TMI Blog2016 (4) TMI 1378X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of the statutory provisions. In case of Mahendra Mills Ltd. [ 2000 (3) TMI 3 - SUPREME COURT] has laid down the proposition that provisions for claiming of depreciation is for the benefit of the assessee, hence, if the assessee does not wish to avail the benefit for some reason, the benefit cannot be forced upon the assessee as it is for the assessee to see if the claim of depreciation is to his advantage. In the absence of any claim of depreciation by the assessee, it cannot be thrust upon it by the Assessing Officer. We direct the AO to compute income of the assessee after withdrawing depreciation granted to the assessee. Ground raised by the assessee is allowed. Expenditure claimed by the assessee on account of Up Stream Rolling Mills (USRM) trial run expenditure - Revenue or capital expenditure - HELD THAT:- These expenses relate to production in as much as these have been incurred in the purchase of raw materials, consumable items required in the process of production, electricity consumption in the production activity, repairs and processing charges. Even if the expenses relate to trial run, the same in my considered opinion, constitute revenue expenditure i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative. Therefore, we do not see any reason to interfere with the order of the learned Commissioner (Appeals). Accordingly, we uphold the same by dismissing the ground raised by the Department. Claim of deduction being professional fee paid towards re structuring of financial loan - HELD THAT:- expenditure incurred can be treated as capital in nature has disallowed assessee s claim. He has not established on record that by incurring such expenditure, assessee has acquired some assets providing benefit of enduring nature. On the other hand, as demonstrated by the Assessing Officer, the consultation fee was paid for financial re structuring of loans which has resulted in rejection of interest cost and as a consequence, assessee has derived benefit of ₹ 14.86 crore, which was offered as income for the impugned assessment year. That being the case, corresponding expenditure incurred by the assessee for earning such income has to be allowed as deduction. The decisions relied upon by the learned Authorised Representative also supports this view. In the aforesaid view of the matter, we do not find any infirmity in the order of the learned Commissioner (Appeals) which is accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount crystallized during the assessment year after negotiation with the third parties have not been placed before us. The learned Commissioner (Appeals) s order is also silent on the issue whether he has himself examined any documentary evidence to demonstrate that the expenditure pertaining to earlier assessment year was quantified and crystallized during the year under consideration after negotiation. In view of the aforesaid, we restore the matter back to the file of the Assessing Officer to verify the fact whether expenditure claimed was quantified and crystallized after negotiation with third parties. If the assessee through proper documentary evidence proves such fact, then there is no difficulty in allowing assessee s claim of expenditure in the impugned assessment year. This ground is allowed for statistical purposes. - ITA No. 2214/Mum./2005, 2215/Mum./2005, 2216/Mum./2005, 2050/Mum./2005, 2051/Mum./2005, 2052/Mum./2005 - - - Dated:- 29-4-2016 - SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER For the Appellant : Shri Rajan Vora For the Respondent : Shri B.C.S. Naik a/w Shri R.M. Madhavi ORDER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee had claimed depreciation till assessment year 1996 97 and from 1997 98, he was not claiming. According to Assessing Officer, use of the word shall in section 32(1) of the Act makes it mandatory to compute depreciation and no discretion is left either to the assessee or to the Assessing Officer. The Assessing Officer also observed that the ratio laid down by the Hon'ble Supreme Court in case of Mahendra Mills ltd. (supra) will not be applicable as it was prior to the amendment of section 34(1) of the Act which was deleted w.e.f. 1st April 1988. Thus, the Assessing Officer finally concluded that the assessee since is eligible for depreciation on fixed assets, the same is allowable. Accordingly, he allowed depreciation of ₹ 29,84,50,635. Being aggrieved with the aforesaid decision of the Assessing Officer, assessee challenged the same in appeal preferred before the learned Commissioner (Appeals). 4. The learned Commissioner (Appeals), however, upheld the decision of the Assessing Officer. 5. Learned Authorised Representative submitted before us, whether to claim depreciation or not on a particular asset, is the option of the assessee and the benef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry. He submitted, the assessee cannot use the depreciation for tax saving purpose. For such proposition, he relied upon the decision of the Hon'ble Punjab Haryana High Court in Mittal Belting Machinery Stores v/s CIT Anr. [2002] 253 ITR 341 (P H). 8. We have considered the submissions of the parties and perused the material available on record. Undisputedly, from the assessment year 1997 98, the assessee had not claimed depreciation on assets for whatever may be the reason. It is also accepted that in assessment year 1997 98, the Assessing Officer did not compute depreciation of assets while completing the assessment. The issue before us is whether grant of depreciation is mandatory under the provisions of section 32 as it stood at the relevant point of time or it was at the option of the assessee. On a careful reading of section 32(1), it appears that though the expression used there is deduction shall be allowed , but the expression shall used will not make allowance of depreciation mandatory. This is because of the fact that by Finance Act, 2001, Explanation 5 was inserted to section 32 which reads as under: Explanation 5.-For the removal of doubt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee is allowed. 10. In the result, assessee s appeal is allowed. ITA no.2050/Mum./2005 Department s Appeal Department has raised two effective grounds. 11. In ground no.1, Department has challenged the decision of the learned Commissioner (Appeals) in allowing expenditure of ₹ 6,32,80,792, claimed by the assessee on account of Up Stream Rolling Mills (USRM) trial run expenditure. 12. Brief facts are, in the course of assessment proceedings, the Assessing Officer noticed that the assessee had debited an amount of ₹ 4,68,78,462 as USRM trial run expenditure and interest on working capital till trial run of ₹ 1,64,02,336. When called upon to justify its claim, it was submitted by the assessee that during the year under consideration, company replaced the PSW rolling mill with a four stand upstream rolling mill. It was submitted, earlier the rolling was done with the help of PSW rolling mill and 8 stand down stream rolling mill (DSRM). The assessee submitted, the trial run expenditure represent excess of stock of products rolled through USRM during the period from 2nd August 1997 to 15th September 1997, over sales realisati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recorded by the AO is without taking into consideration the actual facts obtaining in the appellant's case as also the nature of the appellant's business. It is seen that in the appellant's case no new business has been set up. The appellant undisputedly is engaged in the same line of forging business ever since the financial year 1993-94. The business has been that of rolling steel bars right from the year 1993-94. Sine, the appellant found that the existing process of rolling steel bars was falling short of reaching the desired level of specifications another machine namely downstream - rolling mill was installed. This machine was obviously a part and parcel of the appellant's existing plant and at the most it can be described as an extension of the existing manufacturing activity. No new line of business has come into existence and only the already existing manufacturing process has been improved upon. The AO has over looked these aspects completely and has also not controverted the basic facts projected by the appellant that the machine in question is installed in the same premises of existing business and it is being managed by the same person in charge of pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . There being no material difference in facts brought to our notice, following the aforesaid decision of the co ordinate bench of the Tribunal, we uphold the order of the learned Commissioner (Appeals) by dismissing the ground raised by the Department. 16. In ground no.2, the Department has challenged the decision of the learned Commissioner (Appeals) in accepting assessee s claim of deduction on account of lease rental payment of ₹ 2,29,11,128. 17. Brief facts are, during the assessment proceedings, the Assessing Officer noticed that the assessee has debited a sum of ₹ 5,06,34,206, towards payment of lease rentals. Noticing that similar lease rental claimed by the assessee in the assessment year 1996 97, was disallowed by the Assessing Officer. He followed the same and disallowed the amount of ₹ 2,29,11,128. Being aggrieved of such disallowance, the assessee preferred appeal before the learned Commissioner (Appeals). 18. The learned Commissioner (Appeals) noticed that the main reason on which the Assessing Officer disallowed lease rental is that sales and lease back transactions were entered with group companies. However, it was submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al consent. He also observed that the assessee did not sell the assets to its sister concerns at higher value. Basing on the above observations, CIT (A) held that the sale and lease back transactions of the assessee cannot be held as non-genuine and deleted the total addition of ₹ 5,16,31,914/-. It is the case of the Revenue that where there is no genuine sale of equipment by the assessee (lessee) to its sister concerns (lessor), the lease agreement entered by them cannot be considered as a genuine transaction. Revenue is critical about certain terms‟ and conditions of the lease agreement and also about the risk factor of the assets. As per the Revenue the lease transaction is nothing but a finance transaction / loan transaction and the assets were held in the name of the lessors only for the purpose of security of the loan given. Hence, the lease rent paid by the assessee company is nothing but the repayment of loan finance taken from the lessors. Per contra, the case of the assessee is that when the sale and lease back transactions are accepted by the Department from the lessors‟ side, the same transactions cannot be questioned by the Revenue when it comes to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee. In the aforesaid view of the matter, we do not find any infirmity in the order of the learned Commissioner (Appeals) and accordingly the same is upheld by dismissing the ground no.2 raised by the Department. 21. In the result, Department s appeal is dismissed. ITA no.2215/Mum./2005 Assessee s Appeal In this appeal, assessee has raised two grounds. 22. Insofar as ground no.2 is concerned, the learned Authorised Representative submitted, on the instructions of the assessee, he did not wish to press this ground. Consequently, ground no.2, is dismissed as not pressed . 23. In ground no.1, assessee has challenged computation of depreciation amounting to ₹ 22,22,16,012. 24. As could be seen, this issue is similar to the issue raised by the assessee in ITA no.2214/Mum./2005, wherein, vide Para 9, we have directed the Assessing Officer to withdraw depreciation granted to the assessee. Consistent with our findings given therein, ground no.1, raised by the assessee is allowed. 25. In the result, assessee s appeal is partly allowed. ITA no.2051/Mum./2005 Department s Appeal In this appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is carried on by the assessee. The Assessing Officer observed, the amount in question was never included in the income of the assessee. Hence, the assessee is not eligible for the deduction. The assessee challenged the disallowance before the learned Commissioner (Appeals). 30. The first appellate authority, after considering the submissions of the assessee, in the light of various decisions relied upon found that as per the facts on record, the assessee has written off the amount of ₹ 58,51,135, in the books of account during the impugned assessment year. He also found that the amount in question represent the advance paid to one Austrian company for which the agreement was entered between the parties on 11th May 1993. He also found that as the arrangement between the parties did not fructify, the assessee in fact made a provision for bad debt in the year 1994 95. However, the provision was disallowed in that assessment year. 31. The learned Commissioner (Appeals) observed, the amount of ₹ 58,51,135 is nothing but a trading loss of the assessee which was incurred in the normal course of business, hence, it is allowable under section 28 of the Act. Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me by dismissing the ground raised by the Department. 35. The next issue raised by the Department in ground no.3, relates to allowance of assessee s claim of deduction of ₹ 25 lakh being professional fee paid towards re structuring of financial loan. 36. Brief facts are, during the assessment proceedings, the Assessing Officer noticed that assessee has debited an amount of ₹ 25 lakh to the Profit Loss account. On verification, he found that the said amount paid to Indian Seamless Services Ltd., as professional fees for re structuring assignment given to them. In response to the query raised by the Assessing Officer, it was explained by the assessee that the benefit derived by the assessee on account of re structuring had been offered for taxation, hence, the deduction claimed is allowable. The Assessing Officer, however, did not find merit in the submissions of the assessee. He was also of the view that the expenditure incurred being capital in nature is not allowable. Accordingly, he added back the amount of ₹ 25 lakh. Being aggrieved of such additions, the assessee challenged the same before the learned Commissioner (Appeals). 37. Be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 41. We have considered the submissions of the parties and perused the material available on record in the light of the decisions relied upon by the assessee. On a perusal of the assessment order, it is evident that the Assessing Officer without substantiating the basis on which the expenditure incurred can be treated as capital in nature has disallowed assessee s claim. He has not established on record that by incurring such expenditure, assessee has acquired some assets providing benefit of enduring nature. On the other hand, as demonstrated by the Assessing Officer, the consultation fee was paid for financial re structuring of loans which has resulted in rejection of interest cost and as a consequence, assessee has derived benefit of ₹ 14.86 crore, which was offered as income for the impugned assessment year. That being the case, corresponding expenditure incurred by the assessee for earning such income has to be allowed as deduction. The decisions relied upon by the learned Authorised Representative also supports this view. In the aforesaid view of the matter, we do not find any infirmity in the order of the learned Commissioner (Appeals) which is accordingly confirmed. G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IDBI having taken place during the financial year 1997 98 how the assessee could debit the professional charges in the impugned assessment year. Accordingly, he disallowed assessee s claim of expenditure. Though, assessee challenged such disallowance before the first appellate authority but the learned Commissioner (Appeals) rejected assessee s claim by holding that the expenditure does not pertain to the impugned assessment year. Further, he also observed, in the absence of requisite details, deduction could not have been allowed. 48. The learned Authorised Representative submitted, ISFS raised the invoice for professional services rendered on 17th October 2000 and the assessee received such invoice in the financial year 2000 01 relevant to assessment year under consideration. It was submitted, the assessee has accounted the expenditure in the books of account only when it received the invoices from ISFS. He submitted, the statutory auditor also did not classify the said expenditure as prior period expenses as the same was crystallized and quantified in the year under consideration upon receipt of the invoices. Therefore, the expenditure has to be allowed in the year in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f admitted that it has developed new grade of steel bar. Therefore, expenditure incurred is for enduring benefit. That being the case, the assessee has rightly deferred the expenditure in the books of account. The Assessing Officer ultimately held that the expenditure being capital in nature cannot be allowed. The assessee challenged the disallowance before the learned Commissioner (Appeals). 53. The learned Commissioner (Appeals), after considering the submissions of the assessee observed, the expenditure was not debited to the Profit Loss account which indicates that the assessee itself has not treated the amount as expenditure of the current year. Relying upon a decision of the Tribunal, Hyderabad Bench, in TCI Finance Ltd., 91 ITD 573 (Hyd.), wherein, it was held that accrual of expenditure of income under mercantile system cannot be different under Income Tax Act and Companies Act, he held as the amount of expenditure was incurred for the development of a new product, the same cannot be allowed as deduction under section 37(1). 54. Learned Authorised Representative reiterating the stand taken before the Departmental Authorities submitted, the deduction clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pply to Income Tax proceedings, but if a particular view has been adopted by the Department in earlier years, the said view cannot be changed in the subsequent year unless there is change in fact and law. In other words, rule of consistency should be followed by the Department. For such proposition, he relied upon the decision of Hon'ble Supreme Court in Radhasoami Satsang v/s CIT [1992] 193 ITR321 (SC). 56. Learned Authorised Representative on the other hand, relying upon the observations of the Assessing Officer and the learned Commissioner (Appeals) submitted, expenditure incurred being capital in nature cannot be allowed. 57. We have considered the submissions of the parties and perused the material available on record. On going through the assessment order as well as the order of the learned Commissioner (Appeals), we noticed that assessee s claim has been disallowed primarily for two reasons. Firstly, assessee in its books of account has claimed it as deferred expenditure and further, the expenditure incurred for development of new product being for enduring benefit of the assessee is in the nature of capital expenditure. However, as could be seen before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment proceedings, the Assessing Officer after verifying the details of expenditure claimed by the assessee observed that an amount of ₹ 23,93,495 claimed towards watch and ward expenses pertained to earlier years. In response to the query raised by the Assessing Officer, it was submitted by the assessee that as the expenditure crystallized during the year under consideration, it is allowable as deduction. However, the Assessing Officer alleging that no evidence was produced by the assessee to support the same disallowed expenditure and added back to the income of the assessee. Being aggrieved of such disallowance, assessee challenged the same before the learned Commissioner (Appeals). 61. In the course of hearing before the learned Commissioner (Appeals), the assessee contesting the decision of the Assessing Officer submitted, the statutory auditor has not considered the expenditure as prior period expenditure as the expenditure crystallized during the year. It was submitted by the assessee that though the expenditure pertained to the prior period but it crystallized during the year under consideration after the amount was finally settled after negotiation. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Departmental Authorities that the expenditure crystallized and quantified during the year under consideration after negotiation with the third party who provided watch and ward service. However, the documentary evidence to demonstrate that the amount crystallized during the assessment year after negotiation with the third parties have not been placed before us. The learned Commissioner (Appeals) s order is also silent on the issue whether he has himself examined any documentary evidence to demonstrate that the expenditure pertaining to earlier assessment year was quantified and crystallized during the year under consideration after negotiation. In view of the aforesaid, we restore the matter back to the file of the Assessing Officer to verify the fact whether expenditure claimed was quantified and crystallized after negotiation with third parties. If the assessee through proper documentary evidence proves such fact, then there is no difficulty in allowing assessee s claim of expenditure in the impugned assessment year. This ground is allowed for statistical purposes. 65. In ground no.2, the Department has challenged the decision of the learned Commissioner (Appeals) in al ..... X X X X Extracts X X X X X X X X Extracts X X X X
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