2005-VIL-358-ITAT-

Equivalent Citation: ITD 098, 200,

Income Tax Appellate Tribunal MADRAS

Date: 19.09.2005

SRI VENKATESA PAPER & BOARDS LTD.

Vs

DEPUTY COMMISSIONER OF INCOME-TAX, SALARY CIRCLE-I, COIMBATORE.

BENCH

Member(s)  : MAHAVIR SINGH., SHAMIM YAHYA.

JUDGMENT

Per Mahavir Singh, Judicial Member. - These appeals of the assessee are directed against the common order of the CIT (Appeals)-II, Coimbatore, dated 10-6-2002. The relevant assessment years involved in these appeals are 1995-96 and 1996-97.

2. The only common issue in these appeals of the assessee is as to whether the assessee is entitled for condonation of delay of 1,447 and 1,454 days for the assessment years 1995-96 and 1996-97 respectively on the advice of assessee's Chartered Accountant. The briefly stated facts are that the assessments for the assessment years 1995-96 and 1996-97 were completed under section 143(3) of the Income-tax Act, 1961 vide orders dated 27-2-1998 and 17-3-1998, respectively. The assessment orders under section 143(3) of the Act were received by the assessee on 12-3-1998 and 18-3-1998 for the assessment years 1995-96 and 1996-97, respectively. The assessee preferred appeals before the CIT (Appeals) against the orders of the Assessing Officer on 28-3-2002 resulting in delay of 1,447 and 1,454 days for the assessment years 1995-96 and 1996-97, respectively.

3. The Assessing Officer while framing the assessments disallowed the replacement expenditure as capital in nature. Before the CIT (Appeals), the assessee filed condonation application and explained that it has been advised wrongly by its Senior Manager (Finance & Accounts), who happened to be a C.A. It was advised by the Senior Manager (Finance & Accounts) that in view of massive expansion programme by the assessee in all aggregating to Rs. 55 crores, there was a large depreciation base and interest expenses requiring set off against future profits and, accordingly, disallowance of expenditure on account of replacement is only going to be beneficial to the assessee-company since it is going to get absorbed into the increased asset base, stretching the depreciation benefit thereon, exponentially for future years. The assessee-company acted on the advice as at that point of time it was beneficial to it and, therefore, for more than four years the assessee chose not to file the appeals for both the assessment years. Subsequently, it was noticed after four years that on account of wrong calculation, depreciation increased for all these years and the claim of replacement of assets should have been pursued before the higher forum. Accordingly, the assessee preferred these appeals before the CIT (Appeals) along with condonation application. The CIT (Appeals), after going through the assessee's assertions and case laws in favour of the assessee as well as against the assessee, refused to condone the delay by passing a speaking order on this issue. Aggrieved, the assessee is in appeals before the Tribunal.

4. Before us, the learned counsel for the assessee, Shri J. Prabhakar argued that the wrong advice by the assessee's counsel is a reasonable and sufficient cause for condoning the delay. For this he relied on the case laws on various High Courts. On the other hand, the learned Departmental Representative supported the orders of the lower authorities.

5. We have heard both the sides and considered the case records. We have also gone through the case laws cited by both the sides. Before the CIT (Appeals), the reasons for condonation of delay were filed for the assessment year 1995-96 which reads as under:

"1. Your petitioner received an order of assessment under section 143(3) dated 27-2-1998 on 12-3-1998 for the assessment year 1995-96 in which an amount of Rs. 1,57,00,202 was disallowed as capital expenditure.

2. An appeal thereon ought to have been filed on or before 11-4-1998, but was done due to advice given by the Senior Accounts Manager of the petitioner-company that such disallowance will only benefit the company by increased asset base and extended depreciation benefits for the future years.

3. However, based on recalculations made during the reassessment proceedings for this year, an appeal ought to have been filed against the aforesaid assessment made and the advise rendered by the employee of the company is incorrect.

4. In view of this, the appeal was filed on 28-3-2002 resulting in a delay of 1,447 days and filing of the present condonation petition.

5. An affidavit of Mr. V. Parthasarathy, Sr. Accounts Manager of the company is enclosed explaining in detail the reason for delay in filing the appeal.

6. It is requested that in view of the factual and legal circumstances, it is prayed that the delay in filing the appeal be condoned and the appeal be taken on record to be disposed on merits."

To support these reasons, the assessee has produced the affidavit of the Senior Manager (Finance & Accounts) who happened to be the C.A. The same reasons were adduced for the assessment year 1996-97. The relevant portion of affidavit which has been reproduced by the CIT (Appeals) in his order, is again being extracted for clarity:

"The assessments for the aforesaid assessment years 1995-96 and 1996-97 was finalised under section 143(3) by the ACIT, Co. Cir. II(1), Coimbatore, who, vide orders dated 27-2-1998 and 17-3-1998 respectively, disallowed the above replacements as capital expenditure. The assessment orders aforesaid were served on the company for assessment year 1995-96 on 12-3-1998 and for assessment year 1996-97 on 18-3-1998. At the time of finalisation of assessment proceedings aforesaid, the assessee-company had gone on a massive expansion programme aggregating to Rs. 55 crores, and there was a large depreciation base and interest expenses requiring set off against future profits and I felt that the disallowance of revenue expenditure of earlier years is only going to be beneficial to the company since it is going to get absorbed into the increased asset base, stretching the depreciation benefit thereon, exponentially for future years. Accordingly, I advised the management of the assessee-company not to prefer an appeal against the assessment order for assessment years 1995-96 and 1996-97 aforesaid and, accordingly, no appeals were preferred before the first appellate authority.

However, it is now noticed that on account of wrong calculation of depreciation figures for the aforesaid years, the claim for replacement of assets ought to have been pursued to its logical and legal conclusion, as otherwise, unintended tax and interest liability will be fall upon the company and inasmuch as, tax workings and payment of advance tax then were based purely on the basis that the above replacement, are a legitimate charge on the taxable profit of the company. Acceptance of the assessment orders per se would result in unmitigated hardship in the form of heavy interest burden under the Income-tax Act till today in addition to tax liability on account of disallowance of depreciation on wrong calculations aforesaid.

The assessee-company has been advised to prefer an appeal before the Commissioner of Income-tax (Appeals), Coimbatore, in order to mitigate the effects of my advice regarding non-filing of appeals on the aforesaid assessment orders. Accordingly, an appeal has been preferred on 28-3-2002 resulting in delay of 1,447 days for assessment year 1995-96 and 1,454 days for assessment year 1996-97. I declare that the delay in filing the appeals aforesaid is on account of my advice then that is beneficial for the assessee-company not to pursue the appeal, in the circumstances then obtaining."

6. Now before us, the assessee has taken a specific plea that the CIT (Appeals) is not justified in refusing the condonation of delay in filing the appeals on the alleged ground that the assessee has taken an alleged decision not to file the appeals against the orders of the assessments as a conscious and deliberate one. Even now, before us, the assessee has chosen not to file the complete affidavit as alleged by the assessee in ground No. 3 that the CIT (Appeals) having reproduced the affidavit filed in regard to condonation of delay in filing the appeal in his appellate order, is not justified in reading something therein which was not available for interpretation. Further, it was pleaded that the CIT (Appeals) is not justified in refusing to deal with the merits of the appeal after having adumbrated on case laws dealing with rejection of technicalities and espousal of causes for rendering of justice.

7. The facts are not disputed that there is a delay of for more than four years. The delay is on account of advice by the assessee's Senior Manager (Finance & Accounts) who happened to be a C.A. and he advised that at the time of finalisation of assessment proceedings, the assessee-company had gone a massive expansion programme aggregating to Rs. 55 crores and there was availability of large depreciation and interest expenses as required for set off against future profits. Accordingly, it was advised by him that the disallowance of revenue expenditure on replacement is only going to be beneficial to the assessee-company since it is going to increase its asset base and the depreciation will be available for future years. On this advice, the assessee-company has taken a conscious and deliberate decision, not to contest the assessment orders as the company had gone into a massive expansion programme aggregating to Rs. 55 crores and it wanted to claim large depreciation and interest expenses in future years when the profits will arrive. It is clear that this advice was given by the C.A. and accepted by the company, even though the decision is available in favour of the assessee on replacement of machinery being held as revenue expenditure by the Hon'ble Apex Court in the case of CIT v. Mahalakshmi Textile Mills Ltd. [1967] 66 ITR 710. Subsequently; the Hon'ble High Courts and the Tribunal Benches are consistently taking a view from the very beginning that the expenditure incurred on replacement of machinery is a revenue expenditure. The various High Courts and the Tribunal have taken similar view in the following cases:

1. New Shorrock Spg. & Mfg. Co. Ltd. v. CIT [1956] 30 ITR 338 (Bom.)

2. Nathmal Bankatlal Parikh & Co. v. CIT [1980] 122 ITR 168 (AP)

3. Nagammal Mills Ltd. v. Dy. CIT [IT Appeal No. 2774 (Mad.) of 1993, dated 31-10-1997]

4. Sundaram Textile Ltd. [IT Appeal No. 3151 (Mad.) of 1991-92, dated 30-7-1993]

5. L.S. Mills (P.) Ltd. [IT Appeal No. 3128 (Mum.) of 1992, dated 18-8-1993]

6. Vadivambigai Textiles Mills [IT Appeal Nos. 1161 and 1162 (Mum.) of 1994, dated 24-5-1995]

7. ITO v. Sri Varadharaja Textiles (P.) Ltd. [1984] 9 ITD 469 (Mad.)

8. CIT v. Salem Co-operative Spg. Mills Ltd [1984] 148 ITR 176 (Mad.).

On this issue, the Hon'ble Calcutta High Court in the case of Bhakti Bh. Mondal v. Khagendra K. Bandopadhya AIR 1968 Cal. 69, 74 has held that if the appellant wants that the delay should be condoned he should frankly admit that the appeal is barred; but he should be excused for the delay owing to say, a wrong advice given a competent lawyer who had exercised reasonable care and skill in giving the advice, on a matter which was capable of more than one interpretation. In the present case in hand, the facts are not similar to that of the Hon'ble Calcutta High Court and it has stated that the delay should be condoned where wrong advice given by a competent lawyer who has exercised reasonable care and skill in giving the advice, on a matter which was capable of more than one interpretation. After the decision of the Hon'ble Apex Court in the case of Mahalakshmi Textile Mills Ltd., the Hon'ble Jurisdictional High Court and the Tribunal Benches are taking a consistent view that the replacement of machinery is revenue expenditure. Now, the question arises as to whether the assessee really wanted to prosecute the appeals from the very beginning on the receipt of assessment orders with due care and diligence. By going through the facts of the case and background as discussed above, it is seen that the assessee has taken a conscious and deliberate decision not to contest the assessment orders as it was felt that exponent of the orders would not go against the interest of the company as the company had gone on a massive expansion programme and it was likely to claim a large depreciation and interest expenses to be set off against the future profits.

8. As per the provisions of section 249(3) of the Act, there should be sufficient cause for the assessee for not presenting the appeal within the time allowed. The relevant provision reads as under:

"249. Form of appeal and limitation.-(1) and (2)

(3) The [....][Commissioner (Appeals)] may admit an appeal after the expiration of the said period if he is satisfied that the appellant had sufficient cause for not presenting it within that period."

Under section 249(3) of the Act, the appellate authority may, on good and sufficient reason for the delay being shown, admit an appeal after the expiry of the period of limitation. But the period for filing of an appeal cannot be extended simply because the appellant's case is hard and calls for sympathy or merely out of benevolence to the party seeking relief. In granting the indulgence and condoning the delay the appellate authority must be satisfied that there has been diligence on the part of the appellant and it was not guilty of negligence or whatsoever. The sufficient cause within the contemplation of these provisions must be a cause which is beyond the control of the party invoking the aid of the provisions. The cause for delay in filing the appeal which by due care and attention could have been avoided cannot be sufficient cause within the meaning of these provisions. In the present case in hand, the assessee itself chose not to file the appeals against the assessment orders where the expenditure incurred on replacement of machinery claimed by the assessee was disallowed and held as capital expenditure on the advice of its Senior Manager (Finance & Accounts) who happened to be a C.A., that the assessee-company had gone a massive expansion programme and the company can claim a large depreciation and interest expenses and can increase its asset base and the same can be utilised for setting off of future profits. In view of this, the assessee-company has taken a deliberate and conscious decision not to file against the assessment orders and, accordingly, the assessment orders were accepted as it is.

9. The change of legal situation brought about by the decision of the Hon'ble Supreme Court or a subsequent decision of the High Court which changed the position, the interpretation or understanding of law, constituted sufficient cause for condoning the delay. But in the present case in hand, the decision of the Hon'ble Apex Court as well as the Hon'ble Jurisdictional High Court, was available to the assessee in its favour wherein it was held that the expenditure incurred on replacement of machinery is revenue in nature. Even the Hon'ble Madras High Court in the case of Andal Sweet Stall & Tiffin Dining Hall v. State of Tamil Nadu [1981] 48 STC 551, has held that a judgment pronounced by a Court long after the period of limitation cannot be taken advantage of for filing an appeal with a petition to excuse the delay in filing the appeal. The judicial precedents of the recent past show that the Courts have adopted liberal approach in entertaining the application for condonation of delay and the old theory that every day's delay must be explained has been diluted to some extent. However, while deciding the prayer for condonation of delay, the Court cannot ignore or give a go-by to the basic principle that the burden to prove the existence of sufficient cause is always on the assessee and there is no presumption that the delay occasioned in the filing of the appeal, is always bona fide and the condonation of delay is not the matter of course. The law of limitation is prescribed by the Income-tax Act under the provisions of section 249(3) of the Act which envisages that there should have been a sufficient cause for not presenting the appeal within that period as prescribed. Where the applicant has failed to show sufficient cause for condonation of delay, the application for condonation of delay is liable to be rejected. In the present case in hand, the assessee was not availing any alternative before any of the forum and it was advised wrongly by the counsel and on the advice of C.A., it has acted and with deliberate and due care has taken a decision not to file any appeal against the assessment orders. The Hon'ble Apex Court in the case of Binod Bihari Singh v. Union of India [1993] 1 SCC 572, 580 was of the view that it was not at all a fit case where the anxiety to render justice to a party so that just cause was not defeated, a pragmatic view should be taken by the Court in considering the sufficient cause for condonation of delay under section 5 of the Limitation Act. Even though a liberal approach has to be adopted, but that does not mean that any plea without any plausible or acceptable basis, and not even hearing semblance or rationality has to be accepted, and delay has to be condoned. That shall be against the very spirit of law. Prescription of time-limit for filing appeals become meaningless in such event. At the same time, the assessee must show that he was diligent all along in taking appropriate steps and the delay was caused notwithstanding his due diligence and if he appears to be guilty of laches or negligence and does not take appropriate steps for pursuing his remedy then he must be prepared to have his remedy barred without expecting condonation. Still, it is the party concerned to explain the reasons for delay and it is not the function of the appellate authority to find the cause of the delay. The appellate authority has to examine, whether sufficient cause has been shown by the party for condoning the delay and whether such cause is acceptable or not. The word "sufficient cause" as enumerated in section 249(3) in the context of condonation of delay should be a liberal construction so as to give substantial justice but only when no negligence or inaction or want of bona fide is imputable to the party concerned. In the present case in hand, the assessee was aware about the facts of the case and it was within its knowledge that the issue in respect of expenditure incurred on replacement of machinery was treated as capital expenditure by the Assessing Officer and the same was not contested as it wants to increase its asset base and want to claim depreciation and interest to be set off against the future profits.

10. Coming to the case laws cited by both the sides, the Hon'ble Madhya Pradesh High Court in the case of Nihalkaran v. CWT [1989] 175 ITR 14 has held as under:

"The burden is on the party claiming condonation of delay to place before the Court, in clear and explicit terms, all facts on which the party relies, so that the Court can come to the conclusion that it is not a case of want of diligence or inaction on the part of the applicant. In the instant case, the applicant has failed to place on record all these facts. Inaction or want of diligence on the part of the applicant would not entitle the applicant to the benefit of the provisions of section 5 of the Limitation Act. In our opinion, therefore, the applicant has failed to make out a case that there was sufficient cause for delay in filing the application under section 27(3) of the Act. The application for condonation of delay is, accordingly, rejected. As the application under section 27(3) of the Act is barred by limitation, it deserves to be rejected on this ground alone."

Further, the Hon'ble Delhi High Court in the case of MS. Nulson India Ltd. v. CIT [1996] 219 ITR 736 has held that:

"Admittedly, the application under section 264 of the Act was filed beyond one year and there was a delay of 11/2 months in filing the application. It was stated in the application seeking condonation of delay that the delay occurred because the assessee was not given proper legal guidance when he received the assessment orders. It was, however, pointed out by Mr. B. Gupta, learned counsel for the revenue, that the assessee is not only having the services of a chartered accountant but also of a tax consultant who was a former Indian Revenue Service person working in the Income-tax Department. The plea, therefore, that the petitioner could not get proper legal guidance cannot be held to be valid."

11. It is to be noted that there is a landmark decision of the Supreme Court in the issue of limitation of appeals in the case of Collector, Land Acquisition v. Mst. Katiji [1987] 167 ITR 471 at page 473. While advocating a liberal approach on this issue, the Supreme Court had ruled as follows:

"And such a liberal approach is adopted on principle as it is realized that:

1. Ordinarily, a litigant does not stand to benefit by lodging an appeal late.

2. Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. As against this, when delay is condoned, the highest that can happen is that a cause would be decided on merits after hearing the parties.

3. "Every day's delay must be explained" does not mean that a pedantic approach should be made. Why not every hour's delay, every second's delay? The doctrine must be applied in a rational, common sense and pragmatic manner.

4. When substantial justice and ethnical considerations are pitted against each other, the cause of substantial justice deserves to be preferred, for the other side cannot claim to have vested right in injustice being done because of a non-deliberate delay.

5. There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact, he runs a serious risk.

6. It must be grasped that the judiciary is respected not on account of its power to legalize injustice on technical grounds but because it is capable of removing injustice and is expected to do so."

12. Even the Hon'ble Supreme Court in the case of Vedabai alias Vaijayanatabai Baburao Patil v. Shantaram Baburao Patil [2002] 253 ITR 798, has made a distinction between the case where there is inordinate delay then the consideration of prejudice to the other side will be a relevant factor, so the case calls for a more cautious approach but in a latter case where the delay is of a few days then no such consideration may arise and such a case deserves liberal approach. Finally, the Hon'ble Apex Court held as under:

"In exercising discretion under section 5 of the Limitation Act the Courts should adopt a pragmatic approach. A distinction must be made between a case where the delay is inordinate and a case where the delay is of a few days. Whereas in the former case the consideration of prejudice to the other side will be a relevant factor so the case calls for a more cautious approach but in the latter case no such consideration may arise and such a case deserves a liberal approach. No hard and fast rule can be laid down in this regard. The Court has to exercise the discretion on the facts of each case keeping in mind that in construing the expression 'sufficient cause', the principle of advancing substantial justice is of prime importance. In our view in this case, the approach of the learned Civil Judge is wholly erroneous and his order is unsustainable. It is evident that the discretion under section 5 of the Limitation Act is exercised by the Civil Judge in contravention of the law laid down by this Court, that the expression 'sufficient cause' should receive liberal construction, in a catena of decisions (see State of West Bengal v. Administrator, Howrah Municipality AIR 1972 SC 749; [1972] 1 SCC 366 and Smt. Sandhya Rani Sarkar v. Smt. Sudha Rani Debi AIR 1978 SC 537; [1978] 2 SCC 116). The High Court in exercising its jurisdiction under section 115 of the Civil Procedure Code, failed to correct the jurisdictions error of the Appellate Court."

Further, the Hon'ble Punjab and Haryana High Court in the case of CIT v. Ram Mohan Kabra [2002] 257 ITR 773 held as under:

"The provisions relating to prescription of limitation in every statute-must not be construed so liberally that it would have the effect of taking away the benefit accruing to the other party in a mechanical manner. Where the Legislature spells out a period of limitation and provides for power to condone the delay as well, there such delay can be condoned only for sufficient and good reasons supported by cogent and proper evidence. Now it is a settled principle of law that the provisions relating to specified period of limitation must be applied with their rigour and effective consequences."

Respectfully following the ratio laid down in the aforesaid decisions of the Hon'ble Supreme Court and various High Courts and after going through the facts and circumstances of the case, we are of the view that the CIT (Appeals) is justified in refusing to condone the delay in filing the appeals. Accordingly, we uphold the order of the CIT (Appeals).

13. In the result, the appeals of the assessee are dismissed.

 

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