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TMI Blog2014 (10) TMI 906X X X X Extracts X X X X X X X X Extracts X X X X ..... considering the fact that the assessee itself treated the said expense as pre-operative expenses and it had to be amortized over a number of years for getting enduring benefit for a number of years." 3. Briefly stated facts are that the AO from the details of pre-operative expenses made a disallowance except allowance of 1/5th of expenses by observing as under: "From the details it is seen that the assessee has debited entire expenses of Rs. 61.93 lakh showing the same as preoperative expenses. In absence of details the entire amount is not allowed. However, 1/5th of expenditure is allowed considering the nature of expenses." Aggrieved, assessee preferred appeal before CIT(A), who deleted the disallowance by observing that the assessee has claimed this amount of Rs. 61.93 lacs by debiting under the head deferred revenue expenditure written of and not as preoperative expenses. According to CIT(A), as there was no plant and machinery installed or commissioned during FY 2005-06 relevant to AY 2006-07 and accordingly, there can be no preoperative expenses. He deleted the same by observing as under: "The Assessing Officer has also not called for any explanation or provided any o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, we feel that the CIT(A) has rightly deleted the addition and we confirm the same. This issue of revenue's appeal is dismissed. 5. The next common issue in both the appeals of revenue is as regards to the order of CIT(A) deleting the disallowance made by AO by invoking the provisions of section 40A(3) of the Act in making cash payments of Rs. 94,33,463/- in AY 2006-07 and Rs. 7,00,000/- in AY 2007-08. 6. Briefly stated facts are that in both the years, the AO noted that the assessee has made huge amount of cash payment in violation of provisions of section 40A93) of the Act and admitted that the payment had been segregated in several vouchers of Rs. 20,000/- each. The relevant finding as recorded in AY 2006-07 reads as under: "To show that it has not violated the provision of Sec. 40A(3) the payment has been segregated in several vouchers of Rs. 20000/ each. On analysis of the submission it is revealed that the assessee has maintained limit of cash payment of Rs. 20000/- on single occasion but on a particular day, the number of such occasion exceed 60 time which is impossible and totally absurd in consideration to the period of business hours. The A/R was asked to file explan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tenance at Rs. 526.46 lacs. For this, revenue has raised following ground no.1: "1. That on the facts and circumstances of the case, Ld. CIT(A) erred in law in directing the AO to allow the expenditure of Rs. 526.46 lakh made incurred on account of major repairs and maintenance without appreciating the fact that the assessee company will get the enduring benefit from the said expenditure for a number of year to come." 9. Briefly stated facts are that the AO noticed from the P&L Account that the assessee has debited a sum of Rs. 526.46 lacs under major repairs and maintenance in addition to normal repairs and maintenance of Rs. 319.10. The assessee claimed these expenses as revenue expenditure in the P&L Account but the AO stated that this huge expenses cannot be repair and maintenance but he has not discussed the expenditure factually. But the AO disallowed by observing as under: "The explanation is not at all satisfactory. It is not understood as to how a chartered engineer can certify that certain expenses are revenue or capital expenses in nature for the purpose of income tax. From the details it is clear that those repairs cannot be described as current repair or revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dering toallow depreciation or amortization. I have carefully considered the facts placed before me and find strong substance to allow this expenditure as revenue which is supported by several judgment of High Courts. I therefore direct the AO to allow this expenditure as revenue expenditure." Aggrieved, now revenue is in appeal before us. 10. We have heard rival submissions and gone through facts and circumstances of the case. The assessee has filed complete details of repair and maintenance expenses and also a certificate from Chartered Engineer dated 15.12.2008, who has certified that the expenses under the head repairs and maintenance during the year ending 31.03.2007 has been procurement of worn out components and certain capital assets or group of assets. According to him, these worn out parts are in the context of capital asset where these are used and also form a small fraction of the total value of corresponding capital asset in each case. He certified the expenses and summarized section wise as under: "1. Lime Stone Captive Quarry Rs. 27.15 lacs 2. Crushing Section Rs. 45.53 " 3. Raw Mill Sections Rs. 224.90 " 4. Kiln Rs. 79.89 " 5. Coal Mill Rs. 25.10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eding 'repaírs' appears to have been used by the legislature with a veiw to restricting the allowance to expenditure incurred for preservatíon and maìntenance thereof in its current state in contradiction to that incurred on any improvement or an addition thereto [CIT v. Chowgule & Co. Pvt. Ltd., (1995) 125 CTR (Bom) 442, 448 = (1995) 214 ITR 523 (Bom) In the facts of that case, the Trìbunal, on ìnvestigation of the nature of the repairs undertaken by the assessee, recorded a categorical finding of fact that it did not result in emergence of a new ship but amounted, in substance, to current repairs to the existing ship. The fact that old parts of the ship were replaced by new parts was not relevant for determining whether the expenditure was on 'current repaírs' or not. Therefore, the expenditure claimed by the assessee amounted to 'current repaìrs', allowable as a deduction under section 31." Hon'ble Supreme Court in the case of CIT v. Saravana Spinning Mills (P) Ltd. (2007) 7 SCC 298 has held unambiguously that "each machine in a segment of a textile mill has an independent role to play in the mill and the output of each division i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . A copy of Annual Accounts 2006-07 was also filed with me which reveals that this amount indeed was nothing but a carried forward figure and no new provision was made in the accounts during the year by the appellant which may attract disallowance. Therefore the addition of Rs. 70 lac made under this head is deleted." Aggrieved, now revenue is in appeal before us. 13. We have heard rival submissions and gone through facts and circumstances of the case. Before us Ld. counsel for the assessee drew our attention to page 55 of assessee's paper book, which is Schedule 7 of the Balance Sheet, is described inventories and from the store there is a reduction of provision of non-moving store at Rs. 70 lacs. Ld. counsel for the assessee drew our attention to earlier year's Balance Sheet i.e. as on 31.03.2006 the similar entry was there. Ld. counsel for the assessee stated that this entry is moving from AY 2003-04 and nothing new has provided in the current year. We find from the records that the plea of the assessee is quite reasonable for the reason that this entry being carried forward from AY 2003-04 and nothing new is provided in this year. Once this is the position, the addition on a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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