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TMI Blog2023 (6) TMI 524X X X X Extracts X X X X X X X X Extracts X X X X ..... eded to be repaired and part of it replaced so as to maintain its working capability. Assessee had incurred huge expenses to the tune of Rs. 2.68 crores towards repairs maintenance of plant machinery and expenses only to the extent of Rs. 37.50 lakhs have been found to be capital in nature. Not in agreement with the Revenue that expenses were not in the nature of current repairs to be allowed in terms of section 31 of the Act particularly when the assessee had explained that considering the nature of manufacturing done by it, machinery parts corroded frequently warranting their replacement so as to maintain the machineries in working condition, which has not been controverted by the Revenue. And the finding of the Revenue of the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o Rs. 37,50,699/-, treating it as capital expenditure. 4. We have heard both the parties and carefully perused the orders of the authorities below. The assessment order reveals that the assessee had claimed repairs to machinery to the tune of Rs. 2,68,53,153/-. The details of the same were submitted to the AO during the assessment proceedings. On scrutinizing which, he found that certain expenses incurred by the assessee were in the nature of replacement and not repairs. The said expenditure amounted to Rs. 72,79,477/-. The details of the same are reproduced at para-5 of the assessment order. On confronting- the same to the assessee, the assessee pleaded that the plant of the assessee-company was 40 years old and that the assessee was in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Commissioner of Income-tax SC-HC/AAR [1997] 224 ITR 414 (SC)/[1997] 90 TAXMAN 402 (SC)/[1997] 138 CTR 284 (SC) wherein it was held as under: Section 31 of the Income-tax Act, 1961, corresponding to section 10(2)(v) of the Indian Income-tax Act, 1922 - Current repairs - Assessment year 1961- 62 -Assessee, carrying on business of exhibiting films in a theatre spent amount on new machinery, furniture, sanitary fittings and electrical wiring - In addition thereto, a substantial amount was spent on extensive repairs to building structure - Assessee claimed deduction of amount so spent, under section 10(2)(v) - Whether expenditure incurred by assessee Qualified for deduction as 'current repairs' within meaning of section 10(2)(v) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hineries. By no stretch of imagination, could it be said that the said repairs qualified as current repairs . It was a case of total replacement and had to be held as capital in nature. 5.7 In view of above discussions the expenses incurred of Rs. 72,79,4777- is disallowed as it is capital in nature and added back to total income. Penalty proceedings u/s 270A of the Act is initiated separately for under reporting of the income. 5. The assessee carried the matter in appeal before the ld.CIT(A) who upheld the order of the AO partially to the extent of Rs. 37,50,699/-, finding only expenses to this extent to be relating to replacement while remaining, he held, was in the nature of repairs to machinery. Accordingly, the ld.CIT(A) allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... italized. As a result, ground no. 3 is partly allowed. 6. As is evident from the above, the basis with the Revenue authorities for treating the expenses to the tune of Rs. 37,50,699/- as capital in nature, is noting the description that this expenditure was incurred for replacement of machinery part, and consistently, the Revenue authorities have held that since as per the provisions of law contained in section 31 of the Act, dealing with allowability of repairs and maintenance expenditure of machineries, only current repairs are allowed, this replacement expenses are not in the nature of current repairs. We fail to understand how merely on the basis of description of the expenditure, the Revenue authorities have come to such a conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in nature. 7. Considering facts as above, we are not in agreement with the Revenue that expenses to the tune of Rs. 37.50 were not in the nature of current repairs to be allowed in terms of section 31 of the Act particularly when the assessee had explained that considering the nature of manufacturing done by it, machinery parts corroded frequently warranting their replacement so as to maintain the machineries in working condition, which has not been controverted by the Revenue. And the finding of the Revenue of the expenses being capital in nature /noncurrent is based on mere description of the expense as replacement of certain machinery with no facts emanating from the records before us to substantiate the same. 8. In view of the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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