2013 (12) TMI 940 - AT - Income Tax

Tribunal favors assessee in tax dispute case, overturns disallowance of accelerated depreciation. Expenses considered revenue, not capital.

The Tribunal ruled in favor of the assessee in a tax dispute case. The disallowance of accelerated depreciation under Rule 5(2) of the IT Rules, 1962 was ... Accelerated depreciation - Held that:- Following assessee's own case for the A.Y. 2006-07 - As per Rule 5(2) of I.T Rules and the certificate (P.B-II) issued by the Ministry of Science and Technology, Department of Scientific & Industrial Research, New Delhi dated 15.6.2007 - Plant and machinery installed during the Financial Year 2005-06, are for improved design of tractors in the plant set up for the manufacture of agricultural tractors, Harvester combines and Industrial forklifts based on technology originally acquired from Central Mechanical Engineering Research Institute, Durgapur (CMERI) and improvements made thereon based on their own in house R&D efforts - Assessee satisfied the requisite conditions for accelerated depreciation and the revenue failed to bring evidence on record to rebut such evidences - Decided against Revenue. Repair and maintenance - Held that:- Following assessee's own case for the A.Y. 2006-07 - The expenditure was incurred by the assessee on renovation of floors, ceiling, painting etc. The expenditure is duly allowable in the hands of assessee being current repairs - The expenditure incurred on purchase of carpets being replacement of existing asst is an allowable expenditure - Such expenditure incurred by the assessee cannot be regarded as capital expenditure, where the claim is in the nature of repair and replacement - Decided against Revenue. Issues:1. Disallowance of claim of accelerated depreciation under Rule 5(2) of IT Rules, 1962.2. Disallowance of expenditure incurred on purchase of new items.3. Treatment of acquisition of new assets for replacement as current repairs.Issue 1 - Disallowance of accelerated depreciation:The appeal concerned the disallowance of accelerated depreciation claimed by the assessee under Rule 5(2) of the IT Rules, 1962. The Assessing Officer (AO) rejected the claim due to lack of supporting evidence, specifically the requisite certificate from the competent authority. However, the assessee contended that all requirements of Rule 5(2) had been complied with and provided a certificate from the Department of Scientific and Industrial Research. The CIT(A) allowed higher depreciation based on a Tribunal order for a previous year. The Tribunal noted the evidence provided by the assessee, including certificates from the Ministry of Science and Technology, and ruled in favor of the assessee, deciding the issue against the Revenue.Issue 2 - Disallowance of expenditure on new items:The AO disallowed a sum of Rs. 30,29,737 as capital expenditure on repair and maintenance items, treating them as capital in nature. The CIT(A) deleted this addition based on a Tribunal order from a previous year. The Tribunal reviewed the details of the expenses and previous decisions, finding that the items mentioned by the AO were of revenue nature. Referring to earlier Tribunal orders, the Tribunal decided this issue against the Revenue, confirming the expenses as revenue in nature.Issue 3 - Treatment of acquisition of new assets as current repairs:The AO disallowed certain expenses on building and machinery repairs, considering them as capital expenditures. The Tribunal referred to a previous order where similar expenses were treated as revenue in nature. Following the previous decision, the Tribunal held that the expenses were current repairs and replacements, not capital in nature. The Tribunal decided this issue against the Revenue, dismissing the appeal and confirming the expenses as allowable revenue expenditures.In conclusion, the Tribunal dismissed the appeal of the Revenue and the assessee's appeal was withdrawn. The judgments were pronounced on 23.8.2013, with the Tribunal ruling in favor of the assessee on all issues raised in the appeals.