M/S. ICPA HEALTH PRODUCTS LTD, MUMBAI V. THE DYCIT 8(2), MUMBAI

ITA 164/MUM/2008

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1878 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 03-10-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 07-01-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Gift; Depreciation; Business expenditure; Revenue expenditure; Capital expenditure

Judgement Text

ITA NOS.2302 OF 2007 & 164 OF 2008 ICPA HEALTH PRODU CTS LTD MUMBAI PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL 'I' BENCH, MUMBAI BEFORE SHRI D.K. AGARWAL, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NOS.2302/MUM/2007 & 164/MUM/2008 (ASSESSMENT YEARS: 2003-04 & 2004-05) ICPA HEALTH PRODUCTS LTD., 233-A ADARSH INDUSTRIAL ESTATE, SAHAR ROAD, ANDHERI (EAST), MUMBAI 400099 PAN: AAACI 3042 F VS. INCOME TAX OFFICER 8(2)1 MUMBAI (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI YOGESH THAR DEPARTMENT BY: SHRI MANOJ KUMAR, DR DATE OF HEARING: 12/12/2012 DATE OF PRONOUNCEMENT: 30/01/2013 O R D E R PER B. RAMAKOTAIAH, A.M. IN THIS CASE, THE ABOVE APPEALS PREFERRED BY ASSES SEE AGAINST THE ORDERS OF THE CIT (A)-VIII MUMBAI, DATED 28.02. 2007 AND 29.11.2007 FOR THE ASSESSMENT YEARS 2003-04 & 2004- 05 RESPECTIVELY WERE DISPOSED OF BY THE ITAT VIDE THE COMMON ORDER DATED 22.07.2008 DISMISSING THE APPEALS. ASSESSEE C ARRIED THE MATTER TO THE HON'BLE HIGH COURT AND THE HON'BLE HI GH COURT IN ITA NOS.142 OF 2009 AND 164 OF 2009 HAS SET ASIDE THE O RDER PASSED BY THE ITAT AND REMANDED THE MATTER BACK TO ENABLE THE TRIBUNAL TO DEAL WITH THE NATURE OF THE CONSTRUCTION AND RELEVA NT JUDGMENTS AND TO GIVE A PROPER FINDINGS IN THIS REGARD. CONSE QUENT TO THAT, THE PRESENT APPEALS WERE HEARD AND THE ARGUMENTS OF THE LEARNED COUNSELS WERE CONSIDERED. ITA NOS.2302 OF 2007 & 164 OF 2008 ICPA HEALTH PRODU CTS LTD MUMBAI PAGE 2 OF 7 2. BRIEFLY STATED, ASSESSEE HAS A FACTORY BUILDING WHI CH WAS DAMAGED IN AN EARTHQUAKE IN FINANCIAL YEAR 2000 AND ASSESSEE HAS MADE CERTAIN REPAIRS AND ALSO RECOVERED SOME AMOUNT FROM THE INSURANCE AUTHORITIES. CONSEQUENT TO THE NOTIFICATI ON ISSUED BY THE GOVT. OF INDIA IN GSR NO.894, DATED 11.12.2001 PRES CRIBING CERTAIN MANDATORY GUIDELINES TO PHARMA COMPANIES, ASSESSEE HAD INCURRED VARIOUS EXPENDITURES ON REPAIRING, RENOVATING AND C ONSTRUCTING ADDITIONAL STRUCTURES. WHEN THIS EXERCISE WAS UNDER TAKEN, IT WAS NOTICED THAT THE COLUMNS AND BEAMS OF THE EXISTING FACTORY BUILDING GOT WEAKENED DUE TO THE EARTHQUAKE CAUSED IN THE EA RLIER YEAR AND ACCORDINGLY, ASSESSEE SIMULTANEOUSLY UNDERTOOK TO S TRENGTHEN THE EXISTING COLUMNS AND BEAMS AND ALSO CONSTRUCTED ADD ITIONAL STRUCTURES IN COMPLIANCE TO THE NOTIFICATION ISSUED . ASSESSEE IN ALL HAS SPENT AN AMOUNT OF ` 17,00,263 IN ASSESSMENT YEAR 2003-04 PERTAINING TO THE REPAIRS TO THE FACTORY BUILDING A ND FURTHER AN AMOUNT OF ` 3,56,36,182 OUT OF WHICH ON FACTORY BUILDING AN AMO UNT OF ` 1,08,99,330 PERTAINING TO THE NEW WORK WAS CAPITALI ZED WHEREAS IT CLAIMED THE BALANCE AMOUNT OF ` 1,52,45,143 TOWARDS REPAIRS AND RENOVATIONS OF THE EXISTING FACTORY BUILDING AS REV ENUE EXPENDITURE. REST OF THE EXPENDITURE ON OTHER ASSETS WAS CAPITAL IZED BY THE ASSESSEE. AO ON THE REASON THAT THIS RENOVATION AN D RENEWALS WERE OF ENDURING NATURE, DISALLOWED THE EXPENDITURE AS C APITAL AND ALLOWED DEPRECIATION THEREON. 3. THE LEARNED CIT (A) AFTER CONSIDERING THE CASE LAW RELIED UPON BY ASSESSEE DISMISSED ASSESSEES APPEALS AFFIRMING THE ACTION OF AO WHICH IN TURN WAS UPHELD BY THE ITAT FOR THE SAME R EASONS. NOW THE MATTER HAS BEEN SENT BACK TO THE ITAT TO DEAL W ITH THE NATURE OF THE CONSTRUCTION AND RELEVANT JUDGMENTS AND GIVE A PROPER FINDING IN THIS REGARD. ITA NOS.2302 OF 2007 & 164 OF 2008 ICPA HEALTH PRODU CTS LTD MUMBAI PAGE 3 OF 7 4. WE HAVE EXAMINED THE NATURE OF THE WORK UNDERTAKEN BY ASSESSEE. IN ASSESSMENT YEAR 2003-04 AS SEEN FROM T HE ASSESSMENT ORDER THE TOTAL CLAIM DEBITED TO FACTORY EXPENSES I S TO THE TUNE OF ` 25,55,755 OUT OF THIS AN EXPENDITURE OF ` 19,56,461 WAS CONSIDERED BY AO AS CAPITAL EXPENDITURE AND AS 10% DEPRECIATIO N WAS ALLOWED, ADDED BACK AN AMOUNT OF ` 17,60,815. IT WAS SUBMITTED BEFORE AO THAT OUT OF THE AMOUNT OF ` 25,55,755, AN AMOUNT OF ` 19,56,461 WAS TOWARDS REPAIRS AND MODIFICATION EXPENSES INCURRED WITH RESPECT TO THE FACTORY BUILDING AND BALANCE AMOUNT OF ` 5,99,294 TOWARDS OTHER EXPENSES LIKE DRAINAGE, NOTIFIED AREA TAX, CLEANING AND WASHING ETC. THERE IS NO DISPUTE WITH REFERENCE TO THE AMOUNT OF ` 5,99,294. THE DISPUTE IN THAT YEAR IS WITH REFERENCE TO ` 19,56,461 SPENT TOWARDS FACTORY BUILDING. THIS AMOUNT WAS FURTHER BIFURCATE D AS ` 17,00,283 SPENT FOR REPAIRING THE WEAKENED FOUNDATION AND PLI NTH BEAMS AND AN AMOUNT OF ` 2,56,198 TOWARDS CONSULTANCY CHARGES TOWARDS REPAIR WORK. AS PLACED IN THE PAPER BOOK, THE CONTR ACT FOR EXCAVATION, CONCRETING AND SHUTTERING, PLINTH FILLI NG, MASONARY, PLASTERING, FLOORING, REINFORCEMENT AND STEEL FABRI CATION AND MISCELLANEOUS EXPENDITURE WAS ASSIGNED TO M/S VIMIT CONSTRUCTION WHO HAS GIVEN THE TOTAL EXPENDITURE AT ` 18,08,790 AND AFTER 6% DISCOUNT THE NET AMOUNT CHARGED WAS ` 17,00,283. THE DETAILS PLACED IN THE PAPER BOOK AT PAGE NOS. 69 & 70 DO IN DICATE THAT THIS EXPENDITURE IS FOR STRENGTHENING THE EXISTING PLINT HS AND COLUMNS AND PLASTERING THE DAMAGED PORTIONS. 5. IN ASSESSMENT YEAR 2004-05 THE TOTAL EXPENDITURE SP ENT BY ASSESSEE ON FACTORY BUILDING AMOUNTED TO ` 2,61,44,473 OUT OF WHICH ASSESSEE APPORTIONED AN AMOUNT OF ` 1,52,45,143 TOWARDS REPAIRS AND MODIFICATION EXPENSES AND AMOUNT OF ` 1,08,99,330 WAS TREATED AS CAPITAL EXPENDITURE BASED ON THE FLOOR S PACE. THIS EXERCISE OF REPAIRS AND RENOVATIONS AND CONSTRUCTIO N OF NEW ITA NOS.2302 OF 2007 & 164 OF 2008 ICPA HEALTH PRODU CTS LTD MUMBAI PAGE 4 OF 7 BUILDING WAS UNDERTAKEN BY M/S VASTU NIRMAN AND ACC ORDING TO THEIR BILL AND CERTIFICATE DATED 25.03.2004 THE EXP ENDITURE WAS APPORTIONED ON THE FOLLOWING BASIS: DESCRIPTION REPAIRS & RENOVATION NEW WORK AREA COST ( ` ) VALUE ( ` .) AREA COST ( ` .) VALUE ( ` ) MAIN BUILDING 2169.15 PER M2 5380 PER M2 1,16,70,027.00 947.83 M2 7402 PER M2 70,15,837.66 UTILITY BUILDING 26,62,906.56 COMPOUND WALL 319.958 PER M 3,200 10,23,867.63 COMPOUND GATE ETC AS PER BILL 1,05,700.00 PIPE RACK 8,01,946.31 RCC ROAD 2025 PER M2 1000 20,25,000 7,71,573.10 STORM WATER DRAIN 168.219 PER M 2500 4,20,549.23 UG TANK 2,47,068.00 TOTAL 1,52,45,143.00 1,08,99,330.00 6. ASSESSEE IN ADDITION TO THE ABOVE AMOUNT ALSO ADDED AN AMOUNT OF ` 4,63,323 TOWARDS CONSULTANCY CHARGES IN THE SAME PROPORTION OF FLOOR SPACE TO THE REVENUE EXPENDITUR E AND REDUCED THE SCRAP SOLD FOR ` .72,284, THUS MAKING THE TOTAL CLAIM AT ` 1,56,36,182. IN ORDER TO EXAMINE THE NATURE OF THE WORK, WE HAVE ALSO EXAMINED THE ARCHITECT PLAN PLACED ON RECORD. ASSESSEE SUBMITTED THE OLD PLANS AND NEW PLANS AND ALSO INDI CATED THE NEW CONSTRUCTION SHOWN (947.83 SQ. METERS) PERTAINING T O DRUM STORE, TANK FARM, JANITOR ROOM, RM ROOM, PACKAGING AND MAT ERIAL STORE, A/C STORE ETC., IN ADDITION ASSESSEE ALSO STRENGTHE NED TWO COLUMNS IN THE EXISTING GIFT STORE AND OLD COLUMNS IN THE E XISTING FACTORY BUILDING. THE NEW STRUCTURE INVOLVED LAYING OUT 13 NEW COLUMNS. AS POINTED OUT ABOVE, ASSESSEE ON ITS OWN HAS BIFURCAT ED AMOUNTS TOWARDS THE NEW STRUCTURE AND REPAIRS TO THE OLD ST RUCTURE AND ON ITA NOS.2302 OF 2007 & 164 OF 2008 ICPA HEALTH PRODU CTS LTD MUMBAI PAGE 5 OF 7 PERUSAL OF THE SAME, WE ARE OF THE OPINION THAT THE IMPUGNED EXPENDITURE IS IN REVENUE NATURE. IN VIEW OF THIS, WE ARE OF THE OPINION THAT ON FACTS ASSESSEE HAS IDENTIFIED THE E XPENDITURE TOWARDS THE NEW STRUCTURE CREATED AS CAPITAL AND CL AIMED THE REPAIRS TO THE OLD STRUCTURES REVENUE EXPENDITURE I N A JUDICIOUS MANNER AND THEREFORE, THE CLAIMS PER SE SEEMS TO BE ALLOWABLE. 7. NOW COMING TO THE LEGAL PRINCIPLES, ASSESSEE RELIED ON VARIOUS CASE LAW. THE MAIN CONTENTION WAS THAT THE EXPENDIT URE INCURRED TOWARDS COMPLYING WITH THE GOVERNMENT NOTIFICATION IS REVENUE IN NATURE. IN THE CASE OF TATA POWER CO. LTD. VS. DY . DCIT, 66 ITD 321 (MUM), IT HAS BEEN HELD THAT ONLY TO COMPLY WIT H THE REQUIREMENTS STATED BY THE GOVERNMENT AUTHORITIES, AN EXPENDITURE IS INCURRED AND AS A RESULT ASSET IS CREATED WHICH MAY OR MAY NOT BE USED IN THE FUTURE, EXPENDITURE SO INCURRED IS A LLOWABLE AS BUSINESS DEDUCTION. THEREFORE EVEN THE NEW ASSET CR EATED WAS ALLOWABLE AS BUSINESS EXPENDITURE ON RATIO OF ABOVE DECISION. ASSESSEE HAS HOWEVER CAPITALIZED THE EXPENDITURE TO AN EXTENT OF ` .1.08 CRORE IN THE BOOKS OF ACCOUNT WHICH WAS CREAT ED CONSEQUENT TO THE NOTIFICATION AND HAS NOT CLAIMED BUT CLAIMED ONLY THE REPAIRS TO THE EXISTING STRUCTURE WHICH IS CERTAINLY TO BE CONSIDERED AS REVENUE EXPENDITURE. 8. IN ADDL. CIT VS. INDIA UNITED MILLS LTD, 141 ITR 39 9, THE HON'BLE BOMBAY HIGH COURT HAS HELD THAT THE EXPENDI TURE INCURRED FOR SUBSTITUTING OLD WORN OUT DOORS BY FIRE PROOF D OORS AS PER FACTORY RULES AND FOR THE RENEWAL OF THE ROOF OF THE BLEACH ING HOUSE TO GET MORE LIGHT INTO THE FACTORY IS EXPENDITURE DEDUCTIB LE AS CURRENT REPAIRS. 9. IN CIT VS. COOPERATIVE SPINNING MILLS LTD, 148 ITR 76, HON'BLE MADRAS HIGH COURT HAS HELD THAT EXPENDITURE INCURRE D FOR ITA NOS.2302 OF 2007 & 164 OF 2008 ICPA HEALTH PRODU CTS LTD MUMBAI PAGE 6 OF 7 PRESERVING AND MAINTAINING AN ALREADY EXISTING ASSE T IS ALLOWABLE AS REVENUE EXPENDITURE. 10. IN THE CASE OF CIT VS. OXFORD UNIVERSITY PRESS (BO M), 108 ITR 166, IT HAS BEEN HELD THAT PLASTERING EXPENDITURE T HROUGH GRUNTING, TO PRESERVE AND MAINTAIN AN ALREADY EXISTING ASSET I.E. BUILDING CANNOT BE REGARDING AS HEAVY STRUCTURAL REPAIRS AND EXPENDITURE BEING REVENUE IN NATURE DEDUCTIBLE. 11. IN CIT VS. I.C.I (INDIA) PVT. LTD, 139 ITR 105 (CAL .), IT HAS BEEN HELD THAT PLASTERING OF COLUMNS AND BEAMS OF BUILDI NG WITH CEMENT IN ORDER TO PRESERVE BUILDING AND PREVENTING FURTHE R DETERIORATION IS REVENUE EXPENDITURE. 12. NOT ONLY THE ABOVE, THE HON'BLE BOMBAY HIGH COURT W HILE RESTORING THE ISSUE TO ITAT HAS CONSIDERED THE JUDG MENT OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. B.V. RAMACHANDRAPPA AND SONS , 191 ITR 34 IN RESPECT OF PLASTERING OF COLUMNS AND BEAMS AND THE JUDGMENT IN THE CASE OF C OMMISSIONER OF INCOME-TAX V. BHARAT SURYODAYA MILLS CO. LTD, 20 2 ITR 942 (GUJ.) WHEREIN IT WAS HELD THAT BY DEMOLISHING THE OLD WAL LS AND CONSTRUCTING A NEW WALL CAN BE ALLOWED AS REVENUE E XPENDITURE AS NO NEW CAPITAL ASSET COME TO EXISTENCE AND THE EXPE NDITURE WAS REQUIRED TO PROTECT THE PROPERTY. THERE ARE MANY OT HER CASES WHICH THE LEARNED COUNSEL PLACED ON RECORD IN A CHART FOR M WHICH NEED NOT BE ELABORATED UPON IN THIS ORDER, SUFFICE TO SA Y THAT ON FACTS THE NEW ASSET WHICH WAS CREATED HAS ALREADY BEEN CAPITA LIZED AND THE REPAIRS UNDERTAKEN TO STRENGTHEN THE EXISTING BEAMS AND COLUMNS, WALLS AND ROADS WAS ONLY CLAIMED AS REVENUE EXPENDI TURE, BOTH ON FACTS AND LAW, WE ARE OF THE OPINION THAT THE EXPEN DITURE IS REVENUE IN NATURE. IN VIEW OF THIS, WE SET ASIDE THE ORDER OF AO AND THE CIT (A) ON THIS ISSUE AND DIRECT AO TO ALLOW THE EXPEND ITURE AS REVENUE ITA NOS.2302 OF 2007 & 164 OF 2008 ICPA HEALTH PRODU CTS LTD MUMBAI PAGE 7 OF 7 EXPENDITURE. THE DEPRECIATION SO ALLOWED BY AO SHOU LD CONSEQUENTLY BE WITHDRAWN. THE GROUNDS ARE CONSIDER ED ALLOWED. 13. IN THE RESULT, APPEALS FILED BY ASSESSEE ARE ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH JANUARY, 2013 SD/- SD/- ( D.K. AGARWAL) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 30 TH JANUARY, 2013. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, I BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI