ITO, POLLACHI vs. JAYASHREE TEXTILES PVT. LTD., POLLACHI

This appeal is filed against the order of the Commissioner of Income Tax (Appeals)-II, Coimbatore, dated 28.02.2013, by the Department.

There is a delay of 3 days in filing the appeal by the Department and an affidavit was filed explaining the reason for the delay. After hearing the submissions, we are satisfied that there was a reasonable cause for filing the appeal belatedly. Therefore, the delay is condoned and the appeal is admitted.

The brief facts of the case are that the assessee-company is engaged in the business of manufacture of textiles. The Assessing Officer made an addition of `13,01,686/- in respect of modernization expenditure. It was submitted that the expenditure purely related to change of certain parts of Blow Room machinery, which is an integral part of textile machinery and the parts were purchased from M/s Lakshmi Machine Works Limited. The only issue before the Assessing Officer was whether the change of parts is to be treated as current repairs or add to the gross block of assets and claim depreciation. In assessment proceedings, information was filed stating that the parts are only for the old machinery, and which do not increase the production capacity and it cannot be termed as a bigger machinery. Assessee supported the case with various legal case laws. But, the Assessing Officer, to verify the claim of the assessee, called for details from supplier regarding the parts supplied to the assessee. The A.O., on the basis of the reply from supplier, without putting it to the assessee, considered such expenditure as capital expenditure and assessed the total income at `9,95,640/- raising a demand of `4,92,680/-.

Aggrieved by the order of the Assessing Officer, the assessee filed an appeal before the Commissioner of Income Tax (Appeals)-II, Coimbatore and the Ld. CIT(Appeals) allowed the appeal with certain findings by his order dated 17.10.2002. Against the above order, the Income-tax Department has filed an appeal before the ITAT and the appeal was dismissed by order in dated 01.09.2005. The matter was further represented before High Court and Supreme Court. The Hon'ble Supreme Court through its judgment dated 23.03.2009, remitted the issue of treating the expenditure as capital or revenue to the file of the CIT(Appeals). The Ld. CIT(Appeals), based on the directions of the Supreme Court, issued hearing notice to the assessee and the assessee filed detailed written submissions of the characteristics of the machinery, usage and also mentioned that the letter sent by the Assessing Officer to the supplier was never put to them. The assessee, in hearing proceedings, furnished another letter dated 13th February, 2001 received from the machinery supplier through its Product Manager (Marketing). Even before this letter could be produced before the Assessing Officer in assessment proceedings, the Assessing Officer hurriedly completed the assessment and raised the demand. The Ld. CIT(Appeals) dealt in detail with the case laws of Apex Court, Madras High Court and the decision of ITAT, Chennai Bench on the issue of current repairs and capitalization of parts. The CIT(Appeals) considered the decisions of Supreme Court and earlier orders and the characteristics of the old parts and also letter from M/s Lakshmi Machine Works Limited dated 13.02.2001 wherein it is clearly stated that only six parts were supplied and those six parts do not constitute complete Blow Room line. This letter of the supplier was not available with the Assessing Officer as he had completed the assessment with the enquiries made behind the assessee and not putting the same to test them before the assessee for verification. Considering the factual information and legal case laws, treated such expenses as current repairs.

Aggrieved by the order of the CIT(Appeals), the Department has filed appeal before the Tribunal with a sole ground that the CIT(Appeals) has erred in considering the Blow Room in textile industry as not an independent machine itself and they can function independently as stand alone with other machineries and therefore, such expenditure should be treated as capital expenditure and not current repairs and argued vehemently based on the case laws.

On the other hand, the Ld.counsel appearing for the assessee submitted paper-book and referred to the letter of confirmation and also mentioned that the matter is coming for the second round before this Tribunal and issue pertains to assessment year 1998-99. The Ld.counsel submitted the facts and findings of appellate order and prayed for dismissal of the appeal.

The Tribunal, after hearing the rival submissions and the material available on record and the case laws and the information submitted in the earlier proceedings, is of the opinion that though the CIT(Appeals) has mentioned at page 1 of his appellate order that the appeal was suo moto instituted based on the Supreme Court’s decision dated 23.03.2009 in respect of treatment of expenditure as capital or revenue, and also the Ld.counsel has filed written submission with evidence of letter dated 13th February, 2001 issued by the machinery supplier M/s Lakshmi Machine Works Limited, which clearly states that only six parts were supplied and all these six parts do not constitute complete Blow Room line and also supported with the decision of Supreme Court in CIT v. Mahalakshmi Textile Mills Ltd. (1967) 66 ITR 710 to consider such replacement of parts as current repairs. The Lordships have observed as under:-

In the result, the Revenue’s appeal is dismissed.