Mr. Surinder Madan, New Delhi V. ACIT, New Delhi

ITA 5543/DEL/2010

• Counselvise Citation: 554320114 RSA 2010
• Duration Of Justice: 1 year(s) 11 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-12-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 09-10-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 08-12-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DR PRABHA KANT
• Keywords: Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G: NEW DELHI BEFORE SHRI R.K. GUPTA, JUDICIAL MEMBER AND SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER ITA NO. 5543/DEL/2010 ASSESSMENT YEAR: 2007-08 SURINDER MADAN, 978/9, GOVIND PURI, KALKAJI, NEW DELHI. PAN NO. AAGPM2931G VS. ACIT, CIRCLE 22(1), NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI DINESH GUPTA, CA RESPONDENT BY: DR. PRABHA KANT, SR. DR O R D E R PER S.V. MEHROTRA, A.M. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF LD. CIT(A) DATED 11/10/2010 FOR A.Y. 2007-08. 2. THE ASSESSEE INDIVIDUAL, IN THE RELEVANT ASSESSM ENT YEAR, CARRIED ON THE BUSINESS AS PROPRIETOR IN THE NAME OF M/S NIKHI L ENTERPRISES AND WAS ENGAGED IN EXPORT OF GARMENTS. THE ASSESSEE HAD FI LED HIS RETURN OF INCOME DECLARING TOTAL INCOME OF RS. 39,46,317/-. THE ASS ESSMENT WAS COMPLETED AT A TOTAL INCOME OF RS. 71,79,170/-, INTER-ALIA, M AKING AN ADDITION OF RS. 12,72,564/- ON THE GROUND OF THE SAME BEING OF CAPI TAL IN NATURE AND NOT ITA NO. 5543/D/ 2010 2 REVENUE EXPENDITURE AS CLAIMED BY ASSESSEE. THE AS SESSEE PREFERRED APPEAL BEFORE LD. CIT(A) ON THIS ISSUE WHICH WAS DI SMISSED BY LD. CIT(A). 3. BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFOR E US AND HAS TAKEN FOLLOWING GROUNDS OF APPEAL: - THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE PETITIONERS CASE THE LD. CIT(A) ERRED IN CONFIRMIN G THE ACTION OF THE AO IN TREATING A SUM OF RS. 12,72,564 /- AS CAPITAL EXPENDITURE AND ALLOWING DEPRECIATION ON TH E SAME AS AGAINST THE ASSESSEE TREATING THE SAME AS REVENUE EXPENDITURE HAVING DEBITED THE SAME UNDER T HE HEAD OFFICE & MAINTENANCE EXPENSE IN ITS PROFIT & LOSS ACCOUNT. 4. BRIEF FACTS APROPOS THIS ISSUE ARE THAT ASSESSEE HAD INCURRED AN EXPENDITURE OF RS. 14,64,105/- UNDER THE HEAD OFFI CE & MAINTENANCE. THE ASSESSING OFFICER EXAMINED THE BILLS AND VOUCHERS A ND OBSERVED THAT OUT OF RS. 14,64,105/-, RS. 12,72,564/- HAD BEEN INCURRED FOR THE PURPOSE OF PURCHASE OF MARBLE FROM A PARTY AND FOR GETTING THE M FIXED FROM ANOTHER PARTY. THE AO WAS OF THE OPINION THAT TO THIS EXTE NT, THE EXPENDITURE INCURRED BY ASSESSEE WAS CAPITAL IN NATURE. THE ASS ESSEE IN ITS REPLY SUBMITTED THAT THE MONEY HAD BEEN SPENT ON THE FLOO R WHICH, OVER THE YEARS BECAUSE OF USE, WAS BROKEN AND WORN OUT AND THUS, I T WAS SUBMITTED THAT THE AMOUNT HAD BEEN SPENT ON THE MAINTENANCE OF AN EXIS TING ASSET. THE ITA NO. 5543/D/ 2010 3 ASSESSEES SUBMISSION WAS THAT ASSESSEE DID NOT DER IVE ANY ENDURING BENEFIT. THE ASSESSEE HAD ALSO RELIED ON THE FOLLO WING DECISIONS: - 1. HANUMAN MOTOR SERVICE VS. CIT, (1967) 66 ITR 88 (MYS.); 2. EMPIRE JUTE CO. LTD. VS. CIT (1980) 124 ITR 1 ( SC); 3. BANSILAL ABIRCHAND SPG. & WVG MILLS (RB) VS. CI T (1957) 31 ITR 427 (NAG.); 4. 253 ITR 405 CIT VS. VOLGA RESTAURANT, DELHI HIG H COURT; 5. 306 ITR 182 VS. HI LINE PENS PVT. LTD., DELHI H IGH COURT. 5. THE ASSESSING OFFICER AFTER CONSIDERING VARIOUS DECISIONS, RELYING ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F J.K. COTTON MFRS. LTD. VS. CIT, WHEREIN IT WAS HELD THAT ANY EXPENDITURE R ELATING TO FRAMEWORK OF BUSINESS WAS CAPITAL IN NATURE HELD THAT THE IMPUGN ED EXPENDITURE WAS CAPITAL IN NATURE. 6. LD. CIT(A) UPHELD THE FINDINGS OF AO AFTER ELABO RATELY CONSIDERING VARIOUS CASE LAWS RELIED UPON BY THE ASSESSEE. 7. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSE SSEE HAD PRIMARILY REPLACED THE OLD FLOORING BY NEW MARBLE FLOORING AN D, THEREFORE, DID NOT BRING ANY NEW ASSET OR CREATED A NEW ADVANTAGE OF ENDURIN G BENEFIT. LD. COUNSEL RELIED ON FOLLOWING DECISIONS: - ITA NO. 5543/D/ 2010 4 VOITH PAPER FABRICS INDIA LTD., VS. ADDL. CIT (ITAT DELHI); CIT VS. VOITH PAPER FABRICS INDIA LTD. (2012) 346 I TR 70 (P&H); DCIT VS. M/S T.S. TECH SUN (INDIA) LTD. (ITAT DELHI ); J.K. COTTON MANUFACTURES LTD. VS. CIT (1975) 101 IT R 221 (SC); DCIT VS. SANDOZ (P) LTD. (2012) 137 ITD 326 (MUM.); CIT VS. VOLGA RESTAURANT (2002) 253 ITR 405 (DEL.); CIT VS. HI LINE PENS (P) LTD. (2008) 306 ITR 182 (D EL.) CIT VS. TRIVENI ENGINEERING INDUSTRIES LTD. CIT VS. DELHI PRESS SAMACHAR PATRA (P) LTD. (2010) 322 ITR 500 (DEL.) CIT VS. DLF COMMERCIAL DEVELOPERS LTD. (2010) 323 I TR 321 (DEL.) CIT VS. SARAVANA SPINNING MILLS P. LTD., 293 ITR 20 1 (SC) 8. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND HAVE PERUSED THE RECORD OF THE CASE. THERE IS NO THUMB RULE FOR DECIDING WHETHER A PARTICULAR ITEM OF EXPENDITURE IS CAPITAL OR REVE NUE IN NATURE. BUT THE BROAD PRINCIPLE IS THAT IF THE EXPENDITURE PROVIDES ENDUR ING BENEFIT TO ASSESSEE THEN IT IS IN CAPITAL FIELD BUT IF THE EXPENDITURE INCUR RED ONLY FACILITIES IN CARRYING ON BUSINESS ACTIVITY THEN IT IS IN REVENUE FIELD EVEN IF ASSESSEE DERIVES ENDURING BENEFIT AND IN SUCH CASE TEST OF ENDURING BENEFIT M AY FAIL. FURTHER IT IS ALSO WELL ESTABLISHED PRINCIPLE THAT NORMALLY WHEN A NEW ASSET IS BROUGHT INTO EXISTENCE THE EXPENDITURE IS IN CAPITAL FIELD BUT I F THE EXPENDITURE IS ON ACCOUNT OF CURRENT REPAIR I.E. ON REPAIR/REPLACEMEN T OF A PART OF MACHINERY ETC. THEN IT IS NOT IN CAPITAL FIELD. HOWEVER, THE EXPLANATION INSERTED BY FINANCE ACT, 2003 W.E.F. 01/04/04 IN SECTION 30 MAK ES IT CLEAR THAT THE AMOUNT PAID ON ACCOUNT OF THE COST OF REPAIRS WILL NOT INCLUDE ANY CAPITAL ITA NO. 5543/D/ 2010 5 EXPENDITURE. THEREFORE, IF BY INCURRING EXPENDITUR E ENDURING BENEFIT IS DERIVED BY THE ASSESSEE THEN THAT WILL NOT BE COVER ED U/S 30 AS CURRENT REPAIRS. IN THE PRESENT CASE, WE FIND THAT ASSESSE E HAD INCURRED EXPENDITURE ON REPLACEMENT OF FLOORING AND ITS REPLY DATED 28/1 0/09 CONTAINED AT PAGE 9 OF PAPER BOOK AS SUBMITTED BEFORE AO WAS AS UNDER: - UNDER THIS HEAD RS. 14,64,105/- HAS BEEN INCURRED DURING THIS FINANCIAL YEAR ON ACCOUNT OF THE REPAIR AND MAINTENANCE OF THE FACTORY PREMISES OF APPROX. 9000 SQ. FEET CONSISTING OF BASEMENT, GROUND, FIRST AND SECO ND FLOOR. THE FACTORY WAS PURCHASED AROUND 5 YEARS BA CK AND THE ENTIRE FLOOR OF THE FACTORY PREMISES WAS IN A BAD CONDITION. SINCE IN THE EXPORT BUSINESS VISITS BY THE OVERSEAS BUYERS ARE MADE TO NEGOTIATE, SEE THE FACT ORY AND FOR THE PURPOSE OF THE QUALITY CONTROL AND THE FACTORY AREA WAS GIVING A SHABBY LOOK BECAUSE OF BROKEN FLOOR/REPAIRED PATCHES AT A NO. OF PLACES. SO IN OR DER TO REPAIR THE FACTORY AREA, THIS AMOUNT WAS SPENT FOR THE PURPOSE OF THE BUSINESS, HENCE MAY PLEASE BE ALLOWE D. 9. THUS, THE EXPENDITURE WAS INCURRED FOR UPLIFTING THE LOOKS OF FACTORY PREMISES TO BRING THAT IN CONSONANCE WITH THE STAND ARD EXPECTED BY FOREIGN CLIENTS. THEREFORE, THIS EXPENDITURE WAS IN CAPITA L FIELD AS HELD BY LD. CIT(A). THE ASSESSEE HAD LAID DOWN NEW MARBLE FLOOR IN PLAC E OF OLD AND WORN OUT FLOORING WHICH PROVIDED ENDURING BENEFIT TO THE ASS ESSEE. THE EXPENDITURE WAS NOT TOWARDS PRESERVING AND MAINTAINING THE EXIS TING ASSET BUT FOR ITA NO. 5543/D/ 2010 6 MAKING THE FACTORY PREMISES MORE ATTRACTIVE FOR ITS CUSTOMERS. THE EXPENDITURE ENSURED NEW LOOKS TO ITS FACTORY PREMIS ES WHILE INSTALLING NEW MARBLE FLOOR WHICH GAVE ENDURING BENEFIT TO ASSESSE E. THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. M/S VOLGA RESTAURANT WAS RENDERED IN ENTIRELY DIFFERENT CONTEXT. IN THAT CA SE, THE ASSESSEES BUSINESS PREMISES GOT DAMAGED BECAUSE OF A FIRE AND THE AIR- CONDITIONER PLANT INSTALLED IN THE PREMISES ALSO GOT DAMAGED. IN THA T CONTEXT IT WAS HELD THAT THE EXPENDITURE INCURRED FOR THE PURPOSE OF REPAIRI NG AND RESTORING ITS DAMAGED AIR-CONDITIONING PLANT TO THE ORIGINAL WORK ING CONDITION WAS REVENUE IN NATURE. THE ASSESSEE WAS OWNER OF THE PREMISES AND, THEREFORE, HIS CASE FALLS U/S 30(A)(II). IN VIEW OF THE EXPLANATION IT CANNOT BE HELD THAT THE EXPENDITURE INCURRED BY THE ASSESSEE WAS IN THE NAT URE OF CURRENT REPAIRS. LD. CIT(A) HAS RIGHTLY HELD THAT THE EXPENDITURE FA LLS IN THE CATEGORY OF REPLACEMENT/RENOVATION, GIVING A DISTINCTLY IMPROVE D ADVANTAGE TO THE ASSESSEE LIKELY TO HAVE AN ENDURING BENEFIT. 10. LD. DR HAS RIGHTLY REFERRED TO THE DECISION OF HONBLE KOLKATA HIGH COURT IN THE CASE OF HUMAYUN PROPERTIES VS. CIT, WH EREIN IT HAS BEEN OBSERVED BY HONBLE MUKHERJEE J. AS UNDER: - PER MUKHARJI J. ONLY SUCH REPAIRS CAN BE CURRENT REPAIRS WHICH HAVE PERIODICITY IMPLICIT IN THE WORD CURRENT. CURRENT REPAIRS INCLUDE REPAIRS FOR ORDINARY WEAR AND TEAR. CURRENT REPAIRS ARE NECESS ARY ITA NO. 5543/D/ 2010 7 REPAIRS AND WHICH ARE NEEDED FOR THE MAINTENANCE OF THE BUILDING, MACHINERY, PLANT OR FURNITURE MENTIONED I N SECTION 10(2)(V) OF THE INCOME-TAX ACT. THE TERM CURRENT REPAIRS, IN ITS ORDINARY ACCEPTATION, MEA NS NOT LUXURY REPAIR OR REPAIRS WHICH WAIT UPON THE WHIMS OR CHOSE OF THE ASSESSEE. THE ELEMENT OF NEED IS IMPL ICIT IN THE EXPRESSION CURRENT REPAIRS. CURRENT REPAIRS MUST BE THOSE THAT ARE NEEDED PERIODICALLY AND FROM THAT POINT OF VIEW ACCUMULATION OF REPAIRS WILL NOT ORDI NARILY SATISFY THAT TEST. 11. IN OUR OPINION, IT IS A CASE OF CARRYING OUT OF EXTENSIVE REPAIRS ON ACCOUNT OF REPAIRS NOT BEING CARRIED OUT FOR LONG. ASSESSEE HAD TO INCUR EXPENDITURE FOR REPLACEMENT OF ENTIRE WORN OUT FLOO RING AND, THEREFORE, IT DOES NOT SATISFY THE TEST OF CURRENT REPAIR. 12. IN VIEW OF THE ABOVE DISCUSSION, WE CONFIRM THE ORDER OF LD. CIT(A). 13. IN THE RESULT, THE ASSESSEES APPEAL IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 07/12/2012 SD/- SD/- (R.K. GUPTA) JUDICIAL MEMBER (S.V. MEHROTRA) ACCOUNTANT MEMBER DATED: 07/12/12 *KAVITA ITA NO. 5543/D/ 2010 8 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI. TRUE COPY BY ORDER ASSISTANT REGISTRAR