ACIT., CIRCLE-3(1), HYDERABAD vs. SYNERGIES CASTINGS LIMITED, HYDERABAD

आदेश/ORDER PER MADHUSUDAN SAWDIA, A.M:

This appeal is filed by ACIT, Circle-3(1), Hyderabad against M/s.

Therefore after hearing the Ld. DR, we proceeds to decide the appeal on merits.

“ 5.4. Disallowance of Deduction claimed towards cost of moulds: Rs. Rs.2,21,53,320. The CPC made the addition of Rs.2,21,53,320/- against the cost of moulds as the Appellant inadvertently claimed the deduction of Rs.2,21,53,320/-as per the provisions of section 32(1)(ii)(12). Thus the same was added to the depreciation and thereby the deprecation was wrongly shown in the ROI amounting to Rs.16,32,73,370 hence the variance of depreciation as per TAR and as per ROI. The appellant's submissions have been perused and the following decision with regard to ground no.5,6 and 7 is arrived at. The Appellant claimed depreciation of Rs.14,11,20,050/- only in the return of income. The said fact is seen from the Tax Audit Report (TAR) issued by the Chartered Accountant. The Appellant claimed deduction of Rs.2,21,53,320/-, towards cost of moulds used for the purpose of the manufacturing of the alloy wheels during the year under review. While claiming the same, the Appellant inadvertently claimed the deduction as per the provisions of section 32(1)(ii)(12). Thus the same was added to the depreciation and thereby the deprecation was wrongly shown in the ROI amounting to Rs.16,32,73,370 hence the variance of depreciation as per TAR and as per ROI.

The assessee has contended that the depreciation was rightly claimed as Rs.14,11,20,050/- and also claimed an amount of Rs.2,21,53,320/- towards cost of moulds written off during the year and thus, the appellant's claim of Rs.2,21,53,320/- towards written off moulds should be allowed. The Appellant has placed reliance on the Honorable Hyderabad ITAT order vide (A.Y. 2009-10) ITA No.1824 to 1827/Hyd/2017 (A.Ys. 2011-12 to 2014-15, in its own case for the Assessment year 2009-10,2011-12 to 2014-15. The Honorable ITAT held that: "6. We have heard the rival submissions and carefully perused the materials on record. It is evident from the facts of the case that the moulds are used for manufacturing Aluminium Alloy Wheels for motor vehicles.The assessee had explained before the Revenue that the moulds become redundant after manufacturing approximately 15,000 wheels because the moulds are used in very high temperature due to which they get worn out. Moreover, it is apparent that for different patterns of wheels different moulds are used. After a certain number of patterns of wheels are produced, they have to be changed due to customer choice as the wheels are purchased by renowned companies like General Motors (USA), Chrysler (USA) and Ford (USA). Moreover, it is obvious that the models of vehicles are changed over a short period of time. For these reasons the appellant company discard the moulds as redundant after a period of 12 months and they have to be disposed it off as scrap. Hence, as a policy matter, keeping in view of the matching principle, the assessee company writes off the moulds over a period of 12 months. It is pertinent to mention that moulds cannot be treated as Plant & Machinery as a whole. It is only a part of the machinery. Different kinds of moulds have different life span, short or long, according to the nature of industry. In the case of the assessee it is evident that the life span of the moulds is only 12 months. In similar circumstances, the Hon’ble Karnataka High Court in the case of CIT vs. Mysore Spun Concrete Pipe Pvt Ltd (reported in 194 ITR 159) has held that the expenditure on moulds has to be treated as revenue in nature. Similarly, the Hon’ble Delhi High Court in the case of CIT vs. Jagajit Industries Limited reported in 241 ITR 556 had also held that considering the life span of moulds the expenditure towards the same has to be treated as revenue in nature.

Therefore, appreciating the facts of the case and the decisions rendered by various higher judiciaries it is evident that in the case of the assessee expenditure incurred towards replacement of the moulds within a short span of time has to be treated as revenue expenditure. Further, it is pertinent to mention that adhering to the prudent principles of accountancy and accounting standards viz., the matching concept, the assessee has judiciously claimed deduction towards the expenditure incurred on the moulds by scientifically computing the life span and usage of the moulds. Further, it is not the case where the life span of the moulds are for a long period or it increases the productivity or it improved the value of the product or to produce altogether another product, which may provide scope to treat the expenditure incurred towards the moulds as capital in nature on which depreciation is allowable. In these circumstances, we cannot find any fault in the claim of the assessee to treat the expenditure incurred on moulds to be revenue in nature and it is appropriate. For the above stated reasons, we do not find any merit either in the order of the ld. AO or in the order of the Ld. CIT (A). Therefore, for all the relevant AYs we hereby direct the Ld. AO to delete the addition made on account of disallowance of deduction claimed on moulds. It is ordered accordingly.

In view of the discussions above and also Honorable Hyderabad ITAT order vide (A.Y. 2009-10) ITA No.1824 to 1827/Hyd/2017 (A.Ys. 2011-12 to 2014-15, in appellant's own case for the Assessment year 2009-10,2011-12 to 2014-15, the grounds of appeal 5-7 raised by the assessee on disallowance of deduction claimed towards cost of moulds Rs.2,21,53,320 is allowed.”

6. Aggrieved with the order of Ld. CIT(A) the Revenue is in appeal before us.

The Ld. DR submitted that the expenditure incurred by the assessee on moulds are in the nature of capital expenditure and should not be allowed to the assessee as revenue expenditure. Therefore he prayed before the bench to dismiss the order of the Ld. CIT(A).

2011-12 to 2014-15 dated 19/12/2019, in which the ITAT held that the expenditure on moulds are in the nature of revenue expenditure. The relevant portion of the order of the ITAT(Supra) are reproduced as under :

“6. We have heard the rival submissions and carefully perused the materials on record. It is evident from the facts of the case that the moulds are used for manufacturing Aluminium Alloy Wheels for motor vehicles. The assessee had explained before the Revenue that the moulds become redundant after manufacturing approximately 15,000 wheels because the moulds are used in very high temperature due to which they get worn out. Moreover, it is apparent that for different patterns of wheels different moulds are used. After a certain number of patterns of wheels are produced, they have to be changed due to customer choice as the wheels are purchased by renowned companies like General Motors (USA), Chrysler (USA) and Ford (USA). Moreover, it is obvious that the models of vehicles are changed over a short period of time. For these reasons the appellant company discard the moulds as redundant after a period of 12 months and they have to be disposed it off as scrap. Hence, as a policy matter, keeping in view of the matching principle, the assessee company writes off the moulds over a period of 12 months. It is pertinent to mention that moulds cannot be treated as Plant & Machinery as a whole. It is only a part of the machinery. Different kinds of moulds have different life span, short or long, according to the nature of industry. In the case of the assessee it is evident that the life span of the moulds is only 12 months. In similar circumstances, the Hon'ble Karnataka High Court in the case of CIT vs. Mysore Spun Concrete Pipe Pvt Ltd (reported in 194 ITR 159) has held that the expenditure on moulds has to be treated as revenue in nature. Similarly, the Hon'ble Delhi High Court in the case of CIT vs. Jagajit Industries Limited reported in 241 ITR 556 had also held that considering the life span of moulds the expenditure towards the same has to be treated as revenue in nature. Therefore, appreciating the facts of the case and the decisions rendered by various higher judiciaries it is evident that in the case of the assessee expenditure incurred towards replacement of the moulds within a short span of time has to be treated as revenue expenditure. Further, it is pertinent to mention that adhering to the prudent principles of accountancy and accounting standards viz., the matching concept, the assessee has judiciously claimed deduction towards the expenditure incurred on the moulds by scientifically computing the life span and usage of the moulds. Further, it is not the case where the life span of the moulds are for a long period or it increases the productivity or it improved the value of the product or to produce altogether another product, which may provide scope to treat the expenditure incurred towards the moulds as capital in nature on which depreciation is allowable. In these circumstances, we cannot find any fault in the claim of the assessee to treat the expenditure incurred on moulds to be revenue in nature and it is appropriate. For the above stated reasons, we do not find any merit either in the order of the Id. AO or in the order of the Ld. CIT (A). Therefore, for all the relevant AYs we hereby direct the Ld. AO to delete the addition made on account of disallowance of deduction claimed on moulds.It is ordered accordingly. 7. In the result, all the appeals of the assessee are allowed in its favour.”

Further no change with regard to the facts of the case in the impugned assessment year have been brought to our notice by the Ld. DR as compared to the assessment year for which the coordinate bench of ITAT(Supra) had held, the expenditure incurred by the assessee on moulds as revenue expenditure.

Therefore respectfully following the decision of coordinate bench of ITAT(Supra), we also hold that the expenditure incurred by the assesee on moulds are revenue in nature and therefore we uphold the order of Ld. CIT(A). Accordingly, the appeal filed by the Revenue is dismissed.