M/S GVK JAIPUR EXPESSWAY PVT. LTD., Jaipur V. ADDL. CIT, Jaipur

ITA 762/JPR/2011

• Counselvise Citation: 76223114 RSA 2011
• Duration Of Justice: 2 year(s) 11 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 29-08-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUBHASH CHANDRA
• Assessee Lawyers: TARUN MITTAL; O P AGRAWAL
• Keywords: Capital asset; Depreciation; Business expenditure; Opportunity of being heard; Revenue expenditure; Capital expenditure
• Section: 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH: JAIPUR (BEFORE SHRI R.P. TOLANI AND SHRI T.R. MEENA) I.T.A. NO. 762/JP/2011 ASSTT. YEAR- 2008-09 PAN NO. AABCG 5541 J M/S GVK JAIPUR-KISHANGARH THE ADDL. C.I.T., EXPRESSWAY PVT. LTD., 286 K.M., VRS. RANGE-7, JAIPU R. TOLL PLAZA, AJMER ROAD, N.H.-8, VILLAGE-THIKARIA, JAIPUR. (APPELLANT) (RESPONDENT) I.T.A. NO. 878/JP/2011 ASSTT. YEAR- 2008-09 PAN NO. AABCG 5541 J THE ADDL. C.I.T., M/S GVK JAIPUR KISHANGARH RANGE-7, JAIPUR. VRS. EXPRESSWAY PVT. LTD., 286 K.M., TOLL PLAZA, AJMER ROAD, N.H.-8, VILLAGE-THIKARIA, JAIPUR. ASSESSEE BY :- SHRI O.P. AGRAWAL & SHRI TARUN MITTAL. DEPARTMENT BY :- SHRI SUBHASH CHANDRA. DATE OF HEARING : 11/08/2014 DATE OF PRONOUNCEMENT : 28/08/2014 O R D E R PER: T.R. MEENA, A.M. THE ITA NO. 762/JP/2011 FILED BY THE ASSESSEE AS WEL L AS CROSS APPEAL NO. 878/JP/2011 BY THE REVENUE ARE AGAINST THE ORDE R DATED 11/07/2011 OF THE LEARNED C.I.T.(A)-III, JAIPUR FOR THE A.Y. 2008- 09. THE GROUNDS OF ASSESSEES APPEAL AS WELL AS THE REVENUE ARE AS UNDE R:- ITA 762 & 878/JP/2011 JVK JAIPUR EXPRESSWAY VS. ADDL.CIT 2 GROUNDS OF ITA NO. 762/JP/2011 1. THAT THE LEARNED CIT(A) HAS GROSSLY ERRED IN HOL DING THE EXPENDITURE OF RS. 3,86,81,256/- INCURRED ON NORMAL REPAIRS AND MAINTENANCE AS NOT QUALIFYING FOR DEDUCTION U/S 31(1) OF THE INCOME TAX ACT, 1961, WITHOUT APPRECIATING THE NATURE OF THE EXPENDITURE VIS A VIS ITS BUSINESS NE CESSARY, THUS THE EXPENSES INCURRED ON CURRENT REPAIRS AT RS . 3,86,81,256/- DESERVES TO BE ALLOWED AS CLAIMED, MOR E PARTICULARLY WHEN HE HAS NOT DOUBTED THE GENUINENESS OF THE EXPENDITURE INCURRED, THUS THE OBSERVATIONS OF THE LEARNED CIT(A) THAT THE EXPENDITURE UNDER QUESTION DOES NOT QUALIFY TO BE ALLOWED AS DEDUCTION FROM THE PROF IT AND LOSS DESERVES TO BE HOLD AS BAD IN LAW AND ARBITRARY . 1.1. THAT THE LEARNED CIT(A) HAS FURTHER GROSSLY ERR ED IN HOLDING THE EXPENDITURE OF RS. 3,86,81,256/- INCURRED ON RE PAIRS AND MAINTENANCE AS ALSO NOT QUALIFYING FOR DEDUCTIO N U/S 37(1) OF THE INCOME TAX ACT, 1961 ARBITRARILY, WITHOU T APPRECIATING THE FACT THAT SUCH EXPENDITURE WAS INCU RRED UNDER BUSINESS EXPEDIENCY, THUS THE EXPENSES OF RS. 3,86,81,256/- DESERVES TO BE ALLOWED AS CLAIMED BY T HE ASSESSEE. 2. THAT THE LEARNED CIT(A) HAS FURTHER ERRED IN HOLD ING THAT THE EXPENDITURE AS INCURRED AND CLAIMED IS NOT IN T HE NATURE OF ORDINARY BUSINESS EXPENDITURE AND THE ASSESSEE I S DERIVING LONG TERM BENEFIT FROM THE INCURRENCE OF S UCH EXPENDITURE, WITHOUT IN ANY MANNER APPRECIATING THE NATURE OF ASSESSEES BUSINESS AND THE JUDICIAL PRECEDENTS AVAILABLE IN THIS RESPECT, THUS HAS SERIOUSLY ERRED IN HOLDIN G THE EXPENDITURE TO BE OF CAPITAL NATURE, WHICH IS CONTRA RY TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE INTENTI ONS OF THE LAW, THUS SUCH OBSERVATIONS DESERVES TO BE IGNOR ED AND EXCLUDED. ITA 762 & 878/JP/2011 JVK JAIPUR EXPRESSWAY VS. ADDL.CIT 3 2.1 WITHOUT PREJUDICE TO OTHER GROUNDS OF APPEAL AN D IN THE ALTERNATIVE, IN CASE THE EXPENDITURE INCURRED BE HO LD AS CAPITAL EXPENDITURE, ASSESSEE BE ENTITLED FOR DEPRE CIATION @ 100% AS NO NEW ASSETS WAS CREATED AND THE EXPENDITURE IS OF TEMPORARY IN NATURE. 3. WITHOUT PREJUDICE TO THE ABOVE GROUNDS OF APPEAL AND IN THE ALTERNATIVE IT IS CONTENDED THAT THE LEARNED C IT(A) HAS GROSSLY ERRED IN MAKING ENHANCEMENT TO THE ASSESSED INCOME WITHOUT FOLLOWING THE PROCEDURE AS LAID DOWN IN SECTION 251(2) OF THE INCOME TAX ACT, 1961 AND THE A CTION OF LEARNED CIT(A) TANTAMOUNT TO REASSESSMENT THUS I T IS A SERIOUS MISUTILIZATION OF THE AVAILABLE POWERS WHICH DESERVES TO BE HOLD UNLAWFUL AND THE CONSEQUENT ENHANCEMENT OF INCOME AS DONE DESERVES TO BE HOLD V OID AB INITIO. GROUNDS OF ITA NO. 878/JP/2011 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED IN: (I) DELETING THE DISALLOWANCE OF RS. 36,09,51,960/- MADE BY THE A.O. ON ACCOUNT OF DEPRECIATION CLAIMED ON ROAD /ON ROAD CONSTRUCTION, WHILE TREATING IT AS A BUILDING IN NATURE. (II) ALLOWING THE CLAIM OF DEPRECIATION @ 60% ON EDP EQUIPMENT AS CLAIMED BY THE ASSESSEE AS AGAINST THE RATE OF 15% ALLOWED BY THE A.O. 2. THE ASSESSEE COMPANY IS ENGAGED IN CONSTRUCTION, OPERATION AND MAINTENANCE OF HIGHWAYS. VIDE AGREEMENT DATED 08/05/ 2002 BETWEEN THE NATIONAL HIGHWAYS AUTHORITY OF INDIA (NHAI) AND THE COMPANY, THE ASSESSEE ENTERED INTO A CONCESSION AGREEMENT WITH NHAI FOR WID ENING OF TWO LANE ROAD TO SIX LANE ROAD OF 90.358 KMS STRETCH ON NH-8 BETWE EN JAIPUR AND ITA 762 & 878/JP/2011 JVK JAIPUR EXPRESSWAY VS. ADDL.CIT 4 KISHANGARH ON BUILD OPERATE TRANSFER (BOT) BASIS. THE WORK OF THE WIDENING OF THE HIGHWAY WAS COMPLETED BY THE ASSESSEE COMPANY AND THE ROAD WAS OPENED TO THE PUBLIC ON 09/4/2005. SINCE THEN THE A SSESSEE HAS BEEN MAINTAINING THE SAID ROAD ON TOLL BASIS. RELEVANT P REVIOUS YEAR WAS THE THIRD YEAR OF OPERATION OF THE TOLL ROAD. 3. GROUNDS NO. 1, 2 AND 3 OF THE ASSESSEES APPEAL ARE AGAINST HOLDING THE EXPENDITURE OF RS. 3,86,81,251/- INCURRED ON NORMAL REPAIR AND MAINTENANCE AS NOT QUALIFYING FOR DEDUCTION U/S 31(1) OF THE IN COME TAX ACT, 1961 (HEREINAFTER REFERRED AS THE ACT) AND ALSO NOT ALLO WABLE U/S 37(1) OF THE ACT AND ALSO EXPENDITURE INCURRED AS CAPITAL IN NATURE. ALTERNATIVELY, GROUNDS OF APPEAL IS ON ALLOWABILITY OF DEPRECIATION @ 100% BEIN G NEW ASSETS CREATED AND EXPENDITURE WITHOUT PREJUDICE TO THE ABOVE, THE APPELLANT CHALLENGED THE ENHANCEMENT MADE BY THE LEARNED CIT(A). THE LEARNE D CIT(A) OBSERVED THAT THE APPELLANT HAS CLAIMED THE REPAIRING AND MAINTEN ANCE EXPENSES TO THE EXTENT OF RS. 6,65,21,097. HE REFERRED SECTION 31 O F THE ACT AND ANALYZED THESE EXPENSES AS PER SECTION WHETHER ARE ALLOWABLE O R NOT. HE MADE DETAILED DISCUSSION ON PAGES 10 TO 16 AND CONCLUDED THE FIND INGS AS UNDER:- 6.5 THE ABOVE EXPLANATION OF THE LEARNED ARS WAS CA REFULLY CONSIDERED AND THE SAME WAS NOT FOUND ACCEPTABLE FOR THE FOLLOWING REASONS: I) REPAIRS EXPENSES TOWARDS EARTHEN SHOULDERS (RS. 3 5390040)- THIS IS AN ADMITTED FACT THAT EARTHEN SHOULDERS OF THE EITHER SIDE OF THE ROAD WERE PART OF THE CAPITAL ASSETS, I.E. T HE ROAD, OF THE ITA 762 & 878/JP/2011 JVK JAIPUR EXPRESSWAY VS. ADDL.CIT 5 APPELLANT. THUS, THE ORIGINAL COST THEREOF MUST HAVE BEEN CAPITALIZED AND MADE PART OF THE COST INCURRED TOWAR DS THE ROAD WIDENING PROJECT AND DEPRECIATION IS NOW BEING CLAIME D @ 15%, THEREON, AS DISCUSSED IN EARLIER PART OF THIS ORDER . WITH THIS BACKGROUND, TO ASCERTAIN THE EXACT AND CORRECT NATU RE OF SUCH REPAIRS JOB TERMED AS REFURBISHMENT OF EARTHEN SHO ULDER AND CARRIED OUT BY M/S R. BALARAMI REDDY & CO., THE REL EVANT WORK ORDERS DATED 09/5/2007 AND 05/4/2008, ISSUED IN THI S REGARD, WERE EXAMINED. FROM THE LANGUAGE OF SUCH WORK ORDERS, IT IS NOTED THAT THE NATURE OF REPAIRS JOB HAS BEEN DEFIN ED AS REFURBISHMENT OF EARTHEN SHOULDERS AND MEANT TO R EPAIR THE DAMAGED STRETCHES OF HIGHWAY IN THE TWO PARTS, COVE RING THE ENTIRE ROAD-LENGTH OF THE PROJECT. IT WAS FURTHER NO TED THAT THE FIRST WORK ORDER DATED 09/5/2007 COVERS THE REPAIRIN G OF ENTIRE STRETCH OF 90 KM (APPROX) OF THE PROJECT, INVOLVING ESTIMATED CONTRACT PRICE OF RS. 3.75 CRORES AND CONTRACT PERI OD WAS OF 10 MONTHS TO COMPLETE SUCH JOB. SIMILARLY, THE OTHER WORK ORDER DATED 05/4/2008, COVERS AN ADDITIONAL STRETCH OF HI GHWAY OF 9 K.M., INVOLVING THE CONTRACT PRICE OF RS. 28,70,100 /- AND CONTRACT PERIOD OF 6 MONTHS TO ACCOMPLISH SUCH JOB. HOWEVER, THE 2 ND WORK ORDER IS NOT FOUND RELEVANT TO THE PERIOD UNDER CON SIDERATION. FROM THE ABOVE, DISCUSSION, IT CAN BE INFERRED THAT THE REPAIR WORK OF EARTHEN SHOULDERS OF ROAD OF THE ENTIRE ROAD-A SSETS OF THE PROJECT WAS NOT A PETTY REPAIRS OR NORMAL WEAR-TEAR, AS IS MEANT TO RESTORE THE DAMAGE CAUSED TO THE ENTIRE PROJECT ITSELF, INVOLVING THE HIGHWAY OF MORE THAN 90 K.M., AS SUCH. IT IS ALS O EVIDENT THAT SUCH EXTENSIVE REPAIRS OR RESTORATION WORKS COULD NO T BE RESULTED; ITA 762 & 878/JP/2011 JVK JAIPUR EXPRESSWAY VS. ADDL.CIT 6 DUE TO PROLONG USES OF SUCH ASSETS, THEREFORE, THE SAME CANNOT BE TERMED AS NORMAL WEAR AND TEAR RELATED TO A PARTIC ULAR YEAR, AS SUCH. THIS PECULIAR ASPECT IS FURTHER STRENGTHENED F ROM THE FACT THAT THE DICTIONARY MEANING OF THE CORE-TERM USED I N THE WORK- ORDER I.E. REFURBISHMENT MEANS- TO BRIGHTEN UP O R TO RESTORE AND REDECORATE ASSETS. THUS, IN OTHER WORDS, THE RE PAIR-JOB WAS TO RESTORE/REPLACE THE EARTHEN SHOULDERS OF BOTH SI DES OF THE ROAD ONLY. MOREOVER, THE QUANTUM OF THE CONTRACT WORK (MO RE THAN RS. 3.50 CRORES) AND THE TIME PERIOD (10 MONTHS) INVOLV ED THEREIN, ALSO INDICATE THE VOLUME AND THE EXTENT OF REPAIRS ASPECT INVOLVED IN SUCH PROCESS. IN ORDER WORDS THE REFURBISHMENT OF DAMAGED EARTHEN SHOULDER OF THE ENTIRE HIGHWAY SEEMS TO BE R ESULT OF AN ACCUMULATED REPAIR RELATED TO THE PROLONGED USE OF THE ASSETS INVOLVED IN ROUTINE USAGE THEREOF. WHILE EXPLAINING THE NATURE OF THE IMPUGNED REPAIRS, THE LEARNED AR HAS ALSO ADMIT TED, IN HIS REPLY DATED 07/7/2011, THAT THE REFURBISHMENT JOB/WO RK HAD INVOLVED THE ASPECTS OF REPAIRING AND REDOING OF TH E CLAY BASED SIDE LANE OF THE NATIONAL HIGHWAY, WHICH IS PART OF T HE ROAD CONSTRUCTED AND WITH THE PASSAGE OF TIME AND PLYING OF THE TRAFFIC GETS DAMAGED, THEREFORE, IN ORDER TO MAINTAIN BOTH THE SIDES OF THE ROAD LEVEL, THE REPAIRING WORK WAS CARRIED OUT. F ROM THE SUBMISSION OF THE LEARNED AR, IT IS EVIDENT THAT TH E EXTENSIVE DAMAGE TO THE EARTHEN SHOULDERS OF HIGHWAY WAS RESULT OF PROLONGED USE OF SUCH ROADS FOR THE CONSIDERABLE TI ME PERIOD, WHICH IS CERTAINLY BEYOND THE RELEVANT PREVIOUS YEAR UNDER CONSIDERATION. ITA 762 & 878/JP/2011 JVK JAIPUR EXPRESSWAY VS. ADDL.CIT 7 AS ALREADY DISCUSSED THAT IN THE VARIOUS COURT DECI SIONS, IT HAVE BEEN HELD THAT THE REPLACEMENT OF RESTORATION OF TH E PARTS OF AN ASSETS OR AN ACCUMULATED REPAIRS THEREOF, CANNOT BE CONSIDERED AS CURRENT REPAIRS, WHICH ONLY IS ALLOWABLE U/S 31(1) OF THE ACT. ACCORDINGLY, IT IS CONCLUDED THAT THE EXPENSES OF R S. 35390040/- PAID TOWARDS THE REFURBISHMENT OF THE EARTHEN SHOUL DER BEING RESTORATION PROCESS OF SUCH ASSETS, DOES NOT AMOUNT TO CURRENT REPAIR AND THUS ALSO NOT QUALIFIED AS AN ADMISSIBL E EXPENSES U/S 31(1) OF THE ACT. THE RELEVANT DETAILS, AS GATHERED , RATHER SUGGEST THAT THESE EXPENSES WERE RELATED TO EXTENSIVE CARRIE D OUT, WHICH WOULD ENABLE THE APPELLANT TO HAVE ENDURING BENEFIT THROUGH REPLACEMENT/RESTORATION OF AN OLD ASSETS, THEREFORE , THE SAME ALSO AMOUNTS TO AN EXPENDITURE OF CAPITAL IN NATURE, THE REFORE, ALSO NOT COVERED U/S 31(1) AND EVEN S. 37(1) OF THE ACT. II) REPAIR EXPENSES TOWARDS REPLACEMENT OF BARBED WI RE/FENCING POLES (RS. 3291486/-)- FROM THE RELEVANT COPY OF ACCOUNT I.E. RM-PAVEMENT AND RD FURNITURE ACCOUNT, SUBMITTED BY THE APPELLANT, IT IS ALSO OBSERVED THAT RS. 3291486/- WERE SPENT TOWARDS FENCING REPAIR S HEAD. IN THIS REGARD, IT WAS CONTENDED THAT THESE EXPENSES WER E INCURRED TOWARDS REPLACING THE OLD FENCING POLES AND THE OLD/ DAMAGED BARBED WIRES. THE ABOVE FACT IS ALSO CONFIRMED BY THE LEARNED AR IN HIS SUBMISSION DATED 07/07/2011, AS REPRODUCED H EREINABOVE. AS ALREADY HELD IN THE EARLIER PARAS THAT SUCH REPL ACEMENT OF ASSETS/PARTS OF ASSETS AMOUNTS TO RESTORATION OF OL D ASSETS, LEADING TO AN ENDURING ADVANTAGES, THEREFORE, DOES NOT FALLS IN THE CATEGORY OF CURRENT REPAIRS ,AS SUCH. SINCE, THE FENCING COST HAS BEEN TREATED AS PART OF TOTAL COST OF ROAD CAPITALI ZATION, THEREFORE, ITA 762 & 878/JP/2011 JVK JAIPUR EXPRESSWAY VS. ADDL.CIT 8 ANY EXPENSES INCURRED TOWARDS MAJOR REPAIRS/REPLACEM ENTS OF SUCH ASSETS WOULD BE AMOUNTING TO A CAPITAL EXPENDIT URE AND OTHERWISE ALSO NOT ALLOWABLE U/S 31(1) OF THE ACT, WHI CH DEALS WITH THE CURRENT REPAIRS ONLY. ACCORDINGLY, IT IS HE LD THAT TOTAL EXPENDITURES OF RS. 3291486/- SPENT TOWARDS REPLACEM ENT OF FENCING POLES AND BARBED WIRES ARE AN EXPENDITURE, WH ICH CANNOT BE CONSIDERED AS EXPENDITURE TOWARDS CURRENT REPAIR S, THEREFORE, REQUIRES TO BE TREATED AS CAPITAL EXPENDITURE AND N OT COVERED U/S 31(10 OF THE ACT, AS SUCH. III) THE LEARNED AR ALSO MADE AN ALTERNATIVE CLAIM T HAT THESE EXPENSES, IF NOT COVERED U/S 31(1), ARE OTHERWISE AL SO ALLOWABLE U/S 37(1) OF THE ACT, AS INCURRED WHOLLY AND SOLELY FOR THE BUSINESS PURPOSE. HOWEVER, IT IS FOUND THAT, IN THE SIMILAR CIRCUMSTANCES, THE COURTS HAVE HELD THAT THE ANY EX PENDITURE WHICH IS COVERED BY SEC. 30 TO 36 OF THE ACT AND DOE S NOT QUALIFY AS AN ADMISSIBLE EXPENDITURE UNDER SUCH PROVISIONS, (LIKE REPAIRS IN THIS CASE, BEING COVERED U/S 31(1) OF THE ACT), ARE OTHERWISE ALSO NOT ALLOWABLE U/S 37(1) OF THE ACT, AS THE RESI DUARY SECTION PROHIBITS ANY EXPENDITURE TO BE CLAIMED THEREFROM, WHICH IS OTHERWISE COVERED BY S. 30 TO 36 OF THE ACT. RELIANC E, IN THIS REGARD, IS PLACED ON THE FOLLOWING CASE LAWS- I. MALWA VANASPATI & CHEMICALS 154 ITR 655 (MP) II. TRAVANCORE TITANIUM PRODUCTS LTD. 203 ITR 714 (KER.) MOREOVER, IN THE EARLIER PART OF THIS ORDER, IT IS ALREADY CONCLUDED THAT SUCH TYPES OF REPAIRS ARE IN FACT OF CAPITAL I N NATURE, THUS ALSO ITA 762 & 878/JP/2011 JVK JAIPUR EXPRESSWAY VS. ADDL.CIT 9 NOT QUALIFY TO BE CONSIDERED U/S 37(1) OF THE ACT. RELIANCE, IN THIS REGARD, IS PLACED ON THE DECISION OF FOLLOWING CASE LAWS:- I. SRI MANGAYARKARASI MILLS LTD. 315 ITR 114 (S.C.) II. HINDUSTAN PLIKINGTON GLASS WORKS 73 TAXMAN 631 (CAL) IN VIEW OF THE ABOVE, EVEN THE ALTERNATIVE CLAIM OF THE LEARNED AR, AS DISCUSSED ABOVE, IS ALSO FOUND NOT TENABLE, UNDER THE GIVEN CIRCUMSTANCES. IN THE LIGHT OF THE ABOVE FACTS AND CIRCUMSTANCES, SUCH AS THE NATURE OF EXPENDITURES INCURRED TOWARDS THE ROAD ASS ETS AND THE REPLACEMENT OF FENCING POLES/WIRES, THE PARAMETERS L AID DOWN BY THE HONBLE COURTS, VIZ. THE ISSUE UNDER CONSIDERAT ION ETC., IT IS CONCLUDED THAT SUCH EXPENDITURES ARE NOT OF CURRENT REPAIRS PER SE. THE NATURE, QUANTUM, QUALITY AND TIME SPAN INVOL VED IN SUCH PROCESS, CLEARLY INDICATE THAT THEY ARE MAJOR REPAI RS, HAVING FLAVOR OF CAPITAL EXPENDITURE AS RESULTING INTO REPLACEMEN T OR RESTORATION OF THE ENTIRE OLD ASSETS, THUS, NOT QUALIFIED AS DE DUCTIBLE EXPENDITURE U/S 31(1) OF THE ACT. SIMILARLY, IN VIE W OF THE RATIO UPHELD BY THE VARIOUS COURT, MENTIONED HEREINABOVE, EVEN SUCH EXPENDITURES ARE NOT ALLOWABLE U/S 37(1) OF THE I.T. ACT. ACCORDINGLY, THE A.O. IS DIRECTED TO DISALLOW THE TO TAL EXPENDITURE OF RS. 38681256 (RS. 35390040 + RS. 3291486/-) INCU RRED AS REPAIRS EXPENSES TOWARDS THE PURPOSES, AS DISCUSSED ABOVE, BEING CAPITAL IN NATURE BUT CLAIMED U/S 31(1) OF THE ACT. NEEDLESS TO SAY THAT THESE EXPENSES MAY BE ALLOWED TO BE CAPITALIZED AND THE DEPRECIATION THEREON, AL ELIGIBLE RATE MAY BE ALLOWE D AT PRESCRIBED RATE, GIVE IN THE ACT. ITA 762 & 878/JP/2011 JVK JAIPUR EXPRESSWAY VS. ADDL.CIT 10 4. LEARNED A.R. FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE COMPANY IS ENGAGED IN CONSTRUCTION, OPERATION AND MAINTENANCE OF HIGHWAYS. MORE THAN 90 KMS STRETCH BETWEEN JAIPUR AND KISHAGARH ON NH-8 WAS AGREED TO BUILD, OPERATE AND TRANSFER BASIS WITH NHAI, WHICH WAS OPENED TO PUBLIC ON 09/4/2005. AS PER AGREEMENT MADE BETWEEN THE NHAI AN D THE APPELLANT, THE HIGHWAY IS TO BE TRANSFERRED AFTER A PERIOD OF 18 YE ARS IN THE SAME CONDITION AS ON THE INITIALLY OPENING OF HIGHWAY. THE APPELLAN T COMPANY WAS TO DELIVER THE BUILDINGS, SUPERSTRUCTURES, REST ROOM ETC. ALON GWITH ROAD, BRIDGES, CULVERTS, FENCING, WALLS ETC. IN ORIGINAL CONDITION TO THE NHAI. NO CONSIDERATION WOULD BE RECEIVABLE BY THE APPELLANT COMPANY AT THE TIME OF HANDING OVER ROAD TO NHAI. OWNERSHIP OVER THE ROAD AND THE SUPERS TRUCTURES ETC. BUILT BY THE APPELLANT COMPANY AS OWNED AND BUILT BY IT, WOULD REMAIN IN ITS EXCLUSIVE POSSESSION FOR THE CONTRACT PERIOD. DURING THE CONS TRUCTION AND OPERATIONAL PERIOD, CONTINUAL SPOT INSPECTIONS ARE BEING CARRIE D OUT BY THE INDEPENDENT CONSULTANTS APPOINTED BY THE NHAI. SINCE THE DATE O F CONSTRUCTION, THE APPELLANT COMPANY IS MAINTAINING THE ROAD ON TOLL C OLLECTION BASIS. THE ASSESSEE COMPANY INCURRED AND CLAIMED AN EXPENDITUR E OF RS. 6,65,21,097/- TOWARDS THE REPAIR AND MAINTENANCE OF ASSETS, WHICH I NCLUDES REPAIR AND MAINTENANCE OF HIGHWAY AT RS. 4,02,551,720/-, WHICH FURTHER INCLUDES RS. 3,53,90,040/- PAID TOWARDS THE REPAIR OF WORN OUT EAR THEN SHOULDERS AND RS. 32,91,486/- FOR THE REPAIRING AND RESTORATION OF FE NCING WHICH HAS BEEN HELD ITA 762 & 878/JP/2011 JVK JAIPUR EXPRESSWAY VS. ADDL.CIT 11 AS CAPITAL EXPENDITURE BY THE LEARNED CIT(A) AS AGA INST THE CURRENT REPAIRS CLAIMED BY THE ASSESSEE AND ALLOWED BY THE ASSESSING OFFICER IN SCRUTINY ASSESSMENT. THE LEARNED A.R. FURTHER ARGUED THAT THE EXPENDITURE WAS INCURRED IN THE NORMAL COURSE OF BUSINESS SINCE IT WAS INCURRED ON THE REPAIRS AND MAINTENANCE OF ROAD CONSTRUCTED AND OPERATED BY THE ASSESSEE COMPANY IN TERMS OF CONCESSION AGREEMENT. IT IS FURTHER SUB MITTED THAT THE LEARNED CIT(A) HAD ENHANCED THE INCOME ON THE GROUND THAT QU ANTUM OF EXPENDITURE ON REPAIR AND PERIOD INVOLVED IN IT BUT IT IS A FAC T THAT MORE THAN 90 KMS STRETCH OF ROAD USED BY HEAVY TRAFFIC AND REQUIRED NORMAL TEAR AND WEAR TO RUN THE TRAFFIC SMOOTHLY ON IT. THE TOTAL COST OF PROJEC T IS MORE THAN 590 CRORES AND THE EXPENDITURE INCURRED ON REPAIR OF EARTHEN SHOUL DERS ALONGWITH SIDE ROAD. THIS WORK WAS COMPLETED BY THE CONTRACTOR NAMELY M/S R . BALARAMI REDDY & CO. THE LEARNED CIT(A) HAS NOT DOUBTED THE GENUINENES S OF THE EXPENSES. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE C OLLECTED TOTAL REVENUE FROM THE TOLL WAS OVER RS. 136 CRORES AND COMPARED TO TOT AL COST AND REVENUE GENERATED FROM THE TOLL, THE EXPENDITURE ON REPAIR IS NOMINAL. LAYING THE EARTHEN SHOULDER ON BOTH SIDES OF THE ROAD FOR THE FIRST TIME WAS FORMING PART OF TOTAL COST OF ROAD ELIGIBLE FOR DEPRECIATION WHIC H FACT REMAINED UNCONTROVERTED BY THE LEARNED CIT(A). AS THE LEARNED CIT(A) HELD THAT THE REPAIRING WORK IS A REPLACEMENT OF EARTHEN SHOULDERS AT BOTH SIDES OF ROAD FOR PROLONGED USE OF THE ASSETS BUT THE LEARNED CIT(A) WAS FAILED TO APPRECIATE ITA 762 & 878/JP/2011 JVK JAIPUR EXPRESSWAY VS. ADDL.CIT 12 THE FACT THAT NO NEW ASSET WAS CREATED BY REPAIRING OF THE EARTHEN SHOULDERS OF BOTH SIDES OF ROAD. REPLACEMENT OF INTERNAL PART OF MACHINERY DOES NOT AMOUNT TO CAPITAL EXPENDITURE, RATHER CLARIFIED DED UCTION AS CURRENT REPAIRS SINCE WITHOUT SUCH KEEP UP THE MACHINE COULD NOT FUN CTION. LIKEWISE, THIS REPAIR ON BOTH SIDES OF EARTHEN SHOULDER IS REQUIRE D FOR SMOOTH RUNNING THE TRAFFIC ON BOTH SIDES OF EARTHEN SHOULDERS ROAD. THE ASSESSEE HAD INCURRED 32.91 LACS ON REPAIRING OF FENCING OF BOTH SIDES OF ROAD AS WE KNOW THE FENCING ON HIGHWAYS IS REQUIRED TO PREVENT THE ANIMA L, WHO MIGHT COME OVER THE NATIONAL HIGHWAY WHICH DISTURBED THE SMOOTH RUNNI NG OF THE N.H. AT THE TIME OF CONSTRUCTION OF HIGHWAY, FENCING WAS DONE, WHI CH WAS CAPITALIZED IN THE TOTAL COST OF ROAD, WHICH HAD BEEN CAPITALIZED B Y THE APPELLANT BUT TO REPAIR THE FENCING AND EXPENDITURE INCURRED ON IT, AS REVENUE EXPENDITURE. THE APPELLANT HAD NOT REPLACED ENTIRE ASSETS IN THIS WAY BUT REPAIRED THE DAMAGED FENCING AND NO NEW ASSETS HAVE BEEN CREATED BY THIS PROCESS. THE LEARNED CIT(A) WAS NO RIGHT ALLOWING THE REPAIR EXPENDITURE ON EARTHEN SHOULDER, ROAD ON BOTH SIDES OF THE HIGHWAY U/S 31(1) OF THE ACT. HE FURTHER RELIED UPON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F BALLIMAL NAWAL KISHORE AND ANR. VS. CIT REPORTED IN 224 ITR 414 HAS HELD THA T THE EXPRESSION CURRENT REPAIRS MEANS EXPENDITURE ON BUILDINGS, M ACHINERY, PLANT OR FURNITURE WHICH IS NOT FOR THE PURPOSE OF RENEWAL OR RESTORATION BUT WHICH IS ONLY FOR THE PURPOSE OF PRESERVING OR MAINTAINING A N ALREADY EXISTING ASSET AND ITA 762 & 878/JP/2011 JVK JAIPUR EXPRESSWAY VS. ADDL.CIT 13 DOES NOT BRING A NEW ASSET INTO EXISTENCE OR DOES NO T GIVE TO THE ASSESSEE A NEW OR DIFFERENT ADVANTAGES. THE LEARNED ASSESSING OFFICER HAS CONSIDERED SECTION 31(1) OF THE ACT WHEN ALLOWING THESE EXPENSES IN SCRUTINY ASSESSMENT. HE FURTHER RELIED UPON THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. SOUTHERN ROADWAYS REPORTED IN (2007) 288 ITR 15 WHEREIN THE EXPENDITURE ON PLACEMENT OF MACHINERY HAS BEEN CONSIDERED BY THE HONBLE COURT AND HELD THAT EXPENDITURE ON REPLACEM ENT OF MACHINERY IS REVENUE EXPENDITURE. HE FURTHER RELIED ON THE FOLLO WING CASE LAWS:- (I) IBM INDIA VS. CIT 105 ITD 1 (BANG.)(TRIB). (II) CIT VS. MADRAS AUTO SERVICES (P) LTD. 233 ITR 4 68 (SC) (III) EMPIRE JUTE CO. LTD. VS. CIT 124 ITR 1(SC) (IV) CIT VS. SHRI RANI LAKSHMI GINNING SPINNING & W EAVING MILLS LTD. 256 ITR 592 (MAD.) (V) CIT VS. REVATHI C.P. EQUIP0MENTS LTD. 245 ITR 68 6, 692 (MAD.). (VI) INDIAN GINNING & PRESSING CO. LTD. VS. CIT 252 ITR 577, 581-82, 582-83 (GUJ.). (VII) CIT VS. BHARAT SURYODAYA MILLS CO. LTD. 202 IT R 942, 944-45 (GUJ.) (VIII) CIT VS. KUSUM PRODUCTS LTD. 175 ITR 557 (CAL. ). (IX) CIT VS. POLYOLEFINS INDUSTRIES LTD. 169 ITR 538 (BOM.) (X) CIT VS. METAL & METALLURGICAL CORPN. 141 ITR 40 (MAD.) (XI) CIT VS. INDIAN WOOLEN TEXTILE MILLS P. LTD. 112 ITR 441 (PUNJ.). (XII) HINDUSTAN TIMES LTD. VS. CIT, 122 ITR 977 (DEL. ) (XIII) REGAL THEATRE VS. CIT 59 ITR 449 (PUNJ.) (XIV) CIT VS. VOLGA RESTAURANT 253 ITR 405 (DELHI). ITA 762 & 878/JP/2011 JVK JAIPUR EXPRESSWAY VS. ADDL.CIT 14 HE FURTHER SUBMITTED THAT THE LEARNED CIT(A) HAD NOT PROVIDED REASONABLE OPPORTUNITY OF BEING HEARD BEFORE ENHANCEMENT, WHICH IS REQUIRED U/S 251(2) OF THE ACT. HE SIMPLY ASKED TO FILE DETAILS ONLY. TH E LEARNED ASSESSING OFFICER IN SUBSEQUENT YEAR HAD NOT DISALLOWED ANY REPAIR AND ACCEPTED THE ASSESSEES COMPUTATION OF INCOME AS IT. THUS, ENHANCEMENT MADE BY THE LEARNED CIT(A) WITHOUT FOLLOWING THE PROCEDURE LAID DOWN IN THE ACT A S WELL AS THE JUDICIAL PRONOUNCEMENTS, IS REQUIRED TO BE QUASHED. 5. AT THE OUTSET, THE LEARNED CIT DR SUPPORTED THE O RDER OF THE LEARNED CIT(A) AND ARGUED THAT THE LEARNED CIT(A) HAS COTERM INOUS POWER WITH ASSESSING OFFICER AND HE HAD FOLLOWED THE REQUIRED P ROCEDURE FOR ENHANCEMENT OF INCOME OF THE ASSESSEE. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE RELEVANT MATERIAL ON RECORD. AS DISCUSSED ABOV E, THE APPELLANT MADE CONTRACT WITH NHAI TO CONSTRUCT, OPERATE AND MAINTAI N 90 KMS N.H. BETWEEN JAIPUR TO KISHANGARH AND INCURRED TOTAL COST MORE T HAN RS. 590 CRORES. THE ASSESSEE COLLECTED TOTAL REVENUE FROM THE TOLL IS M ORE THAN RS. 136 CRORES AND SHOWN NET INCOME MORE THAN RS. 59 CRORES FROM THIS P ROJECT. THE APPELLANT HAD ALREADY GOT CONSTRUCTED EARTHEN SHOULDER ROAD O N BOTH SIDES OF ROAD AND FENCING BUT ON USED BY THE HEAVY TRAFFIC, IT GOT DA MAGED AND IS NOT REMAINED IN GOOD CONDITION TO BE USED SMOOTHLY BY THE HEAVY TRAFFIC, THEREFORE, NOMINAL TEAR AND WEAR IS REQUIRED. THE ASSESSEE INCURRED 3.86 CRORES EXPENDITURE ON ITA 762 & 878/JP/2011 JVK JAIPUR EXPRESSWAY VS. ADDL.CIT 15 NORMAL REPAIR AND MAINTENANCE INCLUDING EXPENDITURE ON REPAIRING OF FENCING. THIS HIGHWAY WAS TAKEN ON CONTRACT ON BOT BASIS FOR 18 YEARS. THE ASSESSEE HAS TO RECOVER HIS COST AS WELL AS PROFIT ON INVESTM ENT WITHIN GIVEN TIME, WHICH HARDLY EXTENDED BY THE NHAI. THE APPELLANT HAD TO M AINTAIN THE NATIONAL HIGHWAY IN GOOD CONDITION TO ATTRACT THE TRAFFIC TO INCREASE TOLL COLLECTION, SO PROFIT CAN BE MAXIMIZED. AS THE LEARNED CIT(A) ANAL YSED THE SECTION 31(1) OF THE ACT WITH REFERENCE TO CURRENT REPAIR AND REPLACE MENT OF EXISTING ASSETS BUT THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. SOUTHERN ROADWAYS (SUPRA) HELD THAT EXPENDITURE ON REPLACEMENT IS ALS O A REVENUE EXPENDITURE. FURTHER THE HONBLE APEX COURT IN THE CASE OF BALLI MAL NAWAL KISHORE & ANOTHER VS. CIT (SUPRA) HAS HELD THAT THE EXPRESSIO N CURRENT REPAIRS MEANS EXPENDITURE ON BUILDINGS, MACHINERY, PLANT OR FURNI TURE WHICH IS NOT FOR THE PURPOSE OF RENEWAL OR RESTORATION BUT WHICH IS ONLY F OR THE PURPOSE OF PRESERVING OR MAINTAINING AN ALREADY EXISTING ASSET AND DOES NOT BRING A NEW ASSET INTO EXISTENCE OR DOES NOT GIVE TO THE ASSESS EE A NEW OR DIFFERENT ADVANTAGES. IF THIS EXPENDITURE IS TREATED CAPITA L EXPENDITURE, IT CANNOT BE RECOVERED IN 18 YEARS OF PERIOD OF CONTRACT. FURTHE R IT REQUIRED TO INCUR EXPENDITURE EVERY YEAR AND UNDER WHICH SECTION, THE ASSESSEE WOULD CLAIM LAST YEARS REPAIR AND MAINTENANCE EXPENDITURE AS FULL. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE NORMAL REPAIR EXPENDITURE O N EARTHEN SHOULDER ROAD ON BOTH SIDES OF HIGHWAY WITH NORMAL TEAR WEAR ON FENC ING HAS BEEN CLAIMED ITA 762 & 878/JP/2011 JVK JAIPUR EXPRESSWAY VS. ADDL.CIT 16 BY THE ASSESSEE AND ALLOWABLE U/S 31(1) OF THE ACT. EVEN THIS EXPENDITURE IS ALLOWABLE U/S 37 OF THE ACT AS IT IS NOT A CAPITAL E XPENDITURE, NO PERSONAL EXPENDITURE, WHOLLY AND EXCLUSIVELY INCURRED FOR TH E PURPOSE OF BUSINESS. THE CASE LAWS RELIED UPON BY THE LEARNED CIT(A) ARE NOT SQUARELY APPLICABLE IN THE CASE OF THE ASSESSEE AS THE ASSESSEE HAS EXCEPTIONA L CIRCUMSTANCES OF CONSTRUCTING HIGHWAYS ON BOT BASIS. THESE EXPENDITURES ARE NOT CAPITAL EXPENDITURE AS NO NEW ASSETS HAS BEEN CREATED. FURTH ER THE ASSESSEE HAS ONLY CONSTRUCTIVE OWNERSHIP FOR THE PERIOD OF 18 YEARS ON IT. SUBSEQUENTLY, THE LEARNED ASSESSING OFFICER HAS ALLOWED THESE EXPENDIT URES AS REVENUE IN A.YS. 2009-10 AND 2010-11. THE LEARNED CIT(A) HAS FOLLOWED THE DUE COURSE OF PROCEEDING BEFORE ENHANCEMENT AS SHOW CAUSE NOTICE WA S ISSUED TO THE ASSESSEE ON 10/12/2010 BY THE LEARNED CIT(A). THUS, GROUNDS NO. 1 AND 2 OF THE ASSESSEES APPEAL ARE ALLOWED AND DECIDED IN FAV OUR OF THE ASSESSEE AND GROUND NO. 3 OF ASSESSEES APPEAL IS DISMISSED AND DECIDED AGAINST THE ASSESSEE. 7. THE FIRST AND SECOND GROUNDS OF THE DEPARTMENTAL APPEAL ARE AGAINST DELETING THE DISALLOWANCE OF RS. 36,09,51,960/- AND ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DEPRECIATION CLAIME D ON ROAD/ ON ROAD CONSTRUCTION. THE LEARNED ASSESSING OFFICER OBSERVE D THAT THE ASSESSEE HAD CLAIMED THAT THE DEPRECIATION AMOUNTING TO RS. 38,9 0,23,526/-, THE ASSESSEE WAS ASKED TO FILE REVISED COMPUTATION OF DEPRECIATIO N BY THE ASSESSING OFFICER ITA 762 & 878/JP/2011 JVK JAIPUR EXPRESSWAY VS. ADDL.CIT 17 AS PER DECISION OF HONBLE ITAT FOR A.Y. 2006-07, WHI CH WAS SUBMITTED BY THE ASSESSEE AND DEPRECIATION CLAIMED BY THE APPELLANT WAS INCREASED TO RS. 39,39,53,179/- IN A.Y. 2006-07, THIS ISSUE OF DEPRE CIATION WAS DECIDED BY THE ASSESSING OFFICER AND CONFIRMED BY THE LEARNED CIT( A) BUT THE HONBLE ITAT HAS ALLOWED THE APPEAL IN FAVOUR OF THE ASSESSEE. 8. BEING AGGRIEVED BY THE ORDER OF THE LEARNED ASSE SSING OFFICER, THE ASSESSEE CARRIED THE MATTER TO THE LEARNED CIT(A) W HO HAD ALLOWED THE ASSESSEES APPEAL AND 10% DEPRECIATION ON ROAD AS L AW AMENDED AND IT HAS BEEN INCLUDED IN THE HEAD OF THE BUILDING FOR DEPRE CIATION PURPOSES. 9. NOW THE REVENUE IS IN APPEAL BEFORE US. 10. THE LEARNED D.R. RELIED UPON THE ORDER OF THE LE ARNED ASSESSING OFFICER AND ARGUED THAT THE MATTER IS PENDING BEFORE THE HO NBLE RAJASTHAN HIGH COURT, THEREFORE, THE ASSESSING OFFICERS VIEW MAY P LEASE BE CONFIRMED. 11. AT THE OUTSET, THE LEARNED A.R. FOR THE ASSESSE E HAS SUPPORTED THE ORDER OF THE LEARNED CIT(A) AND ARGUED THAT THE HONBLE I TAT IN ITA NO. 193/JP/2009 FOR A.Y. 2006-07 VIDE ORDER DATED 26/6/ 2009 AT PAGE NO. 49 IN PARAGRAPH NOS. 11.4,11.4.1, 11.4.2 AND 11.4.3 ALLOWE D THE DEPRECIATION @ 10% ON EXPENDITURE INCURRED ON ROAD BY CONSIDERING THE AMENDMENT MADE IN ITEM NUMBER BUILDING IN DEPRECIATION SCHEDULE IN FA VOUR OF THE ASSESSEE. SIMILAR FINDINGS IN ITA NO. 385/JP/2010 FOR A.Y. 20 07-08 IN ASSESSEES OWN CASE HAS BEEN GIVEN ON PAGE NO. 2 OF THE ORDER DATE D 28/9/2010. FOLLOWING ITA 762 & 878/JP/2011 JVK JAIPUR EXPRESSWAY VS. ADDL.CIT 18 THE ORDER OF THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR A.YS. 2006-07 AND 2007-08 AS STATED ABOVE, THE LEARNED CIT(A) ALL OWED THE CLAIM OF ASSESSEE OF DEPRECIATION. THEREFORE, WE UPHELD THE O RDER OF THE LEARNED CIT(A) ON THIS ISSUE. 12. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28/08/2014. SD/- SD/- (R.P. TOLANI) (T.R. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR, DATED : 28 TH AUGUST, 2014 * RANJAN COPY FORWARDED TO :- 1. M/S GVK JAIPUR-KISHANGARH EXPRESSWAY PVT. LTD., J AIPUR. 2. THE ADDL. C.I.T., RANGE-7, JAIPUR. 3. THE CIT (A) 4. THE CIT 5. THE D/R GUARD FILE (I.T.A. NO. 762 & 878/JP/2011) BY ORDER, AR ITAT JAIPUR.