Shree Sulphurics Private Limited, Ahmedabad V. The Dy. Commissioner of Income Tax, Circle-4(1)(1), Ahmedabad

ITA 422/AHD/2022

AI Insights

The case revolves around the classification of expenses incurred by Shree Sulphurics Private Limited for repairs to machinery, which amounted to Rs.38,84,277/-. The primary legal issue was whether these expenses should be classified as capital expenditure, which would not be deductible, or as revenue expenditure, which is deductible under the Income Tax Act, 1961. The Deputy Commissioner of Income Tax (DCIT) had initially classified these expenses as capital expenditure, leading to the appeal. The Tribunal referenced a previous decision by a Co-ordinate Bench in the assessee's own case, which had found similar expenses to be revenue in nature, and applied the same reasoning to the current case.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 124720 (ITAT-AHMEDABAD)
• Duration Of Justice: 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 24-07-2023
• Assessment Year: 2014-2015
• Appeal Filed On: 03-11-2022
• Other Referred Cases: Ballimal Naval Kishore
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 143(3); 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, AHMEDABAD BEFORE SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER & Ms. MADHUMITA ROY, JUDICIAL MEMBER आयकर अपील सं./ I. T. A. No . 422/Ahd/20 22 ( नधा रण वष / A ss es sment Year : 2014-15) Sh r ee S ul p hu ri c s Pr i va t e L i mit ed 9 t h F lo or , Sh a pa th V , O p p. K ar na va ti C lu b, S. G . H i gh w a y, A h me da b a d बनाम/ Vs . De pu t y C om m i ss i on er o f I n c o m e T ax C ir c l e 4( 1 )( 1 ) , Ah me dab ad थायी लेखा सं./जीआइआर सं./P A N/ G I R N o . : A A E C S 0 9 6 8 E (अपीलाथ /Appellant) . . ( यथ / Respondent) अपीलाथ ओर से /Appellant by : Shri P. D. Shah, AR यथ क ओर से/Respondent by : Ms. Saumya Pandey Jain, Sr. D.R. स ु नवाई क तार ख / D a t e o f H e a r i ng 25/07/2023 घोषणा क तार ख /D a t e o f P ro n o u nc e me n t 28/07/2023 O R D E R PER Ms. MADHUMITA ROY - JM: The instant appeal filed by the assessee is directed against the order dated 12.09.2022 passed by the National Faceless Appeal Centre (NFAC), Delhi, arising out of the order dated 26.12.2016 passed by the DCIT, Circle- 4(1)(1), Ahmedabad under section 143(3) of the Income Tax Act, 1961 (hereinafter referred as to ‘the Act’) for Assessment Year 2014-15. ITA No. 422/Ahd/2022 (Shree Sulphurics Private Limited vs. DCIT) A.Y.– 2014-15 - 2 - 2. The short point involved in this particular case is this as to whether the expenses incurred to the repair to machineries of Rs.38,84,277/- is a capital expenditure or revenue expenditure. In the instant case, the same has been disallowed by the Revenue Authorities holding it capital expenditure. At the very threshold of the matter, the Ld. Counsel appearing for the assessee submitted before us that the issue is squarely covered by and under order dated 09.06.2023 by the Co-ordinate Bench in assessee’s own case in ITA No.305/Ahd/2022 for A.Y. 2017-18. It is relevant to mention that the Ld. DR has not been able to controvert such submissions made by the Ld. AR on the basis of the order passed by the Co-ordinate Bench which has been duly furnished before us and before the Ld. DR too. 3. We find, while dealing with the issue and granting relief in favour of the assessee, the Co-ordinate-Bench has been pleased to observe as follows on the identical set of facts: “5. The assessee carried the matter in appeal before the ld.CIT(A) who upheld the order of the AO partially to the extent of Rs.37,50,699/-, finding only expenses to this extent to be relating to replacement while remaining, he held, was in the nature of repairs to machinery. Accordingly, the ld.CIT(A) allowed the claim of the assessee vis- à-vis the same. His finding at para 5.3 of his order is as under: 5.3.1 This ground relates to making disallowance of repairs to machineries of Rs. 72,79,477/- on the ground that it is capital expenditure. 5.3.2 I have considered the submission of the assessee and gone through AO's order. I find certain expenses are in the nature of replacement and not the repairs of he machinery. In para 5.2 of the order of AO, all expenses with this nature are enlisted. Out of these expenses the following expenses are considered to be not in the nature of repairs : (i) Replacement part of leak element during shutdown Rs.18,46,906/- (ii) Replacement of reactron Section II unit Rs.6,53,088/- (iii)Ceramic replacements for SOS absorb (7,55,250 + 4,95,425) Rs.12,50,675/- Total Rs.37,50,699/- ITA No. 422/Ahd/2022 (Shree Sulphurics Private Limited vs. DCIT) A.Y.– 2014-15 - 3 - 5.3.3 Apart from the above expenses, other expenses are found to be in the nature of repairs only, hence, are allowable as revenue expenditure. The AO is directed to restrict the disallowance to the extent of Rs.37,50,699/- in place of Rs.72,79,477/- and further allow depreciation on the capitalized amount of Rs.37,50,699/- at the rate applicable to the assets with which the above amount is to be capitalized. As a result, ground no.3 is partly allowed.” 6. As is evident from the above, the basis with the Revenue authorities for treating the expenses to the tune of Rs.37,50,699/- as capital in nature, is noting the description that this expenditure was incurred for replacement of machinery part, and consistently, the Revenue authorities have held that since as per the provisions of law contained in section 31 of the Act ,dealing with allowability of repairs and maintenance expenditure of machineries, only current repairs are allowed, this replacement expenses are not in the nature of current repairs. We fail to understand how merely on the basis of description of the expenditure, the Revenue authorities have come to such a conclusion that the replacement expenses are not in the nature of current repairs. As per the decision of the Hon’ble Apex Court relied on by the AO in the case of Ballimal Naval Kishore (supra), current repairs means repairs for the purpose of preserving or maintaining already existing assets. Therefore, incurrence of expenses whether for current repairs or not, has to be examined on this touch-stone, where it is for preserving and maintaining already existing assets or not. It can be treated as capital expenditure ,not being in the nature of current repairs, as per the said decision,only if it brings a new asset into existence or gives to the assessee a new asset or different advantage. Now, merely because the description of expenditures states to be replacement of certain parts or machinery, it cannot lead to the conclusion that the expenditure was not for the purposeof maintaining or preserving of an asset, and it resulted in creation of a new asset or new advantage to the assessee. The assessee had explained that it was in the business of manufacturing various acids which corrodedits plant & machinery speedily, and therefore, its plant & machinery needed to be repaired and part of it replaced so as to maintain its working capability. Further, it is also fact on record that the assessee had incurred huge expenses to the tune of Rs.2.68 crores towards repairs & maintenance of plant & machinery and expenses only to the extent of Rs.37.50 lakhs have been found to be capital in nature. 7. Considering facts as above, we are not in agreement with the Revenue that expenses to the tune of Rs.37.50 were not in the nature of current repairs to be allowed in terms of section 31 of the Act particularly when the assessee had explained that considering the nature of manufacturing done by it , machinery parts corroded frequently warranting their replacement so as to maintain the machineries in working condition, which has not been controverted by the Revenue . And the finding of the Revenue of the expenses being capital in nature /noncurrent is based on mere description of the expense as replacement of certain machinery with no facts emanating from the records before us to substantiate the same. 8. In view of the above, we see no reason to uphold order of the ld.CIT(A) confirming the disallowance of repairs & maintenance expenditure to the tune of Rs.37,50,699/-. The grounds raised in the appeal are allowed.” ITA No. 422/Ahd/2022 (Shree Sulphurics Private Limited vs. DCIT) A.Y.– 2014-15 - 4 - 4. Having heard the Ld. Counsel appearing for the parties and having regard to the facts and circumstances of the case, particularly, the observation made by the Co-ordinate Bench in paragraph no.7 to this effect that the nature of manufacturing done by the appellant causing machinery parts corroded frequently warranting their replacement in order to maintain such machineries in working condition, the expenses whereof is nothing but Revenue, we do not find any reason to deviate from the same and respectfully relying upon the finding and decision of the Co-ordinate bench on identical issue, we allow this impugned expenses incurred by the assessee for repair of machineries to the tune of Rs.38,84,277/-. Assessee’s appeal is, thus, allowed. 5. In the result, the appeal preferred by the assessee is allowed. This Order pronounced on 28/07/2023 Sd/- Sd/- (ANNAPURNA GUPTA) (MADHUMITA ROY) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 28/07/2023 True Copy S. K. SINHA आदेश क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं%धत आयकर आय ु 'त / Concerned CIT 4. आयकर आय ु 'त(अपील) / The CIT(A)- 5. *वभागीय -त-न%ध, आयकर अपील य अ%धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड3 फाईल / Guard file. आदेशान ु सार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील$य अ%धकरण, अहमदाबाद / ITAT, Ahmedabad