TaxTMI 
TaxTMI 
2015 (2) TMI 201
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is that the relevant expenses were incurred in relation to redevelopment/construction proposals that did not materialize or were otherwise not relatable to any specific project at hand. The same, thus, either represent a loss or a selling cost, not relatable directly to any particular project. The said cost would thus not qualify to be included in the valuation of the work-in-progress (WIP) as at the year-end. The Revenue's case, on the other hand, is that the entire expenditure is in relation to the assessee's construction business, which represents its' principal activity. The assessee has at the relevant year-end 13 projects, the cost of which stand capitalized under WIP; the assessee following project completion method. Further, analyzing each of the several incomes earned by the assessee, as credited to its profit and loss account at a total of Rs. 229.49 lacs, it is further clarified that the said expenditure cannot be related to any of the said incomes, so that the assessee's claim is not maintainable on matching principle as well. 3. The assessee before us relied on its written submissions dated 18.03.2014 and 12.05.2014, appearing at pgs.1-10 of its paper-book (PB), whi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... No capital asset had come into existence thereby. Further, it needed to be borne in mind that the same is in respect of rented premises and, accordingly, allowable u/s.30(a)(i), which employs the word 'repairs', in contradistinction to the words 'current repairs', i.e., in respect of non-tenanted house property, which falls u/s. 30(a)(ii). The Revenue's objection, on the other hand, is based on the premise that the nature and the volume of the expenditure would not qualify it to be a repair, which only could be allowed u/s.30 of the Act. The expenditure was admittedly on renovation, capital in nature, and would therefore stand to be capitalized, albeit eligible for depreciation, Reference for the purpose is made to sec.32 read with New Appendix 1 of Income Tax Rules, Part A-I(2). 6. We have heard the parties, and perused the material on record. Again, we observe no dispute with regard to the primary facts of the case, the expenditure incurred being toward false ceiling; fixing tiles/flooring; replacing glasses; wooden partitions; replacement of electrical wiring; earthing; replacement of G.I. pipes, plumbing and sanitation lines; plaster and painting of walls. A premises, it may ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aintenance expenditure. Reference may also be made to the decision in the case of CIT v. Madras Cements Ltd. [2002] 255 ITR 243 (Mad), rendered relying on Ballimal Naval Kishore (supra) and applying New Shorrock Spinning & Mfg. Co. Ltd. v. CIT [1956] 30 ITR 338 (Bom). The asset being also not owned by the assessee, it is, strictly speaking, not a case of replacement, but of acquisition of an advantage of enduring nature - for the first time, an asset by definition. The impugned expenditure is in fact only toward effectuating the decision of acquiring the premises (by way of lease) in the first place, by making it fit for use, both in terms of capacity and capability, in-as-much as it has both quantitative and qualitative attributes, so as to constitute an improvement. It is not a case of a lumpsum payment in lieu of annual business expenditure. The benefit arising out of a capital expenditure, again, does not imply permanence, in which case no expenditure even on regular maintenance, or for keeping it in a state of good repairs, a stipulation that marks most tenancy agreements, would be required. The said benefit, though, cannot also be said to be limited to the period of lease, w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ope of which is wider that 'current repairs', covered u/s. 30(a)(ii). The apex court in CIT vs. Saravana Spg. Mills (P.) Ltd. [2007] 293 ITR 201 (SC) was concerned with a claim u/s. 31(i), distinguishing the said decision on that basis. The hon'ble court, with respect, however, did not examine or dilate on the scope of the term 'repairs', either with reference to judicial precedents or even otherwise. True, the hon'ble apex court in Saravana Spg. Mills (P.) Ltd. (supra) was concerned with a claim u/s. 31(i), which deals with 'current repairs' of plant, machinery and furniture. So, however, as a reading of its decision, binding on all courts in India, would show, it clarifies the scope and ambit of the word 'repairs' to exclude capital expenditure. This in fact represents its consistent view in the matter, applying its earlier decision in Ballimal Naval Kishore (supra), affirming the decision by the hon'ble jurisdictional high court reported at [1979] 119 ITR 292 (Bom). The apex court applied the test of capital or revenue expenditure, which it noted the high court had failed to, reproducing the test laid down in the matter by C.J. Chagla, speaking on behalf of the hon'ble jurisdic....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... may not be incorrect to say that the said Explanations are clarificatory and, thus, retrospective. The said decision, thus, apart from the fact that it does not review the binding judicial precedents explaining the scope of the term 'repairs', is also inapplicable in view of the extant law, i.e., as in force A.Y. 2004-05 onwards, and, accordingly, reliance thereon by the assessee would be of no moment. In view of the foregoing, we uphold the impugned order on this ground, dismissing the assessee's ground # 2 before us. 7. The assessee's third ground relates to the capitalization of 80% of the general, administrative expenses, including on employee and director remuneration, toward workin- progress (WIP). The same, which though excludes the costs covered by the assessee's ground # 1 (Rs. 20.57 lacs), stand claimed by the assessee on the basis that these representing general, administrative costs, are not allocable to any specific project. The Revenue's case, on the other hand, is that the assessee, a builder and developer, had thirteen (13) projects under progress during the relevant year. Understandably, the expenses incurred would predominantly be in relation to the said activi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the year to Rs. 10.03 cr. at its end, the general, administrative expenditure would only be directed toward the same and, thus, stand to be allocated thereto, and hence the allocation at 80% thereof. The assessee being a builder and developer, Accounting Standard 7 (AS-7), issued by the ICAI, titled, 'Construction Contracts', would not apply, so that the prescription of AS-9 and AS-2, based on general principles that govern any business, would apply for the revenue recognition and inventory valuation respectively. We have already, i.e., while discussing the assessee's ground # 1, clarified that only costs incurred toward a particular project, or otherwise related to construction activity, would stand to be allocated and, thus, capitalized as a part of the project cost. 'Capitalized' here is not to be construed in the regular, classical sense of the relevant expenditure being not of revenue nature, but only in the sense of it being accumulated under a particular head of account (i.e., WIP), for being set off, under the matching principle, at the time the corresponding revenue is recognized. Indirect costs could therefore include only production/project overheads, and not general of....