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TMI Blog2016 (4) TMI 1378X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the assessment proceedings, while verifying the return of income and audited statement of account, the Assessing Officer noticed that assessee had not claimed depreciation on assets. When called upon to explain the reason for doing so, it was submitted by the assessee that depreciation is to be claimed at the option of the assessee and cannot be thrust upon it. In support of such contention, assessee relied upon the decision of the Hon'ble Supreme Court in CIT v/s Mahendra Mills Ltd., [2000] 243 ITR 56 (SC). However, in response to the query raised by the Assessing Officer, assessee furnished the details of depreciation allowable under the Act. The Assessing Officer, after verifying the factual details observed, the assessee returned the loss of Rs. 18,81,57,930, before claiming depreciation under section 32 of the Act. He further noticed, the assessee was having huge unabsorbed depreciation and business loss to be carried forward. He, therefore, was of the view that the reason for not claiming depreciation was due to the fact that unabsorbed depreciation cannot be carried forward for set-off beyond eight years and keeping that in mind the assessee wanted to avail depreciati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the fact whether assessee has claimed or not. However, he submitted, such amendment would be effective from 1st April 2002, and not applicable to the impugned assessment year. For such proposition, he relied upon the following decisions:- i) CIT v/s Silvassa Industries Ltd., [2013] 36 Taxmann.com 280 (Bom.); ii) CIT v/s Kerala Electric Lamp Works Ltd., [2008] 261 ITR 721 (Ker.); iii) CIT v/s Friends Corporation, [1989] 180 ITR 334 (P&H) iv) CIT v/s Sree Snehavalli Textiles Pvt. Ltd., [2003] 259 ITR 77 (Mad.); and v) Parksons Press Ltd. v/s ITO, [2007] 12 sot 128 (Mum.). 6. Further learned Authorised Representative submitted, assessee has not claimed depreciation in assessment year 1997-98, which was evident from the return of income filed by the assessee. He submitted, the Assessing Officer being conscious of the fact that the assessee has not claimed any depreciation also completed assessment accepting that fact. He submitted, when the Department has adopted a particular view in the earlier assessment year, the same could not be changed in the subsequent years on identical facts. For such proposition, he relied upon the decision of the Hon'ble Supreme Court in R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arlier, it becomes clear that had it been the intention of the legislature to make allowance of depreciation mandatory, they would not have brought Explanation-5 to section 32(1) w.e.f. 1st April 2002 only. Therefore, in our view, the conclusion drawn by the Departmental Authorities that the expression "shall" used in section 32 is mandatory is not correct and cannot be a correct interpretation of the statutory provisions. Moreover, in case of Mahendra Mills Ltd. (supra), the Hon'ble Supreme Court has laid down the proposition that provisions for claiming of depreciation is for the benefit of the assessee, hence, if the assessee does not wish to avail the benefit for some reason, the benefit cannot be forced upon the assessee as it is for the assessee to see if the claim of depreciation is to his advantage. The Hon'ble Madras High Court in case of CIT v/s Sree Senhavalli Textiles Pvt. Ltd. [2003] 259 ITR 77 (Mad.) and CIT V/S Aircel Ltd. [2008] 296 ITR 85 (Mad.), following the decision of Mahendra Mills Ltd. (supra) expressed similar view. In our view, the aforesaid principle laid down by the Hon'ble Supreme Court and Madras High Court will apply to the facts of the present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,32,80,798. The assessee challenged the disallowance before the learned Commissioner (Appeals). 13. Learned Commissioner (Appeals), after considering the submissions of the assessee in the light of the facts and material on record noticed, the issue has already been decided by his predecessor-in-office in assessee's own case for assessment year 1996-97. Relying upon the said order, learned Commissioner (Appeals) allowed assessee's claim. 14. We have considered the submissions of the parties and perused the material available on record. Both the learned Counsels agreed before us that the issue is covered by the decision of the Tribunal in assessee's own case for the assessment year 1996-97, wherein the Tribunal confirmed the order of the learned Commissioner (Appeals) by allowing assessee's claim of deduction. On a perusal of the aforesaid order of the co-ordinate bench in ITA no.6146/Mum./2002 and another, dated 4th March 2016, it is observed, the Tribunal while deciding the issue held as under:- "12. We have heard both the parties and perused the orders of the Revenue Authorities as well as the cited judgment of various High Courts and also the relevant material placed on rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... airs and processing charges. Even if the expenses relate to trial run, the same in my considered opinion, constitute revenue expenditure in view of the fact that the trial run does not relate to any new line of the business and it is in respect of an existing manufacturing activity. The assessee's business constitutes the same business and there was an inter-connection, inter-lacing and inter dependence and unity between the existing business and the machine installed for bringing about improvement in the process of production. The AO has missed to take note of the foregoing facts and circumstances and even the appellant‟s submissions during the course of assessment proceedings have not been incorporated in the body of the impugned order or assessment. In view of what is discussed above, it is held that the expenses in question are allowable as revenue expenditure. AO is directed to allow the expenses of Rs. 26,30,65,934/-." 13. Further, we have also perused the cited judgments of various High Courts relied on by the Ld Counsel for the assessee. On perusal of the said judgments, we find the same are relevant for the proposition that "where the assessee is engaged in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2016, in ITA no.6146/Mum./ 2002, it is observed, the Tribunal while dealing with identical issued has upheld the decision of the learned Commissioner (Appeals) observing as under:- "18. We have heard both the parties and perused the orders of the Revenue Authorities as well as the cited judgments of the various High Courts and the relevant material placed before us. It is an undisputed fact that the assessee sold some assets to its group concerns and leased back the same. During the year, assessee paid a sum of Rs. Rs. 5,16,31,914/- on account of lease rent. The said lease rent represents two segments ie (1) an amount of Rs. 2,79,18,351/- paid to group concerns and (2) an amount of Rs. 2,37,13,563/- was paid to third parties viz, (i) Infra Structure Leasing & Finance Co. Ltd (Rs. 1,48,50,000/-); (ii) Kotak Mahindra Finance Ltd (Rs. 3,51,929/-) and (iii) others Rs. 85,11,634/-). During the assessment, AO doubted the transaction between the assessee and its group concerns, not with the third parties. But, in the assessment, AO made addition of Rs. 5,16,31,914/- by bringing the said two segments of the lease rent paid by the assessee instead of the amount paid to its group concerns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsaction was really a sham or dubious transaction and was a colourable device, finding that the sale and lease back transaction was a colourable device is not sustainable. It is relevant to mention here that when the AO not doubted the lease rent transaction between the assessee and the third parties, why he brought the lease rent amount paid to the third parties? We cannot appreciate such type of unsustainable additions. Considering the above, we are of the opinion that the decision taken by the CIT (A) while deleting addition of Rs. 5,16,31,914/- by treating the sale and lease back transaction as genuine one is fair and reasonable and it does not call for any interference. Accordingly, Ground no.3 raised by the Revenue is dismissed." 20. There being no material difference in facts brought to our notice, the decision of the co-ordinate bench of the Tribunal as referred to above will clearly apply to the facts of the present case. Moreover, the Hon'ble Supreme Court in M/s. I.C.D.S. v/s CIT, [2013] 350 ITR 007 (SC), has held that such lease back transactions are permissible in law. In the present case, as evident on record, the lessor has duly accounted for the lease rentals i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce written-off in the books against provision of doubtful advance made in the earlier years. When called upon to justify the claim, the assessee submitted, it had entered into agreement with M/s. Voest Alpine Industrial Services, GmbH, Vales, Austria, on 11th May 1993, for introducing manufacture of various grades of steel in its plant at Jejuri. As per the agreement, the services are to be provided in three phases, Phase-1 involved payment of lump sum fee of 21.60 lakh ATS payable in three equal installments of 7,20,000 ATS. The assessee paid two installments of 7.20 lakh ATS each during the year 1993 and 1994. However, as the assessee was not satisfied with the quality of services rendered by Vales, did not pay back the advance till 31st March 1999, assessee decided to right off advances in the books of account in the previous year 1998-99. The Assessing Officer, however, did not find merit in the submissions of the assessee. He was of the view that as per section 36(2), for an amount to be written-off as bad debt, two conditions have to be satisfied. Firstly, the debt has been taken into account in computing the income of the assessee of the previous year in which the amount wri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd perused the material available on record. As is evident, the Assessing Officer does not dispute the fact that the assessee has paid the amount claimed as bad debt to the Austrian company in pursuance to an agreement entered into between them and subsequently since the agreement was not acted upon, the assessee had demanded return of money. However, since the amount was not paid back by the Austrian company, it became irrecoverable. From the aforesaid facts, it is clear that the advance of money by the assessee to the Austrian company was in the normal course of its business. It is also a fact that the provisions for bad debt made by the assessee in the assessment year 1994-95, was disallowed and added back to the income. Therefore, when in the impugned assessment year, the assessee has actually written-off the amount in its books, the assessee is eligible to claim deduction of their recoverable advance as it is in the nature of business loss. This view is supported by the decision of the Hon'ble Jurisdictional High Court in IBM World Trade Corporation (supra) and other decisions relied upon by the learned Authorised Representative. Therefore, we do not see any reason to inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital in nature should not have been allowed. 40. Learned Authorised Representative on the other hand referring to the copy of invoice of professional fees paid to Indian Seamless Services Ltd., submitted, such expenditure was incurred towards consultation fees for securing financial re-structuring. As there was no enduring benefit derived by the assessee, the expenditure incurred cannot be treated as capital. Learned Authorised Representative submitted, the expenditure was incurred to re-structure its existing loan so as to get the benefit of reduction in the interest cost. Learned Authorised Representative drawing the attention of the Bench to the Profit & Loss account for the assessment year 1999-2000 submitted, as a result of such financial re-structuring, assessee derived benefit of Rs. 14.86 crore which has been credited as income to the Profit & Loss account. Learned Authorised Representative submitted, as the assessee has declared income derived out of the benefit of re-structuring corresponding expenditure has to be allowed. In support of such contention, he relied upon a number of decisions of Hon'ble Supreme Court as well as different High Courts, as referred to in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for loan deferment proposal. The Assessing Officer called upon the assessee to explain why the expenditure claimed should be allowed as business expenditure. In response to the query raised by the Assessing Officer, it was submitted by the assessee looking at its financial condition, the assessee had proposed to IDBI the lead financial institution to defer the existing re-payment schedule of term loan by two years. It was submitted, assessee availed services of ISFS for representing assessee's case to IDBI and obtain deferment. It was submitted, IDBI ultimately sanctioned companies proposal vide their letter dated 5th March 1998 and for the services rendered by ISFS assessee paid an amount of Rs. 11.25 lakh. Assessing Officer, though, agreed that interest payable to financial institutions and debited to Profit & Loss account is based on the sanction of IDBI and in the absence of the sanction the company would have paid penal and compound interest on the delay / default as per original schedule. However, he observed, assessee could not submit proof of any service rendered by ISFS. He further observed, negotiation with IDBI having taken place during the financial year 1997-98 how th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer, while verifying the audited statement of account, noticed that assessee has claimed an amount of Rs. 12,08,98,619, as product development expenses. When called upon to justify the claim, assessee submitted that it has commenced its manufacturing activity during the assessment year 1994-95, however, in assessment year 2001-02, though, the manufacturing activity was going on the assessee continued to develop new grades and sizes of steel bars which is the principal product of the company. It was submitted, development of new grades of steel bar and development of market for the same is an integral part of running the normal business. It was submitted, the expenditure incurred represent excess of normal production expenses like raw materials, consumables, processing expenses, etc., in respect of new grades of steel bar over sales realization, hence, the same is a normal business expenditure, therefore, allowable under section 37(1) of the Act. The Assessing Officer, however, did not find merit in the submissions of the assessee. He observed, the assessee himself admitted that it has developed new grade of steel bar. Therefore, expenditure incurred is for enduring benefit. Tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture. Learned Authorised Representative submitted, entries in the books of account are not conclusive. Allowability of any expenditure cannot be based only on accounting system followed by the assessee. Merely because the assessee in its books of account has treated it as a deferred expenditure, it does not lose its character of revenue expenditure. For such proposition, he relied upon the decision of the Hon'ble Supreme Court in Taparia Tools Ltd. v/s JCIT, [2003] 372 ITR 605 (SC) and a number of the other decisions. Finally, learned Authorised Representative submitted, assessee had incurred similar expenditure earlier and claimed the same as revenue expenditure, which was also accepted by the Department. In support of such contention, learned Authorised Representative referred to the computation of income for assessment year 1995-96 and 1997-98 and copies of assessment orders passed for these years. Learned Authorised Representative submitted, though, principle of res judicata does not apply to Income Tax proceedings, but if a particular view has been adopted by the Department in earlier years, the said view cannot be changed in the subsequent year unless there is change in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Departmental Authorities before disallowing the expenditure claimed by the assessee by treating it as capital in nature have not properly examined the relevant facts relating to the expenditure claimed, we are inclined to restore the matter back to the file of the Assessing Officer for deciding afresh after due opportunity of being heard to the assessee. It goes without saying, the Assessing Officer must consider all relevant facts and the ratio laid down in the decision which the assessee may rely upon, pas a reasoned order. Ground no.3, is allowed for statistical purposes. 58. In the result, assessee's appeal is partly allowed for statistical purposes. ITA no.2052/Mum./2005 - Department's Appeal In this appeal, the Department has raised two effective grounds. 59. Ground no.1 relates to allowance of assessee's claim of deduction of Rs. 23,93,495, towards expenditure incurred on watch and ward. 60. Brief facts are, during the assessment proceedings, the Assessing Officer after verifying the details of expenditure claimed by the assessee observed that an amount of Rs. 23,93,495 claimed towards watch and ward expenses pertained to earlier years. In response to the query ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year of claim and has no dispute with regard to the fact that the assessee has incurred expenditure and otherwise it is allowable as deduction. Learned Authorised Representative relying upon the decision of the Hon'ble Supreme Court in CIT v/s Excel Industries Limited, [2013] 358 ITR 295 (SC) submitted, when the deduction is allowable to the assessee the year of claim should not be made an issue for litigation as the impact of such disallowance in a particular assessment year would be either tax neutral or negligible. 64. We have considered the submissions of the parties and perused the material available on record. As could be seen, the Assessing Officer disallowed the deduction claimed by treating it as prior period expenditure on the reasoning that the assessee failed to prove that expenditure has crystallized during the year. However, it is a consistent claim of the assessee before the Departmental Authorities that the expenditure crystallized and quantified during the year under consideration after negotiation with the third party who provided watch and ward service. However, the documentary evidence to demonstrate that the amount crystallized during the assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X
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