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2015 (8) TMI 608 - ITAT CHENNAI

2015 (8) TMI 608 - ITAT CHENNAI - TMI - Expenses incurred on Life Extension Program (LEP) of Thermal Power Station I (TIPS-I) and expenditure on Rejuvenation of Bucket Wheel extractors - revenue v.s capital expenditure - Held that:- As decided in assessee's own case [2012 (10) TMI 751 - ITAT CHENNAI] wherein held what was replaced was only the parts of machinery and the expenditure was incurred only to preserve and maintain the existing assets and therefore, the expenditure on such repairs is al .....

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respect of profits earned in the unit VII of TPS II - Stage II which was commissioned in the previous year 1994-1995? - CIT(A) allowed claim - Held that:- We are inclined to dismiss the appeal of the Revenue as the first year of claim of assessee was assessment year 1999-2000 and 80IA(2) permits the assessee to claim deduction for any ten years out of first fifteen years. See Velayudhaswamy Spinning Mills (P) Ltd case [2010 (3) TMI 860 - Madras High Court] - Decided in favour of assessee

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ts rescue. Same is applicable to other reasons records for reopening of assessment. Consequently, we hold that the entire reassessment proceeding in this case is valid and therefore, the action of the Assessing Officer is upheld. The assessee fails on this legal issue. - Decided against assessee.

Depreciation on loose tools - Whether loose tools would only partake of the character of consumables in regard to an assessee comparable to the assessee - Held that:- Assessee has been claimi .....

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of the plant and machinery. The deduction was claimed on the ground that the tools, jigs and fixtures were losing their utility fast. It, therefore, amounted to a claim for depreciation. The rate of deprecation could not be claimed as fixed by the assessee's expert. It could be claimed only at the prescribed rate, i.e. at the general rate of 10%. The Tribunal was justified in disallowing the claim of the assessee. The Commissioner of Income Tax(A) in this case followed the above judgment. Being .....

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ending before appellate authorities/court. In view of this, we remit this issue back to the file of the Assessing Officer to re-compute the interest u/s.201(1A) after verifying the return of recipient and also in the light of judgment of Supreme Court in the case of CIT vs. Hindustan Cocacola Beverages (P) Ltd, [2007 (8) TMI 12 - SUPREME COURT OF INDIA], wherein held that where the payee has already paid tax on the income on which there was a short deduction of tax at source, recovery of tax can .....

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led appeals in ITA Nos. 222/09, 374/2004 and 529/06 and the assessee has filed appeals in ITA Nos.177/09 & 782/2005 are directed against different orders of the Commissioner of Income Tax (Appeals), Large Tax Payer Unit, Chennai. Since certain issues in these appeals are common in nature, these appeals are clubbed, heard together, and disposed of by this common order for the sake of convenience. 2. The first issue in ITA No.222/Mds/2009 for the assessment year 2000-2001 by Revenue is that th .....

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se in production capacity, he treated the same as Capital Expenditure. Aggrieved, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). 4. The Commissioner of Income Tax (Appeals) observed that there is no increase in production capacity, and he allowed the claim of the assessee as revenue expenditure. Against this, the Revenue is in appeal before us. 5. We have heard both the parties and perused the material available on record. In our opinion, this issue is squarely .....

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nt years 1993- 94 to 99-2000, the assessee incurred the following expenditure towards replacement of various components in boilers and components of BWE under the LEP programme starting from the assessment year 1993-94 to 1999-2000 and the year-wise breakup for such expenditure is as under: Asst. years Amount (Rs) 1993-94 10,22,63,348/- 1994-95 39,35,07,774/- 1995-96 22,65,86,642/- 1996-97 27,78,53,677/- 1997-98 56,84,06,076 1998-99 48,23,92,595/- 1999-2000 47,35,92,595/- Total 252,46,02,707/- T .....

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ion capacity of the assessee and therefore, is in the nature of capital. The contention of the Assessing Officer was that this is one time expenditure at the end of life span of the asset with a view to give new life. Therefore, the expenditure did not fall within the meaning of "current repairs" under section 31(i) of the Act. The Commissioner of Income Tax (Appeals) in his common order for the assessment years 1995-96 to 1997-98 elaborately dealt with various issues and the issue of .....

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Note on rejuvenation of BWE at page 76 of the paper books, which reads as under: "TPS-I: LEP - TECHNICAL WRITE UP Electricity is generated from 600MW Thermal Power Station-I, Neyveli, having nine Units consisting of boilers, turbines, generators & transformers. The steam, generated in boiler drives steam turbine which coupled with generator generates electric power. Neyveli Thermal Power Station-I (NTPS-I) has an installed capacity of 600MW consisting of six 50MW units and three 100 MW .....

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in high pressure parts due to ageing. The Russian specialists conducted various tests and studied elaborately. Based on the study results, they recommended for operation of the equipment with reduced steam parameters up to the end of 1991 and the possibility of further operation of the equipment at rated steam parameters only after replacement of the corresponding parts and groups. The high pressure parts of boilers namely Super heaters and main steam line are subjected to creep damage due to r .....

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m parameters, the Life Extension Programme works in all units were carried out from April 1992 to March 1999 in phased manner with the approval of Govt. of India. The components subjected to creep damage namely super heaters, main steam lines etc. and high pressure valves, economisers and other allied pipe lines lost their healthiness were replaced in full, where as other high pressures parts namely water walls & feed water lines and other parts, after inspection were partially replaced to t .....

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internals. 3. Air heaters. 4. Feed water pipe line. 5. Boiler shield plates and hydraulic seal. 6. Lignite pulverizing system. The following equipments were overhauled: 1. Induced and Forced draught fans. 2. Belt feeders 3. Slag conveyors. 4. Ash handling system. Turbine, Generator and Transformer: These major equipments were overhauled with the replacement of worn out parts. Thus the works under LEP of the units of Thermal Power Station-I are comprised of full and partial replacement and overha .....

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rack (iv) Tower frame completes including pully mast (v) Bucket wheel boom complete (vi) Discharge Boom complete (vii) Main slewing ball race and main slewing gear box shell (viii) Bucket Wheel Boom hoist winch drum (ix) All the host winch ropes The following non-critical items are replaced: (i) Secondary structures like walk way and stair case for under carriage, turn table, Bucket Wheel boom, discharge boom, intermediate boom and counter weight boom. (ii) Motor foundation and Motor covers for .....

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and in that process the machine is brought to its original Condition and it does not result in a new asset. Diagrams showing the parts of the Bucket Wheel excavator is enclosed" 15. It could be seen from the above technical write-ups, the whole exercise of the LEP of TPS-I and rejuvenation of BWE is for replacement of certain parts of boilers/BWE only. The assessee has not replaced the entire boiler/BWE and what was replaced was only the parts of boiler/BWE. These parts of the boiler/BWE a .....

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ions of the Assessing Officer that there is increase in production capacity appears to be misplaced. 16. In the assessment order, the Assessing Officer himself stated that, if a new plant is to be installed, the cost of such new plant would be about ₹ 4.5 crores per MW and in such case the total project cost would come to ₹ 2700 crores for 600 MW. If that is the case, the expenditure incurred for the replacement of parts of machinery i.e. TPS-I/BWE in all these seven assessment years .....

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the expenditure on replacement of parts of machinery, overhauling the machinery whether it was incurred to preserve and maintain an already existing asset or such expenditure was incurred to bring a new asset into existence or to obtain a new advantage. In this case, we see that the expenditure on replacement of parts of boiler/BWE was incurred only to preserve and maintain the existing assets and object of incurring such expenditure was not to bring a new asset into existence. The Hon'ble A .....

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power plant and had 2 thermal power plant of generating capacity with 67.5 MW each. The assessee claimed expenditure of ₹ 1,05,44,904/- as the cost of the turbine rotor, which was disallowed by the Assessing Officer treating as capital expenditure. It was found by the Tribunal that the turbine rotor was an essential part of turbo generator set and it was not an independent machinery or plant. The turbine rotor of its own independent functioning could not generate electricity. Therefore, i .....

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asset. In considering the nature of an expenditure one should consider the productive unit as a whole and not pick out parts therein which are new. If the productive unit to the assessee remains the same but a part of it which has become unsuitable for its use is replaced by something which makes it possible for the existing set up to function efficiently, the cost incurred on such replacement would be revenue expenditure." The Commissioner of Income-tax Vs. M/s. Saravana Spinning Mills Pvt .....

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uot; if the old part is not available in the market. It is a "current repair" because the Carding Machine remains as an asset without any change even after repair or replacement of the autoleveler. To give an example, a Compressor in an important part of an Air-condition Machine. Repair of the Compressor will come in the connotation of the word "current repairs" in Section 31 (i) of the said Act because the assessee does not replace the Air-condition Machine. At the highest, .....

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e current repairs is that the expenditure must have been incurred to "preserve and maintain" an already existing asset, and the object of the expenditure must not be to bring a new asset into existence or to obtain a new advantage." So far as the decision relied upon by the learned standing counsel for the department is concerned, the same is distinguishable on facts. In that case the question whether certain expenditure incurred by the assessee on knives and losses in the materia .....

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ine Rotor does not function independently. It is a part of Turbo Generator Set. In view of the above discussion, we do not find any error in the order of the Tribunal. The Tribunal was justified in holding that the-expenditure by the assessee on the replacement of one Turbine Rotor amounting to ₹ 1,05,44,904/- was on account of current repairs and as such it was revenue expenditure." 19. The case law relied on by the counsel for the Revenue in the cases of Bharat Gears Ltd. v. CIT [33 .....

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ng assets and therefore, the expenditure on such repairs is allowable as deduction under current repairs. Hence the case law relied on by the Revenue are of no help. Therefore, following the decision of the Hon'ble Supreme Court in the case of CIT v. Saravana Spinning Mills P. Ltd. (supra), we sustain the order of the Commissioner of Income Tax (Appeals) in allowing the expenditure on replacement/overhauling of TPS-I/BWE as deduction. The grounds raised by the Revenue are dismissed on this i .....

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uction u/s.80IA, as second year in respect of profits earned in the unit VII of TPS II - Stage II which was commissioned in the previous year 1994-1995. 7. The Commissioner of Income Tax (Appeals) allowed the claim of the assessee u/s.80IA by observing that the assessee has opted assessment year 1999-2000 as first year of commencement and in view of provisions under section 80IA(2), the assessee is permitted to claim deduction for any ten years out of first fifteen years. Accordingly, the Commis .....

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of s. 80IA, it is clear that it provides that where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-s (4) i.e. referred to as the eligible business, there shall, in accordance with and subject to the provisions of the sections, be allowed, in computing the total income of the assessee, a deduction of an amount equal to 100 per cent of the profits and gains derived from such business for ten cons .....

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quantum of deduction for an eligible business. The words "initial assessment year" are used in sub-s (5) and the same is not defined under the provisions. It is to be noted that initial assessment year employed in sub-s (5) is different from the words "beginning from the year" referred to in sub-s(2). Important factors are to be noted in sub-s(5) and they are as under: (1)it starts with non obstante clause which means it overrides all the provisions of the Act and other prov .....

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e previous year relevant to initial assessment year and every subsequent assessment years. When the assessee exercises the option, the only losses of the years beginning from initial assessment year alone are to be brought forward and not losses of earlier years which were already set off against the income of the assessee. Looking forward to a period of ten years from the initial assessment contemplated. It does not all the Revenue to look backward and find out if there is any loss of earlier y .....

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beyond the purpose for which it is created. There is no dispute that losses incurred by the assessee were already set off and adjusted against the profits of the earlier years. During the relevant assessment year, the assessee exercised the option under S.80-IA(2). In Tax Case No.918 of 2008 the assessment year was 2004-05. During the relevant period, there were no unabsorbed depreciation or loss of the eligible undertakings and the same were already absorbed in the earlier years. There is a pos .....

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Breweries & Distilleries Ltd vs. Asst. CIT (2008) 114 TTJ (Chennai) 532: (2008) 3 DTR (Chennai) (Trib) 477 affirmed". Being so, we are inclined to dismiss the appeal of the Revenue as the first year of claim of assessee was assessment year 1999-2000 and 80IA(2) permits the assessee to claim deduction for any ten years out of first fifteen years. This ground of the Revenue is dismissed. 9. The first ground in ITA No. 177/2009 filed by the assessee challenging the reopening of assessment .....

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ssee filed a letter on 24.04.2005 requesting that the return furnished on 22.10.2001 may be treated as return filed in response to notice u/s.148. The assessee sought the reasons that had impelled the Assessing Officer to the conclusion that there has been escapement of income which ere vide communication dated 15.04.2007. The assessee submitted letter dated 20.06.2007 giving the submissions against the proposed reassessment on the ground that there has been no escapement of income. The jurisdic .....

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of purchase of loose tools as revenue expenditure and allowed depreciation at the rate of 25% thereon as claimed by the assessee in earlier years. Aggrieved, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) confirmed the same. 11. The ld. Authorised Representative for assessee submitted that assessment was completed u/s.143(3) of the Act and was reopened for the purpose of considering the investment made towards purchase o .....

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f four years from the end of relevant assessment year is exercisable only if the income chargeable to tax has escaped assessment for such assessment year, by reason for the failure on the part of the assessee. According to the ld. Authorised Representative for assessee there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. According to him, the proviso of 147 will not apply and consequently the re-assessment cannot be initiat .....

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essment. The ld. Authorised Representative for assessee submitted that the assessee furnished all the details vide its reply dated 7.12.2002. The Assessing Officer passed original assessment order u/s.143(3) of the Act dated 28.03.2003 after receiving all the details from the assessee. Hence, there cannot be any failure on the part of the assessee in furnishing all necessary information required for the purpose of assessment. He relied on the following judgments:- (1) CIT vs. Premier Mills, 296 .....

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d vs. R.B. Wadekar, 268 ITR 332 Bom. (12) Haryana Acrylic Mfg Co. vs. CIT, 308 ITR 38 (Del). (13) CIT vs. A.V. Thomas exports ltd, 296 ITR 603 Mad. (14) Well Intertrade P. Ltd vs. CIT, 308 ITR 22 (Del) (15) Sitara Diamond P. Ltd vs. DCIT, 345 ITR 91 (Bom) (16) Titanor Components Ltd vs. ACIT, 343 ITR 183 (Bom). 12. On the other hand, the ld. Departmental Representative submitted that assessee has not disclosed fully and truly the facts necessary for the assessment. Hence, reopening is valid in l .....

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ailure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. One has to see as to what 'failure of the assessee' to disclose fully and truly all material facts signify. It is true that 'every disclosure' is not and cannot be treated to be a true and full disclosure. A disclosure can be even false or true. It may be a full disclosure or it may not be a full one. A part disclosure many a times may be mislea .....

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s assessment. What facts are 'material' and 'necessary' for assessment will differ from case to case. The material should not only be full but also be true. If some material found in the evidence produced before the Assessing Officer which the Assessing Officer could have uncovered but did not, then it is the duty of the assessee to bring it to the notice of the assessing authority. This omission or failure may be either deliberate, or even inadvertent, that is immaterial, but in .....

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f High Court of Rajasthan in the case of Pushtikar Laghu Vyaparik Pratishthan Bachat Evam Sakh Sahkari Samiti Ltd vs. Union of India, 249 CTR 73 (Raj). Further, he relied on the order of the Tribunal in the case of M/s. MRF Ltd vs. DCIT in ITA Nos. 1374 to 1377/Mds/2010 for the assessment years 2002-03, 2004-05, 2006-07 & 2007-09, dated 11.03.2011. 13. We have heard both the parties and perused the material on record. In this case, the contention of the assessee counsel is that the notice fo .....

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the ld. Departmental Representative has supported the appellate findings and has also placed reliance on some decisions in favour of the Revenue. In this case assessment was reopened by recording the reason as follows:- (i) During the assessment year 2001-02, the assessee had purchased a conveyor belts and accessories worth of ₹ 70 crores and this was included in the cost of spares claimed and claimed as revenue expenditure. Since the conveyor belts used by the assessee are to be treated .....

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i) It was noticed from the Deprecation statement, that the assessee has included lease hold buildings transferred from HUDCO, under the head Buildings and has claimed deprecation at the rate of 10% u/s.32. Since the assessee company is only lessee of the property depreciation claimed on leased property has to be withdrawn." It is a settled law that on the basis of material, prima facie, available before the Assessing Officer, opined that income chargeable to tax has escaped assessment can b .....

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required is the subjective satisfaction of the Assessing Officer based on objective material evidence. In the given case, assessment was completed on 28.03.2003. The reason was recorded as discussed above. The argument of the ld.AR is that u/s 147 in case the assessment order is completed u/s 143(3), as has been done in this case, no action could be taken after the expiry of four years from the end of the relevant assessment year unless the assessee has disclosed fully and truly all material fac .....

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, the Assessing Officer can either assess or re-assess but for taking action thereunder, he has to record reasons that income chargeable to tax has escaped assessment . It is also mandated by section 148(2) to record reasons in writing. The reassessment proceedings u/s 147 are further subject to sections 148,149,150,151,152 and 153. But in the present case, we are required to decide the limited issue regarding the validity of proceedings undertaken after four years of the assessment year in ques .....

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would have valid cognizance u/s 147 of the Act. The reasons recorded by the Assessing Officer clearly speak for the under assessment of tax hence, the conditions laid above stand fulfilled in so far as re-assessment proceedings are concerned. In so far as the reasons recorded, extracted in the above portion of this order, we are satisfied that the Assessing Officer has 'reason to believe' that income has escaped assessment. This fact confers jurisdiction on him to reopen the assessment. .....

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ce between the two aspects as the Assessing Officer has no power at all to review the assessment. The reassessment, as stated above, has to be based on fulfillment of certain pre-conditions but the concept 'change of opinion' has to be taken into consideration otherwise it may give unbridled power to an Assessing Officer to reopen any and every assessment order which would simply amount to a review. The concept 'change of opinion' is an in-built test to check the abuse of power b .....

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the relevant assessment year, which is 2002- 03, in this case, no action shall be taken u/s 147 after the expiry of four years from the end of the relevant assessment year unless any income chargeable to tax has escaped assessment for such assessment year by the reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. There are two other conditions which are not relevant for deciding the legal issue u .....

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isleading one. What is required under the law is a full and true disclosure of all material facts necessary for making assessment for that year. This law was laid down by the Hon'ble Supreme Court in the case of Sri Krishna Pvt. Ltd etc vs ITO & Others, 221 ITR 538. The words 'omission or failure to disclose fully and truly all material facts necessary for assessment for that year postulates a failure of the assessee to disclose fully and truly all 'material facts necessary' .....

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but in case there is omission to disclose the material facts then subject to the other conditions jurisdiction to reopen is attracted. 16. In the present case, the assessee has been claimed expenditure incurred on loose tools as capital expenditure and claiming deprecation at 25% in earlier years. Suddenly during the assessment year under consideration the assessee changed its policy and claimed it as revenue expenditure without any reason. In our opinion, the assessee cannot change the accounti .....

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as fully and truly disclosed before the assessing authority and that there was not failure on the part of assessee, especially when it has been claiming it as part of plant & machinery and suddenly it decides to claim it as revenue expenditure. Hence, the Commissioner of Income Tax (Appeals) considered the action of the Assessing Officer is fully covered by the provisions of Explanation 1 to Section 147 of the Income Tax Act which reads as under: "Production before the Assessing Officer .....

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eld to be valid. The assessee has tried to take shelter under the exception provided by the above stated proviso where an assessment under sub-section (3) of section 143 has been completed, no action after the expiry of four years from the end of the assessment year can be taken. But as stated above, when the assessee has not disclosed fully and truly the facts necessary for the assessment, this proviso will not come to its rescue. Same is applicable to other reasons records for reopening of ass .....

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available on record. In this case, the assessee has been claiming loose tools as capital expenditure and claiming deprecation at 25%. Suddenly in the assessment year under consideration there was a change in the accounting policy without any reason. Even before us, the assessee was not able to furnish any reason for change in accounting policy. In the case of Gujarat Small Scale Industries Corporation Ltd vs. CIT 142 ITR 35(Gujarat HC), wherein held that the Tribunal perfectly justified in taki .....

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x(A) in this case followed the above judgment. Being so, we do not find any infirmity in the order of the Commissioner of Income Tax (Appeals). This ground of the assessee is rejected. 18 The next ground in ITA No.782/2005 is with regard failure to deduct tax at source on payments made under the supply contract. 19 The facts of the case relates to the jurisdiction of the Income Tax Officer, TDS Ward-I, Cuddalore (TDS authority) in passing the impugned order. The assessee has stated that the TDS .....

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d that there was no provision for reopening the TDS proceedings under Chapter XVII of Income Tax Act similar to Sections 147/148 in respect of assessment proceedings. According to the assessee at the best the TDS authority could have restored to section 154 for rectification of mistake, if Asst. Year in the order dated 24.12.2004. The TDS authority in his order, however, has mentioned that the order dated 24.12.2004 was confined only to payments emanating from Contract No.II and the reference to .....

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payments emanating from Contract No.II and reference to all other Contracts including Contract No.I was only to bring out complete facts of the case on record. The provisions of Sec.195 are applicable to each payment made to the non non-residents. Sec.154 would have been applicable only if there was a mistake in order dated 24.12.2004 of the TDS authority inspect of same payments (i.e relating to Contract No.II). However, the impugned order relates to payments emanating from Contract No.I. Since .....

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