Eureka Forbes Limited, Kolkata V. C.I.T Range - 12,kolkata, Kolkata

ITA 1666/KOL/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4748 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2016
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 30-05-2013
• Court: TRIBUNAL
• Department Lawyers: SITAL CHANDRA DAS JCIT L
• Assessee Lawyers: ABHIJIT BISWAS; DR S AMIR CHAKRABORTY SLD ARS
• Keywords: Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

ITA NO. 1666/KOL/2013-C-JM M/S. EUREKA FORBES LIMITED 1 IN THE INCOME TAX APPELLATE TRIBUNAL, C BENCH, KO LKATA BEFORE : SHRI P.M. JAGTAP ACCOUNTANT MEMBER, AND SHRI S.S. VISWANETHRA RAVI JUDICIAL MEMBER I.T.A NO. 1666/KOL/2013 A.Y: 2006-07 M/S. EUREKA FORBES LIMITED VS. C.I.T RANGE-12, KO LKATA PAN: AAACE 5767F ( APPELLANT) (RESPONDENT) FOR THE APPELLANT ASSESSEE : S/SHRI ABHIJIT BISWAS & DR. S AMIR CHAKRABORTY, ADVOCATES,LD.ARS FOR THE RESPONDENT REVENUE: SHRI SITAL CHANDRA DAS, JCIT, LD. SR.DR DATE OF HEARING: 11-03-2016 DATE OF PRONOUNCEMENT: 31 -0 5-2016 ORDER SHRI S.S.VISWANETHRA RAVI, JM THIS APPEAL OF THE ASSESSEE IS ARISING OUT OF TH E ORDER OF THE CIT(A),XII, KOLKATA IN APPEAL NO. 493/XII/CIR-10/08-09 DATED 2 1-01-2013 AGAINST THE ORDER OF ASSESSMENT FRAMED U/S. 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). 2. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLL OWING GROUNDS OF APPEAL:- GROUND-I 1. THE LEARNED CIT(A) ERRED IN DISALLOWING RS.1,00,50, 077/- BY TREATING IT AS CAPITAL IN NATURE THOUGH INCURRED ON REPAIRS AND MAINTENANCE OF EXISTING STRUCTURE. 2. HE FAILED TO APPRECIATE AND OUGHT TO HAVE HELD THAT : ITA NO. 1666/KOL/2013-C-JM M/S. EUREKA FORBES LIMITED 2 A. THESE EXPENSES WERE INCURRED IN DISMANTLING OLD FUR NITURE AND HAVE NOT GIVEN RISE TO ANY NEW ASSET. B. RENOVATION/REMODELING HAS BEEN DONE ON FIXED ASSETS/PREMISES AND EXPENSES ARE INCURRED TO FACILI TATE THE BUSINESS OF THE APPELLANT. 3. THE APPELLANT THEREFORE PRAYS THAT THE EXPENSES BE TREATED AS REVENUE IN NATURE AND BE ALLOWED AS DEDUCTION. GROUND-II THE APPELLANT CRAVES LEAVE TO ADD, AMEND, AND/OR AL TER THE ABOVE GROUND OF APPEAL AT THE TIME OF HEARING. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN TRADING AND SERVICING OF VACUUM CLEANERS, WATER FI LTER CUM PURIFIERS, ELECTRONIC AIR CLEANING SYSTEM, SMALL HOUSEHOLD APPLIANCES AND DIGITAL SECURITY SYSTEM ETC. THE ASSESSEE FILED ITS RETURN OF INCOME ONLINE DISC LOSING THE INCOME OF RS.32,49,72,628/- ON 16-11-2006. DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S. 143(2) OF THE ACT, THE AO FOUND THAT THAT THE ASSESSEE HAS DEBITED AN EXPENDITURE OF RS.1,00,84,559/- UNDER THE HEAD REP AIR AND MAINTENANCE EXPENSES IN RESPECT OF ITS BUILDINGS. ACCORDING TO ASSESSEE, THE DETAILS OF SAID EXPENDITURE WAS INCURRED BY THE ASSESSEE FOR ITS O FFICES SITUATED IN THREE LOCATIONS, COCHIN, LUCKNOW AND KOLKATA. FURTHER, TH E SAID EXPENDITURE WAS INCURRED UNDER THE INVOICES RAISED BY M/S. DEVA INT ERIORS. THE VIEW OF THE AO WAS THAT SUCH EXPENDITURE IS CAPITAL IN NATURE FOR THE REASON THAT THE SAID EXPENDITURE HAS CREATED NEW ASSET ON EXISTING STRUC TURE AS EXTENSION WHICH RENDERED ADVANTAGE TO THE ASSESSEES BUSINESS. THE AO TREATING THE SAME AS CAPITAL IN NATURE ADDED TO THE INCOME OF ASSESSEE. 4. IN 1 ST APPEAL THE ASSESSEE CONTENDED BEFORE THE CIT-A TH AT THE ASSESSEE HAS NOT CREATED ANY NEW ASSET, BUT IT HAD INCURRED THE SAID EXPENDITURE TO ITA NO. 1666/KOL/2013-C-JM M/S. EUREKA FORBES LIMITED 3 FACILITATE ITS BUSINESS. IN SUPPORT OF ITS CLAIM, T HE ASSESSEE HAS RELIED ON THE ORDERS OF THE KOLKATA TRIBUNAL IN ITS OWN CASE F OR THE A.Y. 1992-93, THE HONBLE HIGH COURT OF GUJARAT IN THE CASE OF INDI AN GINNING & PRESSING CO. LTD VS. CIT REPORTED IN 252 ITR 577 (GUJ) AND THE H ONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. DR. A.M SINGHVI REPORT ED IN 212 CTR 1(RAJ). AFTER CONSIDERING THE ABOVE, THE CIT-A OPINED, THAT THE E XPENDITURE INCURRED TOWARDS RENOVATION OF OFFICE PREMISES IS CAPITAL IN NATURE AS IT INCREASED THE VALUE OF ASSET AND CONFIRMED THE ORDER OF THE AO. 5. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US B Y RAISING RESPECTIVE GROUNDS OF APPEAL, WHICH HAVE BEEN MENTIONED HEREIN ABOVE. 6. DURING THE COURSE OF HEARING BEFORE US THE LD. C OUNSEL FOR THE ASSESSEE SUBMITTED THAT ALL THE EXPENDITURE DEBITED TO PROFI T & LOSS ACCOUNT WAS INCURRED FOR REPAIRS AND MAINTENANCE OF EXISTING STRUCTURES. THE ASSESSEE DID NOT PUT OR ADD OTHER FACILITIES LIKE PROVIDING OF LIFT OR CREA TED NEW ROOMS OR FLOORS ETC.. ONLY NEW ELECTRICAL LINES, FANS, ACS WERE ADDED. THESE E XPENDITURES WERE INCURRED IN DISMANTLING OLD FURNITURE AND NOT GIVEN ANY NEW ASS ET AND ARGUED THAT THE EXPENDITURE AS INCURRED ABOVE IS REVENUE IN NATURE. IN SUPPORT OF ITS CONTENTION, HE RELIED ON VARIOUS CASE LAWS AND PRAYED THAT THE EXPENSES BE TREATED AS REVENUE IN NATURE AND BE ALLOWED AS DEDUCTION AND QUASH THE ORDER OF CIT-A AS HE ERRED IN NOT ALLOWING THE CLAIM OF RS.1,00,50,077/- AS H E TREATED THE SAME AS CAPITAL EXPENDITURE. 7. IN REPLY, THE LD. DR SUBMITTED THAT THE ASSESSE E PURCHASED A HUGE VOLUME OF GOODS FOR THE FIRST TIME FOR ITS BUSINESS AND IT HAS TO BE TREATED AS CAPITAL EXPENDITURE. FURTHER ARGUED THAT THE ACTION OF THE AO AND CONFIRMING THE SAME ITA NO. 1666/KOL/2013-C-JM M/S. EUREKA FORBES LIMITED 4 BY THE CIT-A TREATING THE SAME AS CAPITAL EXPENDITU RE IS JUSTIFIED. HE RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES BELOW. 8. THE ONLY QUESTION IS TO BE DECIDED IN THIS APPEA L AS TO WHETHER THE EXPENDITURE INCURRED AND DEBITED IN THE P & L ACCO UNT UNDER THE HEAD REPAIRS & MAINTENANCE IS A CAPITAL EXPENDITURE OR REVENUE EXPENDITURE. 9. HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATE RIAL AVAILABLE ON RECORD. WE FIND THAT THE INVOICE ISSUED BY THE INTERIOR CON TRACTOR FOR CARRYING OUT INTERIOR WORK & OTHERS INCLUDING ELECTRICAL WORK PLACED AT PAGE NOS- 1-48 OF THE ASSESSEES PAPER BOOK. THE SAID INVOICE SHOWS THAT THE ASSESSEE CARRIED OUT INTENSIVE INTERIOR WORK & ELECTRICAL WORK TO ITS EXISTING OFFICES AT THREE LOCATIONS. ON PERUSAL OF THE INVOICES AND FINAL BIL L ISSUED FOR THE PURPOSE OF INCLUSIVE INTERIOR AND ALLIED WORKS FOR ITS KOLKAT A OFFICE. COPY OF THE SAME ARE AVAILABLE PAGES 1-10 OF THE PAPER BOOK. DESCRIPTION THEREIN SHOWS THAT THE WORKS WERE FOR FIXING 12MM THICK GLAZED PARTITION, CABIN FLUSH DOORS, FINISHED WITH LAMINATION, FIXING LOW HEIGHT, FULL HEIGHT AN D OVERHEAD FITTING STORAGE UNIT MADE OUT OF SALWOOD ETC AND FOR PROVIDING OF EXEC UTIVE AND CONFERENCE TABLES AND ENTRANCE DOOR ETC .. FOR WHICH THE SAID INTERIO R CONTRACT WAS CHARGED AT RS. 40,63,395. LIKEWISE, THE ASSESSEE INCURRED AN EXPE NDITURE OF RS.26,51,693 FOR ITS OFFICE LOCATED AT COCHIN. FOR WHICH ALSO SAME K IND OF INTERIOR WORK DONE FOR THE OFFICE OF KOLKATA. THESE ARE AVAILABLE AT PAGES 10-42 OF THE PAPER BOOK. THE ASSESSEE ALSO INCURRED AN EXPENDITURE OF RS.33,48, 156 FOR ITS LUCKNOW OFFICE FOR THE PURPOSE OF INTERIOR WORK AND ELECTRICAL WOR KS. PAGES 43-48 OF THE PAPER BOOK. THE CONTENTION OF THE ASSESSEE IS THAT THOUGH IT HAD INCURRED EXPENDITURE FOR PROVIDING INTERIOR WORKS, BUT IT DID NOT CREATE ANY NEW ASSET BY WAY OF ANY RENOVATION/INTERIOR WORKS. IT ONLY INCURRED EXPENDI TURE TOWARDS REPAIRING & MAINTENANCE FOR ITS EXISTING OFFICES. HOWEVER, THE DESCRIPTION AS SHOWN AT ITA NO. 1666/KOL/2013-C-JM M/S. EUREKA FORBES LIMITED 5 PAGES 1-48, THE EXPENDITURE INCURRED CREATED A NE W ASSET. THE CONTENTION OF THE ASSESSEE WAS THAT IT ONLY CARRIED OUT REPAIR WORKS FOR ITS EXISTING UNITS/OFFICES BY REMOVING OLD FURNITURE WITH THAT OF NEW FURNITURE. THIS CONTENTION OF THE ASSESSEE IS NOT ACCEPTABLE FOR THE REASON THAT THE EXPENDITURE INCURRED AND DESCRIPTION OF WORK SHOWS THAT IT CREATED A NEW ASS ET TO THE ASSESSEE. AS RIGHTLY POINTED OUT BY THE LD. DR THAT THE ASSESSEE PURCHAS ED A LARGE VOLUME OF FURNITURE FOR ITS OFFICES LOCATED IN THREE SAID LOC ATIONS FOR THE FIRST TIME. 10. AS REGARDS THE RELIANCE PLACED BY THE ASSESSEE ON THE CASE OF INDIAN GINNING & PRESSING CO. LTD VS. CIT REPORTED IN 252 ITR 577(GUJ) AND ALSO IN THE CASE OF CIT VS. DR.A.M SINGHVI REPORTED IN 212 CTR 1(RAJ), IT IS OBSERVED THAT THE FACTS THEREIN ARE DISTINGUISHABLE FROM THE FACTS OF THE CASE ON HAND. WE ARE CONSCIOUS OF THE OBSERVATION MADE BY THE HONBL E SUPREME COURT IN THE CASE OF EMPIRE JUTE CO LTD VS CIT THAT EVERY CASE HAS TO BE DECIDED ON FACTS KEEPING IN MIND THAT BROAD PICTURE OF WHOLE EXPENDITURE IN CURRED. IN THE PRESENT CASE, IT IS ONLY AFACTUAL ASPECT TO BE DECIDED WHETHER T HE EXPENDITURE INCURRED UNDER THE REPAIR AND MAINTENANCE IS REVENUE OR CAPITAL EX PENDITURE IN NATURE. AS STATED ABOVE, A PERUSAL OF THE MATERIAL DOCUMENTS AVAILABL E AT PAGES 1-48 IT CLEARLY ESTABLISHES THAT LARGE VOLUME OF WOODEN WORK BY WAY OF PARTITIONS, STORAGE UNITS, INTERIOR WORK AND ELECTRICAL WORK ETC.. HAS BEEN UNDERTAKEN WHICH CREATED COMPLETELY A NEW ASSET FOR THE BENEFIT OF ITS TRADI NG. IN THIS REGARD, WE MAY REFER TO THE OBSERVATIONS OF THE HONBLE SUPREME COURT IN THE CASE OF EMPIRE JUTE CO. LTD VS. CIT REPORTED IN 124 ITR I(SC) AND RELEVANT PORTION OF FINDING AT PARA-8 IS REPRODUCED HEREIN BELOW FOR THE SAKE OF CLARITY: - 8. THE DECIDED CASES HAVE, FROM TIME TO TIME, EVOL VED VARIOUS TESTS FOR DISTINGUISHING BETWEEN CAPITAL AND REVENUE EXPENDIT URE BUT NO TEST IS PARAMOUNT OR CONCLUSIVE. THERE IS NO ALL EMBRACING FORMULA WHICH CAN PROVIDE A READY SOLUTION TO THE PROBLEM; NO TOUCHST ONE HAS BEEN DEVISED. ITA NO. 1666/KOL/2013-C-JM M/S. EUREKA FORBES LIMITED 6 EVERY CASE HAS TO BE DECIDED ON ITS OWN FACTS KEEPI NG IN MIND THE BROAD PICTURE OF THE WHOLE OPERATION IN RESPECT OR WHICH THE EXPENDITURE HAS BEEN INCURRED. BUT A FEW TESTS FORMULATED BY THE CO URTS MAY BE REFERRED TO AS THEY MIGHT HELP TO ARRIVE AT A CORRECT DECISION OF THE CONTROVERSY BETWEEN THE PARTIES. ONE CELEBRATED TEST IS THAT LA ID DOWN BY LORD CAVE, LC IN BRITISH INSULATED & HELSBY CABLES LTD. V. ATH ERTON 10 TC 155 WHERE THE LEARNED LAW LORD STATED: WHEN AN EXPENDITURE IS MADE, NOT ONLY ONCE AND FOR ALL, BUT WITH A VIEW TO BRINGING INTO EXISTENCE AN ASSET OR AN ADVANTAGE FO R THE ENDURING BENEFIT OF A TRADE, THERE IS VERY GOOD REASON (IN THE ABSEN CE OF SPECIAL CIRCUMSTANCES LEADING TO AN OPPOSITE CONCLUSION) FO R TREATING SUCH AN EXPENDITURE AS PROPERLY ATTRIBUTABLE NOT TO REVENUE BUT TO CAPITAL 11. IN THE AFORESAID DECISION THE HONBLE SUPREME C OURT SUPRA WAS PLEASED TO REFER THE TEST AS LAID DOWN IN THE CASE OF BRITISH INSULATED & HELSBY CABLES LTD V. ATHERTON 10 TC 155, WHEREIN IT WAS OBSERVED TH AT WHEN EXPENDITURE INCURRED FOR AN ADVANTAGE FOR THE ENDURING BENEFIT OF TRADE CAN BE ATTRIBUTABLE TO CAPITAL EXPENDITURE IN NATURE. IN THE PRESENT CASE ALSO THE ASSESSEE INCURRED EXPENDITURE FOR ITS THREE LOCATIONS TO THE EXTENT O F RS.1,00,50,077/- UNDER THE HEAD REPAIRS AND MAINTENANCE AND THE SAID EXPENDITU RE CREATED A NEW ASSET FOR THE BENEFIT OF ASSESSEE FOR ITS TRADE. THEREFORE, W E ARE OF THE VIEW THAT THE CASE LAWS AS RELIED ON BY THE ASSESSEE ARE DISTINGUISHAB LE AND DO NOT APPLY TO THE FACTS OF THE CASE ON HAND. TAKING SUPPORT FROM HONBLE SU PREME COURT SUPRA WE HOLD THAT THE EXPENDITURE INCURRED AND CLAIMED BY THE AS SESSEE IS CAPITAL IN NATURE AND THE ASSESSEE IS NOT ENTITLED TO CLAIM DEDUCTION AS REVENUE EXPENDITURE. THE ORDER OF CIT-A IS JUSTIFIED IN CONFIRMING THE ADDITION MA DE BY THE AO, ACCORDINGLY, GROUND NO-I IS DISMISSED. ITA NO. 1666/KOL/2013-C-JM M/S. EUREKA FORBES LIMITED 7 12. GROUND NO- II NEEDS NO ADJUDICATION AS IT IS CO NSEQUENTIAL IN NATURE. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS D ISMISSED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 31 -05-2016 SD/- SD/- P.M. JAGTAP S.S . VISWANETHRA RAVI ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 31 -05-2016 **PRADIP(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1. APPELLANT- M/S. EUREKA FORBES LIMITED 7 CHAKRABE RIA ROAD, SOUTH, KOLKATA-700025. 2 RESPONDENT THE COMMISSIONER OF INCOME-TAX, RANGE -12, KOLKATA. 3. THE CIT(A) CONCERNED 4. 5. THE CIT CONCERNED THE D.R 6. GUARD FILE TRUE COPY, BY ORDER ASSTT. REGISTRAR