TMI Blog2015 (8) TMI 377X X X X Extracts X X X X X X X X Extracts X X X X ..... e CIT (A), as affirmed by the ITAT, does not call for any interference. The Court declines to frame a question in that regard. Expenditure incurred on purchase of machinery from foreign countries - revenue v/s capital expenditure - Disallowance of the expenditure on the purchase of Banbury mixers as “repair and maintenance” - Held that:- The said expenditure on the import of the two Banbury mixers is required to be treated as capital expenditure. It is further held that the ITAT and the CIT (A) were right in deleting the disallowance of the expenditure on the reduction gear forming part of the 3 Roll calendar to the extent of ₹ 41,23,890 as from the invoice produced by the Assessee, it is clear that the said imported item was part of the 3 roll calendar. Notional interest sought to be added by the AO on the ground that an interest free loan was given by the Assessee to its sister concern, Modi Stone Limited -ITAT deleted addition - Held that:- The sum of ₹ 2 crores was advanced to Modi Stone Limited on account of commercial expediency as the said company was declared sick by the BIFR by its order dated 15th April 1998. The Court finds that the decision of the ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of employee's contribution under the Scheme in question. Consequently, the Court finds that there was no occasion to apply Section 43B of the Act to disallow the delayed contribution by the Assessee to the superannuation fund for the months of February and March 2001. The order of the CIT (A), as affirmed by the ITAT, does not call for any interference. The Court declines to frame a question in that regard. 5. The second issue projected by the Revenue concerns the expenditure incurred by the Assessee on purchase of machinery from foreign countries as revenue in nature by treating them as expenses on repair and maintenance . 6. The relevant facts are that the Respondent-Assessee filed its return of income on 31st October 2001 declaring a loss of ₹ 40,11,55,746. The assessment was completed by the Assessing Officer ( AO ) under Section 143 (3) of the Act on 26th March 2004 at an income of ₹ 28,49,40,760 after adjusting all brought forward losses and depreciation. In response to the rectification application filed by the Assessee, the income assessed was revised at ₹ 27,77,93,470. 7. The appeal of the Assessee was partly allowed by the CIT (A). Certain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expenditure was capital expenditure and depreciation as per the rules would be allowed to the Assessee. 12. The above order dated 19th December 2008 of the AO was challenged before the CIT (A). By an order dated 12th February 2010 the CIT (A) disagreed with the AO and held that the AO had not recorded any finding as to how the Banbury mixture and gear boxes could function independently and how the other plant and machinery were expected to run without the support of the aforesaid components. The CIT (A) held that the AO appeared to have been influenced by the heavy amount of expenditure. Moreover, the expenditure on identical items incurred in the earlier years were allowed as revenue expenditure. No distinguishing feature was pointed out by the AO as regards the AY under consideration. The CIT (A) accordingly deleted the disallowance by holding that the expenditure incurred on the Banbury internal mixer G.K. 225N and reduction gear box would fall within the meaning of repairs and maintenance only. 13. In the impugned order dated 23rd August 2013 the ITAT agreed with the CIT (A) and held that the cost of importing the Banbury internal mixer GK 225N and reduction gear b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessee further stated as under: It will kindly be appreciated that all the aforesaid expenditure were incurred by the Assessee for the maintenance and upkeep of the machinery and replace the old and worn out parts of plant and machinery, which was necessary for keeping the machines in working order. It is further respectfully submitted, that no new asset came into existence by incurring of the said expenditure and there was no enhancement in the capacity/efficiency of the machines. 16. Enclosed with the affidavit is also inter alia the details submitted justifying the expenditure on the three equipments aforementioned. As regards the Banbury GK 255N mixer, the justification provided reads as under: Justification for expenditure The Banbury mixer is the most important machine for tyre manufacturing. Its body is put to the rigorous use while mixing rubber compound. The mixer body thus wear out after regular use of 4-5 years. The body needs to be normally changed on completion of the period. Since the advantage of overhauling is accrued over a period of 4-5 years hence the expenditure has been amortised over for a period of 5 years by charging 20% of the total expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nes in the mill for production of the final product. However, such interconnection did not take away the independent identity and distinct function of each machine. Accordingly, it was held that each machine in a textile mill was required to be considered independently. As regards the question whether a particular item of expenditure amounted to expenses towards current repairs the Supreme Court explained that the question to be asked was whether the expenditure is incurred to preserve and maintain an already existing asset and not to bring a new asset into existence or to obtain a new advantage. For current repairs determination, whether expenditure is revenue or capital is not the proper test. It was held that the replacement of a ring by a new one did not amount to current repairs . 22. The issue was re-visited by the Supreme Court in Commissioner in Income Tax v. Sri Mangayarkarasi Mills (P) Ltd. (2009) 315 ITR 114 (SC). There the question was whether the expenditure incurred by the Assessee, which was engaged in the manufacture and sale of cotton yarn, on replacement of machinery was the revenue expenditure. On the facts of the case, and applying the tests enunciat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO on the ground that an interest free loan of ₹ 2 crores was given by the Assessee to its sister concern, Modi Stone Limited. 27. In this regard it is seen that the ITAT noted that the sum of ₹ 2 crores was advanced to Modi Stone Limited on account of commercial expediency as the said company was declared sick by the BIFR by its order dated 15th April 1998. No interest was accrued on the above amount. From a perusal of the financial statements for the year ended 30th September 1997 it was seen that the Assessee was having mixed pool of funds comprising owned funds and loan funds. It was held that in such a situation where the one to one nexus between the borrowed funds and the loan advanced to Modi Stone Limited was unable to be established, the loan to Modi Stone had to be held as having come out of its own funds. Consequently, the order of AO and CIT (A) was set aside. 28. The Court finds that the decision of the ITAT on the above aspect is turned purely on facts. The view taken by the ITAT on facts was a plausible one. Consequently, the Court finds that no substantial question of law arises for determination as far as the said issue is concerned. 29. T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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