Angalakshmi Spinning Mill Vs ITO (ITAT Chennai)
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. Hence, respectfully following the Co-ordinate Bench decision in the case of Prabhu Spinning Mills, supra and the decision of Hon’ble Madras High Court in the case of Super Spinning Mills Ltd., supra, we allow the claim of assessee and reverse the orders of lower authorities.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This appeal by the assessee is arising out of the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi in Appeal No.CIT(A), Coimbatore-3/10640/2019-20 dated 24.09.2021. The assessment was framed by the Income Tax Officer, Non-Corporate Ward – 4(1), Coimbatore for the assessment year 2017-18 u/s.143(3) of the Income Tax Act, 1961 (hereinafter the ‘Act’) vide order dated 21.08.2018.
2. The only issue in this appeal of assessee is as regards to the order of CITA() not allowing the replacement of spare parts as revenue expenditure and treated the same as capital expenditure. Without prejudice, the assessee has also raised allowance of claim of deduction u/s. 80IA of the Act and computed levy of taxes u/s.115JC of the Act. For this, assessee has raised the following effective grounds:-
2. Without prejudice to the above it is also submitted
(i) the CIT(A) is erred in not allowing revenue expenditure of Rs. 1,06,89,395/- towards spares purchase treating the same as capital expenditure even when the assessing officer has clearly stated it was purchase of spares only.
(ii) without prejudice to the above the CIT(A) is also erred in not allowing Rs.2,70,06,889/- u/s 80IA.
(iii) the officer is also not correct in levying tax under sec. 115IC and CIT(A) is erred in not deleting the same.
3. The officer is erred in levying interest of Rs. 2,26,424/ u/s 234C in the computation statement without any direction in the assessment order and CIT is also erred in not deleting the same.
3. Brief facts are that the assessee firm is engaged in the business of running a spinning mill. During the course of assessment proceedings, the AO noticed that the assessee has replaced the machinery for an amount of Rs.1,06,89,395/- and claimed the same as revenue in nature. The AO noted after verifying the invoices dated 15.02.2016 that the spare part purchased by assessee for this huge sum which will bring them enduring benefit and therefore, the expenditure incurred is capital in nature. The AO relied on the decision of Hon’ble Supreme Court in the case of CIT vs. Mangayarkarasi Mill P. Ltd., Civil Appeal No.4579 of 2009. Accordingly, he treated expenditure on account of replacement of machinery as capital expenditure and allowed depreciation at the rate of 15%. The AO also disallowed the claim of deduction u/s.80IA of the Act. Aggrieved, assessee preferred appeal before the CIT(A).
4. The CIT(A) also confirmed the action of the AO and noted that the amount spent by the assessee for replacement of machinery is sizable amount which cannot be attributed to spare parts or it is clearly the replacement of machinery itself and therefore, treated the expenditure as capital in nature. Aggrieved, assessee came in appeal before the Tribunal.
4. We have heard rival contentions and gone through facts and circumstances of the case. We noted from the invoice that the spare parts purchased by assessee is consisting of Elite Compact set for Ring Spinning Frames and the description of machinery to be converted is as under:-
Manufacturer and type : LMW LR 6/S
Spindle gauge : 70 mm
Ring diameter : to be indicated
No.of spindles : 1 .008
In this very invoice, the German company i.e., Spindlefabrik Suessen GmbH noted that the spare parts are within the spinning mill and frame work of conversion.
