2022 (9) TMI 290 - AT - Income Tax

Tribunal allows appeal on spare parts expenditure, distinguishing between revenue and capital expenses

The Tribunal allowed the appeal filed by the assessee, primarily focusing on treating spare parts replacement expenditure as revenue rather than capital ... Nature of expenditure - replacement of spare parts - revenue expenditure or capital expenditure - HELD THAT:- This issue is considered in the case of Super Spinning Mills Ltd.[2013 (9) TMI 88 - MADRAS HIGH COURT] and considered the replacement of machinery as revenue in nature by holding that the basic test is to find out whether expenditure is incurred to preserve and maintain already existing asset and said expenditure must not be incurred to bring any new asset into existence to obtain a new advantage. The expenditure is to be treated as revenue in nature. In the present case before us also the fact is that the assessee has replaced the spare parts which are regular repairs and maintenance because it is a routine replacement of spare parts. Even the Revenue has not administered how the replacement will bring enduring benefit to the assessee. As in the case of Prabhu Spinning Mills[2013 (8) TMI 1165 - ITAT CHENNAI] and in the case of Super Spinning Mills Ltd. [2013 (9) TMI 88 - MADRAS HIGH COURT] we allow the claim of assessee and reverse the orders of lower authorities. Appeal of assessee allowed. Issues:1. Treatment of spare parts replacement expenditure as revenue or capital expenditure.2. Allowance of deduction u/s. 80IA of the Income Tax Act.3. Computation of taxes u/s. 115JC of the Income Tax Act.4. Levy of interest u/s. 234C without direction in the assessment order.Issue 1: Treatment of Spare Parts Replacement Expenditure:The appeal concerned the treatment of spare parts replacement expenditure as either revenue or capital expenditure. The assessee contended that the Commissioner of Income Tax (Appeals) erred in treating the expenditure as capital instead of revenue. The Income Tax Officer considered the replacement of machinery amounting to Rs. 1,06,89,395/- as capital expenditure, citing enduring benefits and relied on a Supreme Court decision. The CIT(A) upheld this decision, emphasizing the substantial amount spent on machinery replacement. However, the Tribunal examined the nature of the spare parts purchased, noting they were for regular repairs and maintenance, not to create a new asset. Citing precedents, the Tribunal allowed the claim, reversing the lower authorities' orders.Issue 2: Allowance of Deduction u/s. 80IA:The assessee also raised a claim for deduction u/s. 80IA of the Income Tax Act, which was disallowed by the Income Tax Officer and confirmed by the CIT(A). The Tribunal, after considering the nature of the expenditure and the purpose behind it, allowed the claim based on the rationale that the replacement of spare parts did not lead to the creation of a new asset or enduring benefit. This decision aligned with previous rulings by the Tribunal and the High Court of Madras, emphasizing the distinction between maintenance expenditure and capital expenditure.Issue 3: Computation of Taxes u/s. 115JC:The issue of computing taxes u/s. 115JC of the Income Tax Act was raised by the assessee, challenging the levy imposed by the Income Tax Officer. However, the judgment did not provide detailed analysis or discussion regarding this specific issue, indicating a lack of contention or dispute related to this aspect in the appeal.Issue 4: Levy of Interest u/s. 234C:The Income Tax Officer levied interest of Rs. 2,26,424/- u/s. 234C in the computation statement without specific direction in the assessment order. The CIT did not delete this interest levy. However, the judgment did not elaborate on the resolution of this issue, implying that the Tribunal did not address or provide a decision on the levy of interest u/s. 234C in the appeal.In conclusion, the Tribunal allowed the appeal filed by the assessee, primarily focusing on the treatment of spare parts replacement expenditure as revenue expenditure rather than capital expenditure. The decision was based on the nature of the expenditure, distinguishing between maintenance and capital expenses, and aligning with previous rulings and legal principles. The allowance of the deduction u/s. 80IA was also granted based on similar reasoning. The judgment did not delve into the computation of taxes u/s. 115JC or the levy of interest u/s. 234C in detail, indicating a lack of substantial dispute or contention on these specific aspects in the appeal.