The DCIT, Circle-2(1), Baroda V. M/s. Baroda Dist. Co.Op. Milk Producers Union Ltd., Baroda

ITA 863/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6068 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 21-07-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 19-03-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P R GHOSH
• Assessee Lawyers: M K PATEL
• Keywords: Depreciation; Capital expenditure
• Section: 143(3); 37(1); 37

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE S/SHRI BHAVNESH SAINI, JM AND A. MOHAN ALANK AMONY, AM DY. CIT, CIR.2(1), BARODA. VS. BARODA DIST. CO-OP. MILK PRODUCERS UNION LTD., MAKARPURA ROAD, MAKARPURA, BARODA. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI P. R. GHOSH, DR RESPONDENT BY:- SHRI M. K. PATEL, AR O R D E R PER A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER . THIS APPEAL IS FILED BY THE REVENUE, AGGRIEVED BY THE ORDER OF LD. CIT(A)-II, BARODA IN APPEAL NO.CAB/II-508/07-08 FOR ASST. YEAR 2005- 06 DATED 31.12.2008 PASSED U/S 250 R.W.S 143(3) OF THE ACT. 2. THE REVENUE HAS RAISED TWO GROUNDS IN ITS APPEAL WHEREIN GROUND NO.2 IS GENERAL IN NATURE AND DOES NOT SURVIVE FOR ADJUDICATION. GROUND NO.1 IS REPRODUCED HEREIN BELOW:- (1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) ERRED IN DELETING ADDITION OF RS.20,88,5 28/- MADE ON ACCOUNT OF REPAIRS AND MAINTENANCE TO PLANT & MACHI NERY AND BUILDING OVERLOOKING THE SUPREME COURT DECISION IN THE CASE ITA NO.863/AHD/2009 ASST. YEAR 2005-06 ITA NO.863/AHD/2009 ASST. YEAR 2005-06 2 OF CIT VS. SARAVANA SPINNING MILLS (P) LTD. (2007) 293 ITR 201 (SC), WHEREIN IT WAS HELD THAT REPAIRS AND MAIN TENANCE SHOULD COME WITHIN THE PURVIEW OF CURRENT REPAIRS AND NOT ALLOWABLE U/S 37(1) OF THE ACT. 3. THE ASSESSEE IS A CO-OPERATIVE SOCIETY RENDERING SERVICE BY PROCESSING MILK AND PRODUCTION OF MILK PRODUCTS. IT FILED ITS RETURN OF INCOME ON 31.10.2004 DECLARING TOTAL INCOME OF RS.1 .73 CRORES ALONG WITH TAX AUDIT REPORT. INITIALLY THE RETURN WAS PRO CESSED U/S 143(1) OF THE ACT ON 9.3.2007. SUBSEQUENTLY, THE CASE WAS SELECTE D FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED U/S 143(3) ON 28.12.2007. DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT THE LD. AO CAME TO THE CONCLUSION THAT THE ASSESSEE HAS WRONGLY CHARGED TO ITS PROFIT AND LOSS ACCOUNT EXPENDITURE UNDER THE HEAD REPAIRS AND MA INTENANCE OF PLANT & MACHINERY AND BUILDING AGGREGATING TO RS.27,63,661/ -. AFTER OBTAINING THE RELEVANT RECORDS AND SUBMISSIONS, THE LD. AO TR EATED RS.23,17,372/- TO BE EXPENDITURE IN THE CAPITAL FIELD AND THEREFORE, DISALLOWED THE SAME WITH THE FOLLOWING OBSERVATION :- THE SUBMISSION OF THE ASSESSEE HAS BEEN CONSIDERED . DEDUCTION ON ACCOUNT OF REPAIRS TO MACHINERY, PLANT AND FURNI TURE IS GOVERNED BY SECTION 31 OF THE IT ACT. IN EXPLANATION TO SECTION 31 IT IS CLEARLY MENTIONED THAT THE AMOUNT PAID ON ACCOUNT OF CURREN T REPAIRS SHALL NOT INCLUDE ANY EXPENDITURE IN THE NATURE OF CAPITAL EX PENDITURE. RELIANCE IS PLACED ON BALTTMAL NAVAL KISHOR V/S. CIT 224 1TR 414 (SC). RELIANCE IS ALSO PLACED ON IN THE RECENT DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS SARAVANA SPINNING MILLS PVT. LTD, (20O7) 293 ITR 201 (SC) WHERE IN THE SAID DECISION HON'BLE SUPREME COURT HA S EMPHASIZED THAT EXPENDITURE UNDER THE HEAD REPAIR AND MAINTENA NCE SHOULD COME WITHIN THE PURVIEW OF 'CURRENT REPAIRS' I.E. THE EX PRESSION USED IN SECTION 31(1)- THIS EXPRESSION REFERS TO EXPENDITURE INCURR ED IN ORDER TO ITA NO.863/AHD/2009 ASST. YEAR 2005-06 3 'PRESERVE AND M3INTAIN' AN ALREADY EXISTING ASSET B UT REPLACEMENT OF WORN OUT ASSETS DOES NOT COME WITHIN THE PURVIEW OF THIS EXPRESSION. THUS, THE QUESTION WHETHER THE EXPENDITURE IS CONCEPTUALLY CA PITAL OR REVENUE IS NOT RELEVANT FOR DECIDING THE ALLOWABILITY U/S. 31(I). FURTHER IN THE SAID DECISION HON'BLE SUPREME COURT HAS HELD THAT THE EX PENDITURE UNDER THE HEAD REPAIRS AND MAINTENANCE IS NOT ALLOWABLE U/S. 37(1) BECAUSE THE WORDS IN PARENTHESIS OF SECTION 37(1) EXCLUDE THOSE ITEMS OF EXPENDITURE WHICH EXPRESSLY FALL IN SECTION 30 TO 36. HON'BLE S UPREME COURT HAS AFFIRMED THE RATIO OF THE SEVERAL HIGH COURT DECISI ONS TO THE EFFECT THAT, WHERE AN EXPENDITURE FALLS UNDER SECTION 30 TO 36 B UT IS NOT ALLOWABLE ON ACCOUNT OF RESTRICTION CONTAINED IN THE RESPECTIVE SECTIONS, IT CAN NOT BE CLAIMED UNDER THE RESIDUARY PROVISION OF SECTION 37 (1). FOR ALLOWABILITY U/S 37(1), APART FROM THE RESTRICTION THAT THE EXPE NDITURE SHOULD NOT BE CAPITAL OR PERSONAL IN NATURE, THERE IS ANOTHER RES TRICTION THAT IT SHOULD NOT FALL IN SECTIONS 30 TO 36. ACCORDINGLY AN ADDIT ION OF RS,2317374/- IS MADE AFTER CONSIDERING DEPRECIATION AT 10% ON BUILD ING (I.E. RS. 163DS50 - 163085 = 1467765) &25%ON PLANT AND MACHIN ERY (I.E. RS. 1132811 - 283202 - 849609) AND INCLUDED IN THE TOTA L INCOME OF THE ASSESSEE. 4. THE ASSESSEE WENT ON APPEAL BEFORE THE LD. CIT(A ) AND FURNISHED ALL THE RELEVANT DOCUMENTS ALONG WITH THE DETAILS O F THE EXPENDITURE WHICH ARE REPRODUCED IN PARA 6.3 OF LD. CIT(A)S ORDER. A FTER ANALYZING THE ISSUE IN DETAIL, THE LD. CIT(A) ARRIVED AT THE FOLLOWING CONCLUSION :- 6.4 I HAVE CONSIDERED THE SUBMISSION OF THE AUTHOR IZED REPRESENTATIVE AND THE ORDER OF THE AO. IT IS NOT A CASE OF THE OF FICER THAT THE EXPENDITURE HAS NOT BEEN INCURRED. THE ONLY ISSUE B E CONSIDERED IS WHETHER THE SAME- IS A CAPITAL EXPENDITURE OR REVEN UE EXPENDITURE. THE ASSESSING OFFICER IS SILENT ON THE NATURE OF EXPENS ES. ON VERIFICATION OF THE DETAILS SUBMITTED BY THE APPELLANT, IT IS SEEN THAT THE EXPENSES HAVE LARGELY BEEN MADE ON REPAIR WORK OF THE BUIL DING AND MACHINERY. OUT OF THE TOTAL CLAIM OF RS.27,63,661/- MORE THAN RS.8 LACS ON PAINTING OF FACTORY, AN EXPENDITURE WHICH CLEARLY FALLS UNDE R MAINTENANCE. THE EXPENDITURES WHICH COULD BE CONSIDERED TO BE OF RS. 2,13,518/- INCURRED FOR THE PURPOSE OF EXTENSION OF THE BUILDING AND M ODIFICATION OF BURNER FOR FULLY AUTOMATIC OPERATION AMOUNTING TO RS.40,75 5/-.THE BALANCE EXPENSES HAVE BEEN INCURRED ON REPAIRS AND OF THE P LANT AND MACHINERY AND THE BUILDING. THE ASSESSING OFFICER WAS NOT JUS TIFIED IN TREATING THE ITA NO.863/AHD/2009 ASST. YEAR 2005-06 4 EXPENDITURE AS CAPITAL IN NATURE. THE ADDITION MADE BY THE ASSESSING OFFICER IS DELETED TO THE EXTENT OF RS. 25,09,388/-. THE ASSESSING OFFICER IS DIRECTED TO CAPITALIZE THE EXPENDITURE T O THE EXTENT OF RS 2,54,273/-AND RE-COMPUTE THE DEPREDATION ADMISSIBLE . 5. AGGRIEVED BY THE ORDER OF LD. CIT(A), THE REVEN UE IS IN APPEAL BEFORE US. THE LD. DR RELIED ON THE ORDER OF AO AND ARGUED THAT THE EXPENDITURE INCURRED BY THE ASSESSEE WAS EXTENSIVE AND INCURRED FOR THE PURPOSE OF RENEWAL AND RESTORATION OF THE ASSETS AND NOT FOR T HE DAY TO DAY MAINTENANCE OF THE ASSETS. LD.DR FURTHER SUBMITTED THAT THE ORDER OF THE AO BE CONFIRMED. 6. THE LD. AR VEHEMENTLY SUBMITTED BEFORE US THAT A LL THE DETAILS FOR THE EXPENDITURE HAVE BEEN SUBMITTED BEFORE THE LD. CIT(A) WHO HAS JUDICIOUSLY GRANTED RELIEF TO THE ASSESSEE. HE FURT HER SUBMITTED THAT THE SUBSTANTIAL EXPENDITURE RELATED TO CURRENT REPAIRS AND NOT FOR THE PURPOSE OF RENEWAL OR RESTORATION AS CLAIMED BY THE REVENUE . THESE EXPENDITURES HAD TO BE INCURRED FOR PRESERVING AND MAINTENANCE O F THE ASSETS. NONE OF THIS EXPENDITURE BRINGS IN A NEW ASSET INTO EXISTEN CE OR ANY DISTINCT ADVANTAGE TO THE ASSESSEE. LD.CIT(A) HAD PROBED INT O THE ISSUE THREADBARE AND WAS CONVINCED THAT ONLY EXPENDITURE TO THE TUNE OF RS. 2,54,273/- IS IN THE CAPITAL FIELD. LD.AR HUMBLY PRAYED BEFOR E US THAT THE ORDER OF THE LD. CIT(A) MAY BE UPHELD. ITA NO.863/AHD/2009 ASST. YEAR 2005-06 5 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED OVER THE MATERIAL ON RECORD. FROM THE FACTS OF THE CASE IT IS APPAREN T THAT THE LD. CIT(A) HAS LOOKED INTO THE ISSUE METICULOUSLY. THE DETAILS OF THE EXPENDITURE INCURRED ARE ALSO BROUGHT OUT IN HIS ORDER AND THEY APPARENTLY SHOW THE NATURE OF TRANSACTION. IN THE PRESENT CIRCUMSTANCE WE DO NOT FIND IT NECESSARY TO INTERFERE WITH THE ORDER OF THE LD.CIT (A). IT IS ORDERED ACCORDINGLY. 8. IN THE RESULT THE APPEAL OF THE REVENUE IS D ISMISSED. ORDER WAS PRONOUNCED IN OPEN COURT ON 22/7/11 SD/- SD/- (BHAVNESH SAINI) (A. MOHAN ALANKAMONY) JUDICIAL MEMBER ACCOUNTANT MEMB ER AHMEDABAD, DATED : 22/7/11. MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD ITA NO.863/AHD/2009 ASST. YEAR 2005-06 6 1.DATE OF DICTATION 21/7/11. 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER 21/7/11. /OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..