The ACIT, Circle-3, JAMNAGAR V. M/s. K.B. Shipping & Co., JAMNAGAR

ITA 373/RJT/2011

• Counselvise Citation: [2012] 120 COUNSELVISE.COM (IT) 0158 (ITAT-RAJKOT)
• Duration Of Justice: 11 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 18-09-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 05-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AVINASH KUMAR
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 148

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBULAL; RAJKOT BENCH, RAJKOT. . .. . . .. . , , , , . .. . . .. . , , , , $ $ $ $ BEFORE SHRI T. K. SHARMA, JM AND SHRI D. K. SRIVASTAV A, AM ITA NO. 373/RJT/2011 / ASSESSMENT YEAR 2006-07 ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-3, INCOME TAX OFFICE, JAMNAGAR ( * / APPELLANT) VS. K.B. SHIPPING & CO. GRAIN MARKET, BARDANWALA ROAD, BARDANWALA ROAD, PAN: AACFK1869M +,* / RESPONDENT - / REVENUE BY SHRI AVINASH KUMAR /- / ASSESSEE BY SHRI SANJAY R SHAH - / DATE OF HEARING 18.9.2012 - / DATE OF PRONOUNCEMENT 21.09.2012 / / / / ORDER . .. . . . . . , , , , / T. K. SHARMA, J. M. THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER DATED 28.7.2011 OF CIT (A) FOR THE ASSESSMENT YEAR 2006-07. 2. GROUNDS OF APPEAL TAKEN BY THE REVENUE IN THIS APP EAL READ AS UNDER: 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.15,42,396/- CONSIDERING THE SAME AS R EVENUE IN NATURE. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE AO. ITA NO. 373/RJT/2011 2 3. IT IS THEREFORE, PRAYED THAT THE ORDER OF THE CI T(A) BE SET ASIDE AND THAT OF THE AO BE RESTORED 4. THAT THE REVENUE CRAVES LEAVE TO ADD, AMEND, ALTE R OR WITHDRAW ANY GROUNDS OF APPEAL 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A FIRM ENGAGED IN THE BUSINESS OF PLYING OF BARGES & TUGS ON HIRE AND FI LED ITS RETURN OF INCOME ON 5.12.2006 DECLARING TOTAL INCOME OF RS.17,00 ,360/-. IN THE SAID RETURN THE ASSESSEE CLAIMED REPAIR AND MAINTENANCE EXPEN SES MORE THAN THE WDV OF THE BARGES I.E. KB III AND V. THEREFORE, THE NOTICE WAS ISSUED U/S 148 CALLING UPON THE ASSESSEE TO SHOW CAUSE AS TO WHY THESE REPAIRS AND MAINTENANCE SHOULD NOT BE DISALLOWED AND ADDED B ACK TO THE TOTAL INCOME OF THE ASSESSEE BEING CAPITALIZED EXPENDITURE. DU RING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEES REPRESENTATIVE PRO DUCED BOOKS OF ACCOUNT, BILL AND VOUCHERS IN SUPPORT OF EXPENSES CLAIMED. THE AO OBSERVED THAT THE ASSESSEE INCURRED AN EXPENDITURE OF RS.9,06,107/- AND RS.6,36,289/-, FOR REPAIRS AND MAINTENANCE OF BA RGES KB-III AND KB- V. THE AO OBSERVED THAT THE WDV OF THESE BARGES ARE L ESS THAN THE EXPENDITURE INCURRED FOR REPAIR AND MAINTENANCE. THE ASSESSEE SUBMITTED THAT THE BARGES ARE SUBJECTED TO WEAR AND TEAR AND TH E EXPENSES CLAIMED ARE JUSTIFIED. LOOKING TO THE NATURE OF THE BUSINESS OF THE ASSESSEE, THE ASSESSEE HAS TO INCUR SUCH EXPENDITURES. THE AO DID NOT ACCE PT THE EXPLANATION OF THE ASSESSEE AND ADDED BACK THE SAME TO THE TOTAL INCOME OF THE ASSESSEE TREATING IT AS CAPITAL EXPENDITURE. 4. BEFORE THE LD. CIT(A), THE LD. COUNSEL FOR THE ASS ESSEE SUBMITTED THAT THE ASSETS IN QUESTION BEING BARGES INCUR SUBSTANTI AL WEAR AND TEAR EVERY YEAR. LOOKING TO THE NATURE OF BUSINESS THE ASSESSE E HAS TO INCUR ITA NO. 373/RJT/2011 3 SUCH EXPENSES EVERY YEAR ON THE BARGES AND BY INCURRING SUCH EXPENDITURE, NEITHER ANY NEW ASSET IS CREATED NOR ANY L ONG TERM BENEFIT OF ENDURING NATURE IS AVAILABLE FROM SUCH EXPENDITURE S O AS TO JUSTIFY ITS CAPITALIZATION. IN SUPPORT OF THIS THE LD. COUNSEL FOR THE ASSESSEE FURNISHED THE COPY OF BILLS, VOUCHERS AND LEDGER ACCOUNTS OF REPAIRS AND MAINTENANCE EXPENDITURES. HE ALSO SUBMITTED THAT THE R ATE OF DEPRECIATION FOR THESE BARGES ARE HIGHER AND HENCE YEAR BY YEAR TH E WDV WILL GO DOWN ON THE CONTRARY DUE TO INFLATION AND INCREASE IN COST OF PARTS OF MACHINERY REPAIRS AND MAINTENANCE HAS BEEN INCREASED T REMENDOUSLY. HE SUBMITTED THAT THE AO FAILED TO UNDERSTAND THE NAT URE OF BUSINESS AND APPLICABILITY OF BARGES TO ITS BUSINESS. THE LD. CIT(A) AFTER GIVING DUE CONSIDERATION TO THE ASSESSEES SUBMISSIONS AND VIEW OF THE AO THAT THE EXPENDITURE INCURRED IS MORE THAN THE WDV IT SHOULD BE CAPITAL EXPENDITURE HELD THAT AO HAS NOT JUSTIFIED THE ADDITI ON. THE LD. CIT(A) ALSO OBSERVED THAT THE ABOVE BILLS AND FOUND THAT MOST OF THESE BILLS RELATES TO PURCHASE OF MS PLATE AND REPAIRS. THESE PLA TES ARE REQUIRED FOR THE REPAIRS OF THE BARGES HENCE THESE ARE REPLACEME NTS OF THE WORN STEEL PLATES OF THE BARGES. THEREFORE, NO ASSET OF ENDUR ING NATURE IS CREATED. THE LD. CIT(A) ALSO OBSERVED THAT THE REVEN UE HAS ALLOWED SIMILAR EXPENDITURES IN THE EARLIER YEARS AS REVENUE EX PENDITURES. TO MAINTAIN CONSISTENCY WITH THE ORDERS PASSED EARLIER DIRECT ED THE AO TO TREAT THE EXPENDITURE OF RS.15,42,396/- AS REVENUE EX PENDITURE. 5. AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE RE VENUE IS IN APPEAL BEFORE THE TRIBUNAL. ITA NO. 373/RJT/2011 4 6. BEFORE US SHRI AVINASH KUMAR, THE LD. DR HAS STRONG LY SUPPORTED THE ORDER OF THE AO AND CONTENDED THAT THE BARGES AR E PARTS PARCEL OF ASSETS OF THE ASSESSEE AND HENCE EXPENDITURE IS CAPITAL IN NA TURE. 7. THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF THE CIT(A) AND ALSO PLACED BEFORE US THE DETAILS OF EXPENDITURE I N THE FORM OF PAPER BOOK CONTAINING 62 PAGES. 8. HAVING HEARD BOTH THE PARTIES, WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE ISSU E IN THE PRESENT CASE IS WHETHER THE EXPENDITURE ON REPAIR AND MAINTENANCE OF THE BARGES IS CAPITAL IN NATURE OF REVENUE IN NATURE. WE FIND THA T BARGES ARE BEING USED FOR THE BUSINESS PURPOSES AND IT IS NECESSARY TO MAINTAIN SUCH BARGES FOR GOOD PERFORMANCE AND HENCE REPAIRS AND MAINTENANCE AR E NECESSARY FOR 100% RESULT. WE FIND THAT THE LD. CIT(A) HAS CORRECTLY APPRECIATED THE FACTS THAT THE BARGES IN QUESTION WERE BEING USED FOR B USINESS PURPOSES AND IT IS MANDATORY TO MAINTAIN IT IN GOODS CONDITION FOR WHICH EXPENDITURES ARE ESSENTIAL. THE LD. DR COULD NOT BR ING ANY MATERIAL CONTRARY TO THE FINDING OF THE LD. CIT(A). WE ALSO OBSERVED THAT THE REVENUE, IN THE EARLIER YEARS HAS ALLOWED SUCH TYPES OF EXPENDITURE AS REVENUE EXPENDITURE. THEREFORE, WE HAVE NO OTHER A LTERNATIVE BUT TO APPROVE THE ORDER OF THE LD. CIT(A) IN HOLDING THE EXPENDITURE IN QUESTION IS REVENUE IN NATURE. ACCORDINGLY, WE ARE INCLINED TO UPHOLD THE FINDINGS OF THE LD. CIT(A) AND DISMISS THE APPEAL FILED BY REVENU E IS DISMISSED. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMI SSED. ITA NO. 373/RJT/2011 5 THIS ORDER IS PRONOUNCED IN THE OPEN COURT ON THE DAT E MENTIONED HEREINABOVE. SD SD ( .. / D. K. SRIVASTAVA) ( .. / T. K. SHARMA) / ACCOUNTANT MEMBER /JUDICIAL MEMBER 3/ ORDER DATE 21-09-2012. /RAJKOT SRL - -- - +4 +4 +4 [phone] / COPY OF ORDER FORWARDED TO:- 1. * / APPELLANT-, 2. +,* / RESPONDENT- 3. : / CONCERNED CIT. 4. :- / CIT (A). 5. 4 +, , / DR, ITAT, RAJKOT 6. / GUARD FILE. / BY ORDER , TRUE COPY SENIOR PRIVATE SECRETARY , INCOME TAX APPELLATE TRIBUNAL, RAJKOT. .