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Income Tax Appellate Tribunal - Delhi

Chaudhary Steel (P) Ltd, Ghaziabad vs Department Of Income Tax

             IN THE INCOME TAX APPELLATE TRIBUNAL
                  (DELHI BENCH 'B' : NEW DELHI)

            SMT. DIVA SINGH, JUDICIAL MEMBER
                            and
       BEFORE SHRI B.C. MEENA, ACCOUNTANT MEMBER

                         ITA No.2886/Del./2010
                    (ASSESSMENT YEAR : 2007-08)

DCIT, Circle 1,                     vs.   M/s. Chaudhary Steels (P) Ltd.,
Ghaziabad.                                C - 205, BSR Road Indl. Area,
                                          Ghaziabad.

                                                (PAN : AAACC6174A)

                           CO No.235/Del/2010
                       (in ITA No.2886/Del./2010)
                    (ASSESSMENT YEAR : 2007-08)

M/s. Chaudhary Steels (P) Ltd.,           vs.   DCIT, Circle 1,
C - 205, BSR Road Indl. Area,                   Ghaziabad.
Ghaziabad.

      (PAN : AAACC6174A)

      (APPELLANT)                               (RESPONDENT)

      ASSESSEE BY : S/Shri Anoop Sharma & M.K. Giri, Advocates
             REVENUE by : Shri Rohit Garg, Senior DR

                                    ORDER

PER B.C. MEENA, ACCOUNTANT MEMBER :

The revenue has filed the appeal against the order of CIT (Appeals), Ghaziabad dated 16.03.2010 for the assessment year 2005-06 whereas the assessee filed the cross objection against the aforesaid order of the CIT (Appeals).

CO No.235/Del/2010

2. There is a delay in filing the appeal. We have heard both the sides and after hearing, we condone the delay.

3. The grounds of appeal taken by the revenue in the appeal is as under :-

"1. The Ld. CIT (A) has erred in law & on facts and circumstances of the case of entertain the fresh claim of the assessee at the appellate stage in treating the payment made to the UPPCL as revenue expenditure without confronting the same to the A.O., when no such claim was made by the assessee in its return of income or in course of assessment proceedings before the A.O.

2. The Ld. CIT (A) has erred in law and on facts and circumstances of the case to hold that payments made to UPPCL in connection with connectivity with main line of electric supply was revenue in nature, when the assessee itself had shown it as a capital expenditure in its Income Tax Returns for the immediately preceding two assessment years and had claimed depreciation thereon @ 15%. For the year under consideration, as well, the assessee had shown it as capital expenditure but claimed depreciation at enhanced rate of 80%."

The assessee has taken the following grounds in the cross objection :-

"Ground No.1 That without prejudice to the allowance of electricity payments made to UPPCL as revenue expenditure. The said expenditure if held capital to be in nature; 80% Depreciation on the same be allowed.

Ground No.2 That the learned CIT (Appeals) should have allowed depreciation @ 80% on Transformer & Electric Panels instead of Depreciation allowed @ 15%."

4. The assessee is a private limited company filed the return of income on 28.10.2007 declaring income of Rs.65,66,370/-. During the assessment proceedings, the assessee filed revised computation of income vide letter dated 04.11.2008 where the income was reduced to Rs.49,87,040/-. The Assessing Officer treated the expenditure on transformer and panels as general category of plant and machinery and the depreciation @ 15% with an additional depreciation of 20% was allowed and the excess claim of expenditure of Rs.11,72,173/- was disallowed. The expenditure on electricity communications on which the deprecation was claimed @ 80% was added back towards the income of the assessee.

5. CIT (A) granted the relief by holding that the items of electricity communications were not owned by the assessee but belongs to the UPPCL and the expenditure is revenue in nature, hence the same was allowed in toto.

6. We have heard both the sides on the issue. The revenue's claim that assessee has made fresh claims before the CIT (A) in respect of treating the payments made to the UPPCL as revenue expenditure is factually incorrect. The order of the Assessing Officer itself shows that the assessee has made this claim in the assessment proceedings itself which is clear from para 11 and 12 of the assessment order where the assessee has made a claim that the right treatment of expenditure incurred on account of electricity connection was in the nature of revenue expenditure which has been dismissed by the Assessing 4 ITA No.2886/Del./2010 CO No.235/Del/2010 Officer. Therefore, the issue raised in ground no.1 is factually not correct and this ground stands dismissed.

6.1 The second issue is against the CIT (A)'s order holding that expenditure for connectivity with the main line of electricity supply as revenue in nature. We have heard both the sides on the issue. Assessee had entered into agreement with UPPCL. A copy of the agreement placed in paper book. The Clause Nos.(4) and (14) of the agreement read as under :-

"(4) The consumer shall provide suitable switches to control his apparatus and keep his protective devices so graded that these may, in normal conditions, operator, earlier than the supplier's protective devices which shall be suitable set so as to meet the full contracted load/contracted demand having regard to the normal working condition of the consumer declared plant and equipment. The supplier shall subject to the conditions laid down in clause 14 provide and install switches into the consumer's sub-station for the purpose of protecting the plant and mains of the supplier and the supplier shall have the right to remove the same at his own expense on the expiration or sooner determination of this agreement provided the connection has been permanently disconnected after serving due notice on the consumer. These last mentioned switches and the metering equipment shall be under the control of the supplier and the consumer shall make provision for their segregation from any other part of the consumer's apparatus in such manner as may be required by the supplier.

(14) The consumer shall pay in advance an estimated amount to be intimated by the supplier to cover the cost of providing and installing the line connecting mains and apparatus excluding transformer and the O.C.B. payable by the supplier but such line, mains and apparatus shall remain the property of the supplier, even though the cost thereof has been paid by the consumer."

Thus, as per the terms No.(4) & (14) of the Agreement, the assets were belonging to the UPPCL although assessee incurred the expenditure. This expenditure has been incurred for the electricity connection for running the business more efficiently and profitably. The assets are not belonging to the assessee even after stopping the use or these become non-functional. These assets were always in ownership of the UPPCL only. Therefore, the expenditure so incurred for electricity connection cannot be termed as a capital expenditure. In the case of CIT vs. Saw Pipes Ltd, 300 ITR 35 (Del.). the Hon'ble High Court has held as under :-

" Held, dismissing the appeal (i) that the service lines did not belong to the assessee but to the Electricity Board and were laid so as to enable the assessee to conduct its business more efficiently which might be an enduring advantage but was intended to enable the assessee to carry on its business more efficiently and profitably leaving the fixed capital untouched. The benefit that the assessee got was of a commercial nature and a business advantage. Therefore, the expenditure incurred by the assessee should be treated as a revenue expenditure."

In that case also, the service lines were not belonging to the assessee but to the Electricity Board to enable the assessee to conduct its business more efficiently. Although these might be an enduring advantage but was intended to enable the assessee to carry on its business more efficiently and profitably leaving the fixed capital base of assessee untouched. In that point of view, the Hon'ble High Court held that expenditure was revenue in nature. In the assessee's case also, the assessee has made this expenditure to conduct its 6 ITA No.2886/Del./2010 CO No.235/Del/2010 business more efficiently and profitably. The fixed capital of the assessee remained unaffected/ untouched. The ownership of the assets belonging to the UPPCL. In view of these facts, the expenditure was commercial in nature and for business advantage. Therefore, we find no fault in the order of the CIT (Appeals) and sustain the same.

7. In the result, the appeal of the revenue is dismissed.

8. Since we have dismissed the revenue's appeal, the assessee's cross objection becomes infructuous.

9. To sum up : the revenue's appeal is dismissed and the cross objection filed by the assessee is dismissed as infructuous.

Order pronounced in open court on this 2nd day of December, 2011.

                 Sd/-                                      sd/-
            (DIVA SINGH)                              (B.C. MEENA)
          JUDICIAL MEMBER                         ACCOUNTANT MEMBER

Dated the 2nd day of December, 2011
TS
Copy forwarded to:
     1.Appellant
     2.Respondent
     3.CIT
     4.CIT(A)-XIII, New Delhi.
     5.CIT(ITAT), New Delhi.
                                                                  AR, ITAT
                                                                 NEW DELHI.