PRINCIPAL COMMISSIONER OF INCOME TAX 1 vs. BOSCH REXROTH (INDIA) LTD

C/TAXAP/886/2018 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 886 of 2018 ========================================================== PRINCIPAL COMMISSIONER OF INCOME TAX 1 Versus BOSCH REXROTH (INDIA) LTD ========================================================== Appearance: MRS MAUNA M BHATT(174) for the PETITIONER(s) No. 1 MR MANISH J SHAH(1320) for the RESPONDENT(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MR.JUSTICE A.Y. KOGJE

Date : 23/07/2018

ORAL ORDER (PER : HONOURABLE MR.JUSTICE M.R. SHAH) 1. Feeling aggrieved and dissatisfied with the impugned order dated 08.05.2017 passed by the learned Income Tax Appellate Tribunal, Ahmedabad `I” Bench (“ITAT”) in IT(TP)A.No.462/AHD/2016 for the Assessment Year 2009-10, by which the learned ITAT has dismissed the said appeal preferred by the Revenue and has confirmed the order passed by the learned Commissioner of Income Tax (Appeals), Ahmedabad, the Revenue has preferred the present appeal with the following proposed questions of law: “(A) Whether the Appellate Tribunal has erred in law and on facts by considering the amount of Page 1 of 9

C/TAXAP/886/2018 ORDER Rs.3,17,72,744/- that was spent on complete renovation of the factory building involving plastering, flooring, replacement of doors, electrical fittings, plumbing, laying sheets and roofs, resurfacing road, etc. as revenue expenditure instead of capital expenditure? (B) Whether the Appellate Tribunal has erred in law and on facts by deleting the addition made u/s.40(a)(ia) of the Act amounting to Rs.17,11,387? (C) Whether the Appellate Tribunal has erred in law and on facts by not appreciating findings of the TPO and deleting the addition made on account of Transfer Pricing Adjustment of Rs.23,51,667/-” 2.

We have heard Mrs.Mauna M.Bhatt, learned advocate appearing on behalf of the Revenue and Shri Manish J. Shah, learned advocate appearing on behalf of the respondent-assessee. Learned counsel appearing on behalf of the respective parties have taken us through the orders passed by the learned Assessing Officer, learned CIT(A) as well as learned ITAT and the findings recorded. 3. The facts leading to the present appeal in nutshell are as under: Page 2 of 9

C/TAXAP/886/2018 ORDER 3.1 The assessee filed its Return of Income for A.Y. 2009-10 declaring total income of Rs.39,90,15,597/-. The A.O. framed the assessment determining the total income at Rs.44,00,16,636/-

after

making

several

additions/ disallowances. The A.O. disallowed the expenses amounting to Rs.3,17,72,744/- which was claimed by the assessee while carrying out the repair of the civil works etc. of the existing building in which they are running their office. The A.O. treated the same as capital in nature and therefore made the disallowances of the expenses. The A.O. also made the disallowance under Section 40(a)(ia) amounting to Rs.17,11,387/- on the ground that on the clearing and forwarding charges on export, no TDS was deducted on said payments. The learned A.O. made the deletion on Transfer Pricing Adjustments of Rs.23,51,667/- which was paid by the assessee as guarantee commission. 3.2 Feeling aggrieved and dissatisfied with the order passed by the learned A.O. making above deletion/ disallowances, the assessee preferred appeal before the learned CIT(A). The learned CIT(A) by a speaking and reasoned order held the expenses incurred for repair etc. as revenue expenditure and thereby set aside the order passed by the Page 3 of 9

C/TAXAP/886/2018 ORDER A.O. disallowing the said expenses. The learned CIT(A) considering the decision in the case of very assessee in earlier assessment order by which similar disallowance was deleted, in the year under consideration also allowed the deduction as claimed by the assessee. The learned CIT(A) also quashed and set aside the order passed by the CIT(A) on Transfer Pricing Adjustment. On appeal by the Revenue, the learned ITAT has dismissed the said appeal preferred by the Revenue which is the subject matter of the present appeal. 4. We have heard Mrs.Bhatt, learned counsel appearing on behalf of the appellant – Revenue and Shri Manish J. Shah, learned counsel appearing on behalf of the respondent-assessee. 5. So far as the proposed Question (A), i.e. whether the expenditure incurred by the assessee on repairs etc. can be said to be capital expenditure or revenue expenditure, Mrs.Bhatt, learned counsel appearing on behalf of the Revenue has heavily relied upon the decision of the Hon’ble Supreme Court in the case of Commissioner of Income-Tax v. Sarvana Spinning Mills P. Ltd. - [2007] 293 ITR 201 (SC). She has vehemently submitted that in the present case, the Page 4 of 9

C/TAXAP/886/2018 ORDER expenditure was incurred for plastering, flooring, replacement of doors, electrical fittings, plumbing, laying sheets and roofs, resurfacing road, etc. which shall not fall within the definition of `repair’ and the same can be said to be a complete renovation and therefore, the assessee was not entitled to deduction on such expenses. On the other hand, Shri Manish J.Shah, learned counsel appearing on behalf of the respondent-assessee has heavily relied upon the decision of the Hon’ble Supreme Court in the case of Empire Jute Co. Ltd. v. CIT – [1980] 124 ITR 1/3 Taxman 69 which has been subsequently followed by the Division Bench of this Court in the case of Commissioner of Income-Tax v. Cama Hotels Ltd. - [2015] 63 taxmann.com 27 (Gujarat). Having heard the learned counsel appearing on behalf of the respective parties, the proposed Question (A), the expenses incurred, namely, for plastering, flooring, replacement of doors, electrical fittings, plumbing, laying sheets and roofs, resurfacing road, etc. cannot be said to be renovation and can fall within the definition of `repair’. At this stage, it is required to be noted that the property in question in Page 5 of 9

C/TAXAP/886/2018 ORDER which the aforesaid work was done is a leased property. In the case of Empire Jute Co. Ltd. v. CIT (supra), the Hon’ble Supreme Court has held that there may be cases where expenditure, even if incurred for obtaining an advantage of enduring benefit, may nonetheless, be on revenue account and the test of enduring benefit may break down. It is further observed that if the advantage merely facilitates the assessee’s trading operation or enabling the management to conduct the assessee’s business to be carried on more effectively or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure of an indefinite future. Even in the case of Commissioner of Income-Tax v. Sarvana Spinning Mills P. Ltd. (supra), the Hon’ble Supreme Court has observed that the basic test is to find out whether expenditure was incurred to “preserve and maintain” an already existing asset, and the expenditure must not be to bring a new asset into existence or to obtain new advantage. Considering the expenditure incurred in the present case for for plastering, flooring, replacement of doors, electrical fittings, plumbing, laying sheets and roofs, resurfacing road, etc. the same can be said to be incurred to “preserve and maintain” an Page 6 of 9

C/TAXAP/886/2018 ORDER already existing unit. Under the circumstances, the learned ITAT has rightly held the aforesaid expenditure incurred as revenue expenditure and has rightly allowed the deduction as claimed by the assessee. No substantial question of law arises in this regard. 6. Now so far as the proposed Question (B), namely, deleting the addition made u/s.40(a)(ia) of the Act amounting to Rs.17,11,387/- is concerned, as noted by the learned CIT(A) as well as the learned ITAT, in the earlier order, similar disallowance was deleted by the learned CIT(A) which came to be confirmed by the learned ITAT and the same has attained finality. Under the circumstances, no error has been committed by the learned ITAT in confirming the deletion of the addition made u/s.40(a)(ia) of the Act. No substantial question of law arises. 7. Now so far as the proposed Question (C), i.e. deleting the addition made on account of Transfer Pricing Adjustment of Rs.23,51,667/- is concerned, apart from the fact that in the case of the very assess in earlier year, similar addition was deleted, even on merits also, the learned ITAT has observed as under:- Page 7 of 9

C/TAXAP/886/2018 ORDER “17. There is no dispute that all the three entities that is the assessee company, the lender company and the guarantor company are Associated Enterprises. There is also on dispute that the assessee has borrowed the money on interest of 12.25% per annum as against interest of 15% quoted by the Bank. Considering the guarantee commission of 0.75% paid by the assessee, the total cost of borrowing comes to 13% which is still lower than the rate of 15% quoted by the Bank. This in itself justifies the payment of guarantee commission. Further, the First Appellate Authority has given a categorical finding in relation to similar transactions in earlier assessment year, where no adjustment was made by the AO / TPO. Another undisputed fact is that the operating margin of the assessee company is at 18.21% which is much better as compared to the average margin of 10.36% of the other comparables. On this account also, the payment of guarantee commission is justifiable. Considering the facts in totality in the light of the previous history of the assessee, we do not find any reason to interfere with the findings of the ld. CIT(A). Ground no.4 is accordingly dismissed.” Considering the aforesaid facts and circumstances, it cannot be said that the learned ITAT has committed any error in deleting the addition made on account of Transfer Page 8 of 9

C/TAXAP/886/2018 ORDER Pricing Adjustment of Rs.23,51,667/- . No substantial question of law arises. 8. In view of the above and for the reasons stated above, we concur with the orders passed by the learned CIT(A) as well as learned ITAT. As observed hereinabove, no substantial questions of law arise. Under the circumstances, the present appeal deserves to be dismissed. It is, accordingly dismissed. (M.R. SHAH, J) (A.Y. KOGJE, J) sunil Page 9 of 9