Swastik Sanitarywares Ltd., Ahmedabad V. The Dy.CIT., Circle-8, Ahmedabad

ITA 2783/AHD/2007

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0373 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 3 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2009
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 17-09-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 21-06-2007
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: NEETA SHAH
• Assessee Lawyers: MUKESH M SHAH
• Keywords: Revenue expenditure; Capital expenditure
• Section: 201; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH AHMEDABAD (BEFORE S/SHRI P. K. BANSAL, AM AND MAHAVIR SINGH, JM) ITA NO. 2783/AHD/2007 A. Y.: 2004-05 SWASTIK SANITARIWARES LTD., 304, MANGAL MURTI COMPLEX, ASHRAM ROAD, AHMEDABAD PA NO. AADCS 0879B VS THE D. C. I. T., CIRCLE -8, AHMEDABAD (APPELLANT) (RESPONDENT) APPELLANT BY SHRI MUKESH M. SHAH, AR RESPONDENT BY SMT. NEETA SHAH, DR O R D E R PER P. K. BANSAL: THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A)- XIV, AHMEDABAD DAT ED 3-4-2007 RELATING TO ASSESSMENT YEAR 2004-05 BY TAKING THE FOLLOWING GROUNDS OF APPEAL: (1) LEARNED CIT (APPEALS) IS NOT JUSTIFIED IN REJE CTING CONTENTION OF APPELLANT THAT THE EXPENSES OF RS.5,85,558/- INCURRED ON REPLACEMENT OF WOODEN BENCHES WITH IRON BENCHES IS REVENUE EXPENSES. (2) LEARNED CIT (APPEALS) IS NOT JUSTIFIED IN REJEC TING CONTENTION OF THE APPELLANT THAT RS.12,96,624/- INC URRED ON REPLACEMENT OF KILN CORDIERITE TILES AND PLATES IS REVENUE EXPENSES. 2. THE FIRST GROUND IS AGAINST THE DISALLOWANCE OF A SUM OF RS.5,85,558/- INCURRED BY THE ASSESSEE ON REPLACEME NT OF WOODEN BENCHES WITH IRON BENCHES, WHILE THE SECOND GROUND DEALS WITH DISALLOWANCE OF RS. 12,96,624/- INCURRED ON REPLACE MENT OF KILN CORDIERITE TILES AND PLATES. THE ASSESSEE CLAIMED T HESE EXPENSES AS ITA NO.2783/AHD/2007 SWASTIK SANITARYWARES LTD. 2 REVENUE EXPENDITURE. THE AO HELD THAT THE EXPENDITU RE IS IN THE NATURE OF CAPITAL EXPENDITURE AND ACCORDINGLY HE DISALLOWE D THE SAME. THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). THE CIT( A) ALSO CONFIRMED THE ORDER OF THE AO BY OBSERVING AS UNDER: 2.2 I HAVE CONSIDERED THE FACTS OF THE CASE AND TH E SUBMISSIONS AND I DO NOT AGREE WITH THE VIEWS OF TH E APPELLANT. THE REPLACEMENT OF THE WOODEN BENCHES WI TH IRON BENCHES HAS RESULTED INTO INCREASED CAPACITY AND CR EATION OF NEW ASSET. FURTHER, BY REPLACEMENT OF TILES AND PLA TES, THE KILN IS READY FOR 2-3 YEARS TIME AND THUS IT CANNOT BE SAID THAT IT IS ONLY A CURRENT REPAIR. BY THE FINANCE ACT, 20 03, THE EXPLANATION STANDS ADDED TO SEC. 31 WITH EFFECT FRO M 1-4-04, WHICH SAY THAT EXPLANATION FOR REMOVAL OF DOUBT, IT IS HEREBY DECLARED THAT THE AMOUNT PAID ON ACCOUNT OF CURRENT REPAIRS SHALL NOT INCLUDE ANY EXPENDITURE IN THE NA TURE OF CAPITAL EXPENDITURE. AFTER ADDITION OF THIS EXPLANA TION TO SEC. 31 ANY CURRENT REPAIR EXPENDITURE, WHICH ARE IN THE NATURE OF CAPITAL EXPENDITURE IS NOT ALLOWABLE. IN THIS CASE , THE REPAIRS RESULT IN THE NATURE OF ASSETS WHICH WILL LAST FOR THREE YEARS AND ALSO INCREASE IN THE CAPACITY OF BENCHES, REPLA CED WITH IRON BENCHES. AFTER ADDITION TO THIS EXPLANATION, T HE CASE LAWS RELIED UPON BY THE APPELLANT NO LONGER REMAINED APP LICABLE. IN VIEW OF THE ABOVE POSITION, THE ACTION OF THE AO IS HELD TO BE IN ORDER AND THE SAID ACTION IS JUSTIFIED AND THIS GRO UND IS REJECTED. 3. BEFORE US, THE LEARNED AR OF THE ASSESSEE VEHEME NTLY CONTENDED THAT THE EXPENDITURE HAS BEEN INCURRED BY THE ASSES SEE ON REPLACEMENT OF WOODEN BENCHES WITH IRON BENCHES BECAUSE THE MOL ES HAS TO BE GOT DRIED. THE MOLES ONCE WET GOT ERODED. IN CASE IF IT IS IRON BENCHES THE EROSION WILL SLIGHTLY BE LOWERED. NO NEW ASSET HAS COME INTO EXISTENCE. IT IS ONLY THOSE WOODEN BENCHES WHICH HAVE BEEN ERODED . THE EXPENDITURE HAS TO BE ALLOWED AS REVENUE EXPENDITURE. RELIANCE WAS PLACED IN THIS REGARD ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS SARAVANA SPINNING MILLS PVT. LTD. 293 ITR 201 (SC). 4. THE LEARNED DR ON THE OTHER HAND SUPPORTED THE O RDER OF THE CIT(A) AND RELIED ON THE ORDER OF THE HONBLE SUPRE ME COURT IN THE CASE ITA NO.2783/AHD/2007 SWASTIK SANITARYWARES LTD. 3 OF CIT VS SRI MANGAYARKARASI MILLS PVT. LTD. 315 IT R 114 (SC) AND POINTED OUT THAT IN THIS CASE THE HONBLE SUPREME C OURT HAS DULY CONSIDERED THE DECISION OF THE HONBLE SUPREME COUR T IN THE CASE OF CIT VS SARAVANA SPINNING MILLS PVT. LTD. 293 ITR 201 (S C). REFERRING TO THE DECISION IT WAS POINTED OUT THAT IN THIS CASE IT WA S CLEARLY HELD THAT REPLACEMENT OF AN OLD MACHINE PART WITH A NEW ONE W OULD CONSTITUTE BRINGING INTO EXISTENCE OF A NEW ASSETS IN PLACE OF THE OLD ONE AND THE EXPENDITURE SO INCURRED CANNOT BE REGARDED AS CURRE NT REPAIRS WITHIN THE MEANING OF SECTION 31 READ WITH EXPLANATION THERETO . 5. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND PERUSED THE MATERIAL ON RECORD. WE HAVE ALSO GONE THROUGH T HE ORDERS OF THE AUTHORITIES BELOW. NO DOUBT THE ASSESSEE HAD INCURR ED THE EXPENDITURE FOR REPLACEMENT OF THE WOODEN BENCHES WITH THE IRON BENCHES AND ALSO FOR REPLACEMENT OF TILES AND PLATES. IN OUR OPINION , THE CASE IS DULY COVERED BY THE DECISION OF THE HONBLE SUPREME COUR T IN THE CASE OF CIT VS SRI MANGAYARKARASI MILLS PVT. LTD. 315 ITR 114 ( SC) IN WHICH THE HONBLE SUPREME COURT HAS HELD AS UNDER: THE ENTIRE TEXTILE MILL MACHINERY FOR SPINNING YAR N CANNOT BE REGARDED AS A SINGLE ASSET, REPLACEMENT OF PARTS OF WHICH CAN BE CONSIDERED TO BE FOR THE MERE PURPOSE OF PRESER VING OR MAINTAINING THE ASSET. ALL PARTS PUT TOGETHER CONS TITUTE THE PRODUCTION PROCESS AND EACH SEPARATE MACHINE PART I S AN INDEPENDENT ENTITY. REPLACEMENT OF SUCH AN OLD MACH INE PART WITH A NEW ONE WOULD CONSTITUTE THE BRINGING INTO E XISTENCE OF A NEW ASSET IN PLACED OF THE OLD ONE AND NOT REPAIR OF THE OLD EXISTING MACHINE. IN THE CASE OF TEXTILE MACHINERY REPAIR OF A MACHINE CAN AT BEST AMOUNT TO A REPAIR MADE TO THE PROCESS OF MANUFACTURE OF YARN AND CANNOT BE SAID TO BE CURRE NT REPAIRS WITHIN THE MEANING OF SECTION 31 OF THE IN COME-TAX ACT, 1961. CIT V. SARAVANA SPINNING MILLS P. LTD. [2007] 293 ITR 201 (SC) AND BALLIMAL NAVAL KISHORE V CIT [1997 ] 224 ITR 414 (SC) RELIED ON. ITA NO.2783/AHD/2007 SWASTIK SANITARYWARES LTD. 4 CIT V. JANAKIRAM MILLS LTD. [2005] 275 ITR 403 (MAD) HELD NOT GOOD LAW: THE EXPENDITURE OF AN ASSESSEE FOR REPLACEMENT OF PARTS OF A TEXTILE MILL FOR SPINNING YARN IS NOT REVENUE EXPENDITU4E UNDER SECTION 37 OF THE ACT. TRAVANCORE COCHIN CHEMICALS LTD. V. CIT [1971] 82 ITR 376 (SC) RELIED ON. DECISION OF THE MADRAS HIGH COURT REVERSED. 6. THE DECISION AS RELIED BY THE LEARNED AR HAS DUL Y BEEN CONSIDERED BY THE HONBLE SUPREME COURT IN THE AFORESAID CASE. IN VIEW OF THE SAID DECISION OF THE HONBLE SUPREME COURT, IN OUR OPINI ON, NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE CIT(A). WE ACCORDING LY DISMISS BOTH THE GROUNDS OF APPEAL TAKEN BY THE ASSESSEE. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 9-10-09. SD/- SD/- (MAHAVIR SINGH) JUDICIAL MEMBER (P. K. BANSAL) ACCOUNTANT MEMBER DATE : 9/10/09 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR, ITAT, AHMEDABAD