T.C.M. Ltd., Ernakulam v. ACIT, Ernakulam

ITA 127/COCH/2006 | 1997-1998
Pronouncement Date: 11-05-2010

Appeal Details

RSA Number 12721914 RSA 2006
Assessee PAN AAACT6206A
Bench Cochin
Appeal Number ITA 127/COCH/2006
Duration Of Justice 4 year(s) 2 month(s) 26 day(s)
Appellant T.C.M. Ltd., Ernakulam
Respondent ACIT, Ernakulam
Appeal Type Income Tax Appeal
Pronouncement Date 11-05-2010
Appeal Filed By Assessee
Bench Allotted DB
Tribunal Order Date 11-05-2010
Date Of Final Hearing 29-04-2010
Next Hearing Date 29-04-2010
Assessment Year 1997-1998
Appeal Filed On 15-02-2006
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH COCHIN BEFORE SHRI N.VIJAYAKUMARAN & SHRI SANJAY ARORA I.T.A.NO.622/COCH/2005 ASSESSMENT YEAR:1997-98 THE ASST. COMMISSIONER OF INCOME-TAX CIRCLE-2 RANGE-2 ERNAKULAM. VS. M/S. TCM LTD. KALAMASSERY. PA NO.AAACT 6206A (APPELLANT) ( RESPONDENT ) & I.T.A.NO.127/COCH/2006 ASSESSMENT YEAR:1997-98 M/S. TCM LTD. KALAMASSERY. PA NO.AAACT 6206A VS. THE ASST. COMMISSIONER OF INCOME-TAX CIRCLE-2 RANGE-2 ERNAKULAM. (APPEL LANT) (RESPONDENT) REVENUE BY DR. BABU JOSEPH SR.DR ASSESSEE BY SHRI ARUN RAJ ADVOCATE O R D E R PER N.VIJAYAKUMARAN J.M: THESE ARE CROSS APPEALS FILED BY THE REVENUE AND T HE ASSESSEE FOR THE ASSESSMENT YEAR 1997-98. THESE A PPEALS ARE DIRECTED AGAINST THE ORDER OF THE CIT(APPEALS) IV KOCHI DATED 10-01-2005. THESE APPEALS ARISE OUT OF THE OR DER GIVING EFFECT TO CITS ORDER U/S.263 OF THE I.T.ACT 1961. 2. FIRST WE SHALL TAKE UP THE APPEAL FILED BY THE A SSESSEE IN ITA NO.127/COCH/2006. THIS APPEAL IS DELAYED B Y 268 ITA NO. 622/COCH/2005 & 127/COCH/2006 M/S. TCM LTD. 2 DAYS. AN AFFIDAVIT ACCOMPANYING THE CONDONATION P ETITION BY ONE SHRI JOSEPH VARGHESE MANAGING DIRECTOR OF T CM LTD. DATED 10-04-2006 WAS FILED BY THE ASSESSEE. IT I S PLEADED THAT THE ASSESSEE COMPANY WENT UNDER BIFR. MAJOR SHARES OF THE COMPANY WERE LATER BOUGHT BY FEW OTHER PERSO NS AND THE NEW MANAGEMENT TOOK OVER THE CHARGE. THE FILE S RELATING TO INCOME-TAX MATTERS WERE KEPT IN METTUR UNIT WHICH WAS CLOSED IN THE MONTH OF FEBRUARY 2005 DUE TO LABOUR PROBLEMS AND THESE ARE THE REASONS FOR THE D ELAY WHICH PREVENTED THE ASSESSEE FROM TAKING THE NECESS ARY STEPS TO COLLECT THE RELEVANT DOCUMENT SO AS TO PRE FER APPEAL AND AS SUCH EFFECTIVE STEPS COULD NOT BE TAKEN. T HERE ARE NO DELIBERATE LATCHES OR WILLFUL NEGLIGENCE ON THE PART OF THE PETITIONER. 2.1 HOWEVER THE LD. SR. DEPARTMENTAL REPRESENTATI VE ON THE OTHER HAND STRONGLY OPPOSED THE APPEAL. 2.2 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE AR E OF THE VIEW THAT THE ASSESSEE WAS PREVENTED BY WAY OF REASONABLE CAUSE. UNDER THE ABOVE FACTS AND CIRCUM STANCES OF THE CASE AND TAKING A PRAGMATIC APPROACH AS HAS BEEN LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF ITA NO. 622/COCH/2005 & 127/COCH/2006 M/S. TCM LTD. 3 COLLECTOR LAND ACQUISITION VS. MST KATJI 167 ITR 471 WE CONDONE THE DELAY AND ADMIT THE APPEAL. 3. IN THE ASSESSEES APPEAL (ITA NO.127/COCH/2006) THE EFFECTIVE GROUND IS THAT THE CIT(APPEALS) OUGHT T O HAVE ALLOWED THE CLAIM OF THE APPELLANT AMOUNTING TO A S UM OF RS.82.19 LAKHS REPRESENTING THE EXPENDITURE INCURRE D ON CERTAIN ITEMS OF MACHINERY AS REVENUE EXPENDITURE WHEREAS IN THE DEPARTMENTAL APPEAL (ITA NO.622/COCH/2005) T HE EFFECTIVE GROUND IS THAT THE LD. CIT(APPEALS) ERRE D IN ALLOWING A REDUCTION OF RS.30 30 100/- AS REVENUE EXPENDITURE OUT OF THE CAPITAL EXPENDITURE OF RS.82 .19 LAKHS ACCOUNTED AS MODERNIZATION EXPENDITURE. 4. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CIT(APPEALS) WAS NOT JUSTIFIED IN RESTRICTING THE C LAIM OF THE ASSESSEE. THE BONE OF CONTENTION OF THE LD. COUNSE L FOR THE ASSESSEE IS THAT ONCE THE FIRST APPELLATE FOUND THA T THE EXPENDITURE HAS BEEN INCURRED FOR REPLACING THE WOR N OUT PARTS OF THE EXISTING MACHINERIES AND BY THE ACT OF REPLACING THE WORN OUT MACHINERIES NO NEW ASSET COMES INTO EXISTENCE. REPLACEMENT OF WORN OUT PARTS OF AN EXI STING ASSET MEANS PUTTING BACK THE MACHINERY IN ITS ORIGI NAL FORM ITA NO. 622/COCH/2005 & 127/COCH/2006 M/S. TCM LTD. 4 AND THAT DID NOT LEAD TO ANY IMPROVEMENT OR BRING A NY ADDITIONAL ADVANTAGE TO THE BUSINESS. THEREFORE THE LD. COUNSEL FOR THE ASSESSEE STRONGLY CONTENDED THAT TH E CIT(APPEALS) OUGHT TO HAVE ACCEPTED THE CLAIM OF TH E ASSESSEE IN TOTO. 5. THE LD. D.R. RELIED ON 263 ORDER PASSED BY THE COMMISSIONER AND CONTENDED THAT THE DEPARTMENT IS I N APPEAL AGAINST THE PARTIAL RELIEF GIVEN BY THE CIT( APPEALS) ON THIS CLAIM OF EXPENDITURE WHICH RUNS TO RS.30 30 10 0/- FOR WHICH THE REVENUE IS IN APPEAL IN ITA NO.622/COCH/2 005. 6. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD INCLUDING THE PRECEDE NTS. THE FACTS RELEVANT ARE THAT THE ASSESSEE COMPANY IS IN THE BUSINESS OF MANUFACTURE OF CHEMICALS. IT HAS THRE E UNITS AT KAMALASSERY KUNDRA AND METTUR. EARLIER WHEN THE CASE OF THE ASSESSEE WAS SUBJECTED TO 263 ACTION THE LD. COMMISSIONER VIDE HIS ORDER DATED 25-03-2002 FOUND THAT THE TOTAL ADDITIONS ON PLANT AND MACHINERY AT KALAM ESSARY KUNDRA AND METTUR IS WORTH RS.39 10 884/- RS.98 43 603/- AND RS.49 54 150/- RESPECTIVELY. WHEN COMPARED WI TH THE TOTAL VALUE OF BLOCK ASSETS IT AMOUNTS TO SUBSTANT IAL OVER ITA NO. 622/COCH/2005 & 127/COCH/2006 M/S. TCM LTD. 5 HAULING OF THE ENTIRE UNIT. THE LD. COMMISSIONER F OLLOWED THE PRINCIPLES LAID DOWN BY THE SUPREME COURT IN TH E CASE OF BALLIMEN NAVAL KISHORE VS. CIT (224 ITR 414) WHEREIN THEIR LORDSHIPS HAS HELD THAT WHERE FROM THE FACTS IT WAS EVIDENT THAT WHAT THE ASSESSEE DID WAS NOT MERE REPAIR BUT A TOTAL RENOVATION IT DOES NOT QUALIFY AS CURRENT REPAIR ( REVENUE EXPENDITURE). THE LD. COMMISSIONER ALSO TOOK SOME OTHER DECISIONS TO ARRIVE AT THE CONCLUSION. THE LD. COMM ISSIONER WAS OF THE VIEW THAT THE ASSESSING OFFICER HAS NOT MADE ANY DETAILED ENQUIRY AS EXPECTED AND THAT WOULD BE A G ROUND FOR THE COMMISSIONER TO INTERFERE U/S.263. THEREFORE LD. COMMISSIONER SET ASIDE THE ORIGINAL ASSESSMENT ORDE R DATED 17-5-1999 AND DIRECTED THE ASSESSING OFFICER TO MAK E A FRESH ASSESSMENT AFTER MAKING NECESSARY ENQUIRIES R EGARDING THE ASSESSEES CLAIM ON DEDUCTION IN RESPECT OF EXP ENDITURE ON MODIFICATION REPLACEMENT OF EQUIPMENTS/PLANTS. ASSESSEE CARRIED THIS ACTION OF THE COMMISSIONER U/ S.263 IN APPEAL BEFORE THE TRIBUNAL AND THE TRIBUNAL VIDE IT S ORDER DATED 10-07-2003 IN ITA NO.174/COCH/2002 DISMISSED THE APPEAL OF THE ASSESSEE. IT IS NOT DISPUTED THAT AGA INST THIS ORDER OF THE TRIBUNAL FURTHER APPEAL IS PENDING BE FORE THE JURISDICTIONAL HIGH COURT. THE ASSESSING OFFICER W HILE CARRIED OUT THE DIRECTIONS AS PER THE 263 ORDER CAME TO THE ITA NO. 622/COCH/2005 & 127/COCH/2006 M/S. TCM LTD. 6 CONCLUSION THAT THE ASSESSEE HAS CATEGORIZED THIS EXPENDITURE AS A CAPITAL EXPENDITURE IN ITS BOOKS. THEREFORE THERE IS NO NECESSITY TO GIVE A DIFFEREN T TREATMENT FOR THE INCOME-TAX PURPOSE. HENCE HE DISALLOWED THE CLAIM OF THE ASSESSEE. HOWEVER DEPRECIATION BE GRANTED WHENEVER THE ASSESSEE PRODUCES THE RE-WORKING OF DEPRECIATION STATEMENT. THE CIT(APPEALS) OUT OF THE TOTAL EXPENDITURE OF RS.82.19 LAKHS CLAIMED UNDER THE HEA D MODERNIZATION EXPENDITURE ALLOWED A SUM OF RS.30 30 100/- AS REVENUE EXPENDITURE. AFTER CON SIDERING THE RIVAL SUBMISSIONS AND THE DECISIONS OF THE HON BLE APEX COURT IN THE CASE OF CIT VS. SARAVANA SPINNING MIL LS P.LTD. REPORTED IN 293 ITR 201 AND CIT VS. RAMARAJU SURGI CAL COTTON MILLS 294 ITR 328 AND OTHER DECISIONS WHICH WERE RELIED ON BY BOTH THE PARTIES AND THE DECISION OF T HE HONBLE SUPREME COURT IN THE CASE OF CIT VS. SRI MANGAYARKARASI MILLS (ITATONLINE ORG.) WHEREIN IT HAS BEEN HELD THAT REPLACEMENT EXPENDITURE IS NEITHER CURRENT REPAIRS NOR REVENUE EXPENDITURE WE ARE OF THE VIEW THAT THE EXPENDITURE INCURRED ON RENOVATION AND MODERNIZATIO N OF THE MACHINERIES CLEARLY FALL IN THE FIELD OF CAPITAL AN D THERE IS NO OCCASION TO TAKE A DIFFERENT VIEW THAN THAT OF THE ASSESSING OFFICER. THEREFORE WE SET ASIDE THE ORDER OF TH E ITA NO. 622/COCH/2005 & 127/COCH/2006 M/S. TCM LTD. 7 CIT(APPEALS) WHO ALLOWED THE CLAIM OF THE ASSESSEE ON A WRONG FOOTING TO THE EXTENT OF RS.30 30 100/- HOLDI NG THAT IT IS A REVENUE EXPENDITURE WHICH IS TOTALLY AGAINST THE ACCEPTED PRINCIPLES OF LAW. THEREFORE THE ORDER OF THE CIT(APPEALS) IS REVERSED AND THAT OF THE ASSESSIN G OFFICER IS RESTORED ON THIS ISSUE. 7. IN THE RESULT THE APPEAL OF THE REVENUE IS ALLO WED AND THAT OF THE ASSESSEE IS DISMISSED. SD/- SD/- (SANJAY ARORA) ( N.VIJAYKUMARAN) ACCOUNTANT MEMBER JUDICIAL M EMBER ERNAKULAM DATED THE 11 TH MAY 2010. PM. COPY FORWARDED TO: 1. THE ACIT. CIRCLE-2 RANGE-2 ERNAKULAM. 2. M/S. TCM LTD. PB NO.19 KALAMASSERY. 3. CIT(A)-IV KOCHI. 4. CIT KOCHI. 5. D.R. BY ORDER SD/- ASSISTANT REGISTRAR