TaxTMI 
TaxTMI 
2020 (2) TMI 1285
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....ten off the debt in its books of accounts? [ii] Whether, in the facts and circumstances of the case, the order of the Income Tax Appellate Tribunal was perverse inasmuch as it records an incorrect fact that the debt has become bad after 31/03/1997? [iii] Whether, in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that expenditure incurred on replacement of Plant and Machinery is a capital expenditure? [iv] Whether, in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in treating expenditure incurred on Dies and Tools, which are in the nature of consumable, as capital expenditure?" 3. It appears from the materials on record that the assessee filed its return of income dated 28th November 1997 declaring the total income at Rs. 2,72,40,280/­. Later, an order came to be passed under Section 143(1)(b) of the Act, 1961 dated 29th April 1998 giving the consequent effect of the CIT(A)'s order in the A.Y. 1996-­97 for the year under consideration. 4. The Assessing Officer passed an order dated 5th October 1999 under Section 143(3) of the Act, 1961. Th....
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....and machinery and since no new asset has come into existence, the addition made by treating the repair expenses as of capital nature, is not justified. Taking this plea into consideration and also following the above mentioned decisions of various High Courts on this point (supra), I hold that the addition is not justified and the same stands deleted. However, the assessing officer is directed to withdraw the amount of depreciation allowed on it." 6. The Revenue being dissatisfied with the aforesaid findings recorded by the CIT(A) went in appeal before the Tribunal. The Tribunal disturbed the aforesaid findings recorded by the CIT(A) and while allowing the appeal of the Revenue held as under: "23 So far as disallowance out of repair and maintenance is concerned, the brief facts of the case as have been revealed from the records are that the Assessing Officer, during the course of assessment proceedings, came to know that the assessee had claimed an amount of Rs. 6,43,741/­ in the expenses claimed under the head "repair and maintenance", but on verification, it was found that once enamelling machine was destroyed in fire on 07/07/1996 which was reconstructed by the a....
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....his appeal, vehemently submitted that no error, not to speak of any error of law could be said to have been committed by the Tribunal in holding that the expenditure incurred by the assessee on the repairs of the machines is a capital expenditure. Mr. Patel would submit that the Tribunal being the final fact finding authority, this Court may not disturb the finding of fact recorded by the Tribunal that the machine got extensively damaged. The entire machine had to be repaired or renovated. Mr. Patel would submit that having regard to the materials on record, it could be said that the repairing undertaken by the assessee was with a view to bringing into existence a new asset or with a view to have a substantial replacement or renovation. 12. In such circumstances referred to above, Mr. Patel prays that the first substantial question of law as framed by this Court may be answered in favour of the Revenue and against the assessee. ● ANALYSIS:­ 13. In Desai Brothers (supra), the assessee claimed deduction of expenditure incurred for replacing a petrol engine by a diesel engine in its truck which was being used in the business. The assessee claimed that the said repla....
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....tion with current repairs can be allowed as deduction. In New Shorrock Spinning and Manufacturing Co. Ltd. v. Commissioner of Income-­tax [1956] 30 ITR 338 (Bom) the Bombay High Court considered what is the difference between repairs and renewal and quoted with approval the following observation of Lord Justice Buckley in Lurcott v. Wakely and Wheeler [1911] 1 KB 905, 923 (CA) : "'Repair' and 'renew' are not words expressive of a clear contrast. Repair always involves renewal; renewal of a part; of a subordinate part ..... Repair is restoration by renewal or replacement of subsidiary parts of a whole. Renewal, as distinguished from repair, is reconstruction of the entirety meaning by the entirety not necessarily the whole but substantially the whole subject­matter under discussion." 16. Chief Justice Chagla, as he then was, referred to the two advertent trends amongst different High Courts and preferred to adopt the view pronounced by the Patna High Court in Commissioner of Income-­tax v. Darbhanga Sugar Company Ltd. [1956] 29 ITR 21 (Pat) and by the Madras High Court in Commissioner of Income-­tax v. Sri Ram Sugar Mills Ltd. [1952]....
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....a petrol engine with diesel engine as current repairs under section 10(2)(v). The court held in that case that what was really being done was to preserve and maintain an already existing asset and the expenses were not incurred to bring a new asset into existence or to obtain a new or a fresh advantage to the business of the assessee. In that view of the matter, therefore, we do not think that the object of the assessee in incurring the expenses in replacement was with a view to bringing into existence a new asset or was with a view to have a substantial replacement or renovation, but it appears that the assessee was motivated in making the expenses by the object of preserving and maintaining the asset for the purpose of use in the business. We are, therefore, of the opinion that, in the facts and circumstances of the case, the Tribunal was right in holding that the expenditure incurred for replacing the petrol engine by diesel engine was in the nature of revenue expenditure for current repairs to the machinery of the assessee. In that view of the matter, therefore, we answer the question referred to us in the affirmative and against the revenue. The Commissioner of Income-­tax....
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....ing this plea into consideration and also following the decisions of Karnataka as well as Rajasthan High Courts (Supra), I hold that the addition made is not justified and the same stands deleted. However, the assessing officer is directed to withdraw the depreciation allowed on it." 17. Thus, the CIT(A) took the view that the expenditure incurred by the assessee on dies and tools in the nature of consumable is revenue expenditure. The Tribunal disturbed the aforesaid finding of fact recorded by the CIT(A) holding as under: "Coming to issue relating to addition of Rs. 4,50,207/being the aim on account of written off the tolls and dies to this extent, the CIT(Appeals) deleted the addition by observing as under: "10.1. After hearing the appellant's counsel and after going through the material on record, I am convinced with his arguments that since the expenses incurred on these dies is for the replacement of the damaged dies, the same amounts to the revenue expenditure. Taking this plea into consideration and also following the decisions of Karnataka as well as Rajasthan High Courts (Supra), I hold that the addition made is not justified the same stands deleted. ....
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....Mr. Varun Patel, the learned standing counsel appearing for the Revenue would submit that no error, not to speak of any error of law could be said to have been committed by the Tribunal in taking the view that the expenditure incurred on dies and tools which are in the nature of consumable as capital expenditure. 21. Mr. Patel would submit that the purchase of dies and moulds would bring into existence permanent or enduring advantage to the assessee. 22. In such circumstances referred to above, Mr. Patel prays that the second substantial question of law as formulated by this Court may be answered in favour of the Revenue and against the assessee. 23. In the decision of this Court in Banco Aluminium Ltd (supra), this Court observed as under: "4. Insofar as the treatment of consumption of machinery spares as capital expenditure in respect of which addition of Rs. 90,72,160/­ had been made is concerned, the Commissioner (Appeals) noted that such expenditure was in relation to eight items. After considering the submissions of the assessee, the Commissioner (Appeals) observed that some of the items were neither towards repair nor did the same appear to be towards r....