Shidimo Interaux Pvt.Ltd., Dist.Surat V. The ACIT., Circle-4, Surat

ITA 4032/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5886 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 05-05-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 05-11-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M C
• Assessee Lawyers: J P SHAH
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 234B

Judgement Text

` IN THE INCOME TAX APPELLATE TRIBUNAL : C BENCH : A HMEDABAD (BEFORE HON'BLE SHRI G.D. AGRAWAL, V.P. (AZ) & HON BLE SHRI T.K. SHARMA, J.M.) I.T.A. NO. 4032/AHD./2007 ASSESSMENT YEAR : 2004-2005 SHIDIMO INTERAUX PVT. LTD., SURAT -VS.- ASSISTANT COMMISSIONER OF INCOME TAX, (PAN : AADCS 3960 R) CIRCLE-4, SURAT (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI J.P. SHAH RESPONDENT BY : SHRI M.C. PANDIT, SR. D.R. O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER : THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE O RDER DATED 17.09.2007 OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-I, SURAT FOR TH E ASSESSMENT YEAR 2004-05. 2. GROUND NO. 1 OF THIS APPEAL IS AGAINST CONFIRMIN G THE ACTION OF ASSESSING OFFICER IN TREATING REVENUE EXPENDITURE OF RS.7,56,383/- FOR R EPAIRS AS CAPITAL EXPENDITURE. 3. BRIEF FACTS RELATING TO CONTROVERSY INVOLVED IN THIS GROUND OF APPEAL ARE THAT IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL, THE ASSESSEE CLAIMED REPAIR EXPENSES TO BUILDING AMOUNTING TO RS.9,01,583/-. THE EXPENDI TURE INCURRED UNDER THE HEAD REPAIR HAD INCREASED MORE THAN 13 TIMES AS COMPARED TO IMMEDIA TELY PRECEDING YEAR. THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN THE SAME, PRODUCE THE SUPPORTING BILLS AND VOUCHERS. ON VERIFICATION OF THE SAME, THE ASSESSING OFFICER NOT ICED THAT THERE WERE THREE BILLS AMOUNTING TO RS.7,56,383/- RAISED BY SHRI OJAS JHAVERI, CIVIL CO NTRACTOR. FROM THESE BILLS, THE ASSESSING OFFICER NOTICED THAT THE CONTRACTOR HAD CARRIED OUT THE WORK OF DEMOLITION OF EXISTING DAMAGED FLOORING AND PCC, YELLOW SOIL FILING INCLUDING COMP ACTION AND/ CONSOLIDATION, SIXTH PCC WITH NOMINAL REINFORCEMENT, IPS WITH FLOOR HARDENER, ROU GH KOTA STONE FLOORING, BREAKING DAMAGE PLASTER AND REPLASTERING BEAMS/ COLUMNS, STRUCTURAL STEEL WORK, ACC SHEET ROOFING AND FOUNDATION FOR FILTER PRESS. 2 ITA NO. 4032/AHD/2007 3.1. ACCORDING TO THE ASSESSING OFFICER, THE ABOVE ITEMS INDICATE THAT EXPENDITURE INCURRED WAS OF CAPITAL NATURE AND NOT OF REVENUE NATURE, BE CAUSE IT HAS RESULTED IN ENDURING BENEFIT TO THE ASSESSEE OVER A PERIOD OF TIME. THE ASSESSING OFFIC ER FURTHER ASKED TO ASSESSEE TO EXPLAIN AS TO WHY THIS AMOUNT BE NOT CAPITALIZED. BEFORE THE ASSE SSING OFFICER, THE ASSESSEE SUBMITTED THAT THE FACTORY BUILDING HAS BEEN REPAIRED BECAUSE IT WAS V ERY OLD AND THE FLOORING WAS REQUIRED TO BE REPAIRED ON THE SECOND FLOOR AND THE BUILDING WAS A LSO IN DAMAGED CAPACITY. THEREFORE, FLOORING WORK ALONGWITH PLASTERING HAS BEEN DONE. IT WAS FUR THER SUBMITTED THAT NEITHER NEW ASSETS CAME INTO EXISTENCE NOR HAS ITS LIFE INCREASED. THE REP AIR IS ONLY REGARDING THE FLOORING OF THE BUILDING. 4. THE ASSESSING OFFICER DID NOT ACCEPT THE AFORESA ID EXPLANATION OF THE ASSESSEE. THE ASSESSING OFFICER STATED THAT CONSIDERING THE REPAI R WORK, IT CANNOT BE CALLED ROUTINE REPAIRING WORK. ACCORDING TO ASSESSING OFFICER, EVEN THOUGH T HE NEW ASSETS MAY HAVE NOT COME INTO EXISTENCE BUT THE LIFE OF THE ASSET HAS INCREASED B Y TAKING UP OF SUBSTANTIAL REPAIRING WORK BY INCURRING HUGE EXPENDITURE. THE ASSESSING OFFICER S TATED THAT IT IS NOT SIMPLY A CASE WHERE FLOOR HAS BEEN REPAIRED BUT BEAM HAS BEEN REINFORCED AND STRUCTURAL STEEL WORK HAS BEEN TAKEN, ACC SHEET ROOFING HAS BEEN DONE, FOUNDATION FOR FILTER PRESS HAS BEEN MADE. FOR THIS REASONS, THE ASSESSING OFFICER CAPITALIZED THIS AMOUNT AND ALLOW ED THE DEPRECIATION THEREON. 5. ON APPEAL BEFORE THE LEARNED COMMISSIONER OF INC OME TAX(APPEALS), THE ASSESSEE CONTENDED THAT IT IS ENGAGED IN THE MANUFACTURING O F COLOUR AND CHEMICALS. FOR THE ASSESSMENT YEAR UNDER APPEAL, IT HAS DECLARED INCOME OF RS.10. 02 LACS. BEING A CHEMICAL INDUSTRY, IT IS EXTREMELY ESSENTIAL TO ENSURE THAT THE FACTORY IS M AINTAINED IN THE MOST GOOD CONDITION AND THE WELFARE OF THE EMPLOYEE IS LOOKED AFTER. THERE IS A CONCEPT OF CORPORATE SOCIAL RESPONSIBILITY AND THEREFORE, THE EXPENDITURE WAS INCURRED FOR REPAIRI NG THE FACTORY BECAUSE, IN CASE OF FACTORY BUILDING THERE IS ALWAYS WEAR AND TEAR AND ESPECIAL LY IN A CHEMICAL FACTORY. WITH REGARD TO THE OBJECTION OF ASSESSING OFFICER THAT EXPENDITURE IS LARGE, BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IT WAS CONTENDED THAT THIS YEAR EXPENDITURE IS LARGE BECAUSE REPAIRS ARE DONE ONCE IN FEW YEARS AND NOT EVERY YEAR. RELIANCE WAS ALSO PLACED ON THE FOLLOWING DECISIONS:- (1) LAXMI TALKIES [271 ITR 125 (GUJ.)]; (2) HERBALIFE INTERNATIONAL INDIA (P) LTD. [103 I TR 78] DELHI ITAT; (3) L.S. MILLS LTD. [204 CTR 381] (MAD.). 3 ITA NO. 4032/AHD/2007 6. IN THE IMPUGNED ORDER, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) UPHELD THE ACTION OF ASSESSING OFFICER FOR THE REASONS GIVEN I N PARA 2.3, WHICH READS AS UNDER :- 2.3. I HAVE CONSIDERED THE SUBMISSION MADE BY THE APPELLANT AND OBSERVATION OF THE A.O. FROM THE FACTS NARRATED BY THE A.O. IT IS SEEN THAT THE APPELLANT HAS NOT DENIED THE FACTS. IT IS FURTHER CLEAR THAT THIS IS NOT A CASE OF CURRENT REPAIRS BUT A MAJOR RENOVATIO N WHICH INCLUDED BEAMS WHICH HAS BEEN REINFORCED AND STRUCTURAL STEE L WORK HAS BEEN TAKEN, ACC SHEET ROOFING HAS BEEN DONE, FOUNDATION FOR FILTER PRESS HAS BEEN MADE. HENCE IT IS SEEN THAT EVEN THOUGH A NEW ASSET MAY NOT HAVE COME THE BENEFIT OF ENDURING NATURE HAS ACCRUED. TH E DECISION OF GUJARAT HIGH COURT IN THE CASE OF LAXMI TALKIES IS NOT APPLICABLE BECAUSE IN THAT CASE THE THEATER DID NOT BELONG TO THE ASSESSEE AS IT WAS A LEASED THEATRE. SIMILARLY THE FACTS IN THE OTHER TWO CASES ARE ENTIRELY DIFFERENT. IN THE PRESENT CASE AS STATED ABOVE BEAM S HAVE BEEN REPAIRED, FOUNTAIN OF MACHINERIES HAS BEEN REPAIRED, FLOORS H AVE BEEN REPAIRED, WALL HAS BEEN TOTALLY DEMOLISHED AND REMADE. IN VIE W OF THE REASONS SINCE THE ASSESSEE HAS OBTAINED BENEFIT OF ENDURING NATURE THE A.O. HAS RIGHTLY CAPITALIZED THE EXPENDITURE AND ALLOWED THE DEPRECIATION. HENCE, THIS GROUND OF APPEAL IS DISMISSED. AGGRIEVED BY THE ORDER OF LEARNED COMMISSIONER OF I NCOME TAX(APPEALS), THE ASSESSEE IS IN APPEAL BEFORE US. 7. AT THE TIME OF HEARING BEFORE US, ON BEHALF OF A SSESSEE SHRI J.P. SHAH APPEARED AND DREW OUR ATTENTION TO THE JUDGMENT OF THE HON'BLE GUJARA T HIGH COURT IN THE CASE OF ADDITIONAL COMMISSIONER OF INCOME TAX, GUJARAT VS.- SHRI ARBU DA MILLS LTD., AHMEDABAD DECIDED ON 4.9.1974 IN I.T.R. NO. 28 OF 1973 (UNREPORTED). THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THE HEAD NOTES OF THE JUDGMENT OF THE HON'BLE GUJARAT H IGH COURT, WHICH READS AS UNDER :- REVENUE EXPENDITURE OR CAPITAL EXPENDITURE HELD :- THE CORRECT TEST TO DETERMINE, WHETHER A PA RTICULAR EXPENDITURE IS REVENUE EXPENDITURE OR CAPITAL EXPEN DITURE, IS TO FIND OUT WHETHER A SUBSTANTIAL IMPROVEMENT IS MADE BY TH E EXPENDITURE IN CONSIDERATION. IF SUBSTANTIAL IMPROVEMENT IS MADE, AN EXPENDITURE WOULD BE A CAPITAL EXPENDITURE AND NOT EXPENDITURE OF A REVENUE NATURE. IF ON THE OTHER HAND, WHEN SOME BETTER MATE RIALS ARE USED FOR THE PURPOSE OF REPLACING THAT WHICH WAS WORN OUT AN D NEEDS REPLACEMENT, IT CANNOT BE SAID IN ALL CASES TO BE A QUESTION OF CAPITAL EXPENDITURE. CASES REFERRED : (1956) 30 ITR 338 (BOM.), (1968) 7 0 ITR 337 (ALLAD.), (1974) 81 ITR 488 (DELHI) AND (1968) 67 I TR 428 (A.P.) 4 ITA NO. 4032/AHD/2007 BY APPLYING THE ABOVE PRINCIPLES, EXPENDITURE INCUR RED BY THE ASSESSEE FOR SUBSTITUTING CORRUGATED SHEETS ON THE ROOF OF THE WEAVING SECTION OF ITS FACTORY, FOR REPLACING MANGLORE TILE S BY THERMOTILE CRETE SLABS ON THE ROOF OF THE WEAVING SECTION AND FOR RE PAIRING WERE HELD TO BE A REVENUE EXPENDITURE. 7.1. THE LD. COUNSEL OF THE ASSESSEE FURTHER SUBMIT TED THAT IT IS WELL SETTLED LAW THAT IF SOME BETTER MATERIALS ARE USED FOR THE PURPOSE OF REPLAC ING THAT WHICH WAS WORN OUT AND NEEDED REPLACEMENT, IT CANNOT BE SAID THAT IN ALL CASES TO BE A QUESTION OF CAPITAL EXPENDITURE. HE POINTED OUT THAT THE ASSESSEE-COMPANY IN THE PRESENT CASE R EPAIRED BEAMS, FOUNTAIN OF MACHINERIES, FLOORS AND WALL HAS BEEN TOTALLY DEMOLISHED AND REMADE. TH E LD. COUNSEL OF THE ASSESSEE, THEREFORE, SUBMITTED THAT KEEPING IN VIEW THE SAFETY AND SECUR ITY OF THE EMPLOYEES, THIS WAS NECESSARY. AS A RESULT OF THIS EXPENDITURE, THERE IS NO INCREASE IN THE USEABLE AREA, THEREFORE, IT MAY BE HELD THAT ENTIRE EXPENDITURE IS ALLOWABLE AS REPAIR EXPENDITU RE. 8. ON THE OTHER HAND, SHRI M.C. PANDIT, SR. D.R. AP PEARING ON BEHALF OF THE REVENUE VEHEMENTLY SUPPORTED THE ORDER OF LEARNED COMMISSIO NER OF INCOME TAX(APPEALS). THE LD. D.R. POINTED OUT THAT BOTH THE DEPARTMENTAL AUTHORITIES BELOW HAS RECORDED A FINDING OF FACT THAT BY SPENDING RS.9,01,583/-, THE ASSESSEE HAS OBTAINED T HE BENEFIT OF ENDURING NATURE. THEREFORE, THE ASSESSEE IS ONLY ENTITLED TO DEPRECIATION ON THIS I TEM OF EXPENDITURE CAPITALIZED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. THE LD. D.R. FURTH ER SUBMITTED THAT REPAIRS ARE ALLOWABLE UNDER SECTION 30 OF THE INCOME TAX ACT, 1961. THE FINANCE ACT, 2003 INSERTED THE FOLLOWING EXPLANATION TO SECTION 30 WITH EFFECT FROM 1 ST APRIL, 2004 :- EXPLANATION FOR THE REMOVAL OF DOUBTS, IT IS HER EBY DECLARED THAT THE AMOUNT PAID ON ACCOUNT OF THE COST OF REPAIRS REFE RRED TO IN SUB-CLAUSE (I), AND THE AMOUNT PAID ON ACCOUNT OF CURRENT REPA IRS REFERRED TO IN SUB- CLAUSE (II) OF CLAUSE (A), SHALL NOT INCLUDE ANY EX PENDITURE IN THE NATURE OF CAPITAL EXPENDITURE. 8.1. THE LD. D.R. SUBMITTED THAT AS PER THE AFORESA ID EXPLANATION, ONLY CURRENT REPAIRS ARE ALLOWABLE. IN THIS CASE, THE ASSESSEE HAS DEMOLISHE D THE ENTIRE BUILDING AND RE-CONSTRUCTED THE SAME, THEREFORE, IT IS NOT CURRENT REPAIRS. THE LD. D.R., THEREFORE, SUGGESTED THAT THE VIEW TAKEN BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) BE UPHELD. 9. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY G ONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT FACTORY BUILDIN G IN QUESTION WAS VERY OLD AND FLOORING WAS 5 ITA NO. 4032/AHD/2007 REQUIRED TO BE REPAIRED. THE SECOND FLOOR WAS ALSO DAMAGED. THEREFORE, FLOORING WORK ALONGWITH PLASTERING WAS DONE. PRIMA FACIE, IT APPEARS THAT T HE ASSESSEE HAS CARRIED OUT MAJOR REPAIRING WORKS, BUT IN OUR OPINION, IT IS ALLOWABLE AS REVEN UE EXPENDITURE. EVEN OTHERWISE, IN SUCH TYPE OF EXPENDITURE, THE TEST THAT HAS TO BE APPLIED IS THA T AS A RESULT OF THE EXPENDITURE, WHICH IS CLAIMED AS EXPENDITURE FOR REPAIRS, WHAT IS REALLY BEING DO NE IS TO PRESERVE AND MAINTAIN AN ALREADY EXISTING ASSET. LOOKING TO THE TOTALITY OF THE FACT S AND CIRCUMSTANCES OF THE CASE, WE ARE CONVINCED THAT WHATEVER EXPENDITURE HAS BEEN INCURR ED BY THE ASSESSEE WAS FOR THE PURPOSE OF BRINGING INTO EXISTENCE ALONGWITH PRESERVE AND MAIN TAIN ASSET. WITH REGARD TO RELIANCE PLACED BY THE LD. D.R. ON EXPLANATION TO SECTION 30, WE ARE O F THE VIEW THAT ACCUMULATED REPAIRS ARE ALSO ALLOWABLE AS CURRENT REPAIRS. KEEPING IN VIEW THE T OTALITY OF THE FACTS AND CIRCUMSTANCES, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE EXPENDITU RE IN QUESTION AS REVENUE EXPENDITURE. 9.1. CONSEQUENTLY, ASSESSING OFFICER WILL WITHDRAW THE DEPRECIATION ALLOWANCE ON THIS ITEM OF EXPENDITURE CAPITALIZED IN THE ASSESSMENT ORDER IN THE ASSESSMENT YEAR UNDER APPEAL AS WELL AS IN SUBSEQUENT YEAR FOR WHICH THE ASSESSEE HAS NO OBJEC TION. 10. THE ONLY OTHER GROUND OF APPEAL IS AGAINST LEVY OF INTEREST UNDER SECTION 234B AND 234C OF THE ACT. THE ASSESSEE IS ENTITLED TO CONSEQUENTI AL RELIEF IN LEVYING INTEREST UNDER BOTH THESE SECTIONS. THE ASSESSING OFFICER IS DIRECTED ACCORDI NGLY. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. THE ORDER WAS PRONOUNCED IN THE COURT ON 18.06.201 0 SD/- SD/- (G.D. AGRAWAL) (T.K. SHARMA ) VICE-PRESIDENT (AZ) JUDICIAL MEMBER DATED : 18 / 06 / 2010 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT. 3) CIT(A) CONCERNED, (4) CIT CONCERNED, (5) D.R., ITAT, AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGISTRAR, ITAT, AHMEDABAD LAHA/SR.P.S.