DCIT, New Delhi V. M/s Bharat Gears Ltd., New Delhi

ITA 3316/DEL/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1321 (ITAT-DELHI)
• Duration Of Justice: 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 11-11-2009
• Assessment Year: 2006-2007
• Appeal Filed On: 23-07-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRATIMA KAUSHIK
• Assessee Lawyers: M K MADAAN
• Keywords: Depreciation; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH :A : NEW DELHI BEFORE SHRI .G.E. VEERABHADRAPPA, VICE PRESIDENT AND SHRI I.P. BANSAL, JUDICIAL MEMBER ITA NO. 3316/DEL/2009 ASSESSMENT YEAR : 2006-07 DCIT, CENTRAL CIRCLE-11, NEW DELHI. VS. M/S BHARAT GEARS LTD., 512, SURYA KIRAN BUILDING, 19, KG MARG, NEW DELHI. PAN : AAACB4860G (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI M.K. MADAAN, CA REVENUE BY : MS PRATIMA KAUSHIK, SR. DR ORDER PER I.P. BANSAL, JUDICIAL MEMBER: THIS IS AN APPEAL FILED BY THE DEPARTMENT.. IT IS DIRECTED AGAINST THE ORDER OF THE CIT (A) DATED 19 TH MAY, 2009 FOR ASSESSMENT YEAR 2006-07. GROUNDS OF APPEAL READ AS UNDER:- 1. THE ORDER OF THE LD. CIT (APPEALS) IS NOT CORRE CT IN LAW AND FACTS. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD. CIT (A) IS CORRECT IN DELETING THE DISALLOW ANCE OF RS.30,75,395/- MADE BY THE A.O. ON ACCOUNT OF REPAI R OF PLANT AND MACHINERY. 3. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AME ND ANY/ALL OF THE GROUNDS OF APPEAL BEFORE OR DURING THE COURS E OF THE HEARING OF THE APPEAL. ITA NO.3316/DEL/2009 2 2. AT THE OUTSET, IT WAS SUBMITTED THAT THE DISALLO WANCE HAS BEEN MADE BY THE ASSESSING OFFICER ON THE BASIS OF SIMILAR DISAL LOWANCE MADE IN RESPECT OF ASSESSMENT YEAR 1994-95 WHICH DISALLOWANCE WAS ALSO UPHELD BY ITAT AND THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE HONBLE HIGH COURT WHICH IS PENDING FOR DECISION. THEREFORE, THE ASSESSING OFF ICER HAS MADE THE DISALLOWANCE. BEFORE THE CIT (A) IT WAS CONTENDED THAT THOUGH THE DISALLOWANCE WAS MADE AND AFFIRMED BY ITAT IN ASSESSMENT YEAR 19 94-95, BUT FOR ASSESSMENT YEARS 1995-96 TO 1999-2000, AFTER GOING THROUGH THE FACTS ITAT DISTINGUISHED THE FACTS FROM ASSESSMENT YEAR 1994-9 5 AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. FOR ASSESSMENT YEAR 2002-0 3 ALSO THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE AND, THUS, THE CI T (A) HAS DELETED THE ADDITION FOLLOWING HIS ORDER FOR ASSESSMENT YEAR 2005-06 IN WHICH THE RELIEF WAS GIVEN TO THE ASSESSEE ON THIS ISSUE FOLLOWING THE DECISIONS OF THE TRIBUNAL EXCEPT FOR ASSESSMENT YEAR 1994-95. THE DEPARTMENT IS AGGRIEV ED, HENCE, IN APPEAL. 3. IT WAS BROUGHT TO OUR NOTICE THAT FOR IMMEDIATE PRECEDING YEAR I.E., FOR ASSESSMENT YEAR 2005-06, THE SIMILAR ISSUE WAS DECI DED BY THE TRIBUNAL BY FOLLOWING THE ORDER OF THE TRIBUNAL FOR ASSESSMENT YEAR 1995-96 TO 1999-2000 IN WHICH THE DECISION OF THE TRIBUNAL FOR ASSESSMENT Y EAR 1994-95 WAS DISTINGUISHED. A COPY OF THE ORDER DATED 18 TH AUGUST, 2009 WAS PLACED ON OUR RECORD WHICH IS PASSED IN ITA NO.2896/DEL/2008. TH US, IT WAS CONTENDED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY T HE AFOREMENTIONED ORDER OF THE TRIBUNAL AND, THEREFORE, DEPARTMENTAL APPEAL DESERV ES TO BE DISMISSED. HOWEVER, LD. DR RELIED ON THE ORDER OF ASSESSING OF FICER. 4. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIO NS IN THE LIGHT OF THE MATERIAL PLACED BEFORE US. IN OUR OPINION, THE ISS UE RAISED BY THE REVENUE IN THE PRESENT YEAR IS SAME AS HAS ARISEN FOR ASSESSMENT Y EAR 2005-06. FOR THE SAKE OF CLARITY OF FACTS AND DECISION, WE REPRODUCE THE SAID DECISION OF THE TRIBUNAL DATED 18 TH AUGUST, 2009 IN ITS ENTIRETY:- 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. ITA NO.3316/DEL/2009 3 2. THE ONLY SUBSTANTIVE GROUND TAKEN BY THE REVENUE IS THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS.36,24,442/ -, MADE BY THE ASSESSING 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 ORD ER IN WHICH IT WAS MENTIONED THAT .THE ASSESSEE PAID A SUM OF RS.3 9,18,342/- TO VARIOUS AGENCIES FOR RE-CONDITIONING OF VARIOUS MAC HINES. 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 EXPLANATION OF THE ASSESSEE. IT WAS MENTIONED THAT SIMILAR EXPENDITURE INCURRED IN THE PREVIOUS YEAR R ELEVANT TO ASSESSMENT YEAR 1994-95 WAS HELD TO BE CAPITAL IN N ATURE. THIS ORDER WAS UPHELD BY THE CIT(A) AND THE HONBLE TRIB UNAL. THUS, THE CONTENTION THAT THE EXPENDITURE WAS REVENUE IN NATURE WAS DISMISSED. THE EXPENDITURE WAS CAPITALIZED AND THE DEPRECIATION WAS DEDUCTED THEREON, 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 MACHINES OF THE ASSESSEE HAD BRO KEN DOWN AND THEY WERE LYING IDLE SINCE 31.03.1992. IN THIS CONTEXT, THE EXPENDITURE OF RENEWAL OF THE MACHINES WAS HELD TO BE CAPITAL IN NATURE. HOWEVER, IN THE LATER YEARS, THE REPAIRS W ERE UNDERTAKEN BECAUSE THEIR EFFICIENCY HAD GONE. CONSEQUENTLY, R EPAIRS WERE REQUIRED FOR EFFICIENT USE OF MACHINES AND THE CORR ESPONDING EXPENDITURE WAS HELD TO BE REVENUE IN NATURE. THE FACTS OF THIS YEAR WERE IDENTICAL TO THE FACTS FOR ASSESSMENT YE ARS 1995-96 TO 1999-00, IN WHICH THE MATTER WAS DECIDED IN FAVOUR OF THE ASSESSEE. FOLLOWING THE LATTER ORDERS IT WAS HELD THAT THE EXPENDITURE WAS REVENUE IN NATURE. CONSEQUENTLY, T HE NET ADDITION OF RS.36,24,442/- MADE BY THE ASSESSING OFFICER TO THE TOTAL INCOME OF THE ASSESSEE WAS DELETED. 2.3 THE CASE OF THE LEARNED DR WAS THAT THE EXPENDI TURE WAS CAPITAL IN NATURE AS SUBSTANTIAL EXPENDITURE WAS IN CURRED FOR RENEWAL AND RESTORATION OF MACHINES OVER CONSIDERAB LE LENGTH OF TIME. IN ORDER TO SUPPORT THIS CONTENTION, RELIANC E WAS PLACED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F BALLIMAL NAVAL KISHORE AND ANOTHER VS. CIT (1997) 224 ITR 41 4, DECIDED U/S 10(2)(V) OF THE 1922 ACT, CORRESPONDING TO SECT ION 30(A)(II) OF THE 1961 ACT REGARDING CURRENT REPAIRS. IT WAS H ELD THAT THE AFORESAID EXPRESSION MEANS THE EXPENDITURE WHICH IS NOT FOR THE ITA NO.3316/DEL/2009 4 PURPOSE OF RENEWAL OR RESTORATION BUT WHICH IS ONL Y FOR THE PURPOSE OF PRESERVING OR MAINTAINING THE EXISTING ASSET, AND WHICH DOES NOT BRING INTO EXISTENCE A NEW ASSET. FURTHER RELI ANCE WAS PLACED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF NEW SHORROCK SPINNING AND MANUFACTURING COMPANY LIMITED VS. CIT (1956) 30 ITR 338, IN WHICH IT WAS HELD THAT THE WO RD 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 AND NOT FOR RENEWAL OR RES TORATION. RELIANCE WAS ALSO PLACED ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF MODI SPINNING AND WEAVING MACH INES COMPANY LIMITED VS. CIT (1993) 200 ITR 544, IN WHIC H IT WAS HELD THAT THE EXPENDITURE INCURRED ON CURRENT REPAIRS 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 PROVISI ON DOES NOT DEAL WITH THE QUESTION WHETHER THE REPAIRS WERE IN THE C APITAL FIELD OR THE REVENUE FIELD. THUS, THE EXPENDITURE INCURRED TOWA RDS COST OF MARBLE, CHARGES FOR CUTTING STONES, WAGES AND POLIS HING AND FIXING OF STONES FOR RENOVATION OF ADMINISTRATIVE BLOCK WA S NOT DEDUCTIBLE AS EXPENDITURE 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 DECISION WAS BASED UPON THE ORDER OF THE TRIBUNAL FOR ASSESSMENT YEARS 1995-96 TO 1999-00. THE FACTS OF THE CASE FOR ASSESSMENT Y EAR 1994-95 WERE COMPLETELY DISTINGUISHABLE BECAUSE PRIOR TO TH AT YEAR THE MACHINES HAD GONE INTO DISUSE FOR ABOUT TWO YEARS A ND, THUS, IT REQUIRED RENOVATION AND RENEWAL. THE EXPENDITURE I N THIS YEAR WAS IN THE NATURE OF CURRENT REPAIR. A COPY OF THE CON SOLIDATED 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 EXPE NDITURE WAS REVENUE IN NATURE. 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-MATERIA WITH THE FACTS OF THIS CASE FOR ASSESSMENT YEARS 19 95-96 TO 1999- 00. PARAGRAPH 35 OF THE ORDER FOR THOSE YEARS DEAL S WITH THE ISSUE, WHICH IS REPRODUCED BELOW FOR THE READY REFERENCE: WE FIND THAT THE FACTS IN THE PRESENT YEARS ARE DISTINGUISHABLE FROM THE FACTS THAT WERE BEFORE THE TRIBUNAL IN THE ASSESSMENT YEAR 1994-95. IN THAT YEAR THE A SSESSEE REPAIRED THE MACHINERY WHICH WERE COMPLETELY BROKEN DOWN AND LYING UNUTILIZED SINCE THE YEAR ENDING ON 31.03 .1992. THE SAME WERE RENEWED IN THE ASSESSMENT YEAR 1994-9 5 RELEVANT TO THE YEAR ENDING ON 31.03.1994. IN THES E ITA NO.3316/DEL/2009 5 CIRCUMSTANCES, THE TRIBUNAL HELD THAT THE MACHINE H AD BECOME UNFIT FOR PRODUCTION AND BY SUBSEQUENT RECONDITIONING CARRIED OUT RESULTED IN IMPARTING US EFUL LIFE TO AN OLD AND UNFIT MACHINE. THUS, RESULTING IN A BEN EFIT OF ENDURING NATURE. IN THE YEARS UNDER APPEAL, WE FIN D THAT NO MATERIAL HAS BEEN BROUGHT ON RECORD BY THE REVENUE TO SHOW THAT EVEN IN A SINGLE CASE THAT THE MACHINES W ERE BROKEN DOWN AND LYING IDLE FROM AN EARLIER PERIOD, WHICH WERE PUT TO REPAIRS DURING THE YEARS UNDER CONSIDER ATION. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ACCURACY OF THE MACHINERY HAD GONE DOWN AND, THEREF ORE, THE MACHINE REQUIRED REPAIR. THUS THE DECISION OF THE ASSESSMENT YEAR 1994-95 CANNOT BE APPLIED TO THE PR ESENT YEARS UNDER APPEAL. IN THE ABOVE FACTS AND CIRCUMS TANCES OF THE CASE WE ARE OF THE CONSIDERED OPINION THAT C URRENT REPAIRS DENOTES REPAIRS WHICH ARE ATTENDED TO WHEN THE NEED FOR THEM ARISES FROM THE BUSINESSMANS VIEW POINT A ND WHICH ARE NOT ALLOWED TO FALL INTO ARREARS OR TO BE ACCUM ULATED. THE AMOUNT OR TIME INVOLVED IN THE REPAIRS IS NOT A REL EVANT FACTOR WHILE DECIDING WHETHER THE REPAIRS QUALIFY AS CURRE NT REPAIRS. 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 PART S IS IN THE NATURE OF CURRENT REPAIRS OR REVENUE EXPENDITURE, E VEN IF THE OLD PARTS ARE REQUIRED TO BE REPLACED AFTER A LONG TIME. THE MERE FACT THAT .THE REPAIRS RESULT IN AN IMPROVEMEN T IS NOT ENOUGH TO TAKE THE REPAIRS OUT OF THE CATEGORY OF C URRENT REPAIRS. THE OLD PRINCIPLE INVOKING THE TEST OF IM PROVEMENT HAS TO BE APPLIED WITH DISCERNMENT IN THE PRESENT A GE WHEN THE MARCH OF TECHNOLOGY AND THE UNENDING FABRICATIO N OF NEW MATERIALS AND PRODUCTS MAKE EVEN CURRENT REPAIRS, P RIMARILY, SO CALLED YIELD IMPROVEMENT IN VARYING DEGREES. TH EREFORE, WE ARE OF THE VIEW THAT .THE EXPENDITURE INCURRED B Y THE ASSESSEE ON REPAIRS OF MACHINERY IN THE PRESENT YEA RS UNDER APPEAL IS A REVENUE EXPENDITURE ALLOWABLE FOR DEDUC TION TO THE ASSESSEE. WE, THEREFORE, IN VIEW OF THE FACTS OF THE CASE IN EACH OF THE ASSESSMENT YEAR UNDER CONSIDERATION, CONFIRM THE ORDERS OF THE CIT(A) AND DISMISS THE GROUND OF APPEAL OF THE REVENUE FOR EACH OF THE FIVE ASSESSMENT YEARS U NDER CONSIDERATION. AS THE FACTS OF THIS YEAR ARE IN PARI-MATERIA WITH THE FACTS OF THOSE YEARS, THE JUDICIAL DISCIPLINE DEMANDS IS THA T THOSE ORDERS HAVE TO BE FOLLOWED. FURTHER, IT IS NOT A CASE WHE RE REPAIRS HAD BECOME LONG OVER DUE, RATHER IT IS A CASE WHERE REP AIRS WERE CARRIED OUT TO MAKE UNFIT MACHINES SUITABLE FOR THE BUSINESS ITA NO.3316/DEL/2009 6 OPERATION. THEREFORE, IT IS HELD THAT THE EXPENDIT URE WAS REVENUE IN NATURE. 3. IN RESULT, THE APPEAL IS DISMISSED. 5. IN THIS VIEW OF THE SITUATION, RESPECTFULLY FOLL OWING THE AFOREMENTIONED ORDER OF THE CO-ORDINATE BENCH, WE FIND NO INFIRMIT Y IN THE ORDER OF THE CIT (A) AS HE HAS ALLOWED THE RELIEF FOLLOWING THE ORDER OF TH E TRIBUNAL FOR ASSESSMENT YEARS 1995-96 TO 1999-2000. WE DECLINE TO INTERFERE. 6. IN THE RESULT, THE DEPARTMENTAL APPEAL IS DISMIS SED. . 7. THE ORDER PRONOUNCED IN THE OPEN COURT ON 13.11. 2009. [G.E. VEERABHADRAPPA] [I.P. BANSAL] VICE PRESIDENT JUDICIAL MEMBER DATED, 13.11.2009. DK COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES