EUREKA FORBES LIMITED,KOLKATA vs. C.I.T RANGE - 12,KOLKATA, KOLKATA

In this appeal, the assessee has raised the following grounds of appeal:- “ GROUND-I

Brief facts of the case are that the assessee is a company engaged in trading and servicing of vacuum cleaners, water filter cum purifiers, electronic air cleaning system, small household appliances and digital security system etc. The assessee filed its return of income online disclosing the income of Rs.32,49,72,628/- on 16-11-2006. During the course of assessment proceedings u/s. 143(2) of the Act, the AO found that that the assessee has debited an expenditure of Rs.1,00,84,559/- under the head ‘repair and maintenance’ expenses in respect of its buildings. According to assessee, the details of said expenditure was incurred by the assessee for its offices situated in three locations, Cochin, Lucknow and Kolkata. Further, the said expenditure was incurred under the invoices raised by M/s. Deva Interiors. The view of the AO was that such expenditure is capital in nature for the reason that the said expenditure has created new asset on existing structure as extension which rendered advantage to the assessee’s business. The AO treating the same as capital in nature added to the income of assessee.

Aggrieved, the assessee is in appeal before us by raising respective grounds of appeal, which have been mentioned herein above.

During the course of hearing before us the Ld. Counsel for the assessee submitted that all the expenditure debited to Profit & Loss account was incurred for repairs and maintenance of existing structures. The assessee did not put or add other facilities like providing of lift or created new rooms or floors etc.. only new electrical lines, fans, ACs were added. These expenditures were incurred in dismantling old furniture and not given any new asset and argued that the expenditure as incurred above is revenue in nature. In support of its contention, he relied on various case laws and prayed that the expenses be treated as revenue in nature and be allowed as deduction and quash the order of CIT-A as he erred in not allowing the claim of Rs.1,00,50,077/- as he treated the same as capital expenditure.

In reply, the Ld. DR submitted that the assessee purchased a huge volume of goods for the first time for its business and it has to be treated as capital expenditure. Further argued that the action of the AO and confirming the same

The only question is to be decided in this appeal as to whether the expenditure incurred and debited in the P & L account under the head ’repairs & maintenance’ is a capital expenditure or revenue expenditure.

Heard the rival submissions and perused the material available on record. We find that the invoice issued by the interior contractor for carrying out interior work & others including electrical work placed at page nos- 1-48 of the assessee’s paper book. The said invoice shows that the assessee carried out intensive interior work & electrical work to its existing offices at three locations. On perusal of the invoices and final bill issued for the purpose of inclusive interior and allied works for its Kolkata office. Copy of the same are available pages 1-10 of the paper book. Description therein shows that the works were for fixing 12mm thick glazed partition, cabin flush doors, finished with lamination, fixing low height, full height and overhead fitting storage unit made out of salwood etc… and for providing of executive and conference tables and entrance door etc .. for which the said interior contract was charged at Rs. 40,63,395. Likewise, the assessee incurred an expenditure of Rs.26,51,693 for its office located at Cochin. For which also same kind of interior work done for the office of Kolkata. These are available at pages 10-42 of the paper book. The assessee also incurred an expenditure of Rs.33,48,156 for its Lucknow office for the purpose of interior work and electrical works. Pages 43-48 of the paper book. The contention of the assessee is that though it had incurred expenditure for providing interior works, but it did not create any new asset by way of any renovation/interior works. It only incurred expenditure towards ‘repairing & maintenance’ for its existing offices. However, the description as shown at M/s. Eureka Forbes Limited 4 pages 1-48, the expenditure incurred created a new asset. The contention of the assessee was that it only carried out repair works for its existing units/offices by removing old furniture with that of new furniture. This contention of the assessee is not acceptable for the reason that the expenditure incurred and description of work shows that it created a new asset to the assessee. As rightly pointed out by the Ld. DR that the assessee purchased a large volume of furniture for its offices located in three said locations for the first time.

As regards the reliance placed by the assessee on the case of Indian Ginning & Pressing Co. Ltd Vs. CIT reported in 252 ITR 577(Guj) and also in the case of CIT Vs. Dr.A.M Singhvi reported in 212 CTR 1(Raj), it is observed that the facts therein are distinguishable from the facts of the case on hand. We are conscious of the observation made by the Hon’ble Supreme Court in the case of Empire Jute Co Ltd vs CIT that every case has to be decided on facts keeping in mind that broad picture of whole expenditure incurred. In the present case, it is only afactual aspect to be decided whether the expenditure incurred under the repair and maintenance is revenue or capital expenditure in nature. As stated above, a perusal of the material documents available at pages 1-48 it clearly establishes that large volume of wooden work by way of partitions, storage units, interior work and electrical work etc.. has been undertaken which created completely a new asset for the benefit of its trading. In this regard, we may refer to the observations of the Hon’ble Supreme Court in the case of Empire Jute Co. Ltd Vs. CIT reported in 124 ITR I(SC) and relevant portion of finding at para-8 is reproduced herein below for the sake of clarity:-

In the aforesaid decision the Hon’ble Supreme Court supra was pleased to refer the test as laid down in the case of British Insulated & Helsby Cables Ltd V. Atherton 10 TC 155, wherein it was observed that when expenditure incurred for an advantage for the enduring benefit of trade can be attributable to capital expenditure in nature. In the present case also the assessee incurred expenditure for its three locations to the extent of Rs.1,00,50,077/- under the head repairs and maintenance and the said expenditure created a new asset for the benefit of assessee for its trade. Therefore, we are of the view that the case laws as relied on by the assessee are distinguishable and do not apply to the facts of the case on hand. Taking support from Hon’ble Supreme Court supra we hold that the expenditure incurred and claimed by the assessee is capital in nature and the assessee is not entitled to claim deduction as revenue expenditure. The order of CIT-A is justified in confirming the addition made by the AO, accordingly, ground no-I is dismissed.

Ground no- II needs no adjudication as it is consequential in nature.

In the result, the appeal of the assessee is dismissed.