Income Tax Appellate Tribunal - Hyderabad
Nuziveedu Swathi Coastal Consortium , ... vs Asst. Commissioner Of Income Tax, ... on 26 October, 2021
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES "A" : HYDERABAD
(THROUGH VIDEO CONFERENCE)
BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER
AND
SHRI S.S.GODARA, JUDICIAL MEMBER
ITA No. A.Y. Appellant Respondent
Dy.CIT,
609/Hyd/2019 2013-14 Circle-8(1),
HYDERABAD
M/s.Nuziveedu Swathi
Coastal Consortium,
610/Hyd/2019 2014-15 HYDERABAD ACIT, Circle-8(1),
[PAN: AAAAN3839R] HYDERABAD
611/Hyd/2019 2015-16
ACIT, Circle-14(1),
1511/Hyd/2019 2016-17
HYDERABAD
For Assessee : Shri A.V.Raghuram, AR
For Revenue : Shri Venudhar Godesi, DR
Date of Hearing : 27-09-2021
Date of Pronouncement : 26-10-2021
ORDER
PER S.S.GODARA, J.M. :
This assessee's four appeals for AYs.2013-14 to 2016-17 arise against the CIT(A)-2 & CIT(A)-6, Hyderabad's order(s) dated 20-02-2019 & 28-06-2019 (for AY.2016-17), in case Nos.10115, 10351, 10430 & 10458 / 2016-17, 2017-18, 2018- 19 / B3 / CIT(A)-2 & CIT(A)-6, involving proceedings u/s.143(3) of the Income Tax Act, 1961 [in short, 'the Act']; respectively.
:- 2 -:
ITA Nos. 609, 610, 611& 1511/Hyd/2019 Heard both the parties. Case files perused.
2. We come to assessee's "lead" AY.2013-14's appeal ITA No.609/Hyd/2019 raising the following substantive grounds:
"2.The Commissioner (Appeals) erred in sustaining half (50%) of the adhoc disallowance of 25% made in respect of miscellaneous expenditure amounting to Rs.40,70,292. Having regard to the nature of expenditure. location and scale of operations and the fact that there was no banking facility available at the site or nearby villages. the ld. Commissioner (Appeals) ought to have deleted the adhoc disallowance made by the AO.
3.The Commissioner (Appeals) erred in holding the expenditure incurred towards rail and track cross as capital expenditure and In directing allowance of depreciation on the same. The Commissioner (Appeals) ought to have appreciated that the track and track cross are used and totally worn out material purchased from Railways. and they do not have resale value except as a scrap even on the date of purchase. and therefore Is allowable as revenue expenditure in the year of purchase itself.
4.The findings of the AO and Commissioner (Appeals) for rejecting the claim of the Appellant of expenditure incurred towards Rail and Track Cross as revenue expenditure are incorrect. Having regard to the fact that the Appellant can only realise scrap value in respect of Rail and Track Cross materials. the authorities below ought to have allowed the expenditure relating to same as revenue expenditure.
5.The Commissioner (Appeals) erred in holding the expenditure incurred on conveyer belt (along with rollers and structures) as capital expenditure and in directing allowance of depreciation on the same. The Commissioner (Appeals) ought to have appreciated that above material do not have resale value except as scrap even on the date of purchase. and therefore allowable as revenue expenditure in the year of purchase itself.
6.The findings of the Commissioner (Appeals) while rejecting the claim of the Appellant of expenditure towards conveyer belt and others as revenue expenditure are incorrect".
:- 3 -:
ITA Nos. 609, 610, 611& 1511/Hyd/2019
3. Coming to the former issue of miscellaneous expenditure disallowance made by the Assessing Officer and partly upheld in the CIT(A)'s lower appellate discussion, the learned counsel's sole argument before us is that the same involves various heads incurred at the corresponding civil construction contracts sites wherein banking facilities are not always available. The Revenue's argument on the other hand is that the assessee failed to prove all the impugned expenditure head by filing all the cogent supportive evidence.
Faced with this situation and more so when both the parties have failed to justify their respective stands in entirety, we deem it appropriate that a lumpsum estimated disallowance of 8% only than that in issue @25% would be just and proper. We order accordingly. The assessee succeeds in part in its instant identical former substantive ground in all these years involving varying sums subject to a rider that it shall not be treated as a precedent in any other case. Necessary computation shall follow as per law.
4. Next comes the latter issue of correctness of both the lower authorities' action treating the assessee's revenue expenditure claim(s) as capital in nature. The CIT(A)'s detailed discussion to this effect reads as under:
"The AO has capitalized certain expenses and this issue the issue of capitalization is common to the present appeal and the appeal for A.Y.2014-15 and A.Y.2015-16 also.
The AO has observed that the appellant undertake Civil works of drilling the underground tunnel for irrigation project. It is observed by the AO that the project is being undertaken for the past 5 years. It is seen during the appeal proceedings that the project is ongoing even during the present F.Y. i.e. relevant to A.Y.2019-20 as confirmed :- 4 -:ITA Nos. 609, 610, 611
& 1511/Hyd/2019 by the AR. It is seen that the project started way back in F.Y.2007- 08, which implies that the project has lasted for more than 12 years and is still ongoing. Thus, the project had a long period and it is not a project which was a short term initiative.
The AO observed that the following items of Rail Track (including Track Cross as it is part of the Rail tracks), Conveyer belt und Rollers and Structure (required for movement of conveyer belt) were claimed as a revenue expenditure by the appellant whereas the AO noted that the same has to be capitalized being items of enduring nature. In the A.Y.2013-14, the above items were capitalized and in the subsequent A.Y. i.e. A.Y.2014-15 and 2015-16, one more item of Ventilation Ducting was also capitalized. There was no claim of Ventilation Ducting in A.Y.2013-14.
The issue regarding capitalization of these items are discussed separately as under:
1. Rails and Track Cross:
The appellant has undertaken the activity of the construction or tunnel. In simple parlance, the appellant needs to construct a model of movement for goods as well as personnel as the tunnel progresses and also for the excavation of the material, as the construction of tunnel progresses. The appellant has laid down the Rail tracks for the said purpose and the Track Cross (for the junction of Tracks). The appellant has thus bought the Rails from the Railways for this purpose. The claim of the appellant is that the Rails so bought from the Indian Railways were "used" and not new; therefore, the same was claimed as revenue expenditure.
During the course of appellate proceedings on 19.02.2019, the AR stated as under:
"Rail Tracks have no wear and tear as such, the claim for capitalization is on account of the purchase itself being of used tracks from Railway".
The appellant further stated in the submissions that the same will have no value after their use and therefore the same has been written off on a year to year basis.
It is important to note that the Rails which are purchased for the purposes of laying down the Rails Tracks will be in use for a period of more than 15 years as can be observed that the project is still going on up till now. Thus, the usage of Rails is not for a short period of time and the Rails are in the form of capital asset and is not a consumable as such.
It has been further affirmed that there is no wear and tear of these Rails that they need replacement very often. Just because the :- 5 -:
ITA Nos. 609, 610, 611& 1511/Hyd/2019 asset has been used earlier, does not make it eligible for it to be claimed as a revenue expenditure. It is the intrinsic quality of the asset, which is of relevance and not whether the asset acquired has been previously used or number of times it has had previous ownerships with regard to that asset.
In the present case the asset which is the Rails and Cross Track have been in use with very marginal wear and tear, and are also not consumable items in nature, therefore the AO has rightly held the same as capital expenditure.
The appellant stated that the same will be of no use after the project is complete, is a statement of not much consequence or relevance, as the Rails can against be sold in the open market as there has been not much wear and tear and even otherwise the same can be claimed as a sale in the block of asset.
The above items are of enduring nature, therefore the action of the AO holding the same as a capital expenditure is upheld accordingly. The AO is however directed to give depreciation on the same accordingly on a year to year basis on such capitalization.
2. Conveyer Belt (along with Rollers and structures}:
As already stated that the Appellant is into the construction of the tunnel, and it needs to move and remove goods on a regular basis and for the movement of the same, the appellant has laid down the Conveyer Belt. The Conveyer Belt is not a consumable item.
The appellant has mentioned that the Conveyer Belt gets damaged frequently and has to be replaced. However, the statement is devoid of evidence and facts as no case has been brought out by the appellant of the damage and replacement of Conveyer Belt on a frequent basis. It is seen that the appellant has not brought out any evidence and further if there are any minor damages, the replacement of the same can he allowed accordingly.
But the statement of the appellant is devoid of evidence and facts and the appellant has not been able to bring out consumption of Conveyer Belts beyond routine repairs. Therefore, the same is rejected accordingly. The Conveyer Belt is the integral part of the construction of tunnel and also an essential structure which is required for movement.
The project as it has been already stated that is going to last for more than 15 years and the cost of Conveyer Belt increase with the increase in the length of tunnel and the Conveyer Belt installed at the beginning continues to be used for all the 15 years. The same corollary also applies to the issue of Railway Track already discussed above.
:- 6 -:ITA Nos. 609, 610, 611
& 1511/Hyd/2019 Thus, the Conveyer Belt have enduring usage and is not a consumable and is the structure which is permanent in nature for the construction of tunnel, therefore the same has been rightly held as capital expenditure by the AO accordingly.
The AO is however directed to give depreciation on the same accordingly on a year to year basis on such capitalization".
The factual position is no different in remaining assessment years wherein the only distinction is that of corresponding sums of disallowance; as the case may be.
5. Learned counsel has taken us to the assessee's case records as well as photographs of the corresponding rail tracks and conveyor belt systems and submits that both the lower authorities have erred in law and on facts in treating the assessee's revenue expenditure items as capital in nature despite the fact that the same were meant to be kept abandoned at sites for the use of the owner of the business only than that incurred for deriving enduring benefits in its own hands. We are also taken to the necessary factual position emanating from the relevant photographs in pgs.104 to 120 of the paper book.
6. Learned departmental representative fails to dispute that the foregoing clinching facts have nowhere been considered either in the course of assessment as well as in the CIT(A)'s detailed discussion extracted in preceding paragraphs. We therefore deem it appropriate to restore the assessee's instant latter identical issue in all the four instant appeals back to the Assessing Officer for his afresh factual verification as per law within three effective opportunities of hearing subject to the condition that it shall be the burden of the taxpayer only to :- 7 -:
ITA Nos. 609, 610, 611& 1511/Hyd/2019 place on record all the relevant facts; at its own risk and responsibility.
No other argument has been pressed before us.
7. These assessee's four appeals are treated as partly allowed in above terms. A copy of this common order be placed in the respective case files.
Order pronounced in the open court on 26 th October, 2021 Sd/- Sd/-
( A. MOHAN ALANKAMONY ) ( S.S. GODARA )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Hyderabad,
Dated: 26-10-2021
TNMM
:- 8 -:
ITA Nos. 609, 610, 611
& 1511/Hyd/2019
Copy to :
1.M/s.Nuziveedu Swathi Coastal Consortium, Flat No.503, Kamil Residency, Road No.12, Banjara Hills, Hyderabad.
2.The Dy.CIT, Circle-8(1), Hyderabad.
3.The ACIT, Circle-8(1), Hyderabad.
4.The ACIT, Circle-14(1), Hyderabad.
5.CIT(Appeals)-2, Hyderabad.
6.CIT(Appeals)-6, Hyderabad.
7.The Pr.CIT-2, Hyderabad.
8.The Pr.CIT-6, Hyderabad.
9.D.R. ITAT, Hyderabad.
10.Guard File.