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Income Tax Appellate Tribunal, “B” BENCH: KOLKATA
Before: Shri A. T. Varkey, JM & Dr. A. L. Saini, AM]
Per Shri A.T.Varkey, JM
This is an appeal filed by the revenue against the order of Ld. CIT(A)-2, Kolkata dated 16.02.2015 for AY 2010-11.
The sole issue involved in this appeal of revenue is against the action of Ld. CIT(A) in allowing the expenditure of Rs.2,67,46,867/- incurred on repair of plant and machinery without considering the contention of AO that the assessee would get enduring benefit from the said expenditure for number of years to come. 3. Briefly stated facts are that the assessee is engaged in manufacturing of cement. The assessee filed e-return of income on 25.09.2010 declaring a loss of Rs.63,97,05,090/-. The assessee company has claimed Rs.6,95,01,149/- under the head consumption of stores, spare and consumables and Rs.8,89,13,424/- under the head repairs and maintenance to machinery under the head Manufacturing Expenses in Schedule 12 of the Annual Accounts. During the assessment proceedings the assessee submitted full details of item wise components replaced due to normal wear and tear and for smooth functioning of the plants. The assessee also submitted that the repairs and maintenance were necessary to keep the plant in running condition. However, the AO dissatisfied with the claim of the assessee on the ground that 2 Kalyanpur Cement Ltd.., AY, 2010-11 such expenses on plant and machinery ultimately give enduring benefit to assessee and, therefore, it is a capital expenditure and so, it cannot be claimed as deduction as revenue expenditure. Accordingly, he disallowed the claim of the assessee. Aggrieved, assessee preferred appeal before the Ld. CIT(A), who relying on the earlier order of the Tribunal in assessee’s own case for AY 2006-07 and 2007-08 allowed the claim of the assessee by observing as under:
3.3. I have examined the submission of the AR of the appellant as well as the earlier mentioned order of the ITAT in appellant’s own case for AY 2006-07 and 2007-08. As the facts and circumstances for AY 2010-11 continues to be the same, I direct the AO to treat the expenditure of Rs.2,67,46,867/- as revenue expenditure.
After hearing the rival submissions and carefully considering the same, we note that the issue involved is duly covered in favour of the assessee by the Coordinate Bench of this Tribunal in assessee’s own case in for AY 2008-09 dated 19.04.2016, wherein the Tribunal has held as under:
“5. We have heard rival submissions of both the parties and perused the materials available on record. Before us Ld. DR fairly relied on the order of AO and he left the issue to the discretion of the Bench. On the contrary, Ld. AR relied on the order of Ld CIT(A). At the outset, we observed that similar issue in assessee’s own case for the AYs 2006-07 and 2007-08 in & 1397/Kol/2011 dated 14.10.2014 was decided in favour of assessee by this Hon’ble Tribunal “B” Bench Kolkata and relevant extract of the order is reproduced below:- “10. We have heard rival submissions and gone through facts and circumstances of the case. The assessee has field complete detail of repair and maintenance expenses and also a certificate from Chartered Engineer dated 15.12.2008, who has certified that the expenses under the head repairs and maintenance during the year ending 31.03.2007 has been procurement of worn out components and certain capital assets or group of assets. According to him, these worn out parts are in the context of capital asset where these are used and also form a small fraction of the total value of corresponding capital asset in each case. He certified the expenses and summarized section wise as under:
1. 1. Lime Stone Captive Quarry Rs. 27.15 lacs 2. Crushing Section Rs. 45.53 ”
3. Raw Mill Sections Rs.224.90 ” 4. Kiln Rs. 79.89 ” 5. Coal Mill Rs. 25.10 ” 6. Clinker Grinding Section Rs. 60.24 ” 7. Slag Grinding Section Rs. 53.39 ” 8. Packing Plant Rs. 4.63 ”
9. Miscellaneous Rs. 5.64 ” Total Rs.526.46 ” Ld. Counsel for the assessee before us contended that due to unsatisfactory financial position of the company for few years in the past, it could not undertake the repair and maintenance of plant and machinery and its capacity utilization was in the range of 37.46% against the industry average of 90. According to him, to make the situation 3 Kalyanpur Cement Ltd.., AY, 2010-11 improve, the assessee company in FY 2006-07 relevant to AY 2007-08 undertook the overdue repairs and maintenance for plant and machinery and repair and replacement of internal control purpose was started. The assessee company has not increased in the rated capacity of any of the plant/equipment by virtue of this repair and maintenance. Factually, the assessee has carried out repairs and maintenance, as is evident from the above discussion. In similar circumstances, Hon'ble Bombay High Court in the case of CIT Vs. Chowgule & Co. Pvt. Ltd. (1995) 214 ITR 523 (Bom) has considered the expression ‘current’ preceding ‘repairs’ as under: ‘i) The amount should be paid on account of current repairs. ii) ‘Current repairs’ means repairs undertaken in the normal course of user for the purpose of preservation maintenance or proper utilisation or for restoring it to its original condition. iii) ‘Current repairs’ do not mean only petty repairs or repairs necessitated by wear and tear during the particular year. iv) Such repairs should not bring into existence nor obtain a new or different advantage. v) The quantum of expenditure nor the fact that in the process of repairs, there was substantial replacement of the parts of machine or ship is decisive of the true nature of the expenditure. vi) The original cost of the asset is not at all relevant for ascertainment of the true nature of the expenditure on repairs. vii) The replacement cost of the asset may however, at times may be used as indicator of the true character of the expenditure. If the expenditure on repair added to the written down value or disposal value exceeds the replacement cost of the asset, a presumption is possible that it is not a revenue expenditure but expenditure of capital nature. Such presumption, of course, would be rebuttable. viii) The expression ‘current’ preceding ‘repairs’ appears to have been used by the legislature with a view to restricting the allowance to expenditure incurred for preservation and maintenance thereof in its current state in contradiction to that incurred on any improvement or an addition thereto [CIT v. Chowgule & Co. Pvt. Ltd., (1995) 125 CTR (Bom) 442, 448 = (1995) 214 ITR 523 (Bom) In the facts of that case, the Tribunal, on investigation of the nature of the repairs undertaken by the assessee, recorded a categorical finding of fact that it did not result in emergence of a new ship but amounted, in substance, to current repairs to the existing ship. The fact that old parts of the ship were replaced by new parts was not relevant for determining whether the expenditure was on ‘current repairs’ or not. Therefore, the ITA No.1956/Kol/2013 A.Y. 2008-09 DCIT Cir-4, Kol v. M/s Klyanpur Cements Ltd. Page 5 expenditure claimed by the assessee amounted to ‘current repairs’, allowable as deduction under section 31.’ Hon'ble Supreme Court in the case of CIT v. Saravana Spinning Mills (P) Ltd. (2007) 7 SCC 298 has held unambiguously that “each machine in a segment of a textile mill has an independent role to play in the mill and the output of each division is different from the other”. From the above context and taking a consistent view, we find that such major repair expenses were regarded as revenue in nature in the earlier years. Therefore relying on the same as stated in the aforesaid decision of this Hon’ble Tribunal in assessee’s own case, we find no reason to interfere in the order of learned CIT(A). Hence this ground of appeal of Revenue is dismissed.”
4 Kalyanpur Cement Ltd.., AY, 2010-11 As the issue is squarely covered in favour of the assessee by the decision of 5. coordinate bench, cited supra and there is no change in facts and law and the revenue is unable to produce any material to controvert the aforesaid finding, and the Ld. CIT(A) has allowed the appeal of the assessee by following the decision of Tribunal in assessee’s own case for AYs 2006-07 and 2007-08, we find no reason to interfere in the said order of the Ld. CIT(A) and the same is hereby upheld. Therefore, this ground of appeal of revenue is dismissed.
6. In the result, the appeal of the revenue is dismissed. Order is pronounced in the open court on 6th October, 2017 Sd/- Sd/- (Dr. A. L. Saini) (Aby. T. Varkey) Accountant Member Judicial Member Dated : 6th October, 2017 Jd.(Sr.P.S.) Copy of the order forwarded to:
1. Appellant – DCIT, Circle-5(1), Kolkata 2 Respondent – M/s. Kalyanpur Cement Ltd., 2&3, Dr. Rajendra Prasad Sarani, (Clive Row), Kolkata-700 001.