M/s. Chemfab Alkalis Limited, Pondicherry V. ACIT, Pondicherry

MA 257/CHNY/2011

• Counselvise Citation: [2012] 123 COUNSELVISE.COM (IT) 7477 (ITAT-CHENNAI)
• Duration Of Justice: 1 month(s) 11 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 25-01-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2004-2005
• Appeal Filed On: 14-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S SRIDHAR
• Keywords: Revenue expenditure; Capital expenditure
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER M.A.NOS. 254 TO 264/MDS/2011 (IN I.T.A.NOS. 156 TO 158, 342 TO 345/MDS/2011 & CO NOS. 46 TO 49/MDS/2007) (ASSESSMENT YEARS : 2004-05 TO 2007-08) M/S. CHEMFAB ALKALIS LTD., GNANANDA PLACE, KALAPET, PONDICHERRY. PAN AAACC1957 D VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-I, PONDICHERRY. (APPLICANT) (RESPONDENT) APPLICANT BY : SHRI S. SRIDHAR, ADVOCATE RESPONDENT BY : SHRI K.P.GOPAKUMAR, IRS, COMMISSIONER OF INCOME-TAX DATE OF HEARING : 20 TH JANUARY, 2012 DATE OF PRONOUNCEMENT : 25 TH JANUARY, 2012 O R D E R PER DR. O.K. NARAYANAN, VICE-PRESIDENT THIS IS A BUNCH OF ELEVEN MISCELLANEOUS PETITIONS, ALL FILED BY THE ASSESSEE. THESE ARE IN THE NATURE OF RECT IFICATION MA 254 TO 264/11 :- 2 -: PETITIONS. IT IS THE CASE OF THE ASSESSE-PETITIONE R THAT THE TRIBUNAL HAS COMMITTED AN ERROR APPARENT FROM THE RECORDS WH ILE PASSING ITS ORDER INASMUCH AS THE TRIBUNAL HAS NOT CONSIDE RED A BINDING DECISION OF THE HONBLE SUPREME COURT. 2. THE ASSESSEE HAD FILED THREE APPEALS IN ITA NOS. 156, 157 & 158/MDS/2011 RELATING TO THE ASSESSMENT YEARS 2004- 05, 2005-06 AND 2006-07 BEFORE THE TRIBUNAL. THE REVENUE HAD A LSO FILED CROSS APPEALS BEFORE THE TRIBUNAL FOR THE ASSESSMEN T YEARS 2004- 05, 2005-06, 2006-07 IN ITA NOS.342, 343 & 344/MDS/ 2011AND APPEAL FOR THE ASSESSMENT YEAR 2007-08 IN ITA NO. 345/MDS/2011. THE ASSESSEE HAD ALSO FURTHER FILED F OUR CROSS OBJECTIONS CORRESPONDING TO THE APPEALS FILED BY TH E REVENUE IN CO NOS.46, 47, 48 & 49/MDS/2011. ALL THESE APPEALS AND CROSS OBJECTIONS TOTALLING TO ELEVEN FILES WERE HEARD BY THE TRIBUNAL TOGETHER AND DISPOSED OF THROUGH ITS COMMON ORDER D ATED 25 TH AUGUST, 2011. IT IS IN THE ABOVE COMMON ORDER PASS ED BY THE TRIBUNAL, THAT THE ASSESSEE-PETITIONER STATES THAT THE MISTAKE IS APPARENT. IT IS BECAUSE OF THE ABOVE STATED ELEVEN FILES RELATING TO APPEALS, CROSS APPEALS AND CROSS OBJECTIONS THAT TH E ASSESSEE HAS NOW FILED ELEVEN RECTIFICATION PETITIONS BEFORE US. MA 254 TO 264/11 :- 3 -: 3. THE ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING HEAVY CHEMICALS. THE ASSESSEE-COMPAN Y HAD INCURRED EXPENDITURE IN REPLACING MEMBRANE AND CELL ELEMENTS NECESSARY IN THE PROCESS OF THE PRODUCTION OF CAUST IC SODA. EVEN THOUGH THE EXPENDITURE WERE BOOKED IN ITS ACCOUNTS AS CAPITAL EXPENDITURE, THE ASSESSEE CLAIMED THOSE EXPENDITURE AS DEDUCTION UNDER SEC.37 ON THE GROUND THAT THE EXPEN DITURE WERE REVENUE IN NATURE. THE ASSESSING AUTHORITY REJECTE D THE SAID CONTENTION OF THE ASSESSEE, RELYING ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. SARAVANA SPINN ING MILLS PVT. LTD. (293 ITR 201). IN FIRST APPEAL, THE COMM ISSIONER OF INCOME-TAX(APPEALS) ACCEPTED THE CONTENTION OF THE ASSESSEE AND SET ASIDE THE ORDER OF THE ASSESSING AUTHORITY AND HELD THAT THE EXPENDITURE WERE REVENUE IN NATURE. 4. THE ASSESSEE HAD ALSO INCURRED EXPENDITURE FOR REPLACEMENT OF STIFFENER PLATES AND NICKEL MATERIAL S FOR CATHODE. THE ASSESSING AUTHORITY AS WELL AS THE COMMISSIONER OF INCOME- TAX(APPEALS) HELD THOSE EXPENDITURE AS CAPITAL IN N ATURE. 5. IN THE ABOVE CIRCUMSTANCES, BOTH REVENUE AS WELL AS ASSESSEE CAME BEFORE THE TRIBUNAL IN SECOND APPEALS WITH FURTHER CROSS OBJECTIONS FILED BY THE ASSESSEE. MA 254 TO 264/11 :- 4 -: 6. WHILE DISPOSING OF THE APPEALS FILED BY THE REVE NUE, THE TRIBUNAL RELYING ON THE DECISION OF THE HONBLE SUP REME COURT IN THE CASE OF CIT VS. SARAVANA SPINNING MILLS PVT. LT D. (293 ITR 201) HELD THAT THE EXPENDITURE CANNOT BE DEDUCTED A S THEY WERE CAPITAL IN NATURE. THE ORDER OF THE COMMISSIONER O F INCOME- TAX(APPEALS) WAS SET ASIDE ON THE POINT AND THE ORD ER OF THE ASSESSING OFFICER WAS RESTORED. IN ASSESSEES APPE AL ON THE QUESTION OF MEMBRANE AND CELL ELEMENTS, THE TRIBUNA L UPHELD THE ORDERS OF THE LOWER AUTHORITIES THAT THEY WERE CAPI TAL EXPENDITURE. ULTIMATELY, THE APPEALS FILED BY THE REVENUE WERE A LLOWED WHEREAS THE APPEALS AS WELL AS THE CROSS OBJECTIONS FILED BY THE ASSESSEE WERE DISMISSED. 7. AS ALREADY STATED, THESE MISCELLANEOUS PETITIONS , IN THE NATURE OF RECTIFICATION PETITIONS, HAVE BEEN FILED IN THE ABOVE CONTEXT. 8. SHRI S. SRIDHAR, THE LEARNED COUNSEL APPEARING F OR THE ASSESSEE-PETITIONER CONTENDED THAT THE ASSESSEE HAD CLAIMED ITS EXPENDITURE AS DEDUCTION NOT UNDER SEC.31 AS CURRE NT REPAIRS BUT UNDER SEC.37 AS REVENUE EXPENDITURE. THE DECISIO N OF THE HONBLE SUPREME COURT RELIED ON BY THE TRIBUNAL IN THE CASE OF CIT VS. SARAVANA SPINNING MILLS PVT. LTD. (293 ITR 201), IN FACT, MA 254 TO 264/11 :- 5 -: CONSIDERED THE SCOPE OF CURRENT REPAIRS AND THE EXTENT OF SEC.31. THE CLAIM OF THE ASSESSEE WAS FOR DEDUCTIO N UNDER SEC.37. THE HONBLE SUPREME COURT HAS NOT CONSIDER ED ANYTHING ABOUT SEC.37 IN THE SAID DECISION. THEREFORE, IN R ELYING ONLY ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF CIT VS. SARAVANA SPINNING MILLS PVT. LTD. (293 ITR 201) ITS ELF IS A MISTAKE APPARENT FROM THE RECORDS. 9. THE LEARNED COUNSEL FURTHER EXPLAINED THAT IN FA CT, THE HONBLE SUPREME COURT HAS CONSIDERED THE SCOPE OF S EC.37 IN ANOTHER CONTEMPORANEOUS DECISION DELIVERED IN THE C ASE OF CIT VS. RAMARAJU SURGICAL COTTON MILLS (294 ITR 328). IN THE SAID DECISION, THE HONBLE SUPREME COURT HAS CONSIDERED SEC.37 AND HELD THAT REPLACEMENT OF ASSETS WITHOUT INCREASING THE PRODUCTION CAPACITY WOULD AMOUNT TO REVENUE EXPENDITURE AND EX PENDITURE FOR REPLACING AN OLD MACHINE BY A NEW MACHINE CONST ITUTED AN ADVANTAGE OF AN ENDURING NATURE AND WOULD BE CAPITA L IN NATURE. IT WAS THE CASE OF THE ASSESSEE IN THE APPEALS CONS IDERED BY THE TRIBUNAL THAT THE REPLACEMENT MADE BY THE ASSESSEE HAS NOT INCREASED THE PRODUCTION CAPACITY OF THE ASSESSEE-C OMPANY. THEREFORE, THE DECISION OF THE HONBLE SUPREME COUR T IN THE CASE OF CIT VS. RAMARAJU SURGICAL COTTON MILLS (294 ITR 328) IS THE MA 254 TO 264/11 :- 6 -: MOST RELEVANT DECISION FOR THE APPEALS OF THE ASSES SEE AND BY NOT CONSIDERING SUCH BINDING DECISION OF THE HONBLE SU PREME COURT, THE TRIBUNAL HAS COMMITTED AN ERROR WHICH IS APPARE NT FROM THE RECORDS. 10. THE LEARNED COUNSEL FURTHER RELIED ON A RECENT JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF ACIT VS. S AURASHTRA KUTCH STOCK EXCHANGE LTD. (305 ITR 227) WHEREIN THE COURT HAS HELD THAT FAILURE TO APPLY JUDGMENT OF THE JURISDIC TIONAL HIGH COURT IS A MISTAKE APPARENT ON RECORD AND THE TRIBUNAL HA S JURISDICTION TO RECTIFY SUCH MISTAKE. THE LEARNED COUNSEL SUBMI TTED THAT IN VIEW OF THE ABOVE DECISION, NON-CONSIDERATION OF TH E BINDING DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F CIT VS. RAMARAJU SURGICAL COTTON MILLS (294 ITR 328) IS A M ISTAKE APPARENT FROM THE RECORDS AND THIS TRIBUNAL IS COMP ETENT TO RECTIFY THE SAID MISTAKE. 11. SHRI K.P.GOPAKUMAR, THE LEARNED JOINT COMMISSIO NER OF INCOME-TAX ON THE OTHER HAND, CONTENDED THAT THE IS SUES RAISED BEFORE THE TRIBUNAL IN THE APPEALS FILED BY THE REV ENUE AS WELL AS BY THE ASSESSEE HAVE BEEN CONSIDERED BY THE TRIBUNA L IN A DETAILED MANNER AND ADJUDICATED THE ISSUES WITH REA SONS VERY MUCH DISCUSSED IN THE COMMON ORDER OF THE TRIBUNAL. HE ALSO MA 254 TO 264/11 :- 7 -: CONTENDED THAT THE TRIBUNAL HAS NOT CONSIDERED THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. RA MARAJU SURGICAL COTTON MILLS (294 ITR 328) IN ITS COMMON O RDER WHERE THE SCOPE OF SEC.37 WAS CONSIDERED BY THE COURT. T HEREFORE, THE LEARNED COMMISSIONER OF INCOME-TAX SUBMITTED THAT I F THE PRAYER PUT IN BY THE ASSESSEE-PETITIONER IS NOT FOR REVIEW ING ITS EARLIER ORDER, THE CASE MAY BE REMITTED BACK TO THE ASSESSI NG OFFICER TO RECONSIDER THE ISSUES IN THE LIGHT OF THE PROPOSITI ONS LAID DOWN BY THE RELEVANT JUDGMENTS OF THE HONBLE SUPREME COURT . 12. WE CONSIDERED THE MATTER IN DETAIL. IT IS TRUE THAT IN THE APPEALS FILED BY THE REVENUE, THE ISSUE RAISED WAS WHETHER THE EXPENDITURE INCURRED FOR REPLACEMENT OF MEMBRANE AN D CELL ELEMENTS WERE DEDUCTIBLE OR NOT IN COMPUTING THE TA XABLE INCOME OF THE ASSESSEE-COMPANY. THE ASSESSING OFFICER AS WELL AS THE TRIBUNAL RELIED ON THE JUDGMENT OF THE HONBLE SUPR EME COURT IN THE CASE OF CIT VS. SARAVANA SPINNING MILLS PVT. LT D. (293 ITR 201), AS THE CLAIM WAS MADE BY THE ASSESSEE UNDER S EC.31 OF THE INCOME-TAX ACT, 1961 TOWARDS CURRENT REPAIRS. BU T NOW, IT IS CLEAR THAT THE ASSESSEE HAS NOWHERE RAISED THE QUES TION OF DEDUCTING ITS EXPENDITURE AS CURRENT REPAIRS. TH EREFORE, IT IS CLEAR THAT SEC.31 DOES NOT HAVE APPLICATION ON THE ISSUE RAISED BY MA 254 TO 264/11 :- 8 -: THE ASSESSEE BEFORE THE ASSESSING AUTHORITY. BUT R ATHER THE TRIBUNAL REJECTED THE CLAIM OF THE ASSESSEE RELYING ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. SARAVANA SPINNING MILLS PVT. LTD. (293 ITR 201) WHICH, IN FA CT, IS NOT DIRECTLY APPLICABLE TO THE ASSESSEE. 13. IN FACT, THE ASSESSEE HAD CLAIMED EXPENDITURE A S REVENUE EXPENDITURE UNDER SEC.37. THE QUESTION OF REVENUE EXPENDITURE DEDUCTIBLE UNDER SEC.37 HAS BEEN CONSIDERED BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. RAMARAJU SURGI CAL COTTON MILLS [294 ITR 328]. THAT IS THE DECISION WHICH IS DIRECTLY RELEVANT TO THE APPEALS CONSIDERED BY THE TRIBUNAL THROUGH I TS COMMON ORDER. THAT DECISION HAS NOT BEEN CONSIDERED BY TH E TRIBUNAL. 14. THE HONBLE SUPREME COURT IN THE CASE OF ACIT V S. SAURASHTRA KUTCH STOCK EXCHANGE LTD. (305 ITR 227) HAS HELD THAT A PATENT, MANIFEST AND SELF-EVIDENT ERROR WHIC H DOES NOT REQUIRE ELABORATE DISCUSSION OF EVIDENCE OR ARGUMEN TS TO ESTABLISH IT, CAN BE SAID TO BE AN ERROR APPARENT O N THE FACE OF THE RECORD AND CAN BE CORRECTED WHILE EXERCISING CERTIO RARI JURISDICTION. IN THE LIGHT OF THE ABOVE PROPOSITIO N LAID DOWN BY THE HONBLE SUPREME COURT, WE FIND THAT NON-CONSIDERATI ON OF THE HONBLE SUPREME COURT JUDGMENT RENDERED IN THE CASE OF CIT VS. MA 254 TO 264/11 :- 9 -: RAMARAJU SURGICAL COTTON MILLS [294 ITR 328] IS A M ISTAKE APPARENT IN THE COMMON ORDER PASSED BY THE TRIBUNAL , WHICH, IN FACT, REALLY GOES TO THE ROOT OF THE TRIBUNAL ORDER . THIS IS EQUALLY APPLICABLE TO THE ISSUE OF STIFFENER PLATES AND NIC KEL MATERIALS FOR CATHODE AS WELL. 15. THEREFORE, IN THE FACTS AND CIRCUMSTANCES, WE F IND THAT THE COMMON ORDER OF THE TRIBUNAL DATED 25 TH AUGUST, 2011 IS TO BE RECTIFIED. ALL THESE RECTIFICATION PETITIONS FILED BY THE ASSESSEE ARE ACCORDINGLY ALLOWED. 16. NOW, COMING TO THE RECTIFICATION OF THE COMMON ORDER OF THE TRIBUNAL DATED 25 TH AUGUST, 2011, WE FIND THAT THE ASSESSEE HAD CLAIMED DEDUCTION ON THE GROUND THAT THE REPLACEMEN T EXPENDITURE WERE REVENUE IN NATURE UNDER SEC.37 OF THE INCOME- TAX ACT, 1961. THE HONBLE SUPREME COURT IN THE CA SE OF CIT VS. RAMARAJU SURGICAL MILLS [294 ITR 328] HAS HELD THAT SEC.31 AND 37 OF THE INCOME-TAX ACT, 1961 OPERATE IN DIFFERENT SPHERES AND THE TESTS APPLICABLE TO SEC.31 CANNOT BE READ INTO SEC.37 OF THE INCOME-TAX ACT, 1961. AS THE ASSESSEE HAS SOUGHT DEDUCTION UNDER SEC.37 IN ITS APPEALS, THE ASSESSIN G AUTHORITY OUGHT TO HAVE EXAMINED THE DEDUCTIBILITY OF REPLACE MENT EXPENDITURE WITHIN THE AMBIT OF SEC.37. WHEN THAT IS THE CORRECT MA 254 TO 264/11 :- 10 -: COURSE OF ACTION, THE ASSESSING AUTHORITY HAS ERRED IN RELYING ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CA SE OF CIT VS. SARAVANA SPINNING MILLS PVT. LTD. [ 293 ITR 201] WH ERE THE SCOPE OF SEC.31 ALONE WAS APPRECIATED BY THE HONBLE APEX COURT. ON THE OTHER HAND, IT IS IN THE CASE OF CIT VS. RAMARA JU SURGICAL MILLS [294 ITR 328] THAT THE HONBLE SUPREME COURT HAS C ONSIDERED THE SCOPE AND THE EXTENT OF SEC.37. AS THE CLAIM O F THE ASSESSE WAS MADE UNDER SEC.37, IT IS NECESSARY FOR THE ASSE SSING OFFICER TO CONSIDER THE CASE OF THE ASSESSEE UNDER SEC.37 I N THE LIGHT OF THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CA SE OF CIT VS. RAMARAJAU COTTON MILLS (294 ITR 328). 17. THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF TH E CASE, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND T HE ISSUES ARE REMITTED BACK TO THE ASSESSING OFFICER TO REEXAMINE THE CASE IN THE LIGHT OF THE JUDGMENT OF THE HONBLE SUPREME CO URT IN THE CASE OF CIT VS. RAMARAJAU SURGICAL COTTON MILLS [29 4 ITR 328] AND THE STATUTORY PROVISIONS CONTAINED IN SEC.37. 18. AS ALL THE ISSUES ARE BEING REMITTED BACK TO TH E ASSESSING AUTHORITY, THE APPEALS FILED BY THE REVENUE AND THE APPEALS AND CROSS OBJECTIONS FILED BY THE ASSESSEE, ALL ARE TRE ATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. MA 254 TO 264/11 :- 11 -: 19. THIS ORDER REPLACES OUR COMMON ORDER DATED 25 TH AUGUST, 2011 TO THE EXTENT WHEREVER NECESSARY. ORDER PRONOUNCED ON WEDNESDAY, THE 25 TH OF JANUARY, 2012 AT CHENNAI. SD/- SD/- (HARI OM MARATHA) (DR.O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED THE 25 TH JANUARY, 2012 MPO* COPY TO : APPELLANT/RESPONDENT/CIT/CIT(A)/DR