PALM GROVE BEACH HOTELS P. LTD, MUMBAI V. DCIT CEN CIR-23, MUMBAI

ITA 3451/MUM/2009

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 6382 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 07-10-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 27-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MAYAUR MAKWANE; S D PURANDARE
• Keywords: Revenue expenditure; Capital expenditure
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C, MUMBAI BEFORE SHRI R.S. SYAL, A.M. AND SHRI V. DURGA RAO, J.M. ITA NO. 3451/M/2009 ASSESSMENT YEAR: 2006-07 M/S PALM GROVE BEACH HOTELS P. LTD., APPE LLANT CONSTRUCTION HOUSE B, 2 ND FLOOR, 623, LINKING ROAD, KHAR (W), MUMBAI 400 052 (PAN AAACP2735J) VS. DY. COMMISSIONER OF INCOME TAX, RESPONDENT CENTRAL CIRCLE, 23, AAYAKAR BHAVAN, MUMBAI 400 020. APPELLANT BY : MR. S.D. PURANDARE & MR. MAYAUR MAKWANE RESPONDENT BY : MR. A.K. SINGH . ORDER PER V. DURGA RAO, J.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF CIT(A), CENTRAL V, MUMBAI, PASSED ON 28/04/2009 F OR THE ASSESSMENT YEAR 2006-07 WHEREIN THE ASSESSEE HAS RA ISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THE LEARNED CIT(A) HAS ERRED IN FACT AND IN LAW IN CONFIRMING THE DISALLOWANCE OF REPAIR EXPENSES OF ` . 7,97,738/- AS CAPITAL EXPENDITURE EVEN THOUGH NO NEW ASSETS CAME INTO EXI STENCE OR NO BENEFIT OF ENDURING NATURE WAS DERIVED. 2. ON THE FACTS AND CIRCUMSTANCES AND IN LAW, THE L EARNED CIT(A) HAS ERRED IN CONFIRMING AN ADDITION OF ` . 2,36,270/- MADE U/S R.W.R. 8D OF THE INCOME TAX RULES. ITA NO. 3451/M/09 M/S PALM GROVE BEACH HOTESLS LTD. 2 2. BRIEFLY THE FACTS RELATING TO GROUND NO. 1 ARE T HAT THE ASSESSEE HAD CLAIMED DEDUCTION OF ` . 1,10,37,133/- IN THE PROFIT AND LOSS ACCOUNT AS REPAIRS AND MAINTENANCE, FOR WHICH THE A SSESSEE FILED DETAILS OF THE CLAIMS MADE. ON PERUSING THE DETAILS , THE AO FOUND THE FOLLOWING ITEMS APPEAR TO BE CAPITAL NATURE FOR REN OVATION AND ADDITION OR ASSETS AND ARE OF ENDURING NATURE:- REPAIRS TELEPHONE AMOUNT( ` .) REPAIRS EPABX (SIEMENS LTD.) 4,31,649/- REPAIRS EPABX (SIEMENS LTD.) 2,86,501/- SIEMENS LTD. SPARES FOR THE REPAIRS OF EPABX 39,862/- 4 NOS. OF HEADSET & 4 NOS. OF ASIA PACIFIC 39,726/- 7,97,738/-. 3. ON BEING ASKED THE ASSESSEE AS TO WHY THE ABOVE AMOUNT SHOULD NOT BE TREATED AS CAPITAL IN NATURE, THE ASSESSEE H AD RELIED UPON THE JUDGMENT OF THE PUNJAB HIGH COURT IN THE CASE OF CI T VS. BHAGAT INDUSTRIES CORPORATION LTD., 126 ITR 645, WHEREIN I T WAS HELD THAT THE MERE FACT THAT REPAIRS THAT ARE MADE ARE OF DURABLE NATURE, WILL NOT MAKE AN EXPENDITURE A CAPITAL EXPENDITURE. THE ASSE SSEE HAD FURTHER RELIED ON THE JUDGMENT OF THE AP HIGH COURT IN THE CASE OF GUNGUR MERCHANTS COTTON PRESS COMPANY VS. ITO, 108 ITR 620 . THE ASSESSEE CLAIMED THAT REPAIRS AND MAINTENANCE ARE ALLOWABLE U/S 31 OF THE ACT. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSES SEE AND RELYING ON THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF BA LLIMAL NAVAL KISHORE & ORS, 224 ITR 414 AND THE JUDGMENT OF THE GUJARAT HIGH COURT IN THE CASE OF HON'BLE MOHMED & CO., 107 ITR 637, THE AO HELD THAT THE ASSESSEE HAD UNDERTAKEN THE REPAIRS FOR RESTORING AN ASSET OVERHAUL OF THE EXISTING ASSET, THEREFORE, THE AS SESSEES CONTENTION IS NOT ACCEPTABLE AND EXPSNES CLAIMED AS REVENUE ARE T REATED AS CAPITAL IN NATURE. 4. BEFORE THE CIT(A), THE ASSESSEE CONTENDED THAT N O NEW ASSET HAS COME INTO EXISTENCE AND THERE IS ALSO NO REPLACEMEN T OF THE WHOLE UNIT OF EPABX SYSTEM, THEREFORE, THE AO WAS NOT RIGHT IN TREATING THE ITA NO. 3451/M/09 M/S PALM GROVE BEACH HOTESLS LTD. 3 EXPENDITURE AS CAPITAL IN NATURE. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, CONFIRMED THE ACTION O F THE AO BY HOLDING THAT LOOKING INTO THE NATURE OF THE EXPENSE S, THE AO IS RIGHT IN TREATING THE EXPENSES AS CAPITAL IN NATURE AS TH E EXPENSES HAD BEEN INCURRED TOWARDS ACQUISITION OF PROCESSOR, AMPLIFIE RS AND MODULES WHICH GO INTO THE OVERHAUL THE EXISTING EPABX SYSTE M. 5. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND PERUSED THE RECORD. THE ISSUE TO BE EXAMINED IS THE AMOUNT OF ` . 7,97,738/- INCURRED BY THE ASSESSEE FOR REPAIRS TO EPABX SYSTEM IS CAPITAL IN NATURE OR REVENUE IN NATURE. THE QUESTIO N WHETHER EXPENDITURE IS ON CAPITAL OR REVENUE ACCOUNT SHOULD BE DECIDED FROM THE PRACTICAL AND BUSINESS VIEW POINT AND IN ACCORD ANCE WITH SOUND ACCOUNTANCY PRINCIPLES. THE THREE TESTS ARE TO APPL IED TO DECIDE THE NATURE OF EXPENDITURE, NAMELY, I) TESTS OF ENDURING BENEFIT, II) OWNERSHIP TEST, AND III) THE FUNCTIONAL TEST. IN TH E CASE UNDER CONSIDERATION, THE ASSESSEE HAS MADE REPAIRS TO EPA BX SYSTEM TO KEEP THE SYSTEM INTACT, WHICH INVOLVES TO CHANGE SO ME PARTS IN THE SYSTEM, AS THE PARTS IN THE SYSTEM TO BE CHANGED OV ER A PERIOD OF TIME. THEREFORE, REPAIRS TO EPABX SYSTEM IS A RECUR RING EXPENDITURE, WHICH CANNOT BE HELD AS CAPITAL IN NATURE ON THE GR OUND THAT SOME NEW SPARE PARTS HAVE BEEN REPLACED IN THE SYSTEM AS NO NEW ASSET CAME INTO EXISTENCE OR NO BENEFIT OF ENDURING NATUR E WAS DERIVED. WE ARE OF THE VIEW THAT THE REVENUE AUTHORITIES HAVE E RRED IN TREATING THE EXPENDITURE INCURRED BY THE ASSESSEE FOR REPAIRS TO EPABX SYSTEM AS CAPITAL IN NATURE. THEREFORE, WE SET ASIDE THE ORDE R OF CIT(A) AND DIRECT THE AO TO TREAT THE AMOUNT OF ` . 7,97,738/- INCURRED BY THE ASSESSEE TOWARDS REPAIRS TO EPABX SYSTEM AS REVENUE EXPENDITURE. 6. AS REGARDS 2 ND GROUND REGARDING ADDITION OF ` . 2,36,270/- MADE U/S 14A R.W.R. 8D, AT THE TIME OF HEARING BEFORE U S, THE LEARNED COUNSEL FOR THE ASSESSEE HAS NOT PRESSED THIS GROUN D OF APPEAL, THEREFORE, THIS GROUND OF APPEAL IS DISMISSED AS NO T PRESSED. ITA NO. 3451/M/09 M/S PALM GROVE BEACH HOTESLS LTD. 4 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 26 TH DAY OF NOVEMBER, 2010. SD/- SD/- (R.S. SYAL) (V. DURGA RAO) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI, DATED: 26TH NOVEMBER, 2010 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, C BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI. KV/GPR S.NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON 29/10/10 SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR 04/11/10 SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK 26.11.10 SR.P.S./P .S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER