ITA No. 563 of 2005 -1- 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 ....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. Mr. Mukand Gupta, Advocate for the respondent. AJAY KUMAR MITTAL, J. 1. This order shall dispose of ITA Nos. 563 of 2005 and 421 of 2006 as the issues involved in both the appeals are common. For brevity, the facts are being taken from ITA No. 563 of 2005. 2. This appeal has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (in short “the Act”) against the order dated 13.6.2005 passed by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (hereinafter referred to as “the Tribunal”) in ITA No. 320/ASR/2000, for the assessment year 1995-96, claiming the following substantial questions of law:- ITA No. 563 of 2005 -2- “(i) Whether the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar is right in confirming the action of the ld. CIT(A) adopting the value of the land at Rs.330/- per sq. yard as against Rs.60/- per sq. yard applied by the Assessing Officer in view of the allotment made by the Improvement Trust, Bathinda in the year 1981-82 in respect of adjoining land? (ii) Whether the Hon'ble Bench is right in treating the demolishing charges and repair expenses as revenue expenditure when no business activity was carried out after these expenses were incurred?” 3. Briefly stated, the facts necessary for adjudication as narrated in the appeal are that the assessee-company filed its return on 28.11.1995 for the assessment year 1995-96 declaring a loss of Rs.12,62,170/-. The case was taken up for scrutiny and notice under Section 143(2) of the Act was issued. In response thereto, the assessee filed a revised return on 31.1.1997 reducing the loss to Rs.2,53,089/- excluding Rs.10,09,077/- the amount of tax deducted at source on the interest payment. The assessment was completed on 11.3.1998. Addition of Rs.3,31,645/- was made under the head “Demolishing Charges” as these expenses were not allowable under Section 37 of the Act. Further, addition of Rs.2,13,094/- was also made under the head “Repair of Building” as these expenses were incurred on construction of boundary wall and being of capital nature, the same were disallowed under Section 37(1) of the Act. The assessment was completed at an income of Rs.4,41,098/- which was other than long ITA No. 563 of 2005 -3- term capital gain. The Assessing Officer determined the long term capital gains at Rs.11,36,520/- by taking the fair market value of the capital asset at Rs.60/- per square yard as on 1.4.1981 as against Rs.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 1.3.2000 estimated the rate of the land for the purpose of capital gains at Rs.330/- per square yard as on 1.4.1981 and thereby reduced the addition 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 revenue preferred an appeal before the Tribunal who vide order dated 13.6.2005 upheld the order of the CIT(A) and dismissed the appeal. Hence, the present appeal by the revenue. 4. We have heard learned counsel for the parties. 5. The appeal raises two issues. First issue relates to the valuation of the plot as on 1.4.1981 and secondly, whether the expenses incurred as “demolition charges” and “repairs of building” was revenue expenditure. 6. Taking up first issue, it may be noticed that the assessee had sold a plot measuring 1200 square yards for which fair market value as on 1.4.1981 was required to be taken for calculating cost of indexation for arriving at long term capital gains. The assessee had taken the value of the plot at Rs.350/- per square yard as on 1.4.1981 whereas the Assessing Officer had projected that it should be Rs.60/- ITA No. 563 of 2005 -4- per square yard on the basis of allotment made by the Improvement Trust, Bathinda in the year as it was the rate prevailing in the adjoining land. The Tribunal while rejecting the contention of the department in para 4 of its order had recorded as under:- “4. On this issue, the A.O. estimated the fair market value of the land at Rs.60/- per sq. yard as on 1.4.1981. It was stated that the A.O. has erred in stating that the distance between Samrat Hotel and the land sold shall be more than 1 K.M. and that the A.O. has erred in not accepting the fact that Shri Amrik Singh Road was a better developed commercial area than the area adjoining Samrat Hotel 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 the assessee. It was submitted before the CIT(A) that the mill caught fire on 23.7.1994 as a result of which 1/3rd of the main Mill building, machinery and cielo got burnt and hence the operation of the Mill had to be suspended temporarily. The Mill was not insured. The total cost of the repair and purchase of new machinery was around Rs.2 crores which the company could not arrange. To receive the funds the company decided to sell some land of the company. For this purpose land measuring 1200 sq. yards was sold facing Amrik Singh Road, Bathinda for ITA No. 563 of 2005 -5- Rs.13,23,000/- on which capital gain was computed at Rs.2,35,000/- and the cost of land indexation was calculated at Rs.350/- per sq. yard. The A.O. made the enquiry as regards the land and it was submitted that the valuer of the Govt. had estimated the cost of the land at Samrat Hotel, Bathinda at Rs.300/- per sq. yard as on 1.4.1981. There was price hike in the value 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 taken the rate at Rs.60/- per sq. yard for the purpose of capital gain and made the addition of Rs.9,01,320/- (Rs.11,36,520/- (-) Rs.2,35,200/-). The addition was challenged before the CIT(A) and it was submitted that the valuation in the case of Samrat Hotel was taken at Rs.300/- per sq. yards as on 1.4.1981 and the Hotel is situated near the land of the assessee. The other details as regards the land sold by the Improvement Trust on enhanced rate @ Rs.329.55 was also explained before the CIT(A). It was also explained from purchase deed of the land from the Improvement Trust on 1.6.1981 that the land was sold at Rs.809/- per sq. yard. The CIT(A) considering the facts and material available on record was of the view that in the case of Samrat Hotel, the ITA No. 563 of 2005 -6- departmental valuer has valued the land at Rs.300/- per sq. yard and that it is factually correct that the mill of the assessee was located on both the Railway Road as well as Amrik Singh Road and the mill itself was near to Samrat Hotel. The distance is not more than 1 Km. The CIT(A) considering the material on record and comparable cases estimated the rates for the purpose of capital gains at Rs.330/- per sq. yard and directed to reduce the addition of Rs.62,160/- and allowed the relief to the assessee in a sum of Rs.8,39,160/-. 7. The CIT(A) and the Tribunal after noticing that there was transaction of sale of land by the Improvement Trust on 1.6.1981 and other comparable sale instances had accepted the fair market value of the land at Rs.330/- per square yard as on 1.4.1981. Learned counsel for the revenue was unable to point out any error in the aforesaid finding which may warrant interference by this Court. 8. Now adverting to the second issue, the Tribunal had accepted that the “demolition charges” and the “repair expenses” incurred by the assessee were revenue in nature. In this regard, the findings recorded by the Tribunal in paras 9 and 12 of its order are to the following effect:- “9. The CIT(A) on the above issues has observed that it is factually position that the mill premises caught fire on 23.7.1994 and this position has not been disputed by the department. The CIT(A) ITA No. 563 of 2005 -7- observed that on having the mill caught fire the assessee had to reconstruct a boundary wall for the safe preservation of the building and the broken or hanging parts of the fallen structure had to be demolished and major repair undertaken. The position with regard to the continuity of the business has not been disputed and the business expenses till 31.3.1995 have been allowed by the A.O. The CIT (A) was of the view that it is a settled law that if business is suspended for some time then the expenses incurred during the suspended period are allowable. It was not in dispute that due to fire the damaged portions were removed and in that process the assessee has to pay demolition charges which is factually position and where the assessee has to change demolished portion by putting MS sheets, the assessee has, therefore, carried out repairs which was necessary for the restart of the business activity of the assessee. In this way no asset has been generated by the assessee. The CIT(A) was also of the 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 and the CIT(A) accordingly deleted the additions on account of the repair and demolition charges. 10. XX XX XX ITA No. 563 of 2005 -8- 11. XX XX XX 12. On consideration of the above facts ad the material on record, we do not find any justification to interfere in the order of the CIT(A). The fact that the mill of the assessee caught fire is not disputed. It is also not in dispute that due to fire the assessee has to carry out the repair of the demolished portion and has to make repairs in the premises to carry out the business activity. The expenditure spent by the assessee on these items would clearly prove that these were mainly with current repair for the replacement of the demolished portion and as such the assessee has not generated any capital in this way. The expenditure are made only for the purpose of replacement of the demolished items for the re-start of the business activity of the assessee. As a result, the expenditure were rightly allowed to be revenue in nature. We accordingly confirm the order of the CIT(A) on this issue and dismiss the appeal of the revenue on these grounds also.” 9. The Tribunal on appreciation of material came to the conclusion that the business of the assessee had continued till 31.3.1995 as the Assessing Officer himself had allowed business expenses till that date. In light of the said finding, it was further noticed that the assessee had to spend “demolition charges” in respect of structure that had caught fire and for which major repair was ITA No. 563 of 2005 -9- undertaken. Therefore, the “demolition charges” and the “repairing charges”, were held to be admissible to the assessee. The said finding is also not shown to be perverse in any manner by the learned counsel for the revenue. 10. In view of the above, the substantial questions of law are answered against the revenue and in favour of the assessee. Resultantly, the appeals are dismissed. (AJAY KUMAR MITTAL) JUDGE May 3, 2011 (ADARSH KUMAR GOEL) gbs 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. 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 May 3, 2011 (ADARSH KUMAR GOEL) gbs ACTING CHIEF JUSTICE