TMI Blog2009 (9) TMI 633X X X X Extracts X X X X X X X X Extracts X X X X ..... to retain accuracy - Decided in the favour of the assessee - ITA No. 1399 of 2006 - - - Dated:- 11-9-2009 - SIKRI A. K., VALMIKI J. MEHTA JJ Sanjeev Sabharwal for the Appellant. M.S. Syali with Ms. Rani Kiyali, Pritish Jain and Maryam Sharma for the Respondent. JUDGMENT The judgment of the court was delivered by This appeal was admitted on the following question of law : Whether the Commissioner of Income-tax correctly assumed jurisdiction under section 263 in revising the assessment order under section 143(3) of the Income-tax Act, 1961 ? 2. In order to appreciate as to under what circumstances, the question of law has arisen for our consideration, it would be necessary to take stock of the facts as they appear on the records of the case. 3. The respondent (hereinafter referred to as the assessee ) is a company engaged in the business of manufacturing certain auto parts and has been supplying the same to various car manufacturers in India. It has filed its return for the assessment year 2001-02 declaring an income of Rs. 9,57,53,430. The return was taken up for scrutiny and ultimately assessed under the provisions of section 143(3) of the Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Rs. 10 lakhs, the following details were furnished : Rs. (i) One set of die for cover cylinder head 1,62,56,175 (ii) Two sets of dies of crank case left 72,12,109 (iii) One set of die lower and upper transmission case 4,33,43,245 (iv) One set of die for case transmission axle 1,30,10,013 (v) Five dies for pistons 84,55,804 7. The assessee also gave further details and supporting documents to prove as the purchase of dies by the assessee and the date of replacement of old dies by a new one showed that it needed replacement. Some such purchases made from the outside parties including Maruti Udyog Limited, a major buyer of the assessee s products and some dies had been produced in house as well. After considering all these materials, the Commissioner of Income-tax took the view that the accounting practice followed by the assessee to debit the entire cost of tools and dies in the year of installation, was not correct and he remitted the case back to the Assessing Officer for re-examination of all the aspects of the issue of allowab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts by shifting profits of one year to another but also opens up the possibility of manipulating the profits by manipulating the installation of the expensive dies. 9. For these reasons, he wanted the Assessing Officer to re-examine all the aspects of the issue of allowability of tools and dies expenses and reframe the assessment . 10. The assessee challenged this order by filing appeal before the Income-tax Appellate Tribunal (hereinafter referred to as the Tribunal ) on various grounds. All these submissions are taken note of by the Tribunal in the impugned order. Likewise, detailed submissions made by the Departmental representative are mentioned in the order of the Tribunal. After considering these submissions, the Tribunal has passed the impugned order dated December 9, 2005, allowing the appeal of the assessee for the following reasons : (a) From the financial year 2000-01, it became an independent company and followed the same accounting practice. (b) The Commissioner of Income-tax had given a finding that the life of dies was approximately one year or so. Thus, the Commissioner of Income-tax failed to appreciate that with this life span of the dies, the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... substance whereof has already been taken note of above. To buttress this submission, he referred to the judgment of this court in the case of Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375 (Delhi), which was upheld by the Supreme Court in Malabar Industrial Co. Ltd. [2000] 243 ITR 83. He also submitted that the observations of the Tribunal that the assessee had claimed such expenses on dies and tools as revenue expenditure since the financial year 1988-89 was clearly erroneous and referred to the affidavit filed by the Revenue in this behalf, pursuant to the order dated March 19, 2008 passed by this court. His further submission was that the order under section 263 was only initiation and not the conclusion of the proceedings. It was similar to the exercise of power under section 147/148 of the Act. According to him, when the matter was not examined properly by the Assessing Officer and for want of sufficient material, the Commissioner of Income-tax could not come to a definite conclusion. He was right in referring the matter back to the Assessing Officer for this purpose and no case for interference with such an order was made out by the assessee at this stage. Therefore, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a new advantage, then obviously such an expenditure would not be an expenditure of a revenue nature but it would be a capital expenditure, and it is clear that the deduction which the Legislature has permitted under section 10(2)(v) is a deduction where the expenditure is a revenue expenditure and not a capital expenditure. In the said judgment, it has been further observed by Chagla C. J. that the definition of the word repair does not create much difficulty, but the difficulty is created by the word current which qualifies the expression repair . This adjective, namely, current is put in by the Legislature, it indicates that the Legislature did not intend that the assessee should be permitted to claim allowance for all kinds of repairs, even though conceptually the expenditure may be revenue expenditure. The Legislature intended to stress that under section 31(i) the permissible deduction admissible is only for current repairs, therefore, the question as to whether the expenditure incurred by the assessee conceptually is revenue or capital in nature is not relevant for deciding the question as to whether such an expenditure comes within the etymological meaning of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing in section 263(1) to show that before passing the final order under that section, the Commissioner must necessarily and in all cases record final conclusions about the points in controversy before him. As already noted by us above, we would have expected him to record final conclusions, which he thought proper if he was to settle the assessment finally but since he has not settled the assessment finally, and has preferred to direct the Income-tax Officer to make an order for fresh assessment it was proper that he did not express any final conclusions and recorded only prima facie conclusions at which he had arrived with reference to the facts of the case. Here it should be noted that, as the assessment was to be freshly made by the Income-tax Officer, the only proper course for the Commissioner was not to express any final opinion as regards the controversial points . 15. Mr. M. S. Syali, learned senior counsel appearing for the assessee justified the order of the Tribunal for the reasons stated therein. His first submission was that it was misconceived on the part of the Revenue to argue that the Assessing Officer had not considered this aspect, viz., whether the expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n treated as revenue expenditure as held in Madras Industrial Investment Corporation Ltd. v. CIT [1997] 225 ITR 802 (SC) in the following terms (page 812) : The Tribunal, however, held that since the entire liability to pay the discount had been incurred in the accounting year in question, the assessee was entitled to deduct the entire amount of Rs. 3,00,000 in that accounting year. This conclusion does not appear to be justified looking to the nature of the liability. It is true that the liability has been incurred in the accounting year. But the liability is a continuing liability which stretches over a period of 12 years. It is, therefore, a liability spread over a period of 12 years. Ordinarily, revenue expenditure which is incurred wholly and exclusively for the purpose of business must be allowed in its entirety in the year in which it is incurred. It cannot be spread over a number of years even if the assessee has written it off in his books over a period of years. However, the facts may justify an assessee who has incurred expenditure in a particular year to spread and claim it over a period of ensuing years. In fact, allowing the entire expenditure in one year might gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure. This argument predicates on the assessment order, which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between lack of inquiry and inadequate inquiry . If there was any inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has a different opinion in the matter. It is only in cases of lack of inquiry that such a course of action would be open. In Gabriel India Ltd. [1993] 203 ITR 108 (Bom), law on this aspect was discussed in the following manner (page 113 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be formed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion . . . There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed . . . We may now examine the facts of the present case in the light of the powers of the Commissioner set out above. The Income-tax Officer in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould have made further inquiries rather than accepting the explanation. Therefore, it cannot he said that it is a case of lack of inquiry . 21. Having put the record straight on this aspect, let us proceed further. Is it a case where the Commissioner has concluded that the opinion of the Assessing Officer was clearly erroneous and not warranted on the facts before him and, viz., the expenditure incurred was not revenue expenditure but should have been treated as capital expenditure? Obviously not. Even the Commissioner in his order, passed under section 263 of the Act, is not clear as to whether the expenditure can be treated as capital expenditure or it is revenue in nature. No doubt, in certain cases, it may not be possible to come to a definite finding and therefore, it is not necessary that in all cases the Commissioner is bound to express a final view, as held by this court in Gee Vee Enterprises [1975] 99 ITR 375. But, the least that was expected was to record a finding that the order sought to be revised was erroneous and prejudicial to the interest of the Revenue (see Seshasayee Paper [2000] 242 ITR 490 (Mad)). No basis for this is disclosed. In sum and substance, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e circumstances, relied upon the judgment of Mysore Spun Concrete Pipe P. Ltd. [1992] 194 ITR 159, wherein the Karnataka High Court held that the replacement of moulds was not in the nature of replacement of a capital machinery, but in the nature of replacement a part of the machinery which in turn was in the nature of maintenance of machinery installed in the factory. Such an expenditure was treated as revenue expenditure. With this position in law, it is clear that the view taken by the Assessing Officer was one of the possible views and therefore, the assessment order passed by the Assessing Officer could not be held to be prejudicial to the Revenue. Such an order thus has rightly been set aside by the Tribunal. 24. When we consider the matter in the aforesaid perspective, it also becomes clear that the judgments under which Mr. Sanjeev Sabharwal, learned counsel for the Revenue, had taken umbrage would not be applicable in the instant case and, therefore, would not come to his rescue. In Saravana Spg. Mills P. Ltd. [2007] 293 ITR 201 where the Supreme Court expounded the principle of current repairs , a clear finding recorded was that ring frames would constitute indepen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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