Replacement of machinery parts is revenue expenditure
Facts and Issues of the case
The assessee company is engaged in manufacturing of steel products of MS Angel, MS Channel and MS Beam. During the course of assessment, the AO noticed that the assessee had debited expenses amounting to Rs. 50, 97,107/- as expenses on account of purchase of Rolling Mill Rolls and claimed the same as revenue expenditure.
The AO issued show cause notice, requiring the assessee to explain why the claim of expenditure on account of purchase of rolls should not be disallowed as revenue expenditure as the use of metal rolls in the rolling mill/steel industries is of enduring benefit and accordingly, higher rate of depreciation @80% has been specified in the Act.
Before the AO, the assessee submitted that the assessee had purchased Metal Rolls which are used as consumables in the process of production and are shown under the head “Repairs and Maintenance”. The assessee submitted that there is no increase in capacity of production, but it was only replacement of worn-out parts of the machine.
The Assessing Officer however rejected the assessee’s contention and held that the assessee is eligible to claim depreciation on the rolling mills @80% and assessee is not eligible to claim deduction thereof as revenue expenditure.
Observations by the Court
The Court is of the considered view that the assessee in the instant set of facts is eligible to claim deduction of expenditure on purchase of Rolling Mill Rolls as revenue expenditure. The only reason why the claim of a revenue expenditure of the assessee was sought to be disallowed was that since the Income Tax Act specified rate of 80% for claim of depreciation in respect of the above assets, the assessee was not eligible to claim the same as revenue expenditure.
We note that in the instant set of facts, the revenue has not been able to independently bring anything on record to substantiate that any enduring benefit accrued to the assessee by way of incurring this expenditure on purchase of Rolling Mill Rolls. Accordingly, in our considered view, in the instant set of facts assessee is eligible to claim deduction of expenses as revenue expenditure.
The replacement of parts of existing machinery in the course of their working is revenue expenditure.Ambica-Alloys-Steel-India-Ltd.-Vs-Dy.-CIT-ITAT-Ahmedabad