PRINCIPAL COMMISSIONER OF INCOME TAX VADODARA 1 vs. GUJARAT ALKALIES AND CHEMICALS LTD

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TAXAP/1148/2018HC GujaratGJHC24052906201817 September 2018Bench: HONOURABLE MR. JUSTICE AKIL KURESHI,HONOURABLE MR. JUSTICE B.N. KARIA2 pages
AI SummaryDismissed

What did the High Court hold?

The High Court dismissed the Tax Appeal. The Court noted that the issue concerned expenditure incurred by the assessee for the replacement of membranes in the machinery, with the Revenue arguing it should be treated as capital expenditure. The Court observed that a Division Bench of the same Court had previously considered a similar suggested question concerning the same assessee in Tax Appeal No. 577 of 2016 and refused to entertain it via an order dated August 1, 2016. Based on this precedent and the fact that the appeal raised similar questions, the Court found no reason to entertain the present appeal. The operative direction was to dismiss the appeal.

What were the facts?

The Revenue, Principal Commissioner of Income Tax, Vadodara 1, is in appeal against an order of the Income Tax Appellate Tribunal (ITAT) dated March 19, 2018. The appeal concerns Assessment Year(s) not explicitly stated but implied to be prior to the ITAT order. The dispute revolves around expenditure incurred by the respondent-assessee, Gujarat Alkalies and Chemicals Ltd., for the replacement of re-membraning cells-II. The Revenue contends this expenditure is capital in nature. The ITAT had upheld the decision of the CIT(A) which deleted the addition made by the Assessing Officer. The procedural history indicates a prior Tax Appeal No. 577 of 2016, concerning the same assessee and a similar issue, was refused entertainment by a Division Bench of this Court on August 1, 2016.

What were the issues?

The Tribunal had to decide the following questions of law: 1. Whether the ITAT erred in law and on facts by upholding the CIT(A)'s decision, which was based on the rule of consistency, without considering the merits, in deleting the addition made on account of expenses incurred for replacement of re-membraning cells-II, treating the same as capital expenditure? 2. Whether the ITAT erred in law and on facts by not appreciating that the membranes were an integral part of the plant, essential for its effective functioning, and provided an enduring benefit for at least 2 to 3 years? Contentions: Assessee: Not recorded in the judgment. Revenue: Argued that the expenditure incurred for replacement of membranes should be treated as capital in nature. The Revenue also contended that the ITAT erred in upholding the CIT(A)'s decision based on the rule of consistency without considering the merits, and in not appreciating the integral nature and enduring benefit of the membranes.

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C/TAXAP/1148/2018 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL No. 1148 of 2018 ============================================================= PRINCIPAL COMMISSIONER OF INCOME TAX VADODARA 1 Versus GUJARAT ALKALIES AND CHEMICALS LTD ============================================================= Appearance : Mr. VARUN K.PATEL, Advocate for the PETITIONER(s) No. 1 for the RESPONDENT(s) No. 1 ============================================================= CORAM: HONOURABLE Mr. JUSTICE AKIL KURESHI and HONOURABLE Mr. JUSTICE B.N. KARIA 17th September 2018

ORAL ORDER (PER : HONOURABLE Mr. JUSTICE AKIL KURESHI) Revenue is in appeal against the judgment of the Income Tax Appellate Tribunal [“Tribunal” for short] dated 19th March 2018 raising the following questions for our consideration:- [A] “Whether on the facts and in the circumstances of the case, the ITAT has erred in law and on facts in upholding the decision of CIT [A] which was merely based upon the rule of consistency without considering the issue on merits of the case and it was to delete the addition made on account of expenses incurred for replacement of re- Page 1 of 2

C/TAXAP/1148/2018 ORDER membraning cells-II, treating the same as Capital Expenditure ?” [B] “Whether on the facts and in circumstances of the case, the ITAT has erred in law and on facts in not appreciating the fact that membranes were integral part of the plant without which the plant cannot function effectively and that it has enduring benefit for atleast 2 to 3 years ?” Though two questions are framed, the issue is one and concerns expenditure incurred by the respondent-assessee for replacement of membranes in the machinery. Revenue argued that the expenditure should be treated as capital in nature. We notice that the Division Bench of this Court in earlier years concerning the same assessee in Tax Appeal No. 577 of 2016 considered such suggested question, but refused to entertain it under an order dated 1st August 2016. This Tax Appeal is dismissed accordingly. [Akil Kureshi, J.] [B.N Karia, J.] Prakash Page 2 of 2

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