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2016 (4) TMI 675

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..... gram at a cost of ₹ 0.44 Crores per MW with a shorter gestation period. These findings of fact recorded by the Assessing Officer is accepted by the Revenue. Therefore, what follows out of these findings of fact, is the question to be addressed. After having found that there were two options open to the assessee and that the assessee had gone in for a cheaper option (almost 1/10th of the cost of first option), the Assessing Officer fell into an error in treating both options to be of the same nature. This error in the reasoning of the Assessing Officer was rejected by both the Appellate Authorities on the basis of the principles of law enunciated in various cases which we have discussed above. Therefore, we are of the considered view that the CIT (Appeals) as well as the Tribunal were right to found that the amount of expenditure actually incurred by the assessee, could not be taken to be of such a huge nature as to project it as capital expenditure. - Decided in favour of the assessee. - Tax Case (Appeal) Nos. 279 to 285 of 2015 - - - Dated:- 12-4-2016 - V. Ramasubramanian And T. Mathivanan, JJ. For the Appellant : Mr. T. Ravikumar For the Respondent : Mr. R. .....

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..... nature, on the ground that these expenses were incurred after the life span of the machinery, giving the assessee an enduring advantage and hence, covered by the decision of Hon'ble Supreme Court in Ballimal Naval Kishore v. Commissioner of Income Tax [224 ITR 414]. (f) The assessee took the matter on appeal, but the Commissioner of Income Tax (Appeals) confirmed the disallowance made by the Assessing Officer. On the second appeal filed by the assessee, the Tribunal remanded the matter back to the Assessing Officer to consider the issue de novo. Primarily the Tribunal was of the view that the admissibility of the claim has to be examined on the principles laid down by the jurisdictional court in Janakiram Mills v. Commissioner of Income Tax [275 ITR 403]. (g) The Assessing Officer went into the issue afresh and once again disallowed the expenditure incurred on Life Extension Program of TPS-I and rejuvenation of Bucket Wheel Excavator (BWE), treating the same as capital expenditure. (h) As against the orders of the Assessing Officer, the assessee preferred an appeal. The Commissioner of Income Tax (Appeals) allowed the assessee's claim, holding that there was no .....

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..... nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head ''Profits and gains of business or profession''. 9. Though Sections 31 and 37 use the expressions ''Capital expenditure'' and ''current repairs'', both these terms are also not defined anywhere in the Act. Therefore, Courts have repeatedly battled with these expressions, to find out whether an assessee is entitled to deduction or not. 10. In Commissioner of Income Tax v. Mahalakshmi Textile Mills Ltd. [66 ITR 710], the Supreme Court was concerned with a question as to whether the introduction of a conversion system in the spinning plant, by replacing certain roller stands and fluted rollers fitted with rubber aprons, constituted revenue expenditure or not. Since the Tribunal inspected the spinning factory and recorded a finding of fact that the assessee had merely replaced certain old parts, without actually putting in place a new machinery, the expenditure was revenue in nature. This finding was affirmed .....

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..... it is not a revenue expenditure but expenditure of capital nature. Such presumption, of course, would be rebuttable. (viii) The expression ''current'' preceding 'repairs' appears to have been used by the legislature with a view to restricting the allowance to expenditure incurred for preservation and maintenance thereof in its current state in contradiction to that incurred on any improvement or an addition thereto''. 12. In Commissioner of Income Tax v. Renu Sagar Power Co. Ltd. [298 ITR 94], the Allahabad High Court was concerned with the question as to whether the cost incurred on replacement of a Turbine Rotor, constituted a revenue expenditure or not. Upon finding that the Turbine Rotor is an essential part of Turbo generator set and that it is not an independent machinery capable of generating electricity by itself, the High Court held the expenditure so incurred was on account of current repairs and hence, revenue in nature. 13. As a matter of fact the Allahabad High Court followed in Renu Sagar, the decision of the Supreme Court in Commissioner of Income Tax v. Saravana Spinning Mills (P) Ltd. [293 ITR 201]. In Saravana Spinning .....

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..... inning Mills, wherein it was held that expenditure is deductible under Section 37 only if it (a) is not deductible under Sections 30 to 36, (b) is of a revenue nature, (c) is incurred during the current accounting year, and (d) is incurred wholly and exclusively for the purpose of the business. 16. A question arose in Commissioner of Income Tax v. M/s. Machado Sons [Tax Case Appeal No.1011 of 2005 decided on 27.04.2012] as to whether the expenditure incurred for the replacement and renovation of a boat is to be treated as revenue expenditure even though the expenditure was incurred prior to the user of the asset. In para 14 of the unreported decision, this Court held as follows:- ''As far as the first issue raised by the Revenue that the expenditure was incurred after the boat was purchased is concerned, the issue would have taken a different turn if the assessee had replaced the entire boat with such a mechanism that the repair had brought in a totally new machinery in the place of the old one. Admittedly, such repair had not resulted in either in increase in capacity or totally a new outlook to the machinery so as to bring in a enduring benefit to the assessee. The .....

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..... ge, thinning out of tube wall thickness, etc., and were partially replaced to the extent required. The following components were replaced completely in the Boilers: (1) Ceiling super heaters, connective super heater, screen super heater along with their headers and inter connecting pipe. (2) Boiler condenser and injection at temperator. (3) Rear side water wall. (4) Economiser and their transfer pipes. (5) Main steam line with valves and fittings. (6) High pressure valves. (7) Air and gas ducts compensators. The following components were replaced partially after inspection. (1) Front and side water walls. (2) Boiler Drum internals. (3) Air Heaters (4) Air and Gas ducts (5) Feed water and injection pipe line (6) Boiler shield and hydraulic seal (7) Lignite pulversion mills Following equipments were overhauled. (1) Induced and forced draught fans (2) Belt Feeder (3) Slag conveyor and their systematic. (4) Ash handling system. Turbine, Generator and Transformer. These major components were overhauled with the replacement of worn out parts. These expenditure are classifiable as current repairs, as they do not bring ne .....

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..... the Act defines the expression income , it does not define either the expression expenditure or the expression repairs or current repairs . However, several heads of expenditure are separately dealt with under Sections 35 and 35A to 35E. 24. Section 37(1) states that any expenditure laid out or expended wholly and exclusively for the purpose of business or profession shall be allowed in computing the income chargeable under the head Profits and gains of business or profession . But, Section 37(1) excludes three items of expenditure. They are (i) expenditure of the nature described in Sections 30 to 36, (ii) expenditure in the nature of capital expenditure, and (iii) expenditure in the nature of personal expenses of the assessee. 25. Therefore, if an item of expenditure falls within any of the categories indicated in Sections 30 to 36, the same is entitled to deduction as per the provisions of those Sections. But, any expenditure which does not fall within the scope of Sections 30 to 36, but which may still qualify while computing the income chargeable under the head Profits and gains of business or profession , will be covered by Section 37(1). 26. But, what is impo .....

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..... the Tribunal, it is contended by Mr.T.Ravikumar, learned Standing Counsel for the Department that the assessee originally capitalised the expenditure and claimed depreciation, but reversed it later. The expenditure incurred was not done within the life span, but done beyond. As per the statute, the life span was about 25 years. But, the plant and machinery had worked for 35 years only after which the main parts were replaced. The expenditure was incurred as an one time expenditure and the same resulted in an increase in the power generation. Therefore, the learned Standing Counsel contended that the Tribunal was wrong in its conclusion. 31. On the contention of Mr.T.Ravikumar, learned Standing Counsel that the assessee originally capitalised the expenditure, but reversed the same later, we have to point out that there cannot be any estoppel in such cases. The question whether a particular expenditure would fall within the definition of the expression current repairs under Section 31(i) or not, does not depend upon what the assessee did or did not. After all if the expenditure is capitalised, the assessee takes the benefit of depreciation. If the expenditure is treated as reven .....

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