ROYAL HOME COLLECTION P. LTD ( FORMERLY KNOWNA S MANGAL INTERNATIONAL P. LTD), MUMBAI V. DCIT CIR 4(2), MUMBAI

CO 227/MUM/2009

• Counselvise Citation: [2010] 122 COUNSELVISE.COM (IT) 4937 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 13 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 16-07-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 06-04-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 03-12-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JI TENDRA YADAV
• Assessee Lawyers: DIVYESH I SHAH
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'D' BENCH, MUMBAI BEFORE SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 7007/MUM/2008 (ASSESSMENT YEAR: 2005-06) DCIT, CIRCLE 4(2) M/S. ROYAL HOME COLLECTIONS P. LT D. ROOM NO. 642, 6TH FLOOR 415, COTTON EXCHANGE BLDG. AAYAKAR BHAVAN, M.K. ROAD VS. KALBADEVI ROAD, KALBADEVI MUMBAI 400020 MUMBAI 400002 PAN - AACCM 4922 G PAN - AACCM 4922 G APPELLANT RESPONDENT CO NO.227/MUM/2009 (ASSESSMENT YEAR: 2005-06) M/S. ROYAL HOME COLLECTIONS P. LTD. DCIT , CIRCLE 4 (2) 415, COTTON EXCHANGE BLDG. ROOM NO. 642, 6TH FLOOR KALBADEVI ROAD, KALBADEVI VS. AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400002 MUMBAI 400020 PAN - AACCM 4922 G CROSS OBJECTOR APPELLANT IN APPEAL REVENUE BY: SMT. SOMOGYAN PAL & SHRI JITENDRA YADAV ASSESSEE BY: SHRI DIVYESH I SHAH O R D E R PER B. RAMAKOTAIAH, A.M. THE MAIN APPEAL BY THE REVENUE IS AGAINST THE ORDER OF THE CIT(A)-IV, MUMBAI DATED 11.09.2008. REVENUE HAS RAISED THE FOL LOWING GROUNDS: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN ADMITTING THE ADDITIONAL EVIDEN CES, FRESH WRITTEN/ORAL SUBMISSIONS IN VIOLATION OF RULE 46A(1 ). 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN NOT RECORDING REASONS FOR ADMIT TING FRESH EVIDENCES AS REQUIRED UNDER RULE 46A(2). 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN APPRECIATING THE FACT THAT THE RELATED ENTERPRISE WAS NOT IN A POSITION TO SELL ITS STOCK DUE TO EXCE PTIONAL DECLINE IN ITS BUSINESS. ITA NO. 7007/MUM/08 & CO 227/M/09 M/S. ROYAL HOME COLLECTIONS P. LTD. 2 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) OUGHT TO HAVE CONFIRMED THE ACTION OF TH E AO SINCE THE ENTIRE ARRANGEMENT WAS WITH A VIEW TO DIVERT INCOME SINCE THE RELATED ENTERPRISES [MRPL] WAS INCURRING LOSSES. 2. BRIEFLY STATED THE ASSESSEE HAS PURCHASED MATERIAL FROM ITS SISTER CONCERN M/S. MANGAL RICH LINES PVT. LTD. AGGREGATIN G TO RS.1,04,04,972/-. THE A.O. HOLDING THAT THE ASSESSEE PURCHASED AT A H IGHER PRICE FOR PASSING ON THE PROFIT TO THE SISTER CONCERN, WHICH IS INCUR RING LOSSES CONSIDERED THAT THE ASSESSEE PAID UNREASONABLE PRICE AND DISALLOWED AN AMOUNT OF RS.10,40,497/- WHICH IS 10% OF THE PURCHASES UNDER SECTION 40A(2A). IN ARRIVING AT THAT THE A.O. HAS TAKEN PURCHASES FROM THIRD PARTIES AND ANALYSED THEM IN PARA 4.2 OF THE ORDER. BEFORE THE CIT(A) THE ASSESSEE SUBMITTED THAT THE PRICES PAID WERE REASONABLE AND SOME OF THE IMPORTED MATERIAL WERE TAKEN AT COST +10% AND WHEN ALL THE D ETAILS WERE SUBMITTED TO THE A.O. ONLY THOSE CASES IN WHICH THE PRICES WAS L ESS HAS BEEN SELECTED WHEREAS THERE ARE MANY OTHER ITEMS FOR WHICH PRICES PAID TO THIRD PARTY WAS MORE THAN THE PRICES AT WHICH IT WAS PURCHASED FROM THE SISTER CONCERN. ON CONSIDERING ASSESSEES SUBMISSIONS VIDE ORDER SHEET ENTRY DATED 09.09.2008 THE ASSESSEE WAS ASKED TO FURNISH DETAILS BY THE CI T(A), WHICH WAS EXTRACTED IN PARA 2.4. AFTER OBTAINING EXPLANATION FROM THE A SSESSEE THE CIT(A) CONSIDERED THE ISSUE AND PARTIALLY DELETED THE AMOU NT VIDE PARA 2.6 TO 2.9 OF HIS ORDER, WHICH IS AS UNDER: - 2.6 I HAVE GONE THROUGH THE ORDER OF THE A.O. AND SUBMISSIONS OF THE APPELLANT. IT MAY BE SEEN THAT THE PURCHASES FROM M /S. MANGAL RICH LINES PVT. LTD. (MRLPL) WERE FOR THREE CATEGORIES A S UNDER: - (A) LOCAL RAW MATERIAL RS.19 LACS (B) IMPORTED RAW MATERIAL RS.24 LACS (C) FINISHED GOODS RS.61 LACS TOTAL RS.104 LACS SO FAR AS LOCAL RAW MATERIAL IS CONCERNED, THE A.O. , AT PARA 4.2 HAS COMPARED THE PRICE RATE OF RAW MATERIAL PURCHASED F ROM MANGAL RICH LINES PVT. LTD. WITH OTHER CONCERNS WITH RESPECT TO 5 VARIETIES OF FABRICS AND HAS FOUND THAT THERE IS A DIFFERENCE IN THE PRI CE OF GOODS PURCHASED FROM OTHER INDEPENDENT PARTIES BY THE TUNE OF 8% TO 10%. 2.7 THE A.O.S ACTION TO CONSIDER THE PRICE OF RAW MATERIAL PURCHASED FROM M/S. MANGAL RICHLINES PVT. LTD. HIGHER BY 10%, IS, THEREFORE, FOUND ITA NO. 7007/MUM/08 & CO 227/M/09 M/S. ROYAL HOME COLLECTIONS P. LTD. 3 TO BE REASONABLE. THEREFORE, DISALLOWANCE OF 10% OF LOCAL RAW MATERIAL OF RS.19 LACS I.E. RS.1.9 LACS IS FOUND TO BE CORRECT AND CONFIRMED. 2.8 SO FAR AS THE PURCHASES OF IMPORTED RAW MATERIA LS AND FINISHED GOODS ARE CONCERNED, IT MAY BE SEEN FROM THE DETAIL S FILED BY THE APPELLANT AS QUOTED ABOVE, THE GROSS PROFIT OF M/S. MANGAL RICH LINES PVT. LTD., IS AT 21.56% AND NET PROFIT MARGIN IS AT 11.59% AND THE APPELLANT HAS JUSTIFIED THE COST + 10% OF THE PRICE BY IT TO ITS SISTER CONCERN. THE A.O.S OBSERVATION THAT M/S. MANGAL RI CHLINES PVT. LTD. IS NOT IN A POSITION TO SELL ITS STOCK DOES NOT SEEM T O BE BASED ON THE FACT AS THE TOTAL TURNOVER FOR A.Y. 05-06 IS AT RS.9.16 CRO RE WHEREAS THE SALE TO THE APPELLANT COMPANY IS ONLY RS.1.04 CRORE. 2.9 AS THE GROSS PROFIT MARGIN IS 21.56% AND NET PR OFIT MARGIN IS 11.59% IN CASE OF M/S. MANGAL RICH LINES PVT. LTD., THE COST + 10% PAYMENT BY APPELLANT COMPANY TO M/S. MANGAL RICH LI NES PVT. LTD. IS JUSTIFIED. ADDITION IN THIS REGARD IS, THEREFORE, F OUND TO BE UNWARRANTED AND ADDITION WITH RESPECT TO 10% OF IMPORTED RAW MA TERIAL AND FINISHED GOODS PURCHASED FROM M/S. MANGAL RICH LINES PVT. LT D. IS, THEREFORE, DELETED. 3. AS SEEN FROM GROUND NOS. 1 TO 2 RAISED BY THE REVEN UE THE MAIN ISSUE IS WITH REFERENCE TO ADMISSION OF ADDITIONAL EVIDEN CES UNDER RULE 46A(1) AND VIOLATION OF RULE 46A(2) AND CONSEQUENT DECISION IN GIVING RELIEF TO THE ASSESSEE. AS SEEN FROM THE ORDER OF THE CIT(A), THE CIT(A), VIDE ORDER SHEET ENTRY DATED 09.09.2008, HAS ASKED FOR SPECIFIC DETA ILS AND AS HELD BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. SU RETECH HOSPITAL & RESEARCH CENTRE LTD. 293 ITR 53, THE CIT(A) HAS POW ERS TO CALL FOR DETAILS AND THIS CANNOT BE CONSIDERED AS ADDITIONAL EVIDENC E. NOT ONLY THAT, PROVISIONS OF RULE 46A(4) ALSO EMPOWERS THE CIT TO DIRECT THE PRODUCTION OF ANY DOCUMENT TO ENABLE HIM TO DISPOSE OFF THE APPEA L. RULE 46A(4) IS AS UNDER: - 46A(1) .. (4) NOTHING CONTAINED IN THIS RULE SHALL AFFECT THE POWER OF THE [DEPUTY COMMISSIONER (APPEALS)] [OR, AS THE CASE MAY BE, TH E COMMISSIONER (APPEALS)] TO DIRECT THE PRODUCTION OF ANY DOCUMENT , OR THE EXAMINATION OF ANY WITNESS, TO ENABLE HIM TO DISPOSE OF THE APPEAL , OR FOR ANY OTHER SUBSTANTIAL CAUSE INCLUDING THE ENHANCEMENT OF THE ASSESSMENT OR PENALTY (WHETHER ON HIS OWN MOTION OR ON THE REQUES T OF THE [ASSESSING OFFICER]) UNDER CLAUSE (A) OF SUB-SECTION (1) OF SE CTION 251 OR THE IMPOSITION OF PENALTY UNDER SECTION 271.] ITA NO. 7007/MUM/08 & CO 227/M/09 M/S. ROYAL HOME COLLECTIONS P. LTD. 4 4. THERE IS NO VIOLATION OF RULE 46A(1) AS THE CIT(A) HAS EXERCISED HIS POWERS UNDER RULE 46A(4), THEREFORE, THE GROUND NOS . 1 & 2 RAISED IN THIS REGARD IS NOT SUSTAINABLE. ACCORDINGLY THEY ARE REJ ECTED. 5. WITH REFERENCE TO GROUND NO. 3 & 4, AS SEEN FROM TH E ORDERS OF THE CIT(A), HE HAS CONSIDERED THE PRICE PAID BY THE ASS ESSEE ARE REASONABLE. NO INFORMATION WAS FILED TO COUNTER THE FINDINGS OF TH E CIT(A). THE LEARNED COUNSEL ALSO EXPLAINED WITH THE HELP OF TO THE PAPE R BOOK FILED THAT THE PRICE PAID BY THE ASSESSEE TO THIRD PARTIES AND THE ASSESSING OFFICERS ORDER IN PARA 4.2 WHEREIN HE HAS SELECTED ONLY THOSE PRIC ES WHICH ARE LESS THAN THE PRICE PAID FOR COMPARISON AND THE REASONS EXPLA INED TO THE CIT(A). SINCE THE ISSUE WAS CONSIDERED BY THE CIT(A) ON FAC TUAL BASIS AND AFTER EXAMINATION WE DO NOT SEE ANY REASON TO INTERFERE W ITH THE RELIEF GIVEN BY THE CIT(A) IN THIS REGARD, ACCORDINGLY REVENUES GR OUNDS ARE REJECTED. APPEAL DISMISSED. CROSS OBJECTION 6. THE GROUNDS RAISED IN THE CROSS OBJECTION ARE AS UN DER: - 1. THE COMMISSIONER OF INCOME TAX APPEALS-IV, MUMB AI [THE CIT(A)] ERRED IN CONFIRMING THE ACTION OF THE DEPUTY COMMIS SIONER OF INCOME- TAX, CIRCLE 4(20, MUMBAI (THE AO) IN MAKING AN AD DITION OF RS.1,90,000/- LAKHS ON ACCOUNT OF PURCHASE OF RAW M ATERIAL FROM M/S. MANGAL RICH LINES PVT. LTD. (MRLPL) ON THE A LLEGED GROUND THAT THE PRICE OF RAW MATERIAL SO PURCHASED WAS HIGHER B Y 10%. 1.1 THE CROSS OBJECTOR PRAYS THAT THE SAID ADDITION BE DELETED. 2. THE CIT(A) ERRED IN CONFIRMING THE ACTION OF THE A.O. IN TREATING COMPUTER SOFTWARE EXPENDITURE OF RS.4,36,189/- AS C APITAL EXPENDITURE. 2.1 THE CROSS OBJECTOR PRAYS THAT THE SAID SOFTWARE EXPENDITURE BE ALLOWED AS REVENUE EXPENDITURE. 3. THE CIT(A) ERRED IN CONFIRMING THE ACTION OF THE A.O. IN TREATING THE REPAIRS & MAINTENANCE EXPENSES AS CAPITAL EXPENDITU RE ON THE ALLEGED GROUND THAT THE SAID EXPENDITURE SO INCURRED FALLS WITHIN THE PURVIEW OF THE PROVISIONS OF EXPLANATION: 1 OF SECTION 32 O F THE INCOME-TAX ACT, 1961. 3.1 THE CROSS OBJECTOR PRAYS THAT THE SAID EXPENDIT URE BE ALLOWED AS REVENUE EXPENDITURE. ITA NO. 7007/MUM/08 & CO 227/M/09 M/S. ROYAL HOME COLLECTIONS P. LTD. 5 7. WITH REFERENCE TO GROUND NO. 1 THIS ISSUE WAS ALREA DY CONSIDERED IN REVENUES APPEAL AND VIDE PARA 2.7 THE CIT(A) HAS C ONSIDERED AND CONFIRMED THE PURCHASE OF RAW MATERIAL FOR RS.10 LAKHS AND DI SALLOWANCE OF RS.1.9 LAKHS UNDER SECTION 40A(2A). THIS THE ASSESSEE HAS CONTESTED. THE LEARNED COUNSEL REITERATED THE SUBMISSION MADE AS EXTRACTED IN REVENUES APPEAL THAT THE A.O. HAS CONSIDERED ONLY THE PRICES WHICH ARE SUBSTANTIVELY LOWER THAN THE PRICE PAID TO MANGAL RICH LINES PVT. LTD. AND SO THE CONFIRMATION BY THE CIT(A) IS NOT ACCORDING TO THE FACTS. 8. AS SEEN FROM THE ORDERS OF THE A.O., THE A.O. HAS A SKED FOR THE DETAILS OF PURCHASES OF SIMILAR PRODUCTS AND THESE WERE FUR NISHED AND THE A.O. HAS LISTED OUT SOME OF THE ITEMS WHERE THERE IS VARIATI ON OF 8% TO 10%. APART FROM THIS, IMPORTED GOODS WERE ALSO PURCHASED BY TH E ASSESSEE. FOR THE EXACT WORKING OF THE COST PRICE RATIO THE SAME WAS NOT FILED THOUGH CALLED FOR BY THE AO. BEFORE THE CIT(A) ALSO, EXCEPT JUSTIFYIN G THAT THE PRICE WAS COST + 10% AND STATING THAT THE SAID COMPANY WAS NOT INCUR RING LOSS THE JUSTIFICATION OF PURCHASE OF RAW MATERIAL AT COST + 10% WAS NOT GIVEN. IF IMPORTED GOODS AND FINISHED GOODS ARE PURCHASED, TH ERE IS JUSTIFICATION FOR INCREASING THE COST BY 10% TOWARDS INCIDENTAL/MANUF ACTURING COST, BUT WHEN RAW MATERIAL IS PURCHASED AS SUCH, THERE IS NO JUSTIFICATION FOR INCREASE OF COST BY 10%. TO THAT EXTENT, WE ARE OF THE OPINION THAT THE CONFIRMATION OF THE CIT(A) IS JUSTIFIED AND DOES NO T REQUIRE ANY MODIFICATION. ACCORDINGLY GROUND NO. 1 IS REJECTED. 9. GROUND NO. 2 IS WITH REFERENCE TO SOFTWARE EXPENSES CLAIMED TREATED AS CAPITAL EXPENDITURE. IT WAS SUBMITTED THAT THIS ISSUE CAN BE RESTORED TO THE FILE OF THE A.O. TO DECIDE ON THE BASIS OF THE PRINCIPLES ESTABLISHED BY THE SPECIAL BENCH DECISION IN THE CASE OF AMWAY INDIA E NTERPRISE VS. DCIT 301 ITR (AT) 1 (DEL). CONSIDERING THE ABOVE, THE MATTER IS RESTORED BACK TO THE FILE OF THE A.O. TO DECIDE AFRESH KEEPING IN VIEW T HE GUIDELINES LAID DOWN BY THE ABOVE MENTIONED SPECIAL BENCH DECISION. THE MAT TER IS RESTORED TO THE FILE OF THE A.O. GROUND IS CONSIDERED ALLOWED. ITA NO. 7007/MUM/08 & CO 227/M/09 M/S. ROYAL HOME COLLECTIONS P. LTD. 6 10. GROUND NO. 3 IS WITH REFERENCE TO TREATING OF REPAI RS AND MAINTENANCE EXPENSES AS CAPITAL EXPENDITURE AND THE ALLEGED VIE W THAT THE SAID EXPENDITURE SO INCURRED FALLS WITHIN THE PURVIEW OF THE PROVISIONS OF EXPLANATION 1 OF SECTION 32 OF THE I.T. ACT. IT WAS THE PRAYER OF THE ASSESSEE THAT THE EXPENDITURE BE ALLOWED AS REVENUE EXPENDIT URE. 11. BRIEFLY STATED, THE ASSESSEE HAS CLAIMED REPAIRS AN D MAINTENANCE CHARGES TO THE EXTENT OF RS.26,29,827/-. THIS ISSUE WAS DISCUSSED BY THE A.O. VIDE PARAS 6.1 TO 6.4. THE ASSESSEE, DURING TH E YEAR, SPENT THE AMOUNT ON CONSTRUCTION OF FIRST FLOOR, CONSTRUCTION OF OUT SIDE COMPOUND WALLS, WORKS SUCH AS PARTITION, CUBICLE FIXING, PLAY PARTITION, WINDOW PANELS, CONSTRUCTION OF COMPOUND WALLS, SUPERVISION, ETC. CONSIDERING TH E EXPENDITURE AND THE FACT THAT THE ASSESSEE IS HOLDING THE LEASE HOLD PR EMISES, INVOKING EXPLANATION 1 TO SECTION 32, THE A.O. CONSIDERED TH E EXPENDITURE AS CAPITAL IN NATURE AND ALLOWED DEPRECIATION AT 10% ON THE SA ME. BEFORE THE CIT(A) IT WAS CONTESTED THAT THE EXPENDITURE WAS REVENUE IN N ATURE AS NO NEW ASSETS HAVE COME INTO EXISTENCE AND FURNISHED COPIES OF TH E DETAILS AND EXPENDITURE INCURRED ON REPAIRS AND MAINTENANCE. TH E CIT(A), HOWEVER, CONFIRMED THE ACTION OF THE A.O. HOLDING AS UNDER: - 4.3 THE APPELLANT HAS FURNISHED BILLS OF CREATIVE DESIGNS AND VERTECH INTERIORS & EXTERIORS, WHO WERE THE ARCHITE CTS FOR CARRYING OUT THE WORK OF THE APPELLANT. BILL NOS. 5, 8, 14, AND 12 I.E. 5 BILLS WERE PRESENTED AND THE PARTICULARS IN THE BILLS ARE IDENTICAL AND THE SAME IS QUOTED AS UNDER :- BEING THE CONSULTATION, DESIGNING AND INTERIOR RENOVATION WORK CARRIED OUT AT THE ABOVE MENTIONED SITE (THE PAYMENT PERTA INING TO THE ABOVE WORK RELATING TO THE CONTRACTORS, SUPPLIERS E TC. HAS BEEN PAID DIRECTLY BY YOURSELF). 4.4 THE AFORESAID NARRATION IN THE BILL OF THE ARCH ITECTS ITSELF LEAVES NO DOUBT THAT THE WORK WAS INTERIOR RENOVATION WORK AT D 37/I.T.T.C, MIDC, TURBHE, NAVI MUMBAI PREMISES OF T HE APPELLANT. THUS, THE EXPENDITURE INCURRED BY THE APPELLANT CLEARLY F ALLS WITHIN THE PURVIEW OF THE PROVISIONS OF EXPLANATION 1 TO SECTION 32 AS QUOTED BY A.O. AT PARA 6.3 OF HIS ORDER. 12. BEFORE US, DRAWING OUR ATTENTION TO THE DETAILS FIL ED BEFORE THE CIT(A), THE LEARNED COUNSEL SUBMITTED THAT THE ASSESSEE HAS SPENT THE FOLLOWING AMOUNTS AND THIS EXPENDITURE IS REVENUE IN NATURE: - ITA NO. 7007/MUM/08 & CO 227/M/09 M/S. ROYAL HOME COLLECTIONS P. LTD. 7 S.NO. NAME OF THE PARTY AMOUNT NATURE OF WORK SAMPLE BILL FOR FEF. 1 2 3 4 5 1 CREATIVE DESIGN 628,038.00 CONSULTANCY, DESIGNING FEES & CO-ORDINATION WORK DONE B. NO. 11 DT. 30.06.04 BILL NO. 15 DT. 04.12.04 2 TIKAM RAM MISTRY 100,803.00 CARPENTRY WORK FOR PLOT NO. 120 B. NO. NIL DT. 29.7.04 BILL NO.NIL DT. 27.10.04 3 VEETECH INTERIOR & EXTERIOR 108,672.00 STRUCTURAL FRAME WORK LABOUR & MAINTENANCE WORK AT PLOT 120 B. NO. NIL DT. 28.10.04 4 REIMBURSEMENT OF EXPENSES TO MANGAL RICH PVT. LTD. 1,245,715.00 AS PER ANNEXURE A AS PER ANNEXURE A 5 REIMBURSEMENT OF EXPENSES TO NUMEX ENGINEERS PVT. LTD. 546,599.00 AS PER ANNEXURE B AS PER ANNEXURE B TOTAL 2,629,827.00 13. HE THEN REFERRED TO VARIOUS BILLS PLACED ON RECORD INCLUDING THE DETAILS OF REIMBURSEMENT. HE RELIED ON THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. HEDE CONSULTANCY (P.) LTD. 127 TAXMAN 597 TO SUBMIT THAT THE EXPENDITURE INCURRED IN CONVERTING GODOWN TAKEN ON LEASE INTO OFFICE PREMISES IS REVENUE EXPENDITURE UNDER S ECTION 37(1). HE ALSO FURTHER RELIED ON THE DECISION OF THE HON'BLE MADRA S HIGH COURT IN THE CASE OF CIT VS. AYESHA HOSPITALS P. LTD. 292 ITR 266 WH EREIN THE EXPENDITURE INCURRED BY THE ASSESSEE ON LEASED PROPERTY WAS ALL OWED AS REVENUE EXPENDITURE. HE ALSO REITERATED THE PRINCIPLE ESTAB LISHED BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. MADRAS AUTO SE RVICE (P.) LTD. 233 ITR 468, WHICH IN TURN WAS FOLLOWED BY THE HON'BLE MADR AS HIGH COURT IN THE CASE OF CIT VS. TVS LEAN LOGISTIC LTD. 293 ITR 432. 14. THE LEARNED D.R., HOWEVER, REITERATED THE STAND OF THE A.O. AND THE CIT(A) AND SUBMITTED THAT THE EXPENDITURE IS CAPITA L IN NATURE. 15. WE HAVE CONSIDERED THE ISSUE. AFTER INTERPRETING TH E EXPENDITURE UNDER SECTION 32(1) THE HON'BLE MADRAS HIGH COURT I N THE CAST OF CIT VS. TVS LEAN LOGISTICS LTD. 293 ITR 432 HELD AS UNDER: - ITA NO. 7007/MUM/08 & CO 227/M/09 M/S. ROYAL HOME COLLECTIONS P. LTD. 8 . THAT WHAT CONSTITUTES A CAPITAL EXPENDITURE AN D WHAT DOES NOT, TO ATTRACT EXPLANATION 1 TO SECTION 32(1) OF THE ACT D EPENDS UPON THE CONSTRUCTION OF ANY STRUCTURE OR WORK OR IN RELATIO N TO AND BY WAY OF RENOVATION, EXTENSION OR IMPROVEMENT TO THE BUILDIN G TAKEN ON LEASE BY HIM FOR CARRYING ON HIS BUSINESS AND PROFESSION BUT NOT IN A CASE OF CONSTRUCTION OF ANY STRUCTURE OR DOING ANY WORK WHE RE SUCH BUILDING IS PUT UP OR CONSTRUCTED FOR THE PURPOSE OF BUSINESS O R THE PROFESSION OF THE ASSESSEE IN A LAND TAKEN ON LEASE BY THE ASSESSEE. THE ASSESSEE DID NOT ACQUIRE A CAPITAL ASSET BUT HAD PUT UP A CONSTRUCTI ON OF THE BUILDING ONLY FOR THE BUSINESS ADVANTAGE, WITH THE RESULT THE ENT IRE CONSTRUCTION COST WAS ADMISSIBLE AS THE REVENUE EXPENDITURE. 16. AS SEEN FROM THE DETAILS OF EXPENDITURE THE FIRST T HREE ITEMS PERTAINING TO CONSULTANCY AND DESIGNING WORK, AS HELD BY THE C IT(A), IS FOR MAJOR WORK OF CONSTRUCTION OF FIRST FLOOR AND WORKS WITH REFER ENCE TO PARTITION ETC. NOT ONLY THAT THE TWO MAJOR ITEMS OF RS,12,45,715/- AND RS.5,46,599/- WERE NOT SPENT BY THE ASSESSEE BUT REIMBURSEMENT OF EXPENSES TO OTHER GROUP CONCERNS WHICH CANNOT BE CONSIDERED AS REVENUE EXPE NDITURE IN THE HANDS OF THE ASSESSEE. IT IS THE EXPENDITURE INCURRED BY OTHER COMPANY WHICH IS REIMBURSED BY THE ASSESSEE. THESE TWO ARE CERTAINLY IN THE CAPITAL FIELD. THE ONLY TWO ITEMS WHICH CAN BE CONSIDERED AS REVENUE E XPENDITURE ARE WITH REFERENCE TO CARPENTRY WORK FOR PLOT NO. 120 AND ST RUCTURAL WORK. CONSIDERING THE OVERALL WORK UNDERTAKEN BY THE ASSE SSEE IN CONSTRUCTING THE FIRST FLOOR AND DOING MAJOR WORKS THIS CANNOT BE CO NSIDERED AS CURRENT REPAIRS AND WE ARE OF THE VIEW THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IS CERTAINLY CAPITAL EXPENDITURE AND THE A.O. WAS C ORRECT IN INVOKING EXPLANATION 1 TO SECTION 32(1) IN TREATING IT AS CA PITAL EXPENDITURE AND ALLOWING DEPRECIATION THEREON. THE PRINCIPLES ESTAB LISHED BY THE HON'BLE BOMBAY HIGH COURT IN CIT(A) VS. HEDE CONSULTANCY (P .) LTD. (SUPRA) ARE NOT APPLICABLE IN THE PRESENT CASE AS MOST OF THE EXPEN DITURE WAS IN THE NATURE OF REIMBURSEMENT TO THIRD PARTIES FOR THE EXPENDITU RE INCURRED BY THEM IN RENOVATING THEIR PLACES WHICH IN ANY CASE CANNOT BE CONSIDERED AS REVENUE EXPENDITURE IN THE HANDS OF THE ASSESSEE BEING LESS EE AND THE EXPENDITURE INCURRED ON PLOT NO. 120 IS A MAJOR CAPITAL EXPENDI TURE, WHICH HAS TO BE CONSIDERED AS CAPITAL ONLY IN NATURE. THIS IS NOT R EPLACEMENT OF EXISTING ROOF OR REPAIRS TO THE EXISTING STRUCTURE WHICH WAS A FA CT IN THE ABOVE CITED CASE. THE EXPENDITURE INVOLVED IN FABRICATION, LABOUR CHA RGES FOR CARPENTRY, ITA NO. 7007/MUM/08 & CO 227/M/09 M/S. ROYAL HOME COLLECTIONS P. LTD. 9 PURCHASE OF ELECTRICAL MATERIAL, CONSULTANCY FEE, E TC. INDICATE THAT THE ASSESSEE HAS TAKEN A MAJOR WORK IN CREATING THE ASS ET FOR THE PURPOSE OF BUSINESS. IN VIEW OF THIS, WE DO NOT SEE ANY REASON FOR INTERFERING WITH THE FINDINGS OF THE A.O. AND THE CIT(A). ACCORDINGLY TH E GROUND IS REJECTED. 17. IN THE RESULT, REVENUES APPEAL IS DISMISSED AND AS SESSEES CROSS OBJECTION IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH JULY 2010. SD/- SD/- (R.S. PADVEKAR) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 16 TH JULY 2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) IV, MUMBAI 4. THE CIT IV, MUMBAI CITY 5. THE DR, D BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.