The Assistant Commissioner of Income Tax, Circle-1, Margao., Margao V. M/s Turbocam India Pvt. Ltd., Margao

ITA 280/PAN/2015

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 2229 (ITAT-PANAJI)
• Duration Of Justice: 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-09-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 30-06-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAMESH S MUTAGAR LD
• Assessee Lawyers: MANJUNATH M HEGDE
• Keywords: Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI N.S. SAINI, HON'BLE ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, HONBLE JUDICIAL MEMBER ITA NO. 280/PNJ/2015 : (A.Y 2007 - 08) ASST. COMMISSIONER OF INCOME TAX, CIRCLE - 1, MARGAO, GOA. (APPELLANT) VS. M/S. TURBOCAM INDIA PVT. LTD., SHED D - 2/9, MARGAO INDUSTRIAL ESTATE, CURTORIM, SALCETE, GOA PAN : AAACT7110P (RESPONDENT) ASSESSEE BY : PRAMOD Y. VAIDYA, ADV., LORENCE J. MALEKAR, CA & MANJUNATH M. HEGDE, CA REVENUE BY : RAMESH S. MUTAGAR, LD. DR DATE OF HEARING : 07 /0 9 /2015 DATE OF PRONOUNCEMENT : 07 /0 9 /2015 O R D E R PER GEORGE MATHAN : 1. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A), PANAJI - 1 IN ITA NO. 196/MRG/09 - 10 DT. 23.3.2015 FOR THE A.Y 2007 - 08. SHRI RAMESH S. MUTAGAR, LD. DR REPRESENTED ON BEHALF OF THE REVENUE AND SHRI PRAMOD Y. VAIDYA, ADVOCATE ALONGWITH SHRI LORENCE J. MALEKAR, CA AND SHRI MANJUNATH M. HEGDE, CA REPRESENTED ON BEHALF OF THE ASSESSEE. 2 ITA NO. 280/PNJ/2015 (A.Y : 2007 - 08) 2. IT W AS SUBMITTED BY THE LD. DR THAT THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURE OF COMPLEX ENGINEERING PARTS AND DEVELOPMENT OF COMPUTER SOFTWARE. IT WAS THE SUBMISSION THAT IN THE COURSE OF THE ASSESSMENT IT WAS NOTICED THAT THE ASSESSEE HAD REPLACED ONE OF THE MDSI CONTROLS AND ACCESSORIES FOR CNC MACHINE INCURRING A COST OF RS. 35,63,722/ - . IT WAS THE SUBMISSION THAT THE ASSESSEE HAD SUBMITTED THAT THE SAID EXPENDITURE WAS INCURRED FOR INCREASING THE EFFICIENCY OF THE SAID MACHINERY. IT WAS THE SUBMISS ION THAT THE ASSESSEE HAD CLAIMED THE SAID EXPENDITURE AS REVENUE EXPENDITURE AND ON ACCOUNT OF THE FACT THAT THE SAID EXPENDITURE RESULTED IN AN ENDURING BENEFIT IN RESPECT OF THE SAID MACHINERY AND AS THE EXPENDITURE WAS INCURRED ON THE CAPITAL FIELD, TH E AO HAD HELD THE SAID EXPENDITURE TO BE A CAPITAL EXPENDITURE. IT WAS THE SUBMISSION THAT ON APPEAL, THE LD. CIT(A) HAD DIRECTED THAT THE EXPENDITURE WAS LIABLE TO BE TREATED AS A REVENUE EXPENDITURE AND THAT IT QUALIFIED AS CURRENT REPAIRS. IT WAS THE SUBMISSION THAT THE ORDER OF THE LD. CIT(A) WAS LIABLE TO BE REVERSED INSOFAR AS THE EXPENDITURE INCURRED BY THE ASSESSEE WAS ON THE CAPITAL FIELD. 3. IN REPLY, THE LD. AR SUBMITTED THAT IN 2001 THE ASSESSEE COMPANY HAD INSTALLED AN ADVANCED CNC LATHE A ND MILLING MACHINE ALONGWITH OTHER SUPPORT MACHINERY. DURING THE YEAR UNDER CONSIDERATION, DUE TO THE TECHNOLOGICAL ADVANCEMENT THE ASSESSEE HAD REPLACED PART OF THE SAID CNC MACHINE AND INCURRED AN EXPENDITURE OF RS. 35,63,722/ - ON MDSI CONTROLLER AND AC CESSORIES. IT WAS THE SUBMISSION THAT THE MDSI CONTROLLER, A SOFTWARE BASED CONTROLLER IS A PART OF THE CNC MACHINE WHICH INPUTS PROGRAMMES TO THE CNC MACHINE TO DO THE REQUIRED MACHINING OPERATIONS. IT WAS THE SUBMISSION THAT THE MDSI CONTROLLER CANNOT FUNCTION INDEPENDENTLY AND IS NOT STANDALONE EQUIPMENT. IT WAS PART OF THE BIGGER CNC MACHINE. THE LD. AR DREW OUR ATTENTION TO THE VARIOUS PHOTOGRAPHS OF THE SAID MDSI CONTROLLER AT 3 ITA NO. 280/PNJ/2015 (A.Y : 2007 - 08) PAGES 3 & 4 OF THE PAPER BOOK. IT WAS THE SUBMISSION THAT THE SAID EXP ENDITURE WAS, IN FACT, A REPLACEMENT OF THE MDSI CONTROLLER , WHICH WAS LOW MEMORY CONTROLLER , WITH HIGH MEMORY CONTROLLER. IT WAS THE SUBMISSION THAT THE WHOLE MACHINERY WAS NOT CHANGED. IT WAS ONLY THE CONTROLLER THAT WAS CHANGED. IT WAS THE SUBMISSION THAT THE ORDER OF THE LD. CIT(A) WAS LIABLE TO BE UPHELD. HE PLACED RELIANCE ON THE VARIOUS CASE LAWS. 4. WE HAVE CONSIDE RED THE RIVAL SUBMISSIONS. A PERUSAL OF THE PHOTOGRAPHS OF THE MDSI CONTROLLER SHOWS THAT THE SAID EQUIPMENT IS A COMPUTER TERMINAL WHICH CONTROLS THE LATHE. IT IS AN ADMITTED FACT THAT THE SAID CONTROLLER HAS BEEN REPLACED DUE TO TECHNOLOGICAL ADVANCEME NT AND NOT ON ACCOUNT OF DAMAGE OR IRREPARABLE POSITION OF THE MDSI CONTROLLER. FURTHER, IT IS AN ADMITTED FACT THAT THE MDSI CONTROLLER WHICH WAS ALREADY AVAILABLE ON THE SAID MACHINE WAS LOW MEMORY VARIETY WHICH WAS REPLACED BY A HIGH MEMORY VARIETY. T HUS, TOTALLY NEW EQUIPMENT HAS BEEN ADDED UNDER THE GUISE OF REPLACEMENT. ON A SPECIFIC QUERY IT WAS ADMITTED BY THE LD. AR ON BEHALF OF THE ASSESSEE THAT THE ACTUAL COST OF THE TOTAL EQUIPMENT INCLUDING THE LATHE IN 2001 WAS RS. 53 LACS WHEREAS THE REPLA CEMENT OF THE CONTROLLER ALONE IN 2007 - 08 IS AT A COST OF RS. 35 LACS. THE ASSESSEE IN ITS WRITTEN SUBMISSION HAS ALSO CATEGORICALLY ADMITTED THAT THE SAID REPLACEMENT WAS DUE TO TECHNOLOGICAL ADVANCEMENT AND FOR INCREASING THE EFFICIENCY. THUS, IT BECOM ES CLEAR THAT THE SAID LATHE BY THIS REPLACEMENT HAS BECOME MORE EFFICIENT THEREBY RESULTING IN INCREASE IN THE CAPACITY AND GETTING EXTENDED LIFE. THIS IS NOTHING BUT IN THE CAPITAL FIELD. THUS, THE SAID EXPENDITURE CAN BE TERMED ONLY AS A CAPITAL EXPEN DITURE AND NOT AS CURRENT REPAIRS. THIS IS BECAUSE NO REPAIR HAS BEEN DONE BUT REPLACEMENT OF AN ALREADY RUNNING EQUIPMENT WITH ANOTHER HIGHER EFFICIENCY EQUIPMENT. IN THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE ORDER 4 ITA NO. 280/PNJ/2015 (A.Y : 2007 - 08) OF THE LD. CIT(A) IS UNSUSTAINABL E AND CONSEQUENTLY THE SAME STANDS REVERSED AND THAT OF THE AO RESTORED. 5. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 07/09/2015. S D / - (N.S. SAINI) ACCOU NTANT MEMBER S D / - ( GEORGE MATHAN ) JUDICIAL MEMBER PLACE : PANAJI / GOA DATED : 07/09/ 201 5 *SSL* COPY TO : (1) APPELLANT (2) RESPONDENT (3) CIT(A) CONCERNED (4) CIT CONCERNED (5) D.R (6) GUARD FILE TRUE COPY, BY ORDER , 5 ITA NO. 280/PNJ/2015 (A.Y : 2007 - 08) DATE INITIAL ORIGINAL DICTATION PAD & DRAFT ORDER ARE ENCLOSED IN THE FILE 1. DRAFT DICTATED ON 07/09/2015 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 0 7 /09/2015 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 0 8 /09/2015 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 0 8 /09/2015 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 0 8 /09/2015 SR.PS 6. DATE OF PRONOUNCEMENT 07/09/2015 SR.PS 7. FILE SENT TO THE BENCH CLERK 0 8 /09/2015 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER