFITS FOR THE PURPOSE OF MAT. AS THE ADD BACKS HAVE ALREADY BEEN CONFIRMED BY US AS STATED ABOVE, THIS GROUND FAILS BY ITSELF. 8. AS FAR AS THE APPEAL FOR THE ASSESSMENT YEAR 20 04-05 IS CONCERNED, THE ISSUES OF CONTRACT CONTINGENCIES AND DEPRECIATION ON PLASTIC MOULDS ARE THE SAME AS RAISED FOR THE ASSES SMENT YEAR 2003- 04. FOLLOWING OUR ORDER FOR THE ABOVE ASSESSMENT Y EAR, THESE TWO GROUNDS ARE DECIDED AGAINST THE ASSESSEE. 9. LIKEWISE, FOLLOWING THE SAID ORDER, WE REMIT BA CK THE ISSUE OF DISALLOWANCE OF CONTRIBUTION MADE BY THE ASSESSE E COMPANY TO WELFARE FUNDS AMOUNTING TO ` 6,45,541/-. ITA NOS.799 &800(MDS)/2010 6 10. THE FOURTH ISSUE RAISED BY THE ASSESSEE IS AGA INST THE DISALLOWANCE OF THE CLAIM FOR DEDUCTION OF EXCISE D UTY ON CLOSING STOCK OF FINISHED GOODS AMOUNTING TO ` 1,44,70,000/-. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS CONFIRMED THE DISALLOWANCE ON THE GROUND THAT THE DEDUCTION WAS C LAIMED BY THE ASSESSEE ON THE BASIS OF A PROVISION MADE FOR EXCIS E DUTY. BUT THE LEARNED AUTHORIZED REPRESENTATIVE HAS STATED THAT T HE SAID EXCISE DUTY HAS BEEN PAID BY THE ASSESSEE COMPANY BEFORE THE DU E DATE FOR FILING OF THE RETURN OF INCOME. THEREFORE, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM FOR DEDUCTION OF EXCISE DUTY TO THE EXTENT THE SAME HAS BEEN PAID BY THE ASSESSEE COMPANY BEFORE THE DU E DATE FOR FILING OF THE RETURN OF INCOME. 11. THE FIFTH GROUND RAISED BY THE ASSESSEE IS THA T THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN D ISALLOWING THE CLAIM OF SECTION 80HHC DEDUCTION OUT OF BOOK PROFIT S BEFORE ARRIVING AT THE PROFITS FOR MAT. THIS ISSUE IS REMITTED BAC K TO THE ASSESSING OFFICER FOR FRESH CONSIDERATION IN THE LIGHT OF THE RELEVANT JUDICIAL PRONOUNCEMENTS. ITA NOS.799 &800(MDS)/2010 7 12. THE SIXTH GROUND RAISED BY THE ASSESSEE IS AGA INST THE ADJUSTMENT OF ADD BACKS TO BOOK PROFITS FOR THE PUR POSE OF MAT. AS ALREADY HELD FOR THE EARLIER ASSESSMENT YEAR, THIS GROUND IS REJECTED. 13. IN RESULT THESE TWO APPEALS FILED BY THE ASSES SEE ARE TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF HEARING ON TUESDAY, THE 21 ST DAY OF JUNE, 2011 AT CHENNAI. SD/- SD/- (HARI OM MARATHA) (DR. O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED THE 21 ST JUNE, 2011. V.A.P. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT (4) CIT(A) (5) D.R. (6) G.F.