TaxTMI 
TaxTMI 
TaxTMI 
2020 (2) TMI 1285
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.... 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. The Assessing Officer disallowed the claim of the assessee in treating the expenditure incurred on replacement of the p....
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....onsideration 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 assessee by incurring aforesaid amount. 24. It was, in view of the above facts and circumstances of the case, that the Assessing Officer considered the expenditure in capital nature. ....
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.... 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 replacement cost was in fact the expenses for current repairs. The ITO rejected the claim of the assessee. The AAC held that the cost of replacement was only cost of repairs to the machinery and the claim was allowed under Section 3....
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.... 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] 21 ITR 191 (Mad). The facts in New Shorrock Spinning and Manufacturing Co. Ltd.'s case [1956] 30 ITR 338 (Bom) were illustrative where the assessee­company which was a textile company spent a sum of Rs. 30,557 for replacing certain parts in 646 l....
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....xistence 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 will pay costs of this reference to the assessee." 14. Applying the aforesaid dictum as laid in Desai Brothers (supra), we have no hesitation in coming to the conclusion that the Tribunal committed an error in holding that the expenditure incurred on re....
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....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. However, the assessing officer is directed to withdraw the depreciation allowed on it." 29. After careful consideration of the rival submissions and the facts and circumstances of the case and in view of decision of ITAT Ahmedabad Bench having held in the case of Gujarat Alluminium Extrusion Ltd. in ITA No.1 ....
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.... 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 replacement of worn­ out parts as claimed by the assessee. Such items appeared to be fresh additions to plant and machinery and some items appeared to be capable of independent functioning. He, therefore, was of the view that such items constituted capital expenditure and could not be considered to be towards current repairs and accordingly held that....