Dinesh Mills Ltd., Baroda V. The ACIT.,Baroda Circle-4, Baroda

ITA 1746/AHD/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60272 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-04-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 16-04-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 27-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 32

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD , !', #$ # % BEFORE SHRI MUKUL KR.SHRAWAT, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER ./ I.T.A. NO.1746/AHD/2009 ( ( ( ( ( / / / / ASSESSMENT YEAR : 2006-07) SHRI DINESH MILLS LTD. POST BOX NO.250-1M PADRA ROAD BARODA / VS. THE ACIT CIRCLE-4 BARODA ) #$ ./*+ ./ PAN/GIR NO. : AADCS 3115 Q ( ), / // / APPELLANT ) .. ( -.), / RESPONDENT ) ), / # / APPELLANT BY : SHRI SUNIL TALATI -.), 0 / # / RESPONDENT BY : SHRI SAMIR TEKRIWAL, SR.D.R. 1 0 '$ / / / / DATE OF HEARING : 16/4/12 23( 0 '$ / DATE OF PRONOUNCEMENT : 20/4/12 #4 / O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL AT THE BEHEST OF THE ASSESSEE WH ICH HAS EMANATED FROM THE ORDER OF LEARNED CIT(APPEALS)-III , BARODA DATED 25/03/2009 PASSED FOR A.Y. 2006-07. THE ONLY GRO UND RAISED IS AS FOLLOWS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEARNED CIT(A) ERRED IN CONFIRMING THE ASSESSING OFFICERS FINDING THAT THE EXPENDITURE OF RS.16,40,187/- IN RESPECT OF BUILDING REPAIRS WA S IN THE NATURE OF CAPITAL EXPENDITURE. ITA NO.1746/AHD /2009 SHRI DINESH MILLS LTD. VS. ACIT ASST.YEAR 2006-07 - 2 - 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S.143(3) OF THE I.T. ACT, 1961 DATED 26 .12.2008 WERE THAT THE ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF MANU FACTURING OF WORSTED SUITING, FELT AND FILTER FABRIC, ETC. 3. IT WAS NOTED THAT UNDER THE HEAD BUILDING REPAIR , THE ASSESSEE HAS CLAIMED EXPENDITURE OF RS.11,05,552/- TOWARDS R EPAIR OF SOAK-PIT SYSTEM AND A SUM OF RS.7,16,878/- UNDER THE HEAD W ATER PROOFING. THE WORK WAS CARRIED OUT AT THE RESIDENTIAL COLONY ATTA CHED TO THE MANUFACTURING UNIT AT ANKLESHWAR. IT WAS EXPLAINE D THAT THERE WAS AN OLD SOAK-PIT SYSTEM FOR HANDLING WATER DISCHARGE FR OM THE COLONY. THE DISCHARGE FROM THE PITS WAS TREATED IN AN EFFLUENT TREATMENT PLANT AT ANKLESHWAR. LATER ON, IT BECAME MANDATORY TO TREAT THE DISCHARGE BY BHARUCH ECO AQUA LTD., A COMMON EFFLUENT FACILITY. DUE TO THIS REASON, THE OLD SYSTEM WAS REPAIRED TO SUIT THE REQUIREMENT S. ABOUT WATER PROOFING, IT WAS EXPLAINED THAT THE TERRACES OF VAR IOUS PRODUCTION DEPARTMENTS WERE REPAIRED BY THE APPLICATION OF BIT UMINOUS BASED MATERIAL, ETC. THE ASSESSING OFFICER WAS NOT CONVI NCED AND BY REFERRING BALLIMAL NAVAL KISHORE 224 ITR 414 (SC) HAS HELD TH AT THE EXPENDITURE GAVE A NEW ADVANTAGE, HENCE NOT SIMPLY REPAIRS BUT CAPITAL EXPENDITURE. THE ASSESSING OFFICER HAS ALSO OPINED THAT DUE TO T HE AMENDMENT IN SECTION 30 AND SECTION 31 BY WAY OF INSERTION OF EX PLANATION, THE EXPENDITURE HAS GIVEN ENDURING BENEFIT TO THE ASSES SEE, THEREFORE CAPITAL IN NATURE. A TOTAL ADDITION OF RS.16,40,187/- WAS MADE. THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY. LEAR NED CIT(APPEALS) HAS ITA NO.1746/AHD /2009 SHRI DINESH MILLS LTD. VS. ACIT ASST.YEAR 2006-07 - 3 - AFFIRMED ACTION OF THE ASSESSING OFFICER, HOWEVER D IRECTED TO ALLOW THE DEPRECIATION AS PER THE FOLLOWING FINDINGS:- 5.3. I HAVE CONSIDERED THE SUBMISSIONS OF THE COUN SEL AND FACTS OF THE CASE. THE ASSESSING OFFICER DISALLOWED TO ITEM S OF REPAIRS. IT IS NOT IN DISPUTE THAT BOTH THE REPAIRS WERE LONG OVER DUE AND WERE REQUIRED TO MAINTAIN THE EXISTING ASSETS. HOWEVER, WHAT IS ALLOWABLE U/S.30 IS CURRENT REPAIRS. THIS IS FURTH ER CLARIFIED BY WAY OF AN EXPLANATION INTRODUCED W.E.F. 1-4-2004. THEREFORE, THE LONG OVERDUE REPAIRS OF BOTH SOAK PIT SYSTEMS AND W ATER PROOFING CANNOT FALL UNDER THE CATEGORY OF CURRENT REPAIRS. THESE ARE NO DOUBT REPAIRS BUT CANNOT BE TERMED AS CURRENT REPAI RS. APART FROM THE DECISION RELIED UPON BY THE ASSESSING OFFICER, IN A RECENT DECISION, APEX COURT IN THE CASE OF CIT VS. SARAVAN A SPINNING MILLS (P) LTD, 293 ITR 201 HELD THAT REPLACEMENT OF EXISTING PARTS IS NOT CURRENT REPAIRS. MAJOR REPAIRS DONE BY THE APPELLANT ON SOAK PIT SYSTEM AND WATER PROOFING OF ROOF ARE REPL ACEMENT OF EXISTING ASSET AND HENCE NOT CURRENT REPAIRS. SINC E EXPENSES ARE INCURRED FOR MAJOR REPAIRS AND NOT FOR CURRENT REPA IRS, THE SAME IS TREATED AS CAPITAL CORRECTLY BY THE ASSESSING OFFIC ER. THE ADDITION MADE BY THE ASSESSING OFFICER IS THEREFORE CONFIRME D. THE APPELLANT WILL BE ENTITLED FOR DEPRECIATION ON SUCH ADDITION TO FIXED ASSETS. 4. FROM THE SIDE OF THE APPELLANT, LD.AR MR.SUNIL T ALATI APPEARED AND DRAWN OUR ATTENTION ON THE BILLS OF THE BUILDIN G REPAIRS, COPY OF BILLS FOR SOAK-PIT REPAIR AND COPIES OF BILLS FOR WATER P ROOFING WORK. HE HAS ALSO PLACED RELIANCE ON THE FOLLOWING DECISIONS:- SL.NO(S) DECISION IN THE CASE OF REPORTED IN 1. CIT VS. SARAVANA SPG.MILLS (P.) LTD. 293 ITR 201(SC) 2. CIT VS. CHOWGULE CHEMICALS PVT.LTD. 216 ITR 234 (BOM) 3. CIT VS. KAIRA DIST.CO-OP.MILK PROD.UNION LTD. 192 ITR 608 (GUJ.) 4. CIT VS. COMINCO BINANI ZINC.LTD. 204 ITR$ 56 (CAL.) ITA NO.1746/AHD /2009 SHRI DINESH MILLS LTD. VS. ACIT ASST.YEAR 2006-07 - 4 - 5. ON THE OTHER HAND, FROM THE SIDE OF THE REVENUE, LD.SR.DR MR.SAMIR TEKRIWAL APPEARED AND ARGUED THAT DUE TO T HE MANDATORY REQUIREMENT TO TREAT THE DISCHARGE BY AN ANOTHER EF FLUENT TREATMENT PLANT, THE ASSESSEE OUGHT TO HAVE REQUIRED TO LAY D OWN NEW PIPELINES. THE EXPENDITURE WAS THEREFORE NOT FOR BUILDING REPA IR, BUT A MAJOR COST WAS INCURRED FOR LAYING DOWN PIPELINES, HENCE THE E XPENDITURE WAS RIGHTLY TAXED AS CAPITAL EXPENDITURE. HE HAS PLACE D RELIANCE ON THE FOLLOWING CASE LAWS:- SL.NO(S) DECISION IN THE CASE OF REPORTED IN 1. ASIAN HOTELS LTD. VS. DY.CIT 101 ITD 247 (DELHI) 2. BONY RUBBER CO.(P.) LTD. VS. CIT 12 TAXMANN.COM 159 (PUNJ & HA.) 3. PUNJ HOSPITALITY (P.) LTD. VS. ITO 35 SOT 421 (DELHI) 4. CIT VS. SARAVANA SPINNING MILLS (P) LTD. 293 ITR 201 (SC) 6. WE HAVE HEARD BOTH THE SIDES AT SOME LENGTH. WE HAVE PERUSED THE EVIDENCES PLACED IN THE COMPILATION. THE DETAILS H AVE REVEALED THAT ONE M/S.JAISWAL & SONS, BARODA HAS CARRIED OUT THE WORK ON AN OLD SOAK-PIT SYSTEM, MEANT FOR HANDLING WATER DISCHARGE FROM THE RESIDENTIAL COLONY ATTACHED TO THE MANUFACTURING UNIT. IT WAS INFORME D THAT THE SOAK-PIT GOT CHOCKED AND IT HAD BECOME MANDATORY TO DISCHARGE M ANUFACTURING TO DISCHARGE UNITS EFFLUENT TO BHARUCH ECO AQUA LTD., A COMMON EFFLUENT FACILITY. AS PER THE DETAILS, THE SAID CONTRACTOR HAS CARRIED OUT EXCAVATION, LAYING OUT PIPE-LINES, CONSTRUCTION OF BREAK-WALL A ND RCC SLABS. HE HAS RAISED A BILL OF RS.11,05,552/- WE HAVE ALSO PERUS ED THE BILL OF ONE ITA NO.1746/AHD /2009 SHRI DINESH MILLS LTD. VS. ACIT ASST.YEAR 2006-07 - 5 - M/S.J.P.ENGINEERING & CONSTRUCTION CO., BARODA WHO HAS CARRIED OUT THE WORK OF WATER PROOFING. THE WATER PROOFING WAS DON E WITH THE APPLICATION OF BITUMINOUS BASED MATERIAL, ETC. THE SAID CONTRACTOR HAS RAISED A BILL OF RS.7,16,878/-. WITH THIS BACKGROU ND, WE HAVE EXAMINED SARVANA SPINNING MILLS (P.)LTD. (SUPRA) IN WHICH TH E HON'BLE COURT HAS SAID THAT THE BASIC TEST TO FIND OUT AS TO WHAT WOU LD CONSTITUTE CURRENT REPAIRS IS THAT EXPENDITURE MUST HAVE BEEN INCURRED TO PRESERVE AND MAINTAIN AN ALREADY EXISTING ASSET. THE OBJECT O F EXPENDITURE MUST NOT BE TO BRING A NEW ASSET INTO EXISTENCE OR TO OBTAIN A NEW ADVANTAGE. LIKEWISE, IN THE CASE OF COMINCO BINANI ZINC LTD.(S UPRA), THE COMPANY HAS INCURRED EXPENDITURE UNDER THE HEAD REPAIR AND MAINTENANCE INCURRED TOWARDS LAYING OF WATER PIPELINE WHICH INC LUDED COST OF PIPES AND LABOUR CHARGES. THE TRIBUNAL HAD FOUND THAT THERE ALREADY EXISTED A PIPELINE FOR BRINING SALINE-FREE WATER FOR OPERATIO N. IT WAS HELD THAT RE- ROUTING OF PIPELINE WAS NOT A NEW FEATURE. THE E XPENDITURE WAS HELD AS REVENUE EXPENDITURE BY THE TRIBUNAL AND THE SAME W AS AFFIRMED BY THE HON'BLE HIGH COURT. AS FAR AS THE PROVISIONS OF T HE ACT ARE CONCERNED, VIDE AN INSERTION OF AN EXPLANATION TO SECTION 30 F OR REMOVAL OF DOUBTS, IT WAS DECLARED THAT THE AMOUNT PAID ON ACCOUNT OF THE COST OF REPAIRS SHALL NOT INCLUDE ANY EXPENDITURE IN THE NATURE OF CAPITA L EXPENDITURE. LIKEWISE, AN EXPLANATION WAS INTRODUCED TO SECTION 31 THROUGH WHICH IT WAS DECLARED THAT THE AMOUNT PAID ON ACCOUNT OF CUR RENT REPAIRS SHALL NOT INCLUDE ANY EXPENDITURE IN THE NATURE OF CAPITAL EX PENDITURE. THESE PROVISIONS HAVE THEREFORE DRAWN A DISTINCTION AS TO THE CAPACITY IN WHICH AN ASSESSEE INCURS THE EXPENDITURE, WHETHER AS A TE NANT OR OTHERWISE THAN AS A TENANT. IF EXPENDITURE IS INCURRED OTHERWISE THAN A TENANT, THEN THE ITA NO.1746/AHD /2009 SHRI DINESH MILLS LTD. VS. ACIT ASST.YEAR 2006-07 - 6 - PROVISIONS OF SECTION 30(A)(II) ALLOW THE DEDUCTION OF THE EXPENDITURE INCURRED BY AN ASSESSEE ON ACCOUNT OF CURRENT REPA IRS TO THE PREMISES. IN THE BACKGROUND OF THIS LEGAL ASPECT, WE HAVE EXA MINED ASIAN HOTELS LTD.(SUPRA) CITED BY THE LD.DR AND HAVE NOTICED THA T THE ASSESSEE IS A FIVE STAR HOTEL AND INCURRED CERTAIN EXPENDITURE TOWARDS RENOVATION AND REFURBISHMENT. HUGE EXPENDITURE WAS INCURRED IN RE LATION TO REPLACEMENT, HENCE HELD AS CAPITAL IN NATURE. IN AN ANOTHER CASE, AS CITED BY THE LD.DR, NAMELY, BONY RUBBER CO.(P.) LTD. (SUP RA), THE TRIBUNAL AFTER PERUSING THE RECORD, CAME TO THE CONCLUSION T HAT THE EXPENDITURE INCURRED ON MAINTENANCE AND RENOVATION OF BUILDING, HENCE HELD AS CAPITAL IN NATURE IN TERMS OF EXPLANATION TO SECTIO N 32 OF THE I.T.ACT. THE ESTABLISHED LEGAL POSITION IS THAT FOR THE PURP OSE OF ATTRACTING EXPLANATION-1 TO SECTION 32 IN RESPECT OF A BUILDIN G NOT OWNED BY THE ASSESSEE, THE EXPENDITURE HAS TO BE CAPITAL EXPENDI TURE AND, HENCE, FOR THE PURPOSE OF APPLICATION OF THE CLAUSES OF THE SAID S ECTION THE SAID BUILDING DEEMED TO BE OWNED BY THE ASSESSEE. IN THE SAID CA SE, THE ASSESSEE HAD INCURRED EXPENDITURE OF RENOVATION OF ITS BUILDING SO AS TO BRING IT WITHIN THE AMBIT OF THE QUALITY STANDARD ISO 9002. ON T HOSE FACTS SHALL HOLD THAT THE EXPENDITURE ON BUILDING WAS CAPITAL EXPEND ITURE. IN THE CASE OF PUNJ HOSPITALITY (P.) LTD., A DISTINCTION WAS LAID DOWN THAT THE EXPRESSION CURRENT REPAIRS MEANS EXPENDITURE OF BUILDING WHI CH IS NOT FOR THE PURPOSE OF RESTORATION BUT FOR THE PURPOSE OF PRESE RVING OR MAINTAINING AN ALREADY EXISTING ASSET AND DO NOT BRING A NEW ASSET INTO EXISTENCE OR DO NOT GIVE TO THE ASSESSEE A NEW ADVANTAGE OR A DIFFE RENT ADVANTAGE. FROM THE JUDICIAL PRONOUNCEMENTS, IT IS CLEAR THAT EXPE NDITURE WHICH IS NOT FOR THE PURPOSE OF RENEWAL OR RESTORATION AND EXPENDITU RE WHICH DOES NOT ITA NO.1746/AHD /2009 SHRI DINESH MILLS LTD. VS. ACIT ASST.YEAR 2006-07 - 7 - BRING A NEW ASSET INTO EXISTENCE OR DOES NOT GIVE T O THE ASSESSEE A NEW OR DIFFERENT ADVANTAGE, IS ALLOWABLE AS REVENUE EXPEND ITURE. ON EXAMINATION OF THE CASE LAWS CITED BY THE LD.DR, WE ARE OF THE VIEW THAT DUE TO THE DISTINCTION IN FACTS AND ON THAT BASIS T HERE WAS DISTINCTION IN THE APPLICATION OF THE LAW, HENCE AS FAR AS THE PRE SENT SET OF FACTS OF THE CASE ARE CONCERNED, THOSE PRECEDENCE ARE MISPLACED. UNDER THESE CIRCUMSTANCES AND IN VIEW OF THE DISCUSSION MADE AB OVE, WE HEREBY DIIRECT TO ALLOW THE CLAIM AS REVENUE EXPENDITURE. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. SD/- SD/- ( !' ) ( ) #$ ( ANIL CHATURVEDI ) ( MUKU L KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 20/ 4 /2012 5'.., .../ T.C. NAIR, SR. PS #4 0 -6 7#6( #4 0 -6 7#6( #4 0 -6 7#6( #4 0 -6 7#6(/ COPY OF THE ORDER FORWARDED TO : 1. ), / THE APPELLANT 2. -.), / THE RESPONDENT. 3. 8 / CONCERNED CIT 4. 8() / THE CIT(A)-III, BARODA 5. 6;< - , , / DR, ITAT, AHMEDABAD 6. <= >1 / GUARD FILE. #4 #4 #4 #4 / BY ORDER, .6 - //TRUE COPY// ? ?? ?/ // / * * * * ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD