M/S NMPL GRANITE PVT LTD ,BELLARY vs. INCOME TAX OFFICER WARD-1 , HOSPETE

O R D E R

Per Shri A.K. Garodia, Accountant Member

2. The grounds raised

by the assessee are as under.

1. The order of the learned Commissioner of Income-tax (Appeals) passed under Section 250 of the Act in so far as it is against the Appellant is opposed to law, weight of evidence, probabilities, facts and circumstances of the Appellant's case.

5. The charging of interest under section 234B of the Act and further the calculation of interest under section 234B of the Act is not in accordance with law since the rate, method of calculation, quantum is not discernable from the order of assessment on the facts and circumstance of the case.

urged above.

7. For the above and other grounds to be urged during the hearing of the appeal the Appellant prays that the appeal be allowed in the interest of equity and justice.”

3. It was submitted by ld. AR of assessee that although several grounds are raised but the issue involved in only one as to whether the expenses incurred by the assessee on replacement of spare parts and other consumables amounting to Rs. 14,31,493/- (net of depreciation allowed) is a capital expenditure in the facts of the present case. He pointed out that on page no. 5 of the paper book is the copy of invoice regarding purchase of the equipment for repair of which, the expenses in dispute was incurred. He pointed out that it is a Hitachi Hydraulic Excavator of Rs. 76 Lakhs purchased in Financial Year 2007-08 as per the invoice number 13500501 dated 14.03.2008. Thereafter he submitted that on page no. 8 of the paper book is the bill issued by PSN Construction Equipment Pvt. Ltd. dated 29.02.2012 for Rs. 22,63,170/- against which a credit note was issued by the said party of Rs. 9,05,411/-, copy available on page no. 6 of the paper book. He submitted that net amount of this bill after reducing the amount of credit note is Rs.13,57,759/- which is in dispute out of total disallowances made by the AO of Rs. 14,31,493/-. Regarding the balance amount, he submitted that there are two more bills available on pages 9 and 7 of the paper book of Rs. 52,280/- and Rs. 1,37,552/- and total of these three bills before reducing the amount of credit note is Rs. 24,53,002/- out of which discount given on defective engine of Rs. 9,05,441/- is reduced resulting into net amount of Rs. 15,47,561/- and thereafter, an amount of Rs. 1,16,067/- is reduced on account of depreciation allowed by the AO and the net addition is made by the AO of Rs. 14,31,493/-.

Page 3 of 4 He pointed out that as per the invoice available in page no. 8 of the paper book, the expenses incurred are in respect of echain, eroller, sprocket, upper roller and idler assy and these items are not for the change of engine of this equipment. But the AO and CIT (A) had proceeded on this basis that the expenses incurred are on replacement of engine. He also submitted that as per two small bills available on pages 7 & 9 of the paper book, various small items are purchased such as engine oil filter, filter fuel, filter element, Daphne Super Hydro 46 HN and these items cannot be considered as replacement of engine. Thereafter, he placed reliance on a judgment of Hon’ble High Court of Mysore rendered in the case of Hanuman Motor Service vs. CIT as reported in 66 ITR 88, copy available on pages 10 to 12 of paper book. He pointed out that in that case, the issue in dispute was regarding replacement of two petrol engines with two diesel engines of two buses and it was held by Hon’ble High Court of Mysore that if only old part of a machinery is replaced by a new part, it does not mean that a new asset has been brought into existence and it was held that the expenses incurred on such part replacement is allowable as revenue expenditure on repair. The ld. DR of revenue supported the orders of authorities below.

4. I have considered the rival submissions. I find that as per the assessment order, the AO has disallowed the expenses in dispute by holding that expenses are incurred on replacement of engine and he has held in Para no. 3.01 of the assessment order that the cost towards replacement of Engine of a Machine shall not be allowed as revenue expenditure as it is in the nature of capital expenditure. He has further held that engine cannot be treated as spare part of the machine. As per the copy of purchases bills available in paper book, it is seen that the expenses in dispute does not appear to be on account of replacement of the engine of the equipment but even if it is replacement of engine, it is undisputed that only part of the equipment is replaced and not the whole equipment. By now, this is a settled position of law that when a part of the equipment is replaced, the same is allowable as revenue expenditure. The judgment of Hon’ble High Court of Mysore cited by ld. AR of assessee is also helping the case of the assessee and hence, respectfully following this Page 4 of 4 judgment of Hon’ble High Court of Mysore, I hold that the expenses in question in the present case is not capital expenditure and the same is allowable as revenue expenditure incurred on Repairs and Maintenance and accordingly, the disallowance made by the AO is deleted.

Order pronounced in the open court on the date mentioned on the caption page.