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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI PRASHANT MAHARISHI, AM & SHRI PAVAN KUMAR GADALE, JM
These are the two appeals of the same assessee namely SI Group India Private Limited [formerly known as SI Group India Limited] for A.Y. 2009-10 and 2010-11 against the order passed u/s. 263 of the Income Tax Act by the CIT(Large Taxpayer Unit), Mumbai dated 29.03.2016 for both years.
“GROUND I:
1.1. On the facts and in circumstances of the case and in law, the Commissioner of Income tax (Large Taxpayer Unit), Mumbai ("the CIT") erred in invoking the jurisdiction u/s. 263 of the Income Tax Act, 1961 ("the Act") on the alleged ground that the assessment order passed by the Assistant Commissioner of Income tax (LTU), Mumbai ("the AO") u/s. 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 ("the Act") was erroneous to the extent of the expenditure on catalyst claimed as revenue expenditure u/s. 37(1) of the Act and depreciation claimed u/s. 32(1) of the Act on Technical Know-how and Embedded Process Technology of Rasal Unit.
1.2. The Learned CIT erred in not appreciating the fact that the AO had already applied his mind during the course of assessment proceedings by raising specific queries and accepting the details and replies filed by the Appellant on the said issues raised u/s. 263 of the Act and as such the order passed by the AO would not be held as erroneous.
1.3. The Learned CIT further erred in not appreciating the fact that the AO had allowed Appellant's claim by taking a plausible view and as such the order of the AO was not erroneous.
WITHOUT PREJUDICE TO THE GROUND I; GROUND II:
2.1. On the facts and in circumstances of the case and in law, the Learned CIT erred in directing the AO to disallow the expenditure claimed by the Appellant of Rs. 16,79,325/- incurred for the acquisition of catalyst by treating it as capital expenditure on the alleged ground that the consumption of the catalyst was spread over more than a year.
2.2. The Learned CIT erred in not appreciating the fact that the expenditure incurred on the said catalyst was a deferred revenue expenditure which would not be treated as capital expenditure merely because the benefit out of such expenditure was enduring in nature.
2.3. The Appellant prays that it be held that the expenditure on catalyst be treated as a revenue expenditure and as such deductible u/s. 31 or u/s. 37(1) of the Act.
WITHOUT PREJUDICE TO THE GROUND I; GROUND III:
3.1. On the facts and in circumstances of the case and in law, the Learned CIT erred in directing the AO 3.2. The learned CIT erred in not appreciating the fact that the Technical Know-how was acquired in the form of knowledge for manufacturing PTBP/PTOP/DTBP chemicals and the same was not destroyed in the fire accident.
3.3. The learned CIT further erred in not appreciating the fact that Schenectady Specialities Asia Pvt. Ltd. had developed the embedded process technology which was used by the Appellant to rebuilt the Plant in F.Y. 2005-06 relevant to the assessment year 2006 07.
3.4. The Appellant prays that it be held that the claim of depreciation u/s. 32(1) be allowed on the said assets.”
Briefly, facts recorded from A.Y. 2009-10 show that assessee is a company engaged in manufacturers of organic chemicals. It filed its return of income on 24.09.2009 declaring a loss of ₹25,05,29,231/- as per normal computation provisions of income and book profit u/s. 115JB of the Act was shown at ₹Nil.
The above return of income was picked up for scrutiny. As assessee has entered into international
a. Disallowed ₹30,22,002/- being expenditure incurred u/s. 35(1)(iv) of the Act. b. Disallowance u/s. 14(A) was determined at ₹2,79,011 against exempt income earned by the assessee. c. Certain sundry balances were written off , so an addition of ₹1,40,823/- was made thereon. d. There were certain differences and mismatch in Form No. 26AS accordingly, addition of ₹ 2,20,870/- was made.
The ld. CIT examined the records of the assessment and noted that ii. It was further stated that assessee is carrying forward capital work-in-progress representing purchase of technical know-how since September 2002. This amount pertains to an erstwhile unit, which merged with the assessee since September 2002 whereas the assessee has commenced production in December 2005. It was continuing as the depreciable asset in the block of assets. The capital work-in-progress was destroyed in an accident in September 2000 and no part was under insurance claim. Despite destruction, assessee was claiming depreciation on the same and it is allowed
The assessee explained the issue to the ld.CIT, However the order was passed u/s 263 of the Act
i. That catalyst expenditure is capital in nature, only appropriate depreciation is to be allowed, and therefore, order of the ld.AO is erroneous and prejudicial to the interest of the revenue. ii. With respect to the depreciation on know-how destroyed in fire. The ld. AO was directed to examine the claim of depreciation on those assets. Accordingly, the order passed by the ld.AO was held to the prejudicial to the interest of the revenue and AO was directed to modify the same.
Assessee aggrieved with the same submitted that i. The issue of deduction of catalyst expenditure was examined by the ld. AO starting with the A.Y. 2006-07 to 2008-09 where the query was raised and the ld.AO allowed the claim of the assessee. Only in A.Y. 2009-10, despite AO allowing the same, the ld. CIT has invoked the provision of 263 of the Income Tax Act. It is not the case of the ld.CIT that AO has not examined the same. The ld.AR put to our
ii. It was further submitted that identical issue of catalyst expenditure and its allowability of revenue expenditure has been decided by the co-ordinate bench in case of JCIT vs. Tirumalai Chemcials Ltd 9 SOT 744 wherein the catalyst were held to be a revenue expenditure iii. merely because in the books of accounts Expenditure were shown as deferred expenditure the deduction could not have been disallowed in the Income Tax as expenditure is purely revenue in nature. Reliance was placed on the decision of the Hon’ble Supreme Court that wherever two equally valid views are possible and ld.AO has taken one of the views, provisions of Section 263 of the Act cannot be invoked as held by the Hon’ble Supreme Court in CIT vs. Max India 295 ITR 282. In this case, there is a view available in favor of the ix. It was further stated that the order of the CIT passed u/s. 263 is not on the issue, on which show cause notice was issued, further the incorrect allowance on depreciation of technical know-how was not put to the notice of the assessee and therefore the order of CIT u/s. 263 is not sustainable. x. It was further submitted that for A.Y. 2006-07 the query was raised by the AO, assessee filed its reply and after considering the whole issue for A.Y. 2006-07, depreciation was allowed. Therefore, revision proceedings for 2009-10 are not sustainable on this issue. xi. It was further stated that the claim of depreciation on embedded processed technology and technical know-how was not interfered for A.Y. 2007-08 & 2008-09. xii. It was further stated that individual assets were added to the block of assets during the F.Y. xiii. It was further stated that the claim of depreciation is required to be examined in the first year of its claim, therefore, in subsequent years; it could not have been disturbed. xiv. It was further stated that since the ld.AO does not have power to deny depreciation on building, plant and machinery or technical know-how this year, consequently, the ld.CIT also does not have the power to withdraw the claim. Therefore, it was stated that the order of the ld.CIT is not sustainable in law.
The ld. AR submitted that for A.Y. 2010-11, the provision of Section 263 of the Act was invoked only with respect to the claim of expenditure on catalysts. The arguments of the AR are similar for that year too.
The ld.CIT DR vehemently supported the order of the ld. CIT. It was stated that when in the books of accounts assessee has treated the catalyst expenditure as deferred revenue expenditure, there is no reason that those expenditure should be allowed to the assessee as revenue expenditure in
With respect to the depreciation on technical know- how, he relied upon order of the ld. PCIT. Accordingly, he argued that the order of the ld. PCIT is correct.
We have carefully considered the rival contentions and perused the orders of the lower authorities. The ld. PCIT on examination on the record of the A.Y. 2009-10 has directed the ld. AO to disallow (i) catalysts expenditure which was claimed by the assessee as deferred revenue expenditure to the amortize over life of the catalyst as treated in its books of accounts. In the computation of total income, assessee has claimed the total expenditure of catalysts in the year, which it is issued to production line. Claim of the assessee is that is allowable as revenue expenditure as soon as it is issued to production because once catalysts is issued and used for production, it is not reusable, on this basis same has been claimed as expenditure in that year. It is not the first year, where the assessee has
Whether catalyst expenditure is a revenue expenditure and is allowable in the year in which it is issued to production line, It was held that they have merely used as consumables, is decided in favour of assessee in following judicial precedents:-
ii. DCIT V Aditya Birla Nuvo Limited 67 taxmann.80 iii. Cibatul Limited V DCIt 118 taxman 28 ( Ahd)
No judicial precedent was shown to us that consumables are capital expenditure and those are not allowable in the year of use in production line. Thus, the view taken by the LD AO is a plausible and sustainable view. Further, the identical view has been taken by the learned assessing officer of the detailed examination in earlier years. In those years, the view taken by the learned assessing officer was not found to be erroneous. There is no reason demonstrated before us that for assessment year 2009 – 10 the order of the learned assessing officer is erroneous various for assessment year 2006 – 07 until 2008 – 09 that order is free of any error. However, we do not have any hesitation that when the judicial precedents are in favour of the assessee that consumables are revenue expenditure and are allowed to the assessee as deduction in the year in which those are put in line of production, Therefore, the order of the learned assessing officer passed after due enquiry about such claim, cannot be held to be erroneous.
Accordingly, we do not find any error in the order of the learned assessing officer by allowing the claim of assessee of revenue expenditure of catalyst as well as depreciation on technical know-how for assessment year 2009 – 10. Accordingly, the revisionary order passed under section 263 of the act by the Commissioner of income tax (large taxpayer unit) is not sustainable and hence quashed.
For assessment year 2010 – 11, the learned PCIT revised the assessment order on the issue of the deduction of expenditure on catalyst in the year in which it is put into production line. The facts are identical to the one of the issue in assessment year 2009 – 10. Therefore for the similar reasons,
Accordingly revisionary orders passed under section 263 of the act for assessment year 2009 – 10 and 2010 – 11 are quashed, appeals of the assessee are allowed.
Order pronounced in the open court on 16.01.2023.