THE ITO 8(3)-2, MUMBAI V. M/S. STERLING AUXILARIES PVT. LTD, MUMBAI

ITA 6290/MUM/2007

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 4668 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Next Hearing Date: 14-09-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 11-10-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUM EET KUMAR
• Assessee Lawyers: H S PARIKH
• Keywords: Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J : MUMBAI BEFORE SHRI D.K. AGARWAL, (JM) AND SHRI B. RAMAKO TAIAH,(AM) ITA NO.6290/MUM/2007 ASSESSMENT YEAR : 2003-04 INCOME TAX OFFICER-8(3)-2 ROOM NO.201, AAYAKAR BHAVAN M.K. ROAD MUMBAI. ..( APPELLANT ) VS. M/S. STERLING AUXILARIES PVT. LTD. 301, MAROL BHAVAN, OFF M.V. ROAD, MAROL ANDHERI(E) MUMBAI-400 059. ..( RESPONDENT ) P.A. NO. (AAACS 5916 Q) APPELLANT BY : SHRI SUMEET KUMAR RESPONDENT BY : SHRI H. S. PARIKH O R D E R PER D.K. AGARWAL (JM). THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AG AINST THE ORDER DATED 19.7.2007 PASSED BY THE LD. CIT(A) FOR THE AS SESSMENT YEAR 2003-04. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF ETHYLI N OXIDE CONDENSATES, PROCESSING AND JOB WORK, FILED RETURN DECLARING LOS S OF RS.8,66,845/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSIN G OFFICER OBSERVED THAT THE ASSESSEE HAS DEBITED REPAIRS AND MAINTENANCE EX PENSES OF MACHINERY OF RS.20,27,267/-. BEFORE THE ASSESSING OFFICER THE A SSESSEE STATED THAT THERE WAS MASSIVE DESTRUCTION IN THE PLANT AND MACHINERY AND THERE WAS NO ALTERNATIVE BUT TO CARRY OUT REPAIRS OF THE SAME. ASSESSING OFFICER VERIFIED SOME BILLS AND FOUND THAT AMOUNT WAS PAID TO BUY S OME SPECIFIC PART OF THE ITA NO.6290/M/07 A.Y:03-04 2 PLANT. THE ASSESSEE ALSO PURCHASED SOME MS STEEL B AR AND SHOWED THESE PURCHASES UNDER THE HEAD ADDITION TO PLANT AND MACH INERY AND WORK IN PROGRESS. HOWEVER, CORRESPONDING LABOUR CHARGES FOR ERECTION/INSTALLATION OF THOSE ITEMS WERE NOT DEBITED, THE SAME WERE DEBITED UNDER THE HEAD REPAIR AND MAINTENANCE. THE ASSESSING OFFICER HAS ALSO GI VEN COMPARATIVE CHART IN RESPECT OF REPAIR AND MAINTENANCE ON THE PLANT AND MACHINERY FROM ASSESSMENT YEARS 2000-2001 TO 2003-2004. IN THE CI RCUMSTANCES THE ASSESSING OFFICER ARRIVED AT THE CONCLUSION THAT TH E CAPITAL EXPENDITURE HAS BEEN DEBITED ON THE GUISE OF REVENUE EXPENDITURE. ACCORDINGLY THE ASSESSING OFFICER ALLOWED RS.3,50,000/- AS REPAIR AND MAINTEN ANCE AND BALANCE AMOUNT OF RS.16,77,267/- WAS DISALLOWED. DURING THE COURS E OF APPELLATE PROCEEDINGS IT WAS INTERALIA SUBMITTED THAT THE ASSESSEE HAS FILED DETAILS OF REPAIRS AND MAINTENANCE EXPENSES AS WELL AS A XEROX COPY OF THE DETAILS OF INSURANCE CLAIM IN THE ASSESSMENT YEAR 2002-03 IN W HICH A BOILER WAS BURST AND BECAUSE OF THAT A MASSIVE DESTRUCTION TOOK PLAC E IN THE SURROUNDING BOILER AREA AS WELL AS THE BOILER, THEREFORE, THERE WAS NO OTHER ALTERNATIVE BUT TO CARRY OUT THE REPAIRS OF THE SAME. IT WAS FURTH ER SUBMITTED THAT AFTER SOME REPAIRS TEMPORARY WORK WAS CARRIED OUT AND THE ASSESSEE HAS NOT INCURRED A SINGLE CAPITAL EXPENDITURE IN THIS CONNE CTION. IN SUPPORT A COPY OF CERTIFICATE RECEIVED FROM M/S. V.P. ENGINEERING ALO NGWITH DETAILS OF INSURANCE CLAIM WAS FILED. IT WAS FURTHER SUBMITTED THAT IF THE KEY OR THE VITAL PART OR PARTS OF A MACHINE ARE ALL LEFT UNINTERFERED, THE C IRCUMSTANCE THAT THE REPLACED OR RENEWED PARTS OUTNUMBER THE KEY PARTS W OULD BE OF NO CONSIDERATION. AGAIN, THOUGH THE PART REPLACED IS VITAL PART, STILL, IF ITS VALUE IN RELATION TO THE WHOLE UNIT IS NOT SUBSTANTIAL, B UT IS ONLY A SMALL PERCENTAGE, THE CIRCUMSTANCE THAT THE PART REPLACED IS A VITAL OR A KEY ONE, WOULD NOT PREVENT THE ACT FROM BEING ONLY ONE OF REPAIR. THE ASSESSEE WHILE PLACING RELIANCE ON VARIOUS DECISIONS INCLUDING THE DECISIO N OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. CHOWGULE AND CO. PVT. LTD. REPORTED IN (1995) 214 ITR 523 (BOM.) SUBMITTED THAT THE ENTIRE REPAIR EXPENSES AND AT BEST REPLACEMENT BE ALLOWED. ITA NO.6290/M/07 A.Y:03-04 3 3. THE LD. CIT(A) WHILE OBSERVING THAT IT IS NOT DI SPUTED THAT THERE WAS BOILER BURST IN THE FACTORY PREMISES AND THEREFORE, REPAIRS AND MAINTENANCE EXPENSES CANNOT BE COMPARED WITH THE FIGURE OF EARL IER YEARS AND THE ASSESSING OFFICER HAS NOT BROUGHT ANY EVIDENCE ON R ECORD TO JUSTIFY SUCH DISALLOWANCE, DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER . 4. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) T HE REVENUE IS IN APPEAL BEFORE US TAKING FOLLOWING SOLE GROUND OF AP PEAL :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DI SALLOWANCE OF RS.16,77,267/- AS CAPITAL EXPENDITURE OF REPAIRS AN D MAINTENANCE OF PLANT AND MACHINERY. 5. AT THE TIME OF HEARING THE LD. DR SUBMITS THAT F OR THE REASONS AS MENTIONED IN THE ASSESSMENT ORDER THE LD. CIT(A) W AS NOT JUSTIFIED IN DELETING THE DISALLOWANCE OF RS.16,77,267/- OF REP AIRS AND MAINTENANCE OF PLANT AND MACHINERY TREATED BY THE ASSESSING OFFIC ER AS CAPITAL EXPENDITURE. HE THEREFORE, SUBMITS THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER BE RESTORED. 6. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSESS EE WHILE REITERATING THE SAME SUBMISSIONS AS SUBMITTED BEFORE THE ASSESS ING OFFICER AND THE LD. CIT(A), RELIED ON THE ORDER OF THE LD. CIT(A). THE RELIANCE WAS ALSO PLACED ON THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT IN CIT VS. CHOWGULE AND CO. PVT. LTD.(SUPRA), TO SHOW THAT THE ASSESSEE'S C ASE IS FULLY COVERED WITH ALL THE PROPOSITIONS SET OUT BY THEIR LORDSHIPS FOR AL LOWING THE REPAIRS AND MAINTENANCE EXPENSES AS REVENUE EXPENSES. HE, THERE FORE, SUBMITS THAT THE ORDER PASSED BY THE LD. CIT(A) BE UPHELD. 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THERE IS NO DISPUTE THAT IN THE IMMEDIATELY PRECEDING YEAR I.E. ASSESSM ENT YEAR 2002-03 A BOILER WAS BURST AND BECAUSE OF THAT MASSIVE DESTRUCTION T OOK PLACE AND THERE WAS ITA NO.6290/M/07 A.Y:03-04 4 NO ALTERNATIVE BUT TO CARRY OUT THE REPAIRS OF THE SAME. THE ASSESSING OFFICER HAS ALLOWED THE REPAIRS AND MAINTENANCE EXPENSES AM OUNTING TO RS.1,00,06,429/- IN RESPECT OF PLANT AND MACHINER Y AS REVENUE EXPENDITURE FOR THE ASSESSMENT YEAR 2002-03. IN THE YEAR UNDER CONSIDERATION THE ASSESSEE INCURRED FURTHER EXPENSES ON CURRENT REPAI RS AND MAINTENANCE OF PLANT AND MACHINERY AND CLAIMED AS REVENUE EXPENDIT URE. HOWEVER, THE ASSESSING OFFICER WITHOUT DOUBTING THE AMOUNT OF EX PENSES TREATED THE SAME AS CAPITAL EXPENDITURE. SINCE, THE AMOUNT HAS BEEN INCURRED ON THE CURRENT REPAIRS AND MAINTENANCE OF PLANT AND MACHINERY AND IN THE ABSENCE OF ANY MATERIAL TO SHOW THAT THE SAME HAS BEEN INCURRED FO R PURCHASE OF NEW ITEM OF PLANT AND MACHINERY AND NOT TO PRESERVE AND MAIN TAIN THE ASSET VIZ. BOILER, AND KEEPING IN VIEW THAT IN THE YEAR UNDER CONSIDERATION THE REPAIRS AND MAINTENANCE EXPENSES OF PLANT AND MACHINERY ARE ONLY RS.20,27,267/- AS AGAINST RS.1,00,06,429/- FOR ASSESSMENT YEAR 200 2-03, AND ALSO KEEPING IN VIEW THAT THE ASSESSING OFFICER HAS HIMSELF ALLO WED RS.3,50,000/- AS REPAIR AND MAINTENANCE EXPENSES FOR THE YEAR UNDER CONSID ERATION, WE ARE OF THE VIEW THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED I N TREATING THE BALANCE AMOUNT OF RS.16,77,267/- AS CAPITAL EXPENDITURE AS AGAINST CURRENT REPAIRS ALLOWABLE U/S.31(I) OF THE ACT AND ACCORDINGLY WE A RE INCLINED TO UPHOLD THE ORDER OF THE LD. CIT(A) IN DELETING THE DISALLOWANC E MADE BY THE ASSESSING OFFICER . SINCE WE HAVE ALLOWED THE REPAIRS AND MAI NTENANCE EXPENSES AS CURRENT REPAIR, THE ASSESSING OFFICER IS DIRECTED T O WITHDRAW THE DEPRECIATION THEREON, ALREADY ALLOWED. THE GROUNDS TAKEN BY TH E REVENUE ARE THEREFORE, REJECTED. 8. IN THE RESULT, THE REVENUES APPEAL STANDS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24.9.2010. SD/- SD/- (B. RAMAKOTAIAH) ( D.K. AGARWAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 24.9.2010. JV. ITA NO.6290/M/07 A.Y:03-04 5 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.