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Income Tax Appellate Tribunal, DELHI ‘C’ BENCH,
Before: SHRI N.K. BILLAIYA, & SHRI KULDIP SINGH
PER N.K. BILLAIYA, ACCOUNTANT MEMBER:-
This appeal by the assessee is preferred against the order of the Commissioner of Income Tax [Appeals] - 39, New Delhi dated 31.05.2017 pertaining to assessment year 2010-11.
The sum and substance of the grievance of the assessee is that the ld. CIT(A) erred in confirming the disallowance of Rs. 56,97,195/- being expenses incurred on shifting of plant and machinery by treating the same as capital in nature.
In the alternative, the assessee pleads for providing depreciation on the disallowance of plant and machinery expenses.
Briefly stated, the facts of the case are that during the course of scrutiny assessment proceedings, the assessee had incurred Rs. 98,56,484/- towards relocation expenses as debited in the Profit and Loss Account. The assessee was asked to furnish details of these expenses and show cause as to why these expenses should not be capitalized.
The assessee filed details of expenses as under:
S.No. Details of Factory shifting Expenses Amount 1. Stuffing expenses for plant and machinery 2971450 2. Shifting fo SFB machine and installation 797482 3. DG Set shifting and reinstallation 520673 4. Specific Machine shifting 515485 5 . Dismantling of wire mess/ Pillars surrounding store and reconstruction at new site 302150 6. Professional charges for shifting intimation to STPI an excise 286780 7. Shifting charges of CMM machine 187510
8. Narula- Dismantling of four cabins of shop floor and reassembling 95000 9. German guest for machine installation 83377 10. Network cables etc shifting charges 48532 11. Consultancy for DG tank 11030 12. Miscellaneous expenses 503189 13, Packing and Moving of office modular furniture and reassembling 476564 14. EOT Crane shifting 441200 15. Consumables and labour charges 301416 16. Store rack shifting charges and reinstallation as per new layout 204055 17. Consultancy services for shifting 115665 18. Crane charges 114875 19. Tent for keeping material 90094 20. Security services for three months during shifting period 62924 21. Work stations dismantle and reinstallation 51280 22. Cab Charges 49959 23. HSD charges 33140 Total 82,63,830
It was strongly contended that the relocation expenses were incurred to shift the continuing business of the assessee from one location to the other. It was claimed that the expenses were incurred to shift the existing plant and machinery of the assessee and no new assets came into existence as a result of such expenditure.
After considering the reply of the assessee, the Assessing Officer was of the opinion that the following expenses were directly related for capitalization of these expenses:
Sl. No. Details of Factory shifting Expenses Amount 1. Shifting expenses for plant and machinery 29,71,450 2. Shifting of SFB machine and installation 7,97,482 3. DG Set shifting and reinstallation 5,20,673 4. Specific Machine shifting 5,15,485 5. Dismantling of wire mess/ Pillars surrounding store and 3,02,150 reconstruction at new site Professional charges, for shifting intimation to STPI an 2,86,780 6. excise 7. Shifting charges of CMM machine 1,87,510 8. Consultancy services tor shifting 1,15,665 9. TOTAL 56,97,195
The classified items mentioned hereinabove contain the expenses directly related to the shifting of plant and machinery and professional and consultancy charges incurred towards shifting of these machines which are an integral part of the business of the assessee company and all these machines are capital assets and the value additions in the shape of shifting. Therefore, these expenses need to be capitalized.
Accordingly, the Assessing Officer disallowed Rs. 56,97,195/- and allowed depreciation @ 15%.
The assessee strongly agitated the matter before the ld. CIT(A) and reiterated its contention that the expenses have been incurred for shifting the plant from Gurgaon to Manesar and no new assets have been created.
The contention of the assessee did not find any favour with the ld. CIT(A) who was of the firm belief that the decision of the Hon'ble Supreme Court in the case of Sitalpur Sugar Works Pvt Ltd 49 ITR 160 squarely applies on the facts of the case.
Taking a leaf out of the said decision, the ld. CIT(A) observed as under:
“lt is thus observed from the above judicial precedents that the expenditure incurred by an assessee on shifting of its plant and machinery is held to be capital when the test of enduring benefit sets in - there is no external pressure threatening its survival in the earlier location and shifting it is preferred by the assessee only to reduce costs / increase profits. Applying this principle in the present case, it is observed that the increased lease rental would hardly impact its profitability, given the fact, as admitted by the appellant and borne out from records, that it is eligible for exemption of its taxable income u/s 10B of the Act, being an EOU. Finally, as regards its claim that shifting to Manesar from Gurugram (Pace City-ll) remains self-serving without any third party evidence in this regard to prove external threat to its very survival. The onus of producing evidence in support of its claim lies on the appellant; Revenue obviously couldn’t refute the evidence when there is no third party evidence produced by the appellant - even produced in the course of appeals except for the fact that there was a letter from the lessor giving a 3-month notice to vacate the leased premises. Even its audited accounts gave details of the shifting and the expenditure incurred in the relevant PY but fell short of attributing the cause to this decision with 'proper' evidence. Also, the appellant has rented part of the new premises to one of its group concern in India.
Accordingly, I decline to interfere with the impugned order on this issue in due deference to the decision of the apex court mentioned supra and uphold the disallowance made therein on this point, albeit with a correction - the appellant is alsp- not eligible for depreciation @15% on this disallowance as given in the impugned order.”
Before us, the ld. counsel for the assessee once again strongly contended that the expenses considered by the Assessing Officer as capital in nature are Revenue expenses to be allowed u/s 37(1) of the Act as the same were incurred for shifting the plant and machinery from Gurgaon to Manesar.
Strong reliance was placed on the decision of the co-ordinate bench in the case of Honda Siel Power Products Ltd 551/DEL/2014 and 636/DEL/2015 which was affirmed by the Hon'ble High Court of Delhi in ITA No. 127/2017. It is the say of the ld. counsel for the assessee that the Hon'ble Delhi High Court while deciding the issue in favour of the assessee has considered the decision of the Hon'ble Supreme Court in the case of Sitalpur Sugar Works [supra] which was strongly relied upon by the ld. CIT(A).
Per contra, the ld. DR strongly supported the findings of the ld. CIT(A).
We have carefully considered the orders of the authorities below and the decisions relied upon by the ld. counsel for the assessee. The nature of expenses have already been adjudicated elsewhere and the undisputed fact is that these expenses were incurred for shifting the running business of the assessee from Gurgaon to Manesar and admittedly, no new assets came into existence.
The co-ordinate bench in the case of Honda Siel Power Product Ltd [supra] had the occasion to consider a similar issue. The relevant part of the order of the co-ordinate bench reads as under:
“25. The next issue raised in Ground Nos. 5 to 5.3 in appeal for A.Y. 2010-11 relates to disallowance of Rs. 43,47,750 on account of relocation expenses on transfer of factory of the assessee company from Rudrapur to Greater Noida. In this regard, the Ld. AR has submitted as under:
“During the relevant year, the appellant had incurred certain expenditure amounting to Rs. 1,11,47,000, debited to the Profit & Loss account, under the head ‘Exceptional Items’ in Schedule 11 to the audited financial statements. The aforesaid expenses were incurred on account of shifting/ 49 ITA Nos.551/Del./2014 & 636/Del./2015 relocation of factory premises from Rudrapur to Greater Noida for the purposes of consolidation of factory premises and utilization in production. The details of such ‘relocation expenses’ are provided as under:
S. No. Particulars Amount (in Rs.)
Freight on transfer of Raw materials 13,52,000 2. Freight on transfer of machines 34,55,000 3. Travelling and conveyance 16,12,000 4. Professional charges 10,24,000 5. Salary cost of machines 6,38,000 6. Salary cost for general work 3,07,000 7. Publicity 7,66,000 8. Stores, spares and tools 6,36,000 9. Repair expenses 4,90,000 10. Joining expenses 4,94,000 11. Miscellaneous expenses 3,73,000 TOTAL 1,11,47,000
Out of the aforesaid, the assessing officer, vide impugned order dated 16.12.2014 disallowed the following expenditure aggregating to Rs. 51,15,000, holding the same to be capital expenditure on the ground that such expenditure had resulted in benefit of enduring nature to the appellant:
S.No.. Particulars Amount (in Rs.) 1. Freight on transfer of machines 34,55,000 2. Professional Charges 1 0,24,000 3. Stores, spares and tools 6,36,000 Total 51,15,000
The assessing officer, however, allowed depreciation @ 15% on the aforesaid amount, thereby restricting the disallowance on account of shifting expenditure to Rs. 43,47,750.
In this regard, it is submitted that the aforesaid expenses incurred by the appellant represent expenses incurred in dismantling the existing plant, transportation cost of machines at new site and reinstallation cost of such machines at new premises, comprising of civil works cost, cost of new stores and spare parts, and professional and consultancy charges incurred for the purposes of relocation. The shifting expenses were, therefore, indirect expenses, which were incurred at the time of shifting of factory from Rudrapur to Greater Noida. The expenses were incurred for the purpose of running the business of the appellant company as a more technically viable, efficient and profitable unit.
The said expenses were incurred only for shifting of factory/machines from one place to the other without any enhancement in the manufacturing capacity. Such relocation, it would be noted, did not result in the establishment of a new/ independent set-up, which would contribute towards the profit making apparatus of the appellant company. It is respectfully submitted that no enduring benefit had accrued to the appellant as a result of such shifting expenses, much less in the capital field, as the appellant had merely consolidated the machines/spares at the Rudrapur factory with the existing factory at Greater Noida.
Reference, in this regard, may be made to the following decisions wherein has been held that if the outgoing or expenditure is related to the carrying on, or conduct of the business, it may be regarded as an integral part of the profit making process and therefore revenue in nature: ·
• Empire Jute Co. Ltd. v. CIT: 124 ITR 1 (SC) · • CIT v. Associated Cement Companies Ltd.: 172 ITR 257 (SC) · • Alembic Chemical Works Co. Ltd. v. CIT: 177 ITR 377 (SC) · • Arvind Mills Ltd v. CIT: 97 ITR 422 (SC) 51 • ITA Nos.551/Del./2014 & 636/Del./2015 · • ChandulalKeshavlal v. CIT: 38 ITR 601(SC) · • Bombay Steam Navigation Co. (1953) (P.) Ltd. v. CIT: 56 ITR 52 (SC) · DevidasVithaldas& Co. v. CIT: 84 ITR 277 (SC) · • Chelpark Company Ltd. v. CIT: 191 ITR 249 (Mad.) · • K.T.M.T.M. Abdul Kayoom v. CIT: 44 ITR 689 (SC) · • Assam Bengal Cement Co. Ltd. v. CIT: 27 ITR 34 (SC) · • L.H. Sugar Factory & Oil Mills P. Ltd. v. CIT: 125 ITR 293 (SC) · Dalmia Jain & Co. Ltd. v. CIT: 81 ITR 754 (SC) · • M.K. Bros. (P.) Ltd. v. CIT: 86 ITR 38 (SC) · • Travancore Sugars & Chemicals Ltd. v. CIT: 62 ITR 566 (SC) · • CIT v. B.N. Elias & Co. (P.) Ltd.: 168 ITR 190 (Cal.) · • CIT v. Hindustan General Electric Corpn. Ltd.: 81 ITR 243 (Cal.) · Gannon Norton Metal Diamond Dies Ltd. v. CIT: 163 ITR 606 (Bom.) · CIT v. Mehta Transport Co.: 160 ITR 35 (Guj.) ·
• Saraswati Industrial Syndicate Ltd. v. CIT: 137 ITR 886 (Punj. &Har.) CIT v. Oblum Electrical Industries.: 127 ITR 409 (AP)
Further, attention is invited to following decisions wherein it has been held that shifting/ relocation expenses incurred by the assessee in the course of business are allowable revenue expenditure and cannot be treated as capital in nature:
• CIT v. Karanpura Development Co. Ltd.: 144 ITR 538 (Cal.) · • CIT v. Brakes India Ltd.: 161 Taxman 47 (Chenn.) · • CIT v. Loyal Super Fabrics: 304 ITR 78 (Chenn.) · • Madura Coats Ltd. v. ITO: 26 ITD 152 (Mad.) · • Hindustan Times Ltd. v. ITO: 3 ITD 525 (Del.) · • JCIT v. ITC Ltd.: 299 ITR(Trib.) 341 (Kol.)(SB)(AT)
The decision in the case of Bimetal Bearings(supra), relied upon by the assessing officer, has been distinguished in the subsequent decision of the Hon’ble Madras High Court in the case of CIT v. Loyal Super Fabrics: 304 ITR 78 (Mad.). Further, it is respectfully submitted that the decision of Bombay High Court in the case of Otis Elevator (supra), also relied upon by the assessing officer, is per incuriam, since the same has been rendered without considering the decision of the apex Court in the case of Empire Jute Co. v. CIT: 124 ITR 1. The decision of the Patna High Court in the case of Jamshedpur Engg. (supra) has also been duly considered and 52 ITA Nos.551/Del./2014
& 636/Del./2015 distinguished by the Third Member of the Madras bench of the Tribunal in the case of Madura Coats Ltd. v. ITO: 26 ITD 152. (Mad.) In the present case, it is respectfully submitted, the above expenses were incurred on merely reallocation of the factory from Rudrapur to Greater Noida and no new asset has come into existence. Such expenses, therefore, are allowable revenue deduction and cannot be considered as capital in nature for the following cumulative reasons:
(i) the expenses were indirect in nature mainly to dismantle, shift and install machines at new location;
(ii) no new asset has come into being as a result of shifting expenses;
(iii) there was no enhancement in existing manufacturing capacity and expenses were incurred only to shift existing machines from once place to the other.”
On the other hand, the Ld. CIT/ DR relied on the order of the AO/ DRP to contend that the expenditure in consideration was relating to the shifting of plant and machinery, which being the capital assets of the assessee company, these expenses need to capitalized as per the provisions of law. It was further argued that the assessee company has established a new set-up at Greater Noida which has resulted in enduring benefit and accordingly, expenditure needs to be disallowed as capital in nature.
We have heard the rival submissions and perused the charts, synopsis and paper books placed before us. The issue relates to determination of expenditure as capital or revenue. We find substance in the submission of the appellant that the expenditure was incurred on shifting of existing assets of the assessee company to Greater Noida for consolidating the units to increase profitability and efficiency. We are of the view that the expenses incurred by the assessee company did not bring into existence any new capital asset. The assessee company has relied on the decision of the Apex Court and various other High Courts to contend that it not every enduring benefit which would be considered as capital in nature and such benefit must be in the capital field. It would be useful to refer to the decision in the case of Empire Jute Co. Ltd. v. CIT: 124 ITR 1 (SC) wherein it has been held that if the expenditure is related to the conduct of the business, it may be regarded as an integral part of the profit making process and would be held as revenue in nature.
The decisions relied upon by the AO/ DRP are distinguishable from the facts canvassed by the assessee company and have been duly considered and distinguished by Courts subsequently. We are in agreement with the decisions relied upon by the Ld. AR in the case of Karanpura Development (Cal.), Loyal Super Fabrics (Mad.) and Madura Coats (Mad.) which, according to us, are similar to the case of the assessee. Accordingly, we hold that the expenses on relocation and shifting are revenue in nature and would be allowed as business
deduction and the disallowance made by the AO on this count is deleted.”
This order was challenged before the Hon'ble High Court of Delhi and the Hon'ble High Court, vide order dated 07.03.2017, in of 20017 and CM No. 4906-4907 of 2017 held as under:
The Revenue urges two questions of law in this appeal under Section 260A of the Income Tax Act, 1961. Firstly, it is argued that the AMP expenditure could not have been allowed by the ITAT. On this the ITAT had followed its previous orders as well as the orders of this Court of the previous years’ in the assessee’s case. This question of law, therefore, does not arise.
As far as the other issue i.e. treatment of expenditure towards shifting/ relocation are concerned, out of the eleven heads, the Assessing Officer accepted eight and added back amounts towards three, holding that there is ultimately an enduring capital advantage. The ITAT took note of the several judgments of the High Courts. In doing so, the ITAT also took note of the Revenue’s contention which had relied upon the older decisions of the various High Courts. Revenue relies upon the ruling in Sitalpur Sugar Works V. CIT (1963) 49 ITR (SC) 160 to say that shifting and relocation expenses can never be treated as falling in the Revenue’s stream.
This Court is of the opinion that the ITAT in the impugned decision cannot be faulted and given the later developments especially the law declared in Empire Jute Co. Ltd. vs CIT (1980) 124 ITR 1 (SC) and Alembic Chemicals Works Co. Ltd. vs CIT (1989) 177 ITR 377 (SC).
In these circumstances, no questions of law arise. The appeal is, therefore, dismissed.
As can be seen from the above judgment, the Hon'ble High Court has considered the judgment of the Hon'ble Supreme Court in the case of Sitalpur Sugar Works [supra]. Respectfully following the findings of the co-ordinate bench, which has been affirmed by the Hon'ble High Court of Delhi [supra], we direct the Assessing Officer to delete the disallowance of Rs. 56,97,195/-. The main ground of the appeal is allowed. The alternative plea raised by the assessee becomes otiose.
In the result, the appeal filed by the assessee in is allowed.
The order is pronounced in the open court on 11.11.2021.