9911796707
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Issues:
Assessment of consumable stores expenditure as revenue or capital expenditure, allowance of depreciation, investment allowance, and relief granted by CIT(A). Analysis: The case involved appeals by the assessee and the Revenue against the CIT(A)'s order for the assessment year 1983-84. The primary dispute was regarding the addition of Rs. 1 lakh out of the total addition of Rs. 1,96,558 made by the ITO as consumable stores expenditure. The assessee argued that the entire amount should be allowed as it represents the purchase price of consumable stores fully consumed during production. Alternatively, if treated as capital expenditure, depreciation and investment allowance should be granted. The Department contended that the expenditure was rightly treated as capital expenditure by the ITO, and the relief granted by CIT(A) was erroneous. The dispute centered around the nature of the expenditure and its treatment for tax purposes. The assessee, a firm engaged in manufacturing acids and chemicals, highlighted that the M.S. vessels and tanks purchased were essential for the manufacturing process, with a short lifespan due to constant exposure to corrosive chemicals. The assessee argued that the expenditure on replacement of these items should be considered revenue expenditure, supported by the short life span and necessity of replacement. The Departmental Representative, however, asserted that the items were plant and machinery, subject to depreciation, and the relief granted by CIT(A) was unwarranted. The conflicting views revolved around whether the expenditure was revenue or capital in nature. The Tribunal carefully considered the submissions and previous assessments. It noted that the life of M.S. vessels and tanks was short, justifying the replacement expenditure as revenue in nature. The assessee's consistent treatment of such purchases as revenue expenditure in its accounting supported this view. Additionally, the nature of the business and the items' short lifespan indicated that the expenditure was consumable and fully deductible. However, the Tribunal acknowledged the potential scrap value of the replaced items, estimating it at 10%, leading to a revised deductible amount of Rs. 1,76,902. Consequently, the depreciation allowed by the ITO on the capital expenditure was withdrawn, and the disallowance was restricted to Rs. 19,656. In conclusion, the Tribunal partially allowed the assessee's appeal, restricting the disallowance to Rs. 19,656, while dismissing the Revenue's appeal. The judgment clarified the treatment of expenditure on consumable stores, emphasizing the deductibility based on the nature of the expenditure and its impact on the business operations.
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