BALKRISHNA PAPER MILLS LTD, MUMBAI V. ASST CIT CIR 6(1), MUMBAI

ITA 7176/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8572 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 24-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: DI LIP J THAKKAR
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B BENCH BEFORE SHRI B.R.MITTAL(JUDICIAL MEMBER) AND SHRI RAJENDRA (ACCOUNTANT MEMBER) ITA NO.7176/MUM/2011 ASSESSMENT YEAR: 2008-09 BALKRISHNA PAPER MILLS LTD., BKT HOUSE, C/14, TRADE WORLD, KAMLA MILLS COMPOUND, S.B.MARG, LOWER PAREL(W), MUMBAI PA NO.AADCB 0910 G ACIT, CIRCLE 6(1), MUMBAI. (APPELLANT) VS. (RESPONDENT) APPELLANT BY : SHRI DILIP J THAKKAR RESPONDENT BY: SHRI MANOJ KUMAR DATE OF HEARING: 27 .9.2012 DATE OF PRONOUNCEMENT: 10.10.2012 ORDER PER B.R.MITTAL, JM: THE ASSESSEE HAS FILED THIS APPEAL FOR ASSESSMENT YEAR 2008-09 AGAINST ORDER DATED 20.9.2011 OF LD CIT(A) ON THE FOLLOWING GROUN D: ON THE FACTS AND UNDER THE CIRCUMSTANCES OF THE CA SE AND IN LAW, LD CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.1,70, 000(2,00,000 30,000)(15%) OUT OF REPAIR AND MAINTENANCE TO PLANT & MACHINERY ON ADHOC BASIS WITHOUT APPRECIATING THAT COMPANY HAD A LREADY CAPITALIZED THE AMOUNT WHICH WERE CAPITAL IN NATURE AND NO FURT HER DISALLOWANCE IS CALLED FOR. 2. THE ASSSESSEE CLAIMED A SUM OF RS.77,34,504/- UN DER THE HEAD REPAIRS AND MAINTENANCE OF PLANT AND MACHINERY. THE AO TREATE D THE SAID EXPENDITURE AS CAPITAL EXPENDITURE AND AFTER ALLOWING DEPRECIATION @ 15% U NDER SECTION 32 OF THE ACT, DISALLOWED BALANCE AMOUNT OF RS.65,74,328. BEING A GGRIEVED, ASSESSEE FILED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. ITA NO.7176/MUM/2011 ASSESSMENT YEAR: 2008-09 2 3. ON BEHALF OF ASSESSEE, IT WAS CONTENDED THAT EXP ENDITURE INCURRED BY THE ASSESSEE WAS PURELY FOR REPAIR AND MAINTENANCE OF P LANT AND MACHINERY AND NO NEW ASSETS HAVE BEEN ACQUIRED, NEITHER ANY ENDURING BEN EFIT IS DERIVED. IT WAS CONTENDED THAT ASSESSEE COMPANY IS IN EXISTENCE FROM LAST SEV ERAL DECADES, ALMOST 20 YEARS AND ABOVE. THAT THE WEAR AND TEAR IS COMMON AND COMPAN Y HAS TO INCUR THE EXPENDITURE FOR REPAIRS ON CONTINUOUS BASIS. RELYING ON THE DE CISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. DLF COMMERCIAL DEVELOPERS LIMIT ED, 323 ITR 321(DEL), IT WAS CONTENDED THAT THE ACTION OF THE AO IS UNWARRANTED. LD CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE, CONSIDERED THE AMOUNT OF RS.2 LAKHS FOR DISALLOWANCE AS CAPITAL EXPENDITURE AND AFTER ALLOWING 15% DEPRECIA TION THEREON, CONFIRMED THE NET DISALLOWANCE OF RS.1,70,000 VIDE PARAS 6.3 & 6.4 OF THE IMPUGNED ORDER, WHICH ARE AS UNDER: I HAVE CONSIDERED THE ABOVE SUBMISSION OF THE APPE LLANT AND THE FACTS OF THE CASE, I HAVE ALSO SEEN THE DETAILS OF EXPENSES AS FURNISHED BY THE APPELLANT. FROM THE DETAILS IT IS SEEN THAT MOST OF THE EXPENS ES ARE IN THE NATURE OF REPAIR AND NO NEW ASSETS HAVE BEEN ACQUIRED OR ELSE ANY ENDURING BENEFIT HAS BEEN DERIVED. THEREFORE, THE ASSESSING OFFICERS AC TION IS NOT IN CONFORMITY WITH THE FACTS. HOWEVER, IT IS SEEN THAT SOME OF TH E ITEMS OF EXPENDITURE ARE CERTAINLY IN THE NATURE OF CAPITAL EXPENDITURE. FOR EXAMPLE THERE ARE NUMBER OF EXPENSES DEBITED FOR TRANSPORT OF MACHINERY WHIC H SHOULD BE CAPITALIZED WITH THE COST OF MACHINERY. SOME OTHERS ARE AS UNDE R: 6.4 THEREFORE, SINCE A SMALL PORTION OF THE ABOVE E XPENSES IS IN THE NATURE OF CAPITAL EXPENDITURE AND IS REQUIRED TO BE CAPITALIZ ED WITH THE ASSET FOR WHICH THE SAME HAS BEEN INCURRED, IN THE INTERESTS OF JUS TICE, I CONSIDER THAT AN AMOUNT OF RS.2 LAKHS WOULD BE APPROPRIATE FOR DISAL LOWANCE. HOWEVER DEPRECIATION AT THE OF 15% SHALL BE GRANTED ON THIS AMOUNT WHICH MEANS THAT THE NET DISALLOWANCE WOULD BE RS. 1,70,000/-. HENCE , THE DISALLOWANCE TO THIS EXTENT IS SUSTAINED AND THE BALANCE AMOUNT OF RS.64 ,04,328/- IS DELETED. 4. HENCE, THIS APPEAL BY THE ASSESSEE. ITA NO.7176/MUM/2011 ASSESSMENT YEAR: 2008-09 3 5. DURING THE COURSE OF HEARING, LD A.R. REITERATED THE SUBMISSIONS AS MADE BEFORE THE AUTHORITIES BELOW. HE FURTHER REFERRED PAGES 5 TO 21 OF PB AND SUBMITTED THAT DETAILS OF EXPENDITURE COULD REVEAL THAT THE EXPENS ES ARE REVENUE IN NATURE AND NO NEW ASSETS HAVE BEEN ACQUIRED. LD A.R. REFERRED TO THE DECISION OF ITAT IN THE CASE OF ACIT VS. ARTHUR ANDERSON & CO., 5 SOT 393(MUM) BESIDES R ELYING ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF DLF COMMERCIAL DEVE LOPERS LIMITED(SUPRA). LD A.R. SUBMITTED THAT ADHOC DISALLOWANCE OF RS.2 LAKHS BY LD CIT(A) CONSIDERING AS CAPITAL EXPENDITURE OUT OF TOTAL EXPENDITURE OF RS.77,34,50 4 IS ARBITRARY AND SAID DISALLOWANCE SHOULD BE DELETED. 6. ON THE OTHER HAND, LD D.R. RELIED ON ORDER OF LD CIT(A). FURTHER IN REPLY TO A QUERY BY THE BENCH, LD D.R. CONFIRMED THAT DEPARTME NT IS NOT IN APPEAL AGAINST THE ORDER OF LD CIT(A). 7. WE HAVE CONSIDERED SUBMISSIONS OF LD REPRESENTAT IVES OF PARTIES AS ALSO DETAILS OF EXPENDITURES PLACED AT PAGES 5 TO 21 OF PB. ON PER USAL OF SAID DETAILS, IT IS EVIDENT THAT THE SAID EXPENDITURE HAS BEEN INCURRED BY THE ASSES SEE FOR REPAIRS AND MAINTENANCE OF PLANT AND MACHINERY AND NO NEW ASSETS HAVE BEEN ACQ UIRED. WE ALSO OBSERVE THAT THREE EXPENSES GIVEN BY LD CIT(A) IN PARA 6.3 OF TH E IMPUGNED ORDER, DETAILS MENTIONED HEREINABOVE, ALSO DO NOT ESTABLISH THAT THE SAID EX PENDITURE IS CAPITAL IN NATURE. MOREOVER, EVEN IF THE SAID AMOUNT AS MENTIONED BY L D CIT(A) IS CONSIDERED AS CAPITAL IN NATURE, THE TOTAL AMOUNT COMES TO RS.33,500 ONLY. ON CONSIDERATION OF THE FACTS OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT THE ACTION OF LD CIT(A) TO TREAT ADHOC DISALLOWANCE OF RS.2 LAKHS AS CAPITAL EXPENDITURE A ND TO CONFIRM THE SAID DISALLOWANCE IS NOT BASED ON COGENT MATERIAL ON RECORD. FURTHER, I TAT MUMBAI IN THE CASE OF ARTHUR ANDERSON & CO(SUPRA) HAS HELD THAT WHERE DISALLOWAN CE IS MADE ON SURMISES AND CONJECTURES, THE SAME IS DEVOID OF ANY LEGALLY SUST AINABLE FOUNDATION. IN VIEW OF ABOVE, WE HOLD THAT THE DISALLOWANCE MADE BY LD CIT(A) BY CONSIDERING ON ADHOC BASIS OF RS.2 LAKHS AS CAPITAL EXPENDITURE IS NOT JUSTIFIABLE IN LAW AND, ACCORDINGLY, WE DELETE THE SAME BY DIRECTING THE ENTIRE EXPENDITURE OF 77,34,504 IS TO BE CONSIDERED AS REVENUE EXPENDITURE. HENCE, GROUND OF APPEAL TAKEN BY ASSE SSEE IS ALLOWED. ITA NO.7176/MUM/2011 ASSESSMENT YEAR: 2008-09 4 8. IN THE RESULT, APPEAL FILED BY ASSESSEE IS ALLOW ED. PRONOUNCED IN THE OPEN COURT ON 10 TH OCTOBER, 2012 SD/- (RAJENDRA) ACCOUNTANT MEMBER SD/- (B.R. MITTAL) JUDICIAL MEMBER MUMBAI, DATED 10 TH OCTOBER, 2012 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS),14, MUMBAI 4. COMMISSIONER OF INCOME TAX, VI , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH B MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI