2. Briefly stated facts of the case are that the assessee. is an AOP being the Apex body of consumers co-operative

Transcription

1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, B, MUMBAI BEFORE S/SHRI D.K.AGARWAL (JM) AND RAJENDRA SINGH(A.M) ITA No.5828/Mum/2008 (Assessment Year: ) Income Tax Officer, 13(2)(2), Room No.412, 4 th Floor, Aayakar Bhavan, M.K.Road, Mumbai APPELLANT V/s Maharashtra State Co-operative, Consumers Federation Ltd., 87-A, Raj Chembers, D.R.Marg, Dana Bunder, Mumbai , PAN :AAAFM2067K RESPONDENT Maharashtra State Co-operative, Consumers Federation Ltd., 87-A, Raj Chembers, 5 th Floor, Devaji Ratanshi Marg, Dana Bunder, Mumbai , PAN :AAAFM2067K ITA No.6128/Mum/2008 (Assessment Year: ) V/s APPELLANT Date of Hearing : Date of Pronouncement : Income Tax Officer, 13(2)(2), Room No.412, 4 th Floor, Aayakar Bhavan, M.K.Road, Mumbai RESPONDENT Revenue by Assessee by : Shri D.S.Sunder Singh : Shri Anil J.Sathe O R D E R PER D.K.AGARWAL (JM) These cross-appeals by the Revenue and assessee are directed against the order dated passed by the Learned Commissioner of Income Tax (A) for the assessment year

2 2 2. Briefly stated facts of the case are that the assessee is an AOP being the Apex body of consumers co-operative societies in the State of Maharashtra. Its business is devided in 8 Divisional Offices and 13 Apna Bhandars which are retail outlets of federations. The federation is Semi- Government body sponsored and fully supported by the State Government federations. The return was filed declaring total income of Rs.1,02,198/-. However, the assessment was completed at an income of Rs.NIL. after adjusting brought forward losses of assessment year of Rs.10,99,302/- vide order dated passed under section 143(3) of the Income Tax Act, 1961 (In short the Act). On appeal,the learned Commissioner of Income Tax (A), partly allowed the appeal. 3. Being aggrieved by the order of the learned Commissioner of Income Tax (A), the Revenue and assessee both are in appeal before us. ITA No.5828/Mum/2008 (By Revenue) 4. The grounds No.1 and 2 in the Revenue s appeal are against the deletion of addition of Rs.10,00,000/- made by he AO under section 41(1) of the Act.

3 3 5. The brief facts of the above issue are that during the course of assessment proceedings the assessee was asked to give details of sundry creditors of Rs.25,60,09,090/-. In response, the assessee submitted branch-wise list of the creditors. The AO observed that there are certain creditors in the list which remained unpaid for more than 5 years. The assessee was asked to produce the list along with reasons. The assessee submitted details of liabilities pending for more than 5 years and stated that : due to heavy losses in past and to conserves the working capital, the federation has adopted the methodology of releasing payment to suppliers/creditor only against receipt of money from the respective customers of federation. Federation most of the time release part payment, as a result huge, creditors are there. The same are being reconciled. And as such the liabilities are not ceased yet On scrutiny of details, the AO observed that the Apex body has shown liability of Rs.10,85,531/- pending for more than 5 years and the same has not been claimed by the creditors, therefore, the AO presumed that the liability to pay the creditors has since ceased and accordingly he treated Rs.10,85,531/- as profit chargeable to tax under section 41(1) of the Act and added to the total income of the assessee. On appeal, the learned Commissioner of Income Tax (A) while observing that there is no proof that the appellant obtained any benefit in respect of these creditors,

4 4 the liability has not been written back by the appellant, there is no remission of liability and following the decision of the Hon ble Supreme Court in the case of Commissioner of Income-tax V/s Sugauli Sugar Works (P.) Ltd. (1999) 236 ITR 518 (SC) deleted the addition of Rs.10,00,000/- made by the AO. 6. At the time of hearing, the learned D.R. submits that for the reasons as mentioned in the assessment order, the learned Commissioner of Income Tax (A) was not justified in deleting the addition of Rs.10,00,000/- made by the AO under section 41(1) of the Act. 7. On the other hand, the learned counsel for the assessee while relying on the submissions made before the AO and the learned Commissioner of Income Tax (A), also relied on the order of the learned Commissioner of Income Tax(A). The reliance was also placed on the decision in Ambica Mills Ltd. V/s Commissioner of Income-tax (1964) 54 ITR 167 (Guj) for the proposition that since the amount has been shown as liability in the balance-sheet, it is an acknowledgment within the meaning of section 19 of the Limitation Act. The reliance was also placed on the decision in Commissioner of Income-tax V/s Tamilnadu Warehousing Corporation (2007) 292 ITR 310 (Mad.) for the proposition

5 5 that in the absence of any evidence of cessation of liability, the amount is not assessable under section 41(1) of the Act. The reliance was also placed on the decision of the Hon ble Supreme Court in the case of Sugauli Sugar Works (P.) Ltd. (supra). He, therefore, submits that the order passed by the learned Commissioner of Income Tax (A) in deleting the addition be upheld. 8. Having carefully heard the submissions of the rival parties and perusing the material available on record, we find that there is no dispute that the assessee has shown the sundry creditors in its balance-sheet amounting to Rs.25,60,09,090/- including the liability of Apex body pending for more than 5 years Rs. 10,85,531/- supported by the relevant details thereof. Out of it, the AO has added Rs.10,85,531/- on the ground that the said liability is pending for more than 5 years, therefore, the same is ceased to exists and hence chargeable to tax under section 41(1) of the Act. However, the learned Commissioner of Income Tax(A) deleted the same on the ground that the same is not barred by Limitation Act and there is no proof that the appellant obtained any benefit in respect of these creditors, the liability has not been written back by the appellant, there is no remission of liability, therefore, following the decision of the Hon ble Supreme Court in Sugauli Sugar Works (P.)

6 6 Ltd. (supra), he deleted the addition of Rs.10,00,000/-. In the absence of any contrary materials placed on record by the Revenue to show that no such liability exists in the books of account or the assessee has obtained any benefit by cash or in any manner during the current year, we are of the view that merely because the said liability is more than 5 years old does not mean that there is a cessation or remission of the liability in view of the provisions of section 41(1) of the Act. 9. In Sugauli Sugar Works (Pvt.) Ltd. (supra) it has been held (Head note, page 519): The principle that expiry of the period of limitation prescribed under the Limitation Act could not extinguish the debt but it would only prevent the creditor from enforcing the debt, has been well settled. If that principle is applied, it is clear that mere entry in the books of account of the debtor made unilaterally without any act on the part of the creditor will not enable the debtor to say that the liability has come to an end. Apart from that, that will not by itself confer any benefit on the debtor as contemplated by the section.. Respectfully following the ratio of the above decision and the ratio of other decisions relied upon by the learned counsel for the assessee, we are of the view that the learned Commissioner of Income Tax (A) was fully justified in deleting the addition of Rs.10,00,000/- made by the AO

7 7 under section 41(1) of the Act. The grounds taken by the Revenue are, therefore, rejected. ITA No.6128/Mum/2008 (By assessee) 10. The sole ground taken by the assessee in its appeal is against the sustenance of the disallowance of current repairs of Rs.,2,01,500/ Brief facts of the above issue are that the AO noted that the assessee has debited an amount of Rs.5,83,158/- under the head repair and maintenance in its profit and loss account. These expenses include an amount of Rs.2,01,500/- being paid to Shri Ghogri Nisar Ahmed for repairs of Mumbai Office. The assessee has produced the copy of the bill dated On the analysis of bills the AO noted that these expenses are made for following heads: a. Breaking old plaster of beam wall; b. Making new 6 brick wall for window; c. Providing & fixing new morbonite tiles; d. Providing & fixing new granite stones; e. Providing and fixing wiring in casing and many others etc. From the above details of expenses, the AO observed that the above expenses are not of usual wear and tear or current repairs and hence he treated Rs.2,01,500/- is

8 8 capital in nature not allowable under section 37(1) of the Act. On appeal, the learned Commissioner of Income Tax (A) while observing that it is a case of complete renovation of the office space and not a case of normal repair of office space, following the decision of the Hon ble Supreme Court in the case of Ballimal Naval Kishore and Another V/s Commissioner of Income-tax [1997] 224 ITR 414 (SC) confirmed the disallowance made by the AO. 12. At the time of hearing, the learned counsel for the assessee submits that the assessee has incurred routine repair expenses for the office premises on the tenanted building which is more than 60 years old. As per the bill of these expenses all these expenses are in the nature of current repairs, therefore, the same are allowable as business expenditure under section 37(1) of the Act. The learned counsel for the assessee while distinguishing the decision in the case of Ballimal Naval Kishore (supra) placed reliance in the case of Gulamhussein Ebrahim Matcheswalla V/s Commissioner of Income-tax (1974) 97 ITR 24 (Bom.) and the decision of the Hon ble Bombay High Court in Additional Commissioner of Income-tax V/s India United Mills Ltd. [1983] 141 ITR 399 (Bom.). He, therefore, submits that the disallowance made by the AO and sustained by the learned Commissioner of Income Tax (A) be deleted.

9 9 13. Having carefully heard the submissions of the rival parties and perusing the material available on record, we find that the facts are not in dispute inasmuch as it is also not in dispute that the assessee has incurred total repairs and maintenance expenses of Rs.5,83,158/- during the year and out of it the amount of Rs.2,01,500/- was incurred on office repairs and in support, the assessee has also filed the copy of the bill for Rs.2,01,500/- to show that the above expenses for repairs have been incurred for breaking old plaster of beam wall; making new 6 brick wall for window; providing & fixing new morbonite tiles etc. From the aforesaid details it is observed that the above expenses have been incurred on the existing office building which was taken on lease and stated to be old for more than 60 years. It is not the case of the Revenue that the above repairs have been incurred for acquiring any new asset or there was no such existence of wall, window and floor in the office. 14. In Ballimal Naval Kishore (supra), relied upon by the learned Commissioner of Income Tax (A) it has been held that (penultimate para, pages ) : Applying the aforesaid test, if we look at the facts of this case, it will be evident that what the assessee did was not mere repairs but a total renovation of the theatre. New machinery, new furniture, new sanitary fittings and new electrical wiring were installed besides extensively repairing the structure of the building. By no stretch of

10 10 imagination, can it be said that the said repairs qualify as current repairs within the meaning of section 10(2)(v). It was a case of total renovation and has rightly been held by the High Court to be capital in nature. Indeed, the finding of the High Court is that as against the sum of Rs. 17,000 for which the assessee had purchased the factory in 1937, the expenditure incurred in the relevant accounting year was in the region of Rs. 1,20, Recently, the Hon ble Supreme Court in Commissioner of Income-tax V/s Saravana Spinning Mills P. Ltd. [2007] 293 ITR 201 (SC) after considering various decisions including the decision in Ballimal Naval Kishore (supra) has considered the meaning of current repairs and laid down following tests : Held,_ reversing the decision of the High Court, (i) that the manufacturing process in the textile mill was not one continuous integrated process ; (ii) that to decide the applicability of section 31(i) the test was not whether the expenditure was revenue or capital in nature, but whether the expenditure was current repairs. The 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 into existence or to obtain new advantage. (iii) 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 thereof would not come within the meaning of current repairs. The replacement of the ring frame constituted substitution of an old asset by a new asset, and, therefore, the expenditure incurred by the assessee did not fall within the meaning of current repairs in section 31(i).

11 11 Under section 31(i) the 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 whether such expenditure comes within the etymological meaning of the expression current repairs. In other words, even if the expenditure is revenue in nature, it may not fall in the connotation of current repairs. 16. Applying the aforesaid tests to the facts of the present case, we find that the in this case the assessee on the tenanted office building which is more than 60 years old, has incurred repairs to preserve and maintain an already existing assets and there is no material on record to show that by incurring such expenditure the new assets has come into existence or the assessee has obtained a new advantage. The mere fact that the expenditure has brought the benefit of a larger life to the assets and better services, would not make the expenditure an expenditure of capital nature as no enduring advantage was obtained by the assessee. This being so and keeping in view that there is no material on record to show that the assessee has made total renovation of the office, we are of the view that the decision relied on by the learned Commissioner of Income Tax (A) is distinguishable and not applicable to the facts of the present case. For the reasons as discussed above we hold that the repair expenditures incurred by the assessee are in the nature of current repairs allowable as business expenditure

12 12 and accordingly, the disallowance of Rs.2,01,500/- made by the AO and sustained by the learned Commissioner of Income Tax (A) is deleted. The ground taken by the assessee is, therefore, allowed. 17. In the result, Revenue s appeal stands dismissed and assessee s appeal is allowed. Order pronounced in the open court on 24th August,2011. Sd sd (RAJENDRA SINGH) ACCOUNTANT MEMBER (D.K.AGARWAL) JUDICIAL MEMBER Mumbai, Dated 24th August, 2011 SRL: Copy to: 1. Appellant 2. Respondent 3. CIT Concerned 4. CIT(A) concerned 5. DR concerned Bench 6. Guard file. True copy BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI