Cedar Management Consluting P.Ltd, ... vs Assessee

The present appeal has been preferred by the assessee against the order dated 08.10.2012 of the Commissioner of Income Tax (Appeals) [(hereinafter referred to as CIT(A)] relevant to assessment year 2009-10.

2. The assessee has taken the following ground of appeal:

"On the facts and in the circumstances of the case and in law the Commissioner of Income-Tax (Appeal) has erred in upholding the treatment of repair expenditure of Rs.56,06,866/- as capital expenditure as against the revenue expenditure claimed by the appellant"

3. The brief facts of the case are that the assessee company is engaged in the business of management and Income Tax consultancy. During the ITA No.490/M/2013 2 M/s. Cedar Management Consulting Pvt. Ltd.

assessment proceedings, the Assessing Officer (hereinafter referred to as the AO) noticed that the assessee had purchased property at Khandala for Rs.98,10,757/-. The assessee treated the same as asset in the balance sheet and had brought this asset in the use of business for the first time during the current financial year. It was also observed by the AO that the assessee had debited an amount of Rs.56,06,866/- on building and others Rs.15,89,145/- under the head repairs and maintenance. When asked to give the details in respect of the said repairs and maintenance, it was stated by the assessee that the same were related to renovation work carried out at Khandala property. The AO, however, after examining the details submitted by the assessee, observed that the expenditure incurred on the said property was not for simple repairs and maintenance but it was such that it had completely changed the nature of the asset and made value addition to the property bought and brought to use for the first time during the financial year under consideration i.e. F.Y. 2008-09. He therefore held that the expenditure of Rs.56,06,866/- in relation to building was capital in nature. Aggrieved by the order of the AO, the assessee preferred appeal before the Ld. CIT(A).

4. The Ld. CIT(A), however, also confirmed the findings of the AO holding that the said expenditure was capital in nature. The assessee has, thus, come in appeal before us.

5. We have heard the rival contentions of the Ld. Representatives of both the parties and have also gone through the records. The Ld. A.R. of the assessee, before us, has submitted that the Khandala property was in a usable condition when it was purchased, as the seller of the property the assessee was using the property for his own purpose. The repairs were carried out to make the property conducive for the intended business purpose, i.e. for imparting training to staff and no new asset has come into existence. The repairs and ITA No.490/M/2013 3 M/s. Cedar Management Consulting Pvt. Ltd.

maintenance expenditure, thus, was revenue in nature. The Ld. A.R. has further relied upon the decision of the Hon'ble Bombay High Court in the case of "CIT vs. Chowgule and Co. Pvt. Ltd." 214 ITR 523 and another decision of the Hon'ble Delhi High Court in the case of "CIT vs. Modi Industries Ltd." (2011) 339 ITR 467 (Delhi) in this respect.

On the other hand, the Ld. D.R. has relied upon the findings of the lower authorities.

6. We have considered the respective submissions of the Ld. Representatives of the parties. It is not disputed that the property was purchased during the year under consideration and was put to use for the first time. Earlier, the property was used by the previous owner for some other purpose. The assessee, to make the property conducive for its business, had made changes/repairs for which the expenditure in question was incurred. It is not a case that the property was already in use in the previous year and owing to the business exigency and in the normal course of user for the purpose of preservation, maintenance or proper utilization, the expenditure in question was incurred. In this case, the property in question was purchased and thereafter a hefty amount had been spent on the building so as to bring it to a condition which was conducive for the purpose of business of the assessee. Therefore, the said expenditure incurred by the assessee was in the course of buying and making the property suitable for the business, before actually putting it to use and the same thus represents the cost of the asset. So far as the reliance of the Ld. A.R. on the decision of the Hon'ble Bombay High Court in the case of "CIT vs. Chowgule and Co. Pvt. Ltd." (supra) is concerned, in that case, the expenditure was done by the assessee for the repair of the vessel which was already in use. After examination of the entire details, the inspecting Assistant Commissioner had held that the expenditure in question ITA No.490/M/2013 4 M/s. Cedar Management Consulting Pvt. Ltd.

was not capital in nature. However, the Commissioner exercising its jurisdiction under section 263 of the Act observed that the expenditure incurred was very high and had been incurred with a view to bring into existence an asset or advantage of enduring benefit to the business of the assessee. He therefore held that the order of the AO was not correct. The Tribunal, however, held that the details of expenditure incurred by the assessee on repairs were thoroughly gone into by the Inspecting Assistant Commissioner and that the Commissioner did not give any reason as to why he considered any part of the expenditure to be the capital in nature except on the plea that the total expenditure on repairs together with the written down value of the ship existed its original cost. With the above history of facts, the Hon'ble High Court upheld the findings of the Tribunal laying down the following propositions.

"(i) The amount should be paid on account of current repairs.

(ii) "Current repairs" means repairs undertaken in the normal course of user for the purpose of preservation, maintenance or proper utilisation or for restoring it to its original condition.

(iii) "Current repairs" do not mean only petty repairs or repairs necessitated by wear and tear during the particular year.

(iv) Such repairs should not bring into existence nor obtain a new or different advantage.

(v) Neither the quantum of expenditure nor the fact that in the process of repairs, there was substantial replacement of the parts of the machine or ship, is decisive of the true nature of the expenditure.

(vi) The original cost of the asset is not at all relevant for ascertainment the true nature of the expenditure on repairs.

(vii) The replacement cost of the asset may, however, at times be used as an indicator of the true character of the expenditure. If the expenditure on repairs added to the written down value or disposal value exceeds the replacement cost of the asset, a presumption is possible that it is not a revenue expenditure but expenditure of capital nature. Such a presumption, of course, would be rebuttable.

ITA No.490/M/2013 5 M/s. Cedar Management Consulting Pvt. Ltd.

(viii) The expression "current" preceding "repairs" appears to have been used by the Legislature with a view to restaricting the allowance to expenditure incurred for preservation and maintenance thereof in its current state in contradistinction to that incurred on any improvement or an addition thereto."

7. The Tribunal thereafter observed in the said case that the expenditure incurred was in relation to current repairs to the existing ship and had not brought any new ship in the existence. However, the facts of the case, before us, are entirely different from that discussed above. In the case in hand, the expenditure cannot be said to be incurred as current expenditure in the normal course of user. In the case in hand, the asset was for the first time purchased and before putting it into use, extensive repairs were done to obtain a new or different advantage than that was there before it was purchased. As held by the Hon'ble Bombay High Court in the case of "CIT vs. Chowgule and Co. Pvt. Ltd." (supra) if, the expenditure incurred on such repairs is to obtain a new or different advantage of the property, then it is to be held as capital in nature and not revenue in nature. The another decision of the Hon'ble Delhi High Court in the case of "CIT vs. Modi Industries Ltd." (supra) is also not applicable to the facts of the present case. In that case, the assessee, after completely demolishing the old cell room, had erected the new cell room. The Hon'ble High Court had held that the money spent was not merely on the repairs of the cell room but for constructing a new cell room and the claim was denied. Hence, the said decision is not at all applicable or of any help to the assessee so far as the case in hand is concerned.

8. In view of our above discussion, we do not find any infirmity in the findings of the lower authorities that the expenditure in question was capital in nature.

ITA No.490/M/2013 6 M/s. Cedar Management Consulting Pvt. Ltd.

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

Order pronounced in the open court on 20.02.2015.

Sd/- Sd/- (R.C. Sharma) (Sanjay Garg) ACCOUNTANT MEMBER JUDICIAL MEMBER

Mumbai, Dated: 20.02.2015 * Kishore, Sr. P.S.

Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The CIT (A) Concerned, Mumbai The DR Concerned Bench //True Copy// [

By Order

Dy/Asstt. Registrar, ITAT, Mumbai.