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Income Tax Appellate Tribunal, AHMEDABAD “C” BENCH
Before: SHRI WASEEM AHMED & SHRI MAHAVIR PRASAD
PER MAHAVIR PRASAD, JUDICIAL MEMBER 1. This appeal by the Assessee is directed against the order of the Ld. CIT(A)-1, Vadodara dated 02.02.2015 pertaining to A.Y. 2007-08 and following grounds have been taken:
ITA No. 1286/Ahd/2015 2 . A.Y. 2007-08 The Appellant being dissatisfied with the order passed by the Commissioner of Income Tax (Appeals) -1, Vadodara (learned CIT(A)), prefers an appeal against the same on the following amongst other grounds, which are without prejudice to each other. 1. The order passed by the learned CIT(A) is erroneous and contrary to the provisions of law & facts of the case and therefore needs to be suitably modified. It is submitted that it be so done now. 2. The learned CIT(A) erred on facts and in law in not providing an opportunity of being heard to the appellant and holding that the appellant had failed to submit appellate orders passed by learned CIT(A) for assessment years prior to AY 2000- 01 wherein the question of allowability of expenditure on fire-fighting had been decided. It is submitted that it be so held now. 2.1. The learned CIT(A) erred on facts in not appreciating that AY 2000-01 was the first year of disallowance of expenditure on fire-fighting and accordingly, there was no justification in confirming the disallowance on the ground that earlier year's order are not furnished. It is submitted that it be so held now. 2.2. The learned CIT(A) erred on facts and in law in confirming the disallowance of Rs. 74.70 lacs 1 being expenditure incurred on fire-fighting despite the fact that the said expenditure was incurred for purchase of consumables and towards ongoing safety audit, risk assessment studies, etc., all of which are expenditure of revenue nature and are allowable as deduction under Section 37(1) of the Income-tax Act, 1961. It is submitted that it be so held now. 2.3. Without prejudice to the above, if the expenditure incurred on fire-fighting is considered to be capital in nature, direction be given to the Assessing officer grant depreciation on the same. It is submitted that it be so held now. Your appellant prays for leave to add, alter and/or amend all or any of the grounds before the final hearing of appeal..
ITA No. 1286/Ahd/2015 3 . A.Y. 2007-08 2. The facts of the case are that the appellant, initially the original e-return of income declaring income of Rs. 304,27,48,170/- was filed on 30/10/2007 for AY 2007-08. The assessment was completed by the Addl. Commissioner of Income Tax, Range-1, Baroda u/s 143(3) of the IT Act on 27/03/2009 by determining the total income of Rs. 405,76,10,820/- under ithe normal provisions of the Act. While computing the assessment u/s 143i(3), the AO has made various additions/disallowances. One of the additions as made by the AO was Rs. 74.70 lacs being expenditure on Fire Fighting Equipments. The appellant had claimed expenditure of Rs. 74.70 lacs on Fire Fighting Equipments and Safety Services under the head "Other Expenses". Considering the nature of this expenditure and also in view of the fact that similar claim of expenditures, were disallowed by the AO in earlier assessment orders, the A6 for AY ,2007-08 also asked the appellant to show-cause as to why the above claim of expenditure should not be disallowed by treating the same as capita expenditure. The appellant submitted reply dated 20/03/2009 to the AO and relevant part of such reply has been incorporated by the AO in his assessment order for AY 2007-08. For reference relevant part of such reply dated 20/03/2009 is also reproduced hereunder: "Our company is a hazardous chemical company and therefore, security becomes a paramount consideration for such type of companies. We have taken security measures as per the provisions of statutory enactment and also guidelines issued by the State Government, The Safety & Fire fighting expenses represent as per the details given hereunder:
Safety Expenses: Safety expenses have been incurred for procurement of personal Protective Appliances (PPAs) and the same are of recurring expenses. Similarly, expenses are incurred for purchase of Cloves, PVC Suits, Gas masks, Canisters which are consumables.
ITA No. 1286/Ahd/2015 4 . A.Y. 2007-08
Expenses are also incurred for. Safety Audit, Risk Assessment studies which are carried out by outside experts, safety fighting expenses, Safety training, Safety Displays, Safety Exhibition etc.
Fire Fighting Expenses: Fire Fighting expenses represent expenses incurred for foam compound, Dry powder, CO2, Halon etc. which are consumables. Fire Fighting expenses also includes Fire Fighting accessories like fire hoses, nozzles, branch pipes, couplings, foam branch pipes, valve washers, CO2 horn of portable extinguishers; refilling of BA sets etc. which are consumable items.
All expenditures for the upkeep of items and the exercises need to maintain safety norms are incidental to the business. Further, without observing these security norms, the Government will not permit production and the production itself would become non-viable if proper Safety & Fire, Prevention norms are not observed. The expenditure is not resulting in the ownership of any assets of enduring nature and hence, the expenditure is revenue in nature. In all the earlier assessment year, identical expenses incurred have been allowed as revenue expenditure.”
However, the AO did not accept the above reply of the appellant. As per the AO the nature of expenditure on Fire Fighting Equipments and Safety Equipments were such that the company would derive the benefits over a number of years. As per the AO moreover, the decisions of Ld. CIT(A) on this issue for earlier years were not also accepted by the Department and the second appeal was filed by it to the it AT against the decision of the CIT(A), In view of these facts the AO disallowed the above claim of expenditure of( Rs. 74.70 lacs. The-appellant preferred an appeal to the CIT(A) against the order of the AO.
ITA No. 1286/Ahd/2015 5 . A.Y. 2007-08 The Ld. CIT(A) following his own decision as given in the case of appellant for AY 2006r07 and for earlier years held that the expenditure of Rs. 74.70 lacs were of revenue nature and accordingly he deleted this addition. The matter went to the ITAT. The ITAT, Ahmedabad in its appeal in ITA No. 729/Ahd/2010 dated 05/07/2013 has held as under:- "5. From the above para, we find that this issue was decided by Ld. CIT(A) on this basis that facts are identical in this year as compared to facts in AY 2006-07. We do not find any basis regarding this decision of Ld. CIT(A) because even if the expenses are incurred in respect of fire fighting equipments in the present year and in AY 2006-07, it is to be seen as to whether the same is in respect of acquiring new equipments or in acquiring some parts of the existing equipments. The Tribunal order in respect of AY 2006-07 is not available to us but the same for AY 2003-04, 2004-05 and 2005-06 are available on page 121\ 122, 133 and 148, 149 of the paper book respectively. In all these years, the Tribunal has followed earlier Tribunal order for AY 2001-02 & 2002-03 etc and earlier orders are not available before us. In the absence of lead order for the first year, when the Tribunal allowed such claim for the first time, it is not possible to find out what is the basis of allowing such claim and what was facts of that year. Hence, we feel that this Issue should be decided afresh by Ld. CIT(A) after bringing on record the first order of the Tribunal on such issue and after examining and comparing facts of that year and present year. We set aside the order of Ld. CIT(A) on this issue and restore back this matter to his file for a fresh decision in the light of above discussion after providing adequate opportunity of being heard to both ' sides. This ground of the Revenue is allowed for statistical purpose."
Thereafter on the same basis, ld. CIT(A) has decided the matter against the appellant.
Now appeal is before us.
ITA No. 1286/Ahd/2015 6 . A.Y. 2007-08
Ld. A.R. has filed paper book containing Pages 1 to 153 and in the year 2000- 01 an amount of Rs. 93.25 lakhs was spent and case was dealt by the A.O. u/s. 143(3) and in appeal ITAT decided the matter in favour of the appellant and no further appeal was filed by the department and same continued up to Assessment Year 2005-06. In the Assessment Year, 2006-07, an amount of Rs. 51.38 lakhs was spent for the fire-fighting equipments and ITAT restored the matter back to the file of the ld. CIT(A). At that point of time, appellant could not produce the order for Assessment Year 2000-01 and on the same ground, ld. CIT(A) also disallowed the expenses for Assessment Year 2007-08 which is before us for our consideration.
We have gone through the relevant record and seen the order from Assessment Year 2000-01 to 2005-06. In all the Assessment Year, same expenses for the fire-fighting equipment had been allowed as revenue expenditure by the Authorities/ITAT. Respectfully following our own order and against the order of the ITAT, Department has never gone into the appeal before the Hon’ble High Court meaning thereby earlier orders of ITAT got finality. On the basis of the above said, we allow appeal of the appellant.
In the result, the appeal of the appellant is allowed.
Order pronounced in Open Court on 23 - 05- 2018
Sd/- Sd/- (WASEEM AHMED) (MAHAVIR PRASAD) ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER Ahmedabad: Dated 23/05/2018