ORDER
B.L. Khatri, A.M.
This is an appeal by the revenue against the order of Commissioner (Appeals), Udaipur, dated 28-11-1995, for assessment year 1992-93. The revenue-appellant has agitated on various grounds.
2. Ground No. 1 : Deletion of disallowance of expenditure of Ghosunda Dam amounting to Rs. 2,74,48,445 made by assessing officer treating it as capital expenditure. This ground is with reference to the expenditure incurred on the alterations effected in the construction of Ghosunda Dam. A similar issue arose for consideration in assessment year 1991-92. This issue has already been decided in favour of the assessee and against the revenue in ITA No. 1106/Jp/94 wherein it was held that the expenditure incurred only enabled the carrying on of business more efficiently and more economically and that no new asset was created or any property acquired, the expenditure was purely revenue in nature in view of various judgments cited therein.'
3. Ground Nos. 2, 5 and 6 :
(i) Ground No. 2 pertains to expenditure incurred by the assessee for installation of power lines connecting its Vishakapatnam plant with the electricity sub-station.
(ii) Ground No. 5 is regarding the construction of link roads on government lands for facilitating easy and quick flow of traffic to and from its mines.
(iii) Ground No. 6 deals with expenditure incurred on the construction of roads. The nature of expenditure in the three items is common.
4. The assessee has incurred an expenditure of Rs. 87,63,000 for obtaining new power line from APSEB for Vizag Unit. The assessing officer made the disallowance treating the expenditure as capital in nature. The assessing officer has observed as under :
'The assessee's argument that it does not own the power line is of no consequence because as stated earlier in respect of expenses on Ghosunda Dam, it is not necessary that the capital expenditure should bring into existence a concrete asset owned by the assessee.'
5. After having considered the arguments of the learned authorised representative the Commissioner (Appeals) held that it is a fact that the disallowance in respect of expenditure on Ghosunda Dam was deleted holding it as revenue nature and accordingly the disallowance in respect of expenditure on power lines was also deleted by the Commissioner (Appeals). In addition to the various judgments relied upon by the learned authorised representative the Commissioner (Appeals) specifically relied on the judgment in the case of CIT v. Excel Industries Ltd. : [1980]122ITR995(Bom) wherein it was held as under :
'that since the service line remained the property of the electricity board, the respondent did not acquire any capital asset or an enduring benefit or advantage and the object of making the payment was purely one of commercial expediency. Therefore, the payment made to the electricity board towards the cost of laying the overhead service line constituted revenue expenditure and was an allowable deduction.'
6. The learned Departmental Representative relied upon the order of assessing officer and the learned authorised representative submitted that the company had incurred expenditure for the purpose of creating facilities which would enable smooth and convenient functioning. In terms of Ground No. 2 the power lines as put up, are simply a mechanism to avoid power failure and related problems at the plant site. Though the power line had been erected by the company yet they remain the property of the State Electricity Board. This expenditure was incurred with the singular objective of facilitating routine operations. The learned authorised representative has relied upon the following case laws :
(i) CIT v. Excel Industries Ltd. (supra); and
(ii) CIT v. National Machinery . : [1991]191ITR483(Bom) .
7. We have considered the rival submissions and we are of the opinion that the power line had been erected for facilitating routine operations and smooth functioning of the business of the assessee. It was held in the case of CIT v. Excel Industries Ltd. (supra) that the power line remains the property of the District Board and the assessee had not acquired any capital asset or any enduring benefit or advantage. The payment was made for commercial expediency. Therefore, the Commissioner (Appeals) has rightly held the expenditure as revenue expenditure. We decline to interfere with the order of the Commissioner (Appeals).
8. Ground Nos. 5 and 6 are regarding the construction of link road on government lands and regarding the construction of road. These grounds relate to the disallowance of Rs. 19.96 lakhs and Rs. 31.02 lakhs on account of enabling assets. The assessee has claimed Rs. 19.96 lakhs being 1/3rd of the expenditure incurred as in earlier years. Rs. 31.02 lakhs is the expenditure in respect of cost of roads built during the year around Rampura Agucha Mines. The assessing officer has mentioned that the figure of Rs. 19.96 lakhs is included in Rs. 31.02 lakhs. He has also disallowed Rs. 31.02 lakhs on the ground that the construction of road has brought into existence an enduring benefit and, therefore, this is capital expenditure.
9. The learned authorised representative argued before the Commissioner (Appeals) that the two figures are different and one is not included in the other. He stated that Rs. 11,06,666 is 1/3rd of the gross block of the enabling assets consisting of link roads constructed by the appellant on government land adjoining its mines. He claimed that 1/3rd expenditure should be allowed as in earlier years. As regards the balance figure out of Rs. 19.96 lakhs, it was argued that the details are required. As regards Rs. 31.02 lakhs, it was argued that the ownership was not with the appellant but with the government and, therefore, no asset came into existence. It was pointed out that on the same principle the expenditure in respect of Ghosunda Dam had been allowed in earlier years. As regards these roads, the assessee has claimed the expenditure as deferred revenue expenditure in three years. The Commissioner (Appeals) held that since the figure of Rs. 19.96 lakhs is claimed to represent 1/3rd of the expenses as allowed in earlier years, the assessing officer was directed by Commissioner (Appeals) to allow the same subject to verification from earlier years. As regards Rs. 31.02 lakhs, 1/3rd expenditure has to be allowed during the year as per the history of the case subject to verification that it did not include any item which was included in Rs. 19.91 lakhs.
10. The learned Departmental Representative relied upon the order of assessing officer. The learned authorised representative submitted that the link roads were constructed by the assessee on the government land. Though such construction has been effected for ironing out transport and transit problems, the roads continue to remain the property of the State Government. So is the case with ground No. 6.
11. In none of the above cases, has any avenue for a source of income been created, nor any right in property through construction acquired. The expenditure in every case has been incurred with the singular objective of facilitating routine operations. This expenditure had neither created asset for the assessee nor any right in the property. Therefore, these expenses are in the domain of revenue expenditure. The learned authorised representative relied upon the following citations :
(1) L.H. Sugar Factorys Oil Mills (P) Ltd. v. CIT : [1980]125ITR293(SC) ;
(2) Hindustan Machine Tools Ltd. v. CIT (1988) 175 ITR 220 ;
(3) Laxmiji Sugar Mills Co. (P) Ltd. v. CIT : [1971]82ITR376(SC) ;
(4) Gwalior Rayon Mfg. (Wvg.) Co. Ltd. v. CIT : [1988]172ITR131(MP) ; and
(5) CIT v. Bongaigon Refinery Ltd. .
12. We have considered the rival submissions. We find that the expenditure on road has been incurred for facilitation of routine operations and smooth functioning of transport system. These roads have been constructed on the government land. No new asset has been acquired by the assessee. It was held in the case of Hindustan Machine Tools Ltd. v. CIT (supra) that the construction of the road which was not the property of the assessee was undoubtedly connected with and advantageous to the business activity of the assessee. Though it conferred upon the assessee an enduring advantage for the benefit of its business, it did not secure to the assessee any tangible or intangible asset and further the enduring advantage gained by the assessee was chiefly to facilitate the assessee's business operations with greater efficiency and profitability without touching fixed capital of the assessee and there was no addition to or expansion of the profit-making apparatus. Keeping in view the discussion above we decline to interfere with the order of the Commissioner (Appeals) on this ground also.
13. Ground No. 3 : Disallowance of claim of the assessee for provision for loss of stocks/stores and spares amounting to Rs. 757.72 lakhs. The assessing officer made the disallowance for Rs. 757.72 lakhs in this regard. The facts are the same as in the assessment year 1991-92. Disallowance was deleted in the last year by Commissioner (Appeals) on the similar reasons. Disallowance was also deleted during the year under appeal. The learned Departmental Representative relied upon the order of the assessing officer. The learned authorised representative submitted that this ground pertains to the closing stock addition. It is a consistent practice with the assessee mainly due to the gigantic scale and nature of its operations that many items of its closing stock and raw materials, stores and spares, are taken into stock on estimate basis and corrected later on for discrepancies and deviations through physical checks. The estimations are made on the basis of time-honoured standards. Such procedure has been accepted in the past especially by the Commissioner (Appeals) in assessment year 1989-90. The assessing officer was speculatory in apprehending manipulations through removals of relevant items without proper authorisation. He failed to appreciate that the internal control measures were by themselves so strong that nothing of the kind was ever possible. To cap that, the widespread security network would make any escapade with material virtually impossible.
14. Further, the finished goods as manufactured by the assessee cannot be sold to all and sundry, because in the first place they are required only by a certain identifiable set of consumers in the heavy industry and secondly whatever quantities are required are not in grams and kilos, but in tones. This issue arose for consideration in the immediately preceding year (Ground No. 5 in assessment year 1991-92). The arguments advanced in that case are also relevant here.
15. We have considered the rival submissions. This issue has already been decided by us in ITA No. 1106/Jp)/1994 for assessment year 1991-92 vide order dated 16-10-2001 for the reasons given at p. 11 of the order and also keeping in view the order of Commissioner (Appeals) for assessment year 1989-90, we decline to interfere with the order of the Commissioner (Appeals), on this issue.
16. Ground No. 4 is regarding the deferred revenue expenditure incurred on the transfer of a 3.5 megawat diesel generating set from Rajpura Dabri Mines to Vishakhapatnam. The assessing officer disallowed the same on the ground that there is no such concept as deferred revenue expenditure in the Income Tax Act. The learned authorised representative submitted before the Commissioner (Appeals) that 1/3rd expenditure was claimed in each of the earlier two assessment years which was duly allowed by the assessing officer. He stated that if 2/3rd expenditure has been allowed considering the expenditure as deferred revenue expenditure, 1/3rd expenditure in the third year cannot be disallowed. Since the assessee has been allowed the expenditure at the rate of 1/3rd in the earlier two years, the facts remaining same, the Commissioner (Appeals) held that there was no reason for the disallowance in this year also. Therefore, the disallowance of Rs. 2.31 lakhs was deleted.
17. The learned Departmental Representative relied on the order of the assessing officer. The learned authorised representative submitted that the action of the assessing officer is objected to. If it is his case that the expenses are of a revenue nature, then complete benefit ought to have automatically been given to the assessee without even being asked, as the department is duty-bound to compute the correct income liable to tax. It was further submitted that the claim for deferred revenue expenses are claimable and allowable depending on the nature of the expenditure as recently ruled by the Apex Court in Madras Industrial Investment Corpn. Ltd. v. CIT : [1997]225ITR802(SC) .
18. We have considered the rival submissions. We find that such deduction of 1/3rd expenditure is being allowed by the assessing officer in the past two years. During the last year he has objected to the decision of his predecessor. The Commissioner (Appeals) has also held that the expenditure is allowed as per past practice. The learned Commissioner has relied upon the decision of the Hon'ble Supreme Court in the case of Madras Industrial Investment Corpn. Ltd. v. CIT (supra). Keeping in view the facts of the case, one decline to interfere with the impugned order of Commissioner (Appeals) on this count.
19. In the result, this appeal of the revenue is dismissed.