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Income Tax Appellate Tribunal, “C” BENCH, AHMEDABAD
Before: MS. ANNAPURNA GUPTA
PER MADHUMITA ROY, JUDICIAL MEMBER:
Instant appeal is filed by the assessee against order dated 6.4.2018 passed by the ld.CIT(A)-1, Ahmedabad arising out of the order dated 8.12.2017 of DCIT, Cir.1(1)(2), Ahmedabad under section on 143(3) of the Income Tax Act, 1961 ("the Act" for short) relating to the Assessment Year 2014-15 with the following grounds:
“1. The Learned CIT(A) erred in law and on facts in confirming addition of Rs. 3,40,262/- made by the learned DCIT as excess depreciation. The Addition confirmed by the learned CIT(A) deserves to be deleted. The same be deleted now.
ITA.No.1298/Ahd/2018 2 2. The Learned CIT(A) erred in law and on facts in confirming disallowance of Rs. 22,32,278/- made by the learned DCIT by treating amount Rs. 68,81,435/- spent for purchase of M.S.Roll out of Repairs and maintenance expenses as capital expenditure worked out depreciation of Rs.46,49,158/- and disallowed difference of Rs. 22,32,278/-. The disallowance confirmed by the learned CIT(A) deserves to be deleted. The same be deleted now.
3. The Learned CIT(A) has erred in not properly appreciating the facts, various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order.
The order passed by the Learned CIT(A) is illegal, invalid and bad in law. It be so held now.”
At the time of hearing, none appeared on behalf of the assessee nor filed any adjournment application. Therefore, it appears that the assessee is not interested in pursuing its appeal before the Tribunal. Thus, in absence of any assistance being rendered by the assessee for disposal of its appeal, we would proceed to dispose of the same ex parte after hearing ld.DR and considering the materials available on record.
Brief facts of the case is this that the assessee is engaged in the business of manufacturing of steel products like MS Angle and MS channel etc. It has filed return of income electronically on 27.11.2014 declaring income of Rs.1,39,55,920/-. After processing return under section 143(1) of the Act, the case of the assessee was selected for scrutiny assessment by issuance of notice under section 143(2) of the Act. During the assessment proceedings, it was noticed by the AO that the assessee has claimed depreciation on electrical installation at 15%. the AO was of the view that, since New Appendix-I prescribes rate of depreciation w.e.f 2006-07 at 10% on “Furniture & Fittings including Electrical Fittings” the claim of the assessee at 15% was not permissible and accordingly he issued a show cause notice as to why disallowance should not be made on the basis of consistent stand taken by the Revenue in earlier years. Since the assessee could not give satisfactory
ITA.No.1298/Ahd/2018 3 explanation thereof, the AO based on similar disallowance made in the earlier years, excess depreciation claimed by the assessee to the tune of Rs.3,40,262/- was disallowed and added to the total income of the assessee.
4. Dissatisfied with the order of the ld.AO, the assessee preferred first appeal before the ld.CIT(A). Before the ld.CIT(A) it was submitted that the electrical fittings purchased by the assessee were part and parcel of the plant and without which plant operation was not possible. They are major items and to be treated as plant & machinery and rate of depreciation applicable to such plant & machinery as per Appendix-I is 15%. Therefore, the claim of depreciation at 15% was in accordance with income-tax rate prescribed as per depreciation schedule. However, in the absence of necessary supporting details the ld.CIT(A) did not accept the claim of the assessee and following orders of earlier years, he confirmed the order of the AO on this issue. Aggrieved, assessee is now before us.
With the assistance of the ld.DR, we have gone through the orders of the Revenue authorities.
Let us have a cursory look at the case. The assessee has claimed depreciation at the rate of 15% instead of 10%. It was the submission of the assessee before the lower authorities that electrical installation and fittings being major parts, were part and parcel of plant & machinery installed at the factory, and the same were to be treated as plant & machinery, and therefore, eligible for depreciation at the rate of 15% as per Income Tax Act. However, Revenue authorities did not accept this explanation of the assessee in the absence of any details being furnished by the assessee in support of its claim that these electric installation and fittings are major items, and are part and parcel of plant & machinery. Therefore, the claim of the assessee of depreciation at 15% was disallowed, instead 10% was allowed. The reason
ITA.No.1298/Ahd/2018 4 for non-consideration of the claim of depreciation is the assessee’s inability to furnish necessary details before both the authorities. Even there is no material before us as well to look into the admissibility of claim of the assessee. Therefore, after careful consideration of orders of the AO and the CIT(A), we are of the view that both the authorities have justified in making disallowance on account of claim of excess depreciation. Thus, in absence of any assistance rendered by the assessee to support its case, we have no other alternative, but to uphold order of the CIT(A), which we do so, and this ground of appeal of the assessee is thus rejected.
7. In ground No.2, disallowance of expenditure under the head “Repairs & Maintenance” at Rs.68,81,435/- is under challenge before us.
Brief facts of the case is this that during the assessment proceedings, the ld.AO noticed that the assessee has claimed huge expenditure on account of purchase of metal rolls and claimed the same as revenue expenditure amounting to Rs.68,81,435/-. The ld.AO vide show cause notice proposed to treat the same as capital expenditure instead of revenue expenditure. Assessee filed detailed submissions before the AO. It was contended that the metal rolls purchased by the assessee was in the nature of consumables which required during the process of production. Assessee tried to explain the manufacturing process, and submitted that they were required to be replaced frequently for smooth operation of the machineries. The expenses are in the nature of repairs & maintenance. By virtue of replacement of metal rolls, there was no increase in production capacity, rather they required for up- keeping of the machineries. To support the case of the assessee that expenditure of this nature which does not increase production capacity and such expenditure remain constant even after the replacement, requires to be treated as revenue, it relied on various case laws which were discussed in the ITA.No.1298/Ahd/2018 5 assessment order from page Nos.4 to 8. However, the ld.AO was not satisfied with the explanation of the assessee. He was of the view that for the items like metal rolls, which were having short life span, the Act has taken care of by providing higher rate of depreciation at 80%. The ld.AO rejected the contention of the assessee that metal rolls are to be replaced frequently on the ground that they were not replaced on day-to-day basis. Further, the AO was of the view that the assessee’s claim that there was no enduring benefit derived from replacement metal rolls, was not supported by any evidence. Periodical or frequent replacement does not convert capital expenditure into revenue expenditure. This observation of the AO ultimately resulted in rejection of the claim of the assessee. The ld.AO accordingly treated the repairs & maintenance expenditure incurred on purchase of metal rolls as capital expenditure. However, he allowed 80% of depreciation on the total expenditure of Rs.46,49,158/- on account of purchase of metal roll. The differential amount of Rs.22,32,278/- worked out by the AO has been tabulated in the order at page 10 and 11.
Aggrieved by the action of the AO, the assessee preferred appeal before the ld.CIT(A). The submissions of the assessee before the ld.CIT(A) are more or less on similar line as made before the AO. The ld.CIT(A) after considering the submissions of the assessee and some case laws and following the decision taken by the department against the assessee in earlier years on same issue, confirmed the order of the AO with the following observation and conclusions:
“3.3. I have carefully considered the Assessment Order and the submission filed by the Appellant. The Assessing Officer has made disallowance of expenditure in respect of repairs and maintenance and similar disallowance was made in A. Y.2012-13 and in A.Y.2013-14 wherein A.Y.2012-13 CIT(A)- 1 vide order dated 29th February, 2016 has held as under: "3.3. I have gone through the facts and the submission of the appellant carefully. In the assessment order A.O has observed that the ITA.No.1298/Ahd/2018 6 appellant company has debited expenses amounting to Rs.50,97,107/- as expenses of purchase of Rolling Mill Rolls and claimed the same as revenue expenditure. The AO has disallowed Rs.20,63,537/- considering the frequent wear and tear use of metal rolls and short span of life, the higher rate of depreciation @80% has been provided in the Act. The contention of the assessee that in the manufacturing process, the rollers suffered severe damage and are required to replace within short span of time can be understand in the light of the higher rate of depreciation allowed on said expenditure.
The appellant has submitted that during the manufacturing process iron ingots are pushed by pushing machine in to a reheating furnace where they are heated to very high temperatures and the steel rollers produced the friction in the process of rolling between the hot iron and steel rollers. In this process the rollers suffered serious damage and are required to be replaced within short span of time. In this connection, we would like to place reliance on the decision of the Apex Court in the case of Commissioner of Income-Tax Vs. Saravana Spinning Mills Pvt. Ltd reported in (2007) 293 ITR 201 (SC), wherein, the Supreme Court pointed out that the claim for current repairs does not contemplate the expenditure incurred in replacement of a part of machinery.
The appellant has further submitted that the AO on page 5 & 6 of the Assessment Order mentioned that since higher rate of depreciation of 80% is prescribed in the Income tax Act, 1961, the metal rolls are eligible for depreciation and not as revenue expenditure. However, the learned DC/7 did not consider various judgments in its correct perspective in which it has been held that short span of time is one criteria but the other factors like not increasing the production capacity, no benefit of enduring benefit in future are also to be considered in considering the expenditure as revenue one.
3.4. After going through the facts of the case, it is seen that the steel rolls are used regularly and have life span of less than one year but the mere fact cannot change the nature of expenditure. In fact, these aspects are relevant when the rate of depreciation on fixed assets is prescribed and the same has been duly taken care of by providing accelerated rate of depreciation @80%. As per new Appendix-1 of Income Tax Rules, 1962 which is table of rates at which depreciation is admissible and which is effected from A. Y. 2006-07 onwards, it is found that vide SI. No. Ill (8)(vii) of part A” (tangible assets)the depreciation at the@80% has been provided on "iron and steel Industry'- mills rolls. The item of the appellant is exactly the same for which it has claimed the expenditure in full, further the steel rolls are clearly fixed assets and, for that reason, it has been mentioned in the ITA.No.1298/Ahd/2018 7 Depreciation schedule. The periodical or frequent replacement does not make any capital expenditure as Revenue Expenditure' where the replacement brings into existence and additional, benefit or advantage of an enduring nature which travels beyond a short period of time. The judicial ratio cited by the appellant are not at all applicable to the facts of the case there is straight provision for the@80% has been provided on "iron and steel Industry'- mills rolls. It's difficult to agree with the view of the appellant. The reasoning and the express provisions in this aspect leads to the conclusion that the stand of the AO is correct. The disallowance made by the AO is confirmed. The ground of the appellant is dismissed". After going through the facts of the case, it is seen that the facts during the year is identical to the previous years in the case of disallowance of expenditure made in respect of repairs and maintenance. Following the ratio of decision of the earlier years that's why A. Y.2012-13 & A. Y.2013-14, the disallowance made by the A.O. of Rs. 22,32,278/- is confirmed. This ground of appeal is dismissed.”
10. Further aggrieved, the assessee is now before us.
11. With the assistance of the ld.DR we have gone through the orders of the Revenue authorities, and other materials available on record. Issue before us is, whether the expenditure incurred on purchase of metal rolls is revenue expenditure or capital expenditure. Both the authorities below have given a concurrent finding on the issue on the basis of material placed before them. In other words, both the authorities concurrently held that the impugned expenditure on purchase of metal rolls was in the nature of capital and not revenue as claimed by the assessee. It is settled principle of law that concurrent findings of the authorities cannot be interfered with without sufficient and just reason or any material irregularities in the finding being pointed out by other side. There is nothing more before us to depart from the view taken by the revenue authorities on this issue, more so, in the absence of any assistance rendered by the assessee in regard to the issue involved in the ground raised before us. Even otherwise also, after going through the orders of both the authorities, we find the order of the ld.CIT(A) is reasoned one without any ambiguity so as to warrant interference. As a result, the ground ITA.No.1298/Ahd/2018 8 raised by the assessee stands rejected, and the order of the ld.CIT(A) is confirmed.
In the result, appeal of the assessee is dismissed.
Order pronounced in the Court on 20th April, 2022 at Ahmedabad.