Pandian Chemicals Ltd., Madurai vs Assessee
- CitationI.T.A. No.2613/Mds/2014
Ratio decidendi
The rule this decision rests on
Where an assessee claims as revenue expenditure the cost of restoring a damaged wind mill, the question whether the outlay is allowable or capital in nature turns on whether the assessee merely replaced damaged parts of the existing windmill without substantial change in its original performance and generation capacity, in which case the expenditure is allowable as revenue, or whether the entire old windmill was replaced by a new one, in which case the expenditure is capital in nature. Where the factual position as to whether only damaged parts were replaced or the whole windmill was substituted is not clear from the record, the matter must be determined by verifying the facts from the books of account, purchase orders, job sheets and similar records, and the Assessing Officer is to decide the issue afresh after such verification and after affording the assessee an opportunity of hearing in accordance with law.
Written by Miss Lucy from the judgment below, not taken from a headnote.
Judgment
As delivered
M/s. Pandian Chemicals Ltd, Vs. The Deputy Commissioner of 17-A, Vallabhai Road, Income Tax, Chokkiklam, Company Circle -I, Madurai 625 002. Madurai.
[PAN :AABCP 6618D] (अपीलाथ /Appellant) ( यथ /Respondent)
अपीलाथ क ओर से / Appellant by : Shri. S. Chandrasekaran, C.A., यथ क ओर से / Respondent by : Shri. A.V. Sreekanth, IRS, JCIT.
सन ु वाई क तार ख/Date of hearing : 22.01.2015. घोषणा क तार ख /Date of Pronouncement : 27.01.2015.
आदे श / O R D E R
PER VIKAS AWASTHY, JUDICIAL MEMBER
The appeal has been filed by the assessee against the order of
Commissioner of Income Tax (Appeals)-II, Madurai dated 18.08.2014.
2. The assessee is a public limited company engaged in the
business of manufacturing chlorate and generation of power through :- 2 -: I.T.A.No2613/Mds/2014
.
wind mill. The assessee filed its return of income for the assessment
year 2010-11 on 27.09.2010 admitting income of .2,58,83,550/-.
Thereafter, the assessee filed revised return on 12.10.2010 declaring
income of .2,44,57,950/-. The case of assessee was selected for
scrutiny and notice u/s. 143(2) was issued on 30.08.2011. During the
course of scrutiny assessment, the Assessing Officer observed that the
assessee had claimed expenditure under the head "repairs and
maintenance'' to the tune of .92,00,000/- for replacing old wind mill
with the new one. The Assessing Officer held that the expenditure is
capital in nature.
Aggrieved by the addition/disallowance made by the Assessing
Officer vide order dated 28.03.2013, the assessee preferred an appeal
before the Commissioner of Income Tax (Appeals). The Commissioner
of Income Tax (Appeals) vide impugned order upheld the findings of
Assessing Officer. Now, the assessee has come in second appeal
against the findings of the Commissioner of Income Tax (Appeals).
3. Shri. S. Chandrasekaran appearing on behalf of the assessee
submitted that the learned Commissioner of Income Tax (Appeals)
erred in coming to the conclusion that the assessee had replaced
existing windmill with the new windmill. One of the windmill installed
by the assessee suffered huge damage caused by natural calamities.
:- 3 -: I.T.A.No2613/Mds/2014
.
The assessee has only replaced the rotor blades and part of the stem
of windmill. It is not the case where the entire windmill has been
replaced with the new one. The learned Authorised Representative
to support his submission placed reliance on the decision of Hon'ble
Supreme Court of India in the case of Saravana Spinning Mills (P) Ltd
reported as 293 ITR 201 and the decision of Hon'ble Allahabad High
Court in the case of CIT vs. V. Renu Sugar Power Co. Ltd reported as
298 ITR 94.
4. On the other hand, Shri. A.V. Sreekanth representing the
Department supported the order of Commissioner of Income Tax
(Appeals). The learned Departmental Representative pointed out that
in the grounds of appeal raised before the Commissioner of Income
Tax (Appeals), the assessee had admitted the fact that the wind mill of
similar capacity was purchased and installed in place of totally
damaged wind mill. The learned Departmental Representative further
submitted that it is no where stated by assessee that only certain parts
of the windmill which were damaged were replaced.
5. We have heard the submissions made by the representatives of
both sides and perused the orders of the authorities below. We have
also examined the decision on which the learned Authorised
Representative of the assessee has placed reliance. The contention of :- 4 -: I.T.A.No2613/Mds/2014
.
the learned Authorised Representative before us is that only damaged
parts of windmill were replaced and not the whole windmill has been
replaced with the new one.
6. We find that the authorities below have denied the relief claimed
by the assessee on the ground that the assessee has replaced old
windmill with the new one. As pointed out by the Departmental
Representative, in the grounds of appeal before the Commissioner of
Income Tax (Appeals), the assessee has made following submissions.
"In your appellant's HTSC No.2 there were two wind mills each of 250 KW capacity. The 500KW wind mills used to generate power for supply to the grid. In the above HTSC one No.250 KW wind turbine (TCL2) was totally damaged due to natural calamity. Hence a similar capacity windmill was purchased and installed in the place of the totally damaged wind mill.........''
It is not clear from the records before us whether the assessee
has replaced only damaged parts of the existing windmill or has
replaced entire old wind mill with the new one. These facts have to be
ascertained from books, purchase order, job sheet etc. In case, the
assessee has replaced only damaged parts of the windmill, without
there being substantial change in original performance and generation
capacity of wind mill the expenditure is allowable as claimed by the
assessee. We find that the judgment of the Hon'ble Allahabad High
Court in case of Rena Sugar Power Company Limited(supra) also
supports the contentions of the learned Authorised Representative.
:- 5 -: I.T.A.No2613/Mds/2014
.
Needless to say that if it is case of replacing new wind mill in
the place of old wind mill, the expenditure would certainly be capital in
nature. The file is remitted back to the Assessing Officer with a
direction to decide the issue afresh after verifying the factual aspect.
The Assessing Officer while deciding the issue de-novo shall grant an
opportunity of hearing to the assessee, in accordance with law.
7. The second issue in appeal with respect to treatment of
insurance claim is not pressed by the ld. Authorised Representative of
the assessee. The same is dismissed as not pressed.
8. In the result, the appeal of the assessee is partly allowed
for statistical purposes.
Order pronounced on Tuesday, the 27th of January, 2015, at
Chennai.
Sd/- Sd/-
(बी.आर. बा करन) ( वकास अव थी) (B.R. BASKARAN) (VIKAS AWASTHY) लेखा सद य/ ACCOUNTANT MEMBER या यक सद य /JUDICIAL MEMBER
दनांक/Dated:27.01.2015. K.V आदे श क त ल प अ े षत/Copy to: 1. अपीलाथ /Appellant 2. यथ / Respondent 3. आयकर आयु त (अपील)/CIT(A) 4. आयकर आयु त/CIT 5. वभागीय त न ध/DR 6. गाड फाईल/GF. :- 6 -: I.T.A.No2613/Mds/2014
.
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