DCIT 2(3), MUMBAI V. THE SEKSARIA BISWAN SUGAR FACTORY LTD, MUMBAI

ITA 5270/MUM/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8681 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-01-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 06-01-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 14-09-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURENDRA KUMAR PER R K
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure
• Section: 37(1)

Judgement Text

1 ITA NO.5270/MUM/2009 IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI E BENCH MUMBAI E BENCH MUMBAI E BENCH MUMBAI E BENCH MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI BEFORE SHRI R K PANDA, AM & SMT ASHA VIJAYARAGHAV AN, JM BEFORE SHRI R K PANDA, AM & SMT ASHA VIJAYARAGHAV AN, JM BEFORE SHRI R K PANDA, AM & SMT ASHA VIJAYARAGHAV AN, JM BEFORE SHRI R K PANDA, AM & SMT ASHA VIJAYARAGHAV AN, JM ITA NO. 5270/MUM/2009 ITA NO. 5270/MUM/2009 ITA NO. 5270/MUM/2009 ITA NO. 5270/MUM/2009 (ASST YEAR (ASST YEAR (ASST YEAR (ASST YEAR 2005 2005 2005 2005- -- -06) 06) 06) 06) THE DY COMMR OF INCOME TAX 2(3), MUMBAI VS THE SEKSARIA BISWAN SUGAR FACTORY LTD SEKSARIA CHAMBERS 5 TH FLOOR, 139 N M ROAD, FORT MUMBAI 1 (APPELANT) (APPELANT) (APPELANT) (APPELANT) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) PAN NO.AAACT1343C PAN NO.AAACT1343C PAN NO.AAACT1343C PAN NO.AAACT1343C ASSESSEE BY SMT USHA DALAL REVENUE BY SHRI SURENDRA KUMAR PER R K PANDA, AM PER R K PANDA, AM PER R K PANDA, AM PER R K PANDA, AM THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER DATED 23.6.2009 OF THE CIT(A) XXX, MUMBAI RELATING TO ASS ESSMENT YEAR 2005-06. 2 THE FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASS ESSEE COMPANY IS ENGAGED IN THE MANUFACTURE OF WHITE CRYSTAL SUGAR FROM SUGA R CANE AT ITS FACTORY SITUATED AT BISWAN, DIST SITAPUR IN UP. DURING THE COURSE O F ASSESSMENT PROCEEDINGS, THE AO NOTED FROM THE DETAILS FILED BY THE ASSESSEE THA T THE ASSESSEE HAS INCURRED EXPENDITURE IN RESPECT OF REPAIRS AND MAINTENANCE U NDER THE FOLLOWING HEADS: I) LAYING OF KOTA STONE AND MARBLE IN OFFICE `. 28,757/- II) EXTENSION OF CANE OFFICE STAIR ROOM ` 3,71,285/- III) FLOORING OF NEW SUGAR GO-DOWN ` .8,84,366/- 2.1 ON BEING QUESTIONED BY THE ASSESSING OFFICER AS TO WHY THE ABOVE SHOULD NOT BE CAPITALIZED, THE ASSESSEE VIDE ITS REPLY DA TED 6.12.2007 SUBMITTED AS UNDER: 2 ITA NO.5270/MUM/2009 I) WITH REGARD TO LYING OF KOTA STONE AND MARBLES IN OFFICE, WE SUBMIT THAT THE FLOOR OF THE OFFICE WAS TOO OLD AND SOME P ART WAS BROKEN AND BADLY DAMAGED. IT WAS THEREFORE, CONSIDERED PRU DENT TO CHANGE THE EXISTING FLOOR WITH KOTA STONE AND INCURRED A S UM OF RS. 28,757/- TOWARDS FITTING OF KOTA STONE AND MARBLE. II) WITH REGARD TO EXTENSION OF CANE OFFICE STAIR ROOM, WE SUBMIT THAT THE STAIR ROOM OF CANE OFFICE WAS DAMAGED AND REPAI R WAS ESSENTIAL TO USE STAIR ROOM. TO GIVE THE ESSENTIAL FACILITIES PARTIAL EXTENSION WAS MADE TO THE STAIR ROOM DURING THE PREVIOUS YEAR . THE EXTENSION WAS INSIGNIFICANT AND OBJECTIVE OF EXTENSION WAS TO MAKE EFFICIENT USE OF EXISTING STAIR ROOM. III) WITH REGARD TO FLOORING OF SUGAR GODOWN, WE SUBMIT THAT THE FLOOR OF THE SAID GODOWN WAS SHRINKING DUE TO WEIGHT OF SUGA R BAGS OF CERTAIN PLACES AND DUE TO THAT WE WERE FACING SEEPA GE FROM THE EARTH, DUE TO WHICH LOWER LAYER OF SUGAR BAGS WERE DAMAGED BY MOISTURE. TO ELIMINATE SAID PROBLEM AND SAVE SUGAR FROM GETTI NG DETERIORATED IT WAS ESSENTIAL TO REPAIR THE SAID FLOOR TO MAKE I T PROPER AND STORABLE. ALL THE THREE ABOVE EXPENSES ARE INCURRED FOR REPAI R WORK OF EXISTING ASSETS OF THE COMPANY TO MAKE THEM AND BRING THEM I N PROPER AND USABLE CONDITION FOR THE PURPOSE OF BUSINESS AND NO NEW ASSETS WAS CREATED OR ARISEN OR ADDITIONAL CAPITAL CREATED ON ACCOUNT OF SUCH REPAIRS. IN VIEW OF THIS, THE COMPANY DEBITED THE ABOVE TO R EPAIRS AND CLAIMED AS REVENUE EXPENDITURE FOR THE COMPUTATION OF INCOME. 2.3 NOT BEING SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE AND FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS SARAVANA SPINNING MILLS P LTD REPORTED IN 293 ITR 2 01, WHERE IT HAS BEEN HELD THAT TO DECIDE THE APPLICABILITY OF SECTION 31(1), THE TEST WAS NOT WHETHER THE EXPENDITURE WAS REVENUE OR CAPITAL IN NATURE, BUT W HETHER THE EXPENDITURE WAS CURRENT REPAIRS, THE ASSESSING OFFICER, REJECTED THE CLAIM OF CURRENT REPAIRS AS CLAIMED BY THE ASSESSEE. ACCORDING TO HIM, THE ABO VE THREE EXPENDITURES ARE NOT FOR CURRENT REPAIRS BUT TO BRING INTO AN ASSET OF ENDURING BENEFIT. HE, 3 ITA NO.5270/MUM/2009 ACCORDINGLY, TREATED THE SAME AS CAPITAL EXPENDITUR E AND ALLOWED DEPRECIATION THEREON. 3 IN APPEAL, THE CIT(A) DIRECTED THE ASSESSING OFFI CER TO ALLOW THE EXPENDITURE U/S 37(1) OF THE ACT AS REVENUE EXPENDI TURE ON THE GROUND THAT NO NEW CAPITAL ASSET HAS COME INTO EXISTENCE BY INCURR ING SUCH EXPENDITURE. 4 AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE REVE NUE IS IN APPEAL HERE BEFORE US WITH THE FOLLOWING GROUNDS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD CIT(A) ERRED IN ALLOWING RELIEF TO THE ASSESSEE TO THE EXTENT IMPUGNED IN THE GROUNDS ENUMERATED BELOW I) THE LD CIT(A) HAS ERRED IN ALLOWING THE REPAIR EXPE NSES OF RS. 12,84,408/- AS REVENUE EXPENSES U/S 37(1) OF THE I T ACT WITHOUT APPRECIATING THAT IN THE CASE OF THE ASSESSEE, SUCH EXPENSES WERE NOT FOR CURRENT REPAIRS. II) THE LD CIT(A) HAS FAILED TO APPRECIATE THAT IN THE CASE OF THE ASSESSEE, THE AO HAD CORRECTLY RELIED UPON THE DECI SION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS SARAVANA SPINN ING MILLS(293ITR 201(SC) SINCE THE EXPENSES INCURRED WE RE SUCH THAT THEY BROUGHT INTO EXISTENCE A SUBSTANTIALLY NEW ASS ET. III) FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT TH E TIME OF HEARING, THE DECISION OF THE CIT(A) MAY BE SET ASID E AND THAT OF THE AO RESTORED. 4.1 THE LD DR, WHILE SUPPORTING THE ORDER OF THE AS SESSING OFFICER SUBMITTED THAT THE CIT(A) HAS NOT DISTINGUISHED THE CASE LAW RELIED UPON BY THE ASSESSING OFFICER . 4.1 THE LD COUNSEL FOR THE ASSESSEE ON THE OTHER H AND, SUBMITTED THAT THE ASSESSEE HAS INCURRED EXPENDITURE OF RS. 12,84,408 WHICH IS INSIGNIFICANT CONSIDERING THE NATURE AND VOLUME OF THE BUSINESS . SHE SUBMITTED THAT THE 4 ITA NO.5270/MUM/2009 GENUINENESS OF THE EXPENDITURE IS NOT IN DISPUTE AN D THE QUESTION IS REGARDING WHETHER THE EXPENDITURE IS CAPITAL OR REVENUE IN NA TURE. REFERRING TO THE EXPLANATION GIVEN TO THE ASSESSING OFFICER, SHE SUB MITTED THAT THE EXPENDITURE HAS BEEN INCURRED FOR SMOOTH AND EFFICIENT RUNNING OF THE BUSINESS. SHE ALSO REFERRED TO THE DECISION OF THE HONBLE SUPREME COU RT IN THE CASE OF EMPIRE JUTE MILLS REPORTED IN 124 ITR 1 AND THE DECISION OF THE HONBLE KARNATAKA HIGH COURT REPORTED IN 117 TAXMAN 216. 5 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BOTH THE PARTIES AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE HA VE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. THERE IS NO DIS PUTE TO THE FACT THAT THE ASSESSEE HAS INCURRED EXPENDITURE OF RS. 12,84,408/ - ON ACCOUNT OF LAYING OF KOTA STONE AND MARBLE IN OFFICE, EXTENSION OF CANE OFFICE STATION ROOM AND FLOORING OF SUGAR GODOWN. GENUINENESS OF THE EXPE NDITURE IS NOT IN DISPUTE. THE DISPUTE IS ONLY REGARDING THE ADMISSIBILITY OF THE EXPENDITURE AS REVENUE EXPENDITURE OR CAPITAL EXPENDITURE. ACCORDING TO T HE ASSESSING OFFICER, THE EXPENDITURE IS CAPITAL IN NATURE IN VIEW OF THE DEC ISION OF THE HONBLE SUPREME COURT IN THE CASE OF SARAVANA SPINNING MILLS (SUPRA ). 5.1 WE HAVE GONE THROUGH THE ABOVE DECISION OF THE HONBLE SUPREME COURT. IN THAT CASE THE ASSESSEE, A TEXTILE MILL ENGAGED I N THE MANUFACTURE OF YARN, SPENT CERTAIN AMOUNTS FOR REPLACEMENT OF RING FRAME S WHICH HAD WORN OUT. IT CLAIMED DEDUCTION OF THE AMOUNTS SENT FOR REPLACEME NT U/S 31(I) OF THE I T ACT AS CURRENT REPAIRS. THE AO HELD THAT BY THE REPLACEME NT THE ASSESSEE HAD OBTAINED AN ENDURING BENEFIT AND THE EXPENDITURE INCURRED CO NSTITUTED CAPITAL EXPENDITURE 5 ITA NO.5270/MUM/2009 AND NOT CURRENT REPAIRS. THE CIT(A) HELD THE REC EIPTS AS REVENUE EXPENDITURE WHICH WAS AFFIRMED BY THE ITAT. ON REFERENCE, THE HONBLE HIGH COURT AFFIRMED THE DECISION OF THE TRIBUNAL AND ON FURTHER APPEAL BY THE REVENUE, THE HONBLE SUPREME COURT HELD AS UNDER: ( SHORT NOTES) HELD, REVERSING THE DECISION OF THE HIGH COURT, (I ) THAT THE MANUFACTURING PROCESS IN THE TEXTILE MILL WAS NOT ONE CONTINUOUS INTEGRATED PROCESS; (II) THAT TO DECIDE THE APPLICABILITY OF SECTION 31 (I) THE TEST WAS NOT WHETHER THE EXPENDITURE WAS REVENUE OR CAPITAL IN N ATURE, BUT WHETHER THE EXPENDITURE WAS CURRENT REPAIRS. THE BASIC TEST W AS TO FIND OUT WHETHER EXPENDITURE WAS INCURRED TO PRESERVE AND MAINTAIN AN ALREADY EXISTING ASSET AND THE EXPENDITURE MUST NOT BE TO BRING A NE W ASSET INTO EXISTENCE OR TO OBTAIN NEW ADVANTAGE. (II) THAT EACH MACHINE INCLUDING THE RING FRAME WAS AN INDEPENDENT AND SEPARATE MACHINE CAPABLE OF INDEPENDENT AND SPECIFI C FUNCTION AND, THEREFORE, THE EXPENDITURE INCURRED FOR REPLACEMENT THEREOF WOULD NOT COME WITHIN THE MEANING OF CURRENT REPAIRS. THE R EPLACEMENT OF THE RING FRAME CONSTITUTED SUBSTITUTION OF AN OLD ASSET BY A NEW ASSET AND, THEREFORE, THE EXPENDITURE INCURRED BY THE ASSESSEE DID NOT FALL WITHIN THE MEANING OF CURRENT REPAIRS IN SECTION 31(I). UNDER SECTION 31(I), THE DEDUCTION ADMISSIBLE IS ON LY FOR CURRENT REPAIRS. THEREFORE THE QUESTION AS TO WHETHER THE EXPENDITUR E INCURRED BY THE ASSESSEE CONCEPTUALLY IS REVENUE OR CAPITAL IN NATU RE IS NOT RELEVANT FOR DECIDING THE QUESTION WHETHER SUCH EXPENDITURE COME S WITHIN THE ETYMOLOGICAL MEANING OF THE EXPRESSION CURRENT REP AIRS IN OTHER WORDS, EVEN IF THE EXPENDITURE IS REVENUE IN NATURE, IT MA Y NOT FALL IN THE CONNOTATION OF CURRENT REPAIRS. 5.1 THUS, FROM THE ABOVE DECISION, IT IS SEEN THAT THE BASIC TEST WAS TO FIND OUT WHETHER THE EXPENDITURE WAS INCURRED TO PRESERV E AND MAINTAIN AN ALREADY EXISTING ASSET AND THE EXPENDITURE WAS NOT TO BRI NG A NEW ASSET INTO EXISTENCE OR TO OBTAIN NEW ADVANTAGE. 6 ITA NO.5270/MUM/2009 6 IN THE INSTANT CASE, WE FIND THE ASSESSEE HAD GI VEN WRITTEN SUBMISSION BEFORE THE ASSESSING OFFICER THAT THE FLOOR OF THE OFFICE WAS TOO OLD AND SOME PART WAS BROKEN AND BADLY DAMAGED. IT WAS CONSIDERED TO CHANGE THE EXISTING FLOOR WITH KOTA STONE. SIMILARLY, REGARDING EXTENSION OF CANE OFFICE STAIR ROOM, IT WAS SUBMITTED THAT THE STAIR ROOM OF CANE OFFICE WAS DA MAGED AND REPAIR WAS ESSENTIAL TO USE STAIR ROOM. SO FAR AS THE FLOORIN G OF SUGAR GODOWN, IS CONCERNED, IT WAS SUBMITTED THAT THE FLOOR OF THE GO-DOWN WAS SHRINKING DUE TO WEIGHT OF SUGAR BAGS AT CERTAIN PLACES AND DUE TO THAT THERE WAS SEEPAGE FROM THE EARTH. THE ABOVE SUBMISSION OF THE ASSESSEE HAS NOT BEEN P ROVED TO BE FALSE OR UNTRUE BY THE ASSESSING OFFICER. THEREFORE, WE FIND FORCE IN THE SUBMISSION OF THE LD COUNSEL FOR THE ASSESSEE THAT THE EXPENDITURE INCU RRED BY THE ASSESSEE IS TO RUN ITS BUSINESS IN A SMOOTH AND EFFICIENT MANNER AND N O NEW ASSET HAS BEEN CREATED. THE DECISION RELIED UPON BY THE ASSESSING OFFICER, IN OUR OPINION, IS DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. IN THIS VIEW OF THE MATTER, WE UPHOLD THE ORDER OF THE CIT(A) AN D THE GROUND RAISED BY THE REVENUE IS DISMISSED. 7 IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THE 28 TH , DAY OF JAN 2011. SD/- SD/- ( (( ( SMT ASHA VIJAYARAGHAVAN SMT ASHA VIJAYARAGHAVAN SMT ASHA VIJAYARAGHAVAN SMT ASHA VIJAYARAGHAVAN ) )) ) JUDICIAL MEMBER ( (( ( R K PANDA R K PANDA R K PANDA R K PANDA ) )) ) ACCOUNTANT MEMBER PLACE: MUMBAI : DATED: 28 TH , JAN 2011 RAJ* 7 ITA NO.5270/MUM/2009 COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI