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2015 (8) TMI 377 - DELHI HIGH COURT

2015 (8) TMI 377 - DELHI HIGH COURT - [2015] 378 ITR 128 (Del) - Addition under Section 43 (B) on account of delayed contribution of superannuation fund - CIT(A) deleted addition affirmed by the ITAT - Held that:- On account of the superannuation fund, the Court has been shown a copy of the Employees' Superannuation Scheme of the Respondent-Assessee. Clause 6 of Section-II is titled “Contributions and Annuities”. Clause (a) envisages the payment of contribution by the employer and not by the emp .....

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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.

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 sai .....

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t 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 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 n .....

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appeal by the Revenue under Section 260A of the Income Tax Act, 1961 ( Act ) is directed against the impugned order dated 23rd August 2013 passed by the Income Tax Appellate Authority ( ITAT ) in ITA No. 1846/Del/2010 (appeal of the Revenue) and ITA No. 1816/Del/2010 for the Assessment Year ( AY ) 2001-02. 2. There are three broad issues projected by the Revenue for consideration. The first pertains to deletion by the Commissioner of Income Tax (Appeals) [ CIT (A) ] and affirmed by the ITAT of a .....

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addition pertaining to the delayed contribution of ₹ 46,40,822 on account of the superannuation fund, the Court has been shown a copy of the Employees' Superannuation Scheme of the Respondent-Assessee. Clause 6 of Section-II is titled Contributions and Annuities . Clause (a) envisages the payment of contribution by the employer and not by the employee. Clause (d) clearly states that the employer shall be liable to pay the total contributions under the Scheme and shall pay the entire co .....

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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 a .....

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assed on 12th January 2005 at a loss of ₹ 22,93,75,375. Both the Revenue and the Assessee preferred appeals before the ITAT against the order of the CIT (A). 8. By an order dated 1st June 2007 in the Assessee's the ITAT noted that the Assessee had not furnished its books of accounts before the AO. Meanwhile the Assessee had got its accounts audited and was declared a sick company. Accordingly, the order of the CIT (A) was set aside by the ITAT with a direction to the AO to frame the as .....

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tion of the income attached to the return, the Assessee had claimed the entire amount as revenue expenditure. The AO disallowed 80% of the said amount as capital expenditure under Section 37 (1) of the Act. 10. In the remand proceedings the Assessee furnished invoices dated 15th September 1999 and 12th October 2000 for purchase of one heavy duty internal (Banbury) mixer G.K. 255N and purchase of reduction gear box for 3 roll calendar respectively. The Assessee also furnished a Bill of Entry (B/E .....

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quipment for mixing the rubber and chemical . The AO concluded that the Assessee was unable to establish that the said machines were part of some other machines. The AO also rejected the claim of the Assessee that the expenditure was incurred on current repairs . It was concluded that 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 date .....

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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 box respectively would f .....

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sessee gave details of the expenditure in the sum of ₹ 3,97,53,676 as under: S.No. Particulars of machinery Amount (Rs.) Remarks 1. Banbury G.K. 255N 3,22,57,936 The Banbury mixer is the most important part for tyre manufacturing plant. Mixing of raw materials is the first process in tyre manufacturing. The Banbury mixture is used to for mixing natural rubber, synthetic rubber, carbon black, chemicals and other raw material. The compound obtained after the aforesaid mixing is fed in the fu .....

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oduction and quality parameters and is single unit in the entire plant. Any breakdown in the plant would lead to total stoppage of production line. Therefore, the regular up keep and maintenance of this machinery is of paramount importance. The aforesaid expenditure on gear box and the Roll were incurred keeping in mind the aforesaid. 3. Banbury F-370 33,71,850 F 370 is the major equipment and is used for mixing the rubber and chemical on regular basis and needs to be kept in perfect condition t .....

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e 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 r .....

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d needs to be kept in perfect condition to ensure uninterrupted production and quality parameters. The aforesaid expenditure was incurred keeping in mind the aforesaid. 18. The justification shown for the 3 Roll calendar was as under: The 3 Roll calendar is one of the vital machinery in the process of manufacturing of tyres. It is used for the treatment of fabric and it play vital role in ensuring the smooth production and quality parameters and is single unit in the entire plant. Any breakdown .....

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the mixer. 20. The Court is unable to accept the above submission. Both the invoice dated 15th September 1999 and the corresponding bill of entry, copies of which have been placed on record, describe the equipment imported as one heavy duty internal mixer G.K. 255N . There is no indication whatsoever that what has been imported is only the body and not the entire mixer. There was sufficient opportunity to the Assessee to produce before the AO in the remand proceedings, sufficient documentation .....

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hat each machine in a textile mill may be part of the integrated process of manufacture of yarn and integrally connected to the other machines 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 towa .....

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r 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 enunciated in CIT v. Saravana Spg. Mills (P) Limited (supra), the claim of the Assessee was negatived. 23. Turning to the case on hand, the Court notes that the two Banbury mixers h .....

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ee do not support its plea that the expenditure was incurred only on replacement the body of the mixers. The Assessee had sufficient opportunities to demonstrate before the AO that the expenditure incurred by it was not of a capital nature. The Assessee was unable to succeed in that effort. The only documents produced by it to show that the Banbury mixers imported were vital to the tyre manufacturing plant and were of enduring benefit to it. The expenditure incurred in that behalf was rightly he .....

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expenditure and deleting the disallowance of the AO. 25. The conclusion as far as the second question projected by the Revenue is that ITAT erred in deleting the disallowance of the expenditure on the purchase of Banbury mixers as repair and maintenance . 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 fo .....

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