2015 (3) TMI 848 - HC - Income Tax

Expenditure on replacement of plant and machinery - Capital v/s revenue expenditure - Tribunal allowing depreciation at 100% on the specified items - Held that - Depreciation claim on energy saving/Air/Water pollution control equipments was not made while filing return of income nor while filing details. Suddenly the assessee company comes in March and claims that this equipments is also eligible for 100% depreciation. The assessee has no convincing support to sustain its claim. Many of the items are entitled to normal depreciation only which was claimed and allowed. Hence this claim which was not reflected in the Annual Report given to shareholders and Company Law Board is clearly an afterthought with an intention to avail greater benefit. Moreover the names of purchase invoices differ from what the assessee claims to have entitled for 100% depreciation. So the same is rejected. Tribunal on the issue of depreciation after going through the orders of the lower authorities was of the view that the view taken by the CIT (Appeals) is correct on facts. On the issue as regards item No.4 (1) the lower authorities have given a finding that machinery installed by the assessee are not covered under Item III (3)(B) of the table of depreciation rates. Similarly as regards the rest of the items a finding has been given that they are not covered under item III (3)(E) of the said table. Such being the factual scenario in the absence of any specific material on the legal issue disputing the manner in which the issue of depreciation was considered we are not inclined to go into issues on facts as projected by the appellant/assessee. Accordingly substantial question of law is answered in favour of the Revenue and against the assessee. Capital v/s revenue expenditure - Issue should be remanded back to the CIT (Appeals) to consider whether replacement of plant and machinery would be a case of revenue expenditure or capital expenditure. Similar issue it appears has been considered by this Court in the case of Super Spinning Mills Ltd. - Vs Asst. Commissioner of Income Tax (2013 (9) TMI 88 - MADRAS HIGH COURT) wherein this Court following the decision of CIT Vs Sri Mangayarkarasi Mills (2009 (7) TMI 17 - SUPREME COURT ) remanded the matter back to the CIT (Appeals) for consideration and pass detailed orders. - Decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Treatment of expenditure on replacement of plant and machinery as capital in nature.
2. Allowance of 100% depreciation on specified items.

Issue 1: Treatment of Expenditure on Replacement of Plant and Machinery

The appellant, engaged in the manufacture of automobile components, claimed a sum as revenue expenditure for the replacement of plant and machinery. The Assessing Officer initially ruled against the appellant, leading to an appeal to the CIT (Appeals), who partially allowed the appeal. Subsequently, the Tribunal dismissed the appeal, upholding the CIT (Appeals) decision. The High Court noted that a similar issue was addressed in a previous case and followed the Supreme Court's decision to remand the matter back to the CIT (Appeals) for detailed consideration. The Court emphasized the need for specific material and directed the CIT (Appeals) to evaluate whether the replacement expenditure could be classified as revenue expenditure, as per legal precedents.

Issue 2: Allowance of 100% Depreciation on Specified Items

Regarding the claim for 100% depreciation on specific assets like Micro Processor based carrier frequency amplifier, Oil Filtration Systems, Online sinewave UPS systems, and Variable Frequency Drive, the lower authorities had denied the claim based on the depreciation rates table. The CIT (Appeals) partially allowed 100% depreciation on two items, disagreeing with the Assessing Officer's observation on other items. The Tribunal upheld the CIT (Appeals) decision, stating that the lower authorities' findings were not contested with substantial evidence by the appellant. Citing Supreme Court precedents, the High Court refused to interfere with the Tribunal's decision, as it found no legal basis to dispute the depreciation issue. Consequently, the Court ruled in favor of the Revenue and against the appellant on the matter of 100% depreciation.

In conclusion, the High Court partially allowed the appeal by remanding the first issue back to the CIT (Appeals) for detailed consideration while upholding the Tribunal's decision on the second issue regarding the allowance of 100% depreciation on specified items. The Court emphasized adherence to legal precedents and the need for specific material to support claims in tax matters.