Global Minetec Ltd., New Delhi v. DCIT, New Delhi

ITA 1806/DEL/2011 | 2005-2006
Pronouncement Date: 22-02-2012 | Result: Allowed

Appeal Details

RSA Number 180620114 RSA 2011
Bench Delhi
Appeal Number ITA 1806/DEL/2011
Duration Of Justice 10 month(s) 9 day(s)
Appellant Global Minetec Ltd., New Delhi
Respondent DCIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 22-02-2012
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted C
Tribunal Order Date 22-02-2012
Date Of Final Hearing 23-01-2012
Next Hearing Date 23-01-2012
Assessment Year 2005-2006
Appeal Filed On 13-04-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C DELHI) BEFORE SHRI G.D. AGRAWAL HONBLE VICE PRESIDENT AND SHRI A.D. JAIN JUDICIAL MEMBER ITA NO. 1806(DEL)2011 ASSESSMENT YEAR: 2005-06 GLOBAL MINETEC LTD. DY.CO MMISSIONER OF INCOME TAX 153 VASANT ENCLAVE RAO TULA V. CIRCLE 12(1) NEW DELHI. RAM MARG NEW DELHI-110057. (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI TARUN KUMAR FCA RESPONDENT BY: SHRI SALI L MISHRA SR. DR ORDER PER A.D. JAIN J.M . THIS IS ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2 005-06 TAKING THE FOLLOWING GROUNDS:- 1. ACTION OF THE CIT(A) IN CONFIRMING THE ADDITION /DISALLOWANCE OF ` 14 20 662/- OUT OF SPARE PARTS CONSUMED WITHOUT VER IFYING THE SAME IS UNJUST ILLEGAL ARBITRARY AND AGAINST THE FACTS AN D CIRCUMSTANCES OF THE CASE. 2. ACTION OF THE CIT(A) IN CONFIRMING THE ADDITION/ DISALLOWANCE OF ` 50 000/- MADE BY THE ASSESSING OFFICER ON ACCOUNT O F DONATION MADE IS UNJUST ILLEGAL ARBITRARY AND AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE. ITA NO. 1806(DEL)2011 2 2. APROPOS GROUND NO.1 THE AO OBSERVED THAT THE AS SESSEE HAD CLAIMED MANY EXPENSES AS REVENUE EXPENSES UNDER THE HEAD S PARE PARTS. BEING OF THE VIEW THAT THESE EXPENSES WERE OF CAPITAL NATURE THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY THEY BE NOT TREATED AS SUCH . THE ASSESSEE GAVE THE DETAILS OF THE EXPENSES WHICH WERE PURCHASE OF FLOW DISTRIBUTORS TRACK MOTORS HYDRAULIC PUMPS AND CYLINDER FUNCTION PUMP COMPRESSORS. THE ASSESSEE CONTENDED THAT THE EXPENSES HAVE BEEN INCU RRED FOR REPAIR AND MAINTENANCE OF THE HEAVY MACHINERY USED BY THE ASSE SSEE IN ITS BUSINESS OF MINING OF COAL AND THAT THE EXPENDITURE WAS REVENUE EXPENDITURE. 3. OBSERVING THAT THE ITEMS PURCHASED HAD COMPONENT OF ENDURING BENEFIT TO THE ASSESSEE AND SO THE EXPENDITURE WIT H REGARD THERETO COULD NOT BE SAID TO BE REVENUE EXPENDITURE THE AO CAPITALIZ ED THE AMOUNT OF ` 18 50 249/- CLAIMED BY THE ASSESSEE. DEPRECIATION AMOUNTING TO ` 4 29 586/- WAS ALLOWED. THE TOTAL DISALLOWANCE TH US CAME TO ` 14 20 662/-. 4. BY VIRTUE OF THE IMPUGNED ORDER THE LD. CIT(A) CONFIRMED THE DISALLOWANCE. 5. BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE AO OUT OF SPARE PARTS CONSUMED; THAT THE ASSESSEE COMPANY IS IN THE BUSINESS OF MINING OF COAL FROM COAL FIELDS; THAT FOR MINING ACTIVITY HEAVY MACHINERY IS USED; ITA NO. 1806(DEL)2011 3 THAT THE ASSESSEE INCURRED EXPENSES ON SPARE PARTS FOR ITS HEAVY EARTH MOVING MACHINERY LIKE SURFACE MINERS LOADER DUMPE RS AND OTHER EQUIPMENTS; THAT THESE SPARE PARTS ARE THE NORMAL W EAR AND TEAR PARTS AND ARE REPLACED TO KEEP THE MACHINERY FUNCTIONAL NOT LEAD ING TO ANY ADDITION TO THE MACHINERY; THAT WITHOUT REPLACEMENT OF THESE SPARE PARTS THE MACHINERY WOULD NOT BE OPERATIONAL; AND THAT THE EXPENSES INC URRED ON THE SPARE PARTS ARE OF A REVENUE NATURE. RELIANCE HAS BEEN PLACE D ON THE FOLLOWING CASE LAWS:- 1) CIT VS. MODI INDUSTRIES LIMITED (DELHI) 197 / T AXMAN / 76; 2) CIT VS. CO-OPERATIVE SUGARS LTD.' (KERALA) 235 / ITR / 343; 3) CIT VS. CHOWGULE AND CO.PVT. LTD. (BOM) 214 / I TR / 523; 4) NATHMAL BANKATLAL WORKS CO. LTD. VS. CIT (AP) 1 22 / ITR / 168; 5) ALEMBIC CHEMICAL WORKS CO. LTD. VS. CIT (SC) 17 7 / ITR / 377; 6) CIT & ANOTHER VS. SAGAR TALKIES (KER.) 32 / ITR /133; 7) DR. ASWATH N. RAO VS. ACIT (KAR.) 5 / TAXMAN / 63; 8) CIT VS. GITANJALI MILLS LTD. (MAD) 265 / ITR / 681; AND 9) CIT VS. JANAKRAM MILLS LTD. (MAD.) 275 / ITR / 403. 6 . THE LD. DR ON THE OTHER HAND HAS PLACED STRONG R ELIANCE ON THE IMPUGNED ORDER. IT HAS BEEN CONTENDED THAT UNDISPU TEDLY AS OBSERVED BY THE LD. CIT(A) THE MACHINERY INVOLVED IS COMPLEX M ACHINERY COMPOSED OF NUMEROUS SUB-PARTS OF COMPLETE SYSTEMS; THAT THE MA CHINE WOULD ONLY BE ABLE TO FUNCTION WITHOUT THE SUB-PARTS OF THE SYSTE MS ARE FUNCTIONAL; THAT THE PARTS ARE BY THEMSELVES COMPLETE EQUIPMENT; THAT H OWEVER ONLY WHEN THESE ITA NO. 1806(DEL)2011 4 PARTS OPERATE IN TANTRUM THAT THE MACHINERY WOULD PERFORM TO ITS FULL POTENTIAL; THAT THE EXPENSES INCURRED BY THE ASSESS EE AS RIGHTLY DISCUSSED BY THE LD. CIT(A) ARE NOT REVENUE EXPENSES THE ASSE SSEE HAVING BROUGHT IN COMPLETE SYSTEMS AND SUB-SYSTEMS WHICH ARE AND HAS REPLACED COMPLETE SYSTEMS IN RESPECT OF ITS EARTH MOVING AND OTHER MA CHINERY; THAT THIS HAS BROUGHT ABOUT THE EXISTENCE OF A NEW AND DIFFERENT ADVANTAGE; AND THAT THE EXPENDITURE INCURRED CANNOT BE SAID TO HAVE BEEN IN CURRED ON CURRENT REPAIRS. 7. WE HAVE HEARD THE PARTIES ON THIS ISSUE IN THE L IGHT OF THE MATERIAL ON RECORD WITH REGARD THERETO. THE EXPENSES IN QUESTI ON WERE INCURRED ON BUYING FLOW DISTRIBUTORS TRACK MOTORS HYDRAULIC P UMPS AND CYLINDER FUNCTION PUMP COMPRESSORS. THE AO IT IS SEEN AG REES THAT THESE ARE PARTS OF THE MACHINERY USED BY THE ASSESSEE. THE ISSUE IS AS TO WHETHER REPLACEMENT THEREOF CAN BE ALLOWED AS CLAIMED BY TH E ASSESSEE. 8. THE LD. CIT(A) HAS RELIED ON GIRDHARI LAL & SON S V. CIT 105 ITR 399(ALL) TO STRESS THE DIFFERENCE BETWEEN REPAIRS AND CURRENT REPAIRS. THIS DECISION HOWEVER DOES NOT ACT AGAINST THE C AUSE OF THE ASSESSEE SINCE IT HAS NOWHERE BEEN DISPUTED THAT THE REPAIRS IN QU ESTION WERE NECESSITATED DUE TO NORMAL WARE AND TEAR OF MACHINERY PARTS. S IMILAR IS THE POSITION WITH REGARD TO MODI SPINNING & WEAVING MILLS CO. LTD. V . CIT 200 ITR 544(DEL) NEW SHORROCK SPINNING AND WEAVING CO. LT D. V. CIT 30 ITR ITA NO. 1806(DEL)2011 5 338(BOM) BALI MAL NAVAL KISHORE V. CIT 224 ITR 440(SC) CIT V. SHRI RAM SUGAR MILLS LTD. 21 ITR 191(MAD) CIT V . DARBHANGA SUGAR CO. LTD. 29 ITR 21 (PATNA) AND CIT V. MADRAS CEM ENT LTD. 255 ITR 243(MAD). UNDISPUTEDLY NO NEW ASSET HAS BEEN BROU GHT INTO EXISTENCE BY THE REPLACEMENT OF THE SPARE PARTS FOR WHICH THE EXPENSES IN QUESTION WERE INCURRED. 9. ON THE OTHER HAND IN MODI INDUSTRIES LTD.(SUP RA) IT HAS BEEN OBSERVED INTER ALIA THAT WHERE THE ASSESSEE PURCH ASED PUMPING SETS MONO BLOCK PUMPS WITH HP MOTORS AND TWO TRANSFORMERS IN VIEW OF THE FACT THAT THEY WERE NOT STAND ALONE EQUIPMENTS BUT MERE PART S OF BIGGER PLANT IT WAS TO BE HELD THAT EXPENDITURE WAS INCURRED ON REPLACE MENT OF THOSE PARTS AND SUCH EXPENDITURE WAS ALLOWABLE U/S 37(1) OF THE ACT . 10. IN CO-OPERATIVE SUGARS LTD.(SUPRA) THE ASSES SEE WAS ENGAGED IN THE MANUFACTURE AND SALE OF SUGAR AND MOLASSES . THE SUGAR PLANT CONSISTED OF SEVERAL INDEPENDENT COMPONENTS VIZ. JUICE HEATER JUICE SULPHITER VACUUM FILTER DRUM CENTRIFUGAL MACHINERY SUGAR CRYSTALLI ZER SUGAR GRADER ETC.. THOUGH EACH ITEM OF MACHINERY HAD A DISTINCT FUNCTI ON IT WAS HELD TO BE AN INTEGRAL PART OF THE SUGAR PLANT. IT WAS HELD THAT ALL THE MACHINERY PUT TOGETHER COMPLETED THE SUGAR PLANT. THE EXPENDITU RE INCURRED ON MACHINERY MAINTENANCE RESULTED IN SUBSTANTIAL REPLACEMENT OF MACHINERY. IT WAS HELD ITA NO. 1806(DEL)2011 6 THAT NO NEW ASSET OF ENDURING NATURE HAD BEEN BROUG HT INTO EXISTENCE AND THAT THE EXPENDITURE ON MACHINERY MAINTENANCE WAS R EVENUE EXPENDITURE. 11. IN CHOWGULE AND CO. PVT. LTD. (SUPRA) THE HE AVY EXPENDITURE ON REPLACEMENT OF PART OF A SHIP WAS HELD NOT TO HAVE CREATED ANY NEW ASSET. THE EXPENDITURE WAS HELD TO BE DEDUCTIBLE. 12. IN NATHMAL BANKATLAL WORKS CO. LTD. (SUPRA) THE FULL BENCH OF THE HONBLE ANDHRA PRADESH HIGH COURT HAS HELD THAT REP LACEMENT OF OLD ENGINE BY A NEW ONE IN A MOTOR VEHICLE AMOUNTS TO CURRENT REPAIRS. 13. IN SAGAR TALKIES (SUPRA) EXPENDITURE ON CHAN GE OF SOUND SYSTEM OF A CINEMA THEATRE WAS HELD TO BE REVENUE EXPENDITURE . 14. IN DR. ASWATH N. RAO(SUPRA) IT WAS HELD THA T EXPENDITURE ON SPARE PARTS OF AN EXISTING MACHINERY COULD NOT BE TREATED AS CAPITAL EXPENDITURE THE PARTS HAVING BEEN PURCHASED FOR THE MAINTENANCE OF THE EXISTING EQUIPMENT. 15. IN GITANJALI MILLS LTD. (SUPRA) IT WAS H ELD THAT THE EXPENDITURE INCURRED ON REPLACING RING FRAMES OF ANCILLARY MAC HINERY INCAPABLE OF FUNCTIONING INDEPENDENTLY WAS REVENUE EXPENDITURE. 16. IN JANAKRAM MILLS LTD. (SUPRA) ASSESSEE S WERE TEXTILE/SPINNING MILLS. THE TRIBUNAL HAD HELD THAT THE EXPENDITURE FOR REPLACEMENT OF WORN OUT MACHINERY WAS ALLOWABLE REVENUE EXPENDITURE. THE ISSUE RAISED BY THE ITA NO. 1806(DEL)2011 7 DEPARTMENT BEFORE THE HONBLE HIGH COURT WAS AS TO WHETHER MODERNIZATION/CURRENT REPAIR EXPENDITURE WAS ALLOW ABLE AS REVENUE EXPENDITURE AS CLAIMED BY THE ASSESSES OR THE REPL ACEMENT OF CARDS/BLOW ROOM MACHINERY/COMBING MACHINERY ETC. WAS TO BE C ONSIDERED AS CAPITAL EXPENDITURE AS CLAIMED BY THE DEPARTMENT. THE HO NBLE HIGH COURT HELD THAT THE REPORT OF THE SOUTH INDIA TEXTILE RESEARCH ASSOCIATION A SPECIALIZED BODY IN THE FIELD OF COTTON TEXTILE AND SPINNING SHOWED THAT THE ENTIRE OPERATION RIGHT FROM THE BLOW ROOM TO TH E CONE WINDING SECTION OF THE MILL WAS TO BE CONSIDERED A SINGLE PLANT AND THE OUTPUT FROM THE VARIOUS INTERMEDIATE STAGES OF PRODUCTION COULD NOT BE SOLD OR MARKETED AND USED FOR OTHER PURPOSES; THAT THE SAID CONCLUSION OF THE SITRA COULD NOT BE IGNORED; THAT THE RING FRAME AND DRAW FRAME COULD N OT WORK INDEPENDENTLY; THAT LIKEWISE THE CARDING MACHINE COULD NOT WORK IN DEPENDENTLY BUT ONLY AS PART OF THE SPINNING UNIT; THAT NO NEW ASSETS WERE CREATED IN THE PROCESS OF REPLACEMENT OF WORN OUT MACHINES; THAT IN THE CASE OF SPINNING MILLS COTTON FIBRES ARE CONVERTED INTO YARN AND ONLY AFTER THE Y ARN WAS WOUND AND FINISHED INTO SUITABLE PACKAGES COULD IT BE MARKET ED; THAT CONSIDERING THE STAGES OF THE PROCESS AND THE NATURE OF THE PROCESS INVOLVED AND THE FACTS THAT THE OUTPUT OF INTERMEDIARY PRODUCT WAS NOT MARKETAB LE AND FURTHER THE FACT THAT THE OUTPUT OF ONE PROCESS BECAME THE INPUT OF THE NEXT PROCESS THE ITA NO. 1806(DEL)2011 8 ENTIRE PROCESS WAS AN INTEGRATED PROCESS; THAT ALL PLANT AND MACHINERY PUT TOGETHER AMOUNTED TO A COMPLETE SPINNING MILL CAPA BLE OF MANUFACTURING YARN; AND THAT HENCE EACH REPLACED MACHINE COULD N OT BE CONSIDERED AS AN INDEPENDENT ONE AND NO INTERMEDIATE MARKETABLE PROD UCT WAS PRODUCED. IT WAS HELD THAT THEREFORE THE CLAIM OF THE ASSESSES THAT REPLACEMENT OF PARTS OF THE TEXTILE MILL WAS REVENUE EXPENDITURE WAS JUSTIF IED AND DESERVED TO BE UPHELD. IT WAS HELD THAT WHERE THERE HAD BEEN NO CAPACITY ADDITION AND THE REPLACEMENT HAD BEEN MADE ONLY TO RESTORE THE MACHI NERY TO ITS ORIGINAL STATE OF EFFICIENCY SO THAT THE ENTIRE INTEGRATED MANUFA CTURING UNIT WHICH WAS CONSIDERED AS A PROFIT MAKING APPARATUS FUNCTIONED EFFICIENTLY AND PRODUCED QUALITY PRODUCTS THE CONCEPTS OF CURRENT REPAIRS MODERNIZATION AND EXPENDITURE LAID OUT OR EXPENDED WHOLLY AND EXCLUS IVELY FOR THE PURPOSE OF THE BUSINESS HAD TO BE INTERPRETED FOLLOWING THE P RINCIPLE OF UPDATING CONSTRUCTION TAKING NOTE OF THE BUSINESS NEEDS AND COMMERCIAL EXPEDIENCY ESPECIALLY IN A COMPETITIVE BUSINESS ENVIRONMENT CR EATED BY THE GLOBALIZATION AND NOT BY APPLYING OLD CONCEPTS OF W HAT IS CAPITAL AND WHAT IS REVENUE. 17. IN THE ASSESSEES CASE AS DISCUSSED TH E EXPENDITURE WAS INCURRED ON SPARE PARTS OF THE HEAVY EARTH MOVING MACHINERY USE D BY THE ASSESSEE IN ITS BUSINESS OF COAL MINING IN COAL FIELDS. IT REMAINS UNDISPUTED THAT THE SPARE ITA NO. 1806(DEL)2011 9 PARTS WERE THE PARTS OF NORMAL WEAR AND TEAR OF THE MACHINERY AND WERE REPLACED TO KEEP THE MACHINES FUNCTIONAL. NO ADDIT ION TO THE MACHINERY WAS MADE THEREBY. THE EXPENDITURE WAS NECESSARY SINCE IN THE ABSENCE OF REPLACEMENT OF THE PARTS THE MACHINES WOULD NOT BE OPERATIONAL WHEREAS WITH THE REPLACEMENT OF THESE PARTS THE EQUIPMENT EFFICIENTLY WOULD REMAIN IN TACT. THEREFORE IN VIEW OF THE NUMEROUS CASE LAWS RELIED ON BY THE ASSESSEE AS ABOVE IN OUR CONSIDERED OPINION THE ASSESSEE IS CORRECT IN TREATING THE EXPENDITURE AS A REVENUE EXPENDITURE A ND THE SAME IS ALLOWABLE AND IS DIRECTED TO BE ALLOWED. 18. FOR THE ABOVE DISCUSSION THE GRIEVANCE O F THE ASSESSEE IS JUSTIFIED AND IS ACCEPTED AS SUCH. THE ORDER OF THE LD. CIT( A) QUA GROUND NO.1 IS CANCELLED AND GROUND NO.1 IS ACCEPTED. 19. SO FAR AS REGARDS GROUND NO.2 THE ASSESSE E HAD CLAIMED DEDUCTION U/S 80 G OF THE ACT AMOUNTING TO ` 1 00 000/-. THE AO OBSERVED THAT THE ASSESSEE HAD BEEN ABLE TO SUBMIT NECESSARY PROOF IN RESPECT OF DONATION MADE AMOUNTING TO ` 50 000/-. THE AO DISALLOWED AND ADDED BACK THE BALANCE AMOUNT OF ` 50 000/- TO THE INCOME OF THE ASSESSEE COMPANY AS ACCORDING TO THE AO NO EVIDENCE IN RESPECT THEREOF HAD BEEN FURNISHED. THE LD. CIT(A) CONFIRMED THE ADDITION OBSERVING THA T EVEN BEFORE HIM NO EVIDENCE HAD BEEN FILED. ITA NO. 1806(DEL)2011 10 20. THE LEARNED COUNSEL FOR THE ASSESSEE HAS C ONTENDED THAT THIS WAS THE DONATION MADE TOWARDS THE PRIME MINISTER RELIEF FUN D. ATTENTION HAS BEEN DRAWN TO PAGES 61 & 62 OF THE ASSESSEES PAPER BOOK (APB FOR SHORT). PAGE 61 IS A LETTER DATED 22.7.05 FROM SHRI DAVINDE R P.S. SANDHU DIRECTOR PRIME MINISTERS OFFICE ADDRESSED TO THE ASSESSEE CONVEYING THE APPRECIATION OF THE PRIME MINISTER FOR THE CONTRIBU TION MADE BY THE ASSESSEE TO THE PRIME MINISTERS NATIONAL RELIEF FUND. APB 62 IS A COPY OF RECEIPT NO. 0794164 DATED 31.3.05 ISSUED BY THE SECTION OFF ICER PRIME MINISTERS RELIEF FUND PRIME MINISTERS OFFICE TO THE ASSESSE E FOR ` 50 000/- PAID BY CHEQUE DATED 10.1.2005. 21. THOUGH THE AFORESAID RECEIPT AND LETTER WE RE NOT PRODUCED BEFORE THE AUTHORITIES BELOW THEIR EXISTENCE HAS NOT BEEN SUB JECT TO ANY SERIOUS CHALLENGE ON BEHALF OF THE DEPARTMENT. SUCH PAYME NT UNDISPUTEDLY IS ALLOWABLE U/S 80 G OF THE ACT AND THE SAME IS DIREC TED TO BE ALLOWED. ACCORDINGLY GROUND NO.2 IS ALSO ACCEPTED. ITA NO. 1806(DEL)2011 11 22. IN THE RESULT THE APPEAL FILED BY THE ASS ESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22.02.2012 . SD/- SD/- (G.D. AGRAWAL) (A.D. JAIN) VICE PRESIDENT JUDICIAL MEMBER DATED: 22.02.2012 *RM COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR TRUE COPY BY ORDER ASSISTANT REGISTRAR