UHDE INDIA P.LTD, MUMBAI V. ADDL CIT 10(3), MUMBAI

ITA 3775/MUM/2016

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 0384 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2008-2009
• Appeal Filed On: 01-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS USHA GAIDWAD
• Keywords: Capital asset; Business income; Depreciation; Question of law; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 143(3); 234B; 37(1); 13; 22; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F MUMBAI BEFORE SHRI VIKAS AWASTHY (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 3775/MUM/2016 ASSESSMENT YEAR: 2008-09 UHDE INDIA PVT. LTD. [NOW KNOWN AS THYSSENKRUPP INDUSTRIAL SOLUTIONS (INDIA) PVT. LTD.], UHDE HOUSE, L.B.S. MARG, VIKHROLI (WEST), MUMBAI - 400083 VS. ADDL. COMMISSIONER OF INCOME TAX, 10(3), MUMBAI. PAN NO. AAACU1416H APPELLANT RESPONDENT ITA NO. 4214/MUM/2016 ASSESSMENT YEAR: 2008-09 THE DY. COMMISSIONER OF INCOME TAX, 15(3)(2), ROOM NO. 451, 4 TH FLOOR, AAYAKAR BHAVAN, MAHARSHI KARVE ROAD, MUMBAI-400020. VS. UHDE INDIA PVT. LTD. [NOW KNOWN AS THYSSENKRUPP INDUSTRIAL SOLUTIONS (INDIA) PVT. LTD.], UHDE HOUSE, L.B.S. ROAD, VIKHROLI (WEST), MUMBAI - 400083 PAN NO. AAACU1416H APPELLANT RESPONDENT ASSESSEE BY : MR. NEERAJ SHETH, AR REVENUE BY : MR. SANJEEV KASHYAP & MRS. USHA GAIDWAD, DR DATE OF HEARING : 31/12/2020 DATE OF PRONOUNCEMENT : 16/03/2021 ITA NO 3775 & 4214/MUM/2016 UHDE INDIA PVT. LTD. 2 ORDER PER N.K. PRADHAN, A.M. THE CAPTIONED CROSS APPEALS-ONE FILED BY THE ASSESS EE AND THE OTHER BY THE REVENUE ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-24, MUMBAI [IN SHORT CIT(A)] AND AR ISE OUT OF THE ASSESSMENT U/S 143(3) OF THE INCOME TAX ACT 1961 (THE ACT). AS COMMON ISSUES ARE INVOLVED, WE ARE PROCEEDING TO DISPOSE THEM OFF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. ITA NO. 3775/MUM/2016 (ASSESSEES APPEAL) 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE-COMPANY FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR (AY) 2 008-09 ON 26.09.2008 DECLARING TOTAL INCOME OF RS.39,02,18,840/-. THE AS SESSEE IS ENGAGED IN THE BUSINESS OF SUPPLY OF PROCESSES; DESIGNING, CONSTRU CTION AND COMMISSIONING OF COMPLETE PLANTS FOR CHEMICAL FERTILIZERS, PETROCHEM ICALS, REFINING AND OTHER RELATED INDUSTRIES. AT THE START OF HEARING, THE LD. COUNSEL FOR THE A SSESSEE SUBMITS THAT THE ASSESSEE WOULD NOT LIKE TO PRESS THE 5 TH AND 10 TH TO 14 TH GROUNDS OF APPEAL. HAVING CONSIDERED THE SUBMISSION OF THE ASSESSEE, T HE ABOVE GROUNDS OF APPEAL ARE DISMISSED AS NOT PRESSED. 3. THE 1 ST TO 4 TH GROUND OF APPEAL, REPRODUCED BELOW, ARE DISCUSSED TOGETHER, AS THEY ADDRESS A COMMON ISSUE: 1 THE LD. CIT(A) ERRED IN CONFIRMING TAXATION OF AN A MOUNT OF RS.63,09,36,232/- AS INCOME, IN RESPECT OF CONTRACTS ACCOUNTED UNDER 'PERCENTAGE OF COMPLETION' (POC) METHOD. ITA NO 3775 & 4214/MUM/2016 UHDE INDIA PVT. LTD. 3 2 THE LD. CIT(A) FAILED TO CONSIDER THAT THE APPELLAN T WAS FOLLOWING A REGULAR METHOD OF ACCOUNTING SANCTIFIED BY ACCOUNTING STAND ARDS. 3 THE LD. CIT(A) FAILED TO CONSIDER THAT THE ADDITION MADE OF RS.63,09,36,232/- HAS RESULTED IN TAXING GROSS RECEIPTS, WITHOUT ALLO WING DEDUCTION FOR EXPENDITURE REQUIRED TO EARN SUCH RECEIPTS. 4 WITHOUT PREJUDICE TO GROUND NOS 1 TO 3 ABOVE, THE L D. CIT(A) ERRED IN NOT ALLOWING DEDUCTION (FOLLOWING HIS OWN METHOD) WHERE THE SALE PROCEEDS RECOGNIZED BY THE APPELLANT WERE HIGHER THAN THE BI LLINGS DONE DURING THE YEAR. 4. IN SCHEDULE 6 OF THE BALANCE SHEET, THE ASSESSEE HAS SHOWN PROGRESSIVE BILLINGS ON INCOMPLETE CONTRACTS AT RS.1,195,233,76 7/- AS LIABILITY. THE SAME IS APPEARING UNDER ADVANCES RECEIVED FROM CLIENTS. T HE BREAK-UP OF ADVANCES RECEIVED AGAINST PROGRESSIVE BILLINGS IS AS UNDER : ADVANCES RECEIVED AGAINST PROGRESSIVE BILLINGS ON INCOMPLETE CONTRACTS AS ON 31.03.2008 (IN RS.) POC CONTRACTS 847,505,498/ - CC CONTRACTS 347,728,269/ - TOTAL 1195,233,767/ - DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A SSESSEE SUBMITTED BEFORE THE AO THAT OUT OF PERCENTAGE OF COMPLETED C ONTRACTS OF RS.847,505,498/-, THE ADVANCES OF INCOMPLETED CONTR ACTS WERE ALREADY TAXED AT RS.216,569,265/-. FURTHER, IT WAS EXPLAINED TO T HE AO THAT AS PER ACCOUNTING STANDARD, THE ASSESSEE HAS BOOKED SALES BASED ON PE RCENTAGE COMPLETION METHOD WHICH IS REFLECTED BY ACTUAL COST INCURRED B Y IT AND NOT BASED ON BILLS RAISED WHICH ARE BASED ON VARIOUS MILESTONES REACHE D IN THE PROJECT. THE AO WAS NOT CONVINCED WITH THE ABOVE SUBMISSION OF THE ASSESSEE ON THE GROUND THAT THE ACCOUNTING STANDARD (AS-7) IS NOT RECOGNIZ ED U/S 145(2) OF THE ACT ; SINCE THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM O F ACCOUNTING, ALL THE INVOICES I.E. PROGRESS BILLINGS RAISED BY THE ASSES SEE SHOULD HAVE BEEN ITA NO 3775 & 4214/MUM/2016 UHDE INDIA PVT. LTD. 4 REFLECTED IN THE TOTAL SALES IN THE BOOKS OF ACCOUN TS AS ON 31.03.2008 ; THE RATIO OF ACTUAL DIRECT COSTS INCURRED TILL REPORTING DATE TO TOTAL EXPECTED DIRECT COSTS ON THE CONTRACT AS THE BASIS OF FIXATION OF PERCENT AGE OF COMPLETION BY THE INSTITUTE OF CHARTERED ACCOUNTANT (ICA) WOULD NOT G IVE TRUE PROFIT EARNED BY THE ASSESSEE. THE AO HELD THAT THE RATIO OF THE ACT UAL SALES TILL THE REPORTING DATE TO THE TOTAL SALE PRICE OF THE PROJECT WOULD G IVE THE CORRECT FIGURE OF PERCENTAGE COMPLETION OF THE PROJECT. ACCORDINGLY, THE AO MADE AN ADDITION OF RS.63,09,36,233/- TREATING IT AS UNDER-STATEMENT OF PROFITS IN RESPECT OF 28 CONTRACTS WHICH ARE ACCOUNTED UNDER PERCENTAGE COMP LETION METHOD, ALLOWING DUE CREDITS FOR THE AMOUNTS TAXED IN EARLI ER YEARS. 5. IN APPEAL, THE LD. CIT(A) FOLLOWED THE ORDER OF HIS PREDECESSOR-IN-OFFICE FOR THE EARLIER ASSESSMENT YEAR 2006-07 AND CONFIRM ED THE ABOVE DISALLOWANCE MADE BY THE AO. 6. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBM ITS THAT THE ISSUES RAISED IN THE ABOVE GROUNDS OF APPEAL ARE DECIDED IN FAVOU R OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL- DATED 09.04.2019 IN ASSESSEE S OWN CASE FOR AY 2006- 07; DATED 08.06.2020 IN ASSESSEES OWN CASE FOR AY 2007-08 AND DATED 07.08.2020 IN ASSESSEES OWN CASE FOR AY 2009-10. THE LD. DEPARTMENTAL REPRESENTATIVE (DR) SUPPORTS THE ORDER PASSED BY THE AO, WHICH IS CONFIRMED BY THE LD. CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. THE REASONS FOR OUR DECISIONS ARE GIVEN BELOW. ITA NO 3775 & 4214/MUM/2016 UHDE INDIA PVT. LTD. 5 WE FIND THAT SIMILAR ISSUE AROSE BEFORE THE TRIBUN AL IN ASSESSEES OWN CASE FOR AYS 2006-07, 2007-08 AND 2009-10. WE MAY R EFER HERE TO THE RELEVANT PARAGRAPHS OF THE ORDER OF THE TRIBUNAL FO R AY 2006-07 (ITA NO. 1691/MUM/2012) : 2.5 GROUND NOS. 7 TO 11: INCOME IN RESPECT OF CONT RACTS ACCOUNTED UNDER PERCENTAGE OF COMPLETION METHOD. 2.5.1 BY WAY OF THESE GROUNDS, THE ASSESSEE IS CONT ESTING THE ADDITION OF RS.28.84 CRORES WHICH REPRESENT UNDERSTATEMENT OF PROFITS IN RESPECT OF PROJECTS ACCOUNTED UNDER THE PROJECT COMPLETION METHOD. DURING ASSESSM ENT PROCEEDINGS, IT TRANSPIRED THAT THE PROGRESS BILLING REPRESENTING THE AGGREGAT E OF INVOICES RAISED IN RESPECT OF DIFFERENT PROJECTS EXCEEDED THE SALE REVENUE RECOGN IZED BY THE ASSESSEE IN THE BOOKS OF ACCOUNTS TO THE EXTENT OF RS.28.84 CRORES. THE S ALES REVENUE FROM THESE PROJECTS WERE ACCOUNTED FOR ON PERCENTAGE COMPLETION METHOD [PCM]. THE LD. AO OPINED THAT THE PROGRESS BILLING REPRESENTED THE ACTUAL WO RK DONE BY THE ASSESSEE UNDER EACH PROJECT AND FURTHER, COSTS INCURRED UP-TO DATE ON THESE PROJECTS WERE ALSO DEBITED IN THE PROFIT & LOSS ACCOUNT AND THEREFORE, THERE WAS UNDERSTATEMENT OF INCOME. IN OTHER WORDS, IN THE OPINION OF LD. AO, T HE BILLING DONE BY THE ASSESSEE UNDER THESE PROJECTS WERE TO BE RECOGNIZED AS SALES REVENUE IN THE BOOKS OF ACCOUNT AS AGAINST RECOGNIZED BY THE ASSESSEE ON THE BASIS OF PERCENTAGE OF COMPLETION METHOD OF ACCOUNTING SINCE PROGRESS BILLING WAS NOT HING BUT THE ACTUAL WORK COMPLETED BY THE ASSESSEE UNDER THE PROJECT. ALTHOU GH THE ASSESSEE DEFENDED THE SAME VIDE REPLY DATED 25/11/2009 BY SUBMITTING THAT THE REVENUE IS RECOGNIZED ON THE BASIS OF PERCENTAGE OF COMPLETION METHOD, HOWEV ER, NOT CONVINCED, LD. AO OPINED THAT REVENUE RECOGNIZED IN THE BOOKS WAS LES S THAN PROGRESS BILLING AND THEREFORE, THE PCM ADOPTED BY THE ASSESSEE AS PER A S-7 TO RECOGNIZE THE REVENUE DID NOT REPRESENT REAL PROFITS EARNED BY THE ASSESSEE. FURTHER, BY ADOPTING THIS METHOD, THE TRUE SALES WERE NOT BEING REFLECTED IN THE BOOK S. FINALLY, DISREGARDING THE ASSESSEE'S SUBMISSIONS, AN AMOUNT OF RS.28.84 CRORE S REPRESENTING UNDERSTATEMENT ITA NO 3775 & 4214/MUM/2016 UHDE INDIA PVT. LTD. 6 OF PROFITS IN RESPECT OF 28 CONTRACTS WAS DISALLOWE D AND ADDED TO THE INCOME OF THE ASSESSEE. THE DETAILS OF THE SAME HAS ALREADY BEEN REPRODUCED ON PAGE NOS. 12 TO 14 OF THE QUANTUM ASSESSMENT ORDER. THE STAND OF LD. A O, UPON CONFIRMATION BY FIRST APPELLATE AUTHORITY, IS UNDER APPEAL BEFORE US. 2.5.2 THE LD. SR. COUNSEL SUBMITTED THAT THE ASSESS EE WAS FOLLOWING PERCENTAGE OF COMPLETION METHOD [PCM] WITH RESPECT TO CONTRACTS C OMMENCING AFTER 01/04/2003 TO RECOGNIZE THE REVENUE FROM THESE CONTRACTS. THIS WAS DONE IN VIEW OF THE AMENDED AS-7 WHICH NECESSITATED THE ASSESSEE TO FOL LOW THIS METHOD TO RECOGNIZE THE REVENUE. AS PER THIS METHOD, THE REVENUE IS REC OGNIZED ON THE BASIS OF STAGE OF PERCENTAGE OF COMPLETION OF CONTRACTS. TO DETERMINE THE PERCENTAGE OF COMPLETION, THE FOLLOWING FORMULA WAS ADOPTED: - TOTAL COST INCURRED TILL THE END OF THE ACCOUNTING YEAR BUDGETED COST IT WAS EXPLAINED THAT THE REVENUES WERE RECOGNIZED BY APPLYING THIS FRACTION TO THE CONTRACT VALUE. HOWEVER, TO ENSURE THAT THE PROJECT WAS SUFFICIENTLY FUNDED, THE ASSESSEE RAISED PROGRESS BILLINGS FROM TIME TO TIME BASED ON PRE-DECIDED MILESTONES. THESE BILLS WERE RAISED ONLY FOR THE PU RPOSE OF MEETING FUNDING REQUIREMENTS AND HAD NOTHING TO DO WITH DETERMINATI ON OF EXTENT OF COMPLETION OF CONTRACT OR RECOGNITION OF REVENUE SINCE RECOGNITIO N WAS DONE THE BASIS OF FORMULA MENTIONED ABOVE SO AS TO ENSURE MATCHING COST AND R EVENUES. OUR ATTENTION IS DRAWN TO THE EXPLANATION FURNISHED BY THE ASSESSEE BEFORE FIRST APPELLATE AUTHORITY TO JUSTIFY PROGRESS BILLINGS UNDER THE PROJECTS. TH E LD. SR. COUNSEL FURTHER SUBMITTED THAT THE OBJECTIVE OF PROGRESS BILLING WAS TO ENSUR E WORKING CAPITAL AVAILABILITY AND IT WAS NOTHING BUT ADVANCES FROM CUSTOMERS AND THER EFORE, COULD NOT BE REGARDED AS ASSESSEE'S INCOME. RELIANCE HAS BEEN PLACED ON THE DECISION OF THIS TRIBUNAL RENDERED IN IOT INFRASTRUCTURE & ENERGY SERVICES LT D. [ITA NO. 7035/M/2010 17/05/2013] WHICH HAS BEEN UPHELD BY HON'BLE BOMBAY HIGH COURT IN ITA NO. 2296 OF 2013 DATED 18/04/2016.RELIANCE HAS BEEN ALS O BEEN PLACED ON THE DECISION OF THIS TRIBUNAL RENDERED IN TOYO ENGINEERING CORP. VS. DDIT [ITA NO. ITA NO 3775 & 4214/MUM/2016 UHDE INDIA PVT. LTD. 7 6600/MUM/2002 22/03/2004] &THE DECISION OF KOLKATA ITAT RENDERED IN M.N.DASTUR & CO. LTD. [61 ITD 167]. 2.5.3 PER CONTRA, LD. CIT-DR SUBMITTED THAT PROGRES S BILLING WAS NOTHING BUT INVOICE THAT WAS INTENDED TO OBTAIN PAYMENT FROM THE CUSTOM ER FOR THAT PORTION OF PROJECT WHICH HAD ALREADY BEEN COMPLETED TO DATE. THEREFORE , PROGRESS BILLS WERE NOTHING BUT ACTUAL WORK DONE AND THE METHOD ADOPTED BY ASSE SSEE WAS FAULTY AS IT WAS COST BASED REVENUE WHILE THE CORRECT METHOD WOULD BE ACT UAL COST SPENT BY THE ASSESSEE. THE PROGRESSIVE BILLING HAS TO BE AS PER VALUE OF E ACH CONTRACT AND NOT AS PER THE COST OF THE CONTRACT. OUR ATTENTION IS DRAWN TO THE FACT THAT THE PROJECT WAS COMPLETED TO THE EXTENT OF 98.3% WHEREAS THE ASSESS EE HAS TAKEN THE COMPLETION TO THE EXTENT OF 96.8% ONLY BY TAKING THE DIRECT ACTUA L COST. THE CASE LAW OF IOT INFRASTRUCTURE HAS SOUGHT TO BE DISTINGUISHED ON THE GROUND THAT IN THAT CASE PROGRESSIVE BILLING WAS DONE NOT FOR THE AMOUNT OF WORK DONE BUT FOR THE MOBILIZATION AND OTHER ADVANCES RECEIVABLE BY THE A SSESSEE AS AGAINST THE FACT OF THE PRESENT CASE WHERE THE BILLING HAS BEEN DONE WHOLLY ON THE BASIS OF WORK COMPLETED AND THERE WAS NO ADVANCE INVOLVED. 2.5.4 HOWEVER, LD. SR. COUNSEL, IN THE REJOINDER, S UBMITTED THAT PROGRESS BILLING HAD NOTHING TO DO WITH THE RECOGNITION OF THE REVENUE S INCE REVENUE WERE RECOGNIZED ON THE BASIS OF PERCENTAGE OF WORK DONE TO ENSURE MATC HING OF COST AND REVENUES IN ACCORDANCE WITH THE ACCOUNTING STANDARDS AND THEREF ORE, PROGRESS BILLING COULD NOT BE CONSTRUED TO BE AN INVOICE RAISED FOR THE PORTIO N OF THE CONTRACT THAT HAS BEEN COMPLETED TO DATE RATHER IT IS ONLY A BILLING DONE AS PER PRE- DECIDED MILESTONES. OUR ATTENTION IS DRAWN TO THE FACT THAT PROGRESS BILLIN G ALSO TAKES INTO ACCOUNT AN AMOUNT RECEIVED INITIALLY AS ADVANCE EVEN THOUGH NO WORK W AS CARRIED OUT AT THAT STAGE AND ACCORDINGLY, THERE WILL BE A MISMATCH BETWEEN WORK COMPLETED AND AMOUNT INVOICED TO CLIENT THROUGHOUT THE PROJECT. IT HAS B EEN SUBMITTED THAT REVENUES HAVE BEEN RECOGNIZED AS PER AS-7 AND THE SAME METHOD OF ACCOUNTING WAS BEING FOLLOWED BY THE ASSESSEE SINCE AY 2004-05 ONWARDS. ITA NO 3775 & 4214/MUM/2016 UHDE INDIA PVT. LTD. 8 2.5.5 UPON CAREFUL CONSIDERATION, THE UNDISPUTED PO SITION THAT EMERGES IS THAT THE ASSESSEE IS FOLLOWING CONSISTENT METHOD OF ACCOUNTI NG TO RECOGNIZE THE REVENUE UNDER THESE CONTRACTS. THE PERCENTAGE OF COMPLETION OF THE PROJECT HAS BEEN WORKED OUT AS PER TOTAL COST INCURRED ON THE PROJECT TO DA TE VIS--VIS TOTAL BUDGETED COST AND THAT FRACTION IS APPLIED TO THE CONTRACT VALUE FOR THE PURPOSE OF REVENUE RECOGNITION. SIMILAR FORMULAE HAVE BEEN ADOPTED BY THE ASSESSEE IN PRECEDING TWO YEARS WHICH HAS BEEN ACCEPTED BY THE REVENUE. NO CASE OF REVENU E LEAKAGE HAS BEEN ESTABLISHED BEFORE US. NOTHING ON RECORD SUGGEST THAT REMAINING INCOME UNDER THE PROJECT HAS NOT BEEN OFFERED BY THE ASSESSEE IN SUBSEQUENT YEAR S, FOLLOWING THE SAME METHOD OF ACCOUNTING. SIMPLY BECAUSE PROGRESS BILLING WAS MOR E THAN THE STAGE OF PERCENTAGE OF COMPLETION, THE SAME, IN ITSELF, COULD NOT BE TH E BASIS TO USURP THE CONSISTENT METHOD OF ACCOUNTING BEING FOLLOWED BY THE ASSESSEE . THEREFORE, THE ADDITIONS MADE BY THE REVENUE, UNDER THE CIRCUMSTANCES, COULD NOT BE SUSTAINED. WE ORDER SO. ACCORDINGLY, GROUND NOS. 7 TO 11 OF ASSESSEE'S APPE AL STANDS ALLOWED. 7.1 FACTS BEING IDENTICAL, WE FOLLOW THE ABOVE ORDE R OF THE CO-ORDINATE BENCH AND ALLOW THE 1 ST TO 4 TH GROUND OF APPEAL. 8. THE 6 TH GROUND OF APPEAL : THE LD. CIT(A) ERRED IN TAXING THE EXCESS OF PROGRE SS BILLINGS OVER INVENTORIES, AMOUNTING TO RS.5,62,02,457/- AS INCOME IN RESPECT OF CONTRACTS ACCOUNTED UNDER THE COMPLETED CONTRACT METHOD AND WHICH WER E INCOMPLETE AS ON 31 ST MARCH, 2008. THE 7 TH GROUND OF APPEAL : THE LD. CIT(A) ERRED IN REJECTING THE REGULAR METHO D OF ACCOUNTING FOLLOWED BY THE APPELLANT AND ACCEPTED BY THE DEPARTMENT IN THE PAST. 9. THE AO NOTICED THAT THE ASSESSEE-COMPANY HAS SHO WN AGGREGATE OF PROGRESS BILLING OF RS.347,728,269/- IN THE LIABILI TY SIDE OF THE BALANCE SHEET AS ITA NO 3775 & 4214/MUM/2016 UHDE INDIA PVT. LTD. 9 ON 31.03.2008, WHICH ARE PERTAINING TO OVERALL PROG RESS BILLINGS OF RS.1195,233,767/-. IN THE AUDIT REPORT, IT IS MENTI ONED AT SCHEDULE 10 OF THE ACCOUNTING POLICY THAT IN RESPECT OF CONTRACTS UPTO 31.03.2003, THE CONTRACT REVENUE IS RECOGNIZED ON COMPLETED CONTRACT BASIS. THUS IN RESPECT OF CONTRACTS UPTO 31.03.2003, THE ASSESSEE IS FOLLOWIN G COMPLETED CONTRACT METHOD FOR REVENUE RECOGNITION AND CONTRACTS AFTER 31.03.2003, THE ASSESSEE IS FOLLOWING PERCENTAGE OF COMPLETION METHOD FOR RE VENUE RECOGNITION. IN RESPONSE TO A QUERY RAISED BY THE AO TO EXPLAIN WHY THE PROFITS SHOULD NOT BE COMPUTED IN RESPECT OF PROJECTS STARTED BEFORE 31.0 3.2003, IT WAS SUBMITTED BY THE ASSESSEE THAT FOR THE CONTRACTS RECEIVED UPT O 31.03.2003, THE ASSESSEE WAS FOLLOWING COMPLETED CONTRACT METHOD ; IT WAS NO T POSSIBLE FOR IT TO CHANGE THE METHOD OF ACCOUNTING FOR RUNNING CONTRACTS AND SO IT WAS NOT DONE. HOWEVER, THE AO WAS NOT CONVINCED WITH THE ABOVE EX PLANATION OF THE ASSESSEE FOR THE REASON THAT THE ASSESSEE COULD HAV E EASILY BOOKED THE PROFITS AS PER THE STAGE OF THE CONTRACT AND STARTED FOLLOW ING PERCENTAGE COMPLETION METHOD AS PER LATER CONTRACTS. THE WORKING FILED BY THE ASSESSEE BEFORE THE AO IS EXTRACTED BELOW : AMOUNT IN RS. PROGRESS BILLINGS ON INCOMPLETE CONTRACTS AS ON 31. 03.2007 - A 347,728,269 LESS : COST INCURRED ON INCOMPLETE CC CONTRACTS UP TO 31.0 3.2007 B 252,266,632 EXCESS OF A OVER B 95,461,637 LESS : EXCESS OF PROGRESS BILLING OVER COSTS INCURRED AS O N 31.03.2006, ALREADY TAXED AS INCOME IN AY 2006-07 (OPENING BALANCE) 39,259,180 TOTAL 56,202,457 THE AO REJECTED THE COMPLETED CONTRACT METHOD OF A CCOUNTS FOLLOWED BY THE ASSESSEE AND MADE AN ADDITION OF RS.5,62,02,457 /- TREATING IT AS ON ACCOUNT OF UNDER-STATEMENT OF PROFITS. ITA NO 3775 & 4214/MUM/2016 UHDE INDIA PVT. LTD. 10 10. IN APPEAL, THE LD. CIT(A) FOLLOWED THE ORDER OF HIS PREDECESSOR-IN-OFFICE FOR AY 2006-07 AND CONFIRMED THE ABOVE ADDITION MAD E BY THE AO. 11. BEFORE US, THE LD. COUNSEL RELIES ON THE ORDER OF THE TRIBUNAL DATED 09.04.2019 IN ASSESSEES OWN CASE FOR AY 2006-07 AN D ORDER DATED 07.08.2020 FOR AY 2009-10. ON THE OTHER HAND, THE LD. DR RELIES ON THE ORDER OF THE LD. CIT(A) CONFIRMING THE ABOVE ADDITION MADE BY THE AO. 12. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. SIMILAR ISSUE AROSE BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2006-07. THE TRIBUNAL VIDE ORDER DATED 09.04.2019 HELD AS UNDER : 2.6 GROUND NOS. 12 TO 13: EXCESS OF PROGRESS BILLIN GS- UNDERSTATEMENT OF PROFIT IN RESPECT OF INCOMPLETE CONTRACTS OBTAINED PRIOR TO 3 1/03/2003 AND ACCOUNTED UNDER COMPLETED CONTRACT METHOD 2.6.1 THIS ADDITION OF RS. 396.15 LACS REPRESENTS A LLEGED UNDERSTATEMENT OF PROFIT IN RESPECT OF INCOMPLETE CONTRACTS ACCOUNTED UNDER COM PLETED CONTRACT METHOD [CCM]. IT WAS NOTED THAT AS PER ACCOUNTING POLICIES , THE ASSESSEE WAS FOLLOWING COMPLETED CONTRACT METHOD[CCM]FOR CONTRACTS RECEIVE D / STARTED UP-TO 31/03/2003 AND FOR CONTRACTS AFTER THIS CUT-OFF DAT E, PERCENTAGE COMPLETION METHOD WAS BEING FOLLOWED TO RECOGNIZE THE REVENUE IN THE BOOKS OF ACCOUNTS. THE DISPUTE, UNDER THESE GROUNDS, IS WITH RESPECT TO CONTRACTS S TARTED BEFORE 31/03/2003 WHEREIN THE ASSESSEE FOLLOWED COMPLETED CONTRACT ME THOD. DURING ASSESSMENT PROCEEDINGS, IT TRANSPIRED THAT THE ASSESSEE RAISED INVOICES AGAINST THESE 13 PROJECTS FOR RS.22.52 CRORES AND REFLECTED THE SAME ON THE L IABILITIES SIDE OF THE BALANCE SHEET. SIMILARLY, THE COSTS OF RS.18.56 CRORES WERE ACCUMULATED AGAINST THESE PROJECTS AND REFLECTED ON THE ASSET SIDE OF THE BAL ANCE SHEET. THE LD. AO OPINED THAT ITA NO 3775 & 4214/MUM/2016 UHDE INDIA PVT. LTD. 11 THOUGH SUBSTANTIAL WORK WAS DONE UNDER THESE PROJEC TS AND INVOICES WERE ALSO RAISED, NO PROFIT WAS SHOWN AGAINST THE SAME. RESUL TANTLY, THE DIFFERENTIAL OF THE TWO AMOUNTS I.E. RS.396.15 LACS WAS ADDED TO THE INCOME OF THE ASSESSEE. THE STAND OF LD. AO, UPON CONFIRMATION BY FIRST APPELLATE AUTHOR ITY, IS UNDER APPEAL BEFORE US. 2.6.2 THE LD. SR. COUNSEL SUBMITTED THAT THE COSTS AS WELL AS REVENUES ARE RECOGNIZED UNDER THESE PROJECTS ON COMPLETED CONTRACT METHOD. THESE REVENUES AS WELL AS COSTS WERE ACCUMULATED IN THE SIMILAR MANNER FOR AYS 2004 -05 & 2005-06 ALSO WHICH HAS BEEN ACCEPTED BY THE REVENUE AND THEREFORE, THERE W AS NO REASON TO DISTURB THE SAME IN THIS AY. PER CONTRA, LD. CIT-DR SUBMITTED T HAT, UPON CHANGE OF METHOD OF ACCOUNTING, THE REVENUES FROM SUCH PROJECTS WERE TO BE OFFERED TO TAXATION. 2.6.3 UPON CAREFUL CONSIDERATION, WE FIND THAT THE ASSESSEE HAS ACCUMULATED COST AS WELL AS REVENUE UNDER THESE PROJECTS IN THE BALANCE SHEET BY FOLLOWING COMPLETED CONTRACT METHOD. THE REVENUE HAS ACCEPTED SUCH ACCU MULATION DURING AYS 2004-05 & 2005-06 AND THIS IS THE THIRD YEAR OF ACCUMULATIO N UNDER THE PROJECTS. IT IS NOT THE CASE OF THE REVENUE THAT THE INCOME UNDER THESE PRO JECTS HAVE NOT BEEN OFFERED TO TAX IN SUBSEQUENT YEARS. NO CASE OF REVENUE LEAKAGE HAS BEEN ESTABLISHED BEFORE US. THEREFORE, THE ACTION OF REVENUE IN DISTURBING THE CONSISTENT METHOD OF ACCOUNTING BEING FOLLOWED BY THE ASSESSEE COULD NOT BE HELD TO BE JUSTIFIED. HENCE, WE DELETE THE IMPUGNED ADDITIONS AND ALLOW THESE GROUNDS OF APPEA L. 12.1 FACTS BEING IDENTICAL, WE FOLLOW THE ABOVE ORD ER OF THE CO-ORDINATE BENCH AND DELETE THE ADDITION OF RS.5,62,02,457/- M ADE BY THE AO. ACCORDINGLY, THE 6 TH & 7 TH GROUND OF APPEAL ARE ALLOWED. 13. THE 8 TH GROUND OF APPEAL THE LD. CIT(A) ERRED IN DISALLOWING EXPENDITURE TOW ARDS REPAIR AND MAINTENANCE OF RS.3,70,80,058/- BY HOLDING THAT THE REPAIRS AND R ENOVATION CARRIED OUT BY THE APPELLANT LED TO MAJOR RENOVATION, AND WAS CAPITAL IN NATURE. ITA NO 3775 & 4214/MUM/2016 UHDE INDIA PVT. LTD. 12 THE 9TH GROUND OF APPEAL THE LD. CIT(A) FAILED TO CONSIDER THE EXPENDITURE O N REPAIRS WAS IN RESPECT OF SUCH ITEMS WHICH COULD NOT BE REMOVED FROM LICENSED PREM ISES. 14. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E AO NOTICED THAT THE ASSESSEE IS GOING FOR MAJOR EXPANSION ; THE EXPENSE S FOR SUCH EXPANSION AND RENOVATION ARE ALSO CLAIMED UNDER THE HEAD REPAIRS & MAINTENANCE EXPENSES. THE AO FURTHER FOUND THAT THE ASSESSEE H AS CARRIED OUT MAJOR EXPANSION AND RENOVATION WORK AT RAJ PLAZA, DOGHAL PLAZA AND VARIOUS OTHER OFFICES. THE AO ON EXAMINATION OF THE FOLLOWING BIL LS REACHED THE FOLLOWING FINDINGS: BILL NO. I 2007/3224- BILL DESCRIBES EXPENSES FOR PANELS, CABLES & SWITCH GEAR, POINT WIRING, ELECTRICAL FITTINGS AND FANS, FLOOR RACEWAYS & UPS RAW POWER W IRING, NETWORKING PASSIVE, FIBRE WORK, FIRE ALARM SYSTEM, HEAT SENSORS SYSTEM, MISCE LLANEOUS . THE TOTAL BILL IS RS.17,71,552/- INCLUSIVE OF VAT OF RS.1,26,495/-. BILL NO. I 2007/3403 THIS BILL HAS ITEMS REGARDING PROVIDING AND FIXING CERAMIC TILES IN TOILETS, BLACK GRANITE PANTRY COUNTER, WASH BASINS, MIRRORS, SANIT ARY FITTING, CURTAINS, SUNDRY WORK, FLOORING, NEW EXHAUST FANS, NEW CONFERENCE TABLE, O VERHEAD STORAGE IN MEETING ROOMS, PROVIDING PARTITIONS, VERTICAL BLINDS, NEW C HAIRS, EARTHING, AIR CONDITIONING WORK ETC. BILL NO. 2007/3669 THIS BILL PERTAIN TO FURNITURE, STORAGE UNITS, LAMI NATION, FINISHING, GYPSUM, PARTITION, FALSE CEILING, FIXING OF NEW WASH BASINS, URINALS, MAKING WORK TABLE, CONFERENCE TABLE, CABIN TABLES, NEW DOORS, NEW SOFA SETS. DURING EXAMINATION OF BILLS, SIMILAR DESCRIPTIONS W ERE FOUND FOR I 2007/3650, I 2007/4056, I 2007/4699, I 2007/4636 ETC. ITA NO 3775 & 4214/MUM/2016 UHDE INDIA PVT. LTD. 13 FROM THE DETAILS GIVEN ABOVE IT IS VERY CLEAR THAT REPAIR AND MAINTENANCE CLAIMED BY THE ASSESSEE ARE NOT IN THE NATURE OF REVENUE EXPEN SES AND SO THE TOTAL AMOUNT OF RS.36,605,353/- DESCRIBED ABOVE IS DISALLOWED AND A DDED TO THE ASSESSEE'S INCOME. THERE IS A MISTAKE IN THE ABOVE TOTAL AMOUNT, WHIC H WOULD BE RS.3,70,80,058/-. 15. IN APPEAL THE LD. CIT(A) HELD THAT THE ASSESSEE ITSELF HAS ADMITTED THAT THE EXPENDITURE OF RS.84,95,567/- ON UHDE HOUSE WAS RENOVATION AND REPAIR WORK OF SOUTH BLOCK TO ACCOMMODATE THE MANAGING DIR ECTOR AND EXECUTIVE DIRECTORS AND THEREFORE, IT COULD NOT BE SAID THAT RENOVATION AND REPAIR WAS REVENUE IN NATURE. FURTHER OBSERVING THAT IN THE CASE OF EXPENDITURE A T DUGGAL PLAZA, PUNE OF RS.1,05,09,493/-, THE ASSESSEE HAS ITSELF ADMITT ED THAT THE SPACE WAS RECONFIGURED TO ACCOMMODATE MORE EMPLOYEES, FOR WHI CH REPAIRS AND RENOVATION WORKS WERE CARRIED OUT, THE LD. CIT(A) H ELD THE EXPENDITURE AS CAPITAL IN NATURE. IN THE CASE OF EXPENDITURE OF RS.1,72,82,818/- AT RAJ PLAZA, THE LD. CIT(A) HELD THAT : AS FAR AS THE EXPENDITURE OF RS.1,72,82,818/- AT R AJ PLAZA IS CONCERNED, IT IS SEEN THAT THE NATURE OF EXPENDITURE WAS SUCH AS TO ACCOM MODATE 500 PERSONS IN THE PREMISES SPREAD OVER APPROX. 28,800 SQ. FT. THE APP ELLANT ITSELF ADMITS THAT RAJ PLAZA WAS AN OLD BUILDING AND ALTHOUGH AN OFF ICE PREMISES EXISTED THERE, THE SAME WERE NOT IN A LAYOUT WHICH WAS SUITABLE TO ACCOMMOD ATE THE APPELLANT'S EMPLOYEES AND HENCE, REPAIRS AND RENOVATION WERE CARRIED OUT TO ENSURE USE OF THE SAME TO THE BENEFIT OF APPELLANT'S BUSINESS. THE APPELLANT ALSO STATED THAT IN APRIL,2010, THE ENTIRE AMOUNT OF RS. 38 CRORE SPENT TOWARDS CONSTRU CTION OF THE NEW BUILDING (NORTH ITA NO 3775 & 4214/MUM/2016 UHDE INDIA PVT. LTD. 14 BLOCK) WAS CAPITALIZED. AS THE MOVEMENT OF 500 EMPL OYEES TO RAJ PLAZA WAS TO ENABLE TO DEMOLISH THE OLD NORTH BLOCK BUILDING, LO OKING INTO THE NATURE OF EXPENDITURE CARRIED OUT AT RAJ PLAZA, THE APPELLANT SHOULD HAVE EVEN CAPITALIZED THE SAME EXPENDITURE TOWARDS THE NEW NORTH BLOC K BUILDING BECAUSE HAD THE EMPLOYEES NOT MOVED OUT AND OCCUPIED THE TEMPORARY OFFICE PREMISES FOR 33 MONTHS AT RAJ PLAZA, THE DEMOLITION OF OLD BUILDING AT NORTH BLOCK AND CONSTRUCTION OF NEW BUILDING COULD NOT HAVE TAKEN PLACE. THUS, T HERE WAS A DIRECT LINK BETWEEN THE MOVEMENT OF THE EMPLOYEES AND DEMOLITION AND CO NSTRUCTION OF THE NEW BUILDING (NORTH BLOCK) AND HENCE, IN THE ABOVE FACT S OF THE CASE, IT IS HELD THAT THE AMOUNT SPENT BY THE APPELLANT TOWARDS THE ACCOMMODA TION OF ITS 500 EMPLOYEES AT RAJ PLAZA HAS A LIVE NEXUS WITH THE NEW ASSET COMIN G INTO BEING AT NORTH BLOCK WHICH WAS OWNED BY THE APPELLANT. ACCORDINGLY, IT I S HELD THAT EVEN THE EXPENDITURE OF RS.1,72,82,818/- WAS IN THE NATURE O F CAPITAL EXPENDITURE DE-HORS THIS FINDING, EVEN OTHERWISE, THE EXPENDITURE CARRI ED OUT BY THE APPELLANT AS REPAIRS AND RENOVATION WAS IN THE NATURE OF CAPITAL EXPENDI TURE LEADING TO MAJOR RENOVATION OR ERECTION OF ASSETS AND HENCE, THE FINDINGS GIVEN - BY THE LD. AO ARE CONFIRMED AND THEREFORE, GROUND NO. 7 IS DISMISSED. HOWEVER, THE LD. CIT(A) DIRECTED THE AO TO ALLOW DE PRECIATION ON THE CAPITAL EXPENDITURE AT RATES SPECIFIED IN THE RULES . 16. BEFORE US, THE LD. COUNSEL RELIES ON THE DECISI ON IN CIT V. TALATHI & PANTHAKY ASSOCIATED (P.) LTD. (18 TAXMANN.COM 365) (BOM) ; CIT V. URBAN INFRASTRUCTURE VENTURE CAPITAL LTD. (ITA NO. 65 OF 2015) (BOM). ON THE OTHER HAND, THE LD. DR RELIES ON THE DECISI ON IN BALLIMAL NAVAL KISHORE V. CIT (1997) 224 ITR 414 (SC), OXFORD UNIVERSITY PRESS (1977) 108 ITR 166 (BOM) AND VARDHMAN DEVELOPERS LTD . (2015) 55 TAXMAN 370 (ITAT MUMBAI). FURTHER IT IS STATED BY HIM THAT RAJ PLAZA IN MUMBAI AND DUGGAL PLAZA IN PUNE ARE LEASED PREMISES WHEREAS THE SOUTH BLOCK IS THE OWN ITA NO 3775 & 4214/MUM/2016 UHDE INDIA PVT. LTD. 15 PREMISE OF THE ASSESSEE. FURTHER, RELIANCE IS PLACE D BY THE LD. DR ON SECTION 30 OF THE ACT AND THEREBY HE MAKES A DIFFERENCE BETWEE N CURRENT REPAIRS AND OTHER REPAIRS AND EXPLAINS THAT THE CASE OF THE ASS ESSEE IS NOT COVERED BY SECTION 30 OF THE ACT. FURTHER IT IS EXPLAINED BY H IM THAT EXPLANATION-1 TO SECTION 32(1) OF THE ACT WAS INSERTED W.E.F. 01.04. 1988. IN REJOINDER, THE LD. COUNSEL SUBMITS THAT THE ASS ESSEE HAS CLAIMED DEDUCTION U/S 37(1) OF THE ACT AND THE ISSUE OF CLA IM U/S 30 DOES NOT ARISE. 17. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. THE REASONS FOR OUR DECISIONS ARE GIVEN BELOW. WE BEGIN WITH THE CASE LAWS RELIED ON BY THE LD. C OUNSEL. IN TALATHI & PANTHAKY ASSOCIATED (P.) LTD. (SUPRA), THE ASSESSEE-COMPANY WAS A TENANT IN A BUILDING OCCUPYING 5000 SQ. FT. THE SAID BUILDING W AS DECLARED BY THE MUNICIPAL CORPORATION TO BE UNSAFE FOR OCCUPATION A ND AN EVICTION NOTICE WAS SERVED ON THE OCCUPANTS. THEREAFTER, A PARTITION SU IT WAS PREFERRED BY THE CO- OWNERS OF THE BUILDING. A COURT RECEIVER WAS APPOIN TED AND THE ASSESSEE BEING A TENANT IN THE BUILDING CONTINUED TO PAY RENT TO T HE RECEIVER. IN THAT SUIT, CONSENT TERMS WERE ENTERED INTO UNDER WHICH A DEVEL OPER WAS TO REPAIR AND RE-CONSTRUCT THE BUILDING AT HIS COSTS, AND, THEREF ORE, TO HANDOVER CERTAIN PORTION (AREA) TO THE CO-OWNERS. THE CONSENT TERMS CONTEMPLATED THAT EITHER A CO-OPERATIVE SOCIETY, A LIMITED COMPANY OR A CONDOM INIUM COMPRISING OF THE TENANTS, OCCUPANTS AND CO-OWNERS SHALL BE FORMED. U NDER THE TERMS, TENANCY OF THE ASSESSEE WAS CONFIRMED; AND THE ASSESSEE ASS UMED AN OBLIGATION TO CONTRIBUTE A SUM OF RS.1.50 CRORES FOR THE WORK OF REPAIR AND RESTORATION OF THE STRUCTURE ; AND IT FURTHER PROVIDED THAT THERE WOULD BE NO INCREASE IN THE ITA NO 3775 & 4214/MUM/2016 UHDE INDIA PVT. LTD. 16 RENT PAYABLE BY THE ASSESSEE WHICH CONTINUED TO BE RS.11,300/- PER MONTH. THE ASSESSING OFFICER HELD THAT THE ASSESSEE HAD SE CURED RIGHTS FOR AN AREA OF 5000 SQ. FT. ON A PAYMENT OF A SUM OF RS.1.50 CRORE S AND ASSESSEE WAS TO BECOME A MEMBER OF A SOCIETY OR COMPANY. THAT ACCOR DING TO THE ASSESSING OFFICER, WOULD CONSTITUTE DEEMED OWNERSHIP OF THE P REMISES. THE ASSESSING OFFICER, THEREFORE, CAME TO THE CONCLUSION THAT THE EXPENDITURE OF RS.1.50 CRORES WAS OF CAPITAL IN NATURE AND HAD TO BE DISAL LOWED. THE CIT(A), HOWEVER, REVERSED THE VIEW TAKEN BY THE ASSESSING OFFICER. T HE TRIBUNAL, CONFIRMED THE ORDER OF THE CIT(A). ON APPEAL BY THE REVENUE, THE HONBLE BOMBAY HIGH COURT HELD THAT : THE ISSUE AS TO WHETHER EXPENDITURE INCURRED BY AN ASSESSEE IS OF A REVENUE OR CAPITAL NATURE HAS FALLEN FOR DETERMINATION IN VARI OUS CONTEXTS, BUT IN ALL DECISIONS PARTICULARLY OF THE SUPREME COURT WHAT HAS BEEN EMP HASIZED IS THAT THE MATTER HAS TO BE LOOKED AT FROM A COMMERCIAL POINT OF VIEW. [P ARA 7] IN CIT V. MADRAS AUTO SERVICE (P.) LTD. [1998] 233 ITR 468 / 99 TAXMAN 575 (SC) THE ASSESSEE HAD IN FACT INCURRED THE ENTIRE COST OF CO NSTRUCTION OF A NEW BUILDING BUT OBTAINED NO TITLE TO THE NEW CONSTRUCTION. THE BENE FIT WHICH THE ASSESSEE OBTAINED WAS A LONG LEASE OF THIRTY NINE YEARS ON LOW RENT. THE SUPREME COURT HELD THAT THE ASSET WHICH WAS CREATED BELONGED TO SOMEONE ELSE. T HE ASSESSEE WAS HELD TO HAVE OBTAINED AN ENDURING BUSINESS ADVANTAGE FOR THE PUR POSE OF CONDUCTING THE BUSINESS PROFITABLY AND MORE SUCCESSFULLY, THUS SAV ING A CONSIDERABLE AMOUNT OF REVENUE EXPENDITURE OVER THE TERM OF THE LEASE. IN THE INSTANT CASE, THERE IS A CONCURRENT FINDING OF FACT BOTH BY THE COMMISSIONER (APPEALS) AND AFFIRMED BY THE TRIBUNAL THAT THE ASSESSEE WAS AND CONTINUES TO BE A TENANT. THE CHARACTER OF THE OCCUPATION OF THE ASSESSEE HAS NOT BEEN ALTERED. TH E ASSESSEE BY CONTRIBUTING AN AMOUNT OF RS. 1.50 CRORES TO THE RECONSTRUCTION OF THE BUILDING HAS OBTAINED AN ENDURING ADVANTAGE BUT NONETHELESS OF A COMMERCIAL NATURE OF SECURING AN ITA NO 3775 & 4214/MUM/2016 UHDE INDIA PVT. LTD. 17 EQUIVALENT AREA ON THE SAME RENT OF RS. 11,300 IN T HE NEW STRUCTURE. THE OWNERSHIP OF THE NEW STRUCTURE HAS NOT BEEN TRANSFERRED TO TH E ASSESSEE NOR HAS THE ASSESSEE ACQUIRED ANY CAPITAL ASSET. THE CASE, THEREFORE, CA NNOT BE DISTINGUISHED FROM THE SITUATION WHICH AROSE BEFORE THE SUPREME COURT FOR ITS DECISION IN MADRAS AUTO SERVICE (P.) LTD. (SUPRA ) ON ANY PRINCIPLED BASIS. [PARA 8] AT THIS STAGE, IT WOULD BE NECESSARY TO NOTE THAT T HE DECISION OF THE SUPREME COURT IN MADRAS AUTO SERVICE (P.) LTD. (SUPRA) AROSE IN RELA TION TO ASSESSMENT YEAR 1968-69 WHICH WAS PRIOR TO THE INSERTION OF EXPLANATION I T O SECTION 32. EXPLANATION I HAS BEEN INSERTED BY THE TAXATION LAWS (AMENDMENT AND M ISCELLANEOUS PROVISIONS) ACT, 1986 WITH EFFECT FROM 1-4-1988. EXPLANATION I STIPULATES THAT WHERE THE BUSINESS OR PROFESSION OF THE ASSESSEE IS CARRIED O N IN A BUILDING NOT OWNED BY HIM BUT IN RESPECT OF WHICH THE ASSESSEE HOLDS A LEASE OR OTHER RIGHT OF OCCUPANCY AND ANY CAPITAL EXPENDITURE IS INCURRED BY THE ASSESSEE FOR THE PURPOSES OF THE BUSINESS OR PROFESSION ON THE CONSTRUCTION OF ANY STRUCTURE OR DOING OF ANY WORK IN OR IN RELATION TO, AND BY WAY OF RENOVATION OR EXTENSION OF, OR IMPROVEMENT TO, THE BUILDING, THEN, THE PROVISIONS OF THE CLAUSE SHALL APPLY AS IF THE SAID STRUCTURE OR WORK IS A BUILDING OWNED BY THE ASSESSEE. IN ORDER THAT EXPLANATION I IS ATTRACTED, IT IS NECESSARY THAT ANY CAPITAL EXPENDITURE IS INCURR ED BY THE ASSESSEE. IN OTHER WORDS, IT IS NECESSARY TO EMPHASISE THAT WHAT EXPLANATION I BRINGS ABOUT IS A DEEMING FICTION BY WHICH EXPENDITURE OF A CAPITAL NATURE IN CURRED BY THE ASSESSEE FOR THE PURPOSES STIPULATED THEREIN INCLUDING INTER ALIA FO R THE CONSTRUCTION OF ANY STRUCTURE OR THE WORK OF RENOVATION, EXTENSION OR IMPROVEMENT CAN FORM THE BASIS OF A CLAIM FOR DEPRECIATION AS IF THE STRUCTURE OR WORK IS A B UILDING OWNED BY THE ASSESSEE. BUT FOR THE EXPLANATION, AN ASSESSEE WOULD NOT BE ENTIT LED TO THE BENEFIT OF DEPRECIATION EVEN IF THE EXPENDITURE WHICH WAS INCURRED WAS OF A CAPITAL NATURE AND THE EFFECT OF THE EXPLANATION IS TO ENTITLE THE ASSESSEE TO THE B ENEFIT OF THE PROVISIONS OF SECTION 32, IF THE STIPULATIONS AND CONDITIONS SET OUT IN T HE EXPLANATION ARE FULFILLED. THE DEEMING FICTION IS FOR THE PURPOSES OF THE STATUTOR Y PROVISION IN QUESTION. BUT THE POINT TO BE EMPHASIZED IS THAT THE EXPLANATION OPER ATES IN A SITUATION WHERE CAPITAL EXPENDITURE IS INCURRED BY THE ASSESSEE. UNLESS THE EXPENDITURE IS OF A CAPITAL ITA NO 3775 & 4214/MUM/2016 UHDE INDIA PVT. LTD. 18 NATURE, THERE WOULD BE NO OCCASION TO APPLY THE DEE MING FICTION THAT IS CARVED OUT BY EXPLANATION I. IN THE INSTANT CASE, THE CONCLUSION HAS ALREADY BEEN ARRIVED THAT THE ASSESSEE HAD NOT INCURRED ANY EXPENDITURE OF A CAPI TAL NATURE. THE EXPENDITURE DID NOT RESULT IN THE ACQUISITION OF A CAPITAL ASSET BY THE ASSESSEE. THE ASSESSEE CONTINUED AS BEFORE TO BE A TENANT IN RESPECT OF TH E PREMISES. BY CONTRIBUTING AN AMOUNT OF RS. 1.50 CRORES TOWARDS THE RECONSTRUCTIO N OR AS THE CASE MAY BE RENOVATION OF THE EXISTING STRUCTURE, THE ASSESSEE OBTAINED A COMMERCIAL ADVANTAGE OF SECURING TENANCY OF AN EQUIVALENT AREA OF PREMIS ES ON THE SAME RENT AS BEFORE. SINCE THERE WAS NO ACQUISITION OF A CAPITAL ASSET A ND THE OCCUPATION OF THE ASSESSEE CONTINUED IN THE CHARACTER OF A TENANCY, THE EXPEND ITURE COULD NOT BE REGARDED AS BEING OF A CAPITAL NATURE. [PARA 10] THE DECISION OF THE TRIBUNAL, WHICH CONFIRMS THE VI EW TAKEN BY THE COMMISSIONER (APPEALS) THAT THE EXPENDITURE WAS OF A REVENUE NAT URE DOES NOT FALL FOR ANY INTERFERENCE IN INSTANT APPEAL. FOR THE AFORESAID R EASONS, THE QUESTION OF LAW IS ANSWERED BY HOLDING THAT THE COST OF REPAIR/RECONST RUCTION OF THE TENANTED PREMISES WAS OF A REVENUE NATURE AND WAS LEGITIMATELY ALLOWA BLE AS AND BY WAY OF DEDUCTION. NO ERROR CAN BE FOUND IN THE JUDGMENT OF THE TRIBUN AL. [PARA 11] 17.1 IN M/S URBAN INFRASTRUCTURE VENTURE CAPITAL LTD . (SUPRA), THE QUESTION OF LAW BEFORE THE HIGH COURT FOR THE FOLLOWING : 6.1 WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ITAT, MUMBAI, WAS RIGHT IN IGNORING THE PROVISIONS OF EXPLANATION 1 TO SECTION 32(1) OF THE INCOME TAX ACT, 1961 AND THEREBY HOLDING THE CAPITAL EXPENDITURE INCURRED BY THE ASSESSEE ON LEASED PREMISES AS REVENUE EXPEN DITURE? THE HONBLE HIGH COURT VIDE ORDER DATED 17.07.2017 HELD THAT : 6. EXPLANATION 1 TO SECTION 32(1) OF THE ACT WAS A SUBJECT MATTER OF INTERPRETATION AND CONSIDERATION OF THIS COURT IN C ASE OF TALATHI AND PANTHAKY ASSOCIATES PVT LTD. (SUPRA). THIS COURT HAS OBSERVED THAT IN ORDER THAT EXPLANATION-I ITA NO 3775 & 4214/MUM/2016 UHDE INDIA PVT. LTD. 19 IS ATTRACTED, IT IS NECESSARY THAT ANY CAPITAL EXPE NDITURE IS INCURRED BY THE ASSESSEE. IT IS NECESSARY TO EMPHASIS THAT WHAT EXPLANATION I BRINGS ABOUT IS A DEEMING FICTION BY WHICH EXPENDITURE OF A CAPITAL NATURE INCURRED B Y THE ASSESSEE FOR THE PURPOSES STIPULATED THEREIN INCLUDING INTER ALIA FOR THE CON STRUCTION OF ANY STRUCTURE OR THE WORK OF RENOVATION, EXTENSION OR IMPROVEMENT CAN FO RM THE BASIS OF A CLAIM FOR DEPRECIATION AS IF THE STRUCTURE OR WORK IS A BUILD ING OWNED BY THE ASSESSEE. BUT FOR THE EXPLANATION, AN ASSESSEE WOULD NOT BE ENTITLED TO THE BENEFIT OF DEPRECIATION EVEN IF THE EXPENDITURE WHICH WAS INCURRED WAS OF A CAPITAL NATURE AND THE EFFECT OF THE EXPLANATION IS TO ENTITLE THE ASSESSEE TO THE B ENEFIT OF THE PROVISIONS OF SECTION 32. 7. IT IS TRITE THAT EXPLANATION CANNOT READ DEHORS THE PROVISION. THE EXPLANATION IS IN AID TO THE PROVISION. 8. THE EXPENSES AS ARE CULLED OUT IN THE ORDER OF T HE TRIBUNAL ARE SUFFICIENT TO IMPLY THAT SAME ARE REVENUE IN NATURE AND NOT CAPIT AL. THE EXPENSES ARE IN THE NATURE OF BUILDING MAINTENANCE CHARGES TO THE SOCIE TY, LABOUR CHARGES, CHARGES FOR CARPENTER WORK, PLUMBING WORK, MASONRY WORK, PENDIN G LABOUR CHARGES AND PROVISIONAL FEES. 9. THE TRIBUNAL HAS RIGHTLY CONSIDERED THE EXPENSES AS REVENUE IN NATURE. IN THE LIGHT OF THE ABOVE, NO SUBSTANTIAL QUESTION OF LAW ARISES. THE APPEAL AS SUCH IS DISMISSED. NO COSTS. 18. THEN WE TURN TO THE CASE LAWS RELIED ON BY THE LD. DR. IN BALLIMAL NAVAL KISHORE (SUPRA), THE ASSESSEE CARRIES ON THE BUSINESS OF E XHIBITING FILMS IN A THEATER CALLED NAVAL TALKIES AT PANIPAT. HE HAD P URCHASED THE SAID BUILDING IN 1937. IT WAS A GINNING FACTORY THEN. HE RAN THE FACTORY TILL 1940. IN THE YEAR 1945, HE CONVERTED IT INTO A CINEMA THEATER AND WAS EXHIBITING FILMS THEREIN. DURING THE PERIOD 1960 TO MARCH 1961, THE ASSESSEE EXTENSIVELY REPAIRED THE THEATER BY EXPENDING SUBSTANTIAL AMOUNTS. THE AMOUN T SPENT BY HIM ARE: ON ITA NO 3775 & 4214/MUM/2016 UHDE INDIA PVT. LTD. 20 MACHINERY RS.16,002/-, NEW FURNITURE RS.27,889/-, S ANITARY FITTINGS RS.5,225/- AND REPLACEMENT OF ELECTRICAL WIRING RS.13,604/-. I N ADDITION THERETO, A TOTAL AMOUNT OF RS.62,977/- WAS SPENT ON EXTENSIVE REPAIR S TO WALLS, TO THE HALL, TO THE FLOORING AND ROOFING, TO DOORS AND WINDOWS AND TO THE STAGE SIDES ETC. ACTUALLY, THE THEATRE HAD TO BE CLOSED DURING THE A FORESAID PERIOD FOR EFFECTING THE REPAIRS. IN THE ASSESSMENT PROCEEDINGS, RELATIN G TO THE ASSESSMENT YEAR, THE ASSESSEE CLAIM DEDUCTION OF THE AFORESAID AMOUN T OF RS.62,977/-. THE INCOME TAX OFFICER DISALLOWED THE SAME CONSIDERING IT AS CAPITAL EXPENDITURE. ON APPEAL, THE HONBLE SUPREME COURT HELD THAT : THE EXPRESSION USED IN SECTION 10(2)(V) IS 'CURREN T REPAIRS' AND NOT MERE 'REPAIRS'. THE SAME EXPRESSION OCCURS IN SECTION 30 (A)(II) AND IN SECTION 31(I) OF THE INCOME TAX ACT, 1961. THE QUESTION IS WHAT IS THE M EANING OF THE EXPRESSION IN THE CONTEXT OF SECTION 10(2). IN NEW SHORROCK SPINNING AND MANUFACTURING COMPANY LTD., CHAGLA, C.J., SPEAKING FOR THE DIVISION BENCH , OBSERVED THAT THE EXPRESSION 'CURRENT REPAIRS' MEANS EXPENDITURE ON BUILDINGS, M ACHINERY, PLANT OR FURNITURE WHICH IS NOT FOR THE PURPOSE OF RENEWAL OR RESTORAT ION BUT WHICH IS ONLY FOR THE PURPOSE OF PRESERVING OR MAINTAINING AN ALREADY EXI STING ASSET AND WHICH DOES NOT BRING A NEW ASSET INTO EXISTENCE OR DOES NOT GIVE T O THE ASSESSEE A NEW OR DIFFERENT ADVANTAGE. THE LEARNED CHIEF JUSTICE OBSERVED THAT THEY ARE SUCH REPAIRS AS ARE ATTENDED TO AS AND WHEN NEED ARISES AND THAT THE QU ESTION WHEN A BUILDING, MACHINERY ETC. REQUIRES REPAIRS AND WHEN THE NEED A RISES MUST BE DECIDED NOT BY ANY ACADEMIC OR THEORETICAL TEST BUT BY THE TEST OF COMMERCIAL EXPEDIENCY. THE LEARNED CHIEF JUSTICE OBSERVED: 'THE SIMPLE TEST THAT MUST BE CONSTANTLY BORNE IN M IND IS THAT AS A RESULT OF THE EXPENDITURE WHICH IS CLAIMED AS AN EXPENDITURE OR REPAIRS WHAT IS REALLY BEING DONE IS TO PRESERVE AND MAINTAIN AN ALREADY E XISTING ASSET. THE OBJECT OF THE EXPENDITURE IS NOT TO BRING A NEW ASSET INTO EXISTENCE, NOR IS ITS OBJECT THE OBTAINING OF A NEW OR FRESH ADVANTAGE. THIS CAN BE THE ONLY DEFINITION OF ITA NO 3775 & 4214/MUM/2016 UHDE INDIA PVT. LTD. 21 REPAIRS' BECAUSE IT IS ONLY BY REASON OF THIS DEFI NITION OF REPAIRS THAT THE EXPENDITURE IS A REVENUE EXPENDITURE. IF THE AMOUNT SPENT WAS FOR THE PURPOSE OF BRINGING INTO EXISTENCE A NEW ASSET OR OBTAINING A NEW ADVANTAGE, THEN OBVIOUSLY SUCH AN EXPENDITURE WOULD NOT BE AN EXPENDITURE OF A REVENUE NATURE BUT IT WOULD BE A CAPITAL EXPENDITURE, AND IT IS CLEAR THAT THE DEDUCTION WHI CH, THE LEGISLATURE HAS PERMITTED UNDER SECTION 10(2)(V) IS A DEDUCTION WHE RE THE EXPENDITURE IS A REVENUE EXPENDITURE AND NOT A CAPITAL EXPENDITURE.' IN TAKING THE ABOVE VIEW, THE BOMBAY HIGH COURT DIS SENTED FROM THE VIEW TAKEN BY THE ALLAHABAD HIGH COURT IN RAMKRISHAN SUNDERLAL VS . COMMISSIONER OF INCOME TAX, U.P. [(1951) 19 I.T.R..324] WHERE IT WAS HELD THAT THE EXPRESSION 'CURRENT REPAIRS' IN SECTION 10(2)(V) WAS RESTRICTED TO PETTY REPAIRS ON LY WHICH ARE CARRIED OUT PERIODICALLY. THE LEARNED JUDGE AGREED WITH THE VIE W TAKEN BY THE PATNA HIGH COURT IN COMMISSIONER OF INCOME TAX VS. DARBHANGA SUGAR C O. LTD. [(1956) 29 I.T.T.21] AND BY THE MADRAS HIGH COURT IN COMMISSIONER OF INC OME TAX VS. SRI RAMA SUGAR MILLS LTD. [(1951) 21 I.T.R.191] IN LIBERTY CINEMA VS. COMMISSIONER OF INCOME-TAX, CALCUTTA [52 I.T.R.153], P.B. MUKHARJI, J., SPEAKIN G FOR A DIVISION BENCH OF THE CALCUTTA HIGH COURT, HELD THAT AN EXPENDITURE INCURRED WITH A VIEW TO BRING INTO EXISTENCE A NEW ASSET OR AN ADVANTAGE OF ENDURING NATURE CANNOT QUALIFY FOR DEDUCTION UNDER SECTION 10(2)(V). IN OUR OPINION THE TEST INVOLVED BY CHAGLA C.J. IN NEW SHORROCK SPINNING & MANUFACTURING COMPANY LIMITED IS THE MOST APPROPRIA TE ONE HAVING REGARD TO THE CONTEXT IN WHICH THE SAID EXPRESSION OCCURS. IT HAS ALSO BEEN FOLLOWED BY A MAJORITY OF THE HIGH COURTS IN INDIA. WE RESPECTFULLY ACCEPT AND ADOPT THE TEST. APPLYING HE AFORESAID TEST, IF WE LOOK AT THE FACTS OF THIS CASE, IT WILL BE EVIDENT THAT WHAT THE ASSESSEE DID WAS NOT MERE REPAIRS BUT A TO TAL RENOVATION OF THE THEATRE. NEW MACHINERY, NEW FURNITURE, NEW SANITARY FITTINGS AND NEW ELECTRICAL WIRING WERE INSTALLED BESIDES EXTENSIVELY REPAIRING THE STRUCTU RE OF THE BUILDING. BY NO STRETCH OF ITA NO 3775 & 4214/MUM/2016 UHDE INDIA PVT. LTD. 22 IMAGINATION, CAN IT BE SAID THAT THE SAID REPAIRS Q UALIFY AS 'CURRENT REPAIRS' WITHIN THE MEANING OF SECTION 10(2)(V). IT WAS A CASE OF T OTAL RENOVATION AND HAS RIGHTLY BEEN HELD BY THE HIGH COURT TO BE CAPITAL IN NATURE . INDEED, THE FINDING OF THE HIGH COURT IS THAT AS AGAINST THE SUM OF RS.17,000/- FOR WHICH THE ASSESSEE HAD PURCHASED THE FACTORY IN 1937, THE EXPENDITURE INCURRED IN TH E RELEVANT ACCOUNTING YEAR WAS IN THE REGION OF RS.1,20,000/-. 18.1 IN OXFORD UNIVERSITY PRESS (SUPRA), THE ASSESSEE IS A COMPANY CARRYING ON BUSINESS OF PUBLISHERS AND BOOK SELLERS, IMPORTING AND SELLING BOOKS PUBLISHED BY THE OXFORD UNIVERSITY. THE ASSESSMENT YEAR IS 1963-64. DURING THE ACCOUNTING PERIOD RELEVANT TO THE ASSESSMENT YE AR THE ASSESSEE INCURRED AN EXPENDITURE OF RS.59,000 IN THE FORM OF PAYMENT MADE TO M/S. JOHN FLEMING & CO. FOR GUNITING WORK CARRIED ON IN ITS B UILDING KNOWN AS 'OXFORD HOUSE' AND ALSO A SUM OF RS.3,680 AS FEES PAID TO T HE ARCHITECTS IN CONNECTION WITH GUNITING WORK UNDERTAKEN ON THE ADVICE OF THE ARCHITECTS. THE ASSESSEE CLAIMED BOTH THE ITEMS AS EXPENDITURE INCURRED FOR REPAIRS TO THEIR BUILDING. THE INCOME-TAX OFFICER OBSERVED THAT THE REPAIRS IN QUESTION COULD NOT BE CALLED 'CURRENT REPAIRS' BUT THAT THE ASSESSEE HAD UNDERTAKEN MAJOR STRUCTURAL REPAIRS WHICH HAD THE EFFECT OF PROLONGING THE LIFE OF THE BUILDING FOR A LEAST 15 YEARS AND AS THE REPAIRS RESULTED IN EXTENSION OF T HE PERIOD OF THE SERVICEABLENESS OF THE ASSET AND IN THE CREATION OF AN ENDURING BENEFIT, THE EXPENDITURE WAS A CAPITAL EXPENDITURE. THE HONBLE BOMBAY HIGH COURT HELD THAT : THIS COURT HELD IN THE CASE OF GULAMHUSSEIN EBRAHI M MATCHESWALLA V. CIT [1974] 97 ITR 24 (BOM.), THAT THE EXPRESSION REPAIR MUST BE UNDERSTOOD IN CONTRADISTINCTION TO RENEWAL OR RESTORATION AND THE TEST TO BE APPLIED IS TO SEE WHETHER AS A RESULT OF THE EXPENDITURE WHAT IS BEIN G DONE IS TO PRESERVE AND ITA NO 3775 & 4214/MUM/2016 UHDE INDIA PVT. LTD. 23 MAINTAIN AN ALREADY EXISTING ASSET. IF THE AMOUNT I S SPENT FOR THE PURPOSE OF BRINGING INTO EXISTENCE A NEW ASSET OR OBTAINING A NEW ADVAN TAGE THEN SUCH AN EXPENDITURE WOULD NOT BE REVENUE EXPENDITURE. THE MERE QUANTUM OF EXPENDITURE IS NOT BY ITSELF DECISIVE OF THE QUESTION WHETHER IT IS OF THE NATUR E OF REVENUE OR CAPITAL. A SUM CAN BE ALLOWED AS COST OF REPAIRS EVEN THOUGH THE EXPEN DITURE IN A PARTICULAR YEAR IS HEAVY ON ACCOUNT OF THE FACT THAT IT IS UNDERTAKEN TO REMEDY THE EFFECT OF SEVERAL YEARS OF WEAR AND TEAR OR NEGLECT AND ALSO IN SPITE OF THE FACT THAT SUCH EXPENDITURE MAY NOT BE NECESSARY FOR SEVERAL YEARS TO COME AFTE R REPAIRS HAVE BEEN EFFECTED. IT IS THUS CLEAR THAT WHAT THE COURT IS REQUIRED TO FIND OUT IS WHETHER AS A RESULT OF THE EXPENDITURE A NEW ASSET OR A NEW ADVANTAGE IS BEING BROUGHT INTO EXISTENCE. THE COURT WILL ALSO HAVE REGARD TO THE ASPECT AS TO WHE THER AS A RESULT OF THE EXPENDITURE WHAT IS BEING DONE IS TO PRESERVE AND MAINTAIN AN A LREADY EXISTING ASSET. IN THE INSTANT CASE, IT WAS CLEAR AS TO WHY AND IN WHAT CIRCUMSTANCES THE GUNITING WORK WAS UNDERTAKEN BY THE ASSESSEE IN RELATION TO THE BUILDING. IN THEIR LETTER, THE ARCHITECTS OF THE ASSESSEE STATED THAT DURING THE I NSPECTION OF THE BUILDING, WHICH WAS UNDERTAKEN IN JANUARY, 1961, IT WAS OBSERVED TH AT THE REINFORCEMENT OF THE SLABS HAD DECAYED AND CRACKS WERE VISIBLE UNDERSIDE OF THE SLAB AND ON THE FLOORS AND SOME OF THE STEEL REINFORCEMENT IN THE SLAB HAD LITTLE OR NO COVER. FURTHER, THAT THE ASSESSEE HAD BEEN SPENDING GOOD AMOUNTS ON THE REPAIRS OF SUCH CRACKS AND PLASTERINGS OF THE SLABS ON WHICH THE REINFORCEMENT S HAD DISAPPEARED BUT THE AMOUNT SPENT FOR PLASTER PATCH WORK THAT WAS UNDERT AKEN WAS A WASTE AND THAT, THEREFORE, SINCE THE PLASTERING BY MEANS OF AN ORDI NARY METHOD WAS OF NO USE, PLASTERING BY THE PROCESS OF GUNITING WAS ADVISED. THE NATURE OF THE GUINTING PROCESS WAS EXPLAINED BY THE ASSESSEE. HAVING REGARD TO THE NATURE OF THE GUNITING PROCESS THAT WAS UNDERTAKEN FOR CARRYING OUT THE PLASTERING AND REPAIR WORK TO THE BUILDING AND THE REASONS AND CIRCUMSTANCES AS TO WHY THE GUN ITING PROCESS HAD BEEN EMPLOYED, IT BECAME VERY CLEAR THAT BY EMPLOYING TH IS METHOD, WHICH WAS NOTHING BUT AN IMPROVED METHOD OF PLASTERING AND REPAIRING WORK, ALL THAT THE ASSESSEE HAD DONE WAS TO PRESERVE AND MAINTAIN THE ALREADY EXIST ING ASSET. NO NEW ASSET OR NEW ADVANTAGE AS SUCH COULD BE SAID TO HAVE BEEN BROUGH T INTO EXISTENCE BY REASON OF ITA NO 3775 & 4214/MUM/2016 UHDE INDIA PVT. LTD. 24 EXPENDITURE INCURRED FOR DOING THE GUINTING WORK. A S A RESULT OF GUNITING WORK DONE THE ASSESSEE HAD NOT CHANGED THE NATURE OF THE ASSE T, VIZ., THE BUILDING AS A WHOLE, AND THE SAME IN NO WAY INCREASED THE ACCOMMODATION OR EARNING CAPACITY OF THE BUILDING; IN THAT SENSE NO NEW ADVANTAGE OF ENDURIN G BENEFIT HAD BEEN BROUGHT INTO EXISTENCE. THE REPAIRS ALSO COULD NOT BE REGARDED A S HEAVY STRUCTURAL REPAIRS, FOR, ACCORDING TO THE ASSESSEE'S ARCHITECTS, WHAT COULD NOT BE ACHIEVED BY THE ORDINARY METHOD OF PLASTERING WAS ACHIEVED BY A SOPHISTICATE D METHOD OF PROCESS OF GUNITING. IN THIS VIEW OF THE MATTER, IT SEEMED VERY CLEAR TH AT THE EXPENDITURE INCURRED FOR GUNITING WORK DONE AS ALSO THE EXPENDITURE BEING TH E ARCHITECTS' FEES PAID IN CONNECTION THEREWITH WOULD HAVE TO BE REGARDED AS E XPENDITURE OF A REVENUE NATURE. ALL THAT THE ASSESSEE DID IN THE INSTANT CASE WAS T O UNDERTAKE THE PLASTER REPAIRING WORK OUT BY ADOPTING A NEW METHOD CALLED GUNITING P ROCESS, AND BY INCURRING THE EXPENDITURE BY ADOPTING SUCH A PROCESS THE ASSESSEE WAS MERELY MAINTAINING AND PRESERVING AN ASSET WHICH IT ALREADY POSSESSED AND THUS THOUGH TO SOME EXTENT THE LIFE OF THE ASSET HAD BEEN PROLONGED AND THE ASSET WAS MADE TO GIVE BETTER SERVICE THEN IT WAS DOING IN THE PAST, THE EXPENDITURE WOUL D HAVE TO BE REGARDED AS REVENUE EXPENDITURE. 18.2 IN VARDHMAN DEVELOPERS LTD . (SUPRA), THE ASSESSEE IS A BUILDER AND DEVELOPER. IT HAD TAKEN AN OFFICE PREMISES ON RENT FOR A PERIOD OF FIVE YEARS. AS THE SAID PREMISES WAS OLD AND NOT IN USE FOR A LONG TIME, IT INCURRED SOME EXPENDITURE TOWARDS REPAIR AND RENOVATION OF THE SA ID PREMISES TO ACHIEVE ITS FUNCTIONAL UTILITY. ITS CLAIMED THAT EXPENDITURE WA S IN RESPECT OF RENTED PREMISES AND, ACCORDINGLY, ALLOWABLE UNDER SECTION 30(A)(I). THE REVENUE RAISED OBJECTION, THAT THE NATURE AND THE VOLUME OF THE EXPENDITURE WOULD NOT QUALIFY IT TO BE A REPAIR, WHICH ONLY COULD BE ALLO WED UNDER SECTION 30. THE EXPENDITURE WAS ADMITTEDLY ON RENOVATION AND, THUS, CAPITAL IN NATURE, AND WOULD, THEREFORE, STAND TO BE CAPITALIZED. ON APPEA L, THE TRIBUNAL HELD THAT : ITA NO 3775 & 4214/MUM/2016 UHDE INDIA PVT. LTD. 25 THE EXPENDITURE WAS INCURRED TOWARDS FALSE CEILING ; FIXING TILES/FLOORING; REPLACING GLASSES; WOODEN PARTITIONS; REPLACEMENT OF ELECTRIC AL WIRING; EARTHING; REPLACEMENT OF G.I. PIPES, PLUMBING AND SANITATION LINES; PLAST ER AND PAINTING OF WALLS. A PREMISES, IT MAY BE APPRECIATED, IS CONSTITUTED NOT MERELY BY , OR ONLY OF, CIVIL STRUCTURE, IN AS MUCH AS THE SAME BY ITSELF DOES NOT RENDER IT FUNCT IONAL FOR THE STATED PURPOSE OF ITS USER. IN FACT, THE IMPUGNED EXPENDITURE INCLUDES LA BOUR FOR CIVIL WORK ALSO, SO THAT THE WORK COULD POSSIBLY INCLUDE SOME STRUCTURAL CHA NGES AS WELL. THE ISSUE INVOLVED, THUS, REDUCES TO AS TO WHETHER THE EXPENDITURE ON E XTENSIVE REPAIRS AND RENOVATION COULD BE ALLOWED IN RESPECT OF A TENANTED PREMISES. THE SAME CAN BY NO MEANS BE REGARDED AS 'CURRENT REPAIRS', THE AMBIT OF WHICH I S FAIRLY RESTRICTED, DENOTING A REPAIR THAT IS REQUIRED TO BE ATTENDED TO AS SOON A S THE NEED FOR IT ARISES. 'REPAIRS', THOUGH A TERM OF WIDER SCOPE, YET CANNOT EXTEND BEY OND THAT OF THE TERM ITSELF. A REPAIR, BY DEFINITION, IS TOWARDS THE MAINTENANCE A ND PRESERVATION OF AN 'EXISTING' ASSET. SURELY, THE ADVANTAGE OR ASSET, IN TERMS OF ITS FUNCTIONAL UTILITY AND CAPACITY FOR THE BUSINESS, NEEDS TO BE MAINTAINED, SO THAT EXPEN DITURE FOR RETAINING THE SAME IS ESSENTIALLY REVENUE EXPENDITURE, WHICH, AGAIN, BY D EFINITION, DOES NOT LEAD TO OR RESULT IN AN ENHANCEMENT OR IMPROVEMENT. THE PREMIS ES IN THE INSTANT CASE WAS ADMITTEDLY NOT IN USE FOR A LONG TIME AND, THUS, IN A DYSFUNCTIONAL, IF NOT DILAPIDATED, STATE PRIOR TO IT BEING ACQUIRED BY THE ASSESSEE. T HE EXPENDITURE INCURRED ON REFURBISHMENT AND RENOVATION OF AN OLD PREMISES, IN AN INOPERABLE STATE, SO AS TO MAKE IT FIT FOR USE. IT CANNOT BE CLASSIFIED AS 'RE PAIRS'; SINCE EXPENDITURE WAS INCURRED TO RENDER IT IN A FUNCTIONAL STATE AND, THEREFORE, IS CLEARLY IN THE CAPITAL FIELD. THE INGREDIENTS AND PREREQUISITES OF A CAPITAL EXPENDIT URE WOULD REMAIN THE SAME, AND NOT UNDERGO ANY CHANGE DEPENDING ON THE OBJECT MATT ER OF THE EXPENDITURE, I.E., WHETHER AN OWNED OR LEASED PREMISES, AND WHICH ITSE LF IS THE PREMISE OF EXPLANATION 1 TO SECTION 32(1)(II), INVOKED BY THE REVENUE. [PARA 6] THE CONCEPT OF 'REPAIRS' AND 'REVENUE EXPENDITURE' WERE CONSIDERED AS PARI MATERIA AND CO-EXTENSIVE IN AS MUCH AS IN THE VIEW OF THE C OURT, REPAIR COULD NOT, BY DEFINITION, INCLUDE CAPITAL EXPENDITURE. [PARA 6] ITA NO 3775 & 4214/MUM/2016 UHDE INDIA PVT. LTD. 26 19. THE DISTILLATION OF PRECEDENTS MUST NOW BE APPL IED BY US TO THE FACTS OF THE CASE. IN CIT V. GITANJALI MILLS LTD . (2004) 265 ITR 681 (MAD.) , IT IS HELD THAT AN EXPENDITURE THAT IS NOT DEDUCTIBLE U/S 30 TO 36 CAN STILL BE ALLOWED AS A DEDUCTION UNDER THE RESIDUARY SECTION 37 OF THE ACT . THE RESIDUARY NATURE OF THE PROVISION IN SECTION 37(1) WILL HAVE TO BE GIVE N ITS FULL MEANING. A LEGITIMATE CLAIM IN ACCORDANCE WITH THE PRINCIPLES OF ACCOUNTANCY AND ACCORDING TO WELL-ESTABLISHED COMMERCIAL PRACTICE A ND WHICH MUST BE TAKEN INTO ACCOUNT IN ASCERTAINING THE TRUE PROFITS AND G AINS OF BUSINESS CANNOT BE DENIED UNLESS SOME STATUTORY PROVISION IN CLEAR WOR DS OR BY NECESSARY IMPLICATION NEGATIVES THE ADOPTION OF SUCH PRINCIPL E AND PRACTICE AS HELD IN CIT V. HIGH LAND PRODUCE CO. LTD (1976) 102 ITR 803 (KER.) AFFIRMED BY THE HONBLE SUPREME COURT IN (1986) 158 ITR 419. IN CIT V. MADRAS AUTO SERVICE(P.) LTD. (1998) 233 ITR 468 (SC), THE HONBLE SUPREME COURT HAS HELD THAT WHERE AN OLD BUILDING TAKEN ON LEASE BY THE ASSESSEE WAS DEMOLISHED BY HIM AND REBUILT TO R EOCCUPY THE NEW BUILDING FOR A FURTHER PERIOD OF 20 YEARS AT THE OLD RENT, I T WAS HELD THAT THE EXPENDITURE WAS REVENUE IN NATURE. THE MOOT QUESTION IS THE DETERMINATION OF WHETHER R EPAIR IS IN THE NATURE OF REVENUE EXPENDITURE OR CAPITAL EXPENDITUR E. THE FOLLOWING CRITERIA WOULD BE RELEVANT IN DECIDING THE NATURE OF REPAIR: (I) WHETHER THE EXPENDITURE HAS BEEN INCURRED TO CREATE ANY NEW ASSET OR FOR MAINTAINING THE BUSINESS OF THE COMPAN Y; (II) WHETHER THE EXPENDITURE IS GIVING RISE TO ANY BENEF IT OF AN ENDURING NATURE OR ANY ADDED ADVANTAGE TO THE ASSET OR ANY ITA NO 3775 & 4214/MUM/2016 UHDE INDIA PVT. LTD. 27 INCREASE IN THE EFFICIENCY OR INCREASING THE PRODUC TION CAPACITY THEREOF; (III) WHETHER THE EXPENDITURE HAS BEEN INCURRED TO PRESER VE OR MAINTAIN AN ALREADY EXISTING ASSET. IN THE INSTANT CASE, THE SAID EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE FOR MAINTAINING ITS BUSINESS, FOR INCREASING ITS EFFICI ENCY AND FOR PRESERVING ITS ALREADY EXISTING ASSET. THUS THE EXPENDITURE HEREIN ABOVE IS REVENUE IN NATURE AND THEREFORE ALLOWABLE. ACCORDINGLY, WE ALLOW THE 8 TH AND 9 TH GROUND OF APPEAL. 20. THE 15 TH GROUND OF APPEAL RELATING TO LEVY OF INTEREST U/S 234B AND 234D IS CONSEQUENTIAL IN NATURE. 21. THE ASSESSEE HAS FILED AN ADDITIONAL GROUND OF APPEAL WHICH READS AS UNDER : 1. THE APPELLANT SUBMITS THAT THE LIABILITY INCURRED O N ACCOUNT OF EDUCATION CESS AND HIGHER AND SECONDARY EDUCATION CESS ON INCOME T AX AMOUNTING TO RS.38,25,296/- SHOULD NOT BE DISALLOWED U/S 40(A)(I A). 2. THE APPELLANT RELIES ON THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN SESA GOA LTD. V. JCIT (ITA NO. 17 AND 18 OF 2013 DATED 2 8 TH FEBRUARY 2020). 22. THE LD. DR OBJECTS TO THE ADMISSION OF THE ABOV E ADDITIONAL GROUND STATING THAT THE ORIGINAL APPEAL WAS FILED BY THE A SSESSEE ON 30.05.2016, WHEREAS, THE ABOVE ADDITIONAL GROUND WAS FILED ON 3 1.07.2020 AFTER FOUR YEARS. THE LD. COUNSEL ARGUES THAT THE ORDER OF THE HONBLE BOMBAY HIGH COURT IN SESA GOA IS DATED 28.02.2020 AND AFTER GOING THROUGH THE AB OVE JUDGMENT, ITA NO 3775 & 4214/MUM/2016 UHDE INDIA PVT. LTD. 28 THE ASSESSEE HAS FILED THE ABOVE ADDITIONAL GROUND AND THE SAME MAY BE ADMITTED FOR ADJUDICATION. 23. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. THE ORDER IN SESA GOA (SUPRA) IS DATED 28.02.2020. THE ABOVE ADDITIONAL GROUND IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SESA GOA LTD. (SUPRA) AND HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CHAMBAL FERTILIZERS & CHEMICALS LTD . (ITA NO. 52 OF 2018). AS PER THE ABOVE DECISIONS, THE AMOUNT OF EDUCATION CESS AND HIGHER & SECONDARY EDUCATION CESS IS NOT T AX AS COVERED U/S 40(A)(II) AND ACCORDINGLY ALLOWABLE AS DEDUCTION IN COMPUTING THE INCOME FROM BUSINESS OR PROFESSION. FOLLOWING THE ABOVE DECISIO NS, WE ADMIT AND ALLOW THE ADDITIONAL GROUND OF APPEAL FILED BY THE ASSESSEE. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ITA NO. 4214/MUM/2016 (REVENUES APPEAL) 24. THE GROUNDS OF APPEAL FILED BY THE REVENUE READ AS UNDER : I. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS CORRECT IN ALLOWING THE PROVISION TOWARDS COST ON COMPLETED CO NTRACT AND PROVISION TOWARDS COST OVER RUNS ON INCOMPLETE CONTRACTS BOTH BEING UNASCERTAINED AND NON-CRYSTALLIZED LIABILITIES. II. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS CORRECT IN RELYING ONLY ON THE ITAT DECISION IN ASSESSEE'S CA SE FOR A.Y. 2005-06 WITHOUT APPRECIATING THE FACT THAT THE ISSUE IS NOT FINAL Y ET, AND REVENUE IS IN APPEAL BEFORE THE HONBLE BOMBAY HIGH COURT AGAINST THE SA ID ITAT DECISION. ITA NO 3775 & 4214/MUM/2016 UHDE INDIA PVT. LTD. 29 25. FACTS BEING IDENTICAL, THE LD. CIT(A) HAS RIGHT LY FOLLOWED THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2005-06. THE HONBLE MADHYA PRADESH HIGH COURT IN AGRAWAL WAREHOUSING AND LEASING LTD. V. CIT 257 ITR 235 HAS HELD THAT THE ORDERS PASSED BY THE TRIBUNAL ARE BIN DING ON ALL THE TAX AUTHORITIES FUNCTIONING UNDER THE JURISDICTION OF T HE TRIBUNAL. WHILE SO HOLDING, IT FOLLOWED THE DECISION OF THE SUPREME CO URT IN UOI V. KAMLAKSHI FINANCE CORPORATION LTD. AIR 1992 SC 711, 712 WHICH HAS RULED THUS: THE PRINCIPLES OF JUDICIAL DISCIPLINE REQUIRES THA T THE ORDER OF THE HIGHER APPELLATE AUTHORITIES SHOULD BE FOLLOWED UNRESERVEDLY BY THE SUBORDINATE AUTHORITIES. THE MERE FACT THAT THE ORDER OF THE APPELLATE AUTHORITY IS NOT ACCEPTABLE TO THE DEPARTMENT -IN ITSELF AN OBJECTIONABLE PHRASE -AND IS THE SUBJECT MATTER OF AN APPEAL CAN FURNISH NO GROUND FOR NOT FOLLOWING IT UNLESS I TS OPERATION HAS BEEN SUSPENDED BY A COMPETENT COURT. IF THIS HEALTHY RULE IS NOT F OLLOWED, THE RESULT WILL ONLY BE UNDUE HARASSMENT TO ASSESSEE AND CHAOS IN ADMINISTR ATION OF TAX LAWS. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 26. TO SUM UP, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED, WHEREAS THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT 16/03/2021. SD/- SD/- ( VIKAS AWASTHY ) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED: 16/03/2021 RAHUL SHARMA, SR. P.S. ITA NO 3775 & 4214/MUM/2016 UHDE INDIA PVT. LTD. 30 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY/ASST. REGISTRAR) ITAT, MUMBAI