TMI Blog2022 (3) TMI 1333X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance of repair and maintenance charges - assessee claimed the aforesaid expenditure towards repair and maintenance as revenue expenditure - HELD THAT:- We take note of the plea of the assessee that there is no reimbursement of expenses and such expenses are integral part of the execution of the contract as demonstrated. Hence, the expenditure incurred requires to be set off against the revenue income arising from contract as per rudimentary principles of accountancy. The assessee has taken a plea that no new asset is created or no benefit of enduring nature has been derived. We do not see any rebuttal on this score from the revenue. The Assessing Officer has merely proceeded on a hypothesis of such expenditure being capital in nature without showing any justifiable grounds for doing so. The Assessing Officer has capitalized such expenditure without showing any reasonable grounds. On the contrary, we find merit in the conclusion drawn by the CIT(A) holding the same to be revenue expenditure on the face of such tell-tale facts. In the absence of any merits in the plea of the revenue, we decline to interfere with the order of the CIT(A). - Decided in favour of assessee. - I.T. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LS India Ltd. (2011) 335 ITR 292 (Del). It was thus submitted that Assessing Officer has rightly substituted the accelerated depreciation rate from 60% as claimed to a normal depreciation of 15% as eligible to assessee. 3. The ld. counsel for the assessee, on the other hand, pointed out that the assessee is a public limited company engaged, inter alia, in the business of rendering services to mineral oil concerns for drilling operations on charter hire basis by using own oil rigs for the purpose of exploration and extraction of mineral oil. It was submitted that both the conditions for ownership of asset as well as user for the purposes of business as contemplated under Section 32 has been fully satisfied. It was submitted that, in the instant case, the oil rigs used being plant of specific category are owned by the assessee and used in drilling operations for the purpose of exploration and extraction of mineral oil in the field of mineral oil concerns, and therefore, the case of the assessee is fully covered by the decision of HLS India (supra). It was also pointed out that Co-ordinate Bench of Tribunal in Assessment Year 2008-09 in its own case has applied the principles laid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant. 6.7. The dispute is at what rate depreciation would be allowed to the appellant. The appellant has quoted the decision of the Hon'ble High Court of Delhi in this respect in the case of CIT vs. HLS India Ltd. which clearly stated that depreciation of 60% would be given to concerns other than mineral oil concerns which are providing oil rigs on lease. 6.8. I shall now consider the issue as to whether depreciation would be allowed at 60% or 15%. 6.9 As per section 32: 32.(1) In respect of depreciation of-- (ii) know-how, patents, copyrights, trademarks, licenses, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed-] 6.10. Therefore, the assets or the oil rigs are wholly owned by the appellant and are used for the purpose of the business of the appellant which is to give on lease the assets. The fact that the appellant is entitled for depreciation on the oil rigs is also not disputed by the AO. 6.11. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filing of the appeal, though at a delayed stage of the case, against the original order of the ITA T is an act of prudence on the part of the Department. The reason being is that had not there been this appeal against the order dated 10.10.98 as passed by the ITAT, it would have been taken by assessee as acceptance of the approach, as adopted by the ITAT, on the part of the revenue that if the public Oil giants are able to give a technical certificate to the assessee regarding the similarity of the equipments and the nature of operations then the matter would become a subject of technical interpretation of the real world operations of the equipments in question rather a question which is to be determined by way of giving judicial interpretation to the statutory provisions and in case if the certification thing comes in favour of the assessee then the entire genesis of the arguments as build by the revenue in order to push forward its case, would start crumbling on its feet. 45. This takes us to the order of the ITAT dated 10.10.98 to revert the matter back to the table of the AO to re-examine the matter after verification as required under the said order. The arguments, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s provision reads as under: Depreciation. 32. (1)[In respect of depreciation of- (i) buildings, machinery, plant or furniture, being tangible assets; (ii) know-how, patents, copyrights, trademarks, licenses, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed-] [(i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed;] (ii) [in the case of any block of assets, such percentage on the written down value may be prescribed:] 47. Rule 5 of the IT Rules, 1962 provides that the depreciation allowable under s. 32(1)(ii) of the Act in respect of any block of assets shall be calculated at the percentages specified in the II column of the table of rates of depreciation in Appendix I to the Rules, on the written down value of such block of assets as are used for the purpose of the business or pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re of the assessee's equipments nor the character of its user. We, therefore, are of the considered opinion that the assessee's wireline logging and perforation equipments are eligible for a higher depreciation @ 100% under cl (ii) of s. 32(1) of the Act, r/w item III(3)(ix)(b) of the schedule of rates of depreciation in Appendix I to the Income Tax Rules, 49. Having decided the issue in the aforesaid terms, we may take liberty to look into this issue from a different point of view. Depreciation allowance is a kind of tax benefit which is given to the business concerns for promotion of business activities in any particular field of business. In the instant case depreciation is allowable to mineral oil concerns @ 100% on the equipments used below the earth surface. If the same depreciation is not allowed to other business concerns on the ground that the owner of these equipments is not a mineral oil concern but it is just providing an assistance or leasing these equipments to a mineral oil concern then definitely this pother concern' will charge more for these services and consequently the mineral oil concerns will be commercially forced not to outsource wireline lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e owner of these equipments is not a mineral oil concern but it is just providing an assistance or leasing these equipments to a mineral oil concern then definitely this other concern will charge more for these services and consequently the mineral oil concerns will be commercially forced not to outsource wireline logging activities to other companies but to do it themselves . Further, the Special Leave Petition filed by revenue against the decision of the Hon'ble Delhi High Court in case of HLS India Ltd. (Supra) has been dismissed by the Hon'ble Apex Court [SLP No. 2723/2012] and hence the decision has attained finality. The issue in present case is also squarely covered. Hence appeal of the revenue is dismissed. 6. In view of the judgment of Hon'ble Delhi High Court in the case of HLS India (supra) in conjunction with the decision of the Co-ordinate Bench which has endorsed the conclusion drawn by the Ld. CIT(A), we see no reason to interfere. 7. Ground No. 1 of the Revenue's appeal is dismissed. 8. Ground No. 2 concerns disallowance of repair and maintenance charges amounting to ₹ 2,40,72,898/-. The relevant facts concerning the issue are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure has been incurred by the assessee in the past also and also allowed. The examples in this regard are as under:- Asstt. Year Amount of expenses (in Rs.) Sales 2006-07 24,86,057.00 2,90,99,633.00 2007-08 42,41,219.00 3,98,51,062.00 2008-09 44,76,290.00 4,06,23,623.00 7.1 It was further found that incurring of the expenditure did not result any increase in the earning of the assessee. The item were purely on repair and maintenance in nature and were like brackets, bearing, belts, chain, loader, electrical motor rewinding, face plates, gas cutter pipe, nuts and bolts, washers, champs, PVC pipes, pulley, MS plates, wire mesh, welding rods, wooden gatka, ruti, shafts, lever pin etc. A perusal of the maintenance expenditure pertaining to the earlier years show that a full benefit was consumed in that period only because such expenditure was incurred in the subsequent year also and claimed by the assessee year after ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terials, etc. as required for normal operations. In the process, the assessee has generated revenue of ₹ 34.80 crore from such operations. The expenses incurred bore nexus of first degree to perform the contract in ordinary course. It was thus contended that the expenditure incurred towards repairs and maintenance in the course of carrying out the contractual terms are ordinary business expenditure has rightly held by the CIT(A). Such expenditure neither improves capacity of asset nor provides enduring benefit of revenue in nature. It was emphasized that no separate payments was either collected or any sort of reimbursement was made to the assessee by the contractors. A reference was made to several judicial precedents to buttress its plea. 13. We have carefully considered the rival submissions. The assessee-company is engaged in providing plants and machinery, mobile drilling rigs, equipment and other related services to oil and gas industry. The assessee during the year has entered into contract with Jubilant Oil and Gas Pvt. Ltd. On perusal of the terms of the contract, it was observed that while the payment terms are clearly specified and there does not appear to be an ..... 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