AI Drafter 
TaxTMI 
TaxTMI 
2009 (10) TMI 505
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....als have already been decided in ITA No. 1018 of 2005. Leaving those issues aside, the learned counsel for the parties accepted the position that the questions that survive for consideration in this appeal on which notice was issued, is as under: "1) Whether the Income Tax Appellate Tribunal was correct in law in allowing the amount of Rs. 3.76 Crores (wrongly written by ITAT as 3.76 lacs) being capital expenditure not represented by any assets to the assessee? 2) Whether the Income Tax Appellate Tribunal was correct in law in treating the amount of Rs. 3.76 Crores as revenue expenditure?" 3. As is clear from the aforesaid questions formulated, a sum of Rs. 3.76 Crores spent by the assessee is treated as 'revenue expenditure' and not 'capital expenditure'. The assessee in the return in question filed for the Assessment Year 1995-96 had amortized the total expenditure spread over a period of five years and one fifth thereof, i.e. Rs. 3.76 Crores was claimed as deduction for the Assessment Year in question. 4. The genesis of this claim is found in the following facts: In the relevant years, the assessee was a Government sector undertaking (w....
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....refore, was not a revenue /business expenditure. 7. The CIT(A) in appeal preferred by the assessee repelled the aforesaid approach of the Assessing Officer. According to the CIT(A), even after this money, the assessee had not acquired the ownership of any tangible assets so as to be entitled for the claim of depreciation. According to the CIT(A), the entire expenditure of Rs. 15.07 Crores was incurred wholly and exclusively for the conduct of business. It was very essential for the business. The Department had itself allowed Rs. 7.61 Crores (Rs. 22.68-15.07 Crores) in the earlier years and thus it could not take contrary view that this expenditure was no allowable. Therefore, even if it was not allowed under Section 32 of the Act, as there was no ownership of the assets vested in the assessee, claim was allowable under Section 37 of the Act as a business expenditure. At the same time, as the expenditure was to provide an enduring benefit, it could spread over a period of five years. In this manner, claim of Rs. 3.76 Crores for the Assessment Year in question was allowed by the CIT (A) in the following words: "5.12 On a careful consideration of the facts and the judicial....
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.... Assessment Year 1991-92. Therefore, there was no reason now to amortize this expenditure and claim the same over a period of five years. She also submitted that the change of accounting policy would be of no avail to the assesses, as that change was actuated by the provisions of the Companies Act, whereas the AO was to deal with this expenditure applying the provisions of the Income Tax Act. She further submitted that there was no concept of 'deferred revenue expenditure'. She referred to the judgment of the Supreme Court in the case of Travancore Cochin Chemicals Ltd. Vs. Commissioner of Income Tax, Kerala, 106 ITR 900, as per which such an expenditure had to be treated as capital expenditure. She further submitted that there was a provision for amortizing the expenditure only under Section 3.5D of the Act and the situation contemplated therein was not applicable in the instant case. 9. Mr. M.S. Syali, learned Senior counsel appearing for the assessee, on the other hand, relied upon the reasons given by the CIT (A) as well as the Tribunal. His submission was that since no asset was created in Favour of the assessee, it could not be treated as capital expenditure. The e....
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....ployed for transportation of sugarcane to its factories. 5.8 In the case of L.H. Sugar Factory & Oil Mills Pvt. Ltd. vs. CIT (1980) 125 ITR 293/4 Taxman 5 (SC), the assessee was carrying on the business of manufacture and sale of sugar. It had its factory in UP. The assessee paid a contribution towards meeting the cost of construction of roads in the area around its factory under it sugarcane development scheme. The question was whether this amount was deductible in computing the assessee's profits. The Court held that it was. Because although he advantage secured was of long duration, it was not and advantage in the capital field because not tangible or intangible asset was acquired by the assessee nor was there any addition to or expenses of the profit making apparatus of the assesses. The amount was contributed for the purpose of facilitating the business of the assesses and making it more efficient and profitable. It was, therefore, revenue expenditure. 5.9 In the case of CIT Vs. Associated Cement Cos. Ltd. (1988) 172 ITR 257/38 Taxman 110 (SC), the respondent company entered into an agreement to supply water to the municipality and provide water pipelines....
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....s of that case, because Lakshmiji Sugar Mills' case (supra) admittedly bears a closer analogy to the present case than the Travancore-Cochin Chemicals' case and if at all we apply the method of arguing by analogy, the decision in Lakshmiji Sugar Mills case (supra) must be regarded as affording us greater guidance in the decision in the present case then the decision in Travancore-Cochin Chemicals' case (supra). Moreover, we find that the parenthetical clause in the test formulated by Lord Cave L.C. in Antherton's case (supra) was not brought to the attention of this Court in Travancore-Cochin Chemicals' case with the result that this Court was persuaded to apply that test as if it were an absolute and universal test regardless of the question applicable in all cases irrespective whether the advantage secured for the business was in the capital field or not. We would therefore prefer to follow the decision in Lakshmiji Sugar Mills' case (Supra) and hold on the analogy of that decision that the amount of Rs. 50,000 contributed by the assessee represented expenditure on the revenue account." 13. While narrowing down its scope in earlier judgment in Travancor....
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....the assessee, the grounds raised could be adjudicated on the facts which were already available on record and the matters related to the entire tax proceedings of the assessee for the Assessment Year(s) under consideration. The departmental representative had opposed the prayer for admission of additional grounds contending that the assessee ought to have raised these grounds in the original grounds of appeal. The Tribunal was of the opinion that the issues sought to be raised in the additional grounds arise out of the tax proceedings of the assessee for the Assessment Year under consideration on the facts necessary for adjudication on these additional grounds already available on the record. This was the basis for allowing the applications. The Tribunal also referred to the judgment of Bombay High Court in the case of Ahmedabad Electricity Supply Co. Vs. Commissioner of Income Tax, 199 ITR 351 and that of the Supreme Court in the case of NTPC Vs. CIT, 229 ITR 383. 17. In NTPC (supra), the Supreme Court held that the Income Tax Appellate Tribunal had the necessary jurisdiction to allow the additional grounds and decide such questions in exercise of its powers under Section 254 o....
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....the assessee in seeking modification of the order of assessment passed by the Income-tax Officer. This Court further observed that there may be several factors justifying the raising of a new plea in an appeal and each case has to be considered on its own facts. The Appellate Assistant Commissioner must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. The Appellate Assistant Commissioner should exercise his discretion in permitting or not permitting the assessee to raise an additional ground in accordance with law and reason. The same observations would apply to appeals before the Tribunal also." 18. Ms. Bansal, learned counsel appearing for the Revenue, did not dispute the aforesaid legal position relating to the power of the Tribunal. However, her objection against the order of the Tribunal is that the Tribunal had not recorded any reasons in support of its decision. She further submitted that new claims were made in the garb of reasoned additional grounds which was not permissible. She referred to the judgment of this Court in the case of Maruti Udyog Ltd. Vs. ITAT & Ors. (2000) 244 ITR 303 to buttress th....
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....dings for the Assessment Year under consideration. The Tribunal was of the opinion that for proper adjudication of the tax liability of the assessee in accordance with law, the issue needed remand back to the Assessing Officer for fresh consideration. Naturally, this additional ground was allowed after satisfying that it fulfilled the legal requirements for admissionability of such a ground in view of principle laid down in the case of NTPC (supra). 20. Another ground, which was allowed to be raised by the assessee as under: "That the taxes and duties amounting to Rs. 11,67,997/- disallowed by the Assessing Officer in assessment year 1995-96 and paid during the year under appeal deserves to be allowed under Section 43B of the I.T. Act, 1961." The assessee had paid taxes and duties, which were disallowed in the Assessment Year 1995-96. These, were, however, paid during the year in question. Therefore, the assessee was contending that these should be allowed under Section 43B of the A.ct for this year. Reason for not allowing this amount as deduction in Assessment Year 1995-96 was that though the tax and duties debited to Profit and Loss Accounts in the Assessment Year....
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....mplify the position regarding depreciation allowance and in the case of Nathini Steels Ltd. vs. Dy. CIT (1996) 56 TTJ 240, the Bombay Bench of the Income-tax Appellate Tribunal has summarized the effects of the said new scheme after reviewing the relevant amendments brought out in the Act as under: "The effect of all these amendments is that in the case of a running concern, which has expanded or installed new plant and machinery, there is no need of separate computation of deprecation allowance as also separate computation in case of sale or demolition of such assets. The individual working of the machinery also is not necessitated as the new assets falling within the block gets added to the written down value. The effect of all these is that under the new system, even when all the assets of the block are sold, if the block has a positive balance (the moneys payable being less than the written down value), depreciation continues to be allowable even if the asset is no more in existence. Similarly, if only some assets forming part of a block are sold and if the sale proceeds of these assets wipe out the entire value of the block no depreciation would be available even thou....
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....omitting those portions which are not relevant for us, reads as under: "32. (1) [In respect of depreciation of - (i) building, machinery, plant or furniture, being tangible assets; (ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial right of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned wholly or partly, by the assesses and used for the purposes of the business or profession, the following deductions shall be allowed-] [(i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed;] (ii) [in the case of any block of assets, such percentage on the written down value thereof as may be prescribed.]" Likewise relevant portions of Section 43 are reproduced below: "Definitions of certain terms relevant to income from profits and gains of business of profession. (6) "written down value" means- a) in the case of assets acquired in the previous year, the actual cost to the assessee; b....
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....us year. [(1A) The allowance under clause (i) of sub-section (1) of section 32 of the Act in respect of depreciation of assets acquired on or after 1st day of April, 1997 shall be calculated at the percentage specified in the second column of the Table in Appendix IA of these rules on the actual cost thereof to the assessee as are used for the purposes of the business of the assessee at any time dining the previous year: Provided that the aggregate depreciation allowed in respect of any asset for different assessment years shall not exceed the actual cost of the said asset:" Provided further that the undertaking specified in clause (1) of sub-section (1) of section 32 of the Act may, instead of the depreciation specified in Appendix IA, such option is exercised before the due date for furnishing the return of income under sub-section (1) of section 139 of the Act, a) for the assessment year 1998-99, in the case of an undertaking which began to generate power prior to 1st day of April, 1977; and b) for the assessment year relevant to the previous year in which it begins to generate power, in case of any other undertaking: Provide....
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....ial Act or a Government company as defined in section 617 of the Companies Act, 1956 (3 of 1956), to be a University for the purposes of that Act." 27. Prior to the introduction of new concept of block of assets with effect from 01.04 1988, the depredation used to be claimed separately on each asset. The Legislature found that this was a cumbersome procedure leading to various difficulties. This necessitated introduction of the concept of block of assets and allowability of depreciation on such a block. 28. The rationale behind such a provision is contained in Circular No. 469 dated 23.09.1986 issued by the Central Board of Direct Taxes (CBDT): "After referring to the Budget Speech of the Finance Minister wherein reference was made to the proposal Lo introduce a system of allowing depreciation in respect of block of assets instead of the present system of depredation on individual assets, at paragraph 6.3 the Board stated as follows: "As mentioned by the Economic Administration Reforms Commission (Report No. 12, para. 20), the existing system in this regard requires the calculation of depreciation in respect of each capital asset separately and not in respec....
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....ion allowance in respect of the new asset, provided he satisfies the authorities that the new asset was used in that business." This view is followed by Mumbai Special Bench of the Tribunal in the case of Chhabria Trust Vs. Assistant Commissioner of Income Tax, 264 ITR 12. 30. The aforesaid discussion would demonstrate that view taken by the Tribunal in the instant case is in consonance with similar view of various Benches of the Tribunal. Learned counsel for the Revenue could not point out any decision of the Tribunal or the High Court, which has taken contrary view. 31. After going through these decisions of the various Benches of the Tribunal and the schematic intention behind the provisions relating to depreciation contained in the aforesaid provisions, we are inclined to affirm the view taken by the Tribunal in the instant case. While doing so, we have in mind the rationale and purpose for which the concept of block asset was introduced by the amendment in the provisions of the Act, as reflected in the Circular dated 23.09.1988 of the CBDT. Intention behind these provisions is apparent. Once the various assets are clubbed together and become block asset within the mea....
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....he had argued that requirement of user of individual asset remains intact. Answer to this argument is that this would be the position in the first year when the particular asset is acquired. With the user, it would meet the requirement of Section 32. In the subsequent years, it is the use of block asset, which becomes the yardstick and not the individual asset already acquired in the earlier years, other than the previous year in which it is first brought into use. 34. In the instant case, the PSL equipment was purchased and put to use by the assessee in previous year relevant to the Assessment Year 1990-91 and the same had entered into the block asset in that year. It thus lost individual identity for the allowance of depredation in that year. Since It is not in dispute for the year in question and block of assets was used, the assessee was rightly given the benefit of deprecation in the years in question. The question stands answered against the Revenue. ITA No. 657/2007 35. The issues raised in this appeal relate to the following aspects: (i) Leave encashment; (ii) Depreciation allowed on non-operating plant and machinery; and (iii) Additional....
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....sh accumulated privileged leave of permanent employees on discontinuance of their services is concerned. In other words, as for calendar year 1973 and up to that previous year inclusive, the assessee company used to claim deduction on account of actual payments made by the assessee on such encashment as aforesaid. For the previous year under consideration, the assessee company made a provision for payment of Rs. 26,03,071/- for the previous year under consideration, also adopted an argument that since the assessee's normal method of accounting was mercantile method, in any case the assessee in the assessment year under consideration would not be entitled to deduction to the extent of Rs. 7,69,318/- a pertaining to earlier previous year. If we may say so the argument is entirely misplaced. It has to be kept in mind that the assessee is not claiming deduction in question on the basis of any outgoing as such irrespective of the general method of accounting being mercantile or cash, but the deduction in question is being claimed only on the basis of provision. When such is the case, then obviously the liability, as freshly worked out in the accounting or the previous year under con....
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....e heard the Ld. DR who relied on the order of the Assessing Officer. We are of the view that the expenditure in question were of the nature of repairs and were rightly considered as a revenue expenditure. As far as the repairs to generator is concerned it was of replacement of parts and accessories. So also the expenditure on crylotie was to enable the same to resume production. The fact that the assessee claimed 1/5th of the expenses cannot lead to the conclusion that the expenditure was of a capital nature. We are of the view that the CIT(A) was fully justified in allowed the claim of the assessee. Order of the CIT (A) does not call for any interference and the same is confirmed and this ground of appeal of the Revenue is dismissed." 41. The issue stands covered by the judgment of this Court in the case of Commissioner of Income Tax Vs. M/s. Sunbeam Auto Ltd. in ITA No. 1399 of 2006 (decided on 11.09.2009). Therefore, no question of law arises in this case. ITA No.1439/2008 42. The only question which survives for consideration in this appeal relates to the provision for bad debts, written back. The assessee had reduced an amount of Rs. 69.24 lakhs from its total income ....