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Income Tax Appellate Tribunal, LUCKNOW BENCH ‘A’, LUCKNOW
Before: SHRI ANADEE NATH MISSHRA & SHRI SUBHASH MALGURIA
(A) This appeal has been filed by Revenue for assessment year 1990-91 against impugned appellate order dated 03/06/1996 passed by learned Commissioner of Income Tax (Appeals) [“CIT(A)” for short]. The grounds of appeal are as under:
“1. Whether, on the facts and in the circumstances of the case, the learned CIT(A) was legally correct in directing the Assessing Officer to recalculate the deduction admissible to the assessee u/s 35D after taking into consideration the order passed by the ITAT in dated 31/08/94 for assessment year 89-90. The Tribunal in this order dated 31/08/94 allowed preliminary expenses to be included for deduction u/s 35D but the Department has filed R.A. u/s 256(1) for assessment year 89-90 which is pending before ITAT Allahabad).
2. Whether, on the facts and in the circumstances of the case, the CIT(A) was legally correct in holding that the expenses aggregating to Rs.50,46,183/- incurred on fire and safety equipment, railway sidings, communication equipments and data processing machinery are eligible for the purpose of investment allowance u/s 32A of the Act, for assessment year 90-91 whereas these expenses had no bearing whatsoever in relation to manufacture of production of any article or thding:
(The Department’s reference u/s 256(1) filed against ITAT’s order dated 31/08/94 in for assessment year 89-90 against the above issue is pending before the ITAT, Allahabad)
(B) In this case return of income was filed on 29/12/2089 declaring loss of Rs.3,04,86,08,540/-. Subsequently, the assessee revised return on 29/01/1990 reducing the loss to Rs.3,03,32,45,770/-. Two more revised returns were filed by the assessee on 30/07/30/07/1990 and 15/10/1990 showing loss of Rs.3,11,58,03,220/- and Rs.3,06,89,33,400/- respectively. The assessment order dated 24/02/1992 was passed u/s 143(3) of the Income Tax Act, 1961 (“I.T. Act”) for short wherein the assessee’s total income was determined at Rs.45,70,500/-. The assessee’s appeal against the aforesaid assessment order was partly allowed by the learned CIT(A) vide impugned appellate order dated 22/03/1996.
(B.1) The Revenue filed appeal against the aforesaid impugned appellate order dated 22/03/1996 in Income Tax Appellate Tribunal. Vide impugned order dated 06/06/2003, the Revenue’s appeal was dismissed. The relevant part of the order is reproduced below:
“ The appellant-revenue has filed an appeal against the order of the ld CIT(A)-II, Lucknow, dated 3.6.96. On behalf of the appellant- revenue, Shri Prasenjit Singh, ld. Sr. DR attended whereas Shri R. C. Jain, CA attended on behalf of the respondent-assessee and they made their respective submissions.
At the outset, it was submitted by the Authorized representative of the respondent-assessee as well as by ld. Sr.D R on behalf of the Revenue that the issues are covered in view of the Tribunal's order dated 31.8.94 in I.T.A.No.2365(Alld)/1992 for the assessment year 1989-90 and I.T.A.No.2382(Alld)/1992 for the assessment year 1989- 90 i.e in cross appeals.
In view of our order referred to above, we find no infirmity in the order of the ld CIT(A) which we uphold on both the issues.
As a result, the Revenue’s appeal is treated as dismissed.”
Subsequently, vide order dated 12/10/2011 in Income Tax Appeal No.52 of 2003 in the case of CIT vs. Indogulf Fertilizers And Chemicals Corpn. Ltd., Lucknow Bench of Allahabad High Court remitted the matter back to the Income Tax Appellate Tribunal to decide the appeal afresh. Now this order is being passed in respectful compliance with the order of Hon'ble High Court.
(C) The first issue before us is regarding the maintainability of this appeal. At the time of hearing before us, the learned Counsel for the assessee submitted that the tax effect in the present appeal is below Rs.60 lacs and, therefore, vide CBDT Circular No.9/2024[F.No.279/MISC./M- 74/2024-ITJ] read with earlier Circular No.5/2024 in F.No.279/Misc.142/2007-ITJ(Pt.) dated 15th March 2024, this appeal is not maintainable. The learned Sr. D.R. for Revenue did not dispute the contention that tax effect in this case was below Rs.60 lac. However, he contended that the case fell under exception mentioned in paragraph 3.1(i) of the aforesaid CBDT Circular No. 5/2024 dated 15/03/2024. He submitted that the present appeal has been mandated by Hon'ble Allahabad High Court and therefore, the aforesaid exception would apply. Accordingly, in his view, the appeal is maintainable notwithstanding the fact that the tax effect is below Rs.60 lacs. His contention that this appeal is mandated by Hon'ble High Court was based on the plea that Lucknow Bench of Allahabad High Court has remitted the matter to Income Tax Appellate Tribunal to decide the appeal afresh vide aforesaid order dated 12/10/2011 of Lucknow Bench of Hon'ble Allahabad High Court.
(C.1) For ease of reference, the aforesaid CBDT Circular No. 5/2024 dated 15/03/2024 and Circular No. 9/2024 dated 17/09/2024 are reproduced below:
(C.2) The question before us is whether the present appeal is mandated by Lucknow Bench of Hon'ble Allahabad High Court. We find from perusal of record that the present appeal was filed by the Revenue on 26/08/1997 and at that time there was no order of Hon'ble High Court directing Revenue to file this appeal. The appeal has been filed by Revenue on their own motion, and in their own considered view; without any mandate or direction of any court. A reference to The Law Lexicon (The Encyclopaedic Legal & Commercial Dictionary, Reprint 2004) at page No. 1184 shows that a ‘MANDATE’ is a writ, process, or other written direction issued pursuant to law out of a court, or made, pursuant to law, by a court or judge thereof, commanding a person to do, or to refrain from doing, an act therein specified. Accordingly, an appeal can be said to have been mandated by direction of court only if the appeal was filed in pursuant to a writ, process, or other written direction issued by the court commanding Revenue to file the appeal. On perusal of records however, we find that there was no such writ, process, or other written direction issued by Lucknow Bench of Allahabad High Court commanding Revenue to file this appeal. Therefore, we find no merit in the contention of the learned Sr. D.R. for Revenue that this appeal is mandated by direction of court; and we agree with this submission of learned Counsel for the assessee that this appeal is not maintainable. For the purpose of maintainability of an appeal filed by Revenue, whether an appeal is mandated by court depends on whether on the date of institution of appeal, court had mandated the filing of appeal. What is relevant for this purpose is, therefore, not the date of hearing of appeal, but the date of institution of appeal. We have already noted earlier that this appeal was instituted (i.e. filed) on 26/08/1997; and at that time there was no order of court directing Revenue to file this appeal. In any case, the aforesaid order dated 12/10/2021 of Lucknow Bench of Hon'ble Allahabad High Court cannot be construed as a mandate to Revenue to file appeal. The order is not even directed to Revenue. The direction contained in the order of Hon'ble High Court is given, is to Income Tax Appellate Tribunal, to decide the appeal afresh. It is not in the nature of mandate to Revenue; but instead it is in the nature of direction to Income Tax Appellate Tribunal. In our considered view, therefore, this appeal deserves to be dismissed on ground of non maintainability as tax effect is below the limit prescribed in the aforesaid CBDT Circular No. 9 of 2024 dated 17th September, 2024.
(C.3) On merits there are two issues in this appeal. The first issue is regarding assessee’s claim u/s 35D of the IT Act. The assessee claimed deduction amounting to Rs.55,06,132/- being 1/10th of the total preliminary expenses amounting to Rs.5,50,61,320/- for which details were furnished by the assessee to the Assessing Officer. The Assessing Officer held that the fees paid for increase in authorized capital (28,50,000/-), stamp duty on share certificates (Rs.3,00,000/-), initial listing fees (Rs.35,000/-) and misc. expenses (Rs.47,769/-) do not qualify as preliminary expenses. The Assessing Officer worked out the preliminary expenses accordingly, at Rs.5,18,28,551/- and allowed deduction amounting to Rs.51,82,855/- being 1/10 of Rs.5,18,28,551/-. The issue regarding deduction u/s 55D of the IT Act was in dispute in the assessment year 89-90 also. Vide order dated 30/09/1999 of coordinate Bench of the Income Tax Appellate Tribunal, Allahabad, this issue was decided in favour of the assessee in identical facts and circumstances in consolidated order in the case of the assessee in and I.T.A. No.2382(Alld)/92. Relevant portion of the aforesaid order dated 31/08/1994 is reproduced below:
15. The next ground is regarding the expenses paid for increase in authorised capital, stamp duty on share certificates, initial listing fee and other miscellaneous expenses. The said expenses were disallowed by the Assessing Officer holding that they were not covered under section 35D, Section 35D provides for amortization of certain preliminary expenses the assessee claimed these expenses under section 35D(2) (c), which provides as under: - 35D .. .. .. .. .. (2) .. .. .. .. ..
(c) where the assessee is a company, also expenditure – (i) by way of legal charges for drafting the Memorandum and Articles of Association of the Company; (ii) On printing of the Memorandum and Articles of Association; (iii) by way of fees for registering the company under the provisions of the Companies Act, 1956 (1 of 1956); (iv) in connection with the issue, for public subscription, of shares in or debentures of the company, being underwriting commission, brokerage and charges for drafting, typing, printing and advertisement of the prospectus; 16. The Assessing Officer was of the view that the alleged expenses were neither of the expenses allowable under the above section. The said order was also confirmed by the Ld. C.I.T. (A).
The learned counsel for the assessee has vehemently agreed out that the facts of the case are clearly covered by the decision of the Hon'ble Madhya Pradesh High Court in the case of C.I.T. Vs. Shree Synthetics Limited, 162, ITR 819 (copy of which has been filed in the compilation at page 162). The facts in the said case were practically similar and the Hon'ble High Court had held that the word "being" would include the last stage in connection with the issue of shares, namely, even refund of the amount of oversubscription. The word "being" has been used in sub-clause (iv) of section 35D(c) by way of illustration and does not restrict only to the words "underwriting commission", brokerage and charges for drafting, typing, printing and advertisement of the prospectus." Therefore, in the case of issue of shares for public subscription by a company the expenditure incurred in connection with the refund of the amount over-subscribed or expenses incurred in connection with the issue of shares and the assessee will be entitled to deduction of expenditure as provided in section 35D. Like-wise in the present case fees paid for increase in authorized capital, or stamp duty on share certificates, or fee paid for initial listing and certain other miscellaneous expenses towards the same are nothing but the expenses covered in section 35D(2)(c)(iv), as the word "being" and the instances given are only illustrative. We, therefore, hold the alleged expenses are allowable under section 35D and the Assessing Officer is directed to allow the same under section 35D.”
(C.3.1) The second issue in dispute on merits is regarding the assessee’s claim for investment allowance u/s 32A of the Act. In the aforesaid assessment order dated 24/02/92, the Assessing Officer took the view that the assessee was not entitled to investment allowance on investments made in railway siding, fire and safety plant, locomotive, hospital equipment, communication equipment and data processing machinery. The issue regarding investment allowance was in dispute in assessment year 89-90 also. Vide aforesaid order dated 31/08/94 of coordinate Bench of Income Tax Appellate Tribunal, Allahabad, this issue was decided in favour of the assessee in identical facts and circumstances. The relevant portion of the aforesaid order dated 31/08/94 of the Income Tax Appellate Tribunal, Allahabad is reproduced below:
“23. Next ground is regarding the claim of investment allowance on the following expenses :- a) Rs. 5,65,43,020 : Railway siding b) Rs. 1,96,33,260 : Fire and Safety plant c) Rs. 1,34,70,951 : Locomotive d) Rs. 9,08,243 : Hospital Equipment e) Rs. 61,67,000 : Communication Equipment f) Rs. 70,41,723 : Date Processing Machinery
The assessing Officer has disallowed all these expenses on the ground that they do not form part of the plant and machinery and the learned C.I.T. (A) has also confirmed the same on that very ground. The assessee being aggrieved has raised this ground before us in second appeal.
The learned counsel for the assessee has vehemently pointed out that the Hon'ble Supreme Court in the case of Scientific Engineering House P. Ltd. Vs. C.I.T. (157 ITR 86) has given a very wide meaning to the term "plant" and at page 96 the Hon'ble Supreme Court has formulated the test that, in other words, the test would be:
Does the article fulfill the function of a plant in the assessee's trading activity: Is it a tool of his trade with which he carries on his business: If the answer is in the affirmative, it will be a plant In that case the Hon'ble Supreme Court had given a very wide meaning and expressed its opinion that plant was not necessarily confirmed to an apparatus which is used for mechanical operations or processes or is employed in mechanical and industrial business. But in order to qualify as 'plant1 the particular articles must have some degree of durability. In that case even drawing, designs, charts, plans, processing date and other literature comprised in the documentation service was held to be plant. In fact, any equipment which is utilized for the proper working of the plant and has a durability, it has to be treated as part of the plant. He has also relied on various other decisions of Hon'ble Gujarat High Court reported in 96ITR 672 and 166ITR 60 (S.C.) in which the above Gujarat High Court's case was confirmed by the Hon'ble Supreme Court. He has also relied on the decision of the Hon'ble Karnataka High Court reported in 199 ITR 98 which is exactly on the point of locomotive and railway siding.
On the other hand, the learned D.R. has relied on the orders of the learned C.I.T. (A) who has discussed it in detail in his order and stressed that expenses on these items were not part of the expenditure of the plant and machinery and thus, they could not be considered for the purposes of investment allowance.
After hearing the parties at length on the point, we are of the opinion that the arguments advanced by the learned counsel for the assessee have force. The Hon'ble Karnataka High Court in the case of C.I.T. Vs. Visvesvaraya Iron and Steel Ltd. (199 ITR 98 ) has held as under : -
“The concept of a plant is quit wide and whatever is normally used as an instrument or as a means or is incidental to the activity of the assessee has been considered as a Plant.
Therefore, locomotives and railway sidings provided by the assessee, an industrial company carrying on the business of manufacture of iron and steel, at the place of its manufacturing activity to facilities the loading and unloading in the course of transporting the required articles out of or into the factory of the assessee, constitute plant and are entitled to investment allowance under section 32A of the Income-Tax Act, 1961."
The Hon'ble Supreme Court in the case of Scientific Engineering House (P) Ltd. (supra) has further given a still wider meaning to the word 'plant'. The main ratio propounded by all the High Courts relied on by the learned counsel for the assessee and the Hon'ble Supreme Court is that anything which has a durability and is used for the purpose of plant in the technical sense of the Income-tax Act. The Hon'ble Karnataka High Court has very expressly held that the railway siding and the locomotive is fully covered in the meaning of plant. Like-wise, in our opinion fire and safety plant which is meant for nothing but meant for safe running of the plant, can by no stretch of imagination be said to be not forming part of the plant. In the same say communication equipment and data processing machinery are nothing but part of plant which is used for the purpose of business which facilitates the production or increases the efficiency of the business and, thus it will be nothing but plan. The said observation was made by the Hon'ble Orissa High Court in the case of Kalinga Tubes Ltd. Vs C.I.T. 96ITR 20. in fact the concept of plant is very wide and whatever is used as an instrument or as an machine or incidental to the activity of the assessee, has to be considered as a plant. We, therefore, hold that the five expenses out of the six claimed by the assessee were spent on nothing less but on the equipment which form part of the plant. As regards the Hospital equipment no doubt it has been stressed by the learned counsel for the assessee that too is meant to look after the workers engaged in the factory and health is bound to show better results and the efficient working of the factory, yet, in our opinion, cannot be held to forming as part of the plant. We' accordingly direct the assessing Officer to compute the alleged expenses on railway siding, fire and safety plant, locomotive, Communication equipment and Data processing machinery as an expenditure on plant and to include the same for the purposes of computing the amount for investment allowance. As regards the expenditure on Hospital equipment, we hold that it was rightly held that it did not form part of the plant. The issue is decided accordingly.”
(C.4) In the course of appellate proceedings in Income Tax Appellate Tribunal, following documents were filed from the assessee’s side:
(D) At the time of hearing before us, the learned Counsel for the assessee relied on the aforesaid order dated 31/08/1994 of the Income Tax Appellate Tribunal and contended that the issue is squarely covered in favour of the assessee by this order of the Income Tax Appellate Tribunal. He also relied on the precedents in the case of given below:
S.No. Particulars 1. Y. Manjula Reddy V. I.T.O. (Bangalore-Trib.) [2002] 140 taxmann.com 441 2. Shasun Chemicals & Drugs Ltd. vs. CIT-II [2016] 388 ITR 1 (SC) 3. Vatika Hotels (P) Ltd. v. ACIT [2023] 148 taxmann.com 204 (Delhi-Trib.) 4. CIT vs. Shree Synthetics Ltd. [1986] 162 ITR 819 (MP HC) 5. CIT vs. Multi Metals Ltd. [1991] 188 ITR 151 (Raj. (HC) 6. Scientific Engg. House (P) Ltd. vs. CIT [1985] 157 ITR 86 (SC) 7. CIT vs. Elecon Engineering Co. Ltd. [1974] 96 ITR 672 (Guj. HC) 8. CIT vs. Hindustan Times Ltd. [1999] 241 ITR 509 (Del. HC) 9. Chief Commissioner Admn vs. Visveswarayya Iron & Steel Ltd. [1993] 199 ITR 98 (Kar. HC) 10. Kalinga Tubes Ltd. vs. CIT [1974] 96 ITR 20 (Orissa HC) 11. CIT vs. Birla Jute & Industries Ltd. [2003] 260 ITR 55 (Cal. HC) 12. CIT vs. Electronics Research Industries (P) Ltd. [1991] 192 ITR 20 (Kar. HC) 13. CIT vs. Radico Khaitan Ltd. [2005] 274 ITR 354 (All. HC) 14. Brooke Bond India Ltd. vs. CIT [2018] 95 taxmann.com 189 (Cal
HC) 15. CIT vs. Professional Information Systems & Management [2005] 274 ITR 242 (Guj. HC) 16. CIT vs. Fort Gloster Industries Ltd. [1996] 219 ITR 223 (Cal. HC) 17. CIT vs. Steel Tubes of India Ltd. (No. 1) [1997] 228 ITR 38 (MP HC) 18. Hyderabad Industries Ltd. vs. CIT [2001] 252 ITR 401 (AP HC)
Copies of aforesaid orders were filed in the compilation referred to in paragraph No. (C.4) of this order. The learned Sr. D.R. relied on the assessment order passed by the Assessing Officer and the impugned appellate order passed by learned CIT(A). However, he could not distinguish the facts and circumstances of the present appeal before us from the facts and circumstances of assessment year 89-90 for which coordinate Bench of the Income Tax Appellate Tribunal, Allahabad has passed the aforesaid order dated 31/08/1994 deciding the issues regarding assessee’s claims u/s 35D and u/s 32A of the IT Act in assessee’s favour. He also did not present us any judicial precedents in support of the grounds of appeal. We further note that in the earlier order dated 06/06/2003 passed by Co- ordinate Bench of ITAT in this appeal, relevant portion of which has been reproduced earlier in paragraph No. (B.1) of this order, the learned Sr. D.R. for Revenue had submitted that the issues regarding assessee’s claims u/s 35D and 32A of the Act are covered in favour of the assessee vide Tribunal’s aforesaid order dated 31/08/1994 in for the assessment year 89-90 and for the assessment year 89-90 i.e. in cross appeals.
(D.1) In view of the foregoing, and respectfully following the aforesaid order dated 31/08/94 of the coordinate Bench of the Income Tax Appellate Tribunal, Allahabad, we hold that the disallowance made by the Assessing Officer from assessee’s claims u/s 35D of Act and u/s 32A of the Act are unsustainable. Therefore, we conclude that the grounds of appeal in the present appeal filed by the Revenue deserve to be dismissed on merits also.
(D.2) Having regard to the foregoing discussion, we come to the conclusion that the present appeal filed by the Revenue deserves to be dismissed on grounds of non maintainability as well as on merits.
(E) In the result, the appeal of the Revenue is accordingly dismissed.
(Order pronounced in the open court on 27/11/2024)