Income Tax Appellate Tribunal - Amritsar
M/S. Unimax Laboratories,, Distt. ... vs The Addl. Commissioner Of Income-Tax, ... on 16 January, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH; AMRITSAR
BEFORE SH.T.S. KAPOOR, ACCOUNTANT MEMBER AND
SH.N.K.CHOUDHRY, JUDICIAL MEMBER
I.T.A. No. 641(Asr)/2014
Assessment Year: 2010-11
M/s. Unimax Laboratories Vs. ACIT,
H.O. Jandiala Guru, Range-IV,
Dist. Amritsar. Amritsar.
PAN:AAAFU2189C
(Appellant) (Respondent)
Appellant by: Sh. K.R.Jain (Adv.)
Respondent by: Sh. Rahul Dhawan (DR)
Date of hearing: 15.09.2016
Date of pronouncement:16.01.2017
ORDER
PER N. K. CHOUDHRY (JM):
This is an appeal filed by the assessee against the order of ld.
CIT(A), Amritsar, dated 12.08.2014 for Asst. Year:2010-11.
2. The assessee has raised the following grounds of appeal.
"1. That the Learned Addl. Commissioner of Income Tax has erred in law & on facts while making an addition of Rs.43,21,700/- and likewise Ld. CIT is not justified while confirming the same.
2. That the Learned Commissioner of Income Tax (Appeals) has erred in law and on facts while confirming the disallowance of Rs.23,58,778/- claimed as repair of Air Handling unit and treating it as expenditure of capital nature.
3. That the Learned CIT (A) has further erred in law and on facts while confirming the order of Ld. Addl. Commissioner of Income Tax capitalizing Rs.25,74,155/- on account of building repair.
4. That the Learned CIT (A) has not appreciated the facts of the case, explanation offered & proceeded to confirm the order to Ld. ACIT capitalizing the repair of Air Handling Units & Building repair arbitrarily.2 ITA No.641 (Asr)/2014
Asst. Years: 2010-11
5. That without prejudice to the above CIT(A) has not provided the depreciation while treating the above amount of capital nature.
Accordingly it is prayed that addition/disallowance made by the learned Addl. Commissioner of Income Tax and confirmed by the CIT(A) be deleted and allowed as revenue expenditure or such other relief as may be permissible be granted."
3. The brief facts of the case as noted in the assessment order are that the assessee firm engaged in the business of Manufacturing of Medicines and substantial quantity is exported. The return was filed on 25.09.2010 declaring the income of Rs.1,28,57,510/- and the same was processed U/s 143(1) on 24.05.2011. The case was selected for scrutiny as per CASS Software. Notice u/s 142(1) and 143(2) along with detailed questionare was issued on 16.08.2012 fixing the proceedings for 27.08.2012. The assessment proceedings were attended by the assessee's representative from time to time who furnished the required information which was examined and placed on record. Notices u/s 133 (6) of the Income Tax Act,1961 were issued for making verification of various sundry creditors and verifeid/cross checked with books of accounts of the assessee. The necessary verification has also been placed on record. The Assessing Officer in the assessment order capitalized the Air Handling Unit charges and the same is disallowed as being revenue expenditure and accordingly the sum of Rs.23,58,778/- is being capitalized and added back to the income of the assessee and depreciation @ 15% is being allowed on the addition to the building.
3 ITA No.641 (Asr)/2014Asst. Years: 2010-11 3.2 Secondly capitalization of the building repair charges, the Assessing Officer has also held that expenditure to the tune of Rs.25,74,153/-being incurred by the assessee is capital in nature as the expenditure incurred has resulted in an advantage of enduring nature to the assessee. Therefore, the ld. Assessing Officer disallowed the said expenses being capital in nature and added back to the income of the assessee while giving benefit of depreciation @10% and capitalized the same.
4. Being aggrieved by the order passed by the Assessing Officer, the assessee preferred the first appeal before the ld. CIT(A) who also confirmed the order passed by the Assessing Officer by holding as under:
"6. During appellate proceeding assessee was asked to produce detail outlay of manufacturing area before repairing and after repairing/ modification and similarly of Air Handling Units. The Diagrams showing above changes are annexed to this order has annexure 1, 2, 3 & 4. During discussion it was informed by the assessee that 10 new Air Handling Units (AHU) were installed at the places from air the old Air Handling Units (AHU) were removed and - new AHUs were installed as per requirement and re-modified manufacturing air layout. Thus total no. of AHUs were increased from 28 to 41 The modification of rooms "were carried out to provide environmental control to temperature, humidity and pressure differential (i.e. flow of air) Air locks were created before the entrance of the process air and the total activities carried out as far as civil work and mechanical work in concern as under as per the assessee:
The total activities carried on during both years i.e. A.Y. 2010-11 8s 201 1-12 ore as under: -4 ITA No.641 (Asr)/2014
Asst. Years: 2010-11
18. Modification of rooms under environmental control ie. control of temperature, humidity & pressure differential (ie. of air).
The total no. of AHU's was increased from 28 to 41. For this, we had to add new Air Handling Units (AHUs) & insulated ducts as the AHU's are placed on the roof top.
19. Up keep of to the existing AHUs which were old 8s were not providing sufficient air volume.
20. Replacement of the ducts which had corroded over time.
21. Replacement of old grills with new' grills.
22. Creation of Airlocks before the entrance to the process area.
23. Amendment in the aluminum doors to make them smooth with no dust accumulation areas.
24. Amendment in the aluminum windows to make them smooth with no dust, accumulation areas.
25. Fabrication of iron platforms for placing the AHUs.
26. The existing false ceiling was done with 'Gypsum' board. It had developed cracks & had swollen at many places. Replacement of false, ceiling was done with 'Hylux' cement composite board.
27. Making wall/floor corners rounded so that it is easily cleanable.
28. Replacing Kota flooring, wherever damaged and adding epoxy in the Kota (floor) joints so that there are not cracks where dust can accumulate.
29. Complete epoxy flooring in more critical areas.
30. Replacing iron furniture with SS furniture. Addition of new SS furniture.
31. Change (restructure) the process area rooms wherever the room size was not suitable as per the requirements. This involved demolishing a number of internal walls & replacing them with new ones.
32. Repainting of the entire walls & roofs of the factory.
33. Replacement of the entire walls & roofs of the factor. Water storage tanks with SS Tanks & atomization of the entire water system.
34. Some of the electrical equipment with lights, cables, switchboards, MCB etc. were replaced with more suitable ones as per the requirements.
During the A.Y. 2010-11, following activities were done:
- Replaced 10 old AHUs with brand new ones. Since this was replacement, no new ducting was done. The old AHU's that were removed & placed in other locations after repairing them in the next year. The value of the new AHU's was capitalized.
- Other AHU were removed from their locations & were repaired. Damaged ducting was removed & replaced.
- Old filters installed in the AHUs, ducts & process areas were replaced with new ones.5 ITA No.641 (Asr)/2014
Asst. Years: 2010-11
- Internal ducting (ducting inside the building, above the false ceiling) too had to be removed due to air leakages & due to changes made in the room sizes)
- A number of internal wails were broken down & new ones erected for reorientation of the rooms.
- Existing aluminium doors & windows were amended.
- Damaged Kota flooring replaced. Adding epoxy in the Kota floor joints.
- False ceiling pulled down.
During the A.Y. 2011-12, following activities were done:
- 3 new AHUs purchased & installed (capitalized)
- Modification of the old AHUs & their installation complete with ducting, insulation, chilled water pipeline, filters & grills wherever required.
- New ducting, insulation, chilled water pipeline, filters & wherever required (capitalized)
- A number of internal walls were broken down & new one erected for reorientation of the rooms.
- Reinforcement of the roofs, wherever required.
- Existing aluminum doors & windows were amended.
- New aluminum doors & windows (capitalized)
- Damaged Kota flooring replaced. Adding epoxy in the Kota floor joints.
- Old false ceiling was pulled down & new false ceiling done in the entire factory.
- Making wall/ floor corners rounded so that it is easily cleanable.
- Epoxy paint on floors of more sensitive areas.
- Replacing iron furniture with SS furniture.
- Addition of new SS furniture (capitalized)
- Repainting of the entire walls & roofs of the factory,
- Replacement of the old rusted water pipeline with new pipes.
- New SS water storage tanks with aulomization of the entire water system (capitalized).
- Replacement of the old electrical equipment like, switchboards, cables, MCB etc.
- Installation of new lights in the false ceiling (capitalized).
The assessee has raised 5 grounds of appeal inter-alia challenging disallowance of Rs.23,58,778/- claimed as repair of Air Handling Unit and disallowance of Rs.25,74,115/- claimed as building repair, treating both of above as capital in nature. I have gone through assessee s submissions, assessment order and diagrams showing changes in position oi Air Handling Units including installation of New Air Handling Units and re-modified manufacturing area lay-out. I can be seen from annexures 1, 2, 3 & 4 that the complete new lay-out of and manufacturing area has 6 ITA No.641 (Asr)/2014 Asst. Years: 2010-11 been created, alongwith complete modification of windows, doors and environmental control including air locks. These modifications can not be co current repairs as provided in section-31 of the Income Tax Act they have. not been incurred to preserve and; maintain and already existing asset but have been carried out to get new advantage of endurable nature by making its factory WHO-GMP compliant resulting into substantial gain in tangible as well as intangible assets of firm. The Supreme Court has also discussed similar issue in the case of M/s. Saravana Spinning Mills and observed that:
" An allowance is granted by cl. (i) of s. 31 in respect of amount expended on current repairs to machinery, plant or furniture used for the purposes of business, irrespective of whether the assessee is the owner of the assets or has only used them. The expression "current repairs" denotes repairs which are attended to when the need for them arises for the viewpoint of a businessman. The word "repair" involves renewal. However, the words used in s. 31 (I) are "current repairs". The object behind s. 3.1 (i) is to preserve and maintain the asset and not to bring in a new asset. In our view, s. 31(1) limits the scope of allowability of expenditure as deduction in respect of repairs made to machinery, plant or furniture by restricting it to the concept of "current repairs". All repairs are not current repairs. Sec. 37(1) allows claims for expenditure which are not of capital nature. However, even s. 37(1) excludes those items of expenditure which expressly falls in section. 30 to 36. The effect is to delimit the scope of allowability of deductions for repairs to the extent provided for in Ss. 30 to 36. To decide the applicability of s. 31 (i) the test is not whether the expenditure is revenue or capital in nature, which test has been wrongly applied by the High Court, but whether the expenditure is "current repairs". The basic test to find out. as to what would constitute current repairs is that the expenditure must have been incurred to "preserve and maintain" an already existing asset, and the object of the expenditure must not to bring a new asset into existence or to obtain a new advantage, In fact, in the present case, in the in the balance sheet the assessee, vis, M/s Saravana Spinning Mills has indicated the above expense as an item incurred for purchase of a new asset. In our view, the High Court had erred in placing reliance on the report of SITRA in coming to the conclusion that: the textile mill is a plant under s. 31
(i). As stated above, each machine in a segment has an independent role to play in the mill and the output of each division is different from the other. "Repair" implies the existence of a part ol the machine which has malfunction. If the argument of the assessee herein before us is to be accepted it would result in absurdity and it would make the provisions of s. 31 (i) completely redundant.
According to Shri R; Venkataraman, Learned senior counsel for the assessee, the textile plant consists of about 25 machines. One of such machines is the ring frame. If the argument of. the assessee is to be accepted, it would mean that periodically one machine out of 25 would be replaced, and on that basis, from time to time, each of these 25 machine in the textile plant would be entitled to claim allowance under s. 31 (i). In our view, the AO was right in holding 7 ITA No.641 (Asr)/2014 Asst. Years: 2010-11 that each machine including the ring frame was an independent and separate machine capable of independent and specific function and. therefore, the expenditure incurred for replacement of the new machine would not come within the meaning of the words "current repairs". In the present case, it is not the case of the assessee that a part of the machine (out of 25 machines) needed repairs. The entire machine had been replaced. Therefore, the expenditure incurred by the assessee did not fall within the meaning of "current repairs" in s. 31 (i).
Hon'ble Supreme Court in the case of Ballimal Naval Kishore vs. CIT (1097) 138 CTR (SC) 284: (1997) 2 SCC 449 approved the test formulated by Chagla C.J. in the case of New Shorrock Spinning & Manufacturing Co. Ltd. Vs. CIT (1956) 30 ITR 338 (BOM) as to when the expenditure can be said to have been incurred on current repairs In that case it was observed as follows:
"The simple test that must be constantly borne in mind is that as result of the expenditure which is claimed as an expenditure for rep 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 s. 10(2){v) is a deduction where the expenditure is a revenue expenditure and not a capital expenditure." In the said judgment, it has been further observed by Chagla C.J. that the definition of the owrd "repair" does not create much difficulty, but the difficulty is created by the word "current" which qualifies the expression "repair". This adjective, namely, "current" is put in by the legislature. It indicates that the legislature did not intend that the assessee should be permitted to claim allowance for all kinds of repairs, even though conceptually the expenditure may be revenue expenditure. The legislature intended to stress that under s. 31(1) the permissible deduction expenditure. The legislature intended to stress that under s. 31 (i) the permissible deduction admissible is only for current repairs, therefore, the question as to whether the expenditure incurred by the assessee conceptually is revenue or capital in nature is not relevant for deciding the question as to whether such an expenditure comes within the etymological meaning of the expression "current repairs". In other words, even if the expenditure is revenue, it. may not fall in the connotation of "current repairs" in s. 31 (i). The test formulated above applies to cases where the assessee claims allowance under s. 31 (i). In the present case, the High Court has lost sight of the test to be applied for an expenditure to fall under s. 31 (i) as "current 8 ITA No.641 (Asr)/2014 Asst. Years: 2010-11 repairs". It h embarked on the test which was not applicable, viz., whether expenditure is revenue or capital in The above test was not relevant during the assessment years in question as the Explanation to s. 31 (i) was inserted later on. In our view, applying the test laid down by Chagla C.J. in case of New Shorrock Spinning & Manufacturing Co. Ltd. (supra) the assessee were not entitled to claim allowance under s. 31(i) for current repairs. In our view, the ring frame by itself constituted an independent machine with an independent function, which was replaced by a new ring frame giving enduring advantage to the assessee and, therefore, the expenditure incurred in that regard cannot come within the expression "current repairs'".
2. The propositions that emerge from the decided cases are:
(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 utilization or for restoring it to its original condition.
(iii) 'Current repairs' do not mean only petty repairs or repairs necessitated by wear and tear particular year
(iv) Such repairs should nol 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 of 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 tl expenditure on repairs added to the written down value or disposal value exceeds the replacement cost of the asset, a presumption possible that it is not a revenue expenditure but expenditure of capital nature. Such a presumption, of course, would be rebuttable".
In various other decisions by Madras High Court, Mumbai High Court & Kerala High Court has also held that any expenditure incurred for improvement or an addition to the asset will not fall in current repairs and has to be treated as capital expenditure:-
(a) The expression 'current' preceding 'repairs' appears to have been used by the legislature with a view to restricting 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 - CIT v.Chowgule & Co. (P) Ltd. [1995J 214 ITR 523/81
Taxman 384 (Bom.) 9 ITA No.641 (Asr)/2014 Asst. Years: 2010-11
(b) 'Repair' implies the existence of a tiling which has malfunctioned and can be get right by effecting repairs which may involve replacement of some parts, thereby making the thing as efficient as it was before or as close to it as possible. After repair the thing to which repair was carried out continues to be available for use. Replacement is different from repair. Replacement implies the removal or discarding of the thing that was in use, by a different or new' thing capable of performing the same function with the same, lesser or greater efficiency. The replacement of a section in a series of machines which are interconnected in a segment of the production process which together form an integrated whole may, in some circumstances, be regarded as amounting to repair when without such replacement that unit, in that segment wdll not function. The iogic cannot be extended to the entire manufacturing facility irom the stage of raw' material to the delivery of the final finished product
- CIT v. Madras Cements Ltd. [2002) 255 ITR 243/ 123 Taxman 412 (Mad.).,
(c) Where the assessee replaced the electric control panel which damaged and was beyond repair, by a new control panel, the expenditure on such replacement cannot be treated as 'repair' under section 31. It. would be a case of capital investment and would not be a case of repair - Deputy CIT v. S.T.N. Textiles Ltd. (2002) 257 ITR 161 (Ker.).
Thus it is clear that assessee has carried out improvement into the existing assets by incurring expenditure which has resulted into new/different advantage to the assessee and can not be considered as current repairs. In view of above, action of the AO is upheld and appeal of the assessee is dismissed."
5. Feeling aggrieved by the order passed by the ld. CIT(A), the assessee preferred the instant appeal which is under consideration on the grounds mentioned in para No.2.
6. At the outset, it was argued by the ld. Counsel for the assessee that A.O has misconstrued by holding that the expenditure on repair of the Air Handling Unit was capital in nature. The ld. AR argued that Air 10 ITA No.641 (Asr)/2014 Asst. Years: 2010-11 Handling Units Charges are of Revenue nature i.e. because repair, replacement of motors, filters, fans, ducting, chilled water pipeline systems etc., because all the Air Handling Units are installed on the roof of the building and are open to atmospheric conditions which is in industrial area extremely polluted and acidic in nature, resulting corrosion/damage of the Air Handling Units and Machinery/Equipment, it often requires repair & replacement of parts. This is also required to keep the AHU systems in order for exports. Further Air Handling Units runs all the time to ensure desired specifications of humidity, dust free air etc. in the production area as per the WHO. This results in continuous wear & tear. Further it was submitted that on being asked by the AO, the assessee again clarified to the Assessing Officer qua Air Handling Units that in addition to the submission already made it is submitted that this is an existing unit and no major repair has been done in the past 8 years. The objective of the repair is to maintain the existing asset & ensure proper performance. The assessee is engaged in the manufacturing of medicines and substantial quantity is exported. Accordingly, the parameters of WHO-GMP needs to be complied with. No new asset has been created by these repairs. The list of parts used along with Photostat copy of purchase invoices is enclosed herewith.
It was further submitted by the ld. AR that all the Air Handling Units are installed on the roof & repair & replacement of parts and 11 ITA No.641 (Asr)/2014 Asst. Years: 2010-11 required to keep the AHU systems in order, installed in 2005 to till 2009-10, no major repair has been done. The complete details regarding repair expenses supported by vouchers were produced before the AO. During the course of assessment proceedings, a copy of vouchers of repair charges and sale were also filed before him and the ld. authorities below failed to appreciate the fact that New Handling Units and other materials amounting to Rs.8,30,710/- have been capitalized, while repair expenses have been claimed in P&L Account.
Further, it was argued that in view of the judgment passed by the Jurisdictional High Court in the case of CIT vs. Ranjit Singh (SB) (1955) reported at 28 ITR 14 (Pun) that "A sum can be allowed as the cost of repairs and can be held not be a capital expenditure, if in a particular year is heavy on account of the fact that it is undertaken to remedy the effect of several years of wear and tear or neglect or also in spite of the fact that such expenditure may not be necessary for several years to come, after the repairs have been carried out."
The ld. AR further relied upon the judgments passed by the Madras High Court in the case of CIT vs. Shri Ram Lakshmi Ginning Spinning & Weaving Mills Ltd.(2002) reported at 256 ITR 592 (Mad) that "The expenditure incurred by the assessee in replacing the old worn out parts, is of the nature of expenditure and the fact that the value of parts replaced is high does not convert it into capital expenditure."
The ld. AR further argued that on the basis of the aforesaid judgments, it is clear that expenditure in a particular may be heavy on 12 ITA No.641 (Asr)/2014 Asst. Years: 2010-11 account of the fact that it is undertaken to remedy the effect of several years of wear and tear as in the instant case, the disallowance by the AO and upheld by the ld. CIT(A) is not correct. The ld. AR also relied upon the many other judgments which are part of the submission, however, for the sake of convenience and brevity the same are not repeated herein below.
7. On the other hand, ld. DR heavily placed his reliance on the order passed by the ld. CIT(A) and submitted that both the authorities below have taken under consideration, the facts and circumstances of the case and the expenditure as claimed by the assessee have culminated into new establishment as well as new unit, therefore, the same cannot be allowed to be as Revenue Expenditure.
8. We have gone through with the facts and circumstances of the case, the assessee has incurred the following expenses/additions to building account since 1999-2010 which are as under:
Financial Year Building Building A/c
Repair (capitalized)
(Rs. Lakh) Rs. Lakh
1999-2000 2.08 3.68
2000-01 .74 -
2001-02 4.38 -
2002-03 3.13 -
2003-04 6.50 73.06
2004-05 9.16 87.97
2005-05 17.20 38.56
2006-07 7.14 -
2007-08 2.80 -
2008-09 3.33 -
2009-10 25.74 -
Further, total activities carried out during both Asst. Years: 2010-11 & 2011-12 are as under:
13 ITA No.641 (Asr)/2014Asst. Years: 2010-11
35. Modification of rooms under environmental control ie. control of temperature, humidity & pressure differential (ie. of air). The total no.
of AHU's was increased from 28 to 41. For this, we had to add new Air Handling Units (AHUs) & insulated ducts as the AHU's are placed on the roof top.
36. Up keep of to the existing AHUs which were old 8s were not providing sufficient air volume.
37. Replacement of the ducts which had corroded over time.
38. Replacement of old grills with new' grills.
39. Creation of Airlocks before the entrance to the process area.
40. Amendment in the aluminum doors to make them smooth with no dust accumulation areas.
41. Amendment in the aluminum windows to make them smooth with no dust, accumulation areas.
42. Fabrication of iron platforms for placing the AHUs.
43. The existing false ceiling was done with 'Gypsum' board. It had developed cracks & had swollen at many places. Replacement of false, ceiling was done with 'Hylux' cement composite board.
44. Making wall/floor corners rounded so that it is easily cleanable.
45. Replacing Kota flooring, wherever damaged and adding epoxy in the Kota (floor) joints so that there are not cracks where dust can accumulate.
46. Complete epoxy flooring in more critical areas.
47. Replacing iron furniture with SS furniture. Addition of new SS furniture.
48. Change (restructure) the process area rooms wherever the room size was not suitable as per the requirements. This involved demolishing a number of internal walls & replacing them with new ones.
49. Repainting of the entire walls & roofs of the factory.
50. Replacement of the entire walls & roofs of the factor. Water storage tanks with SS Tanks & atomization of the entire water system.
51. Some of the electrical equipment with lights, cables, switchboards, MCB etc. were replaced with more suitable ones as per the requirements.
During the A.Y. 2010-11, following activities were done:
- Replaced 10 old AHUs with brand new ones. Since this was replacement, no new ducting was done. The old AHU's that were removed & placed in other locations after repairing them in the next year. The value of the new AHU's was capitalized.
- Other AHU were removed from their locations & were repaired.
Damaged ducting was removed & replaced.
- Old filters installed in the AHUs, ducts & process areas were replaced with new ones.
- Internal ducting (ducting inside the building, above the false ceiling) too had to be removed due to air leakages & due to changes made in the room sizes)
- A number of internal wails were broken down & new ones erected for reorientation of the rooms.
- Existing aluminium doors & windows were amended.
- Damaged Kota flooring replaced. Adding epoxy in the Kota floor joints.
- False ceiling pulled down.
14 ITA No.641 (Asr)/2014
Asst. Years: 2010-11
During the A.Y. 2011-12, following activities were done:
- 3 new AHUs purchased & installed (capitalized)
- Modification of the old AHUs & their installation complete with ducting, insulation, chilled water pipeline, filters & grills wherever required.
- New ducting, insulation, chilled water pipeline, filters & wherever required (capitalized)
- A number of internal walls were broken down & new one erected for reorientation of the rooms.
- Reinforcement of the roofs, wherever required.
- Existing aluminum doors & windows were amended.
- New aluminum doors & windows (capitalized)
- Damaged Kota flooring replaced. Adding epoxy in the Kota floor joints.
- Old false ceiling was pulled down & new false ceiling done in the entire factory.
- Making wall/ floor corners rounded so that it is easily cleanable.
- Epoxy paint on floors of more sensitive areas.
- Replacing iron furniture with SS furniture.
- Addition of new SS furniture (capitalized)
- Repainting of the entire walls & roofs of the factory,
- Replacement of the old rusted water pipeline with new pipes.
- New SS water storage tanks with aulomization of the entire water system (capitalized).
- Replacement of the old electrical equipment like, switchboards, cables, MCB etc.
- Installation of new lights in the false ceiling (capitalized) It is also an undisputed fact that New Air Handling Units and other items amounting to Rs.8,30,710/- have been capitalized while the repair expenses have been claimed in P&L Account, by assessee itself voluntarily and from the chart it clearly reflects that since 1999 till 2009-10, no major repair has been done and it is also not in dispute that according to para meters set up by WHO, a unit manufacturing of medicines, requires to be neat and clean dust free and temperature control environments as we realized, both the authorities below have not disputed the fact qua WHO parameters.
Now coming to the assessment order, the Assessing Officer mainly relied on the judgment passed by the Hon'ble Supreme Court in the case of CIT vs. Sri Mangayarkarasi Mills Pvt. Ltd. (2009) 315 ITR 15 ITA No.641 (Asr)/2014 Asst. Years: 2010-11 114(SC). In our considered view, the facts of the instant case are dissimilar to the said case, decided by the Hon'ble Apex Court because in that case the Hon'ble Apex Court has held that the each textile machines is an independent and separate machine forming part of an integrated manufacturing process and the entire textile mill machinery cannot be considered as a single asset. But in the instant case, each Air Handling Units is not an independent and separate machinery but are having integrated and collective effect, therefore, it cannot be equate with the aforesaid case. Further, the ld. AO relied upon the judgment passed by the Apex Court in the case of Ballimal Naval Kishore vs. CIT 224 ITR 414 (SC) in which it was held that any capital expenditure claimed by the assessee for acquiring plant and machinery, buildings, fixed assets etc. cannot be treated as repairs or renewals, therefore, it cannot be held as Revenue Expenditure in the year and acquisition of fixes assets.
Now coming to the instant case, the assessee has not acquired any new plant and machinery, building or fixed assets but in fact the expenditure has been incurred only for preserving the Air Handling Units and to up keep the buildings according to the parameters of WHO. It is very important to mention herein that as it reflects from the chart that the assessee itself have capitalized the new Air Handling Unit, installation of chilled water pipe lines system, filters, grills in all over to the tune of Rs.8,30,710/- which is not disputed by the 16 ITA No.641 (Asr)/2014 Asst. Years: 2010-11 Department and rest the expenditure have been incurred to replacement of the ducts which had corroded over time to up keep the existing AHUs which were old & were not providing sufficient air volume, mechanization of aluminum doors to make them smooth with no dust accumulation areas, replaced the existing false ceiling with 'Gypsum' board because the same has developed cracks & had swollen at many places. Replacement of old AHUs with brand new ones without making provisions of new ducting and repair of the number of internal walls as the same were broken down & new ones erected for reorientation of the rooms where required and damage Kota flooring replaced.
On the aforesaid consideration of the repairs carried out by the assessee, in order to preserve the smooth functioning of the units, we are of the considered opinion that because the original building was constructed more than 40 years back and substantial repair or addition to the building was not carried out since 1999-2000 till 2009-10. Further no substantial expenditure have been incurred, therefore, the assessee was constrained to repair the existing units and buildings as per requirement of WHO-GMP due to continuous corrosion/damages of the Air Handling Units of Machinery/Equipments, it was essential to repair, replace of motors, filters, fans, ducting, chilled water pipeline systems etc. to make building congenial and habitable accordingly. Therefore, it cannot be said that assessee has carried out 17 ITA No.641 (Asr)/2014 Asst. Years: 2010-11 improvement into the existing assets by incurring expenditure which has resulted new/different advantage to the assessee. Even otherwise, both the authorities below failed to point out any specific improvement in the existing assets which culminated into new/different establishment and also failed to appreciate that assessee itself have capitalized the new aluminum doors and windows, new SS furniture, installation of new lights in the false ceiling, new AHUs purchased and installed and new ducting insulation, chilled water pipeline, filters & grills wherever required. In overall effects, we do not find any reasons to uphold the decision passed by the authorities below and therefore, we are of the considered opinion that the assessee is entitled to get the relief as prayed for, and hence, the expenditure incurred to the tune of Rs.23,58,778/- claimed as repair of Air Handling Units and further Rs.25,74,155/- on account of building repair are held to be expenditure of Revenue nature.
9. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open Court on 16.01. 2017.
Sd/- Sd/-
(T. S. KAPOOR) (N.K.CHOUDHRY)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated:16.01.2017.
/PK/ Ps.
Copy of the order forwarded to:
(1) The Assessee:
(2) The
(3) The CIT(A),
18 ITA No.641 (Asr)/2014
Asst. Years: 2010-11
(4) The CIT,
(5) The SR DR, I.T.A.T.,
True copy
By Order