TMI Blog2012 (12) TMI 572X X X X Extracts X X X X X X X X Extracts X X X X ..... ided in favor of assessee. - ITA No.1105/Ahd/2010 & CO No.135/Ahd/2010 - - - Dated:- 25-10-2012 - A.K. Garodia And Kul Bharat, JJ. Respondent Rep by: Shri T. Shankar, SR-DR ORDER Per: Kul Bharat: This appeal by Revenue and Cross Objection (CO) by the assessee are directed against the order of Commissioner of Income-tax (Appeals)-I, Baroda ( CIT(A) for short) dated 08-12-2009 for the assessment year (AY) 2006-07. First we take up Revenue s appeal in ITA No. 1105/Ahd/2010. 2. The Revenue has raised the following grounds of appeal:- 1. On the facts and in the circumstances of the case and in law, the ld. CIT(Appeals) erred in deleting the addition amounting to Rs.15,86,947/- made on account of capital expenditure irrespective of the fact huge expenditure towards machinery / plant made, which extended the life time, relying on the decision of the Hon/ Supreme Court in the case of CIT vs. Saravana Spinning Mills Pvt. Ltd. (2007) 293 ITR 201 (SC). 2. On the facts and in the circumstances of the case and in law, the ld. CIT(Appeals) erred in deleting the addition of Rs.6,01,457/- made on account of disallowance of remuneration paid to the Executiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure incurred by the assessee-company is clear that same is not for current repairs of plant and machinery. Since such huge expenditure definitely added the longevity and capacity of the machines. It is submitted that a look at the nature of expenditure reveals that they are essentially to be capitalized and it is rightly treated by the Assessing Officer in admissible being not a revenue expenditure. Reliance has been placed on the judgment of the Hon ble Supreme Court rendered in the case of Ballimal Naval Koshore v. CIT 224 ITR 414 (SC); CIT v. Saravana Spinning Mills Pvt. Ltd. (2007) 293 ITR 201 (SC). We find that Ld. CIT(A) has dealt with this issue as under:- 4. Ground No. 2 challenges the disallowance made out of repairs maintenance expenses to plant machinery on the ground that the same ere capital in nature. The AO has dealt the issue in para 4 of the assessment order. On scrutiny of the repairs maintenance expenses debited in the books, the AO observed that some of the expenses were capital in nature. Relying on the decisions of the Supreme Court in the cases of Ballimal Naval Kishore v. CIT, 224 ITR 414 and CIT v. Saravana Spinning Mills Pvt. Ltd., 293 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble on the facts of the appellant. In the case of Ballimal Naval Kishore (supra) it was contended that in the said decision a ginning factory was converted into a cinema theatre and the expenses incurred for converting the ginning factory into a cinema theatre were claimed as revenue expenditure. This is not the case with the appellant. In the case of Saarvana Spinning Mills (supra) the Supreme Court held that the High Court proceeded on a footing that a textile mill is one single plant and therefore replacement of machines of one entire department can be considered as replacement of parts and allowable as revenue expenditure, which is not correct. A textile mill cannot be considered as one single plant. In textile mill there are several departments and each department is equipped with its own machinery. Therefore replacement of entire pant machinery of one department cannot be considered as current repairs. In view of such factual finding the Supreme Court reversed the order of the High Court. 4.3 I have considered the submissions of the ld. AR and the facts of the case. In various cases the Supreme Court and other High Courts have held that replacement of parts of a large ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2,42,990/-) and Rs.3,18,611/- respectively), it is seen that the expenses were incurred on purchase of band knives for use in splitting machine. The nature of the items indicates that it is a spare part which requires frequent replacement. Further, the band knives do not have any application other than as part of the splitting machine. Hence, the expenditure incurred on purchase of such small parts would, in my opinion, constitute revenue expenditure. Accordingly, the disallowance of Rs.2,42,990/- and Rs.3,18,611/- are directed to be deleted. 4.3.3 Regarding expenses of Rs.971,412/- and Rs.5,14,134/- on roller repairing, [item nos. (2) (3) of the said table], it is very clear that the expenditure incurred on removing roller jam in order to make it functional would constitute revenue expenditure and not capital expenditure. Hence, the aggregate disallowance of Rs.14,85,546/- is deleted. 4.3.4 Regarding item no (4), it is apparent from the nature of the part replaced (roller shaft) that it was only one part of a large machine, which required replacement on being worn out. By incurring expenditure on purchase of such items, no new asset came into existence which was cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd is against the deletion of addition of Rs.6,01,457/- made on account of disallowance of remuneration paid to the Director. Ld. DR strongly argued that Ld. CIT(A) has narrowly interpreted the u/s.40A(2)(b) of the Act. The Assessing Officer has disallowed the excess remuneration paid after considering the excessive and for unreasonable having regard to the fair market value or the benefit derive for category. 9. We have heard the Ld. DR and perused the materials available on record. The Assessing Officer has disallowed to the extent of Rs.6,01,457/- on the ground that there is a sudden increase in remuneration which is not justified, however, Ld. CIT(A) has observed that admittedly the AO has not doubted the rendering of service and genuineness of the payment. It is seen that Mr. R.R. Biswas is a qualified person and he was employed in a professional capacity with the company. There was increase in sale by 26.87% in the current year as compared to earlier year. The assessee has appointed Mr. R.R. Biswas in accordance with the provisions of Schedule XII of the Companies Act, 1956. Moreover, there is no finding of the AO that the expenditure is excessive or unreasonable having reg ..... 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