INCOME TAX ACT, 1961

Section 32(1) Section 37(1)

Depreciation - Allowability - Machinery spares -

In assessment years prior to the assessment year under consideration, the assessee company had been following the practice of charging the cost of 'machinery spares' as revenue expenditure in the year of actual consumption. In the year under consideration, it was claimed that pursuant to change in the accounting policy to comply with accounting standards, the assessee capitalised the 'machinery spares'. Accordingly, assessee added back the amount incurred on purchase of 'Machinery spares' under computation of the income and claimed depreciation at the rate of 25% on the machinery spares capitalised. Both the AO as well as the CIT(A) disallowed the claim of depreciation of the assessee on the 'machinery spares'. Assessee contended that if the deduction of depreciation of the machinery spares was not allowed, the assessee may be allowed deduction on the basis of the actual consumption of the machinery spares.Held: Assessee had failed to demonstrate whether the spare parts which are used when a machine malfunctions, had brought into existence a new asset or given enduring benefit to the assessee. In absence of satisfying the requirement for constituting a machinery spare as capital expenditure as laid down in the decisions of the Supreme Court. Expenditure incurred on machinery repairs cannot be allowed as capital expenditure and consequent depreciation claimed also cannot be allowed. Thus, the issue of whether the same were ready for use or actually used is not relevant in the facts of the case. It had been mentioned by the assessee that in assessment year 2002-03 also assessee had been allowed deduction on the basis of the actual consumption of the machinery spares. This prayer of the assessee was justified. As the machinery spares which have been consumed in repair of fixed asset, satisfy the requirement of section 37(1) and accordingly, assessee was allowed deduction thereon.

Relied:Kedarnath Jute Mfg. Co. Ltd. v. CIT (1971) AIR 2145 : 1972 SCR (1) 277 : (1971) 82 ITR 363 (SC) : 1971 TaxPub(DT) 366 (SC), CIT v. Sri Mangayarkarasi Mills (P) Ltd. (2009) 315 ITR 114 (SC) : 2009 TaxPub(DT) 1917 (SC) and CIT v. Sharvana Spinning Mills (P) Ltd. (2007) 293 ITR 201 (SC) : 2007 TaxPub(DT) 1442 (SC). Distinguished:CIT v. Insilco Ltd. (2010) 320 ITR 322 (Del) : 2010 TaxPub(DT) 386 (Del-HC), CIT v. Southern Petrochemical Industries Corporation Ltd. (2007) 291 ITR 362 (Mad) : 2007 TaxPub(DT) 0950 (Mad-HC) and SPIC Ltd. (2010) 37 DTR 177 (Mad.) : 2010 TaxPub(DT) 1138 (Mad-HC).

REFERRED : National Thermal Power Corporation Limited v. CIT (2013) 357 ITR 253 (Del) : 2013 TaxPub(DT) 281 (Del-HC), CIT v. Yamaha Motor India Private Limited (2009) 328 ITR 297 (Del) : 2010 TaxPub(DT) 715 (Del-HC).

FAVOUR : In assessee's favour (partly).

A.Y. : 2001-02 to 2003-04

INCOME TAX ACT, 1961

Section 80-IA(4)

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