The Commissioner Of Income-Tax,Madurai v. M/S.thiagarajar Mills Ltd.,Kappalur,Madurai-625 008

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 11.06.2007 Coram : THE HONOURABLE MR.JUSTICE P.D.DINAKARAN AND THE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJATax Case (Appeal) Nos.446, 830 & 831 of 2007 The Commissioner of Income-tax,Madurai. Vs. M/s.Thiagarajar Mills Ltd.,Kappalur,Madurai-625 008. ..Appellant in all the T.Cs...Respondent in all the T.Cs. T.C.(A) No.446 of 2007 under Section 260A of the Income-tax Act, 1961against the order of the Income Tax Appellate Tribunal, Chennai Bench 'C'in I.T.A. No.1565/Mds/2004 dated 21.04.2006 for the assessment year 1999-2000. against the order of the Commissioner of Income Tax (Appeals)-IMadurai dated 26/3/04 in PAN/GIR No.AAACT 4304R in ITA.No.179/2002-03 forthe assessment year 1999-2000 order of the Deputy Commissioner of IncomeTax Company Circle I, Madurai. Tax Case (A) Nos.830 and 831 of 2007 under Section 260A of theIncome-tax Act, 1961 against the order of the Income Tax AppellateTribunal, Bench 'C', Chennai in I.T.A. Nos.1673 & 1674/Mds/03 dated23.11.2005 for the assessment years 1997-98 and 1998-99, respectively,against the Order of The Commissioner of Income Tax (Appeals)I Maduraidated 4/6/2003 in PAN/GIR No.AAACT 4304R.in ITA.No.106/2001-02 andITA.No.64/2000-2001 and against the order dated 30/3/01 & 20/3/2000 orderof the Joint Commissioner of Income Tax Special Range-II Madurai inPA.No.AACT.4304R and 47-0232-CN 9955. For Appellant in :Mr.J.Narayanaswamyall the T.Cs.Standing Counsel forIncome-tax Department JUDGMENT (Judgment of the Court was delivered by P.P.S.Janarthana Raja, J.) T.C.(A) No.446 of 2007 is filed under Section 260A of the Income-taxAct, 1961 by the Revenue, against the order of the Income Tax AppellateTribunal, Chennai Bench 'C' in I.T.A. No.1565/Mds/2004 dated 21.04.2006for the assessment year 1999-2000, raising the following substantialquestions of law:- 1. Whether in the facts and circumstances of the case,the Tribunal was right in holding that excise duty andsales tax do not form part of the turnover, for thepurpose of calculation of deduction u/s 80HHC? 2. Whether in the facts and circumstances of the case,the Tribunal was right in holding that additionalliability on account of purchase of plant andmachinery, which arose due exchange fluctuation has tobe treated as revenue expenditure?T.C.(A) Nos.830 and 831 of 2007 are filed under Section 260A of theIncome-tax Act, 1961, by the Revenue, against the order of the Income TaxAppellate Tribunal, Bench 'C', Chennai in I.T.A. Nos.1673 & 1674/Mds/03dated 23.11.2005 for the assessment years 1997-98 and 1998-99respectively, raising the following substantial questions of law:- 1. Whether in the facts and circumstances of the case,the Tribunal was right in holding that excise duty,sales tax and conversion charges do not form part ofthe turnover, for the purpose of calculation ofdeduction u/s 80HHC? 2. Whether in the facts and circumstances of the case,the Tribunal was right in holding that additionalliability on account of purchase of plant andmachinery, which arose due exchange fluctuation has tobe treated as revenue expenditure? 2.The facts leading to the above substantial questions of law areas under: The assessee is a company incorporated under the Companies Act. Therelevant assessment years are 1999-2000, 1997-1998 and 1998-1999 and thecorresponding accounting years ended on 31.03.1999, 31.03.1997 and31.03.1998 respectively. For the said assessment years, the assesseefiled Returns of income and the Assessing Officer completed theassessments and restricted the benefit under Section 80HHC of the Income-tax Act ("Act" in short) by including excise duty, sales tax andconversion charges to the total turnover. Further, the assessee claimed aportion of additional liability on account of purchase of plant andmachinery, which arose due to exchange fluctuation, as revenue 2.The facts leading to the above substantial questions of law areas under: The assessee is a company incorporated under the Companies Act. Therelevant assessment years are 1999-2000, 1997-1998 and 1998-1999 and thecorresponding accounting years ended on 31.03.1999, 31.03.1997 and31.03.1998 respectively. For the said assessment years, the assesseefiled Returns of income and the Assessing Officer completed theassessments and restricted the benefit under Section 80HHC of the Income-tax Act ("Act" in short) by including excise duty, sales tax andconversion charges to the total turnover. Further, the assessee claimed aportion of additional liability on account of purchase of plant andmachinery, which arose due to exchange fluctuation, as revenue https://hcservices.ecourts.gov.in/hcservices/ expenditure. The Assessing Officer disallowed the same and treated theadditional liability as capital expenditure. Aggrieved by the orders, theassessee filed appeals before the Commissioner of Income-tax (Appeals).The C.I.T.(A) held that the excise duty, sales tax and conversion chargesare not includible in the total turnover for the purpose of Section 80HHCof the Act. Further, the C.I.T.(A) held that the additional liability onaccount of plant and machinery which arose due to exchange fluctuation hasto be treated as revenue expenditure. Aggrieved, the Revenue filedappeals to the Income-tax Appellate Tribunal ("Tribunal" in short). TheTribunal dismissed the appeals and confirmed the orders of the C.I.T.(A).Hence the present appeals by the Revenue. 3.Learned Standing Counsel appearing for the Revenue fairly statedthat the issue in respect of Question No.1 in both the tax cases, standcovered by the Supreme Court's judgment reported in 290 ITR 667 in thecase of C.I.T. Vs. Lakshmi Machine Works. Hence, in respect of QuestionNo.1 in both the tax cases, no substantial questions of law arise forconsideration of this Court. 4.In respect of Question No.2 in both the tax cases, it is seenthat the the Tribunal followed the assessee's own case relating to theearlier assessment year 1995-96 and held as follows:-"It transpires that this issue, on identical facts,has been decided in favour of the assessee by this Tribunal in I.T.A.1778/Mds/98 in assessee's own casefor the assessment year 1995-96. In this decision,the Tribunal had placed reliance on Hon'ble MadrasHigh Court decision in 149 ITR 716 wherein it was heldthat additional liability arising out of devaluationcan be taken to be of the same character as of theoriginal receipt or the original liability and itcannot be taken to be having a different character.Adhering to the doctrine of binding precedents, weuphold the order of the Commissioner of Income Tax(Appeals) treating the liability on exchangefluctuation of machinery which was claimed asreplacement in earlier year as revenue expenditure." It is seen that the Tribunal consistently following the issue in favour ofthe assessee for the earlier assessment years, by relying on this Courtjudgment reported in 149 ITR 716 in the case of Lakshmi Card Clothing Mfg.Co. Pvt. Ltd. Vs. Commissioner of Income-tax, Tamil Nadu-V, Madras. TheRevenue is unable to bring to our notice any compelling reason to take adifferent view and also there is no detail as to whether the Revenue haspreferred any appeal against the earlier Tribunal orders or not. In viewof the same, we do not find any error or legal infirmity in the orders ofthe Tribunal so as to warrant interference. Under the circumstances, nosubstantial questions of law arise for consideration of this Court inrespect of Question No.2 in both the tax cases. 5.In the result, no substantial questions of law arise forconsideration of this Court and accordingly, the tax cases are dismissed.Consequently, M.P.No.1 of 2007 in T.C.(A) No.831 of 2007 is closed. Nocosts. km Sd/-Asst.Registrar /true copy/ To Sub Asst.Registrar 5.In the result, no substantial questions of law arise forconsideration of this Court and accordingly, the tax cases are dismissed.Consequently, M.P.No.1 of 2007 in T.C.(A) No.831 of 2007 is closed. Nocosts. km Sd/-Asst.Registrar /true copy/ To Sub Asst.Registrar 1. The Assistant Registrar, Income-tax Appellate Tribunal, Bench "C", Rajaji Bhavan, III Floor, Besant Nagar, Chennai-600 090. (5 Copies) Income-tax Appellate Tribunal, Bench "C", Rajaji Bhavan, III Floor, Besant Nagar, Chennai-600 090. (5 Copies) 2. The Commissioner of Income-tax (Appeals) I, Madurai. Madurai. 3. The Deputy Commissioner of Income-tax, Company Circle-1, Madurai. Company Circle-1, Madurai. 4. The Joint Commissioner of Income-tax, Special Range II, Madurai. Special Range II, Madurai. 5. The Commissioner of Income Tax, Madurai. +2 ccs to Mr.Pushya Sitaraman, Advocate Sr.No.34430 & 34431. TEJ(CO)DCP/20.6.07 T.C.(A) Nos.446, 830 and 831 of 2007