2015 (10) TMI 394 - AT - Income Tax

Quarry Development Expenses - revenue v/s capital expenditure - Held that - In the instant case, details of expenditure clearly shows that the expenses have not resulted in creation of any assets nor have they resulted in any enduring benefit to the appellant. The AO has not brought any facts on record to show as to which expenses debited under the head of quarry development were capital in nature. These expenses are in the nature of salaries, wages, fuel, power, rent, and other expenses for removal of overburden etc. which cannot be said to be in the nature of capital expenditure. The Hon ble Calcutta High Court in the case CIT Vs. Katras Jharia Coal Co. Ltd (1978 (9) TMI 37 - CALCUTTA High Court ) held that expenses for removal of overburden were not for acquiring any right of properties and will also not result in any enduring benefit and therefore are revenue in nature. Since there is no material change in facts and circumstances in the appeal under consideration. No reason for deviating from the findings given by the respective CIT(Appeals) for the Asstt. Years 2007-08, 2008-09 and 2009-10 respectively as stated above. Therefore, addition made by the AO is deleted and the ground of appeal of appellant company is allowed on this issue Depreciation on the closed units for last 8 years - Held that - If some of the units of the assessee are closed, other units are certainly working and the depreciation is to be allowed on the entire block of assets of the plant & machinery and not only individual plant and machinery of each unit of the assessee - In the present case although the production has not been carried out in the years under consideration but the assets are kept as a stand by for the whole year. Moreover, although the production is suspended but the other activities of the units are being carried out. In such circumstances, find that the AO was not justified in disallowing the depreciation on the assets of these units. The additions made by him are, therefore, directed to be deleted - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of depreciation on plant and machinery.
2. Disallowance of quarry development expenses.

Issue-wise Detailed Analysis:

1. Disallowance of Depreciation on Plant and Machinery:

The Revenue challenged the disallowance of depreciation on plant and machinery for the assessment years 2007-08, 2008-09, and 2009-10. The amounts disallowed were Rs. 53,57,552/-, Rs. 45,86,536/-, and Rs. 39,29,428/- respectively. The CIT(A) allowed the relief to the assessee by following the order of his predecessor for AY 2003-04 to 2006-07, where it was held that even though production was suspended, the assets were kept as standby for the whole year, and other activities of the units were being carried out. Consequently, the AO was not justified in disallowing the depreciation.

The Tribunal noted that the Committee on Disputes did not permit the Revenue to file an appeal against the CIT(A)'s order for AY 2003-04 to 2006-07. Furthermore, the issue was covered by the decision of the Hon'ble Jurisdictional High Court in CIT Vs. Bharat Aluminium Co. Ltd., which held that the expression 'used for the purpose of business' when applied to a block of assets means the use of the block of assets and not any specific individual asset. Therefore, the Tribunal upheld the CIT(A)'s decision and rejected the Revenue's appeal on this ground.

2. Disallowance of Quarry Development Expenses:

The Revenue also contested the deletion of the disallowance of quarry development expenses for the assessment years 2007-08, 2008-09, and 2009-10. The amounts disallowed were Rs. 1,79,88,000/-, Rs. 2,13,95,000/-, and Rs. 1,69,19,000/- respectively. The AO initially allowed the claim but later reopened the assessment and disallowed the expenses, treating them as capital expenditure. However, the CIT(A) held that the quarry development expenses, which included salaries, wages, fuel, power, rent, and other expenses for the removal of overburden, were revenue in nature and did not result in the creation of any assets or enduring benefit.

The Tribunal found no infirmity in the CIT(A)'s order, noting that the issue had been consistently decided in favor of the assessee in previous years. The Tribunal also referenced the Hon'ble Calcutta High Court's decision in CIT Vs. Katras Jharia Coal Co. Ltd., which held that expenses for the removal of overburden were revenue in nature. Consequently, the Tribunal dismissed the Revenue's appeal on this ground as well.

Conclusion:

In both appeals, the Tribunal found no merit in the Revenue's arguments and upheld the CIT(A)'s orders, thereby dismissing the appeals. The Tribunal's decision was consistent with previous rulings and supported by relevant case law, ensuring that the assessee's claims for depreciation and quarry development expenses were allowed as revenue expenditures.