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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH, MUMBAI BEFORE SRI MAHAVIR SINGH, JM AND ASHWANI TANEJA, AM (A.Y:2011-12) M/s Sarang & Associates, Dy. Commissioner of Income 302, Shabnam Apartment, 33, Tax, Central Circle-36, S.V. Road, Andheri (w), Vs. Mumbai. Mumbai-58 PAN No.AAFS0638J .. Appellant Respondent Assessee by .. Shri. Piyush Chhajed, AR .. Revenue by Miss. Arju Garodia, DR Date of hearing .. 24-11-2016 .. Date of pronouncement 24-11-2016 O R D E R PER MAHAVIR SINGH, JM:
This appeal by the assessee is arising out of the order of CIT (A)-53, Mumbai in appeal No. CIT(A)-41/DCCC-36/IT-366/13-14 dated 29-01-2015. The Assessment was framed by DCIT Central Circle-36, Mumbai for the A.Y. 2011-12 vide order dated 31-12-2013 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The only issue in this appeal of assessee is against the order of CIT(A) confirming the addition made by AO on account of expenditure of repair and renovations claimed by assessee as revenue treating the same as capital by taking the same as current repairs. For this assessee has raised following ground No. 1: - “1. On the fact and circumstances of the case, the learned Commissioner of Income Tax (A) erred in confirming addition of Rs. 44,64,049/- treating the current repairs as Capital Expenditure without appreciating that complete expenditure was of repairing that included removing of plaster and re-doing and three was no enduring benefit or profit earning apparatus being acquired.”
3. Briefly stated facts are that the AO during the course of assessment proceedings notices from the profit and loss A/c that the assessee has claimed expenses under the head labour charges and repairs and maintenance amounting to Rs.13,88,212/- and Rs.35,71,814/-, respectively. The AO from the details of expenses incurred in repairs and renovation of building noted that the same is capital expenditure and expenses incurred gives enduring benefit to the assessee.
The AO recorded the fact that the assessee is in rented property, whereas assessee is the owner of the property. By going through the quantum and nature of expenditure and also going through the details, noted that indeed this is capital expenditure and he allowed the depreciation on the same. The AO capitalized this expenditure of Rs.49,60,053/- and allowed depreciation. Aggrieved assessee preferred appeal before CIT(A) who also confirmed the action of the AO by observing in Para 5.31 which reads as under: - “5.3.1 I have considered the submissions of the appellant and perused the materials available on record. The question for determination is whether the impugned expenditure of Rs.49,60,053/- debited under the heads "Labour Charges" and "Repairs and Maintenance" is in the nature of capital expenditure as held by the A.O. or revenue expenditure/ current repairs allowable u/s.30 of the Act as claimed by the appellant. According to the A.O., the appellant failed to provide any bills/ vouchers for the expenses incurred and perusal of details of aforesaid expenses. showed that these expenses had been incurred for the renovation of office premises of the appellant firm located in Shabnam Apartments. In the course of appellate proceedings, the appellant has furnished copy of Invoice No.02A-2010 dated 01.01.2011 issued by Z- Fabricator, Murnbai for Rs.46,37,349/- for "repairs, rehabilitation and structural glazing of the Shabnam Apartment". A perusal of the said invoice reveals that major expenses were incurred towards removing existing aluminium composite panel (ACP), providing and fixing of 4mm thick ACP and ACP louvres, providing and fixing structural glazing works with 5mm thick reflected, toughened glass on semi-anodized aluminium frame with necessary fixtures for fixed glass, removing of existing plaster and redoing the same in two coats sand faced plaster, providing and applying polymer plaster to the damaged RCC member, providing and erecting scaffolding for the purpose etc. A close look at the invoice clearly shows that the aforesaid expenses were not at all in the nature of 'current repairs' but were incurred for extensively repairing and restoring the structure of the building. Even the appellant in its written submissions dated 27.01.2015 has admitted that "die said building was completely damaged and, therefore, it required extensive repairs and rehabilitation" and that the expenditure incurred by it "was 117 the nature of replacement of the existing asset. 5.3.2 It is well-established that the expression "current repairs" means expenditure on building etc. which is not for the purpose of renewal or restoration but which is only for the purpose of preserving or maintaining an already existing asset and which does not bring a new asset into existence or does not give the assessee a new or different advantage /BalJ.Lrnal Naval Kishore & anr. v. UT 224 JTR 414 ('Sd. "Current repairs" denotes repairs which are attended to when the need for them arises. Object of the expenditure must not be to bring a new asset into existence or obtain a new advantage [CIT V Sara vana Spinning Mills (F) Ltd. 293 ITR 201 (SC)}.
Replacement amounts to bringing into existence a new asset and also an enduring benefit for the assessee [315 IT!? 114 (SC) and 364 HR 461 (Del)]. In light of the aforesaid legal position, it is clear that the expenses incurred by the appellant for replacement of existing ACP and providing structural glazing works with reflected and toughened glass on semi-anodized aluminium frame etc. was not an expenditure for preserving and maintaining an already existing asset. The object of the impugned expenditure incurred -by the appellant was not to preserve or maintain an already existing asset but to obtain a new and enduring advantage. The said expenditure was not necessary for maintaining or preserving the building but was incurred with a view to making distinct improvement and upgrading the appearance and ambience of office premises of the appellant. Thus, the expenditure of Rs.49,60,853/- admittedly incurred by the appellant for 'extensive rehabilitation' and 'replacement' of the existing asset which brought enduring advantage or benefit to it can by no stretch of imagination be allowed as "current repairs" u/s.30(a)(ll) of the Act. In view of the above discussion, I do not find any error or infirmity in the action of the A.O. in treating the impugned expenditure amounting to Rs.4960,053/- as capital expenditure and allowing depreciation thereon @10% to the appellant. The diaIIowance of remaining amount of Rs.44,64048/- made by the A.O. (after allowing depreciation of Rs.4,96,005/-) is thus upheld. Ground No.2 taken up by the appellant is found to be devoid of merit and is accordingly dismissed.” Aggrieved, assessee came in second appeal before Tribunal.
We have heard rival contentions and gone through the facts and circumstances of the case. Admittedly assessee is owner of building known as “Shabnam Apartments” situated at Andheri West. The assessee submitted the details of “repairs and maintenance” and “labour charges” amounting to Rs.49,60,053/-. The assessee submitted a copy of bill issued by one contractor M/s ‘Z’ Fabricators amounting to Rs.33, 33,035/-. It was claimed that the assessee owns a building which was damaged and required extensive repairs and rehabilitation. The assessee submitted the details of expenditures and taken us through bills and vouchers which states that major repairs were carried out i.e. removing of existing plaster, breaking of RCC member and redoing of existing plasters and glazing of the buildings. Other expenses like repair and maintenance and miscellaneous expenses were carried out. The assessee claimed that this building is part of balance-sheet and assessee being owner it has already capitalized building when it was purchased. But now on the same building for redoing the entire building, the assessee has carried out repair and renovation and incurred these expenses of Rs.49, 60,053/-. The learned Counsel for the assessee Hon’ble Delhi High Court in the case of CIT Vs. Modi Industries Ltd. (2011) 339 ITR 467 (Delhi) wherein Hon’ble High Court held that insofar as purchase of pumping sets, Mono block pump with HP Motors and two transformers is concerned, they were not stand alone equipments, but were the part of bigger plant. Therefore, it would be treated as replacement of those parts when they are not used independently and the expenditure would be liable to deduction under Section 37(1). Similarly, Hon’ble Gujarat High Court in the case of CIT Vs. Udaipur Distillery Co. Ltd. 268 ITR 451(Guj), wherein it was held that purchase of transformers in replacement of existing transformer, which could not be used independently, falls within the category of revenue expenditure and hence, is an allowable deduction under Section 37(1) of the Act. These expenditures are, thus, treated as Revenue expenditure.
We find that in the present case the expenditure was incurred on repairs, reinforcement, replacement of dilapidated beams, pillars, walls, etc., of the existing press building and that the assessee did not bring into existence any new asset over and above the existing building. We are of the view that the assessee had been incurring such expenditure in the past as and when the need arose and it was towards preserving and maintaining the existing asset. This issue is supported by the decision of Hon’ble Supreme Court in the case of CIT Vs. Saravana Spinning Mills P. Ltd. (2007) 293 ITR 201(SC). In the present case the Department doubted the nature of the expenditure considering the magnitude of the expenditure incurred in the current year compared to the expenditure in the earlier years. We are of the view that the authorities below had acted on the presumption that a part of the building had been demolished and that the items had actually been used for erection of a new structure. However, we find from the records of the case that for this conclusion, the Department could not bring on record any evidence to justify the stand that the expenditure was actually for erection of a new building or asset. We find that the contention of the assessee that it had undertaken major repairs to put the dilapidated columns, beams, roofs, etc., in its original position, which had become dangerous and unsafe for the workmen and hindered the normal operation of the business, was not controverted by the Departmental representative nor had any evidence to the contrary been produced before the Tribunal or the authorities below. Accordingly, we are of the view that the assessee had incurred the said expenditure only to preserve and maintain the existing asset and that the expenditure was not of a nature which brought into being a new asset or created a new advantage of an enduring nature. Consequently, the expenditure is revenue in nature and has to allow as deduction. We allow the claim and reverse the orders of the lower authorities. 6. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 24-11-2016.