DCIT, Coimbatore V. M/s. Lasik Centre (India) P Ltd., Coimbatore

ITA 1480/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61059 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 25-04-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 02-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: VIKRAM VIJ AYAAHAVAN
• Keywords: Depreciation; Business expenditure; Revenue expenditure; Capital expenditure
• Section: 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI (BEFORE SHRI N.S.SAINI, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ) .. I.T.A. NO. 1480/MDS/2011 ASSESSMENT YEAR : 2002-03 DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(3), 1 ST FLOOR, OLD BLDG., 63 RACE COURSE, COIMBATORE 641 018 PAN : ACPA (APPELLANT) V. M/S.LASIK CENTRE (INDIA) P. LTD., NO.582-A, D.B.ROAD, R.S.PURAM, COIMBATORE 641 002. (RESPONDENT) APPELLANT BY :SHRI SHAJI P JACOB ADDL.C.I.T DR RESPONDENT BY : SHRI VIKRAM VIJ AYAAHAVAN,ADVOCATE DATE OF HEARING : 25.04.12 DATE OF PRONOUNCEMENT : 30.04.12 O R D E R PER N.S.SAINI, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST TH E ORDER OF COMMISSIONER OF INCOME TAX(A)-I, COIMBATORE DATED 2 9.06.2011. THE SOLE GRIEVANCE OF THE REVENUE IN THIS APPEAL IS THAT LD. ITA NO. 1480/MDS/11 2 COMMISSIONER OF INCOME TAX(A) ERRED IN HOLDING THAT EXPENDITURE INCURRED ON INSTALLATION OF LASER UPGRADATION KIT I S REVENUE EXPENDITURE. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS MENT FOR ASSESSMENT YEAR 2002-03 WAS COMPLETED U/S.143(3) RE AD WITH SECTION 147 ON 27.12.2007 ON TOTAL INCOME OF FRS.43 ,61,561/- IN WHICH EXPENDITURE INCURRED FOR PURCHASE OF ZYOPTIC RETROFIT KIT AND OTHER ITEMS AMOUNTING TO ` 62,20,500/- LAKHS CLAIMED AS REVENUE BY THE ASSESSEE WAS TREATED AS CAPITAL IN NATURE. ON APPEAL, THE COMMISSIONER OF INCOME TAX(A) UPHELD THE ORDER OF T HE ASSESSING OFFICER, BUT DIRECTED TO ALLOW DEPRECIATION ON THE ABOVE MACHINERY. THE ASSESSEE FILED APPEAL BEFORE THE TRIBUNAL AND T HE TRIBUNAL VIDE ITS ORDER DT.06.11.09 IN ITA NO.191/MDS./09 REMITTE D THE ISSUE BACK TO THE ASSESSING OFFICER WITH THE DIRECTION TO VERIFY WHETHER THE EXPENDITURE INCURRED OF ` 62.20 LAKHS BEING COST OF UPGRADATION KIT VIZ. ZYOPTIK RETRIOFIT KIT, ZYWAVE AND ORBSAN II IS CA PITAL OR REVENUE IN NATURE AFTER AFFORDING OPPORTUNITY TO THE ASSESSEE. IN THE SET ASIDE PROCEEDINGS, THE ASSESSEE SUBMITTED THAT THE PURCHA SE OF ITA NO. 1480/MDS/11 3 UPGRADATION KIT DID NOT BRING ANY ENDURING BENEFIT TO THE ASSESSEE AND RELIED ON VARIOUS SUPREME COURTS DECISIONS TO MAKE A CLAIM THAT THE EXPENDITURE INCURRED IS OF CAPITAL NATURE. THE ASSESSEE STATED THAT THE COMPANY PURCHASED THE ORIGINAL LASIK MACHI NE IN THE YEAR 1997 FOR CONDUCTING EYE SURGERIES AND THAT THE UPGR ADATION KIT WAS PURCHASED IN THE YEAR 2000-01 RELEVANT TO THE ASSES SMENT YEAR 2002-03 ONLY HELPED THE PATIENTS FOR PRECISION EYE SURGERY. THE ASSESSEE HAS NOT CHARGED ANY EXTRA AMOUNT FOR PERFO RMING SURGERY USING THIS UPGRADED KIT ALONG WITH OLD LASER MACHIN E. THE ASSESSING OFFICER AFTER CONSIDERING THE SUBMISSIONS OBSERVED THAT THE TRIBUNAL HAS GIVEN LIMITED SCOPE TO THE ASSESSING OFFICER TO DECIDE WHETHER THE EXPENDITURE CAN BE ALLOWED AS CURRENT REPAIRS A S SEC.31 OF THE INCOME TAX ACT. THE ASSESSING OFFICER OBSERVED THA T THE ASSESSEE HAD TAKEN AN ALTERNATIVE PLEA BEFORE THE TRIBUNAL T HAT IF IT IS NOT ALLOWED AS CURRENT REPAIRS, THEN IT CAN BE ALLOWED AS BUSINESS EXPENDITURE U/S.37 OF THE ACT. THE ASSESSING OFFIC ER OBSERVED THAT THE TRIBUNAL HAS NOT GIVEN ANY DIRECTION TO THE ASS ESSING OFFICER WHETHER IT CAN BE ALLOWED AS BUSINESS EXPENDITURE U /S.37. THEREFORE, THE ASSESSING OFFICER OBSERVED THAT IN RESPECT OF T HE CLAIM OF ITA NO. 1480/MDS/11 4 ASSESSEE THAT IT IS ONLY CURRENT REPAIRS, IT IS HEL D THAT AS THERE WAS NO REPLACEMENT TO ANY EXISTING SPARE PARTS, THEREFORE, IT CANNOT BE CLAIMED AS CURRENT REPAIRS AND DISALLOWED THE CLAIM OF THE EXPENDITURE OF ASSESSEE. 3. ON APPEAL, THE LD. COMMISSIONER OF INCOME TAX(A ) ALLOWED THE CLAIM OF ASSESSEE AS BUSINESS EXPENDITURE U/S.37 OF THE ACT. LD. COMMISSIONER OF INCOME TAX(A) HELD AS UNDER:- 5.5. I HAVE GONE THROUGH THE SUBMISSIONS MADE BY T HE APPELLANT AND THE ORDER OF THE ASSESSING OFFICER. THE HONBLE ITAT TRIBUNAL C BENCH HAS REMITTED THE IS SUE BACK TO THE ASSESSING OFFICER WITH THE DIRECTION TO VERI FY WHETHER THE EXPENDITURE INCURRED OF ` 62.20 LACS BEING THE COST OF UPGRADATION KIT IS CAPITAL OR REVENUE IN NATURE AFT ER AFFORDING OPPORTUNITY TO THE ASSESSEE. THE ASSESSING OFFICER AT PARA 1, PAGE 2 OF HIS ORDER MENTIONS THE ABOVE PRONOUNCE MENT. AT PARA 4 OF THE ASSESSMENT ORDER, THE ASSESSING OF FICER STATES THE QUESTION WHETHER IT CAN BE ALLOWED AS B USINESS ITA NO. 1480/MDS/11 5 EXPENDITURE IS NOT CONSIDERED AS IT WILL AMOUNT TO EXCEEDING THE DIRECTIONS GIVEN BY THE TRIBUNAL TO THE ASSESSI NG OFFICER.IT IS NOT UNDERSTOOD FROM THE ABOVE CONCLU SION AND FINDING OF THE ASSESSING OFFICER, WHETHER THE COST OF UPGRADATION KIT IS CAPITAL OR REVENUE IN NATURE. A T PARA-3, PAGE 2 OF THE ORDER, THE ASSESSING OFFICER STATES T HAT THE TRIBUNAL HAS GIVEN LIMITED SCOPE TO THE ASSESSING O FFICER I.E. WHETHER THE EXPENDITURE CAN BE ALLOWED AS CURRENT R EPAIRS U/S.31 OF THE INCOME-TAX ACT. THE FINDING OF THE ASSESSING OFFICER IS NOT IN TERMS WITH THE DIRECTIONS GIVEN B Y THE HONBLE ITAT WHILE SETTING ASIDE THE ISSUE BACK TO THE ASSESSING OFFICER. THE ASSESSING OFFICER GAVE A CON CLUSIVE FINDING THAT IT CANNOT BE CLAIMED AS CURRENT REPAIR S. HE HAS NOT ADJUDICATED ON THE ISSUE WHETHER THE EXPENDITUR E IS CAPITAL OR REVENUE IN NATURE. 5.6. THE COMPANY PURCHASED THE ORIGINAL LASER MACH INE IN THE YEAR 1997 AND WAS USING IT FOR CONDUCTING EYE S URGERIES TO CORRECT REFRACTIVE ERRORS BY LASER TECHNOLOGY. BECAUSE OF THE TECHNOLOGICAL DEVELOPMENT IN THESE ZYOPTIC MACH INES, ITA NO. 1480/MDS/11 6 CERTAIN PARTS HAD TO BE UPGRADED AND ADDED TO THE O RIGINAL LASIK MACHINES FOR BETTER SURGICAL PROCEDURES. THE ORIGINAL SUPPLIER M/S.BOSCH AND LOMB BROUGHT OUT AN UPGRADAT ION KIT, WHICH WHEN FITTED WITH THE ORIGINAL EQUIPMENT, RESULTS IN MORE PRECISE SURGERIES AND HIGH SUCCESS RATE. AS P ER THE INFORMATION PROVIDED BY THE APPELLANT COMPANY, THE UPGRADE ESSENTIALLY ENABLES THE MEASUREMENT OF HIGH ORDER O PTICAL ABERRATIONS OF THE EYE AND HELPS IMPRECISE SURGICAL TREATMENT. THE UPGRADE CANNOT FUNCTION ON ITS OWN A ND CAN ONLY IMPROVE THE TREATMENT PERFORMED BY THE BASIC M ACHINE. FORM THIS, IT CAN BE INFERRED THAT NO SEPARATE MACH INE HAS BEEN BROUGHT INTO EXISTENCE NOR THE EXPENDITURE CAN BE CONSIDERED AS CAPITAL IN NATURE. THE APPELLANT FIL ED A LETTER FROM BOSCH AND LOMB WHO HAVE CONFIRMED THAT THEY HA VE SUPPLIED LASER UPGRADE KIT AND ORBSCAN ON 28.12.20 01 FOR ` 622,20,500/-. THE A.R. HAS PRODUCED THE PHOTOGRAPH OF UPGRADE KIT ALONG WITH ORBASCAN. THE ORBASCAN IS A DIAGNOSTIC DEVICE WHICH IS INTEGRATED WITH THE LAS IK MACHINE AND GIVES A PRECISE MEASUREMENT OF THE ABERRATION O F THE ITA NO. 1480/MDS/11 7 EYE. IN MY OPINION, THE UPGRADE ENHANCES THE QUALI TY OF TREATMENT DELIVERED BUT CANNOT PERFORM ANY ADDITION AL TREATMENT ON ITS OWN. SINCE THE BASIS LASIK MACHINE WAS BROUGHT IN 1997 FOR BETTER PERFORMANCE, CERTAIN PAR TS HAD TO BE REPLACED / ADDED FOR IMPROVING THE PERFORMANCE A ND QUALITY OF THE TREATMENT TO THE PATIENTS. IN VIEW OF THIS, FROM THE DETAILS FURNISHED BY THE APPELLANT COMPANY, THE EXPENDITURE INCURRED ON PURCHASE OF THIS UPGRADATIO N KIT HAS TO BE TREATED AS REVENUE IN NATURE AND IS TO BE ALL OWED AS BUSINESS EXPENDITURE U/S.37 . THE GROUNDS OF APPEAL ARE ALLOWED. 4. LD. DR RELIED ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF BHARAT GEARS LTD. VS. C.I.T. IN [2011] 33 7 ITR 368 (DEL.) AND SUBMITTED THAT THE HONBLE DELHI HIGH COURT AFT ER CONSIDERING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F C.I.T. VS. MANGAYARKARASI MILLS PVT. LTD., IN [2009] 315 ITR 1 14 (SC) AND THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F C.I.T. VS. SARAVANA SPINNING MILLS P. LTD. IN [2007] 293 ITR 201 (SC) HAS HELD THAT EXPENDITURE INCURRED BY THE ASSESSEE ON RECOND ITIONING AND ITA NO. 1480/MDS/11 8 OVERHAULING OF THE MACHINE HAS GIVEN THE ASSESSEE A BENEFIT OF ENDURING NATURE, AND THEREFORE, THE AMOUNT WAS NOT ALLOWABLE AS CURRENT REPAIRS U/S.37(1), BUT WAS CAPITAL IN NATUR E. 5. ON THE OTHER HAND, LD. AUTHORISED REPRESENTATIV E OF ASSESSEE SUPPORTED THE ORDER OF THE LD. COMMISSIONER OF INCO ME TAX(A). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RE CORD. IN THE INSTANT CASE, THE ASSESSEE HAS PURCHASED ZYOPTIC RETROFIT K IT AND OTHER ITEMS AMOUNTING TO ` 62,20,500/- LAKHS FOR UPGRADATION OF ITS ORIGINAL LASIK MACHINE FOR CONDUCTING EYE SURGERY WHICH HELPED IN DOING PRECISION EYE SURGERY. THIS WAS NECESSITATED BECAUSE OF TECH NOLOGICAL DEVELOPMENT IN ZYOPTIC MACHINE AND REQUIRED CERTAIN PARTS TO BE UPGRADED AND ADDED TO THE ORIGINAL LASIK MACHINES F OR BETTER SURGICAL PROCEDURES. THE ASSESSEE CLAIMED THE ENTIRE EXPENDI TURE AS REVENUE EXPENDITURE. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE EXPENDITURE INCURRED BY THE ASSESSEE WAS NOT CURREN T REPAIRS AS THERE WAS NO REPLACEMENT OF ANY EXISTING SPARE PART S. THE ASSESSING ITA NO. 1480/MDS/11 9 OFFICER ALSO OBSERVED THAT IT WAS A SET ASIDE PROCE EDINGS BEFORE HIM BY THE TRIBUNAL AND THAT THE TRIBUNAL HAS NOT GIVEN ANY DIRECTION TO CONSIDER WHETHER THE EXPENDITURE CAN BE ALLOWED AS BUSINESS EXPENDITURE U/S.37 OF THE ACT AND THEREFORE, HE WAS NOT DECIDED THE SAME. ON APPEAL, THE LD. COMMISSIONER OF INCOME TA X(A) ALLOWED THE CLAIM OF THE ASSESSEE AS BUSINESS EXPENDITURE. WHILE DOING SO, LD. COMMISSIONER OF INCOME TAX(A) OBSERVED THAT THE TRIBUNAL HAS REMITTED THE MATTER BACK TO THE FILE OF THE ASSESSI NG OFFICER WITH THE DIRECTION TO VERIFY WHETHER THE EXPENDITURE INCURRE D OF ` 62.20 LAKHS TOWARDS COST OF UPGRADATION KIT WAS CAPITAL OR REVE NUE IN NATURE. HE OBSERVED THAT THE FINDING OF THE ASSESSING OFFICER THAT THE TRIBUNAL HAS ONLY GIVEN A LIMITED SCOPE TO CONSIDER WHETHER THE EXPENDITURE WAS CURRENT REPAIRS U/S.31 OF THE ACT WAS NOT CORRE CT. HE THEREFORE PROCEEDED TO CONSIDER AND DECIDE WHETHER THE EXPEND ITURE IN QUESTION WAS CAPITAL OR REVENUE EXPENDITURE AND ALL OWABLE U/S.37 OF THE ACT. THE COMMISSIONER OF INCOME TAX(A) HAS HEL D THAT ACCORDING TO THE INFORMATION GIVEN BY THE ASSESSEE, THE UPGRADATION ESSENTIALLY ENABLED MEASUREMENT OF HIGH ORDER OPTI CAL ABERRATIONS OF THE EYE AND HENCE HELPED IN PRECISE SURGICAL TREATM ENT. THE UPGRADE ITA NO. 1480/MDS/11 10 CANNOT FUNCTION ON ITS OWN AND CAN ONLY IMPROVE THE TREATMENT PERFORMED BY THE BASIC MACHINE. THUS, HE WAS OF TH E VIEW THAT IT CANNOT BE INFERRED THAT NO SEPARATE MACHINE HAS BEE N BROUGHT INTO EXISTENCE NOR THE EXPENDITURE CAN BE CONSIDERED AS CAPITAL IN NATURE. HE HELD THAT SINCE THE BASIC LASIK MACHINE WAS BROU GHT IN 1997 FOR BETTER PERFORMANCE, CERTAIN PARTS HAD TO BE REPLACE D AND ADDED FOR IMPROVING THE PERFORMANCE AND QUALITY OF TREATMENT TO THE PATIENTS. THEREFORE, THE EXPENDITURE INCURRED WAS REVENUE IN NATURE AND ALLOWED THE SAME AS A BUSINESS EXPENDITURE U/S.37 O F THE ACT. WE FIND THAT IT IS NOT IN DISPUTE THAT THE TRIBUNAL HA D REMANDED THE MATTER BACK TO THE ASSESSING OFFICER TO ADJUDICATE WHETHER EXPENDITURE IN QUESTION WAS CAPITAL OR REVENUE IN NATURE. THEREFOR E, LD. COMMISSIONER OF INCOME TAX(A) HAS RIGHTLY ADJUDICAT ED THE ISSUE OF ALLOWABILITY OF THE EXPENDITURE U/S.37(1) OF THE AC T. WE FIND THAT AHMEDABAD BENCH OF TRIBUNAL IN A SIMILAR FACTS AND CIRCUMSTANCES OF THE CASE, IN THE CASE OF MATRIX TELECOM (P) LTD., V S. ACIT [2010] 8 TAXMANN.COM. 26 (AHD. ) HELD THAT UPGRADATION OR IM PROVEMENT OF AN EXISTING PRODUCT, THROUGH WHICH ALL IN ALL A NEW PRODUCT WAS NOT MADE, COULD NOT BE SAID TO BE AN EXPENDITURE TOWARD S ACQUIRING OF A ITA NO. 1480/MDS/11 11 NEW ASSET, THEREFORE, IT REMAINS OUT OF AMBITS OF D EFINITION OF CAPITAL EXPENDITURE. RATHER, THE UPGRADATION OR TECHNICAL IMPROVEMENT WAS STATED TO BE A RECURRING NECESSITY IN THE LINE OF M ANUFACTURING OF TELECOM EQUIPMENTS, THEREFORE, THE EXPENDITURE IN Q UESTION WAS NOTHING BUT THE IMPROVEMENT IN THE EFFICIENCY SO AS TO MATCH THE CHANGED ENVIRONMENT AND ADVANCED TECHNOLOGY, WHICH WAS NOTHING BUT SUPPLEMENTING THE EXISTING BUSINESS OF MANUFACT URING, HENCE, ALLOWABLE AS A REVENUE EXPENDITURE. IN THE INSTANT CASE ALSO, THE EXPENDITURE INCURRED BY THE ASSESSEE BY PURCHASING OF UPGRADATION KIT WAS TO CARRY OUT PRECISION EYE SURGERY BY USING ADVANCED TECHNOLOGY, WHICH WAS THE NEED OF THE TIME IN THE L INE OF THE BUSINESS OF THE ASSESSEE, THEREFORE WAS AN EXPENDITURE IN RE VENUE FILED AND HENCE, ALLOWABLE DEDUCTION TO THE ASSESSEE. FURTHE R, THE LD. DR RELIED ON THE DECISION OF HONBLE DELHI COURT IN T HE CASE OF BHARAT GEARS LTD.(SUPRA), WHICH WAS ON THE ISSUE WHETHER T HE EXPENDITURE WAS CURRENT REPAIRS OR NOT U/S.31 OF THE ACT AND HE NCE NOT APPLICABLE TO DECIDE THE PRESENT ISSUE UNDER CONSIDERATION WHI CH IS WHETHER THE EXPENDITURE IN QUESTION IS CAPITAL OR REVENUE IN NA TURE AND ALLOWABLE U/S.37(1) OF THE ACT. WE THEREFORE, CONFIRM THE OR DER OF THE ITA NO. 1480/MDS/11 12 COMMISSIONER OF INCOME TAX (A) AND DISMISS THE GROU NDS OF APPEAL OF THE REVENUE. 7. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISS ED. ORDER PRONOUNCED ON 30 TH APRIL, 2012 SD/- SD/- (VIKAS AWASTHY) (N.S.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 30 TH APRIL , 2012. K S SUNDARAM. COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE