Dy.Director of Income Tax, Circle-6(1), New Delhi. Vs Micron Instuments Pvt. Ltd., 4/90, Connaught Circus, New Delhi.
January, 28th 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES `E' NEW DELHI
BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT
SHRI CHANDRAMOHAN GARG, JUDICIAL MEMBER
ITA NO. 1227/DEL/2012
Dy.Director of Income Tax, vsMicron Instuments Pvt. Ltd.,
Circle-6(1), 4/90, Connaught Circus,
New Delhi. New Delhi.
Appellant by: Shri R.M. Mehta, Adv.
Respondent by: Shri P.Dam Kanunjha, Sr. DR
O R D E R
PER CHANDRAMOHAN GARG, J.M.
This appeal has been filed by the revenue against the order of the
CIT(A)-IX, New Delhi dated 25.11.2011 in Appeal No.26/10-11 for AY
2008-09. Although the revenue has raised as many as five grounds in this
appeal but except main ground no. 2, other grounds are argumentative and
supportive to the main ground no. 2 which reads as under:-
"2. On the facts and in the circumstances of the case
and in law, the ld. CIT(A) has erred in allowing the deduction
of interest of Rs.1,36,17,335/- as revenue expenditure even
though the same was never claimed by the assessee in the
return of income."
2. Brief facts giving rise to this appeal are that the assessee company
was engaged in the business of manufacturing of precision instruments
mainly for the Ministry of Defence, Govt. of India, British Aerospace, UK and
for GE med. The assessee filed a return of income of Rs.27.9.2008 declaring
an income of Rs.3,97,79,640 and the same was processed u/s 143(1) of the
Income Tax Act, 1961. Subsequently, the case was selected for scrutiny
through CASS and statutory notices u/s 143(2) of the Act and 142(1) of the
Act, along with detailed questionnaire, were served on the assessee. The
AO noticed that the assessee paid Rs.2,66,97,900 towards permission from
the Government under a new policy allowed the land to be used for any
other purpose besides running a factory including the commercial/service
activities on payment of certain amount. The said amount of instalment
was inclusive of interest of Rs.1,36,17,335/-. The AO also noticed that the
assessee did not make claim in the return of income but later put forth the
claim of interest as revenue expenditure though a letter filed during the
assessment proceedings as it was not claimed in the profit and loss
account. The AO after detailed deliberations held that the amount of
instalment inclusive of interest was capital in nature and cannot be allowed
as revenue expenditure to the assessee. The AO also observed that the
claim of revenue expenditure pertaining to interest paid in the instalment
had not been made in the return, therefore, the same is not allowable.
3. Being aggrieved by the above assessment order, the assessee
preferred an appeal before the CIT(A) which was allowed on this issue.
Now, the aggrieved revenue is before this Tribunal with the main ground as
4. We have heard arguments of both the sides and carefully perused the
relevant material placed on record before us. Ld. DR submitted that in view
of decision of Hon'ble Supreme Court in the case of Goetze (India) Ltd.
vs CIT 284 ITR 323 SC, the AO is not empowered to entertain any claim of
the assessee which could not be placed in the return of income or by way of
a revised return. Ld. DR further submitted that the CIT(A) erred in
allowing the deduction of interest as revenue expenditure even though the
same was never claimed by the assessee, either in the return of income or
by way of revised return of income. Ld. DR further contended that the
assessee could have claimed it by way of a revised return during the course
of assessment proceedings only and CIT(A) was not empowered to allow
the same during the first appellate proceedings. Ld. DR vehemently
contended that the CIT(A) was not justified in allowing the interest as
revenue expenditure even though the same has been incurred in respect of
capital asset as per facts and circumstances of the case. Ld. DR finally
prayed that the impugned order may be set aside by restoring that of the
5. Replying to the above, ld. Counsel of the assessee supporting the
impugned order submitted that in the case of Goetze (India) Ltd. vs CIT
(supra), the Hon'ble Apex Court did not impinge on the power of the
Tribunal and the first appellate authority. Ld. Counsel further contended
that the asset was already in existence and the business of the assessee was
running from the same factory, therefore, the interest paid along with
instalment towards conversion charges of land cannot be capitalized. Ld.
Counsel has further drawn our attention and submitted that the payment of
interest on the instalment of principal amount in this case is akin to the
payment of the same on loans taken for the acquisition of fixed assets like
vehicle, machinery etc. and, therefore, interest paid on loans taken for fixed
asset is allowable as revenue expenditure.
6. On careful consideration of above rival submissions, at the outset, we
note that the CIT(A) allowed the appeal of the assessee on this issue with
following observations, findings and conclusion:-
" 4.10 I have considered the findings recorded by the Id. AO
as per the assessment order, the submissions made by the Id.
AR and the facts of the case on record. The main issue is as to
whether the interest of Rs.1,36,17,335/- is revenue or capital
in nature? As explained above it is admitted that the interest
was paid in respect of the conversion charges payable for the
land, where the only factory of the Appellant from which the
business is carried on and continues to be carried on till date,
is situated. The amount of conversion charges have already
been capitalized and the issue at hand is only as regards the
allowability of the interest paid on the installments of the
principle amount. The Appellant submitted that the
appellant's factory is situated on the Industrial site no 143 B
in Industrial Area Phase I Chandigarh. The Chandigarh U.T.
Administration under a new policy allowed the land to be
used for any other purpose besides running a factory
including the commercial/service activities on payment of a
certain sum of money. As it was a scheme open for a fixed
time, the Appellant thought it commercially prudent to avail
of the scheme. The Appellant decided to opt for the scheme
as it would give it greater flexibility to add additional area in
the factory for its office and other use. There was no plan for
demolishing or stopping the operation of the factory at the
aforesaid land and the production is continuing from the
same place till date. It is pertinent to note that the
Appellant's business is in existence and the very land for
which conversion fee was paid is the only manufacturing/
production facility of the Appellant from where the business
is being run for the last over 30 years.
4.11 The capitalization of the conversion charges was made
as the land is capable of being used for commercial and
other purposes. But as the asset is already in existence and
the business is running from the same very factory, the
interest paid cannot be capitalized. Instead it IS a revenue
expense and hence the sum of Rs.1,36,17,335/- is allowed to
be deducted from the total income. The payment of interest
on the installments of principle amount in this case is akin to
the payment of the same on loans taken for acquisition of
fixed assets like vehicles, machinery, etc. When the interest
paid on loans taken for fixed assets, is allowed as revenue
expenditure, I see no reason as to why the same should be
treated of capital in nature on the case under consideration.
It is trite that notwithstanding treatment of a particular
item in the books of account, whether the expense is revenue
or not has to be decided on the nature of the expense.
Therefore, even though said interest amount was capitalized
in the books of account erroneously, which was later
rectified in the books of account during financial year 2009-
10, the nature of the expense is revenue and the same is a
deductible expenditure. The AO is, therefore, directed to
allowed the claim of Rs.1,36,17,335/- on account of interest
made by the appellant. The ground no. 2 is accordingly
allowed to the appellant."
7. Under peculiar facts and circumstances of the present case and the
conclusion of the CIT(A), as mentioned hereinabove, it is not in dispute that
the assessee paid instalment towards conversion charges of land and the
asset was already in existence and the business of the assessee was running
from the very same factory premises. Ld. Counsel of the assessee fairly
accepted that the assessee neither made any claim in the original return nor
filed any revised return and the interest was also not found placed in the
P&L account but the assessee pressed his claim by way of letter filed before
the AO during the assessment proceedings. In view of decision of Hon'ble
Apex Court in the case of Goetze (India) Ltd. vs CIT (supra), the AO is not
empowered to entertain any claim out of return of income which could not
find place in the original return of income or otherwise than by revised
return but in the same decision, Hon'ble Apex Court made it clear that this
did not impinge on the power of the Tribunal. However, we are of the
considered opinion that since the asset i.e. factory premises was already in
use of assessee, therefore, the interest paid along with instalment towards
conversion of charges of land cannot be treated as capital expenditure and
the same cannot be held to be capital expenditure. Thus, we are of the
opinion that the CIT(A) was right in holding that the interest expenditure
cannot be capitalized and the same was allowable as revenue expenditure.
Accordingly, we are of the considered opinion that the CIT(A) was right in
allowing the appeal of the assessee on this issue and we are unable to see
any ambiguity, infirmity or any other valid reason to interfere with the
order of the CIT(A).
8. In the result, the appeal of the revenue is dismissed.
Order pronounced in the open court on 27.01.2015.
(G.D. AGRAWAL) (CHANDRAMOHAN GARG)
VICE PRESIDENT JUDICIAL MEMBER
DT. 27th JANUARY 2015
Copy forwarded to:-
4. C.I.T. 5. DR