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TMI Blog2009 (10) TMI 505X X X X Extracts X X X X X X X X Extracts X X X X ..... Admission of additional grounds by the tribunal u/s 254 – held that:- both the conditions for raising this additional ground stood satisfied, viz., ground related to the tax proceedings of the assessee for the Assessment Year under consideration and the necessary facts were also available on record. – Decided in favor of assesse. Depreciation on non-operating plant and machinery – held that:- the PSL equipment was purchased and put to use by the assessee in previous year relevant to the Assessment Year 1990-91 and the same had entered into the block asset in that year. It thus lost individual identity for the allowance of depredation in that year. Since It is not in dispute for the year in question and block of assets was used, the assessee was rightly given the benefit of deprecation in the years in question. The question stands answered against the Revenue. - ITA Nos. 532, 1484, 1486, 1487, 1592, 1593, 1670 and 1671 of 2006, ITA Nos. 657 and 659 of 2007 ITA No. 1489 0f 2008 and 323 of 2009 - - - Dated:- 15-10-2009 - A K Sikri And Siddharth Mridul, JJ Appellants Represented by: Shri Prem Lata Bansal and Mr J R Goel, Advs. Respondents Represented by: Mr M S Syali, Sr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a matter of business prudence, to share the above facilities available with NTPC at Korba. It was decided to contribute a sum of Rs.22.68 Crores to NTPC as its share of capital expenditure for sharing common facilities created by NTPC at Korba. The above infrastructure facilities were created on the land belonging to NTPC and ownership and title of the same vested with NTPC. On the aforesaid sum of Rs.3.76 Crores contributed by the assessee, the assessee had claimed depreciation till the Assessment Year 1991-92. However, the assessee decided to change the accounting policy and to write off the balance expenditure of Rs. 15.07 Crores over a period of five years, i.e., at the rate of Rs.3.76 Crore per year. This was necessitated because of the suggestion and direction given by the Comptroller and Auditor General (CAG) to the assessee to follow the guidelines stipulated by the Institute of Chartered Accounts of India (ICAI) under the guidance Note No. 10. The assessee accordingly received clarification from the ICAI for amortizing the balance expenditure of Rs.15.07 Crores and to claim the same over a period of five years. 5. In essence, this expenditure was spread over, treatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y view that the expenditure is not allowable. Even if it is not allowed u/s 32 saying that there was nor(sic. no) ownership of the asset, it has to be allowed nonetheless. The decisions cited above would very much favour the assessee and make the expenditure allowable u/s 37 of the Art but since that expenditure did provide an enduring benefit, it was sought to be written over a period of five years. This was done on the advice of the Institute of Chartered Accountants and under the guidance of C AG to which the appellant could not have taken any exception. The Hon'ble Supreme Court in the case of Madras Industries Investment Corporation Ltd. Vs. CIT (1997) 225 ITR 802 . held that ordinarily revenue expenditure which is incurred wholly and exclusively for the purpose of business must be allowed in its entirely in the year in which it is incurred. It could not be spread over several year even if the assessee has written it off in his books over a period of five years. However, the facts may justify an assessee to separate and claim it over a period of ensuing years. In fact, allowing the entire, expenditure in one year might give distorted picture of the profits of a particular yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 . 10. After considering the arguments of both the counsel and going through the matter, we find no infirmity in the approach adopted by the Tribunal in the impugned order affirming the decision of the CIT (A). First and foremost question which would require consideration is as to whether the expenditure in question is revenue or it is capital expenditure. The CIT (A) has referred to various judgments of the Supreme Court and other High Courts including jurisdictional Courts, as per which such expenditure is to be treated as revenue/business expenditure. These judgments are discussed in the following manner: "5.7 Reference was invited to the observations of Supreme Court in the case of CIT vs. Madras Auto Services Limited reported in Vol. 99 of Taxman at a Page 580 wherein it was held that one assessee by expending money, created an asset of an enduring nature. However, the asset so created did not belong to the assessee. In such a situation, the Courts have held that the expenditure was for better carrying on of the assessee and could be allowed as revenue expenditure, looking to the circumstances of each of those cases. Thus in Lakshmiji Sugar Mills Co. P. Ltd. Vs. CIT (1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, the advantage, secured was in the field of revenue and not capital. 5.10 In the case of CIT Vs. Bombay Dyeing Mfg. Co. Ltd. (1996) 219 ITR 521/85 Taxman 396 (SC) , the company contributed to the State Housing Board certain amounts for construction of tenements for its workers. The tenements remained the property of the Housing Board. It was held that the expenditure was incurred wholly and exclusively on the welfare of the employees and, therefore, constituted legitimate business expenditure. As the assessee company acquired no ownership right in the tenements, this Court said that the expenditure was incurred merely with a view to carry on the business of the company more efficiently by having a contended LABOUR FORCE." 11. The expenditure incurred by the assessee in making payments to Municipality to lay new cables, which were to belong to Municipality, was treated as business expenditure and not capital expenditure by this Court in Hindustan Times Ltd. (supra). This judgment has been followed in Saw Pipes Ltd. (supra). 12. Case of Travancore Cochin Chemicals Ltd. (supra) relied upon by the learned counsel for the Revenue would have no application in the instant case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ken roots by then. Such a principle has been evolved in latter case taken note of above. 15. Thus, once we hold that expenditure in question was of revenue nature, the moot question would be as to whether it could be allowed over a period of five years. That has been permitted in the aforesaid judgment of the Supreme Court. We are, thus, of the opinion that no doubt till 1991-92, the part of the expenditure was allowed every year. It was loosely called as depreciation. What can be said is that the revenue expenditure was allowed every year at the rates on which depreciation is allowed. Since this was wrong practice adopted, the C AG rightly advised the assessee to change the accounting method to bring it in tune with ICAI guidelines. What is done now from the Assessment Year in question is that it is the. correct step as it should have been taken in accordance with law and therefore, this could have been deprecated and claimed disallowed totally as done by the AO. We thus hold answer to the question in favour of the assessee and against the Revenue and therefore, dismiss this appeal. ITA No.659/2007 and 1484/2006 16. Two issues which are raised in this appeal pertain to: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, we do not see any reason why the assessee should be prevented from raising that question before the tribunal for the first time, so long as the relevant facts are on record in respect of that item. We do not see any reason to restrict the power of the Tribunal under Section 254 only to decide the grounds which arise from the order of the Commissioner of Income-tax (Appeals). Both the assessee as well as the Department have a right to file an appeal/cross-objections before the Tribunal. We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier. In the case of Jute Corporation of India Ltd. vs. CIT (1991) 187 ITR 688 , this Court, while dealing with the powers of the Appellate Assistant Commissioner observed that an app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, as we notice hereinafter, when the Tribunal dealt with those additional grounds, it took into consideration the facts which were already on record and the issues also related to the Assessment Year under consideration. To demonstrate this, it is not necessary to take up for discussion all the additional grounds. Following examples would suffice, as the position in respect of other additional grounds remain the same. One additional ground was in the following terms: "That the prior period expenses claimed by the assessee in subsequent year but disallowed by the Assessing Officer on the ground that the expenses did not pertain to that year ought to have been allowed by the Assessing Officer during the year under appeal." It is clear From the above that the assessee had claimed prior period expenses in subsequent year, but in that subsequent year, the Assessing Officer had disallowed it did not pertain in that year. In these circumstances, the plea of the assessee was that since these expenses pertain to the year under question, they should be allowed at least in this year. It was also pointed out that the mistake committed by the assessee was that these expenses of prior pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reciation amounting to Rs.1,96,875/- on the alleged non-operating plant and machinery. As per the AO, plant and machinery was not used on this year and therefore, depreciation there upon was not allowable. The Tribunal, however, allowed this claim, as the same was allowed by it in the ease of the assessee itself for the Assessment Years 1999-2000 and 2001-02. Against that decision of the Tribunal, the assessee has filed ITA No.1484/2006. Since reasons are contained in that order of the Tribunal, we may spell out those reasons at this juncture. 22. There was no dispute that the machinery in question was not put to use during the previous year. At the same time, the machinery in question formed part of block of assets. Predicating on this, the submission of the assessee was that once an asset merges into the block of assets, it loses its identity. Thus the user of individual asset is not required and relevant factor would be the use of block asset. This contention of the assessee has been accepted by the Tribunal, taking aid of the judgment of the Mumbai Bench of the Tribunal in the case of Nathini Steels Ltd. Vs. Dy. Commissioner of Income Tax, (1996) 50 TTJ 240 and the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nalysis." 23. To put in nutshell, as per the Tribunal, once a particular asset falls within the block, it is added to the written down value and the depreciation is to be allowed on the block assets. Thus individual asset loses its identity. In these circumstances, whether individual asset is put to use in a particular year or not is of no consequence inasmuch as the requirement of law is to establish the use of concerned block of assets and not the use of particular equipment individually. 24. Challenging the aforesaid reasoning of the Tribunal, the argument of Ms. Bansal was that Section 32 of the Act, which deals with depreciation enumerates two conditions, viz.: a) The assesses should be the owner of the assets; and b) The assets should be used in the particular in which depreciation is claimed. She submitted that this was the substantive provision containing the aforesaid conditions which were to be necessarily fulfilled before acquiring eligibility to get depreciation under the said provision of law. Section 43 of the Act, on the other hand, which deals with block of assets, is a procedural provision providing for computation. Section 41 of its own cannot be read in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said clause (vi);] c) in the case of any block of assets.- (i) in respect of any previous year relevant to the assessment year commencing on the 1st day of April, 1988, the aggregate of the written down values of all the assets falling within that block of assets at the beginning of the previous year and adjusted.- (A) by the increase by the actual cost of any asset falling within that block, acquired during the previous year; (B) by the reduction of the moneys payable in respect of any asset falling within that block, which is sold or discarded or demolished or destroyed during that previous year together with the amount of such reduction does not exceed the written down value as so increased." Section 2(11) reads as under: "As per the above definition, "block of assets" means (i) ground of assets, (ii) which falls within a class of assets, being building, machinery, plant or furniture, (iii) in respect of which the same percentage of deprecation is prescribed. 26. We may also reproduce Rule 5 of the Income Tax Rules, which deals with depreciation is extracted below: "5. (i) Subject to the provisions of sub-rule (2), the allowance under clause (ii) of sub-sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of [40] per cent of written down value, if the following conditions are fulfilled, namely:- (i) the right to use such technology (including any process) or other know-how or to manufacture or produce such article or thing has been acquired from the owner of such laboratory or any person deriving title from (ii) the return furnished by the assessee for his income, or the income of any other person in respect of which he is assessable, for any previous year in which the said machinery or plant is acquired, shall be accompanied by a certificate from the Secretary, Department of Scientific and Industrial Research, Government of India, to the effect that such article or thing is manufactured or produced by using such technology (including any process) or other know-how developed in such laboratory or is an article or thing invented in such laboratory; and (iii) the machinery or plant is not used for the purpose of business of manufacture or production of any article or thing specified in the list in the Eleventh Schedule to the Act. Explanation: For the purposes of this sub-rule.- (a) "laboratory financed by the government" means a laboratory owned by anybody [including socie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i Bench of the Tribunal in the case of Artic [1999] 68 ITD 462 opined that when a new asset is added in the block of assets in respect of which same date of depreciation is prescribed, it was necessary that that should be used in a business carried on by the assessee, in the following manner: "This shows that the main object of introducing the block of assets concept was only to reduce time and effort spent in detailed record maintenance. While giving effect to this object, there could have been no justification or warrant for prescribing a condition that the new asset, in addition to being an asset in respect of which the same rate of depreciation is prescribed as in the case of the other assets within the class, should also be used in a business carried on by the assessee. In the case of a building, the new building purchased should be one in respect of which the same rate of deprecation, as is prescribed in respect of the other building's, has been prescribed by the rules. If the assessee carries on a business, in that case he would also be eligible for an allowance on account of deprecation at that rate. in the case of an assessee who does not carry on a business, the resul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deducted from total written down value of the 'block asset'. 32. Once we understand and appreciate this scheme contained in the aforesaid provisions, it is not possible to accept the contention of the learned counsel for the Revenue that unless a particular asset is used for the purpose of business or provision, depreciation is not allowed. No doubt, as per Section 32(1) of the Act, in order to be entitled to claim depreciation, the asset is to be owned by the assessee and it is also to be used for the purpose of business or profession. However, the expression "used for the purpose of business" when applied to block asset would mean use of block asset and not any specific building machinery, plant or furniture in the said block asset as individual assets have lost their identity after becoming inseparable part of the block asset. That is the only manner in which various provisions can be harmonized. 33. Once we look into the provisions of this angle, answer to the argument of the learned counsel for the Revenue predicated on second proviso to Section 32 shall also be provided. It was her submission that if a particular asset is acquired after 30th September during the previous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the provision was made, this cannot be allowed. The Tribunal negatived this contention taking note of the fact by relying upon the judgment of the Supreme Court in Bharat Earth Movers (supra). The relevant discussion in this behalf is a under: "The question is whether the liability pertaining to leave of earlier years is prior period expenses and disallowable as such. Since the provisioning amount to change in method of accounting in respect of leave encashment liability, in the year of change the assessee is bound to incur extra expenses, one in relation to actual payment during the year and the other in relation to provision for earlier year. However, in the year of change, such provision has to be allowed, as such, liability is accounted for the first time. The changed method is followed consistently thereafter. The Tribunal in the case of Bharat Commerce and Industries (supra) in para 18 held thus: In connection with aforesaid ground No.9, is one more aspect which has to be mentioned. Relevant facts are that the assessee company incorporated change in its method of accounting only with effect from previous year under consideration. Thus, for calendar year 1973 (namel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in this appeal relates to the deferred revenue expenditure incurred on generator repair and crylotie. The Tribunal has allowed the expenditure by observing as under: "21. The assessee had a captive power plant at Korba for consumption of power plant for factory for production of aluminum the power plant is managed by NTPC Limited . During the P.Y. the assessee incurred an expenditure of Rs.4,26,48,395/- on replacement of certain parts and accessories. The expenditure was incurred through NTPC Ltd. The assessee claimed 1/5th of these expenses as a revenue expenditure and 4/5th of expenditure to be claimed over the next four succeeding AYs. Similarly there was a break down in December, 1996 in one of the units of the Captive power plant became solidified and contaminated due to accidental break down in December, 1996. In June 1997 when the captive power plant was restarted the aforesaid crylotie expenses were incurred in order to resume production of captive power. The assessee claimed 1/5th of these expenses as revenue expenses of the P.Y. and deferred the remaining 4/5th expenses to be claimed over the succeeding 4 A.Ys. The Assessing Officer held the expenditure to be of a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal observed as under: "72. We have considered the facts of the case and rival submissions. We find that the assessee had accumulated huge provisions amounting to about Rs.57.95 crore in respect of bad debts. It was stated that in none of the years, the amount was claimed as expenditure. This fact could have been very easily verified by the AO by having excess to record of some or all the years under question. Further, it was stated that this provision was reduced by an amount of Rs.69.24 lakh and the profit and loss account was credited by an identical. Thus, in computation of income, the amount of Rs.69.24 lakh had to be reduced. The case of the learned DR was that either the action of the AO may be confirmed or the matter may be remanded to him for further verification. We are of the view that no useful purpose would be served by remanding the matter to the AO. Further, the claim of the assessee that the impugned amount of about Rs.57.95 crore was not claimed in the respective years, has not been controverted either in the assessment order or by the learned DR. Therefore, we do not find any such error in the order of the learned CIT(A), which requires correction on our be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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