2017 (11) TMI 1700 - AT - Income Tax

Reopening of assessment - depreciation on plant and machinery - Held that - The assessee had in fact disclosed all its depreciation details in Form 3CD Annexure 1A. Her case however is that Section 149(1)(b) envisages time limit for issuing Section 148 notice to be between four years to six years squarely applies in facts of the instant case. We find no merit in the instant argument as the above statutory provision does not operate as an exception to Section 147 (first proviso). It is not a proviso to proviso in other words. Learned Departmental Representative further fails to dispute that the question whether or not a port terminals Jetty / Trestle is to be treated as plant and machinery is no more res integra since this tribunal s in Kandla Port Trust case (2006 (4) TMI 243 - ITAT RAJKOT) has held such assets to be plant and machinery entitled for 25% rate of depreciation. Hon ble jurisdictional high court has upheld the said view in Revenue s tax appeal no. 1942 of 2006 decided on 05. 07. 2016. We therefore find no reason to accept in Revenue s arguments seeking to treat assessee s Jetty & Trestle as building block of assets instead of plant and machinery in all cases on merits as well. Bad debts disallowance - debtors in question were in fact public sector undertakings in whose cases it could not be held that the sums in question had become actually bad - Held that - CIT(A) quotes hon ble apex court s judgment in TRF Limited case (2010 (2) TMI 211 - SUPREME COURT) holding that it was nowhere incumbent for an assessee to prove that the debts in question had actually become bad w. e. f. 01. 04. 1989. There is no dispute that the assessee had been duly including the said amounts as its income in preceding assessment years or that it has actually written off the same in the impugned assessment year. We therefore hold that the CIT (A) has rightly accepted assessee s claim of bad debts. Disallowing deferred revenue expenditure claim - Held that - Learned Departmental Representative invites our attention to the case records containing a co-ordinate bench s order in assessee s case for the said earlier assessment year 2016 (8) TMI 771 - ITAT AHMEDABAD has decided the very issue in Revenue s favour. Mr. Mehta however seeks to draw a fine line of distinction on the ground that the relevant head of deferred revenue expenditure was not the same. He fails to indicate the relevant distinction of allowability of deferred revenue expenses in question in principle as adjudicated in Revenue s favour. We therefore see no reason to adopt a different approach in the impugned assessment year. This issue is therefore decided against the assessee Reopening of assessment - non allowable depreciation claim having gone accepted during assessment - Held that - There is no dispute that the Assessing Officer initiated the above reopening within four years from the end of relevant assessment year. It has further come on record that the assessee itself has accepted disallowance of depreciation of ₹ 18, 006/- (supra). Section 147 explanation 2 of the Act envisages that escapement of assessment of taxable income would arise in case of excessive depreciation computation. It is therefore a case wherein there has been a claim of non allowable depreciation claim having gone accepted during assessment. Hon ble apex court s judgment in Raymond Woolen Mill vs. ITO (1997 (12) TMI 12 - SUPREME COURT) holds that sufficient prima facie material available with an Assessing Officer pointing towards escapement of taxable income from being assessed is enough in setting into motion the reopening in question. We therefore find no merit in assessee s instant argument Allowability of repair and maintenance expenditure - Held that - We invited both parties attention towards assessment year 2006-07 appeal hereinabove. The assessee had moved its FRO tanks from one place to another by way of cranes and shafts in order to collect chemical from incoming cargo and for having replaced existing Naptha pipeline from Jetty to tank. There is no material on record indicating any increase in assessee s already installed capacity in both the above instances. Or that the repair and maintenance expenditure in question pertains to replacement of assets concerned. We therefore observe that the assessee s arguments claiming both the above items as revenue expenditure deserve to be accepted in the impugned assessment year 2004-05 as well as in 2006-07 Prior period expenditure disallowance - expenditure crystallized in the impugned assessment year - Held that - As issue is that of evidence of crystallization. Learned counsel has filed a lengthy paper book to this effect. The same nowhere proves as to how and in what circumstances the expenditure in question got crystallized. The fact however also remains that neither the Assessing Officer nor the CIT(A) doubt genuineness of the expenditure in question in principle. We therefore direct the Assessing Officer to allow the said expenditure in the corresponding assessment year instead of the impugned assessment year after calling for necessary records as per law. This issue is taken as accepted for statistical purposes. Disallowing depreciation on foreign exchange loss on payment u/s 43A - Held that - As assessee strongly argues that both the lower authorities have erred in making the impugned disallowance and has also filed elaborate written submission that the assets in question had in fact been acquired from within India only. There is however no rebuttal to the CIT(A) s findings that the assessee had in fact imported machines, parts from outside India for the purpose of constructing its Jetty. Lower appellate authorities further conclusion on actual payment aspect has also not been controverted. We therefore find no merit in assessee s instant substantive ground. The same stands rejected. Treating of loan restructuring expenses as capital in nature - Held that - The assessee has admittedly made the said payment to M/s. Brescon Corporate Advisor for the purpose of loan restructuring. Pages 100 to 104 inter alia demonstrate that assessee had been paying interest at average rate @12. 89% stated to have come down to 7. 85% further reducing its average interest outgo from ₹ 55. 29crores to ₹ 47. 17crores on year to year basis. There is further no quarrel that the interest in question is otherwise allowable as Revenue expenditure. CIT vs. Gujarat State Fertilizers & Chemicals Ltd. (2013 (7) TMI 701 - GUJARAT HIGH COURT) hold that restructuring expenses are admissible as revenue expenditure.

Summary

Issues Involved:
1. Validity of reopening assessments under Section 148.
2. Classification of Jetty & Trestle for depreciation purposes.
3. Disallowance of deferred revenue expenditure.
4. Disallowance of lease amortization charges.
5. Disallowance of prior period expenses.
6. Bad debts disallowance.
7. Disallowance of repair and maintenance expenses as capital expenditure.
8. Disallowance of minimum assured quantity expenditure.
9. Disallowance of depreciation on foreign exchange loss.
10. Disallowance of loan restructuring expenses.

Detailed Analysis:

1. Validity of Reopening Assessments under Section 148:
The Revenue appealed against the CIT(A)'s orders quashing the reopening of assessments for AYs 2002-03 to 2004-05. The CIT(A) had reversed the Assessing Officer’s action, noting that there was no failure on the assessee’s part to disclose necessary particulars fully and truly. The tribunal upheld the CIT(A)’s decision, stating that the statutory provision under Section 149(1)(b) does not override Section 147 (first proviso). The reopening was deemed invalid as it was based on a change of opinion.

2. Classification of Jetty & Trestle for Depreciation Purposes:
The Revenue's consistent grievance was the classification of Jetty & Trestle as part of the building block entitled to a 10% depreciation rate, against the assessee's claim of it being plant and machinery eligible for 25% depreciation. The tribunal upheld the CIT(A)’s decision, referencing the Kandla Port Trust case, which classified such assets as plant and machinery.

3. Disallowance of Deferred Revenue Expenditure:
The assessee’s appeal for AY 2004-05 involved the disallowance of deferred revenue expenditure. The CIT(A) had followed his earlier orders confirming the disallowance. The tribunal found no reason to deviate from the earlier decision and upheld the disallowance.

4. Disallowance of Lease Amortization Charges:
The disallowance of lease amortization charges was also contested by the assessee. Both parties agreed that the issue had been decided in Revenue’s favor in earlier assessments. The tribunal upheld the disallowance.

5. Disallowance of Prior Period Expenses:
The assessee challenged the disallowance of prior period expenses for AY 2004-05. The CIT(A) had accepted similar claims in AY 2006-07. The tribunal noted that the issue was rendered infructuous due to the CIT(A)’s acceptance in the subsequent year.

6. Bad Debts Disallowance:
For AY 2006-07, the Revenue appealed against the CIT(A)’s decision to allow bad debts disallowance. The tribunal upheld the CIT(A)’s decision, referencing the Supreme Court’s judgment in TRF Limited, which stated that it was not necessary for the assessee to prove that debts had actually become bad.

7. Disallowance of Repair and Maintenance Expenses as Capital Expenditure:
The assessee contested the disallowance of repair and maintenance expenses classified as capital expenditure. The tribunal found that the expenses were for preserving and maintaining existing assets without increasing capacity, thus should be treated as revenue expenditure. The disallowance was deleted.

8. Disallowance of Minimum Assured Quantity Expenditure:
The disallowance of minimum assured quantity expenditure was contested for AY 2004-05. The tribunal noted that the issue had been decided in the assessee’s favor in earlier assessments and deleted the disallowance.

9. Disallowance of Depreciation on Foreign Exchange Loss:
The assessee challenged the disallowance of depreciation on foreign exchange loss. The tribunal upheld the CIT(A)’s decision, noting that the assets were acquired from outside India, and Section 43A applied, requiring actual payment for depreciation claims.

10. Disallowance of Loan Restructuring Expenses:
The assessee contested the disallowance of loan restructuring expenses. The tribunal referenced jurisdictional high court decisions allowing such expenses as revenue expenditure and directed the Assessing Officer to delete the disallowance.

Conclusion:
The tribunal dismissed all six of the Revenue's appeals (ITA Nos. 3115 to 3120/Ahd/2011) for AYs 2002-03 to 2006-07. The assessee’s appeal ITA No. 3077/Ahd/2011 was dismissed, while ITA Nos. 3078/Ahd/2011 and 3079/Ahd/2011 were partly allowed.