DCIT, Bangalore V. M/s Telco Construction Equipment Co. Ltd., Bangalore

ITA 718/BANG/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 8642 (ITAT-BANGALORE)
• Duration Of Justice: 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-12-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2004-2005
• Appeal Filed On: 26-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G V GOPALA RAO
• Assessee Lawyers: S ANANTHA
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE SMT. P.MADHAVI DEVI, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NO.718(BANG)/2010 (ASSESSMENT YEAR: 2004-05) DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 12(4), BANGALORE. VS. APPELLANT M/S.TELCO CONSTRUCTION EQUIPMENT CO. LTD. NO.45, JUBILEE BUILDING, MUSEUM ROAD, BANGALORE-25. RESPONDENT APPELLANT BY: SHRI G.V.GOPALA RAO. RESPONDENT BY : SHRI S.ANANTHA. O R D E R PER SMT. P.MADHAVI DEVI, JM : THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER OF THE CIT(APPEALS)-III, BANGALORE, DATED 15-2-2010 FO R THE ASSESSMENT YEAR 2004-05. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE LD. IT(A) IS OPPOSED TO LAW AND FACTS OF THE CASE. ITA 718(BANG)/2010 PAGE 2 OF 6 2. THE LD.CIT(A) ERRED IN DELETING THE ADDITION OF RS.1,33,17,366/- MADE BY THE AO DISALLOWING THE ASSESSEES CLAIM FOR DEDUCTION AS REVENUE EXPENDITURE TOWARDS PURCHASE OF GC SHEETS, ALUMINIUM SHEETS AND NEW FABRICATIONS FOR REPLACING THE ROOF OF THE FACTORY. THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE ASSESSEE COMPANY HAD UNDERTAKEN EXTENSIVE RENOVATION OF THE FACTORY BUILDING BY REPLACING THE ROOF AND OTHER FIXTURES REQUIRED TO HOUSE THE MACHINERY WHICH RESULTED IN ENDURING BENEFIT TO THE ASSESSEE AND THEREFORE THE SAID EXPENDITURE OUGHT TO HAVE BEEN TREATED AS CAPITAL EXPENDITURE. 3. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE CIT(A) IN SO FAR AS IT RELATES TO THE ABOVE GROUNDS MAY BE REVERSED AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED. 4. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND/OR DELETE ANY OF THE GROUNDS MENTIONED ABOVE. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-CO MPANY WHICH IS ENGAGED IN THE BUSINESS OF MANUFACTURE, PU RCHASE AND SALE OF HYDRAULIC EXCAVATORS ETC., FILED ITS RETURN OF INCOME ON 30-10-2004 DECLARING NIL INCOME. TAX WAS PAID U/ S 115JB OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO A S 'THE ACT'] ON BOOK PROFITS OF RS.37,87,60,291/-. DURING THE A SSESSMENT PROCEEDINGS U/S 143(3), THE AO NOTICED THAT THE ASS ESSEE HAS CLAIMED A SUM OF RS.1,47,97,074/- TOWARDS REPAIRS A ND MAINTENANCE. DETAILS WERE CALLED FOR AND THE ASSES SEE EXPLAINED THAT THE EXPENDITURE HAS BEEN INCURRED TO WARDS PURCHASE OF GC SHEETS, ALUMINIUM SHEETS AND FIXING AND ITA 718(BANG)/2010 PAGE 3 OF 6 FABRICATING THE DAMAGED GATE AND ROOF ON ACCOUNT OF HAIL STORM. IT WAS SUBMITTED THAT THE ASSESSEE HAD UNDERTAKEN E XTENSIVE RENOVATION BY REPLACING THE ROOF OF THE FACTORY USE D FOR REGULAR BUSINESS OPERATIONS AND THEREFORE THE EXPENDITURE I S REVENUE IN NATURE. THE AO, HOWEVER, HELD THAT THE SAID EXPEND ITURE HAS GIVEN ENDURING BENEFIT TO THE ASSESSEE AND THEREFOR E IT IS CAPITAL IN NATURE AND ALLOWED DEPRECIATION THEREON. AGGRIE VED, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A) WHO ALL OWED THE SAME AND THE REVENUE IS IN APPEAL BEFORE US. 4. SHRI GOPALA RAO, LEARNED DEPARTMENTAL REPRESENTA TIVE, STRONGLY PLACED RELIANCE UPON THE ORDER OF THE AO A ND SUBMITTED THAT THE ASSESSEE HAS CARRIED OUT EXTENSIVE REPAIRS AND RENOVATION AND THEREFORE THE SAME IS TO BE TREATED AS CAPITAL EXPENDITURE. IN SUPPORT OF HIS CONTENTION, HE PLAC ED RELIANCE UPON THE DECISION OF THE HONBLE SUPREME COURT IN T HE CASE OF BALLIMAL NAVAL KISHORE VS. CIT ( 224 ITR 414)(SC) WHEREIN IT HAS BEEN HELD THAT THE EXPENDITURE FOR PRESERVING OR MA INTAINING EXISTING ASSET (AND NOT FOR RENOVATION OR RESTORATI ON) ONLY WOULD BE CURRENT REPAIRS AND WHERE NEW MACHINERY, FURNITU RE, SANITARY FITTINGS AND ELECTRICAL WIRING ARE INSTALLED IN A C INEMA THEATRE AND EXTENSIVE REPAIRS ARE CARRIED OUT TO THE STRUCT URE OF THE BUILDING THESE ARE NOT CURRENT REPAIRS. SHRI S.ANANTHA, LEARNED COUNSEL FOR ASSESSEE, ON TH E OTHER HAND SUBMITTED THAT THERE WAS A HAIL STORM ON MARCH 12 2003 WHEREIN THE ROOF OF THE ASSESSEE-COMPANY WAS S EVERELY ITA 718(BANG)/2010 PAGE 4 OF 6 DAMAGED. HE DREW OUR ATTENTION TO THE PRESS REPORT OF THE SAID INCIDENT AND ALSO VARIOUS PHOTOGRAPHS SHOWING DAMA GE TO THE ASSESSEES BUILDING AND THE ROOF. HE SUBMITTED THA T THE ASSESSEE, BEING IN THE BUSINESS OF MANUFACTURE OF E ARTH MOVERS, REQUIRES A BIG FACTORY BUILDING AND THE BUS INESS CANNOT BE CARRIED ON WITHOUT THERE BEING PROPER ROOF ON TH E FACTORY. HE SUBMITTED THAT THE ENTIRE EXPENDITURE IS ON ACCO UNT OF REPAIRS TO THE ROOF OF THE FACTORY BUILDING BY REPL ACING THE ASBESTOS SHEET WITH GC METAL SHEET AND THE LABOUR C HARGES FOR SUCH REPLACEMENT. THUS ACCORDING TO HIM, THE EXPEN DITURE IS ONLY FOR CARRYING ON THE BUSINESS OF THE ASSESSEE A ND MERELY BECAUSE THERE IS AN ENDURING BENEFIT, IT CANNOT BE SAID TO BE CAPITAL EXPENDITURE. THUS ACCORDING TO HIM, THE CI T(A) HAS RIGHTLY DELETED THE ADDITION AND HAS TO BE UPHELD. 5. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED THE MATERIAL ON RECORD, WE FIND THAT IT IS NOT IN D ISPUTE THAT THE FACTORY BUILDING OF THE ASSESSEE HAD BEEN DAMAGED D UE TO HAIL STORM WHICH OCCURRED ON MARCH 12, 2002 AND THE ENTI RE EXPENDITURE CLAIMED BY THE ASSESSEE IS ONLY FOR REP LACEMENT OF THE SHEETS ON THE ROOF OF THE FACTORY BUILDING. TH E EXPENDITURE FIGURE IS VERY HIGH BUT KEEPING IN VIEW THE EXTENT OF THE FACTORY BUILDING OF THE ASSESSEE WHICH IS DEALING WITH THE MANUFACTURE OF HEAVY MACHINERY SUCH AS EARTH MOVERS, THE EXPEND ITURE IS REASONABLE. FURTHER, THE GENUINENESS OF THE EXPEND ITURE HAS NOT BEEN DOUBTED BY THE AUTHORITIES BELOW. ITA 718(BANG)/2010 PAGE 5 OF 6 5.1. THE ONLY QUESTION BEFORE US IS AS TO WHETHER I T IS CAPITAL IN NATURE OR REVENUE IN NATURE. LEARNED CO UNSEL FOR ASSESSEE ALSO BROUGHT TO OUR NOTICE RECENT DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. SARAVANA SPINNING MILLS P LTD. (293 ITR 201) (SC) WHEREIN THE HONBLE SUPREME COURT, AFTER CONSIDERING THE DECISION IN TH E CASE OF BALLIMAL NAVAL KISHORE CITED SUPRA, HAS OBSERVED THAT THE SIMPLE TEST THAT MUST BE CONSTANTLY BORNE IN MIND I S THAT AS A RESULT OF THE EXPENDITURE WHICH IS CLAIMED AS AN EX PENDITURE FOR REPAIRS WHAT IS REALLY BEING DONE IS TO PRESERVE AN D MAINTAIN AN ALREADY EXISTING ASSET AND THE OBJECT OF THE EXPEND ITURE IS NOT TO BRING A NEW ASSET INTO EXISTENCE NOR IS ITS OBJE CT THE OBTAINING A NEW OR FRESH ADVANTAGE. LEARNED COUNS EL FOR ASSESSEE SUBMITTED THAT THOUGH THE DECISION OF THE HONBLE SUPREME COURT IS AGAINST THE ASSESSEE IN THE SAID C ASE, HE SUBMITTED THAT IT IS VERY CLEAR FROM THE SAID JUDGM ENT THAT IF ONLY A NEW ASSET IS CREATED IT COULD BE SAID TO BE A CAPITAL EXPENDITURE AND IT IS REVENUE EXPENDITURE WHEN THEY ARE EXPENDITURE IS TO MAINTAIN, PRESERVE AND MAINTAIN A LREADY EXISTING ASSET. 5.2 APPLYING THE ABOVE RATIO PROPOUNDED BY THE HON BLE SUPREME COURT IN THE CASE OF SARAVANA SPINNING MILLS P. LTD. (SUPRA) IT IS TO BE SEEN WHETHER ANY NEW ASSET HAS COME INTO EXISTENCE IN THE CASE OF THE ASSESSEE. THE ASSESSE E HAS ONLY REPLACED THE OLD ASBESTOS SHEETS WHICH WERE DAMAGED IN THE ITA 718(BANG)/2010 PAGE 6 OF 6 HAIL STORM, BY NEW GC SHEETS, ALUMINIUM SHEETS ETC. WITHOUT A ROOF ON THE FACTORY BUILDING, THE ASSESSEE CANNOT D EFINITELY CARRY ON ITS REGULAR BUSINESS OPERATIONS. THEREFORE, THE REPLACEMENT OF GC SHEETS AND ALUMINIUM SHEETS IS NOT TO BRING I NTO EXISTENCE ANY NEW ASSET OR NEW ADVANTAGE TO THE ASS ESSEE. THEREFORE, WE ARE IN AGREEMENT WITH THE FINDING OF THE CIT(A) THAT THE EXPENDITURE HAS TO BE TREATED AS EXPENDITU RE FOR CURRENT REPAIRS AND HAS TO BE ALLOWED ACCORDINGLY. 6. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH DECEMBER, 2010 SD/- S D/- (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER (SMT.P.MADHAVI DEVI) JUDICIAL MEMBER PLACE : BANGALORE DATED: 15 TH DECEMBER, 2010 EKS COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) CONCERNED 4. CIT 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE