ACIT, New Delhi V. M/s Bharat Gears Ltd., New Delhi

ITA 1787/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58953 (ITAT-DELHI)
• Duration Of Justice: 11 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 05-03-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 13-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: M K MADAN
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 37

Judgement Text

ITA 1787/DEL/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `A NEW DELHI BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER I.T.A.NO.1787/DEL/2011 ASSESSMENT YEAR : 2007-08 ASSTT. COMMISSIONER OF INCOME TAX, VS M/S BHARA T GEARS LTD., CENTRAL CIRCLE-11, NEW DELHI. 5 12, SURYA KIRAN BUILDING, 19, K.G. MARG, NEW DELHI. (PAN AAACB4860G) (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI ALOK SINGH, DR RESPONDENT BY : SHRI M.K. MADAN, AR O R D E R PER CHANDRA MOHAN GARG, JUDICIAL MEMBER THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LD. CIT(A)-I, NEW DELHI DATED 12.1.2011, PERTAINING TO ASSTT. YEAR 2007-08 BY WHICH THE LD. CIT(A)-I DELETED THE DISALLOWANCE OF RS.35,88,652/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF REPAIRS TO PLAN T AND MACHINERY. 2. THE GROUNDS OF APPEAL ARE REPRODUCED AS UNDER:- 1. THE ORDER OF THE LD. CIT(A) IS NOT CORRECT IN L AW AND FACTS. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) WAS LEGALLY JUSTIFIED IN DELETING TH E ITA 1787/DEL/2011 2 DISALLOWANCE OF RS.35,88,652/- MADE BY THE ASSESSIN G OFFICER ON ACCOUNT OF REPAIRS TO PLANT AND MACHINER Y. 3. THE APPELLANT CRAVE LEAVE TO ADD, ALTER OR AMEND ANY/ALL OF THE GROUND OF APPEAL BEFORE OR DURING TH E COURSE OF THE HEARING OF THE APPEAL. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE AO HELD THAT THE EXPENDITURE INCURRED BY THE ASSESSEE ON REPAIR OF P LANT AND MACHINERY RS.35,88,652/- IS OF CAPITAL EXPENDITURE NATURE AND THE SAME WAS ADDED BACK. HOWEVER, THE ASSESSEE WAS GRANTED DEPRECIATION @15% ON THIS CAPITAL EXPENDITURE. THIS ADDITION WAS DELETED BY LD. CIT( A)-I BY THE IMPUGNED ORDER, HENCE THIS APPEAL IS PREFERRED BY THE REVENU E. 4. THE LD. DR CONTENDED THAT IN THE ASSTT. YEAR 199 4-95, THIS KIND OF EXPENDITURE WAS CONSIDERED AS CAPITAL EXPENDITURE B Y THE TRIBUNAL AND AN APPEAL IS PENDING BEFORE HONBLE HIGH COURT OF DELH I IN THIS REGARD. ACCORDINGLY, THE AO WAS RIGHT IN HOLDING THIS EXPEN DITURE AS CAPITAL IN NATURE. THE LD. DR ALSO ADVANCED THIS ARGUMENT THA T THE LD. CIT(A) WRONGLY DELETED THE DISALLOWANCE OF RS. 35,88,652/- MADE BY THE AO ON THE BASIS OF LATER ASSESSMENTS IN THE ASSTT.YEARS 1995-96 TO 199 9-2000, 2002-03 AND 2006-07. HE ALSO CONTENDED THAT THE AO RIGHTLY HEL D IT EXPENDITURE OF CAPITAL NATURE AS IT WAS NOT A ROUTINE MAINTENANCE AND REPAIR BUT IT ADDED LIFE TO THE PLANT AND MACHINERY. ITA 1787/DEL/2011 3 5. ON ABOVE CONTENTIONS, THE LD. COUNSEL FOR THE AS SESSEE REPLIED THAT THE EXPENDITURE OF ABOVE NATURE WAS CONSIDERED AS OF RE VENUE NATURE IN THE ASSTT. YEARS 1995-96 TO 1999-2000, 2002-03 AND 2006 -07, THEREFORE, THE AO WAS WRONG IN HOLDING THAT THIS EXPENDITURE IS OF CA PITAL NATURE IN THE ASSTT. YEAR 2007-08. HE ADDED FURTHER THAT THE DELETION O F THIS DISALLOWANCE BY THE LD. CIT(A)-I IS RIGHT AND DESERVES TO BE HELD LEGAL IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 6. WE HAVE PERUSED THE ENTIRE RECORD, PAPER BOOK AN D ALL THE MATERIAL PLACED BEFORE US AND AFTER CAREFUL CONSIDERATION OF THE SAME IN THE LIGHT OF RIVAL ARGUMENTS OF BOTH THE PARTIES, WE ARE OF THE VIEW THAT THE IMPUGNED ORDER OF THE CIT(A)-I IS BASED ON THE SOLE GROUND T HAT THE EXPENDITURE OF SAME NATURE HAS BEEN ALLOWED AS REVENUE EXPENDITURE NATURE IN THE PREVIOUS ASSESSMENT YEARS WHICH WERE PERTAINING TO IMMEDIATE PREVIOUS ASSESSMENT YEARS TO THE ASSTT. YEAR 2007-08. 7. LD. COUNSEL APPEARING FOR THE ASSESSEE SUBMITTED COPY OF THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT OF DELHI PASSED IN ASSESSEES OWN APPEAL IN ITA NO. 14/2005 WITH THE REVENUES APPEAL S FILED AGAINST THE ASSESSEE IN ITA NOS. 1600/2010 AND 1670/2010, DECID ED TOGETHER WITH SINGLE JUDGEMENT PRONOUNCED ON 03.06.2011. IN THE SAID PRONOUNCEMENT, ITA NO.14/2005 WAS PERTAINING TO AY 1994-95 AND REM AINING TWO APPEAL ITA 1787/DEL/2011 4 NOS. 1600/2010 AND 1670/2010 WERE RELATED TO AY 200 5-06 AND 2006-07 RESPECTIVELY. 8. REGARDING ITA NO.14/2005, HONBLE HIGH COURT OBS ERVED THAT WHERE THE EXPENDITURE WAS FOR THE PURPOSE OF SECURING A B ENEFIT OF ENDURING NATURE AND EVEN IF TECHNICALLY, NEW ASSET HAD NOT COME INT O EXISTENCE OR THE CAPACITY OF THE OVERHAULED MACHINE AFTER RECONDITIO NING WAS NOT ENHANCED, THE FACT REMAINS THAT AFTER PROLONGED USE, THIS MAC HINE WAS LYING IDLE IN A BROKEN DOWN CONDITION, TOTALLY UNFIT FOR PRODUCTION . THEREFORE, BY SUBSEQUENT RECONDITIONING CARRIED OUT HAD RESULTED IN IMPARTING USEFUL LIFE TO OLD AND UNFIT MACHINERY. THIS RESULTED INTO A BENE FIT OF ENDURING NATURE. THIS BENEFIT OF ENDURING NATURE WOULD BE VERY MUCH IN THE CAPITAL FIELD. IN SO FAR AS ALTERNATE SUBMISSION OF THE ASSESSEE IS C ONCERNED, THAT ALSO DOES NOT CUT ICE IN HIS FAVOUR. WITH THE ABOVE OBSERVATIONS , HONBLE HIGH COURT CONCLUDED THAT THE EXPENDITURE INCURRED BY THE ASSE SSEE IN AY 1994-95 WAS OF ENDURING NATURE, GIVING A NEW LIFE TO IDLE MACHI NE. THEREFORE, THE REVENUE RIGHTLY HELD IT AS EXPENDITURE OF CAPITAL N ATURE AND IN THE RESULT, THE APPEAL OF THE ASSESSEE WAS DISMISSED. 9. IN THE SECOND PART OF THE ORDER OF THE HONBLE H IGH COURT, THE APPEALS FILED BY THE REVENUE WERE ALSO DISMISSED WITH THE O BSERVATION THAT FROM ASSTT. YEAR 1995-96 TO ASSTT. YEAR 2004-05, SIMILAR EXPENSES WERE ALLOWED ITA 1787/DEL/2011 5 BY THE ITAT DELHI BENCH AS REVENUE IN NATURE AND AL L THESE ORDERS WERE ACCEPTED BY THE DEPARTMENT. AS THERE ARE NO APPEAL S FROM THE REVENUE AGAINST THE ORDER OF THE ITAT PERTAINING TO ABOVE A SSESSMENT YEARS, THEREFORE, HONBLE HIGH COURT FURTHER OBSERVED THAT IN RESPECT OF ASSTT. YEAR 2005-06 AND 2006-07, THE EXPENDITURE OF SAME NATURE INCURRED ON CURRENT REPAIRS FOR WHICH DEDUCTION WOULD BE ADMISSIBLE U/S 31(I) OF THE ACT, IT IS NOT CAPITAL EXPENDITURE BUT REVENUE EXPENDITURE NATURE INCURRED FOR BUSINESS PURPOSES WHICH WOULD QUALIFY AS DEDUCTION U/S 37 OF THE ACT AS WELL. THEREFORE, THE APPEALS OF REVENUE WERE ALSO DISMISS ED. 10. IN THE CASE IN HAND, IT IS RELATED TO ASSTT. YE AR 2007-08 IN WHICH THE AO IN HIS ASSESSMENT ORDER DATED 31.12.2009 HELD TH AT AS THE ASSESSEE COMPANY HAS PREFERRED APPEAL BEFORE THE HONBLE DEL HI HIGH COURT WHICH IS PENDING, THEREFORE, THE EXPENSES OF THE YEAR UNDER ASSESSMENT I.E. 2007-08, IN RESPECT OF PLANT AND MACHINERY REPAIRS HELD AS C APITAL EXPENDITURE AND THE SAME WAS ADDED BACK. THEREFORE, THE ORDER OF THE A O WAS ONLY BASED ON THIS FACT THAT THE APPEAL OF ASSESSEE WAS PENDING B EFORE HONBLE DELHI HIGH COURT BUT WHEN WE ARE DECIDING THIS APPEAL, THE ORD ER OF THE HONBLE HIGH COURT OF DELHI DATED 3.6.2011 HAS BEEN PLACED BEFOR E US. WE ALSO OBSERVE THAT THE IMPUGNED ORDER OF LD. CIT(A)-I WAS PASSED ON 12.1.2011 WHEN THE APPEALS OF ASSESSEE AND REVENUE WERE PENDING BEFORE HONBLE HIGH COURT. ITA 1787/DEL/2011 6 WE ALSO OBSERVE THAT LD. CIT(A)-I DELETED THE DISAL LOWANCE AMOUNTING TO RS.35,88,652 MADE BY THE AO WITH THE OBSERVATIONS T HAT THE EXPENDITURE OF SAME NATURE HAVE BEEN CONSIDERED AS OF REVENUE NATU RE FOR THE ASSTT. YEAR 1995-96 TO 1999-00 AND FOR THE AYS 2002-03 AND 2006 -07. THEREFORE, WE HOLD THAT LD. CIT(A)-I WAS LEGALLY JUSTIFIED IN DEL ETING THE DISALLOWANCE OF RS. 35,88,652/- MADE BY THE AO ON ACCOUNT OF REPAIR S OF PLANT AND MACHINERY. 11. ON THE BASIS OF ABOVE DISCUSSIONS, WE ARRIVED A T THE CONCLUSION THAT THE IMPUGNED ORDER OF LD. CIT(A)-I IS JUST AND PROP ER IN THE LIGHT OF OBSERVATIONS MADE BY THE JURISDICTIONAL HIGH COURT JUDGMENT DATED 3.6.2011(SUPRA) PERTAINING TO EARLIER ASSESSMENT YE ARS OF ASSESSEES OWN I.T. APPEAL. THEREFORE, WE FIND THIS APPEAL WITHOUT MER IT AND IT DESERVES TO BE DISMISSED. HENCE, THE SAME IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD MARCH, 2012. SD/- SD/- (G.D. AGRAWAL) (CHANDRA MOHAN GARG) VICE PRESIDENT JUDICIAL MEMBER DT. 23RD MARCH, 2012 GS COPY FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4.CIT 5. DR BY ORDER 4. ASSTT. REGISTRAR ITA 1787/DEL/2011 7