Replacing machinery part is revenue exp. if there was no increase in production capacity after such replacement

Jaya Hind Industries Ltd. v. DCIT – [2021] 124 taxmann.com 265 (Pune – Trib.)

 

Short Overview of the Case:

 

Assessee was engaged in the business of manufacturing of pressure and gravity die casting, H.T. coils etc.

 

Assessee incurred expenditure on replacement of machinery i.e. Gripper which was a part of high pressure die casting machines.

 

Said expenditure was claimed as deduction under Section 37.

 

During assessment proceedings, Assessing Officer (AO) disallowed asses see’s claim by treating said as capital expenditure.

 

CIT(A) upheld the order passed by AO by holding that it was a case of substitution of old asset by new asset.

 

Said expenditure did not fall within the meaning of current repairs and maintenance as defined under Section 31.

 

Assessee contended that the expenditure was incurred on replacement of Gripper which was a part of machines.

 

There was no increase in productivity or capacity on account of incurring this expenditure.

 

It was also submitted that this part could not be a machine itself i.e. it cannot perform any function independently.

 

On appeal, Pune ITAT held assessee claimed deduction under Section 37 and not under Section 31.

 

Therefore, the test to be applied is what was replaced was only a part and the necessity of replacement had arisen on account of the part become old.

 

There was no increase in productivity or capacity after the replacement.

 

This machine could not work independently and deliver the different output.

 

Thus, the expenditure incurred on the replacement of Gripper could be allowed as deduction. Accordingly, the orders passed by both AO and CIT(A) was set aside.