Arrow Clothing Pvt.Ltd., Ahmedabad V. The Income tax Officer,Ward-1(3), Ahmedabad

ITA 1027/AHD/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6068 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2014
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 18-06-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 08-04-2011
• Court: TRIBUNAL
• Department Lawyers: O P VAISHNAV
• Assessee Lawyers: TUSHAR P HEMANIAR
• Keywords: Capital asset; Depreciation; Commercial expediency; Revenue expenditure; Capital expenditure

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD 0 00 0 0 00 0 , , , , ! '# ! '# ! '# ! '#, , , , $ $ $ $ BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER ITA NO. 1027/AHD/2011 ASSESSMENT YEAR 2007-08 ARROW CLOTHING PRIVATE LIMITED B/4, SHRUTI APARTMENT 16, NEW ALKAPURI SOCIETY, GULBAI TEKRA, AHMEDABAD. PAN: AABCA3061D VS INCOME TAX OFFICER WARD-1(3) AHMEDABAD. %&/ APPELLANT ()%& / RESPONDENT REVENUE BY : SHRI O.P. VAISHNAV, SR. DR ASSESSEE(S) BY : SHRI TUSHAR P. HEMANI,AR !* + #,/ // / DATE OF HEARING : 18/06/2014 -./ + #, / DATE OF PRONOUNCEMENT : 27/06/2014 0 0 0 0/ // / O R D E R PER SHRI N.S. SAINI, ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-VI, AHMEDABAD DATED 18.01.2011. 2. THE SOLE ISSUE INVOLVED IN THIS APPEAL IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN SUSTAINING THE ADD ITION OF RS 4,52,122/- MADE BY THE ASSESSING OFFICER. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS ING OFFICER OBSERVED THAT THE ASSESSEE HAS CLAIMED DEDUCTION FO R RS 5,02,358/- AS ITA NO. 1027/AHD/2011 ARROW CLOTHING PVT. LTD., AHMEDABAD. AY 2007-08 - 2 - REPAIRS TO BUILDING AND MAINTENANCE. IN REPLY TO T HE SHOW CAUSE NOTICE, THE ASSESSEE EXPLAINED THAT IT HAD WET AND DRY WASHING TECHNIQUES/DEWATERING/DRYING AND MANY MORE ON SINGL E FLOOR AREA. THEREAFTER, THE COMPANY DECIDED TO SEPARATE OUT DIF FERENT WORK BASE BY REALLOCATING AREAS, BUILDING PARTITION FOR DIFFEREN T USAGES. THE ASSESSING OFFICER AFTER CONSIDERING THE SUBMISSIONS OBSERVING THAT THE ASSESSEE ITSELF HAS SUBMITTED THAT IT HAS CARRIED OUT RENOVATION IN THE FACTORY PREMISES FOR WHICH AMOUNT OF RS 5,02,358/- WAS INCURRED. THE EX PENDITURE THUS INCURRED IS NOT IN THE NATURE OF CURRENT REPAIRS AS LAID DOW N U/S. 31 OF THE INCOME TAX ACT. ONLY EXPENDITURE INCURRED ON CURRENT REPAIRS ARE ALLOWABLE AS REVENUE EXPENDITURE. THEREFORE, THE ASSESSING OFFICER TREA TED THE SUM OF RS 5,02,358/- AS CAPITAL EXPENDITURE AND ALLOWED DEPRE CIATION THEREON AND THEREBY DISALLOWED RS 4,52,122/-. 4. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APPE ALS) CONFIRMED THE ACTION OF THE ASSESSING OFFICER BY OB SERVING THAT THE ASSESSEE COULD NOT EXPLAIN HOW EXPENSES INCURRED ON CONSTRUC TION OF PARTITION WALL AND FLOORING ARE NOT CAPITAL EXPENSES OUTSIDE THE P URVIEW OF SECTION 31 OF THE ACT. HE OBSERVED THAT WITH EFFECT FROM ASSESSM ENT YEAR 2004-05, EXPLANATION WAS INSERTED IN SECTION 31 ACCORDING TO WHICH ANY CAPITAL EXPENSES ARE NOT TO BE CONSIDERED AS CURRENT REPAIR S. EARLIER, THIS EXPLANATION WAS NOT THERE AND ACCORDINGLY, RENOVATI ON OR RENEWAL OF EXISTING ASSETS WAS CONSIDERED AS REPAIRS CONFIRMED THE ACTI ON OF THE ASSESSING OFFICER. 5. THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE R EITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. HE RELIED ON THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT V S. GUJARAT COOPERATIVE MILK MARKETING FEDERATION LTD. IN TAX APPEAL NO. 75 9 OF 2013 ORDER DATED 23.01.2014 AND SUBMITTED THAT THE HONBLE HIGH COUR T HAS HELD THAT THE ASSET WHICH WAS CREATED BELONGED TO SOMEONE ELSE AN D THE COMPANY DERIVED ITA NO. 1027/AHD/2011 ARROW CLOTHING PVT. LTD., AHMEDABAD. AY 2007-08 - 3 - ENDURING BUSINESS ADVANTAGE BY EXPENDING THE AMOUNT . IN ALL SUCH CASES, THE EXPENSES HAVE BEEN LOOKED UPON AS HAVING BEEN M ADE FOR THE PURPOSE OF CONDUCTING THE BUSINESS OF THE ASSESSEE MORE PRO FITABLY AND MORE SUCCESSFULLY AND THEREFORE HAS HELD THE EXPENDITURE TO BE REVENUE EXPENDITURE. 5. ON THE OTHER HAND, THE DEPARTMENTAL REPRESENTAT IVE SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD . IN THE INSTANT CASE, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF INDUSTRIAL W ASHING OF GARMENTS ON JOB WORK BASIS. THE ASSESSEE CONDUCTS ITS BUSINESS FRO M LEASEHOLD PREMISES. THE ASSESSEE CONSTRUCTED WALL IN THE SAID LEASEHOLD PREMISES TO DEMARCATE THE SAME FOR ITS DIFFERENT DIVISIONS TO CARRY ON TH E BUSINESS MORE EFFICIENTLY. THE EXPENDITURE INCURRED OF RS 5,02,358/- WAS CLAIM ED BY IT AS REVENUE EXPENDITURE WHICH WAS DISALLOWED BY THE ASSESSING O FFICER BY TREATING IT AS CAPITAL EXPENDITURE ON THE GROUND THAT IT RESULTED IN CREATION OF AN ASSET FOR WHICH ENDURING BENEFIT SHALL BE AVAILABLE TO THE AS SESSEE. THE ASSESSING OFFICER ACCORDINGLY ALLOWED DEPRECIATION ON THE AMO UNT TREATED BY HIM AS CAPITAL EXPENDITURE. 7. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APPE ALS) CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 8. BEFORE US, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE RELIED UPON THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. GUJARAT CO-OPERATIVE MILK MARKETING FEDERATION LTD. IN TAX APPEAL NO. 759 OF 2013 ORDER DATED 23.01.2014. THE HONBLE HIGH COURT IN THE AFORESAID CASE HELD AS UN DER: ITA NO. 1027/AHD/2011 ARROW CLOTHING PVT. LTD., AHMEDABAD. AY 2007-08 - 4 - 'ALL THESE CASES HAVE LOOKED UPON EXPENDITURE WHICH DID BRING ABOUT SOME KIND OF AN ENDURING BENEFIT TO THE COMPA NY AS A REVENUE EXPENDITURE WHEN THE EXPENDITURE DID NOT BR ING INTO EXISTENCE ANY CAPITAL ASSET FOR THE COMPANY. THE AS SET WHICH WAS CREATED BELONGED TO SOMEBODY ELSE AND THE COMPA NY DERIVED AN ENDURING BUSINESS ADVANTAGE BY EXPENDING THE AMOUNT. IN ALL THESE CASES, THE EXPENSES HAVE BEEN LOOKED UPON AS HAVING BEEN MADE FOR THE PURPOSE OF CONDUCTING T HE BUSINESS OF THE ASSESSEE MORE PROFITABLY OR MORE SUCCESSFULL Y. IN THE PRESENT CASE ALSO, SINCE THE ASSET CREATED BY SPEND ING THE SAID AMOUNTS DID NOT BELONG TO THE ASSESSEE BUT THE ASSE SSEE GOT THE BUSINESS ADVANTAGE OF USING MODERN PREMISES AT A LO W RENT, THUS SAVING CONSIDERABLE REVENUE EXPENDITURE FOR TH E NEXT 39 YEARS, BOTH THE TRIBUNAL AS WELL AS THE HIGH COURT HAVE RIGHTLY COME TO THE CONCLUSION THAT THE EXPENDITURE SHOULD BE LOOKED UPON AS REVENUE EXPENDITURE.' 9. WE MAY ALSO REFER TO THE DECISION OF MADRAS HIGH COURT IN CASE OF COMMISSIONER OF INCOME-TAX V. TVS LEAN LOGI STICS LTD. REPORTED IN (2007) 293 ITR 432 (MAD) IN WHICH ALSO THE COURT HELD THAT CONSTRUCTION OF BUILDING ON A LEASEHOLD L AND RESULTED INTO ASSESSEE ONLY A BUSINESS ADVANTAGE AND THE ASS ESSEE CANNOT BE STATED TO HAVE ACQUIRED ANY CAPITAL ASSET . 9. WE FIND THAT IN THE INSTANT CASE, IT IS NOT IN DISPUTE THAT THE PREMISES ON WHICH WALL WAS ERECTED WAS A LEASEHOLD PREMISES OF WHICH THE ASSESSEE WAS NOT THE OWNER. THEREFORE, BY INCURRIN G THE EXPENDITURE IN QUESTION, NO CAPITAL ASSET WAS ACQUIRED BY THE ASSE SSEE. FURTHER, IT IS ALSO NOT IN DISPUTE THAT THE EXPENDITURE IN QUESTION WAS INCURRED OUT OF COMMERCIAL EXPEDIENCY. THEREFORE, IN OUR CONSIDERE D VIEW, THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE A FORESAID DECISION OF THE HONBLE GUJARAT HIGH COURT. THE DEPARTMENTAL REPRE SENTATIVE COULD NOT POINT OUT ANY GOOD REASON FOR WHICH THE AFORESAID D ECISION OF THE HONBLE GUJARAT HIGH COURT SHOULD NOT BE FOLLOWED IN THE IN STANT CASE. WE, THEREFORE, FOLLOWING THE ABOVE DECISION OF THE HON BLE GUJARAT HIGH COURT SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES ON THIS I SSUE AND DIRECT THE ASSESSING OFFICER TO TREAT THE EXPENDITURE IN QUEST ION AS REVENUE EXPENDITURE. NEEDLESS TO MENTION THAT THE ASSESSIN G OFFICER SHALL WITHDRAW ITA NO. 1027/AHD/2011 ARROW CLOTHING PVT. LTD., AHMEDABAD. AY 2007-08 - 5 - THE DEPRECIATION ALLOWED IN RESPECT OF EXPENDITURE IN QUESTION WHILE GIVING EFFECT TO THIS ORDER. THUS, THE GROUND OF APPEAL O F THE ASSESSEE IS ALLOWED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS A LLOWED. ORDER PRONOUNCED IN THE COURT ON FRIDAY, THE 27 TH OF JUNE, 2014 AT AHMEDABAD. SD/- SD/- (KUL BHARAT) JUDICIAL MEMBER ( N.S. SAINI) ACCOUNTANT MEMBER AHMEDABAD; DATED 27/06/2014 GHANSHYAM MAURYA, SR. P.S. TRUE COPY 0 + (#1 21/# 0 + (#1 21/# 0 + (#1 21/# 0 + (#1 21/#/ COPY OF THE ORDER FORWARDED TO : 1. %& / THE APPELLANT 2. ()%& / THE RESPONDENT. 3. # !3 / CONCERNED CIT 4. !3() / THE CIT(A)-III, AHMEDABAD 5. 1'6 (# , , / DR, ITAT, AHMEDABAD 6. 678 9* / GUARD FILE. 0! 0! 0! 0! / BY ORDER, : :: :/ // / ; ; ; ; ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD