Appell v. M/S Verdhman Textiles Ltd., Ludhiana

ITA No.315 of 2011 (O&M) IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH ITA No.315 of 2011 (O&M)Date of decision: 24.03.2023 Commissioner of Income Tax-I, Ludhiana ... Appell Vs. M/s Verdhman Textiles Ltd., Ludhiana ... Respond CORAM: HON’ BLE MS. JUSTICE RITU BAHRHON BLE MRS. JUSTICE MANISHA BATRA Present:Mr. Vaibhav Gupta, Advocate,for the appellant,for the appellant, Ms. Radhika Suri, Senior Advocate, with Mr. Ishan Aggarwal, Advocate,for the respondent. <<<<for the respondent. <<<< Ritu Bahri, J. (oral) The instant appeal under Section 260A of the Income Tax Act,1961, has been filed against the order dated 31.03.2011 passed by theIncome Tax Appellate Tribunal, Chandigarh, whereby appeal filed by theassessee-M/s Verdhman Textiles Ltd. has been accepted and order dated26.11.2010 passed by the Commissioner of Income Tax (Appeal), Ludhianarelating to the assessment year 2007-2008 has been set aside. Brief facts of the case are that the assessee had filed its originalreturn of income for the assessment year 2007-2008 on 31.10.2007 declaringtotal income of Rs.1,36,28,61,170/-. Later on, the assessee filed its revisedreturn on 25.03.2009 declaring income of Rs.1,37,10,52,040/-. AssessmentAJAY PRASHER2023.04.10 11:34I attest to the accuracy andyader Section 143 (3) of the Income Tax Act was completed vide order datedintegrity of this document ITA No.315 of 2011 (O&M) -)- 30.12.2009. However, the Assessing Officer, after recording the reasons forreopening the assessment under Section 147 of the Income Tax Act, issuednotice to the assessee under Section 148 of the Act. During the course ofreassessment proceedings, the reasons recorded for reopening were servedupon the assessee. Vide letter dated 22.01.2010, the assessee raisedobjection alleging it to be a review of the earlier decision of the AssessingOfficer. The second objection of the assessee was that there was nolfoundation for forming the belief and in the absence of such reasons, theAssessing Officer was devoid of any jurisdiction for reopening theassessment under Section 147/148 of the Act. The assessee had claimed anexpenditure of Rs.6.01 crores as amount paid to Madhya Pradesh ElectricityBoard (MEPB) for the line/bay charges in Anant Spinning and VardhmanYarn, Satlapur, both units located in Madhya Pradesh. The Assessing Officerwas of the view that the expenditure incurred was for the creation of capitalassets, which were to be used solely for business of the assessee and as theassessee could transfer such a right in case of transfer of assets, the saidexpenditure was held to be a capital expenditure and was disallowed andadded back to the income of the assessee. In appeal, the CIT (A) upheld the reopening of the assessmentand opined that the claim of capital expenditure as Revenue expenditure,which had been allowed by the Assessing Officer, was the valid reason toreopen the assessment to bring to tax the capital expenditure allowed asRevenue expenditure. The CIT (A) observed that the Assessing Officer hadreopened the assessment within a period of four years of the originalassessment and hence, the same was upheld. The CIT (A) also upheld theAJAY PRASHER2023.04.10 11:34order of the Assessing Officer in holding the expenditure to be a capitalI attest to the accuracy andintegrity of this document ITA No.315 of 2011 (O&M) -3- In appeal, the CIT (A) upheld the reopening of the assessmentand opined that the claim of capital expenditure as Revenue expenditure,which had been allowed by the Assessing Officer, was the valid reason toreopen the assessment to bring to tax the capital expenditure allowed asRevenue expenditure. The CIT (A) observed that the Assessing Officer hadreopened the assessment within a period of four years of the originalassessment and hence, the same was upheld. The CIT (A) also upheld theAJAY PRASHER2023.04.10 11:34order of the Assessing Officer in holding the expenditure to be a capitalI attest to the accuracy andintegrity of this document ITA No.315 of 2011 (O&M) -3- expenditure as the assessee’s contention that ownership of the assets createdvested with MPEB, was not supported by any evidence and even otherwisethe assessee was having sole and exclusive rights over the aforesaid baylines. A reference was made to Explaination | to Section 32 of the Act inconnection with allowance of depreciation of capital expenditure incurred onleased building and following the said explanation, it was held by CIT(A)that even where there was no ownership of an asset, the assessee could bedeemed to be owner of such assets for the purpose of allowing depreciationunder certain circumstances. Against the said order passed by the CIT (A),the asessee filed an appeal before the Tribunal. Before the Tribunal, one of the grounds taken by the assesseewas that for the assessment year 1992-1993, the expenses paid to theMadhya Pradesh Electricity Board (MEPB) for the line/bay charges in AnantSpinning and Vardhman Yarn, Satlapur, were taken as capital expenses. Thesaid plea was allowed by the CIT (A) and against the said order, no appealwas filed by the revenue. The assessee had further informed the Tribunalthat similar expenditure was allowed for the assessment year 2004-2005. Anotice under Section 148 of the Act was issued by the Assessing Officer on06.01.2010 by referring to a judgment passed by this Court inCIT vs. M/sShreyans Industries Ltd.,303 ITR 393 (P&H), wherein it was held thatsuch expenditure were to be treated as capital in nature. The atoresaidjudgment passed by this Court was later on, set aside by Hon’ble theSupreme Court on 23.09.2008. In this backdrop, it was argued that noticeunder Section 148 of the Act was illegal and it could not have been issuedafter the delay. During the period under consideration, the assessee hadAJAY PRASHER2023.04.10 11:34claimed expenditure of Rs.6,01,69,818/- paid to MPEB on account of bayI attest to the accuracy andintegrity of this document ITA No.315 of 2011 (O&M) -4- lines. The said payment was solely out of commercial expediency with amotive of augmenting the business activity of the assessee company. TheAssessing Officer, vide order dated 30.12.2009, while framing theassessment under Section 143 (3) of the Act, had allowed the claim of theassessee. However, the reason for reopening the assessment vide orderdated 09.08.2010, is that this expenditure is capital in nature and thepayment was taken to be as income, which had escaped the assessment. The Tribunal further observed that for the assessment year1992-1993, this payment made to Madhya Pradesh Electricity Board(MEPB) was allowed by the CIT (A) and against the said order, no appealhad been filed by the Revenue. ITA No.315 of 2011 (O&M) -4- lines. The said payment was solely out of commercial expediency with amotive of augmenting the business activity of the assessee company. TheAssessing Officer, vide order dated 30.12.2009, while framing theassessment under Section 143 (3) of the Act, had allowed the claim of theassessee. However, the reason for reopening the assessment vide orderdated 09.08.2010, is that this expenditure is capital in nature and thepayment was taken to be as income, which had escaped the assessment. The Tribunal further observed that for the assessment year1992-1993, this payment made to Madhya Pradesh Electricity Board(MEPB) was allowed by the CIT (A) and against the said order, no appealhad been filed by the Revenue. Even with respect to the assessment year 2004-2005, appeal ofthe assessee with respect to the similar claim was allowed. This income hadbeen disclosed by the assessee while filing the return and even in respect ofthe past two assessment years, similar benefit had been allowed by treatingthe payment made to Madhya Pradesh Electricity Board (MEPB) for theline/bay charges in Anant Spinning and Vardhman Yarn, Satlapur, as revenueexpenditure. It was not a case, where any information had been concealed bythe assessee at the time of passing of the assessment order under Section 143(3) of the Act. There was no fresh material pointed out by the AssessingOfficer for reopening the assessment. The Tribunal further observed thatthere was no merit in the reasons recorded for reopening the assessment bythe Assessing Officer by placing reliance on the ratio laid down by thePunjab and Haryana High Court inM/s Shreyance Industries Ltd%A$ &"(supra). It was further observed that the assessee had referred to the relevantAJAY PRASHER2023.04.10 11:34extract from the|Madhya Pradesh Electricity Board (2004),as per whichI attest to the accuracy andintegrity of this document ITA No.315 of 2011 (O&M) -5- cost of extension of distribution made is to be paid by the consumer initially.However, the coast paid by the consumer shall be the property of thelicensee. With these observations, appeal filed by the assessee was allowed.Heard, learned counsel for the parties. After going through the impugned judgment, this Court is of theview that the amount paid by the assessee to the Madhya Pradesh ElectricityBoard for bay lines has been rightly taken to be therevenue expenditureSimilar benefit had been extended to the assessee for the assessment year1992-1993 and 2004-2005. This expenditure has been rightly claimed bythe assessee as per the provisions of the Income Tax Act. There was noreason for re-opening and initiating proceedings under Section 147/148 ofthe Act. The Tribunal has rightly allowed the appeal of the assessee byappreciating the facts in the right perspective. Moreover, the Revenue hasnot led any evidence to show that any income had escaped assessment at thetime of passing the assessment order. No substantial question of law arisesfor consideration in this appeal. Resultantly, finding no merits, the present appeal is dismissed. (RITU BAHRI)JUDGE 2403.2023 B2 (MANISHA BATRA)JUDGEWhether speaking/reasoned: Yes/NoWhether reportable: Yes/No