Deccan Enterprises Ltd., Hyd, Hyderabad V. ACIT, Circle-17(1), Hyderabad, Hyderabad

ITA 19/HYD/2016

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 4464 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-A
• Next Hearing Date: 12-03-2019
• Assessment Year: 2009-2010
• Appeal Filed On: 07-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P V SUBBARAJUDR
• Assessee Lawyers: C S SUBRAMANYAM
• Keywords: Capital asset; Depreciation; Additional evidence; Corroborative evidences; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 37(1); 191; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ITA NO. 19/HYD/2016 ASSESSMENT YEAR: 2009-10 M/S DECCAN ENTERPRISES LTD., HYDERABAD. PAN AAACD6744K VS. ACIT, CIRCLE 17(1) HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI C.S. SUBRAMANYAM, AR REVENUE BY : SHRI P.V. SUBBARAJU,DR DATE OF HEARING : 12-03-2019 DATE OF PRONOUNCEMENT : 15-03-2019 ORDER PER D.S. SUNDER SINGH, A.M: THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) 5 (CIT(A)-5), HYDERABAD DATED 26.10.2015. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN THIS APPEAL: 1. THE ORDER OF THE LD. CIT(A)-5, HYDERABAD IS ERRONEOUS BOTH IN LAW AND ON THE FACTS OF THE CASE. 2. THE LD. CIT(A) 5, HYDERABAD ERRED IN DECIDING THAT THE AMOUNT OF RS. 30,12,475 SPENT BY THE APPELLANT TOWARDS REPAIRS OF THE FACTORY BUILDING WAS OF CAPITAL IN NATURE. 3. THE LD. CIT(A) 5, HYDERABAD ERRED IN DECIDING THAT RATE OF DEPRECIATION ON CARE PURCHASED DURING THE YEAR WAS ONLY 15% INSTEAD OF 50% AS PRAYED BEFORE THE LD. CIT(A)-5, HYDERABAD. 2 ITA NO. 19/HYD/2016 DECCAN ENTERPRISES LTD., HYDERABAD. 2. GROUND NO.1 IS GENERAL IN NATURE WHICH DOES NOT REQUIRE SPECIFIC ADJUDICATION. 3. GROUND NO. 3 IS RELATED TO THE DEPRECIATION ON CAR WHICH IS NOT PRESSED BY THE LD. AR DURING THE APPEAL HEARING, THEREFORE GROUND NO.3 IS DISMISSED AS NOT PRESSED. 4. GROUND NO. 2 IS RELATED TO THE EXPENDITURE RELATING TO THE REPAIRS OF THE FACTORY BUILDING. DURING THE ASSESSMENT PROCEEDINGS THE A.O FOUND THAT THE ASSESSEE HAD DEBITED A SUM OF RS. 30,12,475/- TOWARDS REPAIRS OF THE FACTORY PREMISES AT BALANAGAR AND CLAIMED AS DEDUCTION. THE A.O ASKED FOR THE EVIDENCES FOR THE EXPENDITURE INCURRED AND THE ASSESSEE SUBMITTED THE BILLS ISSUED BY M/S. SUDHARSHAN, CIVIL CONTRACTOR DATED 04.12.2008 AND 02.02.2009 FOR A SUM OF RS. 20,02,250 AND 10,10,155/- RESPECTIVELY AGGREGATING TO RS. 30,12,475/- SUPPORTING THE CLAIM. THE A.O FURTHER ASKED THE ASSESSEE TO FURNISH THE SUPPORTING EVIDENCES SUCH AS COPY OF AGREEMENT, WORK ORDER, BILLS AND VOUCHERS BUT THE ASSESSEE FAILED TO FURNISH THE EVIDENCES, HENCE, THE A.O TREATED THE SAME AS CAPITAL EXPENDITURE AND ALLOWED THE DEPRECIATION THEREON. 5. AGGRIEVED BY THE ORDER OF THE LD. A.O THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND ARGUED BEFORE THE CIT(A) THAT THE NATURE OF WORK CARRIED OUT BY THE ASSESSEE WAS CURRENT REPAIRS TO THE HUGE STRUCTURES AND THE PREMISES OF THE FACTORY WHICH IS EXTENDING OVER LANDED AREA OF 7,837 SQ.YD, AND 37,335/- SQ. FT CONSTRUCTED AREA. THE REPAIRS CARRIED OUT NOT DID RESULT IN ANY ENDURING BENEFIT OR CREATED ANY NEW ADDITIONAL ADVANTAGE TO THE ASSESSEE 3 ITA NO. 19/HYD/2016 DECCAN ENTERPRISES LTD., HYDERABAD. COMPANY. THE REPAIRS ARE NECESSARY TO MAINTAIN AND PRESERVE THE EXISTING THE SUPER STRUCTURE THEREFORE REQUESTED TO ALLOW THE EXPENDITURE AS REVENUE EXPENDITURE. THE ASSESSEE HAS ALSO RELIED ON THE FOLLOWING DECISIONS: 1. CIT VS. SARAN ENGG CO [2011] 10 TAXMANN.COM 14. 2. CIT VS. DELHI PRESS SAMACHAR PATRA (P) LTD. [2010] 191 TAXMAN 71 (DELHI). 3. GUNTUR MERCHANTS COTTON PRESS LTD., VS. ITO, [1977] 108 ITR 620 (AP). 5.1 THE LD. CIT(A) OBSERVED THAT THE ASSESSEE HAD INCURRED EXPENDITURE OF RS. 30,12,475/- AND THE SAME IS NOT ADMISSIBLE U/S 30(A)(II) OF THE ACT AS CURRENT REPAIRS. THE CIT(A) RELIED ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF GURNARAIN KHANNA & SONS VS. CIT [1985] 47 CTR 23 (DEL), WHEREIN IT WAS HELD THAT CONSTRUCTION FOR NEW URINALS AND LATRINES BY REPLACEMENT OF OLD ONES WAS HELD TO BE CAPITAL IN NATURE BY HONBLE DELHI HIGH COURT. THE LD.CIT(A) OBSERVED THAT CURRENT REPAIRS ARE ALLOWABLE AS REVENUE EXPENDITURE WHICH ARE REQUIRED TO BE CARRIED OUT FROM TIME TO TIME AND AS AND WHEN DEFECT ARISES. IF THERE HAS BEEN A WEAR AND TEAR ON AN ITEM OVER NUMBER OF YEARS AND ULTIMATELY THEY ARE REPLACED, THEN SUCH REPLACEMENT CANNOT BE REGARDED AS CURRENT REPAIRS. SUCH REPLACEMENT MAY AMOUNT TO REPAIR OR RENOVATION WHICH MAY OR MAY NOT BE ENTITLED FOR DEDUCTION U/S 37 OF THE ACT. THE CIT(A) RELIED ON THE DECISION OF MODI SPINNING WEAVING MILLS CO. LTD. VS. CIT 200 ITR 544 (DEL). THE CIT(A) FURTHER OBSERVED THAT THE SUM OF RS.30,12,475/- 4 ITA NO. 19/HYD/2016 DECCAN ENTERPRISES LTD., HYDERABAD. WAS NOT SPENT ON CURRENT REPAIRS BUT SPENT ON LONG OVERDUE REPAIRS, AND THE SAME CANNOT BE CONSIDERED AS CURRENT REPAIRS AND ACCORDINGLY HELD THAT THE EXPENDITURE INCURRED IS CAPITAL IN NATURE AND CONFIRMED THE ORDER OF THE LD. A.O. AGAINST THE ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE THIS TRIBUNAL. 6. DURING THE APPEAL HEARING, THE LD. AR SUBMITTED THAT THE ASSESSEE HAD INCURRED EXPENDITURE FOR REPAIRS AND MAINTENANCE OF THE FACTORY BUILDING AND THERE WAS NO NEW ASSET CREATED BY THE ASSESSEE IN CARRYING OUT THE REPAIRS TO THE EXISTING FACTORY BUILDING. MERELY BECAUSE OF THE SOME REPAIR WORKS WERE POSTPONED FOR LATER PERIOD AND INCURRED AS AND WHEN THE FUNDS ARE AVAILABLE THAT DOES NOT MAKE CURRENT REPAIRS AS CAPITAL EXPENDITURE AND DISENTITLE THE ASSESSEE TO CLAIM THE DEDUCTION OF EXPENDITURE. THE LD. AR ALSO SUBMITTED THE ADDITIONAL EVIDENCE ENCLOSING THE DETAILS OF THE WORKS UNDERTAKEN BY THE ASSESSEE ALONG WITH THE DETAILED NOTING OF THE NATURE OF EXPENSES AND RELEVANT JOURNALS ENTRIES. THE ASSESSEE RELIED ON THE DECISION OF HONBLE HIGH COURT OF DELHI IN THE CASE OF CIT VS. VOLGA RESTAURENT, 119 TAXMANN 757. 7. ON THE OTHER HAND, THE LD. DR, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 8. WE HAVE HEARD BOTH THE PARTIES PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE THE A.O DISALLOWED THE EXPENDITURE AND TREATED THE SAME AS CAPITAL EXPENDITURE FOR WANT OF SUPPORTING EVIDENCES SUCH AS COPY OF AGREEMENT, WORK ORDER, BILLS AND VOUCHERS. THE A.O DID 5 ITA NO. 19/HYD/2016 DECCAN ENTERPRISES LTD., HYDERABAD. NOT GIVE ANY FINDING REGARDING CREATION OF CAPITAL ASSET FROM SPENDING THE SUM OF RS. 30,12,475/-. THE A.O SHOULD NOT DISALLOW THE EXPENDITURE AND TREAT THE SAME AS CAPITAL EXPENDITURE, MERELY, BECAUSE OF NON-SUBMISSION OF CERTAIN INFORMATION. IT IS FOR THE A.O TO DECIDED WHETHER THE EXPENDITURE IS CAPITAL/REVENUE BASING ON FACTS. IF THE ASSESSEE DID NOT FURNISH THE REQUIRED DETAILS THE EXPENDITURE INCURRED ON CURRENT REPAIRS CANNOT TAKE THE SHAPE OF CAPITAL EXPENDITURE. THE NATURE OF EXPENDITURE IS DEPENDENT ON FACTS. IF THE EXPENDITURE IS NOT GENUINE THE SAME SHOULD BE DISALLOWED BOTH ON CURRENT REPAIRS FRONT AND CAPITAL EXPENDITURE FRONT. IN THE INSTANT CASE THE A.O HAS NOT GIVEN ANY REASONING FOR DISALLOWING THE EXPENDITURE OR TO TREAT THE SAME AS CAPITAL EXPENDITURE THOUGH THE EVIDENCE CALLED FOR BY THE A.O WAS NOT FURNISHED. THE EXPENDITURE SHOULD BE TREATED AS CAPITAL EXPENDITURE IF THE EXPENDITURE RESULTS INTO A CAPITAL ASSET OR THE ASSESSEE GETS THE ENDURING BENEFIT. AS OBSERVED FROM THE ORDER OF THE LD.CIT(A) AND THE A.O THERE IS NO NEW ASSET CREATED OR NO LONG TERM BENEFIT DERIVED BY THE ASSESSEE BY SPENDING THE AMOUNT OF RS. 30,12,475/-. THE REPAIRS TO THE FACTORY BUILDING ARE UNDERTAKEN AS AND WHEN IT IS NECESSARY AND THE TIME OF UNDERTAKING THE REPAIRS HAS TO BE DECIDED BY THE ASSESSEE AS PER THE EXIGENCIES AND THE FINANCIAL POSITION. THE LD.CIT(A) HAS HELD THAT THE EXPENDITURE IS CAPITAL EXPENDITURE, SINCE, THE ASSESSEE HAS POSTPONED THE REPAIRS AND UNDER TAKEN AFTER LONG TIME WHICH IS NOT THE CRITERIA FOR HOLDING THE EXPENDITURE AS CAPITAL EXPENDITURE AND REJECT THE CONTENTION OF THE ASSESSEE FOR CURRENT REPAIRS. THE CIT(A) RELIED ON THE DECISIONS OF MODI 6 ITA NO. 19/HYD/2016 DECCAN ENTERPRISES LTD., HYDERABAD. SPINNING WEAVING MILLS CO. LTD VS CIT (SUPRA) AND BHAGATH INDUSTRIAL CORPORATION, PUNJAB AND HARYANA. IN BOTH THE CASES THE ASSESSES HAVE REPLACED EXISTING ASSET WHICH RESULTS IN NEW CAPITAL ASSET. HENCE, THE CASE LAWS RELIED UPON BY THE CIT(A) ARE NOT RELEVANT IN THE INSTANT CASE. THE ASSESSEE RELIED ON VOLGA RESTAURANT (SUPRA) OF HONBLE DELHI HIGH COURT WHEREIN THE HIGH COURT HAS HELD AS UNDER: THE EXPRESSION CURRENT REPAIRS MEANS EXPENDITURE ON BUILDING, MACHINERY, PLANT WHICH IS NOT FOR RENEWAL OR RESTORATION. IT IS ONLY FOR PRESERVING OR MAINTAINING AN ALREADY EXISTING ASSET WHICH DOES NOT BRING A NEW ASSET INTO EXISTENCE OR DOES NOT GIVE TO THE ASSESSEE AS NEW OR DIFFERENT ADVANTAGE AND THEY MUST BE SUCH REPAIRS AS ARE ATTENDED TO AS AND WHEN THE NEED FOR THEM ARISES AND THAT THE QUESTION AS TO WHEN TA BUILDING, MACHINERY, PLANT OR FURNITURE REQUIRES REPAIRS AND WHEN THE NEED ARISES, MUST BE DECIDED BY NOT ANY ACADEMIC OR THEORETICAL TEST BUT MUST BE DECIDED BY THE TEST OF COMMERCIAL EXPEDIENCY. THE TEST THAT HAS TO BE APPLIED IS THAT AS A RESULT OF THE EXPENDITURE WHICH IS CLAIMED AS AN EXPENDITURE FOR REPAIRS, WHAT IS REALLY BEING DONE IS TO PRESERVE AND MAINTAIN AN ALREADY EXISTING ASSET. THE OBJECT OF SUCH EXPENDITURE IS NOT TO BRING A NEW ASSET INTO EXISTENCE NOR IS ITS OBJECT THE OBTAINING OF A NEW OR FRESH ADVANTAGE. BUT IF THE AMOUNT SPENT IS FOR THE PURPOSE OF BRINGING INTO EXISTENCE A NEW ASSET OR OBTAINING A NEW ADVANTAGE, THEN SUCH AN EXPENDITURE WOULD NOT BE AN EXPENDITURE OF A REVENUE NATURE BUT IT WOULD BE A CAPITAL EXPENDITURE. APPLYING THE TEST, THE TRIBUNALS VIEW WAS IN ORDER. 8.1 IN THE INSTANT CASE NEITHER THE A.O NOR THE LD. CIT(A) HAS GIVEN A FINDING THAT BY SPENDING THE AMOUNT OF RS. 30,12,475/-, THE ASSESSEE HAS CREATED ANY NEW ASSET OR GOT THE ENDURING BENEFIT. THERE WAS NO DISPUTE THAT THE THE ASSESSEE SPENT THE AMOUNTS FOR THE FACTORY BUILDING TO MAINTAIN AND PRESERVE THE BUILDING. THEREFORE THE EXPENDITURE CLAIMED BY THE ASSESSEE ALLOWABLE EXPENDITURE UNDER CURRENT REPAIRS OR U/S 37(1) OF THE ACT. HOWEVER, AS 7 ITA NO. 19/HYD/2016 DECCAN ENTERPRISES LTD., HYDERABAD. DISCUSSED EARLIER THE DETAILS AND THE BREAKUP OF EXPENSES WERE NOT MADE AVAILABLE TO THE A.O AT THE TIME OF ASSESSMENT WHICH ARE PLACED IN THE PAPER BOOK IN PAGE NO. 4 TO 7 AS ON ADDITIONAL EVIDENCE. THEREFORE, WE CONSIDER IT IS NECESSARY TO REMIT THE MATTER BACK TO THE FILE OF THE A.O TO VERIFY THE JOURNAL VOUCHERS OTHER EVIDENCES AND THE NATURE OF WORK UNDER TAKEN BY THE ASSESSEE AND DECIDE THE ISSUE AFRESH ON MERITS. ACCORDINGLY, THE APPEAL OF THE ASSESSEE IS REMITTED BACK TO THE FILE OF THE A.O FOR DECIDING THE ISSUE AFRESH ON MERITS. NEEDLESS TO SAY, THAT THE A.O MUST GIVE REASONABLE OPPORTUNITY TO THE ASSESSEE TO DEFEND ITS CASE. ACCORDINGLY THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 9. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 15 TH MARCH, 2019 SD/- SD/- (V. DURGA RAO) (D.S. SUNDER SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED:15 TH MARCH , 2019. KRK 1 DECCAN ENTERPRISES LTD., B-58-59-60, APIE, BALA NAGAR, HYDERABAD. 2 ACIT, CIRCLE 17(1), HYDERABAD. 3 THE CIT(A)-5, HYDERABAD. 4 THE PR. CIT-5, HYDERABAD 5 THE DR, ITAT HYDERABAD 6 GUARD FILE