M/S. TECH STEEL PRODUCTS LIMITED,BANGALORE vs. JOINT COMMISSIONER OF INCOME TAX (OSD), BANGALORE

In this appeal, the assessee has raised four grounds but the grievances are two only. The first grievance is about disallowance u/s 14A even in the absence of exempt income. The second grievance is about disallowance of Rs. 31,72,078/- clamed by the assessee as Repairs of Machinery. Regarding the first issue, he submitted that Schedule – 9 of the audited accounts is available on page 93 of the paper book and from the same, it can be seen that the Dividend Income in the present year is NIL and there is no other exempt income. He placed reliance on the tribunal order rendered in the case of DCIT vs. Cornerstone Property Investment (P) Ltd. as reported in 118 Taxman.Com 541 copy available on pages 117 to 122 of the paper book. As against this, learned DR of the revenue supported the order of CIT (A).

We have considered the rival submissions and find that this is a fact that in the present year, the assessee is not having exempt income. We find that in para 7 of the tribunal order cited by the learned AR of the assessee, it is noted by the tribunal that there is no exempt income in the relevant year and the tribunal followed the judgment of Hon’ble Delhi High Court rendered in the case of Chemiinvest Ltd.vs. ITO as reported in 378 ITR 33 and decided the issue in favour of the assessee. In the present case also, we have seen that there is no exempt income in the present year and therefore, we follow this tribunal order and in turn follow the the judgment of Hon’ble Delhi High Court rendered in the case of Chemiinvest Ltd.vs. ITO (Supra) and decide this issue in favour of the assessee and Ground No. 2 is allowed.

Regarding the second issue raised as per Ground No. 3, it was submitted by the learned AR of the assessee that a report of the Chartered Engineer is available on pages 13 to 18 of the paper book. He pointed out that on page 18, this is certified that all the items are spares/accessories or components of main assembly line & are replaceable as and when required. Thereafter, he submitted that in para 9.7 of his order, learned CIT (A) has also stated that it is a major component of the larger machinery. He submitted that hence, this is undisputed and accepted fact that the items in dispute are not the whole machinery but only a part of it. He submitted that under these facts, the allowability of the expenditure in dispute is covered in favour of the assessee by the judgment of Hon’ble Karnataka High Court rendered in the case of CIT vs. MAC Charles (India) Ltd.as reported in 273 CTR 596. He pointed out that in that case also, huge expenditure was incurred on replacing flooring, false roofing, furniture, carpets and refurbishing of hotel rooms. In para 7 of this judgment, it is noted that current repair must have been incurred to preserve and maintain an already existing asset and the object of the expenditure must not be to bring a new asset into existence or to obtain a new advantage. As per the orders of the AO and CIT (A), it does not come out that this is even an allegation of the revenue that the expenditure in question was to bring a new asset into existence or to obtain a new advantage. The allegation is this only that it is a major component of the larger machinery and it is certainly creating an asset to the assessee because it is providing an enduring benefit to the assessee. On page 5 of the assessment order, the AO also is stating that the assessee company will receive benefits which are enduring in nature. This is not an allegation of the AO that the expenses in question is to bring a new asset in existence or to obtain a new advantage. Hence, we respectfully follow this judgment of Hon’ble Karnataka High Court noted above and hold that in the facts of the present case as noted above, the expenses in question is allowable as current repair. We delete this disallowance also and Ground No. 3 is also allowed.

In the result, the appeal of the assessee is allowed. Pronounced in the open court on the date mentioned on the caption page.