Shri P.N. Nagpal,HUF, Ahmedabad V. The Dy.CIT.,Circle-9, Ahmedabad

ITA 3311/AHD/2009

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 67995 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 28-10-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 14-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M K PATEL
• Assessee Lawyers: P L KUREEL
• Keywords: Reopening of assessment; Capital asset; Depreciation; Audit objection; Difference of opinion; Reason to believe; Change of opinion; Revenue expenditure; Reassessment proceedings; Capital expenditure
• Section: 143(3); 37(1); 147; 148

Judgement Text

ITA NOS. 2698/A/2012 , 3311/A/09 & CO. NO. 09/A/20 13 . A.Y. 2005-06 & 2006 - 07 1 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD (BEFORE SHRI D.K. TYAGI, J.M. & SHRI ANIL CHATURVE DI, A.M.) I.T. A. NO. 2698/AHD/2012 & CO. NO. 09/AHD/2013 (ASSESSMENT YEAR: 2005-06 & 2005-06) A.C.I.T. (OSD), CIRCLE-9, AHMEDABAD V/S M/S. P.N. NAGPAL (HUF) C/O. ASHOPALAV EYE HOSPITAL NR. SHAHIBAUG UNDER BRIDGE, SHAHIBAUG, AHMEDABAD. 380016 (APPELLANT) (RESPONDENT) I.T.A. NO. 3311 /AHD/2009 (ASSESSMENT YEAR : 2006-07) M/S. P.N. NAGPAL (HUF) C/O. ASHOPALAV EYE HOSPITAL NR. SHAHIBAUG UNDER BRIDGE, SHAHIBAUG, AHMEDABAD. 380016 V/S A.C.I.T. (OSD), CIRCLE-9, AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AABHP8805M APPELLANT BY : SHRI P.L. KUREEL, SR. D.R . RESPONDENT BY : SHRI M. K. PATEL ( )/ ORDER DATE OF HEARING : 28-10-201 3 DATE OF PRONOUNCEMENT : 29 -11-2013 PER SHRI ANIL CHATURVEDI,A.M. ITA NOS. 2698/A/2012 , 3311/A/09 & CO. NO. 09/A/20 13 . A.Y. 2005-06 & 2006 - 07 2 1. THESE TWO APPEALS ARE FILED BY THE REVENUE AND THE OTHER BY THE ASSESSEE AGAINST THE ORDER CIT(A)-XV, AHMEDABAD DATED 26.09. 2012 & 29.10.2009 FOR A.YS. 2005-06 & 2006-07 RESPECTIVELY AND ASSESSEE HAS ALSO FILED A C.O. FOR A.Y. 05-06. BEFORE US, BOTH T HE PARTIES SUBMITTED THAT THE FACTS OF THE CASE IN BOTH THE YEARS ARE ID ENTICAL EXCEPT FOR THE AMOUNT AND THEREFORE BOTH THE APPEALS CAN BE DECIDE D TOGETHER. WE THEREFORE PROCEED TO DECIDE BOTH THE APPEALS BY A C ONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE AND WE THUS PROCEED WITH T HE FACTS FOR A.Y. 2005-06 (ITA NO. 2698/AHD.2012). 2. THE FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. 3. MR. P.N. NAGPAL IS A DOCTOR BY PROFESSION IN HIS IN DIVIDUAL CAPACITY. THE ASSESSEE IN HIS HUF CAPACITY OWNS HOSPITAL BUILDING S NAMELY ASOPALAV EYE HOSPITAL. ASSESSEE FILED ITS RETURN OF INCOME FOR A.Y. 2005-06 ON 31.01.2005 DECLARING TOTAL INCOME AT RS. 35,13,720/-. THE RETURN WAS INITIALLY PROCESSED UNDER SECTION 143(1) . SUBSEQUENTLY, THE CASE WAS REOPENED AND THEREAFTER ASSESSMENT WAS FRA MED UNDER SECTION 143(3) READ WITH SECTION 147 VIDE ORDER DATED 12.12 .2007 AND THE TOTAL INCOME WAS DETERMINED AT RS. 60,51,290/-. AGGRIEVE D BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CI T(A) VIDE ORDER DATED 29.10.09 GRANTED PARTIAL RELIEF TO THE ASSESS EE. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE PREFERRED APPEAL BEFORE ITAT. ITAT VIDE COMBINED ORDER FOR A.Y. 2005-06 & 2006-07 DATED 07. 01.2011 SET ASIDE THE ORDER FOR A.Y. 05-06 AND DIRECTED THE A.O. TO A LLOW PROPER OPPORTUNITY TO THE ASSESSEE TO FILE OBJECTIONS AGAI NST REOPENING OF ITA NOS. 2698/A/2012 , 3311/A/09 & CO. NO. 09/A/20 13 . A.Y. 2005-06 & 2006 - 07 3 ASSESSMENT. CONSEQUENT TO THE DIRECTION OF ITAT, AS SESSMENT WAS FRAMED UNDER SECTION 143(3) READ WITH SECTION 254 O F THE ACT VIDE ORDER DATED 07.12.2011 AND THE TOTAL INCOME WAS DETERMINE D AT RS. 59,16,190/-. AGGRIEVED BY THE AFORESAID ORDER OF A.O, ASSESSEE P REFERRED APPEAL BEFORE CIT(A), CIT(A) VIDE ORDER DATED 26 TH SEPTEMBER 2012 GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE AF ORESAID ORDER OF CIT(A) REVENUE IS NOW IN APPEAL BEFORE US AND THE ASSESSEE HAS ALSO FILED CROSS OBJECTION. THE EFFECTIVE GROUND RAISED BY THE REVE NUE READS AS UNDER:- 1. THE LD. COMMISSIONER OF INCOME-TAX(APPEALS)-XV, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 25,29, 556/- MADE ON ACCOUNT OF BUILDING RESTRUCTURING AND RENOVATION EXPENSES BY HOLDING IT AS REVENUE EXPENDITURE ON REPAIRS. 4. IN C.O. OF THE ASSESSEE HAS CHALLENGED THE REOPENIN G AND THE GROUND READS AS UNDER:- 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN UPHOLDING THE RE-OPENING AND REASSESSMENT VALID. THE LD. CIT(A) OUGHT TO HAVE AN NULLED THE REASSESSMENT ORDER. 5. WE FIRST PROCEED WITH THE C.O. OF THE ASSESSEE. (C O. NO. 09/AHD/2013) 6. BEFORE US, THE LD. A.R. SUBMITTED THAT THE REASSESS MENT PROCEEDINGS WERE INITIATED ON THE BASIS OF AUDIT OBJECTIONS RAISED B Y THE AUDIT PARTY OF ACCOUNTANT GENERAL (AUDIT). HE SUBMITTED THAT THE REOPENING OF ASSESSMENT FOLLOWING THE OBJECTION OF THE AUDIT PAR TY CONSTITUTES A CHANGE OF OPINION ON THE SAME SET OF FACTS ALREADY AVAILAB LE AT THE TIME OF ORIGINAL ASSESSMENT AND THE REMARKS OF ACCOUNTANT G ENERAL (AUDIT) CANNOT BE REGARDED AS INFORMATION TO ENABLE THE REO PENING OF THE ASSESSMENT. HE FURTHER SUBMITTED THAT FOR VALID INI TIATION OF PROCEEDINGS, THE A.O. MUST HAVE REASON TO BELIEVE THAT ANY INCOM E CHARGEABLE TO TAX ITA NOS. 2698/A/2012 , 3311/A/09 & CO. NO. 09/A/20 13 . A.Y. 2005-06 & 2006 - 07 4 HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR. HE POINTED TO THE REASONS RECORDED FOR REOPENING OF ASSESSMENT PLACED AT PAGE 30 OF THE PAPER BOOK. HE FURTHER SUBMITTED THAT THE AUDIT OB JECTIONS RAISED BY THE AUDIT PARTY WAS NOT ACCEPTABLE TO THE A.O. AND FOR WHICH HE POINTED OUT TO THE COPY OF THE LETTER WRITTEN BY THE ASSESSING OFFICER TO THE ACCOUNTANT GENERAL (AUDIT) AND PLACED AT PAGE 12 TO 21 OF THE PAPER BOOK. HE THEREFORE SUBMITTED THAT THE REOPENING ON THE BASIS OF AUDIT OBJECTION WOULD AMOUNT TO CHANGE OF OPINION AND THE REFORE THE REOPENING WAS BAD IN LAW. HE FURTHER PLACED RELIANCE ON THE DECISION IN THE CASE OF ADANI EXPORTS VS. DCIT 240 ITR 224 (GUJ) AND IN THE CASE OF RAJAT LEASING AND FINANCE LTD. VS. ACIT 217 ITR 115. 7. THE LD. D.R. ON THE OTHER HAND SUBMITTED THAT THE A SSESSEES CASE WAS PROCESSED UNDER SECTION 143(1) AND AS PER THE SETTL ED LAW, THERE CANNOT BE FORMATION OF ANY BELIEF OF OPINION AS FAR AS PROCES SING UNDER SECTION 143(1) OF THE ACT IS CONCERNED AND THEREFORE THERE WAS NO SCOPE OF CHANGE OF OPINION OR ABSENCE OF BONA FIDE BELIEF. HE THEREFORE SUBMITTED THAT THE A.O. WAS FULLY JUSTIFIED IN PROCEEDING WIT H REASSESSMENT. HE THUS SUPPORTED THE ORDER OF CIT(A) AND A.O. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE UNDISPUTED FACTS OF THE PRESENT CASE IS THAT TH E RETURN OF INCOME FOR A.Y. 2005-06 WAS FILED ON 31.10.2005 AND THE RETURN WAS PROCESSED UNDER SECTION 143(1) ON 21.03.2006. NOTICE UNDER S ECTION 148 WAS ISSUED TO THE ASSESSEE ON 21.09.2007 AND THUS THE N OTICE WAS WITHIN 4 YEARS FROM THE END OF RELEVANT ASSESSMENT YEAR. W E FURTHER FIND THAT NO ITA NOS. 2698/A/2012 , 3311/A/09 & CO. NO. 09/A/20 13 . A.Y. 2005-06 & 2006 - 07 5 ORDER UNDER SECTION 143(3) OF THE ACT FOR A.Y. 05-0 6 WAS PASSED IN THE CASE OF ASSESSEE. WHERE THE RETURN FILED BY THE ASS ESSEE HAS BEEN ACCEPTED U/S 143(1), IT CANNOT BE SAID THAT ASSESSI NG OFFICER HAS FORMED AN OPINION AND THEREFORE IT CANNOT BE SAID THAT THE REOPENING WAS ON ACCOUNT OF CHANGE OF OPINION. IN THE PRESENT CASE, WE FIND THAT THE A.O. HAD REOPENED THE ASSESSMENT ON THE BASIS OF FACTUAL INFORMATION GIVEN BY THE AUDIT PARTY. SINCE THE RETURN WAS PROCESSED UN DER SECTION 143(1) OF THE ACT IN A SUMMARY MANNER, THE A.O. HAD NOT APPLI ED HIS MIND TO THE FACTS OF THE CASE AND THEREFORE THERE WAS NO QUESTI ON OF CHANGE OF OPINION. 9. WE ALSO FIND SUPPORT TO OUR VIEW BY THE RATIO OF JU DGMENT OF HON. DELHI HIGH COURT IN THE CASE OF MAHANAGAR TELEPHONE NIGAM LTD. VS. CHAIRMAN, CBDT (2000) 246 ITR 133 (DEL) WHEREIN IT HAS BEEN HELD THAT WHEN RETURN IS ACCEPTED U/S 143(1), IT CANNOT BE SA ID AS PASSING OF ORDER AFTER DUE APPLICATION OF MIND. IT HAS BEEN HELD THA T INTIMATION U/S 143(1)(A) IS NOT AN ASSESSMENT AND THEREFORE THERE CAN BE NO QUESTION OF CHANGE OF OPINION WHEN NOTICE U/S 148 IS ISSUED TO THE ASSESSEE AFTER ISSUING AN INTIMATION U/S 143(1)(A). 10. THE HON. APEX COURT IN THE CASE OF RAJESH JHAVERI S TOCK BROKERS PVT. LTD. VS. ACIT (2007) 291 ITR 500 (SC) HAS HELD:- THAT INTIMATION UNDER SECTION 143(IA) CANNOT BE T REATED TO BE AN ORDER OF ASSESSMENT AND THEREBEING NO ASSESSMENT UNDER SECTI ON 143(IA). THE QUESTION OF CHANGE OF OPINION DOES NOT ARISE. ITA NOS. 2698/A/2012 , 3311/A/09 & CO. NO. 09/A/20 13 . A.Y. 2005-06 & 2006 - 07 6 11. CONSIDERING THE TOTALITY OF FACTS AND RELYING ON TH E DECISION OF THE APEX COURT AND HIGH COURT CITED HEREINABOVE, WE ARE OF T HE VIEW THAT THE A.O. WAS FULLY JUSTIFIED IN PROCEEDING WITH REASSESSMENT PROCEEDINGS. THUS THE REASSESSMENT PROCEEDINGS WAS VALID IN LAW. THUS THI S GROUND OF ASSESSEE IS DISMISSED. 12. IN THE RESULT, THE C.O. OF THE ASSESSEE IS DISMISSE D. ITA NO. 2698/AHD/2012 FOR A. Y. 2005-06 GROUND OF REVENUE IS WITH RESPECT TO ADDITION OF RS . 25,29,556/- ON ACCOUNT OF BUILDING RENOVATION EXPENSES. 13. A.O. NOTICED THAT ASSESSEE IN HUF CAPACITY OWNS HOS PITAL BUILDING NAMELY ASOPALAV EYE HOSPITAL. HE NOTICED THAT ASS ESSEE HAD DEBITED RS. 25,29,556/- ON ACCOUNT OF BUILDING RESTRUCTURIN G AND RENOVATION EXPENSES. HE FURTHER NOTICED THAT IN THE ORIGINAL PROCEEDINGS, THE A.O. ON VERIFICATION OF THE BILLS OF EXPENSES NOTED THAT EX PENSES INCURRED FOR LAYING COMPLETE FALSE CEILING, PURCHASE OF BLACK GR ANITE, KOTA STONE, FLOORING TILES, STRUCTURAL CONSULTANCY CHARGES, LAB OUR PAYMENT FOR MASONRY WORK ETC. WAS CLAIMED AS REVENUE EXPENSES. IT WAS ALSO NOTICED BY THE A.O. THAT ASSESSEE HAD ALSO INCURRED EXPENDI TURE OF RS. 21,28,406/- IN SUBSEQUENT YEAR I.E. A.Y. 06-07. A. O. THEREFORE CONCLUDED THAT THE ENTIRE PROPERTY WAS RECONSTRUCTED WHICH IN CLUDED COMPLETE RESTRUCTURING AND RENOVATING THE EXISTING STRUCTURE AND REBUILDING IT WITH RCC BEANS AND SLABS AND REPLACING TILES, FLOORING, CARPETING, CONSTRUCTION ITA NOS. 2698/A/2012 , 3311/A/09 & CO. NO. 09/A/20 13 . A.Y. 2005-06 & 2006 - 07 7 OF LIFT WELL, ETC. ACCORDING TO THE A.O. THE CHANGE S MADE BY THE ASSESSEE IN THE BUILDING WERE OF ENDURING NATURE AND AS SUCH THE EXPENSES WAS OF CAPITAL NATURE AND NOT REVENUE EXPENDITURE. HE FUR THER NOTED THAT IN A.Y. 06-07 ON THE SAME ISSUE IN THE ASSESSEES OWN CASE, THE TRIBUNAL VIDE ORDER DATED 07.01.2011 HAS TREATED THE EXPENDITURE AS CAPITAL IN NATURE AND DECIDED THE ISSUE IN FAVOUR OF THE DEPARTMENT. HE THUS CONCLUDED THAT THE AMOUNT OF RS. 25,29,556/- DEBITED TO THE P ROFIT AND LOSS ACCOUNT WAS CAPITAL IN NATURE AND CANNOT BE ALLOWED AS REVE NUE EXPENSES UNDER SECTION 37(1). HE ACCORDINGLY DISALLOWED THE SAME. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE C IT(A). CIT(A) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY HOLD ING AS UNDER:- 5 (F) THE A.O. HAS NOT CONSIDERED THE FACT THAT OU T OF TOTAL EXPENDITURE OF RS.37,09,815 FOR A.Y. 200 5- 06 AND RS.97,79,567 FOR A.Y. 2006-07 ON SUCH REPAIR , RENOVATION, RESTRUCTURING, THE APPELLANT HIMSELF USING HIS OWN WISDOM DULY CERTIFIED BY TAX AUDITOR HAD ALREADY CAPITALIZED AN EXPENDITURE OF RS.11,80,259 AND RS.76,51,160 FOR A.Y. 2005- 06 AND A.Y. 2006-07 RESPECTIVELY AND CLAIMED DEPRECIATION ON THE SAME. THE EXPLANATION GIVEN BY APPELLANT AS DISCUSSED AT PARA 4B (II) & (III) ABOV E IN THIS ORDER CLEARLY REFLECT THE REASON ABOUT SUCH TREATMENT WITH DETAILS TO SHOW THE AMOUNT UNDER TH E HEAD MATERIAL, LABOUR & MISC. EXPS. TO JUSTIFY WHY SUCH EXPENDITURE IS TREATED AS REVENUE EXPENDITURE . MOST OF THESE EXPENDITURE IS RELATED TO CIVIL WORK IN THE NATURE OF REPAIR. THE APPELLANT OWNED A PREMISE WHICH IS BEING UTILIZ ED FOR RUNNING A HOSPITAL. IT IS IN THIS REGARD, TH E UTMOST CARE IS REQUIRED TO MAINTAIN CLEAN, SANITIZE D AND PATIENT FRIENDLY CONDITION OF THE SAID PREMIS ES WHICH CAN GIVE MAXIMUM COMFORT AND FACILITATION NOT ONLY TO PATIENT BUT TO THE DOCTORS ALSO TO TREAT T HE PATIENT. ON THE OTHER HAND AS REFLECTED BY THE RECE IPT FIGURES AND AS PER POPULARITY OF THIS HOSPITAL THERE IS HUGE PUBLIC MOVEMENT DAY IN AND DAY OUT SU BJECTING THIS PREMISES TO REGULAR WEAR & TEAR. IT IS THEREFORE, AFTER CONSIDERING ALL THE ABOVE FA CTS I AM INCLINED TO ACCEPT THE CONTENTION OF THE APPELLANT THAT THE EXPENDITURE SO INCURRED AND CLAI MED ARE REVENUE EXPENDITURE. THESE EXPENDITURE ARE IN NATURE OF REPAIR AND MAINTENANCE. IT IS MAINLY T O PRESERVE AND MAINTAIN THE EXISTING ASSET I.E. BUILDING USED FOR HOSPITAL AND TO REPLACE SOME OF T HE WORN OUT PARTS OF THE BUILDING. ALL OTHER EXPENDITURE RELATED TO TOTAL REPLACEMENT, STRUCTURA L CHANGE LIKE CREATION OF LIFT CAR, EQUIPMENTS AND FURNITURE ETC. HAD ALREADY BEEN CAPITALIZED BY THE APPELLANT. THE EXPENDITURE CLAIMED ON REVENUE IS THEREFORE FOR THE PURPOSE AS EXPLAINED BY APPELLANT VIDE SUBMISSION DATED 11.5.2012 (PARA 4B(II) ABOVE 5) AND CANNOT BE THEREFORE HELD AS CAPITAL. I AM INCLINED TO ACCEPT THE CONTENTION OF APPELLANT THAT ON THE SIMILAR FACTS, HON'BLE ITAT IN THE CASE OF APPELLANT FOR A.Y. 1997-98 HELD IN APPELLANT'S FAVOUR. THE APPELLANT RELIED ON THE ORDER OF HON'BL E ITAT INDORE BENCH IN THE CASE OF ACIT 2(1), BHOPAL VS. M.P. WAREHOUSING & LOGISTIC CORPORATION LTD. (2012) 21 TAXMAN.COM 322 (INDORE-TRIB) WHEREIN AT PARA 3.5 OF THE ORDER OF HON'BLE ITA AFT ER CONSIDERING VARIOUS CASE LAWS HELD THAT '3.5 SECTION 3(I) OF THE ACT LIMITS THE SCOPE OF AL LOWABILITY OF EXPENDITURE AS DEDUCTION IN RESPECT O F REPAIRS MADE TO MACHINERY, PLANT OR FURNITURE BY RE STRICTING IT TO THE CONCEPT OF 'CURRENT REPAIRS'. ADMITTEDLY, ALL REPAIRS ARE NOT CURRENT REPAIRS TO DECIDE THE APPLICABILITY OF SECTION 31(I), THE PRIM ARY TEST IS NOT WHETHER THE EXPENDITURE IS REVENUE OR C APITAL IN NATURE. THE BASIC TEST TO FIND OUT AS TO WHAT WOULD CONSTITUTE CURRENT REPAIR IS THAT THE EXPENDI TURE MUST HAVE INCURRED TO 'PRESERVE AND MAINTAIN' AN ALREADY EXISTING ASSET AND THE OBJECT OF EXPENDI TURE MUST NOT BE TO BRING A NEW ASSET INTO EXISTENC E OR TO OBTAIN A NEW ADVANTAGE. 'REPAIR' IMPLIES THE EXISTENCE OF A PART OF THE MACHINE/PLANT OR ITA NOS. 2698/A/2012 , 3311/A/09 & CO. NO. 09/A/20 13 . A.Y. 2005-06 & 2006 - 07 8 FURNITURE WHICH HAS MAL-FUNCTIONS. THE ENTIRE MACHI NE/PLANT OR FURNITURE, IF REPLACED, THE EXPENDITURE , SO INCURRED DID NOT FALL WITHIN THE MEANING OF CUR RENT REPAIRS. THE OBJECT OF REPAIR AND MAINTENANCE IS TO PRESERVE AND MAINTAIN EXISTING ASSET AND NOT TO BRING A NEW ASSET INTO EXISTENCE. THE RATIO LAID DO WN BY HON'BLE BOMBAY HIGH COURT IN NEW SHOROCK SPINNIN G & MFG. CO. LTD. VS. CIT 30 ITR 338(BOM), CIT VS. SARAVANA SPINNING MILLS PRIVATE LIMITED (RE LIED UPOR BY THE LEARNED CIT DR) ; BALLIMAL NAVALKISHORE VS. CIT: 224 ITR 141 (SC), CIT VS. CHO UGHULE & COMPANY PRIVATE LIMITED (214 ITR 523) (BOM). SUPPORTS OUR VIEW. THE FULL BENCH OF HO N'BLE ANDHRA PRADESH HIGH COURT IN THE CASE OF NATHMAL BANKATLAL PARIKH & COMPANY V. CIT [1980] 11 2 ITR 168 (AP) (FB) EVEN WENT TO THE EXTENT THAT THE NECESSARY FACTOR IS TO BE DECIDED BY THE A SSESSEE. THE PROPOSITIONS THAT EMERGES FROM THE DECIDED CASES IS SUMMARIZED AS UNDER:- I). THE AMOUNT SHOULD BE PAID/EXPENDED ON ACC OUNT OF CURRENT REPAIRS II). 'CURRENT REPAIRS' MEANS REPAIR UNDERTAKEN IN N ORMAL COURSE OF USER FOR THE PURPOSES OF PRESERVATION, MAINTENANCE OR PROPER UTILIZATION OR FOR RESTORING TO ITS ORIGINAL CONDITION. III). CURRENT REPAIRS DO NOT MEAN ONLY PETTY REPAIR S OR REPAIRS NECESSITATED BY WEAR AND TEAR DURING T HE PARTICULAR YEAR. IV). SUCH REPAIRS SHOULD NOT BRING INTO EXISTENCE N OR OBTAIN A NEW ASSET OR DIFFERENT ADVANTAGE. V). NEITHER THE QUANTUM OF EXPENDITURE NOR THE FACT THAT IN THE PROCESS OF REPAIR THERE WAS SUBSTANTIA L REPLACEMENT OF THE PARTS OF THE MACHINE OR SHIP IS DECISIVE OF THE TRUE NATURE OF THE EXPENDITURE. VI). THE ORIGINAL COST OF THE ASSET IS NOT AT ALL R ELEVANT FOR ASCERTAINMENT OF THE TRUE NATURE OF THE EXPENDITURE ON REPAIRS. VII). THE REPLACEMENT COST OF THE ASSET MAY, HOWEVE R, AT TIMES BE USED AS INDICATOR OF THE TRUE CHARACTER OF EXPENDITURE. IF THE EXPENDITURE ON REP AIR ADDED TO THE WRITTEN DOWN VALUE OR DISPOSAL VALUE EXCEEDS THE REPLACEMENT COST OF THE ASSET, A PRESUMPTION IS POSSIBLE THAT IT IS NOT A REVENUE EXPENDITURE BUT EXPENDITURE OF CAPITAL NATURE. SUCH A PRESUMPTION, OF-COURSE, WOULD BE REBUTTABLE. VIII). THE EXPRESSION 'CURRENT' 'REPAIRS' APPEARS T O HAVE BEEN USED BY THE LEGISLATURE WITH A VIEW TO RESTRICTING THE ALLOWANCE TO EXPENDITURE INCURRED F OR PRESERVATION AND MAINTENANCE THEREOF IN ITS CURRENT STATE IN CONTRADICTOR TO THAT INCURRED ON A NY IMPROVEMENT OR AN ADDITION THERETO. WE ARE IN AGREEMENT TO A PROPOSITION THAT TOTAL REP LACEMENT OF DAMAGED MACHINERY/SHIP OR AN ASSET MAY NOT CONSTITUTE REPAIR. OUR VIEW IS SUPPORTED BY THE DECISION IN DCIT V. STN TEXTILES LIMITED; 257 ITR 171 (KER.) BUT SUBSTITUTION OF OLD/WORN OUT PAR TS OF A MACHINE/BUILDING/FACTORY ETC. IS AN EXPEND CURE OF DEDUCTIBLE NATURE, MEANING THEREBY FOR CLAI MING THE DEDUCTION UNDER THE PROVISIONS OF THIS ACT , NO NEW ASSET SHOULD COME INTO EXISTENCE AND THE EXP ENDITURE MUST HAVE BEEN INCURRED ON THE EXISTING ASSET. IN VIEW OF THESE FACTS AND JUDICIAL PRONOUNC EMENTS, WE FIND NO INFIRMITY IN THE STAND OF THE CIT(A), ON THIS ISSUE, IT IS AFFIRMED.' IN THE CASE OF APPELLANT, ALL THE NEW ASSETS HAD AL READY BEEN CAPITALISED BY APPELLANT. IT IS ONLY THE OLD ASSET I.E. THE BUILDING WHICH REMAINED EXISTING AND THE EXPENDITURE SO CLAIMED IS RELATED TO REPAIR, PAINTING AND REFURBISHING OF THAT BUILDING. IT IS T HEREFORE THE RATIO OF THIS CASE LAW IS SQUARELY APPLICABLE IN THE CASE OF APPELLANT. IN A RECENT ORDER OF HON'BLE ITAT AHMEDABAD 'B' BEN CH IN THE CASE OF ITO.WD.8(2) AHMEDABAD VS. SUN & SILVER LNN. PVT. LTD.(ITA NO 2334/ AND/2010 A .Y. 2004-05) THE HON'BLE ITAT VIDE ORDER DATED 27.7.2012 AT PARA 6 HELD THAT '6. WE HAVE HEARD BOTH THE SIDES AT SOME LENGTH . WE HAVE ALSO EXAMINED THE CONTENTS OF THE COMPILATION CONTAINING INVOICES FOR PURCHASE OF PLY WOOD AND GLASSES. THERE ARE NUMBER OF INVOICES FOR PURCHASES OF VARIOUS SIZES OF PLY WOOD- SHEET, GLASS AND WOOD. THIS IS AN ACCEPTED FACT THAT THE ASSESSEE IS IN HOTEL INDUSTRY. DUE TO THIS REASON, THE ASSESSEE IS EXPECTED TO KEEP THE PREMISES IN GO OD SHAPE AS ALSO NEAT AND CLEAN. IT WAS EXPLAINED THAT THE VISITORS EXPECT A HOTEL SHOULD LOOK BEAUTIFUL. THEREFORE, THE VEHEMENT ARGUMENT IS THAT THE EXPEND ITURE WAS A BUSINESS REQUIREMENT. BY EXAMINING THE INVOICES AND OTHER DETAILS OF THE EXPENSES, IT CAN BE NOTICED THAT NO NEW ASSET WAS CREATED. THE LABOUR WAS ENGAGED FOR REPLACEMENT OF OLD WOODEN PA NEL AND REPAIR OF THE DAMAGED FURNITURE. ON THE BASIS OF THESE FACTS, WE CAN HOLD THAT THE ASSESSEE BEING IN HOTEL INDUSTRY, THEREFORE THE EXPENDITURE INCURRED FOR INTERIOR DECORATION WITH A VIEW TO PROVIDE A COMFORTABLE STAY TO CUSTOMERS; THE EXPENDITURE WAS NOTHING BUT REVENUE IN NATURE ALLOW ABLE U/S.37 OF IT ACT. FOR THIS LEGAL PROPOSITION, RELIANCE PLACED ON CIT VS.DASAPRAKASH 14 1TR 210 (MAD.). ACCORDING TO US, IN FACT, A CAREFUL STUDY OF THE NATURE OF EXPENDITURE WOULD GIVE A CLEAR IND ICATION ABOUT THE WORK DONE. ON THAT BASIS, ONE CAN ASSCERTAIN WHETHER A NEW ASSET HAS BEEN CREATED. BY THE STUDY OF THE NATURE OF EXPENDITURE, IT CAN BE ITA NOS. 2698/A/2012 , 3311/A/09 & CO. NO. 09/A/20 13 . A.Y. 2005-06 & 2006 - 07 9 ASCERTAINED WHETHER THE ASSESSEE HAS STARTED A NEW LINE OF REVENUE GENERATION OR STARTED GETTI NG AN ALTOGETHER NEW ADVANTAGE OF ENDURING BENEFIT. TH EREFORE, WE ARE OF THE VIEW THAT SUBSTANTIAL REPAIR MAY BE ADVANTAGEOUS FOR RETAINING AN EXISTING ASSET BUT SUCH AN ENDURING BENEFIT MAY NOT LEAD TO A CONCLUSION THAT A CAPITAL ASSET HAS BEEN CREATED TH ROUGH WHICH A NEW ENDURING ADVANTAGE WAS CREATED. AT THIS JUNCTURE, WE HAVE TO KEEP IN MI ND THAT THE ASSESSEE'S BUSINESS IS SUCH THAT THE HOTEL PREMISES SHOULD NOT LOOK SHABBY , RATHER SHOULD LOO K ATTRACTIVE. THEREFORE, WE CAN UNDISPUTEDLY HOLD THAT THE EXPENDITURE IN QUESTION WAS A BUSINESS REQ UIREMENT AS DECIDED BY THE ASSESSEE TO INCUR SUCH HUGE EXPENDITURE ON COMMERCIAL CONSIDERATION. FROM THE CASE LAWS CITED IT IS EVIDENT THAT IN RESPECT O F HOTEL INDUSTRY IT WAS HELD THAT EVEN THE MODERNIZAT ION OF HOTEL BUILDING IS ALLOWABLE AS REVENUE EXPENDITURE BECAUSE SUCH AN EXPENDITURE WAS FOUND T O BE INCURRED WITH A VIEW TO CREATE A CONDUCIVE AND BEAUTIFUL ATMOSPHERE FOR RUNNING HOTEL BUSINESS . WE THEREFORE CONCLUDE THAT THE EXPENDITURE INCURRED FOR REPLACEMENT OF DAMAGED WOODEN PANEL AN D FURNITURE FOR IMPROVEMENT OF THE EXISTING INTERIOR OF THE HOTEL WAS BY NO STRETCH OF IMAGINAT ION COULD BE TREATED AS INCURRED FOR CREATION OF A CAPITAL ASSET BUT TO BE HELD AS REVENUE EXPENDITURE . RESULTANTLY, THE FINDINGS OF THE LD. CIT(A) IS HE REBY CONFIRMED AND GROUND IS DISMISSED. THOUGH THE ORDER IS RELATED TO AN ASSESSEE OF HOTEL INDUSTRIES BUT THE FACTS AND REASONING IS SQUARELY APPLICABLE IN THE CASE OF APPELLANT WHO HAS BUSINES S OF RUNNING A HOSPITAL. THE REQUIREMENT OF MAINTENANCE OF SPACE AND PREMISES IS MORE STRINGENT IN THE CASE OF APPELLANT. HENCE, THE RATIO OF THIS ORDER IS ALSO APPLICABLE IN THE CASE OF APPELLANT. IT IS THEREFORE A.O. IS DIRECTED TO ALLOW SUCH EXPENDITURE AS REVENUE AND DELETE THE ADDITION SO M ADE. THE APPELLANT GETS RELIEF ACCORDINGLY. 14. AGGRIEVED BY THE ORDER OF CIT(A) THE REVENUE IS NOW IN APPEAL BEFORE US. 15. BEFORE US, THE LD. D.R. RELIED ON THE ORDER OF A.O. AND FURTHER RELIED ON THE DECISION IN THE CASE OF CIT VS. MANGAYARKARASI SPINNING MILLS (P) LTD. (2009)315 ITR 114, CIT VS. SARAVANA SPINNING M ILLS (P) LTD. (2007)163 TAXMAN. 201, MODI SPINNING & WEAVING MILL S CO. LTD VS. CIT (1993) 200 ITR 544 AND BALLIMAL NAVAL KISHORE AND ANR VS CIT (1997) 90 TAXMAN 402. THE LD. A.R. ON THE OTHER HA ND SUBMITTED THAT OUT OF THE TOTAL EXPENDITURE, THE CAPITAL EXPENDIT URE HAS BEEN CAPITALIZED AND HAS NOT BEEN CLAIMED AS REVENUE EXPENSES BUT O NLY THE PORTION OF REVENUE EXPENDITURE HAS BEEN CLAIMED AND FOR WHICH HE ALSO POINTED TO THE LEDGER ACCOUNT PLACED AT PAGE 61 TO 75. HE FUR THER SUBMITTED THAT THE CASES RELIED BY THE REVENUE ARE DISTINGUISHABLE ON FACTS AND CANNOT BE APPLIED TO THE FACTS OF THE CASE. HE THUS SUPPORTED THE ORDER OF CIT(A). ITA NOS. 2698/A/2012 , 3311/A/09 & CO. NO. 09/A/20 13 . A.Y. 2005-06 & 2006 - 07 10 16. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT CIT(A) WHILE DECIDING THE ISSUE IN FAV OUR OF THE ASSESSEE HAS NOTED THAT THE ASSESSEE ON ITS OWN HAS CAPITALI ZED EXPENDITURE OF RS. 11,80,259/- AND RS. 76,51,160/- FOR A.Y. 05-06 & 06 -07 RESPECTIVELY. & HAS CLAIMED DEPRECIATION ON THE SAME. HE HAS FURTH ER GIVEN A FINDING THAT THE EXPENDITURE INCURRED BY THE ASSESSEE WAS IN THE NATURE OF REPAIRS AND MAINTENANCE AND WAS MAINLY TO PRESERVE AND MAINTAIN THE EXISTING ASSETS. HE HAS FURTHER NOTED THAT THE EXPENSES WERE WITH RE SPECT TO OLD BUILDING WHICH REMAINED EXISTING AND THE EXPENSES WERE WITH RESPECT TO REPAIR, PAINTING AND REFURNISHING OF BUILDING. HE HAS FURTH ER FOLLOWED THE DECISION OF AHMEDABAD TRIBUNAL IN THE CASE OF SUN A ND SILVER INN PRIVATE LTD. AND HAS CONCLUDED THAT THE FACTS AND REASONING APPLICABLE WHILE DECIDING THE CASE IN THE CASE OF SUN AND SILVER INN PVT. LTD. THOUGH APPLICABLE TO HOTEL WAS ALSO APPLICABLE TO THE BUSI NESS OF RUNNING A HOSPITAL. BEFORE US THE REVENUE COULD NOT CONTROVER T THE FINDINGS OF CIT(A) BY BRINGING ANY CONTRARY MATERIAL ON RECORD . IN VIEW OF THE AFORESAID FACTS, WE FIND NO REASON TO INTERFERE WIT H THE ORDER OF CIT(A) AND THUS THIS GROUND OF REVENUE IS DISMISSED. 17. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSED. ITA NO. 3311/AHD/2009 FOR (A.Y. 2006-07) ASSESSEES APPEAL 18. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O. N OTICED THAT THE ASSESSEE HAD DEBITED BUILDING RESTRUCTURING AND RE NOVATION EXPENSES OF RS. 21,28,406/- AND CARPETING FLOORING EXPENSES O F RS. 1,15,060/-. ITA NOS. 2698/A/2012 , 3311/A/09 & CO. NO. 09/A/20 13 . A.Y. 2005-06 & 2006 - 07 11 ACCORDING TO THE A.O., THE EXPENDITURE WAS CAPITAL IN NATURE AND THEREFORE THE ASSESSEE WAS ASKED TO SHOW CAUSE AS T O WHY THE SAME NOT BE CONSIDERED AS CAPITAL IN NATURE. ASSESSEE INTER ALIA SUBMITTED THAT THE EXPENSES WERE INCURRED FOR REPAIR OF HOSPITAL BUILD ING BY CHANGING WORN OUT FLOOR TILES, COLOUR EXPENSES, DRAINAGE AND SANI TATION SYSTEM ETC BY INCURRING THESE EXPENSES, ASSESSEE HAS NOT ACQUIRED ANY NEW ASSET BUT HAS ONLY REPAIRED AND BEAUTIFIED THE CURRENT PREMIS ES FOR THE PURPOSE OF CARRYING ON THE BUSINESS. THE SUBMISSIONS OF THE A SSESSEE WERE NOT FOUND ACCEPTABLE TO THE A.O. A.O. WAS OF THE VIEW THAT THE EXPENDITURE INCURRED WAS OF CAPITAL IN NATURE. HE FURTHER NOTIC ED THAT IN A.Y. 05-06. ASSESSEE HAD INCURRED SIMILAR EXPENDITURE WHICH GOE S TO SHOW THAT THE ENTIRE PROPERTY WAS BEING RECONSTRUCTED AND THEREFO RE THE EXPENDITURE WAS OF ENDURING NATURE. HE ALSO NOTED THAT THE ISSU E BEFORE HON. TRIBUNAL IN THE ASSESSEES OWN CASE FOR A.Y. 97-98 WAS WITH RESPECT TO BUILDING REPAIRS AND MAINTENANCE AND NOT WITH RESPECT TO BU ILDING RESTRUCTURING AND RENOVATION EXPENSES AND THEREFORE THE RATIO OF DECISION OF A.Y. 97-98 WAS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE . HE ACCORDINGLY CONSIDERED THE EXPENSES TO BE OF CAPITAL NATURE AND NOT ALLOWABLE UNDER SECTION 37(1) AND ACCORDINGLY DISALLOWED THE SAME. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE C IT(A). CIT(A) UPHELD THE ORDER OF A.O. BY HOLDING AS UNDER:- 4. GROUND NO. 1 IS ON FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THERE WAS NO JUSTIFICATION FOR THE AO TO DISALLOW RS.21,28,406 OUT OF 'BUILDING RESTRU CTURING & RENOVATION EXPENSES' AND RS. 1,15,060 OUT OF CARPETING & FLOORING EXPENSES.' IN THE ASSESSMENT ORDER THIS POINT HAS BEEN DISCUSS ED IN PARA 3. DURING THE COURSE OF APPELLATE PROCEEDINGS IT WAS CONFIRMED BY THE ID.AR THAT THE ISSUE IS SAME AS IT WAS IN AY 2005-06 AS FAR AS BUILDING RESTRUCTURING AND RENOVATION EXPENSE IS CO NCERNED. I FIND SAME SUBMISSIONS HAVE BEEN FURNISHED IN AY 2006-07 AS WERE GIVEN IN AY 2005-06 BY THE ID.AR. IN AY 2005-06 VIDE MY ORDER DATED 29.10.2009 1 HAVE HELD THIS EXPENDITURE AS CA PITAL EXPENDITURE BECAUSE IT BROUGHT INTO EXISTENCE ALMOST A NEW ASSET/BUILDING GIVING ENDURI NG BENEFIT TO THE APPELLANT. IT WAS NOT A CASE OF SIMPLE MINOR REPAIRS IN THE BUILDING BUT A CASE OF COMPLETE OVERHAULING WITHOUT DEMOLISHING THE EXISTING OLD ASSET. IN A.Y. 06-07 FOLLOWING BREAK-U P OF RS. 21,28,407/- WAS SUBMITTED. ITA NOS. 2698/A/2012 , 3311/A/09 & CO. NO. 09/A/20 13 . A.Y. 2005-06 & 2006 - 07 12 MATERIAL 10,12,385 LABOUR 11,16,021 TOTAL 21,28,407 FURTHER BREAK-UP OF ITEMS/MATERIAL USED GIVEN IN A TABULAR FORM OF 10,12,385,SHOWS THE EXPENDITURE HAD BEEN INCURRED ON STEEL, IRON, CEMEN T, BRICKS, SAND, COLOUR, TILES, GRANITES, PLUMBING, SANITARY ITEMS, FALSE CEILING, ETC. NO DE TAILS OF LABOUR EXPENSE OF RS.11,16,021 WERE GIVEN. SO IT WAS NOT THE CASE OF ANY ONE PARTICULAR REPAIR AS WAS DONE WITH RESPECT TO FLOOR IN AY 1997-98 WHEN EXPENSE OF RS.2,29,461 ON REPLACEMENT OF FLOOR TILES WAS ALLOWED BY HON'BLE ITAT TO THE APPELLANT. IT WAS THE CASE OF BRINGING INTO EXISTENCE ALMOST A NEW BUILDING BY EXTENSIVE RESTRUCTURING AND RENOVATION GIVING ENDURING BENEFI T TO AN EXISTING CAPITAL ASSET OF THE APPELLANT. TOTAL EXPENDITURE CAME TO APPROXIMATELY RS.47,00,00 0 TAKING BOTH AY 2005-06 AND 2006-07 TOGETHER AS AGAINST WDV OF THE BUILDING DECLARED IN THE DEPRECIATION CHART JUST AT RS. 1,24,478 AS ON 1.4.2004 (AY 2005-06) AND AT RS.112,030(AY 2006- 07). HON'BLE SUPREME COURT DECISION IN THE CASE OF CTT V/S SRI MANGAYARKARASI MILLS PVT.LTD. (2009) 315 1TR 114(SC ) WAS RELIED UPON IN MY ORDER FOR AY 2005-06. ALSO OTHER HON'BLE SUPREME COURT DECISIONS IN THE CASE OF ALEMBIC CHEM ICALS WORKS CO.LTD. V/S CIT (1989) 177 1TR 377 (SO AND EMPIRE JUTE CO.LTD. VS. C1T 124 ITR 1 (SC) SUPPORT THE CONFIRMATION OF THE ADDITION AS CAPITAL EXPENDITURE. THEREFORE IN AY 2006-07 ADD ITION OF RS.21,28,406 IS CONFIRMED AS CAPITAL EXPENDITURE WHICH WAS DEBITED IN THE P&L ACCOUNT TO DIMINISH THE TAX BURDEN. HOWEVER CARPETING AND FLOORING EXPENDITURE DISALLOWED BY THE AO OF RS.1,15,060 IS DIRECTED TO BE DELETED IN VIEW OF HON'BLE ITAT DECI SION DATED 7.7.2006 IN THE CASE OF THE APPELLANT IN AY 1997-98. 19. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS N OW IN APPEAL BEFORE US. 20. BEFORE US, THE LD. A.R. SUBMITTED THAT EXTENSIVE RE PAIR WERE CARRIED OUT TO THE BUILDING AND SOME PORTION OF THE EXPENDITURE WA S INCURRED IN A.Y. 05-06. HE REITERATED THE SUBMISSIONS MADE BY ARGUI NG THE CASE FOR A.Y. 05-06. HE THUS SUBMITTED THAT THE ADDITION MADE BY THE A.O. BE DELETED. THE LD. D.R. ON THE OTHER HAND REITERATED THE SUBMI SSIONS MADE WHILE ARGUING THE CASE FOR A.Y. 05-06 AND SUPPORTED THE O RDER OF A.O. 21. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT AS ADMITTED BY BOTH THE PA RTIES BEFORE US THAT THE FACTS OF THE CASE IN THE YEAR UNDER APPEAL ARE IDE NTICAL TO THAT OF A.Y. 05- 06 AND THE NATURE OF EXPENSES ARE ALSO SIMILAR NATU RE. IT IS AN UNDISPUTED ITA NOS. 2698/A/2012 , 3311/A/09 & CO. NO. 09/A/20 13 . A.Y. 2005-06 & 2006 - 07 13 FACT THAT THE IDENTICAL EXPENDITURE WERE CLAIMED BY THE ASSESSEE IN A.Y. 05-06. WE WHILE DECIDING THE APPEAL FOR A.Y. 05-06 HEREINABOVE HAVE DECIDED THE ISSUE IN FAVOUR OF ASSESSEE. SINCE THE FACTS AND THE NATURE OF EXPENSES IN THE YEAR UNDER APPEAL ARE IDENTICAL TO THAT OF A.Y. 05-06, WE FOR SIMILAR REASONS HOLD THE EXPENDITURE TO BE OF R EVENUE IN NATURE AND THUS THIS GROUND OF ASSESSEE IS ALLOWED. 22. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED. 23. IN THE RESULT, THE APPEAL OF THE REVENUE AND CO. OF ASSESSEE ARE DISMISSED AND APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 29 -11 - 2013. SD/- SD- (D.K. TYAGI) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT ,AHMEDABAD