ITO, Noida V. M/s Elite Engineers, Noida

ITA 4764/DEL/2010

• Counselvise Citation: 476420114 RSA 2010
• Duration Of Justice: 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 08-08-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 01-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROHIT GARG SENIOR
• Assessee Lawyers: ASHOK GA NDHI
• Keywords: Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

BEFORE THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH B, NEW DELHI BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.4764/DEL.2010 (ASSESSMENT YEAR : 2005-06) ITO, WARD 1, VS. M/S. ELITE ENGINEERS, NOIDA. B 145, SECTOR 10, NOIDA. (PAN NO.AABFE4582C) (APELLANT) (RESPONDENT) ASSESSEE BY : SHRI ASHOK GANDHI, ADVOCATE DEPARTMENT BY : SHRI ROHIT GARG, SENIOR DR O R D E R PER B.C. MEENA, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE REVENUE ARISES OUT OF THE ORDER OF THE CIT (APPEALS), GHAZIABAD DATED 30.08.2010 FOR THE ASSES SMENT YEAR 2005-06. THE GROUNDS OF APPEAL TAKEN BY THE REVENUE ARE AS U NDER :- 1. THAT THE LD. CIT (A) HAS ERRED IN LAW AND ON FA CTS AND CIRCUMSTANCES OF THE CASE, BY NOT APPRECIATING THE FACT THAT THE ASSESSEE HAS CLAIMED HUGE REVENUE EXPENDIT URE ON ACCOUNT REPAIR & MAINTENANCE WHICH IS EVEN MORE THA N THE WDV OF THE ASSET AS ON DATE, HENCE IT SHOULD BE TRE ATED AS CAPITAL EXPENDITURE. 2. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACT S BY COMPARING THE EXPENDITURE AND G.P. & N.P. OF OLD MACHINERY WITH THE EXPENDITURE AND G.P. & N.P. OF N EW MACHINERY PURCHASED IN LATER YEAR BY THE ASSESSEE. ITA NO.4764/DEL/2010 2 3. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACT S BY HOLDING THE UNLESS A.O. PROVED THE EXISTENCE OF A N EW MACHINERY ON ACCOUNT OF REPAIRING EXPENDITURE HE WA S NOT CORRECT IN HOLDING THAT IT IS A CAPITAL EXPENDITURE . 4. HENCE ORDER OF THE LD. CIT(A) DESERVES TO BE SET - ASIDE AND THE ORDER OF THE A.O. BE RESTORED. 2. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF MACHINERY PARTS AND ENGINEERING GOODS. THE AO DISALLOWED THE AMOUNT OF CURRENT REPAIRS BY HOLDING THAT THE C URRENT REPAIRS ARE A GENERAL EXPENDITURE WHICH ARE REQUIRED TO KEEP THE MACHINE RUNNING. THE NATURE AND VOLUMINOUS OF EXPENDITURE SHOWS THAT IT WAS A CAPITAL EXPENDITURE AS THERE WAS A COMPLETE MAKE OVER OF MA CHINERY. THE JUSTIFICATION FOR THIS DISALLOWANCE WAS THAT THE WD V WAS LESSER THAN THE AMOUNT OF EXPENDITURE ON REPAIRS AND MAINTENANCE. THE CIT (A) HAS DELETED THE ADDITION BY HOLDING AS UNDER :- (1) GROUND NO.1 & 2 AGAINST ADDITION OF RS.2,20,94 4/-: HAVING CAREFULLY CONSIDERED ALL THE RELEVANT FACTS AND CONTENTIONS, I AM INCLINED TO ACCEPT THE APPELL ANT'S CONTENTIONS THAT SUBSTANTIAL INCREASE IN EXPENDITUR E ON REPAIRS OF MACHINERY AND FALL IN GP - NP, ALL ARE CONSEQUENCE OF THE FACT THAT THE ASSESSEE HAD START ED BUSINESS BY PURCHASING OLD MACHINERY, WHICH RESULTE D INTO CONSTANT WEAR AND TEAR NECESSITATING INCREASE IN EXPENDITURE ON REPAIRS. IF WE ANALYZE THE TREND OF EXPENDITURE ON A/C OF MACHINERY REPAIRS, GP - NP AN D ITA NO.4764/DEL/2010 3 PURCHASE OF NEW MACHINERY IN LATER YEARS BY THE ASS ESSEE; ALL CORROBORATE THE CONTENTIONS THAT THE EXCESSIVE EXPENDITURE ON MACHINERY REPAIRS WAS ON A/C OF USE OF OLD MACHINERY AND THE SAID EXPENDITURE DECREASED IN LAT ER YEARS WHEN NEW MACHINERY WAS PURCHASED AND USED. THERE IS ALSO SUBSTANTIAL FORCE IN APPELLANT'S CONTENTION THAT UNLESS AO PROVED THE EXISTENCE OF A NEW MACHINERY ON ACCOUNT OF SUCH REPAIRING EXPENDITURE; HE WAS NOT CORRECT IN HOLDING THAT IT IS A CAPITAL EXP ENDITURE AND THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION BY W AY OF REVENUE EXPENDITURE. IN VIEW OF THE ABOVE, IT IS HELD THAT THE AO WAS N OT JUSTIFIED IN MAKING THE ADDITION OF RS.12,20,944/- ON THIS ACCOUNT. THIS ADDITION IS ACCORDINGLY DELETED. THE AO IS, HOWEVER, DIRECTED TO WITHDRAW THE DEPRECIATION ALLO WED ON THIS AMOUNT. 3. WE HAVE HEARD BOTH THE SIDES AND CONSIDERED THE FACTS OF THE CASE CAREFULLY. THE AOS LOGIC THAT THE EXPENDITURE ON CURRENT REPAIRS AND MAINTENANCE WAS MORE THAN THE WDV OF THE MACHINERY CANNOT BE MADE A BASIS FOR TREATING THE EXPENDITURE AS CAPITAL. T HE CAPITAL EXPENDITURE CAN BE HELD WHEN A NEW PLANT AND MACHINERY HAS BEEN PURCHASED BY THE ASSESSEE AND NEW ASSET HAD COME INTO EXISTENCE. TH E VOLUME AND EXTENT OF EXPENDITURE BY ITSELF CANNOT BE MADE A BASIS TO HOLD THE EXPENDITURE AS CAPITAL. COMPARING THE SAME WITH THE WDV EXISTING FOR THE PARTICULAR ITA NO.4764/DEL/2010 4 YEAR CANNOT ALSO BE MADE A BASIS FOR SUCH DISALLOWA NCE. THE GENUINENESS OF THE EXPENDITURE WAS NOT DOUBTED BY THE AO. THE ASSESSEE HAS EXPLAINED THAT THE EXPENDITURE ON REPAIRS AND MAINT ENANCE WAS ON HIGHER SIDE DUE TO THE OLD MACHINERY. IN VIEW OF THESE FA CTS AND BY HOLDING THAT NO NEW MACHINERY OR ASSET OF ENDURING BENEFIT HAD C OME INTO EXISTENCE ON ACCOUNT OF SUCH EXPENDITURE ON REPAIRS AND MAINT ENANCE, THEREFORE, WE SUSTAIN THE ORDER OF THE CIT (A) FOR DELETING THE A DDITION MADE BY THE AO. 4. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 19 TH DAY OF AUGUST, 2011. SD/- SD/- (RAJPAL YADAV) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : THE 19 TH DAY OF AUGUST, 2011 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT (A), GHAZIABAD. 5.CIT(ITAT), NEW DELHI. AR/ITAT