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2015 DIGILAW 58 (GUJ)

Commissioner of Income Tax v. Gujarat Alkalies

2015-01-19

JAYANT M.PATEL, S.H.VORA

body2015
JUDGMENT Jayant M. Patel, J. 1. Considering the facts and circumstances, Tax Appeal Nos. 817 to 818 of 2013 with Tax Appeal No. 18 of 2014 and Tax Appeal No. 149 of 2014 are detached from the group and the present appeals shall be separately considered. Both these appeals are admitted on the following question of law: “Whether, on the facts and in the circumstance of case, the Appellate Tribunal was right in law in deleting the addition made on account of expenses incurred for replacement of membrane cells II, treating the same as capital expenditure, by following the rule of consistency and without considering the issues on the merits?” 2. We have heard Mr. Parikh, learned counsel appearing for the appellant-Revenue and Mr. Shah, learned counsel appearing for the respondent-assessee. 3. The short facts of the case appear to be that the Assessing Officer, for the assessment year 1999-2000, vide order dated March 26, 2002, treated the expenditure of Rs. 25,13,20,259 for replacement of remembraning in membrane cell I plant as capital expenditure which was shown by the assessee in the books of account as revenue expenditure. In appeal, the Commissioner of Income-tax (Appeals) confirmed the order of the Assessing Officer holding that it would be capital expenditure and not the revenue expenditure. The Tribunal held that for the assessment years 1993-94 and 1995-96, such expenditure were treated as revenue expenditure by the Assessing Officer himself and there being no material to make departure from the earlier view, rule of consistency should be followed and, consequently, the Tribunal allowed the appeal. Under the circumstances, the Revenue has preferred Tax Appeal No. 798 of 2010. 4. In Tax Appeal No. 799 of 2010, the same is the fact situation except there is change in the assessment year of 2000-01 and the amount of Rs. 11,44,94,255 and the replacement of membrane in plant II. 5. Mr. Parikh, learned counsel appearing for the Revenue contended that it was required for the Tribunal to consider the reasoning recorded by the Assessing Officer and, thereafter, the Commissioner of Income-tax (Appeals) and then to find out as to whether the expenses of replacement of membrane could be said as revenue expenditure or capital expenditure. In the absence of such consideration, the Tribunal should not have gone just by the principle of consistency and allowed the appeals. In the absence of such consideration, the Tribunal should not have gone just by the principle of consistency and allowed the appeals. It was submitted that the expenditure involved in both the appeals in question is huge. Further, life of membrane, even as per the assessee, is 3 to 5 years. Resultantly, the assessee would be entitled to have the benefit spreaded over 3 to 5 years of the membrane and, therefore, it has been rightly held by the Assessing Officer as well as by the Commissioner of Income-tax (Appeals) and the Tribunal has committed error in holding against the Revenue by treating the expenses as revenue expenditure and not the capital expenditure. Mr. Parikh, learned counsel also relied upon the decision of the apex court in case of CIT v. Saravana Spinning Mills P. Ltd. reported in [2007] 293 ITR 201 (SC) and contended that the Assessing Officer has referred to the said decision and has relied upon the same for mentioning that the expenditure was capital expenditure and not revenue expenditure. 6. Whereas, Mr. Shah, learned counsel appearing for the assessee, contended that the rule of consistency should have been adhered to by the Department inasmuch as when it is undisputed position that in the assessment years of 1993-94 and 1995-96, the Revenue itself treated such expenditure as revenue expenditure, in the absence of any change in the circumstances or any material brought on record, the different view could not have been taken. He also relied upon the decision of the apex court in the case of CIT v. Excel Industries Ltd. reported in [2013] 358 ITR 295 (SC) ffor contending that the dual stand on the part of the Department is impermissible and is rather titled as “flip-flop” conduct of the Department. He contended that if the Revenue aggrieved by such a stand of the Assessing Officer for the assessment years of 1993-94 and 1995-96, the matter could have been carried further but was not carried and rather was accepted. Once having told that the expenditure shall be treated as revenue expenditure, in the absence of any material, it would not lie in the mouth of the Department to contend that the same will be treated as capital expenditure. Hence, it was submitted that the Tribunal’s view is correct and may not be interfered with. 7. Once having told that the expenditure shall be treated as revenue expenditure, in the absence of any material, it would not lie in the mouth of the Department to contend that the same will be treated as capital expenditure. Hence, it was submitted that the Tribunal’s view is correct and may not be interfered with. 7. We may record that in the decision of the apex court in the case of Saravana Spinning Mills P. Ltd. (supra), the apex court observed at paragraph 13 on pages 208 and 209, the relevant of which, reads as under : “An allowance is granted by clause (i) of section 31 in respect of amount expended on current repairs to machinery, plant or furniture used for the purposes of business, irrespective of whether the assessee is the owner of the assets or has only used them. The expression ‘current repairs’ denotes repairs which are attended to when the need for them arises from the viewpoint of a businessman. The word ‘repair’ involves renewal. However, the words used in section 31 (i) are ‘current repairs’. The object behind section 31 (i) is to preserve and maintain the asset and not to bring in a new asset. In our view, section31(i) limits the scope of allowability of expenditure as deduction in respect of repairs made to machinery, plant or furniture by restricting it to the concept of ‘current repairs’. All repairs are not current repairs. Section 37(1) allows claims for expenditure which are not of capital nature. However, even section 37(1) excludes those items of expenditure which expressly falls in sections 30 to 36. The effect is to delimit the scope of allowability of deductions for repairs to the extent provided for in sections 30 to 36. To decide the applicability of section 31(i) the test is not whether the expenditure is revenue or capital in nature, which test has been wrongly applied by the High Court, but whether the expenditure is ‘current repairs’. The effect is to delimit the scope of allowability of deductions for repairs to the extent provided for in sections 30 to 36. To decide the applicability of section 31(i) the test is not whether the expenditure is revenue or capital in nature, which test has been wrongly applied by the High Court, but whether the expenditure is ‘current repairs’. The basic test to find out as to what would constitute current repairs is that the expenditure must have been incurred to ‘preserve and maintain’ an already existing asset, and the object of the expenditure must not be to bring a new asset into existence or to obtain a new advantage.” After observing the aforesaid, when the apex court further examined the facts of the said case, it was found that each machine including the ring frame was an independent and separate machine capable of independent and specific function and, therefore, treated the expenditure as capital in nature. Such is not the fact situation in the present case because no material is referred to by the Assessing Officer nor by the Commissioner of Income-tax (Appeals) leading to the conclusion that the membrane itself can be treated as a separate and independent machine. Under these circumstances, it appears to us that reliance placed upon the decision by the Assessing Officer while making departure from the earlier view taken was erroneous. 8. The Tribunal in the impugned order at paragraph No. 11.1 has observed thus : “11.1. The aforesaid decision has been followed by the hon’ble jurisdictional High Court in their subsequent decision in Lalludas Children Trust v. CIT f[2001] 251 ITR 50 (Guj). Similar view has been taken in the other decisions relied upon on behalf of the assessee as also in several cases including in Arihant Builders, Developers and Investors P. Ltd. v. ITAT [2005] 277 ITR 239 (MP), Asst. CIT v. Gendalal Hazarilal and Co. [2003] 263 ITR 679 (MP), CIT v. Neo Poly Pack P. Ltd. [2000] 245 ITR 492 (Delhi), Dhansiram Agarwalla v. CIT [1996] 217 ITR 4 (Gauhati). CIT v. Shivsagar Estate [2002] 257 ITR 59 (SC), Union of India v. Satish Panalal Shah [2001] 249 ITR 221 (SC). In the case of CWT v. M.K. Gupta [1990] 185 ITR 393 (Delhi). [2003] 263 ITR 679 (MP), CIT v. Neo Poly Pack P. Ltd. [2000] 245 ITR 492 (Delhi), Dhansiram Agarwalla v. CIT [1996] 217 ITR 4 (Gauhati). CIT v. Shivsagar Estate [2002] 257 ITR 59 (SC), Union of India v. Satish Panalal Shah [2001] 249 ITR 221 (SC). In the case of CWT v. M.K. Gupta [1990] 185 ITR 393 (Delhi). Since in the case under consideration, the Assessing Officer himself has allowed the claim in the assessment year 1993-94, creating the expenditure revenue in nature while no change of the facts and circumstances have been pointed out on behalf of the Revenue in the years under consideration, we are of the opinion that the Assessing Officer is not justified in departing from his previous decision in the assessment year 1993-94, in the absence of material circumstances or reasons for such departure. Therefore, ground No. 4 in the appeal for the assessment year 1999-2000 and ground No. 2 in the assessment year 2000-01 are allowed.” 9. If the observations are further considered in the light of the above referred decision of the apex court in the case of Excel Industries Ltd. (supra), we do not find that the approach on the part of the Department to take up a different stand in the absence of any material or valid reason could be said as justified. The consistency expected on the part of the Revenue in taxation matter is not unknown but rather is expected so as to make the assessee aware about the taxable liability. We do not mean to say that if the legal position is changed or there is cogent material available, the Revenue cannot take a different stand or make/a valid departure but at the same time, in the absence of any such circumstances, namely, any material leading to different conclusion or change in legal position, the consistency on the part of the Revenue should be adhered to. 10. The Tribunal has taken the same view on the part of the consistency of the Department. Hence, we find that the same cannot be faulted with. 11. 10. The Tribunal has taken the same view on the part of the consistency of the Department. Hence, we find that the same cannot be faulted with. 11. The attempt to contend that the life of membrane would be spread over from 3 to 5 years or that the amount involved for replacement of membrane is huge and, therefore, the departure on the, part of the Revenue could be said as justified, in our view, cannot be countenanced for two reasons. One is that the amount involved would not make difference for chargeability of the tax but the nature of expenditure would be relevant for the chargeability of tax. It hardly matters whether the amount is more or less. Further, on the aspect of the life of the membrane, nothing is referred to by the Assessing Officer nor by the Commissioner of Income-tax (Appeals) that earlier, such aspect, namely, life of the membrane spread over from 3 to 5 years was not considered or it had missed or otherwise. 12. In the result, the question is answered in favour of the assessee against the Revenue. Hence, the order passed by the Tribunal is not interfered with. Both the appeals are dismissed accordingly.