COMMISSIONER OF INCOME TAX-I vs. M/S. BANCO PRODUCTS (INDIA) LTD.

O/TAXAP/530/2007 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 530 of 2007

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE KS JHAVERI

and HONOURABLE MR.JUSTICE K.J.THAKER

================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ COMMISSIONER OF INCOME TAX-I....Appellant(s) Versus M/S. BANCO PRODUCTS (INDIA) LTD.....Opponent(s) ================================================================ Appearance: MR KM PARIKH, ADVOCATE for the Appellant(s) No. 1 MRS SWATI SOPARKAR, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER Page 1 of 5

O/TAXAP/530/2007 JUDGMENT

Date : 22/12/2014

ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. Being aggrieved and dissatisfied with the impugned order passed by the Income Tax Appellate Tribunal, Ahmedabad Bench ‘A’ (hereinafter referred to as ITAT) dated 31.07.2006 in ITA No. 2618/Ahd/2004 for the Assessment Year 2000-01, the revenue has preferred the present Tax Appeal. 2. This appeal was admitted on 10.12.2007 for consideration of the following substantial question of law: “[A] Whether on the facts and in the circumstances of the case, the Appellate Tribunal is justified in holding that the “total turnover” for the purposes of reduction u/s.80HHC will not include Central Sales Tax, Gujarat Sales Tax and Excise Duty even after insertion of Section 145 A? [B] Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in confirming the order of the CIT(A) whereby he allowed the expenditure of Rs.1,30,500/- on removal of old tiles and providing of new flooring and Rs.5,00,900/- on construction of a new masonry compound wall by replacing barbed wire fencing.” 3. The first issue involved in this appeal is regarding exclusion of excise duty of Rs. 7.63 crores and sales tax of Rs. 4,12,55,467/- from the total turnover for the purpose of deduction u/s. 80HHC. The CIT(A) decided the said issue in favour of the assessee. The Tribunal confirmed the findings of the CIT(A) and therefore the revenue is in appeal challenging the said finding. Page 2 of 5

O/TAXAP/530/2007 JUDGMENT 3.1 This question of law raised for consideration in the present Tax Appeal is now not res integra in view of the decision of this Court in the case of Commissioner of Income-tax vs. Meghmani Organics Ltd reported in [2014] 222 ITR 123 (Gujarat) as well as unreported decision of this Court rendered in Tax Appeal No. 884 of 2006 and allied matters dated 03.12.2013 in the case of Commissioner of Income Tax vs. Pogagen and Nagarsheth Powertronics Ltd. This Court in the aforesaid decisions has held that excise duty is required to be excluded from the ‘total turnover’ for the purpose of computation of deduction u/s. 80HHC. Therefore, the present appeal is required to be dismissed qua question no. 1. 4. The second issue is regarding allowance of expenditure claimed on repairs of building amounting to Rs. 6,31,400/- which was disallowed by the Assessing Officer as capital expenditure. This amount comprised the following: (i) Removal of old tiles and providing new flooring at old gasket shed Rs. 1,30,500/- (ii) Replacement of fencing of pillars and wires by new masonry wall Rs. 5,00,900/- Total Rs. 6,31,400/- 4.1 The Assessing Officer had disallowed the expenditure as being on replacement, it gave a new and different advantage of enduring nature. The CIT(A) allowed the same with the observation that these were the items already present which Page 3 of 5

O/TAXAP/530/2007 JUDGMENT had gone down due to wear and tear and had been repaired and redone. The Tribunal confirmed the order of CIT(A) which finding has been challenged by the revenue in the present appeal. 5. We have gone through the impugned order passed by the Tribunal. It is a settled position of law that the expenditure to preserve and maintain an already existing asset would constitute repairs. We are of the opinion that the Tribunal was justified in considering the replacement of flooring amounting to Rs. 1,30,500/- and replacement of wall amounting of Rs. 1,92,920/- as revenue expenditures. However, we find that the Tribunal has committed an error in not considering the expenses incurred for erection of new wall to the tune of Rs. 1,40,000/- and erection of wall to the tune of Rs. 1,68,000/- as capital expenditure. The CIT(A) has proceeded on the footing that the company had erected fencing wall long back with barbed wires with cement poles and was capitalized and that after a long period it was necessary to repair the same by re-erection using old major materials liked barbed wires etc. The CIT(A) observed that in the process the company spent on repairing without bringing out any new asset in existence. The Tribunal has confirmed the said finding. We, however, do not agree with the said findings. The expenditure incurred on erection of wall is required to be termed as capital expenditure. 6. In view of the above, question no. 1 raised in the present appeal is answered in favour of the assessee and against the revenue whereas question no. 2 is answered partly in favour of the assessee and partly in favour of the revenue. The Page 4 of 5

O/TAXAP/530/2007 JUDGMENT expenditure incurred in replacement of flooring amounting to Rs. 1,30,500/- and replacement of wall amounting of Rs. 1,92,920/- will be considered as revenue expenditures whereas expenses incurred for erection of new wall to the tune of Rs. 1,40,000/- and erection of wall to the tune of Rs. 1,68,000/- shall be considered as capital expenditure. Moreover, excise duty is required to be excluded from the ‘total turnover’ for the purpose of computation of deduction u/s. 80HHC of the Act. Consequently, the impugned order passed by the Tribunal is modified. Present Tax Appeal is partly allowed. (K.S.JHAVERI, J.) (K.J.THAKER, J) divya Page 5 of 5