M/s Pee Vee Textiles Limited , Wardha V. Assistatn Commissioner of Income Tax wardha circle , Wardha

ITA 272/NAG/2019

• Counselvise Citation: [2023] 100 COUNSELVISE.COM (IT) 5226 (ITAT-NAGPUR)
• Duration Of Justice: 4 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-11-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 18-10-2023
• Assessment Year: 2014-2015
• Appeal Filed On: 26-09-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Additional depreciation; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH, NAGPUR – VIRTUAL COURT BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI S. S. VISWANETHRA RAVI, JUDICIAL MEMBER आयकर अपील सं. / ITA Nos.271 & 272/NAG/2019 िनधाᭅरण वषᭅ / Assessment Years : 2013-14 & 2014-15 M/s. Pee Vee Textiles Limited, N.H. No.7, Jam Samudrapur, Wardha- 442305. PAN : ACDPM8261E Vs. ACIT, Wardha Circle, Wardha. Appellant Respondent आदेश / ORDER PER INTURI RAMA RAO, AM: These are the appeals filed by the assessee directed against the separate orders of ld. Commissioner of Income Tax (Appeals)- 2, Nagpur [‘the CIT(A)’] dated 31.07.2019 for the assessment years 2013-14 and 2014-15 respectively. 2. First, we shall take up the appeal of the assessee in ITA No.271/NAG/2019 for the assessment year 2013-14 for adjudication. Assessee by : Shri Rajesh V. Loya Revenue by : Shri Kailash G. Kanojiya Date of hearing : 19.10.2023 Date of pronouncement : 03.11.2023 ITA Nos.271 & 272/NAG/2019 2 ITA No.271/NAG/2019, A.Y. 2013-14 : 3. The appellant raised the following grounds of appeal :- “1] Learned C.I.T.(A) failed to see and appreciate that the expenditure of Rs.7,26,175/- was a revenue expenditure. No new asset of enduring benefit was created. By increasing the height of entrance gate and corresponding related expenses no new asset came into being; and further this was absolutely necessary because the height of Highway No.7 on which assessee’s factory exist was increased by about eight feet, making the gate and name of company thereon not visible from road. 2] Learned C.I.T.(A) erred in disallowing the said revenue expenditure without assigning any reason thereof except stating that there is merit in the stand of A.O. 3] Assessee craves leave to urge additional grounds at the time of hearing as may be necessary.” 4. Briefly, the facts of the case are that the appellant is a company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of manufacturing and sale of Yarn and Fabrics. The Return of Income for the assessment year 2013-14 was filed on 28.09.2013 declaring total income of Rs.23,44,99,020/-. The said return of income was revised on 30.03.2015 at total income of Rs.23,49,01,090/-. Against the said return of income, the assessment was completed by the Assessing Officer vide order dated 09.03.2016 passed u/s 143(3) of the Income Tax Act, 1961 (‘the Act’) at total income of Rs.27,09,46,220/-. While doing so, the Assessing Officer made disallowance of expenditure of Rs.7,26,175/- incurred on the landscaping and ITA Nos.271 & 272/NAG/2019 3 beautification of main gate by holding it to be a capital expenditure. However, the Assessing Officer allowed the depreciation @ 5% and the balance expenditure of Rs.6,89,867/- was disallowed by the Assessing Officer. The Assessing Officer also made disallowance of additional depreciation of Rs.3,53,55,262/-, which was disallowed in the assessment year 2012-13. The said additional depreciation was not claimed in the immediately preceding year, as the assets were used for a period of less than 180 days. This claim as additional depreciation was allowed in appeal by the ld. CIT(A). Therefore, we are not concerned with the addition on account of disallowance of additional depreciation. We are only concerned with the issue of disallowance of expenditure incurred on landscaping and beautification of main gate. The factual background leading to the above addition is as under :- It is stated that the assessee had claimed the expenditure incurred on landscaping and beautification of main gate of the factory of Rs.7,26,175/- as revenue expenditure. The nature of the expenditure was explained by the appellant vide his letter dated 16.12.2015 before the Assessing Officer, which is set out in para 3 of the assessment order. On perusal of the said explanation of the assessee, it would be reveal that the assessee had incurred the ITA Nos.271 & 272/NAG/2019 4 expenditure of Rs.7,26,175/- on landscaping and beautification of main gate of the factory of the appellant company. It was further explained that this landscaping was necessitated because of the fact that the existing entrance gate of the factory was very low level as result of increase in the height of National Highway No.7 (NH No.7) by 8 ft.. The existing entrance gate of the factory is at very low level and lost the visibility, as it was enveloped by decorative walls. In order to increase the height of the gate as well as improve the visibility of the entrance gate of the factory, the appellant company spent an amount of Rs.7,26,175/-. However, the Assessing Officer held that the expenditure was incurred was of enduring nature and, therefore, it is a capital expenditure. Even on appeal before the ld. CIT(A), the claim of the assessee was denied. 5. Being aggrieved, the appellant is in appeal before us in the present appeal. 6. It is contended that as a result of incurring this expenditure, no new assets had come into existence and, therefore, the expenditure cannot be held to be capital in nature. The appellant also placed reliance on the decision of the Hon’ble Supreme Court in the case of Empire Jute Co. Ltd. vs. CIT, 124 ITR 1 (SC) and the decision of the Hon’ble Bombay High Court in the case of Zenith Steel Pipes ITA Nos.271 & 272/NAG/2019 5 Ltd. vs. CIT, 185 ITR 126 (Bom.) and in the case of Tekson Pvt. Ltd. vs. CIT, 120 ITR 745 (Bom.). 7. On the other hand, ld. Sr. DR submits that the expenditure incurred by the assessee on increasing height of gate and landscaping is a capital expenditure and cannot be allowed as revenue expenditure. The decisions relied upon by the assessee have no application to the facts of the present case. 8. We heard the rival submissions and perused the material on record. The sole question that arises for determination in the present appeal is whether a sum of Rs.7,26,175/- incurred by the assessee on increasing of height of main gate on landscaping and beautification of main gate represented capital expenditure or revenue expenditure. Undisputedly, the expenditure was incurred to increase the height of existing main gate of the factory. This was necessitated because of the fact that the height of NH No.7 facing the factory was increased by 8 ft. as result of which the main gate of the factory had become low level as well as invisible. No doubt, as result of this expenditure, the assessee had obtained an advantage of enduring benefit. It is only where the advantage is in the capital field, the expenditure would be disallowed on application of this test. Even if the advantage is of enduring nature, merely facilitating ITA Nos.271 & 272/NAG/2019 6 the assessee’s trading operation or enabling the management and conduct of the business more efficiently, then the expenditure would be a revenue account as held by the Hon’ble Supreme Court in the case of Empire Jute Co. Ltd. (supra). Furthermore, as a result of this expenditure, no new assets has been brought into existence, therefore, the expenditure is in nature of revenue expenditure. The ratio of the decision of the Hon’ble Bombay High Court in the case of Zenith Steel Pipes Ltd. vs. CIT, 185 ITR 126 (Bom.) and in the case of Tekson Pvt. Ltd. vs. CIT, 120 ITR 745 (Bom.) and the decision of the Hon’ble Gujarat High Court in the case of CIT vs. Bharat Suryoday Mill, 202 ITR 942 (Guj.) is squarely applicable to the facts of the present case. Therefore, the findings of the lower authorities are not based on the proper appreciation of law. Thus, we hereby reverse the orders of the lower authorities and direct the Assessing Officer to allow the same as revenue expenditure. 9. In the result, the appeal filed by the assessee in ITA No.271/NAG/2019 for A.Y. 2013-14 stands allowed. 10. Now, we shall take up the appeal of the assessee in ITA No.272/NAG/2019 for assessment year 2014-15. ITA Nos.271 & 272/NAG/2019 7 ITA No.272/NAG/2019 for A.Y. 2014-15 : 11. The assessee raised the following grounds of appeal :- “1] Learned C.I.T.(A) erred in not-allowing revenue expenditure of Rs.5,47,146/- incurred for layering the existing road with cement carpeting Treamix process. 2] Learned C.I.T.(A) failed to see that the issue was squarely covered by the decision of Rajasthan H.C. in the case of Pr. C.I.T. Vs. Shree Cement Ltd. (2016 Taxpub (DT) 2025) having identical facts where the conversion of WBM road into concrete road was treated as revenue expenditure; and various other decisions on the point cited by the assessee. 3] Learned C.I.T.(A) failed to give any reason for disallowing the said claim except saying that there is merit in the stand taken by A.O.. 4] Assessee craves leave to urge additional grounds at the time of hearing as may be necessary.” 12. Briefly, the facts of the case are that the appellant is a company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of manufacturing Yarn. The Return of Income for the assessment year 2014-15 was filed on 29.11.2014 declaring total income of Rs.44,77,55,370/-. The said return of income was revised on 22.02.2016 at total income of Rs.34,36,33,490/-. Against the said return of income, the assessment was completed by the Assessing Officer vide order dated 30.12.2016 passed u/s 143(3) of the Act at total income of Rs.49,01,58,590/-. While doing so, the Assessing Officer made several disallowances, inter alia, includes the disallowance of Rs.5,75,943/- being expenditure incurred on repairs and ITA Nos.271 & 272/NAG/2019 8 maintenance of the access road between PC turning to Weaving Auto drawing of WBM road. According to the Assessing Officer, the expenditure given enduring benefit and, therefore, the same is capital in nature. Accordingly, the Assessing Officer held that the expenditure is capital in nature, allowed the depreciation @ 5%. 13. On appeal before the ld. CIT(A), the findings of the Assessing Officer had been upheld by the ld. CIT(A). 14. Being aggrieved, the appellant is in appeal before us in the present appeal. 15. It is submitted that the expenditure was incurred on carpeted with tremix layer on the existing road and no new road was constructed. The road was carpeted by simple layer, therefore, the assessee decided to cover this road with cement concrete layer with tremix process, which is necessary for smooth conduct business of the assessee and maintain the quality to ensure the dust free and, therefore, the ratio of the decision of the Hon’ble Supreme Court in the case of Empire Jute Co. Ltd. (supra) is squarely applicable to the facts of the present case. He also placed reliance on the decision of the Hon’ble Rajasthan High Court in the case of CIT vs. Shree Cement Ltd. in IT Appal No.40 of 2015 dated 20.09.2016 and submits that the Hon’ble Rajasthan High Court in the said decision ITA Nos.271 & 272/NAG/2019 9 (supra) held that the expenditure held to be revenue expenditure. He also placed reliance on the decision of the Hon’ble Bombay High Court in the case of Jetha Properties (P.) Ltd. vs. CIT, 136 taxmann.com 394 (Bom.), wherein, it was held that the expenditure incurred for raising the floor height of its warehouse/godown to prevent such water logging was held to be revenue expenditure. 16. On the other hand, ld. Sr. DR placed reliance on the orders of the lower authorities. 17. We heard the rival submissions and perused the material on record. The issue that arises for consideration in the present appeal is whether the expenditure of Rs.5,47,146/- incurred by the appellant for improving the existing road can be considered as revenue expenditure as claimed by the appellant. The submission of the appellant is that the expenditure was incurred to cover by cement and carpet tremix process. This was necessary for smooth carrying on business of the assessee and maintain the quality to ensure the dust free, therefore, the ratio of the decision of the Hon’ble Supreme Court in the case of Empire Jute Co. Ltd. (supra) is squarely applicable to the facts of the present case, as the expenditure was incurred to bring to existence of new road. Therefore, we direct the Assessing Officer to allow the same as ITA Nos.271 & 272/NAG/2019 10 revenue expenditure. Accordingly, the grounds of appeal filed by the assessee stands allowed. 18. In the result, the appeal filed by the assessee in ITA No.272/NAG/2019 for A.Y. 2014-15 stands allowed. 19. To sum up, both the appeals filed by the assessee stands allowed, as indicated above. Order pronounced on this 03 rd day of November, 2023. Sd/- Sd/- (S. S. VISWANETHRA RAVI) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; ᳰदनांक / Dated : 03 rd November, 2023. Sujeet आदेश कᳱ ᮧितिलिप अᮕेिषत / Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant. 2. ᮧ᭜यथᱮ / The Respondent. 3. The CIT(A)-2, Nagpur. 4. The Pr. CIT-2, Nagpur. 5. िवभागीय ᮧितिनिध, आयकर अपीलीय अिधकरण, नागपुर / DR, ITAT, Nagpur. 6. गाडᭅ फ़ाइल / Guard File. आदेशानुसार / BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune.