ACIT, C-3(1), Chandigarh V. M/s Durga Jewellers, Chandigarh

ITA 1027/CHANDI/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5194 (ITAT-CHANDIGARH)
• Duration Of Justice: 8 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 21-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHANDRA KANTA
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure
• Section: 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES A CHANDIGARH BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND DR. B.R.R. KUMAR, ACCOUNTANT MEMBER ITA NO.1027/CHD/2017 ASSESSMENT YEAR: 2012-13 THE ASST. CIT VS. M/S DURGA JEWELLERS CIRCLE-3(1) SCO-40, POCKET NO. 1 CHANDIGARH MANIMAJRA, CHANDIGARH PAN NO. AAFFD5537N (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE DEPARTMENT BY : SMT. CHANDRAKANTA DATE OF HEARING : 14/12/2017 DATE OF PRONOUNCEMENT: 08/03/2018 ORDER PER DR. B.R.R. KUMAR, A.M: THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE AG AINST THE ORDER OF THE LD. CIT(A)-1, CHANDIGARH DT. 08/03/2017. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING APPEAL OF THE ASSESSEE WITHOU T APPRECIATING THE FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. CIT(A) HAS ERRED IN QUASHING THE ORDER PASSED U/S 1 48 OF THE INCOME TAX ACT BY OBSERVING THAT THE MISTAKE TO BE RECTIFIED WAS NOT APPARENT FROM RECORD. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) HAS ERRED IN TREATING THE EXPENDITURE OF RS. 38,36,145/- AS REVENUE EXPENDITURE AND ONLY THE AMOUNT OF RS 9,75,417/- AS CAPITAL EXPENDITURE WITHOUT APPRECIATING THE FACTS, WHEREAS THE AO WAS RIGHT IN CAPITALIZING THE AMOUNT OF RS. 48,11,562/- AS FURNITURE AND FIXTURE AND ALLOWING D EPRECIATION @ 10% AFTER PROPER VERIFICATION OF THE FACTS AND APPLICATION OF MIND. 4. THE APPELLANT CRAVES TO LEAVE TO ADD OR AMEND ANY G ROUNDS OF APPEAL BEFORE THE APPEAL IS HEARD OR DISPOSED OFF. 5. IT IS PRAYED THAT THE ORDER OF THE LD. CIT(A) BE CA NCELLED AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED. 2 3. GROUND NO. 2 PERTAINS TO QUASHING OF THE ORDER P ASSED UNDER SECTION 148 OF THE INCOME TAX ACT DOESNT EMANATE FROM THE RECO RD BEFORE US. HENCE THIS GROUND TREATED AS DISMISSED. 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA D BEEN CARRYING ON THE BUSINESS OF PURCHASE/SALE OF JEWELLERY AS FRANCHISE E OF TITAN INDUSTRIES LTD. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE SHIFTED FROM SCO-43, NAC, POCKET NO. L, MANIMAJRA TO SCO-40, NAC, POCKET NO.L, MANIM AJRA, CHANDIGARH(U.T.) THE ASSESSEE HAD INCURRED EXPENDITURE AMOUNTING TO RS 4 8,11,562/- ON REPAIR & RENEWALS TO MODIFY, REFURBISH AND APPROPRIATELY EQU IP THE SHOWROOM AND CLAIMED AS REVENUE EXPENDITURE. THE ASSESSING OFFIC ER TREATED THE EXPENDITURE AN AMOUNT OF RS 48,11,562/- ON ACCOUNT OF REPAIR & MAINTENANCE OF BUILDINGS CAPITAL IN NATURE AS AGAINST CLAIMED BY APPELLANT T O BE REVENUE. THE RELEVANT PORTION OF THE ASSESSMENT ORDER IS AS UNDER: 'THE ABOVE MENTIONED EXPENSES WERE INCURRED FOR THE PURPOSE OF MAKING THE NEW PREMISE I.E SCO NO 40, POCKET NO 1, MANIMAJARA, CHA NDIGARH, FIT FOR USE. THE EXPENSES SO INCURRED ARE NOT RECURRING IN NATURE. T HEY ARE ALSO ENDURING IN NATURE AS THE NATURE OF EXPENSES INCURRED LIKE CEILING, FL OORING, ELECTRICAL AND PLUMBING, TILING WORKS ARE ONETIME EXPENSES WITH LONG TERM BE NEFITS AND NEED TO BE CAPITALIZED. 4.7 THE AR IN HIS REPLY HAS ALSO STATED THAT THE PREMIS E IS TAKE ON LEASE AND THE ITEMS CANNOT BE TAKEN AWAY BY THE ASSESSEE AT THE E ND OF THE LEASE PERIOD AND HENCE CANNOT BE CALLED AS AN ASSET IN THE HANDS OF THE ASSESSEE. THIS ARGUMENT OF THE ASSESSEE IS NOT ACCEPTABLE AS THE ACT HAS ALREADY CLARIFIED THE ABOVE ISSUE.' 5. BEFORE THE LD. CIT(A) THE ASSESSEE HAS FILED WRI TTEN SUBMISSIONS AS UNDER: 'THE ASSESSEE HAD BEEN CARRYING ON THE BUSINESS OF PURCHASE/ SALE OF JEWELLERY AS FRANCHISEE OF TITAN INDUSTRIES LTD. DURING THE Y EAR UNDER CONSIDERATION, THE ASSESSEE SHIFTED FROM SCO-43, NAC, POCKET NO.L, MAN IMAJRA TO SCO-40, NAC, POCKET NO.L, MANIMAJRA, CHANDIGARH(U.T) AS JEWELLER Y SHOPS ARE REQUIRED TO MAINTAIN HIGH STANDARDS OF INTERIOR DECOR, MORE PAR TICULARLY AS FRANCHISEE OF TITAN INDUSTRIES LTD., THE ASSEESSEE HAS INCURRED EXPENDI TURE AMOUNTING TO RS 48,11,562/ - ON REPAIR & RENEWALS TO MODIFY, REFURB ISH AND APPROPRIATELY EQUIP THE SHOWROOM IN ACCORDANCE WITH THE COMPANY'S APPRO VED POLICY AND SCHEME. DETAILS OF EXPENSES ALONG WITH COPY OF LEDGER A/C A RE ENCLOSED. 3 IT IS THE INTENTION OF THE COMPANY AND THE FRANCHIS EE THAT THE SHOW ROOM SHALL AT ALL TIMES BE AMONG THE BEST DESIGNED, MAINTAINED AN D OPERATED SHOWROOMS. AS FRANCHISEE THE FIRM HAS TO ENSURE COMPLIANCE OF THI S INTENTION AT ALL TIMES TO BOTH SAFEGUARD AND FURTHER THE REPUTATION OF THE COMPANY AND ITS PRODUCTS. FROM THE ABOVE , IT IS CLEAR THAT THE EXPENDITURE W AS THE BARE MINIMUM NEEDED TO MAKE THE SHOWROOM OPERATIONAL AS PER STANDARDS OF T ITAN INDUSTRIES LTD. UNDISPUTEDLY, NO NEW STRUCTURE WAS CREATED WITH INC URRING OF THE ABOVE EXPENSES. IT WAS ONLY A CASE OF RELAYING THE TILES, CHANGE OF WINDOW GLASSES, CHANGE OF ELECTRICAL BULBS, TUBES, SWITCHES , PAINT WORK, WOO D WORK, DECORATION, FURNISHING, POP WORK ETC. THE LD. AO HAS NOT DISPUTED ALL THESE FACTS. THE REPAIR EXPENSES WAS REASONABLE PROPORTIONATE TO CAPITALIZED VALUE A ND REPAIR WAS NECESSITATED DUE TO BUSINESS EXIGENCIES, LD AO WAS UNJUSTIFIED I N HOLDING THE SAID EXPENSES TO BE CAPITAL IN NATURE AS AGAINST CLAIMED BY APPELLAN T TO BE REVENUE, BY MERELY DECIDING THE SAME BASED ON TOTAL VALUE OF REPAIR EX PENSES. THIS ADDITION DESERVES TO BE DELETED. THE MAIN CONTENTION OF A.O. IS THAT IT IS A NON-REC URRING EXPENDITURE INCURRED WITH ENDURING BENEFIT. IT WILL BE WORTHWHILE TO MENTION HERE THE OBSERVATI ONS OF HON'BLE SUPREME COURT ON ENDURING BENEFIT, IN EMPIRE JUTE CO. LTD. VS CIT (1980) 124 ITR 0001 'THERE MAY BE CASES WHERE EXPENDITURE, EVEN IF INCU RRED FOR OBTAINING ADVANTAGE OF ENDURING BENEFIT, MAY, NONE THE LESS, BE ON REVE NUE ACCOUNT AND THE TEST OF M ENDURING BENEFIT MAY BREAK DOWN. IT IS NOT EVERY AD VANTAGE OF ENDURING NATURE ACQUIRED BY AN ASSESSEE THAT BRINGS THE CASE WITHIN THE PRINCIPLE LAID DOWN IN THIS TEST. WHAT IS MATERIAL TO CONSIDER IS THE NATURE OF ADVANTAGE IN A COMMERCIAL SENSE AND IT IS ONLY WHERE THE ADVANTAGE IS IN CAPI TAL FIELD THAT THE EXPENDITURE WOULD BE DISALLOWABLE ON AN APPLICATION OF THIS TES T. IF THE ADVANTAGE CONSISTS MERELY IN FACILITATING THE ASSESSEE'S TRADING OPERA TIONS OR ENABLING THE MANAGEMENT AND CONDUCT OF THE ASSESSEE'S BUSINESS T O BE CARRIED ON MORE PROFITABLY WHILE LEAVING THE FIXED CAPITAL UNTOUCHE D, THE EXPENDITURE WOULD BE ON REVENUE ACCOUNT, EVEN THOUGH THE ADVANTAGE MAY ENDU RE FOR AN INDEFINITE FUTURE. THE TEST OF ENDURING BENEFIT IS, THEREFORE, NOT A C ERTAIN OR CONCLUSIVE TEST AND IT CANNOT BE APPLIED BLINDLY AND MECHANICALLY WITHOUT REGARD TO THE PARTICULAR FACTS AND CIRCUMSTANCES OF A GIVEN CASE' A.O. HAS MECHANICALLY APPLIED THE TEST OF ENDURING BENEFIT WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE. IN FACT, TITAN INDUSTRIES LTD. HAD WITHDRAWN THE FR ANCHISEE FROM THE FIRM IN APRIL 2014 AND FIRM HAD TO VACATE THE PREMISES AND COULD NOT RETRIEVE THE ITEMS. THEREFORE, NO ENDURING BUSINESS ADVANTAGE ACCRUED A ND NO NEW PROFIT MAKING ASSET CAME INTO EXISTENCE.' 6. LD. CIT(A) AFTER CONSIDERING THE ASSESSMENT ORDE R AS WELL AS SUBMISSIONS OF THE ASSESSEE FOUND THAT MOST OF THE EXPENDITURE PER TAINS TO THE CIVIL WORK SUCH AS PLYWOOD, PIPES, PLUMBING, HARDWARE, POP, CONTRAC TOR, PAINTS, ELECTRICAL WORKS, TILES, GLASSES, FURNISHING, DECORATION, WALL PAPER WORKS, SOFA SETS ETC. THE LD. CIT(A) HELD THAT AS THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PURCHASE/SALE OF JEWELLERY THEREFORE, THE ASSESSEE IS REQUIRED TO PROVIDE CONDUCIVE ATMOSPHERE AND MEET THE REQUIREMENTS OF THE CUSTOME RS. THE EXPENDITURE IN QUESTION HAS MERELY ENABLED THE ASSESSEE TO REMAIN COMPETITIVE IN THE MARKET 4 AND RETAIN THE CUSTOMER'S PREFERENCES AND LOYALTY T OWARDS ITS BRAND NAME. ALSO, THE ASSESSEE HAS NOT ACQUIRED A NEW LINE OF BUSINES S BY REPAIR AND RENOVATION. THUS NO CAPITAL ASSET / NEW ASSET HAS BEEN CREATED. THE OBJECTIVE OF THE EXPENDITURE WHICH IS CLAIMED BY THE ASSESSEE AS AN EXPENDITURE FOR REPAIRS & MAINTENANCE IS TO PRESERVE AND MAINTAIN AN ALREADY EXISTING ASSET. THE OBJECT OF THE EXPENDITURE IS NOT TO BRING A NEW ASSET INTO EXISTENCE, NOR IS ITS OBJECT THE OBTAINING OF A NEW OR FRESH ADVANTAGE. THE REPAIR E XPENDITURE CLAIMED BY THE APPELLANT DOES NOT GIVE BENEFIT OF AN ENDURING NATU RE GIVING RISE TO CAPITAL ASSET. THE ASSESSEE WOULD NEED TO RESTORE THE PREMI SES TO THE GOOD CONDITION AND THEREFORE THE DUCTING, PLUMBING, ELECTRICAL WOR K, CABLING, PAINTING ETC. THAT HAD BEEN INSTALLED OR REPAIRED IS REQUIRED TO RUN T HE BUSINESS. IT IS ALSO OBSERVED THAT TITAN INDUSTRIES LTD. HAD WITHDRAWN THE FRANCH ISEE FROM THE FIRM IN APRIL 2014. THE FACTS OF THIS CASE ARE CLEARLY DISTINGUISHABLE SINCE IN THE PRESENT APPEAL THE ASSESSEE HAS MERELY IMPROVED THE EXISTING ASSET BY CARRYING OUT REPAIRS FOR FACILITATING ITS BUSINESS AND NOT EFFACEMENT HAS TA KEN PLACE FOR BRINGING INTO EXISTENCE A NEW ASSET. 7. THE LD. CIT(A) FURTHER HELD THAT ON EXAMINATION, THE ITEM WISE EXPENDITURE ON RECORD, THE EXPENDITURE AMOUNTING TO RS. 9,75,41 7/- WHICH HAS BEEN INCURRED BY THE ASSESSEE ON MARBLE, GRANITE STONE, STONE, HA RDWARE, POP CEILING, DECORATION (NOT DEFINED), ALUMINUM PANEL, SOFA SET, IS TREATED AS CAPITAL EXPENDITURE AS IT WOULD NOT COME WITHIN THE MEANING OF CURRENT REPAIRS. THE REMAINING EXPENDITURE ON ELECTRICAL WORKS, PLUMBING , GLASS, PAINT, WALLPAPER, ETC IS TREATED AS REVENUE NATURE. 8. DURING THE PROCEEDING BEFORE US THE LD. DR STRON GLY RELIED ON THE ORDER OF THE ASSESSING OFFICER. IT WAS ARGUED THAT THE ASSES SEE IN THE GARB OF RENOVATION 5 HAS BUILT UP A NEW ASSET WHICH IS THE FULLY RENOVAT ED HENCE TO THAT EXTENT IT SHOULD BE TREATED AS CAPITAL ASSET. AND SINCE THE A SSESSING OFFICER HAS ALREADY ALLOWED DEPRECIATION @ 10% ON THE FURNITURE AND FIT TINGS THE ACTION OF THE LD. CIT(A) CANNOT BE HELD TO BE VALID. 9. WE HAVE GONE THROUGH THE MATERIAL BEFORE US AND THE RATIONALE GIVEN BY THE LD. CIT(A). IT IS A FACT ON RECORD THAT NO NEW ASSET HAS BEEN BROUGHT INTO EXISTENCE SO AS TO BE TREAT THE EXPENSES AS CAPITAL IN NATURE. THE CATEGORICAL FINDING HAS BEEN GIVEN BY THE LD. CIT(A) ABOUT THE WORKS UNDERTAKEN AND HAS CORRECTLY DETERMINED AN EXPENSES OF RS. 9,75,417/- AS CAPITAL EXPENDITURE. HENCE WE DECLINE TO INTERFERE IN THE WELL REASONED ORDER OF THE LD. CIT(A), CONSEQUENTLY THE APPEAL OF THE REVENUE STANDS DISMI SSED. 10. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (DIVA SINGH) (DR. B.R.R. KUM AR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 08/03/2018 AG COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR