ACIT, New Delhi V. M/s Vatika Landbase Pvt. Ltd., New Delhi

ITA 154/DEL/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65412 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 17-05-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 15-01-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DR B R R KUMARDR
• Keywords: Depreciation; Business expenditure; Principle of natural justice; Question of law; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 37(1); 37; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI H BEN CH BEFORE SHRI A.N. PAHUJA, AM AND SHRI C.M. GARG, JM ITA NO.154/D/2009 ASSESSMENT YEAR: 2005-06 ASSISTANT CIT, CENTRAL CIRCLE-20, NEW DELHI VS. M/S VATIKA LANDBASE PVT. LTD., [NOW VATIKA LTD.], 308 VISHAL BHAWAN, NEHRU PLACE, NEW DELHI. (PAN:.AABCV 5747 G) (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI K. SAMPATH, AR REVENUE BY DR. B.R.R. KUMAR,DR DATE OF HEARING 07-08-2012 DATE OF PRONOUNCEMENT 31-08-2012 O R D E R A.N.PAHUJA:- THIS APPEAL FILED ON 15.01.2009 BY THE REVENUE AGA INST AN ORDER DATED 10.11.2008 OF THE CIT(A)-I, NEW DELHI, RAISES THE FOLLOWING GROUNDS:- 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF ` `36,60,500/- HOLDING THAT AMOUNT OF COMPENSATION PAID WAS ALLOWABLE AS BUSINE SS EXPENDITURE. 2) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF ` ` 21,81,197/- MADE ON ACCOUNT OF REPAIR AND MAINTENANCES OF BUILDING DESP ITE THE FACTS THAT IN THE ABSENCE OF ANY DOCUMENTARY EVIDENCE THE SAME CANNOT BE TREATED AS REVENUE EXPENDITURE/TEMPORARY STRUCTU RE. 3) THE APPELLANT CRAVES LEAVE TO ADD, AFTER OR AMEN D ANY/ALL OF THE GROUND OF APPEALS BEFORE OR DURING THE COURSE OF TH E HEARING OF THE CASE. 2. ADVERTING FIRST TO GROUND NO.1 IN THE APPEAL, FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING INCOME O F ` `4,18,02,660/- FILED ON ITA NO.15 4/DEL./2009 2 31.03.2006 BY THE ASSESSEE, A REAL ESTATE COMPANY, AFTER BEING PROCESSED U/S 143(1) OF THE INCOMETAX ACT,1961[HEREINAFTER REFER RED TO AS THE ACT] WAS SELECTED FOR SCRUTINY WITH THE SERVICE OF A NOTICE U/S 143(2) OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFF ICER (A.O. IN SHORT) NOTICED THAT THE ASSESSEE CLAIMED DEDUCTION OF ` ` 36,60,500/- ON ACCOUNT OF COMPENSATION TO 7 PERSONS MENTIONED IN PARA 3 OF TH E ASSESSMENT ORDER. TO A QUERY BY THE AO, THE ASSESSEE REPLIED THAT IT USED TO RECEIVE SALE CONSIDERATION IN INSTALLMENTS. UNLESS THE ENTIRE SALE CONSIDERATI ON, REGISTRATION CHARGES AND OTHER EXPENSES WERE RECEIVED, THE SALE DEED IN RES PECT OF LAND WAS NOT EXECUTED IN FAVOUR OF THE INTENDED PURCHASER. SIMI LARLY, THE ASSESSEE ALLOWED POSSESSION OF THE LAND TO THE INTENDING PURCHASER O NLY AFTER PAYMENT OF FULL CONSIDERATION AND REGISTRATION OF SALE DEED. IN SO ME CASES, SINCE THE INTENDING PURCHASER DID NOT WANT TO BUY THE LAND AS PER MUTUA L AGREEMENT AND ADVANCE RECEIVED WAS REFUNDED ALONG WITH SOME EXCESS AMOUNT AS RETURN ON INVESTMENT. THIS EXCESS AMOUNT WAS TERMED AS COMPENSATION. HOWE VER, THE AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE ON THE GROUN D THAT COMPENSATION WAS NOTHING BUT CONSIDERATION TO REACQUIRE THE RIGHTS IN PLOTS ALLOTTED TO THE VARIOUS CUSTOMERS OF THE ASSESSEE. AS SUCH, IT WAS A PART OF PURCHASE WHICH COULD ONLY BE CAPITALIZED AND COULD NOT BE ALLOWED AS REVENUE EXPENDITURE. SINCE THE PAYMENT OF COMPENSATION WAS NOT UNDER ANY OBLIGATIO N, STATUTORY OR OTHERWISE, THE AO DISALLOWED THE CLAIM, TREATING THE AMOUNT AS PART OF CAPITAL WORK IN PROGRESS. 3. ON APPEAL, THE ASSESSEE REITERATED THEIR SUBMIS SIONS BEFORE THE AO AND FURTHER CONTENDED THAT THE AMOUNT PAID BY THE ASSESSEE AS COMPENSATION WAS TREATED AS REVENUE EXPENSE EVEN IN THE PRECEDING YEARS. IN THE AY 2001-02, THOUGH THE LD. CIT(A) ALLOWED THEI R CLAIM VIDE ORDER DATED 6 TH JANUARY, 2005,ON FURTHER APPEAL, THE ITAT VIDE THEI R ORDER DATED 5.10.2007 IN ITA NO. 1505/DEL./2005 RESTORED THE ISSUE TO THE FILE O F THE LD. CIT(A) WITH THE DIRECTIONS TO RE-EXAMINE THE ISSUE AFRESH IN THE LI GHT OF VARIOUS DECISIONS CITED BEFORE THE CIT(A), THE METHOD OF ACCOUNTING FOLLOWE D AND METHOD OF VALUATION OF ITA NO.15 4/DEL./2009 3 CLOSING STOCK AND ALSO VERIFY THE FACTS AS TO WHETH ER OR NOT SUCH EXPENSES WERE ALLOWED IN THE EARLIER YEARS. THE SAID MATTER IS STATED TO BE STILL PENDING BEFORE THE LD. CIT(A).AS REGARDS ACCOUNTING POLICY BEING C ONSISTENTLY FOLLOWED BY THE ASSESSEE, IT WAS SUBMITTED THAT THE ASSESSEE WAS PA YING COMPENSATION EVERY YEAR AND CLAIMED THE SAME AS REVENUE EXPENDITURE IN THE BOOKS OF ACCOUNTS YEAR AFTER YEAR, AS DETAILED HEREINBELOW:- ASSESSMENT YEAR AMOUNT OF COMPENSATION CLAIMED [IN ` ] AMOUNT OF COMPENSATION ALLOWED[IN ` ] 1995-96 4,98,250 4,98,250 1996-97 13,65,000 13,65,000 1997-98 4,15,000 4,25,000 1998-99 3,04,165 3,04,165 1999-2000 3,75,000 3,75,000 (U/S 143(1)(A) 2000-01 2,46,638 2,46,638 ( U/S 143(1)(A) 2001-02 21,02,000 NIL (APPEAL PENDING WITH CIT(A) 2002-03 1,00,000 1,00,000 2003-04 - - 2004-05 50,000 50,000 WHILE RELYING UPON DECISIONS IN SASUN J. DAVID & C O. PVT. LTD. VS. CIT, (BOM) 118 ITR 261; S.A. BUILDERS LTD. VS. CIT, 288 ITR 1(SC), CIT VS. NEO POLY PACK (P) LTD., 245 ITR 492 (DEL); CIT VS. RAJEEV GR INDING MILLS, 279 ITR 86 (DEL); CIT VS. ARJ SECURITY PRINTERS, 264 ITR 276 ( DEL); CIT VS. DALMIA PROMOTORS PVT. LTD., 281 ITR 346 (DEL); CIT VS. NAR ENDER DOSHI, 254 ITR 606 (SC); BERGER PAINTS INDIA LTD. VS. CIT, 266 ITR 99 (SC) AND JCIT VS. MANDIDEEP ENG. & PKG. IND. P. LTD., 292 ITR 1 (SC), THE ASSE SSEE PLEADED THAT THEIR CLAIM MAY BE ALLOWED IN THE YEAR UNDER CONSIDERATION ALSO . IN THE LIGHT OF THESE SUBMISSIONS, THE LD. CIT(A) ALLOWED THE CLAIM IN T HE FOLLOWING TERMS:- 15. IN VIEW OF THE AFORESAID FACTS AND CIRCUMSTANC ES THE ASSESSING OFFICER HAS ERRED IN HOLDING THAT THE SAI D AMOUNT PAID BY THE ASSESSEE AS COMPENSATION REPRESENTS PURCHASE CO NSIDERATION TO REACQUIRE THE RIGHTS IN THE PLOTS AND THAT THE S AID AMOUNT WILL INCREASE CAPITAL WORK IN PROGRESS OF THE ASSESSEE. IN FACT THERE IS ITA NO.15 4/DEL./2009 4 NOTING IN THE ACCOUNTS OF THE ASSESSEE WHICH COULD BE TERMED AS CAPITAL WORK IN PROGRESS. THE NATURE OF EXPENSE CL EARLY SHOWS THAT THE NATURE OF EXPENSE IS REVENUE EXPENDITURE INCURR ED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS AND HENCE IS ALLOWABLE AS REGULAR BUSINESS EXPENDITURE. MOREOVER, ACCORDING TO THE CONSISTENTLY FOLLOWED ACCOUNTING PRACTICE, SUCH EXP ENSES ARE BEING ALLOWED TO THE ASSESSEE AS REVENUE EXPENDITURE. TH E THEORY AS PLACED BY THE ASSESSING OFFICER THAT THE AMOUNT PAI D BY THE ASSESSEE AS COMPENSATION REPRESENTS PURCHASE CONSID ERATION IS WHOLLY MISCONCEIVED SINCE THE ASSESSEE HAS NEVER IN EARLIER YEARS TREATED THE SAID AMOUNT AS SALES IN ITS BOOKS AS TH E ASSESSEE HAD RECEIVED ONLY PART OF THE SALE CONSIDERATION. IN T HE ABSENCE OF COMPLETE SALE CONSIDERATION AND AMOUNT HAVING BEEN RECEIVED BY THE ASSESSEE, THE SALE WAS NOT YET COMPLETED AND TH EREFORE, THE AMOUNT PAID AS COMPENSATION CAN UNDER NO CIRCUMSTAN CES BE TERMED AS AMOUNT PAID FOR ACQUISITION OF STOCK IN T RADE. ASSESSEE CANNOT BE CONSIDERED TO BE ACQUIRING ANY NEW ASSET. IN FACT, THEORY OF PURCHASING SOMETHING OF WHICH HE HIMSELF IS THE OWNER IS IN ITSELF MISCONCEIVED. 16. LOOKING TO THE FACTS AND CIRCUMSTANCES AS STATE D HERE IN ABOVE AND THE LAW APPLICABLE, THE ADDITION MADE BY THE ASSESSING OFFICER OF ` `36,60,500/- IS DELETED. 4. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LD. DR CONTENDED TH AT WHEN ADVANCE WAS NOT CREDITED IN PROFIT AND LOSS ACCOUNT NOR WAS THERE A NY COMMERCIAL EXPEDIENCY IN MAKING THE PAYMENT OF COMPENSATION AND NO SUCH COMP ENSATION WAS PROVIDED IN THE AGREEMENT, THE CLAIM COULD BE NOT ALLOWED. INTER ALIA, THE LD. DR RELIED UPON DECISION IN COMMISSIONER OF INCOME-TAX V. H. P . HOUSING BOARD,340 ITR 388 (H.P.). 5. ON THE OTHER HAND, THE LD. AR ON BEHALF OF THE ASSESSEE SUPPORTED THE FINDINGS OF THE LD. CIT(A) WHILE RELYING UPON T HE DECISION DATED 24 TH AUGUST, 2004 IN ITA NOS.3096 & 3686/DEL./2000 FOR THE AY 19 97-98 IN THE CASE OF GOPAL DAS ESTATES & HOUSING LTD. WHEREIN, ACCORDING TO TH E LD. AR, A SIMILAR CLAIM WAS ALLOWED IN THE FOLLOWING TERMS: ITA NO.15 4/DEL./2009 5 39. LEARNED DR RELIED UPON ORDER OF ITAT DELHI B BENCH DATED 28 TH FEBRUARY, 2002 IN THE CASE OF ASSESSEE FOR ASSESSMENT YEAR 1995-96 IN WHICH THE ISSUE IS DECID ED AGAINST THE ASSESSEE. WE HAVE GONE THROUGH THE ORDER OF THE AP PELLATE TRIBUNAL. THE TRIBUNAL DIRECTED THE COUNSEL FOR AS SESSEE TO SPECIFY 1. WHETHER COMPENSATION WAS INSISTED UPON BY THE PARTIES/PERSONS; 2. WHETHER LEGAL OPINION WAS SOUGHT BEFORE PARTING WITH COMPENSATION. 3. WHETHER PAYMENT OF COMPENSATION WAS PROVIDED FOR IN THE AGREEMENT ENTERED INTO AT THE TIME OF BOOKING. THE TRIBUNAL, CONSIDERING THE FACTS OF THE CASE, UL TIMATELY HELD THAT THE SO CALLED PAYMENT OF COMPENSATION WAS NOT PROVIDED BY THE AGREEMENT BETWEEN THE PARTIES, NONE OF THE P ARTIES ASKED FOR IT. ALL THEY WANTED WAS THEIR FLAT WITHIN A RE ASONABLE PERIOD, LEGAL OPINION ALSO STATED THAT A COMPENSATION WAS N OT PAYABLE AS PER CONTRACT AND THAT OPINION WAS TAILOR MADE TO SU IT THE ASSESSEE. 40. THE TRIBUNAL, IN VIEW OF THE ABOVE, REJECTED THE CLAIM OF THE AND SET ASIDE THE ORDERS OF THE CIT(A) IN AS SESSMENT YEAR 1995-96 AND RESTORED THE ORDER OF THE ASSESSING OFF ICER. THE TRIBUNAL ALSO CONSIDERED THAT PAYMENT WAS APPARENTL Y MADE FOR EXTRANEOUS CONSIDERATION. 41. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED TH AT ALL THE FACTS WERE PLEADED BEFORE THE TRIBUNAL BUT THE SAME HAVE NOT BEEN PROPERLY CONSIDERED ALONG WITH THE CASE LAWS R EFERRED TO BEFORE US. LEARNED COUNSEL FOR ASSESSEE ALSO ARGUE D THAT THE TRIBUNAL WAS NOT HAVING ANY MATERIAL BEFORE IT TO G IVE FINDING WITH REGARD TO EXTRANEOUS CONSIDERATION. LEARNED COUNSE L FOR THE ASSESSEE ALSO ARGUED THAT SINCE THE CASE OF THE ASS ESSEE WAS NOT PROPERLY CONSIDERED BY THE TRIBUNAL ON FACTS, AND M ISTAKE WAS APPARENT ON RECORD, THEREFORE, MISCELLANEOUS APPLIC ATION WAS FILED WHICH IS PENDING BEFORE THE TRIBUNAL AS WELL AS APP EAL IS PENDING IN THE HIGH COURT. LEARNED COUNSEL FOR ASSESSEE SUBMI TTED THAT SINCE THE CASE OF THE ASSESSEE IS NOT PROPERLY CONSIDERED AND THAT THE MATTER HAS NOT REACHED FINALITY, THEREFORE, THE ORD ER OF THE TRIBUNAL MAY NOT BE RELIED UPON. 42. WE HAVE CONSIDERED SUBMISSIONS OF TH E PARTIES. WITH ALL RESPECT TO ORDER OF THE TRIBUNAL, WE WOULD LIKE TO SUBMIT THAT THE TRIBUNAL IN THE EARLIER YEAR HAS PERHAPS CONSIDERED THE PRINCIPLE OF LIQUIDATED DAMAGES ONLY. THEREFORE, ITAT HELD :-SIN CE IT WAS NOT ITA NO.15 4/DEL./2009 6 SPECIFICALLY MENTIONED IN THE CONTRACT, THEREFORE, CLAIM OF THE ASSESSEE WAS DENIED. THE RULE OF GENERAL AND NOMINA L DAMAGES HAVE NOT BEEN CONSIDERED. THE REASONS GIVEN FOR CAN CELLATION OF THE CONTRACT IS ALSO NOT CONSIDERED WHILE ALLOWING RELIEF TO THE REVENUE. THEREFORE, IN OUR, VIEW, THE ORDER OF THE ITAT DATED 28 TH FEBRUARY2002 WHICH HAS NOT REACHED FINALITY CAN NOT BE RELIED UPON AT THIS STAGE. WE, THEREFORE, RESPECTFULLY DO NOT P ROPOSE TO RELY UPON THE ORDER OF THE APPELLATE TRIBUNAL DATED 28.2 .2002.THIS ORDER IS OF NO HELP TO THE REVENUE AS SUCH. CONSIDERING T HE ABOVE DISCUSSION, AND FACTS OF THE CASE, WE ARE OF THE VI EW THAT ASSESSEE HAS RIGHTLY CLAIMED THE EXPENDITURE AS REVENUE EXPE NDITURE. THE CIT(A)IS THEREFORE, JUSTIFIED IN ALLOWING THE APPEA L OF THE ASSESSEE. WE UPHOLD THE FINDINGS OF THE CIT(A)AND DISMISS THE APPEAL OF THE REVENUE ON THIS ISSUE. WE MAY CLARIFY THAT THE FIND INGS IN THIS ORDER SHALL NOT PREJUDICE, THE RIGHTS AND CONTENTION OF T HE PARTIES IN THE MATTER SUBJUDICE IN OTHER YEAR. 5.1 THE LD. AR POINTED OUT THAT HONBLE HIGH COU RT ADMITTED A QUESTION OF LAW ON THIS ISSUE VIDE ORDER DATED 10.10.2007 IN ITA N O. 772/2005 . 6. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUG H THE FACTS OF THE CASE. AS IS APPARENT FROM THE AFORESAID FACTS, DETA ILS AND EXPLANATION TENDERED BY THE ASSESSEE BEFORE THE AO AND EXTRACTED IN PARA 3 OF THE ASSESSMENT ORDER, REVEALS AS UNDER: DATE NAME OF PARTY AMOUNT[IN ] EXPLANATION 4-5-2004 RAJINDER KUMAR 36000 REFUND OF ADVANCE FOR PLOT AREA 250SQ. METER AT VILLAGE TIGRA GHAT SUSHANT LOK VIDE RECEIPT NO.612 DATED 5-5-2003 9-6-2004 DINESH GUPTA 122500 BEING AMOUNT GIVEN TO DINESH GUPTA TOWARDS REFUND OF ADVANCE OF PLOT NO.1025 AT BHONDSI, AREA OF PLOT IS 1ACRE 9-6-2004 SADHNA GUPTA 122500 BEING AMOUNT GIVEN TO WARDS REFUND OF ADVANCE OF PLOT NO.1024 AT BHONDSI,AREA OF PLOT IS 1ACRE 9-6-2004 KAMLESH GUPTA 122500 BEING AMOUNT GIVEN T OWARDS REFUND OF ADVANCE OF PLOT NO.1024 AT BHONDSI,AREA OF PLOT IS 1ACRE 31-3-2005 GREEFIELD INTERNATIONAL PVT. LTD. 1439000 BEING THE COMPENSATION GIVEN ON THE SURREND ER OF PLOT BOOKED IN VATIKA PH.-II 31-3-2005 EARTH MOVERS & BUILDERS PVT. LTD. 1312000 BEING THE COMPENSATION GIVEN ON THE SURREND ER OF PLOT BOOKED IN VATIKA PH.-II 31-3-2005 SK VAGHAL 500000 BEING THE AMOUNT PAID AS COMPENSATION AGAINST CASE FILED IN MRP AS FULL AND FINAL PAYMENT ITA NO.15 4/DEL./2009 7 6.1 THE AFORESAID EXPLANATION REVEALS THAT AMOUNT HAS BEEN PAID TO SHRI RAJINDER KUMAR, DINESH GUPTA, SADHNA GUPTA AND KAML ESH GUPTA BY WAY OF REFUND OF ADVANCE PAID BY THEM. THERE IS NOTHING IN THE IMPUGNED ORDER NOR THE LD. AR SUBMITTED ANY MATERIAL BEFORE US IN SUPPORT OF THEIR CLAIM THAT THE AMOUNT WAS PAID AS COMPENSATION FOR REACQUIRING THE RIGHTS IN THE PLOTS. HOW THE REFUND OF ADVANCE PAID BY THE RESPECTIVE BUYERS COULD BE TREATED AS COMPENSATION, HAS NOT BEEN EXPLAINED BEFORE US. AS REGARDS AMOUNT PAI D TO M/S GREENFIELD INTERNATIONAL PVT. LTD. AND M/S EARTH MOVERS & BUIL DERS PVT. LTD., IT IS MENTIONED THAT COMPENSATION WAS PAID FOR SURRENDER OF PLOT. T HE BASIS FOR WORKING AND PAYMENT OF COMPENSATION OR THE RELEVANT CORRESPONDE NCE IS NOT REFERRED TO IN THE IMPUGNED ORDER NOR HAS BEEN PLACED BEFORE US. R EGARDING AMOUNT PAID TO SHRI SK VAGHAL, THE COMPENSATION IS STATED TO HAVE BEEN PAID FOR SETTLEMENT OF SOME CASE FILED IN MRP. THE NATURE OF DISPUTE AND H OW THE AMOUNT IS COMPENSATION TOWARDS REACQUIRING RIGHTS IN LAND IS NOT EVIDENT FROM THE IMPUGNED ORDER IN THIS CASE ALSO. IN FACT, THE LD. CIT(A) DI D NOT EVEN ATTEMPT TO ANALYSE THE RELEVANT FACTS AND CIRCUMSTANCES IN EACH OF THE AF ORESAID SEVEN CASES NOR RECORDED HIS SPECIFIC FINDINGS AS TO HOW THE AMOUNT OF REFUND OF ADVANCE PAID TO THE FIRST FOUR PARTIES REFERRED TO ABOVE IN THE TAB LE OR THE AMOUNT PAID BY THE ASSESSEE TO THE REMAINING THREE PERSONS IS COMPENSA TION FOR REACQUIRING THE RIGHTS IN PLOTS. NO SUCH MATERIAL IS REFERRED TO I N THE IMPUGNED ORDER NOR HAS BEEN PLACED BEFORE US. AS REGARDS ISSUE OF PRINCIPL ES OF CONSISTENCY , THE ITAT IN THE AT 2001-02 ANALYSED THE FACTS AND CIRCUMSTANCES IN THE PRECEDING/SUCCEEDING YEARS AND RECORDED THEIR FINDI NGS AS UNDER: 6 WE HAVE CAREFULLY CONSIDERED RIVAL SU BMISSIONS ALONG WITH THE ORDER OF THE TAX AUTHORITIES AND THE VARIOUS CA SE LAWS CITED BEFORE US. WE HAVE ALSO GONE THROUGH THE PAPER BOOK AND THE COPY OF THE ASSESSMENT ORDER PLACED BEFORE US BY THE LEARNED AR IN THE PAPER BOO K. FROM THE ORDER FOR THE ASSESSMENT YEAR 1995-96, 1997-98, 1998-99 & 2004-05 , THE COPIES OF WHICH ARE PLACED AT PAGE NO.73 TO 75, 76 TO 79, 80 TO 85, 89 TO 90 OF THE PAPER BOOK, WE FIND THAT THERE IS NO DESCRIPTION ABOUT THE ALLOWAN CE OR DISALLOWANCE OF THE COMPENSATION EXPENSES INCURRED BY THE ASSESSEE. IT IS ONLY IN THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2002-03, WE FIND THAT THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HAS CLAIMED DEDUCTION FO R ` `1,00,000/- ON ACCOUNT OF COMPENSATION EXPENSES AND THESE EXPENSES HAVE BEEN DULY DISALLOWED BY THE ITA NO.15 4/DEL./2009 8 ASSESSING OFFICER WHILE FRAMING THE ASSESSMENT. TH US, FROM THE ASSESSMENT ORDERS THE COPY OF WHICH WERE PLACED BEFORE US IT I S NOT APPARENT WHETHER THE ASSESSEE HAS INCURRED THE COMPENSATION EXPENSES AND HAS DEBITED THESE EXPENSES IN THE PROFIT AND LOSS ACCOUNT AND THESE E XPENSES HAVE BEEN ALLOWED BY THE ASSESSING OFFICER. WE ALTHOUGH NOTED THAT T HE ASSESSEE HAD FILED THE DETAIL OF THE COMPENSATION EXPENSES AS APPEARED AT PAGE 72. IN THE DETAIL, THE ASSESSEE HAS ALSO MENTIONED THAT THE CIT(A) HAS ALL OWED THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2002-03 DELETING T HE COMPENSATION EXPENSES OF `1,00,000/-. BUT WHAT HAPPENED SUBSEQUENTLY WHE THER ANY APPEAL HAS BEEN FILED OR NOT IS NOT BORN OUT, OUT OF THE FACTS BEFO RE US. WE FIND THAT CIT(A) HAS ALLOWED THE APPEAL OF THE ASSESSEE MERELY RELYING O N THE SUBMISSION OF THE ASSESSEE THAT THE SIMILAR AMOUNTS HAVE BEEN ALLOWED IN THE EARLIER YEARS. NO DOUBT THE EXPENSES INCURRED BY THE ASSESSEE ARE THE REVENUE EXPENSES AND HAVE BEEN INCURRED FOR THE PURPOSES OF THE BUSINESS , AS IN OUR OPINION, COMMERCIAL EXPEDIENCY DEMANDS THAT SUCH EXPENSES SH OULD BE INCURRED BY THE ASSESSEE WHILE MAKING THE REFUND TO THE ALLOTTEES. BUT THE QUESTION ARISE WHETHER THESE EXPENSES WILL FORM PART OF THE STOCK IN TRADE OR NOT. THIS IN OUR OPINION WILL DEPEND ON THE METHOD OF THE ACCOUNTING CONSISTENTLY FOLLOWED BY THE ASSESSEE FOR THE VALUATION OF THE CLOSING STOCK. W HETHER THE ASSESSEE IS FOLLOWING PROJECT COMPLETION METHOD OR WORK CERTIFI ED METHOD. THESE FACTS HAVE NOT BEEN BROUGHT ON RECORD BEFORE US FROM EITHER OF THE SIDE. WE, THEREFORE, IN THE INTEREST OF JUSTICE AND FAIR PLAY TO BOTH THE P ARTIES SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE THIS ISSUE TO THE FILE OF THE CI T(A) WITH THE DIRECTION THAT THE CIT(A) TO RE-EXAMINE THIS ISSUE AFRESH IN THE LIGHT OF THE VARIOUS CASE LAW CITED BEFORE US, METHOD OF ACCOUNTING FOLLOWED BY THE ASS ESSEE, METHOD OF VALUATION OF THE CLOSING STOCK CONSISTENTLY FOLLOWED BY THE A SSESSEE AND ALSO VERIFY THE FACT WHETHER SUCH EXPENDITURE HAS BEEN ALLOWED TO THE AS SESSEE IN THE EARLIER YEARS OR NOT AFTER GIVING THE PROPER AND SUFFICIENT OPPOR TUNITY TO THE ASSESSEE. THE ASSESSEE IS ALSO FREE TO ADDUCE ALL THE NECESSARY E VIDENCE ON WHICH HE MAY RELY BEFORE THE CIT(A). THUS, THE APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 6.2 ADMITTEDLY, THE MATTER IS STILL PENDING B EFORE THE LD. CIT(A) IN THE AY 2001-02. THE LD. AR ALSO RELIED UPON A DECISION DA TED 24 TH AUGUST,2004 IN THE CASE OF GOPAL DAS ESTATES & HOUSING LTD..(SUPRA) TH IS DECISION WAS NOT CITED BEFORE THE LOWER AUTHORITIES. SINCE THERE IS NOTHIN G TO SUGGEST THAT THE FACTS AND CIRCUMSTANCES IN THE INSTANT CASE ARE PARALLEL TO FACTS AND CIRCUMSTANCES IN THE AFORESAID CITED DECISION WHILE AS ALREADY OBSERVED ,THE LD. CIT(A) DID NOT ANALYSE THE NATURE OF EACH OF THE AFORESAID SEVEN AMOUNTS , APPARENTLY, THE VIEW TAKEN IN THE SAID DECISION CANNOT BE FOLLOWED. ITA NO.15 4/DEL./2009 9 7. AS IS APPARENT FROM THE AFORESAID OBSERVATI ONS IN THE IMPUGNED ORDER, THE LD. CIT(A) DISMISSED THE APPEAL WITHOUT EVEN ANALYZ ING THE NATURE OF EACH OF THE AMOUNT PAID TO AFORESAID SEVEN PERSONS AS TO HOW TH E AMOUNT IS COMPENSATION IN NATURE AND WHAT WERE THE CIRCUMSTANCES IN EACH O F THESE CASES WHICH COMPELLED THE ASSESSEE TO PAY SUCH COMPENSATION AN D WHAT WAS THE BASIS OF PAYMENT OF THE AFORESAID AMOUNT . A MERE GLANCE A T THE IMPUGNED ORDER REVEALS THAT THE ORDER PASSED BY THE LD. CIT(A) IS CRYPTIC AND GROSSLY VIOLATIVE OF ONE OF THE FACETS OF THE RULES OF NATURAL JUSTICE, NAMELY, THAT EVERY JUDICIAL/QUASI-JUDICIAL BODY/AUT HORITY MUST PASS A REASONED ORDER, WHICH SHOULD REFLECT APPLICATION OF MIND BY THE CONCERNED AUTHORITY TO THE ISSUES/POINTS RAISED BEF ORE IT. THE APPLICATION OF MIND TO THE MATERIAL FACTS AND THE A RGUMENTS SHOULD MANIFEST ITSELF IN THE ORDER. SECTION 250(6) OF T HE ACT MANDATES THAT THE ORDER OF THE CIT(A) WHILE DISPOSING OF THE APPEAL SHALL BE IN WRITING AND SHALL STATE THE POINTS FOR DETERMINATIO N, THE DECISION THEREON AND THE REASONS FOR THE DECISION. THE REQUI REMENT OF RECORDING OF REASONS AND COMMUNICATION THEREOF BY T HE QUASI- JUDICIAL AUTHORITIES HAS BEEN READ AS AN INTEGRAL P ART OF THE CONCEPT OF FAIR PROCEDURE AND IS AN IMPORTANT SAFEGUARD TO ENSURE OBSERVANCE OF THE RULE OF LAW. IT INTRODUCES CLARIT Y, CHECKS THE INTRODUCTION OF EXTRANEOUS OR IRRELEVANT CONSIDERAT IONS AND MINIMIZES ARBITRARINESS IN THE DECISION-MAKING PROC ESS. HONBLE JURISDICTIONAL HIGH COURT IN THEIR DECISION IN VODA FONE ESSAR LTD. VS. DRP,196 TAXMAN423(DELHI) HELD THAT WHEN A QUASI JUDICIAL AUTHORITY DEALS WITH A LIS, IT IS OBLIGATORY ON ITS PART TO ASCRIBE COGENT AND GERMAN E REASONS AS THE SAME IS THE HEART AND SOUL OF THE MATTER AND FURTHER, THE SAME ALSO FACILITATES APPRECIATION WHEN THE ORDER IS CALLED IN QUESTION BEFORE THE SUP ERIOR FORUM. WE MAY POINT OUT THAT A DECISION DOES NOT MERELY MEAN THE CO NCLUSION. IT EMBRACES WITHIN ITS FOLD THE REASONS FORMING BASIS FOR THE CONCLUSION.[MUKHTIAR SINGH VS. STATE OF PUNJAB,(199 5)1SCC 760(SC)].IN VIEW OF THE FOREGOING, ESPECIALLY WHEN THE LD. CIT(A) ITA NO.15 4/DEL./2009 10 HAVE NOT PASSED A SPEAKING ORDER NOR ANALYSED THE NATURE OF AMOUNT PAID IN THE YEAR UNDER CONSIDERATION WHILE T HE MATTER IN THE AY 2001-02 IS STILL PENDING BEFORE HIM, WE CONSIDER IT FAIR AND APPROPRIATE TO SET ASIDE THE ORDER OF THE LD. CIT(A ) AND RESTORE THE MATTER TO HIS FILE FOR DECIDING THE AFORESAID ISSU ES, AFRESH IN ACCORDANCE WITH LAW, AFTER ALLOWING SUFFICIENT OPPO RTUNITY TO BOTH THE PARTIES, KEEPING IN VIEW ,INTER ALIA, THE OBSERVATI ONS OF THE ITAT IN THEIR ORDER FOR THE AY 2001-02. NEEDLESS TO SAY THA T WHILE REDECIDING THE APPEAL, THE LD. CIT(A) SHALL PASS A SPEAKING ORDER, KEEPING IN MIND, INTER ALIA, THE MANDATE OF PROVISI ONS OF SEC. 250(6) OF THE ACT. WITH THESE OBSERVATIONS, GROUND NO. 1 I N THE APPEAL IS DISPOSED OF. 8.. GROUND NO.2 IN THE APPEAL RELATES TO DISALLOWA NCE OF EXPENDITURE ON ACCOUNT OF REPAIR AND MAINTENANCE OF BUILDING. ON PERUSAL OF PROFIT AND LOSS ACCOUNT, THE AO NOTICED THAT THE ASSESSEE DEBITED A N AMOUNT OF ` ` 24,30,474/- UNDER THE HEAD REPAIR AND MAINTENANCE OF BUILDING. OF THESE, LEDGER ACCOUNT REVEALED THAT AN AMOUNT OF ` 21,81,197/- RELATED TO CORIANDER LEAF AND OTHER REP AIR EXPENSES AT VATIKA TRIANGLE. EVEN WHEN THE AO ASKED THE ASSESSEE TO SUBMIT BILLS/VOUCHERS FOR THESE EXPENSES , THE ASSESSEE D ID NOT PRODUCE THE SAME. ACCORDINGLY, WHILE OBSERVING THAT THE ASSESSEE INCU RRED EXPENDITURE ON CONSTRUCTION OF COMMERCIAL COMPLEX AND BASEMENT AT VATIKA TRIANGLE, THE AO DISALLOWED THE CLAIM OF THE ASSESSEE, TREATING THE AMOUNT CAPITAL IN NATURE. 9. ON APPEAL, THE LD. CIT(A) CONCLUDED IN THE FOLLO WING TERMS:- 18. THE PROPERTY WAS FULLY OCCUPIED BY THE OWNERS OF THE RESPECTIVE PORTIONS OF THE PROPERTY OR TENANTS IN E ARLIER YEARS. INCOME THERE FROM HAS BEEN DISCLOSED BY THE ASSESSE E IN THE ASSESSMENT YEAR 2004-05. THE ASSESSEE HAS ALSO FIL ED COPY OF AN APPLICATION FILED BY IT BEFORE THE HUDA AUTHORITIES FOR ISSUANCE OF A COMPLETION CERTIFICATE W.E.F. 24.12.2004. IT WAS F URTHER EXPLAINED THAT THE BUILDING CONTAINS 7 FLOORS AND 3 BASEMENTS . THUS, IN THE ITA NO.15 4/DEL./2009 11 SAID BUILDING 10 FLOORS HAVE BEEN BUILT UP. IT WAS SUBMITTED THAT THE COMMERCIAL COMPLEX HAVING 10 FLOORS IN ALL CANNOT B E CONSTRUCTED FOR A MEAGER SUM OF `21,81,197/- AND, THEREFORE, TH E OBSERVATIONS OF THE ASSESSING OFFICER ARE WRONG THAT SUCH EXPENS ES WERE INCURRED DURING CONSTRUCTION OF COMMERCIAL COMPLEX AND BASEMENTS AT VATIKA TRIANGLE. IT WAS ALSO EXPLAINED THAT SUC H AMOUNT WAS INCURRED BY THE ASSESSEE FOR ERECTION OF TEMPORARY STRUCTURES ETC. IN THE BASEMENT OF THE COMMERCIAL COMPLEX KNOWN AS VAT IKA TRIANGLE AND THUS SUCH EXPENSES WERE ONLY FOR TEMPORARY CONS TRUCTION AND ARE ELIGIBLE FOR DEPRECIATION @100%. THE ASSESSING OFFICER IS DIRECTED TO ALLOW DEPRECIATION AS PER THE PROVISION S OF LAW. 10. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LD.DR RELIED UPON TH E ORDER OF THE AO WHILE CONTENDING THAT ASSESSEE DID NOT PLACE ANY EVIDENCE BEFORE THE AO THAT THE AMOUNT WAS INCURRED ON TEMPORARY CONSTRUCTION IN TH E BASEMENT NOR ANY BILLS OR VOUCHERS WERE SUBMITTED. THUS, THE LEARNED CIT(A) WAS NOT JUSTIFIED IN TREATING THE AMOUNT AS HAVING BEEN INCURRED ON TEMPORARY CO NSTRUCTION, ELIGIBLE FOR DEPRECIATION @100%,WITHOUT ALLOWING ANY OPPORTUNITY TO THE AO. THE LD. DR ,INTER ALIA, RELIED UPON DECISION IN RAMAKRISHNA & CO. VS. CIT,88 ITR 406(MAD.) & CIT VS. LUCKY BHARAT GARAGE,174 ITR 526(MP). 11. ON THE OTHER HAND, THE LD. AR ON BEHALF OF THE ASSESSEE RELIED UPON THE IMPUGNED ORDER . TO A QUERY BY THE AO, THE LD. AR SUBMITTED A COPY OF LEDGER ACCOUNT OF EXPENSES DEBITED UNDER THE HEAD REPAIRS TO BUILDING. 12. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUG H THE FACTS OF THE CASE AS ALSO THE AFORESAID DECISIONS RELIED UPON BY THE LD. DR. INDISPUTABLY, THE ASSESSEE DID NOT PRODUCE ALL THE BILLS AND VOUCHERS IN RELATION TO EXPENDITURE INCURRED ON REPAIRS TO BUILDING. THE LD. CIT(A),WIT HOUT ASCERTAINING THE NATURE OF CONSTRUCTION OR VERIFYING THE BILLS/VOUCHERS OR ANY OTHER MATERIAL CONCLUDED THAT EXPENDITURE WAS INCURRED ON TEMPORARY STRUCTURES. THERE IS NOTHING TO SUGGEST THAT THE ASSESSEE PRODUCED THE RELEVANT BILLS & V OUCHERS BEFORE THE LD. CIT(A) NOR SEEMS TO HAVE VERIFIED THE GENUINENESS OF EXPE NDITURE OR EVEN RECORDED ANY SUCH FINDINGS . IN THESE CIRCUMSTANCES, ESPEC IALLY WHEN COMPLETE BILLS AND ITA NO.15 4/DEL./2009 12 VOUCHERS IN RELATION TO THE AFORESAID EXPENSES WERE NOT PRODUCED BEFORE THE AO OR THE LD. CIT(A) NOR THE LATTER ALLOWED ANY OPPORT UNITY TO THE AO BEFORE CONCLUDING THAT EXPENDITURE WAS INCURRED ON TEMPORA RY STRUCTURES, ENTITLED TO DEPRECIATION @100% , WE ARE OF THE OPINION THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN DELETING THE DISALLOWANCE. THE QUESTION WHICH AR ISES FOR DETERMINATION IN THIS CASE IS WHETHER THE ASSESSEE WAS ENTITLED TO CLAIM THE AFORESTATED AMOUNTS AS 'CURRENT REPAIRS' UNDER SECTIONS 30 OF THE ACT OR U/S 37 (1) OF THE ACT AS REVENUE EXPENDITURE. IN THIS CONNECTION THE JUDGMENT OF HON BLE BOMBAY HIGH COURT IN THE CASE OF NEW SHORROCK SPG.. & MFG. CO. LTD. V. C IT [1956] 30 ITR 338 IS THE LEADING CASE , WHICH WAS APPROVED BY THE HONBLE S UPREME COURT IN THE CASE OF BALLIMAL NAVAL KISHORE V. CIT [1997] 224 ITR 414 . THE HONBLE BOMBAY HIGH COURT EXPLAINED THE EXPRESSION 'REPAIRS' IN THE FOL LOWING WORDS : 'THE EXPRESSION REPAIRS MUST BE UNDERSTOOD IN CON TRADISTINCTION TO RENEWAL OR RESTORATION. A BUILDING, MACHINERY, PLANT OR FUR NITURE MAY BE RENEWED OR RESTORED EITHER WHOLLY OR IN PART, IN WHICH CASE TH E AMOUNT EXPENDED WOULD NOT BE IN RESPECT OF REPAIRS, BUT WHEN RENEWING OR RESTORING A BUILDING, MACHINERY, PLANT OR FURNITURE A NEED MAY ARISE TO S ET RIGHT CERTAIN DEFECTS OR FLAWS AND AN AMOUNT MAY BE SPENT FOR THIS PURPOSE A ND THE RESULT MAY BE THAT ALTHOUGH THE ORIGINAL ASSET HAS BEEN PRESERVED AND MAINTAINED, NO NEW ASSET HAS COME INTO EXISTENCE AND NO ADDITIONAL ADVANTAGE HAS ACCRUED TO THE ASSESSEE.' 12.1 THEREAFTER ,THE HONBLE HIGH COURT HAVE EXPL AINED THE EXPRESSION 'CURRENT REPAIRS' IN THE FOLLOWING WORDS : 'THE DEFINITION OF REPAIR REALLY DOES NOT CREATE MUCH DIFFICULTY, BUT THE DIFFICULTY IS CREATED BY THE ADJECTIVE WHICH QUALIF IES THE EXPRESSION REPAIRS AND THAT ADJECTIVE IS CURRENT, AND AS ALREADY POI NTED OUT THE LEGISLATURE DID NOT INTEND THAT THE ASSESSEE SHOULD BE PERMITTED AL L REPAIRS, EVEN THOUGH THE EXPENDITURE MAY BE A REVENUE EXPENDITURE, AS A PERM ISSIBLE DEDUCTION UNDER SECTION 10(2)(V). WHAT WE HAVE TO CONSIDER IS IN WHAT WAY HAS THE LEG ISLATURE CIRCUMSCRIBED THE EXPRESSION REPAIRS AND TO WHAT EXTENT HAS THE LEGISLATURE LIMITED THE RIGHT OF THE ASSESSEE TO CLAIM DEDUCTION IN RESPECT OF RE PAIRS. ONE OR TWO VIEWS ARE POSSIBLE OF THE EXPRESSION CURRENT. IT MAY BE SAI D THAT CURRENT IS USED IN CONTRADISTINCTION TO HEAVY AND THAT SMALL PETTY REP AIRS ARE THE ONLY REPAIRS WHICH CAN FALL WITHIN THE AMBIT OF SECTION 10(2)(V) . THE OTHER VIEW IS A VIEW MORE IN FITTING WITH THE E TYMOLOGICAL MEANING OF THE EXPRESSION CURRENT, AND IT IS THAT THEY ARE SUCH REPAIRS WHICH ARE ATTENDED TO ITA NO.15 4/DEL./2009 13 WHEN THE NEED FOR THEM ARISES AND ARE NOT ALLOWED T O FALL INTO ARREARS OR TO BE ACCUMULATED. IF A BUILDING, MACHINERY, PLANT OR FUR NITURE NEEDS SOME REPAIRS AND THOSE REPAIRS ARE ATTENDED TO AS AND WHEN THE N EED ARISES THEN THE REPAIRS ARE CURRENT REPAIRS. BUT IF THE ASSESSEE, ALTHOUGH THE NEED HAS ARISEN, DOES NOT ATTEND TO THAT NEED AND ALLOWS THE REPAIRS TO GET ACCUMULATED, THE N IT COULD NOT BE SAID THAT WHEN HE IS EXPENDING MONEY ON THESE REPAIRS HE IS E XPENDING THEM ON CURRENT REPAIRS. AGAIN, IT SEEMS TO HAVE BEEN THE I NTENTION OF THE LEGISLATURE THAT IF THE ASSESSEE COULD CARRY ON WITH HIS BUILDI NG, MACHINERY, PLANT OR FURNITURE WITHOUT ATTENDING TO ITS REPAIRS AND SPEN DS AN AMOUNT AT A LATER DATE WHEN THE ARREARS ARE ACCUMULATED, SUCH EXPENDITURE PARTAKES MORE OF THE NATURE OF CAPITAL EXPENDITURE THAN OF REVENUE EXPEN DITURE. IN OUR OPINION, THE LATTER VIEW AS TO THE EXPRESSIO N CURRENT REPAIRS IS THE BETTER VIEW AND MORE CONSISTENT WITH THE LANGUAGE U SED BY THE LEGISLATURE. IT MAY ALSO BE POINTED OUT THAT SINCE 1953 WHEN SECTIO N 10(2)(XV) WAS AMENDED, NO DEDUCTION IS PERMISSIBLE UNDER SECTION 10(2)(XV) WHICH IS AN ALLOWANCE OF THE NATURE DESCRIBED IN ANY OF THE CLA USES (I) TO (XIV).' 12.2 WHETHER OR NOT EXPENDITURE IS ON CURRENT RE PAIRS, HONBLE SUPREME COURT IN THE CASE OF BALLIMAL NAVAL KISHORE V. CIT [1997] 2 SCC 449, WHILE APPROVING THE TEST FORMULATED BY SHRI CHAGLA C J. IN THE CAS E OF NEW SHORROCK SPINNING AND MANUFACTURING CO. LTD. V. CIT [1956] 30 ITR 338 (BOM),OBSERVED AS FOLLOWS: 'THE SIMPLE TEST THAT MUST BE CONSTANTLY BORNE IN M IND IS THAT AS A RESULT OF THE EXPENDITURE WHICH IS CLAIMED AS AN EXPENDITURE FOR REPAIRS WHAT IS REALLY BEING DONE IS TO PRESERVE AND MAINTAIN AN ALREADY EXISTIN G ASSET. THE OBJECT OF THE EXPENDITURE IS NOT TO BRING A NEW ASSET INTO EXISTE NCE, NOR IS ITS OBJECT THE OBTAINING OF A NEW OR FRESH ADVANTAGE. THIS CAN BE THE ONLY DEFINITION OF 'REPAIRS' BECAUSE IT IS ONLY BY REASON OF THIS DEFINITION OF REPAIRS THAT THE EXPENDITURE IS A REVENUE EXPENDITURE. IF THE AMOUNT SPENT WAS FOR THE PURPOSE OF BRINGING INTO EXISTENCE A NEW ASSET OR OBTAINING A NEW ADVANTAGE, THEN OBVIOUSLY SUCH AN E XPENDITURE WOULD NOT BE AN EXPENDITURE OF A REVENUE NATURE BUT IT WOULD BE A C APITAL EXPENDITURE, AND IT IS CLEAR THAT THE DEDUCTION WHICH THE LEGISLATURE HAS PERMITTED UNDER SECTION 10(2)(V) IS A DEDUCTION WHERE THE EXPENDITURE IS A REVENUE EXPENDITURE AND NOT A CAPITAL EXPENDITURE.' ITA NO.15 4/DEL./2009 14 12.3 HONBLE SUPREME COURT IN ANOTHER CASE OF CIT VS. SARVANNA SPINNING MILLS P LTD., 293 ITR 201(SC) WHILE REFERRING TO TH E AFORESAID DECISION IN THE CASE OF BALLIMAL NAVAL KISHORE(SUPRA) OBSERVED THAT AN ALLOWANCE IS GRANTED BY CLAUSE (I) OF SECTION 3 1 IN RESPECT OF AMOUNT EXPENDED ON CURRENT REPAIRS TO MACHINERY, PLANT OR FURNITURE USED FOR THE PURPOSES OF BUSINESS, IRRESPECTIVE OF WHETHER THE A SSESSEE IS THE OWNER OF THE ASSETS OR HAS ONLY USED THEM. THE EXPRESSION 'CURRE NT REPAIRS' DENOTES REPAIRS WHICH ARE ATTENDED TO WHEN THE NEED FOR THEM ARISES FROM THE VIEWPOINT OF A BUSINESSMAN. THE WORD 'REPAIR' INVOLVES RENEWAL. HO WEVER, THE WORDS USED IN SECTION 31(I) ARE 'CURRENT REPAIRS'. THE OBJECT BEH IND SECTION 31(I) IS TO PRESERVE AND MAINTAIN THE ASSET AND NOT TO BRING IN A NEW AS SET. IN OUR VIEW, SECTION 31(I) LIMITS THE SCOPE OF ALLOWABILITY OF EXPENDITURE AS DEDUCTION IN RESPECT OF REPAIRS MADE TO MACHINERY, PLANT OR FURNITURE BY RESTRICTIN G IT TO THE CONCEPT OF 'CURRENT REPAIRS'. ALL REPAIRS ARE NOT CURRENT REPAIRS. SECT ION 37(1) ALLOWS CLAIMS FOR EXPENDITURE WHICH ARE NOT OF CAPITAL NATURE. HOWEVE R, EVEN SECTION 37(1) EXCLUDES THOSE ITEMS OF EXPENDITURE WHICH EXPRESSLY FALL IN SECTIONS 30 TO 36. THE EFFECT IS TO DELIMIT THE SCOPE OF ALLOWABILITY OF DEDUCTIONS FOR REPAIRS TO THE EXTENT PROVIDED FOR IN SECTIONS 30 TO 36. TO DECIDE THE APPLICABILITY OF SECTION 31(I) THE TEST IS NOT WHETHER THE EXPENDITURE IS RE VENUE OR CAPITAL IN NATURE, WHICH TEST HAS BEEN WRONGLY APPLIED BY THE HIGH COURT, BU T WHETHER THE EXPENDITURE IS 'CURRENT REPAIRS'. THE BASIC TEST TO FIND OUT AS TO WHAT WOULD CONSTITUTE CURRENT REPAIRS IS THAT THE EXPENDITURE MUST HAVE BEEN INCU RRED TO 'PRESERVE AND MAINTAIN' AN ALREADY EXISTING ASSET, AND THE OBJECT OF THE EXPENDITURE MUST NOT BE TO BRING A NEW ASSET INTO EXISTENCE OR TO OBTAIN A NEW ADVANTAGE. 12.4 HONBLE APEX COURT IN THE AFORECITED CASE F URTHER OBSERVED THAT THE LEGISLATURE INTENDED TO STRESS THAT UNDER SECTION 3 1(I) OF THE ACT, THE PERMISSIBLE DEDUCTION ADMISSIBLE IS ONLY FOR CURRENT REPAIRS AN D THEREFORE, THE QUESTION AS TO WHETHER THE EXPENDITURE INCURRED BY THE ASSESSEE CO NCEPTUALLY IS REVENUE OR CAPITAL IN NATURE IS NOT RELEVANT FOR DECIDING THE QUESTION AS TO WHETHER SUCH AN EXPENDITURE COMES WITHIN THE ETYMOLOGICAL MEANING O F THE EXPRESSION 'CURRENT REPAIRS'. IN OTHER WORDS, EVEN IF THE EXPENDITURE I S REVENUE, IT MAY NOT FALL IN THE CONNOTATION OF 'CURRENT REPAIRS' IN SECTION 31(I). IT WAS FURTHER OBSERVED THAT REPLACEMENT GENERALLY MAY NOT FALL UNDER THE EXPRES SION 'CURRENT REPAIRS' BUT, IN CERTAIN CASES, WHERE THE OLD PARTS WERE NOT AVAILAB LE IN THE MARKET OR WHERE THE OLD PARTS HAD WORKED FOR 50 TO 60 YEARS, REPLACEMEN T CAN, IN SUCH CASES OF EXCEPTION, FALL WITHIN THE EXPRESSION 'CURRENT REPA IRS'. ITA NO.15 4/DEL./2009 15 12.5 UNDER SECTION 37, A PARTICULAR ITEM OF EX PENDITURE MAY BE DEDUCTIBLE IF THE EXPENDITURE DOES NOT FALL WITHIN SECTIONS 30 TO 36 ; THAT IT SHOULD HAVE BEEN INCURRED IN THE ACCOUNTING YEAR; THAT IT SHOULD BE IN RESPECT OF A BUSINESS CARRIED AN BY THE ASSESSEE; THAT IT SHOULD NOT BE ON PERSON AL ACCOUNT OF THE ASSESSEE; THAT IT SHOULD NOT BE IN THE NATURE OF CAPITAL EXPE NDITURE AND THAT IT SHOULD BE SPENT WHOLLY AND EXCLUSIVELY FOR BUSINESS. WHETHER EXPENDITURE IS 'REVENUE' OR 'CAPITAL IN NATURE' WOULD DEPEND UPON SEVERAL FACTO RS, NAMELY, NATURE OF THE EXPENDITURE, NATURE OF THE BUSINESS ACTIVITY ETC. . 12.6 RECENTLY, HONBLE KARNATAKA HIGH COURT IN C IT VS. HP GLOBAL SOFT LTD.,20 TAXMANN.COM 459 (KAR) WHILE EXAMINING THE CLAIM AS TO WHETHER EXPENDITURE ON CIVIL STRUCTURES ETC IS CAPITAL OR REVENUE, ANALYSE D VARIOUS DECISIONS IN TRAVANCORE-COCHIN CHEMICALS LTD. V. CIT [1977] 106 ITR 900(SC); ASSAM BENGAL CEMENT CO. LTD. V. CIT [1955] 27 ITR 34(SC); EMPIRE JUTE CO. LTD. V. CIT [1980] 124 ITR 1 (SC); CIT V. MADRAS AUTO SERVI CE (P) LTD. [1998] 233 ITR 468(SC); INSTALMENT SUPPLY (P.) LTD. V. CIT [1984] 149 ITR 52(DEL.); CIT V. HI LINE PENS (P.) LTD. [2008] 306 ITR 1829DEL.) AND CI T V. ESCORTS FINANCE LTD. [2006] 155 TAXMAN 559(DEL.) AND CONCLUDED THAT IN O RDER TO FIND OUT THE NATURE OF EXPENDITURE, IT IS NECESSARY TO FIND OUT THE NATURE OF CONSTRUCTION PUT-UP, THE PURPOSE OF CONSTRUCTION AND THE USE TO WHICH THE SA ID CONSTRUCTION IS PUT-UP AND ALSO IF IT IS A CASE OF REPAIR, REPLACEMENT, ADDITI ON OR IMPROVEMENT HAS TO BE GONE INTO. IN THE INSTANT CASE ,AS ALREADY STATED, THE A SSESSEE DID NOT PRODUCE ANY BILLS OR VOUCHERS OR OTHER MATERIAL BEFORE THE AO IN ORDE R TO ASCERTAIN THE NATURE OR PURPOSE OF CONSTRUCTION WHILE THE LD. CIT(A) WITHOU T DISCLOSING ANY BASIS OR GIVING OPPORTUNITY TO THE AO, CONCLUDED THAT EXPENDITURE W AS ON TEMPORARY STRUCTURE. IN THESE CIRCUMSTANCES, WE CONSIDER IT FAIR AND APPROP RIATE TO VACATE THE FINDINGS OF THE LD. CIT(A) AND THE MATTER IS TO BE REMANDED TO THE AO TO GO INTO THE MATTER AFRESH IN THE LIGHT OF THE OBSERVATIONS MADE ABOVE AND ALSO IN THE LIGHT OF THE MATERIALS TO BE FURNISHED BY THE ASSESSEE BEFORE HI M AFTER NOTICE. THE AO IS DIRECTED TO PASS A SPEAKING ORDER ,BRINGING OUT CLE ARLY THE NATURE OF CONSTRUCTION, PURPOSE OF CONSTRUCTION AND THE USE TO WHICH CONSTR UCTION IS PUT BESIDES ITA NO.15 4/DEL./2009 16 RECORDING HIS SPECIFIC FINDINGS AS TO WHETHER EXPE NDITURE IS REVENUE OR CAPITAL OR ON CURRENT REPAIRS, IN THE LIGHT OF VARIOUS JUDICIA L PRONOUNCEMENTS, INCLUDING THOSE REFERRED TO ABOVE. WITH THESE OBSERVATIONS, GROUND NO. 2 IN THE APPEAL IS DISPOSED OF. 13. NO ADDITIONAL GROUND HAVING BEEN RAISED BEFORE US IN TERMS OF RESIDUARY GROUND NO. 3 IN THE APPEAL, ACCORDINGLY, THIS GROUN D IS DISMISSED. 14. NO OTHER PLEA OR ARGUMENT WAS RAISED BEFORE US. 15. IN THE RESULT, APPEAL IS ALLOWED BUT FOR STAT ISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT SD/- SD/- (C.M. GARG) (A.N. PAHUJA) JUDICIAL MEMBER ACCOUNTANT MEMBER COPY OF THE ORDER FORWARDED TO :- 1. ASSESSEE 2. ASSISTANT CIT,CENTRAL CIRCLE-20,NEW DELHI 3. CIT CONCERNED 4. CIT(APPEALS)-I, NEW DELHI. 5. DR, ITAT,H BENCH, NEW DELHI 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, DELHI