ITO, Pollachi V. Jayashree Textiles Pvt. Ltd., Pollachi

ITA 969/CHNY/2013

• Counselvise Citation: 96921714 RSA 2013
• Duration Of Justice: 2 year(s) 4 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 04-09-2015
• Assessment Year: 1998-1999
• Appeal Filed On: 13-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR B NISCHAL
• Assessee Lawyers: G BASKAR
• Keywords: Depreciation; Reasonable cause; Capital expenditure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL S M C BENCH, CHENNAI ... , BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER ./ ITA NO.969/MDS/2013 ' #$' / ASSESSMENT YEAR : 1998-99 THE INCOME TAX OFFICER, WARD I(2), POLLACHI. V. M/S JAYASHREE TEXTILES PVT. LTD., PANIKKAMPATTI, POLLACHI. PAN : AAACJ 5550 B (&'/ APPELLANT) (()&'/ RESPONDENT) &' * + / APPELLANT BY : DR. B. NISCHAL, JCIT ()&' * + / RESPONDENT BY : SHRI G. BASKAR, ADVOCATE , # * -. / DATE OF HEARING : 04.09.2015 /0$ * -. / DATE OF PRONOUNCEMENT : 18.09.2015 / O R D E R THIS APPEAL IS FILED AGAINST THE ORDER OF THE COM MISSIONER OF INCOME TAX (APPEALS)-II, COIMBATORE, DATED 28.02.20 13, BY THE DEPARTMENT. 2. THERE IS A DELAY OF 3 DAYS IN FILING THE APPEAL BY THE DEPARTMENT AND AN AFFIDAVIT WAS FILED EXPLAINING TH E REASON FOR THE DELAY. AFTER HEARING THE SUBMISSIONS, WE ARE SATIS FIED THAT THERE 2 I.T.A. NO.969/MDS/13 WAS A REASONABLE CAUSE FOR FILING THE APPEAL BELATE DLY. THEREFORE, THE DELAY IS CONDONED AND THE APPEAL IS ADMITTED. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E-COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF TEXTILES. THE ASSESSING OFFICER MADE AN ADDITION OF ` 13,01,686/- IN RESPECT OF MODERNIZATION EXPENDITURE. IT WAS SUBMITTED THAT THE EXPENDITURE PURELY RELATED TO CHANGE OF CERTAIN PARTS OF BLOW ROOM MACHINERY, WHI CH IS AN INTEGRAL PART OF TEXTILE MACHINERY AND THE PARTS WE RE PURCHASED FROM M/S LAKSHMI MACHINE WORKS LIMITED. THE ONLY ISSUE B EFORE THE ASSESSING OFFICER WAS WHETHER THE CHANGE OF PARTS I S TO BE TREATED AS CURRENT REPAIRS OR ADD TO THE GROSS BLOCK OF ASS ETS AND CLAIM DEPRECIATION. IN ASSESSMENT PROCEEDINGS, INFORMATI ON WAS FILED STATING THAT THE PARTS ARE ONLY FOR THE OLD MACHINE RY, AND WHICH DO NOT INCREASE THE PRODUCTION CAPACITY AND IT CANNOT BE TERMED AS A BIGGER MACHINERY. ASSESSEE SUPPORTED THE CASE WITH VARIOUS LEGAL CASE LAWS. BUT, THE ASSESSING OFFICER, TO VERIFY T HE CLAIM OF THE ASSESSEE, CALLED FOR DETAILS FROM SUPPLIER REGARDIN G THE PARTS SUPPLIED TO THE ASSESSEE. THE A.O., ON THE BASIS O F THE REPLY FROM SUPPLIER, WITHOUT PUTTING IT TO THE ASSESSEE, CONSI DERED SUCH EXPENDITURE AS CAPITAL EXPENDITURE AND ASSESSED THE TOTAL INCOME AT ` 9,95,640/- RAISING A DEMAND OF ` 4,92,680/-. 3 I.T.A. NO.969/MDS/13 4. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE FILED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS)-II, COIMBATORE AND THE LD. CIT(APPEALS) A LLOWED THE APPEAL WITH CERTAIN FINDINGS BY HIS ORDER DATED 17. 10.2002. AGAINST THE ABOVE ORDER, THE INCOME-TAX DEPARTMENT HAS FILE D AN APPEAL BEFORE THE ITAT AND THE APPEAL WAS DISMISSED BY ORD ER IN I.T.A. NO. 1952/MDS/02 DATED 01.09.2005. THE MATTER WAS FURTHE R REPRESENTED BEFORE HIGH COURT AND SUPREME COURT. THE HON'BLE S UPREME COURT THROUGH ITS JUDGMENT DATED 23.03.2009, REMITTED THE ISSUE OF TREATING THE EXPENDITURE AS CAPITAL OR REVENUE TO T HE FILE OF THE CIT(APPEALS). THE LD. CIT(APPEALS), BASED ON THE DIRECTIONS OF THE SUPREME COURT, ISSUED HEARING NOTICE TO THE ASS ESSEE AND THE ASSESSEE FILED DETAILED WRITTEN SUBMISSIONS OF THE CHARACTERISTICS OF THE MACHINERY, USAGE AND ALSO MENTIONED THAT THE LE TTER SENT BY THE ASSESSING OFFICER TO THE SUPPLIER WAS NEVER PUT TO THEM. THE ASSESSEE, IN HEARING PROCEEDINGS, FURNISHED ANOTHER LETTER DATED 13 TH FEBRUARY, 2001 RECEIVED FROM THE MACHINERY SUPPLIE R THROUGH ITS PRODUCT MANAGER (MARKETING). EVEN BEFORE THIS LETTER COULD BE PRODUCED BEFORE THE ASSESSING OFFICER IN ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HURRIEDLY COMPLETED THE ASSES SMENT AND RAISED THE DEMAND. THE LD. CIT(APPEALS) DEALT IN D ETAIL WITH THE 4 I.T.A. NO.969/MDS/13 CASE LAWS OF APEX COURT, MADRAS HIGH COURT AND THE DECISION OF ITAT, CHENNAI BENCH ON THE ISSUE OF CURRENT REPAIRS AND CAPITALIZATION OF PARTS. THE CIT(APPEALS) CONSIDER ED THE DECISIONS OF SUPREME COURT AND EARLIER ORDERS AND THE CHARACT ERISTICS OF THE OLD PARTS AND ALSO LETTER FROM M/S LAKSHMI MACHINE WORKS LIMITED DATED 13.02.2001 WHEREIN IT IS CLEARLY STATED THAT ONLY SIX PARTS WERE SUPPLIED AND THOSE SIX PARTS DO NOT CONSTITUTE COMP LETE BLOW ROOM LINE. THIS LETTER OF THE SUPPLIER WAS NOT AVAILABL E WITH THE ASSESSING OFFICER AS HE HAD COMPLETED THE ASSESSMENT WITH THE ENQUIRIES MADE BEHIND THE ASSESSEE AND NOT PUTTING THE SAME T O TEST THEM BEFORE THE ASSESSEE FOR VERIFICATION. CONSIDERING THE FACTUAL INFORMATION AND LEGAL CASE LAWS, TREATED SUCH EXPEN SES AS CURRENT REPAIRS. 5. AGGRIEVED BY THE ORDER OF THE CIT(APPEALS), THE DEPARTMENT HAS FILED APPEAL BEFORE THE TRIBUNAL WITH A SOLE GR OUND THAT THE CIT(APPEALS) HAS ERRED IN CONSIDERING THE BLOW ROOM IN TEXTILE INDUSTRY AS NOT AN INDEPENDENT MACHINE ITSELF AND T HEY CAN FUNCTION INDEPENDENTLY AS STAND ALONE WITH OTHER MACHINERIES AND THEREFORE, SUCH EXPENDITURE SHOULD BE TREATED AS CAPITAL EXPEN DITURE AND NOT CURRENT REPAIRS AND ARGUED VEHEMENTLY BASED ON THE CASE LAWS. 5 I.T.A. NO.969/MDS/13 6. ON THE OTHER HAND, THE LD.COUNSEL APPEARING FOR THE ASSESSEE SUBMITTED PAPER-BOOK AND REFERRED TO THE L ETTER OF CONFIRMATION AND ALSO MENTIONED THAT THE MATTER IS COMING FOR THE SECOND ROUND BEFORE THIS TRIBUNAL AND ISSUE PERTAIN S TO ASSESSMENT YEAR 1998-99. THE LD.COUNSEL SUBMITTED THE FACTS A ND FINDINGS OF APPELLATE ORDER AND PRAYED FOR DISMISSAL OF THE APP EAL. 7. THE TRIBUNAL, AFTER HEARING THE RIVAL SUBMISSION S AND THE MATERIAL AVAILABLE ON RECORD AND THE CASE LAWS AND THE INFORMATION SUBMITTED IN THE EARLIER PROCEEDINGS, IS OF THE OPI NION THAT THOUGH THE CIT(APPEALS) HAS MENTIONED AT PAGE 1 OF HIS APP ELLATE ORDER THAT THE APPEAL WAS SUO MOTO INSTITUTED BASED ON THE SUPREME COURTS DECISION DATED 23.03.2009 IN RESPECT OF TRE ATMENT OF EXPENDITURE AS CAPITAL OR REVENUE, AND ALSO THE LD. COUNSEL HAS FILED WRITTEN SUBMISSION WITH EVIDENCE OF LETTER DATED 13 TH FEBRUARY, 2001 ISSUED BY THE MACHINERY SUPPLIER M/S LAKSHMI MACHIN E WORKS LIMITED, WHICH CLEARLY STATES THAT ONLY SIX PARTS W ERE SUPPLIED AND ALL THESE SIX PARTS DO NOT CONSTITUTE COMPLETE BLOW ROO M LINE AND ALSO SUPPORTED WITH THE DECISION OF SUPREME COURT IN CIT V. MAHALAKSHMI TEXTILE MILLS LTD. (1967) 66 ITR 710 TO CONSIDER SUCH REPLACEMENT OF PARTS AS CURRENT REPAIRS. THE LORDS HIPS HAVE OBSERVED AS UNDER:- 6 I.T.A. NO.969/MDS/13 .THAT BY INTRODUCING THE CASABLANCA CONVERSION SY STEM THE ASSESSEE MADE CURRENT REPAIRS TO THE MACHINERY AND PLANT. THE HIGH COURT OBSERVED THAT CERTAIN MOVING PARTS OF THE MACHINERY HAD BECAUSE OF 'WEAR AND TEAR' TO BE PERIODICALLY REPLACED, AND WHEN IT WAS FOUND THAT T HE OLD TYPE OF REPLACEMENT PARTS WERE NOT AVAILABLE IN THE MARKET, THE ASSESSEE INTRODUCED THE CASABLANCA CONVERSION SYSTEM, BUT THEREBY THERE WAS MERELY REPLACEMENT OF CERTAIN PARTS WHICH WERE A MODIFIED VERSION OF THE OLDER PARTS. COUNSEL FOR THE COMMISS IONER HAS NOT CHALLENGED THESE FINDINGS AND THE ANSWER TO THE SECOND QUESTION RECORDED IN THE AFFIRMATIVE BY THE HIGH COURT, MUST BE ACCEPTED. DUE TO REPLACEMENT OF PARTS, THE EFFICIENCY AND PRO DUCTION CAPACITY OF THE MACHINERY DOES NOT INCREASE AND NO NEED TO B E CAPITALIZED THE EXPENDITURE. CONSIDERING THE ABOVE SUBMISSION AND APPLICABILITY OF DECISIONS, THE TRIBUNAL FINDS NO I NFIRMITY IN THE ORDER OF THE CIT(APPEALS) AND INCLINED TO UPHOLD THE SAME BY DISMISSING THE GROUNDS RAISED BY THE DEPARTMENT. 8. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED . ORDER PRONOUNCED ON 18 TH SEPTEMBER, 2015 AT CHENNAI. SD/- ( ... ) (N.R.S. GANESAN) /JUDICIAL MEMBER /CHENNAI, 2 /DATED, THE 18 TH SEPTEMBER, 2015. 7 I.T.A. NO.969/MDS/13 KRI. * (-34 54$- /COPY TO: 1. &' /APPELLANT 2. ()&' /RESPONDENT 3. , 6- () /CIT(A)-II, COIMBATORE 4. , 6- /CIT-III, COIMBATORE 5. 4#7 (- /DR 6. 8' 9 /GF.