Income Tax Appellate Tribunal - Delhi
Bharat Gears Ltd.,, New Delhi vs Department Of Income Tax on 19 May, 2009
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH :A : NEW DELHI
BEFORE SHRI .G.E. VEERABHADRAPPA, VICE PRESIDENT
AND
SHRI I.P. BANSAL, JUDICIAL MEMBER
ITA No. 3316/Del/2009
Assessment Year : 2006-07
DCIT, Vs. M/s Bharat Gears Ltd.,
Central Circle-11, 512, Surya Kiran Building,
New Delhi. 19, KG Marg,
New Delhi.
PAN : AAACB4860G
(Appellant) (Respondent)
Assessee by : Shri M.K. Madaan, CA
Revenue by : Ms Pratima Kaushik, Sr. DR
ORDER
PER I.P. BANSAL, JUDICIAL MEMBER:
This is an appeal filed by the Department.. It is directed against the order of the CIT (A) dated 19th May, 2009 for Assessment Year 2006-07. Grounds of appeal read as under:-
1. The order of the Ld. CIT (Appeals) is not correct in law and facts.
2. Whether on the facts and in the circumstances of the case, the Ld. CIT (A) is correct in deleting the disallowance of Rs.30,75,395/- made by the A.O. on account of repair of plant and machinery.
3. The appellant craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal.2 ITA No.3316/Del/2009
2. At the outset, it was submitted that the disallowance has been made by the Assessing Officer on the basis of similar disallowance made in respect of Assessment Year 1994-95 which disallowance was also upheld by ITAT and the assessee has preferred an appeal before the Hon'ble High Court which is pending for decision. Therefore, the Assessing Officer has made the disallowance. Before the CIT (A) it was contended that though the disallowance was made and affirmed by ITAT in Assessment Year 1994-95, but for Assessment Years 1995-96 to 1999-2000, after going through the facts ITAT distinguished the facts from Assessment Year 1994-95 and decided the issue in favour of the assessee. For Assessment Year 2002-03 also the issue was decided in favour of the assessee and, thus, the CIT (A) has deleted the addition following his order for Assessment Year 2005-06 in which the relief was given to the assessee on this issue following the decisions of the Tribunal except for Assessment Year 1994-95. The Department is aggrieved, hence, in appeal.
3. It was brought to our notice that for immediate preceding year i.e., for Assessment Year 2005-06, the similar issue was decided by the Tribunal by following the order of the Tribunal for Assessment Year 1995-96 to 1999-2000 in which the decision of the Tribunal for Assessment Year 1994-95 was distinguished. A copy of the order dated 18th August, 2009 was placed on our record which is passed in ITA No.2896/Del/2008. Thus, it was contended that the issue is covered in favour of the assessee by the aforementioned order of the Tribunal and, therefore, departmental appeal deserves to be dismissed. However, Ld. DR relied on the order of Assessing Officer.
4. We have carefully considered the rival contentions in the light of the material placed before us. In our opinion, the issue raised by the revenue in the present year is same as has arisen for Assessment Year 2005-06. For the sake of clarity of facts and decision, we reproduce the said decision of the Tribunal dated 18th August, 2009 in its entirety:-
"This appeal of the revenue emanates from the order of CIT(A)-I, New Delhi, passed on 02.07.2008 in Appeal No.165/07- 08, and it pertains to assessment year 2005-06.3 ITA No.3316/Del/2009
2. The only substantive ground taken by the revenue is that on the facts and in the circumstances of the case, the learned CIT(A) erred in deleting the disallowance of Rs.36,24,442/-, made by the Assessing Officer on account of repair of plant and machinery.
2.1 In the course of hearing before us, the learned DR drew our attention towards paragraph 2 of the assessment order in which it was mentioned that .the assessee paid a sum of Rs.39,18,342/- to various agencies for re-conditioning of various machines. It was submitted that the expenditure was in the nature of current repairs of the machines. The Assessing Officer considered the facts of the case and .the explanation of the assessee. It was mentioned that similar expenditure incurred in the previous year relevant to assessment year 1994-95 was held to be capital in nature. This order was upheld by the CIT(A) and the Hon'ble Tribunal. Thus, the contention that the expenditure was revenue in nature was dismissed. The expenditure was capitalized and the depreciation was deducted thereon, leading to a net addition of Rs.36,24,442/-.
2.2 The learned DR also drew our attention to page 5 of the impugned order, in which it was mentioned that the Tribunal distinguished the facts of the case for assessment year 1994-95 in the orders for assessment years 1995-96 to 1999-00. It was mentioned that the machines of the assessee had broken down and they were lying idle since 31.03.1992. In this context, the expenditure of renewal of the machines was held to be capital in nature. However, in the later years, the repairs were undertaken because their efficiency had gone. Consequently, repairs were required for efficient use of machines and the corresponding expenditure was held to be revenue in nature. The facts of this year were identical to the facts for assessment years 1995-96 to 1999-00, in which the matter was decided in favour of the assessee. Following the latter orders it was held that the expenditure was revenue in nature. Consequently, the net addition of Rs.36,24,442/- made by the Assessing Officer to the total income of the assessee was deleted.
2.3 The case of the learned DR was that the expenditure was capital in nature as substantial expenditure was incurred for renewal and restoration of machines over considerable length of time. In order to support this contention, reliance was placed on the decision of Hon'ble Supreme Court in the case of Ballimal Naval Kishore and another Vs. CIT (1997) 224 ITR 414, decided u/s 10(2)(v) of the 1922 Act, corresponding to section 30(a)(ii) of the 1961 Act regarding "current repairs". It was held that the aforesaid expression means the expenditure which is not for the 4 ITA No.3316/Del/2009 purpose of renewal or restoration but which is only for the purpose of preserving or maintaining the existing asset, and which does not bring into existence a new asset. Further reliance was placed on the decision of Hon'ble Bombay High Court in the case of New Shorrock Spinning and Manufacturing Company Limited Vs. CIT (1956) 30 ITR 338, in which it was held that the word "repairs" is distinguishable from the expression "renewal or restoration". For claiming deduction u/s 10(2)(v) of the 1922 Act, it was held that the assessee has to satisfy the Assessing Officer that the expenditure was incurred for repairs and not for renewal or restoration.
Reliance was also placed on the decision of Hon'ble Delhi High Court in the case of Modi Spinning and Weaving Machines Company Limited Vs. CIT (1993) 200 ITR 544, in which it was held that the expenditure incurred on current repairs is deductible u/s 30(a)(ii) of the Act. Such repairs do not include within their ambit the repairs which were long over due. This provision does not deal with the question whether the repairs were in the capital field or the revenue field. Thus, the expenditure incurred towards cost of marble, charges for cutting stones, wages and polishing and fixing of stones for renovation of administrative block was not deductible as expenditure on current repairs.
2.4 In reply, the learned counsel for the assessee referred to the order of CIT(A), and in particular to the fact that his decision was based upon the order of the Tribunal for assessment years 1995-96 to 1999-00. The facts of the case for assessment year 1994-95 were completely distinguishable because prior to that year the machines had gone into disuse for about two years and, thus, it required renovation and renewal. The expenditure in this year was in the nature of current repair. A copy of the consolidated order for assessment years 1995-96 to 1999-00 dated 21.07.2006 was also placed on record to support the claim that the expenditure was revenue in nature.
2.5 We have considered the facts of the case and rival submissions. We find that the facts for this year are in pari-materia with the facts of this case for assessment years 1995-96 to 1999-
00. Paragraph 35 of the order for those years deals with the issue, which is reproduced below for the ready reference:
"We find that the facts in the present years are distinguishable from the facts that were before the Tribunal in the assessment year 1994-95. In that year the assessee repaired the machinery which were completely broken down and lying unutilized since the year ending on 31.03.1992. The same were renewed in the assessment year 1994-95 relevant to the year ending on 31.03.1994. In these 5 ITA No.3316/Del/2009 circumstances, the Tribunal held that the machine had become unfit for production and by subsequent reconditioning carried out resulted in imparting useful life to an old and unfit machine. Thus, resulting in a benefit of enduring nature. In the years under appeal, we find that no material has been brought on record by the Revenue to show that even in a single case that the machines were broken down and lying idle from an earlier period, which were put to repairs during the years under consideration. The learned counsel for the assessee submitted that the accuracy of the machinery had gone down and, therefore, the machine required repair. Thus the decision of the assessment year 1994-95 cannot be applied to the present years under appeal. In the above facts and circumstances of the case we are of the considered opinion that current repairs denotes repairs which are attended to when the need for them arises from the businessman's view point and which are not allowed to fall into arrears or to be accumulated. The amount or time involved in the repairs is not a relevant factor while deciding whether the repairs qualify as current repairs. The expression "repairs" presupposes certain injury or partial destruction. Repair is restoration for renewal or replacement of subsidiary parts wholly or partly. Ordinarily, the insertion in a machine of new parts for old and worn out parts is in the nature of current repairs or revenue expenditure, even if the old parts are required to be replaced after a long time. The mere fact that .the repairs result in an improvement is not enough to take the repairs out of the category of current repairs. The old principle invoking the test of improvement has to be applied with discernment in the present age when the march of technology and the unending fabrication of new materials and products make even current repairs, primarily, so called yield improvement in varying degrees. Therefore, we are of the view that .the expenditure incurred by the assessee on repairs of machinery in the present years under appeal is a revenue expenditure allowable for deduction to the assessee. We, therefore, in view of the facts of the case in each of the assessment year under consideration, confirm the orders of the CIT(A) and dismiss the ground of appeal of the Revenue for each of the five assessment years under consideration."
As the facts of this year are in pari-materia with the facts of those years, the judicial discipline demands is that those orders have to be followed. Further, it is not a case where repairs had become long over due, rather it is a case where repairs were carried out to make unfit machines suitable for the business 6 ITA No.3316/Del/2009 operation. Therefore, it is held that the expenditure was revenue in nature.
3. In result, the appeal is dismissed. "
5. In this view of the situation, respectfully following the aforementioned order of the co-ordinate Bench, we find no infirmity in the order of the CIT (A) as he has allowed the relief following the order of the Tribunal for Assessment Years 1995-96 to 1999-2000. We decline to interfere.
6. In the result, the departmental appeal is dismissed. .
7. The order pronounced in the open court on 13.11.2009.
[G.E. VEERABHADRAPPA] [I.P. BANSAL]
VICE PRESIDENT JUDICIAL MEMBER
Dated, 13.11.2009.
dk
Copy forwarded to: -
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT
TRUE COPY
By Order,
Deputy Registrar,
ITAT, Delhi Benches