ADDL CIT 9(2), MUMBAI V. IMPACT CONTAINERS P. LTD, MUMBAI

ITA 1597/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48408 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-04-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2006-2007
• Appeal Filed On: 02-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VANDANA SAGAR
• Assessee Lawyers: S K SOMANI
• Keywords: Capital asset; Depreciation; Deemed dividend; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, I, MUMBAI BEFORE SHRI R V EASWAR, PRESIDENT AND SHRI T R SOOD, ACCOUNTANT MEMBER I T A NO: 1597/MUM/2010 (ASSESSMENT YEAR: 2006-07) DEPUTY COMMISSIONER OF INCOME TAX 9(2) APPELLAN T MUMBAI VS M/S IMPACT CONTAINERS PRIVATE LIMITED, MUMBAI RESPONDENT (PAN: AAACI2597R) APPELLANT BY: MS VANDANA SAGAR RESPONDENT BY: MR S K SOMANI O R D E R R V EASWAR, PRESIDENT: THIS IS AN APPEAL BY THE DEPARTMENT AND IT RELATES TO THE ASSESSMENT YEAR 2006-07. GROUND NOS: 3 AND 4 ARE G ENERAL AND REQUIRE NO DECISION. 2. GROUND NO: 1 IS THAT THE CIT(A) ERRED IN DELETIN G THE DISALLOWANCE OF ` 3,00,765/- OUT OF REPAIRS. THE GROUND STATES THAT THE EXPENDITURE RESULTED IN ENDURING BENEFIT AND DI D NOT QUALIFY AS CURRENT REPAIRS. THE BRIEF FACTS ARE THAT THE ASSE SSEE INCURRED THE FOLLOWING EXPENDITURE AND CLAIMED THE SAME AS DEDUC TION ON ACCOUNT OF REPAIRS: - SR. NO. NAME OF THE BILLING PARTY NATURE OF WORK AMOUNT (RS.) 1. C BHOGILAL WEST END PURCHASE OF TILES 77,011/- 2. CONSTROCARE CONCRETE THERAPY PURCHASE OF LATICRATE 37,156/- 3. REAL MARBLE TRADERS & CONTRACTORS PURCHASE OF GRANITE 22,920/- TOTAL 1,37,087/- ITA NO: 1597/MUM/2010 2 SR. NO. NAME OF THE BILLING PARTY NATURE OF WORK AMOUNT (RS.) 1. ANUPAM ALUMINIUM & HARDWARE ALUMINIUM SECTIONS 1,97,091/- TOTAL 1,97,091/- WHILE COMPLETING THE ASSESSMENT UNDER SECTION 143(3 ) OF THE INCOME TAX ACT, 1961, THE ASSESSING OFFICER TOOK TH E VIEW THAT THE EXPENDITURE REPRESENTED CAPITAL EXPENDITURE. HE TH EREFORE ALLOWED DEPRECIATION OF 10% AND DISALLOWED THE BALANCE WHIC H CAME TO ` 3,00,765/- ( ` 1,23,378/- PLUS ` 1,77,387/-). ON APPEAL, THE CIT(A) HELD THAT THE ASSESSING OFFICER HAS NOT ESTABLISHED AS TO HOW THE ITEMS PURCHASED WERE INDEPENDENT CAPITAL ASSETS AND NOT PART OF CURRENT REPAIRS. HE THEREFORE HELD THAT THERE WAS NO BASIS FOR THE DISALLOWANCE. 3. THE REVENUE CHALLENGES THE AFORESAID DECISION OF THE CIT(A). IT WAS SUBMITTED THAT THE QUANTUM OF EXPENDITURE, E SPECIALLY THOSE INCURRED IN RESPECT OF TILES, EPOXY AND GRANITE STO NE SHOWS THAT WHAT WAS EXPENDED MUST HAVE RESULTED IN AN ASSET OF ENDU RING NATURE. OUR ATTENTION WAS DRAWN TO THE STATEMENT OF FACTS F ILED BEFORE THE CIT(A) IN WHICH THE ASSESSEE HAS GIVEN THE DETAILS OF HEAD-WISE EXPENDITURE AND THE NATURE OF MATERIALS USED IN PAR AGRAPH 3. IT IS SUBMITTED THAT IF THE ASSESSEE HAS TO SPEND ` 77,011/- ON TILES, ` 22,920/- ON GRANITE STONE AND ` 37,156/- ON EPOXY, IT POINTS OUT TO MAJOR REPAIRS TO THE TOILET FACILITIES PROVIDED TO THE WORKMEN WHICH WOULD HAVE RESULTED IN ENDURING BENEFIT. OUR ATTEN TION WAS ALSO DRAWN TO THE FACT THAT THE ASSESSEE HAS PURCHASED A LUMINIUM ITA NO: 1597/MUM/2010 3 HARDWARE FOR ` 1,97,091/- FOR USE IN THE WINDOWS WHICH MAY ALSO BE OF ENDURING BENEFIT. ON THE OTHER HAND, THE LEARNE D REPRESENTATIVE FOR THE ASSESSEE SUBMITTED, FROM THE DETAILS OF THE REPAIRS EXPENDITURE THAT NO ADDITIONAL SPACE WAS CREATED AN D THE ENTIRE EXPENDITURE WAS ONLY ON ACCOUNT OF ROUTINE REPAIRS TO THE WINDOWS AND TO THE EXISTING TOILET FACILITIES TO THE WORKME N. 4. ON A CAREFUL CONSIDERATION OF THE RIVAL CONTENTI ONS WE ARE OF THE VIEW THAT SO FAR AS THE PURCHASE OF ALUMINIUM S ECTIONS FOR ` 1,97,091/- IS CONCERNED, THE EXPENDITURE CANNOT BE CONSIDERED AS CAPITAL EXPENDITURE. IT IS NOBODYS CASE THAT BY I NCURRING THE EXPENDITURE THE ASSESSEE HAS CREATED ADDITIONAL SPA CE. THE EXPLANATION OF THE ASSESSEE THAT THE ALUMINIUM SECT IONS WERE USED FOR THE SLIDING WINDOWS SEEMS PLAUSIBLE. EVEN IF I T IS ASSUMED THAT THE EXISTING DOORS OF THE WINDOWS WERE REPLACED BY SLIDING WINDOWS WITH ALUMINIUM FRAMES, IT CANNOT BE SAID THAT A NEW ASSET OF ENDURING BENEFIT WAS BROUGHT INTO EXISTENCE. AT BE ST IT CAN ONLY BE A CASE OF REPLACEMENT OF THE DOORS WHICH WOULD BE R EVENUE EXPENDITURE. AS REGARDS THE EXPENDITURE TOTALLING ` 1,37,087/-, THE CONTENTION OF THE ASSESSEE THAT THE EXPENDITURE WAS INCURRED FOR THE PURPOSE OF REPAIRS TO THE TOILET FACILITIES OF THE WORKMEN SEEMS PLAUSIBLE. APPARENTLY THE ASSESSEE HAS REPLACED TH E EXISTING TILES AND FLOORING OF THE TOILETS WITH NEW TILES AND GRAN ITE STONE. IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT NEW TOILET B UILDINGS WERE PUT UP. THERE IS NO PURCHASE OF CEMENT, BRICK, WOOD, E TC. SO THAT SUCH A STAND CAN BE TAKEN. THE EXPENDITURE IS ON ACCOUN T OF REPLACEMENT OF THE TILES AND THE FLOORING OF THE TO ILETS. NO ADDITIONAL ITA NO: 1597/MUM/2010 4 SPACE HAS BEEN SHOWN TO HAVE BEEN CREATED. THEREFO RE THIS EXPENDITURE CANNOT ALSO BE CONSIDERED TO BE CAPITAL EXPENDITURE. 5. WE ACCORDINGLY CONFIRM THE DECISION OF THE CIT(A ) AND DISMISS THE FIRST GROUND. 6. THE SECOND GROUND IS THAT THE CIT(A) ERRED IN DE LETING THE ADDITION OF ` 96,16,924/- MADE UNDER SECTION 2(22)(E) OF THE INCO ME TAX ACT, 1961. ON THIS POINT THERE IS AN ORDER OF THE TRIBUNAL IN THE CASE OF DCIT VS. M/S PATEL ALUMINIUM PVT. LTD. IN I TA NO: 1598/MUM/2010 DATED 19.01.2011. THE CONTROVERSY IN THIS CASE WAS WHETHER AN ADDITION FOR DEEMED DIVIDEND CAN BE MADE IN THE HANDS OF THE RECIPIENT OF THE AMOUNT EVEN THOUGH HE IS NOT A SHAREHOLDER OF THE LENDER COMPANY. IT WAS HELD, FO LLOWING THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN TH E CASE OF ACIT VS. BHAUMIK COLOUR P. LTD. (2009) 313 ITR (AT) 146 (MUM) (SB) THAT IN ORDER TO ATTRACT THE APPLICABILITY OF SECTI ON 2(22)(E) THE RECIPIENT OF THE AMOUNT FROM THE COMPANY HAS TO BE A REGISTERED SHAREHOLDER OF THE COMPANY. IN THE PRESENT CASE TH E FOLLOWING CREDIT BALANCES WERE SHOWN IN THE ASSESSEES ACCOUN T IN THE FOLLOWING COMPANIES: - (I) M/S BHAVIN CONTAINERS P. LTD. ` 38,75,412/- (II) M/S PATEL ALUMINIUM PVT. LTD. ` 93,978/- (III) M/S LANS METAL PVT. LTD. ` 28,94,357/- (IV) M/S PATCART PACKAGING PVT. LTD. ` 44,31,466/- THE FINDING OF THE CIT(A) IS THAT THE ASSESSEE IS N OT A SHAREHOLDER IN ANY OF THE AFORESAID COMPANIES. ACCORDING TO TH E ASSESSING OFFICER, ONE M I PATEL WHO WAS A DIRECTOR OF THE AS SESSEE COMPANY HELD MORE THAN 10% OF THE EQUITY SHARES OF THE ABOV E FOUR COMPANIES AND HE ALSO HELD MORE THAN 20% OF THE SHA RES OF THE ITA NO: 1597/MUM/2010 5 ASSESSEE COMPANY. BUT EVEN THE ASSESSING OFFICER H AS NOT FOUND THAT THE ASSESSEE COMPANY WAS A SHAREHOLDER OF ANY OF THE FOUR COMPANIES. IN SUCH CIRCUMSTANCES THE CIT(A) WAS RI GHT IN DELETING THE ADDITION MADE UNDER SECTION 2(22)(E) FOLLOWING THE ORDER OF THE SPECIAL BENCH CITED ABOVE. IT IS ALSO TO BE NOTED THAT THE REASONING OF THE SPECIAL BENCH HAS BEEN UPHELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. UNIVERSAL MEDICARE PRI VATE LIMITED (2010) 324 ITR 263 (BOM). BOTH THE ORDER OF THE SP ECIAL BENCH AND THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT H AVE BEEN NOTICED AND FOLLOWED IN THE ORDER OF THE TRIBUNAL I N THE CASE OF M/S PATEL ALUMINIUM PVT. LTD. (SUPRA). RESPECTFULLY FO LLOWING THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT, WE CONFI RM THE DECISION OF THE CIT(A) AND DISMISS THE SECOND GROUN D. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED WITH NO ORDER AS TO COSTS. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH APRIL 2011. SD/- SD/- (T R SOOD) (R V EASWAR) ACCOUNTANT MEMBER PRESIDE NT MUMBAI, DATED 13 TH APRIL 2011 SALDANHA COPY TO: 1. M/S IMPACT CONTAINERS PVT. LTD. PATEL VANIKA, WESTERN EXPRESS HIGHWAY GOREGAON (EAST), MUMBAI 400 063 2. DCIT 9(2), MUMBAI 3. CIT-9, MUMBAI 4.CIT(A)-20, MUMBAI 5.DR I BEN CH TRUE COPY BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI