THE HINDUSTAN CO OP BANK LD,MUMBAI vs. ASST CIT 17(3), MUMBAI

This is an appeal filed by the assessee. The relevant assessment year is 2012-13. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-28, Mumbai [in short CIT(A)] and arises out of the assessment completed u/s 143(3) of the Income Tax Act 1961, (the ‘Act’).

The grounds of appeal

Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). Before him, the assessee contended that the nomenclature change is also supported by the fact that the claim of repair to property was favourably decided in favour of the assessee by the AO in AYs 2010-11 and 2011-12. However, the Ld. CIT(A) found that in the AY 2010-11, substantial expenses on computer and software system and installation of new software were all taken as capital in nature and they were added back. Only depreciation thereon was allowed. The Ld. CIT(A) also found that in the next assessment year again there is disallowance of depreciation in respect of several assets. Further, the Ld. CIT(A) held that even upgradation of capital assets or making repairs etc. to such an extent as to give enduring benefit would lead to a classification of the expenses as capital in nature and depreciation thereon would be allowable. Relying on the decision in CIT v. India’s Hobby Centre (P) Ltd. (1994) 78 Taxman 377 (Cal), the Ld. CIT(A) observed that to consider an explanation which is contrary to the books of accounts would be against established judicial position. On the basis of the above reasons, the Ld. CIT(A) confirmed the disallowance made by the AO.

Before us, the Ld. counsel of the assessee files a Paper Book (P/B) containing (i) Details of Repairs and Maintenance as of 31.03.2012, (ii) Sample Invoices of repairs and maintenance, (iii) Profit and Loss Account of other financial years and (iv) List of registered branches of the Bank. The Ld. counsel further submits that the assessee is a Co- operative Bank which is operating in Mumbai through several branches for the past 48 years. Given the size of operations of the assessee-bank, wherein the total receipts of the bank are in excess of Rs.44 crores, and the fixed assets are around Rs.14 crores, an amount of Rs.42.95 lakhs being incurred towards repairs and maintenance is trivial, especially when the operations of the bank depend heavily on assets (such as computers, ATM etc.) which are consumer-facing and are amenable to damage immediately. It is stated that for the year under consideration, the assessee claimed expenditure on repairs and maintenance on various assets such as computers, UPS, water purifiers, air conditioners, token displays etc. The Ld. counsel submits that the expenses incurred on repairs and maintenance of various assets are recurring in nature and every year such expenses are incurred. As the business of the assessee has grown, the number of assets has also increased and as such, the repairs and maintenance expenditure has also increased. Considering the above facts, the Ld. counsel submits that the claim of deduction on account of repairs and maintenance be allowed being in the nature of revenue expenditure.

On the other hand, the Ld. DR submits that the assessee has debited repairs to properties amounting to Rs.42,95,992/-. Therefore, The Hindustan Co-op Bank AO has rightly treated the above amount as capital expenditure and allowed depreciation @ 15%. Thus the Ld. DR supports the order of the Ld. CIT(A) confirming the disallowance of Rs.36,51,593/- made by the AO.

We have heard the rival submissions and perused the relevant materials on record. The reasons for our decision are given below. It is now well settled that the way in which entries are made by an assessee in his books of accounts is not determinative of the question whether the assessee has earned any profit or suffered any loss. As held in Sutlej Cotton Mills Ltd. v. CIT (1979) 116 ITR 1(SC), what is necessary to be considered is the true nature of the transaction and whether in fact it has resulted in profit or loss to the assessee. We find that the AO has mentioned at para 4 of his assessment order dated 25.03.2015 that in response to a query raised by him to explain as to why the said sum of Rs.42,95,992/- should not be considered as capital expenditure, the assessee filed a reply dated 17.03.2015 before him. The AO has not given any reasons for not accepting the above reply of the assessee. Immediately, the AO has relied upon case laws and made a disallowance of Rs.36,51,593/-. Let us now examine the various expenses in excess of Rs.1,00,000/- incurred by the assessee in respect of “Repairs to Properties”. We mention it below: Service provider Amount paid Description Jnmac Computer Pvt. Rs.7,65,267 Amount paid towards annual Ltd. maintenance charges for hardware and repair of computers and peripherals, such as routers etc.

In view of the above facts, we set aside the order of the Ld. CIT(A) and allow the appeal filed by the assessee.