2017 (5) TMI 1686 - AT - Income Tax

Nature of expenditure - expenditure on consumption of stores and spares - revenue or capital expenditure - HELD THAT - Issue decided in assessee own case 2011 (12) TMI 519 - ITAT AHMEDABAD whereby the issue is restored to the file of AO. Depreciation on Goodwill - HELD THAT - As in assessee s own case for A.Y. 2007-08 whereby the additional ground raised by assessee in ITAT was admitted and the issue was restored to the file of CIT(A). Depreciation on lease assets - HELD THAT - Issue decided against the Department by ITAT s order in assessee s own case for A.Y. 2006-07

Summary

Issues Involved:
1. Disallowance of expenditure on consumption of stores and spares.
2. Claim of depreciation on Goodwill.
3. Allowance of depreciation on assets given on lease.

Detailed Analysis:

1. Disallowance of Expenditure on Consumption of Stores and Spares

Assessee's Appeal:
The assessee contended that the CIT(A) erred in confirming the action of the Assessing Officer (AO) in disallowing expenditure on consumption of stores and spares amounting to Rs. 64,31,768, treating it as capital expenditure. This issue was previously addressed in the assessee's own case for A.Y. 2006-07 and A.Y. 2007-08, where it was restored to the file of the AO for re-examination. Following the precedent, the matter was remitted back to the AO for fresh consideration.

Revenue's Appeal:
The revenue challenged the CIT(A) for upholding the disallowance of Rs. 1,13,97,990 out of the total Rs. 2,12,01,483 claimed by the assessee for stores and spares, arguing that the facts for A.Y. 2008-09 were different from earlier years. The CIT(A) had allowed certain items as revenue expenditure, while others were treated as capital expenditure. The ITAT directed the AO to re-examine the nature of each expenditure item-wise and make a decision as per law.

2. Claim of Depreciation on Goodwill

The assessee raised an additional ground of appeal for claiming depreciation of Rs. 3,16,68,491 on Goodwill, which the CIT(A) did not admit. This issue was also covered in the assessee's own case for A.Y. 2007-08, where the ITAT had admitted the additional ground and restored the issue to the file of the CIT(A). Following this precedent, the ITAT remitted the matter back to the CIT(A) for fresh adjudication.

3. Allowance of Depreciation on Assets Given on Lease

Revenue's Appeal:
The revenue contested the CIT(A)'s decision to allow depreciation of Rs. 5,73,297 on assets leased by the assessee, arguing that the assessee was not engaged in the leasing business. The AO had disallowed the depreciation, treating the lease as a financial arrangement rather than an operational lease. The CIT(A) had upheld the assessee's claim based on precedents in the assessee's own case for earlier years. The ITAT directed the AO to reconsider the issue in light of the Special Bench decision in the case of M/s. IndusInd Bank Ltd., which required a fresh examination of the nature of the lease agreement.

Depreciation on Railway Wagons:
The AO had disallowed depreciation of Rs. 7,93,490 on railway wagons leased to Western Railway, treating it as a finance lease. The CIT(A) confirmed this disallowance. The ITAT noted that the issue required a fresh relook, considering the Special Bench decision in M/s. IndusInd Bank Ltd., and thus set aside the issue to the AO for de novo consideration.

Conclusion:
The ITAT allowed the assessee's appeal in ITA No.2930/Ahd/2013, remitting the matter back to the AO for re-examination of the disallowance on stores and spares and to the CIT(A) for the claim of depreciation on Goodwill. The revenue's appeal in ITA No.2921/Ahd/2013 was partly allowed, with directions to the AO to re-examine the nature of the lease agreement for depreciation claims on leased assets. The ITAT's decision was pronounced in open court on 19/05/2017.