The ACIT.(OSD), Circle-8, Ahmedabad V. Sterling Addlige Medical Institute Ltd., Ahmedabad

ITA 1523/AHD/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 76734 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-06-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 26-05-2014
• Assessment Year: 2003-2004
• Appeal Filed On: 30-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P L KUREEL
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 143(3); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, A HMEDABAD (BEFORE SHRI D.K. TYAGI, J.M. & SHRI ANIL CHATURVE DI, A.M.) I.T. A. NO. 1523 & 1524/AHD/2011 (ASSESSMENT YEAR:200 3-04 & 2004-05) THE ACIT (OSD), CIRCLE-8, AHMEDABAD V/S STERLING ADDLIFE MEDICAL INSTITUTE LTD., (FORMERLY KNOWN AS ADDLIFE MEDICAL INSTITUTE LTD) STERLING HOSPITAL BUILDING, MEMNAGAR, AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AADCA 0897M APPELLANT BY : SHRI P.L. KUREEL, SR. D.R. RESPONDENT BY : SHRI ASHWIN SHAH ( )/ ORDER DATE OF HEARING : 26-05-2014 DATE OF PRONOUNCEMENT : 06 -06-2014 PER SHRI ANIL CHATURVEDI,A.M. 1. THESE 2 APPEALS FILED BY THE REVENUE ARE AGAINST THE ORDER OF CIT(A)-VI, AHMEDABAD DATED 17.03.2011 & 18.03.2011 FOR A.YS. 2 003-04 & 2004-05 RESPECTIVELY. WE FIRST TAKE UP REVENUES APPEAL FOR A.Y. 2004-05 (IN ITA NO. 1524/AHD/2011) 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERI AL ON RECORD ARE AS UNDER. ITA NO 1523 & 1524/AHD/2011 . A.Y. 2003-0 4 & 2004- 05 2 3. ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN TH E BUSINESS OF RUNNING OF HOSPITAL. ASSESSEE FILED ITS RETURN OF INCOME FOR A .Y. 04-05 ON 1.11.2004 DECLARING TOTAL LOSS OF RS. 57,09,840/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED UNDER SECT ION 143(3) VIDE ORDER DATED 21.12.2006 AND THE TOTAL LOSS WAS DETERMINED AT RS. 13,04,200/-. AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) VIDE ORDER DATED 18.03.2011 ALLOWED THE APPE AL OF ASSESSEE. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS NO W IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING EFFECTIVE GROUND:- 1. THE LD. CIT(A)-VI, AHMEDABAD ERRED IN LAW AND ON FA CTS IN DELETING THE DISALLOWANCE OF RS. 44,04,642/- MADE BY THE ASSESSING OFFICER ON ACCOUN T OF THE VALUE OF SURGICAL INSTRUMENTS. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ON PERUSING THE NOTES TO ACCOUNTS, A.O NOTICED THAT TILL EARLIER YEAR, SURGI CAL INSTRUMENTS WERE VALUED AT COST ON THE BASIS OF PHYSICAL VERIFICATION BUT FOR THE YEAR UNDER CONSIDERATION, ASSESSEE CHANGED THE METHOD OF VALUING SURGICAL INS TRUMENTS BY TREATING THE SAME AS CONSUMED IN THE YEAR OF PURCHASE WHICH HA D RESULTED IN PROFIT FOR THE YEAR BEING REDUCED BY RS. 44,05,642/-. ASSESSEE WAS ASKED TO JUSTIFY THE CHANGE IN METHOD TO WHICH ASSESSEE SUBMITTED THAT S URGICAL INSTRUMENTS MAINLY CONSISTS OF KNIFE, SCISSORS, BLADES, GLOVES WHOSE LIFE IS VERY SHORT AND DUE TO OBSOLESCE THEIR UTILITY IS FOR A SHORT PERIO D. IT WAS FURTHER SUBMITTED THAT THE CHANGE IN METHOD WAS FOR BONAFIDE PURPOSES. THE SUBMISSIONS OF ASSESSEE WERE NOT FOUND ACCEPTABLE TO A.O AND HE AC CORDINGLY DISALLOWED THE CLAIM OF HIGHER LOSS OF RS. 44,04,642/-. AGGRIE VED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) A LLOWED THE APPEAL OF ASSESSEE BY HOLDING AS UNDER:- 2.3 I HAVE CONSIDERED THE FACTS OF THE CASE, ASSESS MENT ORDER AND APPELLANT'S SUBMISSION. APPELLANT CHANGED THE METHOD OF VALUING SURGICAL INSTRUMENTS DURING THE YEAR AND STARTED CLAIMING THE ENTIRE SURGICAL INSTRUMENTS ISSUED FROM THE STORES TO VARI OUS DEPARTMENTS. IF IS ARGUED THAT ONCE ISSUED, IT IS DIFFICULT TO FIND THE VALUE OF SUCH INSTRUMENTS. WH ATEVER INSTRUMENTS NOT ISSUED ARE SHOWN AS STOCK. CONSIDERING THE NATURE OF ITEMS AND VERY SHORT LIFE OF THESE ITEMS, IF DOES NOT MAKE ANY DIFFERENCE IF THE SAME IS CLAIMED AS EXPENSE IN THE YEAR OF ISSUE ITS ELF. THE METHOD FOLLOWED BY THE APPELLANT DURING TH E YEAR IS ACCEPTED BY THE ASSESSING OFFICER IN ALL SU BSEQUENT YEARS IN SCRUTINY ASSESSMENTS WHICH MEANS ITA NO 1523 & 1524/AHD/2011 . A.Y. 2003-0 4 & 2004- 05 3 METHOD FOLLOWED BY THE APPELLANT IS BONA FIDE AND D OES NOF REQUIRE ANY CHANGE ON THE PART OF ASSESSING OFFICER. APPELLANT ALSO RELIED UPON THE DECISION OF JURISDICTIONAL HIGH COURT IN WHICH IT IS HELD THAT METHOD OF ACCOUNTING REGULARLY FOLLOWED BY THE APPE LLANT CANNOT BE DISTURBED BY THE DEPARTMENT IN THE FIRST YEAR OF CHANGE. CONSIDERING THE NATURE OF ITEMS, LIFE OF THESE INSTRUMENTS, CONSISTENCY FOLL OWED BY THE APPELLANT AND ASSESSING OFFICER'S ACCEPTANCE OF CHANGED METHOD IN SUBSEQUENT YEARS, THE ADDITION MADE BY THE ASSESSING OFFICER CANNOT SURVI VE IN THIS YEAR. THE ADDITION IS THEREFORE DELETED. 5. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS NOW IN APPEAL BEFORE US. 6. BEFORE US, LD. D.R. TOOK US THROUGH THE FINDINGS OF A.O AND SUPPORTED HIS ORDER. HE FURTHER SUBMITTED THAT ASSESSEE WAS FOLLO WING DIFFERENT METHOD OF ACCOUNTING FOR VALUING SURGICAL INSTRUMENTS IN A.Y. 02-03, WHICH WAS CHARGED IN A.Y. 03-04 AND WAS AGAIN CHANGED IN A.Y. 04-05. HE FURTHER SUBMITTED THAT IN VIEW OF THE FACT THAT ASSESSEE WAS NOT CONS ISTENTLY FOLLOWING THE SAME ACCOUNTING METHOD, A.O WAS FULLY JUSTIFIED IN DISAL LOWING THE CLAIM OF ASSESSEE. 7. THE LD. A.R. ON THE OTHER HAND REITERATED THE SU BMISSIONS MADE BEFORE CIT(A). HE FURTHER SUBMITTED THAT THE ASSESSEE COMM ENCED ITS OPERATION IN A.Y. 02-03 & A.Y. 03-04 WAS THE SECOND YEAR OF OPER ATIONS. BASED ON THE EXPERIENCE OF FIRST YEAR, THE ASSESSEE WAS OF THE V IEW THAT THE METHOD FOLLOWED IN THE YEAR UNDER CONSIDERATION WAS SCIE NTIFIC AND THEREFORE IT CHANGED THE METHOD. HE FURTHER SUBMITTED THAT THE M ETHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE IN A.Y. 04-05 THOUGH WAS D IFFERENT FROM THE METHOD FOLLOWED IN A.Y. 03-04 BUT THE ACCOUNTING METHOD FO LLOWED IN A.Y. 04-05 HAS BEEN CONSISTENTLY FOLLOWED BY THE ASSESSEE IN ALL S UBSEQUENT ASSESSMENT YEARS AND HAS ALSO BEEN ACCEPTED BY THE REVENUE IN THE SCRUTINY ASSESSMENTS. HE ALSO PLACED ON RECORD, THE COPIES OF THE ASSESSMENT ORDERS PASSED FOR A.Y. 05-06 TO A.Y. 09-10. HE FURTHER SUB MITTED THAT THE ASSESSEE HAD NO MALAFIDE INTENTION IN CHANGING THE METHOD OF ACCOUNTING BECAUSE EVEN AFTER CHANGE IN METHOD THE FINAL RESULT IS LOS S AND THE LOSS HAS ALSO BEEN ITA NO 1523 & 1524/AHD/2011 . A.Y. 2003-0 4 & 2004- 05 4 ASSESSED BY A.O. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS A FACT THAT DURING THE YEAR THE ASSESSEE HAD CHANGE D THE METHOD OF ACCOUNTING OF SURGICAL INSTRUMENTS BUT AT THE SAME TIME IT IS ALSO A FACT THAT THE CHANGED METHOD HAS BEEN FOLLOWED BY ASSESSEE IN ALL SUBSEQUENT YEARS AND HAS ALSO BEEN ACCEPTED BY REVENUE IN ALL SCRUTI NY ASSESSMENTS. BEFORE US, REVENUE HAS NOT BROUGHT ANY MATERIAL TO CONTRAD ICT THE FINDINGS OF CIT(A). IN VIEW OF THE AFORESAID FACTS, WE FIND NO REASON T O INTERFERE WITH THE ORDER OF CIT(A) AND THUS THIS GROUND OF REVENUE IS DISMISSED . 9. IN THE RESULT, APPEAL OF REVENUE IS DISMISSED. IN ITA NO. 1523/AHD/2011 (FOR A.Y. 2003-04) 10. THE GROUNDS RAISED BY REVENUE READS AS UNDER:- 1. THE LD. CIT(A)-VI, AHMEDABAD ERRED IN LAW AND ON FA CTS IN DELETING THE ADDITION OF RS.14,31,391/- MADE BY THE ASSESSING OFFICER ON ACC OUNT OF HIGHER LOSS SHOWN BY THE ASSESSEE. 2. THE LD. CIT(A)-VI, AHMEDABAD ERRED IN LAW AND ON FA CTS IN RESTRICTING THE DISALLOWANCE OF RS.38,27,940/- MADE, BY THE ASSESSING OFFICER ON AC COUNT OF REPAIRING OF BUILDING TO RS.25,84,619/-. 3. THE LD. CIT(A)-VI, AHMEDABAD ERRED IN LAW AND ON FA CTS IN DELETING THE DISALLOWANCE OF DEPRECIATION OF RS. 17,55,870/- MADE BY THE ASSESSI NG OFFICER ON ACCOUNT OF REPAIRING OF CATH LAB. GROUND NO. 1 IS WITH RESPECT TO DELETION OF RS. 14, 31,391/- ON ACCOUNT OF HIGHER LOSS. 11. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ON PERUSING THE NOTES TO ACCOUNTS, A.O NOTICED THAT TILL EARLIER ASSESSMENT YEAR, THE VALUE OF CONSUMPTION OF SURGICAL INSTRUMENT WAS WORKED OUT A T THE FLAT RATE OF 25% OF TOTAL COST EACH YEAR ON THE BASIS OF ESTIMATED USEF UL LIFE. FOR THE YEAR UNDER CONSIDERATION THE METHOD OF ACCOUNTING WAS CHANGED WHEREBY THE SURGICAL ITA NO 1523 & 1524/AHD/2011 . A.Y. 2003-0 4 & 2004- 05 5 INSTRUMENT WAS VALUED AT COST ON THE BASIS OF PHYSI CAL VERIFICATION DONE AT THE YEAR UNDER AND THE BALANCE AMOUNT WAS TRANSFERRED A S CONSUMPTION TO THE PROFIT AND LOSS ACCOUNT. DUE TO THE AFORESAID CHANG E IN THE METHOD OF ACCOUNTING, THE LOSS FOR THE YEAR WAS HIGHER BY RS. 14,31,391/-. THE ASSESSEE WAS ASKED TO JUSTIFY THE CHANGE IN METHOD. THE SUBMISSION OF THE ASSESSEE THAT BASED ON THE EXPERIENCE IT WAS THOUGH T FIT BY THE MANAGEMENT THAT PHYSICAL VERIFICATION OF INSTRUMENTS SHOULD BE CARRIED OUT AND THE STOCK OF INSTRUMENT SHOULD BE BASED ON SUCH PHYSICAL VERIFIC ATION WHICH WAS MORE SCIENTIFIC AND PRUDENT METHOD AND FURTHER THE CHANG E IN METHOD WAS FOR BONAFIDE PURPOSE. THE AFORESAID CONTENTIONS OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE A.O AS THE A.O WAS OF THE VIEW TH AT THE ASSESSEE HAS NOT BEEN ABLE TO JUSTIFY THE TREATMENT GIVEN FOR THE FI RST TIME DURING THE YEAR. HE THEREFORE DISALLOWED THE HIGHER LOSS OF RS. 14,31,3 91 CLAIMED BY THE ASSESSEE. AGGRIEVED BY THE ORDER OF A.O, ASSESSEE C ARRIED THE MATTER BEFORE CIT(A). CIT(A) DELETED THE ADDITION BY HOLDING AS U NDER:- 2.3 I HAVE CONSIDERED THE FACTS OF THE CASE, ASSESS MENT ORDER AND APPELLANT'S SUBMISSION. APPELLANT CHANGED THE METHOD OF VALUING SURGICAL INSTRUMENTS DURING THE YEAR FROM 25% FLAT TAKEN AS CONSUMPTION TO STOCK AVAILABLE ON PHYSICAL VERIFICA TION AT THE YEAR END. CONSIDERING THE NATURE OF ITEMS AND VERY SHORT LIFE OF THESE ITEMS, IT DOES N OT MAKE ANY DIFFERENCE IF THE SAME IS CLAIMED AS EXPENSE IN THE YEAR OF ISSUE ON THE BASIS OF PHYSIC AL VERIFICATION: THE METHOD FOLLOWED BY THE APPELLA NT DURING THE YEAR IS ACCEPTED BY THE ASSESSING OFFICE R IN ALL SUBSEQUENT YEARS IN SCRUTINY ASSESSMENTS WHICH MEANS METHOD FOLLOWED BY THE APPELLANT IS BON A FIDE AND DOES NOT REQUIRE ANY CHANGE ON THE PART OF ASSESSING OFFICER. APPELLANT ALSO RELIED UP ON THE DECISION OF JURISDICTIONAL HIGH COURT IN WHI CH IT IS HELD THAT METHOD OF ACCOUNTING REGULARLY FOLL OWED BY THE APPELLANT CANNOT BE DISTURBED BY THE DEPARTMENT IN THE FIRST YEAR OF CHANGE. CONSIDERING THE NATURE OF ITEMS, LIFE OF THESE INSTRUMENTS, CONSISTENCY FOLLOWED BY THE APPELLANT AND ASSESSING OFFICER'S ACCEPTANCE OF CHANGED METHOD IN SUBSEQUENT YEARS, THE ADDITION MADE BY THE ASSESSIN G OFFICER CANNOT SURVIVE IN THIS YEAR. THE ADDITION IS THEREFORE DELETED. 12. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS NOW IN APPEAL BEFORE US. BEFORE US, THE LD. D.R. TOOK US THROUGH THE FINDING S OF A.O AND SUPPORTED HIS ORDER. HE FURTHER SUBMITTED THAT CIT(A) HAS ERRED I N GIVING A FINDING THAT THE METHOD FOLLOWED BY THE ASSESSEE DURING THE YEAR WAS ACCEPTED BY THE A.O IN ITA NO 1523 & 1524/AHD/2011 . A.Y. 2003-0 4 & 2004- 05 6 ALL SUBSEQUENT YEARS AND SCRUTINY ASSESSMENT IN VIE W OF THE FACT THAT FOR ASSESSMENT YEAR 04-05, THE ASSESSEE HAD AGAIN CHANG ED THE METHOD OF VALUING SURGICAL INSTRUMENTS WHEREIN ASSESSEE FOLLO WED THE METHOD OF CHARGING THE VALUE OF INSTRUMENTS TO THE REVENUE AC COUNT IN THE YEAR IN WHICH THE ITEMS WAS PURCHASED. HE THEREFORE SUBMITTED THA T IN VIEW OF THE AFORESAID FACTS, THE ASSESSEE WAS NOT FOLLOWING CONSISTANT ME THOD OF ACCOUNTING AND HAD CHANGED THE METHOD OF ACCOUNTING IN THE YEAR PR IOR TO THE YEAR UNDER CONSIDERATION, IN THE YEAR UNDER APPEAL AND IN SUBS EQUENT YEARS AND THEREFORE THE A.O WAS FULLY JUSTIFIED IN DISALLOWIN G THE CLAIM OF LOSS ON ACCOUNT OF CHANGE IN METHOD OF ACCOUNTING. 13. THE LD. A.R. ON THE OTHER HAND REITERATED THE S UBMISSIONS MADE BEFORE CIT(A). HE FURTHER SUBMITTED THAT THE ASSESSEE COMM ENCED ITS OPERATION IN A.Y. 02-03 & A.Y. 03-04 WAS THE SECOND YEAR OF OPER ATIONS. BASED ON THE EXPERIENCE OF FIRST YEAR, THE ASSESSEE WAS OF THE V IEW THAT THE METHOD FOLLOWED IN THE YEAR UNDER CONSIDERATION WAS SCIE NTIFIC AND THEREFORE IT CHANGED THE METHOD. HE FURTHER SUBMITTED THAT THE M ETHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE IN A.Y. 04-05 THOUGH WAS D IFFERENT FROM THE METHOD FOLLOWED IN A.Y. 03-04 BUT THE ACCOUNTING METHOD FO LLOWED IN A.Y. 04-05 HAS BEEN CONSISTENTLY FOLLOWED BY THE ASSESSEE IN ALL S UBSEQUENT ASSESSMENT YEARS AND HAS ALSO BEEN ACCEPTED BY THE REVENUE IN THE SCRUTINY ASSESSMENTS. HE ALSO PLACED ON RECORD, THE COPIES OF THE ASSESSMENT ORDERS PASSED FOR A.Y. 05-06 TO A.Y. 09-10. HE FURTHER SUB MITTED THAT THE ASSESSEE HAD NO MALAFIDE INTENTION IN CHANGING THE METHOD OF ACCOUNTING BECAUSE EVEN AFTER CHANGE IN METHOD THE FINAL RESULT IS LOS S AND THE LOSS HAS ALSO BEEN ASSESSED BY A.O. IN THE ALTERNATE HE SUBMITTED THAT THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE IN A.Y. 04-05 BE FOLLOWED IN A.Y. 03-04. 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESPECT TO THE ACCOUNTING OF CONSUMPTION OF SURGICAL INSTRUMENTS FOLLOWED BY THE ASSESSEE. F ROM THE RECORD, IT IS SEEN ITA NO 1523 & 1524/AHD/2011 . A.Y. 2003-0 4 & 2004- 05 7 THAT IN ASSESSMENT YEAR 02-03 I.E. THE ASSESSMENT Y EAR PRECEDING THE ASSESSMENT YEAR UNDER REVIEW, THE ASSESSEE WAS VALU ING THE CONSUMPTION OF SURGICAL INSTRUMENTS AT THE FLAT RATE OF 25% OF THE TOTAL COST ON THE BASIS OF ESTIMATED USEFUL LIFE. FOR A.Y. 03-04 I.E. THE YEA R UNDER CONSIDERATION, THE ASSESSEE CHANGED THE METHOD AND PURSUANT TO THE CHA NGE, THE SURGICAL INSTRUMENT WERE VALUED AT COST ON THE BASIS OF PHYS ICAL VERIFICATION AT THE YEAR END AND THE BALANCE AMOUNT WAS TRANSFERRED TO THE P ROFIT AND LOSS ACCOUNT AS CONSUMPTION. FOR A.Y. 04-05 I.E. THE YEAR SUB SEQUENT TO THE YEAR UNDER APPEAL, IT IS SEEN THAT THE ASSESSEE AGAIN CHANGED THE METHOD OF ACCOUNTING WHEREIN THE SURGICAL INSTRUMENTS WERE CHARGED TO TH E PROFIT AND LOSS ACCOUNT IN THE YEAR IN WHICH IT WAS PURCHASED. FURTHER, THE ACCOUNTING TREATMENT FOLLOWED FOR ACCOUNTING THE CONSUMPTION OF SURGICAL INSTRUMENTS IN A.Y. 04-05 HAS BEEN FOLLOWED BY THE ASSESSEE IN ALL SUBSEQUENT YEARS AND HAS ALSO BEEN ACCEPTED BY THE REVENUE IN ALL THE SCRUTINY AS SESSMENTS CONSIDERING THE FACT THAT THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE IN A.Y. 04-05 HAS BEEN FOLLOWED CONSISTENTLY AND HAS ALSO BEEN AC CEPTED BY THE DEPARTMENT AND NO DISCREPANCY BEING POINTED OUT IN THE ACCOUNTING SYSTEM FOLLOWED IN A.Y. 04-05 AND SUBSEQUENT YEARS WHICH H AS ALSO BEEN UPHELD BY US IN A.Y. 04-05 HEREINABOVE, WE ARE OF THE VIEW TH AT THE METHOD FOLLOWED BY THE ASSESSEE IN A.Y. 04-05 BE FOLLOWED FOR THE PURP OSE OF VALUATION OF SURGICAL INSTRUMENTS IN A.Y. 03-04 ALSO. WE THEREFO RE REMIT THE ISSUE TO THE FILE OF A.O. TO WORK OUT THE CONSUMPTION OF SURGICA L INSTRUMENTS ON THE BASIS OF THE ACCOUNTING TREATMENT FOLLOWED IN A.Y. 04-05 AND SUBSEQUENT YEARS AND THEREAFTER DECIDE THE ISSUE. WE ALSO DIRECT THE ASS ESSEE TO PROMPTLY FURNISH ALL THE REQUIRED DETAILS TO THE A.O FOR DECIDING TH E ISSUE. NEEDLESS TO STATE THAT THE A.O SHALL GRANT ADEQUATE OPPORTUNITY OF HE ARING TO THE ASSESSEE. IN THE RESULT, THIS GROUND OF REVENUE IS ALLOWED FOR S TATISTICAL PURPOSES. GROUND NO. 2 IS WITH RESPECT TO RESTRICTING THE DISALLOWANCE ON ACCOUNT OF REPAIRS TO BUILDING. ITA NO 1523 & 1524/AHD/2011 . A.Y. 2003-0 4 & 2004- 05 8 15. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A. O NOTICED THAT ASSESSEE HAD CLAIMED RS. 38,27,340/- TOWARDS BUILDING REPAIR S. THE ASSESSEE WAS ASKED TO EXPLAIN THE NATURE OF EXPENSES AND SUBSTAN TIATE ITS CLAIM. ON PERUSING THE DETAILS SUBMITTED BY THE ASSESSEE. A.O NOTICED THAT ASSESSEE HAD MADE CERTAIN ALTERATIONS DEPENDING UPON THE REQ UIREMENT OF VARIOUS DOCTORS AND THE BUILDING WAS MADE SUITABLE FOR THE PURPOSE OF RUNNING AND OPERATING A HOSPITAL AND THEREFORE ACCORDING TO A.O THERE WAS AN ELEMENT OF BRINGING OUT A NEW ASSET INTO EXISTENCE AND OBTAIN A NEW OR FRESH ADVANTAGE BY CARRYING OUT EXPENDITURE CATEGORIZED AS CURRENT REPAIRS. HE WAS FURTHER OF THE VIEW THAT EXTENSIVE RENOVATION AND REPAIRS WOUL D NOT BE COVERED BY THE EXPRESSION CURRENT REPAIRS. HE THEREFORE DENIED THE CLAIM OF CURRENT REPAIRS UNDER SECTION 31 OF THE ACT AND ALSO HELD THAT THE EXPENSES WAS NOT ALLOWABLE UNDER SECTION 37 OF THE ACT. AS THE EXPEN DITURE WAS IN THE NATURE OF CAPITAL EXPENDITURE. HE HOWEVER GRANTED DEPRECIAT ION OF RS. 1,95,359/- AND DISALLOWED THE BALANCE CLAIM OF RS. 36,31,980/-. A GGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT (A) PARTLY DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY HOLDING AS UNDER :- 4.3 I HAVE CONSIDERED THE FACTS OF THE CASE, ASSESS MENT ORDER AND APPELLANT'S SUBMISSION. I HAVE GONE THROUGH THE DETAILS OF EXPENSES CLAIMED BY THE APPE LLANT AS CURRENT REPAIRS TO BUILDING. THE DECISIONS RELIED UPON BY THE APPELLANT WERE ALSO REFERRED. TH OSE EXPENSES WHICH ARE INCURRED TO MAINTAIN AND PRESERVE THE ASSET ARE CURRENT REPAIRS HOWEVER EXPE NSES WHICH HAVE BEEN INCURRED TO BRING IN NEW ADVANTAGES IS NOT CURRENT REPAIRS AND HENCE NOT ALL OWABLE. IN THE LIGHT OF THESE TESTS, THE EXPENSES CLAIMED BY THE APPELLANT ARE REFERRED. APPELLANT SUBMITTED THAT THE EXPENSES ARE REQUIRED TO SUIT THE REQUIREMENTS OF THE INDIVIDUA L DOCTORS WITHOUT CHANGING THE BASIC STRUCTURE OF BUI LDING. THIS MEANS EXPENSES INCURRED FOR CREATING PARTITION OR CREATING MODIFICATION AS REQUIRED BY T HE DOCTORS WITHOUT CHANGING THE BASIC STRUCTURE. IT IS TO BE NOTED THAT APPELLANT PURCHASED BUILDING DURIN G THE YEAR ONLY AND IT REQUIRED CERTAIN EXPENSES ON MODIFICATION ETC. ON GOING THROUGH THE LEDGER ACCOU NT OF REPAIRS AND MAINTENANCE OF BUILDING, IT IS SEEN THAT MOST OF THE EXPENSES ARE SMALL AND MIGHT BE INCURRED FOR PRESERVING AND MAINTAINING THE BUILDING. HOWEVER ON 31ST OF MARCH 2003, APPELLANT PASSED THE JOURNAL ENTRY FOR RS 25,84,619. THIS JOURNAL ENTRY WAS PASSED FROM THE ACCOUNT BUILDING WORK IN PROGRESS. SINCE APPELLANT PURCHASED HOSPITAL BUILDING DURING THE YEAR AND INCURRED EXPE NSES FOR MAKING IT SUITABLE FOR HOSPITAL ACTIVITIES , CAPITAL EXPENSES INCURRED WERE DEBITED TO BUILDING WORK IN PROGRESS ACCOUNT. AT THE YEAR END BY PASSING JOURNAL ENTRY, RS 2584619 WERE TAKEN OUT AN D CLAIMED AS REPAIR TO BUILDING. APPELLANT ALSO ITA NO 1523 & 1524/AHD/2011 . A.Y. 2003-0 4 & 2004- 05 9 SUBMITTED DETAILS OF THESE EXPENSES TAKEN OUT FROM CAPITAL WORK IN PROGRESS TO CURRENT REPAIRS HOWEVER BY GOING THROUGH THE SAME IT CANNOT BE SAID THAT TH ESE EXPENSES ARE FOR MAINTAINING OR PRESERVING THE EXISTING BUILDING. THESE EXPENSES INCURRED FOR NEW ADVANTAGES. FOR EXAMPLE EXPENSES DEBITED IN THE NAME OF RAVI BUILDERS ARE FOR PROVIDING AND APPLYIN G TWO COATS OF POLYMER CEMENT COATING AND PROVIDING LATEX SILICONATE. OTHER EXPENSES ARE ALSO IN THE NATURE OF CAPITAL EXPENSE REQUIRED FOR NEW BUILDING. CONSIDERING THIS THESE BUILDING WORK IN P ROGRESS EXPENSES DEBITED IN BUILDING REPAIRS ACCOUNT RS 2584619 ARE HELD TO BE CAPITAL NATURE AN D NOT CURRENT REPAIRS. THE REMAINING EXPENSES CLAIMED BY THE APPELLANT ARE ALLOWED AS CURRENT REP AIRS. ASSESSING OFFICER IS THEREFORE DIRECTED TO RESTRICT THE ADDITION TO RS. 25,84,619/- ONLY. THIS GROUND IS PARTLY ALLOWED. 16. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE I S NOW IN APPEAL BEFORE US. BEFORE US LD. D.R. RELIED ON THE ORDER OF A.O. ON T HE OTHER HAND LD. A.R. RELIED ON THE ORDER OF CIT(A). 17. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT CIT(A) AFTER PERUSING THE DETAILS OF EXPE NSES HAS GIVEN A FINDING THAT MOST OF THE EXPENSES WHICH THE ASSESSEE HAS CLAIMED AS REVENUE EXPENSES WERE SMALL AND WERE INCURRED OF PRESERVING AND MAIN TAINING THE BUILDING. OUT OF THE TOTAL EXPENSES OF RS. 30,27,340/- THE AGGREG ATE OF SMALL EXPENSES WERE TO THE TUNE OF RS. 4,42,421/-. ON PERUSING THE DETAILS OF BALANCE EXPENSES OF RS. 25,84,619/-. CIT(A) NOTED THAT ASSE SSEE TRANSFERRED THE EXPENSES FROM BUILDING WORK IN PROGRESS ACCOUNT AND THOSE EXPENSES WERE OF CAPITAL IN NATURE. HE THEREFORE CONSIDERED THE EXPE NSES OF RS. 25,84,619/- AS NOT OF REVENUE NATURE AND HE THUS DISALLOWED THE CL AIM WITH RESPECT TO CAPITAL EXPENSES INCURRED AMOUNTING TO RS. 25,84,619/- AND ALLOWED THE BALANCE AMOUNT AS BEING ELIGIBLE FOR DEDUCTION. BEFORE US, THE REVENUE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO CONTROVERT THE FI NDINGS OF CIT(A). WE THEREFORE FIND NO REASON TO INTERFERE WITH THE ORDE R OF CIT(A) AND THUS THIS GROUND OF REVENUE IS DISMISSED. GROUND NO. 3 IS WITH RESPECT TO DEPRECIATION ON ACC OUNT OF REPAIRING OF CATH LAB. ITA NO 1523 & 1524/AHD/2011 . A.Y. 2003-0 4 & 2004- 05 10 18. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A. O NOTICED THAT ASSESSEE HAS CLAIMED CATH LAB REPAIRING EXPENSES OF RS. 29,5 2,713/-. A.O WAS OF THE VIEW THAT THE EXPENDITURE WAS NOT IN THE NATURE OF REPAIRS BUT WAS OF CAPITAL IN NATURE. HE ACCORDINGLY DISALLOWED THE CLAIM OF ASSE SSEE AS REVENUE EXPENDITURE BUT HOWEVER ALLOWED THE DEPRECIATION AN D ACCORDINGLY DISALLOWED THE BALANCE CLAIM TO THE EXTENT OF RS. 15,36,386/-. AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT (A) DELETED THE ADDITION BY HOLDING AS UNDER:- 5.3 I HAVE CONSIDERED THE FACTS OF THE CASE, ASSESS MENT ORDER AND APPELLANT'S SUBMISSION. IT IS NOT IN DISPUTE THAT APPELLANT HAD CATH-LAB RUNNING SINCE E ARLIER YEARS . THE CATH LAB IS VERY COSTLY MEDICAL SYSTEM WHICH HAS WEAR AND TEAR OF ITS PARTS AND REQ UIRES REPLACEMENT TO MAINTAIN AND PRESERVE ITS EXISTING USE. DURING THE YEAR, IT'S CATH LAB DEVELO PED SOME SNAGS FOR WHICH IT'S SUPPLIER REPLACED CERTAIN PARTS AND MADE THE SYSTEM OPERATIONAL AGAIN . THEREFORE THE BILLS FOR PURCHASE OF PARTS FROM CATH LAB SUPPLIER IS FOR REPLACING THE WORN OUT PAR TS. THE APPELLANT SUBMITTED COPY OF SERVICE REPORT PREPARED BY PHILIPS MEDICAL SYSTEMS INDIA PRIVATE L TD WHICH CLEARLY MENTIONED REPLACEMENT OF PARTS AND REPAIRING OF THE SYSTEM. THEREFORE IT IS CLEAR THAT THESE PARTS WERE NOT PURCHASED FOR NEW OR INDEPENDENT USE. THESE WERE REPLACED WITH EXISTING PARTS IN THE SYSTEM TO MAINTAIN AND PRESERVE ITS USE. SINCE THESE EXPENSES HAVE NOT CREATED ANY NEW ASSET AND ALSO DID NOT HAVE ANY NEW ADVANTAGES, THESE WILL QUALIFY AS CURRENT REPAIRS IN VIEW OF TH E DECISIONS OF SUPREME COURT RELIED UPON AND QUOTED IN APPELLANT'S SUBMISSION. APPELLANT FURTHER SUBMIT TED DURING THE APPEAL HEARING THAT NEXT YEAR ALSO THERE WAS REPLACEMENT OF X-RAY TUBE AMOUNTING TO RS 14.48 LACS WHICH WAS ALLOWED BY THE ASSESSING OFFICER AS CURRENT REPAIRS. IN SUBSEQUENT YEARS APP ELLANT HAS GIVEN ANNUAL MAINTENANCE CONTRACT WITH SUPPLY OF PARTS WHICH WERE ALLOWED AS REVENUE IN AL L THE YEARS. CONSIDERING THE FACT THAT CATH LAB MACHINE COSTS MORE THAN RS 2.5 CRORES, IT'S ANNUAL WEAR AND TEAR REQUIRING REPAIRS WILL BE IN A FEW LACS THEREFORE BY SEEING THE QUANTUM, ONE CANNOT DE CIDE THE NATURE OF EXPENSE. SINCE THESE EXPENSES WERE INCURRED TO MAINTAIN AND PRESERVE THE UTILITY OF EXISTING CATH LAB MACHINE, THE SAME IS CURRENT REPAIRS IN VIEW OF THE SUPREME COURT DECISIONS REFE RRED EARLIER. ADDITION MADE BY THE ASSESSING OFFICE R IS THEREFORE DELETED. 19. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE I S NOW IN APPEAL BEFORE US. BEFORE US LD. D.R. TOOK US THROUGH THE ORDER OF A.O AND SUPPORTED HIS ORDER. ON THE OTHER HAND LD. A.R. SUPPORTED THE ORDER OF C IT(A). ITA NO 1523 & 1524/AHD/2011 . A.Y. 2003-0 4 & 2004- 05 11 20. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT CIT(A) WHILE GRANTING RELIEF HAS GIVEN A FINDING THAT ASSESSEE HAD EXISTING CATH LAB WHICH WAS RUNNING SINCE EARLIER Y EARS AND THAT THE EXPENSES INCURRED WERE TOWARDS REPLACEMENT OF WORN OUT PARTS AND REPAIRING THE SYSTEM AND WAS NOT FOR PURCHASE OF NEW OR INDEP ENDENT USE. BEFORE US, THE REVENUE HAS BROUGHT ANY MATERIAL ON RECORD TO C ONTROVERT THE FINDINGS OF CIT(A). WE THUS FIND NO REASON TO INTERFERE WITH TH E ORDER OF CIT(A) AND THUS THIS GROUND OF REVENUE IS DISMISSED. 21. IN THE RESULT, THE APPEAL OF REVENUE IS PARTLY ALLOWED. 22. IN THE RESULT THE APPEAL OF REVENUE IN ITA NO.1 523/AHD/2011 FOR A.Y. 03-04 IS PARTLY ALLOWED AND IN ITA NO.1524/AHD/2011 FOR A .Y. 04-05 IS DISMISSED. . ORDER PRONOUNCED IN OPEN COURT ON 06 - 06 - 2014. SD/- SD/- (D.K. TYAGI) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,A HMEDABAD