ITO WD 2, PALGHAR V. INDIRA S. JAIN, THANE

ITA 4883/MUM/2012

• Counselvise Citation: 488319914 RSA 2012
• Duration Of Justice: 1 year(s) 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-01-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 23-12-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 27-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M L PERUMAL
• Assessee Lawyers: VIRAJ M SHAH
• Keywords: Depreciation; Business expenditure; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI BEFORE SHRI B.R. MITTAL (JM) & SHRI RAJENDRA (AM) I.T.A. NO. 4883/MUM/2012 (ASSESSMENT YEAR : 2006-07) ITO WARD - 2 PALGHAR THANE. VS. SMT. INDIRA S. JAIN W-43, MIDC, TARAPUR BOISAR, TAL. PALGHAR DIST. THANE-401506. PAN/GIR NO . ACVPJ3436C ( APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY : SHRI VIRAJ M. SHAH DEPARTMENT BY : SHRI M.L. PERUMAL DATE OF HEARING : 24.12.2013 DATE OF PRONOUNCEMENT : 15 .1 .201 4 O R D E R PER B.R. MITTAL (JM) : THE DEPARTMENT HAS FILED THIS APPEAL FOR A.Y. 2006-07 AGA INST THE ORDER OF LEARNED CIT(A) DATED 4.5.2012 STATING THE FOLLOWING GROU NDS :- 1) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LEAR NED CIT(A) ERRED IN DELETING ADDITION OF RS. 12,92,000/- TR EATING EXPENSES INCURRED ON REPAIRS AND MAINTENANCE ON PLANT AND MACHINERY AS REVENUE EXPENDITURE AS AGAINST CAPITAL EXPENDITURE. 2) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LEAR NED CIT(A) WAS RIGHT IN NOT APPRECIATING THE FACT THAT EXPEN DITURE OF RS. 16,15,000/- ON REPAIRS AND MAINTENANCE OF PLANT IS UNJUST IFIABLE CONSIDERING THE FACT THAT WDV OF THE SAID PLANT AND MACHIN ERY WAS RS. 3,06,716/-. 2. RELEVANT FACTS ARE THAT THE ASSESSEE-FIRM IS ENGAGED IN THE MANUFACTURING ACTIVITIES OF CHEMICALS AND DRUGS INTERMEDIATES SINCE 19 94 AT RENTED PREMISES OWNED BY M/S. ADINATH PHARMACEUTICALS INDUSTRIES P VT. LTD. (IN SHORT APIPL) AT W-43, MIDC, TARAPUR UNDER A RENTAL AGREEMENT DATED SMT. INDIRA S. JAIN 2 29.3.1994. THE ASSESSEE IS PAYING RENT TO APIPL AS ALL PLANTS A ND MACHINERY TOGETHER WITH CIVIL CONSTRUCTIONS AND ELECTRICAL OWNED BY APIPL. THE ASSESSEE IS REQUIRED TO MAINTAIN ENTIRE PREMISES TOGETHER WITH ALL PLANT AND MACHINERY AND ELECTRICAL IN GOOD WORKING ORDER. TOTAL VALUE OF FIXED ASSET S BELONGING TO APIPL IS OF RS. 1,25,34,669.55, WHICH INCLUDES PLANT AND MACHINERY VALUED AT RS. 76,29,539.10 TOGETHER WITH THE ELECTRICAL EQUIPMENTS VALUED A T RS. 6,33,056.79 AND BUILDING VALUED AT RS. 42,72,073.76. 3. IN THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE SPENT RS. 16,15,000/- TOWARDS REPAIRS AND MAINTENANCE. THE ASSESSING OFF ICER STATED THAT THE ASSESSEE MADE SAID PAYMENT OF RS. 16,15,000/- TO M/S. R .V. ENGINEERING WORKS FOR FABRICATION AND MODIFICATION OF PLANT AND MACHINERY ONLY. HE STATED THAT THE ASSESSEES PLANT AND MACHINERY STANDS AT RS. 3,06,716/- AND THE CLAIM OF REPAIRS AND MAINTENANCE IS TO THE TUNE OF RS. 18,92,282/- IS NOT JUSTIFIABLE. THEREFORE, THE ASSESSING OFFICER CONSIDERED THE EXPENSES OF RS. 16,15,000/- AS CAPITAL EXPENDITURE AND ADDED BACK TO THE TOTAL INCOME. THE ASSESSING OFFICER AFTER GIVING DEPRECIATION OF 20% WHI CH COMES TO RS. 3,23,000/- DISALLOWED BALANCE AMOUNT OF RS. 12,92,000 /-. BEING AGGRIEVED, THE ASSESSEE FILED THE APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 4. LEARNED CIT(A) AFTER CONSIDERING THE FACT THAT THERE IS NEIT HER CREATION OF ASSET, AS PLANT AND MACHINERY IS NOT OWNED BY THE ASSESSEE, NOR TH E EXPENDITURE IS GIVING AN ENDURING BENEFIT. THE SAID EXPENDITUR E INCURRED BY THE ASSESSEE IS OF REGULAR AND ESSENTIAL EXPENSES TO RUN THE MACHINERIES AND NOT FOR THE PURPOSE OF BRINING INTO EXISTENCE ANY NEW ASSET S. HE HAS STATED THAT DUE TO NATURE OF THE MANUFACTURING ACTIVITY OF THE ASSES SEE, A SUBSTANTIAL EROSION OF PLANTS AND EQUIPMENTS TAKE PLACE DUE TO USE OF HIGHLY CORROSIVE ACIDS WHICH NEEDS CONTINUOUS REPAIRS AND MAINTENANCE OF THE SAME. T HAT THE REPAIRS AND MAINTENANCE ON THE PLANT AND MACHINERY HAS BEEN CAR RIED OUT IN NORMAL COURSE OF BUSINESS OPERATIONS AND THE ASSESSING OFFICER HAS NOT PLACED ANY EVIDENCE ON RECORD TO PROVE THAT SUCH EXPENDITURE HAS GIVEN ANY ENDURING SMT. INDIRA S. JAIN 3 BENEFIT TO THE ASSESSEE. THE ASSESSING OFFICER HAS NOT PROVED THAT SOME NE W ASSET HAS BEEN CREATED BY INCURRING EXPENDITURE IN QUESTION, WHICH WILL GIVE ENDURING BENEFIT TO THE ASSESSEE IN THE TIMES TO COME. HE HAS STATED THA T MERELY BECAUSE THE WORDS USED IN THE BILLS RAISED BY M/S. R.V. ENGI NEERING WORKS ARE FABRICATION AND MODIFICATION INSTEAD OF REPA IRING AND MAINTENANCE, WILL NOT ALTER THE NATURE OF EXPENSES FROM REVEN UE TO CAPITAL. LEARNED CIT(A) HAS FURTHER STATED THAT THE ASSESSEE IS NOT THE OW NER OF THE PLANT AND MACHINERY AND THEREFORE DEPRECIATION CANNOT BE ALL OWED TO THE ASSESSEE THEREON. LEARNED CIT(A) HAS STATED THAT SAID EXPENDITURE IS OF REVENUE IN NATURE AND ACCORDINGLY DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. HENCE, THE DEPARTMENT IS IN APPEAL BEFORE THE TRIBUNAL. 5. AT THE TIME OF HEARING LEARNED DEPARTMENTAL REPRESENTATIVE REL IED ON THE ORDER OF THE ASSESSING OFFICER AND WHEREAS LEARNED AUTHORISED REPRESENTA TIVE SUPPORTED THE ORDER OF LEARNED CIT(A). LEARNED AR ALSO FILED A CHART GIVING DETAILS OF NATURE AND SCOPE OF WORK FOR WHICH PAYMENT AGGREGAT ING TO RS. 16,15,000/- WAS MADE TO R.V. ENGINEERING WORKS. 6. WE HAVE CONSIDERED THE SUBMISSIONS OF THE REPRESENTATIVES OF THE PART IES AND ORDERS OF THE AUTHORITIES BELOW. WE HAVE ALSO GONE THROUGH T HE CHART FILED BY THE ASSESSEE GIVING DETAILS OF NATURE AND SCOPE OF WORK CARRIED O UT BY R.V. ENGINEERING WORKS TO WHOM THE ASSESSEE HAS MADE PAYMENT OF RS. 16,15,000/- IN THE ASSESSMENT YEAR UNDER CONSIDERATION, WHICH H AS BEEN CONSIDERED BY THE ASSESSING OFFICER AS CAPITAL EXPENDITURE. HOWEVER, WE OBSERVE THAT SAID EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE FOR REGU LAR MAINTENANCE OF PLANT AND MACHINERY AND NOT FOR THE PURPOSE OF CREATING ANY NEW ASSET. CONSIDERING THE REASONING GIVEN BY LEARNED CIT(A) AND N ATURE AND SCOPE OF WORK AS CHART OUT BY THE ASSESSEE IN THE CHART PLACED BEFOR E US, WE AGREE WITH LEARNED CIT(A) THAT SAID EXPENDITURE IS REVENUE IN NA TURE AND THE SAME IS ALLOWABLE AS BUSINESS EXPENDITURE TO THE ASSESSEE. HENCE, WE UPHOL D THE ORDER OF LEARNED CIT(A) AND REJECT GROUNDS OF APPEAL TA KEN BY THE DEPARTMENT. SMT. INDIRA S. JAIN 4 7. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISMISSED. ORDER PRONOUNCED ON 15 TH DAY OF JANUARY, 2014 . SD/ - (RAJENDRA) ACCOUNTANT MEMBER SD/ - (B.R. MITTAL) JUDICIAL MEMBER MUMBAI; DATED : 15/1/2014 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./ASSTT. REGISTRAR) ITAT, MUMBAI PS