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Income Tax Appellate Tribunal, BENCH ‘B’ KOLKATA
Before: Hon’ble Shri N.V.Vasudevan, JM & Shri M.Balaganesh, AM ]
ORDER PER N.V.VASUDEVAN, JM:
This is an appeal by the Assessee against the order dated 11.03.2014 of CIT,Kol-IV, Kolkata relating to A.Y.2009-10.
The Assessee is a Company. It is engaged in the business of manufacturing of coke. The Assessee filed return of income for AY 2009-10 declaring total income of Rs.8,08,33,563/-. In computing its income under the head “Income from Business”, the Assessee had claimed deduction of a sum of Rs.6,98,223/- under the head “Capital WIP abandoned”. In the course of assessment proceedings u/s 143(3) of the Income Tax Act, 1961 (Act), AO issued notice u/s 142(1) of the Act dated 22.08.2011. Item 29 of the said notice called upon the assessee to furnish the details of capital WIP abandoned amounting to Rs.6,98,223/-. The assessee vide its reply dated 13.09.2011 gave details of the capital abandoned. The details given by the assessee in this regard is enclosed as annexure to this order. The AO passed the assessment dated 27.12.2011 and the AO did not make any addition of Rs.6,98,223/- which was claimed as deduction while computing the income from business. The deduction was ITA No.597/Kol/2014-M/s. BLA Coke Private Limited A.Y.2009-10 claimed under the head “ loss on abandonment of capital assets”. It has to be mentioned that there is no discussion in the order of AO. Nevertheless the fact remains the AO while concluding the assessment had duly applied his mind to the allowability of the deduction claimed by the assessee.
The CIT in exercise of his powers u/s 263 of the Act was of the view that the aforesaid expenditure was capital expenditure and ought to have been disallowed by the AO. In coming to this conclusion the CIT placed reliance on the decision of the Hon’ble Calcutta High Court in the case of Kanoria Chemicals & Industries Ltd. Vs CIT (1995) 78 Taxmann 455 (Cal) wherein the Hon’ble Calcutta High Court held that expenditure incurred in connection with starting a new project which was aborted cannot be allowed as deduction in computing total income as revenue expenditure. CIT was also of the view that the assessee had not given the reasons as why the aforesaid expenditure had to be allowed as revenue expenditure either in the computation of total income or in the Tax Audit Report. CIT accordingly issued show cause notice u/s 263 of the Act.
In reply to the above show cause notice the assessee sent a reply in which the Assessee pointed out that it was is engaged in the business of manufacturing of low ash metallurgical coke. For the purpose of manufacturing of low ash metallurgical coke Assessee had 193 Ovens having 11 Chimneys(Batteries) for the purpose of manufacturing Low ash metallurgical Coke as per the following details.
Chimney (Battery) No of oven Battery 1 14 Battery 2 14 Battery 3 14 Battery 4 14 Battery 5 16 Battery 6 16 Battery 7 21 Battery 8 21 Battery 9 21 Battery 10 21 Battery 11 21 -M/s. BLA Coke Private Limited A.Y.2009-10 As even after repair or overhauling the capacity of oven does not increase and no new asset comes into existence. As, such expenditure is a revenue expenditure only. Assessee has only incurred the dismantling expenses of Rs.6,98,223/- the same cannot be said to be capital expenditure. The Assessee pointed out that due to use 42 ovens of chimney (Battery) 2,3 & 4 were worn out and required overhauling. For the purpose of overhauling assessee dismantled 42 no of oven .However, before the overhauling , due to poor market condition and existing capacity assesseee decided to abandon overhauling work for the time being and shall take up the same as and when required. The Assessee pointed out that due to excessive heat and other relevant factors, ovens get damaged and require repairs and overhauling. Such overhauling and repairs expenses are revenue expenditures .CIT v Seraikella Glass Works (P) Ltd 157 ITR 584,Addl CIT v Dyer's Stone Lime Co (P) Ltd 136 ITR 8, CIT v Bharat Aluminium ce Limited 292 ITR 600, CIT v Udaipur Distillary Co Limited 268 ITR 451. It was further pointed out that in the course of the assessment the AO asked the assessee to furnish the details of expenses for the purpose of dismantling ovens vide its notice dated 22.08.2011 and the Assessee furnished full details of the said expenses vide its Letter dated 13.09.2011and after examining the nature of the expenses the AO allowed the same as revenue expenditure.
Besides the above, the assessee pointed out before CIT that the AO had made due inquiries. The view taken by the AO allowing the claim of the Assessee was a possible view on the issue and just because the CIT does not agree with the aforesaid view that will not be a ground for invoking jurisdiction u/s.263 of the Act. In this regard the Hon’ble Bombay High Court in the case of CIT vs Gabriel India Limited 203 ITR 108.
The CIT however had not deal with any of the contentions put forth by the assessee and he set aside the order of AO and directed the AO to examine the issue afresh. The following relevant observations of the CIT in this regard :- “ 3. I have examined facts of the case and also submission the representative the issue requires to be examined after providing sufficient opportunity to the assessee. Therefore the same is set aside to the table of Assessing officer. The A.O. examine the ensure facts of the case and pass a suitable order after providing sufficient opportunity of being heard to the assessee.” -M/s. BLA Coke Private Limited A.Y.2009-10
Aggrieved by the order of the CIT, the Assessee is in appeal before the Tribunal. We have heard the submissions of the learned counsel for the assessee and the learned DR. The learned counsel for the assessee besides questioning the jurisdiction of the CIT u/s 263 of the Act also submitted before us judicial pronouncements in support of the contention of capital work in progress wherein it was held that loss on abandonment of capital assets are to be allowed as revenue expenditure. Binani Cement Ltd. Vs CIT 380 ITR 116, CIT vs Seraikella glass Works (P)Ltd 157 ITR 584 (Patna),Addl. CIT vs Dyer’s Stone Lime Co.(P)Ltd. 136 ITR 8 (Del) and CIT vs Bharat Aluminium Co. Limited 292 ITR 600 (Delhi). The learned DR relied on the order of CIT.
After considering the rival submissions we are of the view that order of the CIT us/ 263 of the Act cannot be sustained. The law is well settled to invoke the provision u/s 263 of the Act, the CIT has to come to a conclusion that order passed by AO was erroneous and prejudicial to the interest of the revenue. No such finding whatsoever has been given by CIT in the impugned order. The CIT has also not invoked the provision u/s.263 of the Act on the ground that AO had not made proper inquiries. The facts on record show that AO had made proper inquiries and took a possible view on the issue. In the given circumstances of the case it appears that the CIT has exercised the jurisdiction us/ 263 of the Act only to substitute his view with that of the AO. Such a course is not permissible as held by the Hon’ble Bombay High Court in the case of CIT vs Gabriel India Ltd. (supra). Besides the above, the decisions referred to by the learned counsel for the assessee clearly support the claim that loss on abandonment of capital assets was a permissible deduction. We may also mention here that the loss in question arose out of the existing business of the assessee and was not a new line of business and therefore the decision of the Hon’ble Calcutta High Court in the case of Kanoria Chemicals & Industries Ltd. (supra) is not applicable to the facts of the case. For the reasons given above we quash the order u/s 263 of the Act and allow the appeal of the assessee. -M/s. BLA Coke Private Limited A.Y.2009-10
In the result the appeal of the assessee is allowed. Order pronounced in the Court on 02.03.2016.