DCIT/CIR-4/KOLKATA, Kolkata V. M/s Kalyanpur Cements Ltd., Kolkata

ITA 1956/KOL/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4950 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-04-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 18-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DEBASISH ROY JCIT SRDR
• Assessee Lawyers: SOUMITRA CHOW DHURY
• Keywords: Capital asset; Revenue expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B KOLKATA BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO. 1956 / KOL / 2013 ASSESSMENT YEAR :2008-09 DCIT, CIRCLE-4, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 V/S . M/S KALYANPUR CEMENTS LTD., 2 & 3, RAJENDRA PRASAD SARANI, KOLKATA-700001 [ PAN NO.AABCK 1273 H ] /APPELLANT .. / RESPONDENT /BY APPELLANT SHRI DEBASISH ROY, JCIT, SR-DR /BY RESPONDENT SHRI SOUMITRA CHOWDHURY, ADVOCATE /DATE OF HEARING 08-03-2016 /DATE OF PRONOUNCEMENT 19-04-2016 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY THE REVENUE IS ARISING OUT OF ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-IV, KOLKATA IN APPEAL NO.77/CI T(A)-I/200-11 DATED 15.03.2013. ASSESSMENT WAS FRAMED BY DCIT, CI RCLE-4, KOLKATA U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REF ERRED TO AS THE ACT) VIDE HIS ORDER DATED 21.12.2010 FOR ASSESSMENT YEAR 2008 -09. 2. SOLE ISSUE RAISED BY REVENUE IS AS REGARDS THAT LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF CLAIM FOR THE EXPENDIT URE ON ACCOUNT OF MAJOR REPAIRS & MAINTENANCE FOR RS.247.63 LACS. FOR THIS, REVENUE HAS RAISED THE EFFECTIVE GROUND:- ITA NO.1956/KOL/2013 A.Y. 2008-0 9 DCIT CIR-4, KOL V. M/S KLYANPUR CEMENTS LTD. PAGE 2 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE FACT THAT LD. CIT(A) ERRED IN LAW IN DIRECTING THE AO TO ALLOW THE EXPENDITURE OF RS .247.63 LAKH INCURRED ON ACCOUNT OF MAJOR REPAIRS AND MAINTENANCE WITHOUT A PPRECIATING THE FACT THAT THE EXPENDITURE IS CAPITAL IN NATURE AND THE ASSESS EE COMPANY WILL GET THE ENDURING BENEFIT FROM THE SAID EXPENDITURE FOR A NU MBER OF YEARS TO COME. 3. BRIEF FACTS OF THE CASE AS CULLED OUT FROM THE R ECORDS ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN TH E BUSINESS OF MANUFACTURING AND SELLING OF CEMENT. DURING THE YEA R ASSESSEE HAS CLAIMED MAJOR REPAIR EXPENSES FOR AN AMOUNT OF RS. 270.41 L ACS BY DEBITING THE PROFIT AND LOSS ACCOUNT. THIS MAJOR REPAIR EXPENSE WAS IN ADDITION TO NORMAL REPAIR AND MAINTENANCE EXPENSES OF RS. 433.68 LACS INCURRE D BY THE ASSESSEE. DURING THE ASSESSMENT PROCEEDINGS THE ASSESSEE SUBM ITTED THAT THE MAJOR REPAIR EXPENSES REPRESENTS AND INCLUDE THE COST OF THREE GEARBOXES WHICH WERE REPLACED DURING THE YEAR. THE DETAILS OF THE G EARBOXES ARE AS UNDER:- (I) GEAR BOX MODEL-KDA500 RS.25.56 LACS REPLACED IN SLA G GRINDING SECTION OF THE PLANT (II) GEAR BOX MODEL-KDA500 RS.25.56 IN THE CLINKER GRIND ING SECTION (III) PLANUREX PLANETARY GEAR UNIT RS.115.93 LACS. THE ASSESSEE ALSO SUBMITTED THAT THE REPLACEMENT OF THE GEARBOXES WERE NECESSARY TO KEEP THE PLANT IN RUNNING CONDITION AS THE OLD GEARBOXES WERE COMPLETELY WORN OUT. HOWEVER THE AO DISAGREED WITH THE CLAIM OF THE ASSESSEE ON THE GROUND THAT SUCH EXPENSES ARE ENDUR ING IN NATURE SO IT CANNOT BE CLAIMED AS DEDUCTION BY SHOWING AS REVENU E EXPENDITURE. ACCORDINGLY THE AO DISALLOWED THE CLAIM OF THE ASSE SSEE FOR THE MAJOR REPAIR EXPENSES OF RS. 247.63 LACS AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 4. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL TO LD CI T(A) WHO DELETED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER 3.4 SIMILAR ISSUE ALSO CAME UP IN THE CASE OF THE A PPELLANT FOR A.Y 2007-08 WHEREIN MY PREDECESSOR IN APPEAL NO.200/CIT(A)-IV/2 009-10 DATED 29.06.2011 HAS HELD THAT THE ENTIRE EXPENDITURE WAS REVENUE IN NATURE AND THEREBY ALLOWABLE. AS THE FACTS AND CIRCUMSTANCES O F THE PREVIOUS YEAR ARE SIMILAR TO THAT OF A.Y 2007-08, I AM OF THE VIEW TH AT THE EXPENSES UNDER THE ITA NO.1956/KOL/2013 A.Y. 2008-0 9 DCIT CIR-4, KOL V. M/S KLYANPUR CEMENTS LTD. PAGE 3 HEAD MAJOR REPAIR & MAINTENANCE FOR AN AMOUNT OF RS.247.63 LACS ARE ALLOWABLE AS REVENUE EXPENSES. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) REVENUE IS IN APPEAL BEFORE US. SHRI SOUMITRA CHOWDHURY LD. AUTHORIZED REPRESENTATI VE APPEARING ON BEHALF OF ASSESSEE AND SHRI DEBASISH ROY, LD. DEPARTMENTAL REPRESENTATIVE APPEARING ON BEHALF OF REVENUE. 5. WE HAVE HEARD RIVAL SUBMISSIONS OF BOTH THE PART IES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. BEFORE US LD. DR FAI RLY RELIED ON THE ORDER OF AO AND HE LEFT THE ISSUE TO THE DISCRETION OF THE BENC H. ON THE CONTRARY, LD. AR RELIED ON THE ORDER OF LD CIT(A). AT THE OUTSET, WE OBSERVED THAT SIMILAR ISSUE IN ASSESSEES OWN CASE FOR THE AYS 2006-07 AND 2007 -08 IN ITA NO. 1396 & 1397/KOL/2011 DATED 14.10.2014 WAS DECIDED IN FAVOUR OF ASSESSEE BY THIS HONBLE TRIBUNAL B BENCH KOLKATA AND RELEVANT EXT RACT OF THE ORDER IS REPRODUCED BELOW:- 10. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROU GH FACTS AND CIRCUMSTANCES OF THE CASE. THE ASSESSEE HAS FIELD C OMPLETE DETAIL OF REPAIR AND MAINTENANCE EXPENSES AND ALSO A CERTIFICATE FRO M CHARTERED ENGINEER DATED 15.12.2008, WHO HAS CERTIFIED THAT THE EXPENS ES UNDER THE HEAD REPAIRS AND MAINTENANCE DURING THE YEAR ENDING 31.03.2007 H AS BEEN PROCUREMENT OF WORN OUT COMPONENTS AND CERTAIN CAPITAL ASSETS OR G ROUP 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 TOTA L VALUE OF CORRESPONDING CAPITAL ASSET IN EACH CASE. HE CERTIFIED THE EXPENS ES 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 M ACHINERY AND ITS CAPACITY ITA NO.1956/KOL/2013 A.Y. 2008-0 9 DCIT CIR-4, KOL V. M/S KLYANPUR CEMENTS LTD. PAGE 4 UTILIZATION WAS IN THE RANGE OF 37.46% AGAINST THE INDUSTRY AVERAGE OF 90. ACCORDING TO HIM, TO MAKE THE SITUATION IMPROVE, TH E ASSESSEE COMPANY IN FY 2006-07 RELEVANT TO AY 2007-08 UNDERTOOK THE OVERD UE REPAIRS AND MAINTENANCE FOR PLANT AND MACHINERY AND REPAIR AND REPLACEMENT OF INTERNAL CONTROL PURPOSE WAS STARTED. THE ASSESSEE COMPANY H AS NOT INCREASED IN THE RATED CAPACITY OF ANY OF THE PLANT/EQUIPMENT BY VIR TUE OF THIS REPAIR AND MAINTENANCE. FACTUALLY, THE ASSESSEE HAS CARRIED OU T REPAIRS AND MAINTENANCE, AS IS EVIDENT FROM THE ABOVE DISCUSSIO N. IN SIMILAR CIRCUMSTANCES, HON'BLE BOMBAY HIGH COURT IN THE CAS E OF CIT VS. CHOWGULE & CO. PVT. LTD. (1995) 214 ITR 523 (BOM) HAS CONSIDERED THE EXPRES SION CURRENT PRECEDING REPAIRS AS UNDER: I) THE AMOUNT SHOULD BE PAID ON ACCOUNT OF CURRE NT REPAIRS. II) CURRENT REPAIRS MEANS REPAIRS UNDERTAKEN IN THE NORMAL COURSE OF USER FOR THE PURPOSE OF PRESERVATION MAINTENANCE OR PROPER UTILISATION OR FOR RESTORING IT TO ITS ORIGINAL CONDITION. III) CURRENT REPAIRS DO NOT MEAN ONLY PETTY REPAIRS OR REPAIRS NECESSITATED BY WEAR AND TEAR DURING THE PARTICULAR YEAR. IV) SUCH REPAIRS SHOULD NOT BRING INTO EXISTENCE NO R OBTAIN A NEW OR DIFFERENT ADVANTAGE. V) THE QUANTUM OF EXPENDITURE NOR THE FACT THAT IN THE PROCESS OF REPAIRS, THERE WAS SUBSTANTIAL REPLACEMENT OF THE P ARTS OF MACHINE OR SHIP IS DECISIVE OF THE TRUE NATURE OF THE EXPENDIT URE. VI) THE ORIGINAL COST OF THE ASSET IS NOT AT ALL RE LEVANT FOR ASCERTAINMENT OF THE TRUE NATURE OF THE EXPENDITURE ON REPAIRS. VII) THE REPLACEMENT COST OF THE ASSET MAY HOWEVER, AT TIMES MAY BE USED AS INDICATOR OF THE TRUE CHARACTER OF THE EXPE NDITURE. IF THE EXPENDITURE ON REPAIR ADDED TO THE WRITTEN DOWN VAL UE OR DISPOSAL VALUE EXCEEDS THE REPLACEMENT COST OF THE ASSET, A PRESUMPTION IS POSSIBLE THAT IT IS NOT A REVENUE EXPENDITURE BUT E XPENDITURE OF CAPITAL NATURE. SUCH PRESUMPTION, OF COURSE, WOULD BE REBUT TABLE. VIII) THE EXPRESSION CURRENT PRECEDING REPAIRS APPEARS TO HAVE BEEN USED BY THE LEGISLATURE WITH A VIEW TO RESTRICTING THE ALLOWANCE TO EXPENDITURE INCURRED FOR PRESERVATION AND MAINTENAN CE 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 FA CTS OF THAT CASE, THE TRIBUNAL, ON INVESTIGATION OF THE NATURE OF THE REPAIRS UNDERTAKEN BY THE ASSESSEE, RECORDED A CATEGORICAL FINDING OF FAC T THAT IT DID NOT RESULT IN EMERGENCE OF A NEW SHIP BUT AMOUNTED, IN SUBSTAN CE, TO CURRENT REPAIRS TO THE EXISTING SHIP. THE FACT THAT OLD PAR TS OF THE SHIP WERE REPLACED BY NEW PARTS WAS NOT RELEVANT FOR DETERMIN ING WHETHER THE EXPENDITURE WAS ON CURRENT REPAIRS OR NOT. THEREFORE, THE ITA NO.1956/KOL/2013 A.Y. 2008-0 9 DCIT CIR-4, KOL V. M/S KLYANPUR CEMENTS LTD. PAGE 5 EXPENDITURE CLAIMED BY THE ASSESSEE AMOUNTED TO CURRENT REPAIRS , ALLOWABLE AS DEDUCTION UNDER SECTION 31. HON'BLE SUPREME COURT IN THE CASE OF CIT V. SARAVANA 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 I N THE MILL AND THE OUTPUT OF EACH DIVISION IS DIFFERENT FROM THE OTHER. FROM THE ABOVE CONTEXT AND TAKING A CONSISTENT VIEW , WE FIND THAT SUCH MAJOR REPAIR EXPENSES WERE REGARDED AS REVENUE IN NATURE IN THE EARLIER YEARS. THEREFORE RELYING ON THE SAME AS STATED IN THE AFOR ESAID DECISION OF THIS HONBLE TRIBUNAL IN ASSESSEES OWN CASE, WE FIND NO REASON TO INTERFERE IN THE ORDER OF LEARNED CIT(A). HENCE THIS GROUND OF APPEA L OF REVENUE IS DISMISSED. 6. IN THE RESULT, REVENUES APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT 19/ 04/2016 SD/- SD/- (MAHAVIR SINGH) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP !- 19 / 04 /201 6 / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-DCIT, CIRCLE-4, P-7, CHOWRINGHEE SQUARE, KOLKATA-69 2. /RESPONDENT- M/S KALYANPUR CEMENTS LTD., 2 & 3, RAJ ENDRA PRASAD SARANI, KOL-01 3. ) *+ , , - / CONCERNED CIT KOLKATA 4. , , -- / CIT (A) KOLKATA 5. 012 33*+, , *+ , / DR, ITAT, KOLKATA 6. 267 89 / GUARD FILE. BY ORDER/ , , /TRUE COPY/ / , *+ ,