TMI Blog2022 (4) TMI 320X X X X Extracts X X X X X X X X Extracts X X X X ..... nery functional and efficient. We allow claim of the assessee to treat the impugned expenditure as revenue expenditure. Disallowance of foreign travelling expenses incurred by the Directors of the company to China, Germany and other countries -HELD THAT:- The factum visit to China and Germany, and the nature of the business engaged by the assessee have not been disputed by the Revenue. Assessee has submitted a list of parties to whom the business has business relation in China and Germany, Greece, Span, Belgium Italy, Japan etc. were furnished. Details of tickets, visa, bills etc. were also furnished to support its case about the genuineness and necessity of undertaking such foreign trips. were also furnished. Revenue authorities have not brought anything on record to show that either details provided by the assessee were bogus or the claim of the assessee that it has imported material from other countries for its production line was found to be incorrect. Therefore, having regard to entire factual scenario and the nature of business assessee s business i.e. being pharmaceutical company, we are of the view that impugned foreign travel expenses incurred by the assessee are genu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance of notice under section 143(2) of the Income Tax Act, 1961 ( the Act for short) which was duly served upon the assessee. During the assessment proceedings, the ld.AO noticed that assessee has debited an amount of ₹ 75,53,855/- under the head Repairs and Maintenance and this account was further divided into sub-heads viz. Repairs Maintenance to Plant Machinery and Repairs to Building etc. The ld.AO doubted entries in respect of purchase of some items, which were in the nature of plant machinery. Accordingly, the ld.AO asked the assessee to produce bills/vouchers of the expenses shown as repairs maintenance of plant machinery. After examination of bills, vouchers, etc. the ld.AO construed that the expenditure incurred on purchase of the items were not so small to categorize the same as repairing items. In the impugned assessment order, the ld.AO noticed some of the expenditure aggregating to ₹ 9,11,434/- incurred for purchase of items, were in the nature of capital, and details of which are given in page no.9 of the assessment order in tabular form, which reads as under: .......,.. 1. On perusal of Bills/invoice in respect of items shown in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otal income of the assessee. 6. Aggrieved with the order of the AO, the assessee went in appeal before the ld.CIT(A). The contentions of the assessee before the ld.CIT(A) were that the sole criteria for treating the impugned expenditure as that of capital in nature by the AO was that of their cost, and the AO totally disregarded business exigencies and nature of business carried out by the assessee. It was submitted that since the assessee is a chemical company, plant machineries are prone to corrosion. All the items purchased are to be fitted to the main plant machinery to make the existing machines to work as usual, flawless and efficiently, and therefore, they are not separate and independent machineries. So far as bill related to purchase of agitator was concerned, the same was required to be fitted in the reactor and not as standalone equipment in itself. The agitator is fitted inside the reactor for mixing the products by rotating in the reactor. It was further pleaded that the equipment used by the assessee-company being fragile was more prone to damage and corrosion, and therefore required repairing and replacement as and when necessary, which were of recurring natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pers and supporting material filed by the assessee before us in paper book. We find that the ld.CIT(A) while partly allowing the claim of the assessee, has observed that items like agitators, condenser, PP Plates and fabrication of structure with a manual closing, and injection pallets used in factory stores for stacking purposes are capital assets, and therefore, their costs needed to be capitalized. However, cost of filter plates used in standard filter press was in the nature of repairs to the plant machinery, and therefore, they are revenue in nature. This finding of the ld.CIT(A) was not based on some scientific or technical examination, rather based on some general consideration. On perusal of the material placed by the assessee before us, it indicates these are parts which require occasional replacement for smooth and efficient operation of main machineries. By incurring expenditure for purchase of such items, no new separate and distinct asset came into existence, and that there is no replacement of existing machinery as a whole so to consider the same to capital expenditure. It is useful to refer the decision of the co-ordinate Benches of ITAT, Hyderabad in the case of D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of capital. Therefore, keeping in view overall nature of items purchased by the assessee, we are of the considered view that whatever expenditure incurred for purchasing of these items were the business expenditure, and wholly and exclusively incurred for running day-to-day operational necessity in order to keep the entire plant machinery functional and efficient. We allow claim of the assessee to treat the impugned expenditure as revenue expenditure. 11. On the second issue, viz. foreign travelling expenditure incurred by the Directors of the company to China, Germany and other countries are concerned, these visits were not doubted by the lower authorities. Visit to these countries were undertaken by the Directors for attending convention on pharmaceutical ingredient (CPHI) which was in line with the assessee s business. The assessee has placed on record a detailed note on foreign travelling vide page no.25 to 29 of the paper book. It was clarified by the assessee that the assessee purchased material from China and therefore it required to visit this country. Visit to the Germany was for exploring new business opportunity. Simply because trip has not materialized or yielded ..... X X X X Extracts X X X X X X X X Extracts X X X X
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