2017 (6) TMI 87 - HC - Income Tax

Custom duty paid on purchase of plant and machinery - capital or revenue expenditure - Held that - ITAT accepted the plea of assessee regarding expenditure on custom duty and returned the finding that assessee is entitled to deduction either by way of depreciation or by way of allowance of entire expenditure, as revenue expenditure as it has been incurred wholly and exclusively for the purpose of business. Since Income Tax Appellate Tribunal has accepted the plea of assessee that the amount of ₹ 8,19,44,049/- can be treated as revenue expenditure, as it has been incurred wholly and exclusively for the purpose of business, as the above mentioned amount was paid as excise duty, as assessee has converted its unit from 100% EOU under EPCG Scheme to DTA Unit and would sell goods in domestic market so this amount was paid for the more profitable business and finding of the tribunal in this regard treating the above amount as revenue expenditure in the alternate cannot be found faulty - Decided in favour of assessee Depreciation on the purchase of plant and machinery - whether claim admissible on the actual cost of the plant and machinery excluding the custom duty, which was paid subsequent? - Held that - Hon ble Supreme Court in Saharanpur Electric Supply Co. Ltd. Vs. CIT (1992 (1) TMI 2 - SUPREME Court )has opined that it is incontrovertible that, under Section 43 (1) read with Section 43 (6), the Officer has to determine the actual cost for all assets, new and old, and the definition in Section 43 (1) only requires that, at the time of doing so, he has to examine whether the actual cost has been fully met out by the assessee or has been met by someone else in whole or in part. The words has been met squarely fit into this reading of the section and the use of those words does not restrict the definition in Section 43 (1) to assets acquired in the previous year and moreover, in appeal the representative of the department conceded that the judgment of the Hon ble Supreme Court in Saharanpur Electric Supply Co. Ltd. (Supra) was directly on this issue and was in favour of the assessee. So depreciation will be computed on the cost of plant and machinery and in its cost custom duty will also be added. Deduction permissible on account of revenue expenditure even though no such plea was raised before it - Held that - In the present case assessee has taken this ground before Commissioner (Appeals) and if he has not further challenged the finding on this ground then as per Rule 27 of the Income Tax Rules assessee can advance his arguments even though he has not filed cross objection against the finding on the assessee against him. So learned ITAT did not commit any mistake in permitting the assessee to support the order of C.I.T. (Appeals) on the ground that have been decided against him. Consequently, this question of law is also decided against the revenue and in favour of the respondent, assessee.

Summary

Issues Involved:
1. Whether the custom duty paid on the purchase of plant and machinery would be a capital or a revenue expenditure?
2. Whether the depreciation on the purchase of plant and machinery is admissible on the actual cost of the plant and machinery excluding the custom duty, which was paid subsequent?
3. Whether the Income Tax Appellate Tribunal was justified in returning a finding on the question of deduction permissible on account of revenue expenditure even though no such plea was raised before it?

Analysis:
1. The first substantial question of law addressed whether the custom duty paid on the purchase of plant and machinery should be treated as a capital or revenue expenditure. The respondent, an assessee, imported machinery and paid custom duty, subsequently converting the unit from 100% Export Oriented to Domestic Tariff Area. The Income Tax Appellate Tribunal allowed the expenditure as revenue expenditure, considering it incurred wholly and exclusively for business purposes. The Tribunal's decision was upheld, stating that the amount paid for excise duty post-conversion was for a more profitable business, justifying it as revenue expenditure.

2. The second issue revolved around the admissibility of depreciation on plant and machinery, excluding the subsequent custom duty paid. The department argued that depreciation should be calculated on the actual cost of machinery without including custom duty paid later. However, the respondent cited a Supreme Court judgment supporting depreciation computation on the total cost of machinery, including custom duty. The Tribunal's decision aligning with the Supreme Court's interpretation was upheld, favoring the assessee.

3. The final issue questioned the Tribunal's decision to consider a deduction for revenue expenditure, despite no initial plea raised. The appellant contended that this finding was unjustified. Rule 27 of the Income Tax Appeal Rules was invoked, allowing the assessee to support the order on any decided ground, even without filing a cross-appeal. As the assessee raised this ground before the Commissioner (Appeals) and was permitted to advance arguments, the Tribunal's decision was deemed appropriate, leading to the dismissal of the appeal in favor of the respondent.