Loading judgment…
Facts
The assessee appealed an order confirming disallowances on expenditure related to a dedicated power feeder, modernization repairs, and prior period electricity charges. The Assessing Officer and CIT(A) had disallowed these amounts, viewing them as capital expenditure or prior period expenses.
Held
The Tribunal held that the expenditure on the dedicated power feeder line was revenue in nature, as it facilitated business efficiency without transferring ownership. For modernization expenses, the issue was remitted to the CIT(A). For prior period electricity charges, the matter was also restored to the CIT(A) to verify current status and allow if not claimed earlier.
Key Issues
Whether expenditure on a dedicated power feeder line is revenue or capital, and the allowability of prior period expenses and modernization repairs.
Sections Cited
143(3), 115JB
AI-generated summary — verify with the full judgment below
Detected automatically from the text. The count shows how many other judgments on BharatTax rely on the same authority.
Income Tax Appellate Tribunal, “A” BENCH, CHENNAI
Before: HON’BLE SHRI ABY T. VARKEY, JM & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
(िनधा*रण वष* / Assessment Year: 2014-15) The Lakshmi Mills Company Ltd. ACIT बनाम/ 686, Avanashi Road, Corporate Circle-2, Vs. Coimbatore -641 037. Coimbatore. �थायीलेखासं./जीआइआरसं./PAN/TAN No. AAACT-7564-R (अपीलाथ�/Appellant) : (��थ� / Respondent) अपीलाथ�कीओरसे/ Appellant by : Shri T. Banusekar (Advocate) – Ld. AR ��थ�कीओरसे/Respondent by : Shri Nilay Baran Som (CIT) -Ld. DR सुनवाईकीतारीख/Date of Hearing : 31-12-2024 घोषणाकीतारीख /Date of Pronouncement : 15-01-2025 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member)
Aforesaid appeal by assessee for Assessment Year (AY) 2014-15 arises out of the order of learned Commissioner of Income Tax, National Faceless Appeal Centre (NFAC), Delhi [CIT(A)] dated 15-12-2023 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s. 143(3) of the Act on 30-12-2016. The assessee has filed concise grounds of appeal
which read as under: -
1. For that the order of the Commissioner of Income Tax (Appeals) is contrary to law, facts and circumstances of the case to the extent prejudicial to the interest of the appellant and at any rate is opposed to the principles of equity, natural justice and fair play.
2. For that the Commissioner of Income Tax (Appeals) erred in confirming the disallowance of cost of dedicated power feeder amounting to Rs.2,63,88,650/claimed as revenue expenditure.
3. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the expenditure incurred on dedicated power feeder line is incurred for business purposes out of commercial expediency and hence allowable as revenue expenditure.
For that the Commissioner of Income Tax (Appeals) erred in confirming the disallowance of expenditure amounting to Rs.2,96,46,008/- incurred towards replacement of "compact spinning drafting conversion system".
For that the Commissioner of Income Tax (Appeals) failed to appreciate that the expenditure incurred towards replacement of old worn out drafting system in the spindlier in the ring frames is revenue expenditure and not capital expenditure.
For that the Commissioner of Income Tax (Appeals) erred in confirming the disallowance of Rs.14,60,000/- being charges incurred towards scheduling and system operating charges.
For that the Commissioner of Income Tax (Appeals) failed to appreciate that debit note in connection with scheduling and system operating charges was raised on 31.03.2013 by M/s. Sai Regency Power Corporation, but was accepted by the appellant after dispute only during the previous year relevant to assessment year 2014-15.
For that the Commissioner of Income Tax (Appeals) erred in considering the expenditure relating to scheduling and system operating charges as prior period expenses, not allowable in assessment year 2014-15.
For that the Commissioner of Income Tax (Appeals) erred in confirming the disallowance of Rs.18,91,384/- being charges demanded by TANGEDCO on account of short levy of Electricity charges, tax or charges as prior period expenses.
For that the Commissioner of Income Tax (Appeals) failed to appreciate that the sum of Rs.18,91,384/- though was paid in earlier years was kept as advance in the books and written off in the books only in the previous year relevant to assessment year 2014-15.
For that the Commissioner of Income Tax (Appeals) erred in confirming disallowance of Rs.82,85,000/- being electricity charges demanded by TNEB relating to the period 2011 to 2013 as unascertained liability both under normal computation of income and under u/s.115JB.
For that the Commissioner of Income Tax (Appeals) failed to appreciate that the electricity charges is paid in compliance with Accounting Standard - 4 and hence is an allowable deduction.
For that the Commissioner of Income Tax (Appeals) failed to appreciate that the said addition is not a permissible adjustment u/s.115JB of Income Tax Act. PRAYER For these grounds raised and such other grounds that may be raised, may be altered, amended or modified, with the leave of the Hon'ble Tribunal before or during the hearing of the appeal, it is most humbly prayed that the Hon'ble Tribunal may be pleased to: a)Quash the order passed u/s.143(3) b)Delete the disallowance of Rs.2,63,88,650/- incurred on Dedicated Power feeder line c)Delete the disallowance of Rs.2,96,46,008/- incurred as special repairs for modernization d)Delete the disallowance of Rs.14,60,000/- paid towards scheduling and system operating charges. e)Delete the disallowance of Rs.18,91,384/- paid towards short levy of electricity charges f)Delete the disallowance of Rs.82,50,000/-paid towards electricity charges g) Pass such other orders as the Hon'ble Tribunal may deem fit.
As is evident, the issues that fall for our consideration are - (i) Disallowance of Dedicated Power Feeder Line expenses for Rs.263.88 Lacs; (ii) Disallowance of repairs for modernization expenses for Rs.296.46 Lacs; (iii) Disallowance of Prior period electricity charges for Rs.82.85 Lacs under normal provision and while computing Book Profit; (iv) Inadmissible expenses for Rs.14.60 Lacs; (v) Inadmissible expenses for Rs.18.91 Lacs.
The Ld. AR advanced arguments and referred to various documents to support the case of the assessee. Reliance has been placed on various case laws, the copies of which have been placed on record. The Ld. CIT-DR also advanced arguments supporting the orders of lower authorities. Having heard rival submissions and upon perusal of case records, the impugned issues are adjudicated as under. The assessee being resident corporate assessee is stated to be engaged in manufacturing activities.
Disallowance of Dedicated Power Feeder Line expenses 3.1 It was submitted that due to heavy load shedding power cut and restriction to use power, the HT consumers were not able to get power from TANGEDCO which was required to achieve 100% efficiency in installed capacity. Accordingly, the assessee obtained feeder facility from TANGEDCO for Rs.263.88 Lacs and dedicated feeder line was installed with the approval of TANGEDCO. Though the cost was incurred by the assessee, the ownership thereof would be with TANGEDCO. The Ld. AO held that the expenditure was to be capitalized since the assessee got an advantage of enduring nature with the introduction of the technology. Accordingly, depreciation of 15% was allowed and the remaining amount as claimed by the assessee for Rs.224.30 Lacs as revenue expenditure was disallowed. 3.2 The Ld. CIT(A) further held that since the feeder line was owned by TANGEDCO, the assessee would have no right to claim depreciation on such installation since the assessee was not the owner thereof. The Ld. AO was directed to verify the aforesaid fact and disallow the depreciation also. In effect, the directions of Ld. CIT(A) potentially enhanced the assessment. Aggrieved, the assessee is in further appeal before us. 3.3 It is undisputed fact that the assessee does not own the aforesaid feeder line. The same is also evident from the letter issued by Tamilnadu Power Distribution Corporation Ltd. as placed on record. It has been clarified therein that TANGEDCO reserves every right to use the supply line and equipments for supply to other consumers. The Board is the owner of the property and the Board has the liberty to connect to any line, if required. It is settled position of law that to claim depreciation, it is essential that the assessee should be the owner of the capital asset which is not the case here. At the same time, it could be seen that the expenditure has been incurred by the assessee to conduct its business more efficiently. The advantage may be enduring in nature, nevertheless, the same was intended to enable the assessee to carry on its business more efficiently and profitably leaving the fixed capital untouched. Therefore, the expenditure would be revenue expenditure. This ratio has been laid down by Hon’ble High Court of Delhi in the case of CIT vs. Saw Pipes Ltd. (300 ITR 35) wherein Hon’ble Court has followed the decision of Hon’ble Apex Court in CIT vs. Madras Auto Service P. Ltd. (148 CTR 398). Similar is the subsequent decision of same court in CIT vs. Dart Mfg. India Pvt. Ltd. (175 Taxman 6). Similar is the decision of Hon’ble High Court of Punjab & Haryana in CIT vs. Lakhani Rubber Works. These case laws have similar facts. Respectfully following the same, we would hold that the entire expenditure would be allowable as revenue expenditure. The Ld. AO is directed to allow the same in full as revenue expenditure and reverse the depreciation as allowed to the assessee on this expenditure. The corresponding ground stand allowed.
4. Disallowance of repairs for modernization expenses 4.1 This expenditure was incurred by the assessee to install Elite compact Spinning system. The purpose of the compact spinning system was to arrange the fibers in a completely parallel and closed position before twists was imparted. Accordingly, the expenditure was held to be incurred for installing a new technology system to improve the final product. The assessee got enduring benefit. Accordingly, depreciation was allowed against the same and remaining amount of Rs.274.22 Lacs was disallowed. This issue, though contested by the assessee, remained to the adjudicated by Ld. CIT(A). 4.2 Considering the fact that this issue has not been adjudicated by Ld. CIT(A), we remit the same back to the file of Ld. CIT(A) for adjudication. The corresponding grounds stand allowed for statistical purposes.
5. Disallowance of Prior period electricity charges under normal provisions as well as while computing book profits 5.1 Based on audit objections of TNEB, a demand of Rs.185.42 Lacs was raised which pertained to periods from 2011 to 2013. The assessee contested the same. The assessee, vide letter dated 28-04-2014, determined that the amount of Rs.82.85 Lacs would be payable. Since the demand was raised against the assessee and it crystallized at the time of finalization of accounts, provisions thereof was made in the books of accounts. This payment was made subsequently. The Ld. AO stated that the actual liability was created only on 28-04-2014 and it pertained to AY 2015-16. As on 31-03-2014, it was unascertained liability only and not a crystallized one. Accordingly, the same was disallowed under normal income as well as while computing Book Profits u/s 115JB. 5.2 The Ld. CIT(A) confirmed the stand of Ld. AO on the ground that the demand was raised by TNEB only on 16-04-2014 and therefore, the liability would pertain to financial year 2014-15. Aggrieved, the assessee is in further appeal before us. 5.3 Upon perusal of documents on record, it could be seen that a demand of Rs.185.42 Lacs has been raised against the assessee for excess power drawn during the period from June, 2011 to May, 2013. The said demand has been reduced to Rs.132.06 Lacs and the assessee has been directed to pay the same. The assessee has filed petition with appropriate court in MP No.2 of WP 31255/2014 and Hon’ble High Court granted conditional stay on 28-11-2014 with 30% deposit out of outstanding demand of Rs.132.06 Lacs. The assessee has deposited the same. It has created provision in the books of account for remaining amount of Rs.82.85 Lacs on the ground that it is ascertained liability. During hearing, Ld. AR has stated that the matter is still sub-judiced before Hon’ble High Court. Considering the same, we restore this issue back to the file of Ld. CIT(A) for fresh adjudication by considering the latest position of demand. The corresponding grounds as raised by the assessee stand allowed for statistical purposes.
6. Inadmissible expenses for Rs.14.60 Lacs & Rs.18.91 Lacs 6.1 The assessee paid amount of Rs.158.83 Lacs to Shri Sai Regency Power Corp. Ltd. Out of the same, amount of Rs.14.60 Lacs was for electricity charges for prior years and another amount of Rs.18.91 Lacs was paid to TNEB towards short levy of E-tax which was also not related to this year. The debit note for Rs.14.60 Lacs was raised on 31-03-2013 and accordingly, the same should have been accounted for in the financial year 2012-13. Therefore, it was disallowed as prior period expenditure. No details were provided for Rs.18.91 Lacs to establish the year in which the liability had actually crystallized and accordingly, the same was also disallowed as prior period expenditure. The Ld. CIT(A) confirmed the same against which the assessee is in further appeal before us. 6.2 The Ld. AR has placed on record ledger extract of Sai Regency Power Corp. Pvt. Ltd. for the previous year(s) 2012-13 to 2013-14 to demonstrate that the debit note dated 31-03-2013 amounting to Rs.14.60 Lacs was accounted for in the books only on 26-06-2013 and payment of the same was made on 08-07-2013. We are of the opinion that though this expenditure may be pertaining to earlier years, the same could be allowed provided the same was not claim in any of the earlier years. Therefore, we direct Ld. CIT(A) to verify the same and allow the expenditure if the same is not claimed in earlier years. 6.3 Similarly, in support of expenditure of Rs.18.91 Lacs, the Ld. AR has placed on record ledger extract of electricity charges paid to Tamilnadu Electricity Board during the financial year 2008-09 which has been written-off in financial year 2013-14. Though this expenditure pertains to earlier years, the same could be allowed provided the same was not claimed in any of the earlier years. The Ld. CIT(A) is directed to verify the same and allow the expenditure if the same is not claimed in earlier years. These grounds stands allowed for statistical purposes. Conclusion 7. The appeal stand partly allowed in terms of our above order. Order pronounced on 15th January, 2025.