TaxTMI 
TaxTMI 
TaxTMI 
2021 (7) TMI 801
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....xpenditure claims of Rs. 2,45,64,703/-, Rs. 2,49,18,838/-, Rs. 3,64,61,700/- and Rs. 3,49,81,040/-; assessment year wise, respectively, made in the course of corresponding assessments. Both the learned representatives lead us to CIT(A)'s lead findings to this effect in first and foremost AY 2012-13 reading as under. "4. The ground no.1,8 and 9 are general in nature which do not require specific adjudication. Ground no.7 is against charging of interest u/s 234B. As the charging of interest is mandatory and consequential, the ground raised is rejected. The Ground no.2 to 6 are against the treatment of expenditure incurred on 'dyes' as capital expenditure and allowing depreciation. The issue is discussed by the Assessing Officer in the order as under: "During the course of scrutiny proceedings the assessee was asked vide order sheet entry dated 09.03.2015 to explain as to how Die' is treated as consumable and how it is valued for valuation closing stock. In response to the above the assessee furnished the information dated 13.03.2015 as follows: "The average die life in our industry is about 5-7 M. T depending upon the criticality of the profile and no. of runs. ....
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....ines cannot turnout the product to the business specifications and this has to be obtained only on a replacement of the dies. The dies will get completely worn out and will become obsolete and sold as die scrap" 4.1 The above reply has been considered. As per the note submitted by the assessee himself of the process of die conversion of die steel, it can be seen that die are getting made by the assessee from die steel and the bills show that these are having independent description with number and accordingly are in the nature of an asset which has to be treated as plant and machinery'. The die are not in the nature of consumables. Whenever the assessee is making expenditure in the form of job work for getting die made from die steel, it is resulting into existence of new asset. The assessee has tried to claim that getting die made out of die steel is u/s.31 of the I. T. Act. that a new asset or new/different advantage amount to current repairs . Repairs implies existence part of a machine which has malfunctioned, thereby requiring repair to that machinery, plant etc. Replacement cannot be current repair, for replacement and current repair do not go hand in hand. If one is ho....
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....ver, since . it is considered that the expenditure on account of dies is for plant and machinery, depreciation at rate given for plant and machinery is to be allowed on the above account. Therefore, on above account, disallowance to the extent of Rs. 2,08,79,997/ (Rs. 2,45,64,703/- 15% of Rs. 2,45,64,703/) is being made and added to the total income" 5. During the course of appellate proceedings, the assessee reiterated the submissions as made in the statement of facts filed along with the appeal, which are as under: "2. The appellant is carrying on the business of manufacture of aluminium profiles since the year 1994. During the year, the appellant manufactured 9628 MTs. of aluminium profiles. The sales made are Rs. 154.91 crores. For the manufacture of aluminium profiles of different shapes and sizes for different customers, the appellant made dies out of die steel. During the year roughly about 1200 to 1400 dies of different shapes and sizes have been made for the purpose of manufacture of aluminium profiles and the cost of making profiles aggregating to Rs. 2,45, 74, 703 is claimed as revenue expenditure being consumables in nature. 3. The profiles manufactured are in dif....
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....nt. After the die is used or when becomes worn out or after it breaks it can only be sold as scrap and that too as M.S steel scrap at roughly Rs. 20 per kg. (approx.) for some and at Rs. 60 per kg. for some scrap. Sometimes after placing the order, die is made but the customer does not come back. Then too the dies become scrap as it does not have any value and is not useful for any other application. The above description would only demonstrate that the die is consumable and gets exhausted in production. Its life is very short which is less than 10 MTs. of production and is normally consumed within the same year. (Photo graphs of dies are produced before the learned Commissioner of Income tax for ready understanding of what is a die). 6. It is therefore submitted that the consumables all across the world are not regarded as plant & machinery. In Hyderabad alone there are about 20 to 22 manufacturers of aluminium profiles and in all these cases dies made are treated as consumables. Even in the past years, the cost of die is claimed as expenditure being consumable and was accepted. 7. The Assessing Officer refused to allow the cost of dies as revenue expenditure. He treated the s....
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....llant finds it difficult to understand the observation of the Assessing Officer that the dies are made on account of some' mal- functioning of the existing machinery. This is absolutely an erroneous statement and appears to be a flaw in his understanding. 10. Since the die does not have lasting life and constitutes consumable, there is no opening and closing value. Die steel is raw material for making a die is always included in the closing stock to the extent not consumed for producing a die. After die is used, it is sold as scrap and the value of scrap is shown in the accounts under the head Revenue from operations and included as part of business receipts in the P&L account. It is assessed as part of business income. The die is made depending on the volume of order - if the order is small say V2 ton or 1 ton, its life will be minimal and will exhaust after the order is executed. In any case its life will not exceed 10 MTs. of production. In the past years, the Assessing Officer has always treated this item as consumable and was allowed as expenditure in the year in which the dies are made while at the same time scrap sale is taxed income. It is only in this year that for t....
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....s of the case. It has no bearing at all to the case on hand. 13. In the decision of the Hon'ble Supreme Court the assessee himself classified the expenditure as capital expenditure in his accounts. However, for the purpose of Income tax Act, it was claimed as revenue expenditure. The Hon'ble Supreme Court laid emphasis on the treatment given by the assessee in his accounts and hence that it is indicative of what the assessee itself thought of the expenditure. In the appellant's case this situation does not prevail. 14. It is therefore contended that the order of assessment u/s 143(3) of the I. T. Act treating the cost of dies as plant & machinery is arbitrary and untenable for the following among other grounds:" 6. During the appellate proceedings, the AR specifically relied on the decision in case of M/s TVS Motors Ltd 364 ITR 1 (Mad), wherein it was discussed as below. "29. As regards the expenditure on dies & moulds, the assessee pointed out that it debited an amount of Rs. 11,17,68,169/- towards dies and moulds only to replace them in the place of worn out dies and moulds. The assessee in the memorandum of income added this amount to the total income and cla....
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.... (2007) 293 ITR 201 (SC) and in particular to the decision in the case of CIT Vs. Sri Mangayarkarasi Mills P.Ltd., reported in (2009) 315 ITR 114 (SC) and pointed out as under:- "10. The question as to whether the expenditure incurred on replacement of machinery is revenue or capital expenditure, particularly in the nature of replacements of parts, thus rests on the nature of expenditure incurred, vis-a-vis the benefit that the assessee derives. The ratio deductible from the decisions referred to above are: (i) To decide the applicability of Section 31(1), the test is not whether the expenditure is revenue or capital in nature, but whether the expenditure is "current repairs". The basic test is to find out whether expenditure is incurred to "preserve and maintain" an already existing asset and the expenditure must not be to bring a new asset into existence or to obtain a new advantage vide {2007J 293 ITR 201 (SC) (Commissioner of Income Tax Vs. Saravana Spinning Mills P. Ltd.) (ii) Under Section 31(1), the deduction admissible is only for current repairs. Therefore, the question as to whether the expenditure incurred by the assessee conceptually is revenue or capital in natur....
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....as current repairs of the plant and machinery. 31. Applying the ratio of the decision cited above, when we look into we facts of the above cases, it is evident that with regard to the moulds and dies attached to the machinery like press designs specification, moulds and dies are not independent of the plant and machinery, but are parts of the machinery. Once the dies are worn out, the machines cannot turn out the product to the business specifications and this has to be obtained only on a replacement of the dies and moulds, a fact which is not refuted by the revenue. It is no doubt true that the assessee claimed depreciation on dies and moulds. Yet in the decision in the case of CIT Vs. Mahalakshmi Textile Mills Ltd., reported in (1967) 66 ITR 710 (SC), the Apex Court pointed out that all questions whether of law or of fact, which relate to the assessment year of the assessee could be raised in any year under consideration before the Officer as well as before the Income Tax Appellate Tribunal too and if, for reasons recorded by the departmental authorities in rejecting a contention raised by the assessee, the grant of relief to an assessee is justified on another ground, the Reve....