Lanco Kondapalli Power Limited, Hyd, Hyderabad V. Addl.CIT, Circle-16, Hyd, Hyderabad

ITA 876/HYD/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2385 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 10-06-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: J SIRI KUMAR
• Assessee Lawyers: S RAMA RAO
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 143(3); 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABA D BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 876/HYD/2016 (A.Y: 2010 - 2011) LANCO KONDAPALLI POWER LIMITED, P.NO.4, SOFTWARE UNITS LAYOUT, HITECH CITY, MADHAPUR, HYDERABAD. PAN: AAACK 5423 A VS. ADDL. CIT, CIRCLE - 16, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI S. RAMA RAO FOR REVENUE : SHRI J. SIRI KUMAR, DR DATE OF HEARING : 1 5 .11.2017 DATE OF PRONOUNCEMENT : 22 .11.2017 ORDER PER SMT. P. MADHAVI DEVI, J.M. THIS APPEAL IS FILED BY ASSESSEE AGAINST THE ORDER OF LD. CIT(A) - 4, HYDERABAD, DATED 24.03.2016 FOR THE A.Y. 2010 - 2011. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE - COMPANY, ENGAGED IN GENERATION OF POWER, FILED ITS RETURN OF INCOME FOR THE A.Y. 2010 - 2011 DECLARING TOTAL TAXABLE INCOME OF RS. 47,44,18,996/ - UNDER NORMAL PROVISIONS AND , RS. 267,91,22,251/ - U/S 115JB OF THE ACT. 3. DURING TH E ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, THE ASSESSEES BOOKS OF ACCOUNT WERE VERIFIED AND THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS CLAIMED AN AMOUNT OF RS. 9,99,55,034/ - AS R EPAIRS AND M AINTENANCE . THE ASSESSEE WAS , THEREFORE , ASKED TO FURNISH THE DETAILS OF THE EXPENDITURE CLAIMED. IN RESPONSE, VIDE LETTER DATED 03.12.2012 ASSESSEE SUBMITTED THAT THE EXPENDITURE OF RS.6,36,72,936/ - HAS BEEN INCURRED FOR REPLACEMENT OF TRANSFORMER, RS. 1,06,88,794/ - FOR I NSTALLATION OF GAS CHECK FLOW METERING SYSTEM , RS. 41,88,373/ - FOR PERIPHERAL ROAD CONSTRUCTION AND RS. 22,64,250/ - FOR NORTH - WEST CORNER ROAD. ON 2 PERUSAL OF THESE DETAILS, A.O. WAS OF THE OPINION THAT THE ABOVE EXPENDITURE IS CAPITAL IN NATURE. HE OPINED THAT THE ASSESSEE IS GETTING ENDURING BENEFIT OUT OF THESE WORKS AND HENCE , CANNOT BE CONSIDERED AS REVENUE EXPENDITURE. ACCORDINGLY, HE DISALLOWED THE SAID EXPENDITURE. 4 . AGGRIEVED , ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A), WHO CONFIRMED TH E ORDER OF THE A.O A S FAR AS THE NATURE OF EXPENDITURE IS CONCERNED AND DIRECTED THE A.O. TO ALLOW DEPRECIATION THEREON. AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE US. 5 . LD COUNSEL FOR THE ASSESSEE, SHRI S. RAMA RAO, WHILE REITERATING THE SUBMISSIONS MADE B EFORE THE AUTHORITIES BELOW, SUBMITTED THAT THE ASSESSEE WAS ELIGIBLE FOR DEDUCTION U/S 80 - IA OF THE ACT AND THEREFORE, EVEN THE ENHANCED ASSESSED INCOME , AFTER ADDING THE ABOVE EXPENDITURE, HAS BEEN ALLOWED AS A DEDUCTION U/S 80 - IA OF THE ACT AND THEREFOR E, THERE IS NO TAX BURDEN ON THE ASSESSEE ON ACCOUNT OF THIS DISALLOWANCE . HOWEVER, HE SUBMITTED THAT THE ISSUE NEEDS TO BE ADJUDICATED AS IT WOULD HAVE AN IMPACT ON THE ASSESSMENT OF THE ASSESSEES INCOME IN THE SUBSEQUENT ASSESSMENT YEARS. 6. LD COUNSE L FOR THE ASSESSEE SUBMITTED THAT THE MACHINERY, WHICH HAS BEEN REPLACED , IS VERY MUCH PART OF THE EXISTING MACHINERY ON WHICH DEPRECIATION HA D BEEN ALLOWED AND BY REPLACING THE SAID MACHINERY, THE ASSESSEE IS NOT DERIVING ANY FRESH ENDURING BENEFIT. AS R EGARDS THE EXPENDITURE INCURRED ON CONSTRUCTION OF ROADS, HE SUBMITTED THAT IT IS THE REPAIR OF THE EXISTING ROADS, WHICH HAD BEEN DAMAGED AND THEREFORE , THE SAME HAS TO BE ALLOWED AS REVENUE EXPENDITURE ONLY. 7 . LD DR , ON THE OTHER HAND , SUBMITTED THAT THE MACHINERY REPLACED BY THE ASSESSEE IS NOT PART OF ANY EXISTING MACHINERY BUT IS AN INDEPENDENT ASSET AND SINCE IT GIVES ENDURING BENEFIT, IT HAS TO BE CONSIDERED AS CAPITAL EXPENDITURE ONLY. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS NOT SUFFERED ANY REVENUE LOSS SINCE THE ENTIRE AMOUNT HAS BEEN ALLOWED AS DEDUCTION U/S 80 - IA OF THE ACT AND THE ASSESSEE HAS ALSO BEEN ALLOWED DEPRECIATION . 8 . HAVING REGARD TO THE RIVAL CONTENTIONS AND ON PERUSAL OF THE MATERIAL AVAILABLE ON RECORD, W E FIND THAT THE ASSESSEE HAS REPLACED OLD TRANSFORMER AND INSTALLED GAS CHECK FLOW METERING SYSTEM. THOUGH THE ASSESSEE HAD STATED THAT IT IS ONLY 3 REPLACEMENT OF PART OF MACHINERY, WE FIND THAT THEY ARE INDEPENDENT ASSETS AND NOT PART OF ANY EXISTING MACH INERY. THE ENTIRE MACHINERY HAS BEEN REPLACED , WHICH GIVES ENDURING BENEFIT TO THE ASSESSEE. THEREFORE, IN OUR OPINION, THE EXPENDITURE INCURRED ON REPLACEMENT OF TRANSFORMER AND INSTALLATION OF GAS CHECK FLOW METERING SYSTEM IS CAPITAL IN NATURE AND THE REFORE , DEPRECIATION IS ALLOWABLE THEREON , AS DIRECTED BY THE LD. CIT(A). HOWEVER, WITH REGARD TO THE EXPENDITURE INCURRED ON REPAIR OF ROAD S , WE FIND THAT THE ASSESSEE HAS REPAIRED THE ROADS I.E., PERIPHERAL ROAD AS WELL AS NORTH - WEST CORNER ROAD, AND NO T LAID ANY NEW ROAD THEREFORE, THEY ARE CURRENT REPAIRS AND CANNOT BE CONSIDERED AS CAPITAL EXPENDITURE. THEREFORE, THE A.O. IS DIRECTED TO ALLOW THE SAME AS REVENUE EXPENDITURE. 9 . IN THE RESULT, ASSESSEES APPEAL IS TREATED AS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 2 N D NOVEMBER, 2017. S D / - S D / - (S. RIFAUR RAHMAN) (SMT. P. MADHAVI DEVI) ACOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 2 2 N D NOVEMBER, 2017 OKK, SR.PS COPY TO 1. SRI S. RAMA RAO, ADVOCATE, FLAT NO.102, SHRIYAS ELEGANCE, 3 - 6 - 643, STREET NO.9, HIMAYAT NAGAR, HYDERABAD - 500029. 2. ADD. CIT, CIRCLE - 16, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. 3. CIT (A) - 4, HYDERABAD. 4. PR. CIT - 4, HYDERABAD. 5. THE DR, ITAT, HYDERABAD. 6. GUARD FILE