2015 (8) TMI 608 - AT - Income Tax

Tribunal Rules on Deductions, Disclosure, and Reassessment in Tax Dispute

The Assistant Commissioner of Income Tax And Others Versus M/s Neyveli Lignite Corporation Ltd. And Others

The Tribunal classified expenses on the Life Extension Program and rejuvenation of Bucket Wheel Excavators as revenue expenditure. The assessee was ... Expenses incurred on Life Extension Program (LEP) of Thermal Power Station I (TIPS-I) and expenditure on Rejuvenation of Bucket Wheel extractors - revenue v.s capital expenditure - Held that:- As decided in assessee's own case [2012 (10) TMI 751 - ITAT CHENNAI] wherein held what was replaced was only the parts of machinery and the expenditure was incurred only to preserve and maintain the existing assets and therefore, the expenditure on such repairs is allowable as deduction under current repairs. Following the decision in case of Saravana Spinning Mills P. Ltd. (2007 (8) TMI 16 - SUPREME COURT OF INDIA) that when an expenditure was incurred to preserve and maintain already existing asset and such expenditure is not bringing any new asset into existence or obtaining new advantage such expenditure is allowable as current repairs. - Decided in favour of assessee Whether assessee is entitled to 100% deduction u/s.80IA, as second year in respect of profits earned in the unit VII of TPS II - Stage II which was commissioned in the previous year 1994-1995? - CIT(A) allowed claim - Held that:- We are inclined to dismiss the appeal of the Revenue as the first year of claim of assessee was assessment year 1999-2000 and 80IA(2) permits the assessee to claim deduction for any ten years out of first fifteen years. See Velayudhaswamy Spinning Mills (P) Ltd case [2010 (3) TMI 860 - Madras High Court] - Decided in favour of assessee Reopening of assessment challenged - Held that:- Reopening u/s.147 is held to be valid. The assessee has tried to take shelter under the exception provided by the above stated proviso where an assessment under sub-section (3) of section 143 has been completed, no action after the expiry of four years from the end of the assessment year can be taken. But as stated above, when the assessee has not disclosed fully and truly the facts necessary for the assessment, this proviso will not come to its rescue. Same is applicable to other reasons records for reopening of assessment. Consequently, we hold that the entire reassessment proceeding in this case is valid and therefore, the action of the Assessing Officer is upheld. The assessee fails on this legal issue. - Decided against assessee. Depreciation on loose tools - Whether loose tools would only partake of the character of consumables in regard to an assessee comparable to the assessee - Held that:- Assessee has been claiming loose tools as capital expenditure and claiming deprecation at 25%. Suddenly in the assessment year under consideration there was a change in the accounting policy without any reason. Even before us, the assessee was not able to furnish any reason for change in accounting policy. In the case of Gujarat Small Scale Industries Corporation Ltd vs. CIT (1981 (7) TMI 8 - GUJARAT High Court ), wherein held that the Tribunal perfectly justified in taking the view that the jigs and fixtures were part of the plant and machinery. The deduction was claimed on the ground that the tools, jigs and fixtures were losing their utility fast. It, therefore, amounted to a claim for depreciation. The rate of deprecation could not be claimed as fixed by the assessee's expert. It could be claimed only at the prescribed rate, i.e. at the general rate of 10%. The Tribunal was justified in disallowing the claim of the assessee. The Commissioner of Income Tax(A) in this case followed the above judgment. Being so, we do not find any infirmity in the order of the Commissioner of Income Tax (Appeals). - Decided against assessee. Failure to deduct tax at source on payments made under the supply contract - Held that:- As assessee observed that levy of interest u/s.201(1A) depends on the income computed in the case of recipient as well as date of filing of the return of the recipient. It was brought to our notice that the appeal of the assessee for determining the income accruing in India is pending before appellate authorities/court. In view of this, we remit this issue back to the file of the Assessing Officer to re-compute the interest u/s.201(1A) after verifying the return of recipient and also in the light of judgment of Supreme Court in the case of CIT vs. Hindustan Cocacola Beverages (P) Ltd, [2007 (8) TMI 12 - SUPREME COURT OF INDIA], wherein held that where the payee has already paid tax on the income on which there was a short deduction of tax at source, recovery of tax cannot be made once again from the tax deductor. This issue is remitted back to the file of Assessing Officer for fresh consideration. - Decided in favour of assessee for statistical purposes. Issues Involved:1. Classification of expenses incurred on Life Extension Program (LEP) of Thermal Power Station I (TIPS-I) and rejuvenation of Bucket Wheel Excavators (BWE) as revenue or capital expenditure.2. Entitlement to 100% deduction under Section 80IA.3. Validity of reopening of assessment under Section 147.4. Deductibility of tax at source on payments made under supply contracts.Issue-wise Detailed Analysis:1. Classification of Expenses (LEP and BWE):The primary issue was whether the expenses incurred on the LEP of TPS-I and rejuvenation of BWE should be classified as revenue or capital expenditure. The Tribunal, referring to its previous orders and the technical write-ups provided by the assessee, concluded that the expenses were incurred to preserve and maintain the existing assets, not to bring a new asset into existence. The Tribunal emphasized that the replacement of parts of the boiler/BWE did not result in an increase in production capacity or an enduring benefit. Thus, the expenses were deemed revenue in nature, aligning with the Supreme Court's decision in CIT vs. Saravana Spinning Mills P. Ltd.2. Deduction under Section 80IA:The second issue was whether the assessee was entitled to a 100% deduction under Section 80IA for profits earned in Unit VII of TPS II - Stage II. The Commissioner of Income Tax (Appeals) allowed the claim, observing that the assessee had opted for the assessment year 1999-2000 as the first year of commencement. The Tribunal upheld this decision, referencing the jurisdictional High Court's judgment in Velayudhaswamy Spinning Mills (P) Ltd, which clarified that the assessee could choose any ten consecutive assessment years out of fifteen years for claiming the deduction.3. Reopening of Assessment:The third issue involved the validity of reopening the assessment under Section 147. The assessee argued that the reopening was invalid as all material facts were disclosed during the original assessment. However, the Tribunal found that the assessee had changed its accounting policy regarding loose tools without proper disclosure. The Tribunal noted that the reopening was justified as the Assessing Officer had 'reason to believe' that income had escaped assessment due to the assessee's failure to disclose fully and truly all material facts. The Tribunal upheld the reassessment proceedings, emphasizing that the Assessing Officer's reasons for reopening were valid and based on tangible material evidence.4. Deductibility of Tax at Source:The final issue was whether the TDS authority had jurisdiction to pass an order regarding payments made under Contract No.I after having considered payments under Contract No.II in a previous order. The Tribunal agreed with the TDS authority that the previous order related only to payments under Contract No.II and did not preclude the authority from examining payments under Contract No.I. However, the Tribunal remitted the issue back to the Assessing Officer to re-compute the interest under Section 201(1A) after verifying the recipient's return, in light of the Supreme Court's judgment in CIT vs. Hindustan Coca-Cola Beverages (P) Ltd, which held that recovery of tax cannot be made from the tax deductor if the payee has already paid tax on the income.Conclusion:The Tribunal dismissed the Revenue's appeals in ITA Nos. 374/2004, 529/2006, and 222/2009, and the assessee's appeal in ITA No. 177/2009. The assessee's appeal in ITA No. 782/2005 was partly allowed for statistical purposes, with specific issues remitted back to the Assessing Officer for fresh consideration. The order was pronounced on 26.6.2015.