LAVINO KAPUR COPTTONS P.LTD, MUMBAI V. DCIT 3(2), MUMBAI

ITA 2135/MUM/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3829 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 18-02-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 13-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Keywords: Depreciation; Revenue expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I, MUMBAI BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI AMARJIT SINGH, JUDICIAL MEMBER ITA NO. 2135/MUM/2015 (ASSESSMENT YEAR : 2010-11) M/S. LAVINO KAPUR COTTONS PVT. LTD. 121/122, MITTAL CHAMBERS, NARIMAN POINT, MUMBAI 400 021 PAN:AAACL 0824C ... APPELLANT VS. THE DCIT, CIR.3(2), AAYKAR BHAVAN, MARINE LINES, MUMBAI 400 020 .... RESPONDENT APPELLANT BY : SHRI SURINDER MEHRA RESPONDENT BY : SHRI NEIL PHILIP DATE OF HEARING : 18/02/2016 DATE OF PRONOUNCEMENT : 06/5/2016 ORDER PER G.S. PANNU,AM: THE CAPTIONED APPEAL FILED BY THE ASSESSEE PERTA INING TO THE A.Y. 2010-11 IS DIRECTED AGAINST AN ORDER PASSED B Y LD. CIT(A)-8 MUMBAI DATED 20/02/2015, WHICH IN TURN ARISES OUT OF AN ORDER PASSED BY ASSESSING OFFICER UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 ( IN SHORT THE ACT) DATED 28/12/2012. GROUNDS O F APPEAL RAISED BY THE ASSESSEE READ AS UNDER:- 2 ITA NO. 2135/MUM/2015 (ASSESSMENT YEAR : 2010-11) 1.A) THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN UPHOLDING THE ORDER OF THE ASSESSING OFFICER WHEREI N HE HELD THAT EXPENSES AGGREGATING TO RS.48,02,931/- DEBITED TO S TORES & SPARES A/C. ARE OF CAPITAL NATURE AND CAPITALIZED THE SAME AND MADE ADDITION OF RS.40,82,491/- AFTER ALLOWING DEPRECIATION OF RS.7, 20,439/-. B) THAT ALL THE ITEMS OF STORES AND SPARES WERE EXP LAINED IN DETAIL IN LETTER DATED 26.12.2012 FILED WITH THE ASSESSING OF FICER TO RELEVANT PORTION OF WHICH HAS BEEN PRODUCED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. C) THAT AS IS APPARENT FROM THE READING OF THE SAME , ALL THE ITEMS OF STORES AND SPARES ARE OF REVENUE NATURE AND THE CAPITALIZATION OF THE SAME DONE BY THE ASSESSING OFFICER AND UPHELD BY TH E CIT(A) IS OPPOSED TO FACTS AND LAW. D) THAT COMMISSIONER OF INCOME-TAX (APPEALS) HAS ER RED IN COMPLETELY IGNORING THE DETAILED EXPLANATION GIVEN BY THE APPELLANT COMPANY FOR ALL THE ITEMS OF STORES AND SPARES CAPI TALIZED BY THE ASSESSING OFFICER AND EXPLAINING IN DETAIL THAT ALL THE ITEMS WERE OF REVENUE NATURE AND RELATED TO MERE SMALL PARTS FOR THE PLANT AND MACHINERY INSTALLED. E) THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) HA S ERRED IN COMPLETELY IGNORING THE FOLLOWING DECISION BROUGHT TO HIS NOTICE:- I) CIT VS. SHREE BHAGAVATHI TEXTILES LTD. 207 ITR 8 26(KERALA) II) VANAJA TEXTILES LTD. VS. CIT 208 ITR 161 (KERAL A) III) ALEMBIC CHEMICAL WORKS CO. LTD. VS. CIT 177 IT R 377 (SC) IV) CIT VS. ASSOCIATED CEMENT CO. LTD. 172 ITR 257 (SC) V) EMPIRE JUTE CO. LTD. VS. CIT 124 ITR 1(SC) F) THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) HA S ERRED IN PLACING RELIANCE ON THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF DELHI CLOTH & GENERAL MILLS CO. LTD. VS. ADDL. CIT 160 ITR 857 (DELHI). G) THAT THE SAID DECISION OF THE DELHI HIGH COURT R ELATED TO REPLACEMENT OF FURNITURE AND RACKS AND RELATED TO A DEPOT. IN THE PRESENT CASE THERE IS NO COMPLETE REPLACEMENT OF MA CHINERY AND IS ONLY REPLACEMENT OF PARTS OF THE MACHINERY AND AS S UCH THE SAID DECISION OF THE DELHI HIGH COURT HAS NO APPLICATION WHATSOEVER TO THE PRESENT FACTS OF THE CASE. 2. IN THIS APPEAL, ALTHOUGH ASSESSEE HAS RAISED MU LTIPLE GROUNDS OF APPEAL, BUT AT THE TIME OF HEARING, THE GRIEVANCE O F THE ASSESSEE HAS BEEN CONFINED TO GROUNDS OF APPEAL NOS.1(A) & 1(B) AND OTHER 3 ITA NO. 2135/MUM/2015 (ASSESSMENT YEAR : 2010-11) GROUNDS HAVE NOT BEEN PRESSED. GROUND NOS.1(A) & 1(B) REFLECT A SOLITARY GRIEVANCE OF THE ASSESSEE WHICH IS AGAINST THE ACTION OF THE INCOME-TAX AUTHORITIES IN HOLDING THAT EXPENDITURE OF RS.48,02,931/- DEBITED UNDER THE HEAD STORES AND SPARES ACCOUNT WAS NOT IN THE NATURE OF REVENUE EXPENDITURE BUT CAPITAL IN NATUR E. 3. BRIEFLY PUT, THE RELEVANT FACTS ARE THAT THE APP ELLANT IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 AND IS, INTER-ALIA, ENGAGED IN THE MANUFACTURING AND SALE O F ABSORBENT COTTON AND COTTON PRODUCTS THEREOF. IN THE COURSE OF ASSE SSMENT PROCEEDINGS, ASSESSING OFFICER NOTED THAT THE ASSESSEE COMPANY H AD DEBITED HUGE EXPENSE UNDER THE HEAD REPAIRS AND MAINTENANCE AN D, THEREFORE, SHOW CAUSED THE ASSESSEE TO EXPLAIN THE NATURE OF SUCH EXPENSES. IN PARA-7.2 OF THE ASSESSMENT ORDER, THE ASSESSING OFF ICER HAS DETAILED SUCH EXPENDITURE, WHICH AMOUNTS TO RS.48,02,931/-. IN RESPONSE, ASSESSEE COMPANY MADE DETAILED SUBMISSIONS FOR EA CH OF THE ITEMS OF EXPENDITURE AND POINTED OUT THAT THE ENTIRE EXPEND ITURE WAS REVENUE IN NATURE WHICH WAS DEBITED UNDER THE HEAD STORES AND SPARES ACCOUNT AND THAT THERE WAS NO NEW MACHINERY ACQUIR ED BUT EXPENSES WERE INCURRED IN RELATION TO REPLACEMENT OF VARIOU S PARTS OF EXISTING MACHINERIES. SUCH DETAILED SUBMISSION HAS BEEN REP RODUCED BY THE ASSESSING OFFICER AT PARA-7.3 OF THE ORDER. HOWEVE R, ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION, AS ACCORDIN G TO HIM, THE EXPENDITURE RELATED TO REPLACEMENT OF PARTS OF MACH INERY, WHICH WOULD GIVE BENEFIT OF ENDURING NATURE TO THE ASSESSEE AND , THEREFORE, IT WAS CAPITAL IN NATURE. IN THE CONTEXT OF SOME OF THE E XPENDITURE NAMELY, RELATING TO CONVEYOR BELT, TURN TABLE, ETC., THE AS SESSING OFFICER ALSO 4 ITA NO. 2135/MUM/2015 (ASSESSMENT YEAR : 2010-11) OBSERVED THAT THE ASSESSEE DID NOT FURNISH THE FREQ UENCY AT WHICH SUCH REPLACEMENTS ARE DONE. ACCORDING TO THE ASSESSIN G OFFICER, USEFUL LIFE OF SUCH ITEMS WAS MORE THAN A YEAR AND, THEREFORE, IT GAVE AN ENDURING BENEFIT TO THE ASSESSEE AND ACCORDINGLY, JUSTIFIED TREATMENT OF SUCH EXPENDITURE AS CAPITAL IN NATURE. THE AFORESAID A CTION OF THE ASSESSING OFFICER WAS UNSUCCESSFULLY CARRIED IN APPEAL BEFORE CIT(APPEALS) WHO HAS CONCURRED WITH THE ASSESSING OFFICER. IN FACT , THE CIT(APPEALS) HELD THAT FOLLOWING THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF DELHI CLOTH & GENERAL MILLS CO. LTD. VS. A DDL. CIT, 160 ITR 857(DEL), EVEN EXPENDITURE INCURRED FOR REPLACEMEN T OF CAPITAL ITEMS HAS TO BE TREATED AS CAPITAL IN NATURE. NOT BEING SATISFIED WITH THE ORDER OF THE CIT(APPEALS), ASSESSEE IS IN FURTHER APPEAL BEFORE US. 4. BEFORE US, LD. REPRESENTATIVE FOR THE ASSESSEE H AS TAKEN US THROUGH THE WRITE-UP ON EACH ITEM OF EXPENDITURE, WHICH IS SIMILAR TO THAT NOTED BY THE ASSESSING OFFICER IN PARA 7.3 OF THE ASSESSMENT ORDER. OUR REFERENCE HAS ALSO BEEN INVITED TO THE PAPER B OOK, WHEREIN IS PLACED THE INVOICES IN RESPECT OF THE IMPUGNED EXP ENDITURE AND IT WAS SOUGHT TO BE MADE OUT THAT IMPUGNED ITEMS DEBITED T O STORES AND SPARES ACCOUNT WERE ESSENTIALLY FOR REPLACEMENT O F VARIOUS PARTS OF EXISTING MACHINERY AND NO NEW MACHINERY WAS ACQUIRE D. IT WAS ALSO POINTED OUT THAT THE TOTAL COST OF PLANT AND MACHIN ERY INSTALLED AT THE FACTORY PREMISES WAS TO THE TUNE OF RS.102.58 CRORE S AND EXPENSE IN QUESTION IS TOO MEAGRE TO SAY THAT ANY NEW ASSET/M ACHINERY HAS BEEN ACQUIRED. IT WAS ALSO POINTED OUT THAT THE IMPUGNE D EXPENDITURE WAS INCURRED MERELY TO PRESERVE AND MAINTAIN AN ALREAD Y EXISTING ASSET AND NOT TO BRING INTO EXISTENCE ANY NEW ASSET AND SUCH EXPENDITURE IS TO BE 5 ITA NO. 2135/MUM/2015 (ASSESSMENT YEAR : 2010-11) VIEWED AS REVENUE EXPENDITURE HAVING REGARD TO THE FOLLOWING DECISIONS:- (I) CIT VS. SHREE BHAGAVATHI TEXTILES LTD., 207 IT R 826(KER) (II). VANAJA TEXTILES LTD. VS. CIT, 208 ITR 161 (K ER). THE LD. REPRESENTATIVE FOR THE ASSESSEE HAS ALSO RE FERRED TO THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF A LEMBIC CHEMICAL WORKS CO. LTD. VS. CIT, 177 ITR 377(SC) IN SUPPORT OF HIS SUBMISSIONS. 5. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESEN TATIVE FOR THE REVENUE HAS PRIMARILY REITERATED THE STAND OF THE ASSESSING OFFICER WHICH WE HAVE ALREADY NOT IN EARLIER PARAS AND IS N OT BEING REPEATED FOR THE SAKE OF BREVITY. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. ADMITTEDLY, THE CONTROVERSY AS TO WHETHER A PARTICULAR EXPENDIT URE IS REVENUE IN NATURE OR CAPITAL IN NATURES, IS REQUIRED TO BE ADD RESSED HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF EACH CASE. IT IS ALSO WELL UNDERSTOOD THAT THERE IS A PLETHORA OF JUDGMENTS ON THIS SUBJ ECT, BUT A PERTINENT PRINCIPLE WHICH STANDS ESTABLISHED IS THAT THERE I S NO SINGULAR TEST AVAILABLE TO DETERMINE WHETHER A PARTICULAR EXPE NDITURE IS REVENUE OR CAPITAL IN NATURE, BUT EACH CASE WOULD HAVE TO B E DECIDED ON BASIS OF THE RELEVANT FACT-SITUATION IN A COMMERCIAL SENS E. THE HONBLE SUPREME COURT IN THE CASE OF EMPIRE JUTE CO. LTD. V S. CIT, 124 ITR 1(SC) HELD THAT THERE MAY BE CASES WHERE EXPENDITURE, EVE N IF INCURRED FOR OBTAINING ADVANTAGE OF AN ENDURING NATURE MAY NO NETHELESS BE REVENUE IN NATURE AND THE TEST OF ENDURING BENEFIT MAY BREAK-DOWN. ACCORDING TO THE HONBLE SUPREME COURT, WHAT IS ESS ENTIAL IS TO CONSIDER THE NATURE OF THE ADVANTAGE IN A COMMERCIAL SENSE A ND IT IS ONLY IN 6 ITA NO. 2135/MUM/2015 (ASSESSMENT YEAR : 2010-11) CASES WHERE THE ADVANTAGE IS IN THE CAPITAL FIELD T HAT SUCH AN EXPENDITURE IS TO BE VIEWED AS CAPITAL IN NATURE. THEREFORE, THE PLEA OF THE ASSESSING OFFICER THAT THE IMPUGNED EXPENDITURE RESULTS IN AN ADVANTAGE OF ENDURING NATURE, BY ITSELF IS NOT DETE RMINATIVE OF THE CONTROVERSY. QUITE CLEARLY, IN THE INSTANT CASE, N ONE OF THE EXPENSES HAVE RESULTED IN ACQUISITION OF AN ITEM OF PLANT/OR MACHINERY PER-SE. THE EXPENSES ARE RELATABLE TO REPLACEMENT OF WORN-O UT PARTS OF THE MACHINERY, WHICH ARE UNDISPUTEDLY REQUIRED TO BE R EPLACED ON ACCOUNT OF WEAR AND TEAR. THE ASSERTIONS MADE BY THE ASSE SSEE IN RELATION TO EACH OF THE EXPENDITURE, WHICH HAVE BEEN REPRODUCED BY THE ASSESSING OFFICER IN PARA 7.3 OF THE ASSESSMENT ORDER, ITSELF SHOW THAT THE EXPENDITURE HAS BEEN INCURRED FOR ENSURING RUNNIN G OF AN OTHERWISE LARGER MACHINERY AND IT IS NOT A CASE WHERE EXPEND ITURE HAS BEEN INCURRED TO ACQUIRE ANY INDEPENDENT MACHINERY OR PL ANT. THEREFORE, IN OUR VIEW, THE STAND OF THE ASSESSING OFFICER, WHICH HAS BEEN APPROVED BY CIT(APPEALS) IS MISDIRECTED AND IS DEHORS THE P URPORT OF THE IMPUGNED EXPENDITURE. EVEN THE RELIANCE PLACED BY THE CIT(APPEALS) ON THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF DELHI CLOTH AND GENERAL MILLS COMPANY LTD.(SUPRA) IS QUITE MISP LACED BECAUSE IN THE CASE BEFORE HON'BLE DELHI HIGH COURT, THE EXP ENDITURE WHICH WAS HELD TO BE CAPITAL IN NATURE RELATED TO PURCHASE OF FURNITURE AND RACKS, WHICH ARE INDEPENDENT ITEMS OF USE. IN CONTRAST, THE FACT-POSITION IN THE INSTANT CASE RELATES TO EXPENDITURE INCURRED O N PURCHASE OF PARTS OF AN OVERALL MACHINERY, WHICH ARE REQUIRED TO BE R EPLACED ON ACCOUNT OF WEAR AND TEAR AND ARE NOT CAPABLE OF BEING USED INDEPENDENTLY. THEREFORE, THE JUDGMENT OF HON'BLE DELHI HIGH COURT IN THE CASE OF 7 ITA NO. 2135/MUM/2015 (ASSESSMENT YEAR : 2010-11) DELHI CLOTH AND GENERAL MILLS COMPANY LTD.(SUPRA) D OES NOT HELP THE CASE OF THE REVENUE IN THE PRESENT SITUATION. 6.1 IN FACT, THE JUDGMENT OF THE HON'BLE KERALA HIG H COURT IN THE CASE OF BHAGAVATHI TEXTILES LTD.(SUPRA), WHICH HAS BEEN RELIED UPON BY THE APPELLANT BEFORE US, IS DIRECTLY ON THE POINT, WHER EIN IT HAS BEEN HELD THAT EXPENDITURE INCURRED ON RENOVATING THE OLD WOR N-OUT PARTS OF A BIGGER MACHINERY IS REVENUE EXPENDITURE, AS IT IS IMPERATIVE FOR THE BUSINESS TO RUN SMOOTHLY AND EFFECTIVELY. IN THE P RESENT CASE TOO, THE EXPENDITURE HAS BEEN INCURRED WITH THE SAID PURPOSE , WHICH IS CLEARLY BORNE OUT FROM THE REPLIES OF THE ASSESSEE ON EACH ITEM OF EXPENSE TABULATED BY THE ASSESSING OFFICER AT PARA 7.3 OF T HE ASSESSMENT ORDER. WE MAY ALSO SAY HERE THAT IN THE PAPER BOOK FILED BEFORE US, ASSESSEE HAS ALSO PLACED THE RELEVANT INVOICES, EVIDENCING THE IMPUGNED EXPENDITURE, WHICH CLEARLY SUPPORTS THE FACTUAL ASS ERTIONS MADE BEFORE LOWER AUTHORITIES. THUS, WE SET-ASIDE THE ORDER OF THE CIT(APPEALS) AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED ADDITION AND CONSIDER THE EXPENDITURE OF RS.48,02,931/- AS REVEN UE IN NATURE. THUS, ASSESSEE SUCCEEDS ON THIS ASPECT. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOW ED, AS ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 06/05/2016 SD/- SD/- (AMARJIT SINGH) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT ME MBER MUMBAI, DATED 06/05/2016 VM , SR. PS 8 ITA NO. 2135/MUM/2015 (ASSESSMENT YEAR : 2010-11) COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT , 2. THE RESPONDENT. 3. THE CIT(A)- 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI