ACIT, Salem V. M/s. Yesvee Spinning Mills (P) Ltd., Salem

ITA 1108/CHNY/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58034 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 06-03-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 08-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K E B RENGARAJAN JUNIOR
• Assessee Lawyers: S SRIDHAR
• Keywords: Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENT AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ITA NO. 1108/(MDS)/2010 ASSESSMENT YEAR : 2007-08 AND C.O.NO. 67/MDS/2010 THE ASSISTANT COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE, SALEM. VS. M/S. YESVEE SPINNING MILLS (P) LTD., TRICHY MAIN ROAD, GAJJALNAICKENPATTI, SALEM-636201. PAN AAACY 0483 G (APPELLANT) (RESPONDENT/CROSS OBJECTOR) APPELLANT BY : SHRI ANIRUDH RAI, IRS, C OMMISSIONER OF INCOME-TAX & SHRI KEB RENGARAJAN, JUNIOR STANDING COUNSEL RESPONDENT BY : SHRI S. SRIDHAR, ADVOCATE DATE OF HEARING : 6 TH MARCH, 2012 DATE OF PRONOUNCEMENT : 13 TH MARCH, 2012 O R D E R PER DR.O.K.NARAYANAN, VICE-PRESIDENT: THE APPEAL IS FILED BY THE REVENUE. THE CROSS OB JECTION IS FILED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YE AR IS 2007-08. ITA 1108 & CO 67/10 :- 2 -: THE APPEAL AND THE CROSS OBJECTION ARE DIRECTED AGA INST THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS) AT SALEM DA TED 30.04.2010 AND ARISE OUT OF THE ASSESSMENT COMPLETE D UNDER SEC.143(3) OF THE INCOME-TAX ACT, 1961. 2. THE ASSESSEE-COMPANY IS RUNNING A SPINNING MIL L AT SALEM. THE ASSESSING OFFICER HAS MADE AN ADDITION OF ` 57,91,063/- TO THE RETURNED INCOME OF THE ASSESSEE-COMPANY, AS A RESU LT OF THE DISALLOWANCE OF EXPENSES CLAIMED BY THE ASSESSEE TO WARDS SPARES AND ELECTRICAL INSTALLATIONS. THIS ADDITION HAS BE EN DELETED BY THE COMMISSIONER OF INCOME-TAX(APPEALS). THE REVENUE I S AGGRIEVED AND, THEREFORE, THE SECOND APPEAL BEFORE US. 3. IT IS THE CASE OF THE REVENUE THAT THE ASSES SEE HAD STATED THROUGH A LETTER SUBMITTED IN THE COURSE OF THE ASS ESSMENT PROCEEDINGS THAT THE AMOUNT SPENT TOWARDS CONSUMPTI ON OF SPARE PARTS AND ELECTRICAL REPAIRS AND MAINTENANCE TO THE EXTENT OF ` 57,91,063/- SHOULD BE TREATED AS CAPITAL EXPENDITU RE. IT IS THE CASE OF THE REVENUE THAT THE ASSESSEE HAS COMMISSIONED A LMOST A NEW MACHINE BY REPLACING MOST OF THE COMPONENTS. THE C OMMISSIONER OF INCOME-TAX(APPEALS) OUGHT TO HAVE CALLED FOR A R EMAND REPORT TO ITA 1108 & CO 67/10 :- 3 -: VERIFY THE FACTS BEFORE COMING TO THE CONCLUSION. THE REVENUE CONTENDS THAT THE COMMISSIONER OF INCOME-TAX(APPEAL S) SHOULD HAVE FOLLOWED THE DECISION OF THE HONBLE SUPREME C OURT IN THE CASE OF CIT VS. SRI MANGAYARKARSAI MILLS PVT. LTD. (315 ITR 114). 4. IT IS ALSO ONE OF THE GROUNDS RAISED BY THE REVE NUE THAT THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS VIOLATED TH E REQUIREMENT OF RULE 46A IN ADMITTING FRESH EVIDENCE WITHOUT EST ABLISHING HOW THE CASE OF THE ASSESSEE FELL WITHIN THE EXCEPTIONS PRO VIDED UNDER THAT RULE. 5. WE HEARD BOTH THE SIDES IN DETAIL. 6. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE A SSESSING OFFICER HAS TAKEN A VIEW THAT THE SPARE PARTS AND I NSTALLATION OF TEXTILE MACHINERY WOULD BE IN THE NATURE OF REPLACE MENT OF AN ASSET, SINCE THE PURPOSE OF RENEWAL OR RESTORATION WAS TO HAVE AN ENDURING BENEFIT ON THE PRODUCTION OF THE PLANT. THEREFORE, THE EXPENDITURE WOULD HAVE TO BE TREATED AS CAPITAL. 7. THE EXPENDITURE WAS INCURRED MAINLY ON ACCOUNT OF SPINDLES, RINGS, TOP ARM AND DISC DRIVE FOR RING FR AMES. IT IS THE CASE ITA 1108 & CO 67/10 :- 4 -: OF THE ASSESSEE THAT THE DECISIONS POINTED OUT BY T HE ASSESSING AUTHORITY IN THE CASE OF CIT V. SRI MANGAYARKARSAI MILLS PVT. LTD.(315 ITR 114), CIT V. SARAVANA SPINNING MILLS PVT. LTD. (293 ITR 201) ETC. WOULD NOT BE APPLICABLE IN THE PRESENT CASE, AS THE DEDUCTIONS WERE NOT CLAIMED AS CURRENT REPAIRS UNDER SEC.31 BUT CLA IMED UNDER SEC.37 AS REVENUE EXPENDITURE. 8. AFTER CONSIDERING THE ISSUE IN A VERY DETAILE D MANNER, THE COMMISSIONER OF INCOME-TAX(APPEALS) HELD THAT THE E XPENDITURE INCURRED FOR SPARES OF RING FRAMES ETC. IS REVENUE IN NATURE AND, THEREFORE, THE ADDITION OF ` 57,97,063/- NEEDS TO BE TREATED AS REVENUE EXPENDITURE. IN COMING TO THE ABOVE CONCLU SION, THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS RELIED ON T HE JUDGMENT OF THE HONBLE KERALA HIGH COURT IN THE CASE OF CIT V. SREE BHAGAVTHI TEXTILES LTD. (81 TAXMAN 469). 9. THE HONBLE SUPREME COURT IN THE CASE OF CIT V . SARAVANA SPINNING MILLS PVT. LTD. (293 ITR 201) HAS CONSIDER ED THE TESTS NECESSARY TO QUALIFY AN EXPENDITURE AS CURRENT REPA IRS. THE COURT HELD THAT TO DECIDE THE APPLICABILITY OF CURRENT RE PAIRS UNDER SEC.31(I), THE TEST WAS NOT WHETHER THE EXPENDITURE WAS REVENU E OR CAPITAL IN ITA 1108 & CO 67/10 :- 5 -: NATURE, BUT WHETHER THE EXPENDITURE WAS CURRENT REP AIRS. THE BASIC TEST WAS TO FIND OUT WHETHER THE EXPENDITURE WAS IN CURRED TO PRESERVE OR MAINTAIN AN ALREADY EXISTING ASSET AND THE EXPENDITURE MUST NOT BE TO BRING A NEW ASSET INTO EXISTENCE OR ANY UNDUE ADVANTAGE. THE COURT HELD THAT IN THE CASE OF A TE XTILE MILL, EACH MACHINE INCLUDING THE RING FRAME WAS AN INDEPENDENT AND SEPARATE MACHINE CAPABLE OF INDEPENDENT SPECIFIED FUNCTION AND, THEREFORE, THE EXPENDITURE INCURRED FOR REPLACEMENT THEREOF WO ULD NOT COME WITHIN THE MEANING OF CURRENT REPAIRS. THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. SRI MANGAYARKARSAI MILLS PVT . LTD. (315 ITR 114) HAS HELD THAT IN THE CASE OF A TEXTILE MILL, REPAIR OF A MACHINE CAN AT BEST AMOUNT TO A REPAIR MADE TO THE PROCESS OR MANUFACTURE OF YARN AND CANNOT BE STATED TO BE CURRENT REPAIRS WITHIN THE MEANING OF SEC.31 OF THE IT ACT, 1961. THE COURT A LSO HELD THAT THE EXPENDITURE OF AN ASSESSEE ON REPLACEMENT OF PARTS OF A TEXTILE MILL FOR SPINNING YARN IS NOT REVENUE EXPENDITURE UNDER SEC.31 OF THE ACT. THE HONBLE KERALA HIGH COURT IN THE CASE OF VANAJA TEXTILES LTD. V. CIT (208 ITR 161) HAS HELD THAT THE EXPENDITURE ON MODERNIZATION OF MACHINERY ON A TEXTILE MILL WAS DEDUCTIBLE AS RE VENUE EXPENDITURE. ITA 1108 & CO 67/10 :- 6 -: 10. KEEPING IN MIND, THE PROPOSITIONS LAID DOWN B Y THE COURTS IN THE ABOVE MENTIONED JUDGMENTS, WE HAVE TO SEE THAT THE QUESTION WHETHER AN EXPENDITURE AMOUNTED TO A REVENUE EXPEND ITURE OR NOT, DEPENDS UPON THE FACTS OF EACH CASE AND HAS TO BE C ONSIDERED AFTER EXAMINING WHETHER THE EXPENDITURE WAS INCURRED TO P RESERVE AND MAINTAIN AN ALREADY EXISTING ASSET AND THE EXPENDIT URE MUST NOT BE TO BRING A NEW ASSET INTO EXISTENCE OR OBTAIN NEW A DVANTAGE. IN THE PRESENT CASE, THE ROUTINE REPLACEMENTS MADE BY THE ASSESSEE IN DIFFERENT SEGMENTS OF THE RING FRAMES WERE INCURRED TO PRESERVE AND MAINTAIN AN ALREADY EXISTING MANUFACTURING SYSTEM. THE EXPENDITURE HAS NOT BROUGHT INTO EXISTENCE ANY NEW ASSET OR IT HAS NOT PROVIDED AN ALTOGETHER NEW ADVANTAGE, BETTER NO T TO SPEAK OF ANY ENDURING ADVANTAGE. THE ASSESSEE HAS REPLACED THE WORN OUT PARTS OF RING FRAME, WHICH IS THE MAIN FRAME OF THE MANUFACTURING SYSTEM. IT IS NOT POSSIBLE TO HOLD THIS ROUTINE EX ERCISE AS REPLACEMENT. WHAT IS EXCLUDED UNDER SEC.31 IN RESP ECT OF CURRENT REPAIRS IS ANY EXPENDITURE INCURRED BY AN ASSESSEE IN THE NATURE OF CAPITAL EXPENDITURE. IN THE PRESENT CASE, THE EXPE NDITURE INCURRED BY THE ASSESSE IS NOT IN THE NATURE OF CAPITAL EXPENDI TURE FOR THE REASON THAT NEITHER ANY ASSET WAS BROUGHT INTO EXISTENCE N OR AN ALTOGETHER ITA 1108 & CO 67/10 :- 7 -: NEW BENEFIT IS CREATED OR ANY CAPACITY INCREASED OR IN ANY WAY THE EXISTING RUNNING SYSTEM IS ENRICHED. THE EXPENDITU RE INCURRED HAS ONLY HELPED THE ASSESSEE TO MAINTAIN THE RING FRAME IN ITS WORKING CONDITION. IN FACT, THERE WAS NO MAJOR REPLACEMENT OF ANY PIVOTAL SEGMENT OF THE PLANT AND MACHINERY. THE EXPENDITUR E MIGHT HAVE BEEN ALLOWABLE AS A DEDUCTION UNDER SEC.31 BUT THE ASSESSEE HAS CLAIMED EXEMPTION UNDER SEC.37 AS REVENUE EXPENDITU RE WHICH ALONE DOES NOT DISQUALIFY THE CLAIM OF THE ASSESSEE . 11. IN SHORT, WE FIND THAT THE EXPENDITURE INCURRED BY THE ASSESSEE WERE IN THE NATURE OF ROUTINE MAINTENANCE EXPENDITURE. IT IS ESSENTIALLY REVENUE IN CHARACTER. THEREFORE, WE FIND THAT THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS) IS JUST AND PROPER. WE ARE NOT INCLINED TO INTERFERE WITH HIS FINDINGS. 12. THE CROSS OBJECTION FILED BY THE ASSESSEE IS AGAINST THE GROUND RAISED BY THE REVENUE THAT THE COMMISSIONER OF INCOME- TAX(APPEALS) HAS VIOLATED RULE 46A WHILE GIVING REL IEF TO THE ASSESSEE. WE DO NOT FIND MUCH FORCE IN THE ARGUMEN T OF THE REVENUE ON THIS GROUND. IT IS APPARENT ON THE FACE OF THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS) THAT THE AS SESSING ITA 1108 & CO 67/10 :- 8 -: AUTHORITY WAS PRESENT BEFORE HIM WHILE THE FIRST AP PEAL WAS HEARD. THERE CANNOT BE A CASE THAT THE COMMISSIONER OF INC OME- TAX(APPEALS) HAS EXAMINED THE CASE WITHOUT GIVING A N OPPORTUNITY TO THE ASSESSING AUTHORITY. 13. IN RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND THE CROSS OBJECTION FILED BY THE ASSESSEE IS DISMIS SED AS INFRUCTUOUS. ORDER PRONOUNCED ON TUESDAY, THE 13 TH OF MARCH, 2012 AT CHENNAI. SD/- SD/- (VIKAS AWASTHY) (DR. O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED THE 13 TH MARCH, 2012. MPO* COPY TO: (1) PETITIONE R (2) RESPONDENT (3) CIT (4) CIT(A) (5) D.R. (6) G.F.