BANCO PRODUCTS (INDIA) LTD., Baroda V. The Dy.CIT, CIRCLE-1(1), Baroda

CO 135/AHD/2010

• Counselvise Citation: [2012] 129 COUNSELVISE.COM (IT) 9989 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 22 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 25-10-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2006-2007
• Appeal Filed On: 03-06-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: T SHANKAR SRDR
• Keywords: Capital asset; Depreciation; Reasonable cause; Fair market value; Revenue expenditure; Capital expenditure
• Section: 143(3); 14A; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE SHRI, A.K.GARODIA, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER ITA NO.1105/AHD/2010 & CO NO.135/AHD/2010 (A/O ITA NO. 1105/AHD/2010) ASSESSMENT YEAR:2006-07 DCIT, CIRCLE-1(1), BARODA BANCO PRODUCTS (I) LTD., BIL, NR. BHAILY RLY. STATION PADRA ROAD, BARODA [ PAN NO.AAACB 8630L ] V/S . V/S . BANCO PRODUCTS (I) LTD., BIL, NR. BHAILY RLY. STATION PADRA ROAD, BARODA DCIT, CIRCLE-1(1), AYKAR BHAVAN, BARODA / APPELLANT .. / RESPONDENT) /BY ASSESSEE NONE /BY REVENUE SHRI T. SHANKAR, SR-DR /DATE OF HEARING 31-08-2012 ! /DATE OF PRONOUNCEMENT 25 -10-2012 O R D E R PER KUL BHARAT, JUDICIAL MEMBER:- THIS APPEAL BY REVENUE AND CROSS OBJECTION (CO) BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOM E-TAX (APPEALS)-I, BARODA (CIT(A) FOR SHORT) DATED 08-12-2009 FOR THE ASSES SMENT YEAR (AY) 2006-07. FIRST WE TAKE UP REVENUES APPEAL IN ITA NO. 1105/A HD/2010. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(APPEALS) ERRED IN DELETING THE ADDITION AMOUNTI NG TO RS.15,86,947/- MADE ON ACCOUNT OF CAPITAL EXPENDITURE IRRESPECTIVE OF THE FACT HUGE EXPENDITURE TOWARDS MACHINERY / PLANT MADE, WHICH E XTENDED THE LIFE ITA NO.1105/AHD/2010 & CO 135/AHD/2010 A.Y. 06-07 DCIT CIR-1(1) BRD V. BANCO PRODUCTS (I) LTD. PAGE 2 TIME, RELYING ON THE DECISION OF THE HON/ SUPREME C OURT IN THE CASE OF CIT VS. SARAVANA SPINNING MILLS PVT. LTD. (2007) 2193 ITR 201 (SC). 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(APPEALS) ERRED IN DELETING THE ADDITION OF RS.6 ,01,457/- MADE ON ACCOUNT OF DISALLOWANCE OF REMUNERATION PAID TO THE EXECUTIVE DIRECTOR OF THE ASSESSEE COMPANY IN EXCESS OF THE IMMEDIATEL Y PRECEDING YEAR WITHOUT ANY JUSTIFICATION. 3. THE FACTS OF THE CASE IS THAT ASSESSEE-COMPANY I S ENGAGED IN THE BUSINESS OF MANUFACTURING OF AUTOMOTIVE GASKETS, RA DIATORS & CFJS AT ITS UNIT AT BHAILI AND ANAKHI. THE CASE OF THE ASSESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND ASSESSMENT U/S. 143(3) OF THE INCOM E-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS FINALIZE D, THEREBY, THE ASSESSING OFFICER (AO) MADE DISALLOWANCE OUT OF EXPENDITURE O N REPAIRS AND MAINTENANCE OF PLANT AND MACHINERY, U/S 14A OF THE ACT AND DISALLOWANCE OF DIRECTORS REMUNERATION. THE ASSESSEE FEELING AGGRI EVED BY THIS ORDER FILED APPEAL BEFORE LD. CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE PARTLY ALLOWED THE APPEAL. 4. NOW BOTH THE REVENUE AND ASSESSEE HAS CHALLENGED THE ORDER OF LD. CIT(A) BY WAY OF APPEAL AND CO BEFORE US. 5. AT THE TIME OF HEARING NONE-APPEARED ON BEHALF O F ASSESSEE, HOWEVER, AN APPLICATION DATED 28-08-2012 IS ON RECORD. NO RE ASONABLE CAUSE IS MENTIONED EXCEPT THAT A REQUEST FOR TAKING PAPER BO OK ON RECORD. THEREFORE, THE ADJOURNMENT REQUEST IS HEREBY REJECTED AND WE P ROCEED TO HEAR THIS APPEAL IN THE ABSENCE OF ASSESSEE. 6. THE FIRST GROUND OF REVENUE IS AGAINST THE DELET ION OF ADDITION OF RS.15,86,947/- OUT OF EXPENDITURE ON REPAIRS AND MA INTENANCE OF MACHINES. LD. SR-DR SUBMITTED THAT THE ASSESSING OFFICER HAS MADE ADDITION OF RS.15,86,947/- AFTER GIVING THE BENEFIT OF DEPRECIA TION OUT OF EXPENDITURE ON REPAIR AND MAINTENANCE OF MACHINERY ON THE GROUND T HAT THE EXPENSES ARE OF ITA NO.1105/AHD/2010 & CO 135/AHD/2010 A.Y. 06-07 DCIT CIR-1(1) BRD V. BANCO PRODUCTS (I) LTD. PAGE 3 CAPITAL NATURE. HE SUBMITTED THAT THESE EXPENDITURE S ARE INCURRED FOR THE PURCHASE OF BAND KNIVES IMPORTED FOR SPLITTING MACH INE, CHILLED CAST IRON ROLLER BARREL, CALENDAR ROLLER SHAFT. HE SUBMITTED THAT AD DING OR REPLACING OF THESE PARTS OF THE MACHINERY HAS ADDED TO THE LIFE OF MAC HINERY AND IT IS THE NATURE OF ENDURING BENEFIT TO THE MACHINERY FURTHER REPLAC EMENT OF THREE PARTS OF ENHANCE THE EFFICIENCY OF MACHINERY. LD. DR VEHEMEN TLY ARGUED THAT THE JUDGMENT OF HONBLE SUPREME COURT RENDERED IN THE C ASE OF CIT V. SRI MANGAGARKARARI MILLS P. LTD. (2009) 315 ITR 114 (SC) IS APPLICABLE ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 7. WE HAVE HEARD THE LD. SR-DR AND PERUSED THE MATE RIALS AVAILABLE ON RECORD AND JUDGMENT CITED BY LD. DR. THE CONTENTION OF THE LD. DR IS THAT ON PERUSAL OF THE EXPENDITURE INCURRED BY THE ASSESSEE -COMPANY IS CLEAR THAT SAME IS NOT FOR CURRENT REPAIRS OF PLANT AND MACHIN ERY. SINCE SUCH HUGE EXPENDITURE DEFINITELY ADDED THE LONGEVITY AND CAPA CITY OF THE MACHINES. IT IS SUBMITTED THAT A LOOK AT THE NATURE OF EXPENDITURE REVEALS THAT THEY ARE ESSENTIALLY TO BE CAPITALIZED AND IT IS RIGHTLY TRE ATED BY THE ASSESSING OFFICER IN ADMISSIBLE BEING NOT A REVENUE EXPENDITURE. RELIANC E HAS BEEN PLACED ON THE JUDGMENT OF THE HONBLE SUPREME COURT RENDERED IN T HE CASE OF BALLIMAL NAVAL KOSHORE V. CIT 224 ITR 414 (SC); CIT V. SARAVANA SPINNING MILLS PVT. LTD. (2007) 293 ITR 201 (SC). WE FIND THAT LD. CIT(A) H AS DEALT WITH THIS ISSUE AS UNDER:- 4. GROUND NO. 2 CHALLENGES THE DISALLOWANCE MADE O UT OF REPAIRS & MAINTENANCE EXPENSES TO PLANT & MACHINERY ON THE GR OUND THAT THE SAME ERE CAPITAL IN NATURE. THE AO HAS DEALT THE ISSUE IN PA RA 4 OF THE ASSESSMENT ORDER. ON SCRUTINY OF THE REPAIRS & MAINTENANCE EXP ENSES DEBITED IN THE BOOKS, THE AO OBSERVED THAT SOME OF THE EXPENSES WE RE CAPITAL IN NATURE. RELYING ON THE DECISIONS OF THE SUPREME COURT IN TH E CASES OF BALLIMAL NAVAL KISHORE V. CIT, 224 ITR 414 AND CIT V. SARAVANA SPINNING MILLS PVT. LTD., 293 ITR 201, THE AO MADE A NET ADDITION OF RS.15,86,947 /- AFTER ALLOWING DEPRECIATION ON THE ITEMS CONSIDERED CAPITAL IN NAT URE. 4.1 IN APPEAL, THE LD. AR SUBMITTED THE FOLLOWING C HART DEPICTING THE NATURE OF EXPENSES INCURRED ALONG WITH EXPLANATION: SR. NO OF AO AMOUNT (RS) REMARKS ITA NO.1105/AHD/2010 & CO 135/AHD/2010 A.Y. 06-07 DCIT CIR-1(1) BRD V. BANCO PRODUCTS (I) LTD. PAGE 4 1 5 2,42,990 3,18,611 THESE ARE PURCHASE OF SPARES FOR SPLITTING MACHINE. THE SPARES INCLUDE PURCHASE OF BAND KNIVES. THESE BAND KNIVES ARE USED IN SPLITTING MACHINE WHICH IN TURN IS USED IN GASKET MANUFACTURING. FURTHER, THES E KNIVES ARE USED FOR PROPER FUNCTIONING OF THE MACHI NE. THESE DO NOT IN ANY WAY INCREASE THE PRODUCTIVITY O F THE MACHINE. THESE ARE MAINLY SPARES AND ARE REPLACED AS AND WHEN REQUIRED. DUE TO CORROSION THE KNIVES ARE REQUIRED TO BE REPLACED. THESE ARE MAINL Y IN THE NATURE OF REPLACEMENT OF WORN OUT PARTS. FURTHER, BY INCURRING EXPENSES ON SPARES, THERE IS NO QUESTION OF ANY ENDURING BENEFIT ACCRUING ON THE APPELLANT NOR THERE IS QUESTION OF INCREASING THE PRODUCTIVITY. WE THEREFORE SUBMIT THAT THE ADDITION IS REQUIRED TO BE DELETED. SIMILAR DISALLOWANCE WAS MADE IN AY 2005-06 THE CIT(A)-I, BARODA VIDE PARA 5.3.3 OF THE ORDER HAS DELETED THE ADDITION SINCE THE ADDITION IS MADE ON SIMILAR LINES, WE REQUEST YOUR KIND OFFICE TO DELETE THE ADDITION MAD E. 2 3 9,71,412 5,14,134 THE EXPENSES WERE INCURRED ON REPAIRING OF ROLLER. SOME OF THE PARTS OF THE MACHINE WERE NOT FUNCTIONING AT THE REQUIRED SPEED DUE TO WHICH THE ROLLER WAS GETTING JAMMED. THE EXPENSES ARE INCURRE D FOR REMOVING THE JAM IN THE ROLLER. SIMILAR DISALLOWANCE WAS MADE IN AY 2005-06 THE HONBLE CIT(A)-I, BARODA VIDE PARA 5.3.4 OF THE ORD ER HAS DELETED THE ADDITION MADE. SINCE THE ADDITION I S MADE ON SIMILAR LINES, WE REQUEST YOUR KIND OFFICE TO DELETE THE ADDITION MADE. 4 3,08,481 THE EXPENSES ARE INCURRED FOR REPLACEMEN T OF CALENDAR ROLLER SHAFT. THE EXPENSES HAVE BEEN INCURRED FOR SMOOTH WORKING OF DIVINE MACHINE. THIS IS PART WHICH IS REPLACED DUE TO WEAR AND TEAR. THE MACHINE IS USELESS IF NOT FITTED TO THE MAIN MACHINE. INDIVIDUALLY IT HAS NOT UTILITY. SINCE THESE ARE REPLACEMENT OF WORN OUT PARTS, THE SAME ARE REVENUE EXPENDITURE. 4.2 THE LD. AR ALSO POINTED OUT THAT THE DECISIONS OF THE SUPREME COURT RELIED UPON BY THE AO ARE NOT APPLICABLE ON THE FACTS OF T HE APPELLANT. IN THE CASE OF BALLIMAL NAVAL KISHORE (SUPRA) IT WAS CONTENDED THAT IN THE SAID DECISION A GINNING FACTORY WAS CONVERTED INTO A CINEMA THEATRE AND THE EXPENSES ITA NO.1105/AHD/2010 & CO 135/AHD/2010 A.Y. 06-07 DCIT CIR-1(1) BRD V. BANCO PRODUCTS (I) LTD. PAGE 5 INCURRED FOR CONVERTING THE GINNING FACTORY INTO A CINEMA THEATRE WERE CLAIMED AS REVENUE EXPENDITURE. THIS IS NOT THE CASE WITH T HE APPELLANT. IN THE CASE OF SAARVANA SPINNING MILLS (SUPRA) THE SUPREME COURT HELD THAT THE HIGH COURT PROCEEDED ON A FOOTING THAT A TEXTILE MILL IS ONE S INGLE PLANT AND THEREFORE REPLACEMENT OF MACHINES OF ONE ENTIRE DEPARTMENT CA N BE CONSIDERED AS REPLACEMENT OF PARTS AND ALLOWABLE AS REVENUE EXPEN DITURE, WHICH IS NOT CORRECT. A TEXTILE MILL CANNOT BE CONSIDERED AS ONE SINGLE PLANT. IN TEXTILE MILL THERE ARE SEVERAL DEPARTMENTS AND EACH DEPARTMENT I S EQUIPPED WITH ITS OWN MACHINERY. THEREFORE REPLACEMENT OF ENTIRE PANT & M ACHINERY OF ONE DEPARTMENT CANNOT BE CONSIDERED AS CURRENT REPAIRS. IN VIEW OF SUCH FACTUAL FINDING THE SUPREME COURT REVERSED THE ORDER OF THE HIGH COURT. 4.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE LD. AR AND THE FACTS OF THE CASE. IN VARIOUS CASES THE SUPREME COURT AND OTHER HIGH C OURTS HAVE HELD THAT REPLACEMENT OF PARTS OF A LARGER MACHINE WOULD NOT AMOUNT TO CREATION OF ANY NEW ASSET OR INCURRING OF CAPITAL EXPENDITURE.. WHE RE THE MANUFACTURING ACTIVITY IS CARRIED ON BY MACHINES COMPRISING OF VA RIOUS PARTS, AND WHERE ONE OR MORE OF THE PART IS REPLACED, IT WOULD NOT AMOUN T TO REPLACEMENT OF THE WHOLE. THIS PROPOSITION HAS BEEN REITERATED BY THE SUPREME COURT IN THE CASE OF SARAVANA SPINNING MILLS, IN THE CONTEXT OF A PART CALLED AUTO LEVELER FORMING PART OF A CARDING MACHINE, IN THE FOLLOWING TERMS: SIMILARLY, IN THE CARDING DEPARTMENT WE HAVE CARDI NG MACHINES WITH AUTOLEVELERS. IF THE AUTOLEVELER FAILS, THE CARDING MACHINE BECOMES NON- FUNCTIONAL. IF AN AUTOLEVELER IS TO BE REPAIRED THE N THAT REPAIR WOULD COME WITHIN THE CONNOTATION OF THE WORD CURRENT REPAIRS BECAUSE IT IS A PART OF THE CARDING MACHINE. EVEN IF IN A GIVEN C ASE, REPLACEMENT OF AN AUTOLEVELER COULD COME WITHIN THE CONNOTATION OF THE WORD CURRENT REPAIRS IF THE OLD PART IS NOT AVAILABLE IN THE MARKET. I T IS A CURRENT REPAIRS IF THE OLD PART IS NOT AVAILABLE IN THE MARKET. I T IS A CURRENT REPAIRS IF THE OLD PART IS NOT AVAILABLE IN THE MARKET. IT IS A CURRENT REPAIR BECAUSE THE CARDING MACHINE REMAINS AN ASSE T WITHOUT ANY CHANGE EVEN AFTER REPAIR OR REPLACEMENT OF THE AUTO LEVELER. TO GIVE AN EXAMPLE, A COMPRESSOR IS AN IMPORTANT PART OF AN AI R-CONDITION MACHINE. REPAIR OF THE COMPRESSOR WILL COME IN THE CONNOTATION OF THE WORD CURRENT REPAIRS IN SECTION 31(I) OF THE SAID ACT BECAUSE THE ASSESSEE DOES NOT REPLACE THE AIR-CONDITION MACHINE . AT THE HIGHEST, HE REPLACES A PART OF THE AIR-CONDITION MACHINE. SO IS THE CASE OF THE PICTURE TUBE IN A TELEVISION SET, WHEN THE PICTURE TUBE IS REPLACED THE TELEVISION SET IS NOT REPLACED, THEREFORE, SUCH REP AIRS ALONE CAN COME WITHIN THE CONNOTATION OF THE WORD CURRENT REPAIRS IN SECTION 31(I) OF THE SAID ACT AS IT STOOD AT THE MATERIAL TIME. THEY ARE EFFECTED TO PRESERVE AND MAINTAIN THE ASSET, VIZ, AIR-CONDITION ER OR CARDING MACHINE. 4.3.1 HENCE, JUDICIAL OPINION IS QUITE CLEARLY ARTI CULATED TO THE EFFECT THAT REPLACEMENT OF ONE OR MORE PART(S) OF CAPITAL ASSET WOULD CONSTITUTE REVENUE EXPENDITURE AND NOT CAPITAL EXPENDITURE. IF PRESERV ATION OF THE CAPITAL ASSET ENTAILS REPLACEMENT OF WORN-OUT PARTS, SUCH EXPENSE S WOULD BE REVENUE IN NATURE. ITA NO.1105/AHD/2010 & CO 135/AHD/2010 A.Y. 06-07 DCIT CIR-1(1) BRD V. BANCO PRODUCTS (I) LTD. PAGE 6 4.3.2 SO FAR AS ITEM NOS. (1) & (5) OF THE TABLE AT PAGE 2 OF THE ASSESSMENT ORDER ARE CONCERNED (RS.2,42,990/-) AND RS.3,18,611 /- RESPECTIVELY), IT IS SEEN THAT THE EXPENSES WERE INCURRED ON PURCHASE OF BAND KNIVES FOR USE IN SPLITTING MACHINE. THE NATURE OF THE ITEMS INDICATE S THAT IT IS A SPARE PART WHICH REQUIRES FREQUENT REPLACEMENT. FURTHER, THE B AND KNIVES DO NOT HAVE ANY APPLICATION OTHER THAN AS PART OF THE SPLITTING MACHINE. HENCE, THE EXPENDITURE INCURRED ON PURCHASE OF SUCH SMALL PART S WOULD, IN MY OPINION, CONSTITUTE REVENUE EXPENDITURE. ACCORDINGLY, THE DI SALLOWANCE OF RS.2,42,990/- AND RS.3,18,611/- ARE DIRECTED TO BE DELETED. 4.3.3 REGARDING EXPENSES OF RS.971,412/- AND RS.5,1 4,134/- ON ROLLER REPAIRING, [ITEM NOS. (2) & (3) OF THE SAID TABLE], IT IS VERY CLEAR THAT THE EXPENDITURE INCURRED ON REMOVING ROLLER JAM IN ORDE R TO MAKE IT FUNCTIONAL WOULD CONSTITUTE REVENUE EXPENDITURE AND NOT CAPITA L EXPENDITURE. HENCE, THE AGGREGATE DISALLOWANCE OF RS.14,85,546/- IS DELETED . 4.3.4 REGARDING ITEM NO (4), IT IS APPARENT FROM TH E NATURE OF THE PART REPLACED (ROLLER SHAFT) THAT IT WAS ONLY ONE PART OF A LARGE MACHINE, WHICH REQUIRED REPLACEMENT ON BEING WORN OUT. BY INCURRING EXPENDI TURE ON PURCHASE OF SUCH ITEMS, NO NEW ASSET CAME INTO EXISTENCE WHICH WAS C APABLE OF PRODUCING ANY SALEABLE ITEM. ACCORDINGLY, IT IS HELD THAT EXPENDI TURE ON REPLACEMENT OF SUCH PART WAS REVENUE IN NATURE. ACCORDINGLY, THE DISALL OWANCE OF RS.3,08,481/- IS DIRECTED TO BE DELETED. FROM THE ABOVE WE DO NOT FIND ANY INFIRMITY INTO TH E ORDER PASSED BY LD. CIT(A) AS HE HAS TAKEN INTO CONSIDERATION ALL THE A SPECTS OF THE MATTER THE JUDGMENT AS RELIED BY THE REVENUE RENDERED IN THE C ASE OF SRI MANGAGARKARARI MILLS P. LTD. (SUPRA) IS NOT APPLICABLE ON THE FACTS OF THE PRESENT CASE. THE FACTS IN THAT CASE WERE THAT THE ASSESSEE WAS INVOLVED IN THE BUSINESS OF TEXTILE INDUSTRY AND THE EXPENDITUR E OF RS.61,28150/- WAS INCURRED ON REPLACEMENT OF MACHINERY IT CLAIMED IT AS REVENUE EXPENDITURE. THE ASSESSEE BELIEVED THAT SUCH EXPENDITURE WAS MER ELY EXPENDITURE ON REPLACEMENT OF SPARE PARTS IN THE SPINNING MILL SYS TEM AND, THEREFORE, AMOUNTED TO REVENUE EXPENDITURE. IN THE PRESENT CAS E, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF AUTOMOT IVE GASKETS, RADIATORS & CFJS AT ITS UNITS. LD. CIT(A) HAS NOTED THAT ITEM N O. 1 AND 5 OF THE TABLE AT PAGES 2 AND 3 OF ASSESSMENT ORDER ARE EXPENSES THAT WERE INCURRED ON PURCHASE OF BAND KNIVES FOR USE IN SPLITTING MACHIN E. THE NATURE OF THE ITEM INDICATES THAT IT IS SPARE PARTS WHICH REQUIRE FREQ UENT REPLACEMENT. FURTHER, THE BAND KNIVES DO NOT HAVE ANY OTHER APPLICATION THAN AS PART OF SPLITTING MACHINE. IT IS ALSO OBSERVED BY LD. CIT(A) THAT REG ARDING EXPENSES OF ITA NO.1105/AHD/2010 & CO 135/AHD/2010 A.Y. 06-07 DCIT CIR-1(1) BRD V. BANCO PRODUCTS (I) LTD. PAGE 7 RS.9,71,412/- LAKH AND RS.5,14,134/- ON ROLLER REPA IRING IS VERY CLEAR THAT THE EXPENDITURE WAS INCURRED ON REMOVING THE ROLLER JAM MED IN ORDER TO MAKE IT FUNCTIONAL. THEREFORE, THIS AMOUNT WAS ALSO CONSIDE RED AS REVENUE EXPENDITURE. IN RESPECT OF ITEM NO. 4, IT IS OBSERV ED THAT THIS ONLY A PART OF LARGE MACHINE WHICH REQUIRES REPLACEMENT ON BEING W ORN OUT. BY INCURRING EXPENDITURE ON PURCHASE OF SUCH ITEMS NO NEW ASSET CAME INTO EXISTENCE WHICH WAS CAPABLE OF PRODUCING ANY SALEABLE ITEMS. THE REVENUE HAS NOT DEMONSTRATED AS TO HOW THE EXPENDITURE INCURRED ON PURCHASING OF SPARE PARTS AND REPAIRING OF EXISTING MACHINERY WOULD MAKE IT A CAPITAL EXPENDITURE. IN THE PRESENT CASE, THERE IS NO REPLACEMENT OF MACHINERY AS A WHOLE, THEREFORE, THE JUDGMENT AS RELIED BY THE REVENUE RENDERED IN THE C ASE OF SARVANA SPINNING MILLS (SUPRA) IS NOT APPLICABLE. IN THIS VIEW OF THE MAT TER, THIS GROUND OF REVENUES APPEAL IS DISMISSED. 8. SECOND GROUND IS AGAINST THE DELETION OF ADDITIO N OF RS.6,01,457/- MADE ON ACCOUNT OF DISALLOWANCE OF REMUNERATION PAID TO THE DIRECTOR. LD. DR STRONGLY ARGUED THAT LD. CIT(A) HAS NARROWLY INTERP RETED THE U/S.40A(2)(B) OF THE ACT. THE ASSESSING OFFICER HAS DISALLOWED THE E XCESS REMUNERATION PAID AFTER CONSIDERING THE EXCESSIVE AND FOR UNREASONABL E HAVING REGARD TO THE FAIR MARKET VALUE OR THE BENEFIT DERIVE FOR CATEGORY. 9. WE HAVE HEARD THE LD. DR AND PERUSED THE MATERIA LS AVAILABLE ON RECORD. THE ASSESSING OFFICER HAS DISALLOWED TO THE EXTENT OF RS.6,01,457/- ON THE GROUND THAT THERE IS A SUDDEN INCREASE IN REMUN ERATION WHICH IS NOT JUSTIFIED, HOWEVER, LD. CIT(A) HAS OBSERVED THAT AD MITTEDLY THE AO HAS NOT DOUBTED THE RENDERING OF SERVICE AND GENUINENESS OF THE PAYMENT. IT IS SEEN THAT MR. R.R. BISWAS IS A QUALIFIED PERSON AND HE W AS EMPLOYED IN A PROFESSIONAL CAPACITY WITH THE COMPANY. THERE WAS I NCREASE IN SALE BY 26.87% IN THE CURRENT YEAR AS COMPARED TO EARLIER Y EAR. THE ASSESSEE HAS APPOINTED MR. R.R. BISWAS IN ACCORDANCE WITH THE PR OVISIONS OF SCHEDULE XII OF THE COMPANIES ACT, 1956. MOREOVER, THERE IS NO F INDING OF THE AO THAT THE ITA NO.1105/AHD/2010 & CO 135/AHD/2010 A.Y. 06-07 DCIT CIR-1(1) BRD V. BANCO PRODUCTS (I) LTD. PAGE 8 EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REG ARD TO THE FAIR MARKET VALUE OF SERVICES RENDERED BY THE DIRECTOR OF THE A SSESSEE-COMPANY. SECTION 40A(2)(B) OF THE ACT MANDATES THAT WHERE AN ASSESSE E INCURS ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT HAS BEEN OR IS TO BE M ADE TO A PERSON REFERRED TO IN CLAUSE (B) OF THAT SUB-SECTION AND THE AO IS OF THE OPINION THAT SUCH EXPENDITURE IS EXCESSIVE OR IS UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES SO MUCH OF THE EXPENDITURE AS IS SO CONSIDERED BY HIM TO BE EXCESSIVE OR UNREASONABLE S HALL NOT BE ALLOWED AS DEDUCTION. LD. CIT(A) RELIED ON THE DECISION OF HON BLE JURISDICTIONAL HIGH COURT RENDERED IN THE CASE OF VOLTAMP TRANSFORMERS (P) LTD. V. CIT (1981) 129 ITR 105 (GUJ) AND ALSO ORDER OF THE HONBLE CO- ORDINATE BENCH (TM) IN THE CASE OF JAGDAMBA ROLLERS FLOUR MILLS LTD. V. ACIT 2007) 117 ITD 260 (NAG) (TM). WE DO NOT FIND ANY INFIRMITY INTO THE ORDER P ASSED BY LD. CIT(A) AS IN THE PRESENT CASE, THE ASSESSING OFFICER HAS MADE DISALL OWANCE ON THE GROUND THAT THERE IS STEEP INCREASE IN THE REMUNERATION PA ID TO THE DIRECTOR OF THE ASSESSEE-COMPANY AND THE SUDDEN STEEP RISE IN REMUN ERATION COULD NOT BE SATISFACTORY EXPLAINED. HOWEVER, THE AO HAS NOT GIV EN ANY FINDING AS TO HOW THE REMUNERATION PAID TO THE DIRECTOR OF THE ASSESS EE-COMPANY IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VA LUE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE OR THE LEGITIMATE NEEDS OF THE BUSINESS OR PROFESSION OF THE ASSESSEE OR THE BENEF IT DERIVE BY OR ACCRUING TO IT. ON THE CONTRARY, THERE IS SPECIFIC FINDING OF T HE LD. CIT(A) THAT SHRI R.R. BISWAS IS A QUALIFIED PERSON AND HE WAS EMPLOYED IN A PROFESSIONAL CAPACITY WITH THE ASSESSEE-COMPANY AND THERE WAS INCREASE IN THE SALES BY 26.87% IN THE CURRENT YEAR AS COMPARED TO EARLIER YEAR, THIS FINDING OF THE FACT IS NOT REBUTTED BY THE REVENUE, IN THIS VIEW OF THE MATTER , THIS GROUND OF REVENUES APPEAL IS DISMISSED. 10. IN THE RESULT, REVENUES APPEAL IS DISMISSED. COMING TO ASSESSEES CO NO.135/AHD/2010. 11. AT THE TIME OF HEARING NONE APPEARED ON BEHALF OF ASSESSEE THE APPLICATION SEEKING ADJOURNMENT HAS BEEN REJECTED I N REVENUES APPEAL IN ITA NO.1105/AHD/2010 & CO 135/AHD/2010 A.Y. 06-07 DCIT CIR-1(1) BRD V. BANCO PRODUCTS (I) LTD. PAGE 9 ITA NO.1105/AHD/2010 AS NO REASONABLE CAUSE IS SHOW N FOR SEEKING SUCH ADJOURNMENT. THEREFORE, FOLLOWING THE ORDER HONBLE CO-ORDINATE BENCH OF THIS TRIBUNAL RENDERED IN THE CASE OF MULTIPLAN (INDIA) (P) LTD. (38 ITD 320). HENCE, THIS CO OF ASSESSEE IS HEREBY DISMISSED FOR WANT OF PROSECUTION. 12. IN COMBINED RESULT, THE APPEAL OF REVENUE IS DISMIS SED AND THAT OF ASSESSEES CO IS DISMISSED FOR WANT OF PROSECUTION. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE. SD/- SD/- (A.K.GARODIA) (KUL BHARAT) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD, *DKP '#$- 25/10/2012 *+, - . . . . //0 //0 //0 //0 10 10 10 10 / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. #,#/4 5 / CONCERNED CIT 4. 5- / CIT (A) 5. 0 78 ///4, /4!, *+, / DR, ITAT, AHMEDABAD 6. 8;< => / GUARD FILE. BY ORDER/ . , /TRUE COPY/ ?/* # /4!, *+, -