AKSHAT ALLOYS,MANDIGOBINDGARH, PUNJAB vs. PCIT, PATIALA, PUNJAB

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ITA 969/CHANDI/2026Status: DisposedITAT Chandigarh18 August 2026AY 2022-236 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the expenditure on refractories was revenue in nature as it merely maintained the existing furnace in working condition without creating a new asset or enduring benefit. The bonus payable was also found to be paid before the due date of filing the return.

What were the facts?

The assessee claimed manufacturing expenses for furnace components and a bonus payable. The PCIT initiated revision proceedings, considering these expenses potentially capital in nature and the bonus payable as disallowable. The assessee argued the expenses were for consumables to maintain the furnace and the bonus was paid before the due date.

What were the issues?

Whether expenditure on furnace refractories is capital or revenue, and whether unpaid bonus payable as per Form 3CD is disallowable under Section 43B.

Which sections of the Income-tax Act were involved?

Section 263,Section 143(3),Section 144B,Section 43B,Section 37(1),Section 139(1)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “A” BENCH, CHANDIGARH

Before: HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM & HON’BLE SHRI RAJESH DAMODARLAL SHARMA, JM

RAJESH DAMODARLAL SHARMA (Judicial Member)

1.

Aforesaid appeal by the assessee is directed against the order of the Learned Principal Commissioner of Income Tax, Patiala (in short ‘PCIT’) passed u/s 263 on 27.02.2026 directing revision of assessment order passed by Ld. AO u/s 143(3) on r.w.s. 144B of the Act on 26.03.2024. Having heard rival submissions and upon, perusal of case records, the appeal is disposed-off as under.

2.

Briefly stated, the assessee being a partnership firm is stated to be engaged in manufacturing of Iron Steel (Ingots), steel scrap, and Ferro Alloys. For this year, the assessee filed its return of income at ₹57,83,380/- which was accepted by Ld. AO while framing the assessment.

3.

Subsequently, Ld. PCIT exercised revisional juri iction u/s 263 holding the assessment order to be erroneous and prejudicial to the interests of the revenue on the ground that the assessee claimed manufacturing expenses of ₹1,29,00,820/-. These expenditure pertained to structural furnace components and would appear to be capital in nature. Therefore, the same ought to have been capitalized rather than allowed as revenue expenditure. The Ld. PCIT also noted that the Assessing Officer failed to examine whether any portion of this amount represented unconsumed stock held as inventory at the end of the year. The second issued was bonus payable. It was noted from Column 26 of Form 3CD (Tax Audit Report) that bonus payable amounting to ₹5,85,078/- remained unpaid as on the due date of filing of return of income and therefore, the same required disallowance u/s 43B of the Act. This aspect was not verified by the Assessing Officer. Accordingly, the assessee was show-caused.

4.

The assessee opposed revision of the order on the ground that the manufacturing expenditure as booked by the assessee were essential to keep the furnace in working condition. The same has not resulted into creation of new capital asset nor has it brought into existence any advantage of enduring in nature. On the issue of bonus payable, it was stated that the amount was duly paid before the due date of filing of return of income. However, these arguments stood

rejected by Ld. PCIT and Ld. AO was directed to re-examine twin issues. Aggrieved, the assessee is in further appeal before us.

5.

The Ld. AR has argued that the expenditure of ₹1,29,00,820/- was incurred on refractories which are consumable materials used directly in the furnace where hot molten iron is poured and processed. These materials are subjected to continuous extreme temperatures and thermal stress, leading to rapid wear and tear, thereby requiring frequent relining, repair, and replacement. The Ld. AR emphasized that this expenditure does not bring into existence any new capital asset or enduring benefit, but merely preserves and maintains the existing machinery in functional working condition. Therefore, it is fully allowable as revenue expenditure u/s 37(1) of the Act. In support of his contentions, Ld. AR relied upon various judicial precedents, including:

Shree Sulphurics Pvt. Ltd. v. ACIT (ITAT Ahmedabad)(ITA 422/Ahd/2022)   Empire Jute Co. Ltd. v. CIT (Supreme Court) (124 ITR 1) Alembic Chemical Works Co. Ltd. v. CIT (Supreme Court) (177 ITR 377)  PCIT v. M/s Jubilant Foodworks Ltd. (Allahabad High Court) (447 ITR 29) 

6.

On the issue of bonus payable for ₹5,85,078/-, Ld. AR reiterated that the said payment was duly paid on or before the due date for filing the return of income u/s 139(1) of the Act. Findings and Decision

7.

We have carefully heard both the parties, perused the material on record and considered the judicial precedents cited before us. So far as the issue of expenditure on Refractories is concerned, upon perusal of the underlying invoices and ledger accounts, we observe that the expenditure consists of numerous recurring purchases of small values

items such as B.P. Sets, Nozzles, Ladle Sleeves, Stopper Heads, Fire Bricks, and Pouring Blocks. In the context of the assessee's business operations, where total sales stand at approximately ₹155 Crores, a manufacturing expenditure of ₹1.29 Crore on furnace consumables is proportional and routine expenditure. The statutory provision under Section 37(1) of the Act permits deduction of any expenditure (not being capital or personal in nature) laid out wholly and exclusively for the purpose of business. The key test to determine whether an expenditure is capital or revenue in nature is whether it creates a new asset or yields an advantage of enduring nature in the capital field. In the present case, refractories are essential consumables required to line the furnace and withstand extreme melting temperatures. Due to continuous thermal stress, these materials degrade rapidly and require constant replacement to keep the furnace operational. Replacing these linings does not increase the production capacity of the plant, nor does it extend the total structural lifespan of the furnace beyond its original setup. It simply restores the apparatus to its normal working state. Therefore, this expenditure has rightly been considered to be revenue expenditure. Our view find support from principles laid down by the Hon’ble Supreme Court in Empire Jute Co. Ltd. v. CIT (supra) and Alembic Chemical Works Co. Ltd. v. CIT (supra) wherein it was held that the test of enduring benefit is not a mechanical rule, and an expenditure that merely facilitates existing operations without creating a capital asset remains revenue in nature. The same position has been affirmed in Shree Sulphurics Pvt. Ltd. v. ACIT (supra). On these

facts, the assessment order could not be held to be erroneous in nature.

8.

On the issue of bonus payable, Ld. AR has placed on record ledger extract of bonus payable at Page No.222 of the paper book. Upon perusal of the same, it could be seen that outstanding bonus has fully been paid by the assessee by 16.07.2022 which is well before due date u/s 139(1). Therefore, the assessment order could not be branded as erroneous one on this score also.

9.

Finally, considering the facts and circumstances of the case, the impugned revision of assessment order could not be sustained in law. The assessment as framed by Ld. AO stand restored. We order so.

10.

In the result, the appeal filed by the assessee is allowed. Order pronounced on 18-08-2026

- - (MANOJ KUMAR AGGARWAL) (RAJESH DAMODARLAL SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER AS Dated: 18-08-2026

आदेश की "ितिलिप अ"ेिषत /Copy of the Order forwarded to : 1. अपीलाथ"/Appellant

2.

""थ"/Respondent 3. आयकरआयु"/CIT 4. िवभागीय"ितिनिध/DR 5. गाड"फाईल/GF

BY ORDER

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