ITO, Kumbakonam V. Shri K.M.S.K.Balasubramanian, Kumbakonam

ITA 1096/CHNY/2011

• Counselvise Citation: 109621714 RSA 2011
• Duration Of Justice: 4 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2015
• Appeal Filed By: Department
• Bench Allotted: D
• Next Hearing Date: 11-09-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 13-06-2011
• Court: TRIBUNAL
• Department Lawyers: A B KOLI
• Assessee Lawyers: A S SRIRAMAN
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 147

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, CHENNAI . , BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO.1096/MDS/2011 ./ ITA NO.1122/MDS/2011 ' # $%# / ASSESSMENT YEARS : 2006-07& 2003-04 THE INCOME TAX OFFICER, WARD I(1), KUMBAKONAM. V. SHRI K.M.S.K. BALASUBRAMANIAN, 140, TSR BIG STREET, KUMBAKONAM. PAN : ABJPB 5883 E ('(/ APPELLANT) ()*'(/ RESPONDENT) ./ ITA NO.1120/MDS/2011 ' # $%# / ASSESSMENT YEAR : 2003-04 THE INCOME TAX OFFICER, WARD I(1), KUMBAKONAM. V. SHRI K.M.S.K. BALASUBRAMANIAN (HUF), 140, TSR BIG STREET, KUMBAKONAM. PAN : AAAHB 6936 J ('(/ APPELLANT) ()*'(/ RESPONDENT) '( + , / APPELLANT BY : SHRI A.B. KOLI, JCIT )*'(+, / RESPONDENTS BY : SH. A.S. SRIRAMAN, ADVOCATE - $+. / DATE OF HEARING : 11.09.2015 /% +. / DATE OF PRONOUNCEMENT : 20.11.2015 2 I.T.A. NOS.1096, 1120 & 1122/MDS/11 / O R D E R PER A.MOHAN ALANKAMONY , ACCOUNTANT MEMBER: THESE THREE APPEALS ARE FILED BY THE REVENUE AGGRIE VED BY THE SEPARATE ORDER OF THE LEARNED COMMISSIONER OF INCOM E TAX(A), TIRUCHIRAPALLI, IN (I) ITA NO.129/08-09 DATED 28.03 .2011 FOR ASSESSMENT YEAR 2003-04 (INDIVIDUAL), (II) ITA NO.128/08-09 DA TED 28.03.2011 FOR ASSESSMENT YEAR 2003-04 (HUF) AND (III) ITA NO.130/ 08-09 DATED 28.03.2011 FOR ASSESSMENT YEAR 2006-07 (INDIVIDUAL) PASSED UNDER SEC.143(3) READ WITH SECTION 147 & SEC. 250 OF TH E ACT. SINCE IN ALL THESE APPEALS ISSUES UNDER CONSIDERATION ARE COMMON AND IDENTICAL, THEY HEARD TOGETHER AND DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE CONCISED GROUNDS RAISED BY THE REVENUE IN A LL THESE APPEALS ARE LISTED BELOW FOR ADJUDICATION. (I) THE LD. CIT(A) HAD ERRED IN TREATING THE EXP ENDITURE INCURRED IN THE BUSINESS M/S HOTEL KASI INTERNATIONAL JOINTLY BY BO TH THE ASSESSEES TOWARDS BUILDING REPAIRS FOR ` 25,05,232/- AS REVENUE IN NATURE FOR THE A.Y 2003-04 IN THE CASE OF MR.K.M.S.K.BALASUBRAMANIAN (INDIVIDUAL) AND M/S.K.M.S.K.BALASUBRAMANIAN ( HUF). 3 I.T.A. NOS.1096, 1120 & 1122/MDS/11 (II) THE LD. CIT(A) HAD ERRED IN TREATING THE EXPE NDITURE INCURRED IN THE BUSINESS M/S KASI KALAI ARANGAM JOINTLY BY BOTH THE ASSESSEES FOR ` 7,62,982/- AS REVENUE IN NATURE FOR THE ASSESSMENT YEAR 2003-04 IN THE CASE OF K.M.S.K. BALASUBRAMANIAN (INDIVIDUAL) & M/S.K.M.S.K . BALASUBRAMANIAN (HUF). (III) THE LD. CIT(A) HAD ERRED IN TREATING THE EXP ENDITURE INCURRED IN THE BUSINESS M/S HOTEL KASI INTERNATIONAL JOINTLY BY BO TH THE ASSESSEES TOWARDS BUILDING REPAIRS OF RS.7,66,617/- AS REVE NUE IN NATURE FOR THE ASSESSMENT YEAR 2006-07 IN THE CASE OF K.M.S.K. BALASUBRAMANIAN (INDIVIDUAL). 3. THE BRIEF FACTS OF THE CASE ARE THAT BOTH THE A SSESSEES VIZ., MR.K.M.S.K.BALASUBRAMANIAN (INDIVIDUAL) AND M/S.K.M.S.K. BALASUBRAMANIAN (HUF) REPRESENTED BY MR.K.M.S.K. BALASUBRAMANIAN AS THE KARTHA OF THE HUF ARE ENGAGED IN THE BUSINESS OF RUNNING THE LODG E, HOTEL AND CINEMA THEATRE, EACH SHARING 50% OF THE PROFIT. THE PROPERTIES/BUSINESS VENTURES OWNED BY BOTH THE ASSESSEES ARE AS FOLLOWS :- (I) KASI TOWERS (LODGE) (II) M/S.HOTEL KASI INTERNATIONAL (HOTEL) (III) M/S.KASI KALAI AARANGAM(THEATRE) 4 I.T.A. NOS.1096, 1120 & 1122/MDS/11 IT IS PERTINENT TO MENTION HERE THAT BOTH THE ASSES SEES JOINTLY HAS BEEN MAINTAINING SEPARATE BOOKS OF ACCOUNTS FOR ALL THE THREE ABOVE MENTIONED VENTURES, DRAWING P&L A/C & BALANCE SHEET FOR EACH OF THE ABOVE MENTIONED VENTURES INDEPENDENTLY AND EACH SHA RING 50% OF THE PROFIT. 4.1. GROUND NO.(I) THE CLAIM OF ` 25,05,232/- TOWARDS BUILDING REPAIRS ALLOWED AS REVENUE EXPENDITURE BY THE LD. CIT (A). DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS OBSERVED BY THE LD. ASSESSING OFFICER THAT IN THE P&L A/C OF M/ S.HOTEL KASI INTERNATIONAL, THE ASSESSEE HAD CLAIMED A SUM OF ` 25,05,232/- AS BUILDING REPAIRS. ON QUERY, THE ASSESSEE HAD REPLIE D THAT THE AFORESAID EXPENSES WERE DUE TO PETTY EXPENSES INCURRED FOR RE PLACEMENT OF VARIOUS ITEMS IN THE HOTEL. IT WAS FURTHER CLARIFIE D BY THE ASSESSEE VIDE LETTER 29.8.2008 THE NATURE OF EXPENSES AS FOLLOWS: - 1) RELAYING OF DAMAGED FLOORS,PARTIONS,PLASTERING ` OF INDOOR AND OUTDOOR WALLS, PAINTING OF ENTIRE B UILDING REMODELING OF TOILETS WITH TILES ETC., RELAYING OF PIPERS AND OTHER CONNECTED CIVIL WORK 12,61,2 32 2) PROVISION OF FALSE-CEILING 3,28,500 3) REPLACING OF COTS, DRESSING TABLES, WARDROBES 6, 60,000 4) WALL PANELLING WORKS IN THE LOBBY RECEPTION COUNTER WITH GRANITE TOP. 1,40,000 5 I.T.A. NOS.1096, 1120 & 1122/MDS/11 5. REPLACEMENT OF OLD AND WORN OUT HINGES, LOCKS ET C. 45,000 6. PROVISION OF FRONT SIDE ENTRANCE ARCH GATE, SEC URITY ROOM 70,500 25,05,232 4.2 THE LD. ASSESSING OFFICER OPINED THAT ALL THE AB OVE MENTIONED EXPENDITURES BRINGS IN NEW ASSETS AND THEREBY AMOUN TS TO CAPITAL EXPENDITURE. THE LD. ASSESSING OFFICER FURTHER OBS ERVED THAT ALL THE ABOVE MENTIONED WORK SUCH AS INSTALLATION, CONSTRUC TION, FABRICATION ETC., WERE NOT CARRIED OUT TO AN EXISTING ASSET BUT WAS T O CREATE AN INDEPENDENT ASSET. THEREFORE, THE LD. ASSESSING OFF ICER CAME TO A CONCLUSION THAT THE AFORESAID EXPENDITURE OF ` 25,05,232/- FALLS IN THE CAPITAL FIELD. THE LD. ASSESSING OFFICER ALSO RELI ED ON THE DECISION OF RAJASTHAN HIGH COURT REPORTED IN 268 ITR 451 IN THE CASE CIT VS. UDHIAPUR DISTILLERY CITED BY THE LD. A.R WHILE ARRI VING AT THIS CONCLUSION. ALL OTHER CASES CITED BY THE LD. A.R WERE DISTINGUI SHED BY THE LD. ASSESSING OFFICER AND THEREBY REJECTED. THE LD. ASS ESSING OFFICER FURTHER RELIED IN THE DECISION OF THE HONBLE APEX COURT IN THE CASE BALLIAMAL NAVEL KISHORE & ANOTHER VS. CIT REPORTED IN 224 ITR 414 (1997) AND TREATED THE ENTIRE EXPENDITURE OF ` 25,05,232/- AS CAPITAL EXPENDITURE AND ALLOWED DEPRECIATION ON THE SAME. THE LD. CIT (A) AFTER CITING VARIOUS DECISIONS ALLOWED THE APPEAL I N FAVOUR OF THE ASSESSEE. 6 I.T.A. NOS.1096, 1120 & 1122/MDS/11 4.3 BEFORE THIS BENCH, BOTH THE PARTIES ARGUED IN SUPPORT OF THEIR RESPECTIVE STAND. 4.4 I HAVE HEARD BOTH THE PARTIES AND CAREFULLY PE RUSED THE MATERIALS AVAILABLE ON RECORD. ON EXAMINING THE FACTUAL DETAI LS IN THE CASE OF THE ASSESSEE, I FIND THAT EXPENDITURE CLAIMED HEREIN AB OVE IN ITEM NO.1 AMOUNTING TO ` 12,61.232/- & ITEM NO.5 AMOUNTING TO ` 45,000/- ARE ROUTINE EXPENSES FALLING IN THE REVENUE FIELD BECAU SE NO SUBSTANTIAL MODIFICATION HAS RESULTED TO THE EXISTING HOTEL TO BRING IT INTO A DIFFERENT CLASS OF HOTEL. HOWEVER, ITEMS SUCH AS FALSE CEILI NG, COTS, DRESSING TABLES, WARD ROBES, RECEPTION COUNTERS, WALL PANELI NG HAS TO BE CLASSIFIED AS FURNITURE AND FITTINGS AS SPECIFICALLY PROVIDED UNDER THE DEPRECIATION SCHEDULE SPECIFIED IN THE INCOME TAX RULES. FURTHER , ARCH GATES AND SECURITY ROOMS ARE ALSO NEW ASSETS CREATED. HENCE T HESE ITEMS FALL IN THE NATURE CAPITAL OF EXPENDITURE. THEREFORE WE HER EBY DIRECT THE LD.A.O TO AMEND HIS ORDER ACCORDINGLY BOTH IN THE CASE OF THE ASSESSEE HUF AND THE ASSESSEE INDIVIDUAL BY TREATING ITEM NO.1 A MOUNTING TO ` 12,61,232/- AND ITEM NO.5 AMOUNTING TO ` 45,000/- AS REVENUE EXPENDITURE AND ALL OTHER EXPENDITURE AS CAPITAL EX PENDITURE AND ALLOW DEPRECIATION ON THE SAME AS PER THE RATES PRESCRIBE D IN THE RELEVANT I.T.RULES. 7 I.T.A. NOS.1096, 1120 & 1122/MDS/11 5.1 GROUND NO.(II) - TREATING THE EXPENDITURE INC URRED FOR ` 7,62,982/- AS REVENUE IN NATURE FOR THE ASSESSMENT YEAR 2003-0 4 IN THE CASE OF K.M.S.K. BALASUBRAMANIAN (INDIVIDUAL) & M/S.K.M.S.K . BALASUBRAMANIAN (HUF). IT WAS OBSERVED BY THE LD. ASSESSING OFFICER THAT IN THE P&L A/C OF M/S.KASI KALAI AARANGAM(THEATRE), THE ASSESSEE HAD DECLARED RENTAL INCOME OF ` 2,13,000, INTEREST INCOME OF ` 22,813/- AND EXEMPT DIVIDEND INCOME OF ` 1,500/-. TOWARDS THE SAME THE ASSESSEE HAD CLAIMED THE FOLLOWING EXPENDITURE:- SALARY AND BONUS PAID 1,62,750 INTEREST PAID 5,71,505 BATTA EXPENSES 10,920 PRINTING AND STATIONERY 2,170 BANK COMMISSION 612 MISC. EXPENSES 15,025 TOTAL EXPENSES NOT RELATING TO INCOME 7,62,982 5.2 THE LD. ASSESSING OFFICER OPINED THAT THERE IS NO NEXUS BETWEEN THE INCOME ADMITTED AND THE EXPENDITURE CLAIMED. TH EREFORE, HE DISALLOWED THE ENTIRE AMOUNT OF ` 7,62,982/-. ON APPEAL, THE LD. CIT (A) ALLOWED THE CLAIM OF THE ASSESSEE BECAUSE SIMILAR E XPENDITURE WAS BEING ALLOWED BY THE REVENUE FOR THE EARLIER ASSESS MENT YEARS. AFTER EXAMINING THE ISSUE, I AM ALSO OF THE CONSIDERED VI EW THAT FOR RUNNING KALAI AARANGAM SOME EXPENDITURE WILL BE INCURRED OF SIMILAR NATURE 8 I.T.A. NOS.1096, 1120 & 1122/MDS/11 CLAIMED BY THE ASSESSEE. THE LD. ASSESSING OFFICER HAS NOT POINTED OUT AS TO WHY THERE IS NO NEXUS BETWEEN THE EXPENDITURE INCURRED TOWARDS THE INCOME EARNED FROM M/S.KASI KALAI AARANGAM(THEA TRE). THEREFORE, I DO NOT HAVE ANY HESITATION TO CONFIRM THE ORDER OF THE LD. CIT (A) ON THIS ISSUE. THE LD. A.O IS HEREBY DIRECTED TO GIVE EFFE CT TO OUR DECISION ON THIS ISSUE IN THE CASE OF BOTH THE ASSESSEES. 6.1 GROUND NO.(III) - THE LD. CIT(A) HAD ERRED IN TREATING THE EXPENDITURE INCURRED TOWARDS BUILDING REPAIRS OF ` 7,66,617/- AS REVENUE IN NATURE FOR THE ASSESSMENT YEAR 2006-07 I N THE CASE OF K.M.S.K. BALASUBRAMANIAN (INDIVIDUAL). DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS OBSERVED BY THE LD. ASSESSING OFFICER THAT THE ASSESSEE HAD DEB ITED ` 7,66,617/- TOWARDS BUILDING REPAIRS IN THE P&L A/C OF M/S.HOTE L KASI INTERNATIONAL (HOTEL). IT WAS EXPLAINED BY THE LD. A.R BEFORE THE LD. ASSESSING OFFICER THAT THESE EXPENDITURES PERTAINED TO REPAIR AND MOD ERNIZING THE HOTEL BY REPLACING THE EXISTING COMPONENTS OF A PORTION OF T HE BUILDING AND FURNITURE & FITTINGS AND THEREFORE IT AMOUNTS TO RE VENUE EXPENDITURE. HOWEVER, THE LD. ASSESSING OFFICER REJECTING THE CL AIM OF THE ASSESSEE AND THE DECISIONS CITED BY THE ASSESSEE AND TREATED THESE EXPENDITURES AS CAPITAL IN NATURE AND DISALLOWED THE SAME. ON A PPEAL, THE LD. CIT (A) 9 I.T.A. NOS.1096, 1120 & 1122/MDS/11 MADE A CATEGORICAL FINDING THAT THE AFORESAID EXPEN DITURE RELATED TO RELAYING OF MARBLE STONES FOR FLOORING, LAYING OF C EMENT TILES IN HALLS, PAINTING OF THE BUILDING, REPLACEMENT OF DOORS WITH MICA SHEETS AND REPLACEMENT OF PLUMBING ITEMS. THEREFORE THE LD. CI T (A) ALLOWED THE APPEAL OF THE ASSESSEE BY TREATING ALL THE AFORESAI D EXPENDITURE AGGREGATING TO ` 7,66,617/- AS REVENUE EXPENDITURE. I AM ALSO OF THE OPINION THAT THE LD. CIT(A) IS JUSTIFIED IN ARRIVIN G AT SUCH CONCLUSION BECAUSE ALL THE AFORESAID EXPENDITURES INCURRED ARE FOR CARRYING OUT REPAIRS AND MAINTENANCE OF THE EXISTING ASSET AND D OES NOT RESULT IN CREATION OF NEW ASSETS OF ANY KIND. THEREFORE, I HE REBY CONFIRM THE ORDER OF THE LD. CIT (A) ON THIS ISSUE. 7. IN THE RESULT, THE APPEAL OF THE REVENUE, IN TH E CASE OF THE ASSESSEE (HUF) AND THE ASSESSEE (INDIVIDUAL) FOR TH E ASSESSMENT YEAR 2003-04 ARE PARTLY ALLOWED AND THE APPEAL OF THE RE VENUE, IN THE CASE OF THE ASSESSEE (INDIVIDUAL) FOR THE ASSESSMENT YEA R 2006-07 IS DISMISSED. ORDER PRONOUNCED ON 20 TH NOVEMBER, 2015 AT CHENNAI. (A. MOHAN ALANKAMONY) ACCOUNT MEMBER /CHENNAI, 0 /DATED, THE 20 TH NOVEMBER, 2015. K S SUNDARAM COPY TO: APPELLANT/RESPONDENTS/ CIT(A), TIRUCHIRAPPALLI/CIT- II, TIRUCHIRAPPALLI/DR/GF.