ACIT, Virudhunagar v. M/s. Shree Karpagambal Mills Ltd., Rajapalayam

ITA 1653/CHNY/2010 | 2004-2005
Pronouncement Date: 18-03-2011 | Result: Dismissed

Appeal Details

RSA Number 165321714 RSA 2010
Assessee PAN AADCS9038A
Bench Chennai
Appeal Number ITA 1653/CHNY/2010
Duration Of Justice 5 month(s) 12 day(s)
Appellant ACIT, Virudhunagar
Respondent M/s. Shree Karpagambal Mills Ltd., Rajapalayam
Appeal Type Income Tax Appeal
Pronouncement Date 18-03-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted C
Tribunal Order Date 18-03-2011
Date Of Final Hearing 15-03-2011
Next Hearing Date 15-03-2011
Assessment Year 2004-2005
Appeal Filed On 06-10-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL CHENNAI BENCH C : CHENNAI [BEFORE SHRI HARI OM MARATHA JUDICIAL MEMBER AND SHRI ABRAHAM P GEORGE ACCOUNTANT MEMBER] I.T.A.NOS.1652 TO 1655/MDS/2010 ASSESSMENT YEARS : 2004-05 TO 2006-07 THE ACIT CIRCLE I VIRUDHUNAGAR VS M/S SHREE KARPAGAMBAL MILLS LTD CHOLAPURAM SOUTH RAJAPALAYAM [PAN - AADCS9038A] (APPELLANT) (RESPONDENT) C.O.NOS.125 TO 127/MDS/2010 ASSESSMENT YEARS : 2004-05 TO 2006-07 M/S SHREE KARPAGAMBAL MILLS LTD CHOLAPURAM SOUTH RAJAPALAYAM VS THE ACIT CIRCLE I VIRUDHUNAGAR (CROSS OBJECTOR) (RESPONDENT) DEPARTMENT BY : SHRI TAPAS KUMAR DUTTA ASSESSEE BY : SHRI N.SRINIVASAN O R D E R PER HARI OM MARATHA JUDICIAL MEMBER: THIS IS A BUNCH OF SEVEN MATTERS-FOUR APPEALS BY THE REVENUE PERTAINING TO ASSESSMENT YEARS 2004-05 2005-06 & 2 006-07 AND THREE CROSS OBJECTIONS BY THE ASSESSEE FOR ASSESSME NT YEARS 2004-05 2005-06 AND 2006-07. FOR ASSESSMENT YEAR 2004-05 THERE ARE TWO ITA 1652 TO 1655/10 CO 125 TO 127/10 :- 2 -: APPEALS BY ONLY REVENUE ONE ARISING FROM THE ORIG INAL ASSESSMENT AND THE OTHER ARISING FROM THE REVISED ASSESSMENT. IN ALL THESE APPEALS OF THE REVENUE COMMON ISSUE REGARDING CAPT IVE POWER CONSUMPTION IS INVOLVED BUT IN ASSESSMENT YEAR 200 4-05 ONLY ISSUE REGARDING VALIDITY OF REOPENING OF THE ALREADY COMP LETED ASSESSMENT U/S 143(3) IS INVOLVED. 2. FOR THE SAKE OF CONVENIENCE WE ARE NARRATING THE FACTS OF ASSESSMENT YEAR 2004-05 WHICH WILL ELUCIDATE THE RE AL CONTROVERSIAL ISSUE INVOLVED. THE ASSESSEE COMPANY IS ENGAGED IN THE MANUFACTURE OF YARN AND CLOTH. IN ASSESSMENT YEAR 2004-05 THE ASSESSEE-COMPANY FILED ITS RETURN OF INCOME ON 27.10.2004 ADMITTING NIL INCOME AFTER CLAIMING DEDUCTION U/S 80IA OF THE ACT. THE ASSESS EE WORKED OUT THE TAX LIABILITY U/S 115JB ADMITTING THE BOOK PROFIT A T ` 1 93 30 240/- BUT THE ASSESSMENT WAS COMPLETED AT TOTAL INCOME OF ` 3 59 52 300/-. THE ASSESSEE HAD INSTALLED ONE WARTSILA POWER PLANT OF 2.82 MW CAPACITY DURING THE ASSESSMENT YEAR 2003-04 FOR GEN ERATION OF ELECTRICITY WHICH GENERATED POWER WITH EFFECT FROM 23.12.2002. THE CAPITAL OUTLAY FOR THE INSTALLATION OF THE POWER PL ANT INCLUDED BUILDING OF ` 36 59 819/- AND POWER PLANT OF ` 7 21 35 033/-. UNDER SECTION 80IA THE ASSESSEE-COMPANY IS ENTITLED FOR DEDUCTION FOR TEN YEARS FROM THE INITIAL ASSESSMENT YEAR. THERE BEING LOSS ONLY NO DEDUCTION WAS ITA 1652 TO 1655/10 CO 125 TO 127/10 :- 3 -: CLAIMED IN ASSESSMENT YEAR 2003-04. FOR THIS ASSES SMENT YEAR THE PROFITS FROM THE POWER PLANT WAS COMPUTED AS UNDER: UNITS GENERATED 18236932 UNITS AVERAGE PURCHASE PRICE PER UNIT FROM TNEB ` 5.22 TOTAL POWER CHARGES FOR UNITS GENERATED FROM HPO PL ANT 9 51 96 785 LESS : EXPENSES FURNACE OIL 4 58 49 196 POWER PLANT EXPENSES 59 57 103 INTEREST 46 92 000 DEPRECIATION BUILDINGS 3 47 683 PLANT 1 57 79 539 7 26 25 521 INCOME DERIVED FROM POWER PLANT 2 25 71 264 LESS : LOSS FOR THE 1 ST YEAR 26 63 401 AMOUNT ALLOWABLE U/S.80IA 100% 1 99 07 863 3. THE ASSESSING OFFICER DID NOT ALLOW DEDUCTION CLAI MED BECAUSE IN HIS OPINION THE COMPANY IS NOT ELIGIBLE FOR DED UCTION U/S.80IA AS IT IS NOT ENGAGED IN THE BUSINESS OF POWER-GENERATION AND THE POWER GENERATED IS USED ONLY FOR ITS INTERNAL CONSUMPTION AND THAT THE PROFIT IS ONLY A NOTIONAL PROFIT AND NOT A REAL PROFIT. T HE ASSESSING OFFICER HAS ALSO DISPUTED THE RATE OF ` 5.22 PER UNIT ADOPTED BY THE ASSESSEE AGAINST WHICH HE HAS ADOPTED A RATE OF ` 3.67 PER UNIT. IN THIS WAY THE ASSESSING OFFICER HAS FOUND THAT THERE WAS A LO SS OF ` 56.95 LAKHS IN THIS ASSESSMENT YEAR AS AGAINST PROFIT OF ` 199.07 LAKHS AS HAS BEEN SHOWN BY THE ASSESSEE. THE ASSESSING OFFICER HAS I GNORED THE CONTENTION OF THE COMPANY THAT U/S 80IA NO SUCH C ONDITION FOR CLAIMING DEDUCTION IS LAID DOWN THAT THE PRODUCTS M ANUFACTURED ITA 1652 TO 1655/10 CO 125 TO 127/10 :- 4 -: SHOULD BE SOLD TO OUTSIDERS AND SHOULD NOT BE CONSU MED BY THE ASSESSEE ITSELF. BUT THIS ARGUMENT FOUND FAVOUR WI TH THE LD. CIT(A) AND HE HAS THUS ALLOWED THE CLAIMED DEDUCTION IN RE SPECT OF PROFITS FROM POWER PLANT IN ACCORDANCE WITH THE PROVISION O F SECTION 80IA. BUT HE HAS REDUCED THE RATE OF ` 5.22 PER UNIT TO ` 5.07 PER UNIT ON THE BASIS OF TNEB ELECTRICITY BILLS RECEIVED BY THE ASS ESSEE FOR TWELVE MONTHS. BUT THE REVENUE IS MAINLY AGGRIEVED AGAINS T THE ALLOWANCE OF DEDUCTION U/S 80IA AND HAS TAKEN CYCLOSTYLED GROUND S IN THIS REGARD. THE SAMPLE GROUNDS FOR ASSESSMENT YEAR 2004-05 WILL DEPICT THE ISSUE RAKED UP BY THE REVENUE IN ALL THE YEARS. THEREFO RE WE REPRODUCE THE GROUNDS RAISED IN I.T.A.NO. 1625/MDS/2010 FOR A SSESSMENT YEAR 2004-05 HEREINBELOW: 1.0 THE ORDER OF THE CIT(A) IS OPPOSED TO LAW ON T HE FACTS AND IN THE CIRCUMSTANCES OF THE CASE. 1.1 THE CIT(A) HAS ERRED IN DIRECTING TO ALLOW TH E DEDUCTION U/S. 80LA IN RESPECT OF POWER PLANT. 1.2 THE CIT(A) OUGHT TO HAVE SEEN THAT THE POWER P LANT WAS INSTALLED WITH A VIEW TO UTILIZE THE POWER GENE RATION FOR ITS OWN ONLY AND TO REDUCE THE COST OF ELECTRICITY. SINCE THE COMPANY IS UTILIZING THE POWER FOR CAPTIVE CONSUMPTION SYSTEM IT CANNOT BE SAID THAT THE COMPANY IS ENGAG ED IN THE BUSINESS OF PRODUCING POWER. ALSO THE CIT(A) O UGHT TO HAVE SEEN THE PROFIT ON WHICH DEDUCTION U/S. 80LA H AS BEEN CLAIMED BY THE ASSESSEE IS ONLY NOTIONAL AND NOT RE AL. 1.3 THE C.ITCA) OUGHT TO HAVE FOLLOWED THE DECISION IN THE FOLLOWING CASES: ITA 1652 TO 1655/10 CO 125 TO 127/10 :- 5 -: A. CITVS. ROYAL WESTERN INDIA TURF CLUB LTD.(24 ITR 551)(SC) B. CHEMMIFOD CLUB VS CIT (2000)(243ITR 89) C. CIT VS BANKIPUR CLUB 1992(1981 ITR 261) WHERE IT HAS BEEN HELD THAT NO BODY CAN MAKE PROF IT OUT OF OWNS SELF. 1.4 THE CIT(A) FAILED TO NOTE THAT THE CIRCULAR OF CBOT IN C.N.178/28/2001 DATED 03/10/2001 CLEARLY AND UNAMBI GUOUSLY STATES IN PARA 3 THAT THE DEDUCTION CANNOT BE GRANT ED UNLESS THE UNDERTAKING OF THE ASSESSEE AND THE POWER PLANT GENERATION PLANT IS DISTINCT AND SEPARATE AND HENCE CIT(A) OUGHT TO HAVE CONFIRMED THE ADDITION MADE BY THE AS SESSING OFFICER. IT IS SUBMITTED THE ISSUE HAS NOT BECOME F INAL. 2.1 THE CIT(A) OUGHT TO HAVE SEEN THAT THE DECISIO N OF ITAT SPECIAL BENCH MUMBAI IN THE CASE OF TOPMAN EXPORTS LTD. WA S REVERSED BY THE HON'BLE HIGH COURT OF MUMBAI THAT THE ENTIRE SALE PROCEEDS IS 'PROFIT' FOR SECTION 80HHC R.W.S. 28(IIID). 2.2 THE CIT(A) ERRED IN ALLOWING THE INTEREST AS B USINESS INCOME WITHOUT ANY REASONS. THE CIT(A) OUGHT TO HAVE SEEN THAT THE ASSESSEE HAS FAILED TO PROVE THAT THE SAID INTEREST HAVE A DIRECT NEXUS TO THE BUSINESS OF THE ASSESSEE. ALSO THE AN NEXURE IN PAGE NO. 85 APPENDED WITH RETURN OF INCOME FILED BY THE ASSESSEE SHOWS. THE' DETAILS OF INTEREST RECEIVED FROM YARN PARTIES IN WHICH A SUM OF ` 789577/- WAS ONLY RECEIVED AS INTEREST FROM THREE PARTIES. HENCE THE BALANCE AMOUNT OF ` 4794898/- REPRESENTS INCOME FROM OTHER SOURCES AND 90% OF THE SAME IS TO BE REDUCED FROM THE ELIGIBLE PROFIT FOR THE PURPOSE OF DEDUCTION U/S. 80HHC. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE ADDUCE D AT THE TIME OF HEARING THE ORDER OF THE CIT(A) MAY BE MODIFIED TO THAT EXTENT AND THAT ORDER OF THE ASSESSING OFFICER RESTORED. 4. WE HAVE HEARD AND HAVE CAREFULLY PERUSED THE ENTIRE RECORDS. THE MAIN ISSUE OF THIS APPEAL IS REGARDING ALLOWABI LITY OF DEDUCTION U/S 80IA OF THE ACT. WE FIND THAT THERE IS NO STIPULAT ION IN SECTION 80IA THAT THE PRODUCTS MANUFACTURED BY A NEW INDUSTRIAL UNDERTAKING ITA 1652 TO 1655/10 CO 125 TO 127/10 :- 6 -: CANNOT BE CONSUMED BY THE ASSESSEE ITSELF RATHER SE CTION 80IA(8) PRESCRIBES THAT WHERE ANY GOODS OR SERVICE OF THE ELIGIBLE BUSINESS ARE TRANSFERRED TO ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE AND THE CONSIDERATION IF ANY FOR SUCH TRANSFER IS RE CORDED IN THE ACCOUNTS OF THE ELIGIBLE BUSINESS DOES NOT CORRESPOND TO TH E MARKET VALUE OF SUCH GOODS OR SERVICES AS ON THE DATE OF TRANSFER THEN FOR THE PURPOSE OF DEDUCTION UNDER THIS SECTION THE PROFITS AND GA INS FOR SUCH TRANSFERRED BUSINESS SHALL BE COMPUTED AS IF THE TR ANSFER HAS BEEN MADE AT MARKET VALUE AS ON THAT DATE. TO PUT IT IN OTHER WORDS A CAPTIVE CONSUMPTION OF THE FINISHED GOODS OF THE EL IGIBLE UNIT BECOMES ENTITLED FOR DEDUCTION U/S 80IA. THE SAME VIEW HAS BEEN TAKEN BY THE CHENNAI BENCH OF ITAT IN UMPTEEN DECISIONS AND FOR READY REFERENCE WE MAY REFER TO THE DECISION ALSO RELIED ON BY THE LD. CIT(A) RENDERED IN THE CASE OF THIAGARAJAR MILLS LTD IN I.T.A.NOS. 1801 426 7894/MDS/2007 IN WHICH SIMILAR CAPTIVE CONSUMPTION HAS BEEN ALLOWED U/S 80IA. THEREFORE BY RESPECTFULLY FOLLO WING THE CONSTANT VIEW TAKEN BY THIS VERY BENCH WE CONFIRM THE IMPUG NED ALLOWANCE BY HOLDING THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION AS PER THE ACT. THE REVENUE HAS NOT DISPUTED THE RATE PER UNIT ADOPTED AT ` 5.22 HAVING BEEN REDUCED TO ` 5.07 PER UNIT BY THE LD. CIT(A). WE UPHOLD THE RA TE PER UNIT ADOPTED AT ` 5.07 ON THE BASIS OF AVERAGE OF TNEBS BILLS ISSUED FOR TWELVE MONTHS. ITA 1652 TO 1655/10 CO 125 TO 127/10 :- 7 -: 5. IN THIS ASSESSMENT YEAR APART FROM THE ABOVE COMMO N GROUND ONE MORE ISSUE REGARDING ALLOWANCE OF INTEREST INCO ME AS BUSINESS INCOME HAS BEEN RAISED. THE ASSESSEE HAS RECEIV ED TOTAL SUM OF ` 7 89 577/- AS INTEREST FROM THREE PARTIES OUT OF T OTAL SUM OF ` 62 21 026/-. INTEREST OF ` 6 36 551/- RECEIVED FROM BANK HAS BEEN TREATED AS INCOME FROM OTHER SOURCES. BUT THE ASS ESSING OFFICER HAS ACCEPTED THE BALANCE AMOUNT OF INTEREST RECEIVED FR OM PARTIES AS BUSINESS INCOME. AS AGAINST WHICH LD. CIT(A) HAS A CCEPTED THE CONTENTION OF THE ASSESSEE. NOW THE SAME IS AGGRIE VED. 6. AFTER HEARING BOTH SIDES WE FIND FORCE IN THE REAS ONING TAKEN BY THE LD. CIT(A) FOR DELETING THE IMPUGNED ADDITION. THE HON'BLE MADRAS HIGH COURT HAS TAKEN A VIEW IN THE CASE OF CIT VS MADRAS MTORS LTD 257 ITR 60 THAT SUCH INTEREST HAS GOT A DIRECT NEX US WITH THE BUSINESS OF THE ASSESSEE. BY FOLLOWING THE VERDICT OF JURI SDICTIONAL HIGH COURT WE DO NOT FIND ANY MERIT IN THE GROUND RAISED BY T HE REVENUE IN THIS REGARD. ACCORDINGLY BOTH THE ISSUES HAVING BEEN D ISMISSED THIS APPEAL OF THE REVENUE ALSO STANDS DISMISSED. 7. IN ASSESSMENT YEAR 2005-06 IN I.T.A.NO. 1654/MDS/20 10 THE ONLY ISSUE RAISED IS REGARDING ALLOWABILITY OF DEDU CTION U/S 80IA. THE AMOUNT CLAIMED AS DEDUCTION IN THIS YEAR IS ` 2 56 98 996/-. WITH SIMILAR REASONING WE HOLD THAT THE ASSESSEE IS ELIG IBLE FOR DEDUCTION ITA 1652 TO 1655/10 CO 125 TO 127/10 :- 8 -: U/S.80IA. THE FACTS OF THIS YEAR ARE EXACTLY IDENT ICAL EXCEPT THE FIGURE OF CLAIM SO WE DISMISS THIS APPEAL OF THE REVENUE AS WELL. 8. IN I.T.A.NO. 1655/MDS/2010 FOR ASSESSMENT YEAR 200 6-07 THE FIRST ISSUE IS REGARDING ALLOWANCE OF DEDUCTION OF ` 27 98 151/- U/S 80IA WHICH IS DECIDED IN THE SAME MANNER AS DECIDED IN EARLIER YEARS AND HENCE WE DISMISS THE FIRST ISSUE OF THIS APPEA L. 9. THE SECOND ISSUE RELATES TO ALLOWANCE OF ADDITIONAL DEPRECIATION ON THE WINDMILL. THE FACTS OF THIS ISSUE ARE THAT THE ASSESSEE-COMPANY INSTALLED ONE WINDMILL DURING THE YEAR AND CLAIMED ADDITIONAL DEPRECIATION OF ` 75 36 159/- U/S 32(1)(IIA) OF THE ACT. THIS WAS DISALLOWED BY THE ASSESSING OFFICER ON THE REASONIN G THAT THE ASSESSEE IS NOT ENGAGED IN THE BUSINESS OF MANUFACTURE AND/ OR GENERATION OF ELECTRICITY AND MOREOVER THE POWER GENERATED CANNO T BE TREATED AS AN ARTICLE OR THING BUT THE LD. CIT(A) HAS ALLOWED TH IS CLAIM OF THE ASSESSEE AFTER FOLLOWING THE DECISION OF THE HON'BL E MADRAS HIGH COURT GIVEN IN THE CASE OF CIT VS VTM LTD 229 CTR 70 WHE REIN IT HAS BEEN HELD THAT THE ASSESSEE IS ENTITLED FOR ADDITIONAL D EPRECIATION IN RESPECT OF WINDMILL. 10. BEFORE US SIMILAR ARGUMENTS WERE TAKEN BY BOTH THE PARTIES. WE HAVE ALSO FOUND THAT THE ISSUE INVOLVED IS FULLY COVERED BY THE ABOVE MENTIONED DECISION OF HON'BLE JURISDICTIONAL HIGH COURT. HENCE ITA 1652 TO 1655/10 CO 125 TO 127/10 :- 9 -: WE HAVE NO REASON TO INTERFERE IN THE IMPUGNED FIND ING OF THE LD. CIT(A). 11. WITH THE ABOVE OBSERVATION WE DISMISS THE APPEAL O F THE REVENUE FOR ASSESSMENT YEAR 2006-07 AS WELL. 12. THE SECOND APPEAL HAS BEEN FILED FOR ASSESSMENT YE AR 2004-05 [I.T.A.NO. 1563/MDS/2010] AGAINST THE ORDER OF THE LD. CIT(A) DATED 2.7.2010. THE ASSESSEE-COMPANY HAD FILED APPEAL B EFORE THE LD. CIT(A) AGAINST THE DETERMINATION OF TOTAL INCOME OF THIS YEAR AT ` 3 73 50 744/- AS HAS BEEN NARRATED IN THE FORMER PA RT OF THIS ORDER. SUBSEQUENT TO THAT ACTION OF THE ASSESSEE-COMPANY THE ASSESSING OFFICER ISSUED NOTICE U/S 148 AND PASSED AN ORDER D ATED 31.12.2009 U/S 143(3) R.W.S 147 OF THE ACT BY TREATING NOTIONA L GAIN OF ` 27 80 800/- IN THE VALUATION OF FOREIGN CURRENCY LO AN AS INCOME UNDER OTHER SOURCES. THIS OPINION OF THE ASSESSING OFFIC ER WAS RESISTED BY THE ASSESSEE-COMPANY ON THE REASONING THAT IT HAD A VAILED LOANS FROM BANKS IN FOREIGN CURRENCY FOR ITS WORKING CAPITAL R EQUIREMENTS. WHILE FINALIZING THE ACCOUNTS FOR THE YEAR ENDED MARCH 20 03 THE ENTIRE LOAN WAS VALUED AT THE RATE PREVAILING ON 31.3.2003. CO MPARED TO THE RATE AS ON 31.3.2003 THE RATES DURING THE PERIOD FROM 1 .4.2003 TO 31.3.2004 WAS FOUND FAVOURABLE TO THE ASSESSEE IN VIEW OF THE STRONGER RUPEE VALUE AGAINST US DOLLAR. THE INSTAL MENTS PAID DURING ITA 1652 TO 1655/10 CO 125 TO 127/10 :- 10 - : THAT PERIOD RESULTED IN A GAIN TO THE ASSESSEE TO T HE EXTENT OF ` 38 28 700/-. THIS GAIN WAS OFFERED AS BUSINESS INC OME IN THE RETURN FILED BY THE ASSESSEE. WHILE FILING THE RETURN OF INCOME FOR THE YEAR ENDED MARCH 2004 THE ASSESSEE DID NOT OFFER THIS A MOUNT BECAUSE THE SAID SUM WAS ONLY A NOTIONAL GAIN BUT THIS WAS ACTU ALLY REALIZED RELATABLE TO THE YEAR ENDED MARCH 2003. THE ASSESS ING OFFICER HAD INSTRUCTED THE ASSESSEE DURING THE ORIGINAL ASSESSM ENT PROCEEDINGS THAT IT SHOULD EXCLUDE GAIN FROM INCOME OFFERED IN THE RETURN AGAINST WHICH THE ASSESSEE HAD FILED REPLY VIDE LETTER DATE D 15.9.2006. AFTER CONSIDERING THE SAME INCLUDING THE CLAIM OF THE AS SESSEE REGARDING NOTIONAL GAIN ARISING ON FOREIGN EXCHANGE AND TREAT ED THE SAME AS PART OF THE BUSINESS INCOME IN THE ORDER PASSED ON 30.11 .2006 AFTER CONSIDERING THE FACTS SUBMITTED BY THE ASSESSEE-COM PANY DURING THE COURSE OF HEARING. BUT BY WAY OF INVOKING THE PROV ISIONS OF SECTION 147 R.W.S 148 OF THE ACT THE ASSESSING OFFICER HAS TRIED TO CHANGE HIS OPINION BY TREATING THE SAME INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. WHEN THIS ACTION OF THE ASSESSING OFFICER WAS CHALLENGED BEFORE THE LD. CIT(A) HE HAS AGREED WIT H THE ASSESSEE- COMPANY AND HAS HELD THE CHANGE OF OPINION AS NOT A BASIS FOR REOPENING OF A COMPLETED ASSESSMENT . ACCORDINGLY HE HAS STRUCK DOWN THE ENTIRE RE-ASSESSMENT PROCEEDINGS. ITA 1652 TO 1655/10 CO 125 TO 127/10 :- 11 - : 13. AFTER HEARING BOTH SIDES IN THE LIGHT OF THE ENTIRE RECORD AVAILABLE BEFORE US WE FIND THAT THERE IS NO CONTRADICTION O R TO SAY THAT THERE IS NO DISPUTE REGARDING THE ABOVE NARRATED FACTS OF TH E ISSUE BEFORE US. THE ASSESSING OFFICER HAS CONSIDERED THE ENTIRE REA SONINGS AND ARGUMENTS REGARDING REALIZATION METHOD. THE PLEA O F THE ASSESSEE THAT IT WAS A NOTIONAL GAIN AND THE EXACT GAIN EA RNED BY THE COMPANY WOULD BE OFFERED AS INCOME IN THE NEXT YEAR AT THE TIME OF REPAYMENT HAS BEEN VERILY CONSIDERED BY THE ASSESSING OFFICER IN THE PROCEEDINGS OF ORIGINAL ASSESSMENT. IT IS SETTLED POSITION OF LAW AS ORDAINED BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS KELVINA TOR OF INDIA LTD 320 ITR 561 THAT ON THE BASIS OF MERE CHANGE OF OPI NION NO RE- ASSESSMENT PROCEEDINGS CAN BE UNDERTAKEN. CONSEQU ENTLY WE FIND NO FORCE IN THE GROUNDS TAKEN IN THIS APPEAL AND DI SMISS THE SAME. ACCORDINGLY THIS APPEAL OF THE REVENUE ALSO STANDS DISMISSED. 14. THE ASSESSEE HAS FILED CROSS OBJECTIONS. THE COMMO N ISSUE RAISED FOR ASSESSMENT YEARS 2004-05 2005-06 AND 20 06-07 IS REGARDING CLAIM OF ALLOWANCE PERTAINING TO COST OF MACHINERY ALLEGEDLY INCURRED ON DISCARDED OLD MACHINERY BY WAY OF REPLA CEMENT OF THE SAME BY A NEW MACHINERY. THE ASSESSEE HAS TREATED THE COST OF MACHINERY ADDITION AS CAPITAL EXPENDITURE BY CAPITA LIZING THE ASSETS IN THE BOOKS OF ACCOUNT AND HAS SHOWN HIGHER PROFIT. IN ITS STATEMENT OF ITA 1652 TO 1655/10 CO 125 TO 127/10 :- 12 - : TOTAL INCOME COMPUTATION THE ASSESSEE-COMPANY AS C LAIMED THIS EXPENDITURE AS REVENUE TO REDUCE THE PROFIT AND TOT AL TAXABLE INCOME. FOR DOING SO THE ASSESSEE RELIED ON THE HON'BLE MA DRAS HIGH COURT DECISION IN THE CASE OF CIT VS SARAVANA SPINNING MI LLS LTD 293 ITR 201. BUT THE HON'BLE SUPREME COURT WHILE DECIDING THE CASE OF CIT VS V.RAMARAJU SURGICAL COTTON MILLS LTD 294 ITR 328 WITHOUT EXPRESSING AN OPINION ON THE MERITS OF THE CASE HAS REMITTED THE MATTER TO THE LD. CIT(A) TO DECIDE THE QUESTION IN ACCORDANCE WITH LA W. THE LD. CIT(A) HAS ACCEPTED THE DEDUCTIBILITY OF THIS EXPENDITURE U/S 37 OF THE ACT BUT HE HAS DECIDED THAT EACH MACHINE IS A TEXTILE MILL AND SHOULD BE TREATED INDEPENDENTLY AS SUCH AND NOT AS A MERE PAR T OF AN ENTIRE COMPOSITE MACHINERY OF THE SPINNING MILL AND HENCE AT BEST THE SAME CAN BE CONSIDERED AS A INTEGRATED MANUFACTURING PRO CESS EMPLOYED IN A TEXTILE MILL. THIS REPLACEMENT OF AN OLD MACHINE WITH A NEW ONE WOULD CONSTITUTE THE BRINGING INTO EXISTENCE OF A N EW ASSET IN PLACE OF THE OLD ONE AND HENCE THE EXPENDITURE INCURRED THE REON SHOULD BE TREATED AS CAPITAL EXPENDITURE ONLY. HE HAS ALSO R EFERRED TO THE TREATMENT GIVEN TO THE COST OF REPLACED MACHINERY O NLY AS A CAPITAL EXPENDITURE IN ITS ACCOUNTS BY THE ASSESSEE. THE A SSESSEE IS AGGRIEVED AGAINST THIS FINDING OF THE LD. CIT(A) . FOR READY REFERENCE THE SAMPLE GROUNDS FOR ASSESSMENT YEAR 2004-05 TAKE N IN ASSESSEES CROSS OBJECTION IS BEING EXTRACTED HEREIN BELOW: ITA 1652 TO 1655/10 CO 125 TO 127/10 :- 13 - : 1. THE ORDER OF THE COMMISSIONER (APPEALS) IN SO FAR A S THE POINT RAISED IN THIS CROSS-OBJECTION ARE AGAINST LA W AND FACTS OF THE CASE. 2. THE CIT (A) ERRED IN FOLLOWING THE DECISION OF THE SUPREME COURT IN THE CASE OF MANAYARKARASI MILLS LTD ( 315 ITR 114) WHICH WAS DECIDED WHERE CLAIM IS MADE UNDER SECTION 31 AND NOT UNDER SECTION 37. 3. THE CIT(A) OUGHT TO HAVE FOLLOWED THE DECISION OF THE SUPREME COURT IN THE CASE OF RAMARAJU SURGICAL COTT ONS LTD (294 ITR 328) WHERE THE SUPREME COURT DIRECTED THE CIT(A) TO DECIDE THE ISSUE ON THE BASIS OF INSTALLE D CAPACITY OF THE FACTORY ETC AND AS THE APPELLANT HAS NOT INC REASED ITS CAPACITY BY THE INSTALLATION OF THE NEW MACHINERY THE SAME HAS TO BE TREATED ONLY AS A REVENUE EXPENDITU RE. 4. THE CIT(A) OUGHT TO HAVE OBSERVED THAT EVEN AFTE R THE DECISION OF THE MANGAYARKARASI MILLS LTD THE SUPRE ME COURT HAD NOT FOLLOWED THE SAID DECISION IN SUBSEQU ENT CASES AND REMITTED SIMILAR CLAIM FOR DENOVO CONSIDE RATION OF THE HIGH COURT IN THE LIGHT OF RAMARAJU SURGICAL COTTON LTD DECISION AND HENCE THE CIT(A) ERRED IN NOT CONS IDERING THE OBSERVATION OF THE APPELLANT THAT THE DECISION IN THE CASE OF MANGAYARKARASI MILLS LTD IS NOT FINAL. . FOR THESE AND OTHER REASONS THAT MAY BE ADDUCED AT THE TIME OF HEARING INCLUDING ADDITIONAL GROUNDS THAT MAY BE PE RMITTED TO BE RAISED THE ORDER OF THE COMMISSIONER (APPEALS) MAY BE REVERSED ON THIS POINT AD JUSTICE RENDERED. 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE C AREFULLY GONE THROUGH THE ENTIRE RECORDS. AFTER HEARING BOT H SIDES WE FIND FORCE IN THE GROUNDS RAISED IN THE CROSS OBJECTIONS AND BY FOLLOWING THE DECISION RENDERED IN THE CASE OF CIT VS RAMAR AJU SURGICAL COTTON MILLS LTD 294 ITR 328(SUPRA) WHERE THE HON'BLE SUP REME COURT HAS DIRECTED THE LD. CIT(A) TO DECIDE THE ISSUE ON THE BASIS OF INSTALLED CAPACITY OF THE FACTORY ETC. SINCE IN THIS CASE THE ASSESSEE HAS NOT INCREASED ITS CAPACITY BY INSTALLATION OF THE NEW MACHINERY THE SAME ITA 1652 TO 1655/10 CO 125 TO 127/10 :- 14 - : HAS TO BE TREATED ONLY AS REVENUE EXPENDITURE. WE THEREFORE REMIT THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOR DENOVO CONSIDERATION IN THE LIGHT OF THE DECISION OF THE H ON'BLE SUPREME COURT IN THE CASE OF CIT VS RAMARAJU SURGICAL COTTON MILL S LTD(SUPRA). 16. IN THE RESULT ALL THE CROSS OBJECTIONS OF THE ASSE SSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 17. TO SUMMARIZE THE RESULT ALL THE APPEALS OF THE RE VENUE STAND DISMISSED WHEREAS THE CROSS OBJECTIONS OF THE ASSES SEE STAND ALLOWED FOR STATISTICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 25.3.2011 SD/- SD/- (ABRAHAM P GEORGE) ACCOUNTANT MEMBER ( HARI OM MARATHA ) JUDICIAL MEMBER DATED: 25 TH MARCH 2011 RD COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR