ACIT CC-11, New Delhi V. Bharat Gears Ltd, New Delhi

ITA 2896/DEL/2008

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9959 (ITAT-DELHI)
• Duration Of Justice: 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-08-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 18-08-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 11-09-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHEILA CHOPRA
• Assessee Lawyers: M K MADAAN
• Keywords: Depreciation; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : A : NEW DELHI BEFORE SHRI K.G. BANSAL AND SHRI GEORGE MATHAN ITA NO.2896/D/08 ASSESSMENT YEAR : 2005-06 A.C.I.T., VS. M/S BHARAT GEARS LTD., CEN. CIRCLE-II, 512, SURYA KIRAN BUILDING, NEW DELHI 19, KG MARG, NEW DELHI PAN/GIR NO.AAACB4860G ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : MS. SHEILA CHOPRA, SR.DR RESPONDENT BY : SHRI M.K. MADAAN, CA O R D E R PER K.G. BANSAL, AM: THIS APPEAL OF THE REVENUE EMANATES FROM THE ORDER OF CIT(A)-I, NEW DELHI, PASSED ON 02.07.2008 IN APPEAL NO.165/07-08, AND IT PERTAINS TO ASSESSMENT YEAR 2005-06. 2. THE ONLY SUBSTANTIVE GROUND TAKEN BY THE REVENUE IS THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED C IT(A) ERRED IN DELETING THE DISALLOWANCE OF RS.36,24,442/-, MADE BY THE ASSESSI NG OFFICER ON ACCOUNT OF REPAIR OF PLANT AND MACHINERY. 2.1 IN THE COURSE OF HEARING BEFORE US, THE LEARNED DR DREW OUR ATTENTION TOWARDS PARAGRAPH 2 OF THE ASSESSMENT ORDER IN WHIC H IT WAS MENTIONED THAT ITA NO. 2896/D/08 2 .THE ASSESSEE PAID A SUM OF RS.39,18,342/- TO VARIO US AGENCIES FOR RE- CONDITIONING OF VARIOUS MACHINES. IT WAS SUBMITTED THAT THE EXPENDITURE WAS IN THE NATURE OF CURRENT REPAIRS OF THE MACHINES. THE ASSESSING OFFICER CONSIDERED THE FACTS OF THE CASE AND .THE EXPLANATI ON OF THE ASSESSEE. IT WAS MENTIONED THAT SIMILAR EXPENDITURE INCURRED IN THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 1994-95 WAS HELD TO BE CAPITAL IN N ATURE. THIS ORDER WAS UPHELD BY THE CIT(A) AND THE HONBLE TRIBUNAL. THU S, THE CONTENTION THAT THE EXPENDITURE WAS REVENUE IN NATURE WAS DISMISSED . THE EXPENDITURE WAS CAPITALIZED AND THE DEPRECIATION WAS DEDUCTED THERE ON, LEADING TO A NET ADDITION OF RS.36,24,442/-. 2.2 THE LEARNED DR ALSO DREW OUR ATTENTION TO PAGE 5 OF THE IMPUGNED ORDER, IN WHICH IT WAS MENTIONED THAT THE TRIBUNAL DISTINGUISHED THE FACTS OF THE CASE FOR ASSESSMENT YEAR 1994-95 IN THE ORDERS FOR ASSESSMENT YEARS 1995-96 TO 1999-00. IT WAS MENTIONED THAT THE MACH INES OF THE ASSESSEE HAD BROKEN DOWN AND THEY WERE LYING IDLE SINCE 31.03.19 92. IN THIS CONTEXT, THE EXPENDITURE OF RENEWAL OF THE MACHINES WAS HELD TO BE CAPITAL IN NATURE. HOWEVER, IN THE LATER YEARS, THE REPAIRS WERE UNDER TAKEN BECAUSE THEIR EFFICIENCY HAD GONE. CONSEQUENTLY, REPAIRS WERE RE QUIRED FOR EFFICIENT USE OF MACHINES AND THE CORRESPONDING EXPENDITURE WAS HELD TO BE REVENUE IN NATURE. THE FACTS OF THIS YEAR WERE IDENTICAL TO T HE FACTS FOR ASSESSMENT ITA NO. 2896/D/08 3 YEARS 1995-96 TO 1999-00, IN WHICH THE MATTER WAS D ECIDED IN FAVOUR OF THE ASSESSEE. FOLLOWING THE LATTER ORDERS IT WAS HELD THAT THE EXPENDITURE WAS REVENUE IN NATURE. CONSEQUENTLY, THE NET ADDITION OF RS.36,24,442/- MADE BY THE ASSESSING OFFICER TO THE TOTAL INCOME OF THE AS SESSEE WAS DELETED. 2.3 THE CASE OF THE LEARNED DR WAS THAT THE EXPENDI TURE WAS CAPITAL IN NATURE AS SUBSTANTIAL EXPENDITURE WAS INCURRED FOR RENEWAL AND RESTORATION OF MACHINES OVER CONSIDERABLE LENGTH OF TIME. IN ORDE R TO SUPPORT THIS CONTENTION, RELIANCE WAS PLACED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF BALLIMAL NAVAL KISHORE AND ANOTHER VS. CIT (1997) 224 ITR 414, DECIDED U/S 10(2)(V) OF THE 1922 ACT, CORRESPO NDING TO SECTION 30(A)(II) OF THE 1961 ACT REGARDING CURRENT REPAIRS. IT WA S HELD THAT THE AFORESAID EXPRESSION MEANS THE EXPENDITURE WHICH IS NOT FOR T HE PURPOSE OF RENEWAL OR RESTORATION BUT WHICH IS ONLY FOR THE PURPOSE OF PR ESERVING OR MAINTAINING THE EXISTING ASSET, AND WHICH DOES NOT BRING INTO E XISTENCE A NEW ASSET. FURTHER RELIANCE WAS PLACED ON THE DECISION OF HON BLE BOMBAY HIGH COURT IN THE CASE OF NEW SHORROCK SPINNING AND MANUFACTUR ING COMPANY LIMITED VS. CIT (1956) 30 ITR 338, IN WHICH IT WAS HELD THA T THE WORD REPAIRS IS DISTINGUISHABLE FROM THE EXPRESSION RENEWAL OR RES TORATION. FOR CLAIMING DEDUCTION U/S 10(2)(V) OF THE 1922 ACT, IT WAS HELD THAT THE ASSESSEE HAS TO SATISFY THE ASSESSING OFFICER THAT THE EXPENDITURE WAS INCURRED FOR REPAIRS ITA NO. 2896/D/08 4 AND NOT FOR RENEWAL OR RESTORATION. RELIANCE WAS A LSO PLACED ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF MODI SPI NNING AND WEAVING MACHINES COMPANY LIMITED VS. CIT (1993) 200 ITR 544 , IN WHICH IT WAS HELD THAT THE EXPENDITURE INCURRED ON CURRENT REPAI RS IS DEDUCTIBLE U/S 30(A)(II) OF THE ACT. SUCH REPAIRS DO NOT INCLUDE WITHIN THEIR AMBIT THE REPAIRS WHICH WERE LONG OVER DUE. THIS PROVISION D OES NOT DEAL WITH THE QUESTION WHETHER THE REPAIRS WERE IN THE CAPITAL FI ELD OR THE REVENUE FIELD. THUS, THE EXPENDITURE INCURRED TOWARDS COST OF MARB LE, CHARGES FOR CUTTING STONES, WAGES AND POLISHING AND FIXING OF STONES FO R RENOVATION OF ADMINISTRATIVE BLOCK WAS NOT DEDUCTIBLE AS EXPENDIT URE ON CURRENT REPAIRS. 2.4 IN REPLY, THE LEARNED COUNSEL FOR THE ASSESSEE REFERRED TO THE ORDER OF CIT(A), AND IN PARTICULAR TO THE FACT THAT HIS DECI SION WAS BASED UPON THE ORDER OF THE TRIBUNAL FOR ASSESSMENT YEARS 1995-96 TO 1999-00. THE FACTS OF THE CASE FOR ASSESSMENT YEAR 1994-95 WERE COMPLETEL Y DISTINGUISHABLE BECAUSE PRIOR TO THAT YEAR THE MACHINES HAD GONE IN TO DISUSE FOR ABOUT TWO YEARS AND, THUS, IT REQUIRED RENOVATION AND RENEWAL . THE EXPENDITURE IN THIS YEAR WAS IN THE NATURE OF CURRENT REPAIR. A COPY O F THE CONSOLIDATED ORDER FOR ASSESSMENT YEARS 1995-96 TO 1999-00 DATED 21.07.200 6 WAS ALSO PLACED ON RECORD TO SUPPORT THE CLAIM THAT THE EXPENDITURE WA S REVENUE IN NATURE. ITA NO. 2896/D/08 5 2.5 WE HAVE CONSIDERED THE FACTS OF THE CASE AND RI VAL SUBMISSIONS. WE FIND THAT THE FACTS FOR THIS YEAR ARE IN PARI-MATER IA WITH THE FACTS OF THIS CASE FOR ASSESSMENT YEARS 1995-96 TO 1999-00. PARAGRAPH 35 OF THE ORDER FOR THOSE YEARS DEALS WITH THE ISSUE, WHICH IS REPRODUC ED BELOW FOR THE READY REFERENCE: WE FIND THAT THE FACTS IN THE PRESENT YEARS ARE DI STINGUISHABLE FROM THE FACTS THAT WERE BEFORE THE TRIBUNAL IN THE ASSESSMENT YEAR 1994-95. IN THAT YEAR THE ASSESSEE REPAIRED T HE MACHINERY WHICH WERE COMPLETELY BROKEN DOWN AND LYING UNUTILI ZED SINCE THE YEAR ENDING ON 31.03.1992. THE SAME WERE RENEW ED IN THE ASSESSMENT YEAR 1994-95 RELEVANT TO THE YEAR ENDING ON 31.03.1994. IN THESE CIRCUMSTANCES, THE TRIBUNAL H ELD THAT THE MACHINE HAD BECOME UNFIT FOR PRODUCTION AND BY SUBS EQUENT RECONDITIONING CARRIED OUT RESULTED IN IMPARTING US EFUL LIFE TO AN OLD AND UNFIT MACHINE. THUS, RESULTING IN A BENEFI T OF ENDURING NATURE. IN THE YEARS UNDER APPEAL, WE FIND THAT NO MATERIAL HAS BEEN BROUGHT ON RECORD BY THE REVENUE TO SHOW THAT EVEN IN A SINGLE CASE THAT THE MACHINES WERE BROKEN DOWN AND LYING IDLE FROM AN EARLIER PERIOD, WHICH WERE PUT TO REPAIRS D URING THE YEARS UNDER CONSIDERATION. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ACCURACY OF THE MACHINERY HAD GO NE DOWN AND, THEREFORE, THE MACHINE REQUIRED REPAIR. THUS THE DECISION OF THE ASSESSMENT YEAR 1994-95 CANNOT BE APPLIED TO THE PRESENT YEARS UNDER APPEAL. IN THE ABOVE FACTS AND CIRCUMS TANCES OF THE CASE WE ARE OF THE CONSIDERED OPINION THAT CURRENT REPAIRS DENOTES REPAIRS WHICH ARE ATTENDED TO WHEN THE NEED FOR THEM ARISES FROM THE BUSINESSMANS VIEW POINT AND WHICH ARE NOT ALLOWED TO FALL INTO ARREARS OR TO BE ACCUMULATED. THE AMOUNT OR TIME INVOLVED IN THE REPAIRS IS NOT A RELEVANT F ACTOR WHILE DECIDING WHETHER THE REPAIRS QUALIFY AS CURRENT REP AIRS. THE EXPRESSION REPAIRS PRESUPPOSES CERTAIN INJURY OR PARTIAL DESTRUCTION. REPAIR IS RESTORATION FOR RENEWAL OR REPLACEMENT OF SUBSIDIARY PARTS WHOLLY OR PARTLY. ORDINARILY, THE INSERTION IN A MACHINE OF NEW PARTS FOR OLD AND WORN OUT PARTS IS IN THE NATURE OF CURRENT REPAIRS OR REVENUE EXPENDITURE, EVEN IF THE OLD PARTS ITA NO. 2896/D/08 6 ARE REQUIRED TO BE REPLACED AFTER A LONG TIME. THE MERE FACT THAT .THE REPAIRS RESULT IN AN IMPROVEMENT IS NOT ENOUGH TO TAKE THE REPAIRS OUT OF THE CATEGORY OF CURRENT REPAIRS. TH E OLD PRINCIPLE INVOKING THE TEST OF IMPROVEMENT HAS TO BE APPLIED WITH DISCERNMENT IN THE PRESENT AGE WHEN THE MARCH OF TE CHNOLOGY AND THE UNENDING FABRICATION OF NEW MATERIALS AND P RODUCTS MAKE EVEN CURRENT REPAIRS, PRIMARILY, SO CALLED YIE LD IMPROVEMENT IN VARYING DEGREES. THEREFORE, WE ARE OF THE VIEW THAT .THE EXPENDITURE INCURRED BY THE ASSESSEE ON R EPAIRS OF MACHINERY IN THE PRESENT YEARS UNDER APPEAL IS A RE VENUE EXPENDITURE ALLOWABLE FOR DEDUCTION TO THE ASSESSEE . WE, THEREFORE, IN VIEW OF THE FACTS OF THE CASE IN EACH OF THE ASSESSMENT YEAR UNDER CONSIDERATION, CONFIRM THE OR DERS OF THE CIT(A) AND DISMISS THE GROUND OF APPEAL OF THE REVE NUE FOR EACH OF THE FIVE ASSESSMENT YEARS UNDER CONSIDERATI ON. AS THE FACTS OF THIS YEAR ARE IN PARI-MATERIA WITH THE FACTS OF THOSE YEARS THE JUDICIAL DISCIPLINE DEMANDS IS THAT THOSE ORDERS HAVE TO BE FOLLOWED. FURTHER, IT IS NOT A CASE WHERE REPAIRS HAD BECOME LONG OVER DUE, RATHER IT IS A CASE WHERE REPAIRS WERE CARRIED OUT TO MAKE UNFIT MACHINES SUITABLE FOR THE BUSINESS OPERATION. THEREFORE, IT IS HELD THAT THE EXPENDITURE WAS REVENUE IN NATURE. 3. IN RESULT, THE APPEAL IS DISMISSED. 4. ORDER PRONOUNCED IN THE OPEN COURT ON 18-08-2009 . SD/- SD/- ( GEORGE MATHAN ) ( K.G. BANSAL ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 18/8/2009 NS : ITA NO. 2896/D/08 7 COPY OF THE ORDER IN ITA NO.2896/D/08 FORWARDED TO : - 1. M/S BHARAT GEARS LTD., 512, SURYA KIRAN BUILDING , 19, KG MARG, NEW DELHI. 2. ASSTT. CIT, CEN. CIRCLE-II, NEW DELHI. 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY DY. REGISTRAR, ITA NO. 2896/D/08 8