VAIPA PHARMACEUTICALS P. LTD, MUMBAI V. DCIT 8(3), MUMBAI

ITA 1615/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55330 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-10-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 27-09-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 03-03-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: C G K NAIR
• Assessee Lawyers: ARTI VISANJI
• Keywords: Depreciation; Business expenditure; Earning of tax free income; Additional evidence; Revenue expenditure; Capital expenditure
• Section: 37(1); 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH F, MUMBAI BEFORE SHRI P.M.JAGTAP (A.M) & SHRI N.V.VASUDEVAN (J.M) ITA NO.1615/MUM/2010(A.Y.2005-06) ITA NO.1616/MUM/2010(A.Y.2006-07) VAIPA PHARMACEUTICALS PVT. LTD., C-801, MINOO MINAR, VEERA DESAI ROAD, ANDHERI (E), MUMBAI 400 068. PAN :AAACV 3767A (APPELLANT) VS. THE INCOME TAX OFFICER 8(3) 4, MUMBAI. (RESPONDENT) APPELLANT BY : MS. ARTI VISANJI RESPONDENT BY : SHRI C.G.K.NAIR DATE OF HEARING : 27/09/2011 DATE OF PRONOUNCEMENT : 05/10/2011 ORDER PER N.V.VASUDEVAN, J.M, ITA NO.1615/M/10 IS AN APPEAL BY THE ASSESSEE AGA INST THE ORDER DATED 16/12/2009 OF CIT(A) 18, MUMBAI RELATING TO ASSESSM ENT YEAR 2005-06. ITA NO.1616/M/10 IS AN APPEAL BY THE ASSESSEE AGAINST T HE ORDER DATED 18/1/2010 OF CIT(A) 18, MUMBAI RELATING TO ASSESSMENT YEAR 20 06-07. THE GROUNDS OF APPEAL IN ITA NO.1615/M/10 READ AS FOLLOWS: 1.THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL) 18 HAS ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE DEPUTY COMM ISSIONER OF INCOME TAX 8(3) OF 5% OF EXEMPT INCOME EARNED AS EXPENSES INCURRED TO EARN SUCH INCOME IN SPITE OF THERE BEING NO NEXUS BETWEEN THE INCOME AND THE EXPENSES AND INSTRUCTING THE DEPUTY COMMISSIONER OF INCOME TAX TO CALCULATES DISALLOWANCE AS PER RULE 8D. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL) 18 HAS ERRED IN CONFIRMING THE DISALLOWANCE OF REPAIR EXPENSES MADE BY THE DEPUTY COMMISSIONER OF INCOME TAX 8(3) OF RS. 16,90,000/- ON THE PRETEXT THAT THE EXPENSES HAVE INCREASED SUBSTANTIALLY AS COMPARED T O 2004-05. ITA NO.1615/MUM/2010(A.Y.2005-06) ITA NO.1616/MUM/2010(A.Y.2006-07) 2 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 18 HAS ERRED IN CONFIRMING THE DEPUTY COMMISSIONER OF INCOME TAX 8( 3) INTERPRETATION THAT THE ALTERATION TO THE EXISTING STRUCTURE THAT THE P ETITIONER COMPANY HAD TO DO PERFORCE IN VIEW OF THE NOTICE FROM FDA WILL GIV E PETITIONER COMPANY AN BENEFIT OF ENDURING NATURE, WHICH IS NOT THE CASE. 2.1 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) 18 HAS ERRED IN NOT UNDERSTAND OR APPRECIATING THE FACT THAT HAD THE PE TITIONER COMPANY NOT COMPLIED WITH THE REQUIREMENT OF THE LICENSING AUTH ORITY I.E. FDA THE PETITIONER COMPANYS LICENSE TO MANUFACTURE WOULD H AVE BEEN CANCELLED AND IT WOULD HAVE BEEN OUT OF BUSINESS TILL THE NOT ICE WAS COMPLIED WITH. HENCE THE ALTERATIONS CARRIED OUT BY THE PETITIONER COMPANY TO COMPLY WITH THE RULE OF FDA DOSE NOT GIVE PETITIONER COMPANY AN Y BENEFIT OF ENDURING NATURE. 2. GROUND NO.1 WAS NOT PRESSED, THEREFORE, THE SAME IS DISMISSED AS NOT PRESSED. 3. THE REMAINING GROUNDS ARE WITH REFERENCE TO THE DISALLOWANCE OF EXPENSES OF RS. 16,19,000/- BEING REPAIRS TO THE BUILDING. THE FACTS IN THIS REGARD ARE AS FOLLOWS: THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING AND PROCESSING OF AYURVEDIC MEDICINES. IN THE COURSE O F ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAD CLAIMED AS DEDUCTI ON OF A SUM OF RS. 10,35,146/- AS REPAIRS TO BUILDING AND RS. 6,72,992 /- AS OTHER REPAIRS. THE AO CALLED UPON THE ASSESSEE TO FURNISH DETAILS OF THE EXPENSES INCURRED. THE ASSESSEE SUBMITTED BEFORE THE AO THAT THE ASSESSEE HAD TO CARRY OUT REPAIRS TO ITS BUILDING IN KEEPING WITH THE AMENDMENT TO THE L AW WITH REGARD TO MANUFACTURE OF DRUGS BY THE DRUGS AND COSMETICS ACT 1940. IT WAS POINTED OUT BY THE ASSESSEE THAT THE CENTRAL GOVERNMENT VIDE NO TIFICATION DATED 23RD JUNE, 2000 MADE AMENDMENT IN SCHEDULE T TO THE DRUGS AND COSMETICS ACT, 1940 SPECIFYING CERTAIN NORMAL TO BE ADOPTED BY MANUFACT URER OF AYURVEDIC MEDICINE. THE COMPLIANCE HAS TO BE COMPLETED WITHIN TWO YEARS OF SUCH NOTIFICATION. THE ASSESSEE HAD NOT CARRIED OUT THE RECONSTRUCTION TO THE REVISED GUIDELINES AND FIRST NOTICE UNDER REF.NO. 10453 WAS RECEIVE DON 21ST FEB 2004 FROM THE OFFICE OF ITA NO.1615/MUM/2010(A.Y.2005-06) ITA NO.1616/MUM/2010(A.Y.2006-07) 3 COMMISSIONER OF FOOD AND DRUG CONTROL. THE ASSESSEE RECEIVED FINAL NOTICE UNDER REF NO.66971 DATED 9TH SEPTEMBER 2004 FROM THE OFFI CE OF COMMISSIONER OF FOOD AND DRUG DEPARTMENT THREATENING TO CANCEL THEIR LIC ENSE ISSUED UNDER REF. NO .FORM 25/D/JA/665 DATED 21ST JULY 1988. IN VIEW OF THIS NOTICE THE ASSESEE ASSURED COMMISSIONER OF FOOD AND DEPARTMENT TO COMP LY WITH THE CHANGE IN SCHEDULE T AND HENCE THEIR LICENSE WAS NOT CANCELLE D. ASSESSEE THEREFORE TO COMPLY WITH THE CHANGE IN SCHEDULE T CARRIED ALL CO RRECTION REQUIRED AS PRESCRIBED IN REVISED SCHEDULE T AND HAD TO INCUR L OT OF EXPENSES ON SHIFTING OF WALLS AND REDOING OF FLOORING ETC. THE ASSESSEE SUB MITTED THAT BY INCURRING THE ABOVE EXPENSES NO BENEFIT OF AN ENDURING NATURE ACC RUED TO THE ASSESSEE NOR WAS ANY NEW ASSET CREATED. ACCORDING TO THE ASSESSEE I T WAS A CASE OF REORGANIZATION AND RESTRUCTURING OF THE FACTORY PREMISES DONE AS P ER REQUIREMENTS OF LAW. THE ASSESSEE CLAIMED THAT THE EXPENDITURE WAS NOT IN TH E NATURE OF CAPITAL BUT WAS OF REVENUE NATURE AND HENCE SAME SHOULD BE ALLOWABLE U NDER SECTION 37(1) OF THE INCOME TAX ACT, 1961 (THE ACT). 4. THE AO WAS HOWEVER OF THE VIEW THAT THE ASSESSE E HAS TOTALLY RENOVATED THE BUILDING AND SUCH RENOVATION INCREASED LIFE OF THE FACTORY BUILDING. ACCORDING TO THE AO THE ASSESSEE HAS CARRIED OUT MAJOR REPAIRS T O THE FACTORY BUILDING WHICH WOULD GIVE AN ENDURING BENEFIT. THE AO ALSO HELD T HAT FROM THE DETAILS OF THE REPAIRS FILED BY THE ASSESSEE THAT THE FOLLOWING WORK WAS CARRIED OUT. A) BREAKING OF WALLS AND MAKING NEW ONES B) MARBLE FLOORING C) APPLYING NEW PLASTER ON WALLS. D) REMOVING THE OLD PARTITION AND REFILLING IN CHUN A HE WAS OF THE VIEW THAT THE WORK CARRIED OUT BY THE ASSESSEE WAS NOT IN THE NATURE OF NORMAL SMALL REPAIRS WHICH ARE TO BE CARR IED OUT IN THE NORMAL COURSE OF BUSINESS. THE AO ALSO FOUND THAT IN A.Y.2004-05, TH E ASSESSEE HAS DEBITED ONLY ITA NO.1615/MUM/2010(A.Y.2005-06) ITA NO.1616/MUM/2010(A.Y.2006-07) 4 AN AMOUNT OF RS.6,594/-AS REPAIRS TO BUILDING AND R S.12,873/-AS REPAIRS TO OTHERS. HE FOUND THAT THE EXPENSES HAVE INCREASED M ANIFOLD DURING THE YEAR. HENCE CONSIDERING THE NATURE OF REPAIRS CARRIED OUT AND AMOUNT SPENT, THE AO HELD THAT THE DEDUCTION CLAIMED BY THE ASSESSEE CAN NOT BE ALLOWED AS REVENUE EXPENDITURE. THE AO ALSO NOTICED THAT OUT OF THE BI LLS PRODUCED BY THE ASSESSEE, ONE BILL OF RS.3,03,987/- WAS IN RELATION TO PAINTI NG OF THE FACTORY INTERNALLY AND EXTERNALLY. HE WAS OF THE VIEW THAT IN NORMAL COURS E THE EXPENDITURE WOULD HAVE BEEN BE TREATED AS REVENUE EXPENDITURE. SINCE, IT W AS COUPLED WITH OTHER REPAIRS , THE AO WAS OF THE VIEW THAT IT HAS THE COMBINED EFF ECT OF IMPROVING THE QUALITY OF BUILDING AND THEREBY INCREASING THE LIFE OF THE BUI LDING . THE AO ALLOWED RS.18,138/-AS REVENUE EXPENDITURE WHICH ARE REQUIRE D FOR NORMAL REPAIRS AND BALANCE OF RS. 16,9O,000/-IS DISALLOWED AS CAPITAL EXPENDITURE. THE AO HOWEVER ALLOWED DEPRECIATION AT 5% ON THE VALUE OF IMPROVEM ENTS TREATED AS CAPITAL EXPENDITURE AS FOLLOWS: REPAIRS TO BUILDING RS. 10,35,146/- REPAIRS TO OTHERS RS. 6,72,992/- -------------------- TOTAL RS.17,08,138/- LESS: REPAIRS ALLOWED RS. 18,138/- DISALLOWABLE RS. 16,90,000/- LESS: DEPRECIATION @5% R S. 84,500/- NET DISALLOWABLE RS. 16,05,500/ - THE AO THUS DISALLOWED A SUM OF RS. 16,05,500/- AND ADDED BACK THE SAID SUM TO THE INCOME OF THE ASSESSEE. 4. BEFORE CIT(A) THE ASSESSEE SUBMITTED THAT THE AO CALLED FOR VERIFICATION OF ONLY TWO BILLS OF RS. 3,16,584/- FROM TANK & SONS AND RS. 3,03,987/- FROM ROYAL COATS AND ON THE BASIS OF THOSE BILLS THE AO CONCLUDE THAT EXPENDITURE IN QUESTION WAS CAPITAL EXPENDITURE. THE ASSESSEE SO UGHT TO FILE BEFORE THE CIT(A) ITA NO.1615/MUM/2010(A.Y.2005-06) ITA NO.1616/MUM/2010(A.Y.2006-07) 5 AS ADDITIONAL EVIDENCE, PHOTOCOPIES OF MAJOR BILLS OF REPAIRS AND EXPENDITURE. THE CIT(A) HOWEVER WAS OF THE VIEW THAT THE EXPENSES IN CURRED GAVE AN ENDURING BENEFIT IN MUCH AS STRUCTURAL CHANGES HAD BEEN EFF ECTED AND, THEREFORE, EXPENDITURE WAS CAPITAL EXPENDITURE. THE CIT(A) CO NFIRMED THE ORDER OF THE AO GIVING RISE TO GROUND NO.2 BY THE ASSESSEE BEFORE T HE TRIBUNAL. 5. WE HAVE HEARD THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE WHO SUBMITTED THAT THE BUILDING IN QUESTION WAS 25 YEAR OLD BUILDING AND THE ASSESSEE HAD CARRIED OUT ONLY REPAIRS WHICH WERE OF REVENUE IN NATURE. OUR ATTENTION WAS DRAWN TO PAGE 117 TO 119 OF THE PAPER BOOK WHICH GIVES DETAILS AND NATURE OF THE EXPENSES INCURRED. THE LD. COUNSEL F OR THE ASSESSEE POINTED OUT TO THE NATURE OF EXPENSES AS SET OUT IN THE SAID SUMMA RY AND SUBMITTED THAT THEY WERE BASICALLY INCURRED FOR THE PURPOSE OF BETTER U TILIZATION OF SPACE AND WERE NOT OF CAPITAL NATURE. THE LD. D.R POINTED OUT THAT TH E EXPENSES WERE CAPITAL IN NATURE. SEVERAL WALLS WERE BROUGHT DOWN AND NEW WA LLS BUILT. THE ENTIRE FACTORY LAY OUT WAS CHANGED AND THERE WAS A CHANGE IN EXIST ING STRUCTURE GIVING AN ENDURING BENEFIT TO THE ASSESSEE. IT WAS SUBMITTE D THAT EXPENDITURE WAS CAPITAL IN NATURE. A QUERY WAS RAISED FROM THE BENCH REGAR DING THE WDV OF THE BUILDING. IT WAS SUBMITTED THAT AS ON 31/3/2004 IT WAS RS.9,9 4,819/- AND AS ON 31/3/2004 IT WAS RS.8.00 LACS ODD. THE BUILDING CO NSISTED OF TWO FLOORS MEASURING ABOUT 10,000 SQ.FT. BUILT UP AREA. IT W AS ALSO PERTINENT TO POINT OUT HERE THAT EVEN IN SUCCEEDING ASSESSMENT YEAR 2006-0 7 THE ASSESSEE HAD INCURRED EXPENSES TO THE TUNE OF RS. 27,37,419/- AND CLAIMED AS REPAIRS AND REVENUE EXPENSES. THE EXPENSES IN THE SUBSEQUENT ASSESSMEN T YEARS WERE ALSO DISALLOWED BY THE AO AS EXPENDITURE OF CAPITAL NATU RE. THIS HAS ALSO BEEN CHALLENGED BY THE ASSESSEE AND IS THE SUBJECT MATTE R OF ITA NO.1616/MUM/10. THE EXPENSES IN THIS YEAR AND THE SUBSEQUENT YEAR W ERE EXPENSES CARRIED OUT PURSUANT TO THE DIRECTIONS OF THE AUTHORITIES UNDER DRUGS & COSMETICS ACT, 1940. ITA NO.1615/MUM/2010(A.Y.2005-06) ITA NO.1616/MUM/2010(A.Y.2006-07) 6 6. WITH THE ABOVE BACKGROUND OF FACTS, WE HAVE TO DECIDE WHETHER THE EXPENDITURE IN QUESTION CAN BE ALLOWED AS DEDUCTION . SECTION 30 OF THE ACT PROVIDES AS FOLLOWS: 30. IN RESPECT OF RENT, RATES, TAXES, REPAIRS AND INSU RANCE FOR PREMISES, USED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION, THE FOLLOWING DEDUCTION S SHALL BE ALLOWED ( A ) WHERE THE PREMISES ARE OCCUPIED BY THE ASSESSEE ( I ) AS A TENANT, THE RENT PAID FOR SUCH PREMISES ; AN D FURTHER IF HE HAS UNDERTAKEN TO BEAR THE COST OF REPAIRS TO THE PREMISES, THE AMOUNT PAI D ON ACCOUNT OF SUCH REPAIRS ; ( II ) OTHERWISE THAN AS A TENANT, THE AMOUNT PAID BY HI M ON ACCOUNT OF CURRENT REPAIRS TO THE PREMISES ; ( B ) ANY SUMS PAID ON ACCOUNT OF LAND REVENUE, LOCAL R ATES OR MUNICIPAL TAXES ; ( C ) THE AMOUNT OF ANY PREMIUM PAID IN RESPECT OF INSU RANCE AGAINST RISK OF DAMAGE OR DESTRUCTION OF THE PREMISES. [ EXPLANATION. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED TH AT THE AMOUNT PAID ON ACCOUNT OF THE COST OF REPAIRS REFERRED TO IN SUB-C LAUSE ( I ), AND THE AMOUNT PAID ON ACCOUNT OF CURRENT REPAIRS REFERRED TO IN SUB-CLAUSE ( II ), OF CLAUSE ( A ), SHALL NOT INCLUDE ANY EXPENDITURE IN THE NATURE OF CAPITAL EXPENDITURE.] ADMITTEDLY THE ASSESSEE IS THE OWNER OF THE PREMISE S AND, THEREFORE, SECTION 30(A(II) WILL APPLY AND THEREFORE, THE REPAIRS SHOU LD OF THE NATURE OF CURRENT REPAIRS. THE NATURE OF THE REPAIRS AS DESCRIBED BY THE ASSESSEE INCURRED IN A.Y 2005-06 AND 2006-07 IS GIVEN AS ANNEXURE TO THIS OR DER: 7. IN CIT VS. SARAVANA SPINNING MILLS (P) LTD. 293 ITR 201(SC), THE HONBLE SUPREME COURT EXPLAINED THE MEANING OF THE WORD CU RRENT REPAIRS APPEARING IN SEC.31 OF THE ACT AS FOLLOWS: 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 C URRENT REPAIRS DENOTES REPAIRS WHICH ARE ATTENDED TO WHEN THE NEED FOR THE M ARISES FROM THE VIEWPOINT OF A BUSINESSMAN. THE WORD REPAIR INVOL VES RENEWAL. HOWEVER, THE WORDS USED IN SECTION 31(I) ARE CURRENT REPAIR S. THE OBJECT BEHIND SECTION 31(I) IS TO PRESERVE AND MAINTAIN THE ASSET AND NOT TO BRING IN A NEW ASSET. IN OUR VIEW, SECTION 31(I) LIMITS THE SC OPE OF ALLOWABILITY OF EXPENDITURE AS DEDUCTION IN RESPECT OF REPAIRS MADE TO MACHINERY, PLANT OR FURNITURE BY RESTRICTING IT TO THE CONCEPT OF CURR ENT REPAIRS. ALL REPAIRS ARE ITA NO.1615/MUM/2010(A.Y.2005-06) ITA NO.1616/MUM/2010(A.Y.2006-07) 7 NOT CURRENT REPAIRS. SECTION 37(1) ALLOWS CLAIMS FO R EXPENDITURE WHICH ARE NOT OF CAPITAL NATURE. HOWEVER, 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 O F SECTION 31(I) THE TEST IS NOT WHETHER THE EXPENDITURE IS REVENUE OR CAPITAL I N NATURE, WHICH TEST HAS BEEN WRONGLY APPLIED BY THE HIGH COURT, BUT 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 B EEN INCURRED TO PRESERVE AND MAINTAIN AN ALREADY EXISTING ASSET, AND THE OBJECT OF THE EXPENDITURE MUST NOT BE TO BRING A NEW ASSET INTO E XISTENCE OR TO OBTAIN A NEW ADVANTAGE. HOWEVER THE HONBLE COURT DID NOT EXPRESS ANY OPINI ON REGARDING APPLICABILITY OF SEC. 37(1) OF THE ACT AND OBSERVED AS FOLLOWS: WHETHER AN EXPENDITURE IS REVENUE OR CAPITAL IN NA TURE WOULD DEPEND ON THE FACTS OF EACH CASE. NO OPINION IS EXPRESSED O N THE APPLICABILITY OF S. 37(1) IN THE PRESENT CASE. 8. THEREFORE, THE LAW THAT WHERE THE EXPENDITURE O N REPAIRS IS NOT OF THE CATEGORY OF FALL WITHIN SEC. 31(I) OF THE ACT, STILL IF THE Y ARE IN THE NATURE OF REVENUE EXPENDITURE THEY WOULD FALL FOR CONSIDERATION U/S. 37(1) IS NOT DISTURBED. THIS POSITION IN LAW IS WELL SETTLED. THE DECISION OF T HE HONBLE S.C. IN THE CASE OF CIT VS. KALYANJI MAVJI & CO. 122 ITR 49 (SC) MAY BE REF ERRED TO IN THIS REGARD. THE REPAIRS MADE BY THE ASSESSEE, IT IS SAID, CANN OT BE DESCRIBED AS ' CURRENT REPAIRS '. NOW, THIS CONTENTION RESTS ON TH E PRINCIPLE THAT IF A SPECIAL PROVISION COVERS THE CASE, RESORT CANNOT BE HAD TO A GENERAL PROVISION. IT SEEMS TO US THAT IF THE RENOVATION OF THE BUILDING, THE RECONDITIONING OF MACHINERY AND THE REMOVAL OF DEBR IS CANNOT BE DESCRIBED AS ' CURRENT REPAIRS'--AND WE ASSUME THAT TO BE SO--THE CASE WOULD BE ENTITLED TO CONSIDERATION UNDER S. 10 (2)(XV). SECTION 10(2)(V) DEALS WITH CURRENT REPAIRS ONLY. THE SUBJE CT-MATTER OF S. 10(2)(V) IS ' CURRENT REPAIRS ' AND IT APPEARS DIFF ICULT TO AGREE THAT REPAIRS WHICH ARE NOT ' CURRENT REPAIRS ' SHOULD NO T BE CONSIDERED FOR DEDUCTION ON GENERAL PRINCIPLES OR UNDER S. 10(2)(X V). THERE MUST BE VERY STRONG EVIDENCE THAT IN THE CASE OF SUCH REPAI RS, THE LEGISLATURE INTENDED A DEPARTURE FROM THE PRINCIPLE THAT AN EXP ENDITURE, LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS, ITA NO.1615/MUM/2010(A.Y.2005-06) ITA NO.1616/MUM/2010(A.Y.2006-07) 8 AND WHICH EXPENDITURE IS NOT CAPITAL IN NATURE, SHO ULD NOT BE ALLOWED IN COMPUTING THE INCOME FROM BUSINESS. THERE IS NOT HING IN THE LANGUAGE OF S. 10(2)(V) WHICH DECLARES OR NECESSARI LY IMPLIES THAT REPAIRS, OTHER THAN CURRENT REPAIRS, WILL NOT QUALI FY FOR THE BENEFIT OF THAT PRINCIPLE. WE MUST REMEMBER THAT ON ACCEPTED C OMMERCIAL PRACTICE AND TRADING PRINCIPLES AN ITEM OF BUSINESS EXPENDITURE MUST BE DEDUCTED IN ORDER TO ARRIVE AT THE TRUE FIGURE O F PROFITS AND GAINS FOR TAX PURPOSES. THE RULE WAS HELD BY THE PRIVY CO UNCIL IN CIT V. CHITNAVIS [1932] 2 COMP CAS 464 ; LR 59 IA 290 ; AI R 1932 PC 178 TO BE APPLICABLE IN THE CASE OF LOSSES, AND IT HAS BEEN APPLIED BY THE COURTS IN INDIA TO BUSINESS EXPENDITURE INCURRED BY AN ASSESSEE. MOTIPUR SUGAR FACTORY LTD. V. CIT [1955] 28 ITR 128 (PAT) AND DEVI FILMS LTD. V. CIT [1970] 75 ITR 301 (MAD). THE PRIN CIPLE FOUND FAVOUR WITH THIS COURT IN BADRIDAS DAGA V. CIT [1958] 34 I TR 10, 15 (SC) AND CALCUTTA CO. LTD. V. CIT[1959] 37 ITR 1,9 (SC). IF THE CONTENTS OF THAT RULE BE TRUE ON GENERAL PRINCIPLE, THERE IS GOOD RE ASON WHY THE SCOPE OF S. 10(2)(XV) SHOULD BE CONSTRUED LIBERALLY. IN O UR OPINION, EVEN IF THE EXPENDITURE MADE BY THE ASSESSEE IN THE PRESENT CASE CANNOT BE DESCRIBED AS ' CURRENT REPAIRS ', HE IS ENTITLED TO INVOKE THE BENEFIT OF S.10(2)(XV). 9. KEEPING IN MIND THE ABOVE LEGAL POSITION, LET US EXAMINE THE FACTS OF THE PRESENT CASE TO SEE, IF THE EXPENDITURE IN QUESTION IS REVENUE OR CAPITAL IN NATURE. IT CANNOT BE AND IS NOT IN THE NATURE OF CURRENT RE PAIRS. IN THIS REGARD, WE HAVE ALSO HAD A LOOK AT SCHEDULE T OF THE DRUGS & COSM ETICS ACT 1940 PURSUANT TO WHICH THE REPAIRS IN QUESTION HAD BEEN UNDERTAKEN. THE DRUGS & COSMETICS ACT 1940 IN SCHEDULE T PRESCRIBES GOOD MANUFACTURING PRACTICES IN AYURVEDA SIDHA & UNANI MADICINES. STRINGENT STANDARDS REGARDING B UILDING AND REQUIREMENT OF SPACE FOR CARRYING ON VARIOUS ACTIVITIES HAVE BEEN MENTIONED. THERE IS ALSO REQUIREMENT OF SPACE FOR MANUFACTURING OF PARTICULA R TYPE OF MEDICINE. THE TYPE OF EQUIPMENT TO BE USED HAS ALSO BEEN PRESCRIBED. WE ARE OF THE VIEW THAT IN THE PRESENT CASE, THE CUMULATIVE EFFECT OF THE EXPENDIT URE HAS TO BE SEEN. AS ALREADY OBSERVED THE TOTAL EXPENDITURE INCURRED ON ACCOUNT OF REPAIRS OF BUILDING AND MACHINERY IN BOTH THE YEARS IS A SUM OF RS. 17,08,1 38/- IN A.Y 2005-06 AND A SUM OF RS. 30,41,577/- FOR A.Y 2006-07. AS WE HAVE ALREADY NOTICED THE BUILDING WAS A VERY OLD BUILDING CONSISTING OF TWO FLOORS ME ASURING 10,000 SQ. FT. THOUGH ITA NO.1615/MUM/2010(A.Y.2005-06) ITA NO.1616/MUM/2010(A.Y.2006-07) 9 THE QUANTUM OF EXPENDITURE MAY NOT BE DECISIVE BUT FROM THE FACTS OF THE PRESENT CASE IT APPEARS THAT SUBSTANTIAL RENOVATION HAD BEE N CARRIED OUT BY THE ASSESSEE. THE CUMULATIVE EFFECT OF SUCH RENOVATION IN OUR OPI NION WOULD BE THE ASSESSEE DERIVED ENDURING BENEFIT. THE NATURE OF WORK DONE BY THE ASSESSEE AS DESCRIBED IN THE ORDERS OF THE REVENUE AUTHORITIES ARE NOT IN DISPUTE. IN SUCH CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE EXPENDIT URE INCURRED BY THE ASSESSEE WAS CAPITAL EXPENDITURE. WE THEREFORE UPHOLD THE O RDER OF CIT(A) AND DISMISS THE CLAIM OF THE ASSESSEE. 10. IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE WE ARE OF THE VIEW THAT THE EXPENDITURE WAS OF A CAPITAL NATURE. WE, THEREFOR E, UPHOLD THE ORDER OF THE CIT(A) AND DISMISS ITA NO.1615/M/10. ITA NO.1616/M/10(A.Y.2006-07): 11. THE GROUND RAISED IN ITA NO.1616/M/10 READS AS FOLLOWS: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL) 18 HAS ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE INCOME TAX OFFICER 8(3)-4 OF RS. 27,37,419/- ON ACCOUNT OF REPAIRS CARRIED OUT AS PE R THE NOTICE FROM FDA DEPARTMENT TO COMPLY WITH THE REQUIREMENT OF THE LI CENSING RULES OF FDA ACT. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 18 HAS ERRED IN CONFIRMING THE DEPUTY COMMISSIONER OF INCOME TAX 8( 3) INTERPRETATION THAT THE ALTERATION TO THE EXISTING STRUCTURE THAT THE P ETITIONER COMPANY HAD TO DO PERFORCE IN VIEW OF THE NOTICE FROM FDA WILL GIV E PETITIONER COMPANY AN BENEFIT OF ENDURING NATURE, WHICH IS NOT THE CASE. 2.1 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) 18 HAS ERRED IN NOT UNDERSTAND OR APPRECIATING THE FACT THAT HAD THE PE TITIONER COMPANY NOT COMPLIED WITH THE REQUIREMENT OF THE LICENSING AUTH ORITY I.E. FDA THE PETITIONER COMPANYS LICENSE TO MANUFACTURE WOULD H AVE BEEN CANCELLED AND IT WOULD HAVE BEEN OUT OF BUSINESS TILL THE NOT ICE WAS COMPLIED WITH. HENCE THE ALTERATIONS CARRIED OUT BY THE PETITIONER COMPANY TO COMPLY WITH ITA NO.1615/MUM/2010(A.Y.2005-06) ITA NO.1616/MUM/2010(A.Y.2006-07) 10 THE RULE OF FDA DOSE NOT GIVE PETITIONER COMPANY AN Y BENEFIT OF ENDURING NATURE. 12. THE FACTS AND CIRCUMSTANCES GIVING RISE TO THIS APPEAL ARE IDENTICAL TO THE FACTS AS HAD PREVAILED IN A.Y 2005-06. FOR THE REA SONS GIVEN WHILE DECIDING ITA NO.1615/M/10 WE UPHOLD THE ORDER OF THE CIT(A) AND DISMISS THE APPEAL BY THE ASSESSEE. 13. IN THE RESULT, BOTH THE APPEALS BY THE ASSESSE E ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 5 TH DAY OF OCT. 2011. SD/- SD/- (P.M.JAGTAP ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED. 5 TH OCT. 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RF BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM. ITA NO.1615/MUM/2010(A.Y.2005-06) ITA NO.1616/MUM/2010(A.Y.2006-07) 11 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 28/9/11 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 28/9/11 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER