TMI Blog2020 (9) TMI 917X X X X Extracts X X X X X X X X Extracts X X X X ..... bnormal utilisation of precious metal, however big, it is utilised as machinery consumables only, it does not or will not increase the life of the machinery. Abnormal loss incurred by the assessee can be treated as revenue expenditure to be allowable during this year or the abnormal loss can be amortised in 2 to 3 years. In our considered view no doubt the losses considerably high, we direct assessing officer to amortise the abnormal loss in 2 years that is 50% during this assessment year and balance in the next assessment year. With regard to observation of the assessing officer that assessee has purchased from the vendor and the documentation does not show that it is refurbished the machineries. We observe from the certificate issued by technical engineers from the company that assessee has purchased these precious metals and the internal technical department has carried out the respective work of re-fabrication of damaged feeders/nozzles. Therefore, we do not notice anything wrong in purchasing of the precious metals and carrying on repair work of the machineries internally by the assessee. Accordingly ground No. 2 raised by the assessee is partly allowed. Substantial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and notice under section 143 (2) and 142 (1) were issued and served on the assessee. In response, assessee filed the relevant information as called for. During assessment proceedings, AO noted that assessee has claimed ₹ 1,92,30,918/ in its profit and loss account on loss of precious metal. When the assessee was asked to give the details for such claim and assessing officer observed that assessee has never claimed the expenditure to such extent in the earlier assessment year and the assessee has claimed the maximum amount of ₹ 14,44,477/ in the assessment year 2007 08. In the detail, assessee submitted that assessee has paid to its parent company M/s Schott AG for the loss in the precious metal leased from them amounting to ₹ 46,57,540/ and an amount of ₹ 1,45,73,378/ paid for replenishing the loss in precious metal on account of wear and tear. 4. Further assessee vide letter dated 25.02.2015, explained the reasons of climbing the loss that the assessee is engaged in the business of manufacturing of specialized glass tubes used for ampoules, vials manufacturing. In the manufacturing process, the assessee uses following specialized machinery/equipme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the actual loss of precious metal on account of corrosion shall be reimbursed by the assessee to M/s Schott A.G. The assessee has submitted copies of documents received from M/s. Schott AG dated 2007.2010, 03.02,2011 and 23.09.2010 wherein M/s.Schott AG has given the details of the loss of precious metals incurred due to erosion and corrosion being the amount of ₹ 27,77,873/-, ₹ 8,72,6561- and ₹ 1007,011/- respectively. The total amount of loss in precious metals worked out by M/s Schott A.G. amounted to ₹ 46,57540/-. The assessee has claimed that the amount of ₹ 1,45,75,945/- represents the charges paid for refining and melting of precious metals and the same were replenished on account of loss of precious metals. The assessee had submitted Invoices raised by M/s. Ravindra Heareus Pvt. Ltd. invoice no.1513/10-11 dated 16.03.2011 amounting to ₹ 1,00,21,801/-, invoice No.0998/10-11 dated 10.12.2010 amounting to ₹ 24,67,935/-and invoive No.0874/10-11 dated 10.11.2010 amounting to ₹ 20,86,209 pertaining to actual purchase of precious metals sheets viz. Rhodium and Platinum. The total amount of purchase of sheets of precious ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of ₹ 46,47,540/-. Thus, the same is not allowable u/s.37 of the Act. A sum of ₹ 145,75,945/- is added to the total income of the assesse. Penalty proceedings u/s 271(1)(c) of the I.T. Act is initiated for furnishing of inaccurate particulars of income. 6.3.2 Without prejudice to the above, the claim of the assessee that the expenses are incurred i.e. loss on precious metals is of the nature of repairs to plant and machinery due to the following reasons: a. In the past four years the amount of loss of precious metal was never claimed in excess of ₹ 15,00,000/-. During the year the assessee has claimed the loss of precious metal on account of replenishment of metals corroded to the extent of ₹ 1 .92 crores. b. As discussed above, the assessee has purchased precious metals to the extent of ₹ 1,45,75,945/-. The assessee company and M/s. Schott AG have entered into an agreement of lease of precious metals whereby M/s. Schott AG will provide precious metals to the assessee company on lease and in case of any loss on precious metal the assessee company will repay the loss. In this case, the assessee has purchased precious metal sheets amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m cement mortar finishing with cement slurry on floor 1669.50 sq.mt 11 Making 25 mm x :25 mm groove in RCC Tremix Floor 150 R.mt. 12 Hire charges of electric breaker 195.30 hrs 8. The assessee was asked as to why the expenses in respect of repairs to existing road be treated as capital expenses as the nature of the expenses incurred had an enduring benefit to the assessee. In response assessee filed the detailed submission dated 19.02.2015, which is reproduce below:- That the company has made payment to MIs. Shivanjali Projects amounting to Ps. 15,94,003 during the year under consideration for undertaking repairs of damaged sections/portions of road within factory premises and that the same included repairs of damaged sections of existing roads as well as preventive maintenance of roads and also involved supply of gravel/undertaking of gravelling activities on the road. Sample copies of the invoices for the payments made to Ws Shivanjali Projects have been submitted vide letter dated 29.1.2015. In respect of payment mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attention to the decisions of jurisdictional Hon'ble Bombay High Court wherein it was held that the expenditure incurred on repairs of road P' within factory premises constitutes revenue expenditure. The assessee relied on the judgement of Hon'ble High Court in the cases of CIT v/s Chamauz Ltd (74 Taxman 201) and the case of Bharat Forge Co. Ltd v/s CIT (240 ITR 654). 9. After Considering the submissions of the assessee, AO rejected the contention of the assessee by making following observation: The assessee had not carried out repairs to the road at its factory but it is a case of complete construction of new road right from dismanteling the existing road, excavation of the entire road up to a depth of 1.5 mts (i.e 5.0 feet), and filling the excavated area by soil, placing a layer of Plain Cement Concrete, constructing with brick work upto plinth level, giving contract for supplying and fixing the paver blocks and laying the top layer with RCC. Thus the entire work of laying of the road was carried out right from dismantling of existing road, excavation of the foundation up to depth of 1.5 mts and till fixing the to top RCC surface alongwith brickwork upt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred for the same cannot be considered as capital in nature. The assessee places reliance in case of CIT v. Saravana Spinning Mills Ltd. (293 ITR 201) (SC); Ballimal Naval Kishore v. CIT (225 ITR 414) (SC); New Shorrock Spg Mfg Co. Ltd. v. CIT (30 ITR 338) (Born HC) and others (please refer the point no. 5.5 of appendix II of the objections filed before Your Honour) Rebuttal of Assessing Officer's observations while disallowing assessee's claim for deduction under section 31 of the Act Observation - The expenses incurred are one-time expenses resulting in enduring benefit to the assessee Rebuttal - The assessee contends that expenditure incurred for replenishment of loss of precious metal is incurred every year for the normal wear and tear day to day maintenance of the specialised tools used to manufacture the glass products of the Assessee. The assessee has incurred these expenses only to maintain and to bring back the original state of the specialised equipment and by incurring these costs the assessee does not bring a new asset I equipment into existence. Observation - The expense incurred in the year under consideration is abnormal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,768 13,092 17,740 b) Further the details of loss on precious metal is tabulated below: AssessmentYear Amount(in Rs.) 2012-13 97,08,018 2013-14 79,71,202 2014-15 1,18,05,588 c) There were abnormal circumstances such as leakages in the feeder (3 instances) which resulted in frequent replacement of feeder/ nozzle. Without prejudice, the assessee contends that mere increase in the quantum of loss on precious metals in a current year cannot be the basis for concluding that the aforesaid expenses results in enduring benefit to the assessee as laid down by the Hon'ble Supreme Court in case of M.K.Bros (P) Ltd. V. CIT (86 hR 38), Travancore Sugars and Chemicals v. CIT (62 ITR 566), Gannon Norton Medical Diamond Dies Ltd. V. CIT (163 ITR 807). (ii) Deduction under Section 37 of the Act: The Assessee had made the payment to Ravindra Heraeus for acquiring precious metals for replenishing the loss in the precious metals used in the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Girdhari Dass Sons (105 ITR 339) (All HC) wherein the claim of expenditure incurred on leased/ rented asset has been allowed as deduction under section 37 of the Act. Without prejudice to the above claim under section 31/37, if the aforesaid expense is held to be capital in nature then assessee prays that Assessing Officer be directed to grant depreciation thereon under section 32 of the Act. With regard to expenses incurred on repair of roads, assessee submitted as below: 6.2 Assessee's contention: In this connection, the assessee submits that the repair activity involved pre- monsoon preventive maintenance, RCC work, FCC work, supplying gravel, gravelling, reinforcing RCC work etc. These activities were essential for restoring the roads to their original operating condition and did not result into construction of new roads. The assessee reiterates that the expenditure on repairs has been undertaken for smooth conduct of the business i.e, for the purpose of commercial expediency. Neither any new asset is created nor is any advantage of enduring nature accrued as a result of the repairs undertaken during the year under consideration. Therefore the exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Appellant prays that the Assessing Officer be directed to allow depreciation on the loss incurred on precious metal of ₹ 1,45,75,945. Ground 3: 3.1 On the facts and in the circumstances of the case and in law, the Hon'ble DRP/Assessing Officer has erred in disallowing the expenses incurred on repair of road of ₹ 31,62,765 on the ground that it resulted in construction of new road and is therefore capital in nature. The Appellant prays that the Assessing Officer be directed to delete the aforesaid disallowance. 3.2 Without prejudice to the ground no. 4.1 above, on the facts and in the circumstances of the case and in law, the Hon'ble DRP/Assessing Officer erred in not granting depreciation on the road repair expenses of ₹ 31,62,765, held to be capital in nature. The Appellant prays that the Assessing Officer be directed to allow depreciation on the road repair expenses of ₹ 31,62,765. Ground 4 : 4.1 On the facts and in the circumstances of the case and in law, the Assessing Officer has erred in not allowing consequential depreciation in respect of furnace repair expenses disallowed in earlier assessment years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hand, learned DR brought to our notice lease agreement entered by the assessee vide with its parent company and he submitted that assessee agreed to reimburse the loss incurred in utilisation of precious metals and he brought to our notice page 9 of DRP order. He supported the findings of the assessing officer that assessee has quantified the loss of precious metals and reimbursed the same to its parent company. The loss is already quantified and whatever purchases of precious metals made by the assessee are only purchases and not refurbishment of any feeders or nozzles. Accordingly, he supported the findings of assessing officer. With regard to ground No. 3, he relied on the orders of DRP and submitted that it clearly indicates that assessee has constructed/laid the completely New Road and not regular repairs carried on by the assessee. 15. In rejoinder, Ld AR submitted that DRP has observed that it is dismantling i.e., repair of the existing road and it is not in capital nature. 16. Considered the rival submissions and material on record. With regard to Ground no 2, we notice that assessee is in the business of manufacturing glass tubes and in the manufacturing, the melt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bt assessee has not claimed loss on precious metals in the previous assessment years however we notice that assessee has incurred huge losses during this year considering the fact that the capacity is increased and due to abnormal circumstances, it has to replace feeder/nozzles in order to carry out the production. There is no doubt that assessee has entered into lease agreement with its parent company for utilisation of their specialised machineries and reimburse the actual loss due to wear and tear. During this assessment year assessee has already quantified and reimburse the same. During this year as submitted by the assessee due to abnormal circumstances assessee has to replace feeder/nozzles due to frequent leakages in the feeder. These are all abnormal and special circumstances in which utilisation of metal has increased abnormally during this assessment year when compared to previous assessment year, however when we compare the loss in the subsequent assessment year, it does not look abnormal. We do not have any record of subsequent assessment year to appreciate the loss incurred by the assessee. Considering the abnormal situation existed during this year, in our considered ..... X X X X Extracts X X X X X X X X Extracts X X X X
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