DCIT, New Delhi V. M/s T.S.Tech Sun (India) Ltd., New Delhi

ITA 4969/DEL/2010

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 7072 (ITAT-DELHI)
• Duration Of Justice: 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 09-09-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 12-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R S NEGI
• Assessee Lawyers: RUPESH J AIN; SHIKHA SHARMA
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH H DELHI ] BEFORE MS. DIVA SINGH, JM AND SHRI K. D. RA NJAN, AM I. T. APPEAL NO. 4969 (DEL) OF 2010 ASSESSMENT YEAR : 2006-07. DY. COMMISSIONER OF INCOME-TAX, M/S. T. S. TECH SUN (INDIA) LTD., C I R C L E : 16 (1), VS. J 286, S A K E T, N E W D E L H I. N E W D E L H I 1 10 017. PAN / GIR NO. AAACT 4324M. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI RUPESH JAIN, ADV.; & MS. SHIKHA SHARMA, ADV.; DEPARTMENT BY : SHRI R. S. NEGI, SR. D . R.; O R D E R. PER K. D. RANJAN, AM : THIS APPEAL BY THE REVENUE FOR ASSESSMENT YEAR 200 6-07 ARISES OUT OF ORDER OF THE LD. CIT (APPEALS)-XIX, NEW DELHI. 2. THE GROUND OF APPEAL RAISED BY THE REVENUE IS AS FOLLOWS :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT (APPEALS) HAS ERRED IN TREATING AS REVENUE EXPENDITURE, THE E XPENDITURE OF CAPITAL NATURE OF RS.52,71,300/- INCURRED IN RESPECT OF THE FACTORY B UILDING RESULTING IN ENDURING BENEFIT TO THE BUSINESS OF THE ASSESSEE. 3. THE ONLY ISSUE FOR CONSIDERATION RELATES TO AS T O WHETHER THE EXPENDITURE INCURRED IN RESPECT OF THE FACTORY BUILDING IS CAPITAL OR REVEN UE EXPENDITURE. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT THE ASSESSEE HAD BOOKED EXPENDITURE OF RS.58,57,000/- TOWARDS REPAIRS AND 2 I. T. APPEAL NO. 4969 (DEL) OF 2010 MAINTENANCE OF THE BUILDING. TO A QUERY RAISED BY THE ASSESSING OFFICER, IT WAS SUBMITTED BY THE ASSESSEE THAT THE AMOUNT OF RS.48.05 LAKHS BOOKED O N 28 TH FEBRUARY, 2006 WAS INCURRED ON REPAIRS AND RENOVATION OF THE EXISTING FACTORY BUIL DING. IT INCLUDED THE AMOUNT SPENT ON CHANGE OF ROOF AND FLOORING OF SHOP FLOOR. IT WAS ALSO ST ATED THAT THE FACTORY BUILDING WAS CONSTRUCTED IN THE YEAR 1997 AND THE FLOOR WAS BADLY DAMAGED DUE T O INSTALLATION AND COMMISSIONING OF HEAVY MACHINE. BESIDES, THIS ROOF OF THE FACTORY WAS OF ASBESTOS SHEETS AND NOT OF CONCRETE AND DURING THE PASSAGE OF TEN YEARS THE ROOF WAS ALSO GOT LEAK ED AT MANY PLACES DUE TO RAIN, AND WEAR AND TEAR DURING THE LAST TEN YEARS. IT WAS, THEREFORE, REQUIRED TO BE CHANGED FOR SAFETY REASONS. THE AMOUNT OF RS.5.94 LAKHS BOOKED ON 16/03/2006 REPRES ENTED THE AMOUNT INCURRED FOR REPLACING THE OLD STEEL GLAZING STRUCTURE FIXED ALONG WITH TH E ASBESTOS SHEETS FOR PROPER LIGHTING OF THE FACTORY. DURING THE RENOVATION OF THE ROOF IT WAS NECESSARY TO REPLACE THE OLD GLASS AND METAL BEADING FIXED ALONG THE ROOF AND, THEREFORE, THE EX PENSES INCURRED ON FIXING OF WIRED GLASS AND METAL BEADING FOR PROPER LIGHT GLAZING IN THE EXIST ING FACTORY BUILDING WERE BOOKED UNDER THE HEAD REPAIR AND MAINTENANCE. IT WAS ALSO SUBMITTED THAT DUE TO RENOVATION OF THE EXISTING FACTORY, THE EXISTING MACHINERY, EQUIPMENT, PIPE FITTINGS ET C. WERE REMOVED AND AGAIN LAID DOWN IN PROPER ORDER. FOR THIS PURPOSE AN AMOUNT OF RS.4.58 LAKHS WAS INCURRED ON DISMANTLING AND FIXATION OF SUCH EQUIPMENTS ETC. ACCORDINGLY, IT WAS SUBMITTED THAT THE EXPENDITURE INCURRED ON FLOORING AND REPLACEMENT OF ROOF WAS ALLOWABLE AS REVENUE EX PENDITURE. THIS CONTENTION OF THE ASSESSEE WAS REJECTED BY THE ASSESSING OFFICER ON THE GROUND THAT THE EXPENDITURE WAS INCURRED ON FIXED CAPITAL ASSETS AND WAS NOT WORKING EXPENSES RELATIN G TO ORDINARY BUSINESS ACTIVITIES OF THE ASSESSEE. NEW FLOORS AND ROOF HAVE COME INTO EXIST ENCE. HE PLACED RELIANCE ON THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF SENAPAT HY SYNAMS INSULATIONS (P) LTD. VS. CIT [2001] 248 ITR 656 (KAR.) WHEREIN DEMOLISHING OF THE EXISTING WALL AND CONSTRUCTING THE NEW WALL WAS HELD BE CAPITAL EXPENDITURE. THE AO, THER EFORE, TREATED THE EXPENDITURE INCURRED ON REPLACEMENT OF FLOOR AND ROOF CAPITAL IN NATURE. T HE ASSESSING OFFICER, HOWEVER, ALLOWED 10 PER CENT DEPRECIATION, WHICH RESULTED IN DISALLOWANCE O F RS.52,71,300/-. 4. BEFORE THE LD. CIT (APPEALS) THE LD. AR OF THE A SSESSEE REITERATED THE SIMILAR ARGUMENTS AS WERE MADE BEFORE THE ASSESSING OFFICER. IT WAS ALSO SUBMITTED THAT SHOP FLOOR AND ROOF AND GLASS AND METAL BEADINGS WERE INTEGRAL PART OF THE FACTORY BUILDING AND DID NOT CONSTITUTE SEPARATE 3 I. T. APPEAL NO. 4969 (DEL) OF 2010 ASSETS. IT WAS FURTHER SUBMITTED THAT THE EXPENDIT URE WAS INCURRED FOR MAINTENANCE AND RESTORATION OF THE EXISTING FACTORY BUILDING TO ITS ORIGINAL CONDITION WITHOUT CREATING ANY ADDITIONAL SPACE OR STRUCTURE. NO NEW ASSET WAS CRE ATED AS ALSO NO ENDURING ADVANTAGE IN THE CAPITAL FIELD WAS DERIVED BY THE ASSESSEE. THE LD. CIT (A) AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE HELD THAT THE EXPENDITURE INCU RRED WAS IN THE NATURE OF CURRENT REPAIRS AND WAS ALLOWABLE AS REVENUE EXPENDITURE. HE PLACED RE LIANCE ON THE DECISION OF THE ITAT IN THE CASE OF HONDA SIEL CARS INDIA LTD. VS. ACIT IN I. T . APPEAL NO. 3173 (DEL) OF 2007. 5. BEFORE US THE LD. SR. DR SUPPORTING THE ORDER OF THE ASSESSING OFFICER SUBMITTED THAT THE EXPENDITURE WAS INCURRED FOR TOTAL REPLACEMENT OF T HE ROOF AND FLOORING. THE LD. SR. DR FURTHER SUBMITTED THAT EXPLANATION TO SECTION 30 HAS BEEN I NSERTED BY THE FINANCE ACT, 2003 WITH EFFECT FROM 1/04/2004 WHEREBY IT HAS BEEN DECLARED THAT TH E AMOUNT PAID ON ACCOUNT OF COST OF REPAIRS REFERRED TO IN SUB CLAUSE (I), AND THE AMOUNT PAID ON ACCOUNT OF CURRENT REPAIRS REFERRED TO IN SUB CLAUSE (II), OF CLAUSE (A), SHALL NOT INCLUDE ANY E XPENDITURE IN THE NATURE OF CAPITAL EXPENDITURE. I T HAS INCREASED THE EFFICIENCY AND CAPACITY OF THE MA NUFACTURING ACTIVITIES OF THE ASSESSEE. HE FURTHER SUBMITTED THAT THE ROOF WAS OF ASBESTOS SHE ETS, WHICH HAS BEEN REPLACED BY STEEL SHEETS. THE ASSESSEE HAD INCURRED EXPENDITURE OF RS.4.58 LA KHS FOR DISMANTLING AND CLEARING OF MALBA. THE REPLACEMENT OF FLOOR SHOP AND ROOF OF THE FACTO RY BUILDING HAS RESULTED INTO CREATION OF NEW ASSETS AND HENCE, THE EXPENDITURE INCURRED IS IN TH E CAPITAL FIELD. HE FURTHER SUBMITTED THAT THE CASE LAWS RELIED UPON BY THE ASSESSEE ARE PRIOR TO THE INSERTION OF THE EXPLANATION TO SECTION 30 OF THE ACT. HENCE, THESE ARE NOT APPLICABLE TO THE FA CTS OF CASE. 6. ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE SU BMITTED THAT THE ASSESSEE HAD INCURRED EXPENDITURE IN ORDER TO PRESERVE AND MAINTAIN THE E XISTING FLOOR AND ROOF, WHICH ARE INTEGRAL PART OF THE FACTORY BUILDING. NO NEW SPACE WAS CREATED. NO NEW CAPACITY HAS BEEN GENERATED. IT IS ALSO NOT A CASE FOR CREATION OF NEW ASSETS. THE AS SESSEE HAS INCURRED EXPENDITURE ON CURRENT REPAIRS. SINCE THE EXPENDITURE HAS BEEN INCURRED T O RESTORE THE FACTORY BUILDING, EXPLANATION TO SECTION 30 IS NOT APPLICABLE TO THE FACTS OF THE AS SESSEES CASE. THE LD. AR OF THE ASSESSEE RELIED ON THE DECISION OF THE ITAT IN THE CASE OF HONDA SI EL CARS INDIA LTD. VS. ACIT (SUPRA). HE ALSO PLACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. SARAVANA 4 I. T. APPEAL NO. 4969 (DEL) OF 2010 SPINNING MILLS P. LTD. [2007] 293 ITR 201 (SC); DEC ISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. BINNY LTD. [1995] 215 ITR 536 (MAD. ); AND DECISION IN THE CASE OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. DELHI SAMAC HAR PATRA (P) LTD. [2010] 322 ITR 590 (DEL). IN REPLY TO THE ARGUMENTS ADVANCED BY THE L D. AR OF THE ASSESSEE, THE LD. SR. DR SUBMITTED THAT THE DECISION OF THE ITAT IN THE CASE OF HONDA SIEL CARS INDIA LTD. VS. ACIT (SUPRA) IS DISTINGUISHABLE ON FACTS AND HENCE IT IS NOT APPLIC ABLE TO THE FACTS OF THE ASSESSEES CASE. 7. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. UNDER SECTION 30(A)(II) THE AMOUNT PAID BY THE ASSESSEE O N ACCOUNT OF CURRENT REPAIRS TO THE PREMISES WILL BE ALLOWABLE AS DEDUCTION. EXPLANATION TO SEC TION 30 WAS INSERTED BY THE FINANCE ACT, 2003 W.E.F. 1.4.2004 ACCORDING TO WHICH THE AMOUNT PAID ON ACCOUNT OF COST OF REPAIRS REFERRED TO IN SUB CLAUSE (II) OF CLAUSE (A) SHALL NOT INCLUDE ANY EXPENDITURE IN THE NATURE OF CAPITAL EXPENDITURE. THEREFORE, EVEN AFTER INSERTION OF EXPLANATION IT H AS TO BE SEEN WHETHER THE EXPENDITURE INCURRED BY THE ASSESSEE IS IN THE NATURE OF CAPITAL EXPENDI TURE. HONBLE SUPREME COURT IN THE CASE OF CIT VS. SARVANA SPG. MILLS P. LTD. HAS HELD THAT TO DEC IDE THE APPLICABILITY OF SECTION 31(I) THE TEST WAS NOT WHETHER THE EXPENDITURE WAS REVENUE OR CAPI TAL IN NATURE, BUT WHETHER THE EXPENDITURE WAS CURRENT REPAIRS. THE BASIC TEST WAS TO FIND OU T WHETHER THE EXPENDITURE WAS INCURRED TO PRESERVE AND MAINTAIN AN ALREADY EXISTING ASSET AND THE EXPENDITURE MUST NOT BE TO BRING A NEW ASSET INTO EXISTENCE OR TO OBTAIN NEW ADVANTAGE. P ROVISIONS OF SECTION 30 ARE APPLICABLE IN RESPECT OF EXPENDITURE INCURRED BY WAY OF RENT, RAT ES, TAXES, REPAIRS AND INSURANCE IN RESPECT OF BUILDINGS WHEREAS PROVISIONS OF SECTION 31 ARE APPL ICABLE IN RESPECT OF REPAIRS AND INSURANCE OF MACHINERY, PLANT AND FURNITURE. SECTION 30(A)(II) D EALS WITH AMOUNT PAID BY THE ASSESSEE ON ACCOUNT OF CURRENT REPAIRS OF PREMISES AND HENCE DE CISION OF HONBLE SUPREME COURT IN THE CASE OF SARVANA SPG. MILLS P. LTD.(SUPRA) WILL BE APPLIC ABLE AS THE PROVISIONS OF SECTION 30(A)(II) ARE PARA-MATERIA WITH THE PROVISIONS OF SECTION 31(I) O F THE ACT. THEREFORE, IT HAS TO BE SEEN THAT BY INCURRING EXPENDITURE ANY NEW ASSET OR ADVANTAGE OF ENDURING BENEFIT HAS COME INTO EXISTENCE. THE ASSESSEE HAD REPLACED THE ASBESTOS ROOF BY STEE L SHEETS. THIS WILL NOT CREATE ANY NEW ASSET AS NO EXTRA SPACE HAS BEEN CREATED. THE PURPOSE OF RO OF IS TO PROTECT THE PLANT AND MACHINERY, THE WORKERS, THE PRODUCTS FROM WEATHER CONDITIONS. IT WILL NOT INCREASE IN ANY WAY THE CAPACITY OF THE ASSESSEE EVEN THOUGH ASBESTOS SHEETS HAVE BEEN REPLACED BY STEEL SHEETS. SIMILARLY, THE SHOP 5 I. T. APPEAL NO. 4969 (DEL) OF 2010 FLOOR HAS BEEN RE-DONE WHICH WAS DAMAGED DUE TO USE SINCE 1997. THE EXPENDITURE INCURRED ON REPLACEMENT OF THE DAMAGED FLOOR WOULD NOT CREATE A NY NEW ASSET. THE ROOF AND FLOOR ARE INTEGRAL PART OF FACTORY BUILDING. THE EXPENDITURE HAS BEEN INCURRED ONLY ON REPAIRS OF THE EXISTING FLOOR. SIMILAR IS THE CASE IN RESPECT OF REPLACEMENT OF OL D GLAZING STRUCTURE, FIXING OF WIRED GLASS, DISMANTLING AND RE-FIXING OF EQUIPMENTS, PIPE FITTI NGS ETC. THERE IS NO MATERIAL ON RECORD TO SUGGEST THAT THE ASSESSEE HAD CREATED EXTRA SPACE O R EXTRA CAPACITY BY INCURRING THE EXPENDITURE. THEREFORE, THE EXPENDITURE HAS TO BE TREATED IN THE NATURE OF CURRENT REPAIRS. UNDER SECTION 30(A)(II) THE EXPENDITURE IN THE NATURE OF CAPITAL EXPENDITURE IS NOT ALLOWABLE AS DEDUCTION. AS DISCUSSED ABOVE, THE ASSESSEE HAS INCURRED EXPENDIT URE ON CURRENT REPAIRS AND, THEREFORE, IT IS ALLOWABLE AS DEDUCTION. THE FACTS OF THE CASE ARE IDENTICAL TO THE FACTS IN THE CASE OF HONDA SIEL CARS INDIA LTD. VS. ACIT (SUPRA) WHEREIN ITAT UNDER IDENTICAL SITUATION HAS ALLOWED THE EXPENDITURE AS REVENUE EXPENDITURE. IN VIEW OF THE ABOVE FACTS, IN OUR CONSIDERED OPINION, SINCE NO NEW ASSETS OR ADVANTAGE OF ENDURING BENEFIT HAS COME INTO EXISTENCE, THE EXPENDITURE INCURRED IS TO BE TREATED AS ALLOWABLE AS REVENUE EXPENDITUR E. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT (APPEALS) ALLOWING THE RELIEF TO THE ASSESSEE. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON : 28 TH OCTOBER, 2011. SD/- SD/- [ DIVA SINGH ] [ K. D. R ANJAN ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : _28 TH OCTOBER, 2011 . *MEHTA * COPY OF THE ORDER FORWARDED TO : - 1. APPELLANT. 6 I. T. APPEAL NO. 4969 (DEL) OF 2010 2. RESPONDENT. 3. CIT, 4. CIT (APPEALS), 5. DR, ITAT, NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGISTRAR, ITAT.