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Sri Vignesh Yarns (P.) Ltd. v/s Deputy Commissioner of Income-tax

    IT Appeal Nos. 1354 (MDS.) of 2013 & 2399 (Mds.) of 2014

    Decided On, 30 January 2015

    At, Income Tax Appellate Tribunal Chennai

    By, THE HONOURABLE MR. A. MOHAN ALANKAMONY
    By, ACCOUNTANT MEMBER & THE HONOURABLE MR. CHALLA NAGENDRA PRASAD
    By, JUDICIAL MEMBER

    For the Appellant: V.S. Jayakumar, Advocate. For the Respondent: P. Radhakrishnan, Advocate.



Judgment Text

Challa Nagendra Prasad, Judicial Member

1. Both these appeals are filed by the assessee against the orders of the Commissioner of Income-tax (Appeals)-II, Coimbatore dated March 25, 2013 and July 22, 2014 respectively for the assessment year 1997-98.

2. Though the assessee has raised several grounds in I.T.A. No. 1354/Mds/2013, effective grounds are the following four grounds :

(i) Disallowance of cost of two comber machines claimed as revenue expenditure ;

(ii) Disallowance of cost of 339 units of yarn clearers claimed as revenue expenditure ;

(iii) Disallowance of cost of one auto coner claimed as revenue expenditure ; and

(iv) Charging of interest under sections 234B and 234C of the Act.

3. At the time of hearing, counsel for the assessee submits that

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except ground No. (ii), the other three grounds are not pressed and may be treated as withdrawn. Therefore, the above ground Nos. (i), (iii) and (iv) relating to disallowance of cost of two comber machines, cost of auto coner and charging of interest under sections 234B and 234C of the Act are dismissed as withdrawn.

4. The only ground remains for adjudication in the appeal in I.T.A. No. 1354/Mds/2013 is whether of cost of 339 units of yarn clearers is revenue expenditure or capital expenditure.

5. Counsel for the assessee submits that the Commissioner of Income-tax (Appeals) for the first time disallowed the expenditure of Rs. 13,34,935 being cost of 339 units of yarn clearers claimed as revenue expenditure by the assessee holding it as capital expenditure along with cost of two comber machines and cost of one auto coner. Counsel for the assessee submits that the Assessing Officer while completing the assessment accepted the claim of the assessee that cost of 339 units of yarn clearers is revenue expenditure and restricted disallowance to cost of two comber machines and cost of one auto coner amounting to Rs. 1,23,53,260. Counsel submits that the assessee has agitated before the Commissioner of Income-tax (Appeals) against the disallowance of the cost of two comber machines and one auto coner in treating them as capital expenditure and not revenue expenditure and the Commissioner of Income-tax (Appeals) accepted the claim of the assessee which was also confirmed by the Tribunal. The Department carried the matter to the High Court and further to the Supreme Court and the hon'ble Supreme Court restored the appeal to the file of the Commissioner of Income-tax (Appeals) with a direction to dispose of the matter in accordance with law and in terms of the directions given in the case of CIT v. Ramaraju Surgical Cotton Mills [2007] 294 ITR 328/[2008] 166 Taxman 356 (SC). Pursuant to the order of the hon'ble Supreme Court, the Commissioner of Income-tax (Appeals) passed order dated March 25, 2013 holding that cost of two comber machines and cost of one auto coner as capital expenditure. The Commissioner of Income-tax (Appeals) also held that cost of 339 units of yarn clearers as capital expenditure which is never a subject matter of dispute. Against the order of the Commissioner of Income-tax (Appeals) the assessee is in appeal before us. So far as the grounds raised in respect of disallowance of cost of two comber machines and one auto coner is concerned, the assessee is not pressing the grounds. Coming to the disallowance of the cost of 339 units of yarn clearers treating them as capital expenditure, counsel submits that this issue is never in dispute before any of the authorities as the Assessing Officer while completing the assessment accepted that this expenditure as revenue expenditure and no disallowance was made. Counsel submits that the direction of the hon'ble Supreme Court was only to consider whether the cost of two comber machines and one auto coner is capital expenditure or revenue expenditure. Counsel further submits that the assessee also filed rectification petition before the Commissioner of Income-tax (Appeals) treating the cost of 339 units of yarn clearers also as capital expenditure but the Commissioner of Income-tax (Appeals) rejected the rectification petition against which the assessee also preferred an appeal in I.T.A. No.2399/Mds/2014.

6. The Departmental representative places reliance on the orders of the lower authorities.

7. Heard both sides. Perused orders of lower authorities. On reading of the assessment order dated March 31, 2000 passed under section 143(3) of the Act we find that the Assessing Officer accepted the cost of 339 units of electronic yarn clearers as revenue expenditure observing as under :

"The electronic yarn clearer is a small component which monitors the yarn as it passes through it and cleans the yarn of impurities so that the yarn is of uniform thickness and quality. It consists of sensitive electronic parts and the outer cover is made of plastic. The yarn clearers have to be replaced often as they have a tendency to malfunction due to constant usage. During this year, the assessee has purchased 339 electronic yarn clearers, each costing about Rs. 3900. Taking all these points into consideration, the assessee's claim that this is a revenue expenditure is accepted."

8. The Assessing Officer treated the cost of two comber machines and one auto coner as capital expenditure as against the claim of the assessee as revenue expenditure. The assessee carried the matter to the Commissioner of Income-tax (Appeals) and the Commissioner of Income-tax (Appeals) by order dated November 5, 2004 allowed the claim of the assessee holding that costs of comber machines and auto coner are revenue expenditure. Further appeal was preferred by the Revenue to the Tribunal and the Tribunal by order dated December 17, 2006 in I.T.A. No. 425/Mds/2005 upheld the order of the Commissioner of Income-tax (Appeals) and dismissed the appeals of the Revenue. The Department seems to have carried the matter further to the High Court and the Supreme Court and the hon'ble Supreme Court remitted the appeal back to the file of the Commissioner of Income-tax (Appeals) with the direction to dispose of the matter in accordance with law and in terms of directions given in the case of Ramaraju Surgical Cotton Mills (supra). Pursuant to the directions of the hon'ble Supreme Court and while disposing of the appeal of the assessee, the Commissioner of Income-tax (Appeals) adjudicated the issue that cost of two comber machines and one auto coner as capital expenditure placing reliance on the decision of the hon'ble Supreme Court in the case of CIT v. Mangayarkarasi Mills (P.) Ltd. [2009] 315 ITR 114/182 Taxman 141. The Commissioner of Income-tax (Appeals) also adjudicated that cost of 339 units of yarn clearers is also capital expenditure. The Commissioner of Income-tax (Appeals) probably by overlooking the fact that the issue to be decided pursuant to the direction of the hon'ble Supreme Court is only the disallowance of the cost of two comber machines and one auto coner, proceeded to adjudicate that even the cost of 339 units of yarn clearers is capital expenditure, even though the said issue was not before the hon'ble Supreme Court. Since the issue is not arising out of the orders of any of the lower authorities originally is decided by the Commissioner of Income-tax (Appeals) which is not only incorrect but also beyond his jurisdiction. It is a mistake apparent from record also. Thus we modify the order of the Commissioner of Income-tax (Appeals) restricting the disallowance only to cost of two comber machines and one auto coner. Ground No. (ii) raised by the assessee is allowed.

9. Since the Commissioner of Income-tax (Appeals) has no jurisdiction to decide the issue which is not before the lower authorities at any stage originally, he could have rectified his order on the application filed by the assessee. The assessee preferred an appeal against the order of the Commissioner of Income-tax (Appeals) in rejecting the petition filed under section 154 of the Act. In view of our above findings, we allow the appeal of the assessee filed against the order under section 154 of the Commissioner of Income-tax (Appeals).

10. In the result, the appeal of the assessee in I.T.A. No. 1354 is partly allowed and that of the appeal in I. T. A. No. 2399 is allowed.
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