2017 (4) TMI 1290 - AT - Income Tax

Tribunal rulings on capital vs. revenue expenditures: machinery spares, deduction under section 80IB(4), dies & tools

The tribunal upheld the CIT(A)'s decision regarding the treatment of machinery spares as capital expenditure, disallowing the claim of the assessee. In ... Consumption of machinery spares - revenue or capital expenditure - Held that:- As gone through the details pertaining to the specific nature of machine parts as per available on record. We could not find any concrete specification indicating that all these parts/spares are not a capital items. We find that the ld. CIT(A) has provided complete analysis of functioning of these items and he has restricted the addition after treating the expenditure towards small items, spare/repair as revenue expenditure, therefore, we disinclined to interfere in the findings of the ld. CIT(A). Disallowing deduction u/s. 80IB(4) - Held that:- This issue in question was covered in favour of the assessee by the decision in the case of Alembic Ltd [2016 (7) TMI 1239 - GUJARAT HIGH COURT] wherein the issue in question that the assessee is eligible for computation of deduction u/s 80IA(4) on the rates charged by it at selling price is no more res integra. - Decided in favour of assessee Expenditure on dies and tools - revenue or capital - Held that:- We noticed that in the business of manufacturing aluminum there is a requirement of using dies of different sizes. We further noticed that the similar issue was raised in the Department proceedings u/s. 263 for assessment year 1996-97 which was dropped and for the assessment year 1997-98 the ld. CIT(A) had deleted the similar addition . After considering above mentioned facts and findings we find that it has been established that dies tools were of consumable nature having short span of life. We have also considered that in earlier years these facts were accepted by the Revenue, therefore, we dismiss the appeal of the revenue Issues:1. Treatment of machinery spares as capital expenditure2. Disallowance of deduction under section 80IB(4) of the Income Tax Act, 19613. Treatment of expenses on dies and tools as revenue expenditureIssue 1: Treatment of Machinery Spares as Capital ExpenditureThe assessing officer disallowed the claim of the assessee by considering the expenditure on machinery spares as capital expenditure. The CIT(A) restricted the disallowance to a certain amount after analyzing the nature of the items. The appellate tribunal, after hearing both sides, upheld the CIT(A)'s decision, stating that the parts/spares could be considered capital items. The tribunal found no concrete evidence to suggest otherwise and decided not to interfere with the CIT(A)'s findings.Issue 2: Disallowance of Deduction under Section 80IB(4)The assessee raised an appeal regarding the disallowance of deduction under section 80IB(4) of the Income Tax Act, 1961. The tribunal referred to a similar case involving Alembic Ltd. and the judgment of the Hon'ble Gujarat High Court. Based on the precedent set by the High Court, the tribunal allowed the assessee's claim for deduction under section 80IA(4) in line with the selling price charged by the captive power plant. The tribunal relied on various judgments to support its decision and dismissed the revenue's appeal in favor of the assessee.Issue 3: Treatment of Expenses on Dies and ToolsThe revenue contended that the expenses on dies and tools should be treated as capital expenditure due to their nature and usage in the business. However, the CIT(A) deleted the addition made by the assessing officer, stating that the dies and tools were of consumable nature with a short life span. The tribunal, after considering the arguments from both sides and the history of similar cases, upheld the CIT(A)'s decision. The tribunal found that the dies and tools were indeed of a consumable nature and dismissed the revenue's appeal.In conclusion, the tribunal partly allowed the assessee's appeal and dismissed the revenue's appeal based on the detailed analysis and legal precedents provided in the judgment. The decisions were made after thorough consideration of the facts and legal aspects surrounding each issue presented before the tribunal.