ITO 10(1)(2), MUMBAI V. JINDAL EARTHMOVERS P. LTD, MUMBAI

ITA 7814/MUM/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62645 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-07-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2007-2008
• Appeal Filed On: 12-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARTHASARTHI NAIK
• Assessee Lawyers: V C SHAH
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 2(14); 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I MUMBAI BEFORE SHRI D. MANMOHAN (VICE PRESIDENT) AND SHRI N.K. BILLAIYA (ACCOUNTANT MEMBER ) ITA NO.7814/MUM/2010 ASSESSMENT YEAR-2007-08 THE ITO 10(1)(2), AAYAKAR BHAVAN, MUMBAI-400 020 VS. M/S. JINDAL EARTHMOVERS PVT. LTD., 301, 3 RD FLOOR, JUGAL JYOTI, 176, C.S.T. ROAD, KALINA, SANTACRUZ (E), MUMBAI-400 098 PAN - AAACJ 1086A (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI PARTHASARTHI NAIK RESPONDENT BY: SHRI V.C. SHAH DATE OF HEARING : 04.07.2012 DATE OF PRONOUNCEMENT:11.7.2012 O R D E R PER N.K. BILLAIYA (AM): THE REVENUE HAS QUESTIONED THE CORRECTNESS OF THE ORDER OF THE LD. CIT(A)-21, MUMBAI DT. 17.8.2010 FOR THE ASSESSMENT YEAR 2007-08. 2. THE REVENUE HAS RAISED FIVE GROUNDS OF APPEAL TH E SUM AND SUBSTANCE OF THE EFFECTIVE GROUNDS ARE: (I) THE LD. CIT(A) ERRED IN ALLOWING EXPENDITURE OF R S. 67,62,606/- AS REVENUE EXPENDITURE AND (II) THE LD. CIT(A) ERRED IN DIRECTING THAT THE ASSESSEE IS ENTITLED FOR DEPRECIATION ON ASSETS AT THE RATE OF 30%. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE IS IN THE BUSINESS OF HIRING OF EARTHMOVING EQUIPMENTS. FOR THE YEAR UNDER ITA NO. 7814/M/2010 2 CONSIDERATION, THE RETURN WAS FILED DECLARING AT RS . 20,94,014/- ON 30.10.2007. THE RETURN WAS SELECTED FOR SCRUTINY A SSESSMENT AND THE STATUTORY NOTICES U/S. 143(2) & 142(1) WERE ISSUED AND SERVED ON THE ASSESSEE. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS DEBITED RS. 2,71,22,378 /- UNDER THE HEAD ADMINISTRATION AND OTHER SELLING EXPENSES. THE AO FURTHER FOUND THAT THIS AMOUNT INCLUDED AN AMOUNT OF RS. 2,27,71,651/- UNDE R THE HEAR REPAIRS & MAINTENANCE. THE AO SOUGHT EXPLANATION FROM THE A SSESSEE IN RESPECT OF THIS EXPENDITURE OF RS. 2,27,71,651/-. THE ASSESSE E VIDE ITS LETTER DT. 4 TH DECEMBER 2009 STATED THAT THE MACHINERIES ARE VERY HEAVY AND HAVE TO PUT TO USE IN CONSTRUCTION OF ROADS, DAMS AND BRIDGES E TC. BECAUSE OF ITS NATURE OF WORK, THERE IS VERY HIGH AMOUNT OF WEAR AND TEAR OF THESE MACHINERIES. THE EXPENDITURE ON REPAIRS & MAINTENANCE ARE CURREN T REPAIRS AND NOT CAPITAL EXPENDITURE, AS IT DOES NOT ADD TO THE CAPACITY OF THE MACHINES NOR ITS LIFE IS ENHANCED BY THESE REPAIRS HENCE THESE ARE CURRENT R EPAIRS AND NOT CAPITAL EXPENDITURE AND THUS ITS ALLOWABLE EXPENDITURE. 5. THE EXPLANATION GIVEN BY THE ASSESSEE DID NOT FI ND ANY FAVOUR FROM THE AO. THE AO OBSERVED THAT THE ASSESSEE HAS SHOWN PL ANT AND MACHINERY AT THE BEGINNING OF THE YEAR AT RS. 2,14,27,147/- AND OUT OF THIS SOLD MACHINERY DURING THE YEAR AT RS. 74,42,000/- AND AT THE SAME TIME ADDITIONS IN NEW MACHINERIES WERE TO THE TUNE OF RS. 3,53,26,81/-. BASED ON THESE FACTS AND FIGURES, THE AO FURTHER SOUGHT EXPLANATION FROM THE ASSESSEE TO JUSTIFY THE TOTAL CLAIM OF AMOUNT SHOWN AS REPAIR & MAINTENANC E TO THE TUNE OF RS. 2.3 CRORES AS AGAINST THE WDV OF OLD MACHINERIES AT RS. 1.39 CRORES. THE ASSESSEE FILED THE DETAILS IN RESPECT OF ITEMS/EQU IPMENTS PURCHASED DURING THE YEAR WHICH ARE EXHIBITED AT PARA 5 OF THE ASSES SMENT ORDER. THE AO AFTER CONSIDERING THE DETAILS SUBMITTED BY THE ASSESSEE WAS NOT SATISFIED WITH THE CLAIM AS REPAIRS AND MAINTEN ANCE BEING OF REVENUE IN ITA NO. 7814/M/2010 3 NATURE. THE AO WENT ON TO CONCLUDE THAT THE AMOUNT HAS BEEN EXPENDED EXCLUSIVELY FOR INCREASING THE LIFE OF THE MACHINER Y AND RELYING UPON THE DECISION OF CIT VS SARAVANA SPINNING MILLS PVT. LTD . (2007) 293 ITR 201 (SC) DISALLOWED THE AMOUNT OF RS. 67,62,606/- AS BEING C APITAL IN NATURE. 6. WHEN THE MATTER WAS AGITATED BEFORE THE LD. CIT( A), THE ASSESSEE REITERATED ITS STAND THAT THE AMOUNT SPENT ON REPAI RS AND MAINTENANCE OF MACHINERIES WAS NOTHING BUT REVENUE EXPENDITURE REQ UIRED FOR THE MAINTENANCE AND UPKEEP OF OLD MACHINERIES. AFTER C ONSIDERING THE EXPLANATION AND THE SUBMISSION OF THE ASSESSEE, THE LD. CIT(A) WAS OF THE VIEW THAT THE AO HAS NOT RAISED DOUBTS ON THE GENUI NENESS OF THE EXPENDITURE AND CONSIDERING THE NATURE OF BUSINESS OF THE ASSESSEE WHICH PROVIDED ON RENTAL BASIS VARIOUS MOBILE EARTH MOVIN G MACHINERIES, MOBILE CRANES, JCB AND EQUIPMENTS TO CONSTRUCTION COMPANIE S , ALLOWED THIS GROUND. 7. BEFORE US, THE LD. DR RELYING UPON THE ASSESSMEN T ORDER , SUBMITTED THAT SECTION 31 ALLOWS EXPENSES FOR REPAIRS AND INS URANCE OF MACHINERY, PLANT OR FURNITURE WHICH ARE USED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION. THE LD. DEPARTMENTAL REPRESENTATIVE FURTHER HIGHLIG HT THAT U/S. 31, THE AMOUNT PAID ON ACCOUNT OF CURRENT REPAIRS CANNOT IN CLUDE ANY EXPENDITURE IN THE NATURE OF CAPITAL EXPENDITURE. 8. THE LD. COUNSEL FOR THE ASSESSEE REITERATED HIS STAND THAT CONSIDERING THE NATURE OF BUSINESS OF THE ASSESSEE THE MACHINER IES USED REQUIRE HEAVY EXPENDITURE ON THEIR MAINTENANCE AND UPKEEP AND TH EREFORE THE EXPENDITURE SHOULD BE ALLOWED AS REVENUE EXPENDITURE. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE ORDERS OF LOWER AUTHORITIES. WE FIND THAT FROM THE DETAILS S UBMITTED BY THE ASSESSEE BEFORE THE AO ALL THE ITEMS APPEAR TO BE REQUIRED F OR THE MAINTENANCE OF HEAVY MACHINERIES LIKE EARTH MOVERS, JCB, MOBILE CR ANES AND ARE MOSTLY IN THE NATURE OF SPARE PARTS USED FOR SUCH HEAVY MACHI NERIES AS USED BY THE ASSESSEE IN ITS LINE OF BUSINESS . WE FIND THAT TH E SOLE REASON FOR DISALLOWING ITA NO. 7814/M/2010 4 THE CLAIM OF ASSESSEE BY THE AO IS THAT THE ASSESSE E COULD NOT JUSTIFY THE AMOUNT SPENT ON REPAIR OF OLD MACHINERIES WHOSE WDV IS ONLY 1.39 CRORES. WE DO NOT FIND ANY LOGIC BEHIND THIS FINDING. WHAT THE AO IS COMPARING IS THE WDV OF THE HEAVY MACHINERIES WHEREAS SPARE PARTS AN D OTHER ACCESSORIES ARE PURCHASED AT THE PRESENT MARKET VALUE. THE SOLE TE ST IS TO FIND OUT WHETHER EXPENDITURE WAS INCURRED TO MAINTAIN EXISTING ASSET AND NO NEW ASSET IS BROUGHT INTO EXISTENCE. THIS IS ALSO THE FINDING O F THE HONBLE SUPREME COURT IN THE CASE OF CIT VS SARAVANA SPINNING MILLS PVT. LTD. (SUPRA). CONSIDERING THE NATURE OF ITEMS FURNISHED BY THE ASSESSEE BEFOR E THE AO, WE ARE OF THE CONSIDERED VIEW THAT NO NEW ASSET HAS COME INTO EXI STENCE AND ALL THE ITEMS ARE EITHER USED FOR THE UPKEEP OR MAINTENANCE OF TH E EXISTING HEAVY MACHINERIES WHICH ARE USED IN THE LINE OF BUSINESS OF THE ASSESSEE. THEREFORE, WE DO NOT FIND ANY ERROR OR INFIRMITY IN THE FINDING OF LD. CIT(A) WHICH ARE HEREBY CONFIRMED. THIS GROUND OF THE REV ENUE FAILS. 10. THE SECOND GRIEVANCE OF THE REVENUE IS AGAINST THE CLAIM OF DEPRECIATION AT THE RATE OF 30% ON WDV. THE ASSETS ON WHICH THE ASSESSEE HAS CLAIMED DEPRECIAION @ 30% ARE (A) TRANSIT MIXER S (B) CONCRETE PUMP (C) JCB HOLDER AND (D) MOBILE CRANE. THE AO ASKED THE ASSESSEE TO JUSTIFY THE CLAIM OF HIGHER DEPRECIATION. THE ASSESSEE VIDE IT S LETTER DT. 10.12.2009 REPLIED AS UNDER: THE HIGHER RATE OF 30% DEPRECIATION IS ALLOWABLE I N CASE OF PLANT & MACHINERY SUCH AS MOTOR BUSINESS, MOTOR LOR RIES, MOTOR TAXIS USED IN THE BUSINESS ON RUNNING THEM ON HIRE, THEREBY THERE ARE TWO CONDITIONS FOR HIGHER RATE OF DEPRECI ATION. 1) VEHICLES MUST BE HEAVY COMMERCIAL VEHICLE REGISTERE D WITH RTO UNDER MOTOR VEHICLE ACT. 2) VEHICLES MUST BE GIVEN ON HIRE IN THE BUSINESS OF R UNNING THEM ON HIRE. WE ARE IN THE BUSINESS OF RUNNING THE VEHICLE ON HI RE AS WE ARE RECEIVING HIRE CHARGES. THE VEHNICLES SUCH AS TRAN SIT MIXERS, JCB LOADERS AND MOBILE CRANES ARE VEHICLES WHICH CA N BE REGISTERED UNDER MOTOR VEHICLE ACT, AS THEY HAVE TY RES TO RUN THEM ON ROADS AND THEREFORE THEY ARE ELIGIBLE FOR H IGHER RATE OF DEPRECIATION FOR BUSINESS OF RUNNING THEM ON HIRE. ITA NO. 7814/M/2010 5 THE AO WAS OF THE OPINION THAT THE ASSETS OF THE A SSESSEE DO NOT FALL IN THE CATEGORY OF MOTOR BUSES, MOTOR LORRIES AND MOTO R TAXIS AND ACCORDINGLY HELD THAT THE ASSESSEE IS ELIGIBLE FOR DEPRECIATION @ 15%. 11. THE ASSESSEE AGITATED THE MATTER BEFORE THE LD. CIT(A). BEFORE THE CIT(A) THE ASSESSEE REITERATED HIS ARGUMENT THAT TH E TRANSIT MIXER, CONCRETE PUMP, JCB HOLDER AND MOBILE CRANE WERE HEAVY COMMER CIAL VEHICLES REGISTERED WITH THE RTO AND WERE GIVEN ON HIRE THER EFORE ITS CLAIM FOR HIGHER RATE OF DEPRECIATION IS JUSTIFIED. THE LD. CIT(A) WAS CONVINCED WITH THE EXPLANATION OF THE ASSESSEE AND ALLOWED THE DEPRECI ATION AT THE RATE OF 30%. 12. BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDER OF AO. THE LD. COUNSEL FOR THE ASSESSEE REITERATED HIS STAND TAKEN BEFORE THE LOWER AUTHORITIES. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSION AND PER USED THE ORDERS OF LOWER AUTHORITIES. AS PER APPENDIX-1 TO I.T. RULES, MOTOR BUSES, MOTOR LORRIES AND MOTOR TAXIS USED IN A BUSINESS OF RUNNING THEM ON HIRE ARE ENTITLED FOR DEPRECIATION @ 30%. THE FACT WHICH IS NOT IN DISPU TE IS THAT THE BUSINESS OF THE ASSESSEE IS TO GIVE ON HIRE EARTH MOVING EQUIPM ENTS. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF GUJCO CARRIERS VS CIT 256 ITR 50 (GUJ) HAS HELD THAT THE TRUCK ON WHICH THE CRANE IS MOUNTED IS CONSTRUCTED AND ADAPTED SPECIALLY TO CARRY THE CRANE. GOODS CARRIA GE AS DEFINED IN SECTION 2(14) OF THE MOTOR VEHICLES ACT, 1988, MEANS ANY MO TOR VEHICLE CONSTRUCTED OR ADAPTED FOR USE SOLELY FOR THE CARRIAGE OF GOODS , OR ANY MOTOR VEHICLE NOT SO CONSTRUCTED OR ADAPTED WHEN USED FOR THE CARRIAG E OF GOODS . . WE ALSO DRAW SUPPORT FROM THE DECISION OF ITAT HYDERABAD IN THE CASE OF ANSARI HOLDING & INVESTMENT (P) LTD. VS DCIT 12 SOT 438 W HEREIN THE TRIBUNAL HAS HELD THAT MOBILE CRANES REGISTERED AS HEAVY MOTOR V EHICLE ARE ELIGIBLE FOR DEPRECIATION AT THE RATE OF 40 PERCENT WHEREIN THE TRIBUNAL FOLLOWED THE FINDING OF THE HONBLE GUJARAT HIGH COURT (SUPRA). AS THE AO HAS NOT DISPUTED THE NATURE OF MACHINERIES NOR THE NATURE OF BUSINES S, RESPECTFULLY FOLLOWING ITA NO. 7814/M/2010 6 THE FINDING IN THE DECISION CITED HEREIN ABOVE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE DECISION OF LD. CIT(A). THIS GR OUND OF THE REVENUE ALSO FAILS. 14. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED ON THIS 11 TH DAY OF JULY, 2012 SD/- SD/- (D.MANMOHAN) (N.K. BILLAIYA ) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED 11 TH JULY, 2012 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR I BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI