M/s. Precot Meridian Limited, Coimbatore V. DCIT, Coimbatore

ITA 839/CHNY/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2556 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-05-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 01-05-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 16-04-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D K DHALL
• Assessee Lawyers: K RAVI
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI [BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI S. S. GODARA, JUDICIAL MEMBER] I.T.A.NOS.838 & 839/MDS/2012 ASSESSMENT YEARS : 2005-06 AND 2008-09 M/S PRECOT MERIDIAN LTD. SUPREM, 737, GREEN FIELDS PULIAKULAM ROAD COIMBATORE 641 045 VS THE ASSTT. COMMISSIONER OF INCOME-TAX COMPANY CIRCLE I(2) COIMBATORE [PAN AABCP 3038 K] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K. RAVI, ADVOCATE RESPONDENT BY : SHRI D.K.DHALL, CIT/DR DATE OF HEARING : 01-05-2013 DATE OF PRONOUNCEMENT : 09-05-2013 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER THESE ARE THE APPEALS FILED BY THE ASSESSEE AGAIN ST THE ORDERS DATED 9.2.2012 AND 7.3.2012 OF THE LD. CIT(A )-I, COIMBATORE, FOR THE IMPUGNED ASSESSMENT YEARS. 2. APPEAL FOR ASSESSMENT YEAR 2005-06 RELATES TO AN I SSUE REGARDING REPLACEMENT OF MACHINERY REMITTED BACK TO THE FILE OF THE CIT(A) BY THE HON'BLE APEX COURT IN CIVIL APPEAL NO .7593 OF 2009 ARISING OUT OF SPECIAL LEAVE PETITION NO.3854/MDS/0 8. APPEAL FOR I.T.A.NO. 838 & 839/12 :- 2 -: ASSESSMENT YEAR 2008-09 IS ON AN ORDER OF THE CIT(A ) AGAINST AN ASSESSMENT DONE ON THE ASSESSEE U/S 143(3) OF THE ACT. 3. ONE COMMON ISSUE THAT RUNS THROUGH BOTH THESE APPEA LS IS REGARDING REPLACEMENT OF MACHINERY. ASSESSEE, A MANUFACTURER OF COTTON YARN AND PROCESSED FABRICS, HAD DURING THE P REVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2005-06 REPLACED THE FO LLOWING MACHINERIES: 1. AUTOCONERS ( 2 NOS.) ` 2,26,94,962 2. LD. A.R 6 RING FRAME (10 NOS) ` 2,40,28,735 3. COMPACT DRAFTING SYSTEM (8 NOS) ` 4,89,37,721 4. THERE WERE SIMILAR REPLACEMENT OF MACHINERY FOR ASS ESSMENT YEAR 2008-09 ALSO OF ABOUT ` 2,32,54,109/-. ASSESSEE HAD CLAIMED SUCH EXPENDITURE AS REVENUE OUTGO WHICH WAS NOT AC CEPTED BY THE ASSESSING OFFICER. FOR ASSESSMENT YEAR 2005-06, TH E MATTER REACHED THE HON'BLE APEX COURT, AND THEIR LORDSHIPS REMITTE D BACK THE MATTER TO THE FILE OF THE LD. CIT(A) FOR CONSIDERATION AFR ESH. LD. CIT(A) IN THE FRESH PROCEEDINGS FOR ASSESSMENT YEAR 2005-06 A ND REGULAR APPEAL PROCEEDINGS FOR ASSESSMENT YEAR 2008-09, RELYING ON THE DECISIONS OF THE HON'BLE APEX COURT IN THE CASE OF CIT VS RAMARA JU SURGICAL COTTON MILLS & ORS, [2007] 294 ITR 328 (SC) AND THAT OF SR I MANGYARKARASI I.T.A.NO. 838 & 839/12 :- 3 -: MILLS (P) LTD. [2009] 315 ITR 114(SC), HELD THAT RE PLACEMENT OF MACHINERY COULD NOT BE CONSIDERED AS REVENUE EXPEND ITURE. HOWEVER, FOR ASSESSMENT YEAR 2008-09, HE ALLOWED ` 4,23,588/- OUT OF THE TOTAL CLAIM OF ` 2,32,54,109/-, WHICH ACCORDING TO HIM, WAS INCURRE D FOR REPLACEMENT OF MULTI DRUM FILTER USED IN HUMIDIFICA TION PLANT. 5. NOW, BEFORE US, THE LD. A.R OF THE ASSESSEE STRONGL Y ASSAILING THE ORDERS OF THE CIT(A), SUBMITTED THAT THERE WAS NO INCREASE IN PRODUCTION CAPACITY BECAUSE OF THE REPLACEMENT OF M ACHINERY. ACCORDING TO HIM, HON'BLE APEX COURT IN THE CASE O F SRI MANGYARKARASI MILLS (P) LTD (SUPRA) HAD NOT CONSIDERED ASPECTS LI KE THE NON-ENDURING NATURE OF THE BENEFIT DERIVED TO THE ASSESSEE. AC CORDING TO HIM, THE ALLOWABILITY OR DISALLOWABILITY OF AN ITEM SHOULD B E LOOKED FROM THE POINT OF VIEW OF THE PROVISIONS OF THE ACT. 6. PER CONTRA, THE CIT/DR SUPPORTED THE ORDERS OF THE LD. CIT(A). 7. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBM ISSIONS. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAD DURING THE PREVIOUS YEARS RELEVANT TO ASSESSMENT YEARS UNDER CONSIDERATION, R EPLACED ITEMS LIKE AUTOCONERS, LD. A.R 6 RING FRAME AND COMPACT DRAFTI NG SYSTEM, LAP CENTRES AND COMBERS. LD.CIT(A) HAD ALLOWED THE C LAIM OF THE I.T.A.NO. 838 & 839/12 :- 4 -: ASSESSEE IN SO FAR AS IT RELATED TO MULTI DRUM FIL TERS FINDING SUCH ITEM TO BE ONLY CURRENT REPAIRS. EXPENDITURE ADMITTED LY WAS INCURRED FOR REPLACEMENT, AND THESE WERE CAPITALIZED BY THE ASS ESSEE IN ITS BOOKS OF ACCOUNT. THESE COULD HAVE BEEN CONSIDERED AS RE PAIRS ONLY IF ASSESSEE COULD PROVE THAT THE REPLACED PARTS WERE N OT AVAILABLE IN MARKET OR THAT THE OLD PARTS HAD WORKED FOR MORE TH AN FIFTY YEARS. THOUGH THE ASSESSEE HAS MENTIONED IN THE GROUND THA T THE PARTS WERE NOT AVAILABLE DUE TO ADVANCEMENT IN TECHNOLOGY OVER A LONG PERIOD, NOTHING WAS BROUGHT ON RECORD TO SHOW THAT THE REPL ACEMENTS WERE OF PARTS OF MACHINERY WHICH WERE MORE THAN FIFTY YEARS OLD. EACH OF THE ITEMS WHICH WERE REPLACED, WHEN INDEPENDENTLY C ONSIDERED, WERE NOT PARTS OF ANY MACHINERY, BUT A MACHINERY BY ITSE LF. FURTHER, HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. MAD URA COATS IN TCA 322 TO 324 OF 2008 DATED 22.12.2011 HAS CLEARLY HELD TH AT EXPENDITURE ON REPLACEMENT OF MACHINERY COULD NOT BE ALLOWED AS RE VENUE OUTGO, AFTER THE ENACTMENT OF THE CONCEPT OF BLOCK OF ASSE TS FROM ASSESSMENT YEAR 1988-89. THEIR LORDSHIP HELD WHETHER A MILL W AS INTEGRATED WHOLE OR NOT, AND WHETHER REPLACEMENT OF MACHINERY RESULTED IN INCREASE IN CAPACITY OR NOT, WOULD HAVE NO BEARING. IF AN ITEM BELONGING TO A PARTICULAR BLOCK OF ASSETS WAS REMOV ED, ITS VALUE WAS REDUCED AND IF ANY NEW ITEM CAME IN ITS PLACE, ITS VALUE HAD TO BE I.T.A.NO. 838 & 839/12 :- 5 -: ADDED TO THE BLOCK. THUS, IN OUR OPINION, LD. CIT( APPEALS) WAS JUSTIFIED IN HOLDING THAT THE EXPENDITURE CLAIMED B Y THE ASSESSEE COULD NOT BE ALLOWED AS REVENUE OUTGO. NO INTERFERENCE I S CALLED FOR. 8. FOR ASSESSMENT YEAR 2008-09, THE ASSESSEE HAS TAKE N ONE MORE GROUND WHICH IS ON A DISALLOWANCE MADE U/S 1 4A OF THE ACT. 9. FACTS APROPOS ARE THAT THE ASSESSEE HAD, DURING TH E RELEVANT PREVIOUS YEAR, RECEIVED DIVIDEND INCOME OF ` 64,20,704/- WHICH INCLUDED DIVIDENDS RECEIVED FROM A SUBSIDIARY COMPA NY CALLED M/S BENWOOD CORPORATION. ASSESSING OFFICER, BY APPLY ING SECTION 14A OF THE ACT R.W. RULE 8D OF THE INCOME-TAX RULES, DIS ALLOWED ` 10,90,875/-. 10. IN ITS APPEAL BEFORE THE LD. CIT(A), ARGUMENT OF TH E ASSESSEE WAS THAT SUBSTANTIAL PART OF THE DIVIDEND INCOME WAS RECEIVED FROM M/S BENWOOD CORPORATION, A SUBSIDIARY COMPANY OF THE ASSESSEE SITUATED ABROAD, AND SUCH DIVIDEND WAS NEVER CLAIME D BY IT AS EXEMPT INCOME. LD. CIT(A) APPRECIATED THIS CONTENTION O F THE ASSESSEE. HE DIRECTED THE ASSESSING OFFICER TO RE-WORK THE DISAL LOWANCE EXCLUDING THE SUM OF ` 6,16,108/- FROM THE TOTAL AMOUNT OF DIVIDEND RECEI VED. 11. NOW, BEFORE US, THE LD. A.R OF THE ASSESSEE STRONGL Y ASSAILING THE ORDER OF THE LD. CIT(A), SUBMITTED THAT NO FI NDING WITH REGARD TO I.T.A.NO. 838 & 839/12 :- 6 -: THE EXPENDITURE INCURRED BY THE ASSESSEE FOR THE P URPOSE OF EARNING DIVIDEND INCOME WAS GIVEN BY THE ASSESSING OFFICER. ACCORDING TO HIM, RECORDING OF A SATISFACTION THAT ASSESSEE HAD INCURRED EXPENDITURE FOR EARNING EXEMPT INCOME WAS A PRE-REQ UISITE FOR APPLYING SECTION 14A. UNLESS AND UNTIL THE ASSESSI NG OFFICER WAS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE A DISALLOWANCE BY INVOKING RULE 8D COULD NOT BE DONE. RELIANCE WAS PLACED ON THE DECISION OF THE HON'BLE DELHI HIGH CO URT IN THE CASE OF MAXOPP INVESTMENT LTD & OTRS VS CIT, 64 DTR 122. 12. PER CONTRA, THE LD. CIT/DR SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 13. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBM ISSIONS. IT IS NOT IN DISPUTE THAT SECTION 14A R.W. RULE 8D IS APPLICABLE FOR THE IMPUGNED ASSESSMENT YEAR. A READING OF THE ASSESSM ENT ORDER DOES NOT SHOW WHAT THE CLAIM OF THE ASSESSEE WAS WITH R EGARD TO THE EXPENDITURE, IF ANY, INCURRED BY IT WITH REFERENCE TO THE EXEMPT INCOME. WE CANNOT FIND ANYTHING FROM THE ASSESSMEN T ORDER REGARDING THIS ASPECT. LD. CIT(A) , ON THE OTHER HAND, HAS GIVEN A CLEAR FINDING THAT OUT OF THE TOTAL DIVIDEND INCOME OF ` 64,20,704/-, A SUM OF ` 6,16,108/- WAS NEVER CLAIMED BY THE ASSESSEE AS A PART OF EXEMPT INCOME. NO DOUBT, HON'BLE DELHI HIGH COURT IN THE CASE OF I.T.A.NO. 838 & 839/12 :- 7 -: MAXOPP INVESTMENT LTD & ORS (SUPRA) HAS HELD THAT I F AN ASSESSEE HAD MADE A CLAIM REGARDING NO EXPENDITURE OR SOME S PECIFIC AMOUNT OF EXPENDITURE, TO HAVE BEEN INCURRED FOR THE PURPO SE OF EARNING DIVIDEND INCOME, THEN IT WAS NECESSARY FOR THE ASSE SSING OFFICER TO GIVE A FINDING WHETHER THE CLAIM WAS CORRECT OR NOT . CONSIDERING ALL THESE ASPECTS, WE ARE OF THE OPINION THAT THE MATTE R REQUIRES A FRESH LOOK BY THE ASSESSING OFFICER. WE, THEREFORE, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND REMIT THE ISSUE REGARDING DISALLOWANCE U/S 14A BACK TO THE FILE OF THE ASSESSING OFFICER FOR C ONSIDERATION AFRESH IN ACCORDANCE WITH LAW. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2005-06 IS DISMISSED WHEREAS ITS APPEAL FOR AS SESSMENT YEAR 2008-09 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THURSDAY, THE 09 TH OF MAY, 2013, AT CHENNAI. SD/- SD/- (S. S. GODARA) JUDICIAL MEMBER (ABRAHAM P. GEORGE) ACCOUNTANT MEMBER DATED: 09 TH MAY, 2013 RD COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR