DEWAN JEWELLERS,LAJPAT NAGAR II, NEW DELHI V. .DCIT CIRCLE 52(1), NEW DELHI

ITA 3875/DEL/2023

AI Insights

The case involves Dewan Jewellers, which appealed against the order of the Commissioner of Income Tax (Appeals) that treated their expenditure on showroom fittings amounting to Rs. 54,62,703 as capital expenditure. The assessee argued that the expenditure should be treated as revenue expenditure as the fittings were in a rented space and were subject to change as per the management agency agreement with Titan Company Ltd. The Tribunal agreed with the assessee, noting that the terms of the agreement and the nature of the lease did not support the creation of an enduring asset.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 298862 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2020-2021
• Other Referred Cases: PCIT vs. Joy Alukkas (India) Pvt. Ltd. 452 ITR 271 (SC)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY TRIPATHI
• Assessee Lawyers: ANKIT MALIK; CHARTERED ACCOUNTANT
• Keywords: Condonation of delay; Set aside; Revenue expenditure; Depreciation; Capital expenditure
• Section: 143(3)

Judgement Text

"आयकर अपीलीय अिधकरण िदʟी पीठ “एस एम सी”, िदʟी ŵी िवकास अव̾थी, Ɋाियक सद˟ IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “SMC”, DELHI BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER आअसं.3875/िदʟी/2023(िन.व. 2020-21) ITA No.3875/DEL/2023 (A.Y.2020-21) Dewan Jewellers, J 25, 3rd Floor, Veer Savarkar Marg, Lajpat Nagar II, New Delhi 110024 PAN: AAQFD-2920-C ...... अपीलाथᱮ/Appellant बनाम Vs. Deputy Commissioner of Income Tax, Circle 52(1), Delhi ..... ᮧितवादी/Respondent अपीलाथŎ Ȫारा/ Appellant by : Shri Ankit Malik, Chartered Accountant ŮितवादीȪारा/Respondent by : Shri Sanjay Tripathi, Sr. DR सुनवाई कᳱ ितिथ/ Date of hearing : 19/09/2024 घोषणा कᳱ ितिथ/ Date of pronouncement : : 18/12/2024 आदेश/ORDER PER VIKAS AWASTHY, JM: This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi (hereinafter referred to as 'the CIT(A)') dated 27.09.2023, for assessment year 2020-21. 2. The solitary issue raised by the assessee in appeal is against the findings of the CIT(A) in treating expenditure incurred towards show room fitting expenses Rs.54,62,703/- as capital expenditure. 3. The appeal is time barred by 29 days. The assessee has filed an application seeking condonation of delay in filing of appeal. The Revenue has not raised any 2 ITA No. 2564/DEL/2023 (AY 2018-19) serious objection in condoning the delay. After perusing the said application, I am of considered view that the delay in filing of appeal is not intentional but was for the reasons stated therein which appears to be bonafide. The delay of 29 days is filing of appeal is condoned and appeal is admitted to be heard on merits. 3. The facts of the case, in brief, as emanating from records are, the assessee is engaged in the business of managing and operating a retail store, named 'Tanishq,' under the flagship of M/s. Titan Company Ltd. (hereinafter referred to as ‘the Company’). The assessee incurred expenditure towards showroom fittings aggregating to Rs. 54,62,703/- and debited the same to Profit and Loss account. During assessment proceedings the Assessing Officer (AO) held the expenditure as capital in nature and allowed depreciation on the same. Aggrieved by the assessment order dated 14.09.2022 passed u/s. 143(3) r.w.s 144B of the Income Tax Act, 1961(hereinafter referred to as ‘the Act’), the assessee filed appeal before the CIT(A). The First Appellate Authority rejected assessee’s contention and upheld the assessment order. Hence, present appeal by the assessee. 4. Shri Ankit Malik, appearing on behalf of the assessee submits that the assessee entered into management agency agreement with Titan Company Ltd. for managing and operating jewellery store under the brand name “Tansihq”. As per the agreement the assessee was required to bear interior decoration of the storeroom including structural modifications, installation of furniture fittings etc. The copy of management agency agreement is at page 11 to 33 of the paper book. The assessee claimed expenditure on fixture and fittings including interior designing as Revenue and debited the same to P&L Account. The AO re- characterize the nature of expenditure as capital and allowed depreciation on the 3 ITA No. 2564/DEL/2023 (AY 2018-19) same. The ld. AR submitted that the AO and the CIT(A) have failed to appreciate the terms and conditions of the agreement. There is a termination clause in the agreement, according to which the Company has right to terminate the agreement in case conditions are violated; the assessee is under obligation to change showroom interior designs to the satisfaction of the Company. He further submitted that the fittings and fixtures were made in the rented premises; therefore, the assessee did not intend to derive any enduring benefit or create any asset. Hence, the assessee has rightly claimed it as Revenue expenditure. To support his contentions, the ld. AR placed reliance on the decision in the case of PCIT vs. Joy Alukkas (India) Pvt. Ltd. 452 ITR 271 (SC). 5. Per contra, Shri Sanjay Tripathi representing the department vehemently defended the impugned order. The ld. DR submits that the assessee has entered into a lease agreement with the owner of the premises for a period of 9 years. Thus, the assessee would derive long term enduring benefit from the expenditure incurred on fittings and fixtures. The assessee has incurred expenditure once for all and has created an asset of enduring nature. Hence, the AO and CIT(A) have rightly rejected assessee’s claim of expenditure as revenue and have held it to be capital expenditure. The ld. DR prayed upholding the impugned order and dismissing appeal of the assessee. 6. Both sides heard, orders of the authorities below examined. The short issue in this appeal is determination of nature of expenditure on fixtures and fittings. In so far as quantum of expenditure is concerned there is no dispute. The assessee has claimed Rs.54,62,703/- expenditure on fixtures and fittings of the showroom as revenue, whereas, the AO and the CIT(A) have held it to on capital account. A 4 ITA No. 2564/DEL/2023 (AY 2018-19) perusal of Management Agency Agreement dated 15.10.2019 entered into by assessee with Company for operating and managing jewellery showroom under the brand name “Tansihq” would show that, the assessee is required to bear and carry out interior decoration of the showroom including structural modifications and installing furniture, fittings etc. at its own cost. The interior designs furniture and fitting are to be carried out by the assessee to the satisfaction of Company and interior design concept schematic drawings and specifications provided by the company from time to time. From the reading of terms and conditions of the Management Agency Agreement it is evident that the interior designs furnishing and fixtures carried out by the assessee were not according to assessee’s own choice but were as per the designs and requirement of the Company. The assessee was under obligation to change the fittings from time to time as per the requirement of the Company. In any case all these fittings, fixtures and furnishing were carried out in the rented premises. For setting up of aforesaid jewellery outlet, the assessee has entered into a lease deed on 30.09.2019 in respect of commercial premises on Ground Floor & Basement Floor bearing no. A-II/79 A & B, Lajpat Nagar-II, New Delhi 110024, admeasuring about 3200 sq. ft. for a period of 9 years. Therefore, no new asset was created by the assessee out of which, it could have enjoyed enduring benefit. I am of considered view that the authorities below have failed to read the covenants of Management Agency Agreement regarding fixtures, fittings and interior designs etc. The assessee intended to carry business in a rented premises for which lease deed was executed for a period of 9 years. The duration of lease period is not long enough to give assessee enduring benefit coupled with the fact that the assessee was requested to change fixtures, fittings, furniture etc. from time to time as per requirement of the Company, no new assest 5 ITA No. 2564/DEL/2023 (AY 2018-19) had come into existence so as to bring enduring benefit. Therefore, in my considered view the claim of assessee on fixtures and fittings of showroom as revenue expenditure deserves to be accepted. 7. In the result, impugned order is set aside and appeal of the assessee is allowed. Order pronounced in the open court on Wednesday the 18th day of December, 2024. Sd/- Sd/- (VIKAS AWASTHY) ᭠याियक सद᭭य/JUDICIAL MEMBER िदʟी/Delhi, ᳰदनांक/Dated 18/12/2024 NV/- ᮧितिलिप अᮕेिषतCopy of the Order forwarded to : 1. अपीलाथᱮ/The Appellant , 2. ᮧितवादी/ The Respondent. 3. The PCIT 4. िवभागीय ᮧितिनिध, आय.अपी.अिध., िदʟी /DR, ITAT, िदʟी 5. गाडᭅ फाइल/Guard file. BY ORDER, //True Copy// (Dy./Asstt. Registrar) ITAT, DELHI "