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Income Tax Appellate Tribunal, KOLKATA BENCH “B” KOLKATA
Before: Shri Mahavir Singh & Shri Waseem Ahmed
आदेश /O R D E R
PER Waseem Ahmed, Accountant Member:-
This appeal by the Revenue is arising out of order of Commissioner of Income Tax (Appeals)-IV, Kolkata in appeal No.77/CIT(A)-I/200-11 dated 15.03.2013. Assessment was framed by DCIT, Circle-4, Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 21.12.2010 for assessment year 2008-09.
Sole issue raised by Revenue is as regards that Ld. CIT(A) erred in deleting the disallowance of claim for the expenditure on account of major repairs & maintenance for Rs.247.63 lacs. For this, Revenue has raised the effective ground:-
DCIT Cir-4, Kol v. M/s Klyanpur Cements Ltd. Page 2 “1. That on the facts and circumstances of the fact that Ld. CIT(A) erred in law in directing the AO to allow the expenditure of Rs.247.63 lakh incurred on account of major repairs and maintenance without appreciating the fact that the expenditure is capital in nature and the assessee company will get the enduring benefit from the said expenditure for a number of years to come.”
Brief facts of the case as culled out from the records are that the assessee is a Private Limited Company engaged in the business of manufacturing and selling of cement. During the year assessee has claimed major repair expenses for an amount of Rs. 270.41 lacs by debiting the profit and loss account. This major repair expense was in addition to normal repair and maintenance expenses of Rs. 433.68 lacs incurred by the assessee. During the assessment proceedings the assessee submitted that the major repair expenses represents and include the cost of three gearboxes which were replaced during the year. The details of the gearboxes are as under:-
(i) Gear Box Model-KDA500 Rs.25.56 lacs replaced in Slag Grinding section of the plant (ii) Gear Box Model-KDA500 Rs.25.56 in the Clinker Grinding section (iii) Planurex Planetary Gear Unit – Rs.115.93 lacs.”
The assessee also submitted that the replacement of the gearboxes were necessary to keep the plant in running condition as the old gearboxes were completely worn out. However the AO disagreed with the claim of the assessee on the ground that such expenses are enduring in nature so it cannot be claimed as deduction by showing as revenue expenditure. Accordingly the AO disallowed the claim of the assessee for the major repair expenses of Rs. 247.63 lacs and added to the total income of the assessee.
Aggrieved, assessee preferred an appeal to Ld CIT(A) who deleted the addition made by the AO by observing as under “3.4 Similar issue also came up in the case of the appellant for A.Y 2007-08 wherein my predecessor in appeal No.200/CIT(A)-IV/2009-10 dated 29.06.2011 has held that the entire expenditure was revenue in nature and thereby allowable. As the facts and circumstances of the previous year are similar to that of A.Y 2007-08, I am of the view that the expenses under the DCIT Cir-4, Kol v. M/s Klyanpur Cements Ltd. Page 3 head ‘Major Repair & Maintenance’ for an amount of Rs.247.63 lacs are allowable as revenue expenses.”
Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us. Shri Soumitra Chowdhury Ld. Authorized Representative appearing on behalf of assessee and Shri Debasish Roy, Ld. Departmental Representative appearing on behalf of Revenue.
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. 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 DCIT Cir-4, Kol v. M/s Klyanpur Cements Ltd. Page 4 utilization was in the range of 37.46% against the industry average of 90. According to him, to make the situation 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 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.