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TMI Blog2009 (10) TMI 505X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 (which has since been disinvested). It had entered into an arrangement with another publ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 pronouncement quoted above, there remains no doubt that the claim has to be admitted in fact what has happened is that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 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 expenditure was revenue in nature and rightly classified as business expenditure under the provisions of Section 37 of the Act. Instead of claimin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee 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 as also to supply electricity for street lighting and put up a transmission line for that factory to the railway station. The amounts expended for these purposes were held to be revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nalogy, 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 Travancore Cochin Chemicals Ltd. (supra), the Supreme Court in that case held that contribution made by the assessee towards part of cost of construction of rates in area around factory wholly and exclusively let out for business was business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of the Act. It laid down the parameters under which such a power could be exercised. As per the Supreme Court if the facts are available on record, i.e., found by the Income Tax Authorities and those have bearing on the tax liability of the assessee, the Tribunal had the ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmissioner 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 the aforesaid submissions wherein this Court held that such an order of the Tribunal has to be a reasoned or speaking order. 19. It is not correct to say that the Tribunal has not given reasons. An pointed out above, the Tribunal has not only referred to the judgments of the Supreme Court an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atisfying 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 1995-96, but it was paid subsequently. Submissions of the assessee that since it was paid in the year in question, in this year it should be allowed. Again both the conditions for raising this additional ground stood satisfied, viz., ground related to the tax proceedings of the assessee for the Assessment Year under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 though some assets of the block continue to be used for business purpose. Therefore, the new scheme as introduced does not require use of individual assets for the grant of depreciation. The Legislature also has fully taken into account the possibility of some assets enjoying depreciation without really being put into use. In such a case, when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) in the case of assets acquired before the previous year, the actual cost to the assessee less all depreciation actually allowed to him under this Act, or under the Indian Income-tax Act, 1922(11 of 1922), or any Act repealed by that Act, or under any executive orders issued when the Indian Income-tax, 1986 (2 of 1886), was in force; [Provided that in determining the written down value in respect of buildings, machinery or plant for the purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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: Provided also that any such option once exercised shall be finalised and shall apply to all the subsequent assessment years.] (2) Where any new machinery or plant is installed during the previous year relevant to the assessment year commencing on or after the 1st day of April, 1988, for the purpose of business of manufacture or production of any article or thing and such article or thing - a) is manufactured or produced by using any technology (including any process) or other know-how developed in, or b) is an article or thing invented in, a laboratory owned o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 respect of block of assets. This requires elaborate book-keeping and the process of checking by the Assessing Officer is time consuming. The greater differentiation in rates, according to the date of purchase, the type of asset, the intensity of use, etc., the more disaggregate has to be the record keeping. Moreover, the practice of granting the terminal allowance as per section 32(1)(iii) or taxing the balancing charge as per section 41(2) of the Income-tax Act, necessitate the keeping of records of depreciation already availed of by each asset eligible for depreciation. In order to simplify the existing cumbersome provisions, the Amending Act has introduced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 meaning of Section 2(11) of the Act, for the purpose of deprecation it is one asset. Every time, a new asset is acquired, it is to be thrown into the common hotchpotch, i.e., block asset on meeting the requirement of depreciation allowable at the same rate. The value of the block asset increases and the depreciation is to be given on the aforesaid value, which is to be treated as written down value. Individual assets lose their identity from that very moment it becomes inseparable part of block asset insofar as calculation of depreciation is concerned. Fusion of various assets into the block asset gets disturbed only when eventuality contained in clause (iii) of Section 32 ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vidual 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 grounds raised by respondent in ITAT, whether allowed or not. 36. The issues at Serial Nos. (ii) and (iii) already stand covered by the discussion in the aforesaid appeals. Thus, we take up the issue at Serial No. (1) viz., leave encashment. We may point out that the Assessing Officer had disallowed the provision on ascertained liabilities alleging that the same related to the earlier years. The assessee had, during the Assessment Year in question, made the provision for leave encashment for the first time on the basis of AS-15, the provision relating to the liability till 31.03.1996. This was done keeping in view the accounting standard-15 issued by the ICAI. It is not in dispute that the Apex Court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar. 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 consideration for the first time, has to be taken into consideration. Similarly, in assessments of incomes of subsequent previous years, fresh adjusted liability form year to year would have to be taken into account. The revenue's contention fails. We hold the assessee to be entitled to deduction of Rs.27,03,071/-." 37. We are, therefore, of the opinion that no question of law arises on this aspect. ITA No.1670/2006 38. Two questions sought to be raised in the case relate to depreciation on asset not owned by the respondent, i.e., payment made to NTPC and the additional grounds allowed by the ITAT, which have already been answered above. Another ground relates to exclusion of excise duty for purchase of calculating total turnover for Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 on account of provision no longer required, written back and credited to Profit and Loss Account. The assessee had explained that it had not been making provisions for bad debts over the years, which had been offered for taxation. The provision made in relation to the past revenue and it was felt by the assessee that some of the provisions made earlier were no longer required and in these circumstances, the aforesaid amount was written back and credited to the Profit and Loss Account. The AO asked the assessee to reconcile the amount of Rs.69.24 lakhs with respect of past years where it had offered the tax. The reason for adding back this amount to the total income by the AO was that though the assessee had furnished bifurcation of this amount, no reconciliation had been given wi ..... 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