Dy.CIT, Circle-16(2), Hyderabad V. M/s Medha Servo Drives Private Limited, Hyderabad

ITA 363/HYD/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74748 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 21-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ADAGIRI
• Keywords: Capital asset; Depreciation; Revised return; Capital expenditure
• Section: 133A; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.363/HYD/2013 ASSESSMENT YEAR 2009-10. DY. CIT, CIR-16(2), -V- M/S . MEDHA SERVO DRIVES PVT. HYDERABAD. LTD., HYDERABAD. PAN:AABCM3917A (APPELLANT) (RESPONDENT) APPELLANT BY SHRI B. YADAGIRI RESPONDENT BY SHRI K.C. DEVDAS DATE OF HEARING 12-02-2014 DATE OF PRONOUNCEMENT 21-03-2014 ORDER PER SAKTIJIT DEY, J.M: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER DATED 28/12/2012 OF THE CIT (A)-I, HYDERABAD PERTAINING T O THE ASSESSMENT YEAR 2009-10. 2. THE FOLLOWING EFFECTIVE GROUNDS WERE RAISED BEFO RE US:- I. THE LD. CIT (A) ERRED IN DIRECTING TO DELETE THE AD DITION MADE TOWARDS ENHANCEMENT TO CAPITAL ASSET IS NOT REPAIRS BUT CAPITAL EXPENDITURE. II. THE EARNED CIT (A) OUGHT TO HAVE CONFIRMED HT H E INCOME OFFERED ON INVESTMENTS BEFORE DELETING THE SAME. 2 ITA NO.363 OF 2013 MEDHA SERVO DRIVES PVT LTD, HYD. 3. IN GROUND NO.2, THE DEPARTMENT HAS CHALLENGED TH E ACTION OF THE CIT (A) IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER OF AN AMOUNT OF RS.99,00,933/- TOWARDS MAINTENANCE AND REPAIRS OF BUILDING AND RS.20,39,670/- INCURRED TOWARDS GARDEN MAINTENANCE. 4. BRIEFLY STATED FACTS ARE, THE ASSESSEE A COMPANY IS ENGAGED IN MANUFACTURING OF ELECTRICAL EQUIPMENT. FOR THE IMP UGNED ASSESSMENT YEAR, IT FILED ITS RETURN OF INCOME DECLARING INCOME OF R S.33,16,83,875/-. A SURVEY U/S 133A WAS CONDUCTED IN THE BUSINESS PREMISES OF THE ASSESSEE ON 26-11- 2010. AS A CONSEQUENCE OF THE SURVEY, THE ASSESSEE FILED REVISED RETURN OF INCOME ON 26-11-2010 DECLARING ADDITIONAL INCOME OF RS.3 CRORES FOR THE IMPUGNED ASSESSMENT YEAR. IN COURSE OF SCRUTINY AS SESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED EXPENDITURE TOWARDS REPAIRS AND MAINTENANCE OF THE BUILDING AS UNDER:- I) CONSTITUTION CHARGES PAID TO ROYAL HOME CONSTRUC TIONS OF RS.19,98,561/- II) MATERIAL SUPPLY PAID TO SRI N. SURENDER REDDY O F RS.26,68,500/- III) LABOUR CHARGES PAID TO SRI G. PRAVEEN YADAV OF RS.14,95,400/- IV) MISCELLANEOUS REPAIR CHARGES PAID OF RS.14,27,8 54/- V) SUPPLY OF VOICE CABLING FOR IAN FOR REPLACEMENT OF RS.4,37,384/- VI) MISC. BUILDING REPAIR CHARGES OF RS.3,80,383/- VII) WATER PROOFING WORK CHARGES PAID OF RS.3,00,00 0/- VIII) CEMENT SUPPLY OF RS.1,48,259/- & RS.1,30,200/ - IX) PAINTING WORK OF RS.1,23,824/- 3 ITA NO.363 OF 2013 MEDHA SERVO DRIVES PVT LTD, HYD. X) REPAIRS TO PARTITION OF RS.1,14,305/- XI) RIVER SAND SUPPLY OF RS.1,13,384/- AND RS.1,05, 888/- AND XII) EXCAVATION OF WORK, ETC. OF RS.1,13,666/- 5. WHEN THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN, THE ASSESSEE CONTENDED THAT THE FACTORY BUILDING HAVING BECOME OLD REQUIRED MAJOR REPAIRS HENCE, THE EXPENDITURE WAS INCURRED T OWARDS REPAIRS OF THE BUILDING. THE ASSESSING OFFICER HOWEVER WAS NOT C ONVINCED WITH THE EXPLANATION OF THE ASSESSEE. HE WAS OF THE VIEW TH AT LOOKING AT THE SCALE OF REPAIRS AND MAINTENANCE WORK UNDERTAKEN TO THE BUIL DING AND NATURE OF EXPENSES INCURRED, EXTENT OF MATERIAL CONSUMED AND LABOUR CHARGES INCURRED, IT WOULD REVEAL THAT REPAIRS WERE NOT SIM PLY FOR DAY TO DAY MAINTENANCE OF THE FACTORY BUILDINGS. THEY ARE MEAN T TO ENHANCE THE LIFE SPAN OF THE BUILDINGS. REFERRING TO THE CONSULTAT ION CHARGES PAID TO ROYAL HOME CONSTRUCTIONS OF RS.19,98,561/-.THE ASSESSING OFFICER OBSERVED THAT, THIS SHOWS THAT EVEN CONSULTATION WITH TECHNICAL PE OPLE WAS MADE AND THE EXPENDITURE INCURRED IS NOT SIMPLY FOR CURRENT REPA IRS. HE THEREFORE CONCLUDED THAT THE EXPENDITURE INCURRED IS OF CAPIT AL NATURE THE ASSESSEE HAD ENHANCED THE LIFE OF THE EXISTING ASSETS. HE T HEREFORE HELD THAT THE EXPENDITURE INCURRED IN BUILDING MAINTENANCE AND RE PAIRS AMOUNTING TO RS.1,10,01,037/- IS NOT ALLOWABLE U/S 37(1) OF THE ACT. HOWEVER, THE ASSESSING OFFICER HAVING HELD THAT THE EXPENDITUR E INCURRED TO BE OF CAPITAL NATURE ALLOWED DEPRECIATION AT THE RATE OF 10% AMO UNTING TO RS.11,00,104/- AND DISALLOWED THE BALANCE AMOUNT OF RS.99,00,933/- . THE ASSESSING OFFICER ALSO DISALLOWED AN AMOUNT OF RS.22,66,300/- STATED TO BE INCURRED TOWARDS GARDEN MODIFICATION AND REPAIR CHARGES TREATING IT ALSO TO BE OF CAPITAL NATURE. BEING AGGRIEVED OF SUCH DISALLOWANCE, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A). 4 ITA NO.363 OF 2013 MEDHA SERVO DRIVES PVT LTD, HYD. 6. ON APPEAL, THE CIT (A) DELETED THE ADDITION MADE BY THE ASSESSING OFFICER BY OBSERVING AS UNDER:- 5. I HAVE CAREFULLY CONSIDERED THE EXPENDITURE INCURRE D BY THE ASSESSEE TOWARDS THE REPAIRS AND MAINTENANCE OF THE BUILDING . THE ASSESSING OFFICER ERRED IN ANALYSING THE EXPENDITURE INCURRED BY THE ASSESSEE. HE DID NOT BRING ANYTHING ON RECORD TO PROVE THAT SAID EXPENDITURE WAS NEITHER BROUGHT INTO EXISTENCE ANY NEW ASSET NOR A NEW ADVANTAGE FOR THE COMPANY WHICH IS THE MAIN TEST AS OBSERVED BY THE H ONBLE SUPREME COURT. 5.4. THE ASSESSEE SUBMITTED LIST OF EXPENDITURE, WH ICH WERE SUBMITTED TO ASSESSING OFFICER. IT IS SEEN THAT ALL THE EXPE NDITURES ARE PETTY NATURE AND CANNOT BRING ANY NEW ASSET NOR NEW ADVANTAGE TO THE COMPANY. FURTHER, THE ASSESSING OFFICER REFERRED TO THE DECI SION MADE IN THE CASE OF MADRAS AUTO SERVICE (P) LTD (1998) 233 ITR 468(SC ), WITH RESPECT TO THE EXPENDITURE INCURRED BY THE COMPANY ON A LEASED PRE MISES. THE ASSESSING OFFICER ERRED IN APPLYING THE DECISION TO THE CASE OF THE ASSESSEE. THE ASSESSEE INCURRED THE EXPENDITURE ON ITS OWN BUILDING BUT NOT ON THE LEASED PREMISES. HENCE, THE ADDITION MA DE ON THIS ACCOUNT IS DELETED. 7. SO FAR AS GARDEN MAINTENANCE EXPENDITURE OF RS.2 2,66,300/- IS CONCERNED, THE CIT (A) DELETED THE ADDITION HOLDIN G AS UNDER: 6.2. I HAVE CAREFULLY CONSIDERED THE REASONING OF THE ASSESSING OFFICER AND THE SUBMISSIONS OF THE APPELLANT. THE ASSESSIN G OFFICER AGREES IN HIS CONCLUSION THAT THE SAID EXPENDITURE WAS INCURRED O N THE MODIFICATIONS AND REPAIRS OF THE GARDEN. HE IS OF THE OPINION TH AT IT IS A PART OF THE BUILDING AND HENCE HE CAPITALISED THE EXPENDITURE A ND ALLOWED THE DEPRECIATION. THE EXPENDITURE INCURRED ON MODIFICA TIONS AND REPAIRS OF THE GARDEN WILL NOT HAVE ENDURING BENEFIT. BASING ON ANOTHER, I AM OF THE 5 ITA NO.363 OF 2013 MEDHA SERVO DRIVES PVT LTD, HYD. OPINION THAT THE EXPENDITURE INCURRED ON GARDEN MAI NTENANCE IS OF REVENUE NATURE AND HENCE THE ADDITION ON ACCOUNT OF EXPENDITURE INCURRED ON GARDEN MAINTENANCE OF RS.22,88,368 IS D ELETED. 8. WE HAVE HEAD THE SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIALS ON RECORD AS WELL AS ORDERS OF THE REVENU E AUTHORITIES. AS CAN BE SEEN FROM THE ASSESSMENT ORDER, THE ASSESSING OFFIC ER DOES NOT DISPUTE THE FACT THAT THE EXPENDITURE INCURRED IS TOWARDS REPAI R AND MAINTENANCE OF THE FACTORY BUILDING. IT IS ALSO NOT DISPUTED THAT THE FACTORY BUILDING IS QUITE OLD. IN THE AFORESAID CIRCUMSTANCES, THE EXPENDITURE INC URRED CERTAINLY ASSUMES THE CHARACTER OF CURRENT REPAIRS AND IS ONLY TO PRE SERVE AN EXISTING ASSET. NOTHING HAS BEEN BROUGHT ON RECORD BY THE ASSESSING OFFICER TO SHOW THAT THE ASSESSEE HAD UNDERTAKEN ANY NEW CONSTRUCTION OR HAS MADE ADDITIONS, ALTERATIONS TO THE EXISTING BUILDING. THAT BEING TH E CASE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT (A) IN ALLOWING T HE EXPENDITURE CLAIMED AS NO NEW ASSET OF ENDURING BENEFIT, WAS BROUGHT INTO EXISTENCE BY THE ASSESSEE. SIMILARLY, SO FAR AS EXPENDITURE INCURRED TOWARDS GARDEN MAINTENANCE IS CONCERNED, THE SAME ALSO CANNOT BE C ONSIDERED TO BE CAPITAL EXPENDITURE. AS CONTENDED BY THE LEARNED AR, THE M AINTENANCE OF GARDEN AND FACTORY PREMISES IS ALSO FOR THE INTEREST OF BU SINESS AS NOT ONLY IT CREATES A GOOD AMBIENCE BUT ALSO HELPS IN PROTECTION OF ENV IRONMENT. IT IS ALSO A FACT THAT BY ASSESSEE HAS NOT BROUGHT INTO EXISTENCE ANY ASSET OF ENDUING BENEFIT. THEREFORE, THERE IS NO JUSTIFICATION FOR DISALLOWING SUCH EXPENDITURE. WE THEREFORE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT (A) FOR ALLOWING THE SAME. THE GROUND RAISED IS THEREFORE DISMISSED . 9. THE NEXT GROUND AS RAISED IN GROUND NO.3 RELATE S TO DISALLOWANCE OF EXPENDITURE MADE FOR EARNING EXEMPTED INCOME U/S 14 A OF THE ACT AMOUNTING TO RS.60,795/-. AT THE VERY OUTSET, THE LEARNED AR FAIRLY CONCEDED THAT THE DISALLOWANCE MADE BY THE ASSESSIN G OFFICER IS JUST AND PROPER. CONSIDERING SUCH SUBMISSIONS OF THE LEARNE D AR, WE RESTORE THE 6 ITA NO.363 OF 2013 MEDHA SERVO DRIVES PVT LTD, HYD. ADDITION OF RS.60,795/-. THEREFORE, THIS GROUND OF THE DEPARTMENT IS TO BE ALLOWED. 10. IN THE RESULT, THE APPEAL FILED BY THE DEPARTME NT IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 21 -03- 2014. S D / - (CHANDRA POOJARI) ACCOUNTANT MEMBER S D / - (SAKTIJIT DEY) JUDICIAL MEMBER HYDERABAD, DATED THE 21 ST MARCH, 2014. JMR* COPY TO:- 1) DCIT, CIR-16(2), ROOM NO.611, 6 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. 2) MEDHA SERVO DRIVES PVT. LTD, PLOT NO.P-4/5B, IDA NACHARAM, HYDERABAD. 3) CIT(AV, HYDERABAD. 4) CIT, VIJAYAWADA. 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABA D. 7 ITA NO.363 OF 2013 MEDHA SERVO DRIVES PVT LTD, HYD.