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TMI Blog2012 (9) TMI 553X X X X Extracts X X X X X X X X Extracts X X X X ..... dence to be treated as revenue expenditure - CIT(A) deleted the addition - Held that:- The assessee did not produce all the bills and vouchers in relation to expenditure incurred on repairs to building and the CIT(A),without ascertaining the nature of construction or verifying the bills/vouchers or any other material concluded that expenditure was incurred on temporary structures. There is nothing to suggest that the assessee produced the relevant bills & vouchers before the ld. CIT(A) nor seems to have verified the genuineness of expenditure or even recorded any such findings - as CIT(A) without disclosing any basis or giving opportunity to the AO, concluded that expenditure was on temporary structure it is appropriate to vacate the findings of the CIT(A) and the matter is to be remanded to the AO to go into the matter afresh - in favour of revenue. X X X X Extracts X X X X X X X X Extracts X X X X ..... ee reiterated their submissions before the AO and further contended that the amount paid by the assessee as compensation was treated as revenue expense even in the preceding years. In the AY 2001-02, though the ld. CIT(A) allowed their claim vide order dated 6th January, 2005,on further appeal, the ITAT vide their order dated 5.10.2007 in ITA no. 1505/Del./2005 restored the issue to the file of the ld. CIT(A) with the directions to re-examine the issue afresh in the light of various decisions cited before the CIT(A), the method of accounting followed and method of valuation of closing stock and also verify the facts as to whether or not such expenses were allowed in the earlier years. The said matter is stated to be still pending before the ld. CIT(A).As regards accounting policy being consistently followed by the assessee, it was submitted that the assessee was paying compensation every year and claimed the same as revenue expenditure in the books of accounts year after year, as detailed hereinbelow:- Assessment year Amount of compensation claimed [InRs.] Amount of compensation allowed[In Rs.] 1995-96 4,98,250 4,98,250 1996-97 13,65,000 13,65,000 1997-98 4,15,000 4,25, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itself misconceived. 16. Looking to the facts and circumstances as stated here in above and the law applicable, the addition made by the Assessing Officer of Rs.36,60,500/- is deleted." 4. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A).The ld. DR contended that when advance was not credited in profit and loss account nor was there any commercial expediency in making the payment of compensation and no such compensation was provided in the agreement, the claim could be not allowed. Inter alia, the ld. DR relied upon decision in Commissioner of Income-tax v. H. P. Housing Board, 340 ITR 388 (H.P.). 5. On the other hand, the ld. AR on behalf of the assessee supported the findings of the ld. CIT(A) while relying upon the decision dated 24th August, 2004 in ITA nos.3096 & 3686/Del./2000 for the AY 1997-98 in the case of Gopal Das Estates & Housing Ltd. wherein, according to the ld. AR, a similar claim was allowed in the following terms: "39. Learned DR relied upon order of ITAT Delhi "B" Bench dated 28th February, 2002 in the case of assessee for assessment year 1995-96 in which the issue is decided against the assessee. We have gone through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in our, view, the order of the ITAT dated 28th February2002 which has not reached finality can not be relied upon at this stage. We, therefore, respectfully do not propose to rely upon the order of the appellate Tribunal dated 28.2.2002.This order is of no help to the revenue as such. Considering the above discussion, and facts of the case, we are of the view that assessee has rightly claimed the expenditure as revenue expenditure. The CIT(A)is therefore, justified in allowing the appeal of the assessee. We uphold the findings of the CIT(A)and dismiss the appeal of the revenue on this issue. We may clarify that the findings in this order shall not prejudice, the rights and contention of the parties in the matter subjudice in other year." 5.1 The ld. AR pointed out that Hon'ble High Court admitted a question of law on this issue vide order dated 10.10.2007 in ITA no. 772/2005. 6. We have heard both the parties and gone through the facts of the case. As is apparent from the aforesaid facts, details and explanation tendered by the assessee before the AO and extracted in para 3 of the assessment order, reveals as under: Date Name of party Amount [In] Explanation 4-5-2004 Rajind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plots. No such material is referred to in the impugned order nor has been placed before us. As regards issue of principles of consistency, the ITAT in the AT 2001-02 analysed the facts and circumstances in the preceding/succeeding years and recorded their findings as under: "6 We have carefully considered rival submissions along with the order of the Tax Authorities and the various case laws cited before us. We have also gone through the paper book and the copy of the assessment order placed before us by the learned AR in the paper book. From the order for the assessment year 1995-96, 1997-98, 1998-99 & 2004-05, the copies of which are placed at page No.73 to 75, 76 to 79, 80 to 85, 89 to 90 of the paper book, we find that there is no description about the allowance or disallowance of the compensation expenses incurred by the assessee. It is only in the assessment order for the assessment year 2002-03, we find that the Assessing Officer has observed that the assessee has claimed deduction for Rs.1,00,000/- on account of compensation expenses and these expenses have been duly disallowed by the Assessing Officer while framing the assessment. Thus, from the assessment orders the copy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 in the case of Gopal Das Estates & Housing Ltd..(supra) This decision was not cited before the lower authorities. Since there is nothing to suggest that the facts and circumstances in the instant case are parallel to facts and circumstances in the aforesaid cited decision while as already observed ,the ld. CIT(A) did not analyse the nature of each of the aforesaid seven amounts , apparently, the view taken in the said decision cannot be followed. 7. As is apparent from the aforesaid observations in the impugned order, the ld. CIT(A) dismissed the appeal without even analyzing the nature of each of the amount paid to aforesaid seven persons as to how the amount is compensation in nature and what were the circumstances in each of these cases which compelled the assessee to pay such compensation and what was the basis of payment of the aforesaid amount. A mere glance at the impugned order reveals that the order passed by the ld. CIT(A) is cryptic and grossly violative of one of the facets of the rules of natural justice, namely, that every judicial/quasi-judicial body/authority must pass a reasoned order, which should reflect application of mind by the concerned authority to the is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of building. Of these, ledger account revealed that an amount of Rs.21,81,197/- related to coriander leaf and other repair expenses at Vatika Triangle. Even when the AO asked the assessee to submit bills/vouchers for these expenses, the assessee did not produce the same. Accordingly, while observing that the assessee incurred expenditure on construction of commercial complex and basement at vatika Triangle, the AO disallowed the claim of the assessee, treating the amount capital in nature. 9. On appeal, the ld. CIT(A) concluded in the following terms:- "18. The property was fully occupied by the owners of the respective portions of the property or tenants in earlier years. Income there from has been disclosed by the assessee in the assessment year 2004-05. The assessee has also filed copy of an application filed by it before the HUDA authorities for issuance of a completion certificate w.e.f. 24.12.2004. It was further explained that the building contains 7 floors and 3 basements. Thus, in the said building 10 floors have been built up. It was submitted that the commercial complex having 10 floors in all cannot be constructed for a meager sum of Rs.21,81,197/- and, therefore, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justified in deleting the disallowance. The question which arises for determination in this case is whether the assessee was entitled to claim the aforestated amounts as "current repairs" under sections 30 of the Act or u/s 37 (1) of the Act as revenue expenditure. In this connection the judgment of Hon'ble Bombay High Court in the case of New Shorrock Spg.. & Mfg. Co. Ltd. v. CIT [1956] 30 ITR 338 is the leading case, which was approved by the Hon'ble Supreme Court in the case of Ballimal Naval Kishore v. CIT [1997] 224 ITR 414. The Hon'ble Bombay High Court explained the expression "repairs" in the following words :- "The expression 'repairs' must be understood in contradistinction to renewal or restoration. A building, machinery, plant or furniture may be renewed or restored either wholly or in part, in which case the amount expended would not be in respect of repairs, but when renewing or restoring a building, machinery, plant or furniture a need may arise to set right certain defects or flaws and an amount may be spent for this purpose and the result may be that although the original asset has been preserved and maintained, no new asset has come into existence and no additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r not expenditure is on current repairs, Hon'ble Supreme Court in the case of Ballimal Naval Kishore v. CIT [1997] 2 SCC 449, while approving the test formulated by Shri Chagla C J. in the case of New Shorrock Spinning and Manufacturing Co. Ltd. v. CIT [1956] 30 ITR 338 (Bom),observed as follows: "The simple test that must be constantly borne in mind is that as a result of the expenditure which is claimed as an expenditure for repairs what is really being done is to preserve and maintain an already existing asset. The object of the expenditure is not to bring a new asset into existence, nor is its object the obtaining of a new or fresh advantage. This can be the only definition of 'repairs' because it is only by reason of this definition of repairs that the expenditure is a revenue expenditure. If the amount spent was for the purpose of bringing into existence a new asset or obtaining a new advantage, then obviously such an expenditure would not be an expenditure of a revenue nature but it would be a capital expenditure, and it is clear that the deduction which the Legislature has permitted under section 10(2)(v) is a deduction where the expenditure is a revenue expenditure and n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expenditure is revenue, it may not fall in the connotation of "current repairs" in section 31(i). It was further observed that replacement generally may not fall under the expression "current repairs" but, in certain cases, where the old parts were not available in the market or where the old parts had worked for 50 to 60 years, replacement can, in such cases of exception, fall within the expression "current repairs". 12.5 Under section 37, a particular item of expenditure may be deductible if the expenditure does not fall within sections 30 to 36 ; that it should have been incurred in the accounting year; that it should be in respect of a business carried an by the assessee; that it should not be on personal account of the assessee; that it should not be in the nature of capital expenditure and that it should be spent wholly and exclusively for business. Whether expenditure is "revenue" or "capital in nature" would depend upon several factors, namely, nature of the expenditure, nature of the business activity etc. . 12.6 Recently, Hon'ble Karnataka High Court in CIT vs. HP Global Soft Ltd.,20 taxmann.com 459 (Kar) while examining the claim as to whether expenditure on civil st ..... X X X X Extracts X X X X X X X X Extracts X X X X
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