TMI Blog2002 (3) TMI 242X X X X Extracts X X X X X X X X Extracts X X X X ..... 46,275 1956 Vijay Engg. Works 1 No. 50,000 Draw Frame LMW Ltd. (4 Nos.) 10-1-1996 153785 64,44,252 KG Mills Draw Frame LMW Ltd. (2 Nos.) 19-2-1996 154270 32,44,630 SKG Mills Draw Frame (3 Nos.) 4,20,162 1990 Total 1,00,37,315 5,46,082 Note: Value withdrawn in respect of 3 Draw Frames of two deliveries each Rs. 1,50,000 Asst. yr. 1997-98 Name of new replacing machinery No. Net cost (excluding Modvat credit) Name of old replaced machinery No. Year of purchase Cost Karthik Mills Rs. Rs. Cone Winder 1 3,95,015 marata Cone winder (sale valuer Rs. 10,000) 1 1957 34,686 Carding Machines 10 1,89,36,130 Howa Carding (sale value Rs. 1,40,000) 4 1953 43,080 Howa Carding 3 1952 32,310 MM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : (1997) 227 ITR 172 (SC), Kedarnath Jute Mfg. Co. Ltd. vs. CIT (1971) 82 ITR 363 (SC). Thus, the learned authorised representative submitted that the disallowance based on entry in the books of account is not proper. 6. In regard to the observation of the AO in the assessment for the asst. yr. 1996-97 that there is no replacement of draw frame either in Karthik Mills or K.G. Mills, the learned authorised representative submitted that there appears to be a mistake in understanding of the factual position. The inference has been drawn by the AO on the basis of certain working of depreciation for the block of assets for the different units. The correct position is that 4 number of draw frames were removed from Karthik Mills and 2 numbers of draw frames were removed from K.G. Mills and erected in S.K.G. Mills but while working the depreciation it was shown that there is no removal from Karthik Mills or K.G. Mills. The figure in the block of assets will be the same if the replacement in Karthik Mills and K.G. Mills is taken into account and a pro rata addition is taken in S.K.G. Mills at written down value. It was further submitted that the observation of the AO that there is no "on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned Departmental Representative drew our attention to the decision of this Tribunal in the case of M/s Nagammal Mills Ltd. vs. Dy. CIT in ITA No. 2774/Mad/93, dt. 31st Oct., 1997. The learned Departmental Representative referred to paras 10 and 11 of that order. In para 10 of the aforesaid order of the Tribunal, it was observed that after inspecting similar machinery in Indira Cotton Mills, Chennai, they opined that the machineries are independent new machines and they are in the nature of assets. However, after considering the various decisions of the Tribunal, on the judicial compulsion the expenditure was treated as revenue expenditure. The learned Departmental Representative pointed out this particular portion of the aforesaid order and vehemently contended that an inspection of the assessee mill will clarify several doubts and will also help to come to a correct conclusion in the issues in hand. The learned authorised representative for the assessee also accepted the suggestion made by the learned Departmental Representative. Accordingly, an inspection had been conducted on 8th Feb., 2002, in the premises of M/s Surya Prabha Mills (P) Ltd. Kuniamuthur, Coimbatore, and tw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... achine is depended upon the others comprised in the unit of the mill. After seeing this, we called for the production process chart from the mill authorities. Accordingly, they were furnished along with a note containing the process of manufacture, which are kept on record. For better appreciation, the note on process of manufacture as furnished, is extracted hereunder: "Mixing: Raw material requires a homogeneous mixing to get the yarn in the desired quality and condition. It may be a composition of different varieties of cotton blended with or without the addition of reusable waste. Blow Room: This process involves opening of cotton and elimination of impurities such as trash, sand, seeds, etc. Cotton duly cleaned is collected in the form of uniform compressed sheets which is rolled into a lap. These laps have predetermined weight per unit length to meet the desired standard. Carding: The impurities still lying in the laps and certain amount of short fibers are eliminated in this process. Individualisation and parallelisation of the fibers are effected by repeated brushing. The final product of carding is delivered in the form of sliver. Combing: The carded slivers are fe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and condition. It may be a composition of different varieties of cotton blended with or without the addition of reusuable waste. Blowroom: This process involves opening of cotton and elimination of impurities such as trash, sand, seeds, etc., cotton duly cleaned is collected in the form of uniform compressed sheets which is rolled into a lap. These laps have predetermined weight per unit length to meet the desired standard. Carding: The impurities still lying in the laps and certain amount of short fibres are eliminated in this process. Individualisation and a parallelisation of the fibres are effected by repeated brushing. The final product of carding is delivered in the form of sliver. Combing: The carded slivers are fed into the sliver lapping machine to get sliver laps which are again drafted into ribbon machines. Combing process is used for removing greater part of short fibres and for achieving a high degree of fibre parallelisation which is necessary for the spinning of high quality yarn. Drawing: In this process several slivers received from carding and/or combing are drawn and reduced to the thickness of one sliver by doubling and drafting to get improved blending ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 99) 240 ITR 169 (Mad); 8. CIT vs. Andavar Calendering Mills Ltd. (1994) 210 ITR 815 (Mad); 9. CIT vs. Ooty Dasprakash (1999) 157 CTR (Mad) 291 : (1999) 237 ITR 902 (Mad); 10. CIT vs. Rex Talkies (1984) 42 CTR (Kar) 97 : (1984) 148 ITR 560 (Kar); 11. CIT vs. Madras Auto Service (P) Ltd. (1998) 148 CTR (SC) 398 : (1998) 233 ITR 468 (SC) 12. Alembic Chemical Works Co. Ltd. vs. CIT (1989) 77 CTR (SC) 1 : (1989) 177 ITR 377 (SC); 13. CIT vs. Jagatjit Inds. Ltd. (2000) 241 ITR 509 (Del); 14. CIT vs. Hindustan Times Ltd. (1999) 157 CTR (Del) 174 : (2000) 241 ITR 509 (Del); 15. CIT vs. Steel Complex Ltd. (1998) 50 CTR (Ker) 677 : (1999) 238 ITR 1054 (Ker); 16. CIT vs. Asher Textiles Ltd. (2000) 158 CTR (Mad) 408 : (1999) 240 ITR 483 (Mad); 17. Surya Prabha Mills ; ITA No. 1051/Mad/1998; 18. Sri Venkatesa Mills Ltd.; ITA No. 1709/Mad/1995; 19. Super Spinning Mills Ltd.; ITA No. 2932/Mad/1987; 20. Surya Prabha Mills Ltd.; ITA No. 1501/Mad/1998; 21. Sir Varadaraja Textiles; ITA Nos. 937 938/Mad/1983; 22. Ambika Cotton Mills Ltd.; ITA Nos. 1698-1700/Mad/1999 ITA No. 216/Mad/2000; 23. Durairaj Mills Ltd.; ITA No. 1364/Mad/1999; 24. Suguna Mills Ltd.; ITA No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny basis is not permitted under law because as we have already discussed the ratio of the particular decision is alone crucial which have a binding force. Therefore, we are unable to agree with the stand taken by the learned Departmental Representative. 18. At the time of hearing the learned Departmental Representative also requested that these appeals may be referred to larger Bench pointing out the observations made in the case of Nagamal Mills and also in the case of other mills. As already seen that there are catena of decisions both by the High Court and the Tribunal, all in favour of the assessee in similar facts and circumstances. The stand of the Revenue that each case has to be examined in the light of the circumstances of the case and that the principle of res judicata is not applicable to income-tax proceedings including appeals before the Tribunal and those cases relied upon by the Department in this regard, are not convincing to us and being those case laws not directly relevant. We may state in this regard that worthy of being quoted is the decision of the jurisdictional High Court in the case of CIT vs. L.G. Ramamurthi 1977 CTR (Mad) 416 : (1977) 110 ITR 453 (Mad) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imilar or identical facts or circumstances in the instant case is there deserving us to refer this matter to the Hon ble President for reference to a larger Bench and, therefore, the ratio decidendi rendered by the earlier orders of the Tribunal has necessarily to be followed by us in line and tune with the judicial discipline and decorum. That is why while rendering the decision in the case of Nagammal Mills Ltd. the Tribunal has adopted judicial compulsion and discipline. 19. If the decision in the case of Nagammal Mills Ltd. would have been taken as differing from the earlier decisions of the Tribunal, there would be necessity to refer this case to the Hon ble President for constitution of a Full (Special Bench. Now the earlier orders of the Tribunal only having been followed in accordance with the said fundamental principle of law and jurisprudence, reference for larger Bench does not arise. Hence, this is not referred to the Hon ble President for such constitution. 20. A well settled position should not be disturbed when there are catena of decisions by various High Courts and Tribunal. To this proposition our view is fortified by the decision of the apex Court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above for the reason that none of the items has anything to do with the export. The assessee is aggrieved and in second appeal before the Tribunal on this issue, with the following ground of appeal: "The CIT(A) erred in confirming the exclusion of conversion charges, miscellaneous income, insurance claim, handling charges, interest income as not forming part of business profits in the computation of relief under s. 80HHC." 23. At the time of hearing the learned counsel for the assessee apart from relying on the grounds of appeal raised before us, contended, to say in brief, that: It is submitted that it is not proper to deduct 90 per cent of the above receipts as a deduction to arrive at adjusted business profit under s. 80HHC since the statute has not specifically referred to items of the nature as stated above. Further, under similar circumstances the Bombay High Court held that even 90 per cent of interest income under certain circumstances cannot be deducted to arrive at adjusted business profits. In this connection the decision of the Bombay High Court in the case of CIT vs. Punit Commercial Ltd. (2000) 163 CTR (Bom) 594 : (2000) 245 ITR 550 (Bom) is relied upon. Even oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned counsel that the case laws relied upon by the learned Departmental Representative are not relevant or applicable to the facts of the case on hand as we are not arriving at the income derived from export as contended by the learned Departmental Representative but only arriving at the profits of the business. Hence, we are of the opinion that the Revenue authorities have committed a mistake in removing these items of income from the profits of the business while computing deduction under s. 80HHC of the Act. Hence, we direct the AO not to exclude the above items as not forming part of business profits in computing relief under s. 80HHC of the Act. 25.1. Now coming to yarn conversion charges amounting to Rs. 30,476 and Rs. 3,82,19,441 respectively, in our considered opinion the same would fall under the term "charges" appearing in Expln. (baa)(1) to s. 80HHC(4B) of the IT Act. In this connection the Madras Bench of the Tribunal in ITA No. 736/Mds/1999 for asst. yr. 1994-95 in the case of M/s Sethu Leathers vs. Asst. CIT (order dt. 23rd March, 2001) has already held that the job receipts towards work done for other parties are to be excluded while arriving at the profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder appeal in respect of rent paid in term of provisions of s. 40A(2)(b) on the basis that the disallowance has been confirmed in the earlier year by the CIT(A) for asst. yr. 1991-92. The assessee-company paid rent to Holiday Home at Coonoor which belongs to a relative of the chairman of the assessee-company. Similar disallowance was made for asst. yr. 1991-92 and confirmed by the CIT(A) against which appeal has been filed before the Tribunal on 2nd March, 1995. Following the earlier order of 1991-92, for these two assessment years similar disallowance has been made by the AO and confirmed by the CIT(A) and hence the assessee is in appeal before us with the following ground of appeal : "CIT(A) erred in confirming the disallowance of Rs. 45,000 towards Holiday Home at Coonoor purely based on order of the CIT(A) for earlier years. The CIT(A) for earlier year. The CIT(A) ought to have accepted the claim that the expenditure is incurred for purpose of business of the assessee." 28. At the time of hearing, the learned counsel for the assessee, apart from relying upon the ground of appeal as extracted above, contended, to say in brief that: It is submitted that the disallowance made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y allowed for statistical purposes only. 30. Now let us turn to the exclusive and independent issue relating to the asst. yr. 1996-97. For the asst. yr. 1996-97, the assessee claimed a sum of Rs. 1,02,16,229 as revenue expenditure under the head "modernisation expenses". The AO was of the view that the items of expenditure recorded under the head "modernisation" aggregating to Rs. 1,02,16,229 was capital expenditure and thus negatived the claim of the assessee. Being aggrieved the assessee carried the matter in appeal before the first appellate authority. The learned CIT(A) was of the opinion that the expenditure listed are to be allowed as on revenue account excepting to the extent of Rs. 8,36,302 being the cost of yarn cleaner bases on a report from SITRA. Aggrieved, the assessee is in second appeal before this Tribunal. 31. The ground of appeal raised by the assessee reads as under: "The CIT(A) having accepted that claim towards repairs is on revenue account is not justified in singling out the expenditure incurred in the sum of Rs. 8,36,302 spent on yarn cleaners as not eligible for deduction under the head "Repairs". The CIT(A) erred in holding that these are independent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee installed two plants, that they were for the purposes of improvement in the operation of the existing systems with greater efficiency and profitablity, that originally the municipality was supplying water to the assessee for running the factory, that since it was found that the municipality was not supplying sufficient quantity of water, the assessee dug wells, but the well water was found to be salty, that, therefore, they installed the water treatment plant for getting pure water with an intention to improve the functioning of the factory, that this did not in anyway enhance the production of steel, that the fume extraction plant also did not lead to any increase in the volume of production and it was also installed to ward off the health hazards and in compliance with statutory requirements and that, therefore, the expenditure incurred was revenue in nature. On a reference : Held, affirming the decision of the Tribunal, that the expenditure incurred for the water treatment plant and the fume extraction plant was revenue expenditure and hence an allowable deduction." In the case on hand also, on going through the copy of the certificate issued by SITRA, it t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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