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Income Tax Appellate Tribunal, “B”, BENCH KOLKATA
Before: SHRI S.S.VISWANETHRA RAVI, JM & DR. A.L.SAINI, AM
O R D E R
Per Dr. Arjun Lal Saini, AM:
The captioned appeal filed by the assessee, pertaining to the Assessment Year 2006-2007, is directed against the order passed by ld. Commissioner of Income Tax (Appeals)-XXXII, Kolkata in Appeal No.32/XXXII/11-12/R&T/Cir-8/Kol, dated 07.11.2012, which in turn arises out of an order passed by the Assessing Officer (AO) Under Section 143(3) of the Income Tax Act 1961, (in short the ‘Act’), dated 28.11.2008.
Brief facts of the case qua the assessee are that the assessee filed its the return of income on 27.11.2006 declaring total income of Rs.16,45,711/- for the Assessment Year 2006-07. The case was selected for scrutiny u/s. 143(3) of the Act and the AO has completed the assessment by making the addition on account of revenue expenditure claimed by the assessee in respect of repairs and replacement of block ice. The AO held that Galvanised Plain Sheet is made of iron. Due to the process of galvanization, it does not rust easily and it has long life running into years. It is used by assessee to manufacture ‘can’ in which ‘block ice’ is manufactured. The assessee is one of the leading manufacturer of ‘block ice’ in West Bengal. Due to long life (in years) and durability, it is not an expenditure of revenue nature. Therefore, the AO treated the capital expenditure of galvanized plain sheet and other iron items purchased by the assessee in huge quantity.
Aggrieved from the order of ld. AO, the assessee filed an appeal before the ld. CIT(A), who has also confirmed the additions made by the AO, by observing the followings :-
I have duly considered the assessment order and the submission of the A/R of the appellant. I found that the appellant had purchased Galvanised Plain Sheet of iron. The appellant used these to manufacture the can in which ‘BLOCK ICE’ is manufactured. The appellant purchase in this year more than 32 Metric Ton of Galvanised Plain Sheet. The appellant made the can of using the huge sheets. During the course of hearing the appellant tried to justified that these sheets were used for repairing. He had taken the plea that some machines are very old more than 100 years old. This argument of the appellant is not tenable because the life of company is not 100 years. The appellant also relied upon various case laws that they are not applicable in favour of the appellant because in this case the capital assets comes in existence. From the sheet the appellant made the can. The appellant failed to file any evidence which prove that these huge Galvanised Plain Sheet more than 32 Metric Ton used for repairing. The appellant taken another argument that the repairing work is a continuous process throughout the year but the appellant purchases most Galvanised Plain Sheet in the month of March. The appellant purchased 18.988 Metric Ton in March and 3.850 Metric Ton on 17.2.2006. It also prove that these sheets are not used in repairing but they put to use for generating the new capital assets. The second addition of Rs.1,49,748/- on 23/2/06 and Rs.1,96,975/- on 09/03/06 of M.S.round, M.S.Sheet, H.R.Sheet, R.S.Joist, M.S.Channel, M.s.Flats and Square Table. These are used in construction of building, factory shed and other permanent structure. The appellant taken the same argument that these items are used in repairing works. The repairing works are in continuous process throughout the year. This argument of the appellant is not tenable because the appellant made all the purchases of the M.S.Round and M.S.Sheet etc. at the end of the Financial year without M.S.Round how the repairing work done in continuously throughout the year. The appellant failed to file any evidence which prove that the above items used in repairing. The third addition was Rs.1,83,775/-. This addition is related to the purchase of 100 Horse Power (HP) which prove that there is a creation of new assets. The appellant filed some papers, on going through these papers I found that order was given on 17/11/2004 and challan dated 20/05/2005. It also clearly prove that these are the purchase of New Motor not repairing work. In the case of repairing there are no such time gap between date of order and receipt of assets. There is gap of six months. It prove that the appellant purchase new assets. Hence, this is a capital nature. The appellant relied upon the various case laws mentioned in his submission. I found that the facts of the case of referred case are different in this case because in this case there is generation of new capital asset and the appellant failed to file any evidence which prove that the repairing works done. Consider the above finding and fact of the case I am of the view that the addition made by the AO treating the capital expenditure on this grounds is as per law. Item Amount 1. Galanized Plain Sheet Rs.13,07,540 2. MS Round, MS Steel, HR Sheet, RS Joist, MS Channel, MS Flat, Square Table Rs. 3,46,723 3. HP Motor Rs. 1,83,575 Hence, I confirm the addition made by the AO as above. Regarding the addition of Rs.1,49,728/- on M.S.Angle and M.S. Channel. This A/R of the appellant in his submission stated that the sum of Rs.1,49,728/- pertains to A.Y.2005-06 the appellant do not want to press. Hence, I confirm the addition made by the AO of Rs.1,49,728/-
Not being satisfied with the order of ld. CIT(A), the Assessee is in appeals before us and has taken the following grounds of appeal :-
1. For that in the facts and circumstances of the case the assessment order passed was in violation of principles of natural justice hence is bad in law and be quashed.
2. For that in the facts and circumstances of the case the Learned Commissioner of Income Tax Appeals erred in holding the expenditure of Rs.19,87,566/- as capital expenditure and or prior
4 Hindusthan Ice & Cold Storage Co. Ltd. period expenditure. These expenses were full allowable and hence the order of the CIT Appeal be reversed. 5. Although, in this appeal, the assessee has raised three grounds of appeal, but at the time of hearing, the main grievance of the assessee has been confined to the issue as to whether the expenditure of Rs.19,87,566/- is capital expenditure or revenue expenditure.
5.1 Ld. AR for the assessee has submitted that the AO had disallowed a sum of Rs.19,87,566/-, which was claimed as repairs expenses by the assessee. The AO held that the nature of such expenditure was capital and, hence, he added the same to the income and allowed depreciation on the same. The assessee claimed the following expenses as revenue expenses :-
Item Amount MS angle and MS Channel 1,49,728 Galvanized Plain Sheet 13,07,540 MS Round, MS Steel, HR Sheet, RS Joist, MS Channel, MS Flat, Square Table 3,46,723 HP Motor 1,83,575 Total 19,87,566 Ld. AR for the assessee submitted that all the above expenses were in the nature of repairs or replacement expenses and hence were fully allowable as revenue expenditure. The AO and CIT(A) failed to appreciate the same and held the expenditure to be in the nature of capital and rejected the claim of the assessee. Ld. AR submitted that these are revenue expenditure for the purpose of business. For this purpose, ld. AR relied on the following judgments :-
5 Hindusthan Ice & Cold Storage Co. Ltd. i) Alembic Chemical Works Co. Ltd., [1989] 177 ITR 377; ii) Assam Bengal Cement Companies Ltd. [1955] 27 ITR 34 iii) Associated Cement Companies ltd. [1988] 172 ITR 257 iv) Empire Jute Co. Ltd. [1980] 124 ITR 1(SC) v) Tea Estate P. Ltd. [1992] 198 ITR 535 (Cal) Saravana Spt. Mills (P) Ltd. 293 ITR 201 vi)
5.2 On the other hand, Ld. DR for the revenue has primarily reiterated the stand taken by the AO, which we have already noted in our earlier paragraphs and the same is not being repeated for the sake of brevity.
5.3. Having heard the rival submissions, perused the material available on record, we are of the view that there is merit in the submissions of ld. AR of the assessee, as the proposition canvassed by the ld. AR for the assessee are supported by the judgments cited supra. As he has submitted that the law is well settled that where the expenditure is for repairs of exiting plant and machinery, such expenditure shall be allowable as revenue expenditure. The assessing officer considering that such repairs would lead to a long life of the exiting ice cans and came to a conclusion that the expenses should be capitalized. In this regard, ld. AR submitted that repairing is of cold storage and ice plant. The same has been damaged due to wear and tear. The repairing is of our cold storage and ice plant cannot be considered as brining into existence any new asset or any new advantage of enduring benefit. He also submitted that the phrase “enduring benefit” is not thinking of advantages that are permanent. Considering the factual position, we are of the view that the expenditure incurred by the assessee are revenue in nature, therefore, we
6 Hindusthan Ice & Cold Storage Co. Ltd. are of the view that the addition made by the AO and confirmed by the ld. CIT(A) needs to be deleted. Accordingly, we delete the addition. 5.4. In the result, appeal filed by the assessee is allowed. Order pronounced in the open court on this 21/12/2016.
Sd/- Sd/- (S.S.VISWANETHRA RAVI) (DR. A.L.SAINI) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER कोलकाता /Kolkata; �दनांक Dated 21/12/2016 �काश �म�ा/Prakash Mishra,�न.स/ PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant-Hindusthan Ice & Cold Storage Co.Ltdd 2. ��यथ� / The Respondent.-DCIT, Circle-8, Kolkata 3. आयकर आयु�त(अपील) / The CIT(A), Kolkata. 4. आयकर आयु�त / CIT �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, कोलकाता / DR, ITAT, Kolkata 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy//