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2019 (7) TMI 676

ntegra in view of the judgement of this Court in the case of the very same assessee rendered in Tax Appeal [2019 (4) TMI 1723 - GUJARAT HIGH COURT] as CIT-A found that the expenditure claimed as revenue expenditure is in respect of components of the machinery which cannot be treated as the independent machinery in itself as they are not capable of functioning independently. It was further held that the chemical and fertilizer plant was very large plant within which again there are large machines and within the machine there are components requiring replacement due to wear and tear, that was different plants within the fertilizers and chemical plant. Reference was also made to past history of disallowance wherein the Tribunal had set aside the issue to the Assessing Officer for the assessment years 1998-99 to 2002-03, who in turn accepted the explanation furnished by the appellant in de novo assessment proceedings and no additions were made. On perusal of the facts noted by the CIT (Appeals) as well as affirmed by the Tribunal, it is clear that question (a) raised by the revenue is a pure question of fact and in the absence of any perversity being pointed out in the concurrent findi .....

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same de novo but by affording reasonable opportunity of being heard to the appellant. Though, this direction was given by the Hon ble ITAT, Ahmedabad in the case of appellant for AY 2003-04 while deciding the similar issue as per ground of appeal no.8. As in the case of appellant the issue is similar for the year under consideration also and therefore as per direction of Hon ble ITAT, the AO was required to examine the issue and to decide the same de novo after affording reasonable opportunity of being heard to the appellant. But instead of giving clear finding in the order u/s 143(3) r.w.s. 254 of the Act after bringing the materials on record, the AO has given very general findings in such order. Further, in the remand report also the AC has not brought out any material on record to establish that the assertion of the appellant/Chartered Engineer that the parts of the machine are not independent machine but are parts of main Unit was incorrect. The AO during the course of remand proceeding had deputed the Inspectors of his office for identifying the place of fittings of the parts in the Plant and Machinery of the appellant company and to observe its function. The AO in his reman .....

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remand report is that the assessee company has not categorically stated anything regarding life period of these machines. As per the AO this means that the assessee has not categorically denied that these machines give enduring benefit to the assessee company in terms of its life span. As per the AO therefore it is beyond doubt that these machines give enduring benefit to the appellant company. But this objection / observation of the AO has got no basis. The undisputed fact is that Conversation Kit for Pump Block and Set of Impellers for Naraxno Rotor are not independent parts capable of functioning independently, but the same are parts of bigger machinery viz. Pump Block in Urea Plant and Naraxno Compressor Etrain, WNA Plant as these facts have been admitted by the AO himself in his remand report. In my opinion the replacement of this part has been made only to restore the machinery to its original state of efficiency so that the entire integrated manufacturing Unit which is considered as profit making apparatus functions efficiently and produces quality products. The enduring benefit is not only the best to decide that the expenditure is capital in nature. On this issue I agree w .....

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res and spares of ₹ 9,548.68 lakhs and claimed the same as revenue expenditure. However, out of that, the Assessing Officer (AO) has disallowed ₹ 3,00,96,651/- treating it as capital expenditure after allowing the depreciation of ₹ 45,14,498/- thereon. The AO has made disallowance of net amount ₹ 2,55,82,153/- on the ground that the items are in the nature of independent machine and average life span is 5 years or more and in one item life span is 20 years which suggests that these items can be used independently. 14. The assessee went in to appeal before the CIT(A). The CIT(A) after examining the facts of the case and items of machinery to replace component and relying on various case laws examined the explanation of the assessee and on the basis of explanation furnished by the assessee, deleted the additions disallowance made by the A0. 15. Being aggrieved, the Revenue has filed this appeal before us. The Id.CIT-DR strongly relied on the orders of the AO. 16. On the other hand, the Id.Counsel for the assessee submitted that the issue is covered by earlier years order of ITAT in assessee s own case for A.Y.2008-09. Further in the past A.Y.2000-01, 2002-03 w .....

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treated as capital expenditure, whereas, in the instant case, there is replacement of damaged part of conversion for pump block, set of impellers, Naraxno, hence, facts are distinguishable. Therefore, the appeal of the revenue in respect of Ground No.1 is dismissed. 5.00. Having heard the learned counsel appearing for the parties and having gone through the materials on record, the proposed question is no longer res-integra in view of the judgement of this Court in the case of the very same assessee rendered in Tax Appeal No.1360 of 2018 decided on 29/04/2019. We may quote the relevant observations made by the Co-ordinate Bench of this Court in this regard : 4. It emerges from records that the manufacturing facility of the appellant included fertilizers and chemical plants complex wherein fertilizers like Urea and Ammonium Nitrophosphate and chemicals like Ammonia, Formic Acid, Acetic Acid, Weak Nitric Acid, Concentrated Nitric Acid and Methanol were manufactured. Various plants and equipment were in continuous operation in corrosive and acidic atmosphere. It was found that no new assets were created in the process of replacement of worn out parts. There was no capacity addition. T .....

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