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TMI Blog2012 (12) TMI 572X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. CIT(Appeals) erred in deleting the addition of Rs.6,01,457/- made on account of disallowance of remuneration paid to the Executive Director of the assessee company in excess of the immediately preceding year without any justification." 3. The facts of the case is that assessee-company is engaged in the business of manufacturing of automotive Gaskets, Radiators & CFJS at its unit at Bhaili and Anakhi. The case of the assessee was picked up for 'scrutiny assessment' and assessment u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') was finalized, thereby, the Assessing Officer (AO) made disallowance out of expenditure on repairs and maintenance of plant and machinery, u/s 14A of the Act and disallowance of Director's remuneration. The assessee feeling aggrieved by this order filed appeal before Ld. CIT(A), who after considering the submissions of assessee partly allowed the appeal. 4. Now both the Revenue and assessee has challenged the order of Ld. CIT(A) by way of appeal and CO before us. 5. At the time of hearing none-appeared on behalf of assessee, however, an application dated 28-08-2012 is on record. No reasonable cause is mentioned except tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decisions of the Supreme Court in the cases of Ballimal Naval Kishore v. CIT, 224 ITR 414 and CIT v. Saravana Spinning Mills Pvt. Ltd., 293 ITR 201, the AO made a net addition of Rs.15,86,947/- after allowing depreciation on the items considered capital in nature. 4.1 In appeal, the ld. AR submitted the following chart depicting the nature of expenses incurred along with explanation: Sr. No of AO Amount (Rs) Remarks 1 5 2,42,990 3,18,611 These are purchase of spares for splitting machine. The spares include purchase of band knives. These band knives are used in splitting machine which in turn is used in Gasket manufacturing. Further, these knives are used for proper functioning of the machine. These do not in any way increase the productivity of the machine. These are mainly spares and are replaced as and when required. Due to corrosion the knives are required to be replaced. These are mainly in the nature of replacement of worn out parts. Further, by incurring expenses on spares, there is no question of any enduring benefit accruing on the appellant nor there is question of increasing the productivity. We therefore submit that the addition is require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Courts have held that replacement of parts of a larger machine would not amount to creation of any new asset or incurring of capital expenditure.. Where the manufacturing activity is carried on by machines comprising of various parts, and where one or more of the part is replaced, it would not amount to replacement of the whole. This proposition has been reiterated by the Supreme Court in the case of Saravana Spinning Mills, in the context of a part called "auto leveler" forming part of a carding machine, in the following terms: 'Similarly, in the carding department we have carding machines with autolevelers. If the autoleveler fails, the carding machine becomes nonfunctional. If an autoleveler is to be repaired then that repair would come within the connotation of the word "current repairs" because it is a part of the carding machine. Even if in a given case, replacement of an autoleveler could come within the connotation of the word "current repairs" if the old part is not available in the market. It is a "current repairs" if the old part is not available in the market. It is a "current repairs'" if the old part is not available in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, which required replacement on being worn out. By incurring expenditure on purchase of such items, no new asset came into existence which was capable of producing any saleable item. Accordingly, it is held that expenditure on replacement of such part was revenue in nature. Accordingly, the disallowance of Rs.3,08,481/- is directed to be deleted." From the above we do not find any infirmity into the order passed by Ld. CIT(A) as he has taken into consideration all the aspects of the matter the judgment as relied by the Revenue rendered in the case of Sri Mangagarkarari Mills P. Ltd. (supra) is not applicable on the facts of the present case. The facts in that case were that the assessee was involved in the business of textile industry and the expenditure of Rs.61,28150/- was incurred on replacement of machinery it claimed it as revenue expenditure. The assessee believed that such expenditure was merely expenditure on replacement of spare parts in the spinning mill system and, therefore, amounted to revenue expenditure. In the present case, the assessee is engaged in the business of manufacturing of automotive gaskets, radiators & CFJS at its units. Ld. CIT(A) has noted that item ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Schedule XII of the Companies Act, 1956. Moreover, there is no finding of the AO that the expenditure is excessive or unreasonable having regard to the fair market value of services rendered by the Director of the assessee-company. Section 40A(2)(b) of the Act mandates that where an assessee incurs any expenditure in respect of which payment has been or is to be made to a person referred to in clause (b) of that sub-section and the AO is of the opinion that such expenditure is excessive or is unreasonable having regard to the fair market value of the goods, services or facilities so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as deduction. Ld. CIT(A) relied on the decision of Hon'ble jurisdictional High Court rendered in the case of Voltamp Transformers (P) Ltd. v. CIT (1981) 129 ITR 105 (Guj) and also order of the Hon'ble co-ordinate Bench (TM) in the case of Jagdamba Rollers Flour Mills Ltd. v. ACIT 2007) 117 ITD 260 (Nag) (TM). We do not find any infirmity into the order passed by Ld. CIT(A) as in the present case, the Assessing Officer has made disallowance on the ground that there is steep increase in the remunerat ..... 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