2005 (9) TMI 276 - AT - Income Tax

Form Of Appeal And Limitations - sufficient cause as enumerated in section 249(3) - Condonation of delay of 1, 447 and 1, 454 days for the assessment years 1995-96 and 1996-97 respectively on the advice by its Senior Manager (Finance Accounts) who happened to be a C.A. - Advised by CA that the disallowance of revenue expenditure on replacement is only going to be beneficial to the assessee-company since it is going to increase its asset base and the depreciation will be available for future years - HELD THAT - The delay is on account of advice by the assessee s Senior Manager (Finance Accounts) who happened to be a C.A. and he advised that at the time of finalisation of assessment proceedings the assessee-company had gone a massive expansion programme aggregating to Rs. 55 crores and there was availability of large depreciation and interest expenses as required for set off against future profits. Accordingly it was advised by him that the disallowance of revenue expenditure on replacement is only going to be beneficial to the assessee-company since it is going to increase its asset base and the depreciation will be available for future years. On this advice the assessee-company has taken a conscious and deliberate decision not to contest the assessment orders as the company had gone into a massive expansion programme aggregating to Rs. 55 crores and it wanted to claim large depreciation and interest expenses in future years when the profits will arrive. It is clear that this advice was given by the C.A. and accepted by the company even though the decision is available in favour of the assessee on replacement of machinery being held as revenue expenditure by the Hon ble Apex Court in the case of CIT v. Mahalakshmi Textile Mills Ltd. 1967 (5) TMI 4 - SUPREME COURT . Subsequently; the Hon ble High Courts and the Tribunal Benches are consistently taking a view from the very beginning that the expenditure incurred on replacement of machinery is a revenue expenditure. The word sufficient cause as enumerated in section 249(3) in the context of condonation of delay should be a liberal construction so as to give substantial justice but only when no negligence or inaction or want of bona fide is imputable to the party concerned. In the present case in hand the assessee was aware about the facts of the case and it was within its knowledge that the issue in respect of expenditure incurred on replacement of machinery was treated as capital expenditure by the Assessing Officer and the same was not contested as it wants to increase its asset base and want to claim depreciation and interest to be set off against the future profits. Thus we are of the view that the CIT (Appeals) is justified in refusing to condone the delay in filing the appeals. Accordingly we uphold the order of the CIT (Appeals). In the result the appeals of the assessee are dismissed.

Summary

Issues Involved:
1. Whether the assessee is entitled to condonation of delay of 1,447 and 1,454 days for the assessment years 1995-96 and 1996-97 respectively.

Issue-wise Detailed Analysis:

Condonation of Delay:
The primary issue in these appeals is whether the assessee is entitled to condonation of delay of 1,447 and 1,454 days for the assessment years 1995-96 and 1996-97 respectively. The delay was attributed to the advice given by the assessee's Senior Manager (Finance & Accounts), who is a Chartered Accountant (C.A.). The assessments for these years were completed under section 143(3) of the Income-tax Act, 1961, and the orders were received by the assessee on 12-3-1998 and 18-3-1998. The appeals against these orders were filed on 28-3-2002, resulting in the significant delay.

Reason for Delay:
The assessee argued that the delay was due to the advice of their Senior Manager (Finance & Accounts), who suggested that the disallowance of replacement expenditure as capital in nature would be beneficial due to the company's massive expansion program amounting to Rs. 55 crores. This advice was based on the premise that the disallowance would increase the asset base and provide extended depreciation benefits in future years. The assessee acted on this advice and chose not to file appeals for over four years. It was only after recalculations during reassessment proceedings that the assessee realized the mistake and decided to file appeals.

CIT (Appeals) Decision:
The CIT (Appeals) refused to condone the delay, stating that the assessee had taken a conscious and deliberate decision not to file the appeals based on the advice received. The CIT (Appeals) considered the reasons provided by the assessee and the case laws cited but concluded that the delay was not justifiable.

Tribunal's Analysis:
The Tribunal reviewed the case records, arguments, and relevant case laws. It noted that the assessee's decision not to file appeals was deliberate and based on the advice of their C.A., despite the fact that judicial precedents, including the Supreme Court's decision in CIT v. Mahalakshmi Textile Mills Ltd., held that replacement expenditure is revenue in nature. The Tribunal cited various High Court and Tribunal decisions supporting this view.

Legal Provisions and Precedents:
Under section 249(3) of the Income-tax Act, an appeal can be admitted after the expiration of the prescribed period if the appellant shows sufficient cause for the delay. The Tribunal emphasized that sufficient cause must be beyond the control of the party and that negligence or inaction does not constitute sufficient cause. The Tribunal referenced several judgments, including those from the Supreme Court and various High Courts, which highlighted the need for diligence and the burden on the appellant to prove sufficient cause for the delay.

Conclusion:
The Tribunal concluded that the assessee's delay was due to a deliberate decision based on the advice of their C.A. and not due to any cause beyond their control. The Tribunal upheld the CIT (Appeals) decision to refuse condonation of delay, emphasizing that the law of limitation must be applied rigorously and that the assessee failed to show sufficient cause for the delay. Consequently, the appeals of the assessee were dismissed.