TMI Blog2020 (5) TMI 157X X X X Extracts X X X X X X X X Extracts X X X X ..... y allowed for statistical purposes. Nature of expenditure - Disallowance of moulds as revenue expenditure - revenue or capital expenditure - HELD THAT:- We find although the assessee filed a certificate from the Chartered Engineer to the effect that the life of moulds of cylinder liners does not exceed more than one year, the ld.CIT(A) rejected the same and upheld the action of the AO the reasons for which have already been reproduced in the preceding paragraphs. It is the submission that the assessee being the manufacturer of moulded automobile products, therefore, mould is a basic material. Such mould has been purchased and utilised in the process of production which has a very short life and needs to be replaced from time to time and, therefore, should be treated as revenue in nature. It is also his submission that the expenditure on mould is of recurring nature and, therefore, merely because it has some enduring benefit to the assessee, the same cannot be considered as capital in nature especially when the life of mould is less than one year and has to be replaced frequently. The various decisions relied on by the Ld. Counsel for the assessee also support his case to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arables with adjusted margin of (-) 6.53% after considering capacity utilization of 51.29%, the details of which are as under:- Sl. No. Company Name Margin (%) Capacity Utilisation Adjusted Margin taking capacity utilization at 51.29% 1 KAR Mobiles Ltd. 4.72% 94.94% -17.99% 2. Perfect Circle India Ltd. 10.64% 75.90% 2.42% 3. Rane Engine Valve Ltd. 7.44% 86.53% -10.47% 4. Samkrg Pistons Ring Ltd. 9.22% 103.80% -7.27% 5. Shriram Pistons Rings Ltd. 14.84% 93.80% -2.24% 6. Triton Valves Ltd. 8.11% 98.42% -3.64% Average 92.23% -6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examined since moulds being imported used for the manufacturing of pistons , rings generally had a life or less than year, since these were getting exhausted/broken had to be discarded within in the process of manufacturing of pistons rings. Based upon estimated useful life of such moulds these were correctly considered and treated as Spares. 6. However, the Assessing Officer was not satisfied with the explanation given by the assessee. According to him, the assessee could not substantiate its claim that the life of moulds was less than one year. Since the assessee had changed its policy with regard to capitalization of moulds, he allowed only depreciation on the same which comes to ₹ 9,42,081/-. Accordingly, the Assessing Officer made addition of ₹ 87,94,251/- to the total income of the assessee. 7. The assessee filed appeal before the CIT(A). However, the CIT(A) confirmed the TP adjustment as well as the addition on account of moulds. So far as the order of the CIT(A) on account of TP adjustment is concerned, he dismissed the ground raised by the assessee by observing as under:- Decision:- I have considered the findings of the Ld TPO, written s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertify whether items and quality manufactured during the impugned assessment year and as on date of issuance of certificate has remained same. Further certified engineers has mentioned in para 2 of the certificate that the conditions of moulds is not upto mark to manufacturer the qualitative products. Therefore the moulds are used for the manufacturing process even after useful life for quality product. Therefore certificate of engineer issued almost after four years from the end of F.Y. does not help much as it is difficult to assume that the quality of the products and moulds has remained same. I cannot give benefit on the basis of such certificate. Considering the facts that the appellant in its financial in earlier A Y. treated the moulds as capital expenditure, I confirm the additions. It may be mentioned here that the jurisdictional pronouncement of the assessee is on different facts as the product in the said case was plastic component such CD-Shell box etc and in that case moulds was treated as part of injecting molding machines. Accordingly these grounds of appeal are dismissed. 9. Aggrieved with such order of the CIT(A), the assessee is in appeal before the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation and in the comparables selected by it during the course of Transfer Pricing proceedings. 4.4 The Ld. TPO/Ld. CIT(A) ignored the observation of the erstwhile TPO in the financial year 2009- 10 wherein it was noted that the adjustment for under capacity utilization was permissible to the Appellant. 5. That the Ld.AO/Ld. CIT(A) has grossly erred on facts and in law in making addition of ₹ 87,94,251/- treating the moulds to be a capital expenditure/asset vis-a-vis revenue expenditure considered by the Appellant and in specific has made a factual error by observing as under:- 5.1 The Ld CIT(A) erred in holding that the since the Chartered Engineer Certificate is issued after a gap of 4 years, it cannot be a reliable source of evidence; 5.2 The Ld. CIT (A) erred in holding that moulds used for production process are being/ can be used even after the useful life, for quality product has expired without appreciating the nature of production process of the Appellant and the commercial wisdom of Appellant to adopt an accounting policy which is prevalent in the industry and is also in conformity with Accounting Standards and duly certified by an independent Chartered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. M/s Nippon Paint India Pvt. Ltd. Vs. ACIT reported in TS-102-ITAT-2017(Chny) 3. E.I. Dupont India Pvt. Ltd. DCIT reported in 16 Taxmann.com 352 4. DCIT Vs. Vertex Customer Services India Pvt. Ltd. reported in (2009) 34 SOT 532 (Del). 5. Global Vantedge Pvt. Ltd. Vs. DCIT reported in (2010) 1 ITR (Tri) 326 (Del) 6. ACIT Vs. MSS India Pvt. Ltd. reported in (2009) 32 SOT 132 (Pune) 7. DCIT Vs. Petro Araldite Pvt.Ltd. reported in (2013) 145 ITD (Mum) 182 8. DCIT vs. Terex India (P) Ltd. (2019) 71 ITR 259 (Delhi ITAT) 9. DCIT vs. Panasonic AVC Networks India Co. Ltd., 63 Sot 121 (Del) 11. The ld. DR, on the other hand, while supporting the order of the CIT(A), submitted that the comparables selected by the TPO were never challenged by the assessee before the CIT(A). Therefore, the argument of the assessee should not be accepted. He, however, submitted that he has no objection if the matter is restored to the file of the A.O./TPO for consideration of the capacity adjustment subject to submission of details by the assessee to the satisfaction of the A.O./TPO. 12. We have considered the rival arguments made by both the sides, perused the orders of the A.O./ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bited of ₹ 1,23,409/- was reversed. He submitted that the Assessing Officer, in the assessment order, held that the assessee could not substantiate with evidence that the life of moulds was less than one year for which he disallowed the claim made by the assessee which was upheld by the CIT(A). He submitted that the Chartered Engineer s certificate furnished by the assessee to substantiate that the life of mould of cylinder liner does not exceed more than one year was rejected by the CIT(A) on the ground that the certificate was issued after four years from the end of the financial year and it is not certified whether the item or quality manufactured during the year remained the same. Since the assessee had treated moulds as capital expenditure in the preceding year, he held that the expenditure incurred on moulds are capital expenditure. The ld. counsel for the assessee while challenging the above observation of the CIT(A) submitted that the aforesaid expenditure incurred is the expenditure incurred towards spares and is consumable stores. Since the assessee is a manufacturer of cylinder liners which are supplied by them to Maruti Suzuki and Honda Motors and these contain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld has been purchased and utilised in the process of production which has a very short life and needs to be replaced from time to time and, therefore, should be treated as revenue in nature. It is also his submission that the expenditure on mould is of recurring nature and, therefore, merely because it has some enduring benefit to the assessee, the same cannot be considered as capital in nature especially when the life of mould is less than one year and has to be replaced frequently. 16. We find merit in the above argument of the ld. Counsel. We find the Hon ble Supreme Court in the case of Empire Jute Company Ltd. Vs. CIT reported in 124 ITR 1, at para 11.6 has observed as under:- There may be cases where expenditure, even if incurred for obtaining advantage of enduring benefit, may, none the less, be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the moulds and dies is not substantial as held by the Tribunal and they have to be replaced frequently to ensure quality of the product. Moreover, the moulds have to be produced to suit the requirements of the particular customer and after the order is met, they become useless and ultimately have to be destroyed to prevent misuse or manufacture of fakes. It has also been found by the appellate authorities that the expenditure on replacement of dies and moulds was earlier allowed by the income tax authorities as revenue expenditure. These are factual findings recorded by the Tribunal which are not disputed before us by the revenue on the basis of any evidence or material. It is well settled that any expenditure on replacement or repairs to plant and machinery which does not bring into existence any enduring or permanent advantage in the capital field is allowable as revenue expenditure. The Tribunal has only applied this settled legal position to the undisputed facts found. Therefore no substantial question of law arises for our consideration. The appeals on this point are accordingly dismissed. 18. The Hon ble Delhi High Court in the case of CIT vs. Jagtjit Industries Ltd. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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