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Bachhraj Factories Ltd. Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Mumbai
Decided On
Judge
Reported in(1985)11ITD718(Mum.)
AppellantBachhraj Factories Ltd.
Respondentincome-tax Officer
Excerpt:
.....mavji & co. [1980] 122 itr 49 (sc), empire jute co. ltd. v.cit [1980] 124 itr l (sc) and l.h. sugar factory & oil mills (p.) ltd. v. cit [1980] 125 itr 293 (sc). we have perused those decisions. they lay down various tests for determining whether particular expenses were in the capital field or in the revenue field. several tests have been laid down and facts of each case are to be examined in order to determine which of those tests would be applicable on the facts of a particular case. not all the tests are conclusive. in the present case, we have applied the tests mentioned in the decision of the supreme court in the case of sitalpur sugar works ltd. (supra), and we have already communicated that the facts in the present case are undistinguishable from the facts in the said.....
Judgment:
1. This appeal by the assessee relates to the assessment year 1974-75.

The original assessment was completed on 6-8-1977. In the said assessment, the ITO had allowed deduction of Rs. 31,500. This amount had been spent by the assessee in dismantling and shifting the ginning and pressing factory at Amravati, Maharashtra, and establishing another factory at Guntur, in Andhra Pradesh. The ITO presumed that expenses were revenue in nature and on that ground allowed the said deduction.

Subsequently, the audit party brought to the notice of the ITO the decision of the Supreme Court in Sitalpur Sugar Works Ltd. v. CIT [1963] 49 ITR 160, wherein the Supreme Court had held that expenses of the above category were capital in nature and not allowable as deduction. On the basis of this information, the ITO reopened the assessment under Section 147(6) of the Income-tax Act, 1961 ('the Act'). He overruled the objection that the reopening was bad in law. On merits, he held that the said expenses were capital in nature and, as such, not allowable. He, accordingly, disallowed the same. The assessee went in appeal and the Commissioner (Appeals) rejected the contention against the validity of reopening of the assessment and confirmed the disallowance of the said expenses. The assessee has now come up in appeal before us.

2. The first ground raised in this appeal is that the reopening of the assessment was bad in law. Reliance was placed on the decision of the Supreme Court in Indian & Eastern Newspaper Society v. CIT [1979] 119 ITR 996. We are unable to agree with this contention. It is true that the opinion of the audit party, on a question of law, does not amount to information, which could form valid basis for reopening of the assessment. In the present case, the assessment has not been reopened on the basis of the opinion of the audit party on the question of law.

What the audit party has done is to bring to the notice of the ITO the decision of the Supreme Court in Sitalpur Sugar Works Ltd.'s case (supra), which had existed prior to the order of the assessment and which had escaped the notice of the ITO at the time of the original assessment. When that decision was brought to his notice, it amounted to the receipt of information by the ITO. That decision would have been brought to the notice of the ITO by any person or authority. It is not the opinion of any other person or authority, which is the basis for reopening ; it is the receipt of information about the existing decision of the Supreme Court, which forms basis for reopening. In the circumstances, the reopening was valid in law. We confirm the decision of the Commissioner (Appeals) on this aspect.

3. In Sitalpur Sugar Works Ltd.'s case (supra), the assessee-company carried on the business of manufacturing sugar in its factory situated originally at Sitalpur. That place suffered from the ravages of floods and good quality sugarcane was not available in sufficient quantities there. The assessee, therefore, shifted the factory to Garaul and in the process of dismantling the building and machinery and transporting and erecting them at Garaul incurred an expenditure, which was claimed as revenue expenditure. The Supreme Court held that the expenditure was not incurred for the purpose of carrying on the concern but was incurred in setting up the concern with a greater advantage for the trade than it had in its previous set up. According to the Supreme Court, the expenditure was not incurred in earning profits but was incurred only for putting its factory, that is, its capital, in better shape so that it might produce larger profits when worked. The said expenditure incurred in dismantling and refitting the existing plant at a better site produced an advantage which enabled the trade to prosper and which could be expected to last for ever and was, therefore, capital expenditure.

4. The facts of the present case are identical. In the case before the Supreme Court, the original factory was situated at Sitalpur, where there were floods and good quality of sugarcane was not available in sufficient quantity. In our case, the factory was situated at Amravati, Maharashtra, where sufficient quantity of cotton was not available for ginning and pressing, because of the fact that the Government of Maharashtra introduced Monopoly Cotton Procurement Scheme from 1-7-1972, under which private parties were not permitted to purchase raw cotton from the farmers. In the case before the Supreme Court, the factory was shifted to Garaul, because of adverse conditions at Sitalpur. In our case, the factory was shifted to Guntur from Amravati because of adverse trade conditions at Amravati. In the case before the Supreme Court, the factory at one place was dismantled and plant and machinery were shifted to another place, where new factory was built.

In the case before us also, the same thing occurred. Consequently, the ratio of the decision of the Supreme Court squarely applies to the facts of the present case, and as such, there is no escape from the conclusion that expenses were capital in nature.

5. We do not agree with the contention of the learned representative for the assessee to the effect that decision in Sitalpur Sugar Works Ltd.'s case (supra), was distinguishable. The distinction, which the learned representative for the assessee sought to bring about, was that in the case of Sitalpur Sugar Works Ltd. (supra), the factory was shifted with a view to improve the business and put the business in better shape, while it was not so in the present case. We are unable to agree. The trading conditions at Amravati were adverse because of the monopoly scheme of the Government. Consequently, the factory was shifted to Guntur with a view to put the business in better shape and obtain greater advantage than what could be obtained at Amravati. The expenses were incurred not merely for earning profits but for putting the factory in better shape, so that it might produce larger profits when worked. Consequently, the decision of the Supreme Court is not distinguishable from the present case. Reliance was also placed on the decisions of the Supreme Court and the Calcutta High Court in CIT v.Karanpura Development Co. Ltd. [1983] 144 ITR 538 (Cal.), CIT v.Kalyanji Mavji & Co. [1980] 122 ITR 49 (SC), Empire Jute Co. Ltd. v.CIT [1980] 124 ITR l (SC) and L.H. Sugar Factory & Oil Mills (P.) Ltd. v. CIT [1980] 125 ITR 293 (SC). We have perused those decisions. They lay down various tests for determining whether particular expenses were in the capital field or in the revenue field. Several tests have been laid down and facts of each case are to be examined in order to determine which of those tests would be applicable on the facts of a particular case. Not all the tests are conclusive. In the present case, we have applied the tests mentioned in the decision of the Supreme Court in the case of Sitalpur Sugar Works Ltd. (supra), and we have already communicated that the facts in the present case are undistinguishable from the facts in the said case. It is not necessary for us to discuss all the other decisions cited by the assessee in greater detail. We may mention here that on behalf of the revenue decision in India Pistons Repco Ltd. v. CIT [1983] 143 ITR 424 (Mad.) was cited, wherein relying on the decision of the Supreme Court in Sitalpur Sugar Works Ltd.'s case (supra), it was held that expenditure incurred in dismantling the factory and re-establishing the same in a new place constituted capital expenditure. For the reasons already given, we uphold the order of the Commissioner (Appeals), confirming the disallowance of the expenses in question.

6. At the time of the original assessment, the advance tax paid by the assessee exceeded the tax determined as payable and, consequently, the assessee had been granted interest under Section 214 of the Act. On reassessment, the tax payable was determined at Rs. 24,864, which was more than the amount of advance tax paid. The ITO, therefore, withdrew the interest of Rs. 8,841, granted earlier, under Section 214 at the time of the original assessment. No reason was mentioned for withdrawing the said interest. The Commissioner (Appeals) confirmed the said withdrawal of interest on the ground that such withdrawal was permissible under Section 214(1A). The assessee has challenged the said withdrawal of interest.

7. Section 214(1A) provides that where on completion of the regular assessment the amount on which interest was paid under Sub-section (1) has been reduced, the interest shall be reduced accordingly, and the excess, if any, paid shall be deemed to be taxed payable by the assessee. The words used are 'on completion of the regular assessment'.

In the present case, the assessment that was completed, which gave rise to the withdrawal of interest, was not the regular assessment. It was reassessment under Section 147. In D. Swarup, ITO v. Gammon India Ltd. [1983] 141 ITR 841, the Bombay High Court has held that the words 'regular assessment' would mean assessment under Section 143 or 144 of the Act. Reassessment under Section 147 has been separately dealt with in the different provisions of the Act and that the words 'regular assessment' would not include reassessment made under Section 147. The above observations were made with reference to the words 'regular assessment' in Section 273 of the Act. Those observations would be equally applicable to the words 'regular assessment' in Section 214(1A). Following the said decision, we hold that the withdrawal of the interest under Section 214 granted earlier was not justified and that provisions of Section 214(1A) were not applicable in view of the fact that the assessed tax had increased not as a result of regular assessment under Section 143 or 144 but as a result of reassessment under Section 147 thereof. We, accordingly, delete the direction of withdrawal of interest.


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