Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench consisting of P.M. Jagtap, Vice President and Siddhartha Nautiyal, Judicial Member held that Replacement of parts of Rolling Mill Rolls in course of working is revenue expenditure.
The assessee company,M/s. Ambica Alloys and Steel India Ltd 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 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 andaccordingly, higher rate of depreciation at 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 assessee relied on various case laws in support of his contention that the claim of expenditure as revenue expenditure of the assessee is allowable in the instant set of facts. The Assessing Officer however rejected the assessee’s contention and held that the assessee is eligible to claim depreciation on the rolling mills at 80% and assessee is not eligible to claim deduction thereof as revenue expenditure.In appeal, the assessee reiterated the arguments beforeCIT(A). However, CIT (A) rejected the assessee’s contention and upheld the order of the AO.
The Tribunal observed that “Replacement of parts of an existing machinery in the course of their working will be a revenue expenditure. We are 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.”
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