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Commissioner of Income Tax –II Versus Modi Rubber Ltd.

2015 (8) TMI 377 - DELHI HIGH COURT

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 employee. Clause (d) clearly states that “the employer shall be liab .....

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uperannuation 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 said expenditure on the import of the two Banbury mixers is required .....

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oncern, 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 no substantial question of law arises for determination as far as .....

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961 ( 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 addition made by the Assessing Officer ( AO ) of ₹ 30,450 an .....

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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 contributions to the Trustees in one or more instalments as the cas .....

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ference. 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 Sec .....

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h 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 assessment de novo in respect of the additions/disallowance made by .....

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ed 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) dated 3rd November 2000 corresponding to the aforementioned inv .....

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at 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 dated 12th February 2010 the CIT (A) disagreed with the AO and held t .....

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Y 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 fall within the meaning of expenditure on 'current repairs and .....

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,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 further processes of tyre manufacture as the basic material. Its bo .....

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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 to ensure uninterrupted production and quality parameters. 15. In .....

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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 .....

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roduction 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 in the plant would lead to total stoppage of production line. The .....

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n. 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 to substantiate its plea that what was imported was only the body .....

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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 towards current repairs the Supreme Court explained that the question .....

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TR 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 have been described by the Assessee itself as equipment used for m .....

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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 held by the AO, in terms of the tests laid down by the Supreme Cour .....

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