* IN THE HIGH COURT OF DELHI AT NEW DELHI + ITA No.66 of 2Of-1 Decision Delivered On: IANUARY 20, 2011' CoMMISSIONER OF INCOME TAX . . . Appellant throuqh : Mr. AnuPam TriPathi, Sr. Standing Cousnel. VERSUS oRIENT CERAMICS & INDS. LTD. . . .Respondent 'j throuoh: Mr' Salil Aggarwal, Advocate with Mr. Anil Makhija, Advocate. I) coRAM :- HON',BLE MR. JUSTICE A.K. SIKRI HON'BLE MR. JUSTICE M,L. MEHTA 1, Whether Reporters of Local newspapers may be allowed 2; 1""""i"*:/'lfil?H Reporter or not? 3. Whether the Judgment should be reported in the Digest? A.K. SlKRl, l. (ORAL) tt u zoLr 1 For orders see ITA No.€6 of 2011 . h4aEl. \t 'l-? (A.K. SIKRr) JUDGE ',,t JANUARY 20,2011 pmc (M.L, MEHTA) JUDGE ' ITA No. 66 of 2011 Page L of 1 Digitally Signed By:AMULYA Certify that the digital file and physical file have been compared and the digital data is as per the physical file and no page is missing. Signature Not Verified INI THE HIGI.I COI,.IRT OF DELHI AT t{EW DELI{I .;- % ITA No.65 of ?OLL with ITA No.66{2AX-L Decision Delivered On:JANUARY 20, 2011. Mr. Anupam Standing Cousnel. 1) ITA No.65 of 2011 COMMISSIONER OF INCOME TAX . . . 4PPellant Tripathi, Sr. throuqh : VERSUS OR.IENIT CERAMICS & INDS. LTD. . .Respondent Mr. Salil Aggarwal, Advocate with Mr. Anil Makhija, Advocate. , throuo h: 2) ITA No.66 of 2011 :, coMMtsstoNER OF IN|COME TAX throuqh VERSUS -. I ' '.. '; oRIENT CERAMICS & |NDS. t-TD. . . .Respondent .;r:'i.li . throuoh: Mr. Salil Aggarwal, Advocate with i''' I Mr. Anil Makhiia. Advocate. Mr. Anupam Standing Cousnel. . . .Appellant Tripathi, Sr. ffii!:'" I Mr. Anil Makhija, Advocate. ,-':i i " CORAM :- :. HON'BLE MR. JUSTTCE A.K. SIKRI :, ..li . HoN'BLE MR.' jusrtcE M.L. MEHTA , '. ';l t. Whether Reporters of Local newspapers may be alloMred ' . .': to see the Judgment? -. ':' 2. Tb be referred to the Reportei or not? 3, Whether the Judgment should be reported in the Digest? I 't .i- "t:'K SlKRl, J. @RAL) 'l CM No.643 of 2011 in ITA No.68 of 2011 Exemption is allowed, subject td just exceptions. . ' - CM stands disposed of. 6, 66 bf 2oLI " Ylr Paoe I of 5 pr 1p1'ch ro" | 3 ?J4 i &dYr'r'20 ,2, lnboththeseappeals'whichpertaintothesameassesseeand relatetotwodifferentAssessmentYears,threeadditionsof identica|natureWeremadebytheAssessingofficer,whichWere deletedbythec|T(A)andtheorderofthec|T(A)hasbeen confirmedbythelncome,TaxAppellateTribunal(hereinafter t'referredtoaS,theTribuna|,)videcommonjudgmentdated 11.02.2010. Additions were of the following nature: .l (a) Depreciation on custom duty payment ; ', (b) Expenditure on the glow sign board; and , (c) DePreciation on UPS' lnsofarasthefirstitemofadditionisconcernbd,thebackground "ofthefactsisthattheassesseecompanyhadimportedmachinery underdutyexemptioncertificateissuedbytheMinistryof Finance.Becauseofthiscertificateissuedinfavourofthe assessee,theassesseedidnotpayanycustom'dutyontheimport ofthesaidmachinery.However,intheAssessmentYear2004-05, .theCustornDepartmentdisputedthesaidcertificateandissued ShowCauseNoticetotheassesseeandcalledupontheassessee topaythedifferentialamountofcustomdutyanddemandof , -,- ^ rE -rla, ' J this <4,25,34,028 was made in this behalf' The assessee pal( .amountwithoutprejudicetoitscontentionthatthecertificate ',issuedbytheMinistryofFinanceWaSvalid,|egalandproperand 'd' While paying the custom duty' the no such custom duty was palo' vvlrrre Pqvr'.v has contested the show cause notice issued by the Department and these proceedings are still pending' amount of 14,25,3+,o2}was paid by the assessee in the manner,'the assessee capitalized the cost of machinery byaddingthesaidpaymenttothecostofmachineryandonthat I ; rl .M tH I v' i li t ,,t - B'. f, l' it, II t T .I: {, Ift ASSCSSCC Custom Since the aforesaid ' ITA Nos.65 {-;^;" & 66 of 2011 Page 2 of 6 l"'i'l I 14 f'" ,i I basis, depreciation @ 25%o'on the said addition was claimed to the cost of machinery as well. The Assessing Officer (AO) disallowed the depreciation on the aforesaid addition. rThe question, in these circumstances, aioqe. as to whether the assessee who had made the payment in the meantime would be entitled to add the same to the cost of plant and. machinery and claim depreciation thereon. The CIT (A) as well as the Tribunal while accepting the course of .action taken by the assessee in claiming depreciation on the said amount as well relied upon the judgments, i.e., t:om rnissioner Of Income-tax, Bombay City I Vs. Messrs. Shoorii Vallabhdas And Co.46, ITR I44 (SC1; Tuticorin Alkali Chemicals & Fertilizers Ltd, Vs. Cornmissioner of Xncome Tax 227 ITR 172 (SC):; Kedarnath lute Manufacturing Ca. Ltd. Vs. Commissioner of Income Tax 82 ITR 363 and Sutlei Cotton Mills Ltd. Vs. Commissioner of Income Tax 116 ITR 1 (SC) \' wherein it is held that even if the liability is challenged and the legal proceedings are pending, once the amount has gone out of th'e coffers of the assessee, the assessee would be entitled to capitalize the same. The Tribunal while dealing with these judgments held as under: "At the outset we are convinced with the arguments made by Shri Salil Aggarwal, advocate, that mere book entries are not decisive of any income.' The question is "whether a receipt of money is taxable or not, whether certain deductions from that receipt are permissible in law or not, the question has to be decided according to the principles of law and not in accordance with the book entries for the accounting practice since the accounting practice cannot override the provisions of the Act. These views are fortified by the judgment of various courts of la4t in the cases of TUticorin Alkali Chemicals and Fertilizers Ltd. v. CIT (1997) 227 ITR L72 (SC), Kedarnath Jute Manufacturing Co. Ltd. v. CIT (1971) 82 ITR 363 (SC), Sutlej Cotton Mills Ltd. v. CIT (1979) 116 ITR 1 (SC) and CIT v. Shoorji Vallabhdas and Co. (L962) 46 ITR 144 (SC). There is nothing on recond placed by the departmental representative to establish that the 7.1 I I bi1 I I I ITA Nos.65 & 66 of 2011 Page 3 of '6 4i 5 f.r.r i appeal has been filed by the Assessee against any order of the Customs p"puttn{"nt- The explanation' therefore' appears to be sat-ilraitory that on the directions issued by the Custot, O"purtment, the payment of customs duty has been made ttrough-tt1l tu*"'his been qhowl as advance or a note has nee=n "ppl"o"o in the accounts for contingent liability. Therefore: ;;;;;;ew ttre Assessee'has made the payment of .rriornt-J'ty only when the'liability has accrued on it. Since the iustoms duty has been paid to acquire the plant unO tuthinery and therefore' it has to be capitaliseO, mor"over, there is no dispute to the'fact that suchexpenoiturecannotuecapita|isedasobservedbythe assessing ofticei -in his order in paragraph , 2'3 ' The obligation to puy the excise duty arose during the impugnedyear-andtherefore,theIiabiIitytopaythe' amount had accrued to the Assessee during the- year itself and the said liability cannot be said to be contingent_and cannot be said to n6 an advance payment' The,order of the learned commis'si;;; (nppeals). is a reasoned order' who has righ'V u.."Ji"J-if.r" iontenlion and explanation of the nri.ti"" anO fris rightly allowed the claim of the Assessee for capitalisation oiit]"'puvrent of excise duty amounting to Rs. 4,25,34,021 and'ha! rightly directed. Ihe assessing officer to allow'il-.|"-o"preciati6n on the said amount'.We find no infirmity-in *,"'order of the learned commissioner (Appeals)' Thus g;;;;J rtro' r of the revenue is dismissed"' I la' l" I 6. We are in agreement with the aforesaid approach of the Tribunal ,.wlrichisinconsonancewiththelaw|aiddownbytheSupreme Court and therefore, are of the opinion that no substantia| questionoflawarisesinsofarasthisissueisconcerned' ' Coming to the expenditure on glow sign boards incurred by the . assessee, the issue was as to whether the said expenditure is ,i,]-revenueorcapitalinnature'Thepleaoftheassesseeylasthat , these glow sing boards are of perishable nature, which the alsessee had displayed at the various outlets of its'dealers ahd therefore, the entire amount should be treated as revenue dxpendlrure and was allowable under section 37 of the Act as i ISusiness expenditure. The AO, however, did not accept the' submissign of the assessee holding as under: $F' "4.3 Glow Sing Boards are made of materials like st"Ltlaluminum irur,", and plastic sheets and display the intormation for long periods subject to m.inor. repairs' bontiOuring the uieful 'life of the boards' Assessee . itn ruur.65 & 66 of 2011 t,r I'|l Fage 4 of 6 Company was rightly treating the expenditur"- ?: capital expenditure in tfre earlier years i'e' prior to A Yr 05-06' There is no .nun!" in ciicumstances for changing the treatment of expe,iditrru from capital to revenue. Duiing the A yr 2005-00 tfre Assessing OiTicer had concluded that the assesru" .ornpuny tunnoi be allowed to change the accounting treatmeni 6f particular item without any basis'" Thus, only on the ground that the frames of these glow Fing boardsargmadeofsteal/aIuminum,tneAoCametothe conclusion that the expenditure incurred thereupon wab capital in natrjre. He was also influenced by the fact that till the previous year, the assessee had itself capitalized the expenditure and only from the Assessment Year 2005-06, accounting policy in regard to incurring on expenditure on glow sing boards was changed'by the ASSCSSCC The CIT (A) deleted this addition holding it to be expenditure of Revenue in nature. TheorderoftheC|T(A)has.beenuphe|dbytheTribunalandin arriving at the conclusion that the expenditure was of revenue nature, the Tribunal has followed the judgment of the Punjab & Haryana' High court in the case of cornmissioner of Income Tax vs. I-iberty Groqp Marketing Division l(2oo9) 3L5 ITR 1251' ' we have gone through the said judgment rendered by the Punjab & Haryana High court, The court dealt with the same issue' viz" expenditureonglowsingboardsandhe|dtheexpendituretobe revenue in nature in the following manner: "14. Considering the above principle of law' in the present case, it is to be seen as to whether the expenditure incurredbytheassesseeong|owsignboardswaswitha view to Oriiglng into existence an asset or an advantige for , the "noriin=g n'"n"iit of the business. In our opinion, the expenditui"'in.rir"d by the assessee on glow sign boards doesnoto'ingintoexistenceanassetoradvantageforthe enduring n"ntnt of the business, which is attributable to the capital. Thd glow sign board is not an asset of permanent nature. It has a-short life. The materials used in the glow iig" boards decay with ,the eftect of weather. ,Therefor",-it- reluires frequent replacem'ent, The Tribunal Page 5 of 6 I I I i:57:3 I I I I I I l 'l f, Veo ,f+ t 10, f 11. ITA Nos.65 & 66 of 2011 has also recorded a finding that the assessee has to incur expenditure on glow sign boards regularly in almost each year. This fact itself shows that the advantage accrued from the use of the glow sign boards is not of enduring nature. Thus, the expenditure by the assessee on these glow sign' boards did not bring into existence any asset or advantage for thb enduring benefit of the business, The assessee has spent the expenditure on the glow sigh.'bbards with an object to facilitate the business operation and not with an object to acquire asset of enduring nature. Therefore, the said expenditure was of revenue nature and the Tribunal has rightly treated the same as of revenue nature." L2. AQreeing with the aforesaid view taken by the Punjab I I I i I ia I & AS Haryana High Court, we hold that no question of law arises on this aspect The third issue pertaining to depreciation on UPS arises only in the " Assessment Year 2005-06. The assessee had cleiimed depreciation on UPS @ 60% whereas the AO had allowed it @ 25o/o and on this basis, disallowance of T1,470 was made. The issue now stands covered by the judgment of this Court in the case of Commissioner of Income Tax Vs. BSES Yamuna Powers Ltd, (in ITA No.1267 decided on 31.08.2010) wher'ein it was held that the depreciation @ 60% on such items shall be allowed. Therefore, we are of the opinion that these appeals are without any merit, which are accordingly dismissed. 13. I It Fr1+. JAN{,JARY 20, 2OL1" pmE' ITA Nos.65 & 66 of 2011 h@,1n, 'LU->=-'.- (AlK. StKRt) JUDGE (M.r-. MEr-rrA) J['DGE Page 6 ot'6 t'