Delhi High Court
Commissioner Of Income Tax Delhi ... vs Triveni Engineering & Industries ... on 23 January, 2009
Author: Badar Durrez Ahmed
* THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on 23.01.2009
+ ITA 1293/2008
COMMISSIONER OF INCOME TAX
DELHI -VI, NEW DELHI ... Appellant
- versus -
TRIVENI ENGINEERING &
INDUSTRIES LIMITED ... Respondent
WITH
+ ITA 1298/2008
COMMISSIONER OF INCOME TAX
DELHI -VI, NEW DELHI ... Appellant
- versus -
TRIVENI ENGINEERING &
INDUSTRIES LIMITED ... Respondent
AND
+ ITA 1326/2008
COMMISSIONER OF INCOME TAX
DELHI -VI, NEW DELHI ... Appellant
- versus -
TRIVENI ENGINEERING &
INDUSTRIES LIMITED ... Respondent
ITA Nos. 1293/08, 1298/08 & 1326/08 Page No.1 of 6
Advocates who appeared in this case:
For the Appellant : Ms Prem Lata Bansal
For the Respondent : Mr Ajay Vohra with Ms Kavita Jha and Mr Sriram Krishna
CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE RAJIV SHAKDHER
1. Whether Reporters of local papers may be allowed to
see the judgment ?
2. To be referred to the Reporter or not ?
3. Whether the judgment should be reported in Digest ?
BADAR DURREZ AHMED, J
1. These three appeals pertain to the assessment years 1994-95,
1995-96 and 1997-98 arising out of the common order dated
14.02.2008 passed by the Income-tax Appellate Tribunal in ITA Nos.
294 and 295/Del/2003 and ITA No.1961/Del/2004 respectively.
2. The revenue is aggrieved by the fact that the Income-tax
Appellate Tribunal allowed the expenditure incurred by the assessee in
connection with the modernization and expansion of, inter alia, its
Deoband and Ramkola units by treating the same as expenditure of a
revenue nature. The appellant / revenue is further aggrieved by the fact
that the tribunal allowed the said expenditure although the assessee, in
its books of accounts, had treated the same as capital expenditure. The
appellant / revenue has also raised the issue that the tribunal had
ITA Nos. 1293/08, 1298/08 & 1326/08 Page No.2 of 6
permitted deduction of administrative expenses incurred in the course
of the renovation of the two units.
3. The Assessing Officer as well as the Commissioner of
Income-tax (Appeals), in each of the three years in question, disallowed
the expenditure under the head "administrative expenses" incurred in
connection with modernization and expansion of the Deoband and
Ramkola units, by holding that the expenditure had been incurred for
acquiring a benefit of an enduring nature and consequently it was
capital in nature. The Assessing Officer had also noted that the
expenditure had been capitalized in the books of accounts maintained
by the assessee and, therefore, the assessee was asked to explain as to
why the said expenditure should not be treated as capital in nature. The
assessee offered the explanation that the expenditure had been incurred
to improve the profitability of the company inasmuch as, after such
expenditure, the assessee would be in a position to crush more
sugarcane in its Deoband and Ramkola units. The Assessing Officer,
however, did not accept this explanation and capitalized the
administrative expenditure and allowed depreciation thereon @ 25%.
The Commissioner of Income-tax (Appeals) confirmed the views of the
Assessing Officer.
4. The tribunal noted the arguments of the learned counsel for
the assessee that the administrative expenses were not the actual
ITA Nos. 1293/08, 1298/08 & 1326/08 Page No.3 of 6
expenses, but were estimated at 3% of the cost of machinery or
building put to use in the years in question. It was also contended that
the expenses were not for installation of new machinery or erection of
new building or transportation of material and that they were purely
administrative expenses of a revenue nature. It was also pointed out
that the assessee had undertaken the expansion of its existing sugar
mills with a view to enhance their capacities.
5. After hearing the arguments on behalf of the assessee as well
as the revenue, the tribunal observed that there was no dispute about
the fact that the assessee had been carrying on its sugar business in a
number of units, including its units at Deoband and Ramkola. The
assessee had modernized these two units with a view to achieve a
greater capacity. In this process, certain capital expenditure was
incurred and administrative expenses had been allocated on an estimate
basis towards the renovation and modernization of the said units. The
tribunal held that though the expenses had been capitalized in the
books of accounts of the assessee, this would not be conclusive of the
nature as to whether the expenditure was of a capital nature or a
revenue nature. The tribunal followed the decision of the Supreme
Court in the case of The Kedarnath Jute Manufacturing Co. Limited
v. The Commissioner of Income Tax (Central), Calcutta : 82 ITR 363
to hold that entries in the books of accounts of the assessee were not
ITA Nos. 1293/08, 1298/08 & 1326/08 Page No.4 of 6
conclusive of the nature of expenses. The tribunal thereafter examined
the issue as to whether in a continuing business, when expenditure is
incurred for renovation of its existing units, the said expenditure would
be of a capital or a revenue nature. The tribunal followed the decision
of this court in the case of CIT v. Relaxo Footwears Limited: 293 ITR
231. In that decision, this court, following its earlier decision in the
case of CIT v. Modi Industries Limited: 200 ITR 341(Del), held that
as the new unit was part of the existing business and there was no
dispute that there was unity of control and interlacing of the units, the
expenses incurred by the assessee for the setting up of a new unit,
would be of a revenue nature. We find that, in the present case, the
tribunal has correctly applied the decision of this court in Relaxo
Footwears Limited (supra). The administrative expenses would be of
a revenue nature as there was continuity of business. The tribunal, in
our view, has correctly concluded that the authorities below had erred
in holding the said expenditure to be of a capital nature. We agree with
the conclusion of the tribunal that the whole of the expenditure is to be
allowed as revenue expenditure and consequently there would be no
question of grant of depreciation on such expenditure.
6. In these circumstances, we feel that no interference with the
impugned order of the tribunal is called for. The tribunal has correctly
ITA Nos. 1293/08, 1298/08 & 1326/08 Page No.5 of 6
appreciated the law on the point and has applied the same to the
undisputed facts.
7. No substantial question of law arises for our consideration.
The appeals are dismissed.
BADAR DURREZ AHMED, J
RAJIV SHAKDHER, J
January 23, 2009
dutt
ITA Nos. 1293/08, 1298/08 & 1326/08 Page No.6 of 6
