M/s. Shilp Gravures Ltd., Ahmedabad V. The ACIT., Range-8, Ahmedabad

ITA 779/AHD/2009

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 1861 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 21-02-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 09-03-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: R T SHAH
• Keywords: Capital asset; Depreciation; Opportunity of being heard; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : C BENCH : AHMEDABAD (BEFORE HONBLE SHRI T.K. SHARMA, J.M. & HON' BLE SHRI N.S.SAINI, A.M. ) I.T.A. NO. 779/AHD./2009 ASSESSMENT YEAR : 2006-2007 SHILP GRAVURES LTD., AHMEDABAD -VS- ADDL. CIT RANGE-8, AHMEDABAD (PAN : AADCS 0868G) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R.T.SHAH, A.R. RESPONDENT BY : SHRI SAMIR TEKRIWAL, SR .D.R O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER : THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE O RDER DATED 03.02.2009 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-XIV, A HMEDABAD CONFIRMING DISALLOWANCE OF RS.16,06,791/- OUT OF REPAIRS TO FACTORY BUILDING A MOUNTING TO RS.20,60,605/- DISALLOWED BY THE ASSESSING OFFICER FOR THE ASSESSMENT YEAR 2006-2007 . 2. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE I S A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING AND JOB WORK IN ELECTRONICALLY ENGRAV ED COPPER ROLLERS AND TRADING OF PIPES, CIRCLES, ETC. FOR THE ASSESSMENT YEAR UNDER APPEAL, IT FILED THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS.3,36,51,290/- ON 07.12.2006. THE ASSES SING OFFICER FRAMED THE ASSESSMENT UNDER SECTION 143(3) ON 28.11.2008 WHEREIN HE HELD THAT T HE REPAIRS AND MAINTENANCE EXPENSES AMOUNTING TO RS.20,60,605/- IS IN THE NATURE OF CAP ITAL EXPENDITURE. THEREFORE, THE ASSESSEE IS ENTITLED TO DEPRECIATION. HE ACCORDINGLY ALLOWED TH E DEPRECIATION AMOUNTING TO RS.1,30,055/-. IN THIS MANNER, THE ASSESSING OFFICER MADE NET DISALLO WANCE OF RS.19,30,550/- I.E. RS.20,60,605/- MINUS THE DEPRECIATION ALLOWED RS.1,30,055/-. WHIL E MAKING THIS DISALLOWANCE, THE ASSESSING OFFICER OBSERVED THAT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR I.E. ASSESSMENT YEAR 2005- 06, THE ASSESSEE HAS CLAIMED EXPENDITURE ON FACTORY BUILDING REPAIRS TO THE TUNE OF RS.20,45,829/. 2 ITA NO. 779-AHD-2009 3. ON APPEAL BEFORE THE LEARNED COMMISSIONER OF INC OME TAX(APPEALS), IT WAS CONTENDED THAT BUILDING HAS BECOME OLD AND IT REQUIRES REPAIR AND ALL THE EXPENSES ARE REVENUE IN NATURE. THE LD. COMMISSIONER OF INCOME TAX(APPEALS), AFTER EXAMINING THE NATURE OF EXPENSES, CONFIRMED THE DISALLOWANCE TO THE EXTENT OF RS.16,0 6,791/- FOR THE DETAILED REASONS GIVEN IN PARA 2.3, WHICH READS AS UNDER: 2.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE AND THE SUBMISSIONS OF THE A.R.. I FIND THAT CERTAIN EXPENSES INCURRED WERE IN FACT NOT FOR CURRENT REPAIRS, BUT THE SAME WERE FOR THE RENOVATION WORK AND SUCH EX PENSES ARE TO BE CAPITALISED. HOWEVER, THE A.O . IS NOT JUSTIFIED IN TREATING THE WHOLE REPAIR EXPE NSES AS CAPITAL EXPENDITURE. THE OLD BUILDING NEEDED SOME REPAIRS . FROM THE DETAILS SUBMITTED BY THE APPELLANT, I FIND THAT THE FOLLOWING EXPENSES ARE IN THE NATURE OF CAPITAL EXPENDITURE, AS THESE WERE FOR RENOVATION AND CRE ATION OF CAPITAL ASSET. THE HON'BLE SUPREME COURT IN THE CASE OF M/S. SARAVAN A SPINNING MILLS PVT. LTD., 293 ITR 201 HAS HELD THAT SECTION 31(I) IS FOR CURREN T REPAIRS AND EVEN IF THE EXPENDI- TURE IS REVENUE IN NATURE, IT CANNOT FALL IN THE CONNOTATION OF CURRENT REPAIRS, UNLESS IT IS FOR THE CURRENT YEAR'S REPAIRS. NAME OF THE PARTY NATURE OF WORK AMOUNT IN RS. ATUL LIMITED EPOXY EARNER LAPOX 90017 -DO- -DO- 40852 GOPI CONSTRUCTION RENOVATION 189966 MANGAJI BHAVAJI SAND FILLING 34560 ARVINDSING H SIKARVAR COLOR PAINT LABOUR 174318 GOPI CONSTRUCTION GENERAL PLANT MISC. REPAIRING WORK 180520 GOPI CONSTRUCTION RENOVATION 294419 -DO- GENERAL PLANT MISC. REPAIR WORK 434929 NITINBHAI B, SHAH (ARCHITECT CONSULTING ENGG. SERVICE FEES 33570 3 ITA NO. 779-AHD-2009 GOPI CONSTRUCTION CEMENT 133640 TOTAL 16,06,791 THE ACTION OF (HE A.O. IS, THEREFORE, CONFIRMED T O THE EXTENT OF THE ABOVE AMOUNT OF RS, 16,06,917- AND THE APPELLANT IS ALLOWED RE LIEF M RESPECT OF THE BALANCE AMOUNT. THE A.O. IS DIRECTED TO RECALCULATE THE A MOUNT OF DISALLOWANCE ACCORDINGLY. 4. AGGRIEVED WITH THE ORDER OF THE LD. LEARNED COMM ISSIONER OF INCOME TAX(APPEALS), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5. AT THE TIME OF HEARING BEFORE US, SHRI R.T.SHAH, LD. A.R. APPEARED ON BEHALF OF THE ASSESSEE AND CONTENDED THAT IN THE ASSESSMENT YEAR 2005-06 ALSO, THE ASSESSING OFFICER DISALLOWED THE ENTIRE REPAIR EXPENSES AMOUNTING TO RS.20,45,829/-. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) RETAINED THE DI SALLOWANCE TO THE EXTENT OF RS.15,65,383/. ON FURTHER APPEAL BY THE ASSESSEE, THE ITAT, C BE NCH, VIDE ORDER DATED 27.08.2010, DELETED THE DISALLOWANCE TO THE EXTENT OF RS.15,65,383/-. HE SU BMITTED THAT FACTS AND CIRCUMSTANCES ARE THE SAME AND THE NATURE OF EXPENSES IS SAME. THEREFORE, FOLLOWING THE DECISION OF ITAT C BENCH IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2005 -06 ( SUPRA ), THE DISALLOWANCE TO THE EXTENT OF RS.16,06,791/- BE DELETED. 6. ON THE OTHER HAND, SHRI SAMIR TEKRIWAL, LD. D.R. , APPEARED ON BEHALF OF THE REVENUE AND DREW OUR ATTENTION TO PAGE NOS. 7 TO 15 OF THE PAPE R BOOK WHICH CONTAINED THE NATURE OF REPAIRS ALLEGED TO BE CARRIED OUT BY THE ASSESSEE. HE POIN TED OUT THAT THE NATURE OF ITEMS PURCHASED CLEARLY INDICATES THAT THE ASSESSEE HAS INCURRED CA PITAL EXPENDITURE. HE FURTHER POINTED OUT THAT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, THE ASSE SSEE HAS CLAIMED REPAIR EXPENSES OF RS.20,45,829/-. THEREFORE, IT IS HIGHLY IMPOSSIBLE THAT EVERY YEAR THE ASSESSEE IS CARRYING OUT CIVIL CONSTRUCTION WORK OF SUCH A HUGE AMOUNT. HE F URTHER SUBMITTED THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS), AFTER EXAMININ G THE NATURE OF EXPENSES, CONFIRMED THE DISALLOWANCE TO THE EXTENT OF RS.16,06,791/-. THERE FORE, THE VIEW TAKEN BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) BE UPHELD. IN T HE REJOINDER, THE COUNSEL OF THE ASSESSEE 4 ITA NO. 779-AHD-2009 POINTED OUT THAT THE PAYMENT MADE TO ATUL LIMITED A MOUNTING TO RS.90,017/- AND RS.40,852/- IS PURELY IN THE NATURE OF REPAIRING. FURTHER, THE COL OUR PAINT LABOUR IS ALSO REVENUE EXPENDITURE. WITH REGARD TO OTHER EXPENSES, THE COUNSEL OF THE A SSESSEE SUBMITTED THAT CONSULTING ENGINEERING SERVICE FEES PAID TO NITINBHAI B. SHAH, ARCHITECT, IS ALLOWABLE AS REVENUE EXPENDITURE BECAUSE WHATEVER CIVIL WORK IS DONE, IT WAS IN THE NATURE O F CURRENT REPAIRS ONLY. TO A QUERY FROM THE BENCH TO PRODUCE THE BILLS OF REPAIRS AND REPORT FR OM ARCHITECT, CERTIFYING THE NATURE OF WORK CARRIED OUT, COUNSEL OF THE ASSESSEE SUBMITTED THAT AT THIS STAGE, IT IS NOT POSSIBLE TO PRODUCE THE SAME. THEREFORE, HE HAS NO OBJECTION, IF THE REASON ABLE DISALLOWANCE BE UPHELD. 7. AFTER HEARING BOTH THE SIDES, WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT REPAIRS ARE ALL OWABLE UNDER SECTION 13 OF THE I.T. ACT, 1961. THE FOLLOWING POINTS ARE REQUIRED TO BE NOTED IN REGARD TO CURRENT REPAIRS : I) CURRENT REPAIRS IMPLY REPAIRS INCURRED ON A ROU TINE BASIS DURING THE CURRENT PREVIOUS YEAR, II) CURRENT REPAIRS, THUS, INCLUDE REPAIRS MEANT TO PRESERVE AN ALREADY EXISTING ASSET. III) CURRENT REPAIRS DO NOT INCLUDE REPAIRS MEANT TO CREATE A NEW ASSET OR MAKE AN ADDITION OR IMPROVEMENT TO THE ASSET. IT MAY BE N OTED THAT THE EXPLANATION TO THIS SECTION PROVIDES BY WAY OF CLARIFICATION, FROM TH E ASSESSMENT YEAR 2004-05, THAT CAPITAL EXPENDITURE SHALL NOT BE ELIGIBLE FOR DE DUCTION. [NATHMAL BANKATLAL PARIKH & CO. V. CIT [1980] 122 ITR 168 (AP)/[1980 ] 3 TAXMAN 97 (AP); MODI SPG. & WVG. MILLS CO. LTD. V. CIT [1993] 200 ITR 544 (DELHI); HANUMAN MOTOR SERVICES V. CIT [1967] 66 ITR 88 (MYS.) NEUTRALIZ ED]. PRIMA FACIE , IT APPEARS THAT NONE OF THE DEPARTMENTAL AUTHORIT IES BELOW HAS EXAMINED THE BILL OF NITINBHAI B. SHAH, ARCHITECT, CONSULTING ENGINEER T O WHOM THE ASSESSEE HAS PAID RS.33,570/-. IN THE DETAILS, FURNISHED BEFORE THE LOWER AUTHORITIES AND BEFORE US, IT WAS CONTENDED THAT THIS ARCHITECT WAS EMPLOYED AS CONSULTING ENGINEER FOR R ENOVATION OF FACTORY BUILDING. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT IT WILL MEET THE ENDS OF JUSTICE, IF THE ASSESSEE MAY OBTAIN A CERTIFICATE FROM CONSULTI NG ENGINEER, CERTIFYING THE NATURE OF SERVICES RENDERED AND THE ALLEGED REPAIR WORK HE HAS SUPERVI SED. THE SAID ARCHITECT MAY ALSO CERTIFY THAT NO ADDITIONS WHICH ARE OF CAPITAL NATURE HAVE BEEN MADE BY SPENDING THE AMOUNT UNDER DISPUTE. 5 ITA NO. 779-AHD-2009 WE, THEREFORE, RESTORE THE DISALLOWANCE TO THE EXTE NT OF RS.16,06,791/- TO THE FILE OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WITH THE DIRECT ION THAT THE ASSESSEE SHOULD FURNISH THE AFORESAID CERTIFICATE AND THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) MAY EXAMINE THE SAME AND ALSO VERIFY THE REPAIR BILLS AND RE-ADJUDI CATE THE ADDITION OF RS.16,06,791/-, AFTER GIVING OPPORTUNITY OF BEING HEARD TO BOTH THE SIDES. IN TH E RESULT, FOR STATISTICAL PURPOSES, THE APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED. 8. IN THE RESULT, FOR STATISTICAL PURPOSES, THE APP EAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED. THE ORDER PRONOUNCED IN THE COURT ON 25.02.2011. (N.S.SAINI) (T.K. SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 25/02/2011 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE 2) THE DEPARTMENT. 3) CIT(A.) CONCERNED, 4) CIT CONCERNED, 5) D.R., ITAT, AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGI STRAR, ITAT, AHMEDABAD TALUKDAR/SR.P.S.