TMI Blog2014 (10) TMI 906X X X X Extracts X X X X X X X X Extracts X X X X ..... 3) - Held that:- We find from the provisions of section 40A(3) that the disallowance can be made only on any expenditure in respect of which the payment or aggregate payment made to a person in a day in cash exceeds ₹ 20000/-. Here in the present case, the assessee has made payment of ₹ 20000/- or less than that amount. The assessee before us now produced complete ledger copy from pages 78 to 271 of assessee’s paper book, which clearly reveals that none of the payment is exceeding ₹ 20,000/-. These papers were produced before the lower authorities by the assessee. Once this is the position, we find that the CIT(A) has rightly deleted the addition and we confirm the same - Decided in favour of assessee Disallowance of claim of expenditure on account of major repairs and maintenance - Held that:- As contended by assessee that due to unsatisfactory financial position of the company for few years in the past, it could not undertake the repair and maintenance of plant and machinery and its capacity utilisation was in the range of 37.46% against the industry average of 90. According to him, to make the situation improve, the assessee company in FY 2006-07 relevant to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition of ₹ 61.93 lakhs made by the AO as pre-operative expense without considering the fact that the assessee itself treated the said expense as pre-operative expenses and it had to be amortized over a number of years for getting enduring benefit for a number of years. 3. Briefly stated facts are that the AO from the details of pre-operative expenses made a disallowance except allowance of 1/5th of expenses by observing as under: From the details it is seen that the assessee has debited entire expenses of ₹ 61.93 lakh showing the same as preoperative expenses. In absence of details the entire amount is not allowed. However, 1/5th of expenditure is allowed considering the nature of expenses. Aggrieved, assessee preferred appeal before CIT(A), who deleted the disallowance by observing that the assessee has claimed this amount of ₹ 61.93 lacs by debiting under the head deferred revenue expenditure written of and not as preoperative expenses. According to CIT(A), as there was no plant and machinery installed or commissioned during FY 2005-06 relevant to AY 2006-07 and accordingly, there can be no preoperative expenses. He deleted the same by observing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d forward as deferred revenue expenditure to the extent not written off or adjusted. In view of the given facts and circumstances, we feel that the CIT(A) has rightly deleted the addition and we confirm the same. This issue of revenue s appeal is dismissed. 5. The next common issue in both the appeals of revenue is as regards to the order of CIT(A) deleting the disallowance made by AO by invoking the provisions of section 40A(3) of the Act in making cash payments of ₹ 94,33,463/- in AY 2006-07 and ₹ 7,00,000/- in AY 2007-08. 6. Briefly stated facts are that in both the years, the AO noted that the assessee has made huge amount of cash payment in violation of provisions of section 40A93) of the Act and admitted that the payment had been segregated in several vouchers of ₹ 20,000/- each. The relevant finding as recorded in AY 2006-07 reads as under: To show that it has not violated the provision of Sec. 40A(3) the payment has been segregated in several vouchers of ₹ 20000/ each. On analysis of the submission it is revealed that the assessee has maintained limit of cash payment of ₹ 20000/- on single occasion but on a particular day, the number ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeals in both the years is dismissed. 8. The first issue of ITA No. 1397/K/2011 is against the order of CIT(A) deleting the disallowance of claim of expenditure on account of major repairs and maintenance at ₹ 526.46 lacs. For this, revenue has raised following ground no.1: 1. That on the facts and circumstances of the case, Ld. CIT(A) erred in law in directing the AO to allow the expenditure of ₹ 526.46 lakh made incurred on account of major repairs and maintenance without appreciating the fact that the assessee company will get the enduring benefit from the said expenditure for a number of year to come. 9. Briefly stated facts are that the AO noticed from the P L Account that the assessee has debited a sum of ₹ 526.46 lacs under major repairs and maintenance in addition to normal repairs and maintenance of ₹ 319.10. The assessee claimed these expenses as revenue expenditure in the P L Account but the AO stated that this huge expenses cannot be repair and maintenance but he has not discussed the expenditure factually. But the AO disallowed by observing as under: The explanation is not at all satisfactory. It is not understood as to how ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al expenditure although benefits of such repairs are not enduring in nature. It can therefore be concluded that the revenue expenditure was wrongfully considered as capital expenses by the Ld. Assessing Officer without even considering toallow depreciation or amortization. I have carefully considered the facts placed before me and find strong substance to allow this expenditure as revenue which is supported by several judgment of High Courts. I therefore direct the AO to allow this expenditure as revenue expenditure. Aggrieved, now revenue is in appeal before us. 10. We have heard rival submissions and gone through facts and circumstances of the case. The assessee has filed complete details of repair and maintenance expenses and also a certificate from Chartered Engineer dated 15.12.2008, who has certified that the expenses under the head repairs and maintenance during the year ending 31.03.2007 has been procurement of worn out components and certain capital assets or group of assets. According to him, these worn out parts are in the context of capital asset where these are used and also form a small fraction of the total value of corresponding capital asset in each case. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of machine or ship is decisive of the true nature of the expenditure. (vi) The original cost of the asset is not at all relevant for ascertainment of the true nature of the expenditure on repairs. (vii) The replacement cost of the asset may however, at times may be used as indicator of the true character of the expenditure. If the expenditure on repairs added to the written down value or disposal value exceeds the replacement cost of the asset, a presumption is possible that it is not a revenue expenditure but expenditure of capital nature. Such presumption, of course, would be rebuttable. (viii) The expression current preceding repa rs appears to have been used by the legislature with a veiw to restricting the allowance to expenditure incurred for preservat on and ma ntenance thereof in its current state in contradiction to that incurred on any improvement or an addition thereto [CIT v. Chowgule Co. Pvt. Ltd., (1995) 125 CTR (Bom) 442, 448 = (1995) 214 ITR 523 (Bom) In the facts of that case, the Tr bunal, on nvestigation of the nature of the repairs undertaken by the assessee, recorded a categorical finding of fact that it did not result in emergence o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, hence disallowed and added back. Aggrieved, assessee preferred appeal before CIT(A), who allowed the claim of assessee by considering the submission of the assessee as under: The appellant submits that some stores and spare items were being carried in the store inventory and they had not moved for quite some time was reduced from the value of stores in the year 2003-04 and nothing new was provided in the current year. The same amount was being carried forward from the previous year as will be evident from schedule 7 forming part of the balance Sheet submitted along with Annual Report for the year 2006-07 with the AO. A copy of Annual Accounts 2006-07 was also filed with me which reveals that this amount indeed was nothing but a carried forward figure and no new provision was made in the accounts during the year by the appellant which may attract disallowance. Therefore the addition of ₹ 70 lac made under this head is deleted. Aggrieved, now revenue is in appeal before us. 13. We have heard rival submissions and gone through facts and circumstances of the case. Before us Ld. counsel for the assessee drew our attention to page 55 of assessee s paper book, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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