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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: SHRI N.K. BILLAIYA & SHRI PAWAN SINGH
PER N.K. BILLAIYA, AM:
This appeal by the assessee is directed against the order of the Ld. CIT(A)-12, Mumbai dated 29.8.2013.
The sole grievance of the assessee reads as under:
“ The Ld. CIT(A) erred in holding that the expenditure on stores and spares consumed by the appellant during the year, individually having a value in excess of Rs. 5,000/- forms part of Moulds and Tools and that such expenditure is to be amortised over a period of five years, as against the claim of the Appellant that such expenditure is revenue in nature”.
The assessee is a manufacturer of electrical goods. The return for the year was taken up for scrutiny assessment. While scrutinizing the return of income and on perusal of profit & loss account, the AO found that the assessee has debited Rs. 20.65 lakhs under the head stores, tools and moulds. The assssee was asked to submit the details.
3.1. It was explained that out of Rs. 20.65 lakhs, Rs. 7.37 lakhs is the write off in respect of tools and moulds and balance amount of Rs. 13.28 lakhs are spares consumed by the assessee during the year. In continuation of its submission, the assessee further explained that in March 2007, the tools and moulds of Rs. 36.89 lakhs were purchased by the assessee which are written off over a period of 5 years and therefore write off of Rs. 7.37 lakhs pertains to the same.
3.2. The AO was of the opinion that the assessee is using different accounting method for the same set of expenses. The AO accordingly amortized Rs. 13.28 lakhs and allowed the write off of 1/5th at Rs. 2.66 lakhs and made an addition of Rs. 10.62 lakhs.
Aggrieved by this, the assessee carried the matter before the Ld. CIT(A). It was brought to the notice of the Ld. CIT(A) that the items written off by the assessee during the year under consideration are of revenue in nature and therefore there was no question of amortizing the same whereas the items amortized in the earlier assessment years were usable in a span of 5 years therefore 1/5th was written off. After considering the facts and the submissions and after perusing the details of the items written off, the Ld. CIT(A) was of the opinion that the expenses having value upto Rs. 5,000/- as spares and stores etc., which has lifespan of the accounting period are to be allowed as revenue expenditure and rest of the items having the value exceeding Rs. 5,000/- should be considered as part and parcel of ‘moulds & tools’ which can be amortized over a period of 5 years. The Ld. CIT(A) accordingly directed the AO to decide the issue afresh in this line.
Aggrieved by this, the assessee is before us.
The Ld. Counsel for the assessee reiterated what has been stated before the lower authorities. The Ld. Counsel drew our attention to the details of stores, tools and moulds consumed during the year exhibited at pages 68 to 72 of the paper book. It is the say of the Ld. Counsel that quantum of expenditure is not by itself decisive in deciding whether the nature of expenditure is of revenue or capital. Reliance was placed on the decision of the Hon’ble High Court of Bombay in the case of CIT Vs Oxford University Press 108 ITR 166. The Ld. Counsel vehemently submitted that the items which assessee haswritten off during the year did not have a lifespan of more than a year, most of the items were moulds which have been considered as items of revenue in nature by the decision of the Hon’ble High Court of Madras in the case of CIT Vs Aditya Ferro Alloys (P) Ltd 36 ITR 490. The Ld. Counsel pleaded that looking into the nature of items, the entire write off should be allowed as revenue in nature.
The Ld. Departmental Representative relied upon the findings of the AO.
We have gone through the orders of the authorities below. We have also given a thoughtful consideration to the list of items referred to elsewhere. Firstly we find force in the contention of the Ld. Counsel that the quantum of expenditure by itself cannot decide whether the expenditure is of revenue in nature or capital in nature. Therefore, the findings of the Ld. CIT(A) to consider expenditure of items having value exceeding Rs. 5,000/- for amortization is not correct in the light of the decision of the Hon’nle High Court of Bombay (supra). In our considered opinion and after giving a thoughtful consideration to the list of items, the expenditure deserves to be allowed as revenue. It would not be out of place to refer to the observations of the Hon’ble Supreme Court given in the case of Taparia Tools Ltd Vs JCIT 372 ITR 605 wherein at para-18, the Hon’ble Supreme Court observed as under:
“What follows from the above is that normally the ordinary rule is to be applied, namely, revenue expenditure incurred in a particular year is to be allowed in that year. Thus, if the assessee claims that expenditure in that year, the IT Department cannot deny the same. However, in those cases where the assessee himself want to spread the expenditure over a period of ensuing years, it can be allowed only if the principle of ‘Matching Concept’ is satisfied, which upto now has been restricted to the cases of debentures.”
Drawing support from this observation, we can say that a businessman is in the correct position to decide whether he want to spread the expenditure over a period of ensuing years or the expenditure incurred is of revenue in nature because it is the businessman who is in a position to decide whether the items used have a lifespan of more than a year or not. The Revenue authorities cannot substitute their own decision for the decision of the businessman. We, therefore, set aside the findings of the Ld. CIT(A) and direct the AO to allow the entire claim of expenditure as revenue expenditure.
In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 16th December, 2015.