Maheshwari Paper Ltd., Banaskantha V. The ACIT, B.K.Circle, Palanpur

ITA 563/AHD/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 6046 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 11 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 05-09-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 24-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESH MEENA
• Assessee Lawyers: S V AGRAWAL
• Keywords: Depreciation; Additional evidence; Unabsorbed depreciation; Revenue expenditure; Capital expenditure
• Section: 37(1); 32

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI MAHAVIR PRASAD, JUDICIAL MEMBER !# I.T.A. NO.563/AHD/2014 ( / ASSESSMENT YEAR : 2009-10) MAHESHWARI PAPER LTD. C/O. MAHESHWARI CLOTH CENTRE, PALANPUR, DIST. BANASKANTHA-385 001 # VS. ASST. COMMISSIONER OF INCOME TAX OFFICER, B.K. CIRCLE, PALANPUR. $ # % & # PAN/GIR NO. : AABCM 4081 B ( !$' / APPELLANT ) .. ( ($' # RESPONDENT ) !$') # APPELLANT BY : SHRI S. V. AGRAWAL, A.R. ($'*) / RESPONDENT BY : SHRI RAJESH MEENA, SR. D.R. + ,*-. / DATE OF HEARING 08/02/2018 /012*-. / DATE OF PRONOUNCEMENT 15/02/2018 3# O R D E R PER MAHAVIR PRASAD, JUDICIAL MEMBER : THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE OR DER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-XX, AHMEDABAD, VIDE APPEAL NO. CIT(A)-XX/316/11-12 DATED 19/12/2013 FOR THE AS SESSMENT YEAR (AY) 2009-10. 2. FOLLOWING GROUNDS HAS TAKEN BY THE ASSESSEE: THE ORDER OF LEARNED COMMISSIONER OF INCOME-TAX ( APPEALS) - XX, AHMEDABAD [CIT(A)] CONFIRMING DISALLOWANCE MADE BY (A.O.) IS BAD IN LAW AS WELL ON FACTS ON THE FOLLOWING GROUNDS; ITA NO. 563/AHD /2014 MAHESHWARI PAPER LTD.VS. ACIT ASST.YEAR 2009-10 - 2 - (1) THE LEARNED CIT(A) HAS ERRED IN CONFIRMING TH E DISALLOWANCE MADE BY A.O. OF RS.66,70,895/- BEING REVENUE EXPENS ES ON REPAIRS AND MAINTENANCE TO MACHINERY BY TREATING TH E SAME AS CAPITAL EXPENDITURE. IN AS MUCH AS, 1.1 THESE EXPENSES ARE PURCHASE OF STORES, TRANSPORT AN D JOB WORK FOR REPAIRS. 1.2 ALL EXPENSES ARE OF RECURRING NATURE. 1.3 EXPENSES HAVE NOT ENHANCED LIFE OF MACHINERY. 1.4 THESE ARE NOT REPLACEMENT EXPENSES OF MACHINERY. (2) WITHOUT PREJUDICE TO GROUND NO. 1 THE ALTERNA TE GROUND IS TO ALLOW THE DEPRECIATION ON THESE EXPENDITURE. WHICH CIT(A) HAS NOT CORRECTLY ADJUDICATED. (3) THE ASSESSEE CRAVES FOR LIBERTY TO AMEND, MODIF Y AND ADD ANY GROUNDS OF APPEAL OR FURNISH ADDITIONAL EVIDENCES. 3. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERI ALS ON RECORD ARE AS UNDER:- DURING THE ASSESSMENT PROCEEDINGS IT WAS NOTED THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.66,70,895/- AS REPAIRS AND MAINTENANCE TO MACHINERY. THE BREAK UP IS AS FOLLOWS: REPAIRS AND MAINTENANCE (MACHINERIES) STORES RS. 29,49,580/- TRANSPORT RS.24,139/- STORE PURCHASE RS. 30,91,826/- JOB WORK FOR REPAIR RS.6,05,350/- 4. THE ASSESSEE WAS ASKED TO PROVIDE THE DETAILS FO R THE SAME. A PERUSAL OF THE DETAILS AND THE BILLS SHOWS THAT THE ASSESSEE HAS CARRIED OUT MAJOR RENOVATION WORK IN HIS MACHINERY DURING THE Y EAR UNDER CONSIDERATION WHICH HAS ENDURING BENEFIT FOR THE AS SESSEE COMPANY AS IT DEFINITELY INCREASE THE MACHINERY CAPACITY AND HENC E THE PRODUCTION OF THE ASSESSEE COMPANY. THE ASSESSEE WAS, THEREFORE, VIDE ORDER SHEET ENTRY ITA NO. 563/AHD /2014 MAHESHWARI PAPER LTD.VS. ACIT ASST.YEAR 2009-10 - 3 - DATED 30.11.2011 REQUIRED TO EXPLAIN WHY THE EXPENS ES BE NOT TREATED AS CAPITAL EXPENSES AS OPPOSED TO REVENUE EXPENSES DEB ITED BY THE ASSESSEE IN HIS BOOKS OF ACCOUNTS. 5. THE PLEA OF THE ASSESSEE THAT REPAIR & MAINTENAN CE EXPENSES AMOUNTING TO RS.66,70,895/- WERE NOT IN THE NATURE OF CAPITAL EXPENDITURE BUT WERE, EXPENSES FOR EXISTING BUSINE SS AND THEREFORE, ALLOWABLE UNDER SECTION 37(1) NEEDS TO BE EXAMINED IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNCEMENTS AS ALSO THE PROVISI ONS OF THE INCOME TAX ACT, 1961. IT IS ALSO IMPORTANT HERE TO MAKE A DIST INCTION BETWEEN THE CONCEPTS OF CAPITAL AND REVENUE EXPENDITURE. 6. AGAINST THE SAID ORDER ASSESSEE PREFERRED FIRST STATUTORY APPEAL BEFORE THE LD. CIT(A) WHO PARTLY ALLOWED THE APPEAL WITH FOLLOWING OBSERVATION: 3.9 FROM THE DETAILS SUBMITTED, IT WAS FOUND THAT THE APPELLANT HAS INCREASED THE CAPACITY FROM 450 MT PER MONTH TO 800 MT PER MONTH AND THIS ADDITIONAL PRODUCTION IS CLAIMED TO HAVE B EEN STARTED FROM 27.08.2012. FROM THIS, IT TRANSPIRES THAT WHEN THE PRODUCTION CAPACITY WAS INCREASED ALMOST DOUBLY FROM 27.08.2012 THEN IN STALLATION OF THE NEW MACHINERIES AND PLANTS BEFORE HAND WAS INEVITAB LY CARRIED OUT PRE HAND AND HENCE THE EXPENDITURES INCURRED DURING THE YEAR UNDER CONSIDERATION MIGHT HAVE BEEN TOWARDS THE EXPANSION OF THE PROJECT WHICH FINALLY CONVERTED INTO THE INCREASE IN THE PR ODUCTION CAPACITY FROM THE A.Y. 2013-14. IN VIEW OF THE ABOVE, IT IS CONCLUDED THAT THE AO'S ACTION FOR TREATING THE ENTIRE CLAIM AS CAPITA L EXPENDITURE WAS IN ORDER AND DOES NOT REQUIRE ANY INTERFERENCE. THE ST AND OF THE AO IS CONFIRMED AND GROUNDS OF THE APPELLANT ARE DISMISSE D. HOWEVER, ON THE ALTERNATIVE PLEA OF THE APPELLANT THAT IF THE SAME IS CONSIDERED AS CAPITAL EXPENDITURE THEN DEPRECIATION THEREUPON SHALL BE AL LOWED. IN THIS REGARD, THE A.O. IS DIRECTED TO EXAMINE WHETHER THE USE OF THOSE NEW ITA NO. 563/AHD /2014 MAHESHWARI PAPER LTD.VS. ACIT ASST.YEAR 2009-10 - 4 - REPLACED MACHINERIES HAVE TAKEN OR NOT. IF THE SAME HAVE BEEN USED FOR THE PRODUCTION OF THE BUSINESS THEN CERTAINLY FOR T HE BUSINESS/PRODUCTION PURPOSE, THE DEPRECIATION THEREUPON HAS TO BE PROVI DED AS PER THE PROVISIONS OF LAW OTHERWISE NOT IN VIEW OF THE PROV ISIONS OF SECTION 32 OF THE I.T. ACT. AO IS DIRECTED TO VERIFY THE SAME AND ALLOW THE DEPRECIATION, IF ANY AS PER THE LAW. FURTHER, THE C ARRIED FORWARD UNABSORBED DEPRECIATION, IF ANY IS ALLOWABLE IN VIE W OF THE ABOVE MAY BE ALLOWED AS PER THE PROVISIONS OF THE I.T. ACT. 7. WE HAVE GONE THROUGH THE RELEVANT RECORD AND IMP UGNED ORDER. THE ASSESSEE PURCHASES WASTE PAPER WHICH IS ITS RAW MATERIAL & AFTER VARIOUS MANUFACTURING PROCESSES FINISHED PRODUCT KN OWN AS KRAFT PAPER OF DIFFERENT GSM (WEIGHT) & SIZES MANUFACTUR ED. THE KRAFT PAPERS ARE SOLD IN OPEN MARKET. THE PROCESS IS LENG THY PROCESS AND IT IS CONTINUOUS MANUFACTURING PROCESS. THEREFORE, THERE IS ALWAYS HUGE REPAIRS AND MAINTENANCE TO PLANT AND MACHINERY. 9. LD. AR HAS FILED THREE PAPER BOOKS CONTAINING 84 5 PAGES AND HE HAS GIVEN THE DETAILS OF CONSUMABLE ITEMS AND APPEL LANT GRIEVANCES THAT THOSE CONSUMABLE ITEMS HAVE BEEN CONSIDERED AS CAPI TAL EXPENDITURE. 10. IN OUR CONSIDERED OPINION, IT WOULD DEEM TO BE PROPER AND FIT IF THIS MATTER IS REMANDED BACK TO THE FILE OF THE ASS ESSING OFFICER AND APPELLANT IS DIRECTED TO SUBMIT EACH AND EVERY DETA IL BEFORE THE LD. AO AND LD. AO WILL EXAMINE THE DETAILS AND ALL CONSUMA BLE TO BE ALLOWED AS REVENUE EXPENDITURE AND REMAINING TO BE HELD AS CAP ITAL EXPENDITURE. ITA NO. 563/AHD /2014 MAHESHWARI PAPER LTD.VS. ACIT ASST.YEAR 2009-10 - 5 - 11. IN THE RESULT, APPEAL OF THE APPELLANT IS ALLOW ED FOR STATISTICAL PURPOSE. THIS ORDER PRONOUNCED IN OPEN COURT ON 15/02/2018 SD/- SD/- ( ) 4 5 ( N.K. BILLAIYA ) ( MAHAVIR PRASAD ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 15/02/2018 PRITI YADAV, SR.PS !'#$ %$' # COPY OF THE ORDER FORWARDED TO : 1. !$' / THE APPELLANT 2. ($' / THE RESPONDENT. 3. 67- + 8- / CONCERNED CIT 4. + 8- 4!5 / THE CIT(A)-XX, AHMEDABAD. 5. 9:;-67 !.!672 ! / DR, ITAT, AHMEDABAD 6. ;<=, # GUARD FILE. & ' / BY ORDER, (9-- //TRUE COPY// (/' )* ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD TRUE COPY 1. DATE OF DICTATION 08/02/2018 (DICTATION-PAD 2 P AGES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 09/02/2018 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S. 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER