ACIT, New Delhi V. M/s Pipavav Railway Corporation Ltd., New Delhi

ITA 867/DEL/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53020 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 23-09-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 14-02-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PRATIMA KAUSHIK
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH F NEW DELHI) BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER AND SHRI B.K. HALDAR, ACCOUNTANT MEMBER I.T.A. NO.867/DEL/2011 ASSESSMENT YEAR : 2007-08 ACIT, M/S PIPAVAV RAILWAY CORPORATION CIRCLE-14 (1), LTD., D-22, ANAND NIKETAN, NEW DELHI. V. NEW DELHI. AND C.O. NO.118/DEL/2011 I.T.A. NO.567/DEL/2011 ASSESSMENT YEAR : 2007-08 M/S PIPAVAV RAILWAY CORPORATION ACIT, LTDS., D-22, ANAND NIKETAN, CIRCLE-14 (1), NEW DELHI. V. NEW DELHI. (APPELLANT) (RESPONDENT) PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO.AACCP AACCP AACCP AACCP- -- -2556 2556 2556 2556- -- -R RR R DEPARTMENT BY : SMT. PRATIMA KAUSHIK, SR. DR. RESPONDENT BY : SHRI VINOD KUMAR, C.A. ORDER PER BENCH: THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORD ER OF LD CIT(A)- XVII, NEW DELHI DATED 12.11.2010 FOR ASSESSMENT YEAR 20 07-08 AND THE CORRESPONDING CROSS OBJECTION TAKEN BY THE ASSESSEE. REVENUE HAS TAKEN FOLLOWING GROUNDS OF APPEALS- ITA NO567 & CO NO.118./DEL/11 2 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD CIT(A) ERRED IN HOLDING THE EXPENDITURE OF `.20, 09,613/- ON ACCOUNT OF COST OF MODIFICATION OF RAILWAY TRACKS FOR RUNNING OF DOUBLE STACK CONTAINER TRAINS INCURRED BY THE ASSESSEE AS A REVENUE EXPENDITURE INSTEAD OF BEING A CAPITAL EXPEN DITURE AS HELD BY THE ASSESSING OFFICER. 2. THE APPELLANT CRAVES TO THE ALLOWED TO ADD ANY FRESH GROUNDS OF APPEAL AND/OR DELETE OR AMEND ANY OF THE GROUNDS OF APPEAL. 2. THE CROSS OBJECTION TAKEN BY THE ASSESSEE IS MERELY IN SUPPORT OF THE ORDER OF THE LD CIT(A). 3. THE CROSS OBJECTION FILED BY THE ASSESSEE IS DELAYED BY THREE DAYS. NECESSARY CONDONATION PETITION IS ON RECORD. AFTE R CONSIDERING THE CIRCUMSTANCES OF THE CASE, WE CONDONE THE IMPUGNED DELAY AND ADMIT THE CROSS OBJECTION FILED BY THE ASSESSEE. 4. THE ASSESSEE IS IN THE BUSINESS OF OPERATION OF RAILWAY SYSTEM. DURING THE ASSESSMENT PROCEEDINGS, IT WAS NOTED BY THE ASSE SSING OFFICER THAT THE ASSESSEE HAD INCURRED EXPENSES OF `.22, 32,903/- AS COST OF MODIFICATION TO TRACKS FOR SUCCESSFUL RUNNING O F DOUBLE STACK CONTAINER TRAINS. THE ASSESSEE WAS, THEREFORE, ASKED AS T O WHY THE IMPUGNED EXPENDITURE SHOULD NOT BE CONSIDERED AS CAPIT AL EXPENDITURE. THE ASSESSEE MADE THE FOLLOWING SUBMISSIONS:- COMPANY HAS FURTHER PROVIDED `.22,32,903/- INCURRE D ON THE ROAD DIVERSION WORK AT PIPAVAV RAILWAY FOR THE PURPO SE OF SMOOTH MOVEMENT OF ROAD ATTACHED ROAD TRAFFIC. THE B ASIC PURPOSE OF THIS WORK IS TO AVOID THE HARDSHIP FACED BY ROAD USERS AND SAFETY OF USERS. ACCORDINGLY, SOME MOBBING WORK WAS CARRIED ITA NO567 & CO NO.118./DEL/11 3 OUT SURROUNDING RAILWAY TRACK INCLUDING WORK ON RAIL WAY TRACK. THIS WORK HAS, IN NO WAY, ENHANCED TRAFFIC MOVEMENT C APACITY OF RAILWAY TRACK NEITHER HAS CREATED NEW CAPITAL ASSET. T HEREFORE, IT IS SUBMITTED TO YOU THAT THE EXPENDITURE IS OF REVENUE NATURE WHICH HAS BEEN INCURRED FOR SMOOTH MOVEMENT OF TRAFF IC WITHOUT AFFECTING ATTACHED ROAD. IN THIS REGARD, WE ALSO FURN ISH THE CORRESPONDENCE FROM THE WESTERN RAILWAYS. THE ASSESSEE VIDE AITS REPLY DATED 01.10.2009 MADE FURTH ER SUBMISSIONS WHICH IS BEING REPRODUCED BELOW:- FURTHER TO IN CONTINUATION OF OUR EXPLANATION REGA RDING BOOKING OF `.22,32,903/- INCLUDED IN MAINTENANCE COST, WE CL ARIFY THAT NATURE OF WORK IS TO FACILITATE THE UNDISTURBED MOVEM ENT OF DOUBLE STACK CONTAINER TRAIN. ORIGINALLY THE WORK IN CLUDED DISMANTLING OF ROAD OVER BRIDGE (ROB) AND RECONSTRUC TED IT FOR REMOVAL OF DISTURBANCE OF TRAFFIC MOVEMENT OF DOUBLE STACK CONTAINER TRAIN. THE WORK ALSO INCLUDED MAKING TEMPO RARY SIDE BY ROAD FOR SMOOTH MOVEMENT OF ROAD TRAFFIC NEAR TO ROB. LATER ON EXPENSES ON REPAIR OF DIVERSION ROAD NEAR TO ROB WE RE ALSO INCURRED BY THE COMPANY AS PER THE INSTRUCTION OF WEST ERN RAILWAYS. WE ARE ENCLOSING HEREWITH COPY OF CORRESPON DENCE FROM WESTERN RAILWAY IN THIS REGARD. ON THE BASIS OF ABOVE, IT IS SUBMITTED THAT NO NEW CAPI TAL ASSETS HAS BEEN CREATED BY INCURRING ABOVE EXPENSES NOT ANY A DDITION TO THE EXISTING ASSETS HAS BEEN MADE. FURTHER CARRYING C APACITY OF EXISTING RAILWAY TRACK HAS ALSO NOT CHANGED DUE TO INCURRENCE OF ABOVE EXPENSES. THE BASIC AND ULTIMATE PURPOSE OF A BOVE ACTIVITY WAS TO REMOVE THE HURDLE ARISING FOR THE DOU BLE TRACK ITA NO567 & CO NO.118./DEL/11 4 CONTAINER MOVEMENT WHICH IS NOTHING BUT TO EXPENSES O N SMOOTH RUNNING OF BUSINESS AND HENCE TO BE ALLOWED AS REVENUE EXPENDITURE. 5. AFTER CONSIDERING THE REPLY OF THE ASSESSEE, IT WAS O BSERVED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAD CONSTRUCTED DIV ERSION ROADS FOR SMOOTH FUNCTIONING OF ITS TRACKS. THE SAME WO ULD GIVE ENDURING BENEFIT TO THE ASSESSEE. THE CONTENTION OF THE ASSESSEE THAT THE WORK UNDERTAKEN DID NOT ENHANCE ITS TRAFFIC MOVE MENT CAPACITY WAS NOT ACCEPTED BY THE ASSESSING OFFICER AS THE FUNCTION ALITY OF THE RAILWAY TRACK IMPROVED THEREBY INCREASING ITS FUNCT IONAL CAPACITY. THE ASSESSEE ALSO DID NOT PRODUCE ANY EVIDENCE TO SUPPORT ITS CLAIM THAT THE ROADS WERE OF TEMPORARY NATURE AND THE BENEFIT O F DIVERSION ROADS WERE NOT AVAILABLE TO THE ASSESSEE BEYOND THE CURRENT P REVIOUS YEAR. THE ASSESSING OFFICER HELD THAT THE ASSESSEE HAD CREATED NE W CAPITAL ASSETS BENEFIT OF WHICH WAS SPREAD BEYOND THE PREVIOUS YEAR UNDER CONSIDERATION. HE, THEREFORE, CONSIDERED THE IMPUGNED EXPENDITURE AS CAPITAL EXPENDITURE AND ALLOWED DEPRECIATION @ 10% ON THE SAME. THUS, ADDITION OF `.20,09,613/- WAS MADE BY THE ASSESSING OFFICER ON THIS ACCOUNT. AGGRIEVED, THE ASSESSEE FILED APPEAL BEFO RE THE LD CIT(A). 6. BEFORE THE LD CIT(A), IT WAS CONTENDED BY THE ASSESSE E THAT THE EXPENDITURE OF `.22,32,903/- WAS INCURRED FOR THE CO NSTRUCTION OF DIVERSION ROAD AND LEVEL CROSSING GATE NEAR DASA ON BHA VNAGAR, RAJKOT NATIONAL HIGH WAY DURING MODIFICATION/REPAIR OF ROA D OVER BRIDGE (ROB). SUCH ROAD WAS TEMPORARY IN NATURE WHICH WAS M EANT FOR ROAD USER ONLY FOR A VERY SHORT DURATION. AS SOON AS REPAID/ MODIFICATION OF ROB WAS COMPLETED, THE MOVEMENT OF ROAD TRAFFIC OVER ROB WAS RESTORED AND THE USE OF TEMPORARY DIVERSION ROAD CEASED TO EXIST AND ITA NO567 & CO NO.118./DEL/11 5 LEVEL CROSSING GATE WAS CLOSED. THUS SUCH EXPENDITURE CA NNOT BE CONSIDERED TO HAVE RESULTED IN BENEFIT OF ENDURING NA TURE. 7. THE CONSTRUCTION OF DIVERSION ROAD WAS TO ENSURE SMO OTH MOVEMENT OF ROAD TRAFFIC ON NATIONAL HIGH WAY DURIN G REPAIR/MODIFICATION OF ROB. THE SAME DID NOT RESULT IN INCREASING THE TRACK CAPACITY OR HELP IN ANY WAY MOVEMENT OF FREIG HT TRAINS. IN THE ABOVE FACTS, IT WAS CONTENDED THAT THE SAME SHOULD BE ALLOWED AS REVENUE EXPENDITURE. 8. AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES, THE L D CIT(A) IN PARA 2.2. OF HIS ORDER HELD AS UNDER:- I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APP ELLANT AND PERUSED THE ORDER PASSED BY THE ASSESSING OFFICER. IT IS AN ADMITTED FACT THAT THE APPELLANT IS IN THE BUSINESS OF FREIGHT TRAIN OPERATION. THE APPELLANTS BUSINESS IS NOT TO CONSTRUCT T HE ROADS OR OVER BRIDGES. THE TEMPORARY DIVERSION ROAD UNDER CONSIDERATION WAS CONSTRUCTED TO FACILITATE THE FREE F LOW OF ROAD TRAFFIC DURING THE REPAIR/CONSTRUCTION OF ROAD OVER BRIDGE. THEREFORE, I FIND FORCE IN THE SUBMISSION OF THE APPEL LANT THAT THE APPELLANT HAS NOT CREATED ANY TANGIBLE ASSET AND HAS N OT DERIVED ANY BENEFIT OF ENDURING NATURE. THE DIVERSION ROAD WAS ONLY A TEMPORARY ARRANGEMENT AND NOT CONSTRUCTED FOR THE LO NG TERM OR FOR PERMANENT USE. THEREFORE, I HOLD THAT THE EXPEN DITURE INCURRED ON CONSTRUCTION OF TEMPORARY DIVERSION ROAD WAS REVENUE IN NATURE. IN VIEW OF THE ABOVE DISCUSSION, TH E ADDITION OF `.20,09,613/- MADE BY THE ASSESSING OFFICER IS NOT JU STIFIED AND HENCE THE SAME IS DELETED. THESE GROUNDS OF APPEA L ARE ALLOWED. ITA NO567 & CO NO.118./DEL/11 6 9. AGGRIEVED, THE REVENUE HAS FILED APPEAL BEFORE TH E TRIBUNAL. 10. BEFORE US, THE LD DR IN ADDITION TO RELYING ON T HE ORDER OF THE ASSESSING OFFICER SUBMITTED THAT IN THE FACTS AND CIRCUMST ANCES OF THE CASE, THE LD CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT THE IMPUGNED EXPENDITURE DID NOT GIVE THE ASSESSEE ANY BENEFIT OF EN DURING NATURE. IT WAS SUBMITTED BY HIM THAT IN THE FACTS AND CIRCUMST ANCES OBTAINED IN THE PRESENT CASE, HE SHOULD HAVE HELD THE IMPUGNED EXPENDITURE TO BE OF THE NATURE OF CAPITAL EXPENDITURE. RELIANCE W AS PLACED BY HIM ON THE FOLLOWING CASE LAWS:- 1. D.P. CHIRANA & CO. V. CIT 112 ITR 12 (KAR.). 11. THE LD AR FOR THE ASSESSEE, ON THE OTHER HAND, RELI ED ON THE ORDER OF THE LD CIT(A). ON BEING ASKED BY THE BENCH AS TO WHETHER THE MODIFICATION/REPAIR OF ROAD OVER BRIDGES WERE REQUIR ED FOR TRANSPORTING DOUBLE STACKS CONTAINER AS AGAINST MOVEMENT OF SINGLE STA CK CONTAINER EARLIER, THE LD AR FOR THE ASSESSEE HAS FAIRLY ADMITTED THAT INDEED IT WAS SO. 12. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. THE CONSTRUCTION OF TEMPORARY DIVERSION ROAD AND LEVEL CR OSSING WAS REQUIRED AS MODIFICATION/REPAIR OF EXISTING OVER BRID GE WAS REQUIRED FOR RUNNING DOUBLE STACK CONTAINER. THE CONSTRUCTION OF ROAD AND LEVEL CROSSING WAS NOT AN INDEPENDENT ACTIVITY. WITHOUT CON STRUCTING THE SAME, THE ASSESSEE COULD NOT HAVE MODIFIED OR REPAIRED T HE OVER BRIDGE WHICH WAS NECESSARY FOR RUNNING DOUBLE STACK CON TAINER. THUS, THE EXPENDITURE INCURRED ON CONSTRUCTION OF TEMPORAR Y ROAD AND LEVEL CROSSING WAS AN INTEGRAL PART OF MODIFICATION/REPAIR O F OVER BRIDGE. AS ITA NO567 & CO NO.118./DEL/11 7 THE MODIFICATION/REPAIR OF THE OVER BRIDGE GAVE THE ASSESSEE ENDURING BENEFIT AND ALSO INCREASED ITS CARRYING CAPACITY, THE IMPUGNED EXPENDITURE HAS TO BE CONSIDERED AS CAPITAL EXPENDITUR E. IN THE ABOVE VIEW OF THE MATTER, WE ALLOW GROUND NOL1 TAKEN BY T HE REVENUE. 13. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S ALLOWED WHEREAS THE CROSS OBJECTION FILED BY THE ASSESSEE IS DISMISSED. 14. ORDER PRONOUNCED IN THE OPEN COURT ON THE 25TH DAY OF OCTOBER, ,2011. SD/- SD/- (U.B.S. BEDI) (B.K. HALD AR) JUDICIAL MEMBER ACCOUNTANT MEMBER DT. 25.10.2011. HMS COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). DATE OF HEARING 23.09.2011 DATE OF DICTATION 21.10.2011 DATE OF ORDER SIGNED BY THE HON'BLE MEMBER. .10.2011 DATE OF ORDER SENT TO THE CONCERNED BENCH .10.2011 ITA NO567 & CO NO.118./DEL/11 8