ACIT RG 25(3), MUMBAI V. K.C. ENGINEERING CORPORATION, MUMBAI

ITA 4052/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56010 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 02-11-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 18-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARTHSARTHI NAIK
• Assessee Lawyers: RAJESH S SHAH
• Keywords: Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A , MUMBAI BEFORE SHIRI D.K. AGARWAL, JM AND SHRI RAJENDRA SIN GH, AM ITA NO. : 4052/MUM/2010 ASSESSMENT YEAR : 2007-08 THE ACIT. - 25(3) C-11, R.NO.308, PRATYAKSH KAR BHAVAN, BANDRA-KURLA COMPLEX, BANDRA (E), MUMBAI-400 051 VS. M/S. K.C. ENGINEERING CORPORATION 115-A, GOVT. INDUSTRIAL ESTATE, CHARKOP, KANDIVALI (W) MUMBAI-400 067. PAN NO: AAAFK 7172 M (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PARTHSARTHI NAIK RESPONDENT BY : SHRI RAJESH S. SHAH DATE OF HEARING : 02.11.2011 DATE OF PRONOUNCEMENT : 18.11.2011 ORDER PER RAJENDRA SINGH (AM) : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 20.02.2010 OF THE LD. CIT(A)-35 FOR THE ASSESSMENT YEAR 2007-08. THE ONLY DISPUTE RAISED IN THIS APPEAL IS REGARDING THE ALLOWABILITY OF REPAIR EXPENSES. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT, THE ASSESSEE WHO WAS ENGAGED IN THE BUSINESS OF MANUFACTURING OF ICE -CREAMS HAD ITA NO : 4052/MUM/2010 M/S.K .C. ENGINEERING CORPORATION 2 CLAIMED A SUM OF `. 16,53,976/- ON ACCOUNT OF REPAIR AND MAINTENANCE OF BUILDING. THE AO ASKED THE ASSESSEE TO GIVE THE DETAILS AND ALSO EXPLAIN AS TO WHY THE EXPENSES SHOULD NOT BE TREATE D AS CAPITAL EXPENDITURE. THE ASSESSEE SUBMITTED THAT THE FACTO RY WAS THIRTY YEAR OLD AND HAD TO BE REPAIRED DUE TO WEAR AND TEAR AND LEAKAGES AT DIFFERENT PLACES. THE ASSESSEE HAD NOT CREATED ANY NEW ASSET OR DERIVED ANY ENDURING BENEFIT. IT WAS ALSO SUBMITTED THAT TH E REPAIR EXPENDITURE WAS AT THE RATE OF `. 137 PER SQ. FT. AGAINST THE NEW CONSTRUCTION OF A FACTORY OF ABOUT `. 1250 TO `. 1500 SQ. FT. THE AO, HOWEVER, NOTED THAT THE DETAILS OF EXPENDITURE SHOWED THAT THERE WAS DI SMANTLE OF P.C.C, DEMOLITION OF R.C.C, EXCAVATION IN FOUNDATION, DEMO LITION OF EXISTING FLOORING ETC. ALONG WITH THE NEW SANITATION FITTING S AND NEW ELECTRICAL WIRING, BESIDES, EXTENSIVE REPAIRS OF THE STRUCTURE OF BUILDING. THE AO, THEREFORE, CONCLUDED THAT THERE WAS TOTAL RENOVATIO N OF THE BUILDING, AND EXPENDITURE WAS CAPITAL IN NATURE. HE ACCORDING LY DISALLOWED THE CAPITAL EXPENDITURE AS CAPITAL EXPENDITURE. 2.1 IN APPEAL, THE ASSESSEE REITERATED THE SUBMISSI ONS MADE BEFORE THE AO THAT BUILDING BEING VERY OLD, THERE WAS EXTE NSIVE DAMAGE TO THE FLOORING AND THERE WERE HEAVY LEAKAGES FROM TERRACE AND WALLS. THE BUILDING WAS REQUIRED TO BE KEPT IN GOOD CONDITION, AS THE ASSESSEE WAS MANUFACTURING ICE-CREAM WHICH WAS COVERED UNDER FOO D AND DRUG CONTROL ACT. THERE WAS NO NEW AREA CONSTRUCTED AND ONLY THE REPAIR WORK WAS DONE TO RESTORE THE BUILDING TO THE ORIGIN AL CONDITION. THE ASSESSEE PLACED RELIANCE ON THE DECISION OF THE DEL HI BENCH OF THE TRIBUNAL IN THE CASE OF HONDA SIEL CARS INDIA LTD. VS. ACIT (1 ITR 497) IN WHICH IT WAS HELD THAT IN DECIDING THE TRUE NATU RE OF EXPENDITURE, IT WAS NOT THE AMOUNT OF EXPENDITURE BUT THE OBJECT OF EXPENDITURE WHICH WAS RELEVANT. IN THAT CASE, THERE WAS HEAVY LEAKAGE FROM THE ROOF AND, THEREFORE, THE ROOF WAS REPAIRED TO BRING IT TO ORI GINAL CONDITION. THE ITA NO : 4052/MUM/2010 M/S.K .C. ENGINEERING CORPORATION 3 TRIBUNAL HELD THAT THE EXPENDITURE HAD BEEN INCURRE D ONLY TO RESTORE THE ROOF TO THE ORIGINAL CONDITION AND THERE WAS NO NEW ASSET CREATED AND THE EXPENDITURE THUS HELD TO BE REPAIR IN NATUR E. THE LD. CIT(A) OBSERVED THAT THE CASE OF THE ASSESSEE WAS IDENTICA L AND, THEREFORE, ALLOWED THE CLAIM OF THE ASSESSEE. AGGRIEVED BY THE SAID DECISION, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 3. BEFORE US, THE LD. AR FOR THE ASSESSEE REITERATE D THE SUBMISSIONS AS MADE BEFORE THE AUTHORITIES BELOW. HE REFERRED T O THE DETAILS OF THE EXPENDITURE PLACED AT PAGES NO.7 AND 8 OF THE PAPER BOOK TO POINT OUT THAT EXPENDITURE ON EXCAVATION IN FOUNDATION WAS ON LY OF `. 890/- AND `. 15134/-. SIMILARLY, EXPENDITURE ON DISMANTLING OF P .C.C WAS `. 153/- AND `. 6769/-. IT WAS ALSO POINTED OUT THAT EXPENDITURE OF REMOVING OF DOORS AND WINDOWS WAS ONLY `. 600/- AND `. 1400/-. THE ASSESSEE HAD INCURRED SUBSTANTIAL EXPENDITURE ON FLOORING AS THE RE WERE LOT OF PIT HOLES WHICH WERE HAMPERING FREE AND EFFICIENT USE O F TROLLIES FOR MOVEMENT OF GOODS. SIMILARLY, REPAIR OF WALLS AND R OOF HAD TO BE DONE. THERE WERE NO NEW AREAS CONSTRUCTED. THE EXISTING B UILDING WAS REPAIRED TO BRING BACK TO ITS ORIGINAL CONDITION. I T WAS ALSO SUBMITTED THAT THE ASSESSEE WAS THE OWNER OF THE BUILDING AND IT WAS NOT A LEASEHOLD BUILDING. ACCORDINGLY, IT WAS URGED THAT THE ORDER OF THE LD. CIT(A) SHOULD BE UPHELD. THE LD. DR ON THE OTHER HA ND, SUPPORTED THE ORDER OF THE AO AND SUBMITTED THAT THERE WAS COMPLE TE RENOVATION OF THE BUILDING WHICH AMOUNTING TO CAPITAL EXPENDITURE BEING INCURRED. HE REFERRED TO THE JUDGMENT OF THE HON'BLE SUPREME COU RT IN THE CASE OF BALLIMAL NAVAL KISHORE VS. CIT (90 TAXMAN 402) IN W HICH EXPENDITURE ON TOTAL RENOVATION OF THE CINEMA HALL WAS HELD TO BE CAPITAL IN NATURE. 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE R IVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING NAT URE OF EXPENDITURE ITA NO : 4052/MUM/2010 M/S.K .C. ENGINEERING CORPORATION 4 INCURRED BY THE ASSESSEE FOR REPAIR OF THE FACTORY BUILDING. THERE IS NO DISPUTE THAT ASSESSEE WAS MANUFACTURING ICE-CREAMS AND, THEREFORE, FACTORY HAS TO BE KEPT IN GOOD AND HYGIENIC CONDITI ON. IT IS ALSO NOT IN DISPUTE THAT THE FACTORY WAS VERY OLD AND THAT NO N EW AREA HAD BEEN CONSTRUCTED. THE ASSESSEE HAD EXTENSIVELY REPAIRED THE FLOORINGS AND THE ROOF AS WELL AS THE WALL TO RESTORE THE BUILDIN G TO GOOD WORKING CONDITION. THE ASSESSEE HAD NOT CREATED ANY NEW ASS ET. THE COST OF THE REPAIR WAS ONLY `. 137 PER SQ. FT. AGAINST THE MARKET VALUE CONSTRUCTI NG OF NEW FACTORY BUILDING OF ABOUT `. 1200 TO `. 1500 PER SQ. FT. THESE CLAIMS OF THE ASSESSE HAVE NOT BEEN CONTROVERTED BE FORE US. IT IS NOT THE QUANTUM OF EXPENDITURE BUT OBJECT AND NATURE OF WOR K DONE WILL BE USEFUL IN DECIDING THE TRUE NATURE OF EXPENDITURE A S HELD BY THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF HONDA SIEL CAR S INDIA LTD. VS. ACIT (SUPRA). THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF BALLIMAL NAVAL KISHORE VS. CIT (SUPRA) RELIED UPON BY THE LD. DR IS DISTINGUISHABLE. IN THAT CASE, THE ASSESSEE WAS RUN NING CINEMA THEATRE AND HAD EXTENSIVELY REPAIRED THE STRUCTURE OF BUILD ING AND ALSO INSTALLED NEW MACHINERY ETC. THE TOTAL EXPENDITURE INCURRED ON REPAIR WAS `. 1,20,000/- AGAINST THE COST OF THE BUILDING OF ONLY `. 17,000/-. IT WAS UNDER THESE CIRCUMSTANCES THAT IT WAS HELD THAT , THE EXPENSES WERE IN CAPITAL NATURE. IN CASE OF THE ASSESSEES R EPAIR EXPENDITURE IS ONLY OF `. 137 PER SQ. FT. AGAINST THE NEW BUILDING COST OF 12 00 TO 1500 SQ. FT. THE EXPENDITURE HAD BEEN INCURRED TO RESTOR E THE VARIOUS PART OF THE BUILDING TO ORIGINAL CONDITION. THE DECISION OF THE TRIBUNAL IN THE CASE OF HONDA SIEL CARS INDIA LTD. VS. ACIT (SUPRA) SUPPORTS THE CASE OF THE ASSESSEE. THEREFORE, IN OUR VIEW, CONSIDERING T HE FACTS OF THE CASE THE EXPENDITURE HAS TO BE ACCEPT AS REVENUE IN NATU RE AND NOT OF CAPITAL IN NATURE. WE, ACCORDINGLY, SEE NO INFIRMIT Y IN THE ORDER OF THE LD. CIT(A) AND THE SAME IS, THEREFORE, UPHELD. ITA NO : 4052/MUM/2010 M/S.K .C. ENGINEERING CORPORATION 5 5. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED ON THIS 18TH DAY OF NOVEMBER, 2011 . SD/ - SD/ - ( D.K. AGARWAL ) ( RAJENDRA SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT: 18.11.2011 COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. 4. CIT (A) 5. THE DR, A - BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ROSHANI