DCIT, Circle - 4, Kolkata, Kolkata V. M/s. Kalyanpur Cement Ltd, Kolkata

ITA 1396/KOL/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7934 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 11 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2014
• Appeal Filed By: Department
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 17-10-2011
• Court: TRIBUNAL
• Assessee Lawyers: VARINDER MEHTA
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure
• Section: 40A(3); 143(3)

Judgement Text

, B , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA () BEFORE , /AND , ! ) [BEFORE SHRI MAHAVIR SINGH, JM & SHRI SHAMIM YAHYA, AM] ' / I.T.A NOS.1396 & 1397/KOL/2011 #$ %&/ ASSESSMENT YEARS: 2006-07 & 2007-08 DEPUTY COMMISSIONER OF INCOME-TAX, VS. M/S. KALYA NPUR CEMENT LTD. CIRCLE-4, KOLKATA. (PAN: AABCK1273H) (() /APPELLANT ) (*+()/ RESPONDENT ) DATE OF HEARING: 09.09.2014 DATE OF PRONOUNCEMENT: 14.10.2014 FOR THE ASSESSEE: SHRI VARINDER MEHTA, CIT FOR THE REVENUE : SHRI SOUMITRA CHOUDHURY, ADVOC ATE / ORDER PER SHRI MAHAVIR SINGH, JM : BOTH THESE APPEALS BY REVENUE ARE ARISING OUT OF S EPARATE ORDERS OF CIT(A)-IV, KOLKATA IN APPEAL NOS. 285/CIT(A)-IV/2008-09 AND 200/CIT(A) -IV/2009-10 DATED 29.06.2011. ASSESSMENTS WERE FRAMED BY ACIT, CIRCLE-4, KOLKATA FOR AY 2006-07 AND DCIT, CIRCLE-4, KOLKATA FOR AY 2007-08 U/S. 143(3) OF THE INCOME-TA X ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE THEIR SEPARATE ORDERS DATED 29.12.2008 A ND 26.11.2009 RESPECTIVELY. 2. THE FIRST ISSUE OF ITA NO.1396/K/2011 IS AGAINST THE ORDER OF CIT(A) DELETING THE ADDITION MADE BY AO OF PRE-OPERATIVE EXPENSES. FOR THIS, REVENUE HAS RAISED FOLLOWING GROUND NO.1: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , LD. CIT(A) HAS ERRED IN LAW IN DELETING THE ADDITION OF RS.61.93 LAKHS MADE BY THE AO AS PRE-OPERATIVE EXPENSE WITHOUT CONSIDERING THE FACT THAT THE ASSESSEE ITSELF TREAT ED THE SAID EXPENSE AS PRE-OPERATIVE EXPENSES AND IT HAD TO BE AMORTIZED OVER A NUMBER O F YEARS FOR GETTING ENDURING BENEFIT FOR A NUMBER OF YEARS. 3. BRIEFLY STATED FACTS ARE THAT THE AO FROM THE DE TAILS OF PRE-OPERATIVE EXPENSES MADE A DISALLOWANCE EXCEPT ALLOWANCE OF 1/5 TH OF EXPENSES BY OBSERVING AS UNDER: FROM THE DETAILS IT IS SEEN THAT THE ASSESSEE HAS DEBITED ENTIRE EXPENSES OF RS.61.93 LAKH SHOWING THE SAME AS PREOPERATIVE EXPENSES. IN ABSENCE OF DETAILS THE ENTIRE AMOUNT IS NOT ALLOWED. HOWEVER, 1/5 TH OF EXPENDITURE IS ALLOWED CONSIDERING THE NATURE OF EXPENSES. 2 ITA NOS. 1396 & 1397/K/2011 KALYANPUR CEMENT LTD. AY 2006-07 & 2007-08 AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO DELETED THE DISALLOWANCE BY OBSERVING THAT THE ASSESSEE HAS CLAIMED THIS AMOUNT OF RS.61.93 LACS BY DEBITING UNDER THE HEAD DEFERRED REVENUE EXPENDITURE WRITTEN OF AND NOT AS PREOPERATIVE EXPENSES. ACCORDING TO CIT(A), AS THERE WAS NO PLANT AND MACHINERY INSTALL ED OR COMMISSIONED DURING FY 2005-06 RELEVANT TO AY 2006-07 AND ACCORDINGLY, THERE CAN B E NO PREOPERATIVE EXPENSES. HE DELETED THE SAME BY OBSERVING AS UNDER: THE ASSESSING OFFICER HAS ALSO NOT CALLED FOR ANY EXPLANATION OR PROVIDED ANY OPPORTUNITY TO THE APPELLANT TO FILE DETAILS/EXPLAN ATION TO JUSTIFY ITS CLAIM. ANY ADDITION WITHOUT CALLING FOR EXPLANATION/JUSTIFICATION IS NO T SUSTAINABLE IN LAW. MOREOVER THE APPELLANT HAS NOT CLAIMED RS.61.32 LAC INCURRED DUR ING THE YEAR AS REVENUE EXPENSES BUT ADDED IN THE CARRIED FORWARD FIGURE TO JUSTIFY ITS CLAIM FOR WRITTEN OFF AMOUNT OF RS.61.93 LAC. THE AO HAS ALSO NOT GIVEN ANY PROPER JUSTIFICATION FOR THE ADDITION MADE IN THE ASSESSMENT ORDER. CONSIDERING THE SUBMISSIO N OF THE APPELLANT ALONG WITH THE MATERIALS PLACED ON RECORDS AS ALSO THE OBSERVATION OF THE AO IN THE ASSESSMENT ORDER, I DELETE THE ENTIRE ADDITION MADE UNDER THIS HEAD. AGGRIEVED, REVENUE CAME IN APPEAL BEFORE US. 4. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. AT THE TIME OF HEARING, LD. COUNSEL FOR THE ASSESSE E TOOK US TO PAGE 48 OF THE ASSESSEES PAPER BOOK WHEREIN THIS ITEM OF RS.61.93 LAC IS CLAIMED I N THE P&L ACCOUNT FOR THE YEAR ENDING 31 ST MARCH, 2006 AS DEFERRED REVENUE EXPENDITURE WRITTEN OFF AND THIS IS NOT A PREOPERATIVE EXPENSES. LD. COUNSEL FOR THE ASSESSEE DREW OUR AT TENTION TO PAGE 4 ANNEXURE 1, WHEREIN COMPLETE DETAILS OF EXPENSES ARE ENCLOSED. THIS EX PENDITURE IS ON ACCOUNT OF REPAIR AND MAINTENANCE INCURRED IN EARLIER YEAR TO THE TUNE OF RS.61.93 LACS OUT OF THE TOTAL EXPENSES OF RS.87.54 LAC SHOWN IN THE BALANCE SHEET AS ON 31.03 .2005 UNDER THE HEAD MISCELLANEOUS EXPENSES. IT WAS CLAIMED BY LD. COUNSEL FOR THE AS SESSEE THAT CONSIDERING THE NATURE OF EXPENDITURE AS SHOWN IN ANNEXURE 1 PAGE 4 OF ASSESS EES PAPER BOOK DEBITED THIS EXPENDITURE TO THE P&L ACCOUNT AND HAS RIGHTLY WRITTEN OFF AS DEFE RRED REVENUE EXPENDITURE. WE FIND FROM THE NATURE OF THE EXPENDITURE THAT THESE ARE IN THE NATURE OF REVENUE EXPENDITURE BEING REPAIRS AND MAINTENANCE EXPENSES CARRIED OUT FROM EARLIER Y EAR AS THE ASSESSEE HAS SHOWN IN THE BALANCE SHEET AS ON 31.03.2005 UNDER THE HEAD MISCE LLANEOUS EXPENSES TO THE TUNE OF RS.87.54 LACS. OUT OF THE ABOVE STATED EXPENSES, ASSESSEE C LAIMED TO THE TUNE OF RS.61.93 LAC AND THE AO HAS MISUNDERSTOOD THIS AS PREOPERATIVE EXPENSES. W E FIND THAT THE ASSESSEE HAS INCURRED THESE EXPENSES ON ACCOUNT OF REPAIR AND MAINTENANCE AND T HERE IS NO PREOPERATIVE EXPENSES BEING CARRIED FORWARD AS DEFERRED REVENUE EXPENDITURE TO THE EXTENT NOT WRITTEN OFF OR ADJUSTED. IN 3 ITA NOS. 1396 & 1397/K/2011 KALYANPUR CEMENT LTD. AY 2006-07 & 2007-08 VIEW OF THE GIVEN FACTS AND CIRCUMSTANCES, WE FEEL THAT THE CIT(A) HAS RIGHTLY DELETED THE ADDITION AND WE CONFIRM THE SAME. THIS ISSUE OF RE VENUES APPEAL IS DISMISSED. 5. THE NEXT COMMON ISSUE IN BOTH THE APPEALS OF REV ENUE IS AS REGARDS TO THE ORDER OF CIT(A) DELETING THE DISALLOWANCE MADE BY AO BY INVO KING THE PROVISIONS OF SECTION 40A(3) OF THE ACT IN MAKING CASH PAYMENTS OF RS.94,33,463/- I N AY 2006-07 AND RS.7,00,000/- IN AY 2007-08. 6. BRIEFLY STATED FACTS ARE THAT IN BOTH THE YEARS, TH E AO NOTED THAT THE ASSESSEE HAS MADE HUGE AMOUNT OF CASH PAYMENT IN VIOLATION OF PROVISI ONS OF SECTION 40A93) OF THE ACT AND ADMITTED THAT THE PAYMENT HAD BEEN SEGREGATED IN SE VERAL VOUCHERS OF RS.20,000/- EACH. THE RELEVANT FINDING AS RECORDED IN AY 2006-07 READS AS UNDER: TO SHOW THAT IT HAS NOT VIOLATED THE PROVISION OF SEC. 40A(3) THE PAYMENT HAS BEEN SEGREGATED IN SEVERAL VOUCHERS OF RS.20000/ EACH. ON ANALYSIS OF THE SUBMISSION IT IS REVEALED THAT THE ASSESSEE HAS MAINTAINED LIMIT OF CASH PAYMENT OF RS.20000/- ON SINGLE OCCASION BUT ON A PARTICULAR DAY, THE NUMBER OF SUC H OCCASION EXCEED 60 TIME WHICH IS IMPOSSIBLE AND TOTALLY ABSURD IN CONSIDERATION TO T HE PERIOD OF BUSINESS HOURS. THE A/R WAS ASKED TO FILE EXPLANATION OF SUCH CASH PAYMENT. AS ADMITTED BY AO IN THE ABOVE RECORDING OF FACTS, PAYMENT OF EACH DAY IS RS.20000/- OR LESS, NOT EXCEEDING RS.20000/- ON EACH OCCASION, BUT THE AO MADE DISALLOWANCE. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO DELETE D THE ADDITION BY RECORDING THAT THE EXPENDITURE WAS MADE IN AGGREGATE EXCEEDING RS.2000 0/- ON A SINGLE DAY INDICATES THAT THE PAYMENT NOT EXCEEDING RS.20000/- PER OCCASION WAS M ADE BY ASSESSEE AND IN VIEW OF THIS, THE CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDER: I HAVE CAREFULLY CONSIDERED THE SUBMISSION WITH CO PIES OF ACCOUNTS OF THE PARTIES AND THE PROVISION OF THE SECTION. I FIND AND HOLD THAT THE ACTION OF THE ASSESSING OFFICER IN ADDING THESE AMOUNTS ARE TOTALLY UNJUSTIFIED SO FAR AS THE CASH PAYMENT ON ANY OCCASION DID NOT EXCEED RS.20000/- WHICH MAY ATTRACT VIOLATI ON OF SECTION 40A(3) OF THE ACT AND, THEREFORE, DELETE THE ENTIRE ADDITION MADE UNDER TH IS HEAD. AGGRIEVED, NOW REVENUE IS IN APPEAL BEFORE US. 7. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. FIRST OF ALL, WE HAVE GONE THROUGH THE PROVISIONS O F SECTION 40A(3) OF THE ACT, WHICH READS AS UNDER: (3) WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN R ESPECT OF WHICH A PAYMENT OR AGGREGATE OF PAYMENTS MADE TO A PERSON IN A DAY, OT HERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT, EXCEEDS TWENTY THOUSAND RUPEES, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF SUCH EXPEN DITURE. 4 ITA NOS. 1396 & 1397/K/2011 KALYANPUR CEMENT LTD. AY 2006-07 & 2007-08 WE FIND FROM THE PROVISIONS OF SECTION 40A(3) THAT THE DISALLOWANCE CAN BE MADE ONLY ON ANY EXPENDITURE IN RESPECT OF WHICH THE PAYMENT OR AGGR EGATE PAYMENT MADE TO A PERSON IN A DAY IN CASH EXCEEDS RS.20000/-. HERE IN THE PRESENT CASE, THE ASSESSEE HAS MADE PAYMENT OF RS.20000/- OR LESS THAN THAT AMOUNT. THE ASSESSEE BEFORE US NOW PRODUCED COMPLETE LEDGER COPY FROM PAGES 78 TO 271 OF ASSESSEES PAPER BOOK, WHICH CLEARLY REVEALS THAT NONE OF THE PAYMENT IS EXCEEDING RS.20,000/-. THESE PAPERS WER E PRODUCED BEFORE THE LOWER AUTHORITIES BY THE ASSESSEE. ONCE THIS IS THE POSITION, WE FIND T HAT THE CIT(A) HAS RIGHTLY DELETED THE ADDITION AND WE CONFIRM THE SAME. THIS ISSUE OF REVENUES AP PEALS IN BOTH THE YEARS IS DISMISSED. 8. THE FIRST ISSUE OF ITA NO. 1397/K/2011 IS AGAINS T THE ORDER OF CIT(A) DELETING THE DISALLOWANCE OF CLAIM OF EXPENDITURE ON ACCOUNT OF MAJOR REPAIRS AND MAINTENANCE AT RS.526.46 LACS. FOR THIS, REVENUE HAS RAISED FOLLOWING GROUN D NO.1: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , LD. CIT(A) ERRED IN LAW IN DIRECTING THE AO TO ALLOW THE EXPENDITURE OF RS.526.46 LAKH M ADE INCURRED ON ACCOUNT OF MAJOR REPAIRS AND MAINTENANCE WITHOUT APPRECIATING THE FA CT THAT THE ASSESSEE COMPANY WILL GET THE ENDURING BENEFIT FROM THE SAID EXPENDITURE FOR A NUMBER OF YEAR TO COME. 9. BRIEFLY STATED FACTS ARE THAT THE AO NOTICED FRO M THE P&L ACCOUNT THAT THE ASSESSEE HAS DEBITED A SUM OF RS.526.46 LACS UNDER MAJOR REPAIRS AND MAINTENANCE IN ADDITION TO NORMAL REPAIRS AND MAINTENANCE OF RS.319.10. THE ASSESSEE CLAIMED THESE EXPENSES AS REVENUE EXPENDITURE IN THE P&L ACCOUNT BUT THE AO STATED TH AT THIS HUGE EXPENSES CANNOT BE REPAIR AND MAINTENANCE BUT HE HAS NOT DISCUSSED THE EXPENDITUR E FACTUALLY. BUT THE AO DISALLOWED BY OBSERVING AS UNDER: THE EXPLANATION IS NOT AT ALL SATISFACTORY. IT IS NOT UNDERSTOOD AS TO HOW A CHARTERED ENGINEER CAN CERTIFY THAT CERTAIN EXPENSES ARE REVE NUE OR CAPITAL EXPENSES IN NATURE FOR THE PURPOSE OF INCOME TAX. FROM THE DETAILS IT IS CLEAR THAT THOSE REPAIRS CANNOT BE DESCRIBED AS CURRENT REPAIR OR REVENUE EXPENSES. T HE WDV OF PLANT & MACHINERY AFTER DISPOSAL WAS RS.9.67 CRORE AND COST OF REPAIRING EX PENSES WAS MORE THAN 205 OF WDV. THEREFORE, REPAIRING EXPENSES TOWARDS MAJOR REPAIRI NG FOR RS.526.46 LAKH IS DISALLOWED AND ADDED BACK. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO ALLOWED THE CLAIM OF ASSESSEE BY OBSERVING AS UNDER: THE APPELLANT COMPANY HAS ALSO SUBMITTED EXHAUSTI VE DETAILS OF THE EXPENSES INCURRED ON THIS ACCOUNT TO THE ASSESSING OFFICER. IT WAS AL SO CONTENDED THAT THE EXPENSES HAS NOT CONTRIBUTED TO INCREASE IN THE RATED CAPACITY OF AN Y OF THE PLANT/EQUIPMENT OF THE COMPANY. NO EXPENSE WAS MADE TO PURCHASE ANY NEW EQUIPMENT W HICH COULD BE CONSIDERED AS CAPTAL IN NATURE. THE ENTIRE EXPENDITURE WAS TO KE EP THE PLANT AND MACHINERY IN RUNNING CONDITION AND TO AVOID ANY SUDDEN BREAKDOWN WHICH C OULD HAVE SPELL DISASTROUS EFFECT ON THE WORKING OF THE COMPANY. NO PART OF THE EXPENSE WAS INCURRED TO IMPROVE THE OVERALL 5 ITA NOS. 1396 & 1397/K/2011 KALYANPUR CEMENT LTD. AY 2006-07 & 2007-08 EFFICIENCY OF THE PLANT WHICH COULD HAVE BEEN CONSI DERED AS DEFERRED REVENUE OR CAPITAL EXPENDITURE. THE APPELLANT COMPANY CONTENDED THAT T HE ASSESSING OFFICER HAS ALSO FAILED TO CONSIDER THE FACT THAT THE AUDTORS OF THE COMPANY HAS PLAYED A RESPONSIBLE PART IN DECIDING THE NATURE OF EXPENDITURE INCURRED AT THE TIME OF CONDUCTING STATUTORY AS WELL AS TAX AUDIT AND THAT THEY HAVE CONVINCED THEMSELVES T HAT THE EXPENSE INCURRED ON MAJOR REPAIR AND MAINTENANCE AMOUNTING TO RS. 526.46 LAC ARE REALLY IN THE NATURE OF REVENUE EXPENSES AND RIGHTFULLY DEBITED IN PROFIT & LOSS AC COUNT. FURTHER THE ASSESSING OFFICER HIMSELF HAS OBSERVED THAT IT APPEARS THAT THE NATU RE OF EXPENSES MORE CAPITAL THAN REVENUE WHEN THE MAJOR WORK FOR ENTIRE FOUR YEARS W AS DONE IN A SINGLE YEAR AND IT CANNOT BE CONSIDERED AS CURRENT REPAIR AND NOT REVENUE IN NATURE. IT IS THEREFORE CLEAR THAT THE A O HIMSELF HAS ADMITTED THAT THE OVERDUE REPAIRS O F LAST FEW YEARS WHICH COULD NOT BE UNDERTAKEN BY THE COMPANY DUE TO PAUCITY OF FUND WA S DONE IN THIS YEAR YET CONSIDERED IT AS CAPITAL EXPENDITURE. IT IS NOT UNDERSTOOD HOW A. O COULD CONCLUDE THAT IF OVERDUE REPAIRS ARE CARRIED OUT IN A PARTICULAR YEAR BECOME S CAPITAL EXPENDITURE ALTHOUGH BENEFITS OF SUCH REPAIRS ARE NOT ENDURING IN NATURE. IT CAN THEREFORE BE CONCLUDED THAT THE REVENUE EXPENDITURE WAS WRONGFULLY CONSIDERED AS CAPITAL EX PENSES BY THE LD. ASSESSING OFFICER WITHOUT EVEN CONSIDERING TOALLOW DEPRECIATION OR AM ORTIZATION. I HAVE CAREFULLY CONSIDERED THE FACTS PLACED BEFORE ME AND FIND STRO NG SUBSTANCE TO ALLOW THIS EXPENDITURE AS REVENUE WHICH IS SUPPORTED BY SEVERAL JUDGMENT O F HIGH COURTS. I THEREFORE DIRECT THE AO TO ALLOW THIS EXPENDITURE AS REVENUE EXPENDITURE . AGGRIEVED, NOW REVENUE IS IN APPEAL BEFORE US. 10. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUG H FACTS AND CIRCUMSTANCES OF THE CASE. THE ASSESSEE HAS FILED COMPLETE DETAILS OF REPAIR AND MAINTENANCE EXPENSES AND ALSO A CERTIFICATE FROM CHARTERED ENGINEER DATED 15.12.200 8, WHO HAS CERTIFIED THAT THE EXPENSES UNDER THE HEAD REPAIRS AND MAINTENANCE DURING THE Y EAR ENDING 31.03.2007 HAS BEEN PROCUREMENT OF WORN OUT COMPONENTS AND CERTAIN CAPI TAL ASSETS OR GROUP OF ASSETS. ACCORDING TO HIM, THESE WORN OUT PARTS ARE IN THE CONTEXT OF CAPITAL ASSET WHERE THESE ARE USED AND ALSO FORM A SMALL FRACTION OF THE TOTAL VALUE OF CORRESP ONDING CAPITAL ASSET IN EACH CASE. HE CERTIFIED THE EXPENSES AND SUMMARIZED SECTION WISE AS UNDER: 1. LIME STONE CAPTIVE QUARRY RS. 27.15 LACS 2. CRUSHING SECTION RS. 45.53 3. RAW MILL SECTIONS RS. 224.90 4. KILN RS. 79.89 5. COAL MILL RS. 25.10 6. CLINKER GRINDING SECTION RS. 60.24 7. SLAG GRINDING SECTION RS. 53.39 8. PACKING PLANT RS. 4.63 9. MISCELLANEOUS RS. 5.64 TOTAL : RS.526.46 LD. COUNSEL FOR THE ASSESSEE BEFORE US CONTENDED TH AT DUE TO UNSATISFACTORY FINANCIAL POSITION OF THE COMPANY FOR FEW YEARS IN THE PAST, IT COULD NOT UNDERTAKE THE REPAIR AND MAINTENANCE OF PLANT AND MACHINERY AND ITS CAPACITY UTILISATION WA S IN THE RANGE OF 37.46% AGAINST THE INDUSTRY 6 ITA NOS. 1396 & 1397/K/2011 KALYANPUR CEMENT LTD. AY 2006-07 & 2007-08 AVERAGE OF 90. ACCORDING TO HIM, TO MAKE THE SITUA TION IMPROVE, THE ASSESSEE COMPANY IN FY 2006-07 RELEVANT TO AY 2007-08 UNDERTOOK THE OVERDU E REPAIRS AND MAINTENANCE FOR PLANT AND MACHINERY AND REPAIR AND REPLACEMENT OF INTERNAL CO NTROL PURPOSE WAS STARTED. THE ASSESSEE COMPANY HAS NOT INCREASED IN THE RATED CAPACITY OF ANY OF THE PLANT/EQUIPMENT BY VIRTUE OF THIS REPAIR AND MAINTENANCE. FACTUALLY, THE ASSESSEE HA S CARRIED OUT REPAIRS AND MAINTENANCE, AS IS EVIDENT FROM THE ABOVE DISCUSSION. IN SIMILAR CIRC UMSTANCES, HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. CHOWGULE & CO. PVT. LTD. (1995) 214 ITR 523 (BOM) HAS CONSIDERED THE EXPRESSION CURRENT PRECEDING REPAIRS AS UNDER: I) THE AMOUNT SHOULD BE PAID ON ACCOUNT OF CURREN T REPAIRS. (II) CURRENT REPAIRS MEANS REPAIRS UNDERTAKEN IN THE NORMAL COURSE OF USER FOR THE PURPOSE OF PRESERVATION MAINTENANCE OR PROPER UTILI SATION OR FOR RESTORING IT TO ITS ORIGINAL CONDITION. (III) CURRENT REPAIRS DO NOT MEAN ONLY PETTY REPA IRS OR REPAIRS NECESSITATED BY WEAR AND TEAR DURING THE PARTICULAR YEAR. (IV) SUCH REPAIRS SHOULD NOT BRING INTO EXISTENCE NOR OBTAIN A NEW OR DIFFERENT ADVANTAGE. (V) THE QUANTUM OF EXPENDITURE NOR THE FACT THAT I N THE PROCESS OF REPAIRS, THERE WAS SUBSTANTIAL REPLACEMENT OF THE PARTS OF MACHINE OR SHIP IS DECISIVE OF THE TRUE NATURE OF THE EXPENDITURE. (VI) THE ORIGINAL COST OF THE ASSET IS NOT AT ALL RELEVANT FOR ASCERTAINMENT OF THE TRUE NATURE OF THE EXPENDITURE ON REPAIRS. (VII) THE REPLACEMENT COST OF THE ASSET MAY HOWEVE R, AT TIMES MAY BE USED AS INDICATOR OF THE TRUE CHARACTER OF THE EXPENDITURE. IF THE EXPENDITU RE ON REPAIRS ADDED TO THE WRITTEN DOWN VALUE OR DISPOSAL VALUE EXCEEDS THE REPLACEMEN T COST OF THE ASSET, A PRESUMPTION IS POSSIBLE THAT IT IS NOT A REVENUE EXPENDITURE B UT EXPENDITURE OF CAPITAL NATURE. SUCH PRESUMPTION, OF COURSE, WOULD BE REBUTTABLE. (VIII) THE EXPRESSION CURRENT PRECEDING REPARS APPEARS TO HAVE BEEN USED BY THE LEGISLATURE WITH A VEIW TO RESTRICTING THE ALLOWANC E TO EXPENDITURE INCURRED FOR PRESERVATON AND MANTENANCE THEREOF IN ITS CURRENT STATE IN CONTRADICTION TO THAT INCURRED ON ANY IMPROVEMENT OR AN ADDITION THERETO [CIT V. CHOWGULE & CO. PVT. LTD., (1995) 125 CTR (BOM) 442, 448 = (1995) 214 ITR 523 (BOM) IN THE FACTS OF THAT CASE, THE TRBUNAL, ON NVESTIGATION OF THE NATURE OF THE REPAIRS UNDERTAKEN BY THE ASSESSEE, RECORDED A CATEGORICAL FINDING OF FACT THAT IT DID NOT RESULT IN EMERGENCE OF A NEW SHIP BUT AMOUNTED, IN SUBSTANCE, TO CURRENT REPAIRS TO T HE EXISTING SHIP. THE FACT THAT OLD PARTS OF THE SHIP WERE REPLACED BY NEW PARTS WAS NO T RELEVANT FOR DETERMINING WHETHER THE EXPENDITURE WAS ON CURRENT REPARS OR NOT. TH EREFORE, THE EXPENDITURE CLAIMED BY THE ASSESSEE AMOUNTED TO CURRENT REPARS, ALLOWAB LE AS A DEDUCTION UNDER SECTION 31. HONBLE SUPREME COURT IN THE CASE OF CIT V. SARAVAN A SPINNING MILLS (P) LTD. (2007) 7 SCC 298 HAS HELD UNAMBIGUOUSLY THAT EACH MACHINE IN A SEGMENT OF A TEXTILE MILL HAS AN INDEPENDENT ROLE TO PLAY IN THE MILL AND THE OUTPUT OF EACH DIVISION IS DIFFERENT FROM THE OTHER. 7 ITA NOS. 1396 & 1397/K/2011 KALYANPUR CEMENT LTD. AY 2006-07 & 2007-08 11. THE NEXT ISSUE OF ITA NO. 1397/K/2011 IS AGAINS T THE ORDER OF CIT(A) DELETING THE ADDITION MADE BY AO ON ACCOUNT OF PROVISION FOR NON MOVING STORES. FOR THIS, REVENUE HAS RAISED FOLLOWING GROUND NO.2: 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , LD. CIT(A) ERRED IN LAW IN DELETING THE ADDITION OF RS. 70 LAKH ON ACCOUNT OF PROVISION FOR NON MOVING STORES SINCE IT APPEARS FROM THE SCHEDULE-7 TO BALANCE SHEET WHERE UNDER THE HEAD INVENTORIES PROVISION FOR NON-MOVING STORES WAS MADE TO ASCERTA IN CLOSING STOCK OF SHARES FOR THE CURRENT ASSESSMENT YEAR. 12. BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE THAT THE AO MADE DISALLOWANCE OF RS. 70 LACS FOR PROVISION OF NON-MOVING STORES IN VIEW OF THE V ALUATION OF CLOSING STOCK. THE AO NOTED THAT THIS IS MERELY A PROVISION AND SUCH PROVISION IS ME RELY CONTINGENCIES. FOR THIS, HE RECORDED THE FOLLOWING FINDING: IN THE BOOKS THE ASSESSEE HAS NOT CONSIDERED STOCK FOR AN AMOUNT OF RS. 70 LAKH WHILE SHOWING VALUATION OF CLOSING STOCK. IN THIS REGARD THE A/R OF THE ASSESSEE HAS FILED EXPLANATION. IT HAS BEEN EXPLAINED THAT SOME STORE AND SPARE ITEMS WERE BEING IN THE STORES INVENTORY AND THEY HAD NOT MOVED FOR QUITE SOME TIME. HENCE, ON THE SUGGESTION OF THE AUDITORS AS ALSO KEEPING IN VIEW THE PRUDENT ACCOUNTING PRACTICE, THE ABOVE AMOUNT WAS PROVIDED FOR AND HAS ACCORDINGLY BEEN RE DUCED FROM THE VALUE OF STORE SHOWN IN THE CURRENT ASSETS OF THE BALANCE SHEET OF THE COMPANY. THE ENTRY MADE IN THE BOOKS IS A MERE PROVISION. T HE EXPLANATION DOES NOT INDICATE THAT IT HAS BEEN DISCARDED. BUT DUE TO NON MOVEMENT OF THE SAID STOCK FOR SOMETIME A PROVISION HAS BEEN MADE. THE NATURE OF SUCH PROVIS IONS MERE CONTINGENCY WHICH IS NOT ADMISSIBLE DEDUCTION UNDER THE ACT, HENCE DISALLOWE D AND ADDED BACK. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO ALLOWED THE CLAIM OF ASSESSEE BY CONSIDERING THE SUBMISSION OF THE ASSESSEE AS UNDER : THE APPELLANT SUBMITS THAT SOME STORES AND SPARE I TEMS WERE BEING CARRIED IN THE STORE INVENTORY AND THEY HAD NOT MOVED FOR QUITE SOME TIM E WAS REDUCED FROM THE VALUE OF STORES IN THE YEAR 2003-04 AND NOTHING NEW WAS PROV IDED IN THE CURRENT YEAR. THE SAME AMOUNT WAS BEING CARRIED FORWARD FROM THE PREVIOUS YEAR AS WILL BE EVIDENT FROM SCHEDULE 7 FORMING PART OF THE BALANCE SHEET SUBMIT TED ALONG WITH ANNUAL REPORT FOR THE YEAR 2006-07 WITH THE AO. A COPY OF ANNUAL ACCOUNTS 2006-07 WAS ALSO FILED WITH ME WHICH REVEALS THAT THIS AMOUNT INDEED WAS NOTHING B UT A CARRIED FORWARD FIGURE AND NO NEW PROVISION WAS MADE IN THE ACCOUNTS DURING THE Y EAR BY THE APPELLANT WHICH MAY ATTRACT DISALLOWANCE. THEREFORE THE ADDITION OF RS. 70 LAC MADE UNDER THIS HEAD IS DELETED. AGGRIEVED, NOW REVENUE IS IN APPEAL BEFORE US. 13. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUG H FACTS AND CIRCUMSTANCES OF THE CASE. BEFORE US LD. COUNSEL FOR THE ASSESSEE DREW OUR ATT ENTION TO PAGE 55 OF ASSESSEES PAPER BOOK, WHICH IS SCHEDULE 7 OF THE BALANCE SHEET, IS DESCRI BED INVENTORIES AND FROM THE STORE THERE IS A REDUCTION OF PROVISION OF NON-MOVING STORE AT RS.70 LACS. LD. COUNSEL FOR THE ASSESSEE DREW OUR 8 ITA NOS. 1396 & 1397/K/2011 KALYANPUR CEMENT LTD. AY 2006-07 & 2007-08 ATTENTION TO EARLIER YEARS BALANCE SHEET I.E. AS O N 31.03.2006 THE SIMILAR ENTRY WAS THERE. LD. COUNSEL FOR THE ASSESSEE STATED THAT THIS ENTRY IS MOVING FROM AY 2003-04 AND NOTHING NEW HAS PROVIDED IN THE CURRENT YEAR. WE FIND FROM THE REC ORDS THAT THE PLEA OF THE ASSESSEE IS QUITE REASONABLE FOR THE REASON THAT THIS ENTRY BEING CAR RIED FORWARD FROM AY 2003-04 AND NOTHING NEW IS PROVIDED IN THIS YEAR. ONCE THIS IS THE POS ITION, THE ADDITION ON ACCOUNT OF PROVISIONS OF NON-MOVING STORE CANNOT BE ADDED TO THE RETURNED IN COME OF THE ASSESSEE. THE CIT(A) HAS RIGHTLY DELETED THE ADDITION AND WE CONFIRM THE SAM E. THIS ISSUE OF REVENUES APPEAL IS ALSO DISMISSED. 14. IN THE RESULT, BOTH THE APPEALS OF REVENUE ARE DISMISSED. 15. ORDER IS PRONOUNCED IN THE OPEN COURT ON 14.10. 2014 SD/- SD/- , ! , (SHAMIM YAHYA) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 14 TH OCTOBER, 2014 ,- #./ 0 JD.(SR.P.S.) 1 *2 3 2%4- COPY OF THE ORDER FORWARDED TO: 1 . () / APPELLANT DCIT, CIRCLE-4, KOLKATA. 2 *+() / RESPONDENT M/S. KALYANPUR CEMENT LTD., 2&3. DR. RAJENDRA PRASAD SARANI, KOLKATA-700 001. 3 . # ( )/ THE CIT(A), KOLKATA 4. 5. # / CIT KOLKATA 2:; *# / DR, KOLKATA BENCHES, KOLKATA +2 */ TRUE COPY, #