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DCIT, Cir 1 (1) , Baroda Versus Banco Almunium Limited

2012 (10) TMI 1150 - ITAT AHMEDABAD

I.T.A. No. 1106/Ahd/2010 - Dated:- 25-10-2012 - A. K. Garodia (Accountant Member) And Kul Bharat (Judicial Member) For the Revenue : T. Shankar Sr. D.R. For the Assessee : None ORDER Kul Bharat (Judicial Member) This appeal of the Revenue is directed against the order of Ld. Commissioner of Income Tax (Appeals)-I, Baroda dated 15-12-2009. The Revenue has raised following grounds of appeal:- 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addi .....

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e amount ing to ₹ 24,83,968/- on COGEN -I Unit and COGEN - II Unit at the market rate of ₹ 4.86 per unit of power relying on the decision of Hon. ITAT in the case of Alembic Ltd. for A.Y. 2003-04 bearing ITA No. 3594/Ahd/2007 dated 06.06.2008 wherein the Hon. ITAT allowed the appeal of the assessee in respect of claim of the assessee u/s. 80IB(4) by taking the price of electricity supplied by GEB. 2(b). On the facts and circumstances of the case, the ld. CIT(A) as well as the Hon. IT .....

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r adjournment is on record. However, no reasonable cause is given for the absence, therefore, the application for adjournment is rejected. The appeal is taken up for hearing in the absence of the assessee. The facts in brief are that the case of the assessee was picked up for scrutiny assessment, the assessment u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred as to the Act) was finalized. The Assessing Officer while framing the assessment made disallowances on account of club expendi .....

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y the assessee on repairs and maintenance of machinery are of capital nature and the assessing officer has rightly disallowed the same. He submitted that these expenditure incurred for the purchase of filtering unit, pressure ring, glow totalizer and pressure transmitter. Adding or replacing these parts of the machinery has added to the life of the machinery and it is of enduring nature. The purchase of these parts enhances efficiency of the machinery. The reliance is also placed on the judgment .....

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. The amount of claims and the nature of the parts used shows that they are of capital nature. The Assessing Officer placed reliance on the judgment of the Hon ble Supreme Court rendered in the case of Ballimal Naval Kishsore vs. CIT 224 ITR 414 and also CIT v. Saravana Spinning Mills Pvt. Ltd, 293 ITR 201(SC). However Ld. CIT(A) has decided this issue in para 3 of his order as under: 3.1 A.R. submitted the following chart depicting the nature of expenses incurred with explanation:- Sr. No. of A .....

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appellant. 2 1,69,338 Pressure Ring The function of the pressure ring is to withstand the pressure built up in the extrusion press. The pressure rings are a consumable item and are required to be replaced as and when consumed. Since the pressure ring controls the pressure, its life is very small and requires frequent replacement. No enduring benefit is availed by replacing the pressure ring. These are consumable items are therefore revenue in nature. The life of the extrusion press does not inc .....

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rnace. It does not have any independent use. Therefore revenue in nature. 3.2 The ld. AR also pointed out that the decisions of the Supreme Court relied upon by the AO are not applicable on the facts of the appellant. In the case of Ballimal Naval Kishore (supra) it was contended that in the said decision a ginning factory was converted into a cinema theatre and the expenses incurred for converting a ginning factory was converted into a cinema theatre were claimed as revenue expenditure. This is .....

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wn machinery. Therefore replacement of entire plant & machinery of one department cannot be considered as current repairs. In view of such factual finding the Supreme Court reversed the order of the High Cour. 3.3 I have considered the submissions of the Id. AR and the facts of the case. In various cases the Supreme Court and other High Courts have held that replacement of parts of a larger machine would not amount to creation of any new asset or incurring of capital expenditure. Where the m .....

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machine becomes nonfunctional If an autoleveler is to be repaired then that repair would come within the connotation of the word "current repairs" because if is apart of the carding machine. Even if in a given case, replacement of an autoleveler could come within the connotation of the word "current repairs" if the old part is not available in the market. It is a "current repair" because the carding machine remains an asset without any change even after repair or re .....

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herefore, such repairs alone cart come within the connotation of the word "current repairs" in section 31{i) of the said Act as it stood at the material time. They are effected to preserve and maintain the asset, viz, air conditioner or carding machine. " 3.3.1 Hence, judicial opinion is quite clearly articulated to the effect that replacement of one or more part(s) of a capital asset would constitute revenue expenditure and not capital expenditure. If preservation of the capital .....

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ts would, in my opinion, constitute expenditure. Accordingly, the disallowance of ₹ 47,966/- is directed to be deleted. 3.3.3 Regarding expenses of Rs. l,69,338/- on pressure ring, discussed at item no. (2) above, the function of the pressure ring is to withstand the pressure built up in the extrusion press. This is a consumable item. No enduring benefit accrues by replacing the pressure ring. The life of the extrusion press does not increase by incurring the said expense. Accordingly, it .....

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is held that expenditure on replacement of such parts is revenue in nature. Accordingly, the disallowance of Rs,88,289 is directed to be deleted. 5. We find that the Ld. CIT(A) has considered all aspects of the matter and judgments as relied by the Revenue rendered in the case of CIT vs. Saravana Spinning Mills Pvt. Ltd. is not applicable on the facts of the present case. As in that case, the assessee was engaged in the business of textile and textile machinery was replaced and a claim was made .....

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ring expenditure on purchase of such items, no new assets came into existence which were capable of producing any saleable item. This finding of fact is not controverted by the Revenue. In this view of the matter we do not find any infirmity into the order of Ld. CIT(A). Hence, this ground of Revenue s appeal is dismissed. 6. Next ground is against the allowing the deduction u/s 80IA of the Act as claimed by the assessee. Ld. Sr. D.R. submitted that the deduction was not available to the assesse .....

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r COGEN I & II. The AO considered that the profit worked out by the assessee was not acceptable as genuine. The assessee has applied charges levied by Gujarat Electricity Board as the "market rate" of electricity generated by the assessee for its captive consumption. As per the agreement, the assessee is bound not to self the electricity generated by it without the express permission of GEB. This itself brings in a tremendous constraint on the assessee as it looses the freedom not .....

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mption; there is no additional cost to electricity unit generated by the assessee in terms of marketing the electricity. Moreover, the GEB is providing an assured supply of electricity. Therefore, it cannot equate the assessee with GEB for the purpose of fixing its market price of electricity units. The second issue involved is that the Assessing Officer has disallowed the deduction of ₹ 24,63,968/- u/s 80IA of the I T Act, 1961 relying on the decision of the Hon'ble ITAT Chennai in th .....

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includes any profit and gains derived by an undertaking of an enterprise from business of eligible undertaking only are to be considered for the purpose of allowing deduction. The CIT(A) has allowed deduction u/s 80-IA relying on the Mumbai Bench of ITAT in the case of West Coast Paper Mills vs ACIT (103 ITD 19). In view of the Hon'ble ITAT, Chennai's decision in the case of M/s Chettinad Cement: Corporation Pvt Ltd, the Hon'ble ITAT may kindly be restored the disallowance u/s 80-IA .....

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respectively. The energy generated in the said captive power plants was used by the assessee for its own consumption. The AO objected to the claim of deduction u/s 80IA(4) on the ground that (a) the deduction was eligible only where separate business undertaking is put up for generation/distribution of power. Since the assessee had set up the plants mainly for captive use, the deduction u/s 80lA(4)(iv) would not be available, (b) the assessee has not worked out the profit of the eligible undert .....

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i.e. ₹ 4.86 per unit. The AO reduced the deduction, without prejudice to his earlier objection that no deduction at all was available. The reduced quantum of deduction was worked out at Rs. Nil/- based on the rate of ₹ 2.36 per unit of power, being the average rate at which GEB purchased power from different companies. The details of the working of this average rate of ₹ 2.36 per unit and the deduction of Rs. Nil lacs have been stated at pages 11 & 12 of the assessment orde .....

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e consumption of the assessee. Further, reliance was placed on the decision of the Gujarat High Court in CIT v Ahmedabad Manufacturing and Calico Priming Co. Ltd., (162 ITR 760) wherein it was held that the assessee would be entitled to deduction u/s 801 irrespective of the fact whether its product was sold in open market or was used for captive consumption. 6.2 With respect to the allegation of the AO that the appellant has not computed the profits of the eligible unit as per section 801A(5), i .....

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ing deduction u/s 8OIA. In the case of the appellant, C0GEN Unit - I started generating power from 26-6-2001 (AY 2002-03), therefore the notional unabsorbed losses of the said unit from AY 2002-03 should be considered for the purpose of computing the profits eligible for deduction u/s. 801A. Similarly the COGEN Unit - II started generation of power from 25-2-2005 (AY 2005-06), therefore the notional unabsorbed losses of the said unit from AY 2005-06 should be considered for the purpose of comput .....

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/2007 for AY 2003-04 in the case of Alembic Ltd, it was submitted by the Id. AR that the Tribunal has held that the purchase price of power by the assesses from the electricity company would constitute the market price and not the price at which power was purchased by the electricity company. The appellant also relied on another decision of Ahmedabad Tribunal in the case of Pragati Glass Pvt. Ltd v. ACIT in ITA No. H09/A/2007 for AY 2003-04. 6.4 I have considered the submissions of the Id. AR an .....

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ineries, completely different products, separate set of employees working on the plant and distinct existence. In view of the judgment of the Mumbai Tribunal (supra) deduction u/s. 801A cannot be disallowed on this ground. 6.5 Regarding the computation of profits in conformity with the provisions of section 801A(5), it is seen that the controversy in question is covered by the decision of the Chennai Bench of the Tribunal in the case of Mohan Breweries & Distilleries Ltd. v. ACIT, 114 TTJ 53 .....

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ear, the initial assessment year cannot be the year in -which the undertaking commenced its operations and in this case the initial assessment year is the assessment year in which assessee has chosen to claim deduction under s. 80-1A. Hence the provisions of s. 80-IA(5) treating undertaking as a separate sole source of income cannot be applied to a year prior to the year in which assesses opted to claim relief under section 80-IA for the first time. Depreciation and carry forward loss relief to .....

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