DCIT, CIR-5(1), KOLKATA, Kolkata V. M/s Kalyanpur Cement Ltd., Kolkata

ITA 901/KOL/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1372 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-10-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 19-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G HANGSHING
• Keywords: Capital asset; Revenue expenditure; Capital expenditure

Judgement Text

1 ITA NO.901/KOL/2015 KALYANPUR CEMENT LTD.., AY, 2010-11 + , B , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA ( ) . . , . ' # $% % , '( ) [BEFORE SHRI A. T. VARKEY, JM & DR. A. L. SAINI, A M] I.T.A. NO. 901/KOL/2015 ASSESSMENT YEAR: 2010-11 DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-5(1), KOLKATA VS. M/S. KALYANPUR CEMENT LTD. (PAN: AABCK1273H) APPELLANT RESPONDENT DATE OF HEARING 07.08.2017 DATE OF PRONOUNCEMENT 06.10.2017 FOR THE APPELLANT SHRI G. HANGSHING, CIT, DR FOR THE RESPONDENT SHRI SOUMITRA CHOUDHURY, ADVOCAT E ORDER PER SHRI A.T.VARKEY, JM THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A)-2, KOLKATA DATED 16.02.2015 FOR AY 2010-11. 2. THE SOLE ISSUE INVOLVED IN THIS APPEAL OF REVENU E IS AGAINST THE ACTION OF LD. CIT(A) IN ALLOWING THE EXPENDITURE OF RS.2,67,46,867/- INC URRED ON REPAIR OF PLANT AND MACHINERY WITHOUT CONSIDERING THE CONTENTION OF AO THAT THE A SSESSEE WOULD GET ENDURING BENEFIT FROM THE SAID EXPENDITURE FOR NUMBER OF YEARS TO COME. 3. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS EN GAGED IN MANUFACTURING OF CEMENT. THE ASSESSEE FILED E-RETURN OF INCOME ON 25.09.2010 DEC LARING A LOSS OF RS.63,97,05,090/-. THE ASSESSEE COMPANY HAS CLAIMED RS.6,95,01,149/- UNDER THE HEAD CONSUMPTION OF STORES, SPARE AND CONSUMABLES AND RS.8,89,13,424/- UNDER THE HEAD REPAIRS AND MAINTENANCE TO MACHINERY UNDER THE HEAD MANUFACTURING EXPENSES IN SCHEDULE 1 2 OF THE ANNUAL ACCOUNTS. DURING THE ASSESSMENT PROCEEDINGS THE ASSESSEE SUBMITTED F ULL DETAILS OF ITEM WISE COMPONENTS REPLACED DUE TO NORMAL WEAR AND TEAR AND FOR SMOOTH FUNCTIONING OF THE PLANTS. THE ASSESSEE ALSO SUBMITTED THAT THE REPAIRS AND MAINTENANCE WER E NECESSARY TO KEEP THE PLANT IN RUNNING CONDITION. HOWEVER, THE AO DISSATISFIED WITH THE C LAIM OF THE ASSESSEE ON THE GROUND THAT 2 ITA NO.901/KOL/2015 KALYANPUR CEMENT LTD.., AY, 2010-11 SUCH EXPENSES ON PLANT AND MACHINERY ULTIMATELY GIV E ENDURING BENEFIT TO ASSESSEE AND, THEREFORE, IT IS A CAPITAL EXPENDITURE AND SO, IT C ANNOT BE CLAIMED AS DEDUCTION AS REVENUE EXPENDITURE. ACCORDINGLY, HE DISALLOWED THE CLAIM OF THE ASSESSEE. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A), WHO RELYING ON THE EARLIER ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2006-07 AND 2007-08 ALLO WED THE CLAIM OF THE ASSESSEE BY OBSERVING AS UNDER: 3.3. I HAVE EXAMINED THE SUBMISSION OF THE AR OF THE APPELLANT AS WELL AS THE EARLIER MENTIONED ORDER OF THE ITAT IN APPELLANTS OWN CASE FOR AY 2006-07 AND 2007-08. AS THE FACTS AND CIRCUMSTANCES FOR AY 2010-11 CONTINUES TO BE THE SAME, I DIRECT THE AO TO TREAT THE EXPENDITURE OF RS.2,67,46,867/- AS REVENUE EXPENDIT URE. 4. AFTER HEARING THE RIVAL SUBMISSIONS AND CAREFULL Y CONSIDERING THE SAME, WE NOTE THAT THE ISSUE INVOLVED IS DULY COVERED IN FAVOUR OF THE ASSESSEE BY THE COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 1956/KOL /2013 FOR AY 2008-09 DATED 19.04.2016, WHEREIN THE TRIBUNAL HAS HELD AS UNDER: 5. WE HAVE HEARD RIVAL SUBMISSIONS OF BOTH THE PA RTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. BEFORE US LD. DR FAIRLY RELIED ON THE OR DER OF AO AND HE LEFT THE ISSUE TO THE DISCRETION OF THE BENCH. ON THE CONTRARY, LD. AR RE LIED ON THE ORDER OF LD CIT(A). AT THE OUTSET, WE OBSERVED THAT SIMILAR ISSUE IN ASSESSEE S OWN CASE FOR THE AYS 2006-07 AND 2007-08 IN ITA NO. 1396 & 1397/KOL/2011 DATED 14.10.2014 WA S DECIDED IN FAVOUR OF ASSESSEE BY THIS HONBLE TRIBUNAL B BENCH KOLKATA AND RELEVANT EXT RACT OF THE ORDER IS REPRODUCED BELOW:- 10. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROU GH FACTS AND CIRCUMSTANCES OF THE CASE. THE ASSESSEE HAS FIELD COMPLETE DETAIL OF REPAIR AND MAINTENANCE EXPENSES AND ALSO A CERTIFICATE FROM CHARTERED ENGINEER DATE D 15.12.2008, WHO HAS CERTIFIED THAT THE EXPENSES UNDER THE HEAD REPAIRS AND MAINTE NANCE DURING THE YEAR ENDING 31.03.2007 HAS BEEN PROCUREMENT OF WORN OUT COMPONE NTS AND CERTAIN CAPITAL ASSETS OR GROUP OF ASSETS. ACCORDING TO HIM, THESE WORN OU T PARTS ARE IN THE CONTEXT OF CAPITAL ASSET WHERE THESE ARE USED AND ALSO FORM A SMALL FR ACTION OF THE TOTAL VALUE OF CORRESPONDING CAPITAL ASSET IN EACH CASE. HE CERTIF IED THE EXPENSES AND SUMMARIZED SECTION WISE AS UNDER: 1. LIME STONE CAPTIVE QUARRY RS. 27.15 LACS 2. CRUSHING SECTION RS. 45.53 3. RAW MILL SECTIONS RS.224.90 4. KILN RS. 79.89 5. COAL MILL RS. 25.10 6. CLINKER GRINDING SECTION RS. 60.24 7. SLAG GRINDING SECTION RS. 53.39 8. PACKING PLANT RS. 4.63 9. MISCELLANEOUS RS. 5.64 TOTAL RS.526.46 LD. COUNSEL FOR THE ASSESSEE BEFORE US CONTENDED TH AT DUE TO UNSATISFACTORY FINANCIAL POSITION OF THE COMPANY FOR FEW YEARS IN THE PAST, IT COULD NOT UNDERTAKE THE REPAIR AND MAINTENANCE OF PLANT AND MACHINERY AND ITS CAPA CITY UTILIZATION WAS IN THE RANGE OF 37.46% AGAINST THE INDUSTRY AVERAGE OF 90. ACCOR DING TO HIM, TO MAKE THE SITUATION 3 ITA NO.901/KOL/2015 KALYANPUR CEMENT LTD.., AY, 2010-11 IMPROVE, THE ASSESSEE COMPANY IN FY 2006-07 RELEVAN T TO AY 2007-08 UNDERTOOK THE OVERDUE REPAIRS AND MAINTENANCE FOR PLANT AND MACHI NERY AND REPAIR AND REPLACEMENT OF INTERNAL CONTROL PURPOSE WAS STARTED . THE ASSESSEE COMPANY HAS NOT INCREASED IN THE RATED CAPACITY OF ANY OF THE PLANT /EQUIPMENT BY VIRTUE OF THIS REPAIR AND MAINTENANCE. FACTUALLY, THE ASSESSEE HAS CARRIE D OUT REPAIRS AND MAINTENANCE, AS IS EVIDENT FROM THE ABOVE DISCUSSION. IN SIMILAR CI RCUMSTANCES, HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. CHOWGULE & CO. PVT. LT D. (1995) 214 ITR 523 (BOM) HAS CONSIDERED THE EXPRESSION CURRENT PRECEDING REPA IRS AS UNDER: I) THE AMOUNT SHOULD BE PAID ON ACCOUNT OF CURRENT REPAIRS. II) CURRENT REPAIRS MEANS REPAIRS UNDERTAKEN IN T HE NORMAL COURSE OF USER FOR THE PURPOSE OF PRESERVATION MAINTENANCE OR PROP ER UTILISATION OR FOR RESTORING IT TO ITS ORIGINAL CONDITION. III) CURRENT REPAIRS DO NOT MEAN ONLY PETTY REPAI RS OR REPAIRS NECESSITATED BY WEAR AND TEAR DURING THE PARTICULAR YEAR. IV) SUCH REPAIRS SHOULD NOT BRING INTO EXISTENCE NO R OBTAIN A NEW OR DIFFERENT ADVANTAGE. V) THE QUANTUM OF EXPENDITURE NOR THE FACT THAT IN THE PROCESS OF REPAIRS, THERE WAS SUBSTANTIAL REPLACEMENT OF THE PARTS OF M ACHINE OR SHIP IS DECISIVE OF THE TRUE NATURE OF THE EXPENDITURE. VI) THE ORIGINAL COST OF THE ASSET IS NOT AT ALL RE LEVANT FOR ASCERTAINMENT OF THE TRUE NATURE OF THE EXPENDITURE ON REPAIRS. VII) THE REPLACEMENT COST OF THE ASSET MAY HOWEVER, AT TIMES MAY BE USED AS INDICATOR OF THE TRUE CHARACTER OF THE EXPENDITURE. IF THE EXPENDITURE ON REPAIR ADDED TO THE WRITTEN DOWN VALUE OR DISPOSAL VALUE E XCEEDS THE REPLACEMENT COST OF THE ASSET, A PRESUMPTION IS POSSIBLE THAT I T IS NOT A REVENUE EXPENDITURE BUT EXPENDITURE OF CAPITAL NATURE. SUCH PRESUMPTION , OF COURSE, WOULD BE REBUTTABLE. VIII) THE EXPRESSION CURRENT PRECEDING REPAIRS APPEARS TO HAVE BEEN USED BY THE LEGISLATURE WITH A VIEW TO RESTRICTING THE A LLOWANCE TO EXPENDITURE INCURRED FOR PRESERVATION AND MAINTENANCE THEREOF I N ITS CURRENT STATE IN CONTRADICTION TO THAT INCURRED ON ANY IMPROVEMENT O R AN ADDITION THERETO [CIT V. CHOWGULE & CO. PVT. LTD., (1995) 125 CTR (B OM) 442, 448 = (1995) 214 ITR 523 (BOM) IN THE FACTS OF THAT CASE, THE TR IBUNAL, ON INVESTIGATION OF THE NATURE OF THE REPAIRS UNDERTAKEN BY THE ASSESSE E, RECORDED A CATEGORICAL FINDING OF FACT THAT IT DID NOT RESULT IN EMERGENCE OF A NEW SHIP BUT AMOUNTED, IN SUBSTANCE, TO CURRENT REPAIRS TO THE EXISTING SH IP. THE FACT THAT OLD PARTS OF THE SHIP WERE REPLACED BY NEW PARTS WAS NOT RELEVAN T FOR DETERMINING WHETHER THE EXPENDITURE WAS ON CURRENT REPAIRS OR NOT. TH EREFORE, THE ITA NO.1956/KOL/2013 A.Y. 2008-09 DCIT CIR-4, KOL V. M/ S KLYANPUR CEMENTS LTD. PAGE 5 EXPENDITURE CLAIMED BY THE ASSESSEE AMO UNTED TO CURRENT REPAIRS, ALLOWABLE AS DEDUCTION UNDER SECTION 31. HON'BLE SUPREME COURT IN THE CASE OF CIT V. SARAVAN A SPINNING MILLS (P) LTD. (2007) 7 SCC 298 HAS HELD UNAMBIGUOUSLY THAT EACH MACHINE IN A SEGMENT OF A TEXTILE MILL HAS AN INDEPENDENT ROLE TO PLAY IN THE MILL AND THE OUTPUT OF EACH DIVISION IS DIFFERENT FROM THE OTHER. FROM THE ABOVE CONTEXT AND TAKING A CONSISTENT VIEW , WE FIND THAT SUCH MAJOR REPAIR EXPENSES WERE REGARDED AS REVENUE IN NATURE IN THE EARLIER Y EARS. THEREFORE RELYING ON THE SAME AS STATED IN THE AFORESAID DECISION OF THIS HONBLE TR IBUNAL IN ASSESSEES OWN CASE, WE FIND NO REASON TO INTERFERE IN THE ORDER OF LEARNED CIT(A). HENCE THIS GROUND OF APPEAL OF REVENUE IS DISMISSED. 4 ITA NO.901/KOL/2015 KALYANPUR CEMENT LTD.., AY, 2010-11 5. AS THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE A SSESSEE BY THE DECISION OF COORDINATE BENCH, CITED SUPRA AND THERE IS NO CHANG E IN FACTS AND LAW AND THE REVENUE IS UNABLE TO PRODUCE ANY MATERIAL TO CONTROVERT THE AF ORESAID FINDING, AND THE LD. CIT(A) HAS ALLOWED THE APPEAL OF THE ASSESSEE BY FOLLOWING THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR AYS 2006-07 AND 2007-08, WE FIND NO REASON TO INTERFERE IN THE SAID ORDER OF THE LD. CIT(A) AND THE SAME IS HEREBY UPHELD. THEREFOR E, THIS GROUND OF APPEAL OF REVENUE IS DISMISSED. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 6 TH OCTOBER, 2017 SD/- SD/- (DR. A. L. SAINI) (ABY. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 6 TH OCTOBER, 2017 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1. APPELLANT DCIT, CIRCLE-5(1), KOLKATA 2 RESPONDENT M/S. KALYANPUR CEMENT LTD., 2&3, DR. RAJENDRA PRASAD SARANI, (CLIVE ROW), KOLKATA-700 001. 3. THE CIT(A), KOLKATA 4. 5. CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, SR. PVT. SECRETARY