TaxTMI 
TaxTMI 
TaxTMI 
2014 (9) TMI 163
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....ncurred, thus the observations of the learned CIT(A) that the expenditure under question does not qualify to be allowed as deduction from the profit and loss deserves to be hold as bad in law and arbitrary. 1.1. That the learned CIT(A) has further grossly erred in holding the expenditure of Rs. 3,86,81,256/- incurred on repairs and maintenance as also not qualifying for deduction U/s 37(1) of the Income Tax Act, 1961 arbitrarily, without appreciating the fact that such expenditure was incurred under business expediency, thus the expenses of Rs. 3,86,81,256/- deserves to be allowed as claimed by the assessee. 2. That the learned CIT(A) has further erred in holding that the expenditure as incurred and claimed is not in the nature of ordinary business expenditure and the assessee is deriving long term benefit from the incurrence of such expenditure, without in any manner appreciating the nature of assessee's business and the judicial precedents available in this respect, thus has seriously erred in holding the expenditure to be of capital nature, which is contrary to the facts and circumstances of the case and the intentions of the law, thus such observations deserves to be ignored ....
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....he appellant challenged the enhancement made by the learned CIT(A). The learned CIT(A) observed that the appellant has claimed the repairing and maintenance expenses to the extent of Rs. 6,65,21,097. He referred Section 31 of the Act and analyzed these expenses as per Section whether are allowable or not. He made detailed discussion on pages 10 to 16 and concluded the findings as under:- "6.5 The above explanation of the learned AR's was carefully considered and the same was not found acceptable for the following reasons: i) Repairs expenses towards earthen shoulders (Rs. 35390040)- This is an admitted fact that "earthen shoulders of the either side of the road" were part of the capital assets, i.e. the Road, of the appellant. Thus, the original cost thereof must have been capitalized and made part of the cost incurred towards the road widening project and depreciation is now being claimed @ 15%, thereon, as discussed in earlier part of this order. With this background, to ascertain the exact and correct nature of such repairs job termed as 'refurbishment of earthen shoulder' and carried out by M/s R. Balarami Reddy & Co., the relevant work orders dated 09/5/2007 and 05/4/2008, ....
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.... with the passage of time and plying of the traffic gets damaged, therefore, in order to maintain both the sides of the road level, the repairing work was carried out. From the submission of the learned AR, it is evident that the extensive damage to the earthen shoulders of highway was result of prolonged use of such roads for the considerable time period, which is certainly beyond the relevant previous year under consideration. As already discussed that in the various Court decisions, it have been held that the replacement of restoration of the parts of an assets or an accumulated repairs thereof, cannot be considered as "current repairs", which only is allowable U/s 31(1) of the Act. Accordingly, it is concluded that the expenses of Rs. 35390040/- paid towards the 'refurbishment of the earthen shoulder' being restoration process of such assets, does not amount to "current repair" and thus also not qualified as an admissible expenses U/s 31(1) of the Act. The relevant details, as gathered, rather suggest that these expenses were related to extensive carried out, which would enable the appellant to have enduring benefit through replacement/restoration of an old assets, therefore, ....
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....of this order, it is already concluded that such types of repairs are in fact of capital in nature, thus also not qualify to be considered u/s 37(1) of the Act. Reliance, in this regard, is placed on the decision of following case laws:- i. Sri Mangayarkarasi Mills Ltd. 315 ITR 114 (S.C.) ii. Hindustan Plikington Glass Works 73 Taxman 631 (Cal) In view of the above, even the alternative claim of the learned AR, as discussed above, is also found not tenable, under the given circumstances. In the light of the above facts and circumstances, such as the nature of expenditures incurred towards the road assets and the replacement of fencing poles/wires, the parameters laid down by the Hon'ble Courts, viz. the issue under consideration etc., it is concluded that such expenditures are not of current repairs per se. The nature, quantum, quality and time span involved in such process, clearly indicate that they are major repairs, having flavor of capital expenditure as resulting into replacement or restoration of the entire old assets, thus, not qualified as deductible expenditure u/s 31(1) of the Act. Similarly, in view of the ratio upheld by the various court, mentioned hereinabove, ev....
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....ssee company in terms of concession agreement. It is further submitted that the learned CIT(A) had enhanced the income on the ground that quantum of expenditure on repair and period involved in it but it is a fact that more than 90 KMs stretch of road used by heavy traffic and required normal tear and wear to run the traffic smoothly on it. The total cost of project is more than 590 crores and the expenditure incurred on repair of earthen shoulders alongwith side road. This work was completed by the contractor namely M/s R. Balarami Reddy & Co. The learned CIT(A) has not doubted the genuineness of the expenses. During the year under consideration, the assessee collected total revenue from the toll was over Rs. 136 crores and compared to total cost and revenue generated from the toll, the expenditure on repair is nominal. Laying the earthen shoulder on both sides of the road for the first time was forming part of total cost of road eligible for depreciation which fact remained uncontroverted by the learned CIT(A). As the learned CIT(A) held that the repairing work is a replacement of earthen shoulders at both sides of road for prolonged use of the assets but the learned CIT(A) was f....
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....ing & Weaving Mills Ltd. 256 ITR 592 (Mad.) (v) CIT Vs. Revathi C.P. Equip0ments Ltd. 245 ITR 686, 692 (Mad.). (vi) Indian Ginning & Pressing Co. Ltd. Vs. CIT 252 ITR 577, 581-82, 582-83 (Guj.). (vii) CIT Vs. Bharat Suryodaya Mills Co. Ltd. 202 ITR 942, 944-45 (Guj.) (viii) CIT Vs. Kusum Products Ltd. 175 ITR 557 (Cal.). (ix) CIT Vs. Polyolefins Industries Ltd. 169 ITR 538 (Bom.) (x) CIT Vs. Metal & Metallurgical Corpn. 141 ITR 40 (Mad.) (xi) CIT Vs. Indian Woolen Textile Mills P. Ltd. 112 ITR 441 (Punj.). (xii) Hindustan Times Ltd. Vs. CIT, 122 ITR 977 (Del.) (xiii) Regal Theatre Vs. CIT 59 ITR 449 (Punj.) (xiv) CIT Vs. Volga Restaurant 253 ITR 405 (Delhi). He further submitted that the learned CIT(A) had not provided reasonable opportunity of being heard before enhancement, which is required U/s 251(2) of the Act. He simply asked to file details only. The learned Assessing Officer in subsequent year had not disallowed any repair and accepted the assessee's computation of income as it. Thus, enhancement made by the learned CIT(A) without following the procedure laid down in the Act as well as the judicial pronouncements, is required to be quashed. 5. At the outset, the....
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....fore, we are of the considered view that the normal repair expenditure on earthen shoulder road on both sides of highway with normal tear wear on fencing has been claimed by the assessee and allowable U/s 31(1) of the Act. Even this expenditure is allowable U/s 37 of the Act as it is not a capital expenditure, no personal expenditure, wholly and exclusively incurred for the purpose of business. The case laws relied upon by the learned CIT(A) are not squarely applicable in the case of the assessee as the assessee has exceptional circumstances of constructing highways on BOT basis. These expenditures are not capital expenditure as no new assets has been created. Further the assessee has only constructive ownership for the period of 18 years on it. Subsequently, the learned Assessing Officer has allowed these expenditures as revenue in A.Ys. 2009-10 and 2010-11. The learned CIT(A) has followed the due course of proceeding before enhancement as show cause notice was issued to the assessee on 10/12/2010 by the learned CIT(A). Thus, grounds No. 1 and 2 of the assessee's appeal are allowed and decided in favour of the assessee and ground No. 3 of assessee's appeal is dismissed and decided....