Commissioner Of Income Tax,Kolkata-1, Kolkata v. M/S. Jindal India Limited

OD-5 ITA/95/2011 IA No.GA/1/2011 (Old No.GA/354/2011) IN THE HIGH COURT AT CALCUTTA Special Jurisdiction (Income Tax)ORIGINAL SIDE COMMISSIONER OF INCOME TAX,KOLKATA-1, KOLKATA -Versus- M/S. JINDAL INDIA LIMITED BEFORE :THE HON’BLE JUSTICE T.S. SIVAGNANAMAndTHE HON’BLE JUSTICE HIRANMAY BHATTACHARYYADate : 16[th] March, 2023 Appearance :Mr. Smarajit Roychowdhury, Adv....for the appellant. Mr. J. P. Khaitan, Sr. Adv.Mr. Sanjoy Bhowmick, Adv.Ms. Swapna Das, Adv....for the respondent. The Court : This appeal filed by the revenue underSection 260A of the Income Tax Act, 1961 (the ‘Act’ forbrevity) is directed against the order dated 30[th] November,2010 passed by the Income Tax Appellate Tribunal, “A” Bench,Kolkata (the Tribunal) in ITA No.368 & 369/Kol/2010 years 2005-06 and 2006-07. The revenue has raised the following substantial questions of law for consideration: (i)Whether the learned Tribunal below committedsubstantial error of law in allowing excessclaim of expenses amounting toRs.1,35,48,466/- for the assessment year 2005-06 and Rs.1,18,50,085/- for the assessmentyear 2006-07 relating to purchase of steelrolls by treating the same as revenueexpenditure ?substantial error of law in allowing excessclaim of expenses amounting toRs.1,35,48,466/- for the assessment year 2005-06 and Rs.1,18,50,085/- for the assessmentyear 2006-07 relating to purchase of steelrolls by treating the same as revenueexpenditure ?(ii)Whether the learned Tribunal below committedsubstantial error of law in deleting theaddition of Rs.5,24,80,600/- for theassessment year 2005-06 and Rs.18,32,288/- forassessment year 2006-07 as ‘deemed dividend’by misinterpreting the provisions contained inSection 2(18)(b)(B)(c) and Section 2(22)(e) ofthe Income Tax Act ?substantial error of law in deleting theaddition of Rs.5,24,80,600/- for theassessment year 2005-06 and Rs.18,32,288/- forassessment year 2006-07 as ‘deemed dividend’by misinterpreting the provisions contained inSection 2(18)(b)(B)(c) and Section 2(22)(e) ofthe Income Tax Act ? We have heard Mr. Smarajit Roychowdhury, learnedstanding counsel appearing for the appellant/revenue and Mr. J.P. Khaitan, learner Senior Counsel assisted by Mr. SanjoyBhowmick and Ms. Swapna Das, learned Advocates for therespondent/assessee.It is not in dispute that the tax effect for theassessment year 2006-07 is below the threshold limit of Rs.1crore. Therefore, the revenue cannot pursue the appeal and theabove questions of law which have been admitted forconsideration are being decided for the assessment year 2005-06alone. The first issue is whether the Tribunal was right inaffirming the order passed by the Commissioner of Income Tax(Appeals) (CIT(A) treating the purchase of steel rolls for there-rolling mills by treating the same as revenue expenditure.The Tribunal had followed the decision of the Chandigarh Benchof the Tribunal in the case of Commissioner of Income Tax vs.Malhotra Industrial Corporation and this order of the Tribunalwas affirmed by the High Court of Punjab and Harayana in itsdecision reported in (2002) 254 ITR 635. The facts of the caseare identical to that of the facts of the case before uswherein the assessee was also a steel rolling mill. Theassessee’s contention was that the rolls are to be replacedfrequently and the expenditure incurred should be revenueexpenditure and cannot be treated as capital expenditure. Onfacts, it was found that the assessee’s business requiresfrequent placement of rolls and the expenditure incurredthereon would certainly fall in the nature of current repairsas the same does not result in creating of capital assets orbenefit of enduring nature. The Tribunal also noted theHarmonised Commodity Description & Coding System whichclassifies that parts covered under the heading rolls and otherparts are rolls of rolling mills. Therefore, rolls are partsof rolling mill. The issue was whether the mere fact that theappendix prescribed the rate of depreciation of rolls prior to 30[th] September, 1991 as 100% and thereafter at 50%, so it to beassumed that the expenditure should be treated as capitalexpenditure. This aspect was also considered in the case ofMalhotra Industrial Corporation taking note of the decision ofthe High Court of Karnataka in the case of Mysore Spun ConcretePipe Pvt. Ltd. reported in (1992) 194 ITR 159. That apart, thedecision of the Hon’ble Supreme Court in the case ofCommissioner of Income Tax vs. Sarvana Spinning Mills P. Ltd.reported in (2007) 293 ITR 201(SC) will be a clear answer tothe issue under consideration. The Hon’ble Supreme Court inthe said decision held as follows:“To give an example, a compressor is animportant part of an air-condition machine. Repair ofthe compressor will come in the connotation of the word“current repairs” in Section 31(i) of the said Actbecause the assessee does not replace the air-conditionmachine. At the highest, he replaces a part of the air-condition machine. So is the case of the picture tubein a television set, when the picture tube is replacedthe television set is not replaced, therefore, suchrepairs alone can come within the connotation of theword “current repairs” in Section 31(i) of the saidAct as it stood at the material time. They areeffected to preserve and maintain the asset viz., air-conditioner or carding machine. Lastly, it cannot besaid that the textile mill constitutes a plant as it isone continuous process of manufacture beginning fromblow room to the winding section. As stated above,different outputs flow from different segments of production like blow room, carding, combing, roving,winding etc. In the case of a textile mill there is noprocess whereby raw material is fed on one end and thefinished product comes out at the other end withoutintervention in between. For example, in the case ofcontinuous casting machine in the steel industry wehave one continuous integrated process under whichscrap (raw material) is put in and what comes out issteel or iron or aluminium. Another example, in thecase of a “pasteurization plant” we have three chambersand ducts. In the first mils is collected, in thesecond it is heated and in the third it is cooled.Duct carries hot and cold water. The raw material israw mils, the end product is the pasteurized milk. Inthe heat chamber there is the heater. In the coolingchamber we have a cooling plant which has a conceptsimilar to air-condition plant. Section 31 in respect of amount expenditure on currentrepairs to machinery, plant or furniture used for thepurposes of business, irrespective of whether theassessee is the owner of the assets or has only usedthem. The expression “current repairs” denotes repairswhich are attended to when the need for them arisesfrom the viewpoint of a businessman. The word “repair”involves renewal. However, the words used in Section31(i) are “current repairs”. The object behind Section31(i) is to preserve and maintain the asset and not tobring in a new asset. In our view, section 31(i)limits the scope of allowability of expenditure asdeduction in respect of repairs made to machinery, plant or furniture by restricting it to the concept of“current repairs”. All repairs are not currentrepairs. Section 37(1) allows claims for expenditurewhich are not of capital nature. However, even section37(1) excludes those items of expenditure whichexpressly fall in sections 30 to 36. The effect is todelimit the scope of allowability of deductions forrepairs to the extent provided for in sections 30 to36. To decide the applicability of section 31(i) thetest has been wrongly applied by the High Court, butwhether the expenditure is “current repairs”. Thebasic test to find out as to what would constitutecurrent repairs is that the expenditure must have beenincurred to “preserved and maintain” an alreadyexisting asset, and the object of the expenditure mustnot be to bring a new asset into existence or to obtaina new advantage.” If the law laid down in the above decision is applied If the law laid down in the above decision is applied to the case, it has to be necessarily held that the expensesincurred for replacement of the steel rolling machine arerevenue expenditure and thus the Tribunal was fully justifiedin dismissing the revenue’s appeal. Thus, we find no ground tointerfere with the order of the Tribunal. With regard to the first issue, the Tribunal has considered the entire factual aspect which was in depth dealtwith by the CIT(A() and the revenue could not controvert thefactual position as was brought on record by the CIT(A).Furthermore, it is seen that the finding of the CIT(A) remained uncontroverted before the Tribunal and also the fact that thefindings were based on documents which were placed forconsideration even before the Assessing Officer. Thus, we findthat the conclusion arrived at by the Tribunal on the secondissue does not call for interference. In the result, the appeal filed by the revenue(ITAT/95/2011) for the assessment year 2005-06 is dismissed andthe substantial questions of law are answered against therevenue.The appeal so far as the assessment year 2006-07 isconcerned, is also dismissed on the ground of low tax effect.Consequently, the connected application (IANo.GA/1/2011) also stands dismissed. (T.S. SIVAGNANAM, J.) (HIRANMAY BHATTACHARYYA, J.)