M/s Indus Bio Science (P) Ltd., Hyderabad V. DCIT, Hyderabad

ITA 951/HYD/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 6027 (ITAT-HYDERABAD)
• Duration Of Justice: 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 15-12-2010
• Assessment Year: 2007-2008
• Appeal Filed On: 23-06-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NIVEDITA BISWAS
• Assessee Lawyers: A V RAGHURAM
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 143(3); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI AKBER BASHA, ACCOUNTANT MEMBER . ITA NO.951/HYD/2010 : ASSESSMENT YEAR: 2007-08 M/S. INDUS BIO SCIENCE (P) LTD., HYDERABAD. (PAN: AAACI8056K) VS DCIT, CIR-2(1), HYDERABAD. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI A.V. RAGHU RAM RESPONDENT BY : SMT. NIVEDITA BISWAS O R D E R PER AKBER BASHA, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER CIT (A)- III, HYDERABAD DATED 23-3-2010 AND IT PERTAINS TO TH E ASSESSMENT YEAR 2007- 08. 2. THE FOLLOWING GROUNDS ARE RAISED BY THE ASSESSE E IN THIS APPEAL:- 1. THE ORDER OF THE LEANED CIT (A) IS ERRONEOUS BO TH ON FACTS AND IN LAW. 2. THE LD. CIT (A) ERRED IN DIRECTING TO DISALLOW T HE EXPENDITURE INCURRED ON GLASS WARE DURING THE LAST WEEK OF MARC H, 2007. 3. THE CIT(A) FAILED TO APPRECIATE THE FACT THAT ON CE AN EXPENDITURE ON A PARTICULAR ITEM IS HELD TO BE REVENUE, IT WILL REMAIN SO FAR THE ITA 951/HYD/10 M/S. INDUS BIO SCIENCE, HYD. 2 ENTIRE YEAR AND THEREBY ERRED IN DIRECTING TO DISAL LOW THE EXPENDITURE LAST WEEK OF MARCH, 2007. 4. THE LD CIT(A) ERRED IN DIRECTING TO DISALLOW RS. 30,822 BEING EXPENDITURE ON REPAIRS ON THE GROUND THAT THE SAME IS NOT ALLOWABLE, SINCE THE ENTIRE EXPENDITURE ON GLASS WA RE IS ALLOWED AS DEDUCTION IN THE EARLIER YEARS. 5. THE LD. CIT (A) FAILED TO APPRECIATE THE FACT TH AT THIS EXPENDITURE ON REPAIRS IS ON PLASTIC ACCESSORIES TO GLASS WARE AND NOT ON GLASS AS SUCH AND THEREBY ERRED IN DIRECTING TO DISALLOW SUCH EXPENDITURE. 6. THE LD. CIT (A) ERRED IN CONFIRMING DISALLOWANCE OF RS.1,86,628 HOLDING THE SAME AS CAPITAL EXPENDITURE. 7. THE LD. CIT (A) FAILED TO APPRECIATE THE FACT TH AT THIS EXPENDITURE, IS ONLY ON ELECTRONIC ITEMS OF AN EQUIPMENT AND NOT REPLACEMENT OF A MAJOR PART OF A MACHINE TO APPLY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. MANGAYARKARASI MILLS (P) LTD. REPORTED IN 114 ITR 315 (2009) AND THEREBY ERR ED IN CONFIRMING HE DISALLOWANCE. 3. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IN THE BUSINESS OF CUSTOM SYNTHESIS OF CHEMICALS AND R UNNING A RESEARCH LABORATORY AND THE ASSESSEE HAS FILED IS RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION ON 30-10-2007 WITH THE RET URNED INCOME OF RS.53,97,150. THE RETURN WAS PROCESSED UNDER SECTI ON 143(1) OF THE ACT ON 13-9-2008. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS. IN THIS CASE, INITIAL NOTICE UNDER SECTION 143(2) WAS ISSUED ON 22-9-2008. THE ASSESSEE COMPANY INCURRED EXPENDITURE UNDER THE GLA SSWARE AT RS.7,13,166/- WHICH WAS DEBITED TO THE PROFIT AND LOSS ACCOUNT. T HE ASSESSING OFFICER CAPITALIZED THE ENTIRE AMOUNT OF RS.7,13,166/- AND AFTER ALLOWING DEPRECIATION THEREON AT RS.1,06,975/-, DISALLOWED THE BALANCE AM OUNT OF RS.6,06,191/- .FURTHER THE ASSESSEE COMPANY INCURRED EXPENDITURE OF RS.2,43,328/- TOWARDS PURCHASE OF ACCESSORIES IN CASE OF THE MACHINERY PU RCHASED DURING THE YEAR, THE ASSESSING OFFICER CAPITALIZED THE SAID ACCESSOR IES EXPENDITURE AFTER ALLOWING ITA 951/HYD/10 M/S. INDUS BIO SCIENCE, HYD. 3 DEDUCTION TOWARDS DEPRECIATION @ 15% THEREON, I.E., AT RS.36,500, SHE DISALLOWED THE BALANCE AMOUNT OF RS.2,06,828/-. WIT H BOTH THE ABOVE DISALLOWANCES, THE ASSESSING OFFICER COMPLETED THE ASSESSMENT ON A TOTAL INCOME OF RS.62,10,170/- UNDER SECTION 143(3) OF TH E ACT. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE WENT I N APPEAL BEFORE THE CIT (A). ON APPEAL, THE CIT (A) AFTER CONSIDERING THE FACTS ELABORATELY IN HIS ORDER HELD THAT THE EXPENDITURE INCURRED BY THE ASSESSEE COMPA NY TOWARDS GLASSWARE IS REVENUE EXPENDITURE ON THE GROUND THAT THOSE GLASSW ARE ITEMS HAVE NO DURABLE AND LONG LIFE. HOWEVER, THE CIT (A) DISALLO WED THE EXPENDITURE INCURRED ON THIS ITEM INCURRED DURING THE PERIOD 24 -3-2007 TO 31-3-2007 HOLDING THAT THE ITEM PURCHASED DURING THE SAID PER IOD COULD NOT HAVE BEEN USED IN THE PREVIOUS YEAR. AGAIN, THE CIT (A) DISA LLOWED RS.30,822/- TOWARDS REPAIRS OF GLASSWARE OUT OF RS.2,43,328 DISALLOWED BY THE ASSESSING OFFICER TOWARDS PURCHASE OF ACCESSORIES, THE CIT(A) TREATED RS.56,700/- AS REVENUE EXPENDITURE AND THE BALANCE AMOUNT OF RS.1,86,628/- IS TREATED AS CAPITAL EXPENDITURE AND ACCORDINGLY HE PARTLY ALLOWED THE A PPEAL OF THE ASSESSEE. FURTHER AGGRIEVED BY THE FINDINGS AND THE DECISION OF THE CIT (A), THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ORDER OF THE FIRST APPELLATE AUTHORITY IS ERRONEOUS BOTH ON FACTS AND IN LAW AND HE IS NOT JUSTIFIED IN DIRECTING TO DISALLOW THE EXPENDITURE INCURRED ON GLASS WARE DURING THE LAST WEEK OF MARCH, 2007. FURTHER THE CIT (A) F AILED TO APPRECIATE THE FACT THAT ONCE AN EXPENDITURE ON A PARTICULAR ITEM IS HE LD TO BE REVENUE, IT WILL REMAIN SO FAR THE ENTIRE YEAR AND THEREBY ERRED IN DIRECTING TO DISALLOW THE EXPENDITURE LAST WEEK OF MARCH, 2007. IT IS FURTHER CONTENDED THAT THE CIT (A) IS NOT JUSTIFIED IN DIRECTING TO DISALLOW RS.30,822 BEING EXPENDITURE ON REPAIRS ON THE GROUND THAT THE SAME IS NOT ALLOWABLE, SINCE THE ENTIRE EXPENDITURE ON GLASS WARE IS ALLOWED AS DEDUCTION IN THE EARLIER Y EARS AND THE CIT (A) FAILED TO APPRECIATE THE FACT THAT THIS EXPENDITURE ON REPAIR S IS ON PLASTIC ACCESSORIES TO GLASS WARE AND NOT ON GLASS AS SUCH AND THEREBY ERR ED IN DIRECTING TO DISALLOW SUCH EXPENDITURE. IT IS FURTHER CONTENDED THAT THE FIRST APPELLATE AUTHORITY IS NOT JUSTIFIED IN CONFIRMING DISALLOWANCE OF RS.1,86 ,628 HOLDING THE SAME AS ITA 951/HYD/10 M/S. INDUS BIO SCIENCE, HYD. 4 CAPITAL EXPENDITURE AND FAILED TO APPRECIATE THE FA CT THAT THIS EXPENDITURE, IS ONLY ON ELECTRONIC ITEMS OF AN EQUIPMENT AND NOT RE PLACEMENT OF A MAJOR PART OF A MACHINE TO APPLY THE DECISION OF HONBLE SUPREM E COURT IN THE CASE OF CIT VS. MANGAYARKARASI MILLS (P) LTD. REPORTED IN 114 I TR 315 (2009) AND THEREBY ERRED IN CONFIRMING THE DISALLOWANCE. IT IS FURTH ER SUBMITTED THAT THE CIT(A) NOT CONSIDERED THE DETAILED SUBMISSIONS MADE BY THE ASSESSEE WITH REGARD TO DISALLOWANCE OF RS.1,86,628/- AND THEREFORE THE MAT TER MAY BE SENT BACK TO THE FILE OF THE CIT(A) FOR FRESH CONSIDERATION. 5. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REP RESENTATIVE WHILE RELYING ON THE ORDERS OF THE AUTHORITIES BELO W SUBMITTED THAT WHEN THE ENTIRE COST OF GLASSWARE ITEMS HAVE BEEN ALLOWED A S DEDUCTION IN THE ASSESSMENTS FOR EARLIER YEARS, THE ASSESSEE COULD N OT BE ALLOWED DEDUCTION FOR SUCH AMOUNT PERTAINING TO THE NON-EXISTING GLASS EQ UIPMENTS AS PER HIS BOOKS, EVEN THOUGH, THE SAME IS CLAIMED TOWARDS REPAIRS A ND HE OPPOSED THE CONTENTIONS PUT FORTH BY THE LEARNED COUNSEL FOR TH E ASSESSEE. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE C IT(A) RIGHTLY TREATED THE EXPENDITURE INCURRED ON PURCHASE OF GLASSWARE HOLDI NG THAT THE GLASSWARE ITEMS HAVE NO DURABLE ON LONG LIFE AND BEING CONSTA NTLY EXPOSED TO CHEMICAL REACTIONS, HEATING AND COOLING ETC., THE SAME WERE LIABLE TO BRAKEAGE/DAMAGE DURING THE OPERATIONS CARRIED OUT BY THE ASSESSEE C OMPANY IN ITS LABORATORY AND THE PLANT. HAVING TREATED THE SAID EXPENDITURE AS REVENUE EXPENDITURE, IN OUR CONSIDERED OPINION, THE CIT (A) IS NOT JUSTIFIE D IN DIRECTING THE ASSESSING OFFICER TO DISALLOW THE EXPENDITURE INCURRED ON GLA SSWARE DURING THE LAST WEEK OF MARCH, 2000. ONCE AN EXPENDITURE ON A PARTICULA R ITEM IS HELD TO BE REVENUE, IT WILL REMAIN AS REVENUE EXPENDITURE FOR THE ENTIRE YEAR. THEREFORE, WE DIRECT THE ASSESSING OFFICER TO TREAT THE EXPEN DITURE INCURRED ON PURCHASE OF GLASS WARE AS REVENUE EXPENDITURE ON THE ENTIRE AMOUNT OF RS. 7,13,166/-. HENCE, THE GROUND RAISED BY THE ASSESSEE ON THIS ISS UE IS ALLOWED. ITA 951/HYD/10 M/S. INDUS BIO SCIENCE, HYD. 5 7. WITH REGARD TO THE DISALLOWANCE OF RS.30,822/- TOWARDS REPAIRS AND MAINTENANCE IN RESPECT OF CERTAIN GLASSWARE ITE MS, IT APPEARS THAT THE SAID EXPENDITURE WAS INCURRED ON REPAIRS RELATING TO PLA STIC ACCESSORIES TO GLASSWARE AND NOT ON GLASSWARE WHICH WAS WRONGLY OBSERVED BY THE LEARNED CIT(A). THEREFORE, THE CIT (A) IS NOT RIGHT IN DIRECTING TH E ASSESSING OFFICER TO DISALLOW THE SAID AMOUNT OF RS.30,822/- ON ACCOUNT OF REPAIR S AND MAINTENANCE OF GLASSWARE. WE ACCORDINGLY DIRECT THE ASSESSING OFFI CER TO DELETE THE SAID DISALLOWANCE. 8. WITH REGARD TO DISALLOWANCE OF EXPENDITURE OF R S.2,43,328/-, INCURRED TOWARDS PURCHASE OF ACCESSORIES IN THE CA SE OF MACHINERY. WE FIND THAT THE ASSESSEE-COMPANY INCURRED RS.1,86,628/- TO WARDS PURCHASE OF MAJOR ACCESSORIES FOR SHIMADZ HPLC. THE LEARNED COUNSEL F OR THE ASSESSEE DID NOT BRING ANY THING ON RECORD TO SHOW THAT THE EXPENDIT URE INCURRED ON SUCH ACCESSORIES PURCHASED HAS NO ENDURING BENEFIT TO TH E ASSESSEE COMPANY. IN OUR CONSIDERED VIEW, THE ISSUE IS COVERED AGAINST T HE ASSESSEE BY THE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF CIT VS . MANGAYARKARASI MILLS (P) LTD., (SUPRA) WHEREIN IT WAS HELD THAT REPLACEMENT OF AN OLD PART WITH A NEW ONE WOULD CONSTITUTE THE BRINGING INTO EXISTENCE OF A NEW ASSET IN PLACE OF THE OLD ONE AND SAME DOES NOT AMOUNT TO CURRENT REPAIRS WITHIN THE MEANING OF SECTION 31 OF THE ACT. IT WAS FURTHER HELD THAT SU CH EXPENDITURE FOR REPLACEMENT OF AN ITEM OF MACHINERY IS NOT REVENUE EXPENDITURE UNDER SECTION 37 OF THE ACT. WE FIND THAT THE CIT (A) ALREADY CO NSIDERED THE ISSUE IN DETAIL BY VERIFYING ALL THE RELEVANT INVOICES WHICH WAS EV IDENCED IN PARA-6 OF HIS ORDER. HENCE, NO PURPOSE WOULD BE SERVED IN SENDING THIS MATTER BACK TO THE FILE OF THE CIT (A). IN VIEW OF THE ABOVE, WE DO NOT SEE ANY INFIRMITY IN THE ORDER OF THE CIT (A) IN CAPITALIZING THE AMOUNT OF RS.1,86,628 AND ALLOWING THE DEPRECIATION THEREON AT THE APPLICABLE RATE TO PLAN T AND MACHINERY. THEREFORE, THE GROUND RAISED BY THE ASSESSEE IS DISMISSED. ITA 951/HYD/10 M/S. INDUS BIO SCIENCE, HYD. 6 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER WAS PRONOUNCED IN THE COURT ON 31- 12 -2010. SD/- SD/- (G.C.GUPTA) (AKBER BASHA) VICE PRESIDENT ACCOUNTANT MEMBER DT. 31- 12-2010. COPY FORWARDED TO: 1. SRI A.V.RAGHU RAM, ADVOCATE, 610, 6THFLOOR, BABH UKHAN ESTATE, BASHEERBAGH, HYDERABAD. 2. 3. 4. DCIT, CIRCLE-2(1), HYDERABAD. CIT (A)-III, HYDERABAD. CIT, A P, HYDERABAD. 5. THE D.R., ITAT, HYDERABAD JMR ITA 951/HYD/10 M/S. INDUS BIO SCIENCE, HYD. 7