Income Tax Appellate Tribunal - Chennai
Tanfac Industries Ltd., Chennai vs Assessee on 27 December, 2008
IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH "D" CHENNAI
(Before Shri U.B.S. Bedi, Judicial Member and
Shri Abraham P. George, Accountant Member)
.....
I.T.A. No. 658/Mds/2009
Assessment Year : 2003-04
M/s Tanfac Industries Ltd., The Assistant Commissioner
Oxford Centre, I floor, of Income Tax,
66, C.P. Ramaswamy Road, v. Company Circle III(1),
Alwarpet, Chennai - 600 018. Chennai - 600 034.
PAN : AAACT2591A
(Appellant) (Respondent)
I.T.A. No. 664/Mds/2009
Assessment Year : 2003-04
The Assistant Commissioner M/s Tanfac Industries Ltd.,
of Income Tax, Oxford Centre, I floor,
Company Circle III(1), v. 66, C.P. Ramaswamy Road,
Chennai - 600 034. Alwarpet, Chennai - 600 018.
(Appellant) (Respondent)
Assessee by : Shri Saroj Kumar Parida
Revenue by : Shri K.E.B. Rengarajan,
Junior Standing Counsel
O R D E R
PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER :
These are cross appeals of the assessee and Revenue respectively against the order dated 27.12.2008 of Commissioner of Income Tax (Appeals)-III, Chennai, for the impugned assessment year.
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2. Grievance of the assessee is that A.O. held the expenses incurred by the assessee for replacing existing machinery as capital expenditure and this was confirmed by the CIT(Appeals).
3. Short facts apropos are that assessee manufacturing fluorine based chemicals, had filed return declaring a loss of ` 6,67,05,570/- for the impugned assessment year. During the course of assessment proceedings, A.O. noted that assessee had claimed repairs and maintenance cost of ` 2,51,72,226/- for its H.F. Reactor. Explanation of the assessee was that there was no increase in capacity due to replacement of machinery and it was only revamping of existing machinery and expenses incurred for keeping the plant in good running condition. However, the A.O. was of the opinion that the new machinery, namely, H.F. Reactor was installed and the cost thereof been capitalized by the assessee in its account, it clearly showed that there was an acquisition of asset with enduring benefit. According to A.O., increase in capacity of production was not the relevant criteria and expenses incurred for acquisition of capital asset could not be allowed as revenue expenditure. He, therefore, disallowed the claim of ` 2,51,72,226/- on repairs and maintenance. Nevertheless, he allowed depreciation of 25% thereof.
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I.T.A. No. 664/Mds/09
4. In its appeal before CIT(Appeals), argument of the assessee was that there were three reactors being used by it for the manufacturing process. According to assessee, there was a pre- reactor where the first stage of reaction was carried out and thereafter the production from the first reactor was pushed into the H.F. Reactor and H.F. gas produced therefrom was thereafter purified and such purified gas fed in the ALF3 reactor of producing the fluorine products. According to assessee, the H.F. Reactor was only the part of a system and the hollow cylindrical shell of such reactor alone was replaced and there was no increase in capacity. As per the assessee, this was only repairs and maintenance carried out on a reactor which was old and purchased in 1985. Though the assessee placed reliance on the decision of Hon'ble Apex Court in the case of CIT v. Ramaraju Surgical Cotton Mills (2007) 294 ITR 328 (SC) for allowing claim under section 37 of the Income-tax Act, 1961 (hereinafter called as "the Act") and if it was not allowable under section 31 of the Act, ld. CIT(Appeals) was not impressed. According to him, the claim of the assessee was rightfully rejected by the A.O.
5. Now, before us, the learned A.R. strongly assailing the order of Ld. CIT(Appeals), submitted that there was no increase in capacity on account of maintenance work done in H.F. Reactor, which was only a part of the integrated production system. According to him, the law 4 I.T.A. No. 658/Mds/09 I.T.A. No. 664/Mds/09 laid down by the Apex Court in the case of Ramaraju Surgical Cotton Mills (supra) clearly applied and there being no increase in production capacity, expenditure cannot be allowed. Per contra, the learned D.R. supported the order of the CIT(Appeals).
6. We have perused the orders and heard the rival contentions. The case of Ramaraju Surgical Cotton Mills (supra), was considered by the Hon'ble Apex Court again in the case of CIT v. Sri Mangayarkarasi Mills P. Ltd. (2009) 315 ITR 114 (SC) and after referring to the decision of Ramaraju Surgical Cotton Mills (supra) as well as that of CIT v. Saravana Spinning Mills (P) Ltd. 293 ITR 201 (SC), remitted the matter back to the jurisdictional High Court for considering whether the claim of the assessee could be allowed based on the principles laid down in the above mentioned decisions. In the case of CIT v. Indira Cotton Mills (TCA 559 of 2004 dated 15.12.2009), Hon'ble jurisdictional High Court had remitted the question of allowance on replacement back to the CIT(Appeals) for taking decision based on the principles laid down by Hon'ble Apex Court in the decisions mentioned supra. Here also the crucial question is whether the repairs stated to be carried out by the assessee and considered by the A.O. as replacement of machinery, would lead to increase in production capacity or could only be considered as revenue outgo. This has to be examined in the light of 5 I.T.A. No. 658/Mds/09 I.T.A. No. 664/Mds/09 principles laid down by Hon'ble Apex Court in the various decisions mentioned supra. Therefore, in accordance with the directions given by the jurisdictional High Court in Indira Cotton Mills (supra), we are of the opinion that the matter needs to be revisited by the CIT(Appeals). We, therefore, set aside the order of the CIT(Appeals) and remit the matter back to him for consideration afresh in the light of various decisions mentioned supra.
8. Appeal of the assessee is, therefore, allowed for statistical purposes.
9. Now, we consider the cross appeal of the Revenue. Sole grievance raised by the Revenue is that CIT(Appeals) deleted the interest levied by the Assessing Officer under section 234D of the Act.
10. When the issue came up, learned D.R. submitted that Hon'ble Kerala High Court in the case of CIT v. Kerala Chemicals And Proteins Ltd. (2010) 323 ITR 584 (Ker) had held that section 234D would be applicable from 1.6.2003 being the date on which the said section came into force. According to him, therefore, from 1.6.2003 onwards such interest was chargeable.
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11. Per contra, the learned A.R. submitted that section 234D introduced by the Finance Act 2003 with effect from 1st June, 2003, as held by Special Bench of this Tribunal in the case of ITO v. Ekta Promoters (P.) Ltd. (2008) 305 ITR (AT) 1 (Delhi) (SB), would be applicable only from assessment year 2004-05. As per the learned A.R., this decision of the Special Bench was approved by Hon'ble Delhi High Court in the case of DIT v. Jacabs Civil Incorporated (2010) 235 CTR (Del) 123.
12. We have perused the orders and heard the rival contentions. The question here is whether section 234D is applicable from 1.6.2003 being the date of its introduction in the Income-tax Act or only from assessment year 2004-05. Hon'ble Kerala High Court held that such interest would be charged from 1.6.2003 being the date of introduction of section 234D in the Act. However, Hon'ble Delhi High Court in the case of Jacabs Civil Incorporated (supra) held that section 234D was applicable only from assessment year 2004-05 onwards and not for any earlier assessment year. In other words, Hon'ble Delhi High Court affirmed the view taken by the Special Bench of this Tribunal in the case of Ekta Promoters (P.) Ltd. (supra). Since there are conflicting decisions of two High Courts, one of which has approved the decision taken by Special Bench of this Tribunal, we prefer to go by the decision of that High Court which has approved 7 I.T.A. No. 658/Mds/09 I.T.A. No. 664/Mds/09 the Special Bench's view. Hence, we find no error in the order of ld. CIT(Appeals) whereby he held that interest under section 234D could not be charged on the assessee for the impugned assessment year.
13. Appeal of the Revenue is, therefore, dismissed.
14. To summarize, appeal filed by the assessee is allowed for statistical purposes whereas that of the Revenue is dismissed. The order was pronounced in the Court on 18th February, 2011.
sd/- sd/-
(U.B.S. Bedi) (Abraham P. George)
Judicial Member Accountant Member
Chennai,
Dated the 18th February, 2011.
Kri.
Copy to: (1) Assessee
(2) Respondent
(3) CIT(A)-III, Chennai
(4) CIT, Chennai-I, Chennai
(5) D.R.
(6) Guard file