ITO, New Delhi V. M/s. Gokal Chand Hari Chand, New Delhi

ITA 5031/DEL/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7498 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 12-01-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 11-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SALIL MISHRA
• Assessee Lawyers: C S AGGARWAL; INDERJEET AHUJA S
• Keywords: Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

ITA NO. 5031/DEL/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C NEW DELHI BEFORE SHRI I.P BANSAL, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 5031/DEL/2011 A.Y. : 2008-09 ITO, WARD 33(2), ROOM NO. 206B, CR BUILDING, IP ESTATE, NEW DELHI VS. M/S GOKAL CHAND HARI CHAND, 2008, BANK STREET, KAROL BAGH, NEW DELHI (PAN/GIR NO. : AASPS9754R) (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSEESSEE BY : SHRI. C.S. AGGARWAL AND SHRI INDERJEET AHUJA, ADVOCATES DEPARTMENT BY : SHRI SALIL MISHRA, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 23.8.2 011 PERTAINING TO ASSESSMENT YEAR 2008-09. 2. THE GROUNDS RAISED READ AS UNDER:- (I) THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN DELETING THE ADDITION OF THE MACHINERY MAINTENANCE EXPENSES MADE BY THE ASSESSING OFFICER BEING CAPI TAL EXPENSES SINCE THE ASSESSEES MACHINERY MAINTENANCE EXPENSES HAVE BEEN EXAMINED BY THE ASSESSING OFFICE R AND HAVE BEEN FOUND TO RELATE TO PURCHASE OF ITEMS FOR REPLACEMENT OF PARTS OF THE MACHINERIES AS ALSO ACC EPTED BY THE ASSESSEE IN HIS REPLY DATED 9.11.2010 THAT ABOU T 99% ITA NO. 5031/DEL/2011 2 MAINTENANCE EXPENSES RELATE TO REPLACEMENT OF WORN OUT / BROKEN PARTS AND WHEN IT IS EVIDENT THAT BY INCURR ING SUCH EXPENSES, THE MACHINERIES USED BY THE ASSESSEE WERE CONVERTED INTO NEW ONES AND INCREASED THEIR DURABIL ITY. II) THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN DELETING THE ADDITION OF MACHINERY MAINTENANCE EXPEN SES MADE BY ASSESSING OFFICER BEING CAPITAL EXPENSES SINCE IT IS EVIDENT FROM WDV OF THE MACHINES 53,416/- AND ` 4,23,423/- AS ON 1.4.2007 THAT MAINTENANCE EXPENSES RELATE TO REPLACEMENT OF WORN OUT / BROKEN PARTS AND WHEN IT IS EVIDENT THAT BY INCURRING SUCH EXPENSES, TH E MACHINES USED BY THE ASSESSEE WERE CONVERTED INTO NEW ONES A ND INTO NEW ONES AND INCREASED THEIR DURABILITY. III) THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN DELETING THE ADDITION OF THE MACHINERY MAINTENANCE EXPENSE MADE BY THE ASSESSING OFFICER BEING CAPITA L EXPENSES IN VIEW OF THE JUDGEMENT OF THE HONBLE SU PREME COURT IN C.I.T. VS. SARVANA SPINNING MILLS (P) LTD. (SC) 293 ITR 201 WHERE EXPENSE ON WORN OUT PARTS WHICH WERE NOT SEPARATE MACHINE AND COULD NOT EXIST ON THEIR OWN BY WERE AN INTEGRAL PART OF THE MACHINE WERE HELD TO BE CAP ITAL IN NATURE. (IV) THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED IN DELETING THE ADDITION OF THE MACHINERY MAINTENANCE EXPENSE MADE BY THE ASSESSING OFFICER BEING CAPITA L EXPENSES DESPITE THE EXPLANATION TO SECTION 31 THA T ITA NO. 5031/DEL/2011 3 AMOUNT PAID ON ACCOUNT OF CURRENT REPAIRS SHALL NO T INCLUDE ANY EXPENDITURE IN NATURE OF CAPITAL EXPENDITURE. (V) THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AME ND ANY / ALL THE GROUNDS OF APPEAL BEFORE OR DURING THE COURSE O F HEARING OF THE APPEAL. 3. IN THIS CASE THE ASSESSEE IS ENGAGED IN THE BUSI NESS OF STONE CRUSHING HAVING FACTORY AT BALLABGARH, FARIDABAD. O N THE PERUSAL OF THE P&L ACCOUNT, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF ` 44,76,290/- ON ACCOUNT OF MAC HINERY MAINTENANCE. WHEREAS THE VALUE OF MACHINERY WAS R ECORDED AT ` 4,76,569/-. IN ORDER TO VERIFY THE NATURE OF T HE EXPENDITURE THE ASSESSING OFFICER ISSUED QUESTIONNAIRE. IN RESPON SE, THE ASSESSEE FURNISHED DETAILS AND FORWARDED THE EXPLANATION. I T WAS STATED THAT THE MACHINERIES WERE INSTALLED AT THE PREMISES LOCATED AT PALI AND WERE NEVER USED AT ANY OTHER PLACE. THE MACHINERIES WE RE VERY OLD AND WHENEVER ADDITIONS WERE MADE IN THE PAST THE SAME WE RE DULY REFLECTED IN THE RETURNS. ASSESSEE ALSO STATED THAT THE MACHINERY FOR WHICH THE WDV WAS SHOWN AT ` 53,146/- WAS EXTREMELY OLD, MAY BE MORE THAN 20 YEARS AND WITH THE CLAIM OF DEPRECIATION YEAR AFTER YEAR, THE DEPRECIATED VALUE OF WRITTEN DOWN VALUE CAME DO WN TO ` 53,146/-. IT WAS STATED THAT THE MACHINERY WAS PURCHASED IN TH E YEAR 1999-2000 AND THE WDV WAS ` 4,23,423/-. IT WAS STATED THAT CERTAIN ADDITIONS WERE MADE IN 2000 AND 2001 AS WELL. IT WAS FURTHER SUBMITTED THAT AS A RESULT OF THE CRUSHING PROCESS OF HARD AND BI G SIZED BLUE STONE, THERE IS AN EXTENSIVE WEAR AND TEAR AND BREAKAGE OF THE MACHINERY, WHICH SOMETIMES INCLUDED REPLACEMENT OF PARTS OF THE MACHINERY WHEN IT BECAME UNSERVICEABLE. IT WAS ALSO STATED ALSO STATED BY THE ITA NO. 5031/DEL/2011 4 ASSESSEE THAT 99% OF THE MAINTENANCE EXPENSES RELA TED TO THE REPLACEMENT OF WORN OUT OR BROKEN PARTS. THE ASSE SSING OFFICER EXAMINED AND CONSIDERED THE SUBMISSIONS MADE BY THE ASSESSEE BUT, DID NOT FIND IT TENABLE. IN HIS OPINION, IT DID N OT AMOUNT TO REVENUE EXPENDITURE, BUT WAS IN THE NATURE OF CAPITAL EXPEN DITURE. ASSESSING OFFICER INVOKED THE PROVISIONS OF SECTION 31(I) OF THE IT ACT, 1961, APPLICABLE IN SITUATION OF INCURRING CURRENT REPAIR S IN THE NATURE OF CAPITAL EXPENDITURE AND TREATED THE CLAIM OF THE A SSESSEE AS CAPITAL EXPENDITURE, WHICH IS A NON-ALLOWABLE DEDUCTION. IN VIEW OF THE NATURE OF EXPENSES INCURRED BY THE ASSESSEE AND RELYING ON THE EXPLANATION TO SECTION 31 OF THE IT ACT AND VARIOUS DECISIONS S TATED, ASSESSING OFFICER ALLOWED AN AMOUNT OF ` 3,81,273/- WHICH PE RTAINED TO PURCHASE OF JAW-PLATES, GENERATOR RUNNING, ELECTRICAL REPAIRI NG ETC. OUT OF ` 44,76,290/- AND ADDED THE BALANCE AMOUNTING TO ` 40 ,95,017/- TO THE TOTAL INCOME OF THE ASSESSEE. 4. BEING AGGRIEVED, THE ASSESSEE APPEALED BEFORE TH E LD. COMMISSIONER OF INCOME TAX (APPEALS) AND SUBMITTED ELA BORATE SUBMISSIONS. 5. LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS NOTE D THAT SUCH EXPENDITURE WERE INCURRED DURING THE PAST YEARS A ND WERE DULY REFLECTED IN THE RETURNS. THE EXAMPLES IN THIS R EGARD WERE AS UNDER:- ASSTT. YEAR ASSTT. YEAR ASSTT. YEAR ASSTT. YEAR AMOUNT OF EXPENSES (IN `) AMOUNT OF EXPENSES (IN `) AMOUNT OF EXPENSES (IN `) AMOUNT OF EXPENSES (IN `) SALES SALES SALES SALES 2006-07 24,86,057.00 2,90,99,633.00 2007-08 42,41,219.00 3,98,51,062.00 2008-09 44,76,290.00 4,06,23,623.00 ITA NO. 5031/DEL/2011 5 5.1 LD. COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT A CONCERNS SIZE AND OPERATIONS PLAY AN IMPORTANT AND SIGNIFICANT ROLE TO DETERMINE WHETHER THE AMOUNT SPENT BY THE ASSESSEE I S IN THE COURSE OF NORMAL TRADING PROCESS OR TO ASSIST IN EARNING R EVENUE OR INCOME. LD. COMMISSIONER OF INCOME TAX (APPEALS) GAVE A FINDIN G THAT THE SALES OF THE ASSESSEE ARE NOT ON THE HIGHER SIDE A ND MOSTLY REMAINED CONSISTENT SINCE THE PAST YEARS VIS A VIS EXPENDITU RE CLAIMED. ON PERUSAL OF THE ITEM-WISE DETAILS OF REPAIRS MADE TO THE MACHINERY, IT IS SEEN THAT IT CONSISTS OF ITEMS LIKE BRACKETS, BEA RING, BELTS, CHAIN, LOADER, ELECTRICAL MOTOR REWINDING, FACE PLATES, GAS CUTTER PIPE, NUTS AND BOLTS, WASHERS, CHAMPS, PVC PIPES, PULLEY, MS PLAT ES, WIRE MESH, WELDING RODS, WOODEN GUTKA, RULI, SHAFTS, LEVER PIN ETC. LD. COMMISSIONER OF INCOME TAX (APPEALS) FOUND THAT THOUG H THE ASSESSING OFFICER OPINED THAT SUCH EXPENDITURE CON STITUTED A CAPITAL EXPENDITURE, YET HE WAS NOT ABLE TO FULLY BRING ON RECORD ANYTHING SUBSTANTIVE TO SAY THAT THE ASSESSEE REPLACED THE EXISTING MACHINERY FOR BETTER PERFORMANCE OR PURCHASED A NEW MACHINERY. FURTHER, LD. COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT A PERUSAL OF THE MAINTENANCE EXPENDITURE PERTAINING TO THE EARLIER YE ARS SHOWS THAT FULL BENEFIT WAS CONSUMED IN THAT PERIOD ONLY BECAU SE SUCH EXPENDITURE WAS INCURRED IN THE SUBSEQUENT YEAR AL SO AND CLAIMED BY THE ASSESSEE YEAR AFTER YEAR. LD. COMMISSIONER OF INCOME TAX (APPEALS) ANALYSED THE NATURE OF THE ACTIVITY OF T HE ASSESSEE. HE OBSERVED FROM THE SAME, IT IS SEEN THAT THE JAW CRUSHER USES STEEL JAW PLATES FOR CRUSHING THE STONES. HE OBSERVED THAT ASSESSING OFFICER ALLOWED THE EXPENDITURE INCURRED ON THESE JAW PLATES IS REVENUE EXPENDITURE. IF SUCH EXPENDITURE WAS ALLOWE D BY THE ASSESSING OFFICER, THE SAME SHOULD HAVE BEEN IN THE CASE OF THE OTHER ITEMS ITA NO. 5031/DEL/2011 6 DETAILED IN THE LIST OF REPAIR. LD. COMMISSIONER O F INCOME TAX (APPEALS) FURTHER FOUND THAT BY INCURRING SUCH EX PENDITURE, THE ASSESSEE DID NOT GAIN NEW ADVANTAGE WHICH INCREASED HIS SALES DURING THE YEAR. THE ASSESSEE ELABORATELY ARGUED BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) THAT EXPENSES INCURRED FOR MAINTAINING THE EXISTING MACHINERY DID NOT BRING IN TO EXISTENCE A NEW ASSET. IT WAS CONTENDED THAT THERE WAS NO SINGLE PART HE PURCHASED LASTED FOR ONE YEAR OR MORE. LD. COMMISSIONER OF INCOME TAX (APPEALS) FURTHER FOUND THAT NO PART OF THE MACHI NERY CAN BE INDEPENDENTLY USED AND CONSTITUTED SEPARATE MACHINE OR WHICH CONSTITUTE SUBSTITUTION OF AN OLD ASSET BY A NEW AS SET TO CATEGORIZE IT AS CAPITAL EXPENDITURE. LD. COMMISSIONER OF INCOME TAX (APPEALS) DISTINGUISHED THE CASE LAWS RELIED UPON BY THE ASSE SSING OFFICER. LD. COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT HE FO UND THAT THE ASSESSING OFFICER FAILED TO BRING OUT ANY MATERIAL ON RECORD TO SAY THAT THE ASSESSEE INCURRED EXPENDITURE FOR REPAIRS AND MA INTENANCE OF MACHINERY THAT QUALIFY THE NATURE OF EXPENDITURE AS CAPITAL EXPENDITURE. LD. COMMISSIONER OF INCOME TAX (APPEAL S) CONCLUDED THAT SINCE THE ASSESSING OFFICER DID NOT BRING OUT ANY EVIDENCE TO SUBSTANTIATE THE EXPENDITURE CLAIMED BY THE ASSESSE E WAS CAPITAL IN NATURE, THE ADDITION MADE BY HIM IS HEREBY DELETED. 6. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEAL BEFORE US. 7. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. WE FIND THAT L D. COMMISSIONER OF INCOME TAX (APPEALS) HAS GIVEN A FINDING THAT T HE SAID EXPENDITURE ITA NO. 5031/DEL/2011 7 IS A REVENUE AND NOT A CAPITAL IN NATURE. SUCH E XPENDITURE HAS BEEN INCURRED BY THE ASSESSEE IN THE PAST ALSO AND ALSO ALLOWED. THE EXAMPLES IN THIS REGARD ARE AS UNDER:- ASSTT. YEAR ASSTT. YEAR ASSTT. YEAR ASSTT. YEAR AMOUNT OF EXPENSES (IN `) AMOUNT OF EXPENSES (IN `) AMOUNT OF EXPENSES (IN `) AMOUNT OF EXPENSES (IN `) SALES SALES SALES SALES 2006-07 24,86,057.00 2,90,99,633.00 2007-08 42,41,219.00 3,98,51,062.00 2008-09 44,76,290.00 4,06,23,623.00 7.1 IT WAS FURTHER FOUND THAT INCURRING OF THE E XPENDITURE DID NOT RESULT ANY INCREASE IN THE EARNING OF THE ASSESSEE . THE ITEM WERE PURELY ON REPAIR AND MAINTENANCE IN NATURE AND WERE LIKE BRACKETS, BEARING, BELTS, CHAIN, LOADER, ELECTRICAL MOTOR REW INDING, FACE PLATES, GAS CUTTER PIPE, NUTS AND BOLTS, WASHERS, CHAMPS, PV C PIPES, PULLEY, MS PLATES, WIRE MESH, WELDING RODS, WOODEN GUTKA, RU LI, SHAFTS, LEVER PIN ETC. A PERUSAL OF THE MAINTENANCE EXPENDITUR E PERTAINING TO THE EARLIER YEARS SHOW THAT A FULL BENEFIT WAS CONSUME D IN THAT PERIOD ONLY BECAUSE SUCH EXPENDITURE WAS INCURRED IN THE SUBSE QUENT YEAR ALSO AND CLAIMED BY THE ASSESSEE YEAR AFTER YEAR. BY INC URRING SUCH EXPENDITURE ASSESSEE DID NOT GAIN NEW ADVANTAGE WH ICH INCREASED THE SALES DURING THE YEAR. LD. COMMISSIONER OF INCOME TAX (APPEALS) ALSO GAVE A FINDING THAT LARGE NUMBER OF PARTS GET WORN OUT AND ARE REPLACED BY NEW PARTS FREQUENTLY WITHIN A YEAR. IN OTHER WORDS, LD. COMMISSIONER OF INCOME TAX (APPEALS) GAVE A FINDING THAT NO SINGLE PART THAT THE ASSESSEE HAS PURCHASED LASTED FOR O NE YEAR OR MORE. IT WAS FURTHER SEEN THAT NO PART OF THE MACHINERY CAN BE INDEPENDENTLY USED AND CONSTITUTED SEPARATE MACHIN E OR WHICH CONSTITUTE SUBSTITUTION OF AN OLD ASSET BY A NEW A SSET TO CATEGORIZE IT AS CAPITAL EXPENDITURE. IN THE BACKGROUND OF THE A FORESAID DISCUSSION ITA NO. 5031/DEL/2011 8 AND PRECEDENT, WE FIND THAT LD. COMMISSIONER OF INCO ME TAX (APPEALS) HAS PASSED A REASONABLE ORDER, WHICH DOES NOT NEED ANY INTERFERENCE ON OUR PART, ACCORDINGLY, WE UPHOLD THE SAME. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE S TANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20/1/2012. SD/- SD/- [ [[ [I.P. BANSAL I.P. BANSAL I.P. BANSAL I.P. BANSAL] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 20/1/2012 SRB COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES