Express Hotels Pvt. Ltd., Baroda V. The Dy.CIT., Circle-1(2), Baroda

ITA 102/AHD/2013

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8883 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 21-03-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 09-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 201; 264; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH AHMEDABAD BEFORE, SHRI S. S. GODARA, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ITA NO.102/AHD/2013 (ASSESSMENT YEAR:2008-09) EXPRESS HOTELS PVT. LTD. R. C. DUTT ROAD, ALKAPURI, VADODARA APPELLANT VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 1(2), INCOME TAX DEPARTMENT, AAYAKAR BHAVAN, RACE COURSE CIRCLE, VADODARA-7 RESPONDENT PAN: AAACE4316L /BY ASSESSEE : SHRI M. K. PATEL, A.R. /BY REVENUE : SHRI PRADEEP KUMAR MAJMUDAR, SR. D.R. /DATE OF HEARING : 21.03.2017 /DATE OF PRONOUNCEMENT : 22.03.2017 ORDER PER S. S. GODARA, JUDICIAL MEMBER THIS ASSESSEES APPEAL FOR ASSESSMENT YEAR 2008-09 EMANATES AGAINST THE CIT(A)-I, BARODAS ORDER DATED 07.06.2011, PASS ED IN APPEAL NO.CAB- I/101/10-11, PARTLY UPHOLDING ASSESSING OFFICERS A CTION DISALLOWING 100% ITA NO. 102/AHD/2013 [ EXPRESS HOTELS P. LTD. VS. D CIT] A.Y. 2008-09 - 2 - OF REPAIRS & MAINTENANCE EXPENDITURE OF BUILDINGS A ND PLANT & MACHINERY TO THE TUNE OF RS.69,43,468/- & RS.45,00,394/- TO THAT OF 90% AND 80%; RESPECTIVELY, IN PROCEEDINGS U/S.143(3) OF THE INCO ME TAX ACT, 1961; IN SHORT THE ACT. 2. IT IS EVIDENT AT THE OUTSET THAT THE ASSESSEES INSTANT APPEAL SUFFERS FROM DELAY IN FILING OF 491DAYS. IT HAS ALSO FILED A CO NDONATION PETITION. IT EMERGES THAT THE ASSESSEE HAD EARLIER FILED ITA NO. 1979/AHD/2011 AGAINST THE VERY LOWER APPELLATE ORDER. THE DEPARTMENT CONDUCT ED A SURVEY IN ASSESSEES CASE ON 12 & 13 TH DECEMBER, 2011 DURING PENDENCY OF ITS ABOVESTATED APPEAL. THE ASSESSEES AUTHORIZED PERSON SHRI HIREN A. GAND HI GOT RECORDED HIS STATEMENT ACCEPTING THAT 35% AMOUNT OF REPAIRS ALIK E THE ONE IN HAND PERTAINING TO BUILDING PLANT AND MACHINERY OVER THE PERIOD OF FIVE YEARS FROM FINANCIAL YEAR 2007-08 RELEVANT TO THE IMPUGNED ASS ESSMENT YEAR COULD BE CONSIDERED TO THE REVENUE EXPENDITURE AND BALANCE 6 5% AS CAPITAL EXPENDITURE. THE ASSESSEE THEN WITHDREW ITS ABOVES TATED APPEAL. IT THEREAFTER CHOSE TO FILE SECTION 264 REVISION PETITION. LEARN ED CIT-I, BARODA PASSED HIS ORDER ON 21.12.2012 THAT THE ABOVE PETITION WAS HIT BY BAR OF JURISDICTION U/S.264(4)(C) OF THE ACT. SINCE THE CIT(A) HAD ALR EADY DEALT WITH THE ISSUE. THE ASSESSEE THEN WITHDREW THE SAID PETITION AS WEL L ON 21.12.2012 ONCE AGAIN COMING BACK TO THIS TRIBUNAL BY WAY OF THE IN STANT APPEAL. ALL THIS HAS CAUSED A DELAY OF 491 DAYS IN QUESTION. THE REVENU E IS FAIR ENOUGH IN NOT DISPUTING ABOVE SOLEMN AVERMENTS. WE THEREFORE ARE OF THE VIEW THAT THE ASSESSEE HAS BEEN ABLE TO PROVE ALL ITS BONAFIDES S O AS TO GET THE IMPUGNED DELAY CONDONED AS IT WAS PURSUING ITS REMEDY BEFORE OTHER FORUMS. THE FACT ALSO REMAINS THAT ITS FORMER APPEAL HAD ALSO NOT BE EN ADJUDICATED ON MERITS. WE THUS CONDONE THE IMPUGNED DELAY OF 491 DAYS. TH E ASSESSEES CONDONATION PETITION IS ACCEPTED. ITA NO. 102/AHD/2013 [ EXPRESS HOTELS P. LTD. VS. D CIT] A.Y. 2008-09 - 3 - 3. WE NOW ADVERT TO MERITS OF THE ISSUE. THE ASSES SEE IS IN HOTEL BUSINESS. IT CLAIMED REPAIRS TO HOTEL BUILDING BY WAY OF VARIOUS FITTINGS AND DECORATIONS TO THE TUNE OF RS.69,43,468/- ALONG WIT H THAT OF PLANT AND MACHINERY OF RS.45,00,394/- PERTAINING TO REFRIGERA TION, AIR CONDITIONERS AND OTHER ITEMS. THE ASSESSING OFFICER DISALLOWED THE SAME IN ASSESSMENT ORDER DATED 18.10.2010 BY OBSERVING THAT SUSTAINABLE ENDU RING BENEFITS AND ADVANTAGES HAD ACCRUED TO ASSESSEE FROM THE ABOVE T WO CLAIMS. HE THUS TREATED THE SAME TO BE CAPITAL EXPENDITURE. 4. THE CIT(A) PARTLY UPHOLDS THE ASSESSING OFFICER S ACTION AS UNDER: 4.2 I HAVE CONSIDERED THE MATTER. AS PER SECTION 3 0(A)(II)/31(I), AMOUNT INCURRED TOWARDS 'CURRENT REPAIRS' OF BUILDINGS/PLA NT AND MACHINERY OR FURNITURE IS ALLOWABLE AS A DEDUCTION SUBJECT TO THE CONDITIO N IN EXPLANATION BELOW SECTION 30/31 THAT SUCH AMOUNT SHALL NOT INCLUDE ANY EXPEND ITURE IN THE NATURE OF CAPITA! EXPENDITURE. FURTHER, AS HELD BY HON'BLE SUPREME CO URT IN THE CASE OF BALLIMAL NAVAL KISHORE (1997) 224 1TR 414 (SC), THE TEST EVO LVED BY CHAGLA C.J. IN NEW SHORROCK SPINNING AND MANUFACTURING CO LTD V CIT IS THE MOST APPROPRIATE ONE REGARDING EXPRESSION 'CURRENT REPAIRS'. IN THE CAS E OF NEW SHORROCK SPINNING AND MANUFACTURING CO LTD V CIT, CHAGLA C3. OBSERVED THA T THE EXPRESSION 'CURRENT REPAIRS' MEANS EXPENDITURE ON BUILDINGS, MACHINERY, PLANT OR FURNITURE WHICH IS NOT FOR THE PURPOSE OF RENEWAL OR RESTORATION BUT W HICH IS ONLY FOR THE PURPOSE OF PRESERVING OR MAINTAINING AN ALREADY EXISTING ASSET AND WHICH DOES NOT BRING A NEW ASSET INTO EXISTENCE OR DOES NOT GIVE TO THE AS SESSEE A NEW OR DIFFERENT ADVANTAGE. IN THE CASE OF SARAVANA SPINNING MILLS P VT. LTD. (2007) 293 ITR 201 (SC), IT WAS HELD THAT EXPRESSION 'CURRENT REPAIRS' DENOTES REPAIRS WHICH ARE ATTENDED TO WHEN THE NEED FOR THEM ARISES, SUCH EXP ENDITURE MUST HAVE BEEN INCURRED TO PRESERVE AND MAINTAIN AN ALREADY EXISTI NG ASSET AND THE OBJECT OF EXPENDITURE MUST NOT BE TO OBTAIN A NEW ADVANTAGE. IT WAS ALSO HELD BY THE HON. SUPREME COURT IN THE CASE OF SARAVANA SPINNING MILL S PVT. LTD. THAT IN ORDER TO DECIDE ALLOWANCE OF EXPENDITURE ON REPAIRS U/S 31(I ), EVEN IF CERTAIN EXPENDITURE IS REVENUE IN NATURE, STILL IT MAY NOT FALL IN THE CON NOTATION OF THE WORDS CURRENT REPAIRS' U/S 31(I). THE EXACT NATURE OF REPAIR WORK DONE BY THE APPELLANT WAS NOT ASCERTAINABLE FROM THE LEDGER ACCOUNT OF REPAIRS SU BMITTED. DURING APPELLATE PROCEEDINGS, APPELLANT WAS THEREFORE, ASKED TO FILE A DETAILED NOTE ON THE NATURE OF THE REPAIR WORKS CARRIED OUT WITH EXPLANATION ABOUT BILLS ABOVE RS.50,000/- MENTIONING EXACT PURPOSE OF THE REPAIR WORKS CARRIE D OUT. APPELLANT DID NOT SUBMIT DETAILED NOTE ON THE WORKS CARRIED OUT AS ASKED FOR NOR IT WAS ELABORATED AS TO HOW EXPENDITURE OF SUCH MAGNITUDE YEAR AFTER YEAR CONSTITUTES 'REPAIRS' OR 'CURRENT REPAIRS'. APPELLANT ONLY SUBMITTED DETAILS OF BILLS ABOVE RS.50,000/- WITH NARRATION IN SOME OF THE CASES SPECIFYING THE LOCAT ION IN THE HOTEL WHERE THE WORK WAS CARRIED OUT. APPELLANT HAS TWO HOTELS CALLED E XPRESS TOWERS (H1) AND ITA NO. 102/AHD/2013 [ EXPRESS HOTELS P. LTD. VS. D CIT] A.Y. 2008-09 - 4 - EXPRESS RESIDENCY (H2). ITEM NOS. 4, 5, 6, 1, 14 , 15, 52, 60, 104, 105, 106, 109, 113, 119, 123 AND 124 OF THE DETAILS SUBMITTED FOR BUILDING REPAIRS ARE STATED TO BE FOR ROOM NOS. 301 TO 312 OF EXPRESS RESIDENCY HOTEL (H2). THESE ITEMS ARE BILLS ABOVE RS 50,000/- FOR PURCHASING MATERIAL OF VARIOU S KINDS FOR THESE ROOMS. ITEM NOS. 14, 25, 26 & 27 OF THE DETAILS SUBMITTED FOR R EPAIRS TO PLANT AND MACHINERY ARE ALSO PURCHASE OF MATERIAL FOR ROOM NOS. 305 - 3 12 IN HOTEL EXPRESS RESIDENCY (H2). ITEM NO. 123 & 124 ARE TOWARDS CONSULTANCY FE ES OF RS.1,91,012/- TO INTERIOR DECORATOR AND DESIGNER, DIPEN GADA AND ASSOCIATES F OR INTERIOR DECORATION AND DESIGN OF BANQUET HALL AND ROOMS ON 3 RD FLOOR OF HOTEL EXPRESS RESIDENCY (H2). THE NATURE AND SCALE OF MATERIAL PURCHASED COUPLED WITH FACT OF ENGAGEMENT OF INTERIOR DECORATOR ON SUBSTANTIAL FEES SHOWS THAT RENOVATION AND NOT REPAIRS OF ROOMS ON 3 RD FLOOR AS WELL AS THE BANQUET HALL OF HOTEL EXPRESS RESIDENCY (H2) WAS CARRIED OUT. SIMILARLY, ITEM NOS. 8, 14, 62, 103, 114, ETC OF .DETAILS SUBMITTED FOR REPAIRS TO BUILDING PERTAIN TO MAPLE, HALL, KITCHEN, LOBBY, GUEST AREA, STAIRCASE, ETC OF HOTEL EXPRESS RESIDENCY (H2). AS PER ITEM NO, 112, INTERIOR DESIGNER, SHAVIN INTERIOR WAS ALSO ENGAGED AND PAID RS.1,79,456/- FOR RENOVATION OF MAPLE HALL AND KITCHEN AT HOTEL EXPRESS RESIDENC Y (H2). IT IS THEREFORE EVIDENT THAT RENOVATION AND NOT REPAIRS OF THESE PORTIONS, I E. MAPLE HALL, KITCHEN, LOBBY, GUEST AREA, STAIRCASE, ETC WAS CARRIED OUT, FURTHER , IN THE WRITTEN SUBMISSIONS FILED, APPELLANT HAS SUBMITTED THAT EXPENDITURE OF RS.4,94 ,264/- INCLUDING ON FOLLOWING ITEMS WOULD BE OF CAPITAL NATURE AS PER CIT(A)'S OR DERS IN APPELLANT'S CASE FOR AY 05-06-TO AY 07-0.8: VACCUM CLEANER : RS. 1,41,828/- SPLIT AC : RS.1,29,000/- SOLAR WATER HEATER : RS. 96,000/- EXPENDITURE FOR PURCHASE OF PLANT AND MACHINERY HAV ING INDEPENDENT FUNCTIONING, IN ANY CASE IS OF CAPITAL NATURE AND NOT ALLOWABLE AS 'CURRENT REPAIRS'. FOR REMAINING ITEMS, APPELLANT HAS NOT SPECIFIED AS TO WHERE EXACTLY IN. THE HOTELS AND FOR WHAT PURPOSE THE MATERIAL PURCHASED WAS UTILIZE D. APPELLANT'S CONTENTION THAT THE EXPENDITURE QUALIFIES AS 'CURRENT REPAIRS' CANN OT, THEREFORE BE ACCEPTED ON ITS FACE VALUE. IN THIS CONTEXT, RELEVANT IS TO NOTE TH AT APPELLANT CLAIMED FOLLOWING AMOUNTS UNDER THE HEAD REPAIRS TO BUILDING AND REPA IRS TO PLANT AND MACHINERY OVER THE YEARS; AY REPAIRS & MAINTENANCE TO BUILDING (RS.) REPAIRS & MAINTENANCE TO PLANT AND MACHINERY (RS.) 2005-06 45,84,858/- 41,11,215/- 2006-07 32,31,898/- 44,60,153/- 2007-08 42,41,633/- 79,30,366/- AS PER THE BALANCE SHEET AS ON 31.3.2008, GROSS BLO CK OF BUILDINGS WAS RS.92,81,309/- AND OF PLANT & MACHINERY RS. 2,55,91,042/-. THE QUANTUM OF EXPENDITURE SHOWN AND CLAIMED TOWARDS REPAIRS/CURRE NT REPAIRS IS THUS NOT AT ALL COMMENSURATE WITH THE GROSS BLOCK VALUE OF THE BUIL DINGS AND IS UNUSUALLY HIGH VIS-A-VIS GROSS BLOCK VALUE OF PLANT & MACHINERY. T HIS ITSELF SHOWS THAT THE ITA NO. 102/AHD/2013 [ EXPRESS HOTELS P. LTD. VS. D CIT] A.Y. 2008-09 - 5 - EXPENDITURE CLASSIFIED UNDER THE HEAD 'REPAIRS' WAS NOT MERELY FOR PRESERVING OR MAINTAINING ALREADY EXISTING ASSETS BUT WAS SUBSTAN TIALLY TOWARDS RENEWAL, RESTORATION AND RENOVATION OF THE HOTEL, THUS N OT SATISFYING THE TEST FOR 'CURRENT REPAIRS' LAID DOWN BY THE SUPREME COURT IN THE CASE OF NEW SHORROCK SPINNING AND MANUFACTURING CO. LTD. AS DISCUSSED, EXPENDITUR E BOOKED AS REPAIRS BY THE APPELLANT INCLUDES EXPENDITURE OF CAPITAL NATURE AL SO, WHICH IN ANY CASE CANNOT BE CLAIMED U/S 30(A)(II)/31. CONSIDERING ALL ASPECTS, IT WOULD BE FAIR TO CONSIDER 10% OF EXPENDITURE CLAIMED AS REPAIRS TO BUILDING, I.E. 10% OF RS.69,43,468/- TO BE IN THE NATURE OF 'CURRENT REPAIRS' ALLOWABLE U/S 30(A) (II). BALANCE EXPENDITURE CLAIMED TOWARDS REPAIRS OF BUILDING WOULD NOT BE ALLOWABLE UNDER ANY OTHER PROVISION OF THE IT. ACT AS PER DECISION IN THE CASE OF SARAVANA SPINNING MILLS LTD., 293 ITR 201 (SC) AND DISALLOWANCE IS CONFIRMED TO SUCH EXTE NT. OUT OF EXPENDITURE OF RS.45,00,394/- CLAIMED AS-REPAIRS TO PLANT & MACHIN ERY,, IT WOULD BE FAIR TO CONSIDER 20% AS 'CURRENT REPAIRS' ALLOWABLE U/S 31, DISALLOWANCE OF BALANCE EXPENDITURE OUT OF RS.45,00,394/- CLAIMED AS REPAIR S TO PLANT AND MACHINERY IS CONFIRMED FOR THE SAME REASONS AS FOR REPAIRS TO BU ILDING. DEPRECIATION ALLOWED BY THE AO MAY BE MODIFIED ACCORDINGLY. 5. WE HAVE HEARD BOTH THE PARTIES. RELEVANT FINDIN GS PERUSED. THE SOLE ISSUE BETWEEN THE PARTIES IS ABOUT TREATMENT OF ASS ESSEES REPAIR CLAIMS PERTAINING TO ITS HOTEL BUILDING AND PLANT & MACHIN ERY. BOTH THE LOWER AUTHORITIES EXCEPT TO THE EXTENT OF MINOR FRACTION IN LOWER APPELLATE ORDER HOLD THE SAME AS CAPITAL EXPENDITURE. IT EMERGES THAT T HIS TRIBUNALS CO-ORDINATE BENCHES IN ASSESSMENT YEARS 2005-06 TO 2007-08 HAVE ALREADY DECIDED THE VERY ISSUE IN ASSESSEES FAVOUR. PAGES 1 TO 16 OF THE PAPER BOOK CONTAIN A COMPILATION OF SAID ORDERS. THE FACTUAL POSITION H OWEVER IS DIFFERENT IN SUCCEEDING ASSESSMENT YEARS WHEREIN THE ASSESSEE HA S ITSELF TREATED 65% OF THE ABOVE HEADS OF EXPENSES AS CAPITAL EXPENDITURE AND 35% TO BE REVENUE EXPENDITURE AS PER ITS AUTHORIZED PERSONS SURVEY S TATEMENT OPERATIVE FROM THE IMPUGNED ASSESSMENT YEAR. THE ASSESSEES SOLE ENDEAVOR ACCORDINGLY BEFORE US IS TO CLAIM ONLY 35% OF THE EXPENDITURE A S REVENUE AND BALANCE 65% TO BE CAPITAL EXPENDITURE AS PER ITS ABOVE SURV EY STATEMENT. LEARNED DEPARTMENTAL REPRESENTATIVE APPEARING AT REVENUES BEHEST FAILS TO DISPUTE ALL THE ABOVESTATED SURVEY DEVELOPMENTS AS WELL AS TREATMENT OF THE VERY HEAD OF EXPENDITURE AS REVENUE IN NATURE IN PRECEDING AS SESSMENT YEARS AND PARTLY CAPITAL AND PARTLY REVENUE EXPENDITURE IN LATTER AS SESSMENT YEARS. WE ITA NO. 102/AHD/2013 [ EXPRESS HOTELS P. LTD. VS. D CIT] A.Y. 2008-09 - 6 - THEREFORE ACCEPT ASSESSEES LIMITED CONTENTION AND DIRECT THE ASSESSING OFFICER TO TREAT 65% OF THE IMPUGNED CLAIMS AS CAPI TAL EXPENDITURE ENTITLED FOR DEPRECIATION AND BALANCE 35% AS REVENUE EXPENDI TURE. HE SHALL ACCORDINGLY FRAME CONSEQUENTIAL ASSESSMENT AS PER L AW. 6. THIS ASSESSEES APPEAL IS PARTLY ALLOWED IN ABOV E TERMS. [PRONOUNCED IN THE OPEN COURT ON THIS THE 22 ND DAY OF MARCH, 2017.] SD/- SD/- ( AMARJIT SINGH ) (S. S. GODARA) ACCOUNTANT MEMBER JUDICIAL ME MBER AHMEDABAD: DATED 22/03/2017 TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO:- / REVENUE 2 / ASSESSEE ! / CONCERNED CIT 4 !- / CIT (A) ( )*+ ,--. . /0 / DR, ITAT, AHMEDABAD 1 +23 45 / GUARD FILE. BY ORDER / . // . /0