(Per : HONOURABLE MR.JUSTICE AKIL KURESHI)
1. Revenue is in appeal against the judgment of the Tribunal dated 31.7.2008 raising following question for our consideration:-
"Whether on the facts and in circumstances of the case, Tribunal was right in allowing the expenses relating to repairs and maintenance amounting to Rs.1,03,80,564/- as revenue expenditure as against capital expenditure, without appreciating the fact that the Assessing Officer as well as the CIT(A) discussed each and every items which were required to be capitalized and accordingly disallowed the same?"
2. In short the issue is whether the expenditure of Rs.1.03 crores ( rounded off) incurred by the assessee relying on the various repairs etc. carried out during the year under consideration, could be termed as revenue expenditure or capital expenditure.
3. The respondent assessee is engaged in the business of generating power during the year under consideration that is the previous year relevant to assessment year 1999-2000. The assessee had claimed several expenditures under the head of repairs and maintenance of the plant and machinery etc. The Assessing Officer disallowed a portion thereof in the assessment order and held that sum of Rs.1.28 crores(rounded off) was in the nature of capital expenditure. He, therefore, disallowed the claim of the assessee and added the same to the assessee's income.
4. The assessee carried the issue in appeal. CIT(Appeals) allowed the appeal of the assessee to a considerable extent. CIT(Appeals) retained only Rs.13.66 lakhs of disallowance and deleted the rest. It appears that though the Revenue carried the matter further in appeal before the Tribunal, it did not question the entire deletion made by CIT(Appeals) and confined its appeal to a total sum of Rs.1.03 crores (rounded off). Simultaneously, the assessee also approached the Tribunal by filing a separate appeal against the disallowance of Rs.13.66 lakhs confirmed by CIT(Appeals).
5. The Tribunal allowed the assessee's appeal and dismissed the Revenue's.
6. In the present appeal, we are concerned with the decision of the Tribunal in so far as it pertains to the Revenue's appeal before the Tribunal, in which Revenue questioned the deletion of Rs.1.03 crores made by CIT(Appeals).
7. Having heard learned counsel for the parties and having perused the orders on record, we find that CIT(Appeals) had painstakingly considered different expenditures incurred by the assessee and the nature of such expenditure as well as the purpose for which the same was incurred. CIT(Appeals) discussed the items individually and found that such expenditure was in the nature of current repairs and did not bring into existence any new asset. CIT(Appeals) observed as under:-
"5.2 Before me, the appellant has submitted details of repairs and maintenance of the items listed by the Assessing Officer in his order and explained what each is for. The separate bills for the same are also submitted as follows:-
Sr.
No Voucher No.
Date Name of the Party Particulars Amount 1 EV-1843 25.3.99 Mahavir Constructi-on Tank, Road, Fencing & Miscellaneous 212,006 Note Repairs were carried out to the RCC Tank (water reservoir) roads which were in dilapidated condition in the plant area. Fencing in switch yard area, concrete block payment in auxiliary transformer yard & other miscellaneous works in the plant area. Copy of the invoice enclosed. It may be mentioned that the 145 MW 2 Power Plant for generation of power was erected & commissioned during the KY. 1991 at a total cost of about Rs.237 and hence as such repairs to roads and building as may be required be carried out.
JV-387 31.3.99 Mahavir Construction Modification & Interior Work 1,980,000 Note The administrative block of the assessee was constructed during the F.Y.1989 during the project implementation stage with the bare minimum facilities. After stabilisation and earning of good profits the assessee company had undertaken the modification of the existing administrative building including interior works for Sr. Executives The assessee submits that the expenditure incurred does not result into any new assets and as such is in the Revenue Expenditure. (Copy of the invoice of M/s. Mahavir Decon is enclosed.) 3 EV-541 15.7.98 BHEL-Hyderabad 89,380 Note Journal Bearing of Steam Turbine Generator was sent for repairing to M/s.BHEL-Hyderabad. The work order dated 9.5.98 for repair of 1 No. Steam Turbine Bearing along with copy of invoice enclosed.
4. EV-542 15.7.98 BHEL-Hyderabad 4,81,120 Note 2 Nos of Generator beating of Steam Turbine were sent for repairing to M/s BHEL-Hyderabad. The work order dated 26.5.98 for repair of 2 nos. Generator bearing along with copy of Invoice enclosed.
5. EV-961 6.10.98 Watt & Akkarmans P.Ltd Com.
Of custom Duty 2,85,252 Note Custom duty paid to the Commissioner of Custom for custom clearance of repaired consignment received from M/s Watt & Akkarmans P. Ltd. ( copy of Invoice enclosed) 6 EV-1008 13.10.98 BHEL-Hyderabad Spares for GT Frame-6 5,97,283 Repair cost of bearings for Gas Turbine Frame spares paid to M/s Watt & Akkarmans Pvt. Ltd. (Copy of invoice enclosed) 7 EV-215 16.10.98 BHEL-Hyderabad Removal & Inserting Fr-6 4,40,000 Note Repair cost for Frame 6 GT, Generator Rotor for removal & insertion after repair ( Copy of invoice enclosed) 8 EV-240 12.11.98 BHEL-Hyderabad Combustion Inspection of GT-IV 2,84,669 Note Charges of combustion inspection of Gas Turbine-4 paid to M/s.BHEL Hyderabad. (Copy of invoice enclosed) 9 EV-334 21.1.99 Nutech Jetting Equip. P. Ltd 1,25,000 Note Charges for cleaning of surface condenser by Air Pressure Water Jet. Machine of 54 MW Steam Generator paid to M/s. Nutech Jetting Equipments P. Ltd. (Copy of invoice enclosed)
10. EV-40 15.6.98 M.D.
Constructi- on Widening of Roads & Fencing 1,63,556
11. EV-72 20.07.98 Widening of Roads and Fencing 1,03,254 Note Expenditure incurred on repairs of roads and fencing works for safety & fire fighting purpose. Work consist of following:
A) Removal of existing chain link fencing B) Barbed wire fencing.
C) Additional temporary fencing for removal of gate & fixing in new position at fuel oil area.
D) Dismantling of brick masonary work at fuel oil area ( Copy of invoice enclosed) Total......................................................
4,761,520 5.3. Further separately bills, work orders etc. for items at No.EV-726, EV-730 and EV-998 are also submitted. Each of these are considered separately on merits.
5.4. The first item EV-1843 is for repair of tank and road, fencing and miscellaneous work. From the bills enclosed, it would appear that excavation work was done, debris was carted away, fresh cement concrete etc. were poured into the floors and foundation of the tank. From this it would appear that at least partly, there was new work done and partly it was repair work. It would, therefore, hold that an estimated Rs.1 lakh would go towards capital expenditure and the balance is for repair work.
5.5 Out of item No. 2 JV-387, it would appear that the minimum facilities of the administrative block have been increased substantially. False ceilings have been put up, carpets and panelling done, fresh partitions have been made, fresh table work with new wood and doors with frames have been, erected. Pantry has been made with fresh tiles, platforms. The main entrance door is also changed. New toilet installations have been made and new electrical work has been laid in. On going through the details, it is not possible to segregate exactly how much is repair and how much is absolutely new, but out of the total expenditure of Rs.19,80,000/-. I would hold that at least Rs.10 lakhs is capital in nature pertaining to totally new item of plumbing, sanitary wares, doors, ceilings etc. which would give enduring benefit. These are not part of current repairs and renovations but a total new look to the building and the facilities therein. Hence an addition of Rs. 10 lakhs out of this expenditure is upheld.
5.6 The third item EV-541 being repair of steam turbine generator is clearly for repair only and is fully allowed as revenue expenditure. The fourth item of EV-542 is are also related to repair work and the work orders for the same indicate this. Hence this item is also fully allowed.
5.7 Item No. Five EV-961 is custom duty paid for clearance of repaired consignment. The papers filed clearly show that the items were sent to Singapore for repair and the cost has been indicated in US dollars. The same has been cleared by State Bank of India, International Banking Division and the repair work done has been duly certified. As the customs duty is paid for repair work done abroad, the same is fully allowable as revenue expenditure. Similarly item No.6 is fully allowable being similarly paid for repairs of turbine Frame-6. Items No.7 and 8 are also clearly for repair including inspection after repair. Item No.8 is routine inspection of gas turbine to assess the combustion of GT-4. Item No.9 is also a repair job of cleaning of the surface conductor and hence is fully allowable. Items No.10 and 11 however show that for widening of the roads, some removal of curb stones and gates had to be done before erecting the chain link fencing and widening the roads. In short the old assets were broken down mostly and removed and new ones were put in. In my view the entire work should be capitalised as it created new assets. Hence the sum of Rs.1,63,556/- and 1,03,254/- are to be capitalised.
5.8 Over and above this Item No.EV-730 is clearly for repair of spares which were sent to M/s Watt & Akkermaris, Singapore. The repair cost is again indicated in dollars. Item EV-998 is also similarly payment of custom duty in respect of items received in respect of the same party and again the repair costs are clearly indicated and cleared by the State Bank of India and hence these items are fully allowable as revenue expenditure. Only in respect of EV-1897, which is spares for GT-frame, sufficient details have not been made available but it can be presumed that it is similar to GV-1008, (item No.6 above) which has been fully allowed as being repairs in nature.
5.9 In an nutshell the net disallowance on capital account pertaining to new items created and which are not part of current repairs are totalled at Rs. 1 lakhs + 10 lakhs + 1,63,556/- + 1,03,254/- = 13,66,800/-. The balance expenditure is allowed as revenue expenditure on the facts of the case, as pertaining to repairs. The Assessing Officer is directed to grant depreciation on this amount and the balance may be allowed as revenue expenditure."
8. When the matter went before the Tribunal, the Tribunal not only confirmed the deletions made by CIT(Appeals) and further deleted those, which were retained by CIT(Appeals). The Tribunal relied on and referred to the decision of Apex Court in the case of Commissioner of Income-Tax vs. Sarvana Spinning Mills P. Ltd. reported in [2007] 293 ITR 201(SC) as also other decisions.
9. Having thus perused the orders under consideration, we do not find that CIT(Appeals) or the Tribunal committed any error in so far as the treatment to the expenditure incurred in repairs and maintenance work without bringing into existence any new asset is concerned. No question of law, therefore, arises. This Tax Appeal is, therefore, dismissed.
(Akil Kureshi, J. ) (Ms.
Sonia Gokani, J. ) sudhir Top