Savera Industries Limited, CHENNAI V. ACIT, CHENNAI

ITA 835/CHNY/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96317 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-11-2015
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 27-08-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 13-04-2015
• Court: TRIBUNAL
• Department Lawyers: DR S BHARATH IRS
• Assessee Lawyers: G SEETHARAMAN
• Keywords: Revenue expenditure; Capital expenditure
• Section: 263

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI . , !' # , $ % [BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMB ER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER] ./ ITA NO.835/MDS/2015 ( ( /ASSESSMENT YEAR 2010-2011) SAVERA INDUSTRIES LIMITED , NO.146, DR. RADHAKRISHNAN SALAI, CHENNAI 600 004. [ PAN : AAECS 9541D] ( &' /APPELLANT) VS THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE VI(1) CHENNAI 600 034. ( #(&' /RESPONDENT) / APPELLANT BY : SHRI. G. SEETHARAMAN, C.A. / RESPONDENT BY : DR. S.BHARATH, IRS, CIT. /DATE OF HEARING : 27.08.2015 ! /DATE OF PRONOUNCEMENT : 11 .11.2015 ) / O R D E R PER A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER THIS APPEAL IS FILED BY THE ASSESSEE, AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX-6, CHENNAI ITA .NO. 835/MDS/2015. :- 2 -: DATED 02.03.2015 IN C.NO.6119(10)/CIT-6/2014-15 PAS SED U/S 260 READ WITH SECTION 250 OF THE ACT. 2. THE ASSESSEE HAS RAISED THREE GROUNDS IN ITS APP EAL, HOWEVER THE CRUX OF THE ISSUE IS THAT THE ASSESSEE IS AGGRIEVED BY THE ORDER OF THE LD. CIT U/S.263 OF THE ACT FOR REM ITTING THE CASE BACK TO THE FILE OF THE LD. ASSESSING OFFICER FOR V ERIFYING WHETHER THE EXPENSES CLAIMED BY THE ASSESSEE UNDER THE HEAD PRELIMINARY AND PRE-OPERATIVE EXPENSES OF ` 9.48 LAKHS IS DIRECTLY RELATED TO THE BUSINESS OF THE ASSESSEES ESTABLISHMENT AND INCURRED PRIOR TO THE COMMENCEMENT OF SUCH ESTA BLISHMENTS AND TO VERIFY EACH ITEM OF EXPENDITURE INCURRED UND ER THE HEAD RENOVATION EXPENSES OF ` 1,09,81,000/- ARE REVENUE IN NATURE OR CAPITAL EXPENDITURE AND THEREAFTER TO PASS APPROPRI ATE ORDER AS PER LAW AND MERITS. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSES SEE IS A COMPANY, ENGAGED IN THE BUSINESS OF HOTLIER, FILED ITS RETURN ON 13.10.2010 ADMITTING ITS INCOME AS ` 5,09,98,316/-. SUBSEQUENTLY, THE RETURN WAS TAKEN FOR SCRUTINY AND ASSESSMENT U/S.143(3) OF THE ACT WAS COMPLETED ON 25.04.2012 WHEREIN THE ITA .NO. 835/MDS/2015. :- 3 -: LD. ASSESSING OFFICER ALLOWED THE CLAIM OF PRELIMI NARY AND PRE- OPERATIVE EXPENSES OF ` 9.48 LAKHS AND RENOVATION EXPENSES OF ` 1,09,81,000/- IN TOTO. SUBSEQUENTLY, THE LD.CIT HA D ISSUED A NOTICE U/S.263 OF THE ACT ON 28.01.2015 CALLING FOR THE ASSESSEES OBJECTION WITH REGARD TO THE PROPOSED ORDER U/S.263 OF THE ACT FOR REMITTING BACK THE MATTER TO THE FILE OF LD. ASSESS ING OFFICER TO VERIFY THE EXPENSES CLAIMED BY THE ASSESSEE UNDER T HE HEAD PRELIMINARY AND PRE-OPERATIVE EXPENSES AND RENOV ATION EXPENSES. THE ASSESSEE HAD EXPLAINED BEFORE THE L D. CIT THAT BOTH THESE EXPENSES HAD BEEN THOROUGHLY VERIFIED BY THE LD. ASSESSING OFFICER BEFORE ALLOWING THE CLAIM OF THE ASSESSEE AND THEREFORE, THE PROPOSED ORDER TO BE PASSED U/S.263 OF THE ACT IS NOT WARRANTED. HOWEVER, REJECTING THE ARGUMENTS OF THE ASSESSEE THE LD. CIT PASSED ORDER U/S.263 OF THE ACT FOR VER IFYING THE AFORESAID EXPENSES CLAIMED BY THE ASSESSEE BY OBSER VING AS UNDER:- CONSIDERING THE TYPES AND PERIOD OF EXPENSES INCU RRED, THE CLAIM OF THOSE EXPENSES DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION APPEARS TO BE IN ACCORDANC E WITH THE ACCEPTED PRINCIPLE OF ACCOUNTANCY. HOWEVER, FOR THI S PURPOSE, A THOROUGH EXAMINATION OF THE TYPES OF THE EXPENSES A ND PERIOD IN WHICH THEY WERE INCURRED IS AN IMMENSE NECESSITY. THEREFO RE, IM OF THE VIEW ITA .NO. 835/MDS/2015. :- 4 -: THAT THE SAID EXPENSES NEED VERIFICATION BY THE ASS ESSING OFFICER TO COME TO THE CONCLUSION THAT THERE WERE EXPENSES DIR ECTLY RELATED TO THE BUSINESS OF THE ASSESSEES ESTABLISHMENTS AND WERE INCURRED PRIOR TO THE COMMENCEMENT OF SUCH ESTABLISHMENTS. FOR THIS P URPOSE, I REMIT THE ISSUE BACK TO THE ASSESSING OFFICER TO CONSIDER THE ISSUE AND DECIDE ACCORDING TO FACTS AND FIGURES AS HE/SHE MAY DEEM F IT. REGARDING THE RENOVATION EXPENSES DEBITED TO THE EXTENT OF RS.I,09,80,7851-, IT HAS BEEN SUBMITTED BY THE ASSE SSEES REPRESENTATIVE THAT THE PROFIT AND LOSS ACCOUNT WAS PREPARED UNDER COMPANIES ACT WHICH ACCEPTS THE PRINCIPLES OF DEFERRED REVENUE EX PENDITURE TO BE WRITTEN OFF OVER A PERIOD OF TIME. HE HAS ALSO GIVE N THE BREAKUP OF RS. 1,09,8 1,000/- AS UNDER: THOUGH THE UNDERSIGNED ACCEPTS THE PRINCIPLE OF DEF ERMENT OF REVENUE EXPENDITURE AS PROVIDED IN COMPANIES ACT, W HAT IS TO BE SEEN IN THIS CASE, WHETHER THE EXPENDITURE CLAIMED REALL Y REPRESENTED CAPITAL OR REVENUE EXPENDITURE. FROM THE COPY OF TH E LEDGER ACCOUNTS SUBMITTED BY THE ASSESSEE RELATING TO RENOVATION EX PENSES, BOTH MATERIALS AND LABOUR, IT IS SEEN THAT MOST OF THE I TEMS RELATED TO EXPENDITURE ON ITEMS SUCH AS MARBLE SLABS. ELECTRIC PANELS, TILES ETC., WHICH WILL SURELY ADD TO THE BENEFIT OF ENDURING NA TURE OF THE EXISTING ASSET. SUCH ITEMS CANNOT BE CONSIDERED AS REVENUE E XPENDITURE WHICH RELATED TO REVENUE ITEMS SUCH AS PURCHASE OF BULBS, WATER FILTER CANDLES FURNISHING CLOTHES ETC. IN ORDER TO ARRIVE AT CONCLUSION TO IDENTIFY THE NATURE OF EXPENDITURE CLAIMED UNDER RE NOVATION AND ALLOW FINANCIAL YEAR ACTUAL AMOUNT WRITTEN OFF 2007-08 67.86.786 1/3 22,62,262 2008-09 93.00.325 1/3 31,00,109 2009-10 1.33.88,545 1/3 44,62,848 2008-09 LINEN 34.66.697 1/3 11,55,566 TOTAL 1,09,80,785 ITA .NO. 835/MDS/2015. :- 5 -: ONLY THAT PORTION OF REVENUE EXPENDITURE AND TO DIS ALLOW THE OTHER EXPENSES FOR CAPITALIZATION. IN THE RESULT, AS THE UNDERSIGNED IS CONVINCED TH AT THE ORDER OF ASSESSMENT PASSED ULS.143(3) OF THE IT ACT FOR THE AY 2010-11 IS ERRONEOUS IN AS MUCH AS THE DETAILS FURNISHED BY TH E ASSESSEE WERE NOT THOROUGHLY EXAMINED BEFORE COMING TO THE CONCLU SION THAT THE AMOUNTS CLAIMED BY THE ASSESSEE UNDER THE HEADS WER E ALLOWABLE AND ACCEPTABLE. HENCE, THE SAID ASSESSMENT IS SET-A SIDE WITH A DIRECTION TO REDO THE SAME AFTER THOROUGH VERIFICAT ION OF FACTS AND FIGURES AS DIRECTED ABOVE. 4. AT THE OUTSET, THE LD. A.R SUBMITTED BEFORE US T HAT REMITTING THE CASE OF THE ASSESSEE BACK TO THE FILE OF LD. AS SESSING OFFICER BY PASSING ORDER INVOKING THE PROVISIONS OF SECTION 263 OF THE ACT FOR VERIFICATION OF THE CLAIM OF THE EXPENSES BY TH E ASSESSEE WHICH WAS ALREADY VERIFIED AND ALLOWED BY THE LD. A SSESSING OFFICER IS ERRONEOUS WHEN ALL THE DETAILS WERE FURN ISHED BEFORE THE LD. CIT ALSO. THE LD. A.R. RELIED IN THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. D. VALLIAMMAL REPORTED IN 230 ITR 695. LD. D.R. ON THE OTHER HAND RELIED ON THE ORDER OF THE LD. CIT AND ARGUED IN SUPPORT OF THE S AME. 5. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY P ERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE ORDER OF T HE LD. CIT IT IS APPARENT THAT THE LD. CIT WITHOUT EXAMINING THE CLA IM OF THE ITA .NO. 835/MDS/2015. :- 6 -: ASSESSEE HAD SIMPLY REMITTED THE CASE OF THE ASSESS EE BACK TO THE FILE OF THE LD. ASSESSING OFFICER FOR VERIFYING THE EXPENSES CLAIMED BY THE ASSESSEE. THERE IS NO FINDING BY TH E LD. CIT THAT THE EXPENSES CLAIMED BY THE ASSESSEE ARE DEVOID OF THE MERIT. IN THESE CIRCUMSTANCES, WE ARE OF THE CONSIDERED VIEW THAT THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT R EPORTED IN [1998] 230 ITR 695 (MAD) RELIED UPON BY THE LD. A.R . IS SQUARELY APPLICABLE TO THE CASE OF THE ASSESSEE WHEREIN IT W AS HELD AS FOLLOWS:- WHEN THE EXPLANATION OFFERED BY THE ASSESSEE WAS A CCEPTED BY THE COMMISSIONER OF INCOME-TAX WITH REGARD TO THE ALLEG ED UNDISCLOSED INCOME OF RUPEES ONE LAKH, THEN THERE IS NO ERROR IN THE O RDER PASSED BY THE INCOME- TAX OFFICER IN THE CASE OF THE ASSESSEE IN THE ASSE SSMENT YEAR 1974-75. THEREFORE, IN THE PRESENT CASE, AFTER THE ENQUIRY, THE COMMISSIONER OF INCOME-TAX HAS NOT GIVEN ANY CATEGORICAL FINDING TH AT THE ORDER PASSED BY THE INCOME-TAX OFFICER ON THIS ASPECT WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. ON THE OTHER HAND, THE CO MMISSIONER SET ASIDE THE ORDER PASSED BY THE INCOME-TAX OFFICER ON THE GROUN D THAT VERIFICATION OF ACCOUNT IS NEEDED, WITH A CLARIFICATION OF THE ASSE SSEE. THIS CANNOT BE A GROUND FOR INVOKING JURISDICTION UNDER SECTION 263 OF THE ACT. THEREFORE, ON THE FACTUAL FINDING, WE CONSIDER THAT THE ORDER PAS SED BY THE TRIBUNAL IN HOLDING THAT THE COMMISSIONER OF INCOME-TAX HAS NO JURISDICTION TO INVOKE THE PROVISIONS OF SECTION 263 OF THE ACT IS IN ORDER. A CCORDINGLY, WE ANSWER THE QUESTION REFERRED TO US IN THE AFFIRMATIVE AND AGAI NST THE DEPARTMENT. ITA .NO. 835/MDS/2015. :- 7 -: THEREFORE FOLLOWING THE AFORESAID THE DECISION OF T HE HONBLE JURISDICTIONAL HIGH COURT, WE HEREBY HOLD THAT THE LD. CIT HAS ERRONEOUSLY INVOKED THE PROVISIONS OF SECTION 263 O F THE ACT AND ACCORDINGLY WE HEREBY SET ASIDE THE ORDER OF THE LD . CIT. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED 11 TH NOVEMBER, 2015, AT CHENNAI. SD/ - SD/ - ( !' # ) (CHALLA NAGENDRA PRASAD) JUDICIAL MEMBER ( . ) (A.MOHAN ALANKAMONY) ACCOUNTANT MEMBER '# /CHENNAI. $% /DATED: 11.11.2015. K S SUNDARAM COPY TO: 1. & APPELLANT 2. / RESPONDENT 3. ' ( )/CIT(A) 4. ' /CIT 5. ()* + /DR 6. *, - /GF.