Income Tax Appellate Tribunal - Hyderabad
M B Smelters Private Limited, Hindupur, ... vs Acit, Circle-1, Anantapur, Anantapur on 22 September, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "B", HYDERABAD
BEFORE SHRI D. MANMOHAN, VICE PRESIDENT
AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER
ITA No. 174/Hyd/2017
Assessment Year: 2011-12
MB Smelters Pvt. Ltd., Hindupur Vs. Asst. Commissioner of
Income-tax, Circle - 1,
PAN - AABCM 3936 F Hyderabad.
(Appellant) (Respondent)
Assessee by : Shri AV Raghuram
Revenue by : Shri L. Ramji Rao
Date of hearing : 23-08-2017
Date of pronouncement : 22-09-2017
ORDER
PER S. RIFAUR RAHMAN, A.M.:
This appeal filed by the assessee is directed against the order of the learned Commissioner of Income-tax(A), Kurnool, dated 28-11- 16 for AY 2011-12.
2. Briefly, the facts of the case are that the assessee company derives income from manufacturing of ferro alloys and filed its return of income for the AY 2011-12 on 28/09/2011 admitting total income of Rs. 2,79,31,437/-. The case was selected for scrutiny and assessment was completed u/s 143(3) on 26/03/2014 assessing the income at Rs. 2,90,56,437/- by making addition of Rs. 11,25,000/- towards development charges as capital expenditure.
2.1 During the course of assessment proceedings, assessee was asked to produce the ledger extract of Power Charges debited to the Profit and Loss Account. On perusal of the same, the AO noticed that 2 ITA No. 174/H/17 M.B. Smelters Pvt. Ltd.
the assessee had paid an amount of Rs.11,25,000/- on 22/11/2010 to SAO, Operations, APCPDCL, Anantapur towards additional 750 KVA power development charges. When the assessee was asked to explain why this expenditure should not be treated as revenue expenditure, it had filed a letter dated 10/03/2014 relying on certain case-laws, along with other documents.
2.2 The AO observed that in the instant case, the order of the Andhra Pradesh Central Power Distribution Company Limited (APCPDCL) bearing Memo No. SE/0/ATP/CM.1/GL(4)/A/HT/D.No/ 2010 was perused and noticed that the Capital Expenditure to be incurred is being charged to the accounts under the Capital Receipts and Expenditure Distribution System - Capital Works in Progress. The assessee was levied Development Charges of Rs.11,25,000/- and Consumption Deposit Charges of Rs.11,25,000/-. The HT Metering cost is Nil.
2.3 The AO observed that in respect of the development charges, the assessee itself mentions that this is for a contracted load of 750KVA being charged at Rs.1,500 per KVA per shift. This development charge is also in the nature of a deposit that is collected, there is no agreement wherein the service line charges are being borne by the assessee. AO noted that it is not bearing the expenditure of any equipment of the electricity board which is used to transmit power to the assessee. The AO, therefore, held that these charges are not in the nature of a revenue expenditure and the above said development charges of Rs. 11,25,000/- included in the power charges debited to the profit and loss account. He, accordingly, disallowed the said development charges of Rs. 11,25,000/-.
3. Aggrieved by the order of AO, the assessee preferred an appeal before the CIT(A) and the CIT(A) confirmed the disallowance made by the AO.
3 ITA No. 174/H/17M.B. Smelters Pvt. Ltd.
4. Aggrieved by the order of CIT(A), the assessee is in appeal before us raising the following grounds of appeal:
1. The order of the learned CIT(A) confirming the order of the AO making addition of Rs.11,25,000 is not only erroneous both on facts and in law but is perverse having been passed without application of mind.
2. The learned CIT(A) erred in confirming the action of the AO though it was specifically brought to his notice through written submissions that the amount so paid is not a deposit, but has been paid to APCPDL towards service line charges for getting additional power, which is a revenue expenditure relying on various judicial decisions and an equal amount has been paid separately by the assessee towards deposit.
3. The learned CIT (A) erred in observing that the assessee has not put forth elaborately the facts with regard to payment of service line c1arges amounting to Rs. 11,25,000 ignoring the written submissions made during the course of assessment proceedings as well as written 'Submissions filed before him.
5. Ld. AR of the assessee submitted that before the revenue authorities the assessee clarified that the company had paid two separate amounts, viz., i) Rs. 11,25,000/- to APCDPCL towards initial power consumption deposit which is refundable & interest bearing deposit, for getting sanction of additional load of power for manufacturing and ii) Rs. 11,25,000/- paid towards development charges, which is mandatory for additional supply. He submitted that the market demand for the assessee's products were on rise, the production capacity was not sufficient to meet the demand and, therefore, the company decided to increase manufacturing capacity and for this purpose extra power was required. He submitted that the assessee sought the permission from APCPDCL to draw more power for their production and APCPDCL sanctioned the extra power, for which the assessee paid development charges @ 1500/- per KVA for 11 KV supply. He submitted that this amount is not refundable and the consumers have no claim on such amount whatsoever, even if the power supply is disconnected by the department or surrendered by the consumer. In support of his submission, he brought to our notice 4 ITA No. 174/H/17 M.B. Smelters Pvt. Ltd.
the communication from APCPDCL that the development charges are not refundable. The same was placed at pages 15-17 of paper book. Ld. AR contended that the AO made the addition of Rs. 11,25,000/- on the presumption that this amount was refundable deposit and hence it should not be allowable as revenue expenditure. He relied on the following cases:
1. Empire Jute Co. Ltd. Vs. CIT, [1960] 124 ITR 1
2. Sarabhai M. Chemicals Pvt. Ltd. Vs. CIT, [1981] 127 ITR 74
3. CIT Vs. Karam Chand Prem Chand Pvt. Ltd. [1993] 200 ITR 281
6. Ld. DR relied on the orders of revenue authorities.
7. Considered the rival submissions and perused the material facts on record. The development charges of Rs. 11,25,000/- paid by the assessee to APCPDCL for drawing extra power, was disallowed by the AO on the ground that the said amount was refundable to the assessee. The contention of the assessee is that the said amount is a revenue expenditure incurred for the purpose of increasing manufacturing capacity, for which extra power is required. In the case of Sarabhai M. Chemicals Pvt. Ltd. (supra), the Hon'ble Gujarat High Court has held as under:
"The power lines through which the supply was being received were inadequate for the increased supply of electrical energy and the new power lines were laid. The new lines belonged to the Electricity Board and under the terms of the agreement it was open to the Electricity Board to utilise these lines for supplying electrical energy to other consumers also. The assessee-company was in manufacturing business for a number of years and this payment was not an initial outlay for obtaining electrical energy but was spent by it for getting increased supply of electrical energy. It must also be pointed out that the amount of Rs. 58,062 was over and above the regular charges for the electrical energy consumed by the assessee-company. The expenditure was revenue expenditure incurred by the assessee- company for the purpose of augmenting the profitability of its profit-making structure."
While delivering the judgment, the Hon'ble Gujarat High Court referred the judgment of Hon'ble Supreme court in the case of Empire Jute Co. Ltd., Vs. CIT, 124 ITR 1. Respectfully following the said ratio of the Hon'ble Gujarat High court and the confirmation from 5 ITA No. 174/H/17 M.B. Smelters Pvt. Ltd.
APCPDCL that the development charges are not refundable, we set aside the order of the CIT(A) and direct the AO to allow the amount of Rs. 11,25,000/- paid by the assessee towards development charges, as revenue expenditure. Accordingly, grounds raised by the assessee are allowed.
8. In the result, appeal of the assessee is allowed.
Pronounced in the open court on 22 nd September, 2017.
Sd/- Sd/-
(D. MANMOHAN) (S. RIFAUR RAHMAN)
VICE PRESIDENT ACCOUNTANT MEMBER
Hyderabad, Dated: 22 nd September, 2017.
Kv
Copy to:-
1) MB Smelters Pvt. Ltd., C/o S/Shri K. Vasantkumar, AV Raghuram, P. Vinod & M. Neelima Devi, Advocates, 610 Babukhan Estate, Basheerbagh, Hyderabad - 500 001.
2) ACIT, Circle - 1, Anantapur
3) CIT(A), Kurnool 4 Pr. CIT, Kurnool
5) The Departmental Representative, I.T.A.T., Hyderabad.
6) Guard File