Replacement of rolling mill roll parts during operation is a tax expenditure: ITAT

Income Tax Appeal Tribunal (ITAT), Ahmedabad Bench consisting of Prime Minister Jagtap, Deputy Chairman and Siddhartha Nautiyal, Judicial Member, found that rolling mill roll parts replacement being operation is a tax expenditure.

The rated company, M/s. Ambica Alloys and Steel India Ltd is engaged in the manufacture of steel products of MS Angel, MS Channel and MS Beam. During the assessment, the AO noticed that the assessee had debited expenses amounting to 50,97,107/- as expenses for the purchase of Rolling Mill Rolls and claimed the same as than revenue expenditure. The AO issued a show cause notice, asking the assessee to explain why the expense claim for the purchase of rolls should not be disallowed as a tax expenditure, since the use of metal rolls in the rolling and steel industries is a sustainable and, therefore, higher advantage. depreciation rate of 80% was specified in the law.

Prior to the RFP, the assessee argued that he purchased metal rollers which are used as consumables in the production process and which are listed under “Repairs and Maintenance”. The assessee maintained that there was no increase in production capacity, but only replacement of worn parts of the machine.

The assessee has relied on various case law in support of his assertion that the assessee’s claim for expenditures as revenue expenditures is allowable on all of the facts in question. The assessor, however, rejected the claim of the assessee and found that the assessee was eligible to claim the 80% rolling mill depreciation and that the assessee was not eligible to claim the deduction. as a tax expenditure. On appeal, the assessee reiterated the arguments before CIT(A). However, CIT(A) rejected the assessee’s assertion and upheld the AO’s order.

The Tribunal noted that “the replacement of parts of existing machinery while in operation will constitute a tax expenditure. We are of the opinion that the assessee in this set of facts is eligible to claim the deduction of the expenses of purchasing Rolling Mill Rolls as expenses of income. The only reason the claim of a tax expenditure of the assessee was requested was that since the Income Tax Act specified a rate of 80% for the claim of depreciation in respect of assets above, the assessee was not eligible to claim the same as a revenue expense.

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Ambica Alloys & Steel India Ltd. against Dy. income tax commissioner

Counsel for the Appellant: Shri Ketan Shah and Shri Aman Shah

Counsel for the Respondent: Shri Purshottam Kumar

CITATION: 2022 TAXSCAN (ITAT) 1180