ACIT CIR 4(2), MUMBAI vs. GUPTA SYNTHETICS LTD, MUMBAI
What did the Tribunal hold?
The Tribunal restored the issue of depreciation on electrical fittings to the AO for fresh examination. However, it upheld the CIT(A)'s decision to allow expenses incurred on the feasibility report and professional fees for enhancing the term loan as revenue expenditure.
What were the facts?
The revenue appealed against the CIT(A)'s order concerning depreciation on electrical fittings, expenses on a feasibility report for a nylon project, and professional fees for increasing a term loan. The assessee claimed depreciation on electrical fittings as plant and machinery, while the AO treated them as furniture. The CIT(A) allowed the feasibility report expenses and professional fees as revenue expenditure.
What were the issues?
Whether electrical fittings qualify for depreciation as plant and machinery, and whether expenses for a feasibility report and professional fees for a term loan are capital or revenue in nature.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Cases cited in this judgment(5)Show listHide list
Detected automatically from the text. Citations are also linked where they appear in the judgment. The count shows how many other judgments on BharatTax rely on the same authority.
- India Cements Ltd. v. CIT247 citing60 ITR 52 · 1966 · SC
- CIT v. Nirma Ltd.82 citing367 ITR 12 · 2017 · HC
- CIT v. Graphite India Ltd.52 citing221 ITR 420 · 1996 · HC
- Asiatic Oxygen Ltd. v. CIT33 citing190 ITR 328 · 1991 · HC
- CIT v. Meenakshi Mills Ltd.6 citing290 ITR 107 · 2007 · HC
Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: S/SHRI B.R.BASKARAN & SHRI SANDEEP GOSAIN
PER B.R.BASKARAN,AM:
The appeal filed by the revenue is directed against the order dated 3.11.2010 passed by Ld CIT(A)-11, Mumbai for the assessment year 2007- 08, wherein the revenue is assailing the decision of Ld CIT(A) on the following issues : a) Depreciation allowable on the electrical fittings; b) Expenses incurred on feasibility report of nylon project; and c) Professional fees paid for increase of term loan.
2
We heard the parties and perused the record. The assessee is engaged in the business of manufacture of polyester texturized yarn, polyester twister yarn.
The first issue relates to disallowance of depreciation claimed on electricity fittings at a higher rate. The assessee claimed depreciation at the rate of 15% for the Electrical fittings treating the same as plant and machinery and also claimed additional depreciation at the rate of 20%. The AO took the view that the electrical fittings is required to be treated as an item falling in the group of “Furniture & Fittings” and hence depreciation is allowable at 10%. Accordingly he restricted the depreciation to 10% and also disallowed the claim of additional depreciation. The ld. CIT (A), however, accepted the contentions of the assessee that the electrical fittings formed part of plant and machinery and hence it should be treated as plant and machinery only. Accordingly, he allowed the claim of the assessee.
At the time of hearing, the ld. AR reiterated the same contentions as made before the ld. CIT(A). On the contrary, the ld. DR submitted that the claim of the assessee that the electrical fittings formed part of the plant and machinery has not been properly demonstrated before the AO. Accordingly, he submitted that the factual aspect relating to the said claim needs to be examined at the end of the AO.
We find merit in the submissions of ld. DR. Accordingly, we set aside the order of the ld. CIT(A) on this issue and restore the same to the file of the AO with a direction to examine the claim of the assessee and take appropriate decision in accordance with law. The assessee is also directed to furnish the relevant details in support of its contention.
The next issue relates to the disallowance of claim of expenses incurred for obtaining feasibility report of Nylon Project. The assessee
3 proposed to establish a Nylon Tyre manufacturing facility and hence obtained feasibility report by incurring a sum of Rs.13,04,410/-. The assessee claimed the same as revenue expenditure by placing reliance on the following decisions: i) CIT V/s Graphite India Ltd-221 ITR 420; ii) Hindustan Alluminim Corporation Ltd V/s CIT -55 CTR 237; and iii) Asiatic Oxygen Ltd V/s CIT -190 ITR 328 iv) CIT V/s Coromandel Fertilizer (105 Taxman 409) (AP)
The AO did not accept the contentions of the assessee and held that the expenditure incurred for obtaining feasibility report for new project is a capital expenditure. Accordingly, he disallowed the claim of the assessee. The ld.CIT(A), however, allowed the claim of the assessee by following the decisions relied upon by the assessee.
Before us, the ld.AR submitted that the view taken by the ld. CIT(A) is further supported by the following case law: i) Binani Cement Ltd V/s CIT (2015) 118 DTR 0061 (Cal);and ii) Commissioner of Income-tax V/s Nirmal Ltd ( 367 ITR 12 (Guj) = (2014) 52 taxmann.com 88(Guj) The ld. AR submitted that the Hon’ble Calcutta High Court in the case of Binani Cement Ltd (supra) has held that the expenditure incurred for preparation of feasibility report will be allowable as deduction even if the project is abandoned.
The ld. DR, on the contrary, placed reliance on the order of AO.
Having heard the rival contentions, we notice that the view taken by the ld. CIT(A) on this issue is supported by the various decision of Hon’ble High Courts referred above. Accordingly, we do not find any reason to interfere with his order on this issue.
4
The next issue relates to disallowance of professional fees paid for enhancing the term loan of the assessee. The assessee had paid professional fee for enhancing the term loan and the AO treated the same as capital expenditure. But the ld. CIT(A) allowed the claim of the assessee with the following observations :
“6. 2. I have carefully gone through the order of the AO and also the submissions as made by the Authorized Representative of the appellant company one the above issue. This issue is a settled issue. The interest paid for acquiring a capital asset in a running business was held allowable as a revenue expenditure in CIT V/s Kasthuri and Sons (2000) 241 ITR 412 (Mad) based on a point established in India Cement Ltd V/s CIT (1966) 60 ITR 52(SC) where expenses incurred for mobilizing capital for a running business was found deductible. Similarly, where upfront frees was paid for obtaining a loan, though for purchase of machinery, will be deductible as a revenue expenditure where, such machinery was used for running a business, it was so held in CIT V/s Sri Meenakshi Mills Ltd (2007) 290 ITR 107 (Mad). In view of these decisions and the case law cited by the Authorities Representative, I am convinced that such expenditure is allowable as a revenue expenditure. Therefore, the AO is directed to delete the addition made in this regard.”
We heard the parties on this issue and we are of the view that the ld. CIT(A) has taken a judicious view on the matter and accordingly, we do not find any reason to interfere with it on this issue.
In the result, the appeal filed by the revenue is treated as partly allowed for statistical purposes.
Order pronounced in the open court on 9th December, 2015 (संदीप गोसधई/SANDEEP GOSAIN) ( बी.आर.बास्करन/ B.R.BASKARAN) न्याययक सदस्य/Judicial Member ऱेखा सदस्य /Accountant Member मुंबई Mumbai; ददनांक Dated.9th Dec,2015
5 व.नि.स./ SRL, Sr. PS
आदेश की प्रतिलऱपप अग्रेपिि/Copy of the Order forwarded to : अऩीराथी / The Appellant 1. प्रत्मथी / The Respondent. 2. आमकय आमुक्त(अऩीर) / The CIT(A)- concerned 3. 4. आमकय आमुक्त / CIT concerned ववबागीम प्रतततनधध, आमकय अऩीरीम अधधकयण, भुंफई /
DR, ITAT, Mumbai concerned गार्ड पाईर / Guard file. 6. आदेशानुसाय/ BY ORDER,सहामक ऩंजीकाय (Asstt.
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