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TMI Blog2015 (7) TMI 164X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure - Held that:- the judicial decision cited by the learned Departmental Representative viz. Sarvanna Spinning Mills P. Ltd. (2007 (8) TMI 16 - SUPREME COURT OF INDIA) does not support the case of Revenue. In the case on hand, the object of the expenditure involved, i.e. towards replacement of tyres and pallets, is not to bring into existence a new asset but only to preserve and maintain an existing asset. We also find that in the cited case, there was a clear finding that the ‘Ring Frame’ by itself constituted an independent machine with an independent function which was replaced by a new ring frame giving enduring benefit. However, in the case on hand, it is nobody’s case that the tyres and pallets constituted an independent machine with independent functions. In this view of the matter, the judicial decision cited by the learned Departmental Representative (supra) has no application to the case of the assessee. We, therefore, concur with the view of the learned CIT(A) that the expenditure incurred for replacement of tyres and pallets does not bring into existence any new assets and are only for preserving and maintaining the trucks and as such qualify for deduction as reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Petitioner : Dr.P.K. Srihari, Addl. CIT (D.R.) For the Respondent : Shri Cherian K Baby, CA. ORDER Per Shri Jason P. Boaz, A.M. : This appeal by Revenue is directed against the order of the Commissioner of Income Tax (Appeals)-II, Bangalore dt.6.12.2013 for Assessment Year 2009-10. 2. The facts of the case, briefly, are as under :- 2.1 The assessee, a company engaged in the business of export of marine products, dealers in frozen foods, rendering cold chain services which includes the running of refrigerated warehouses and refrigerated transportation, etc filed its return of income for Assessment Year 2009-10 on 9.9.2009 declaring NIL income after claiming set off of unabsorbed depreciation. The return was processed under Section 143(1) of the Income Tax Act, 1961 (herein after referred to as 'the Act') and the case was subsequently taken up for scrutiny. The assessment was concluded under Section 143(3) of the Act vide order dt.30.11.2011 wherein the income of the assessee was determined at ₹ 6,20,04,609 in view of various additions/disallowances made. 2.2 Aggrieved by the order of assessment for Assessment Year 2009-10 dt.30.11.2011, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer observed that the assessee has debited an amount of ₹ 46,44,254 as Batta expenses paid to drivers; in addition to the amount of ₹ 84,03,244 incurred towards driver s salaries, incentives and way side expenses. The Assessing Officer disallowed the expenditure on the ground that the assessee did not furnish any supporting documents or evidences for the payments. 5.2 On appeal, the learned CIT(A) considered the submissions made, the remand report submitted by the Assessing Officer and the evidences placed before her and holding that the claim of the assessee is reasonable, allowed the same, thereby deleting the disallowance made by the Assessing Officer. 5.3.1 We have heard and considered the rival contentions of both the learned Departmental Representative for Revenue in support of the ground raised and the learned Authorised Representative for the assessee in support of the impugned order of the learned CIT(A) reiterating the submissions put forth before the learned CIT(A). The assessee, in the case on hand, is in the business of cold chain services, which include the running of refrigerated warehouses as well as refrigerated transportation. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) agreed with the assessee's contention that the replacement of tyres and pallets do not bring into existence new assets of long duration, allowed the assessee's claim and debited the disallowance. 6.3 Before us,the learned Departmental Representative supported the order of the Assessing Officer and assailed the decision of the learned CIT(A) in deleting the disallowance of expenditure incurred on replacement of tyres and pallets. In support of his contention, the learned Departmental Representative placed reliance on the following judicial pronouncements :- (i) Super Spinning Mills Ltd. V ACIT (357 ITR 720 (SC) (ii) CIT V Sarvanna Spinning Mills P. Ltd. (293 ITR 201) (SC) 6.4 Per contra, the learned Authorised Representative for the assessee supported the finding of the learned CIT(A) on this issue in the impugned order and reiterated the contentions made before the authorities below. It was contended that the trucks of the refrigerated division run across the country transporting frozen food items. The tyres of these trucks are required to be replaced after it completes travel of a certain distance and such replacement does not result in the creation of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 31(i). 12. This Court in the case of Ballimal Naval Kishore vs. CIT (1997) 138 CTR (SC) 284 : (1997) 2 SCC 449 approved the test formulated by Chagla C.J. in the case of New Shorrock Spinning Manufacturing Co. Ltd. vs. CIT (1956) 30 ITR 338 (Bom) as to when the expenditure can be said to have been incurred on current repairs. In that case it was observed as follows : The simple test that must be constantly borne in mind is that as a result of the expenditure which is claimed as an expenditure for repairs what is really being done is to preserve and maintain an already existing asset. The object of the expenditure is not to bring a new asset into existence, nor is its object the obtaining of a new or fresh advantage. This can be the only definition of repairs because it is only by reason of this definition of repairs that the expenditure is a revenue expenditure. If the amount spent was for the purpose of bringing into existence a new asset or obtaining a new advantage, then obviously such an expenditure would not be an expenditure of a revenue nature but it would be a capital expenditure, and it is clear that the deduction which the legislature has permitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artmental Representative viz. Sarvanna Spinning Mills P. Ltd. (supra) does not support the case of Revenue. In the case on hand, the object of the expenditure involved, i.e. towards replacement of tyres and pallets, is not to bring into existence a new asset but only to preserve and maintain an existing asset. We also find that in the cited case, there was a clear finding that the Ring Frame by itself constituted an independent machine with an independent function which was replaced by a new ring frame giving enduring benefit. However, in the case on hand, it is nobody s case that the tyres and pallets constituted an independent machine with independent functions. In this view of the matter, the judicial decision cited by the learned Departmental Representative (supra) has no application to the case of the assessee. We, therefore, concur with the view of the learned CIT(A) that the expenditure incurred for replacement of tyres and pallets does not bring into existence any new assets and are only for preserving and maintaining the trucks and as such qualify for deduction as revenue expenditure. Consequently, Ground No.3 raised by Revenue is dismissed. 7. Ground No.4 Prior Pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entory at the end of the year and reconciling the same with the account of the party. It was also submitted that the total volume of business with Baskin Robins is of the order of ₹ 30 Crores per annum and the loss reported is hardly 2% of the value, which is reasonable considering the nature of the product. 7.3.2 We find from the details on record that the assessee has furnished the total stock inventory which is prepared product-wise and location-wise. As the Assessing Officer has not found out any discrepancy in the stock statement, which is for the period relevant to the current year under consideration only, the conclusion of the Assessing Officer that these amounts may relate to prior periods is without any evidence or basis. Further, the difference in stock, which pertains to the current year, has been reconciled between the actual stock with the entries in the Books of Account. In the absence of any evidence to the contrary, it would not be appropriate to disregard the same. In this view of the matter, we concur with the observation of the learned CIT (Appeals) that the assessee's claim under this head is reasonable and agree with her decision to delete the dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the paper book of submissions, namely CIT V Global Exim P. Ltd. 305 ITR 132 (SC) goes against the assessee's contentions. In that case, it was held that the higher rate of depreciation on motor trucks cannot be allowed, unless there was evidence that the assessee was in the business of hiring out motor vehicles. Therefore, it is clear that the business of the user of the motor lorries/trucks, is the real test. 8.3.3 In the case on hand, the assessee is using the motor vehicles for transportation in its own business of refrigerated transporters, and it is not the assessee's case that it is in business of hiring out of motor vehicles. Even in the Memorandum and Articles of Association of the assessee, the business of the assessee is statedly, inter alia, as transportation of goods. Nowhere, therein, is it mentioned that the assessee is in the business of running motor vehicles on hire. If the view of the learned CIT (Appeals) is to be accepted, then any motor vehicle used in any business of the assessee would be eligible for higher depreciation because motor vehicles are always used for transport only. Since Appendix I to the IT Rules, 1962 specifically mentions busin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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