The Commissioner Of Income Taxtrichy v. M/S.aditya Ferro Alloys P Ltd

THE HONOURABLE MR. JUSTICE R.SUDHAKARANDTHE HONOURABLE MR. JUSTICE G.M.AKBAR ALI The Commissioner of Income TaxTrichy.. Appellant in all the appeals- Vs - M/s.Aditya Ferro Alloys P Ltd.No.242/2, Surakudi VillageThirunallar, Karaikal... Respondent in all the appeals TCA Nos.978 to 981 of 2013 u/s 260-A of the Income Tax Act filedagainst the order of the Income Tax Appellate Tribunal, Madras 'Á'Bench, dated 26.6.13 in ITA No.474, 840, 871 & 872/MDS/2013 for theassessment years 2005-2006 and 2008 to 2011. Preferred against theorder of commissioner of Income Tax (Appeal) order dated 31.12.2012made in ITA.No.107 & 108/2012-2013, ITA.No.276/2010-2011,ITA.No.171/2011-2012/MDS/2012 for the assessment year 2010-2011,2005-2006 and 2008-2009 preferred against order of the AdditionalCommissioner of Income Tax, Thanjavur Range, Thanjavur, passedu/s.143(3) of the I.T.Act dated 19/11/2012 for the in PAN/GIRno.AADCA 7425M for the Assessment years 2005-2006, 2008-2009, 2009-2010, 2010-2011 respectively. For Petitioner: Mr. J.Narayanasamy JUDGMENT (DELIVERED BY R.SUDHAKAR, J.)In all these appeals, the following common question of law hasbeen raised :-“Whether on the facts and in the circumstances ofthe case the Tribunal was right in holding that theexpenditure on cast reusable cast iron moulds are tobe allowed as revenue expenditure”. 2. The assessment years relevant for the purpose of disposing ofthe appeals are 2005-2006 (re-opened assessment), 2008-2009, 2009-2010 and 2010-2011. The respondent assessee is engaged in thebusiness of manufacture of cast iron ingots using iron scrap and forthe purpose of manufacture of ingots, they use cast iron moulds.These moulds are used for about 30 to 40 heats after which time ithttps://hcservices.ecourts.gov.in/hcservices/ becomes brittle and develops cracks and not usable again. Therefore,the assessee has to scrap these moulds and purchase new moulds forthe manufacture of cast iron ingots. The assessee initially claimedit as a depreciable asset. However, the assessee, thereafter,changed its stand and treated the mould purchase expenditure asrevenue in nature and claimed deduction through profit and lossaccount. This was not accepted by the Assessing Officer, in all theoriginal assessment orders. According to the Assessing Officer, thecast iron moulds should be treated only as capital expenditure and,accordingly, he allowed depreciation as applicable and rejected theassessee's claim for treating it as revenue expenditure. becomes brittle and develops cracks and not usable again. Therefore,the assessee has to scrap these moulds and purchase new moulds forthe manufacture of cast iron ingots. The assessee initially claimedit as a depreciable asset. However, the assessee, thereafter,changed its stand and treated the mould purchase expenditure asrevenue in nature and claimed deduction through profit and lossaccount. This was not accepted by the Assessing Officer, in all theoriginal assessment orders. According to the Assessing Officer, thecast iron moulds should be treated only as capital expenditure and,accordingly, he allowed depreciation as applicable and rejected theassessee's claim for treating it as revenue expenditure. 3. Aggrieved by the said decision, the assessee filed an appealbefore the Commissioner of Income Tax (Appeals) on all the fourassessment orders, viz., 2005-2006 (re-opened), 2008-2009, 2009-2010and 2010-2011. The Commissioner (Appeals), placing reliance on thedecision of the Income Tax Appellate Tribunal 'D' Bench, Chennai, inthe assessee's own case for the assessment year 2004-2005, allowedthe appeals recording the finding of the Tribunal, which is set outhereunder for better clarity :-“”Regarding the merits of the issue, we findthat ingot moulds used by the assessee in itsmanufacturing process does not have a long shelllife. As the moulding process undertaken by theassessee is in a high temperature, the pouring ofthe molten iron in the moulds makes cracks andbreaks in the moulds of and on by which theappellant is compelled to replace the mouldsincessantly. It is true that the assessee hadtreated the purchase expenses of moulds asdepreciable assets. But the rate of depreciationadopted by the assessee for the earlier assessmentyears was the rate prescribed for the moulds usedin plastic and glass industries, later assesseemade an empirical assessment of the nature andshell life of mould and found that they are almostin the nature of consumables as far as theindustry of the assessee is concerned. On thebasis of that factual finding, the assesseechanged its method and treated the mould purchaseexpenditure as revenue in nature and claimeddeduction through profit and loss account. Whenwe examine the nature of the manufacturing processcarried out by the assessee and the shell life ofthe mounds we find that asessee is justified intreating the concerned expenditure as revenue innature for the reason that the moulds do not haveenduring life. Assessee has to purchase themoulds on a regular basis as if it is a part ofstores and spares. In such circumstances,claiming the expenditure as revenue cannot be heldto be erroneous.” 5. Carefully considering the submissions of thehttps://hcservices.ecourts.gov.in/hcservices/ appellant and respectfully following the decisions ofthe Hon'ble ITAT, 'D' Bench, Chennai, vide orders inITA Nos.1437/MDS/09 dated 20.01.2011 and ITA No.826 &827/MDS/2011 for Assessment years 2007-08 & 2004-05dated 28.07.2011 in the appellant's own case, theaddition made by the A.O. Treating the purchase ofCast Iron Ingot Mould as capital expenditure is notcalled for. Therefore, the addition is not warranted,and hence deleted. 6. In the result, the appeals for A.Y. 2005-06,2008-09, 2009-10 & 2010-11 are ALLOWED.” 4. Aggrieved against the said order, the Revenue has filedappeals before the Tribunal in respect of the four assessment ordersmentioned above and the Tribunal, relying upon its earlier decision,set out above, held as follows :- appellant and respectfully following the decisions ofthe Hon'ble ITAT, 'D' Bench, Chennai, vide orders inITA Nos.1437/MDS/09 dated 20.01.2011 and ITA No.826 &827/MDS/2011 for Assessment years 2007-08 & 2004-05dated 28.07.2011 in the appellant's own case, theaddition made by the A.O. Treating the purchase ofCast Iron Ingot Mould as capital expenditure is notcalled for. Therefore, the addition is not warranted,and hence deleted. 6. In the result, the appeals for A.Y. 2005-06,2008-09, 2009-10 & 2010-11 are ALLOWED.” 4. Aggrieved against the said order, the Revenue has filedappeals before the Tribunal in respect of the four assessment ordersmentioned above and the Tribunal, relying upon its earlier decision,set out above, held as follows :- “6. We have heard the submissions made by therepresentative of both the sides and have also perusedthe orders of the authorities below as well as theorders of the Tribunal relied upon by the ld. AR ofthe assessee. A perusal of the order of the Tribunalin ITA No.1437/MDS/2009 for the A.Y. 2004-05 decidedon 20-01-2011 shows that the issue in hand has alreadybeen adjudicated by the Tribunal. The Tribunal hasheld as under :- “When we examine the nature of the manufacturingprocess carried out by the assessee and the shelllife of the mounds we find that asessee isjustified in treating the concerned expenditure asrevenue in nature for the reason that the mouldsdo not have enduring life.”In view of the findings of the co-ordinating Benchof the Tribunal which have been subsequently followedin assessee's own case in ITA No.826/Mds/2011 for theA.Y. 2007-08, we hold that the expenditure incurred onpurchase of cast iron ingot moulds is revenue innature. Accordingly, we uphold the findings of theCIT (Appeals) and dismiss all the four appeals of theRevenue.7. As regards Cross Objection of the assessee forthe A.Y. 2005-06 is concerned, the only issue raisedis regarding re-opening. Since the appeal for A.Y.2005-06 has already been decided on merits the CrossObjection has become merely academic. The CrossObjection is accordingly dismissed. In the result, appeals of the Revenue and CrossObjection of the assessee are dismissed.”Aggrieved against the said order of the Tribunal, the Revenue hascome before this Court by filing the above appeals. 5. Heard Mr.J.Narayanasamy, learned standing counsel appearingfor the appellant and perused the order of assessment of the lowerauthority, the order of the Commissioner (Appeals) as also the orderof the Tribunal. 6. The question that is posed before this Court is as to whetherin the nature of manufacturing process carried out by the assessee,where the shell life of the cast iron ingot moulds, which is used forabout 30 to 40 times and, thereafter, scrapped, could be taken ascapital asset or a revenue asset. 7. Considering the nature of manufacturing process, the user ofgoods, the period of its shell life and the nature of its use, whichis having short shelf life, the appellate authority as well as theTribunal have held that the goods in question, viz., cast iron ingotmoulds are to be treated as revenue expenditure and not as capitalexpenditure, holding clearly that moulds do not have enduring life,which will be a parameter for considering the same as capitalexpenditure. The short shelf life of the cast iron ingot moulds,which is to be purchased on regular basis as if it is a part of thestores of spares was treated by the Tribunal as revenue expenditureand not capital expenditure. We find no ground to take a differentview from the one taken by the Tribunal, nor counsel for the Revenueis able to point out any proposition of law contrary to the abovefinding of the Tribunal. Since the issue revolves around purequestion of fact, there is no question of law, much less substantialquestion of law arising for consideration in these appeals. 8. For the foregoing reasons, we pass the following order:(i) There is no material warranting interferencewith the order passed by the Tribunal.(ii) All the appeals fail and the same aredismissed. Consequently, connected miscellaneouspetitions are closed. -s/d- Assistant Registrar (CO)Dated:True CopySub-Assistant Registrar To 1. The Assistant Registrar, Income Tax Appellate Tribunal Madras A' Bench, Chennai. 2. The Commissioner of Income Tax (Appeals) Trichy. https://hcservices.ecourts.gov.in/hcservices/ 3. The Addl. Commissioner of Income Tax Thanjavur Range, Thanjavur. Thanjavur Range, Thanjavur. 4. The Assistant Commissioner of Income Tax, Circle I,Income Tax, Circle I, Thanjavur. 5. The Commissioner of Income Tax, Trichy. Trichy. +4 cc to Mr.J.Narayanaswamy, SR.30829. kki (co)krd 23.7.14 T.C. (A) NOS. 978 TO 981 OF 2013