The Bangalore Bench of the Income Tax Appellate Tribunal (ITAT) has held that replacement of spare parts includes in regular repairs and maintenance shall be treated as revenue expenditure.
The appellant was represented by Shri N.Arjun Raj, CA and the respondent was represented by Shri AR.V. Sreenivasan.
The appeal by the assessee is arising out of the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi in Appeal No.CIT(A), Coimbatore3/10640/2019-20 dated 24.09.2021. The assessment was framed by the Income Tax Officer, Non-Corporate Ward – 4(1), Coimbatore for the assessment year 2017-18 u/s.143(3) of the Income Tax Act, 1961 (‘Act’) vide order dated 21.08.2018.
The assessee,M/s. Angalakshmi Spinning Millengaged in the business of running a spinning mill. The AO noticed that the assessee has replaced the machinery for an amount of Rs.1,06,89,395/- and claimed the same as revenue in nature.
The AO treated expenditure on account of replacement of machinery as capital expenditure and allowed depreciation at the rate of 15%. The AO also disallowed the claim of deduction u/s.80IA of the Act. On appeal, the CIT(A) also confirmed the action of the AO.
It was observed that in the case of Super Spinning Mills Ltd the court considered the replacement of machinery as revenue in nature by holding that the basic test is to find out whether expenditure is incurred to preserve and maintain already existing assets and said expenditure must not be incurred to bring any new asset into existence to obtain a new advantage.
A Coram comprising of Shri Mahavir Singh, Vice President and Shri Manoj Kumar Aggarwal, Accountant Member observed that the assessee has replaced the spare parts which are regular repairs and maintenance because it was a routine replacement of spare parts.
The Tribunal while allowing the appeal of the assessee, allowed the claim of the assessee and reverse the orders of lower authorities.
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