Delhi H.C : when the Revenue filed an appeal before the CIT(A), a decision was taken in favour of the assessee in respect of some issues and other issues were decided against it by the CIT(A)

High Court Of Delhi

CIT vs. Bharat Aluminium Co. Ltd.

Sections 31, 32, 154, 260A

Asst. Year 1994-95

Madan B. Lokur & V.B. Gupta, JJ.

IT Appeal No. 1018 of 2005

15th January, 2007

Counsel Appeared

Mrs. P.L. Bansal, for the Appellant : M.S. Syali with Soubhagya Agarwal & Aseem Mawar, for the Respondent

ORDER

By the court :

The Revenue is aggrieved by an order dt. 15th March, 2005 passed by the Tribunal, Delhi Bench ‘C’ in ITA No. 3120/Del/1999 and ITA No. 5039/Del/1999 relevant for the asst. yr. 1994-95 and CO No. 101/Del/2002 (in ITA No. 5039/ Del/1999).

Learned counsel for the Revenue raised four issues before us. In our opinion, none of these raise a substantial question of law and, therefore, the appeal deserves to be dismissed.

The assessee carries on business of mining and production of aluminium. The assessee uses aluminium smelters which are in operation for 24 hours. It has, as a part of its assets, 408 cells in circuit out of which almost 400 cells are in operation and the balance 8 cells are usually under repair. It has been mentioned in the order of the CIT(A) relevant for the asst. yr. 2000-01 (ITA No. 1593/2006) that to avoid disruption in production at one time, it is ensured that the cells are taken out for repairs at regular intervals. Each year a number of cells are taken out for repairs at regular intervals depending upon the behaviour of the cells, requirement of metal purity and other related matters. This also enables utilization of manpower in a uniform manner throughout the year and avoids disruption in production. The expenditure incurred for relining of smelter pots to restore them to their original production levels are called pot relining expenses.

According to the assessee, the relining of the pots is done only to restore the pots to their original condition but according to learned counsel for the Revenue, the pots were being replaced and, therefore, the expenditure incurred by the assessee was not in the nature of ‘current repairs’ but was capital expenditure. Sec. 31 of the IT Act, 1961 reads as follows :

“In respect of repairs and insurance of machinery, plant or furniture used for the purposes of the business or profession, the following deductions shall be allowed— (i) the amount paid on account of current repairs thereto; (ii) the amount of any premium paid in respect of insurance against risk of damage or destruction thereof.

Explanation.—For the removal of doubts, it is hereby declared that the amount paid on account of current repairs shall not include any expenditure in the nature of capital expenditure.”

It may be noted that the Explanation was inserted w.e.f. 1st April, 2004 and is, therefore, not relevant for the decision of the present appeal.

6. The expression ‘current repairs’ was considered by the Supreme Court in Ballimal Naval Kishore & Anr. vs. CIT (1997) 138 CTR (SC) 284 : (1997) 224 ITR 414 (SC). In that case, the Supreme Court was considering the expression ‘current repairs’ as defined in s. 10(2)(v) of the Indian IT Act, 1922. There is no corresponding definition of ‘current repairs’ under the IT Act, 1961.

7. While considering the expression ‘current repairs’, the Supreme Court approved the reasoning given by the Bombay High Court in New Shorrock Spinning & Manufacturing Co. Ltd. vs. CIT (1956) 30 ITR 338 (Bom). The view of the Supreme Court was that ‘current repairs’ are those which are undertaken for the purpose of preserving or maintaining an already existing asset and that such repair does not bring a new asset into existence or does not give assessee a new or different advantage. The Bombay High Court had dissented from the view taken by the Allahabad High Court in Ramkishan Sunderlal vs. CIT (1951) 19 ITR 324 (All), but the Supreme Court preferred to accept the view taken by the Bombay High Court.

8. The decision of the Supreme Court was followed by this Court in CIT vs. Volga Restaurant (2001) 170 CTR (Del) 206 : (2002) 253 ITR 405 (Del) and it was held that if an amount is spent for the purpose of bringing into existence a new asset or obtaining a new advantage, then such an expenditure would not be an expenditure of a revenue nature but it would be a capital expenditure.

9. Much earlier, a similar issue had arisen in this Court in Addl. CIT vs. Dyer’s Stone Lime Co. (P) Ltd. (1982) 136 ITR 8 (Del) in which case some expenditure incurred by the assessee for repairs in a brick kiln was held to be an expenditure of a revenue nature. It was also held that this is essentially a question of fact. In Dyer’s Stone Lime Co. (supra), reliance was placed upon CIT vs. Mahalakshmi Textile Mills Ltd. (1967) 66 ITR 710 (SC) and it was observed as follows :

“There are decided cases that the cost of reconstruction of a chimney in a factory, expenses on renovating roofs and flooring expenses, for panelling walls with wood, expenditure for replacing the engine of a bus and the cost incurred by a railway company for reconditioning the engine boilers, etc., are allowable as expenditure on repairs. In the light of these decisions, it is clear that the expenditure in this case, where there has only been a substitution, in a plant maintained by the assessee, of old and worn out parts by new parts, which has not substantially changed the identity of the plant or effected any improvements in its efficiency, is an expenditure on ‘current repairs’ and hence allowable.”

10. We need not go as far as the Division Bench has gone in Dyer’s Stone Lime Co. (supra) because there has been no change of parts in the present case but only relining or reconditioning to take care of wear and tear. Quite clearly, since no new asset or new advantage has come into existence, the expenditure incurred by the assessee is a revenue expenditure only.

11. In view of the above decisions, we do not find that any substantial question of law arises for our consideration on this issue.

12. The second contention of learned counsel for the Revenue was that depreciation had been wrongly allowed in respect of buildings/immovable property in which the assessee did not have legal ownership or title. It is common ground that this issue is no longer res integra in view of the decision of the Supreme Court in Mysore Minerals Ltd. vs. CIT (1999) 156 CTR (SC) 1 : (1999) 239 ITR 775 (SC). Consequently, no substantial question of law arises in respect of this issue also.

13. The third issue raised by learned counsel for the Revenue is that some properties of the assessee were unauthorizedly occupied and were not used for business purposes and, therefore, depreciation could not be claimed on them. Insofar as this issue is concerned, it was not addressed before the Tribunal although it is claimed that it was argued and not considered by the Tribunal. We have not been told whether any application for rectification under s. 254(2) of the Act was filed by the Revenue. If no such application was filed, we cannot go behind the order of the Tribunal.

We, therefore, decline to consider this question. The fourth issue urged by learned counsel for the appellant is that the CIT(A) could not have passed the order that he did under s. 154 of the Act. It transpires that when the Revenue filed an appeal before the CIT(A), a decision was taken in favour of the assessee in respect of some issues and other issues were decided against it by the CIT(A). According to the assessee, it was not served in the matter and, therefore, the CIT(A) ought not to have decided those issues against the assessee ex parte. Accordingly, an application was filed by the assessee under s. 154 of the Act.

The CIT(A) examined the matter and found that the contention of the assessee was well founded and it had not been served in the matter and, therefore, the CIT(A) reheard the matter and passed appropriate orders.

On appeal, the Tribunal was of the view that since service was not effected upon the assessee, it would have been appropriate for the CIT(A) to recall the order passed by him and then render a decision on merits. According to the Tribunal, this is precisely what the CIT(A) had done except that he had captioned the order as having been passed under s. 154 of the Act. The Tribunal was of the view that this was merely a technical error and since the issues were considered on merits after hearing both the parties, the order passed by the CIT(A) did not require any interference.

We do not find any error in the view taken by the Tribunal. Admittedly, the assessee was not served when the CIT(A) took up the matter for consideration and even though the CIT(A) has styled the order as having been passed under s. 154 of the Act, the fact remains that he did take a fresh decision in the matter after hearing both the parties. No substantial question of law arises for consideration on such a technical plea.

The appeal is dismissed.

[Citation : 292 ITR 600]

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