TaxTMI 
TaxTMI 
2026 (9) TMI 1690
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....the facts and circumstances of the case, the Ld. (CIT(A) has erred in law in deleting the disallowance of expenditure on account of "Cost of material consumed" & "Rate & taxes of Rs. 27,81,01,346/- & Rs. 1,31,18,882/-, respectively, ignoring the fact that the expenses were of large value & capital in nature. 2. Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in law in not appreciating the findings of the Assessing Officer that the expenditure on account of "repair and maintenance of such large amount, appears to be in the nature of "enduring benefit" to the assessee and is hence capital in nature. 3. The appellant prays for leave to add, amend, modify or alter any grounds of appeal at the time or before the hearing of the appeal." 3. Both the parties next invite our attention to the learned CIT(A)'s detailed discussion reversing the Assessing Officer's action disallowing 20% of the assessee's expenditure claims i.e. cost of materials amounting to Rs. 27,81,01,346/-, reading as under: "5.3.1 Vide these grounds of appeal, the appellant has contended that on the facts and circumstances of the case, the AO has erred in ad hoc d....
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.... GU498699 is an abbreviation/short for "Carrier Gun". Carrier gun: "1. n. [Perforating] A perforating gun, consisting of a loading tube and shaped charges. The shaped charges are housed inside a metal tube or pipe known as a carrier. The carrier protects the charges against well fluids." The item described as "Carr Tube" refers to a part or tubing used in drilling operations or oilfield servicing, generally: * Used in wireline logging, coiled tubing operations, or mud circulation; * Integrated with consumable tools or tubing assemblies that are replaced frequently; * Subject to wear and tear during each use, and thus does not have an enduring life like a capital asset; * Purchased and consumed in the normal course of operations, with short utility spans and no standalone asset identity. The Ld. AO has incorrectly held that the value of a single item is very large to make it capital in nature. The Appellant wishes to draw your Honor's attention to invoice no. GU498699 enclosed as Annexure-1, wherein the value single unit of Carrier Gun Tube is mentioned as USD 524.18 only. Thus, it can be substantiated ....
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....he has allowed the relief to the assessee. 30. In view of the above discussion, it has to be held that all of these expenditures were incurred by the assessee in the course of its business and none of the expenditures can be classified as expenditure in the nature of capital." (Emphasis supplied) 1. The decision of Income Tax Appellate Tribunal, Kolkata Bench in the case of ITC Ltd v. ACIT, wherein it was held as under: "I have considered the submissions of the authorized representative of the appellant as well as the assessment order framed in the light of the materials available on record before the assessing officer during the assessment proceedings. The A.R during the remand proceedings before the AO and before undersigned has submitted that the expenditure for Rs. 19,55,000/-was made in respect of charges paid towards spares and consumables required for rearrangement of packing materials to meet day -to-day production requirements, and also furnished details furnished detailed break-up thereof. The AO in his remand report did not object the nature of expenses but disallowed by stating that these tools will give enduring benefit to the assess....
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....h Court of Allahabad in the case of NathmalBankatlal Parikh & Co. V. Commissioner of Income- tax [, wherein it was held as under: "The simple test that must be constantly borne in mind is that as a result of the expenditure which is claimed as an expenditure for repairs what is really being done is to preserve and maintain an already existing asset. The object of the expenditure is not to bring a new asset into existence, nor is its object the obtaining of a new or fresh advantage. This can be the only definition of 'repairs' because it is only by reason of this definition of repairs that the expenditure is a revenue expenditure.." "If the amount spent was for the purpose of bringing into existence a new asset or obtaining a new advantage, then obviously such an expenditure would not be an expenditure of a revenue nature but it would be a capital expenditure, and it is clear that the deduction which the Legislature has permitted under section 10(2)(v) is a deduction where the expenditure is a revenue expenditure and not a capital expenditure." It admits of no doubt that mere quantum of expenditure is not by itself decisive of the question whether ....
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....disallowance cannot stand. The ground, therefore, deserves to be allowed. The disallowance under "Rates & Taxes" should be deleted." 5.3.3 On careful perusal of the assessment order, it is noted that in ITR, the appellant had claim expenditure of Rs. 185,40,08,974/- on account of purchases of stores and spares from related parties. The AO issued the notice to the appellant for submission of related invoices. The appellant submitted bills on sample basis. In assessment order, the AO has mentioned two invoices items of which mentioned therein found by the AO as capital purchases in absence of satisfactory reply by the appellant assessee. Hence, the AO has made disallowance on the cost of material consumed to the extent of 15% by holding that the expenditure on account of cost of material consumed of such "large amount", appears to be in the nature of "enduring benefit" to the Appellant and can be categorized as capital in nature. Similarly, the AO has made disallowance on rates and taxes to the extent of 20% amounting to Rs. 1,31,18,882/-. 5.3.4 Since the contention in these two grounds is similar, both grounds are being adjudicated upon together for sake of conveni....