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2015 (7) TMI 164 - ITAT BANGALORE

2015 (7) TMI 164 - ITAT BANGALORE - TMI - Disallowance of Batta Expenses - CIT(A) deleted addition - Held that:- These payments are governed by a proper internal policy which also includes a proper verification process. In the sample vouchers submitted, we find that the details of the trips like the name of the driver, vehicle number, days of travel, etc. are furnished and the batta are paid as per the trip sheet. The details of the date of travel are corroborated by the final expenses sheet als .....

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nt of tyres and pallets - whether does not come under the definition of word “repair” - revenue v/s capital expenditure - Held that:- the judicial decision cited by the learned Departmental Representative viz. Sarvanna Spinning Mills P. Ltd. (2007 (8) TMI 16 - SUPREME COURT OF INDIA) does not support the case of Revenue. In the case on hand, the object of the expenditure involved, i.e. towards replacement of tyres and pallets, is not to bring into existence a new asset but only to preserve and m .....

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no application to the case of the assessee. We, therefore, concur with the view of the learned CIT(A) that the expenditure incurred for replacement of tyres and pallets does not bring into existence any new assets and are only for preserving and maintaining the trucks and as such qualify for deduction as revenue expenditure - Decided against revenue.

Loss on consignment - whether relates to prior period expense? - Held that:- We find from the details on record that the assessee has f .....

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in the Books of Account. In the absence of any evidence to the contrary, it would not be appropriate to disregard the same. In this view of the matter, we concur with the observation of the learned CIT (Appeals) that the assessee's claim under this head is reasonable and agree with her decision to delete the disallowance made by the Assessing Officer. - Decided against revenue.

Disallowance of depreciation on motor vehicles - @ 30% or 15% - Held that:- In the case on hand, the assesse .....

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ted, then any motor vehicle used in any business of the assessee would be eligible for higher depreciation because motor vehicles are always used for transport only. Since Appendix I to the IT Rules, 1962 specifically mentions business of “running them on hire”, in our opinion, it would not be appropriate to extend the same to transportation in any business. In this view of the matter, we are of the considered opinion that the Assessing Officer was right in not allowing higher depreciation @ 30% .....

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. 2. The facts of the case, briefly, are as under :- 2.1 The assessee, a company engaged in the business of export of marine products, dealers in frozen foods, rendering cold chain services which includes the running of refrigerated warehouses and refrigerated transportation, etc filed its return of income for Assessment Year 2009-10 on 9.9.2009 declaring NIL income after claiming set off of unabsorbed depreciation. The return was processed under Section 143(1) of the Income Tax Act, 1961 (herei .....

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peal vide order dt.6.12.2013 granting the assessee partial relief by deleting some of the additions/disallowances made by the Assessing Officer. 3.0 Aggrieved by the order of the CIT (Appeals) - II, Bangalore, dt.6.12.2013 for Assessment Year 2009-10, Revenue is in appeal before us raising the following grounds :- 1. The order of the learned CIT (Appeals) is opposed to law and facts of the case. 2. On the facts and in the circumstances of the case the learned CIT (Appeals) erred in law in holdin .....

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the learned CIT (Appeals) erred in law in not appreciating that the amount of ₹ 68,85,641 debited by the assessee as loss on consignment relates to prior period expenses and the assessee was not able to substantiate the same as a genuine claim before the Assessing Officer despite being afforded opportunity for the same. 5. On the facts and in the circumstances of the case the learned CIT (Appeals) erred in law in not appreciating that the assessee is not in the business of running vehicles .....

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ds raised at S.Nos. 1, 6 & 7, are general in nature and not being specifically urged before us are dismissed as infructuous. 5.0 Ground No.2 - Batta Expenses - ₹ 46,44,254. 5.1 In the course of assessment proceedings, the Assessing Officer observed that the assessee has debited an amount of ₹ 46,44,254 as Batta expenses paid to drivers; in addition to the amount of ₹ 84,03,244 incurred towards driver s salaries, incentives and way side expenses. The Assessing Officer disall .....

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epartmental Representative for Revenue in support of the ground raised and the learned Authorised Representative for the assessee in support of the impugned order of the learned CIT(A) reiterating the submissions put forth before the learned CIT(A). The assessee, in the case on hand, is in the business of cold chain services, which include the running of refrigerated warehouses as well as refrigerated transportation. The assessee is required to maintain transport lorries, which are required to b .....

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e the learned CIT(A) and find that these payments are governed by a proper internal policy which also includes a proper verification process. In the sample vouchers submitted, we find that the details of the trips like the name of the driver, vehicle number, days of travel, etc. are furnished and the batta are paid as per the trip sheet. The details of the date of travel are corroborated by the final expenses sheet also. In view of the factual matrix of the case on this issue, as laid out above, .....

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- ₹ 18,80,321. 6.1 In the course of assessment proceedings, the Assessing Officer observed that the assessee had debited ₹ 1,80,44,176 towards vehicle repair and maintenance. On examination thereof, the Assessing Officer found that an amount of ₹ 15,15,670 and ₹ 3,64,651, aggregated to ₹ 18,80,321; were claimed towards replacement of tyres and pallets respectively. The assessee contended that these expenses were incurred towards replacement of tyres and pallets and .....

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ed the disallowance. 6.3 Before us,the learned Departmental Representative supported the order of the Assessing Officer and assailed the decision of the learned CIT(A) in deleting the disallowance of expenditure incurred on replacement of tyres and pallets. In support of his contention, the learned Departmental Representative placed reliance on the following judicial pronouncements :- (i) Super Spinning Mills Ltd. V ACIT (357 ITR 720 (SC) (ii) CIT V Sarvanna Spinning Mills P. Ltd. (293 ITR 201) .....

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ew asset or increasing of capacity and therefore such expenditure is revenue in nature. As regards pallets, it was contended that wooden pallets used to store material inside the frozen warehouses need to be replaced regularly after the completion of the normal useful life and this does not result in the creation of a new asset or increase of capacity and therefore the expenditure incurred in this regard are revenue in nature. In support of its contentions, the assessee placed reliance on the de .....

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e examine the decision of the Hon'ble Apex Court in the case of Sarvanna Spinning Mills Pvt. Ltd. (supra) cited by the learned Departmental Representative for revenue. In the cited case, the issue was whether the replacement of ring frames in textile machinery constituted current repairs and whether the expenditure incurred by the assessee for modernisation and replacement came within the connotation of the words current repairs. The Hon'ble Apex Court observed that the basic test to fin .....

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d, therefore, the expenditure incurred for replacement of the new machine would not come within the meaning of the words "current repairs". In the present case, it is not the case of the assessee that a part of the machine (out of 25 machines) needed repairs. The entire machine had been replaced. Therefore, the expenditure incurred by the assessee did not fall within the meaning of "current repairs" in s. 31(i). 12. This Court in the case of Ballimal Naval Kishore vs. CIT (19 .....

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tain an already existing asset. The object of the expenditure is not to bring a new asset into existence, nor is its object the obtaining of a new or fresh advantage. This can be the only definition of "repairs" because it is only by reason of this definition of repairs that the expenditure is a revenue expenditure. If the amount spent was for the purpose of bringing into existence a new asset or obtaining a new advantage, then obviously such an expenditure would not be an expenditure .....

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ir". This adjective, namely, "current" is put in by the legislature. It indicates that the legislature did not intend that the assessee should be permitted to claim allowance for all kinds of repairs, even though conceptually the expenditure may be revenue expenditure. The legislature intended to stress that under s. 31(i) the permissible deduction admissible is only for current repairs, therefore, the question as to whether the expenditure incurred by the assessee conceptually is .....

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expenditure to fall under s. 31(i) as "current repairs". It has embarked on the test which was not applicable, viz., whether the expenditure is revenue or capital in nature. The above test was not relevant during the assessment years in question as the Explanation to s. 31(i) was inserted later on. In our view, applying the test laid down by Chagla C.J. in the case of New Shorrock Spinning & Manufacturing Co. Ltd. (supra) the assessees were not entitled to claim allowance under s. .....

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repairs. 6.5.3 In our view, as can be seen from the above, the judicial decision cited by the learned Departmental Representative viz. Sarvanna Spinning Mills P. Ltd. (supra) does not support the case of Revenue. In the case on hand, the object of the expenditure involved, i.e. towards replacement of tyres and pallets, is not to bring into existence a new asset but only to preserve and maintain an existing asset. We also find that in the cited case, there was a clear finding that the Ring Frame .....

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expenditure incurred for replacement of tyres and pallets does not bring into existence any new assets and are only for preserving and maintaining the trucks and as such qualify for deduction as revenue expenditure. Consequently, Ground No.3 raised by Revenue is dismissed. 7. Ground No.4 - Prior Period Expenses - ₹ 6,81,338. 7.1 In the course of assessment proceedings, the Assessing Officer observed that the assessee had debited an amount of ₹ 63,85,645 towards loss on consignment b .....

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s. As the assessee failed to furnish the evidence sought, the Assessing Officer disallowed an amount of ₹ 6,81,338. 7.2 On appeal, the learned CIT (Appeals) examined and verified the documents produced and came to the view that the expenditure in question does not relate to the prior period/earlier years, but pertained to the current year only. The learned CIT (Appeals) accepted the assessee's contention that these losses would arise due to fluctuation in temperatures at different plac .....

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see that Baskin Robins is one of its major customer for whom the assessee renders services like managing inventory, warehousing, transportation, distribution, selling to retail outlets and collection of money from retail outlets, etc. According to the assessee, as per the agreement with Baskin Robins, a copy of which has been placed on record, the assessee is to bear the losses of transportation, etc and since frozen food items like ice creams, etc. being temperature sensitive, losses are inevit .....

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duct. 7.3.2 We find from the details on record that the assessee has furnished the total stock inventory which is prepared product-wise and location-wise. As the Assessing Officer has not found out any discrepancy in the stock statement, which is for the period relevant to the current year under consideration only, the conclusion of the Assessing Officer that these amounts may relate to prior periods is without any evidence or basis. Further, the difference in stock, which pertains to the curren .....

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.5 : Depreciation - ₹ 16,70,201. 8.1 During assessment proceedings, the Assessing Officer observed that the assessee had claimed an amount of ₹ 33,40,402 towards depreciation on motor vehicles @ 30%. On examination of the assessee's claim, the Assessing Officer found that the amount claimed was towards depreciation on motor vehicles used in the business of export of marine products and not on motor vehicles used in the business of hire and therefore restricted the assessee's .....

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submissions of both the learned Departmental Representative for revenue and the learned Authorised Representative for the assessee, and perused and carefully considered the material on record. It is not in dispute that the business of the assessee, inter alia, requires the transportation of frozen food items and the assessee is required to maintain motor vehicles. But, whether this would fall within the ambit of the provisions specified in New Appendix I to the IT Rules, 1962, relating to deprec .....

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r lorries for the assessee's business is different from running motor lorries in the business of hire. In our view, the learned CIT (Appeals) has mis-directed herself in equating the two to be the same. In fact, the judicial decision cited by the assessee, and placed in the paper book of submissions, namely CIT V Global Exim P. Ltd. 305 ITR 132 (SC) goes against the assessee's contentions. In that case, it was held that the higher rate of depreciation on motor trucks cannot be allowed, u .....

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