ACIT Circle-9 (1), New Delhi V. Sunbeam Auto Ltd, New Delhi

ITA 3072/DEL/2008

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 8341 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 19-09-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 07-10-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KISHORE B
• Assessee Lawyers: R P MAURYA
• Keywords: Capital asset; Revenue expenditure; Capital expenditure
• Section: 43B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH `G : NEW DELHI) BEFORE HONBLE SR. VICE PRESIDENT SHRI R.P. GARG A ND HONBLE JUDICIAL MEMBER, SHRI RAJPAL YADAV ITA NO.2737/DEL./2008 (ASSESSMENT YEAR : 2005-06) M/S SUNBEAM AUTO LTD., VS. ADDL.CIT, CIRCLE 9, 2A/3, KUNDAN MANSION, 1 ST FLOOR NEW DELHI. ASAF ALI ROAD, NEW DELHI. (PAN/GIR NO.AABCS2948F) AND ITA NO.3072/DEL./2008 (ASSESSMENT YEAR : 2005-06) ACIT, CIRCLE 9(1), VS. M/S SUNBEAM AUTO LTD., NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI R.P. MAURYA, ADV., REVENUE BY : SHRI KISHORE B., SR. DR ORDER PER R.P. GARG, SR.VP ASSESEES APPEAL THESE CROSS APPEAL ARE AGAINST THE ORDER O THE CIT( A) FOR A.Y. 2005-06. FOR THE SAKE OF CONVENIENCE THEY ARE DISPOSED OF BY THIS CO MMON ORDER. 2. THE MAIN DISPUTE IS WITH REGARD TO THE DISALLOWA NCE OF RS.11,47,702 MADE U/S 43B OF THE I.T. ACT BY THE ASSESSING OFFICER ON A CCOUNT OF EMPLOYEES CONTRIBUTION TOWARDS PF OF FEBRUARY, 2005 MADE ON 17.3.2005, WHI CH IS WITHIN THE GRACE PERIOD OF 5 DAYS ALLOWED UNDER THE RELEVANT STATUTE. BESIDES B EING THE PAYMENT WITHIN THE GRACE ITA NO.2737/DEL./2008 & ITA NO.3072/DEL./2008 (A.Y. : 2005-06) 2 PERIOD OF 5 DAYS, THE DISALLOWANCE SHOULD NOT HAVE BEEN MADE AS IT WAS PAID IN ACCORDANCE WITH THE PROVISIONS OF THAT ACT. THE MA TTER IS COVERED BY THE DELHI HIGH COURT IN THE CASE OF PM ELECTRONICS LTD., 313 ITR, 161 WHEREIN IT IS HELD THAT THE ASSESSEE WAS ENTITLED TO CLAIM BENEFIT U/S 43B FOR THE PERIOD PARTICULARLY IN VIEW OF THE FACT THAT IT HAD CONTRIBUTED TO PF BEFORE FILING OF THE RETURN. IN THAT CASE, THE PAYMENTS WERE MADE BY THE ASSESSEE AFTER DUE DATE U/S 36(1)( VA) OF THE ACT, BUT WITHIN THE GRACE PERIOD ALLOWED UNDER THE STATUTE. HENCE, THE HONB LE DELHI HIGH COURT IN THE CASE OF DHARMENDRA SHARMA, 297 ITR 320 AND OF HONBLE SUPRE ME COURT IN THE CASE OF VINAY CEMENT LTD., 213 CTR 268 (SC), REFERRING THE CASE O F CIT VS. NEXUS COMPUTER P. LTD. 313 ITR 144 (MAD.), ALLOWED THE CLAIM O THE ASSESSE E. 3. RESPECTFULLY FOLLOWING THE AFORESAID DECISIONS O F THE JURISDICTIONAL HIGH COURT, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSEE AS THE PAYMENTS HAVE BEEN MADE NOT ONLY WITHIN THE GRACE PERIOD BUT ALSO WITHIN THE FINANCIAL YEAR AND BEFORE THE DUE DATE OF THE FILING OF THE RETURN. THEREFOR E, THIS GROUND OF THE ASSESSEE IS ALLOWED. REVENUES APPEAL 3. IN THE REVENUES APPEAL, THE ONLY DISPUTE IS WIT H REGARD TO THE DELETION OF ADDITION OF RS.7,19,42,192 MADE BY THE ASSESSING OFFICER ON ACCOUNT OF COST OF TOOLS AND DIES BY TREATING THE SAME AS CAPITAL EXPENDITURE. ON THIS ISSUE ALSO, WE FIND THAT THE MATTER IS COVERED BY THE DECISION OF THE TRIBUNAL IN THE EARL IER YEAR IN ITA NO.1122/DEL./2005 FOR A.Y. 2001-02, VIDE ORDER DATED 9.12.2005, WHEREIN T HE TRIBUNAL ALLOWED THE CLAIM OF THE ASSESSEE BY OBSERVING IN PARAS.35 & 36 OF THE ORDER AS UNDER: 35. WE ALSO NOTE THAT THE CIT HAS GIVE A FINDING T HAT HE LIFE OF THE DIE WAS APPROXIMATELY AN YEAR OR SO. WE FAIL TO APPRECIATE AS TO HOW THE CIT WAS OF THE VIEW THAT THE ASSESSEE WAS DERIVING ANY ENDURING BE NEFIT FROM DIES SO AS TO BE TREATED AS CAPITAL EXPENDITURE. 36. WE FIND THAT THE ASSESSEE IS A MANUFACTURER OF CAR PARTS, IN THIS MANUFACTURING PROCESS DIES ARE FITTED IN MACHINES B Y WHICH THE CAR PARTS ARE MANUFACTURED. IN OUR CONSIDERED OPINION BY REPLACE MENT OF WORN OUT DIES NO NEW CAPITAL ASSET IS BROUGHT INTO EXISTENCE SO THAT THE EXPENSES CAN BE HELD TO BE A CAPITAL EXPENDITURE. IT ALSO DOES NOT ENHANCE THE LIFE OF THE EXISTING MACHINES OF WHICH IT IS A PART ONLY, AND IT HAS NOT INCREASED T HE PRODUCTION CAPACITY OF THE EXISTING MACHINES OF THE ASSESSEE COMPANY, SO AS TO BE TERMED AS A CAPITAL EXPENDITURE;. WE FIND FROM THE DECISION OF THE HON BE KARNATAKA HIGH COURT IN MYSORE SPUN CONCRETE PIPE PVT. LTD. (SUPRA) THAT RE PLACEMENT OF MOULDS WAS NOT IN THE NATURE OF REPLACEMENT OF A CAPITAL MACHINERY BUT IN THE NATURE OF REPLACING A ITA NO.2737/DEL./2008 & ITA NO.3072/DEL./2008 (A.Y. : 2005-06) 3 PART OF THE MACHINERY WHICH WAS IN THE NATURE OF MA INTENANCE OF MACHINERY INSTALLED IN THE FACTORY. IT WAS, THEREFORE, TO BE TREATED AS A REVENUE EXPENDITURE. SIMILARLY, IN THE CASE AT HAND, THE REPLACEMENT OF DIES WAS IN THE NATURE OF MAINTENANCE OF MACHINERY BECAUSE THE ASSESSEE WAS M ANUFACTURING PARTS FOR CARS WHICH REQUIRED HIGH DEGREE OF PRECISION AND ACCURAC Y. 4. IN THE APPEAL OF THE A.YS. 2002-03, 03-04, 04-05 & 2000-01, AGAIN THE MATTER CAME UP BEFORE THE TRIBUNAL AND THE TRIBUNAL IN ITA NOS.3220, 2784, 2785 & 2783/DEL./2007 VIDE ORDER DATED 16.7.2008 UPHELD TH E DELETION OF DISALLOWANCE MADE BY THE CIT(A) BY OBSERVING IN APRA.9, 10 & 11 AS UNDER : 9. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE REC ORD AND THE CASE LAW RELIED ON BY THE DEPARTMENT. SINCE THE DEPARTMENT HAS NOT CHALLENGED THE ORDER OF THE LD.COMMISSIONER OF INCOME-TAX (APPEALS) ON FACTS, W E HAVE TO ONLY DECIDE WHETHER THE DECISION OF HONBLE APEX COURT IN THE CASE OF CIT VS. SARAVANA SPINNING MILLS P. LTD. (SUPRA), IS APPLICABLE TO TH E FACTS OF THIS CASE. WE FIND THAT IN THE CASE OF THE CIT VS. SARAVANA SPINNING MILLS P. LTD. (SUPRA), THE ASSESSEE TEXTILE MILL WAS ENGAGED IN THE MANUFACTURING OF YA RN, SPENT CERTAIN AMOUNTS FOR REPLACEMENT OF RING FRAMES WHICH HAD WORN OUT. IT CLAIMED DEDUCTION OF THE AMOUNTS SPENT FOR REPLACEMENT U/S 31(I) OF I.T. ACT AS CURRENT REPAIRS. ACCORDING TO THE ASSESSEE THE WHOLE TEXTILE MILL WAS A PLANT AND THE RING FRAMES WERE ONE OF THE 25 MACHINES WHICH CONSTITUTED ONE SINGLE PROCES S AND, THEREFORE, REPLACEMENT OF THE FRAMES HAD TO BE TREATED ONLY AS A REPLACEME NT OF OLD PARTS WHICH HAD BECOME DERELICT AND NOT REPLACEMENT OF A MACHINE. THE ASSESSING OFFICER HELD THAT BY REPLACEMENT THE ASSESSEE HAD OBTAINED AN EN DURING BENEFIT AND THE EXPENDITURE INCURRED CONSTITUTED CAPITAL EXPENDITUR E AND NOT CURRENT REPAIRS. ON APPEAL, THE COMMISSIONER OF INCOME-TAX (APPEALS) HE LD THAT THE REPLACEMENT OF THE RING FRAMES CONSTITUTED AN INTEGRAL PART OF TH E PRODUCTION SYSTEM IN A TEXTILE MILL AND THEREFORE REPLACEMENT OF AN ITEM COULD NOT BE REGARDED AS INSTALLATION OF SEPARATE MACHINE AND ALLOWED THE EXPENDITURE AS REV ENUE EXPENDITURE. THE APPELLATE TRIBUNAL AFFIRMED THE DECISION OF THE COM MISSIONER OF INCOME-TAX (APPEALS). ON REFERENCE, HONBLE HIGH COURT AFFIRM ED THE DECISION OF THE APPELLATE TRIBUNAL. PLACING RELIANCE ON THE REPORT OF THE SOUTH INDIA TEXTILE RESEARCH ASSOCIATION, THE HONBLE HIGH COURT HELD T HAT THE PROCESS OF CONVERTING FIBER TO YARN WAS ONE CONTINUOUS INTERLINKED PROCES S, THAT THE RING FRAMES COULD NOT WORK INDEPENDENTLY AND COULD WORK ONLY AS A PAR T OF THE SPINNING UNIT, AND THAT THE EXPENDITURE WAS DEDUCTIBLE U/S 31(I). ON APPEAL, THE HONBLE SUPREME COURT HELD, REVERSING THE DECISION OF THE HONBLE HIGH COURT THAT MANUFACTURING PROCESS IN THE TEXTILE MILL WAS NOT O NE CONTINUOUS INTEGRATE PROCESS AND EACH MACHINE INCLUDING RING FRAMES IS A INDEPEN DENT AND SEPARATE MACHINE, THEREFORE, THE EXPENDITURE INCURRED ON REPLACEMENT OF RING FRAMES CANNOT COME WITHIN THE MEANING OF CURRENT REPAIRS U/S 31(I). 10. IT IS CLEAR FROM THE ABOVE THAT THE ISSUE BEFOR E THE HONBLE APEX COURT WAS WHETHER MANUFACTURING PROCESS IN THE TEXTILE M ILL WAS ONE CONTINUOUS ITA NO.2737/DEL./2008 & ITA NO.3072/DEL./2008 (A.Y. : 2005-06) 4 INTEGRATED PROCESS AND WHETHER THE EXPENSES INCURRE D ON REPLACEMENT OF RING FRAMES WILL FALL IN CONNOTATION OF CURRENT REPAIRS FOR THE PURPOSE OF SECTION 31(1) OF THE I.T. ACT. WHILE IN THE CASE BEFORE US THE I SSUE IS WHETHER THE REPLACEMENT OF WORN OUT DIES, WHOSE LIFE IN SOME CASES IS NOT M ORE THAT TWO MONTHS, AMOUNTS TO COMING INTO EXISTENCE A NEWS CAPITAL ASSET AND W HETHER THE REPLACEMENT ENHANCES THE LIFE OF EXISTING A NEWS CAPITAL ASSERT AND WHETHER THE REPLACEMENT ENHANCES THE LIFE OF EXISTING MACHINE OF WHICH THES E DIES ARE PART ONLY. THE FACTS OF BOTH THE CASES BEING DIFFERENT, IN OUR CONSIDERE D OPINION, THE RATION OF THE DECISION OF HONBLE APEX COURT (SUPRA) IS NOT APPLI CABLE TO THE FACTS OF THIS CASE. WE FURTHER FIND THAT EH TRIBUNAL IN ASSESEES OWN C ASE FOR ASSESSMENT YEAR 2000- 01 HAS HELD AS UNDER: WE FIND THAT THE ASSESSEE IS A MANUFACTURER OF CAR PARTS. IN THIS MANUFACTURING PROCESS DIES ARE FITTED IN MACHINES B Y WHICH THE CAR PARTS ARE MANUFACTURED. IN OUR CONSIDERED OPINION BY REP LACEMENT OF WORN OUT DIES NO NEW CAPITAL ASSET IS BROUGHT INTO EXISTENCE SO THAT THE EXPENSES CAN BE HELD TO BE A CAPITAL EXPENDITURE. IT ALSO DOES NOT ENHANCE THE LIFE OF THE EXISTING MACHINES OF WHICH IT IS A PART ONLY AND IT HAS NOT INCREASED THE PRODUCTION CAPACITY OF THE EXISTING MACHINES OF THE ASSESSEE COMPANY SO AS TO BE TERMED AS A CAPITAL EXPENDITURE. WE FIND FROM THE DECISION OF THE HONBLE KERALA HIGH COURT IN MYSORE SPUN CONCRETE P IPE PVT. LTD.(SUPRA) THAT REPLACEMENT OF MOULDS WAS NOT IN T HE NATURE OF REPLACEMENT OF A CAPITAL MACHINERY BUT IN THE NATUR E OF REPLACING A PART OF THE MACHINERY WHICH WAS IN THE NATURE OF MAINTENANC E OF MACHINERY INSTALLED IN THE FACTORY. IT WAS, THEREFORE, TO BE TREATED AS A REVENUE EXPENDITURE. SIMILARLY, IN THE CASE AT HAND, THE R EPLACEMENT OF DIES WAS IN THE NATURE OF MAINTENANCE OF MACHINERY BECAUSE THE ASSESSEE WAS MANUFACTURING PARTS FOR CARS WHICH REQUIRED HIGH DE GREE OF PRECISION AND ACCURACY. 11. RESPECTFULLY FOLLOWING THE SAME ORDER OF THE TR IBUNAL FOR ASSESSMENT YEAR 2000-01, WE ARE NOT INCLINED TO INTERFERE WITH THE ORDER PASSED BY THE LD.COMMISSIONER OF INCOME-TAX (APPEALS) AND THE SAM E IS THEREBY CONFIRMED. 5. IN THE RESULT, BOTH THE APPEALS ARE DISMISSED. 6. ORDER PRONOUNCED IN OPEN COURT ON 17.06.2009. (RAJPAL YADAV) (R.P. GARG) JUDICIAL MEMBER SR. VICE PRESIDENT DATED: JUNE 17, 2009. *SKB* ITA NO.2737/DEL./2008 & ITA NO.3072/DEL./2008 (A.Y. : 2005-06) 5 COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A)-XII, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DELHI. AR/ITAT