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Income Tax Appellate Tribunal, MUMBAI BENCH “C”, MUMBAI
Before: SHRI C.N. PRASAD, HONBLE & SHRI G. MANJUNATHA, HONBLEShri Ms. Vidhi Doshi
O R D E R PER C.N. PRASAD (JM) 1. This appeal is filed by the assessee against the order of the Ld. Commissioner of Income–tax (Appeals)-5, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 19.04.2017 for the Assessment year 2012-13.
2. Assessee has raised the following grounds in its appeal: - “GROUND NO. I: DISALLOWANCE OF EXPENDITURE ON REPAIRS AND MAINTENANCE AMOUNTING TO RS. 1,16,56,956/- (A.Y: 2012-13) M/s. International Tobacco Co. Ltd., 1. On the facts and in circumstances of the case and in law, the Commissioner of Income Tax (Appeals) - 5, Mumbai ["the CIT(A)"] erred in confirming the action of the Assistant Commissioner of Income Tax - 2(2)(1) ("the AO") in disallowing the expenditure on repairs and maintenance amounting to Rs. 1,16,56,956/- on the alleged ground that the same are capital in nature.
The Appellant prays that the aforesaid disallowance of repairs and maintenance expenses of Rs. 1,16,56,956/- be deleted. GROUND NO. II: DISALLOWANCE OF PROVISION FOR WRITE DOWN OF NON-MOVING MACHINERY SPARES AMOUNTING TO RS. 30,03,207/-
1. 1. On the facts and circumstances of the case and in law, the CIT(A) erred in confirming the action of the AO in making addition of Rs. 30,03,207/- being provision for non-moving machinery spares.
2. The Appellant prays that it be held that the provision for write down of non- moving machine spares is an ascertained liability and therefore be allowed as a deduction amounting to Rs. 30,03,207/-.”
3. Ground No. 1 is relating to disallowance of expenditure on repairs and maintenance and facts relating to this issue are that the Assessing Officer while completing the assessment found that the assessee debited various expenses under the head repairs and maintenance of machinery. The assessee was required to furnish the details and the purpose of the expenses. Assessee furnished breakup of the said expenses out of which an amount of ₹.1,03,83,320/- was shown as spent on shop floor EPU flooring and ₹.12,73,636/- was shown as spent on optic fiber cabling in factory. The Assessing Officer treated these expenses as capital expenditure having enduring benefit to the assessee and held these expenses are meant to be long lasting unlike regular and recurring repairs. Therefore, he treated the said expenditure as capital expenditure.
(A.Y: 2012-13) M/s. International Tobacco Co. Ltd., 4. The Ld. CIT(A) agreed with the view of the Assessing Officer that the expenditure is capital in nature for the reason that the old floor was relayed with epoxy flooring and its life span is about five years, Ld. CIT(A) concluded that the expenditure is capital in nature. Regarding optic fiber cable layed in factory also Ld. CIT(A) held that the same is capital expenditure.
Before us, Ld. Counsel for the assessee submits that there is no enduring benefit in laying epoxy floor by the assessee, since the floor in factory premises was very old and it was worn out, the flooring was replaced with epoxy flooring and it is only a current repair. Reliance is paced on the following decisions. (i) DCIT v. M/s Impact Containers Pvt. Ltd., (ITA.No. 1597/Mum/2010) (ii) Malabar Hill Club Ltd. v. DCIT (ITA.No. 4507/Mum/2012) (iii) M/s. Unimax Laboratories v. ACIT (ITA.No.641/ASR/2014) (iv) ACIT v. Nippon Motors Corporation (ITA.No. 218/Coch/2015) 6. Ld. Counsel for the assessee submitted that since the shop floor epoxy flooring is basically a restoration of the factory old plant flooring, the amount expended is towards removal of existing coating and applying the new one. It is only a replacement of flooring and such expenditure is allowable as a liable a revenue expenditure only.
(A.Y: 2012-13) M/s. International Tobacco Co. Ltd., 7. Coming to Optic fiber cable, Ld. Counsel for the assessee placed reliance on the following decisions: - (i) CIT v. Anush Shares and Securities Pvt. Ltd., (62 taxmann.com 287) (ii) CIT v. Baroda Industrial Development Corpn. Ltd., (198 ITR 716) (iii) DCIT v. Smt Geeta V. Mehta (26 SOT 455) 8. Ld. Counsel for the assessee submitted that in assessee’s own case for the Assessment year 2008-09 the Tribunal considered as to whether the expenditure incurred for replacing of floor with vitrified tiles, false ceiling work, provisions of wooden and glass partitions, light fittings and sanitary work etc., were capital or revenue expenditure and the Tribunal considering various decisions held that replacing of floor with vitrified tiles, false ceiling work, provisions of wooden and glass partitions, light fittings and sanitary work etc., constitute revenue expenditure. Copy of the order is placed on record. It is submitted that the expenses incurred on optic fiber cabling is only revenue in nature.
Ld. DR vehemently supported the orders of the Authorities below.
We have heard the rival submissions, perused the orders of the Authorities below. On a perusal of the orders passed by the lower authorities and the decision relied on, we find that an identical issue came up before the Cochin bench in the case of ACIT v. Nippon Motors Corporation (supra) wherein the Tribunal considered the epoxy coating of (A.Y: 2012-13) M/s. International Tobacco Co. Ltd., the flooring in the factory whether is a capital or revenue expenditure. The Tribunal observed as under:
11. As regards the disallowance of ₹.20,00,140 for repair of workshop and ₹.22,79,510 for Epoxy coating, it was explained by the assessee that the amount of ₹.20,00,140/- was expended for the current repairs to the workshop i.e., painting of the workshop floor and repairs of the open yard and lawn. The benefit obtainable form this is only temporary and the expenditure is incurred for running the business more efficiently. Regarding epoxy coating which was more than two years old and got damaged by constant wear and tear, it has to be done periodically to facilitate a clean environment. This expenditure did not create any new asset of enduring benefit.
11. Similarly, we find that in assessee’s own case in ITA.No. 8389 & 8467/Mum/2011 dated 20.02.2013 for the A.Y 2008-09, replacement of flooring with vitrified tiles have been held to be revenue expenditure observing as under: - “9. At the outset, Ld Counsel mentioned that the amount of Rs. 19,55,668/- was incurred with the renovation including false ceiling, flooring. As per the assessee, these are the revenue expenditure and the same was not allowed by the AO basing on the logic that they confer enduring benefit to the assessee.
10. During the first appellate proceedings, it was submitted by the assessee that the said expenditure being the one incurred to preserve and maintain the existing asset and no new asset has come into existence and the assessee has not get any enduring benefit, the expenditure is revenue in nature. He relied on various decisions to support his arguments. As per the assessee, the expenditure of Rs.19,55,668/- has incurred mainly for replacement of floor with vitrified tiles, false ceiling work, provisions of wooden and glass partitions, light fitting and sanitary fitting work etc. The expenditure is merely a case of temporary replacements / fabrications. The CIT (A) considered the submissions of the assessee and rejected the same holding that the assessee failed to provide the details of such replacements and held that they are not of routine maintenance expenses. Relying on various decisions detailed in para 5.2 of the impugned order, CIT (A) confirmed the action of the AO.
During the proceedings before us, Ld Counsel filed a paper book and mentioned that the said expenditure is revenue in nature. For this proposition, he relied on various decisions. For the proposition that the expenditure incurred for replacement of tiles, painting, false ceiling portions etc as an allowable deduction, Ld Counsel relied on the decision of the Hon'ble Delhi High Court in the case of CIT vs. Hi Line Pens Pvt. Ltd. (306 ITR 182) (Del). Further, for treating the expenditure incurred on flooring, portion, wiring, plumbing, false ceiling, roofing, electrical wiring etc. Ld Counsel relied on the decision of the Tribunal in the case of Amway India Enterprise vs. DOT (27 SOT 344) as well as Delhi Bench of the Tribunal in the case of Escorts Ltd. Vs. AOT (104 ITD 427) (Del). As per the Ld Counsel, the Delhi Bench of the ITAT decision in the case of DOT vs. P.U.R. Ployurethene Products Pvt Ltd. (64 TD 507) (Del) supports the claim of the (A.Y: 2012-13) M/s. International Tobacco Co. Ltd., assessee. Further, Ld Counsel mentioned that in the assessee's own case, comparable issues came up for the assessment year 2004-2005 and the decision was given in favour of the assessee holding that the expenditure incurred on plant and machinery, repairs to factory building, office building constitutes revenue expenditure.
On the other hand, Ld DR relied on the order of the AO / CIT (A).
We have heard both the parties, perused the order of the Revenue Authorities as well as the above referred order of the Tribunal and the Hon'ble High Courts. Considering the above various conclusions in this regard, we are of the opinion that the expenditure incurred on replacement of floor with vitrified tiles, false ceiling work, prevision of wooden and glass partitions, light fitting and sanitary fitting work etc constitute revenue expenditure. Accordingly, the order of the CIT (A) in this regard has to be reversed and the grounds raised
by the assessee are allowed.”
12. Respectfully following the said decision, we hold that the replacing of the flooring by the assessee with epoxy coating is revenue expenditure.
13. Coming to expenditure incurred on optic fiber cabling, we find that in the case DCIT v. Smt Geeta V. Mehta (supra) the Mumbai Bench of the Tribunal considering the decision of the Apex court in the case of Empire Jute co. Ltd., v. CIT [124 ITR 1] & CIT v. Ashok Leyland Ltd., [86 ITR No. 549] held that expenditure incurred by way of purchase of tiles, grills, electrical fittings etc. are liable u/s. 37 of the Act. It has been held that such expenditure is not a capital expenditure, observing as under:
“15. Regarding the test of enduring advantages, we find that it is a settled law that all the cases of expenditure with enduring benefits are not capital in nature. It has exceptions as held by the Apex Court in the case of Empire Jute Co. Ltd v. CIT [1980] 124 ITR 1 and the Hon'ble Court held that "even where expenditure is incurred for enduring benefit, the expenditure may be revenue expenditure unless the advantage is in the capital field. If advantage was merely facilitating assessee's trading operation or enabling it to efficiently or mere profitably run its business, leaving the fixed capital untouched, the expenditure will be revenue expenditure. It was observed that there was no addition to the profit making apparatus of the assessee."
In the light of the above position together with the repairs done to the classrooms has an enduring advantages, we have examined the nature of expenditure in the assessee's case fall in capital area or not. Further, it is noticed that the finding of the Apex Court in the case of CIT v. Ashok Leyland Ltd. [1972] 86 ITR 549 is relevant and accordingly, "the line that divides the revenue expenditure from the capital expenditure is often times very thin. It will not be correct to say that by avoiding certain business expenditure, the company can be (A.Y: 2012-13) M/s. International Tobacco Co. Ltd., said to have acquired enduring benefits or acquired any income-yielding asset. The payment to remove the possibility of a recurring disadvantage was held to be revenue in nature." Further, it also settled that every case has to be seen independently whether a particular expenditure is revenue or capital depending on the facts of each case. After considering the above propositions of the Apex Court, we are of the considered opinion that the expenditure incurred by the assessee by way of purchase of tiles, grills, electrical fittings, ply, plywood, granite, and related labour charges incurred in connection with the keeping the classrooms fit for use is revenue in nature. Thus, claim of the assessee is allowable under section 37 of the Act. Therefore, order of the CIT(A) does not call for any interference. Accordingly, ground is dismissed.”
In view of the above discussion and the decisions, we hold that the expenditure incurred on optic fiber cabling is revenue expenditure. This ground of appeal is allowed.
15. Coming to Ground No.2 i.e. disallowance of provision of write down of non-moving machinery spares, Ld. Counsel for the assessee submitted that for the immediately preceding Assessment year i.e. A.Y. 2011-12 the Tribunal set aside the matter to the file of the Ld. CIT(A). Therefore, the issue in the present A.Y. 2012-13 may also be restored to the file of the Ld. CIT(A) as the Ld. CIT(A) decided the issue by simply following his earlier order for the A.Y. 2011-12.
16. Ld. DR has no serious objection in remitting the matter back to the file of the Ld. CIT(A).