Case Law Details
Klaus Multiparking Systenms Pvt. Vs DCIT (ITAT Pune)
ITAT Pune held that expenditure incurred on repairs and renovation of the asset is revenue expenditure as no new asset has been created.
Facts- It is mentioned in the assessment order that during the year assessee company purchased an existing factory shed along with its land. Assessee spend Rs.53,20,820/- on repairs and renovation of the said newly purchased factory premises. The Assessing Officer(AO) called for the details and held that it is a capital expenditure relying on various case laws. The ld.CIT(A) upheld it. Aggrieved by the order of the ld.CIT(A), the assessee filed appeal before this Tribunal.
Conclusion- The Hon’ble Bombay High Court in the case of CIT Vs. Oxford university Press in (1971) 108 ITR 166 has held that merely maintaining and preserving an asset which it already possessed and thus though to some extent the life of the asset had been prolonged and the asset was made to give better service than it was doing in the past, the expenditure will have to be regarded as a revenue expenditure.
The facts of the present case are identical to the facts of the Oxford University Press decided by the Hon’ble Bombay High Court, therefore, respectfully following the decision of Hon’ble Bombay High Court it is held that the expenditure of Rs.53,20,820/-incurred on repairs and renovation was revenue in nature and hence, allowable as revenue expenditure.
FULL TEXT OF THE ORDER OF ITAT PUNE
This appeal filed by the Assessee is directed against the order of ld.Commissioner of Income Tax(appeals)-7, Pune dated 22.01.2019 emanating from the order of the Dy.Commissioner of Income Tax, Circle-14, Pune passed under section 143(3) of the Act, 1961 dated 04.12.2017. The Assessee has raised the following grounds of appeal:
“1. The learned CIT(A) erred in law and on facts in sustaining the addition of 50,54,779/-, made by the learned AO.
2. The IT authorities erred in law and on facts in holding that the repairs and maintenance expenses of Rs.53,20,820/-, were capital in nature. The IT authorities ought to have appreciated that there was no enduring benefit emerging out of the said expenditure.”
Brief facts:
2. It is mentioned in the assessment order that during the year assessee company purchased an existing factory shed along with its land, the relevant part is reproduced as under:
3. Assessee spend Rs.53,20,820/- on repairs and renovation of the said newly purchased factory premises. The Assessing Officer(AO) called for the details and held that it is a capital expenditure relying on various case laws. The ld.CIT(A) upheld it. Aggrieved by the order of the ld.CIT(A), the assessee filed appeal before this Tribunal.
Submission of Ld.AR:
4. The ld.Authorised Representative(ld.AR) of the assessee submitted paper book containing 267 pages, the ld.AR submitted bills for the said expenditure in the paper book and photographs of the repairs carried out. The ld.AR explained that assessee has done flooring, painting, piping, plumbing and compound wall repairs. This was done because the asset purchased was an old asset. By spending the amount, the assessee has not created new asset. Assessee has merely renovated the existing asset. The ld.AR relied on the following decisions:
> Alembic Chemical Works Co. Ltd. v. CIT-177 ITR 377 (SC)
> Empire Jute Co. Ltd. v. CIT-124 ITR 1 (SC)
> CIT v. Oxford University Pressl08 ITR 166 (Bom HC)
> CIT v. DLF Commercial Developers Ltd. 323 ITR 321 (Del HC)
> CIT v. Delhi Press Samachar Patra (P.) Ltd.322 ITR 590 (Delhi HC)
> CIT v. I.C.I. (India) (P.) Ltd. 139 ITR 105 (Cal HC)
> CIT v. Asahi India Safety Glass Ltd. 245 CTR 529 (Delhi HC)
> Guntur Merchants Cotton Press Co. Ltd. v. ITO 108 ITR 620 (AP HC)
Submission of Ld.AR:
5. The ld.Departmental Representative(ld.DR) for the Revenue relied on the orders of the AO. The ld.DR stated that by changing the flooring, assessee has increased the life of the asset and therefore there is enduring benefit, similarly by repairing the compound wall, life of the compound wall increased giving rise to enduring benefit.
Discussion & Findings :
6. We have heard both the parties and perused the records. It is an admitted fact that assessee has purchased adjacent factory shed. After purchasing the factory, the assessee carried out renovation and repairs. On going through the list of expenses and vouchers submitted by the ld.AR in the paper book, it is observed that assessee has carried out flooring work i.e. assessee changed the flooring of the factory shed. It has also carried out plumbing work, painting work. It has also carried out the renovation of the compound wall. It is not the claim of the AO that a new asset has been created. It is a fact that there was an existing factory shed. The assessee has merely renovated it to suit for his purposes. By doing so, no new asset has been created. It was merely repairs of the existing asset to make it suitable for the purposes of the assessee. The Hon’ble Bombay High Court in the case of CIT Vs. Oxford university Press in (1971) 108 ITR 166 has held as under:
“It was sought to be urged by Mr. Joshi for the revenue that on their own showing the assessee’s architects had claimed that the effect of repairing workhad prolonged the life of the building by at least 15 years and if that was so, it should be held that a new advantage of enduring character had beenobtained by the assessee by undertaking guniting work. It would be pertinent to observe that every type of repairs carried out to an asset like a building isbound to extend to a certain extent the life of the asset and simply because the assessee’s architects claimed that because of repairs the life of the buildinghad prolonged for at least 15 years, it cannot be said that the expenditure was in the nature of a capital expenditure. There is material on record to showthat before plastering work was undertaken by adopting the guniting process, the repairs had been undertaken by doing plastering work in the ordinaryway, but such repairs did not last even for a year or two, and, placed in that situation, the assessee was required to undertake the aforesaid repairs byadopting guniting process. Moreover, simply because the life of an asset is extended or that the asset is made to give better service than it was giving in the past is not decisive of the matter. The nature of the repairs undertaken will have to be taken into consideration and, as we have stated above, the repairs undertaken were not by way of any major structural repairs but it was plastering work that was undertaken by adopting sophisticated process called guniting process and, therefore, it will not be possible to accept the contention of Mr. Joshi.
In the context of the aforesaid contention urged by Mr. Joshi it will be useful to refer to an unreported judgment of this court in the case of Commissioner of Income-tax v. David Mills Ltd. in I.T. Reference No. 17 of 1950, decided on 10th October, 1950. (The judgment is printed in unreported Income-tax Judgments of the Bombay High Court, Book 1, at page 46). In that case the assessee-
company had, in the past, repaired the flooring by replacing the upper layer which was a wooden layer by wooden boards. In the year of account, a layer of oxychloride was laid between the two layers. Though this process cost the company less than the original process, it made the floor more durable. The department’s contention was that by this particular process anew asset had come into existence and, therefore, the amount spent was not a revenue expenditure. This court held that the assessee was only maintaining and preserving an asset, which he already possessed, by the process which he adopted. The life of the asset was made longer and it was made to give better service than it was doing in the past. Even so, the expenditure incurred was not of a capital nature. The ratio of this case would apply with equal force to the facts in the present case. All that the assessee-company did in the instant case was to undertake the plaster repairing work but by adopting anew method called guniting process, and by incurring the expenditure by adopting such a process the assessee was merely maintaining and preserving an asset which it already possessed and thus though to some extent the life of the asset had been prolonged and the asset was made to give better service than it was doing in the past, the expenditure will have to be regarded as a revenue expenditure. In this view of the matter, the first question is answered in the affirmative and in favour of the assessee.”
7. The facts of the present case are identical to the facts of the Oxford University Press case(supra) decided by the Hon’ble Bombay High Court, therefore, respectfully following the decision of Hon’ble Bombay High Court it is held that the expenditure of Rs.53,20,820/-incurred on repairs and renovation was revenue in nature and hence, allowable as revenue expenditure. Accordingly, grounds of appeal raised by the assessee are allowed.
8. In the result, appeal of the assessee is allowed.
Order pronounced in the open Court on 13th January, 2023.
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