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Income Tax Appellate Tribunal, “ B ” BENCH, AHMEDABAD
Before: SHRI PRADIP KUMAR KEDIA & SHRI MAHAVIR PRASAD
आदेश / O R D E R
PER SHRI MAHAVIR PRASAD, JUDICIAL MEMBER : These Cross Appeals filed by the Assessee and the revenue respectively are commonly directed against the order of the
ITA No.2921/Ahd/2013 & ITA No. 2930/Ahd/2013 DCIT vs. Gujarat Narmada Valley Fertilizers Co. Ltd. Asst.Year –2008-09 - 2 - Commissioner of Income Tax(Appeals)-IV, Baroda, dated 06/09/2013 for the Assessment Year (AY) 2008-09.
Assessee’s appeals in ITA No.2930/Ahd/2013 and revenue’s appeals in ITA No.2921/Ahd/2013 for A.Y. 2008-09.
Assessee has taken following Grounds of appeals: i. The learned CIT(A) erred in confirming the action of the Assessing Officer in disallowing expenditure on consumption of stores and spares of Rs.64,31,768/- on the grounds that the same was a capital expenditure. ii. The learned CIT(A) erred in not admitting the additional ground of appeal relating to claim of depreciation of Rs.3,16,68,491/- on Goodwill.
Revenue has taken following Grounds of appeals: On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in i. (a) upholding disallowance made in respect of expenses claimed on account of stores and spares to the tune of Rs.1,13,97,990/- only, as against disallowance of Rs.2,12,01,483/- on this count made by AO. (b) relying upon earlier years decision held in the light of Hon’ble Apex Court’s decision in the case of Saravana Spinning Mills 293 ITR 201, ignoring that facts for A.Y.2008-09 were different.
ITA No.2921/Ahd/2013 & ITA No. 2930/Ahd/2013 DCIT vs. Gujarat Narmada Valley Fertilizers Co. Ltd. Asst.Year –2008-09 - 3 - ii. allowing deprecation amounting to Rs.5,73,297/- on assets given on lease by assessee, who was not engaged in leasing business under mere financial arrangement.
The relevant facts as culled out from the materials on record are as under:-
The appellant company has filed its e-return of income for A.Y. 2008-09 on 26/09/2008 declaring total income at Rs.6,13,35,62,160/-. Thereafter, the appellant company has filed its revised e-return on 13/01/2010 revising total income of Rs.6,05,89,34,379/-. The order u/s. 143(3) of the IT Act, 1961 was passed on 31/12/2010 assessing total income at Rs.6,08,35,67,750/-.
Thereafter, assessee preferred first statutory appeal before the learned CIT(A), who partly allowed the appeal of the assessee.
We have gone through the relevant record and impugned order passed by the authorities below. So far as consumption of stores and spares of Rs. 64,31,768/- are concerned and same is mentioned on AO’s Order Page No.9, Para No.6 and in CIT(A)’s Order Page No.21, Para No- 5.3. This is the Cross Ground 1 with department appeal. Same is covered by ITAT order for A.Y. 2006-07 in assessee’s own case. Relevant Page No.8, Para No.9 whereby the issue is restored to the file of AO. Also for
ITA No.2921/Ahd/2013 & ITA No. 2930/Ahd/2013 DCIT vs. Gujarat Narmada Valley Fertilizers Co. Ltd. Asst.Year –2008-09 - 4 - A.Y. 2007-08 the issue is restored to the file of the AO’s Order Page No.13, Para No. 28 who decides the matter.
In view of the followings, assessee’s own case order passed by the ITAT. On this Ground, we remit the matter back to the file of the AO.
So far as Ground No.2 is concerned regarding depreciation on good-will of Rs.3,16,68,491/- in CIT(A)’s Order Page No. 25, Para No.9, same is covered by the ITAT order in assessee’s own case for A.Y. 2007- 08 whereby the additional ground raised by assessee in ITAT was admitted and the issue was restored to the file of CIT(A). Relevant Page No.7, Para No.13. For this Ground, we are of the considered opinion that matter should remit back to the file of the learned CIT(A).
Now we take up the Department’s appeal in ITA No.2921/Ahd/2013: In the Department’s appeal Cross Grounds with the assessee’s appeal Ground No.1 regarding stores and spare parts consumed Rs.2,12,01,483/- disallowed by AO (-)Rs. 1,13,97,990/- (to ascertain the correct figure of Rs.1,58,95,270/- as per the AR) upheld by CIT(A). Now Rs.99,03,493/- amount in dispute by Department. Same are reflecting in AO’s order Page No. 9, Para No.6 and CIT’s Page No.5, Para No.5. The relevant Para of the order of the ITAT in assessee’s own case is reproduced here under:
ITA No.2921/Ahd/2013 & ITA No. 2930/Ahd/2013 DCIT vs. Gujarat Narmada Valley Fertilizers Co. Ltd. Asst.Year –2008-09 - 5 - Ground No.3 of the assessee's appeal is for disallowance of Rs.51,49,4577- out of consumption of stores and spares during the previous year. The assessee has claimed expenditure of Rs.5710.25 lacs on account of consumption and replacement of stores and spares treating the same as Revenue expenditure. The details of stores and spares were submitted before the A.O. by the appellant but on verification of details the ld. A.O. found that in case of following item the expenditure is having nature of capital.
Sr.No. Item Amount Depreciation Depreciation rate amount 1. BEARING 1,009,620 17.50% 1,76,684 ASSEMBLY 2. HARDWARE 1,527,931 35.00% 5,34,776 FOR PLC1 UPGRADE 3. Gear Box 2,792,602 17.50% 4,88,705 4. Tube Bundle 5,037,942 17.50% 8,81,640 For E-107-IV 5. Reactor – 19,163,671 17.50% 33,53,642 Effluent water cooler, MEA405 Total 2,95,31,766 54,35,447
The Assessing Officer was of the view that the above items are in the nature of independent machine or apparatus and hence can be independently used for manufacturing activities, which is required to be treated of capital nature. Accordingly expenditure on stores and spares of Rs.2,95,31,766/- was capitalized and depreciation on it was allowed at Rs.54,35,447/- by the A.O.
The appellant carried the matter before the CIT(A) who has given detailed findings on Page Nos. 13 to 17. After considering the facts and circumstances of the case, he found the Hardware for PLC1 upgrade of Rs. 15,27,931/- and Tube bundle for E-107-IV of Rs. 50,37,942/- as
ITA No.2921/Ahd/2013 & ITA No. 2930/Ahd/2013 DCIT vs. Gujarat Narmada Valley Fertilizers Co. Ltd. Asst.Year –2008-09 - 6 - capital expenditure and remaining items were allowed as Revenue’s expenditure. Now, the matter is before us. The Id. Counsel for the assessee contended that these are the replacement of parts. The ld. CIT(A) in previous year has allowed these replacement of parts as revenue expenditure on which the Revenue had preferred the appeal before the ITAT, which is pending. He further relied upon the decision of Saravana Spinning Mills Ltd. 293 ITR 201 in which the Hon'ble Apex Court held that in plant and machinery replacement of these parts no marketable product can be produced by using of them which is necessitated replacement only. Therefore, he requested to allow the whole expenditure. From the side of the Revenue, Ld. CIT.D.R. relied on the order of the A.O.
We have considered the rival contentions of the appellant and perused the assessment record and heard the arguments from both sides. The ld. CIT(A) had observed that this replacement of stores and spares can be used independently and its of replacement of plant and machinery. As per A.O's observation it has endorsing benefit to the assessee. The matter is required to re-examine with reference to addition confirmed by the CIT(A). The A.O. is directed to re-examine the nature of expenditure item-wise and take decisions as per law.
Ground no.4 is against confirming disallowance of depreciation amounting to Rs.7,93,490/- on the assets leased by the appellant to Western Railways. The appellant had leased certain railway wagons to Western Railway and claimed depreciation on it. The A.O. asked to give justification for claiming of depreciation on those railway wagons. The assessee offered explanation before the A.O. and claimed that lease rent of Rs.72,15,314/- was credited in P&L account and had shown as income and an amount of Rs.27,71,806/- being lease equalization amount was debited to the P&L account and shown as reduction from the lease rent. But as in computation of total income, the lease equalization amount of Rs.27,71,806/- was added in the income and offered for taxation but depreciation as per IT law was claimed. The appellant also claimed if the A.O. did not allow the depreciation on railway wagons then the principal amount of assets of Rs.64,28,352/-
ITA No.2921/Ahd/2013 & ITA No. 2930/Ahd/2013 DCIT vs. Gujarat Narmada Valley Fertilizers Co. Ltd. Asst.Year –2008-09 - 7 - should be excluded from the income and only tax finance income of Rs.7,86,962/-. The A.O. relied on following decisions :-
i) U.P. State Industrial Development Corpn.-225 ITR 703(SC) ii) Tuticorin Alkalies Chemicals & Fertilizers Ltd. vs. CIT - 227 ITR 172(SC) iii) Sundaram Finance Ltd. vs. State of Kerala - 1966 AIR SC 1178 iv) Damodar Valley Corporation vs. State of Bihar - 12 STC 102(SC) v) Mysore Minerals Ltd. vs. CIT - 239 ITR 775(SC) vi) Gaurishankar Finance Ltd. vs. CIT - 166 CTR 137(Kar) vii) Center for Monitoring Indian Economy vs. DCIT Income-tax Act, 1961 No. 3820/Bom/1990 dtd. 29.04.1996
Ld. A.O. held that this is finance lease with Western Railway by purchasing the railway wagons. Therefore, he disallowed the depreciation of Rs.7,93,490/-. The Id. A.O. considered the past assessment for A.Y. 2000-01, 2003-04, 2004-05 & 2005-06. He excluded the capital portion of Rs.64,28,352/- out of lease rent income of Rs.72,15,314/- and interest income of Rs.7,86,962/- was considered for taxation in the assessment order.
Being aggrieved by the order of the A.O., the assessee carried the matter before the CIT(A) who has confirmed the addition. The appellant relied upon the decision of Hon'ble Supreme Court before the CIT(A) in case of Shaan Finance Ltd, 268 ITR 308, decision of Gujarat High Court in the case of CIT vs. Pinnacle Finance Ltd. 268 ITR 395, decision of Special Bench of Mumbai Tribunal in the case of Mid Est India Portfolio Management Ltd. 87 ITD 537, ITAT Madras in the case of CIT Special Range VIII Chennai vs. The Investment Trust of India Ltd. The operative portion of the order is as under:-
“I have gone through the contentions of the appellant and the assessment order. It is noticed that the submissions and the inferences drawn thereon have been comprehensively discussed and dealt with in my predecessor's order for A.Y. 2003-04. The pleadings of the appellant on the issue are identical to those
ITA No.2921/Ahd/2013 & ITA No. 2930/Ahd/2013 DCIT vs. Gujarat Narmada Valley Fertilizers Co. Ltd. Asst.Year –2008-09 - 8 - made in connection with the case for A. Y.2003-04. On identical issue for A.Y. 2003-04 vide order No.CAB/VI-97/06-07 dated 31- 01-2007 at paras 17 to 17.3.6 on page Nos.42 to 56 the claim of the appellant has been disallowed. Relying on my predecessor's order for A.Y. 2003-04 the disallowance of depreciation of Rs.7,93,490 is confirmed." Now the assessee is before us. The ld. Counsel for the appellant contended that the railway wagons were given on lease to Western Railway since 1997-98. The lease rent has been offered for taxation and depreciation on assets have been claimed. He further drew our attention in assessee's own case for A.Y.03-04 to 05-06 in ITA Nos. 1373 & 3993/Ahd/07 & 2401/Ahd/08. The operative part of the Co-ordinate 'D' Bench decision is as under:
"We have heard the rival contentions and perused the facts of the case. As regards reliance on the decision of the Hon'ble Supreme Court in the case of Asea Brown Boveri Ltd.(supra) by the learned DR, the arguments of the learned DR that the assessee had purchased the equipments for the economic life of the plant itself and not more than that. As a matter of fact, it is not a case, as is appearing from different clauses of the lease deed that the equipments leased will be returned back to the lessor after the expiry of the lease. Nothing has been brought to disapprove the said clauses of the lease deed by any of the authorities below or by the learned DR. The learned DR could not prove that in fact the assessee is only a financer and is not interested in the assets and therefore, it cannot be said as full payout lease. Therefore, in the circumstances and facts of the case, the arguments made by the learned DR cannot be accepted and following the rule of consistency, the assessee deserves to be allowed the claim and we direct the AO accordingly to allow the claim of the assessee. The order of the learned CIT(A) is reversed. Thus, Ground no.12 of the assessee's appeal is allowed."
The ld. CIT.D.R. vehemently relied on the order of CIT(A) & A.O. and has drawn our attention on recent decision of Special Bench, Mumbai, in case of M/s. lnduslnd Bank Limited vs. The Addl. Commissioner of
ITA No.2921/Ahd/2013 & ITA No. 2930/Ahd/2013 DCIT vs. Gujarat Narmada Valley Fertilizers Co. Ltd. Asst.Year –2008-09 - 9 - Income-tax in ITA No. 6566/Mum/2002 for A.Y. 1998-99 and ITA No.606/Mum/2003 for A.Y 1999-2000 in which Hon'ble 'G' Bench, Mumbai, after considering the order of ABB Ltd. 54 Taxman 512 (SC) and held finance lease. We have heard both the sides and gone through the terms and conditions of lease agreement mentioned on page no.29 and explanation at page no.30 by the A.O. in assessment order and Special Bench decision in case of M/s. lndusInd Bank Limited vs. The Addl. Commissioner of Income-tax in ITA No. 6566/Mum/2002 for A.Y. 1998-99 and ITA No. 606/Mum/2003 for A.Y 1999-2000. A fresh re- look is required as Co-ordinate Bench had given findings in above case after considering the Hon'ble Supreme Court decision in case of ABB Ltd. (supra). Therefore, this issue is set aside to the A.O. for de novo after considering the decision of M/s. Induslnd Bank Ltd. (supra). Accordingly, this ground of appeal is restored back to the A.O.
So far as depreciation on lease assets of Rs.5,73,297/- and same is mentioned in AO’s order Page No.18, Para No.8 and CIT(A)’s order Page No.22, Para No.7m same is covered against the Department by ITAT’s order in assessee’s own case for A.Y. 2006-07 relevant Page No.10, Para No.13 and A.Y.2007-08.
With these observations appeal of the assessee is allowed and matter remit back to the file of the AO pertaining to Ground No. 2 and pertaining to Ground No. 1. We remit back to the file of CIT(A) in Department appeal in Ground No.2 lease assets of Rs.5,73,297/- is decided in the favour of the appellant.
ITA No.2921/Ahd/2013 & ITA No. 2930/Ahd/2013 DCIT vs. Gujarat Narmada Valley Fertilizers Co. Ltd. Asst.Year –2008-09 - 10 -
In the result, appeal of the assessee in ITA No.2930/Ahd/2013 is allowed and appeal of the revenue in ITA No. 2921/Ahd/2013 is partly allowed.
This Order pronounced in Open Court on 19/05/2017
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Ahmedabad; Dated 19/05/2017 Priti Yadav, Sr. Ps आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-IV, Baroda. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy//
उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad True Copy 1. Date of dictation 11/04/2017(dictation-pad 4 pages attached at the end of this appeal-file) 2. Date on which the typed draft is placed before the Dictating Member 11/04/2017 3. Other Member… 4. Date on which the approved draft comes to the Sr. P.S./P.S…11/05/2017 5. Date on which the fair order is placed before the Dictating Member for pronouncement…11/05/2017 6. Date on which the fair order comes back to the Sr. P.S./P.S……. 7. Date on which the file goes to the Bench Clerk 22/05/2017 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Dispatch of the Order………………