ITO 6(1)(3), MUMBAI V. AR- EX LABORATORIES P. LTD, MUMBAI

ITA 7653/MUM/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 5112 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 07-11-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 08-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE S/SHRI B.R.MITTAL,(JM) AND RAJENDRA (AM) . . , , ./I.T.A. NO.7653/MUM/2010 ( / ASSESSMENT YEAR : 2006-07) INCOME TAX OFFICER - 6 ( 1)(3) , ROOM NO.508, 5 TH FLOOR, AAYAKAR BHAVAN, M.K.MARG, MUMBAI-400020 / VS. M/S AR - EX LABORATORIES PVT. LTD, BOTAWALA BUILDING, GROUND FLOOR, SITLADEVI TEMPLE ROAD, MAHIM, MUMBAI-400016 ( & / APPELLANT) .. ( ' & / RESPONDENT) ./ ./PAN/GIR NO. : AAACA4479N & / APPELLANT BY : SHRI SURENDRA KUMAR ' & * /RESPONDENT BY : SHRI NITESH JOSHI * - / DATE OF HEARING : 7.11.2013 * - /DATE OF PRONOUNCEMENT : 20.11.2013 / O R D E R PER B.R.MITTAL, JM: THE DEPARTMENT HAS FILED THIS APPEAL FOR ASSESSMENT YEAR 2006-07 AGAINST ORDER OF LD. CIT(A) DATED 30.8.2010 ON THE GROUND THAT T HE LD. CIT(A) HAS ERRED IN DIRECTING AO TO ALLOW THE EXPENDITURE INCURRED BY ASSESSEE OF RS.21,74,249/- ON REPAIRS AS REVENUE EXPENDITURE AND CONSEQUENTLY WITHDRAW THE DEPRECIATION, IF ANY ALLOWED ON THIS ACCOUNT, WITHOUT APPRECIATING THE FACT THAT TH E AO CONSIDERED THE SAID EXPENDITURE AS CAPITAL EXPENDITURE. I. T.A. NO.7653/MUM/2010 2 2. RELEVANT FACTS ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF PHARMACEUTICALS AND CARRYING ITS ACTIVITIES FROM ITS FACTORY AT GOREGAON. THE FACTORY OF THE ASSESSEE WAS REGIST ERED AND HOLDING A LICENSE FROM GOVERNMENT (FOOD AND DRUGS AUTHORITY) ( HEREINAFT ER REFERRED TO AS FDA) FOR CARRYING SUCH MANUFACTURING ACTIVITIES. DURING THE INSPECT ION OF THE FACTORY OF THE ASSESSEE BY FDA, SEVERAL ANOMALIES/DISCREPANCIES WERE FOUND WI TH REGARD TO LAY OUT AND THE AESTHETICS OF THE FACTORY. THE CONCERNED AUTHORI TY REFUSED TO RENEW LICENSE AND DIRECTED THE ASSESSEE TO CARRYOUT CHANGES IN THE MA NUFACTURING AREA BEFORE MANUFACTURING LICENSE IS RENEWED. IN VIEW OF ABOVE , ASSESSEE CARRIED OUT CERTAIN REPAIRS TO ITS FACTORY I.E. REPLACING OLD ELECTRICAL INST ALLATIONS, FLOORING, PLASTERING, VENTILATION ETC. THE ASSESSEE INCURRED EXPENSES ON ACCOUNT OF SAID REPAIRS IN ORDER TO GIVE NEW SHAPE IN THE EXISTING ASSETS FOR CARRYING OUT BUSI NESS SMOOTHLY OF AMOUNT AGGREGATING TO RS.21,74,249/-. THE ASSESSEE CLAIMED THE SAID EXPENDITURE AS REVENUE EXPENDITURE. HOWEVER, AO STATED THAT THE EXPENDITURE INCURRED BY ASSESSEE GIVES ENDURING BENEFIT TO THE ASSESSEE, HENCE, IT IS NOT REVENUE IN NATURE. HE CONSIDERED THE SAID EXPENDITURE AS CAPITAL AND AFTER ALLOWING DEPRECIATION AT THE RAT E OF 10% THEREOF, MADE ADDITION OF RS. 19,56,824/- TO THE TOTAL INCOME OF THE ASSESSEE . BEING AGGRIEVED, ASSESSEE FILED APPEAL BEFORE HE FIRST APPELLATE AUTHORITY. 3. ON BEHALF OF THE ASSESSEE, IT WAS CONTENDED THAT THE ASSESSEE UNDERTOOK REPAIRS AND ALTERATIONS TO ITS EXISTING MANUFACTURING FACI LITIES. THE SAID EXPENDITURE OF RS.21,74,249/- HAS NOT RESULTED IN CREATION OF AN Y NEW ASSET OF ENDURING NATURE AND AS SUCH THE ENTIRE EXPENDITURE INCURRED, IS REVENUE I N NATURE. LD.CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE VIDE PARA 8 OF THE IMPUGNED ORDER HELD THAT THE SAID EXPENDITURE IS REVENUE IN NATURE AND DIRECTED THE AO TO ALLOW THE SAME AND WITHDRAW DEPRECIATION THEREON, IF ANY ALLOWED ON THIS ACCOUN T. BEING AGGRIEVED, THE DEPARTMENT IS IN APPEAL BEFORE US. 4. LD. DR SUPPORTED THE ACTION OF AO AND SUBMITTE D THAT THE SAID EXPENDITURE INCURRED BY THE ASSESSEE IS ON ACCOUNT OF REPAIRS C ARRIED ON, ON THE DIRECTIONS OF FDA AND NOT DAY TO DAY REPAIRS. HENCE, THE ASSESSEE H AS GOT ENDURING BENEFIT AND IT CANNOT BE CONSIDERED TO BE ROUTINE EXPENDITURE TO RUN FACTORY BY THE ASSESSEE. LD. DR ALSO REFERRED THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF MODI SPINNING & WEAVING MILLS CO. LTD. V/S CIT [1993] 200 ITR 544 ( DELHI) AND THE DECISION OF HONBLE APEX COURT IN THE CASE OF CIT V/S RAMARAJU SURGI CAL COTTON MILLS [2008] 166 TAXMAN 356 (SC). I. T.A. NO.7653/MUM/2010 3 5. ON THE OTHER HAND, LD. AR SUPPORTED THE ORDER OF LD. CIT(A) AND SUBMITTED THAT DETAILS OF EXPENDITURES INCURRED BY THE ASSESSEE AR E CONTAINED AT PAGES 1 TO 23 OF THE PAPER BOOK. HE SUBMITTED THAT NO NEW ASSET HAS BE EN CREATED BY INCURRING SAID EXPENDITURE AND THE SAID EXPENDITURE WAS INCURRED TO FACILITATE TO RUN THE FACTORY. HENCE, IT IS A REVENUE IN NATURE. 6. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF AUTHO RITIES BELOW AND SUBMISSIONS OF LD. REPRESENTATIVES OF BOTH THE PARTIES. WE HAVE A LSO GONE THROUGH THE ORDERS OF AUTHORITIES BELOW AND THE CASES CITED BY LD. DR (SU PRA). 7. WE OBSERVE THAT THE SAID EXPENDITURE HAS BEEN IN CURRED BY THE ASSESSEE TO CARRY OUT THE NECESSARY REPAIRS TO ENABLE TO CARRY ON TO ITS MANUFACTURING ACTIVITIES SMOOTHLY AND NO NEW ASSETS HAVE COME INTO EXISTENCE. THE HO NBLE APEX COURT HAS ALSO HELD IN THE CASE OF CIT V/S ASSOCIATED CEMENT COMPANIES LT D. 172 ITR 257(SC) THAT WHAT IS MATERIAL TO CONSIDER IS THE NATURE OF THE ADVANTAGE IN A COMMERCIAL SENSE AND IT IS ONLY WHERE THE ADVANTAGE IS IN THE CAPITAL FIELD THAT TH E EXPENDITURE WOULD BE DISALLOWABLE ON AN APPLICATION OF ENDURING BENEFIT. IF THE ADVANTAG E CONSISTS MERELY IN FACILITATING THE ASSESSEE'S TRADING OPERATIONS OR ENABLING THE MANAG EMENT AND CONDUCT OF THE ASSESSEE'S BUSINESS TO BE CARRIED ON MORE EFFECTIVE LY OR MORE PROFITABLY WHILE LEAVING THE FIXED CAPITAL UNTOUCHED, THE EXPENDITURE WOULD BE ON REVENUE ACCOUNT, EVEN THOUGH THE ADVANTAGE MAY ENDURE FOR AN INDEFINITE FUTURE. HOWEVER, THE HONBLE APEX COURT ALSO HELD IN THE CASE OF BIKANER GYPSUMS LTD. V/S C IT (187 ITR 39 AT PG 49), THE ASSESSEE HAS AN EXISTING RIGHT TO CARRY ON A BUSIN ESS, ANY EXPENDITURE INCURRED BY IT DURING COURSE OF BUSINESS FOR PURPOSE OF REMOVAL OF ANY RESTRICTION OR OBSTRUCTION OR DISABILITY WOULD BE ON REVENUE ACCOUNT, PROVIDED EXPENDITURE DOES NOT ACQUIRE ANY CAPITAL ASSET . IT WAS HELD THAT PAYMENTS MADE FOR REMOVAL OF RES TRICTION, OBSTRUCTION OR DISABILITY MAY RESULT IN ACQUIRING BENEFITS TO T HE BUSINESS, BUT THAT BY ITSELF WOULD NOT ACQUIRE ANY CAPITAL ASSET. WE ARE OF THE CONSIDER ED VIEW THAT ABOVE DECISIONS SQUARELY APPLY TO THE FACTS OF THE CASE BEFORE US. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE HAS CARRIED ON REQUISITE REPAIRS, THE DET AILS OF WHICH ARE GIVEN AT PAGES 1 TO 23 OF THE PAPER BOOK TO FACILITATE ITS MANUFACTURIN G ACTIVITIES BY REMOVING OBSTRUCTION, RESTRICTION SUGGESTED BY FDA AND NO NEW CAPITAL ASS ET HAS COME INTO EXISTENCE. HENCE THE LD. CIT(A) HAS RIGHTLY HELD THAT THE EXPENDITU RE INCURRED BY ASSESSEE IS REVENUE IN NATURE AND IT IS NOT CAPITAL IN NATURE. THE CASES CITED BY LD. DR ARE NOT RELEVANT TO THE FACTS OF THE CASE BEFORE US AS THE FACTS ARE TOTALL Y DIFFERENT. THEREFORE, WE DO NOT I. T.A. NO.7653/MUM/2010 4 CONSIDER IT NECESSARY TO DEAL THOSE CASES SPECI FICALLY IN DISPOSING OF THE ISSUE BEFORE US. HENCE, GROUND OF APPEAL TAKEN BY DEPARTMENT I S REJECTED. 8. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 20 TH NOVEMBER, 2013 * 1 2 20 TH NOVEMBER, 2013 * SD/ SD/- D ( / RAJENDRA) ( . . /B.R.MITTAL) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI: /11/2013 . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. & / THE APPELLANT 2. ' & / THE RESPONDENT. 3. 6 ( ) / THE CIT(A)- CONCERNED 4. 6 / CIT CONCERNED 5. 7 '9 , - 9 , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) - 9 , /ITAT, MUMBAI