Watertec (India) Private Limited, Coimbatore V. DCIT, Coimbatore

ITA 134/CHNY/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9450 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 25-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A B KOLI
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Depreciation; Revised return; Revenue expenditure; Capital expenditure
• Section: 148

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . . . , . !'# ! , % !& BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO. 134/MDS/2016 ( )( / ASSESSMENT YEAR : 2009-10 M/S WATERTEC (INDIA) PVT. LTD., (FORMERLY WATERTEC SYSTEMS (INDIA) PRIVATE LIMITED), GOPAL BAGH, 1060, AVINASHI ROAD, COIMBATORE 641 018. PAN : AAACW 1645 G V. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 1, COIMBATORE. (+,/ APPELLANT) (-.+,/ RESPONDENT) +, / 0 / APPELLANT BY : SH. R. VIJAYARAGHAVAN, ADVOCATE -.+, / 0 / RESPONDENT BY : SH. A.B. KOLI, JCIT 1 / 2% / DATE OF HEARING : 30.03.2016 3') / 2% / DATE OF PRONOUNCEMENT : 22.04.2016 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) 1, COIMB ATORE, DATED 16.10.2015 AND PERTAINS TO ASSESSMENT YEAR 2009-10. 2 I.T.A. NO.134/MDS/16 2. SH. R. VIJAYARAGHAVAN, THE LD.COUNSEL FOR THE AS SESSEE, SUBMITTED THAT THE ASSESSEE-COMPANY IS ENGAGED IN T HE BUSINESS OF MANUFACTURE OF TAPS, SHOWERS, VALVES, ETC. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE-COMPANY CLAIME D DEPRECIATION ON THE PLANT AND MACHINERY AND MOLDS A T 30%. SUBSEQUENTLY, A REVISED RETURN WAS FILED CLAIMING D EPRECIATION AT THE RATE OF 100%. SINCE THE ASSESSEE CLAIMED EXCESS DE PRECIATION AT 100%, THE ASSESSMENT WAS REOPENED BY ISSUING NOTICE UNDER SECTION 148 OF THE INCOME-TAX ACT, 1961 (IN SHORT ' THE ACT'). ACCORDING TO THE LD. COUNSEL, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF DEPRECIATION AT THE RATE OF 100% ON THE MO LDS ON THE GROUND THAT THESE ITEMS FORM PART OF PLANT AND MACH INERY, THEREFORE, IT HAS TO BE CAPITALIZED AND THE ASSESSING OFFICER ALLOWED ONLY NORMAL DEPRECIATION AT THE RATE OF 30%. PLACING RE LIANCE ON THE JUDGMENT OF MADRAS HIGH COURT IN CIT V. TVS MOTORS LIMITED (2014) 364 ITR 1, THE LD.COUNSEL SUBMITTED THAT DIES AND M OLDS ARE ONLY TO REPLACE THE WORN OUT DIES AND MOLDS. MOLDS AND DIE S ARE ATTACHED TO THE MACHINERY LIKE DESIGNS SPECIFICATION AND THE Y ARE NOT INDEPENDENT OF PLANT AND MACHINERY. ACCORDING TO T HE LD. COUNSEL, MOLDS AND DIES ARE PART OF MACHINERY. ONCE THE MOL DS ARE WORN OUT, THE MACHINERY CANNOT FUNCTION ON ITS OWN. THE REFORE, ACCORDING 3 I.T.A. NO.134/MDS/16 TO THE LD. COUNSEL, EVEN THOUGH THE ASSESSEE CLAIMS DEPRECIATION AT THE RATE OF 100% IN VIEW OF THE JUDGMENT OF MADRAS HIGH COURT IN TVS MOTORS LIMITED (SUPRA), ACCORDING TO THE LD. CO UNSEL, THE ENTIRE EXPENDITURE HAS TO BE ALLOWED AS CURRENT REPAIRS UN DER SECTION 31 OF THE ACT. REFERRING TO THE ORDER OF THE CIT(APPE ALS), THE LD.COUNSEL SUBMITTED THAT THE CIT(APPEALS) CONFIRME D THE ORDER OF THE ASSESSING OFFICER ON THE GROUND THAT THE REPLAC EMENT OF MOLDS WOULD BRING A NEW ASSET INTO EXISTENCE, THEREFORE, IT IS AN ENDURING BENEFIT TO THE ASSESSEE. ACCORDING TO THE LD. COUN SEL, NO NEW ASSET CAME INTO EXISTENCE BY REPLACING THE WORN OUT MOLDS IN THE MACHINERY. IN FACT, THE EXISTING PLANT AND MACHINE RY WAS MAINTAINED BY REPLACING THE WORN OUT MOLDS. THEREF ORE, THE EXPENDITURE HAS TO BE NECESSARILY TREATED AS CURREN T REPAIRS IN THE LIGHT OF THE JUDGMENT OF MADRAS HIGH COURT IN TVS M OTORS LIMITED (SUPRA). THEREFORE, ACCORDING TO THE LD. COUNSEL, THE CIT(APPEALS) IS NOT JUSTIFIED IN CONFIRMING THE ORDER OF THE ASS ESSING OFFICER. 3. ON THE CONTRARY, SH. A.B. KOLI, THE LD. DEPARTME NTAL REPRESENTATIVE, SUBMITTED THAT THE ASSESSEE REPLACE D THE MOLDS AND HAD CLAIMED DEPRECIATION AT THE RATE OF 30% IN THE ORIGINAL RETURN. BY FILING SUBSEQUENT REVISED RETURN, THE A SSESSEE HAS 4 I.T.A. NO.134/MDS/16 CLAIMED THE SAME AT THE RATE OF 100%. THEREFORE, T HE ASSESSING OFFICER REOPENED THE ASSESSMENT AFTER ISSUING NOTIC E UNDER SECTION 148 OF THE ACT. ACCORDING TO THE LD. D.R., REPLACE MENT OF MOLDS IN THE PLANT AND MACHINERY CANNOT BE CONSTRUED AS CURR ENT REPAIRS AS HELD BY THE APEX COURT IN CIT V. SARAVANA SPINNING MILLS P. LTD. (2007) 293 ITR 201. A SIMILAR VIEW WAS TAKEN BY TH E APEX COURT IN CIT V. SRI MANGAYARKARASI MILLS P. LTD. (2009) 315 ITR 114. ACCORDING TO THE LD. D.R., THE BASIC TEST IS WHETHE R THE EXPENDITURE WAS INCURRED TO PRESERVE AND MAINTAIN AN ALREADY EX ISTING PLANT AND MACHINERY. IN THIS CASE, ACCORDING TO THE LD. D.R. , IT IS NOT A REPAIR OF THE MACHINERY, IT IS A REPLACEMENT OF MOLDS, THE REFORE, THE REPLACEMENT OF MOLDS AMOUNT TO ENDURING ADVANTAGE T O THE BUSINESS OF THE ASSESSEE. HENCE, ACCORDING TO THE LD. D.R., THE EXPENDITURE INCURRED BY THE ASSESSEE IN REPLACING T HE MOLDS WOULD FALL IN THE CAPITAL FIELD. THE EXPENDITURE INCURRE D BY THE ASSESSEE FOR BRINGING INTO EXISTENCE A NEW ASSET OR ENDURING BEN EFIT TO THE ASSESSEE AMOUNT TO CAPITAL EXPENDITURE AS HELD BY T HE APEX COURT IN LAKSHMIJI SUGAR MILLS (P.) CO. V. CIT (1971) 82 ITR 376. THEREFORE, ACCORDING TO THE LD. D.R., THE CIT(APPEA LS) HAS RIGHTLY FOUND THAT THE ASSESSEE OBTAINED ENDURING BENEFIT B Y REPLACING THE MOLDS, THEREFORE, THE EXPENDITURE CANNOT BE ALLOWED AS CURRENT 5 I.T.A. NO.134/MDS/16 REPAIRS UNDER SECTION 31 OF THE ACT. THE ASSESSEE IS ALSO NOT ENTITLED FOR DEPRECIATION AT THE RATE OF 100%. THE NORMAL RATE FOR PLANT AND MACHINERY IS ONLY 30% WHICH WAS ALREADY A LLOWED BY THE ASSESSING OFFICER. THEREFORE, ACCORDING TO THE LD. D.R., THE CIT(APPEALS) HAS RIGHTLY CONFIRMED THE ADDITION MAD E BY THE ASSESSING OFFICER. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ASSESSEE ADMITTEDLY IS ENGAGED IN THE BUSINESS OF MANUFACTUR ING OF TAPS, SHOWERS, VALVES, ETC. THE ASSESSEE CLAIMED THAT MO LDS IN THE PLANT AND MACHINERY WERE REPLACED AND THE COST OF THE REP LACEMENT OF MOLDS WAS INITIALLY CAPITALIZED AND THE ASSESSEE CL AIMED DEPRECIATION AT THE RATE OF 30%. SUBSEQUENTLY, BY WAY OF A REVISED RETURN, THE ASSESSEE CLAIMED DEPRECIATION AT THE RA TE OF 100%. THE ASSESSING OFFICER FOUND THAT THE CLAIM OF DEPRECIAT ION AT THE RATE OF 100% ON THE MOLDS CANNOT BE ALLOWED SINCE MOLDS WOU LD FORM PART OF PLANT AND MACHINERY AND IT WAS ALREADY CAPITALIZ ED. THEREFORE, THE ASSESSING OFFICER ALLOWED NORMAL DEPRECIATION A T THE RATE OF 30%. DURING THE COURSE OF APPEAL PROCEEDING, THE A SSESSEE CLAIMED BEFORE THE CIT(APPEALS) THAT IT HAS TO BE A LLOWED AS 6 I.T.A. NO.134/MDS/16 REVENUE EXPENDITURE / CURRENT REPAIRS UNDER SECTION 31 OF THE ACT. THE CIT(APPEALS), BY PLACING RELIANCE ON THE JUDGME NT OF APEX COURT IN SRI MANGAYARKARASI MILLS P. LTD. (SUPRA) A ND THE JUDGMENT OF APEX COURT IN SARAVANA SPINNING MILLS P. LTD. (S UPRA), FOUND THAT THERE IS ENDURING BENEFIT TO THE ASSESSEE BY REPLAC ING THE MOLDS, THEREFORE, THE SAME CANNOT BE ALLOWED AS REVENUE EX PENDITURE. ACCORDINGLY, THE CIT(APPEALS) CONFIRMED THE ORDER O F THE ASSESSING OFFICER WHEREIN DEPRECIATION WAS AT THE RATE OF 30% . 5. NOW, COMING TO THE CONTENTION OF THE LD.COUNSEL FOR THE ASSESSEE BEFORE THIS TRIBUNAL THAT IN VIEW OF THE J UDGMENT OF MADRAS HIGH COURT IN TVS MOTORS LIMITED (SUPRA), TH E EXPENDITURE INCURRED BY THE ASSESSEE FOR REPLACING THE MOLDS HA S TO BE ALLOWED AS CURRENT REPAIRS UNDER SECTION 31 OF THE ACT. TH E QUESTION ARISES FOR CONSIDERATION IS WHETHER THE ASSESSEE REPAIRED THE EXISTING PART OF THE PLANT AND MACHINERY, WHICH WAS MALFUNCTIONIN G, THEREBY REQUIRING REPAIR TO THAT MACHINERY AND PLANT, ETC? AS OBSERVED BY APEX COURT IN SARAVANA SPINNING MILLS P. LTD. (SUPR A), REPLACEMENT CANNOT BE A CURRENT REPAIR. THE TERMS REPLACEMENT AND CURRENT REPAIRS CANNOT GO HAND IN HAND. THEREFORE, WE HAV E TO EXAMINE WHETHER REPLACEMENT OF MOLDS IS A REPLACEMENT OR FO R REPAIRING THE 7 I.T.A. NO.134/MDS/16 EXISTING PART OF THE MACHINERY. BOTH THE AUTHORITI ES BELOW HAD NO OCCASION TO CONSIDER THE JUDGMENT OF APEX COURT IN TVS MOTORS LIMITED (SUPRA). THE MADRAS HIGH COURT IN TVS MOTO RS LIMITED (SUPRA) EXAMINED THIS ISSUE AND FOUND THAT MOLDS AN D DIES ATTACHED TO THE MACHINERY ARE LIKE DESIGNS SPECIFICATION AND ARE NOT INDEPENDENT OF THE PLANT AND MACHINERY. THE MADRAS HIGH COURT FURTHER OBSERVED THAT MOLDS AND DIES ARE PARTS OF T HE MACHINERY. THEREFORE, ONCE THE DIES ARE WORN OUT, THE MACHINER Y CANNOT TURN OUT THE PRODUCT TO THE BUSINESS SPECIFICATIONS AND THIS HAS TO BE OBTAINED ONLY ON A REPLACEMENT OF THE DIES AND MOUL DS. THE MADRAS HIGH COURT HAS ALSO CONSIDERED THE JUDGMENT OF APEX COURT IN SARAVANA SPINNING MILLS P. LTD. (SUPRA), LAKSHMI JI SUGAR MILLS (P.) CO. (SUPRA) AND SRI MANGAYARKARASI MILLS P. LT D. (SUPRA). ULTIMATELY, THE MADRAS HIGH COURT FOUND THAT THE CO ST OF REPLACEMENT OF MOLDS HAS TO BE ALLOWED AS CURRENT R EPAIRS UNDER SECTION 31 OF THE ACT. THIS TRIBUNAL IS OF THE CON SIDERED OPINION THAT THE JUDGMENT OF MADRAS HIGH COURT IN TVS MOTOR S LIMITED (SUPRA) IS SQUARELY APPLICABLE TO THE FACTS OF THE CASE. THEREFORE, THE COST OF REPLACEMENT OF THE MOLDS IN THE PLANT A ND MACHINERY HAS TO BE TREATED AS CURRENT REPAIRS UNDER SECTION 31 O F THE ACT. IN VIEW OF THE ABOVE, THIS TRIBUNAL IS UNABLE TO THE ORDERS OF THE LOWER 8 I.T.A. NO.134/MDS/16 AUTHORITIES AND ACCORDINGLY, THE SAME ARE SET ASIDE . THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE COST OF REPLACEMENT OF MOLDS AS CURRENT REPAIRS UNDER SECTION 31 OF THE AC T. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED ON 22 ND APRIL, 2016 AT CHENNAI. SD/- SD/- (. !'# ! ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) % / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 5 /DATED, THE 22 ND APRIL, 2016. KRI. / -267 87)2 /COPY TO: 1. +, /APPELLANT 2. -.+, /RESPONDENT 3. 1 92 () /CIT(A)-1, COIMBATORE 4. PRINCIPAL CIT-1, COIMBATORE 5. 7: -2 /DR 6. ;( < /GF.