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TMI Blog2010 (8) TMI 689X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot be held to be of revenue nature. - Decided against Assessee. - 295 to 297 of 2010 - - - Dated:- 2-8-2010 - ADARSH KUMAR GOEL, AJAY KUMAR MITTAL JJ. JUDGMENT Adarsh Kumar Goel J.- 1. This order will dispose of I. T. A. Nos. 295, 296 and 297 of 2010. All the appeals involve common questions of law. 2. I. T. A. No. 297 of 2010 has been filed by the assessee under section 260A of the Income-tax Act, 1961 (in short "the Act"), against the order dated July 28, 2009, passed by the Income-tax Appellate Tribunal, Chandigarh Bench "A" (hereinafter referred to as "the Tribunal") in I. T. A. No. 1085/Chd/2008 for the assessment year 2004-05 proposing to raise the following substantial questions of law : "(i) Whether, on the facts and in the circumstances of the case, the expenses incurred by the assessee on the replacement of membranes is a revenue expenditure or the same can be treated to be the deferred revenue expenditure by spreading over a period of three years and whether the same is allowable as a deduction in the year in which it was incurred ? (ii) Whether the Income-tax Appellate Tribunal was justified in treating the expenditure incurred on repl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer has given a finding that the assessee has changed its method of accounting in the relevant previous year to reduce its profits. The relevant para is reproduced as under : 'The above reply shows that the assessee has changed its method of accounting in the relevant previous year to reduce its profit as declared by the profit/loss account. The said adjustment has been done by the assessee in computation sheet where full capital expenses related to addition of membranes and the opening balance both are claimed. This claim cannot be accepted as the membranes used by the assessee are capital in nature and have a life of three years as noticed by the auditors. Hence, the expenses in this account is allowable only to the tune of benefits/utilization of the assets. Hence, only one-third of the addition to the membrane is allowed as revenue expense and the balance of the claim is disallowed. The disallowance on this account comes to Rs. 2,09,91,401 (Rs. 2,44,76,754-one-third of Rs.1,04,56,059).' 10. The hon'ble Income-tax Appellate Tribunal, Ahmedabad, has discussed various case law which have also been relied upon by the assessee. So I need not discuss these cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, the view which is in favour of the assessee should be adopted as held by the hon'ble Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC). The same also does not hold good in the present case also. This is for the reason that the issue of replacement of membrane has never come up before any court wherein the hon'ble court has given its definite opinion. Once we see the facts of this particular case, the conclusion is obvious that the assessee has himself claimed the expenditure in its profit and loss account only to the extent of one-third. (v) It is also pertinent to note the decision of the hon'ble Incometax Appellate Tribunal, Chandigarh, in I. T. A. No. 273/Chandi/ 2008, assessment year 2004-05 in the case of M/s. Dr. Morepen Ltd., Chandigarh, wherein the hon'ble Income-tax Appellate Tribunal on a similar issue has taken note of the decision of the hon'ble Income-tax Appellate Tribunal, Ahmedabad, Amtrex Appliances Ltd. [2005] 94 TTJ 396 (Ahd). Although the decision in the case of Dr. Morepen Ltd. is decided in favour of the assessee but the relevant observations as given by the hon'ble Income-tax Appellate Tribunal in para. 6 of the order b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance. The hon'ble Supreme Court has introduced the concept of deferred revenue expenditure to be claimed over a period of years. The contention of the assessee that there is no concept of deferred revenue expenditure does not hold good." 5. The above finding was affirmed by the Tribunal. 6. We have heard learned counsel for the appellant. 7. The contention raised by learned counsel for the appellant is that the expenditure in question was in the nature of revenue as by the said expenditure no new asset came into existence and the expenditure was of recurring nature necessary for carrying on the business. Reliance has been placed on the following judgments : (1) Jagat Bus Service, Saharanpur v. CIT [1950] 18 ITR 13 (All) ; (2) R. S. Radha Kishan Kapoor v. CIT [1963] 47 ITR 938 (All) ; (3) CIT v. Ashok Leyland Ltd. [1969] 72 ITR 137 (Mad) ; (4) CIT v. Cominco Binani Zinc Ltd. [1993] 204 ITR 56 (Cal) ; and (5) Punjab State Industrial Development Corporation Ltd. v. CIT [1997] 225 ITR 792 (SC). 8. On the basis of this, it has been submitted that the entire expenditure should have been allowed as revenue expenditure. 9. We are unable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l), was considering the issue relating to expenditure incurred for rerouting the pipeline connection and to take the pipeline further upstream for getting saline-free water which was held to be in the nature of revenue expenditure in the facts and circumstances of the case therein. 15. In Punjab State Industrial Development Corporation Ltd.'s case [1997] 225 ITR 792 (SC), the apex court held that the fee paid to the Registrar of Companies for expansion of the capital base was capital expenditure 16. In the present case, the concurrent finding recorded by the authorities clearly shows that the entire expenditure was not in the nature of revenue expenditure. Reliance has been placed by the authorities on the judgment of the hon'ble Supreme Court in Madras Industrial Investment Corporation Ltd. v. CIT [1997] 225 ITR 802, wherein the expenditure was in the nature of discount on debentures part of which was held to be expenditure proportionately as revenue expenditure. It was held that if the expenditure was incurred wholly or exclusively for the purpose of business, the same could be entirely allowed in the year in which it was incurred. But where only part of it could be att ..... X X X X Extracts X X X X X X X X Extracts X X X X
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