Ineos Abs (I) Ltd.,, Baroda vs Assessee

.INEOS ABS (I) Ltd., Vs D.C.I.T., Circle-1(2), Baroda. (Formerly known as Lanxess ABS Ltd.), 6th floor, ABS Tower, O.P. Road, Baroda. (Appellant) (Respondent) PA No. AACB 6164H

Appellant by Shri Sulabh Pad Shah, AR Respondent by Shri M. K. Singh, Sr.DR

Date of hearing: 9/6/2015 Date of pronouncement: 12/06/2015

ORDER

PER Shri Rajpal Yadav, Judicial Member.

The assessee is in appeal before us against the order of ld.

CIT(A) dated 13th July, 2011 passed for AY 2008-09. In response to

the notice of hearing an adjournment application has been filed by the

Authorised Representative of the assessee. However, considering

the smallness of the issues involved in the appeal, we did not grant

the adjournment and heard the appeal with the assistance of ld. DR. ITA No.2213/Ahd/2011 2 Asst. Year 2008-09

2. Though the assessee has taken 3 grounds of appeal but its

grievances revolves around a single issue whereby it has challenged

the confirmation of disallowance made by the CIT(A) of Rs.5,24,236/-

and Rs.34,22,891/- which were claimed by the assessee towards

current repairs of the assets.

3. Brief facts of the case are that the assessee has filed its return

of income on 28.9.2008 declaring an income of Rs.49,14,40,337/-.

The case of the assessee was selected for scrutiny assessment and

notice under section 143(2) was issued on 17th August, 2009. On

scrutiny of the accounts it revealed to the AO that assessee has

debited following expenditure under the head ''current repair'':-

1. Pest Control Treatment : Rs.1,02,200/-

2. Painting at plants : Rs.1,90,305/-

3. Miscellaneous civil repairs At Nandesari : Rs.5,24,236/-

Total Rs.8,16,831/- And 1. Piping and Welding Eskay Construction - Rs.19,68,293/-

2. Painting of vessels & equipments Raj Deco -Rs.14,54,598/-

Total Rs.34,22,891/- ITA No.2213/Ahd/2011 3 Asst. Year 2008-09

The AO has disallowed both the claims of the assessee. He granted

depreciation @ 10% on the expenditure of Rs.8,16,831/- and @ of

15% on the disallowance of Rs.34,22,891/- because both these

expenditures were treated as of capital nature.

4. On appeal ld. CIT(A) has allowed the expenditure partly with

regard to Pest Control Treatment and Painting Work. The ld. CIT(A)

has confirmed the disallowance of Rs.5,24,236/- out of total expenses

of Rs.8,16,831/- incurred by the assessee towards alleged Pest

Control, painting work and civil work at Nandeswari, Moxi and Kalol

plant. With regard to other expenditure incurred by the assessee ld.

CIT(A) confirmed the disallowance by concurring with the AO.

5. On due consideration of the facts and circumstances we are of

the view that in various authoritative announcements referred by the

assessee in its submissions filed before the CIT(A) [reproduced by

CIT(A)] it has been propounded that in order to decide applicability of

section 31(1) the test was not, whether the expenditure was revenue

or capital in nature, but whether the expenditure was ''current repair''.

Basic test was to find out whether expenditure was incurred to

''preserve and maintain'' an already existing asset and the

expenditure must not be to bring a new asset in existence or to obtain ITA No.2213/Ahd/2011 4 Asst. Year 2008-09

new advantage. The contention of the assessee was that written

down value of building shown by the assessee is Rs.27.16 crores. It

has incurred the expenditure for preserving and maintaining the

buildings. On the strength of Hon'ble Delhi High Court rendered in the

case of CIT vs. Delhi Press Samachar Patra (P) Ltd. 322 ITR 590 it

was also pointed out that if an assessee has re-erected a part of

building after demolition the existing building then that expenditure

would fall within the ambit of ''current repair''. The assessee has

carried out certain civil work and incurred an expenditure of

Rs.5,24,236/-. If this expenditure is to be weighed vis-à-vis the total

w.d.v. of the building at Rs.27.16 crores then certainly the scale

would tilt in favour of assessee that expenses must have been

incurred for preserving the building. The ld. CIT(A) simply disbelieved

the contentions of the assessee by assuming that the bill

representing civil work is to be construed that assessee has

constructed altogether new building which is to be added in the block

of asset. But in our opinion, if the expenses were incurred for a repair

to the existing building though by way of some constructions then, it

amounts to ''current repair.'' ITA No.2213/Ahd/2011 5 Asst. Year 2008-09

6. As far as the second issue is concerned, the assessee has

incurred the expenditure on existing plant. The repair is an integral

part of a bigger piece of machinery, i.e., piping and welding would not

function independently. Thus there is no fresh induction of the

machinery. It has repaired to one of the components of one unit. The

ld. first appellate authority failed to appreciate this aspect, therefore,

has erred in confirming the disallowance. In view of the above

discussion, we allow the appeal of assessee and delete the

disallowance. The expenses incurred by the assessee on ''current

repair'' will be admissible as revenue expenditure and the

depreciation granted by the AO by treating this expenditure as of

capital nature will be reversed. The AO shall carry out this exercise.

7. In the result, the appeal of the assessee is allowed.

Order pronounced in the open Court on 12/06/2015

Sd/- Sd/-

(N. S. Saini) (Rajpal Yadav) Accountant Member Judicial Member

Dated 12/06/2015

Mahata/- ITA No.2213/Ahd/2011 6 Asst. Year 2008-09

Copy of the order forwarded to: 1. The Appellant 2. The Respondent 3. The CIT concerned 4. The CIT(A) concerned 5. The DR, ITAT, Ahmedabad 6. Guard File BY ORDER

Dy. Registrar, ITAT, Ahmedabad

1. Date of dictation: 10/6/2015

2. Date on which the typed draft is placed before the Dictating Member:10/6/2015 other Member:

3. Date on which approved draft comes to the Sr. P. S./P.S.:

4. Date on which the fair order is placed before the Dictating Member for pronouncement: __________

5. Date on which the fair order comes back to the Sr. P.S./P.S.:

6. Date on which the file goes to the Bench Clerk: 12/6/2015

7. Date on which the file goes to the Head Clerk:

8. The date on which the file goes to the Assistant Registrar for signature on the order:

9. Date of Despatch of the Order: