Case Law Details
Jaya Hind Industries Limited Vs DCIT (ITAT Pune)
which is used in the robotic arms forming part of high pressure die casting machines can be allowed as revenue expenditure. The factual submissions made on behalf of the appellant are that the expenditure was incurred on replacement of Gripper which is part of robotic arms forming part of high pressure die casting machines. There is no increase of productivity or capacity on account of incurring this expenditure. It is also submitted that this part namely Gripper cannot be machine itself i.e. it cannot perform any function independently. These facts remain uncontroverted by the Department. No doubt the Hon’ble Supreme Court in the case of Sarvana Spinning Mills Ltd. (supra) categorically held that the expenditure incurred by the assessee towards replacement of machinery with new machinery constitutes a capital expenditure. Even the Hon’ble Supreme Court in the case of CIT vs. Sri Mangayarkarasi Mills P. Ltd, 315 ITR 114 held that each machinery which functions independently should be treated as such not as a mere part of any composite machinery of the plant.
Undisputed the claim for deduction is not u/s 31 but u/s 37 of the Act. Therefore, the finding of the ld. CIT(A) replacement of part of machinery does not fall under current repairs is irrelevant. In the circumstances, the reasoning of the ld. CIT(A) cannot be sustained in the eyes of law. In the present case admittedly the claim for deduction was not u/s 31 but u/s 37 of the Act. Therefore, the test to be applied what is replaced is only part and the necessity of replacement had arisen on account of the part become old and there is no increase in productivity or capacity after the replacement. Admittedly, it is not the case of the Revenue that on account of replacement of this part of machinery in productivity or capacity of production had gone up and this machine can independently work and deliver the different output. In the circumstances, we hold that the expenditure can be allowed as revenue deduction. The expenditure incurred on the replacement of Gripper can be allowed as revenue deduction. Accordingly, we set-aside the orders of the lower authorities of both Assessing Officer and the ld. CIT(A) and direct the Assessing Officer to allow the same as revenue expenditure.
FULL TEXT OF THE ORDER OF ITAT PUNE
PER INTURI RAMA RAO, AM:
This is an appeal filed by the assessee directed against the order of ld. Commissioner of Income Tax (Appeals)-6, Pune (‘CIT(A)’ for short) dated 01.05.2017 for the assessment year 2010-11.
2. Briefly, the facts of the case are that the appellant is a company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of manufacturing of Pressure and Gravity Die Casting, H.T. Coils, Magnetos, Automotive Cultches, Brakes, Vehicles Bodies etc. The return of income for the assessment year 2010-11 filed on 29.09.2010 declaring a loss of Rs.13,98,79,410/- and the same was revised on 23.03.2012 at a loss of Rs.15,58,68,435/-. The case was selected for scrutiny under CASS by issuing notice u/s 143(2) of the Income Tax Act, 1961 (‘the Act’ for short) and the assessment came to be completed by the Dy. Commissioner of Income Tax, Circle-9, Pune (‘the Assessing Officer’ for short) at a loss of Rs.15,18,07,280/- vide order dated 06.03.2013 passed u/s 143(3) of the Act. While doing so, the Assessing Officer made an addition of Rs.24,47,767/- treating the expenditure incurred on Repairs and Maintenance as capital expenditure. The expenditure claimed under the repairs and maintenance represents the cost of replacement of machinery vis. Gripper which is part of high pressure die casting machines. The Assessing Officer had disallowed the claim treated the same as capital expenditure.
3. Being aggrieved by the above addition, an appeal was preferred before the ld. CIT(A), who vide his impugned order confirmed the action of the Assessing Officer by holding that it is a case of substitution of old asset by new asset and the expenditure did not fall within the meaning of current repairs and maintenance as defined u/s 31 of the Act. The ld. CIT(A) also placed reliance on the decision of the Hon’ble Supreme Court in the case of CIT vs. Sarvana Spinning Mills Ltd., 293 ITR 201.
4. Being aggrieved with the decision of the ld. CIT(A), the appellant is before us in the present appeal.
5. Before us, the ld. AR for the assessee submitted that the Gripper for robotic along with interface box is a part of main machines i.e. high pressure die casting machines and it cannot function independently and therefore, the expenditure should be treated as revenue and in this connection he placed reliance on the decision of the Hon’ble Madras High Court in the case of Elgi Equipments Ltd. vs. JCIT, 120 taxmann.com 142 and in the case of CIT vs. Neyveli Lignite Corporation Ltd., 388 ITR 172 and also on the decision of Hon’ble Kerala High Court in the case of CIT vs. Midas Rubber (P.) Ltd., 43 taxmann.com 112.
6. On the other hand, ld. Sr. CIT-DR placed reliance on the decision of the ld. CIT(A).
7. We heard the rival submission and perused the material on record. The issue involved in the present appeal relates to whether the expenditure incurred on the cost of Gripper which is used in the robotic arms forming part of high pressure die casting machines can be allowed as revenue expenditure. The factual submissions made on behalf of the appellant are that the expenditure was incurred on replacement of Gripper which is part of robotic arms forming part of high pressure die casting machines. There is no increase of productivity or capacity on account of incurring this expenditure. It is also submitted that this part namely Gripper cannot be machine itself i.e. it cannot perform any function independently. These facts remain uncontroverted by the Department. No doubt the Hon’ble Supreme Court in the case of Sarvana Spinning Mills Ltd. (supra) categorically held that the expenditure incurred by the assessee towards replacement of machinery with new machinery constitutes a capital expenditure. Even the Hon’ble Supreme Court in the case of CIT vs. Sri Mangayarkarasi Mills P. Ltd, 315 ITR 114 held that each machinery which functions independently should be treated as such not as a mere part of any composite machinery of the plant. The said decisions had been considered by the Hon’ble Madras High Court in the case of Elgi Equipments Ltd. vs. JCIT, 120 taxmann.com 142 and laid down the following principles :-
“17. A careful look at the above decisions would show that though different tests had been formulated by Courts, the application of those tests had posed lot of difficulties, depending upon the facts and circumstances of each case.
This is why the Supreme Court pointed out in Saravana Spinning Mills that the answer to the question would depend upon the facts and circumstances of each case. Therefore, we shall now get back to the facts of the case.
20. On the basis of the nature of the repairs and replacement carried out by the assessee to the boiler as well as to BWE, it is contended by Mr.Vijayaraghavan, learned counsel for the assessee that the expression “current repairs” denotes the repairs for the purpose of preserving or maintaining an already existing asset. It does not bring about a new asset into existence, nor does it give a new or different advantage. Therefore, he contends that the test of improvement or advantage is not relevant to determine whether the repair was current repair or not. It is his further contention that the magnitude of the expenditure cannot also determine whether something is current repair or not.
21. In order to test the correctness of the above contention, it is necessary to have a look at the provisions of Sections 31 and 37.
22. Under Section 31, the amount paid on account of current repairs to plant or furniture used for the purpose of business or profession shall be allowed as deduction. But, the Explanation to Section 31 qualifies the general rule by stating that the amount paid on account of current repairs shall not include any expenditure in the nature of capital expenditure.
23. Though the Act defines the expression “income”, it does not define either the expression “expenditure” or the expression “repairs or current repairs”. However, several heads of expenditure are separately dealt with under Sections 35 and 35A to 35E.
24. Section 37(1) states that any expenditure laid out or expended wholly and exclusively for the purpose of business or profession shall be allowed in computing the income chargeable under the head “Profits and gains of business or profession”. But, Section 37 (1) excludes three items of expenditure. They are (i) expenditure of the nature described in Sections 30 to 36, (ii) expenditure in the nature of capital expenditure, and (iii) expenditure in the nature of personal expenses of the assessee.
25. Therefore, if an item of expenditure falls within any of the categories indicated in Sections 30 to 36, the same is entitled to deduction as per the provisions of those Sections. But, any expenditure which does not fall within the scope of Sections 30 to 36, but which may still qualify while computing the income chargeable under the head “Profits and gains of business or profession”, will be covered by Section 37(1).
26. But, what is important to note is that under both provisions, namely Section 31 as well as Section 37(1), capital expenditure is excluded. If an amount paid on account of current repairs is in the nature of capital expenditure, Section 31 cannot be invoked. Similarly, Section 37(1) cannot also be invoked.
31. On the contention of Mr.T.Ravikumar, learned Standing Counsel that the assessee originally capitalised the expenditure, but reversed the same later, we have to point out that there cannot be any estoppel in such cases. The question whether a particular expenditure would fall within the definition of the expression “current repairs” under Section 31(i) or not, does not depend upon what the assessee did or did not. After all if the expenditure is capitalised, the assessee takes the benefit of depreciation. If the expenditure is treated as revenue expenditure, it is either taken as an expenditure under Section 37(1) for computing income chargeable under the head “Profits and gains of business or profession” or treated as “current repairs” entitled to deduction under Section 31(i). Therefore, the contention of the learned Standing Counsel cannot be accepted.”
8. Even in recent judgement of the Hon’ble Madras High Court in the case of Elgi Equipments Ltd. vs. JCIT, 120 taxmann.com 142 held that the expenditure incurred towards replacement of a part of the machinery can be allowed as a deduction. Even the Hon’ble Supreme Court in the subsequent decision in the case of CIT Vs. Ramaraju Surgical Cotton Mills, 294 ITR 328 had laid down the proposition that the expenditure incurred on replacement of a part of machinery can be allowed as a revenue deduction in case there is no increase of productivity or capacity as result of this expenditure. Keeping the above legal principles in mind, we examine the facts of the present case, as noticed by us supra that there is no increase of productivity or capacity as result of this expenditure and the fact that it is only cost of the Gripper which is a part of robotic arms forming part of high pressure die casting machines. Thus, it is clearly that it cannot function independently. The decision of the Hon’ble Supreme Court in the case of Sarvana Spinning Mills Ltd. (supra) was with respect to the deduction u/s 31 of the Act and also based on the finding of fact that in textile mill each machine in a segment of a textile mill has an independent role to play in the mill and the output of each division is different from the other. Noticing these distinguishing facts, the Hon’ble Supreme Court in the case of Ramaraju Surgical Cotton Mills (supra) held that the ratio of decision in the case of Sarvana Spinning Mills Ltd. (supra) not applicable, therefore, restored the matter to the CIT(A) to dispose of the matter in accordance with law. Similarly, the Hon’ble Supreme Court in series of subsequent judgments set-aside the issue to the lower authorities to find out the relevant facts and render the decision in accordance with law without accepting the ratio of laid down in the case of Sarvana Spinning Mills Ltd. (supra). Reliance can be placed on the following decisions :-
(i) CIT vs. McDowell and Co. Ltd., 314 ITR 177;
(ii) CIT vs. McDowell and Co. Ltd., 314 ITR 180;
(iii) CIT vs. Udaipur Distillery Co. Ltd., 314 ITR 188; and,
(iv) Shreyans Industries Ltd. vs. CIT, 314 ITR 302.
9. Therefore, it is clear that the ratio of the decision of the Hon’ble Supreme Court in the case of Sarvana Spinning Mills Ltd. (supra) cannot be applicable to the facts of the present case and undisputedly the claim for deduction is not u/s 31 but u/s 37 of the Act. Therefore, the finding of the ld. CIT(A) replacement of part of machinery does not fall under current repairs is irrelevant. In the circumstances, the reasoning of the ld. CIT(A) cannot be sustained in the eyes of law. In the present case admittedly the claim for deduction was not u/s 31 but u/s 37 of the Act. Therefore, the test to be applied what is replaced is only part and the necessity of replacement had arisen on account of the part become old and there is no increase in productivity or capacity after the replacement. Admittedly, it is not the case of the Revenue that on account of replacement of this part of machinery in productivity or capacity of production had gone up and this machine can independently work and deliver the different output. In the circumstances, we hold that the expenditure can be allowed as revenue deduction. The expenditure incurred on the replacement of Gripper can be allowed as revenue deduction. Accordingly, we set-aside the orders of the lower authorities of both Assessing Officer and the ld. CIT(A) and direct the Assessing Officer to allow the same as revenue expenditure.
10. In the result, the appeal filed by the assessee stands allowed. Order pronounced on this 04th day of January, 2021.
