NITREX CHEMICALS INDIA LTD.,NEW DELHI V. ACIT CIRCLE-18(2), NEW DELHI

ITA 7709/DEL/2019

AI Insights

The case involves Nitrex Chemicals India Ltd., the appellant, contesting an order from the CIT(A)-6, Delhi, which arose from an earlier order by the ACIT, Circle \\u2013 18 (2), New Delhi. The dispute centered on the classification of certain expenditures amounting to Rs.31,46,270/- on repair and maintenance, and stores and spares, as either capital or revenue expenditure for the Assessment Year 2016-17. The AO had disallowed these expenses after allowing 15% depreciation, classifying them as capital in nature. The CIT(A) upheld this decision, leading to the appeal before the Income Tax Appellate Tribunal. The Tribunal noted a similar issue had been previously addressed in the assessee's own case for A.Y. 2014-15, where the matter was remitted back to the AO for verification. Following this precedent, the Tribunal decided to remit the current issue back to the AO for a detailed examination of the nature and extent of the disputed expenditures.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 471946 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2016-2017
• Other Referred Cases: CIT Vs. Mandras Auto Service (P) Ltd. (SC), Assam Bengal Cement Co. Ltd. V. CIT (1955) 27 ITR 34
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMIT KATOCH
• Assessee Lawyers: VED JAIN
• Keywords: Set aside; Capital asset; Opportunity of being heard; Revenue expenditure; Depreciation
• Section: 143(3)

Judgement Text

"1 THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH, DELHI BEFORE MS. MADHUMITA ROY, JUDICIAL MEMBER & SH. NAVEEN CHANDRA, ACCOUNTANT MEMBER ITA No. 7709/Del/2019 (Assessment Years: 2016-17) Nitrex Chemicals India Ltd. 1116, Ansal Tower, Nehru Place, New Delhi- 110019 Vs. ACIT Circle – 18 (2) New Delhi ̾थायीलेखासं./जीआइआरसं./PAN/GIR No: PAN No.AAACF7820L Appellant .. Respondent Appellant by : Ved Jain, Advocate Ms. Uma Upadhyay, CA Respondent by : Sh. Amit Katoch, Sr. DR Date of Hearing 17.12.2024 Date of Pronouncement 31.12.2024 ORDER PER MADHUMITA ROY, JM: The assessee has come up with the appeal against the order dated 17.07.2019 passed by the CIT(A)-6, Delhi arising out of the order dated 24.12.2018 passed by ACIT, Circle – 18 (2), New Delhi under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred as “the Act”) for A.Y. 2016-17. 2 2. The addition made by the Ld. AO by making disallowance of Rs.31,46,270/- out of repair and maintenance expenses and stores and spares expenses in the subject matter before us. 3. In regard to the issue as to whether these items are capital or revenue expenditure, the contentions of the assessee that the expenditure incurred was for repair and maintenance of building, plant and machinery, electrical instruments and store consumption did not result in future benefit was not accepted by the Ld. AO and disallowance after allowing 15% of depreciation on the total expenditure of Rs.31,46,470/- was made. The Ld. CIT(A) while upholding the expenditure observed as follows : “4.2.1 The AO specifically noted certain items claimed as expenditure under the head repair and maintenance and stores and spares amounting to Rs. 33,69,359.48/- and Rs. 3,32,369.05/- respectively. These items were found to be in the nature plant and machinery or for extension of existing capacity of the plants/industry. The contention of the assessee that the expenditure incurred was for repair and maintenance of building, plant and machinery, electrical instruments and stores consumption did not result in future benefit was not found to be acceptable. An amount of Rs. 31,46,470/- was disallowed after allowing 15% depreciation on the same. The appellant has submitted that the impugned expenses are revenue in nature and allowable for full and that they have been incurred for repair and maintenance of the building plant and machinery, furniture and electrical instruments and are for the purpose of maintaining the fixed assets in the existing condition. 3 4.2.2 I have considered the assessment order and the submissions of the appellant. It is seen that out of the total expenditure of Rs. 4,48,69,000/- and Rs. 11,87,61,832/- incurred under the heads repair and maintenance and stores and spares consumed respectively, certain specific items of expenditure have been considered to be capital in nature since these were for extension of capacity of plant and machinery as well as building. From the submissions made it is seen that the appellant has not rebutted the contention of the AO and has not demonstrated that the said items which have been specifically pointed out under the both these heads did not result in any future benefit. It has also not been demonstrated how the said items were for current repairs and maintenance. Hence, the addition made is upheld. Ground of appeal No. 2 is dismissed.” 4. Before us the Ld.AR submitted that the identical issue was taken up by the coordinate Bench in assessee’s own case for A.Y. 2014-15 and the same was restored back to the file of the Ld. AO for verification of the correctness of claim made by the assessee by under the order dated 20.02.2024 in ITA No. 5664 of 2019, a copy of which has been submitted before us. He, therefore, prays for identical relief in favour of the assessee. 5. Such prayer, having regard to the order passed by the Coordinate Bench not objected by the Ld. DR with all her fairness. 4 6. We have heard the rival submissions made by the respective parties and we have further perused the relevant materials available on record. 7. We find that the following observation was made by the Coordinate Bench while remitting the identical issue to the file of the AO in assesee’s own case :- “6 We have heard rival submissions and gone through the material available on record. The only dispute which is raised by the assessee is regarding treatment of repair & maintenance: and store and space expenses, whether such expenditures capital or revenue. One of the tests whether such expenditure is capital or revenue is of enduring benefit. The assessee is required to demonstrate that the expenses have been claimed for a routine up keep of building and plant & machinery. On the other hand, revenue has to rebut such claim by furnishing credible evidence. The lower authorities have examined the issue and have given finding against the assessee. For the sake of clarity the finding of learned CIT(A) is reproduced as under: 4.3.2 I have considered the assessment order and the submissions of the appellant. From the details of the impugned amounts disallowed under repair & maintenance, the following amounts appear to be capital in nature: 5 4.3.3. Further, from the details regarding store & space consumed amounting to Rs.23,50,784/-, the following items appear to be capital in nature: 4.3.4. Hence, the expenses aggregating to Rs.27,69,627/- on account of repair & maintenance and Rs.17,48,184/- on account of store & spare consumed are capitalized and 6 deprecation@ 15% is to be allowed on the same. Ground of appeal No.3 is partly allowed.” 6.1 The contention of the assessee is that the expenditure was incurred to maintain the upkeep of the existing assets. No new asset came into existence by such repairs. In the case CIT Vs. Mandras Auto Service (P) Ltd. (SC), the Hon’ble Apex Court has reiterated the test as laid by the Hon’ble Supreme Court in the case of Assam Bengal Cement Co. Ltd. V. CIT (1955) 27 ITR 34, which is reproduced as under : 1. Outlay is deemed to be capital when it is made for the initiation of a business, for extension of a business, or for a substantial replacement of equipment. 2. Expenditure may be treated as properly attributable to capital when it is made not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade... If what is got rid chargeable revenue, the lump sum payment should equally be regarded as a business expense, but if the lump sum payment brings in a capital asset, then that puts the business on another footing altogether. 3. Whether for the purpose of the expenditure, any capital was withdrawn, or, in other words, whether the object of incurring the expenditure was to employ what was taken in as capital of the business. Again, it is to be seen whether the expenditure incurred was business or part of its circulating capital.\" part of the fixed capital of the 7 6.2 Looking to the nature of expenditure made by the assessee it is seen that there are replacement of the entire components and laying of roads etc. Therefore, in our considered view the AO ought to have verified the correctness of the claim that it is purely for the routine upkeep of building and plant & machinery and not for major repairs which brought enduring benefit to the assessee. Thus, in the absence of clear finding about the nature and extent of repairs treating the expenditure as capital is not justified. However, it is clarified that in respect of repairs made on road, such expenditure would be allowable since the assessee is not the owner of roads, outside its premises. We, therefore, set aside the impugned order and restore the issue to the file of AO for verification of the correctness of the claim of the assessee. Ground is allowed for statistical purpose. 7. Appeal of the assessee is allowed for statistical purposes.” 7. Having heard the Ld. Counsels appearing for the respective parties and having regard to the facts and circumstances of the matter particularly taking into consideration the order passed by the Coordinate Bench for identical issue in assessee’s own case for A.Y. 2014-15, we allow this appeal by remitting the issue to the file of the Ld. AO for verification of the correctness of the claim made by the assessee and to pass orders in accordance with law. The Ld. AO is further directed to grant an opportunity of being heard to the assessee and to consider the evidences on record and any other evidence which the assessee may choose to file at the time of hearing of the matter. 8 8. In the result, the appeal of assessee is thus allowed for statistical purposes. Order pronounced in the open court on 31.12.2024. Sd/- Sd/- (NAVEEN CHANDRA) (MADHUMITA ROY) ACCOUNTANT MEMBER JUDICIAL MEMBER Date:- 31.12.2024 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "