Coromandel International Ltd., (formerly known as Coromandel Fertilisers Ltd), Hyd, Secunderabad V. DCIT, Circle-1(2), Hyd, Hyderabad

ITA 818/HYD/2015

• Counselvise Citation: 81822514 RSA 2015
• Duration Of Justice: 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-11-2015
• Appeal Filed By: Assessee
• Bench Allotted: B
• Assessment Year: 1984-1985
• Appeal Filed On: 17-06-2015
• Court: TRIBUNAL
• Department Lawyers: Y SESHA SRINIVAS
• Assessee Lawyers: A V RAGHURAM; P J PARDIWALLA
• Keywords: Depreciation; Business expenditure; Revised return
• Section: 143(3); 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER I.T.A. NO. 818/HYD/2015 ASSESSMENT YEAR: 1984-85 COROMANDEL INTERNATIONAL LIMITED, SECUNDERABAD [PAN: AAACC7852K] VS THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(2), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI P.J. PARDIWALLA, SR. ADVOCATE , & SHRI A.V. RAGHU RAM, AR FOR REVENUE : S HRI Y. SESHA SRINIVAS , DR DAT E OF HEARING : 2 2 - 0 9 - 201 5 DATE OF PRONOUNCEMENT : 06 - 1 1 - 2015 O R D E R PER SMT. P. MADHAVI DEVI, JM : THIS IS AN ASSESSEES APPEAL FOR THE AY. 1984-85 A GAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-I , HYDERABAD DATED 18-03-2015 IN CONFIRMING THE ORDER OF THE ASS ESSING OFFICER (AO) U/S. 154 R.W.S. 143(3) OF THE INCOME TAX ACT [ ACT]. IN THIS APPEAL, ASSESSEE IS AGGRIEVED BY THE ORDER OF THE C IT(A) IN UPHOLDING THE DISALLOWANCE OF INVESTMENT ALLOWANCE AND THE DEPRECIATION ON PLANT & MACHINERY RELATING TO CEMEN T UNIT FOR THE YEAR UNDER CONSIDERATION. IT IS THE CASE OF THE AS SESSEE THAT THE CIT(A) HAS FAILED TO APPRECIATE THE FINDINGS GIVEN BY THE TRIBUNAL IN I.T.A. NO. 818/HYD/2015 COROMANDEL INTERNATIONAL LIMITED :- 2 -: IN THE ASSESSEES OWN CASE (DT. 27-07-1995) THAT FE RTILIZER BUSINESS AND CEMENT BUSINESS CONSTITUTE SAME BUSINESS AND TH E SAID ORDER OF THE TRIBUNAL HAS BECOME FINAL AS THE SAME WAS NO T CHALLENGED BY THE REVENUE BEFORE THE HON'BLE HIGH COURT. IT I S THE GRIEVANCE OF THE ASSESSEE THAT THE CIT(A) HAS ERRED IN HOLDIN G THAT FERTILIZER BUSINESS AND THE CEMENT BUSINESS CARRIED ON BY THE ASSESSEE ARE SEPARATE AND DO NOT CONSTITUTE SAME BUSINESS AND TH EREBY CONFIRMING THE DISALLOWANCES MADE BY THE AO. 2. BRIEF FACTS OF THE CASE ARE THAT, THE ASSESSEE C OMPANY WHICH ENGAGED IN THE BUSINESS OF MANUFACTURE OF FERTILIZE RS ALSO EMBARKED ON THE ACTIVITY OF MANUFACTURE OF CEMENT. UPTO AY. 1983-84, ASSESSEE WAS ADOPTING THE PREVIOUS YEAR AS YEAR ENDING ON 31 ST OF DECEMBER. ON 05-03-1984, THE ASSESSEE FILED A LETTER BEFORE THE INCOME TAX OFFICER, REQUESTING FOR ACCOR DING CHANGE IN THE END OF THE PREVIOUS YEAR TO MARCH, 31 ST 1984 INSTEAD OF DECEMBER, 31 ST 1983. THE SAID APPLICATION OF THE ASSESSEE WAS REJECTED. THIS ISSUE WENT UP TO THE HON'BLE HIGH C OURT AND THE HIGH COURT DISMISSED THE ASSESSEES APPEAL. THEREA FTER, THE ASSESSEE FILED A RETURN OF INCOME ON 31-08-1984 ADM ITTING A LOSS OF RS. 3,68,95,374/- TAKING THE PREVIOUS YEAR AS YEAR ENDING ON 31- 12-1983. ASSESSEE ALSO FILED REVISED RETURN OF INC OME ON 28-11- 1984 ADMITTING A LOSS OF RS. 27,43,59,752/- FOR THE PERIOD FROM 01- 01-1983 TO 31-03-1984. SINCE THE PERMISSION TO CHA NGE THE PREVIOUS YEAR ENDING WAS NOT ACCORDED, THE REVISED RETURN FILED ON 28-11-1984 WAS NOT TAKEN INTO CONSIDERATION. ALONG WITH THE ORIGINAL RETURN FILED BY THE ASSESSEE ON 31-08-1984 , THE ACCOUNTS FOR THE PERIOD 01-01-1983 TO 31-12-1983 WERE ALSO F ILED. ON PERUSAL OF THE SAME, THE AO OBSERVED THAT THE ASSES SEE HAS CLAIMED A SUM OF RS. 7,05,03,027/- TOWARDS INTEREST AND I.T.A. NO. 818/HYD/2015 COROMANDEL INTERNATIONAL LIMITED :- 3 -: COMMITMENT CHARGES AND OTHER EXPENSES IN CONNECTION WITH THE CAPITAL BORROWED. HE OBSERVED THAT THE AMOUNT REPR ESENTS EXPENDITURE INCURRED IN CONNECTION WITH THE FINANCI NG ARRANGEMENTS MADE FOR CEMENT PROJECT DURING THE YEA R 1983 AND THAT THIS AMOUNT WAS SHOWN UNDER THE HEAD INCIDENT AL EXPENDITURE DURING THE CONSTRUCTION OF THE PROJECT IN THE COMPANYS BALANCE SHEET. BEFORE THE AO, ASSESSEE C LAIMED THAT THE EXPENDITURE IS FOR THE PURPOSE OF BUSINESS AS T HE CEMENT BUSINESS IS A PART OF THE FERTILIZER UNIT AND THERE FORE, THE FINANCIAL CHARGES SHOULD BE ALLOWED AS EXPENDITURE RELATABLE TO BUSINESS. IT WAS ALSO CLAIMED THAT THE ASSESSEE-COMPANY HAD COMM ENCED EXTRACTION OF LIME STONE FROM MINES AND THEREFORE, IT HAS COMMENCED CEMENT BUSINESS. THE AO, HOWEVER, OBSERV ED THAT THE CEMENT UNIT DID NOT COMMENCE PRODUCTION BY 31-12-19 83. TO COME TO THIS CONCLUSION, HE OBSERVED THAT THE INCOM E TAX OFFICER OF THE RELEVANT WARD HAD VISITED THE CEMENT FACTORY ON 21-04-1984 AND FOUND THAT THE PRODUCTION OF CEMENT COMMENCED O NLY DURING MARCH, 1984 AND THE FINAL PRODUCTION WAS STARTED ON 02-04-1984. 3. IT WAS FURTHER OBSERVED THAT BY 31-12-1983, ASSE SSEE DID NOT INSTALL THE PLANT & MACHINERY TOTALLY AND MOST OF T HE PLANT & MACHINERY OF CEMENT UNIT WAS INSTALLED FROM JANUARY , 1984 TO MARCH, 1984. THEREFORE, HE CAME TO THE CONCLUSION THAT THE ASSESSEE DID NOT SET UP THE CEMENT UNIT BY 31-12-19 83 AND MOST OF THE MACHINERY WAS NOT ERECTED AND THE PLANT & MA CHINERY WAS NOT READY TO MANUFACTURE. HENCE, HE HELD THAT AS T HE ASSESSEE DID NOT SET UP THE INDUSTRY, THE BUSINESS CANNOT BE SAI D TO HAVE COMMENCED. AS REGARDS THE OTHER CONTENTION OF THE ASSESSEE THAT THE CEMENT BUSINESS IS A PART OF EXISTING BUSINESS OF THE ASSESSEE, THE AO HELD THAT THE SAME IS NOT ACCEPTABLE AS THER E IS NO INTER- I.T.A. NO. 818/HYD/2015 COROMANDEL INTERNATIONAL LIMITED :- 4 -: DEPENDENCE BETWEEN THE FERTILIZER UNIT AND CEMENT U NIT AND EACH ONE IS AN INDEPENDENT UNIT FOR BUSINESS AND THE ACC OUNTS ARE ALSO MAINTAINED SEPARATELY. THUS OBSERVING, THE AO DISA LLOWED THE CLAIM OF THE EXPENDITURE, AS WELL AS THE DEPRECIATI ON AND INVESTMENT ALLOWANCE ON THE PLANT & MACHINERY RELAT ING TO THE CEMENT UNIT. AGGRIEVED BY THE ORDER OF AO, ASSESSE E PREFERRED AN APPEAL BEFORE THE CIT(A), WHO ALLOWED THE SAME BY F OLLOWING THE ORDER OF THE PREDECESSOR IN THE ASSESSEES OWN CASE FOR THE AYS. 1982-83 & 1983-84. AGGRIEVED, THE REVENUE PREFERRE D AN APPEAL BEFORE ITAT WHICH WAS REJECTED. AGAINST THE SAME, THE REVENUE PREFERRED AN APPEAL RAISING GROUNDS ONLY AS TO WHET HER THE CEMENT UNIT WAS SET UP AND COMMENCED COMMERCIAL PRODUCTION AND HENCE, THE ASSESSEE WAS ENTITLED TO DEPRECIATION AN D INVESTMENT ALLOWANCE FOR THE AY. 1984-85 AND WHETHER THE DISAL LOWANCE UNDER RULE 6D HAS TO BE WORKED OUT TAKING ALL THE TRIPS O F THE EMPLOYEES TOGETHER. HON'BLE HIGH COURT VIDE ORDERS DT. 05-12 -2011 HELD THAT THE MANUFACTURING OF CEMENT HAS NOT STARTED AND THE REFORE, THE ASSESSEE IS NOT ENTITLED TO THE DEPRECIATION AND IN VESTMENT ALLOWANCE. THUS, THE ISSUE WAS DECIDED IN FAVOUR O F THE REVENUE. AGAINST THE ORDER OF THE HON'BLE HIGH COURT, THE AS SESSEE PREFERRED AN APPEAL BEFORE THE HON'BLE SUPREME COURT OF INDIA WHICH WAS ALSO REJECTED. THUS, THE ISSUE AS TO WHETHER ASSES SEE HAS SET UP AND COMMENCED THE CEMENT MANUFACTURING BUSINESS HAS REACHED FINALITY. WHILE GIVING EFFECT TO THE ORDER OF ITAT DT. 31-01-2013 FOR THE AY. 1984-85, THE AO PASSED A MODIFICATION ORDER U/S. 154 WHEREBY THE DEPRECIATION AND INVESTMENT ALLOWANCE O N THE MACHINERY USED FOR CEMENT MANUFACTURING BUSINESS WA S ADDED BACK. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFO RE THE CIT(A), WHO DISMISSED THE SAME AND THE ASSESSEE IS IN APPEA L BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE, SHRI P.J. PARDIWA LLLA, I.T.A. NO. 818/HYD/2015 COROMANDEL INTERNATIONAL LIMITED :- 5 -: SR. ADVOCATE AND SHRI A.V. RAGHU RAM, WHILE REITERA TING THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE AUTHORI TIES BELOW SUBMITTED THAT THE FINDING OF THE TRIBUNAL IN THE A PPEAL PROCEEDINGS, THAT THE CEMENT UNIT IS A PART OF BUSI NESS OF FERTILIZER UNIT HAS ATTAINED FINALITY AS THE REVENUE DID NOT C ARRY THE MATTER IN APPEAL BEFORE THE HON'BLE HIGH COURT AND THEREFO RE, THE CLAIM OF DEPRECIATION AS WELL AS INVESTMENT ALLOWANCE PERTAI NING TO THE CEMENT UNIT BEING BUSINESS EXPENDITURE ALSO HAS TO BE ALLOWED AS BUSINESS EXPENDITURE OF THE ASSESSEE. HE HAS DRA WN OUR ATTENTION TO THE ORDERS OF ITAT FOR THE AYS. 1982-83, 1983-84 AND 1984-85 AS WELL AS THE DECISIONS OF THE HON'BLE HIGH COURT OF AP AND SUPREME COURT (SUPRA). HE SUBMITTED THAT AS LONG A S THE BUSINESS OF THE FERTILIZER UNIT AND CEMENT UNITS ARE CONSIDE RED TO PART OF THE SAME BUSINESS, THE BUSINESS EXPENDITURE OF THE CEME NT UNIT CANNOT BE DISALLOWED. 4. LD. DR, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. HAVING REGARD TO THE RIVAL CONT ENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE CIT(A) DID NOT DISTURB THE INTEREST ALLOWED ON CAPITAL BORROWED FOR THE PURPOS E OF CEMENT UNIT VIDE ITATS ORDER DT. 31-01-2013 BY HOLDING THAT TH E CEMENT BUSINESS FORMS PART OF THE FERTILIZER BUSINESS. HO WEVER, SHE DISALLOWED THE CLAIM OF DEPRECIATION AND INVESTMENT ALLOWANCE. AS REGARDS THE INTEREST AND OTHER EXPENDITURE IS CONCE RNED, WE FIND THAT THE FINDINGS OF THE TRIBUNAL HAVE ATTAINED FIN ALITY THAT BOTH FERTILIZER UNIT AS WELL AS THE CEMENT UNIT FORM PAR T OF THE SAME BUSINESS AND HAS BEEN ACCEPTED AND FOLLOWED BY THE REVENUE. HOWEVER, THIS FINDING WILL NOT APPLY TO THE CLAIM O F DEPRECIATION AS WELL AS THE INVESTMENT ALLOWANCE. THE CLAIM OF DEP RECIATION AS WELL AS INVESTMENT ALLOWANCE IS ASSET SPECIFIC AND ARE A LLOWABLE ONLY I.T.A. NO. 818/HYD/2015 COROMANDEL INTERNATIONAL LIMITED :- 6 -: WHEN THE ASSETS ARE INSTALLED AND PUT TO USE. IN T HE CASE BEFORE US, THE AO HAS CLEARLY BROUGHT OUT ON RECORD THAT T HE MACHINERY WAS NOT INSTALLED BY THE END OF THE RELEVANT PREVIO US YEAR I.E., 31-12-1983 IN THE CASE OF ASSESSEE WHICH FACT HAS B EEN CONSIDERED AND ACCEPTED BY THE HON'BLE HIGH COURT OF AP. WHEN THE MACHINERY HAS NOT BEEN INSTALLED AND USED BY THE AS SESSEE FOR THE PURPOSE OF MANUFACTURING OF CEMENT, THEN THE CLAIM OF DEPRECIATION AND INVESTMENT ALLOWANCE IS RIGHTLY NOT ALLOWED BY THE AO. IN VIEW OF THE SAME, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A) AND THE ASSESSEES APPEAL IS ACCORDINGLY DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH NOVEMBER, 2015 SD/- SD/- (S. RIFAUR RAHMAN) (P. MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 6 TH NOVEMBER, 2015 TNMM COPY TO : 1. COROMANDEL INTERNATIONAL LIMITED, COROMANDEL HOU SE, SARDAR PATEL ROAD, P.B. NO. 1589, SECUNDERABAD. 2. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1( 2), AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. 3 . CIT (APPEALS) - I , HYDERABAD. 4. CIT-I, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.