Nexus Electro Steel Limited, CHENNAI V. DCIT, CHENNAI

ITA 803/CHNY/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68892 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 03-12-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 26-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 143(3); 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI [BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND SHRI S. S. GODARA, JUDICIAL MEMBER] I.T.A.NO.803/MDS/2013 ASSESSMENT YEAR : 2008-09 M/S NEXUS ELECTRO STEEL LTD 202, SHIVALAYA, BLOCK C 16, ETHIRAJ SALAI CHENNAI 600 008 VS THE DY. CIT COMPANY CIRCLE IV(1) CHENNAI [PAN AABCN 4224H] (APPELLANT) (RESPONDENT) I.T.A.NO.1420/MDS/2013 ASSESSMENT YEAR : 2008-09 THE ASST. CIT COMPANY CIRCLE IV(4) CHENNAI VS M/S NEXUS ELECTRO STEEL LTD 202, SHIVALAYA, BLOCK C 16, ETHIRAJ SALAI CHENNAI 600 008 (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE DEPARTMENT : SHRI SHAJI P. JACOB, ADDL. CIT DATE OF HEARING : 03-12-2013 DATE OF PRONOUNCEMENT : 09-12-2013 O R D E R PER S.S.GODARA, JUDICIAL MEMBER THESE CROSS APPEALS FILED BY ASSESSEE AND THE R EVENUE FOR ASSESSMENT YEAR 2008-09, ARE DIRECTED AGAINST COMM ON ORDER OF THE I.T.A.NOS803 & 1420/13. :- 2 -: COMMISSIONER OF INCOME-TAX (APPEALS)-V, CHENNAI, DA TED 18.3.2013 , PASSED IN APPEAL NO.406/2010-11, IN PROCEEDINGS UND ER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT). 2. A COMBINED PERUSAL OF THE GROUNDS RAISED IN BOTH T HE APPEALS REVEALS THAT THE ASSESSEES SOLE GRIEVANCE IS THAT THE CIT(A) HAS WRONGLY CONFIRMED DISALLOWANCE MADE BY THE ASSE SSING OFFICER OF ` 8,58,137/- PERTAINING TO RENOVATION CHARGES BY HOL DING IT AS CAPITAL IN NATURE. SIMILARLY, THE REVENUES GROUNDS ARE T HAT THE CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE OF ` 3,131/- MADE U/S 36(1)(VA) R.W.S 2(24)(X) OF THE A CT PERTAINING TO REMITTANCE OF ESI CONTRIBUTION AS WELL AS THAT OF ` 33,92,043/- IN THE NATURE OF PRIOR PERIOD EXPENSES BY TERMING THE SAM E AS REVENUE EXPENDITURE. 3. NOBODY HAS COME PRESENT ON BEHALF OF THE ASSESSEE DESPITE SERVICE OF NOTICE ON 7.10.2013. THEREFORE, INSTEAD OF DISMISSING THE APPEAL FOR NON-PROSECUTION, WE PROCEED TO DECIDE T HE SAME ON MERITS WHEREAS IN REVENUES APPEAL, THE ASSESSEE IS PROCE EDED EX-PARTE. FIRST WE TAKE UP I.T.A.NO.803/MDS/2013. I.T.A.NOS803 & 1420/13. :- 3 -: 4. THE ASSESSEE IS A COMPANY. ON 31.7.2008, IT HAD FILED ITS RETURN DECLARING INCOME OF ` 6,65,74,333/- UNDER NORMAL PROVISIONS AND THAT OF ` 7,18,54,412/- U/S 115JB OF THE ACT. THE SAME WAS SUMMARILY PROCESSED. 5. IN THE COURSE OF SCRUTINY, THE ASSESSING OFFICER FOUND THE ASSESSEE TO HAVE RAISED A CLAIM OF EXPENSES OF ` 85,81,137/- PERTAINING TO OFFICE RENOVATION CHARGES. IN THE ASSESSMENT OR DER DATED 31.12.2010, HE HELD THE SAME TO BE A RECURRING EX PENSE NOT LIABLE TO BE TREATED AS REPAIR AND MAINTENANCE. PER ASSESSIN G OFFICER, THE RENOVATION GAVE EXTENDED BENEFIT AND IMPROVEMENT TO THE ASSET WHICH MADE IT LIABLE TO BE TREATED AS CAPITAL EXPENDITU RE. IN ASSESSEES APPEAL, THE CIT(A) HAS CONFIRMED I T. AT THE SAME TIME, HE HAS DIRECTED THE ASSESSING OFFICER TO GRANT DEPRECIATION RELIEF. 6. WE HAVE PERUSED THE CASE FILE AND GONE THROUGH THE CASE LAWS PLEADED BY THE ASSESSEE IN ITS GROUNDS. WE FI ND FROM THE ASSESSMENT AND LOWER APPELLATE PROCEEDINGS THAT TH ERE IS NO FINDING AS TO IN WHAT MANNER THE EXPENSES IN QUESTION IN TH E NATURE OF RENOVATION CHARGES HAVE GIVEN ENDURING BENEFIT VIS--VIS THE I.T.A.NOS803 & 1420/13. :- 4 -: NATURE OF ASSET OR PORTION RENOVATED WITH ALL DE TAILS. ADMITTEDLY, THE ASSESSEE HAD BEEN CARRYING OUT ITS BUSINESS FR OM THE OFFICE IN QUESTION AND INCURRED THE IMPUGNED EXPENDITURE FOR RENOVATION ETC. THEREFORE, BY PLACING RELIANCE IN THE CASE LAW OF H ON'BLEBLE JURISDICTIONAL HIGH COURT, CIT VS SANCO TRANS LTD [ 2006]284 ITR 51, WE HOLD THAT THE RENOVATION EXPENSES IN QUESTION ARE L IABLE TO BE TREATED AS REVENUE IN NATURE. ACCORDINGLY, THE RELEVANT GRO UND RAISED BY THE ASSESSEE IN ITS APPEAL STANDS ACCEPTED. I.T.A.NO. 803/MDS/2013 STANDS ALLOWED. NOW, WE COME TO REVENUES APPEAL IN I.T.A.NO. 1420/MDS/2013. 7. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAD DISALLOWED ESI CONTRIBUTION MADE BY THE ASSESSEE O F ` 3,131/- FOR THE MONTH OF MAY ON THE GROUND THAT IT WAS REMITTED ONL Y ON 22.6.2007 I.E BEFORE THE DUE DATE PER THE RELEVANT STATUTE. IN LO WER APPELLATE PROCEEDINGS, THE CIT(A) HAS PLACED RELIANCE, INTER ALIA, ON THE CASE LAW OF CIT VS ALOM EXTRUSIONS, 319 ITR 306(SC) WHEREIN IT HAD BEEN HELD THAT IF ESI CONTRIBUTION IS REMITTED BEFORE DUE DAT E OF FILING OF THE I.T.A.NOS803 & 1420/13. :- 5 -: RETURN, THE SAME CANNOT BE DISALLOWED. IN LIGHT TH EREOF, HE HAS DIRECTED THE ASSESSING OFFICER TO DELETE THE DISALL OWANCE AFTER VERIFYING THE FACT THAT AS TO WHETHER THE PAYMENT HAD BEEN MA DE BEFORE THE DUE DATE OF FILING OF RETURN. THAT BEING THE CASE , IN OUR VIEW, THERE IS HARDLY ANY GRIEVANCE ON PART OF THE REVENUE SO AS T O RAISE THE INSTANT GROUND. THIS ARGUMENT OF THE REVENUE FAILS. 8. NOW, WE COME TO THE SECOND SUBSTANTIVE GROUND OF TH E REVENUE REGARDING PRE-OPERATIVE EXPENDITURE OF ` 33,92,043/- WHICH HAD BEEN DISALLOWED BY THE ASSESSING OFFICER. BUT IN LOWER APPELLATE PROCEEDINGS, THE CIT(A) HAS DIRECTED THE ASSESSING OFFICER TO TREAT THE SAME AS REVENUE IN NATURE. IN THE COURSE OF ASSE SSMENT, THE ASSESSING OFFICER HAD FOUND THE ASSESSEE TO HAVE C APITALIZED IN ITS BOOKS THE AFORESAID EXPENSES WHICH WERE CLAIMED AS REVENUE WHILE COMPUTING TOTAL INCOME. PER ASSESSING OFFICER, THE ASSESSEE HAD SET UP A NEW UNIT IN BOMBAY AND THE EXPENDITURE IN QUES TION WAS IN CONNECTION WITH DEVELOPMENT OF THE AFORESAID UNIT. IN COMPUTATION, THE ASSESSEE HAD EXPLAINED THE NATURE OF EXPENSES AS REGULAR MAINTENANCE AND ESTABLISHMENT CHARGES. THE ASSESS ING OFFICER HELD THAT SINCE THE ASSESSEES EXPENSES PERTAINED TO SE TTING UP OF A NEW I.T.A.NOS803 & 1420/13. :- 6 -: UNIT, THE SAME HAD TO BE CAPITALIZED AND TREATED AS CAPITAL EXPENDITURE TILL THE UNIT CAME INTO USAGE. 9. IN APPELLATE PROCEEDINGS, THE CIT(A) HAS DIRECTED T HE ASSESSING OFFICER TO TREAT THE IMPUGNED EXPENSES AS REVENUE IN NATURE BY OBSERVING AS FOLLOWS: 7.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT VIS-A-VIS THE FACTS OF THE CASE AND THE REASONING OF THE APPELLANT. THE AO HAS NOT BROUGHT OUT ANY MATERIAL ON RECORD TO SHOW THAT THE APPELLA NT HAS UNDERTAKEN THE MANUFACTURING OF ANY NEW PRODUCT IN THE NEW UNIT OR ANY NEW LINE OF BUSINESS HAS BEEN UNDERTAKEN BY THE APPELLANT IN THE NEW UNITS. THE APPELLANT HAS CLAIMED THAT IT HAS MERELY EXTENDED THEIR MANUFACTURING CAPACITY IN RESPECT OF ALREADY EXISTING OF THE PRODUCT WHICH IS BEING MANUFACTURED BY THE APPELLANT. IT HAS SET UP NEW UN IT AT KASNE, THANE DISTRICT OF MAHARASHTRA FOR MANUFACTURING SAME LINE OF PRODUCT. EVEN THOUGH THE NEW FACTORIES CAN BE CONSIDERED AS SEPARATE ' UNIT, IT IS NOTHING BUT EXTENSION OF THE EXISTING BUSINESS UNITS. THE JURISDICTIONAL AND OTHER COURTS HAVE HEL D THAT EXPENDITURE INCURRED IN EXTENSION OF THE BUSINESS AND THERE IS UNITY OF CONTROL AND MANAGEMENT AND INTERLACING OF UNITS IS OF REVENUE NATURE AND IS AN ALLOWABLE DEDUCTION. RESPECTFULLY FOLLOWING THE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF CIT V. RANE (MADRAS) LTD. (SUPRA), I DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF RS.33,92,043/- AS REVENUE EXPENDITURE AFT ER VERIFICATION OF THE FACTS THAT APPELLANT HAS NOT UNDERTAKEN THE MANUFACTURING OF ANY NEW PRODUCT IN THE NEW' UNIT OR NO NEW LINE OF BUSINESS HAS BEEN UNDERTAKEN BY THE APPELLANT IN THE NEW UNIT. THIS GROUND OF APPEAL IS CONSIDERED ALLOWED FOR STATISTICAL PURPOSES. I.T.A.NOS803 & 1420/13. :- 7 -: THEREFORE, THE REVENUE HAS RAISED THE INSTANT GROU ND. 10. WE HAVE EXAMINED THE ARGUMENTS OF THE REVENUE AND PERUSED THE CASE FILE. THERE IS HARDLY ANY DISPUTE SO FAR AS THE FACT THAT THE ASSESSEE HAD SET UP A NEW UNIT AND THE EX PENSES IN QUESTION WERE INCURRED BEFORE PRODUCTION STARTED, IS CONCERN ED. IN COURSE THEREOF, THE ASSESSEES PRODUCTION CAPACITY AND PR ODUCE BOTH HAVE INCREASED. THERE IS NO EVIDENCE TO DENY THIS. IN OTHER WORDS, IT HAD ITSELF TREATED THE EXPENSES AS PART OF CAPITAL OUTL AY. IN THE FINDINGS OF THE CIT(A), HE HAS NOWHERE TAKEN INTO CONSIDERATIO N THE OBSERVATIONS OF THE ASSESSING OFFICER THAT THE ASSESSEE HAD IT SELF CAPITALIZED THE AFORESAID EXPENSES IN ITS BOOKS OF ACCOUNT. WE FIN D THAT THE CIT(A) HAS DIRECTED THE ASSESSING OFFICER TO VERIFY THAT T HE ASSESSEE HAD NOT UNDERTAKEN MANUFACTURING OF ANY NEW PRODUCT IN THE NEW UNIT OR NO NEW LINE OF BUSINESS HAD BEEN UNDERTAKEN BY THE AS SESSEE IN THE NEW UNIT. IN OUR VIEW, THE ASSESSEE HAD ITSELF PLEADE D BEFORE THE ASSESSING OFFICER THAT THE EXPENSES IN QUESTION HAD BEEN INCURRED BEFORE THE NEW UNIT IN BOMBAY COULD START PRODUCTI ON. THEREFORE, IN VIEW OF THE SETTLED LAW THAT EXPENSES REGARDING SE TTING UP OF A NEW BUSINESS UNIT ARE CAPITAL IN NATURE, COMES INTO OP ERATION. ACCORDINGLY, WE ARE OF THE CONSIDERED OPINION THAT THE EXPENSES IN QUESTION HAVE I.T.A.NOS803 & 1420/13. :- 8 -: BEEN WRONGLY TREATED AS REVENUE IN NATURE BY THE CIT(A). SO, THIS ARGUMENT OF THE REVENUE STANDS ACCEPTED. 11. CONSEQUENTLY, THE ASSESSEES APPEAL IN I.T.A.NO. 803/MDS/2013 IS ALLOWED AND REVENUES APPEAL IN I.T .A.NO. 1420/MDS/2013 IS PARTLY ALLOWED. ORDER PRONOUNCED ON MONDAY, THE 09 TH OF DECEMBER, 2013, AT CHENNAI SD/- SD/- (DR. O.K. NARAYANAN) VICE-PRESIDENT (S. S. GODARA) JUDICIAL MEMBER DATED:09 TH DECEMBER, 2013 RD COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR