ACIT, UDAIPUR v. M/s. Shree Rajasthan Syntex Ltd.,, UDAIPUR

ITA 540/JODH/2007 | 2004-2005
Pronouncement Date: 09-10-2013 | Result: Dismissed

Appeal Details

RSA Number 54023314 RSA 2007
Assessee PAN AACCS8784L
Bench Jodhpur
Appeal Number ITA 540/JODH/2007
Duration Of Justice 6 year(s) 3 month(s) 18 day(s)
Appellant ACIT, UDAIPUR
Respondent M/s. Shree Rajasthan Syntex Ltd.,, UDAIPUR
Appeal Type Income Tax Appeal
Pronouncement Date 09-10-2013
Appeal Filed By Department
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 09-10-2013
Date Of Final Hearing 04-10-2013
Next Hearing Date 04-10-2013
Assessment Year 2004-2005
Appeal Filed On 21-06-2007
Judgment Text
IN THE INCOME TAX APPELALTE TRIBUNAL : JODHPUR BENC H : JODHPUR BEFORE SHRI HARI OM MARATHA JUDICIAL MEMBER AND SHRI N.K. SAINI ACCOUNTANT MEMBER. ITA NO. 407/JU/2007 (A.Y. 2004-05) SHREE RAJASTHAN SYNTEX LTD. VS. ACIT CIRCLE-2 NATIONAL HIGHWAY NO.8 UDAIPUR. UDAIPUR. PAN NO. AACCS 8784 L (APPELLANT) (RESPONDENT) ITA NO. 540/JU/2007 & 360/JU/2008 (A.YS. 2004-05 & 2005-06) ACIT CIRCLE-2 VS. SHREE RAJASTHAN SYNTEX L TD. UDAIPUR. SRSL HOUSE PULLA BHUWANA ROAD NATIONAL HIGHWAY NO.8 UDAIPUR. PAN NO. AACCS 8784 L (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AMIT KOTHARI. DEPARTMENT BY : SHRI DEEPAK SEHGAL - D.R. DATE OF HEARING : 04/10/2013. DATE OF PRONOUNCEMENT : 09/10/2013. O R D E R PER N.K.SAINI A.M 2 THESE CROSS APPEALS FOR THE A.Y. 2004-05 BY THE AS SESSEE AND THE DEPARTMENT ARE DIRECTED AGAINST THE ORDER DATED 23/ 03/2007 AND THE APPEAL BY THE DEPARTMENT FOR THE A.Y. 2005-06 IS DI RECTED AGAINST THE ORDER DATED 31/03/2008 PASSED BY THE LD. CIT (A) U DAIPUR. 2 FIRST WE WILL DEAL WITH THE APPEAL OF THE ASSESSEE IN ITA NO. 407/JU/2007. 3. THE FIRST ISSUE IN THIS APPEAL VIDE GROUND NO.1 RE LATES TO THE SUSTENANCE OF ADDITION MADE BY THE ASSESSING OFFICE R ON ACCOUNT OF DISALLOWANCE OF INTEREST TREATING CONCESSIONAL LOAN TO SRSL WELFARE TRUST. 4. DURING THE COURSE OF HEARING IT WAS THE COMMON CO NTENTION OF BOTH THE PARTIES THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE VIDE ORDER DATED 09/12/2011 IN ASSESSEES OWN CASE IN ITA NO. 159 & 203/JU/2006 FOR THE A.Y. 2002-03. COPY OF THE SAID ORDER WAS F URNISHED WHICH IS PLACED AT PAGES 11 TO 34 OF THE ASSESSEES COMPILAT ION. 5. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PART IES AND THE MATERIAL AVAILABLE ON RECORD IT IS NOTICED THAT AN IDENTICAL ISSUE HAVING SIMILAR FACT HAS ALREADY BEEN ADJUDICATED BY THIS B ENCH OF THE TRIBUNAL IN THE PRECEDING ASSESSMENT YEAR IN ITA NO. 159/JU/200 6 VIDE ORDER DATED 3 09/12/2011 AND THE RELEVANT FINDINGS HAVE BEEN GIVE N IN PARA 3.4 WHICH ARE REPRODUCED VERBATIM AS UNDER:- 3.4 WE HAVE HEARD BOTH THE PARTIES. BEFORE US BO TH THE PARTIES HAVE MADE THE SUBMISSIONS WHICH HAVE BEEN CONSIDERE D. THE FACT IS THAT THE AMOUNT RECEIVED BACK AS SHARE CAPITAL CANN OT BE A GROUND FOR CHARGING LESSER INTEREST FROM THE PARTIES TO WH OM THE AMOUNT HAS BEEN PAID BECAUSE THE PARTY BECOMES THE OWNERS OF T HE SHARES AND APPRECIATION IN SHARE AND DIVIDEND WILL BELONG TO T HAT PARTY. BOTH THE TRANSACTIONS ARE SEPARATE AND DISTINCT AND CHARGING OF LOWER RATE OF INTEREST CANNOT BE JUSTIFIED. WE ARE ALSO NOT AWAR E THAT SUCH SHARE CAPITAL WAS RAISED DURING THE YEAR OR THE PARTY PUR CHASED THE SHARES FROM OTHER PARTIES. THE LD. CIT(A) HAS CONSIDERED THE COST OF BORROWINGS AND NOTICED THAT INTEREST RATE OF BORROW INGS IN THE HANDS OF THE ASSESSEE IS 8.60%. WE THEREFORE FEEL THAT THE LD. CIT(A) WAS JUSTIFIED IN RESTRICTING THE ADDITION TO RS. 2 80 4 10/-. HENCE ON THIS ISSUE THE GROUNDS OF APPEAL OF THE REVENUE AND ASSE SSEE ARE DISMISSED. IN THE YEAR UNDER CONSIDERATION ALSO THE ASSESSIN G OFFICER MADE THE ADDITION OF RS. 21 55 237/- AS DIFFERENCE IN THE IN TEREST IN THE CASES OF SRSL WELFARE TRUST RS. 6 47 100/- AND RS. 15 08 137 /- IN SRTL BY FOLLOWING THE EARLIER ASSESSMENT ORDER FOR THE A.Y. 2002-03 AND THE LEARNED CIT(A) ALSO PARTLY ALLOWED THE RELIEF BY FO LLOWING HIS EARLIER ORDER DATED 04/01/2006 IN ASSESSEES OWN CASE FOR THE A.Y . 2002-03. SINCE THE ABOVE SAID ORDER DATED 04/01/2006 PASSED BY THE LEA RNED CIT(A) HAS BEEN CONFIRMED BY THIS BENCH OF THE TRIBUNAL VIDE ORDER DATED 09/12/2011 WE THEREFORE DO NOT SEE ANY MERIT IN THIS GROUND OF T HE ASSESSEES APPEAL. 4 6. VIDE GROUND NO.2 THE GRIEVANCE OF THE ASSESSEE R ELATES TO THE SUSTENANCE OF DISALLOWANCE OF THE DEFERRED TAX CLAI M OF RS. 97 15 858/- AGAINST BOOK PROFIT UNDER SECTION 115JB OF THE I.T. ACT 1961(HEREINAFTER REFERRED TO AS ACT FOR SHORT). DURING THE COURS E OF HEARING LEARNED COUNSEL FOR THE ASSESSEE WAS FAIR ENOUGH TO CONCEDE THAT THIS ISSUE IS AGAINST THE ASSESSEE IN VIEW OF THE AMENDMENT BY FI NANCE ACT 2008 WITH RETROSPECTIVE EFFECT FROM THE A.Y. 2001-02. ACCORD INGLY BY CONSIDERING THE ABOVE SUBMISSIONS OF THE LEARNED COUNSEL FOR TH E ASSESSEE WE DO NOT SEE ANY MERIT IN THIS GROUND OF THE ASSESSEES APPE AL AND THE SAME IS DISMISSED. 7. NOW WE WILL DEAL WITH THE DEPARTMENTAL APPEAL IN ITA NO. 504/JU/2006 . THE FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS A PPEAL:- 1. DIRECTING NOT TO TREAT THE LEASE RENT INCOME A S INCOME FROM OTHER SOURCES INSTEAD OF BUSINESS INCOME. 2. DELETING THE DISALLOWANCE OF DEPRECIATION ON LE ASED ASSETS TO THE TUNE OF RS. 48 12 358/-. 3. DELETING THE ADDITION OF RS. 15 08 137/- AS DIFF ERENCE IN INTEREST IN THE CASE OF SHREE RAJASTHAN TEXCHEM LTD. AND REDUCING A DDITION OF RS. 6 47 100/- TO RS. 2 09 230/- IN THE CASE OF SHREE R AJASTHAN SYNTEX LTD. WELFARE TRUST BY DIRECTING THE AO TO ALLOW THE INTE REST IN AVERAGE BASIS. 4. DELETING THE DISALLOWANCE OF RS. 3 33 26 540/- C LAIMED U/S 37(1) FOR REPLACEMENT OF MACHINERY & ALLOWING DEPRECIATION. 5 5. DELETING THE DISALLOWANCE OF EXPENSES AMOUNTING TO RS. 84 07 021/- TOWARDS BANK CHARGES/REDUCTION IN INTEREST RATE ON LOAN. 6. DIRECTING THE AO TO ALLOW DEDUCTION U/S 80IA/80 IB IN RESPECT OF THE PROFITS OF POWER PLANT & UNIT NO.2 OF POLYPROPYLENE MULTI FILAMENT YARN & UNIT NO.3 OF SPUN YARN. 8 . VIDE GROUND NO. 1 & 2 THE GRIEVANCE OF THE DEPAR TMENT RELATES TO THE DELETION OF DISALLOWANCE OF DEPRECIATION OF LEA SED ASSETS AND THE DIRECTION FOR NOT TREATING THE LEASE RENT INCOME AS INCOME FROM OTHER SOURCES INSTEAD OF BUSINESS INCOME. 9 . AS REGARDS TO THIS ISSUE LEARNED COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET STATED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE EARLIER DECISION OF THIS BENCH OF THE TRIBUNAL IN A SSESSEES OWN CASE FOR THE A.YS. 1996-97 & 1997-98 IN ITA NO. 67 & 68/JU/2 003 REPORTED IN (2005) 93 TTJ (JD) 41 : (2005) 93 ITD 78 (JD) WHIC H HAS BEEN AFFIRMED BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE O F CIT VS. SHREE RAJASTHAN SYNTEX LTD. (2008) 7 DTR (RAJ) 393. THE ABOVE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE WAS NOT CONTRO VERTED BY THE LEARNED C.I.T. D.R. 10. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PART IES AND MATERIAL ON RECORD IT IS NOTICED THAT THE ISSUE UNDER CONSI DERATION IS COVERED BY 6 THE RATIO LAID DOWN IN THE AFORESAID REFERRED TO OR DER REPORTED AT (2008) 7 DTR 393 (SUPRA) WHEREIN IT HAS BEEN HELD AS UNDER: - THE BASIC DISTINGUISHING FEATURE BETWEEN THE LEASE BEING FINANCE LEASE OR OPERATING LEASE WOULD BE THAT IN CASE OF FINANCE LEASE AT SOME POINT OF TIME THE OWNERSHIP TRANSFERS TO THE LESSEE OR THE LESSEE HAS THE OPTION TO PURCHASE THE HIRED ASSETS IN CONSIDERATION OF A TOKEN PRICE. OBVIOUSLY IN THAT EVENT THE LE ASE RENT OR HIRE CHARGES CALLED BY WHATEVER NAME WITH PASSAGE OF T IME PARTAKE THE CHARACTER OF THE PRICE OF THE ASSET IN POSSESSI ON OF THE LESSEE OR HIRER UNDER THE FINANCE LEASE AGREEMENT AS DISTIN CT FROM THE LEASE IN QUESTION WHERE THERE IS A VERY SPECIFIC STIPULA TION THAT ON TERMINATION OF THE LEASE THE LEASED PLANT AND MACH INERY ARE TO BE RETURNED TO THE LESSOR IN THE CONDITION AS THEY W ERE TAKEN EXCEPT NORMAL WEAR AND TEAR. TRIBUNAL WAS THEREFORE JUSTI FIED IN HOLDING THAT THE ASSESSEE IS ENTITLED TO GET DEPRECIATION U NDER S. 32 ON THE ASSETS CLAIMED TO BE GIVEN ON LEASE AS OWNER OF TH E ASSETS. CIT VS. SHAAN FINANCE (P) LTD./FIRST LEASING CO. OF INDIA LTD. (1998) 146 CTR (SC) 110 : (1998) 231 ITR 308 (SC) RELIED ON; SHREE RAJASTHAN SYNTEX LTD. VS. ASSTT. CIT (2005) 93 TTJ (JD) 41 AFFIRMED. 11 . SO BY RESPECTFULLY FOLLOWING THE AFORESAID REFER RED TO ORDER IN ASSESSEES OWN CASE FOR THE A.YS. 1996-97 & 1997-98 WE DO NOT SEE ANY MERIT IN THESE TWO GROUNDS OF THE DEPARTMENTAL APPE AL. 12 . VIDE GROUND NO.3 THE GRIEVANCE OF THE DEPARTMENT RELATES TO THE DELETION OF ADDITION OF RS. 15 08 137/- AS DIFFEREN CE IN INTEREST IN THE CASE OF SHREE RAJASTHAN TEXCHEM LTD. (SRTL) AND RED UCING ADDITION OF RS. 6 47 100/- TO RS. 2 09 230/- IN THE CASE OF SHREE R AJASTHAN SYNTEX LTD. WELFARE TRUST. 7 13. THIS ISSUE IS COMMON TO THE ISSUE INVOLVED IN GROUN D NO.1 OF THE ASSESSEES APPEAL WHICH WE HAVE ALREADY ADJUDICATE D IN THE FORMER PART OF THIS ORDER THEREFORE OUR FINDINGS GIVEN THEREI N SHALL APPLY MUTATIS MUTANDIS TO THE PRESENT GROUND ALSO. ACCORDINGLY WE DO NOT SEE ANY MERIT IN THE APPEAL OF THE DEPARTMENT ON THIS ISSUE . 14 . THE NEXT ISSUE VIDE GROUND NO.4 RELATES TO THE D ELETION OF DISALLOWANCE OF RS. 3 33 26 540/- CLAIMED BY THE AS SESSEE FOR REPLACEMENT OF MACHINERY AND ALLOWING DEPRECIATION. 15. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICE D THAT THE ASSESSEE HAD CLAIMED A SUM OF RS. 3 33 26 540/- UNDER SECTIO N 37(1) OF THE ACT BEING THE REPLACEMENT/RECONDITIONING OF ASSETS. THE ASSESSING OFFICER ASKED THE ASSESSEE TO JUSTIFY THE ALLOWABILITY OF T HE SAME. IN RESPONSE THE ASSESSEE SUBMITTED THAT AUTOCONER MACHINERY AND DG SET HAD BEEN REPLACED BY SPENDING A SUM OF RS. 3 33 26 540/- AND THOSE REPLACEMENT WERE FOR EXISTING MACHINERIES THEREFORE THE COMPANY HAD CHARGED THE SAME UNDER SECTION 37(1) OF THE ACT. IT WAS FURTHE R SUBMITTED THAT REPLACEMENT HAD BEEN DONE UNDER TECHNOLOGICAL UP-GR ADATION FUND (TUF) 8 OF MINISTRY OF TEXTILE AND ACCORDINGLY THE ASSESSE E-COMPANY HAD REPLACED THE ABOVE MACHINES. RELIANCE WAS PLACED O N THE FOLLOWING CASE LAWS:- 1) DCIT VS. BHILWARA SPINNER LTD. 99 TTJ 180. 2) CIT VS. JANKI RAM MILLS LTD. 196 CTR 561. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE THE ASSESSING OFFICER HELD THAT THE ASSESSEE HAD ACQUIRED NEW ASS ETS IN PLACE OF EXISTING ASSETS WHICH HAD BEEN SOLD OUT. THEREFORE NEW ASSETS WOULD GIVE ENDURING BENEFIT TO THE ASSESSEE SO IT WAS A CAPITAL EXPENDITURE AND THE ASSESSEE SHOULD HAVE SHOWN IT AS AN ADDITION IN THE OPENING WDV AND THE SALE PROCEEDS OF THE OLD ASSETS SHOULD HAVE BEE N REDUCED FROM THE WDV AND THEREAFTER DEPRECIATION SHOULD HAVE BEEN C LAIMED AS PER LAW BUT THE ASSESSEE HAD NOT DONE SO. THE ASSESSING OF FICER FURTHER OBSERVED THAT BY NO STRETCH OF IMAGINATION ACQUISITION OF N EW ASSETS COULD BE CHARGED OFF AS REVENUE EXPENDITURE. AS REGARDS TO TUF SCHEME THE ASSESSING OFFICER OBSERVED THAT THE LEGISLATURE HAD SPECIFICALLY PROVIDED SPECIAL RATE OF DEPRECIATION I.E. AT THE RATE OF 50 % FOR THE SPINNING EQUIPMENTS ACQUIRED UNDER TUF SCHEME WHICH CLEARLY PROVIDED THAT THE ASSETS ACQUIRED UNDER TUF HAVE TO BE TREATED AS CAP ITAL EXPENDITURE. HE FURTHER OBSERVED THAT IN ASSESSEES OWN CASE IN THE A.Y. 2002-03 SUCH 9 REPLACEMENT WAS TREATED AS CAPITAL EXPENDITURE. HE THEREFORE TREATED THE EXPENDITURE ON AUTOCONER MACHINE AND DG SET AS CAPITAL EXPENDITURE AND ALLOWED THE DEPRECIATION. 16 . BEING AGGRIEVED ASSESSEE CARRIED THE MATTER TO T HE LEARNED CIT(A) AND THE SUBMISSIONS MADE AS INCORPORATED IN PARA 5. 2 OF THE IMPUGNED ORDER ARE REPRODUCED VERBATIM AS UNDER:- DURING THE COURSE OF APPELLATE PROCEEDINGS THE LD. A/R SUBMITTED THAT THE PLANT AND MACHINERY REPLACED IS NOT A PLANT/MACHINE RY IN ITSELF. IT IS ONLY PART OF THE TOTAL MACHINERY AND WHEN ALL PLANT AND MACHINERY IS PUT TOGETHER AMOUNT TO A SINGLE UNIT AND NO NEW ASSETS ARE CREATED IN THE PROCESS OF REPLACEMENT OF WORN OUT MACHINES. THE RE PLACED MACHINERY INCLUDES AUTOCONER FOR RS.2 28 76 138/-. THE AUTOCO NER IS A MACHINE FOR REWINDING YARN FROM SMALL PLASTIC BOBBINS PRODUCED ON PINNING RING FRAME AND MAKING A BIG SIZE BOBBIN. INDEPENDENTLY THIS M ACHINE HAS NO FUNCTION AND IT IS PART OF TOTAL BLOCK OF SPINNING MACHINE. THESE HAVE NO INDEPENDENT EXISTENCE OR UTILITY UNLESS WORKED TOGETHER WITH OT HER MACHINES THAT ITS FUNCTION IS ANCILLARY THAT IT IS ONLY A SUPPORTIVE MACHINE USED FOR KNOTTING THE YARN FROM SMALL PLASTIC BOBBIN TO BIG CONES AND THAT THEY ARE NOT MACHINES CAPABLE OF INDEPENDENT FUNCTIONS AND THE REFORE THE COST INCURRED ON SUCH AUTOCONER IS A REVENUE EXPENDITURE . FURTHER THE AMOUNT INCLUDES RS.74 96 357/- WHICH IS TOWARDS PURCHASE O F CRANK SHAFT FOR KOEL ENGINE. THIS IS A PART OF MACHINE WITHOUT WHICH THE MACHINE WOULD NOT RUN. THIS NEEDS TO BE REPLACED ON BREAKDOWN AND AS ABOVE HAS NO INDEPENDENT EXISTENCE OR UTILITY. ALSO THE AMOUNT INCLUDES A SU M OF RS.29 54 045/- TOWARDS PURCHASE OF RECONE ENGINE IS THE EXPENDITUR E ON RECONDITIONING OF THE OLD ENGINE AND NO NEW PHYSICAL ASSET IS ACQUIRE D. IN SUPPORT OF HIS CLAIM THE LD. A/R PLACED RELIANCE IN THE CASES OF DCIT VS . BHILWARA SPINNERS LTD (2002) 99 TTJ (JD) 180 (ITAT JODHPUR) CIT VS. JAN AKI RAM MILLS LTD &. ORS (2005) 196 CTR 551 (MAD) CIT VS. MAHALAXMI TEXTILE MILLS LTD (1967) 66 ITR 710 (SC) AND CIT VS. SAKTHI TEXTILES LTD (2001) 250 ITR 449. THE LD. A/R FURTHER SUBMITTED THAT ALL THE ABOVE EX PENDITURE IS TOWARDS REPLACEMENT OF PARTS OF PLANT AND MACHINERY. THE EX PENDITURE IS REVENUE 10 EXPENDITURE AS ALL PLANT AND MACHINERY IS SPINNING MILL TOGETHER AMOUNT TO A SINGLE UNIT AND CANNOT WORK INDEPENDENTLY. THE IM PUGNED EXPENDITURE INCURRED IN REPLACEMENT OF AUTOCONER MACHINE AND CR ANK SHAFT AND RECONDITIONING OF ENGINE OF TEXTILE MILL IS REVENUE EXPENDITURE BECAUSE ALL MACHINERY PUT TOGETHER AMOUNT TO A SINGLE UNIT. TH ESE ITEM/UNIT CANNOT WORK INDEPENDENTLY BUT CAN WORK ONLY AS A PART OF S PINNING MILL. THEREFORE THE CLAIM OF 100% DEPRECIATION ON THIS ITEM IS ALLO WABLE TO THE COMPANY BECAUSE SUCH EXPENDITURE IS DEFINITELY AN EXPENDITU RE OF REVENUE NATURE AS THE SAME IS REQUIRED FOR THE RUNNING OF MACHINERY A ND PLANT WHICH PUT TOGETHER AMOUNT TO A SINGLE UNIT. THE ASSESSEE HAS CLAIMED DEPRECIATION @ 100% ON THE ABOVE AFORESAID PART OF PLANT AND MACHI NERY AS THE SAME IS IN THE NATURE OF REPAIRS AND RENOVATION EXPENDITURE. T HE ABOVE REFERRED EXPENDITURE IN THE NATURE OF REPAIR AND RENOVATION EXPENSES DOES NOT AMOUNT TO SINGLE UNIT AND NO NEW ASSET HAS BEEN CRE ATED IN THE PROCESS OF REPLACEMENT OF WORN OUT MACHINE. HAD THIS EXPENDITU RE NOT INCURRED BY THE APPELLANT THE TOTAL PRODUCTION WOULD HAVE COME TO COMPLETE HALT. FURTHER THIS MACHINE IS PART OF TOTAL BLOCK OF SPIN NING MACHINE AND HAS NO INDEPENDENT EXISTENCE AND UTILITY. 17 . LEARNED CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE HELD THAT THE EXPENDITURE OF RS. 3 33 26 540/- FOR REPLACEMENT OF AUTOCONER AND DG SET MACHINE CRANK SHAFT WAS REVENU E IN NATURE AND NOT THE CAPITAL EXPENDITURE BY OBSERVING IN PARA 5.3 OF THE IMPUGNED ORDER AS UNDER:- I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUB MISSIONS OF THE LD. A/R AND FOUND THAT THE APPELLANT CLAIMED A SUM OF RS.3 33 26 540/- U/S 37(1) IN THE COMPUTATION OF INCOME BEING REPLACEMENT/RECONDI TIONING OF ASSETS. HAVING BEEN ASKED BY THE AO THE APPELLANT HAD SUBM ITTED AGAIN THAT THE COMPANY HAS REPLACED THE AUTOCONER MACHINE AND DG S ET FOR RS.3 33 26 540/-. THESE REPLACEMENTS ARE FOR EXISTI NG MACHINERIES. THE ABOVE REPLACEMENTS HAVE BEEN DONE UNDER TUF SCHEME OF MINISTRY OF TEXTILE. THE APPELLANT RELIED ON THE CASE OF DCIT V S. BHILWARA SPINNERS LTD 99 TTJ 180 AND CIT VS. JANKIRAM MILLS LTD 196 CTR 5 61. 11 THE AO HAS MENTIONED IN THE ASSESSMENT ORDER THAT T HE ASSESSEE HAS ACQUIRED NEW IN PLACE OF THE EXISTING ASSETS WHICH HAVE BEEN SOLD OUT. THIS HAS BROUGHT INTO EXISTENCE OF NEW ASSETS WHICH WILL GIVE ENDURING BENEFIT TO THE APPELLANT. BY NO STRETCH OF IMAGINATION ACQUISI TION OF NEW ASSETS CAN BE CHARGED TO REVENUE EXPENDITURE. UNDER TUF SCHEME T HE MINISTRY HAS SPECIFICALLY PROVIDED SPECIAL RATE OF DEPRECIATION I.E. 50% FOR SPINNING EQUIPMENTS. IT IS CLEAR THEREFORE THAT THE LEGISL ATURE HAS EXPLICITLY PROVIDED THAT THE ASSETS ACQUIRED UNDER TUF HAVE TO BE TREAT ED AS CAPITAL EXPENDITURE. FURTHER IN APPELLANT'S OWN CASE IN AS SESSMENT YEAR 2002-03 SUCH REPLACEMENT WAS TREATED AS CAPITAL EXPENDITURE BY THE AO AND UPHELD BY THE CIT(A). THE A/R HAS SUBMITTED THAT THE PLANT AND MACHINERY REPLACED IS NOT A PLANT/MACHINERY IN ITSELF. IT IS ONLY PART OF THE T OTAL MACHINERY. WHEN ALL PLANT AND MACHINERY IS PUT TOGETHER IT AMOUNTS TO A SINGLE UNIT AND NO NEW ASSETS ARE CREATED IN THE PROCESS OF REPLACEMENT OF WORN OUT MACHINES. THE REPLACED MACHINERY INCLUDES AUTOCONER FOR RS.2 28 7 6 138/-. THIS AUTOCONER IS A MACHINE FOR REWINDING YARN FROM SMAL L PLASTIC BOBBINS PRODUCED ON PINNING RING FRAME AND MAKING A BIG SIZ E BOBBIN. INDEPENDENTLY THIS MACHINE HAS NO FUNCTION AND IT IS PART OF TOTAL BLOCK OF SPINNING MACHINE' THIS IS A MACHINE ONLY FOR KNOTTI NG A SMALL CONTENTS ON A PLASTIC BOBBIN. THE FLOW OF MATERIAL DIAGRAM HAS BE EN ANNEXED HEREWITH. THIS HAS NO INDEPENDENT EXISTENCE OR UTILITY UNLESS WORK TOGETHER WITH OTHER MACHINES ITS FUNCTION IS AUXILIARY. IT IS ON LY A SUPPORTING MACHINE. THEREFORE THE COST INCURRED IN SUCH AUTOCONER IS A REVENUE EXPENDITURE. FURTHER THE AMOUNT INCLUDES RS. 74 96 357/- WHICH IS TOWARDS PURCHASE OF CRANK SHAFT FOR KIRLOSKER DIESEL GENERATOR. THE ORI GINAL COST OF THE ENGINE IN ASSESSMENT YEAR 1998-99 WAS RS. 4 24 41 846/-. TH E ELECTRICITY CONNECTION FROM R.S.E.B. WAS DISCONTINUED BY THE APPELLANT FRO M ASSESSMENT YEAR 1998-99. THE SPINNING FACTORY COMPLETELY RUNS BY TH E ELECTRICITY GENERATED BY KIRLOSKER DIESEL GENERATOR. THIS IS A PART OF MA CHINE WITHOUT WHICH THE MACHINE WOULD NOT RUN. THIS NEEDS TO BE REPLACED ON BREAKDOWN. FURTHER THE AMOUNT INCLUDES A SUM OF RS. 29 54 045/- TOWAR DS RECONDITIONING OF RECON MACHINE. BEFORE GIVING OBSERVATION ON THE FACTS AND LEGAL IS SUE INVOLVED IN THIS APPEAL IT IS CONVENIENT TO HAVE A PICTURE OF RETURNED INCO ME/LOSS INCOME SHOWN U/S. 115JB OF THE ACT BY THE APPELLANT IN ASSESSME NT YEARS 2004-05 2005- 06 AND 2006-07 WHICH IS AS UNDER:- 12 ASSESSMENT YEAR RETURNED INCOME/LOSS (RS.) DECLARED R/S 1 15JB(RS.) 2004-05 NIL 1 81 97 300/- 2005-06 (-) 8 01 64 642 1 28 36 575/- 2006-07 NIL 2 05 98 958/- TO UNDERSTAND AS TO WHETHER THE VARIOUS MACHINES ARE DIFFERENT UNIT OR PART AND PARCEL OF A COMPOSITE SYSTEM THE MATERI AL DIAGRAM FURNISHED BY THE A/R IS HELPFUL AS IT GIVES THE VARIOUS STAGES O F PROCESSING OF THE YARN FROM STAGE ONE TO LAST STAGE I.E. EXISTING RAW MATE RIAL GODOWN - BLOW ROOM - HUM TOWER - DRAW FRAME - FINISHER - SIMPLEX - RIN GH FRAME - HUM TOWER - AUTO CONER - CHEESE WINDING - DOUBLING PACKING AN D FINALLY HUM TOWER. BY GOING THROUGH THE ABOVE MENTIONED VARIOUS STAGES OF THE PROCESSING OF YARN AND THE MACHINES USED FOR THIS PURPOSE IT BECO MES CLEAR THAT ALTHOUGH EACH AND EVERY MACHINE IS INDEPENDENT IN ITSELF BUT IT CANNOT FUNCTION WITHOUT THE HELP OF OTHER MACHINES AND EVEN IF IT F UNCTIONS IT WILL BE OF NO USE. IN OTHER WORDS EACH AND EVERY MACHINE IS USEFU L AND GIVES REQUIRED RESULT ONLY WHEN IT FUNCTION COLLECTIVELY WITH THE OTHER MACHINES AT DIFFERENT STAGES. IN RESPECT OF TUF SCHEME THE RESOLUTION OF MINIST RY OF TEXTILE DATED 31ST MARCH 1999 FURNISHED BY THE A/R IS ALSO PERUS ED AND FOUND THAT THE RESOLUTION CONTAIN THE SCOPE OF THE SCHEME DEFINIT ION ELIGIBLE MACHINERY. UNDER THE HEAD ELIGIBLE MACHINERY THE SPINNING/SILK REELING AND TWISTING/WOOL SCOURING & COMBING/SYNTHETIC FILAMENT YARN TEXTURISING CRIMPING AND TWISTING AT POINT NO. 2.2. ANNEXURE-B AND PROCESSING OF FIBRE/YARN/FABRICS/GARMENTS/MADE-UPS AT 2.5 ANNEX. F(L-4). INSTALLATION OF THE ABOVE TYPE OF MACHINERY IN A NEW UNIT BY WAY OF REPLACEMENT OF EXISTING MACHINERY AND/OR EXPANSION IS ELIGIBLE FOR COVERAGE UNDER TUF SCHEME. THE APPELLANT HAS PURCHASED AUTOCONER DG S ET AND CRANK SHAFT UNDER THE ABOVE SCHEME. THE AO HAS THEREFORE ALLO WED THE DEPRECIATION @ 50% AS PER OLD APPENDIX-I PART-A - III MACHINE RY AND PLANT (2-C). HOWEVER THE APPELLANT HAS CLAIMED L00% DEPRECIATIO N/THE TOTAL EXPENDITURE INCURRED FOR REPLACEMENT OF THESE THREE MACHINES AS REVENUE EXPENDITURE U/S 37(1) OF THE ACT. THE AO HAS MENTIO NED IN THE ASSESSMENT ORDER THAT IN ASSESSMENT YEAR 2002-03 THE PURCHASE OF ABOVE MENTIONED THREE MACHINES WAS TREATED AS CAPITAL EXPENDITURE B Y THE AO AND WAS 13 CONFIRMED BY THE CIT(A). HOWEVER IN THIS YEAR THE POSITION IS SOME WHAT DIFFERENT THAN ASSESSMENT YEAR 2002-03 BECAUSE AT T HE TIME OF DECISION BY CIT(A) FOR ASSESSMENT YEAR 2002-03 ON 4-1-2006 THE DECISION OF THE ITAT JODHPUR BENCH IN THE CASE OF DCIT VS. BHILWARA SPIN NERS LTD (2006) 99 TTJ 180 WAS NOT REPORTED THOUGH THE DECISION WAS GIVEN IN THE MONTH OF DECEMBER 20O5/THE DECISION WAS PUBLISHED IN JANUARY 2006. THE DECISION IN THIS CASE IS SQUARELY APPLICABLE TO THE APPELLAN T'S CASE ALSO. HELD: 'THE IMPUGNED EXPENDITURE INCURRED IN REPLA CEMENT OF CARDS/BLOW ROOM MACHINERY/COMBING MACHINERY OF TEXT ILE MILLS IS A REVENUE EXPENDITURE BECAUSE ALL PLANT AND MACHINERY PUT TOGETHER AMOUNT TO A SINGLE UNIT. THESE ITEMS/UNITS CANNOT WORK IND EPENDENTLY BUT CAN WORK ONLY AS A PART OF THE SPINNING UNIT. THEREFORE THE CLAIM OF 100% DEPRECIATION ON THESE ITEMS IS ALLOWABLE TO THE ASS ESSEE-COMPANY BECAUSE SUCH EXPENDITURE IS DEFINITELY AN EXPENDITURE OF RE VENUE NATURE AS THE SAME IS REQUIRED FOR THE RUNNING OF MACHINERY AND P LANT WHICH WHEN PUT TOGETHER AMOUNTED TO A SINGLE UNIT'. THE HON'BLE ITAT FOLLOWED THE DECISION IN THE CAS E OF CIT VS. JANKIRAM MILLS LTD. & OTHERS (2005) 196 CTR (MAD.) 551 WHICH WAS NOT QUOTED BY THE APPELLANT AT THE TIME OF DECIDING THE APPEAL BY THE CIT(A) FOR ASSESSMENT YEAR 2002-03. THE HON'BLE MADRAS HIGH CO URT HAS HELD THAT - 'UNDER THESE CIRCUMSTANCES IN THE LIGHT OF THE F ACTUAL DETAILS AS DEMONSTRATED BEFORE US SUPPORTED BY ACCEPTABLE DOC UMENTS AND THE REPORT OF THE SPECIALISED BODY LIKE SITRA AND ALSO CONSIDERING VARIOUS JUDICIAL PRONOUNCEMENTS ON THE ISSUE AND IN VIEW OF THE TIME TESTED LAW LAID DOWN IN MAHALAKSHMI TEXTILES' CASE (SUPRA) WE HOLD THAT THE CLAIM OF THE ASSESSEE THAT REPLACEMENT OF PARTS OF A TEXTILE MILL IS REVENUE EXPENDITURE IS JUSTIFIED AND DESERVES TO BE UPHELD. BASED ON THE SUBMISSIONS AND ARGUMENTS AND IN CONSONANCE WITH TH E DECISION OF THE SUPREME COURT AND THIS COURT AS DISCUSSED ABOVE W E ANSWER ALL THE QUESTIONS RAISED AGAINST THE REVENUE IN FAVOUR OF T HE ASSESSEE. CONSEQUENTLY THE REFERENCES ARE ANSWERED ACCORDING LY AND DISMISS ALL THE APPEALS FILED BY THE REVENUE AND ALLOW THE TAX APPE ALS FILED BY THE ASSESSEES. NO COSTS. CONSEQUENTLY ALL THE MISCELLA NEOUS PETITIONS ARE CLOSED BEFORE COMING TO THE CONCLUSION THE HON'BLE HIGH C OURT OF MADRAS HAS ELABORATELY DISCUSSED THE ISSUE WHICH IS AS UNDER:- 14 'BEFORE ELABORATING THE CONTENTIONS RAISED BY VARIO US COUNSEL ON BEHALF OF THE ASSESSEES IT IS RELEVANT TO NOTE THAT ON THE F ACTUAL ASPECT IT IS THEIR MAIN CONTENTION THAT THE ENTIRE SPINNING MILL RIGHT FROM BLOW ROOM TO THE CONE WINDING SECTION IS AN INTEGRAL PLANT FOR WHICH COUN SEL FOR THE ASSESSEES PRODUCED SEVERAL MATERIALS AND ONE AMONG THEM IS TH E REPORT OF THE SOUTH INDIA TEXTILE RESEARCH ASSOCIATION (SITRA) COIMBAT ORE. THEIR LETTER DT'19TH DEC. 2003 WHICH WAS PRESSED INTO SERVICE BEFORE THE TRIBUNAL AS WELL AS THIS COURT CLEARLY SHOWS THAT THE PROCESS OF FIBRE TO YA RN CONVERSION COMPRISES VARIOUS STAGES AND ALL THE PROCESSES ARE INTERLINKE D. IT ALSO SHOWS THAT THE OUTPUT FROM VARIOUS INTERMEDIATE STAGES OF PRODUCTI ON CANNOT BE SOLD OR MARKETED AND USED FOR OTHER PURPOSES. THE FOLLOWING IS THE TEXT OF THE LETTER DATED 19 TH DEC. 2003 BY SITRA. MOST OF THE COUNSEL APPEARING FOR THE ASSESSEE CO NTENDED THAT THE TRIBUNAL HAD RENDERED A FACTUAL FINDING THAT THE EX PENSES RELATED TO PURCHASE OF MACHINERY PARTS SUCH AS RING FRAMES SI MPLEX MACHINES DOUBLING MACHINES CONE WINDER ELECTRONIC YARN CLE ANER CARD CONVERSION EQUIPMENT SPEED MOTHERS ETC. WERE ALLOWABLE AS RE VENUE EXPENDITURE BY UPHOLDING THE FINDING OF THE CIT(A). IT IS ALSO TH EIR CLAIM THAT CONSIDERING THE FACTUAL FINDING WHICH IS THE SAME AS THE ONE CO NCLUDED FOR THE IMMEDIATE PRECEDING YEAR THE SAME CANNOT BE RE-AGI TATED BEFORE THIS COURT IN THE ABSENCE OF ANY FURTHER FINDING CONTRAR Y OR MATERIAL OR CHANGE OF LAW. THE SAID CONTENTION OF COUNSEL FOR THE ASSE SSEES CANNOT BE BRUSHED ASIDE. IT IS ALSO BROUGHT TO OUR NOTICE THAT THE TR IBUNAL HAD ALLOWED SIMILAR CLAIM AFTER CONDUCTING PERSONAL INSPECTIONS IN THE SPINNING MILLS WHICH REPLACED PARTS. IT IS ALSO STATED THAT INASMUCH AS THE QUESTION RAISED NOW BY THE DEPARTMENT HAD BEEN SETTLED BY A SERIES OF DECI SION OF THIS COURT AS WELL AS THE APEX COURT AND WHERE LONG STANDING PRECEDENT S SETTLED THE LAW THE COURTS WOULD BE SLOW TO DISTURB THE SAID LAW UNLESS THERE ARE COMPELLING REASONS TO DO SO. LEARNED COUNSEL APPEARING FOR THE ASSESSEES HAVE CITED AND DEMONSTRATED BEFORE US A NUMBER OF JUDGMENTS (D ECISIONS) WHEREIN EXPENSES OF SIMILAR NATURE WERE HELD ALLOWABLE. AS DISCUSSED EARLIER THE ISSUES INVOLVED IN THES E REFERENCES AND APPEALS RELATE TO REPLACEMENT OF MACHINERY DONE IN ONE OR MORE OF THE SEVERAL PROCESSES OF A TEXTILE INDUSTRY NAMELY SP INNING MILLS. IN THE CASE OF SPINNING MILLS COTTON FIBERS ARE CONVERTED INTO YA RN AND ONLY AFTER THE YARN IS WOUND AND FINISHED INTO SUITABLE PACKAGES THE SA ME CAN BE MARKETED. CONSIDERING THE STAGES OF PROCESSES AND THE NATURE OF THE PROCESSES 15 INVOLVED AND THE FACTS THAT THE OUTPUT OF INTERMEDI ARY PRODUCT IS NOT MARKETABLE AND FURTHER THE FACT THAT THE OUTPUT OF ONE PROCESS BECOMES THE INPUT OF THE NEXT PROCESS THEREBY MAKES THE ENT IRE PROCESS AS AN INTEGRATED ONE. THE PROCESS INVOLVED IN A SPINNING MILL MAY BE BRIEFLY SUMMARISED AS UNDER:- (1) MIXING (2) BLOW ROOM (C) CARDING (4) COMBING (5) DRAWING (6) SIMPLEX (RINGH FRAMES) (7) CONE WINDING (8) REELING (9) PACKING.. IN THE ABOVE PROCESS RAW COTTON IS MIXED IN THE M IXING ROOM AND THEN THE IMPURITIES ARE REMOVED IN THE BLOW ROOM AN D AFTER ENTERING FURTHER PROCESSES COTTON IS CONVERTED INTO YARN AND THEN PACKED. THIS COURT IN MAHALAKSHMI TEXTILE MILLS LTD (SUPRA ) HAS HELD THAT REPLACEMENT OF WORN OUT PARTS OF TEXTILE MACHINERY BY INTRODUCING CASAB LANCA HIGH DRAFTING SYSTEM IS A REVENUE EXPENDITURE. WHILE DOING SO TH E COURT OBSERVED AT P.262 OF THE JUDGMENT THAT WHEN IT CAME TO THE QUE STION OF REPLACING THE WORN OUT ROLLER STANDS THE ASSESSEE FOUND THE OLD TYPE OF REPLACEMENT PARTS NOT AVAILABLE IN THE MARKET. THE IDENTICAL PA RTS COULD NOT THEREFORE BE SECURED AND THE TRIBUNAL IN THE STATEMENT OF CA SE ALSO REFERS TO THE FACT THAT WHEREVER SUCH PARTS WERE AVAILABLE; THEY WERE COSTLIER THAN THE PARTS PRODUCED BY A DIFFERENT MANUFACTURER THAT IS THE CA SBLANCA COMPANY. THOUGH ACCORDING TO THE MANUFACTURERS THE PROVISI ON OF THESE PARTS WAS REFERRED AS THE CASABLANCA HIGH DRAFTING SYSTEM; IT VIRTUALLY AMOUNTED TO NOTHING MORE THAN THE REPLACEMENT OF CERTAIN PARTS WHICH HOWEVER WERE A MODIFIED VERSION OF THE OLDER PARTS. THE PROGRESS OF TEXTILE TECHNOLOGY NECESSARILY DISCARDS OLD AND UNWIELDLY PARTS AND SE EKS TO REPLACE THEM WITH LIGHTER AND MORE EFFICIENT PARTS. WITH REFERENCE TO THE CONTENTIONS OF LEARNED SENI OR COUNSEL FOR THE DEPARTMENT IT IS STATED THAT WHETHER A PARTICULAR EXPENDITURE IS IN THE CAPITAL FIELD OR REVENUE FIELD CANNOT BE DECIDED ON THE BASIS OF THE INCLUSION IN THE DEPRECIATION SCHEDULE. THE DEPRECIATION SCHE DULE WILL BE RELEVANT ONLY AFTER THE QUESTION AS TO WHETHER THE EXPENDITU RE IS IN THE REVENUE FIELD OR CAPITAL FIELD. IF THE EXPENDITURE IS FOUND TO BE IN THE CAPITAL FIELD AND IS ELIGIBLE FOR DEPRECIATION THEN ONLY THE DEPRECIATI ON SCHEDULE IS TO BE LOOKED INTO FOR DETERMINING THE RATE AT WHICH DEPRE CIATION CAN BE GRANTED. IF IN THE ALTERNATIVE IT IS FOUND THAT THE EXPENDI TURE IS IN THE REVENUE FIELD THE QUESTION OF REFERRING TO THE DEPRECIATION SCHED ULE FOR FINDING OUT THE RATE OF DEPRECIATION WILL NOT ARISE. IN THE CIRCUMS TANCES IT IS THE CLAIM OF THE 16 ASSESSEE THAT THE RELIANCE OF THE REVENUE ON THE DE PRECIATION SCHEDULE TO SUPPORT THEIR CONTENTION IS MISCONCEIVED AND DOES N OT IN ANY WAY ADVANCE THE CASE OF THE DEPARTMENT' AS RIGHTLY POINTED OUT THE REVENUE HAS NOT BROUGHT OUT ANY ERROR EITHER IN LAW OR ON FACTS IN THE DECISION RENDERED BY THE TRIBUNAL. THE SUPREME COURT HAS ALSO HELD AT P.386 THAT 'TH E IDEA OF ONCE FOR ALL' PAYMENT AND 'ENDURING BENEFIT' ARE NOT TO BE T REATED AS SOMETHING AKIN TO STATUTORY CONDITIONS; NOR ARE THE NOTIONS OF CA PITAL OR REVENUE A JUDICIAL FETISH. WHAT IS CAPITAL EXPENDITURE AND W HAT IS REVENUE ARE NOT ETERNAL VERITIES BUT MUST NEED BE FLEXIBLE SO AS TO RESPOND TO THE CHANGING ECONOMIC REALITIES OF BUSINESS. THE EXPRESSION 'ASS ET OR ADVANTAGE OF AN ENDURING NATURE' WAS EVOLVED TO EMPHASISE THE ELEME NT OF A SUFFICIENT DEGREE OF DURABILITY APPROPRIATE TO THE CONTEXT'. IT IS ALSO RELEVANT TO NOTE THAT IN THE SCHEME OF THE ACT. S.31 DEALS WITH CURRENT REPAIRS' S.32 DEALS WITH 'DEPRECIATI ON ON ASSETS USED FOR THE PURPOSES OF BUSINESS AND S.37 DEALS WITH ALLOWANC E OF 'BUSINESS EXPENDITURE' NOT IN THE NATURE OF CAPITAL OR PERSON AL EXPENDITURE' THE CONTENTION OF THE DEPARTMENT SEEMS TO REVOLVE ON TH E FALLACIOUS GROUND THAT THESE THREE SECTIONS OPERATE ALTERNATIVELY. RA THER THEY HAVE BEEN CONCEIVED IN A MANNER THAT THEY FUNCTION INDEPENDEN T OF EACH OTHER. HENCE THIS ARGUMENT OF THE DEPARTMENT WOULD FALL L IKE NINE-PINS THE MOMENT THE OPERATION OF THE SECTION ARE CONSIDERED IN THEIR OWN RIGHT. ASSUMING 'FOR A MOMENT THAT LEARNED SENIOR COUNSEL S ARGUMENTS WERE CORRECT THEN SS.31 AND 37 EXIST EVEN AFTER THE INT RODUCTION OF BLOCK OF ASSETS' CONCEPT AND HAVE NOT BECOME OTIOSE OR REDUN DANT. IN OTHER WORDS WITH THE INTRODUCTION OF 'BLOCK OF ASSETS' SS. 31 AND. 37 ACCORDING TO THE DEPARTMENT HAS BECOME NON-EXISTENT. EVEN OTHERWISE THIS COURT IN GITANJALI MILLS CASE (SUPRA) ACCEPTED THE CLAIM OF THE ASSESSEE FOR THE ASST. YR. 1990-91 I.E. SUBSEQUENT TO THE INTRODUCTION OF THE 'BLOCK OF ASSETS' CONCEPT. IN UNION OF INDIA VS. SATISH PANALAL SHAH (2001) 168 CTR (SC) 1: (2001)249 ITR 221 (SC) THE SUPREME COURT WHILE DE PRECIATING THE REVENUE IN NOT FILING APPEAL AGAINST THE PREVIOUS ORDERS AN D CHALLENGING THE SAME IN ONE YEAR HELD - 'IF THE REVENUE DID NOT ACCEPT THE CORRECTNESS OF T HE JUDGMENT IN THE CASE OF PRADIP RAMANLAL SHETH VS. UNION OF INDIA (1993) 113 CTR (GUJ) 75: (1993) 17 204 ITR 866 (GUJ) IT SHOULD HAVE PREFERRED AN APPE AL THERE AGAINST AND INSTRUCTED COUNSEL AS TO WHAT THE FATE OF THAT APPE AL WAS OR WHY NO APPEAL WAS FILED. IT IS NOT OPEN TO THE REVENUE TO ACCEPT THAT JUDGMENT IN THE CASE OF THE ASSESSEE IN THAT CASE AND CHALLENGE ITS CORR ECTNESS IN THE CASE OF OTHER ASSESSEES WITHOUT JUST CAUSE EVEN OTHERWISE IF THE EXPENDITURE INCURRED FOR P URCHASE OF MACHINERY IS ALLOWED IN THIS YEAR IT WILL NOT MAKE ANY DIFFERENCE ON THE INCOME/PROFIT/TAX OF THIS YEAR OR IN THE SUBSEQUENT YEARS AS THERE IS A NIL RETURNED INCOME IN ASSESSMENT YEAR 2004-05 THERE I S A RETURNED LOSS IN 2005-06 AND NIL RETURNED INCOME IN ASSESSMENT YEAR 2006-07. THE TAX HAS BEEN PAID UNDER SECTION 115JB IN ALL THE THREE YEAR S. CONSIDERING THE ABOVE FACTS AND CIRCUMSTANCES AND THE SUBMISSION PUT-FORT H BY THE LD. A/R OF THE APPELLANT I HOLD THAT THE EXPENDITURE OF RS. 3 33 26 540/- FOR REPLACEMENT OF AUTOCONE DG SET AND CRANK SHAFT IS REVENUE IN N ATURE AND NOT THE CAPITAL EXPENDITURE. THE ADDITION IS DELETED. THE APPEAL IS ALLOWED ON THIS GROUND. NOW THE DEPARTMENT IS IN APPEAL. 18 . LEARNED CIT D.R. STRONGLY SUPPORTED THE ORDER PAS SED BY THE ASSESSING OFFICER AND REITERATED THE OBSERVATIONS M ADE IN THE ASSESSMENT ORDER. IT WAS FURTHER STATED THAT IN THE PRECEDING YEAR THE ITAT HAS CONFIRMED THE VIEW OF THE ASSESSING OFFICER BY CONS IDERING THE REPLACEMENT AS A CAPITAL EXPENDITURE IN ITA NO. 159 /JU/2006 FOR THE A.Y. 2002-03 VIDE ORDER DATED 09/12/2011. 19 . IN HIS RIVAL SUBMISSIONS LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW A ND FURTHER SUBMITTED THAT THE ASSESSEE REPLACED THE OLD PARTS OF THE MAC HINERY AND DG SET. 18 THEREFORE NO NEW ASSETS CAME INTO EXISTENCE AS SUC H THE EXPENSES INCURRED WERE REVENUE IN NATURE. HE FURTHER SUBMIT TED THAT IN THE EARLIER YEAR I.E. A.Y. 2002-03 THE ISSUE INVOLVED WAS RELA TED TO THE EXPENSES INCURRED FOR PINNING RING FRAME WHICH WAS AN INDEP ENDENT MACHINE HOWEVER FOR THE YEAR UNDER CONSIDERATION THE REPLA CEMENT WAS OF AUTOCONER MACHINE AND CRANK SHAFT OF DG SET WHICH ARE ONLY THE PARTS OF THE EXISTING PLANT AND MACHINERY. IT WAS ACCORDING LY SUBMITTED THAT THE LEARNED CIT(A) WAS FULLY JUSTIFIED IN HOLDING THAT THE IMPUGNED EXPENDITURE WAS REVENUE IN NATURE AND NOT CAPITAL E XPENDITURE AS WRONGLY HELD BY THE ASSESSING OFFICER. RELIANCE WA S PLACED ON THE FOLLOWING CASE-LAWS: 1) DCIT VS. BHILWARA SPINNING LTD. (2006) 99 TTJ (J D.) 180. 2) CIT VS. METAL POWDER CO. LTD. (2008) 300 ITR 48 (MAD.) 3) CIT VS. RENU SAGAR POWER CO. LTD. (2008) 298 ITR 94 (ALL.) 4) CIT VS. INDIAN OCEAN GARNET SANDS CO. (P) LTD. ( 2007) 290 ITR 312 (MAD.) 5) CIT VS. MIHIR TEXTILES LTD. (2008) 219 CTR (GUJ. ) 35. 6) CIT VS. SAGAR TALKIES (2008) 217 CTR (KAR.) 74 7) CIT VS. UDAIPUR DISTILLERY CO. LTD. (2004) 268 I TR 451 (RAJ) 8) CIT VS. RAMESHWAR PROSAD KEJRIWAL & SONS (P) LTD . (1994) 76 TAXMAN 124 (CAL.) 9) CIT VS. GITANJALI MILLS LTD. (2004) 265 ITR 681 (MAD.) 10) CIT VS. SEE NARASIMAHA TEXTILES (P). (1999) 238 ITR 351 (MAD.) 11) CIT VS. L.S. MILLS LTD. (2006) 284 100 (MAD.) 12) ACIT VS. DESAI BROS. (1977) 108 ITR 14 (GUJ.) 13) CIT VS. MADRAS SPINNERSLTD. (1994) 207 ITR 35 ( KER.) 14) CIT VS. BINNY LTD. (1995) 215 ITR 536 (MAD.) 19 15) CIT VS. SALEM CO-OPERATIVE SPINNING MILLS LTD. (1984) 148 ITR 176 (MAD.) 16) PERMALI WALLACE LTD. VS. CIT (1985) 151 ITR 43 (MP) 17) CIT VS. SRI KARTHIKEYA SPINNING & WEAVING MILLS LTD. (2004) 265 ITR 285 (MAD.) 18) CIT VS. MYSURE SPUN CONCERETE PIPE P. LTD. (199 2) 194 ITR 159 (KAR.) 19) CIT VS. JANAKIRAM MILLS LTD. & ORS. (2005) 275 ITR 403 (MAD.) 20) CIT VS. MADRAS SPINNER LTD. (1989) 177 ITR 495 (KER.) 21) CIT VS. CHOWGULE & CO. PVT. LTD. (1995) 214 ITR 523 (BOM.) 22) CIT VS. SHREE BHAGAVATHI TEXTILE LTD. (1994) 20 7 ITR 826 (KER) 23) ACIT VS. PRABHU SPG. MILLS (P) LTD. (2008) 113 TTJ (CHENNAI) 372. 20 . WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PA RTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RE CORD. IN THE PRESENT CASE IT APPEARS THAT THE ASSESSEE REPLACED CERTAIN PARTS OF THE MACHINERIES OF SPINNING MILL NAMELY AUTOCONER BY IN CURRING EXPENSES OF RS. 2 28 76 138/-. THIS MACHINE WAS BEING USED FOR REWINDING YARN FROM SMALL PLASTIC BOBBINS PRODUCED ON PINNING RING FRAM E AND MAKING A BIG SIZE BOBBIN. THE AUTOCONER IS A PART OF A SPINNING MACHINE AND IS WORKING TOGETHER WITH OTHER MACHINES IT HELPS IN CARRYING OUT THE PROCESS. SO IT WAS A SUPPORTING MACHINE USED FOR KNOTTING THE YARN FROM SMALL CONTENTS ON A PLASTIC BOBBIN TO BIG CONES. THIS MACHINE DOES NOT HAVE INDEPENDENT FUNCTIONING RATHER IT WAS A PART OF THE TOTAL PLANT THEREFORE IT CANNOT BE SAID THAT THE ASSESSEE REPLACED AN INDEPENDENT MACH INE BY ACQUIRING A NEW ONE RATHER A PART OF THE OLD MACHINE WAS REPLAC ED FOR PROPER FUNCTIONING. THEREFORE EXPENSES INCURRED BY THE AS SESSEE WERE REVENUE 20 IN NATURE AND NOT THE CAPITAL IN NATURE. SIMILARLY THE ASSESSEE BY INCURRING AN EXPENDITURE OF RS. 74 96 357/- REPLACE D THE CRANK SHAFT FOR THE DG SET ENGINE. THE ORIGINAL COST OF THE DG SET IN THE A.Y. 1998-99 WAS RS. 4 24 41 846/- AND DUE TO NORMAL WERE & TEAR THE CRANK SHAFT WAS REQUIRED TO BE REPLACED WHICH COST A SUM OF RS. 74 96 357/-. THEREFORE IT CANNOT BE SAID THAT THE ASSESSEE REPLACED WHOLE OF THE DG SET RATHER ONLY A PART IN THE FORM OF CRANK SHAFT WAS REPLACED . SO IT WAS A REVENUE EXPENDITURE AND NOT A CAPITAL EXPENDITURE. WE THE REFORE CONSIDERING THE TOTALITY OF THE FACTS OF THE PRESENT CASE ARE OF THE VIEW THAT THE LEARNED CIT(A) WAS FULLY JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO TREAT THE IMPUGNED AMOUNT INCURRED BY THE ASSESSEE FOR REPLACEMENT OF AUTOCONER AND CRANK SHAFT AS REVENUE EXPENDITURE AN D NOT THE CAPITAL EXPENDITURE. ACCORDINGLY WE DO NOT SEE ANY MERIT IN THIS GROUND OF THE DEPARTMENTAL APPEAL. 21 . THE NEXT ISSUE VIDE GROUND NO.5 RELATES TO THE DE LETION OF DISALLOWANCE OF EXPENSES AMOUNTING TO RS. 84 07 021 /- TOWARDS THE BANK CHARGES/REDUCTION IN INTEREST RATE OF LOAN. 22 . THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICE D THAT THE ASSESSEE HAD CLAIMED AN AMOUNT OF RS. 84 07 021/- AS EXPENSE S TOWARDS REDUCTION 21 IN INTEREST RATE ON LOAN PAID DURING THE YEAR. HE THEREFORE ASKED THE ASSESSEE TO FURNISH THE DETAILS AND JUSTIFY THE ALL OWABILILTY OF THE SAME. FROM THE DETAILS SUBMITTED BY THE ASSESSEE THE ASS ESSING OFFICER NOTICED THAT A SUM OF RS. 47 07 131/- RELATED TO UPFRONT FE E PAID TO IDBI FOR CONVERSION OF RUPEE LOAN TO FOREIGN CURRENCY LOAN A ND RS. 36 99 890/- RELATED TO PREMIUM TO IDBI FOR REDUCTION OF INTERES T RATE ON TUF LOAN FOR REDUCING THE INTEREST RATE FROM 14.71% UPTO 12.5%. THE ASSESSING OFFICER POINTED OUT THAT THE ASSESSEE HAD AMORTIZED THE EXP ENSES IN 05 YEARS IN THE PROFIT AND LOSS ACCOUNT HOWEVER IT HAD CLAIME D THE ENTIRE EXPENSES AS REVENUE EXPENDITURE IN THE COMPUTATION. THE ASS ESSING OFFICER WAS OF THE VIEW THAT FROM THE NATURE OF THE EXPENSES IT W AS CLEAR THAT THE BENEFIT OF THOSE EXPENSES WOULD ACCRUE OVER THE YEA RS. THEREFORE THE EXPENSES INCURRED SHALL GIVE ENDURING BENEFIT TO TH E ASSESSEE THOSE WERE CAPITAL IN NATURE. HE THEREFORE DISALLOWED THOSE EXPENSES AND ADDED TO THE INCOME OF THE ASSESSEE. 23 . BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LEARNED CIT(A) AND SUBMITTED THAT THE ASSESSEE HAD STARTED EXPORTS DURING THE YEAR AND THE INFLOW WAS IN FOREIGN CURRENCY THEREF ORE THERE WAS A NEED OF CONVERSION OF RUPEE LOAN INTO FOREIGN CURRENCY L OAN. IT WAS FURTHER STATED THAT DUE TO CONVERSION OF LOAN THERE WAS A REDUCTION OF INTEREST 22 RATE FROM 14.8% TO 12.5% AS SUCH A SUM OF RS. 47 07 131/- PAID TO THE IDBI WAS ALLOWABLE EXPENDITURE. IT WAS FURTHER SUB MITTED THAT AN AMOUNT OF RS. 36 99 890/- WAS PAID TO THE IDBI FOR REDUCTI ON OF INTEREST RATE FROM 16.35% TO 12.5% ON LOAN OF RS. 690 LAC TAKEN FOR RE PLACEMENT OF MACHINERIES UNDER THE RUF SCHEME UNDER THE GOVERNME NT OF INDIA. THE RELIANCE WAS PLACED ON THE FOLLOWING CASE-LAWS:- A) INDIA CEMENT LTD. VS. CIT (1966) 60 ITR 52 (SC). B) CIT VS. SIWAKAMI MILLS LTD. (1998) 144 CTR 72 ( SC). C) DCIT VS. PARAMOUNT HOTELS LTD. (2001) 71 TTJ 70 4 (MUM). D) DHARANGADHRA CHEMICAL WORKS LTD. VS. CIT (1977) CTR 180 (BOM) 24 . LEARNED CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT THE ASSESSEE HAD TAKEN WORKING CAPITA L FROM IDBI AT THE INTEREST RATE OF 16.35% P.A. BUT THE SAID INTEREST DID NOT SUIT TO THE ASSESSEE. THEREFORE HE REQUESTED THE IDBI TO REDU CE THE INTEREST RATE AND THE IDBI AGREED TO THIS PROPOSAL WITH THE CONDI TION THAT 50% OF THE TOTAL INTEREST AMOUNT PAYABLE UPTO THE ASSESSMENT Y EAR 2004-05 SHOULD BE PAID AT ONE TIME THEN ONLY THE INTEREST RATE WO ULD BE REDUCED FROM 16.35% TO 12.5% THEREFORE THE SAID PROPOSAL WAS B ENEFICIAL TO THE ASSESSEE. LEARNED CIT(A) POINTED OUT THAT THE FAC TS OF THE PRESENT CASE WERE SIMILAR TO THE CASE OF M/S. PI INDUSTRIES LTD. UDAIPUR WHEREIN 23 EARLIER DECISION OF THE ITAT JODHPUR IN THE CASE OF M/S. SECURE METERS LTD. WAS FOLLOWED. LEARNED CIT(A) ALSO POINTED OUT THAT THE DECISION OF KEDARNATH JUTE MANUFACTURING CO. LTD. VS. CIT (1997 ) 82 ITR 363 (SC) WAS ALSO IN FAVOUR OF THE ASSESSEE. HE ACCORDINGLY DEL ETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. NOW THE DEPARTMENT IS IN APPEAL. 25 . LEARNED CIT D.R. REITERATED THE OBSERVATIONS MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER AND FURTHER SUBMITT ED THAT THE ASSESSEE WAS GETTING ENDURING BENEFIT BY INCURRING THE EXPEN DITURE IN QUESTION THEREFORE THE ASSESSING OFFICER WAS JUSTIFIED IN M AKING THE ADDITION AND THE LEARNED CIT(A) WRONGLY DELETED THE SAME. 26 . IN HIS RIVAL SUBMISSIONS LEARNED COUNSEL FOR TH E ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW A ND FURTHER SUBMITTED THAT THE ASSESSEE HAD PAID RS. 47 07 131/- TO IDBI FOR CONVERSION OF RUPEE LOAN INTO FOREIGN CURRENCY LOAN WHICH WAS NEEDED A S THE ASSESSEE HAD STARTED EXPORTS AND THERE WAS GOOD INFLOW OF FOREIG N CURRENCY. IT WAS FURTHER SUBMITTED THAT DUE TO SAID CONVERSION THE ASSESSEE WAS BENEFITED AS THE INTEREST RATE HAD BEEN REDUCED FROM 14.74% T O 5.25%. IT WAS CONTENDED THAT THE EXPENSES RELATED TO THIS YEAR T HEREFORE THOSE WERE RIGHTLY CLAIMED IN THE YEAR UNDER CONSIDERATION. I T WAS FURTHER STATED 24 THAT AN AMOUNT OF RS. 36 99 890/- WAS PAID TO IDBI FOR REDUCTION OF INTEREST RATE FROM 16.35% TO 12.5% ON THE LOAN TAKE N FOR REPLACEMENT OF MACHINERY UNDER THE TUF SCHEME OF GOVERNMENT OF IND IA. A REFERENCE WAS MADE TO PAGE NO. 25 OF ASSESSEES PAPER BOOK W HICH IS A COPY OF LETTER ISSUE BY IDBI. IT WAS FURTHER STATED THAT T HE LEARNED CIT(A) RIGHTLY DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. RELIANCE WAS PLACED IN THE CASE OF ACIT VS. MINPRO INDUSTRIES 143 TTJ ( JD.) 331. 27 . WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PA RTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RE CORD. IN THE PRESENT CASE IT IS AN ADMITTED FACT THAT THE ASSESSEE WAS ENGAGED IN THE EXPORT BUSINESS AND HAD STARTED THE SAID EXPORT BUSINESS D URING THIS YEAR ONLY AND AS THE INFLOW WAS IN FOREIGN CURRENCY FOR THAT PURPOSE THE ASSESSEE CONVERTED THE RUPEE LOAN INTO FOREIGN CURRENCY LOAN AND PAID A SUM OF RS. 47 07 131/- TO THE IDBI FOR CONVERSION OF SUCH LOA N. THOSE EXPENSES WERE PAID DURING THE YEAR UNDER CONSIDERATION AND F OR CONVERTING THE RUPEE LOAN INTO FOREIGN CURRENCY LOAN THE RATE OF INTEREST WAS ALSO REDUCED FROM 14.74% TO 5.2%. SIMILARLY THE ASSESS EE ALSO PAID RS. 36 99 890/- FOR REDUCTION OF INTEREST RATE FROM 16. 35% TO 12.5% ON THE LOANS TAKEN FOR REPLACEMENT OF MACHINERY UNDER RUF AND TUF SCHEMES OF GOVERNMENT OF INDIA. THE ASSESSEE WAS BENEFITED AS THE INTEREST RATE 25 WAS REDUCED AND THOSE EXPENSES WERE INCURRED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION AND RELATED TO THE BUSINES S EXIGENCY. IN THE PRESENT CASE LEARNED CIT(A) DELETED THE DISALLOWAN CE MADE BY THE ASSESSING OFFICER BY FOLLOWING THE DECISION OF THIS BENCH OF THE TRIBUNAL IN THE CASE OF PI INDUSTRIES UDAIPUR AND SECURE METERS LTD. NO CONTRADICTORY DECISION WAS POINTED OUT DURING THE COURSE OF HEARI NG THEREFORE WE DO NOT SEE ANY VALID GROUND TO INTERFERE WITH THE FIND INGS OF THE LEARNED CIT(A) ON THIS ISSUE AND ACCORDINGLY DO NOT SEE ANY MERIT IN THIS GROUND OF THE DEPARTMENTAL APPEAL. 28 . VIDE GROUND NO. 6 THE GRIEVANCE OF THE DEPARTMEN T RELATES TO THE DIRECTION GIVEN BY THE LEARNED CIT(A) TO THE ASSESS ING OFFICER TO ALLOW DEDUCTION UNDER SECTION 80IA/80IB IN RESPECT OF THE PROFITS OF POWER PLANT AND UNIT NO.2 OF POLY PROPYLENE MULTI FILAMENT YARN AND UNIT NO.3 OF SPUN YARN. 29 . THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT THE LEARNED CIT(A) DIRECTED THE ASSESSING OFFICER TO ALLOW THE CLAIM O F THE ASSESSEE AS WAS DONE IN THE A.Y. 2001-02 & 2002-03 VIDE ORDER DATE D 04/01/2006 IN ASSESSEES OWN CASE. DURING THE COURSE OF HEARING IT WAS NOT BROUGHT ON RECORD THAT THE SAID DECISION FOLLOWED BY THE LEARN ED CIT(A) HAS BEEN 26 REVERSED THEREFORE BY KEEPING IN VIEW THE PRINCIP LE OF CONSISTENCY WE DO NOT SEE ANY INFIRMITY IN THE ORDER OF THE LEARNE D CIT(A) ON THIS ISSUE. 30 . NOW WE WILL DEAL WITH ITA NO. 361/JU/2008. THE FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL:- ON THE FACTS AND IN THE PRESENT CIRCUMSTANCES OF T HE CASE THE LEARNED CIT(A) HAS ERRED IN:- 1. DELETING THE TREATMENT OF LEASE RENT INCOME AS INCOME FROM OTHER SOURCES. 2. DELETING THE DISALLOWANCE OF DEPRECIATION CLAIM ED ON LEASE ASSETS AMOUNTING TO RS. 36 09 269/-. 3. DELETING THE DISALLOWANCE OF RS. 5 41 07 321/- C LAIMED U/S 37(1) FOR REPLACEMENT OF MACHINERY & ALLOWING DEPRECIATION. 4. DELETING THE DISALLOWANCE OF EXPENSES TOWARDS BA NK CHARGES/REDUCTION IN INTEREST RATE ON LOAN AMOUNTING TO RS. 34 28 644 /- . 5. DELETING THE DISALLOWANCE OF RS. 1 94 56 548/- MADE BY THE AO U/S 40(A)(IA). 6. DIRECTING TO ALLOW DEDUCTION U/S 80IA/80IB IN R ESPECT OF THE PROFITS OF POWER PLANT & UNIT NO.2 OF POLYPROPYLENE MULTI FILA MENT YARN & UNIT NO.3 OF SPUN YARN. 31 . DURING THE COURSE OF HEARING IT WAS A COMMON CON TENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE AND THE LEARNED C IT D.R. THAT ALL THE ISSUES EXCEPT THE ISSUE RAISED IN GROUND NO.5 ARE S IMILAR AS WERE INVOLVED IN ITA NO. 540/JU/2007 FOR THE A.Y. 2004-05. THERE FORE OUR FINDINGS GIVEN IN THE FORMER PART OF THIS ORDER WHILE DECIDI NG THE VARIOUS IDENTICAL 27 ISSUES IN ITA NO. 540/JU/2007 SHALL APPLY MUTATIS M UTANDIS FOR THE ISSUES INVOLVED IN ITA NO. 361/JU/2008 FOR THE A.Y. 2005-0 6. 32 . THE REMAINING GROUND I.E. GROUND NO.5 RELATES TO THE DELETION OF DISALLOWANCE OF RS. 1 94 56 548/- MADE BY THE ASSES SING OFFICER UNDER SECTION 40(A)(IA) OF THE ACT. 33 . THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICE D THAT THE ASSESSEE HAD DEBITED AN AMOUNT OF RS. 2 62 21 573/- AS FREIG HT AND HANDLING CHARGES WHICH INCLUDED EXPENDITURE ON ACCOUNT OF CL EARING AND FORWARDING EXPENSES. HE ASKED THE ASSESSEE TO FURN ISH THE DETAILS AS REGARDS TO DEDUCTION OF TDS ON SUCH CLEARING AND FO RWARDING CHARGES. FROM THE DETAILS SO FILED THE ASSESSING OFFICER NO TICED THAT THE ASSESSEE HAD MADE TDS ONLY ON AGENCY CHARGES AND NO TDS WAS DEDUCTED ON THE REMAINING AMOUNT OF RS. 1 94 56 548/-. THE ASSESSE E RELIED THE CIRCULAR NO. 723 ISSUED BY THE CBDT AND SUBMITTED AS UNDER:- THAT THE COMPANY IS DEDUCTING TDS FROM PAYMENT TO CHA TOWARDS AGENCY CHARGES AND HAS TIMELY DEPOSITED IN GOVERNMENT ACCO UNT. THE PAYMENT TO CHA OTHER THAN AGENCY CHARGES IS REIMBURSEMENT OF E XPENSES NOT LIABLE FOR TDS. 28 34 . THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE REPLY OF THE ASSESSEE AND MADE THE DISALLOWANCE BY OBSERVING THA T THE ASSESSEE HAD NOT DEDUCTED THE TDS ON THE PAYMENTS TO THE CLEARIN G AND FORWARDING AGENTS FOR CARRIAGE OF GOODS. HE THEREFORE MADE DI SALLOWANCE OF RS. 1 94 56 548/- BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. 35 . BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LEARNED CIT(A) AND SUBMITTED THAT THE ASSESSEE PAID AGENCY CHARGES TO FOREIGN AGENT WHICH WERE COVERED UNDER SECTION 195 OF THE ACT AND THE CIRCULAR NO. 786 CLARIFIED THAT WHERE THE NON-RESIDENT AGENT OPERATE OUTSIDE INDIA AND PAYMENT ALSO MADE OUTSIDE INDIA NO PART OF HIS INCOME ARISES IN INDIA AND TDS WAS NOT DEDUCTABLE ON SUCH PAYMENT UNDER SE CTION 195 OF THE ACT. 36. LEARNED CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT THE ASSESSEE WAS ENGAGED IN MANUFACTU RING OF SPUN YARN AND EXPORTING. HE FURTHER OBSERVED THAT THE ASSESS EE PAID AN AMOUNT OF RS. 1 94 56 548/- TO M/S. DIVYA SIPPING & CLEARING SERVICE PVT. LTD. AND CLAIMED THE EXPENSES UNDER THE HEAD PACKING AND FOR WARDING EXPENSES AND EXPORT CHARGES. HE ALSO OBSERVED THAT THE COPY OF THE LEDGER ACCOUNT COPY OF THE EXPORT BILLS FURNISHED BY THE ASSESSEE REVEALED THAT 29 THE PAYMENT WAS MADE TO M/S. DIVYA SIPPING & CLEARI NG SERVICES PVT. LTD. FOR DIRECT TRANSPORT/ SEA FREIGHT ON BEHALF OF NON- RESIDENT SHIP OWNER TO EXPORT AND SHIPPING THE GOODS UPTO THE DESTINATION PORTS OF TURKEY INDONESIA BRAZIL ETC. AND SINCE THE AMOUNT WAS PAI D TO THE AGENT ON BEHALF OF NON-RESIDENT SHIP OWNER THE PROVISIONS O F SECTION 194C OF THE ACT WERE NOT APPLICABLE AS PER THE CIRCULAR NO. 723 ISSUED BY THE CBDT. LEARNED CIT(A) ACCORDINGLY DELETED THE ADDITION MAD E BY THE ASSESSING OFFICER. NOW THE DEPARTMENT IS IN APPEAL. 37 . LEARNED CIT D.R. ALTHOUGH SUPPORTED THE ORDER OF THE ASSESSING OFFICER BUT COULD NOT CONTROVERT THE FINDINGS GIVE N BY THE LEARNED CIT(A). 38 . IN HIS RIVAL SUBMISSIONS LEARNED COUNSEL FOR THE ASSESSEE STRONGLY SUPPORTED THE IMPUGNED ORDER PASSED BY THE LEARNED CIT(A) AND ALSO PLACED THE RELIANCE ON THE DECISION OF THIS BENCH O F THE ITAT IN THE CASE OF ACIT VS. MINPRO INDUSTRIES (2012) 143 TTJ (JD) 3 31. 39 . WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PA RTIES AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CASE IT IS AN ADMITTED FACT THAT THE IMPUGNED AMOUNT WAS PA ID BY THE ASSESSEE ON ACCOUNT OF SEA FREIGHT TO THE AGENTS OF NON-RES IDENT SHIP OWNERS. 30 THEREFORE NO TDS WAS TO BE DEDUCTED UNDER SECTION 1 94C OR SECTION 195 OF THE ACT AS SUCH THE DISALLOWANCE MADE BY THE ASS ESSING OFFICER BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT WAS NOT JUSTIFIED AND THE LEARNED CIT(A) RIGHTLY DELETED THE ADDITION MADE BY THE ASSESSING OFFICER BY CONSIDERING THE CIRCULAR NO. 723 DATED 1 9/12/1995 ISSUED BY THE CBDT. THE PRESENT ISSUE IS ALSO COVERED BY THE DECISION OF THIS BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. MINPRO INDU STRIES (SUPRA) WHEREIN IT HAS BEEN HELD THAT REIMBURSEMENT OF THE PAYMENT TOW ARDS SEA FREIGHT TRANSPORT CCI CHARGES STEAMER FREIGHT CHARGES AND REPO CONTAINER CHARGES MADE BY THE ASSESSEE TO THE C & F AGENTS WH O HAVE ALREADY MADE THE PAYMENT ON BEHALF OF THE ASSESSEE WAS COVERED B Y THE PROVISIONS OF SECTION 172 OF THE ACT AND NOT BY SECTION 194C OR S ECTION 195 AND THAT THE AGENT HAVING ALREADY DEDUCTED TDS FROM THE TRANSPOR TATION CHARGES AND SHIPPING BILL BEFORE MAKING THESE PAYMENTS TO THE P RINCIPAL WHICH HAVE BEEN REIMBURSED BY THE ASSESSEE THE ASSESSEE WAS N OT LIABLE TO DEDUCT TAX AT SOURCE FROM SUCH PAYMENTS AND CONSEQUENTLY SAME COULD NOT BE DISALLOWED BY INVOKING THE PROVISIONS OF SECTION 40 (A)(IA) OF THE ACT. 40 . IN VIEW OF THE ABOVE WE DO NOT SEE ANY MERIT IN THIS GROUND OF THE DEPARTMENTAL APPEAL. 31 41 . IN THE RESULT APPEALS OF THE DEPARTMENT AND THE ASSESSEE ARE DISMISSED. (ORDER PRONOUNCED IN THE COURT ON 09 TH OCTOBER 2013). SD/- SD/- (HARI OM MARATHA) (N.K.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 09 TH OCTOBER 2013. VR/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE LD.CIT 4. THE CIT(A) 5. THE D.R ASSISTANT REGISTRAR ITAT JODHPUR.