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TMI Blog2025 (3) TMI 1001X X X X Extracts X X X X X X X X Extracts X X X X ..... ounsel on instructions, to improved technology and better production efficiency. Thus, seeing as the installed capacity has remained constant over the years in question without there being any increase thereof, we are of the considered view that the expenditure incurred would be revenue in nature. Decided against the revenue. Eligibility for benefits u/s 35(i)(iv) while the matter is pending before the competent authority - HELD THAT:- This very issue has come up for consideration in [2024 (12) TMI 1542 - MADRAS HIGH COURT] we have decided the question adverse to the assessee following an order of the Tribunal for AY 1996-97 that has not been agitated by the assessee but accepted. Hence, and in the interests of consistency, this substantial question of law is answered in favour of the revenue. Allowance of 100% depreciation to fly ash silo treating it as a pollution control equipment - HELD THAT:- We are of the considered view that the assessee must succeed. It is true that the entry in question reads 'Ash handling system and evacuation system'. The grant of 100% depreciation is thus for a process that must both contain and evacuate fly ash that pollutes the air. It is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf. Hence, the general definition of the word turnover or the case law dealing with the said definition under the Sales Tax Act which is a State levy, cannot be imported into Section 80HHC of the Income-tax Act. Decided against the revenue. Depreciation on the dumpers - no evidence adduced that they had used it for more than 180 days, or even received the same in their site prior to 180 days - ITAT allowed full claim - HELD THAT:- As no evidence has been produced by the assessee before the authorities to establish that the dumpers had been received in its premises and put to use prior to 01.10.1995. This could very easily been done either by showing gate pass at the time of receipt of vehicles or any other documentation to indicate receipt and use of the same prior to 01.10.1995. Since the assessee has admittedly not done so, we are of the view that the Tribunal ought not to have reversed the orders of the lower authorities. Tribunal proceeds on the concept of passive user which is not applicable to the fact and circumstances of the present case. The benefit of depreciation to a passive user would require the user to establish that it was in possession of the asset but was unable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lding that the expenditure incurred on replacement of old machinery by new machinery would amount to revenue expenditure? 3. The first question relates to the allowance of expenditure under section 37 of the Income tax Act 1961 (Act) incurred on replacement of old machinery by new machinery. In the year in question, the assessee had made a claim in terms of Section 37 of the Act, of a sum of Rs. 1, 02, 59, 853/- towards expenditure on Belt Bucket Elevator (BBE). While completing the assessment, the assessing authority observes that the BBE was used for feeding the kiln and for operation of the cement mill. 4. The claim came to be negatived on the ground that it was capital in nature and also for the reason that the machinery had itself not been commissioned. However, depreciation was granted at 25% on the ground that the machineries were put to use for more than 180 days which finding runs counter to the observation that the machinery has not yet been commissioned. The authority also notes that the expenditure had been capitalized in the accounts. 5. He makes a distinction between a claim for current repairs under Section 31 and for allowance of expenditure under section 37. Sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence time has come when Department should examine technical experts so that the matters could be disposed of expeditiously and further it would enable the Appellate Forums, including this Court, to decide legal issues based on the factual foundation. We do not know the constraints of the Department but time has come when the Department should understand that when the case involves revenue running into crores, technical evidence would help the Tribunals and Courts to decide matters expeditiously based on factual foundation. The learned Attorney General, who is present in Court, has assured us that our directions to CBDT would be carried out at the earliest. 11. We do not find that the above directions militate against the procedure followed by the Tribunal. The inspection undertaken has enabled the Tribunal to understand the layout and segments of the factory, the manner in which the processes are carried out and the contribution of those processes to the ultimate output. 12.While undoubtedly, matters to be decided by the technical experts are best left to those entities/persons, discretion is always available with an authority to decide whether external assistance is required. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [(2014) 369 ITR 403 (Delhi)] vi) Commissioner of Income Tax-10 v. West Gujarat Expressway Ltd. [(2017) 390 ITR 398 (Bombay)] 16. Of the above, he refers solely to the judgment in the case of Sri Mangayarkarasi Mills Limited (Foot Note Supra (19)), particularly paragraph 14 onwards. He argues that the BBE was a capital asset, pointing out that there is nothing on record to support the submissions that the new asset saved power and reduced pollution. 17. Per contra, Mr.Rishikesh relies on the findings of the Tribunal and on the following decisions: i) L.H. Sugar Factory & Oil Mills (P.) Ltd. v. Commissioner of Income-tax [(1980) 4 Taxman 5 (SC)] ii) Commissioner of Income-tax v. Associated Cement Companies Ltd. [(1988) 38 Taxman 110A (SC)] iii) Commissioner of Income-tax v. P.J.Chemicals Ltd. [(1994) 76 Taxman 611 (SC)] iv) Commissioner of Income-tax v. Bongaigaon Refinery & Petro Chemicals Ltd. [(1997) 91 Taxman 124 (Gauhati)] v) Tuticorin Alkali Chemicals & Fertilizers Ltd. v. Commissioner of Income-tax [(1997) 93 Taxman 502 (SC)] vi) Commissioner of Income-tax v. Madras Auto Service (P.) Ltd. [(1998) 99 Taxman 575 (SC)] vii) Commissioner of Income-tax v. Coats V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... example, in the Blow Room there are different beaters (machines) which open the raw- cotton and remove the dirt therefrom. That cotton is forwarded to the Carding Department in which there are Carding Machines equipped with Autolevelers which produces Silver which is then carried forward to the Combing Department. It is important to note that each Department has different items of machines, for example, in the Blow Room we have machines called as Beaters. Similarly, in the Carding Department we have Carding Machines with Autolevelers. If the Autoleveler fails, the Carding Machine becomes non-functional. If an Autoleveler is to be repaired then that repair would come within the connotation of the word "current repairs" because it is a part of the Carding Machine. Even if in a given case, replacement of an Autoleveler could come within the connotation of the word "current repairs" if the old part is not available in the market. It is a "current repair" because the Carding Machine remains as an asset without any change even after repair or replacement of the autoleveler. To give an example, a Compressor is an important part of an Air-condition Machine. Repair of the Compressor will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aravana Spinning Mills (Foot Note Supra(33)), this distinction has been noted at paragraphs 14 and 15 to following effect: 14. Some of the decisions cited on behalf of the assessee's are not being discussed by us as they deal with cases falling under Section 37. That section is a residuary section. Under Section 37, a particular item of expenditure may be deductible if the expenditure does not fall within Sections 30 to 36; that it should have been incurred in the accounting year; that it should be in respect of a business carried on by the assessee; that it should not be on personal account of the assessee; that it should not be in the nature of capital expenditure and that it should be spent wholly and exclusively for business. Whether expenditure is 'revenue' or 'capital in nature' would depend upon several factors, namely, nature of the expenditure, nature of the business activity etc. For example, construction of the building for self-use may be capital in nature whereas in the hands of the builder a building constitutes his stock-in-trade and, therefore, on the sale of the building the expenditure has to be revenue. Therefore, the builder would be entitled t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the recent decision of this Court in CIT v. Saravana Spinning Mills (P) Ltd. ((2007) 7 SCC 298). In that case this Court has held unambiguously that "each machine in a segment of a textile mill has an independent role to play in the mill and the output of each division is different from the other." Dealing with a ring frame in a textile mill, this Court has held that it is an "independent and separate" machine. Further, it is accepted that each machine in a textile mill is part of the integrated process of manufacture of yarn and is integrally connected to the other machines in the mill for production of the final product. However, this interconnection does not take away the independent identity and distinct function of each machine. Thus, each machine in a textile mill should be treated independently as such and not as a mere part of an entire composite machinery of the spinning mill. As stated above, it can at best be considered part of an integrated manufacture process employed in a textile mill. 24. The Supreme Court, in Saravana Spinning Mills (P) Limited (Foot Note Supra (33)) and Sri Mangayarkarasi Mills Limited (Foot Note Supra (19)), has noted the scheme of operation of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pacity has not been enhanced, but only states that that is not the sole relevant parameter (See internal page 6 of Tribunal's order, paragraph 7). 31. In addition, and to satisfy ourselves of this aspect, we had sought the requisite comparative production details for the relevant period, and the same have been produced under compilation dated 21.01.2025, copies of which have been supplied to the revenue as well. The details are as follows: Place of Factory Unit of Measurement Installed Capacity (Maximum production Capacity) Assessment Year 1995-96 Assessment Year 1996-97 Assessment Year 1997-98 Ramasamy Raja Nagar, Tamil Nadu Tons 7, 50, 000 7, 50, 000 7, 50, 000 Jayanthipuram, Andhra Pradesh Tons 11, 00, 000 11, 00, 000 11, 00, 000 TOTAL CAPACITY 18, 50, 000 18, 50, 000 18, 50, 000 32. The tabulation is supported by extracts from the Annual Reports for the relevant financial years (Schedule M). Schedule M establishes categorically that there is no increase in the production capacity either in RR Nagar factory or in Jayanthipuram factory which remain constant at 7, 50, 000 and 11, 00, 000 tonnes per annum respectively both pre and post t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt manufacturing. 38. Thus, according to the officer, the assessee was merely storing the fly ash and there was no compliance with the condition relating to evacuation. Being of this view, he rejected the claim for depreciation. In appeal, the CIT(A) agreed with the assessing authority, being of the view that the system cannot be treated as an air pollution control equipment in terms of the relevant Entry. 39. The Tribunal reversed the above findings noting that the silos that were used to contain fly ash, achieved the purpose of both reducing air pollution as well as 'evacuation' as it channelised the fly ash into the manufacturing process. The Tribunal disagreed with the findings of the lower authorities that the condition relating to 'evacuation' would be satisfied only by the disposal of the fly ash outside the premises of the assessee. 40. Mr.Narayanaswamy would defend the orders of the assessing authority and CIT(A) pointing out that the intention behind the full grant of depreciation at 100% was to ensure the removal of the fly ash from the premises. He would point out that had it been the intention of the Statute to merely provide for the use of fly ash, the entry would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee and against the revenue. Question No.4: Whether in the facts and circumstances of the case, the Tribunal was right in treating the amount adjusted by IFCI from the new loan sanctioned by it towards interest payable on earlier loans as interest actually paid by the assessee within the time stipulated under Section 43AB? 46. The assessee had made a provision for a sum of Rs. 3, 50, 02, 516/- towards payment of interest to IFCI and claimed the same as deduction under Section 43B of the Act on the ground that the payment had been made prior to the due date. 47. The issue was taken up for verification by the assessing officer, who noted from the financials that the outstanding amount had, in fact, not been paid to IFCI as claimed. He, hence, proposed to disallow the interest on the ground that Section 43B requires actual payment as a pre-condition for allowance of deduction which condition was not satisfied in the present case. 48. The stand of the assessee was that it had applied for an additional loan from IFCI which had been sanctioned and hence the interest payments could be taken as adjusted against the fresh disbursals of the loans. However, since it had been un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orroboration from the bank to no avail. 51. In such circumstances, we are of the considered view that the findings of the Tribunal that the amount had actually been paid by the assessee is sans any material to support the same. The provisions of Section 43B, insofar as they relate to the condition of actual payment, call for a strict satisfaction and the failure of the assessee to have produced any material in this regard is fatal to its case. 52. This substantial question of law is answered in favour of the revenue and against the assessee. Question No.5:Whether in the facts and circumstances of the case, the Tribunal was right in holding that excise duty, customs duty, windmill power receipts etc. do not form part of the total turnover for the purpose of calculating the benefit u/s. 80HHC? 53. Both learned counsel would accede to the position that this issue is to be answered in favour of the assessee by virtue of the judgment of the Bombay High Court in CIT V. Sudharshan Chemicals Industries Limited [245 ITR 769]. The relevant portion of the judgment reads as follows: 6. We find merit in the contentions of the assessee. Under Section 80HHC, the Legislature intends that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods, there shall be allowed in computing the total income of the assessee, a deduction of the profits derived by the assessee from the export of such goods. In other words, in computing the total income of such an assessee, profits derived by the assessee from the exports are deductible. The above expression, namely, "profits derived from exports" also finds place in Section 80HHC(3)(a). It says that where the export is of goods, the profits derived from such export shall be the amount which bears to the profits of the business, the same proportion as the export turnover in respect of such goods bears to the total turnover of the business. In fact, the earlier section 80HHC(3) consisted of two parts, namely, whether the assessee carried on a business as 100 per cent. exporter and secondly whether the assessee carried on a composite business. In the latter case, it was provided that the profits derived from exports shall be the amount which bears to the profits of the business as computed under the head "Profits and gains of business", the same proportion as the export turnover to the total turnover. The emphasis is on the words "profits derived from the exports". Therefore, weigh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inding of fact is rendered by the Assessing Officer as well as the first appellate authority to the effect that no evidence has been produced by the assessee before the authorities to establish that the dumpers had been received in its premises and put to use prior to 01.10.1995. This could very easily been done either by showing gate pass at the time of receipt of vehicles or any other documentation to indicate receipt and use of the same prior to 01.10.1995. 58. Since the assessee has admittedly not done so, we are of the view that the Tribunal ought not to have reversed the orders of the lower authorities. The Tribunal proceeds on the concept of passive user which is not applicable to the fact and circumstances of the present case. The benefit of depreciation to a passive user would require the user to establish that it was in possession of the asset but was unable to use the asset for a certain period on account of factors beyond its control. 59. In the present case, even the assessee being in possession of the asset prior to 01.10.1995 is in doubt and has not been established. Hence, we reverse the order of the Tribunal on this account and answer this substantial question of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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