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TMI Blog1982 (9) TMI 181X X X X Extracts X X X X X X X X Extracts X X X X ..... d packaging to make the threatre air-tight. The said air-conditioning plant was commissioned on 13th June, 1973. However, the air-conditioning plant did not give the desired effect of cooling temperature. In July, 1973 it came to light that some leakage was suspected and to find out that leakage it was necessary to open the panelling and ducting as well as the pipeline. In fact the air-conditioning plant (equipment) was used for about a month or so and then it was found that the above-mentioned defect took place, i.e., air-conditioning equipment did not give the desired cooling temperature. The assessee in that context incurred expenditure of Rs. 49,924. It was claimed by the assessee as repairs to the plant. However, the ITO was of the view that the plant cannot said to have been erected until and unless the ancillary work carried out by the assessee was part of installation and since the repairs were carried out by the assessee within a very short time the expenditure incurred by the assessee was of the nature of capital and not revenue expenses. It may be stated that the china clay duct lines which were initially installed had been replaced by the assessee by metal pipelines. Si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is of revenue nature. It is in fact carrying on the repairs and it was wholly and exclusively meant for the purpose of business of the assessee. Shri Bhide relied on the judgment reported in Nathmal Bankatlal Parikh and Company vs. CIT (1980) 15 CTR (AP) 216: (1980) 122 ITR 168 (AP) (FB). Shri Bhide relied on the meaning of the word 'repair' as given by the Andhra Pradesh High Court. He further stated that the observation of the ITO that ancillary work was not completed till June, 1973 is nothing but incorrect observation and is not borne out by the facts of the case and as such the same may be expunged. It was stated so before the AAC. It was urged that the expenditure incurred by the assesee should be treated as revenue expenditure. 7. Regarding the ground of disallowance of Rs. 1,756, which was not adjudicated by the AAC, Shri Bhide stated that the assessee invites persons who are concerned with the assessee's business in exhibiting firms. It was stated that in ITA No. 901/PN/76-77 for the asst. yr. 1973-74 such a claim was made by the assessee and it was held in favour of the assessee by allowing it. It was further clarified that the expenditure incurred by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery. According to Shri Sathe, after making the necessary change or repairs the desired effect was obtained and then it can be said that the air-conditioning did give the desire effect only in the month of July, 1973 and therefore the expenditure incurred by the assessee, considering the facts of the case, could only lead to inference that it added to the cost of the plant. Shri Sathe for that purpose relied on Challapalli Sugars Ltd. vs. CIT 1974 CTR (SC) 309: (1975) 98 ITR 167 (SC) from which he read out the following: "As the expression "actual cost" has not been defined, it should be constructed in the sense which no commercial man would misunderstand. For this purpose, it would be necessary to ascertain the connotation of the expression in accordance with the normal rules of accountancy prevailing in commerce and industry. The accepted accountancy rule for determining cost of fixed assets is to include all expenditure necessary to bring such assets into existence and to put them in working condition". According to Shri Sathe, the amount of Rs. 49,924 was expended by the assessee to put the air-conditioning equipment in working condition and, therefore, it is a part of actual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out that the assessment order for asst. yr. 1974-75 was made on 28th Sept., 1976 which was under s. 143(3) whereas the assessment order for asst. yr. 1975-76 was made on 31st March, 1978. It was stated by Shri Bhide that the expenditure was not incurred before the use of the air-conditioning equipment but only after the use as it is clear from the fact that the depreciation was allowed. 11. Shri Bhide stated that (1974) CTR (SC) 309: (1975) 98 ITR 167 (SC) : (1982) 136 ITR 203 (Del) and (1982) 133 ITR 884 (Guj) are distinguishable on facts and their ratio cannot be applied to the facts of the case in hand. 12. I have heared the rival submissions and gone through the orders of the authorities below. Since facts are mentioned earlier, they need not be repeated. One thing is certain that when the air-condition equipment was fitted and was actually put into use it was found that the said machinery did not give desired air-conditioning effect and, therefore, in July, 1973 the assessee suspected that there was some leakage and he repaired the same to bring the temperature down to 75 C. The assessee was obliged to open the equipment and find out the defect and it was found that the ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the machineries concerned were buses and not the petrol engines that were replaced. The replacement of worn out parts of a machinery does not by itself bring a new asset into existence. The fact that an old part of machinery was replaced by a new part did not mean that a new asset has been brought into existence. The High Court further held that the replacement of engine was only a current repair of the bus. In (1980) 15 CTR (AP) 216 : (1980) 122 ITR 168 (AP) (FB), the case of the assessee was the assessee-firm, carrying on business in the manufacture and sale of beedies, incurred an expenditure on account of replacement of an old diesel engine by a new one in the motor van used and kept for its own business and it claimed that the assessee was entitled to deduction of the same as revenue expenditure. The claim was rejected by the Department and also by the Tribunal. The matter was referred to the High Court and the High Court found that there were conflicting judgment and, therefore, the matter was referred to the Full Bench and it was held that the replacement of an old engine by a new one was one with a view to preserve and maintain the asset in existence and as no enduring ..... X X X X Extracts X X X X X X X X Extracts X X X X
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