PRESTIGE FOODS LIMITED Vs. CIT

JUDGEMENT

(1.) Pursuant to the order dated 19.07.1999 passed by the Supreme Court in Civil Appeal No.3975/1999 the Income Tax Appellate Tribunal, Indore Bench (for short the Tribunal) has drawn up the statement of the case and has referred the following questions of law to this Court, for giving opinion :-

(2.) Brief facts necessary for deciding the aforesaid questions No.1 and 2 may be stated as follows. In the year 1988-89 the applicant Assessee set up a Seed Handling Plant (for short the Plant) in its second unit namely Prestige Soya Industries in order to store the seeds purchased by it for being used in its manufacturing process. The plant was operational for almost 15 months till it was severely damaged due to an accident which occurred on 26.05.1991. As the plant was insured with the New India Assurance Company Limited, on a claim for damages being made by the Assessee the survey of the plant was conducted by the Surveyor of the Insurance Company in order to assess the damage caused and the loss suffered by the Assessee. In the meantime in the assessment proceedings the Assessee claimed expenses of Rs.16,47,766/- incurred by it for the repairs of the damaged plant and charged the same in the profit and loss account. The Assessing Officer was not satisfied with the explanation offered by the Assessee about the charging of the repair expenses in the profit and loss account. The Assessing Officer arrived at a conclusion that the plant was totally destroyed in the said accident and it was reconstructed by the assessee. He, therefore, treated the expenses as capital expenditure and declined to allow the claim of the Assessee made under Sections 30, 31 or 37 of the Act vide order dated 27.03.1995.

(3.) Dissatisfied with the order dated 27.03.1995 passed by the Assessing Officer the Assessee filed an appeal No.IT-122-95/96 before the Commissioner of Income Tax (Appeals). While deciding the appeal vide order dated 23.11.1995 the CIT (A) took into consideration the aforesaid survey report of the Insurance Surveyor and on the basis of the findings recorded in the survey report dismissed the assessee's appeal. Aggrieved, the Assessee filed a further appeal before the Tribunal. The Tribunal also considered and relied the said survey report and dismissed the Assessee's appeal No.1/IND/1996 vide order dated 27.11.1996. The Tribunal held that since the plant was reconstructed with the changed design, the expenses incurred on it can only be treated as expenditure incurred on reconstruction of the plant which are to be treated as capital expenditure and the same are not allowable as revenue expenditure for repairs.