The Commissioner Of Income Tax, Bathinda v. M/S Bhupindera Flour Mills Pvt. Ltd

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 563 of 2005 Date of Decision: 3.5.2011 The Commissioner of Income Tax, Bathinda Versus ....Appellant. M/s Bhupindera Flour Mills Pvt. Ltd. ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL, ACTING CHIEF JUSTICE HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Ms. Savita Saxena, Standing Counsel, for the appellant. Mr. Mukand Gupta, Advocate for the respondent. AJAY KUMAR MITTAL, J. 1.This order shall dispose of ITA Nos. 563 of 2005 and 421 of2006 as the issues involved in both the appeals are common. Forbrevity, the facts are being taken from ITA No. 563 of 2005. 2.This appeal has been preferred by the revenue underSection 260A of the Income Tax Act, 1961 (in short “the Act”) againstthe order dated 13.6.2005 passed by the Income Tax AppellateTribunal, Amritsar Bench, Amritsar (hereinafter referred to as “theTribunal”) in ITA No. 320/ASR/2000, for the assessment year 1995-96,claiming the following substantial questions of law:- “(i)Whether the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar is right in confirming the action of theld. CIT(A) adopting the value of the land at Rs.330/-per sq. yard as against Rs.60/- per sq. yard appliedby the Assessing Officer in view of the allotmentmade by the Improvement Trust, Bathinda in the year1981-82 in respect of adjoining land? (ii)Whether the Hon'ble Bench is right in treating thedemolishing charges and repair expenses asrevenue expenditure when no business activity wascarried out after these expenses were incurred?” 3.Briefly stated, the facts necessary for adjudication asnarrated in the appeal are that the assessee-company filed its return on28.11.1995 for the assessment year 1995-96 declaring a loss ofRs.12,62,170/-. The case was taken up for scrutiny and notice underSection 143(2) of the Act was issued. In response thereto, theassessee filed a revised return on 31.1.1997 reducing the loss toRs.2,53,089/- excluding Rs.10,09,077/- the amount of tax deducted atsource on the interest payment. The assessment was completed on11.3.1998. Addition of Rs.3,31,645/- was made under the head“Demolishing Charges” as these expenses were not allowable underSection 37 of the Act. Further, addition of Rs.2,13,094/- was also madeunder the head “Repair of Building” as these expenses were incurred onconstruction of boundary wall and being of capital nature, the samewere disallowed under Section 37(1) of the Act. The assessment wascompleted at an income of Rs.4,41,098/- which was other than long term capital gain. The Assessing Officer determined the long termcapital gains at Rs.11,36,520/- by taking the fair market value of thecapital asset at Rs.60/- per square yard as on 1.4.1981 as againstRs.350/- per square yard claimed by the assessee. Feeling aggrieved,the assessee filed an appeal before the Commissioner of Income Tax(Appeals) [in short “the CIT(A)”]. The CIT(A) vide order dated 1.3.2000estimated the rate of the land for the purpose of capital gains atRs.330/- per square yard as on 1.4.1981 and thereby reduced theaddition to Rs.62,160/- by allowing the relief to the tune of Rs.8,39,160/-to the assessee. The CIT(A) also deleted additions of Rs.3,31,645/-and Rs.2,13,094/- made under the heads “Demolition Charges” and“Repair of Building”, respectively. Being dissatisfied, the revenuepreferred an appeal before the Tribunal who vide order dated 13.6.2005upheld the order of the CIT(A) and dismissed the appeal. Hence, thepresent appeal by the revenue. 4.We have heard learned counsel for the parties. 5.The appeal raises two issues. First issue relates to thevaluation of the plot as on 1.4.1981 and secondly, whether theexpenses incurred as “demolition charges” and “repairs of building” wasrevenue expenditure. 4.We have heard learned counsel for the parties. 5.The appeal raises two issues. First issue relates to thevaluation of the plot as on 1.4.1981 and secondly, whether theexpenses incurred as “demolition charges” and “repairs of building” wasrevenue expenditure. 6.Taking up first issue, it may be noticed that the assesseehad sold a plot measuring 1200 square yards for which fair marketvalue as on 1.4.1981 was required to be taken for calculating cost ofindexation for arriving at long term capital gains. The assessee hadtaken the value of the plot at Rs.350/- per square yard as on 1.4.1981whereas the Assessing Officer had projected that it should be Rs.60/- per square yard on the basis of allotment made by the ImprovementTrust, Bathinda in the year as it was the rate prevailing in the adjoiningland. The Tribunal while rejecting the contention of the department inpara 4 of its order had recorded as under:- “4.On this issue, the A.O. estimated the fairmarket value of the land at Rs.60/- per sq. yard as on1.4.1981. It was stated that the A.O. has erred instating that the distance between Samrat Hotel andthe land sold shall be more than 1 K.M. and that theA.O. has erred in not accepting the fact that ShriAmrik Singh Road was a better developedcommercial area than the area adjoining SamratHotel in 1981. It was also submitted that the A.O.should have accepted the value of the land @ 350/-per sq. yard as on 1.4.1981 as is shown by theassessee. It was submitted before the CIT(A) thatthe mill caught fire on 23.7.1994 as a result of which1/3[rd] of the main Mill building, machinery and cielogot burnt and hence the operation of the Mill had tobe suspended temporarily. The Mill was not insured.The total cost of the repair and purchase of newmachinery was around Rs.2 crores which thecompany could not arrange. To receive the funds thecompany decided to sell some land of the company.For this purpose land measuring 1200 sq. yards wassold facing Amrik Singh Road, Bathinda for Rs.13,23,000/- on which capital gain was computedat Rs.2,35,000/- and the cost of land indexation wascalculated at Rs.350/- per sq. yard. The A.O. madethe enquiry as regards the land and it was submittedthat the valuer of the Govt. had estimated the cost ofthe land at Samrat Hotel, Bathinda at Rs.300/- persq. yard as on 1.4.1981. There was price hike in thevalue of real estate in 1980-81 and, therefore,considering it indexation cost had taken at Rs.350/-per sq. yard for the capital gain. However, the A.O.did not believe the version of the assessee and takenthe rate at Rs.60/- per sq. yard for the purpose ofcapital gain and made the addition of Rs.9,01,320/-(Rs.11,36,520/- (-) Rs.2,35,200/-). The addition waschallenged before the CIT(A) and it was submittedthat the valuation in the case of Samrat Hotel wastaken at Rs.300/- per sq. yards as on 1.4.1981 andthe Hotel is situated near the land of the assessee.The other details as regards the land sold by theImprovement Trust on enhanced rate @ Rs.329.55was also explained before the CIT(A). It was alsoexplained from purchase deed of the land from theImprovement Trust on 1.6.1981 that the land wassold at Rs.809/- per sq. yard. The CIT(A)considering the facts and material available on recordwas of the view that in the case of Samrat Hotel, the departmental valuer has valued the land at Rs.300/-per sq. yard and that it is factually correct that the millof the assessee was located on both the RailwayRoad as well as Amrik Singh Road and the mill itselfwas near to Samrat Hotel. The distance is not morethan 1 Km. The CIT(A) considering the material onrecord and comparable cases estimated the rates forthe purpose of capital gains at Rs.330/- per sq. yardand directed to reduce the addition of Rs.62,160/-and allowed the relief to the assessee in a sum ofRs.8,39,160/-. departmental valuer has valued the land at Rs.300/-per sq. yard and that it is factually correct that the millof the assessee was located on both the RailwayRoad as well as Amrik Singh Road and the mill itselfwas near to Samrat Hotel. The distance is not morethan 1 Km. The CIT(A) considering the material onrecord and comparable cases estimated the rates forthe purpose of capital gains at Rs.330/- per sq. yardand directed to reduce the addition of Rs.62,160/-and allowed the relief to the assessee in a sum ofRs.8,39,160/-. 7.The CIT(A) and the Tribunal after noticing that there wastransaction of sale of land by the Improvement Trust on 1.6.1981 andother comparable sale instances had accepted the fair market value ofthe land at Rs.330/- per square yard as on 1.4.1981. Learned counselfor the revenue was unable to point out any error in the aforesaid findingwhich may warrant interference by this Court. 8.Now adverting to the second issue, the Tribunal hadaccepted that the “demolition charges” and the “repair expenses”incurred by the assessee were revenue in nature. In this regard, thefindings recorded by the Tribunal in paras 9 and 12 of its order are tothe following effect:- “9.The CIT(A) on the above issues has observedthat it is factually position that the mill premisescaught fire on 23.7.1994 and this position has notbeen disputed by the department. The CIT(A) observed that on having the mill caught fire theassessee had to reconstruct a boundary wall for thesafe preservation of the building and the broken orhanging parts of the fallen structure had to bedemolished and major repair undertaken. Theposition with regard to the continuity of the businesshas not been disputed and the business expenses till31.3.1995 have been allowed by the A.O. The CIT(A) was of the view that it is a settled law that ifbusiness is suspended for some time then theexpenses incurred during the suspended period areallowable. It was not in dispute that due to fire thedamaged portions were removed and in that processthe assessee has to pay demolition charges which isfactually position and where the assessee has tochange demolished portion by putting MS sheets, theassessee has, therefore, carried out repairs whichwas necessary for the restart of the business activityof the assessee. In this way no asset has beengenerated by the assessee. The CIT(A) was also ofthe view that the repair was made to the building etc.which was necessary for the interest of the business.As such the expenditure were revenue in nature andthe CIT(A) accordingly deleted the additions onaccount of the repair and demolition charges. 12.On consideration of the above facts ad thematerial on record, we do not find any justification tointerfere in the order of the CIT(A). The fact that themill of the assessee caught fire is not disputed. It isalso not in dispute that due to fire the assessee hasto carry out the repair of the demolished portion andhas to make repairs in the premises to carry out thebusiness activity. The expenditure spent by theassessee on these items would clearly prove thatthese were mainly with current repair for thereplacement of the demolished portion and as suchthe assessee has not generated any capital in thisway. The expenditure are made only for thepurpose of replacement of the demolished items forthe re-start of the business activity of the assessee.As a result, the expenditure were rightly allowed tobe revenue in nature. We accordingly confirm theorder of the CIT(A) on this issue and dismiss theappeal of the revenue on these grounds also.” 9.The Tribunal on appreciation of material came to theconclusion that the business of the assessee had continued till31.3.1995 as the Assessing Officer himself had allowed businessexpenses till that date. In light of the said finding, it was further noticedthat the assessee had to spend “demolition charges” in respect ofstructure that had caught fire and for which major repair was ITA No. 563 of 2005 undertaken. Therefore, the “demolition charges” and the “repairingcharges”, were held to be admissible to the assessee. The said findingis also not shown to be perverse in any manner by the learned counselfor the revenue. 10.In view of the above, the substantial questions of law areanswered against the revenue and in favour of the assessee.Resultantly, the appeals are dismissed. (AJAY KUMAR MITTAL) JUDGE May 3, 2011gbs (ADARSH KUMAR GOEL)ACTING CHIEF JUSTICE ITA No. 563 of 2005 -10- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 421 of 2006 Date of Decision: 3.5.2011 The Commissioner of Income Tax, Bathinda ....Appellant. Versus M/s Bhupindera Flour Mills Pvt. Ltd. ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL, ACTING CHIEF JUSTICE HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Ms. Savita Saxena, Standing Counsel, for the appellant. for the appellant. Mr. Mukand Gupta, Advocate for the respondent. AJAY KUMAR MITTAL, J. The appeal is dismissed. For reasons, see the detailed order of even date recorded in ITA No. 563 of 2005 (The Commissioner of Income Tax, Bathinda v. M/s Bhupindera Flour Mills Pvt. Ltd). (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL)ACTING CHIEF JUSTICE