TMI Blog2009 (12) TMI 954X X X X Extracts X X X X X X X X Extracts X X X X ..... eplacement of chilled rolls, fire bricks, pedestal fans, exhaust fans air-filter units and cable lines. They were shown as repairs to plant and machinery and repairs to electrical maintenance. The Assessing Officer observed that assessee incurred capital expenditure under the aforementioned heads and the expenditure gives assessee an enduring benefit in which event it cannot be treated as 'current repairs'. He accordingly disallowed the claim of deduction but allowed depreciation on the aforementioned items. 4. Aggrieved, assessee-company preferred an appeal before the CIT(A) contending, inter alia, that the impugned expenditure is revenue in nature and hence, ought to have allowed deduction. As could be noticed from the statement of facts and grounds of appeal filed before the CIT(A), the case of the assessee was that chilled rolls are mainly used in producing a particular size of round bars. During the course of production, the chilled rolls get damaged and it has to be replaced by new chilled rolls and in some cases with minor repairs the same can be re-used. The assessee followed the practice of treating them as stores and the value of rolls, which are although use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent and separate machine within the factory premises should not be treated as current repairs and has to be treated as capital expenditure. 7. On the other hand, learned Counsel submitted that chilled rolls and fire bricks cannot be treated as an independent machinery or plant in the factory premises and thus it cannot be considered as a replacement of an independent machine. Adverting our attention to page 72 of the paper book learned Counsel submitted that the process of manufacture of TMT bars is such that an independent item of chilled roll/forged roll/fire brick/air-filter etc., cannot be treated as a separate machine. While explaining the nature of process, vide letter dated 20th August, 2007 the assessee explained before the Assessing Officer as under: The manufacturing process of TMT Bars is very simple. The raw material like Ingots, Billets, Blooms, Ship-breaking plots are required in TMT process. The said material is feeded in furnace with pusher type arrangement. They are heated there at 1200c temperature. The ingots, billets are slowly forwarded and then taken out from other end of the furnace in a red hot condition. Then they are passed through different ro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing would not give raise to the assessee an enduring benefit and hence such expenditure has to be treated as revenue in nature. Similarly in the case of CIT vs. Atherton West and Co. Ltd. (1971) 82 ITR 352 expenditure incurred on replacement of cotton bowls in textile mills, becoming unserviceable due to wear and tear, was considered as revenue in nature. Learned Counsel has also referred to the decision of the Hon'ble Supreme Court in the case of CIT vs. Ramraju Surgical Cotton Mills ft Ors. (2007) 294 ITR 328 to submit that the decision in the case of Saravana Spinning Mills (P) Ltd. (supra) was rendered in the context of Section 31 of the Act wherein the Court has not property examined the tests to be applied in respect of a claim under section 37 of the Act and in the said context the Court observed that in the event of replacing an old worn-out item of machinery or even a new machinery, the same can be allowed as revenue expenditure provided there is no increase in the production capacity by virtue of such, replacement. In other words, the Apex Court indicated that merely because an expenditure gives the assessed an enduring advantage, it cannot be treated as capital expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on under section 37 of the Act. Similarly expenditure incurred on replacement of pedestal fan, exhaust fan and cable line etc., cannot be treated as bringing into existence of any new asset of enduring advantage since by replacing of such items the production capacity has not enhanced. Bearing in mind the nature of expenditure we are of the view that the learned CIT(A) was justified in treating the expenditure as revenue in nature. We therefore, dismiss ground No.1 of the Revenue. 10. This leaves us with ground No.2 which reads as under: 2. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the disallowance of interest of ₹ 6,22,902/- made by the A.O. u/s. 40(A) (2) of I.T. Act as per details given in the body of the assessment order. 11. Admittedly the assesses borrowed sums from relatives and outsiders and paid interest @ 18% p.a. as against 12% charged by banks. Therefore, by invoking the provisions of Section 40A(2) of the Act, the Assessing Officer considered the interest payment @ 12% p.a. as reasonable and the balance of 6% treated as excessive and unreasonable. He accordingly disallowed a sum of ₹ 6,22 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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