Ritika Pvt. Ltd., Kolkata V. DCIT, CIR-12, KOLKATA, Kolkata

ITA 1276/KOL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1568 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 25-04-2017
• Assessment Year: 2004-2005
• Appeal Filed On: 04-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D S DAMLE FCA SHRI SAURA
• Assessee Lawyers: T VARKEY JUDIC IA L M EMBER
• Keywords: Capital asset; Depreciation; Additional evidence; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 143(3); 37(1)

Judgement Text

, B , IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B KOLKATA BEFORE SHRI ABY.T VARKEY, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO. 1276 & 1309 / KOL / 2014 ASSESSMENT YEAR :2004-05 RITIKA PVT. LTD. 138, BELIAGHATA ROAD, KOLKATA-15 [ PAN NO.AABCR 5510 N ] DCIT, CIRCLE-12, P-7, CHOWRINGHEE SQUARE, AAYAKAR BHAWAN, 7 TH FLOOR, KOLKATA-69 V/S . V/S . DCIT, CIRCLE-12, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-69 M/S RITIKA PVT. LTD. 138, BELIAGHATA ROAD, KOLKATA-15 /APPELLANT .. / RESPONDENT /BY ASSESSEE SHRI D.S. DAMLE, FCA /BY RESPONDENT SHRI SAURABHKUMAR, ADDL. CIT-DR !'# /DATE OF HEARING 06-07-2017 $% # /DATE OF PRONOUNCEMENT -08-2017 / O R D E R PER BENCH:- THESE ARE CROSS-APPEAL FILED BY THE ASSESSEE AS WE LL AS REVENUE IS DIRECTED AGAINST THE COMMON ORDER OF COMMISSIONER O F INCOME TAX (APPEALS)-XII, KOLKATA DATED 21.03.2014. ASSESSMENT WAS FRAMED BY DCIT, CIRCLE-12, KOLKATA U/S 254/143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDERS DATED 27. 12.2012 FOR ASSESSMENT YEAR 2004-05. ITA NO. 1276 &1309/KOL/2014 A.Y 2004-05 RITIKA PVT. LTD. VS. DCIT, CIR-12 KOL. PAGE 2 SHRI D.S. DAMLE, LD. AUTHORIZED REPRESENTATIVE APPE ARED ON BEHALF OF ASSESSEE AND SHRI SAURABH KUMAR, LD. DEPARTMENTAL R EPRESENTATIVE REPRESENTED ON BEHALF OF REVENUE. 2. BOTH THE APPEALS ARE HEARD TOGETHER AND ARE BEIN G DISPOSED OF BY WAY OF CONSOLIDATE ORDER FOR THE SAKE OF BREVITY. FIRST WE TAKE UP ASSESSEES APPEAL IN ITA NO.1276/K OL/2014 . 3. GROUNDS RAISED BY ASSESSEE PER ITS APPEAL ARE AS UNDER:- 1) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE CIT(A) WAS UNJUSTIFIED IN LAW AND ON FACTS TO UPHOLD THE DISAL LOWANCE OF FOREIGN TRAVEL EXPENSES INCURRED BY THE APPELLANT IN RESPECT OF FO REIGN TRAVEL UNDERTAKEN BY THE EMPLOYEES OF THE APPELLANT WITHOUT APPRECIATING FACTS AND CIRCUMSTANCES OF THE CASE. 2) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE APPELLANT HAVING INCURRED EXPENDITURE ON FOREIGN TRAVEL UNDER TAKEN BY THE EMPLOYEES WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSE; THE CI T(A) OUGHT NOT TO HAVE UPHELD THE DISALLOWANCE OF THE FOREIGN TRAVEL EXPEN DITURE PARTICULARLY WHEN THE AO DID NOT BRING ON RECORD ANY MATERIAL TO DISPROVE THAT THE FOREIGN TRAVEL WAS NOT UNDERTAKEN FOR BUSINESS PURPOSES. 3) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE AO BE DIRECTED TO ALLOW THE DEDUCTION FOR EXPENDITURE INC URRED ON FOREIGN TRAVEL UNDERTAKEN BY EMPLOYEES OTHER THAN MRS. RITU KUMAR. 4) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE CIT(A) WAS UNJUSTIFIED IN LAW AND ON FACTS IN UPHOLDING THE DI SALLOWANCE TO THE EXTENT OF 75% OF THE FILM SPONSORSHIP EXPENSES EVEN THOUGH TH E APPELLANT HAD PLACED BEFORE THE LOWER AUTHORITIES ALL THE MATERIAL FACTS ESTABLISHING THE COMMERCIAL EXPEDIENCY INVOLVED IN INCURRING FILM SPONSORSHIP E XPENSES. 5) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE CIT(A) HAVING ACCEPTED THAT THE EXPENDITURE WAS INCURRED O R LAID OUT WHOLLY FOR BUSINESS PURPOSES AND ON THAT BASIS HAVING ALLOWED DEDUCTION TO THE EXTENT OF 25% THEREOF; THE CIT(A) COULD NOT ARBITRARILY UP HOLD THE DISALLOWANCE IN RESPECT OF FILM SPONSORSHIP EXPENSES TO THE EXTENT OF 75% AND SUCH DECISION OF THE CIT(A) BEING WHOLLY ARBITRARY AND UNREASONAB LE THE DISALLOWANCE DESERVES TO BE DELETED. 6) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE AO BE DIRECTED TO ALLOW DEDUCTION FOR THE ENTIRE FILM SPO NSORSHIP EXPENSES AMOUNTING TO RS.32,23,337/-. 7) FOR THAT THE APPELLANT CRAVES LEAVE TO SUBMIT AD DITIONAL GROUNDS AND/OR AMEND OR ALTER THE GROUNDS ALREADY TAKEN EITHER AT THE TIME OF HEARING OF THE APPEAL OR BEFORE. 4. GROUND NO 1 TO 3 ARE INTER-RELATED AND THEREFORE BEING TAKEN UP TOGETHER. THE ISSUE RAISED IS THAT LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF ITA NO. 1276 &1309/KOL/2014 A.Y 2004-05 RITIKA PVT. LTD. VS. DCIT, CIR-12 KOL. PAGE 3 ASSESSING OFFICER BY SUSTAINING THE DISALLOWANCE ON ACCOUNT OF FOREIGN TRAVEL EXPENSES FOR 17,40,537/- ONLY. 5. BRIEFLY STATED FACTS ARE THAT ASSESSEE IS A PRIV ATE LIMITED COMPANY ENGAGED IN BUSINESS OF DISTRIBUTION, MARKETING AND SALE OF READYMADE GARMENT FROM SHOWROOMS WHICH ARE LOCATED ON PAN IND IA BASIS. THE ASSESSEE IS PROMOTING ITS BUSINESS UNDER THE BRAND NAME RITU KUMAR. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HAS INCURR ED FOREIGN TRAVEL EXPENSE OF THREE PERSONS NAMELY, MRS. RITU KUMAR, MS. NEELA M ARORA AND SHRI AMABRISH PRAKASH KUMAR FOR 17,40,537/- ONLY. THE ASSESSEE ALONG WITH OTHER PERSONS AS MENTIONED ABOVE HAS TRAVELLED VARI OUS FOREIGN COUNTRIES DURING THE YEAR AND DETAILS OF FOREIGN COUNTRIES WH ERE ASSESSEE HAS TRAVELLED ARE PLACED ON PAGE 5 AND 6 OF THE ASSESSMENT ORDER. 6. THE ASSESSEE HAS ALSO FILED THE VOUCHERS CONTAIN ING THE DETAILS OF PAYMENT FOR FOREIGN TRAVELLING EXPENSES. THE ASSESS EE ALSO SUBMITTED THE CLIPPING OF VARIOUS NEWSPAPERS TO JUSTIFY THE ACHIE VEMENTS MADE BY MRS. RITU KUMAR IN THE FIELD OF FASHION. THE NECESSARY DETAIL IS RECORDED IN PAGES TO 11 OF THE ASSESSMENT ORDER. HOWEVER, THE AO DISREGARDE D THE CONTENTION OF ASSESSEE BY OBSERVING AS UNDER:- I) THE PRINT OUT OF WEBSITE SHOWING THE DETAILS OF EVENTS TOOK PLACE DURING THE YEAR CANNOT BE THE BASIS OF JUSTIFICATIO N FOR THE TRAVELLING EXPENSES. II) THERE IS NO EVIDENCE SUGGESTING THAT MRS. RITU KUMAR AND OTHERS WERE PRESENT IN THE FAIR. THE ASSESSEE HAS NOT PROD UCED ANY DOCUMENT EVIDENCING THAT MRS. RITU KUMAR HAS ATTENDED THE EV ENTS. THE ASSESSEE HAS NOT FURNISHED THE NECESSARY DETAILS OF EVENTS ATTENDED BY HER RATHER IT HAS SUBMITTED NEWSPAPER CLIPPING TO J USTIFY THE FOREIGN TRAVELLING. THE NEWSPAPER CLIPPINGS SHOW THAT MRS. RITU KUMAR IS A RENOWNED FASHION DESIGNER AND HAS ATTENDED MANY CON FERENCES AND SEMINARS ETC. BUT NECESSARY DETAILS IN SUPPORT OF H ER FOREIGN TRAVELLING EXPENSES SUGGESTING THE BUSINESS CONNECTION WITH TH E ASSESSEE HAS NOT BEEN PRODUCED BY THE ASSESSEE. ITA NO. 1276 &1309/KOL/2014 A.Y 2004-05 RITIKA PVT. LTD. VS. DCIT, CIR-12 KOL. PAGE 4 IN VIEW OF ABOVE, THE AO DISALLOWED THE CLAIM OF FO REIGN TRAVELLING EXPENSES FOR 17,40,537/- ONLY AND ADDED TO THE TOTAL INCOME OF A SSESSEE. 7. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A). THE ASSESSEE SUBMITTED BEFORE LD. CIT(A) THAT ASSESSEE- COMPANY ENGAGED IN BUSINESS OF FASHION DESIGNING OF GARMENTS. THESE GA RMENTS ARE PURCHASED BY RICH CLASS LADIES AND THEIR LIKINGS OF DRESS ARE HI GHLY INFLUENCED BY THE TRENDS AND FASHIONS WHICH ARE PREVAILING ALL OVER THE WORL D. THEREFORE, THE ASSESSEE ATTENDED VARIOUS FASHIONS, SHOWS, EXHIBITIONS AND T RADE FAIRS TO UNDERSTAND PREVAILING TREND WORLD-WIDE. THE EMPLOYEES OF ASSES SEE USED TO COLLECT FRESH SAMPLES OF PRODUCTS, FABRICS AND OTHER GARMENTS FRO M THE FAIRS IN ORDER TO UNDERSTAND THE PREVAILING TREND IN THE SOCIETY. THE ASSESSEE AND ITS EXECUTIVES HAVE ATTENDED VARIO US FASHION SHOWS HELD IN PARIS, LONDON, NEW YORK AND THESE ARE THE CITIES KN OWN AS FASHION CAPITAL OF WORLD. THE ALLEGATIONS OF AO THAT THERE IS NO EVIDE NCE TO SUGGEST THAT ASSESSEE HAS ATTENDED THOSE FAIRS ARE BASELESS. IT IS BECAUSE ASSESSEE USED TO ATTEND THESE FAIRS IN ORDER TO KEEP ITS UP-TO-DA TE FASHION INDUSTRIES. THERE IS NO REQUIREMENT UNDER THE PROVISION OF LAW FOR CLAIM ING THE EXPENSES THAT ASSESSEE HAS TO PROVE HER ATTENDANCE IN THOSE FAIRS . THE ASSESSEE FURTHER SUBMITTED SIMILAR EXPENSES WERE INCURRED IN EARLIER YEARS AS WELL AS IN SUBSEQUENT YEAR AND IN NONE OF THE CASE SAME WERE D ISALLOWED IN ANY ASSESSMENT YEAR WHICH WERE FRAMED U/S. 143(3) OF TH E ACT. HOWEVER, LD. CIT(A) AFTER CONSIDERING THE SUBMISSION OF ASSESSEE HAS CONFIRMED THE ORDER OF AO BY OBSERVING AS UNDER:- 5.1.2 THE APPELLANT CLAIMED RS.1740537/- AS FOREIGN EXPENSES FOR TRAVEL OF THREE PERSONS I.E. MRS. RITU KUMAR, MS. NEELAM AROR AND SHRI AMBRISH PRAKASH KUMAR. DURING THE COURSE OF PROCEEDINGS, TH E ASSESSING OFFICER REQUIRED THE APPELLANT TO PRODUCE COPY OF BOARD RES OLUTION OR ANY SUCH DOCUMENTS SHOWING THE APPROVAL OF SUCH TOURS TO SHO W THAT THE FOREIGN TOUR HAS BEEN EXPENDED FOR PURPOSE OF BUSINESS. THE ASSE SSING OFFICER FURTHER WANTED THE APPELLANT TO FURNISH WANTED COPIES OF LE TTER WRITTEN TO FOREIGN EMBASSY SHOWING PURPOSE OF EACH VISITS. HE ALSO ASK ED THE APPELLANT FOR FURNISHING THE NAMES, ADDRESS AND DESIGNATION OF PE RSONS UNDERTAKING THE TRAVEL. FOR WANT OF DETAILS THE SAME WAS ADDED BACK . BEFORE CIT(A) ASSESSEE SUBMITTED THE NAMES OF PERSON UNDERTAKING THE FOREI GN TRAVEL, STATEMENT OF FOREIGN TRAVEL EXPENSES WITH SUPPORTING BILLS AND V OUCHER AND EVIDENCE FOR INCURRING THESE EXPENSES. REMAND REPORT WAS SOUGHT FROM AO CIT(A) ALLOWED ITA NO. 1276 &1309/KOL/2014 A.Y 2004-05 RITIKA PVT. LTD. VS. DCIT, CIR-12 KOL. PAGE 5 EXPENSES OF MRS RITU KUMAR BUT UPHELD THE DISALLOWA NCE IN OTHER TWO PERSONS. BEFORE ITAT ASSESSEE STATED THAT PAGE 165 TO 244 OF PAPER BOOK CONTAIN THE DESCRIPTION OF FOREIGN TOUR EXPENSES. I T STATED THAT PAGE 165 TO 168 CONTAIN STATEMENT OF FOREIGN TOUR EXPENSE WITH THE DETAILS SUCH AS COUNTRY VISITED, PERIOD OF VISIT, AMOUNT PAID FOR TICKET AN D OTHER DETAILS REGARDING THE PURPOSE OF VISIT. THE ASSESSING OFFICER NOTED THAT IN APPEAL BEFORE THE ITAT, THE LD. DR HAD SUBMITTED THAT THE CLAIM OF THE APPE LLANT WAS NOT SUPPORTED WITH ANY DOCUMENTARY PROOF BROUGHT ON RECORD REGARD ING THE FOREIGN TRAVELS OF THE PERSONS AND AFTER CONSIDERING SUCH SUBMISSIONS, THE HON'BLE TRIBUNAL OBSERVED THAT WE FIND MERIT IN THE ARGUMENTS OF THE LD. DR MR. D. R. SINDHAL INASMUCH AS NECESSARY EVIDENCE IN SUPPORT O F THE CLAIM MADE IS NOT AVAILABLE ON RECORD. . THE TRIBUNAL DIRECTED THAT THE AO SHALL ALLOW THE ASSESSEE TO PLACE ON RECORD RELEVANT EVID ENCES WHICH THE ASSESSEE MAY CARE TO LEAD IN SUPPORT OF THE CLAIM W HICH HAVE NOT BEEN PLACED ON RECORD AS ON DATE. ANNY CORRESPONDENCE WI TH THE DESIGNERS OR BROCHURE OF FASHION SHOWS VISITED BY THE ASSESSE E FOR THE YEAR UNDER CONSIDERATION IN REGARD TO CLAIM PUT FORTH ETC MAY BE PLACED BEFORE THE AO NAMELY THAT A SPECIFIC CONFERENCE TOOK PLACE IN A COUNTRY AT A POINT OF TIME. IN VIEW OF THEE DIRECTIONS OF THE HON'BLE TRIBUNAL, THE ASSESSING OFFICER REQUIRED THE APPELLANT TO SUBMIT COPY OF RELEVANT P AGES OF SUBMISSION DISCUSSED IN THE TRIBUNALS ORDER AS ALSO DETAILS A S PER DIRECTION OF ITAT TO JUSTIFY THE CLAIM OF EXPENSES. THE APPELLANT FILED BEFORE THE ASSESSING OFFICER THE COPIES OF DETAILS OF FOREIGN TOURS OF THE DIREC TOR AND EMPLOYEES FOR PARTICIPATING IN VARIOUS EVENTS IN DUBAI, FRANCE, U SA AND OTHER FOREIGN COUNTRIES, AS WERE PRODUCED BEFORE THE ITAT AND ALS O WEBSITE PRINT OUT OF THE VARIOUS PROGRAMMES. THE ASSESSING OFFICER AFTER ANA LYZING THE DETAILS AS FURNISHED BY THE APPELLANT HAS DRAWN A CHART ALONG WITH HIS COMMENTS, WHICH FORMED PART OF THE ASSESSMENT ORDER AND WHICH IS MA DE AS ANNEXURE A (COPY ENCLOSED) TO THIS ORDER. THE ASSESSING OFFICER OBSERVED THAT PRINTOUT OF WEB SITE SHOWING DATE OF EVENTS IN THE YEAR 2010 AND 2012 CANNOT BE AN EVIDE NCE THAT THE EVENT HAD TAKEN PLACE IN THE YEAR 2003. WITHOUT PREJUDICE EVE N IF THE EVENT HAS SUPPOSED TO HAVE TAKEN PLACE IT CANNOT BE ESTABLISH ED THAT SMT RITU KUMAR AND OTHERS WERE PRESENT AT THE FAIR. ACCORDING TO T HE ASSESSING OFFICER, THERE WAS NO DOCUMENT EVIDENCING THEIR ATTENDANCE AT THE SAID EVENTS; FROM THE NEWSPAPER CLIPPINGS IT IS SEEN THAT IN MAJORITY OF CASES THE EVENTS WERE NOT RELATED TO PLACES VISITED; AND IN MANY INSTANCES TH E YEAR OF VISIT WERE IRRELEVANT. THE ASSESSING OFFICER FURTHER NOTED THA T THE NEWSPAPER CLIPPING SHOWED THAT MRS RITU KUMAR IS A POPULAR AND RENOWNE D FASHION DESIGNER, THAT SHE ATTENDS MANY CONFERENCES, SEMINARS, ETC., BUT T HE SPECIFIC CLAIM MADE IN THE PROFIT & LOSS ACCOUNT HAS NOT BEEN SUPPORTED BY ANY SPECIFIC EVIDENCE IN THIS BACKGROUND, THE ASSESSING OFFICER HELD THAT TH E TRAVELLING EXPENSES OF RS.1740537/- COULD NOT BE HELD TO BE FOR BUSINESS P URPOSE AND THE SAME HAS BEEN DISALLOWED ACCORDINGLY. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSE E CAME IN SECOND APPEAL BEFORE US. ITA NO. 1276 &1309/KOL/2014 A.Y 2004-05 RITIKA PVT. LTD. VS. DCIT, CIR-12 KOL. PAGE 6 8. BEFORE US LD. AR FOR THE ASSESSEE REITERATED THE SAME ARGUMENTS THAT WERE MADE BEFORE LD. CIT(A) WHEREAS LD. AR ALSO ENC LOSED THE DETAILS OF EXPENSES CLAIMED BY ASSESSEE IN RESPECT OF FOREIGN TRAVELLING EXPENSES IN EARLIER YEARS AS WELL AS IN SUBSEQUENT YEAR ALSO. H E ALSO COMPARED ITS TRAVELLING EXPENSES WITH THE TOTAL TURNOVER OF ASSE SSEE. THE NECESSARY DETAILS ENCLOSED AS PER ANNEXURE-1 . ON THE OTHER HAND, LD. DR VEHEMENTLY RELIED ON THE ORDER OF AUTHORITIES BELOW. 9. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AT THE OUTSET, WE FIN D THAT SIMILAR FOREIGN TRAVELLING EXPENSES WERE ALLOWED BY THIS CO-ORDINAT E BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.1022/KOL/2012 VIDE ORDER DATED 03.07.2015. THE RELEVANT OPERATIVE PORTION OF THIS ORDER IS REP RODUCED BELOW:- 5.WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT AO HIMSELF FROM AYS 2002-03 TO 2011-12 EXCEPT IN AY 2004-05 AND 2005-06 THE FOREIG N TRAVELS HAVE BEEN ALLOWED. EVEN THE ASSESSEE IS ENGAGED IN MANUFACTUR ING AND EXPORT OF READY- MADE GARMENTS AND OUTFIT AND ASSESSEE HAS DISCLOSED THE TURNOVER OF ITS EXPORTS, IT IS IMPERATIVE ON THE PART OF ASSESSEE T O SEND ITS DIRECTORS OR MERCHANDISERS TO EARN EXPORT ORDERS FROM THE OUTSID E INDIA AND FOR THAT PURPOSE, ASSESSEE HAS TO INCUR THESE EXPENSES. ACCO RDINGLY, WE ARE OF THE VIEW THAT THESE EXPENSES ARE GENUINE BUSINESS EXPEN SES AND NO PART OF IT CAN BE DISALLOWED AND ACCORDINGLY THIS ISSUE OF ASS ESSEES APPEAL IS ALLOWED. CONSISTENT WITH THE VIEW TAKEN BY THE CO-ORDINATE B ENCH, WE ALLOW THIS CLAIM OF THE ASSESSEE. IT WAS ALSO OBSERVED THAT SIMILAR EXPENSES WERE CLAIMED IN THE EARLIER YEARS AND SUBSEQUENT YEAR BUT NO DISALL OWANCE WAS WARRANTED EXCEPT IN ONE CASE WHEREIN THE HONBLE TRIBUNAL DEL ETED THE ADDITION AS DISCUSSED ABOVE AS EVIDENT FROM THE ANNEXURE-1 IS ENCLOSED WITH THE ORDER. HENCE, THIS GROUND OF ASSESSEE IS ALLOWED. 10. NEXT GROUND NO.4 TO 6 ARE INTER-RELATED AND THE REFORE BEING TAKEN UP TOGETHER. THE ISSUE IS THAT LD. CIT(A) ERRED IN RES TRICTING THE ALLOWANCE OF FILM SPONSORSHIP EXPENSES TO THE EXTENT 25% OF TOTAL EXP ENSE. 11. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HA S SPONSORED THE PRODUCTION OF TWO FILMS NAMELY ROAD TO LADAKH AND LITTLE TERRORIST . ITA NO. 1276 &1309/KOL/2014 A.Y 2004-05 RITIKA PVT. LTD. VS. DCIT, CIR-12 KOL. PAGE 7 ACCORDINGLY, ASSESSEE INCURRED AN EXPENSE OF 32,33,337/- ON THE SPONSORSHIP OF THE MOVIES. THE PURPOSE BEHIND THE M OVIES WAS TO PROMOTE THE BRAND OF THE ASSESSEE RITU KUMAR. FURTHER, TH E NAME OF THE ASSESSEE WAS ALSO EXHIBITED IN THE MOVIE AS COSMETIC AND FAS HION DESIGNER. AS PER THE ASSESSEE, THE COST WAS INCURRED TO PROMOTE ITS PROD UCTS ALL OVER THE WORLD. HOWEVER, THE AO OBSERVED THAT THERE WAS THE PROMOTI ON OF MRS. RITU KUMAR AS DESIGNER IN THE FILM. THERE WAS NO BENEFIT DERIV ED BY THE ASSESSEE AS NO BRAND OF IT WAS PROMOTED. THE AO ALSO OBSERVED THER E WAS NO INCREASE/ PROMOTION IN THE SALES OF THE COMPANY WHICH IS ARIS ING OUT OF THE SPONSORSHIP OF THESE MOVIES. THEREFORE, THE AO HELD THAT THE EX PENSES IS INCURRED ON SPONSORSHIP OF MOVIES ARE NOT CONNECTED WITH THE BU SINESS OF ASSESSEE AND ACCORDINGLY THE AMOUNT WAS DISALLOWED BY ADDING IT TO THE TOTAL INCOME OF ASSESSEE. 12. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A). THE ASSESSEE BEFORE LD. CIT(A) SUBMITTED THAT THE EXPEN SE WERE INCURRED SOLELY FOR THE PROMOTION OF THE COMPANYS PRODUCTS. THE AS SESSEE ALSO SUBMITTED THAT SIMILAR EXPENSES WERE ALSO CLAIMED IN THE EARL IER YEARS AND NO DISALLOWANCE WAS MADE. HOWEVER, LD. CIT(A) AFTER C ONSIDERING THE SUBMISSION MADE BY THE ASSESSEE GRANTED RELIEF IN P ART OF BY OBSERVING AS UNDER:- 5.2.3 DECISION: I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE FINDING OF THE ASSESSING OFFICER AND THE SUBMISSIONS PUT FORTH ON BEHALF OF THE APPELLANT. I AM INCLINED TO ACCEPT THE CLAIM OF THE APPELLANT THAT THE CLAIM OF EXPENDITURE ON SPONSORSHIP WAS SEPARATE FR OM SHOOTING EXPENSES DEBITED IN THE PROFIT AND LOSS ACCOUNT. TH E FACTS AND MATERIAL BROUGHT ON RECORD CLEARLY SHOW THAT THE APPELLANT H AS INCURRED EXPENSES ON SPONSORSHIP OF THE TWO FILMS AS CLAIMED . HOWEVER, EVEN DURING THE COURSE OF RE-EXAMINATION OF THE CLAIM OF THE APPELLANT, THE APPELLANT COULD NOT ADDUCE ANY ADDITIONAL EVIDENCE, OTHER THAN THOSE PRODUCED BEFORE THE HON'BLE TRIBUNAL IN SUPPORT OF THE CLAIM THAT EXPENDITURE TO THE EXTENT OF RS.32,33,337/- HAS BEE N WHOLLY AND EXCLUSIVELY LAID OUT FOR BUSINESS PURPOSES. THEREFO RE, HAVING REGARD TO THE FACTS AND CIRCUMSTANCES, I CONSIDER IT REASONAB LE TO FOLLOW THE ORDER OF MY PREDECESSOR-IN-OFFICE, WHEREIN HE HAS ALLOWED 25% OF THE EXPENSES AS REASONABLE ON ACCOUNT OF SPONSORSHIP EX PENSES. THE ITA NO. 1276 &1309/KOL/2014 A.Y 2004-05 RITIKA PVT. LTD. VS. DCIT, CIR-12 KOL. PAGE 8 ASSESSING OFFICER IS DIRECTED TO RESTRICT THE DISAL LOWANCE TO RS.24,25,000/-. THE APPELLANT GETS A RELIEF OF RS.8 ,08,337/- ON THIS ACCOUNT. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSE E CAME IN SECOND APPEAL BEFORE US. 13. BEFORE US LD. AR FOR THE ASSESSEE REITERATED TH E SAME ARGUMENTS THAT WERE MADE BEFORE LD. CIT(A). HE FURTHER SUBMITTED T HAT THE DETAILS OF EXPENSES CLAIMED BY ASSESSEE OVER A PERIOD OF CERTA IN YEAR WHICH ARE ENCLOSED AS PER ANNEXURE-2 ON THE OTHER HAND, LD. DR VEHEMENTLY RELIED ON THE ORDER OF AUTHORITIES BELOW. 14. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE T HE EXPENSE INCURRED BY ASSESSEE ON THE SPONSORSHIP OF TWO MOVIES WERE DISA LLOWED BY AO ON THE GROUND THAT IT HAS NO NEXUS WITH THE COMMERCIAL ACT IVITY OF ASSESSEE. HOWEVER, LD. CIT(A) CONFIRMED THE DISALLOWANCE TO T HE EXTENT OF 75% OF THE TOTAL EXPENSE. HOWEVER IN THIS REGARD, WE FIND THAT ASSESSEE HAS C LAIMED SIMILAR KIND OF EXPENSE IN THE EARLIER & SUBSEQUENT YEARS ON THE MO VIES WHICH HAD BEEN ALLOWED BY REVENUE IN ASSESSMENTS FRAMED U/S 143(3) OF THE ACT. THE NECESSARY DETAILS ARE ENCLOSED IN ANNEXURE- 2 OF TH IS ORDER. FURTHER, WE ALSO FIND THAT THERE IS NO DIFFERENCE IN THE FACTS AND C IRCUMSTANCES OF THE ASSESSEE. THUS, IN OUR CONSIDERED VIEW THE PRINCIPLE OF CONSI STENCY CAN BE APPLIED AS ENUNCIATED BY THE HONBLE APEX COURT IN THE CASE OF IN THE CASE OF RADHASOAMI SATSANG VS. COMMISSIONER OF INCOME TAX (1992) 193 ITR 0321 (SC) WHEREIN IT WAS OBSERVED IN THE ABSENCE OF ANY MATERIAL CHANGE IN THE FACTS, THE REVENUE SHOULD NOT TAKE A DIFFERENT VIE W IN THE OTHER YEAR. THEREFORE, FOLLOWING THE RULE OF PRINCIPLE OF CONSI STENCY WE DELETE THE ADDITION MADE BY THE AUTHORITIES BELOW. RESPECTFULLY FOLLOWI NG THE PRECEDENT OF THE JUDGMENT OF HON'BLE SUPREME COURT WE REVERSE THE OR DER OF AUTHORITIES BELOW ITA NO. 1276 &1309/KOL/2014 A.Y 2004-05 RITIKA PVT. LTD. VS. DCIT, CIR-12 KOL. PAGE 9 AND DIRECT THE AO TO DELETE THE ADDITION. HENCE, TH IS GROUND OF ASSESSEE IS ALLOWED. 15. LAST GROUND IN THIS APPEAL OF ASSESSEE IS GENER AL IN NATURE AND DOES NOT REQUIRE ANY SEPARATE ADJUDICATION. 16. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. COMING TO REVENUES APPEAL IN ITA NO.1309/KOL/2014 . 17. FIRST ISSUE RAISED BY REVENUE IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE MADE BY AO TO THE EXTE NT OF 75% ON THE EXPENSE OF FILM SPONSORSHIP FOR 32,23,337/-. 18. AT THE OUTSET, IT WAS OBSERVED THAT WE HAVE ALR EADY ADJUDICATED THIS INTER-RELATED ISSUE IN ASSESSEES APPEAL IN ITA NO.1276/KOL/2014 VIDE PARA 11 TO 14 OF THIS ORDER WHEREIN WE HAVE ALLOWED THE ENTIRE EXPENSE CLAIMED BY ASSESSEE. RESPECTFULLY FOLLOWING THE SAME WE CONFIR M THE ORDER OF LD. CIT(A). HENCE, THIS GROUND OF REVENUE IS DISMISSED. 19. NEXT ISSUE RAISED BY REVENUE IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE MADE BY THE AO ON THE EXPENSE OF 1,61,94,830/- UNDER THE HEAD REPAIR AND MAINTENANCE . 20. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HA S CLAIMED EXPENSE OF 1,61,94,830/- UNDER THE HEAD REPAIR & MAINTENANC E BY DEBITING IN PROFIT AND LOSS ACCOUNT. THIS EXPENSE WAS INCURRED FOR CIV IL WORK, FALSE CEILING WORK, CUPBOARD WORK, ELECTRICAL WORK, FLOOR WORK ETC. ALL THESE EXPENSES WERE INCURRED ON THE PREMISES TAKEN ON LEASE BY THE ASSE SSEE. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS REQUESTED THE ASSE SSEE TO FURNISH THE DETAILS OF EXPENSES INCURRED IN RELATION TO REPAIR AND MAINTENANCE BUT ASSESSEE FAILED TO FURNISH ANY DETAILS. THEREFORE A O DISALLOWED THE SAME AND ADDED TO THE TOTAL INCOME OF ASSESSEE. 21. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A). BEFORE LD. CIT(A) ASSESSEE SUBMITTED THAT ALL THE EXPENSES WER E INCURRED ON LEASEHOLD ITA NO. 1276 &1309/KOL/2014 A.Y 2004-05 RITIKA PVT. LTD. VS. DCIT, CIR-12 KOL. PAGE 10 PREMISES AND NO FIXED ASSET WAS GENERATED OUT OF TH ESE EXPENSES. THEREFORE THIS CANNOT BE HELD AS CAPITAL IN NATURE. THE ASSES SEE ALSO CLAIMED TO HAVE FURNISHED COMPLETE BREAK-UP AND DETAILS OF REPAIR A ND MAINTENANCE EXPENSE TO THE AO AT THE TIME OF ASSESSMENT PROCEEDINGS. TH E AO TREATED ALL THE EXPENSES AS CAPITAL IN NATURE AND ACCORDINGLY MADE THE DISALLOWANCE. AO ALSO ERRED IN NOT ALLOWING THE DEPRECIATION IF THES E EXPENSES ARE TREATED AS CAPITAL IN NATURE. THE ASSESSEE ALSO SUBMITTED THAT VARIOUS SHOW-ROOMS WERE TAKEN ON LEASE FOR A PERIOD OF THREE YEARS WHICH AR E RENOVATED. THERE WAS RENEWABLE CLAUSE FOR THE EXTENSION OF LEASE AT THE END OF TERM BUT SUBJECT TO MUTUAL AGREEMENT BETWEEN THE ASSESSEE AND THE LESSO R. LD. CIT(A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE DELETED THE ADDITION MADE BY AO BY OBSERVING AS UNDER:- 5.4.4. DECISION: I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE SUBMISSIONS OF THE APPELLANT AND THE MATERIAL PLACED ON RECORD. IN THE ORIGINAL PROCEEDINGS U/S 143(3) THESE EXPENSES WERE DISALLOWED BY THE ASSESS ING OFFICER WHICH WAS DELETED BY THE CIT(APPEALS). ON APPEAL THE ITAT SET ASIDE THE ISSUE BACK TO THE FILE OF ASSESSING OFFICER TO DECIDE THE NATURE OF REPAIRS & MAINTENANCE IN LIGHT OF THE AMENDMENT IN SECTION 30 & 31 OF THE IN COME-TAX ACT, 1961. THE ASSESSING OFFICER, AFTER CONSIDERING THE EXPLANATI ON OFFERED BY THE APPELLANT OBSERVED THAT ' THE NATURE OF EXPENSES WERE CIVIL WORK, FALSE CEILI NG WORK, CARPENTARY WORK, ELECTRICAL WORK, FLOORING WORK, SA NITARY AND PLUMBING WORK, GRILLS, COLLAPSIBLE GATES, STAIRCASES, SHUTTERS, RA ILINGS, AC DUCTS, ETC. THESE ARE IN NATURE OF FIXED ASSETS WHICH PROVIDES ENDURING B ENEFIT TO THE ASSESSEE, THERE WAS NEED TO DETERMINE THE PERIOD OF BENEFIT F ROM THESE ASSETS. ASSESSEE WAS ASKED TO SHOW THE FREQUENCY OF THESE E XPENSES BY GIVING THE PREVIOUS DATE OF PURCHASE AND THE LATER DATE OF PUR CHASE OF THE SAME ITEM. NO DETAILS WERE FURNISHED. ' IT WAS IN THIS BACK-GROUND, THAT THE REPAIRS AND MAINTENANCE EXPENSES OF AN AMOUNT RS.1,61,94,830/- WAS TREATED AS CAPITAL EXPENSE. ON THE OTHER HAND, THE APPELLANT HAS EXPLA INED THE BACK-GROUND OF THE CLAIM AS REVENUE EXPENDITURE IN THE FOLLOWING T ERMS: 'AT THE OUTSET THE APPELLANT WOULD LIKE TO PLACE TH E FACTS ON RECORD WHICH ORE PERTINENT TO THE ISSUE INVOLVED IN THESE GROUNDS. AS STATED ABOVE THE APPELLANT IS ENGAGED IN THE BUSINESS OF M ARKETING & .SELLING READY-MADE GARMENTS FROM RETAIL OUTLETS & SHOWROOMS WHICH ARE LOCATED ACROSS INDIA. THE SHOWROOMS BEING OPERATED BY THE APPELLANT ARE TAKEN ON OPERATING LEASE. THE LEASE IS GENERALL Y FOR A PERIOD OF THREE YEARS WHICH IS RENEWABLE AT THE END OF THE TE RM AT THE OPTION OF THE LESSEE AS WELL AS THE LESSOR. THESE PREMISES AR E NOT THUS OWNED BY THE APPELLANT AND REPAIRS ORE CARRIED OUT KEEPIN G IN VIEW OF THE FACTS THAT THE PREMISES WOULD REMAIN WITH THE ASSESSEE FO R SHORT DURATIONS. IN TODAY'S COMMERCIAL WORLD, THE RETAIL SPACES ARE LET OUT IN BARE CONDITIONS AND DO NOT HAVE ANY INFRASTRUCTURE OR FI XTURES IN ORDER TO ITA NO. 1276 &1309/KOL/2014 A.Y 2004-05 RITIKA PVT. LTD. VS. DCIT, CIR-12 KOL. PAGE 11 ENABLE THE LESSEE TO CARRY ON RETAILING BUSINESS EF FICIENTLY & EFFECTIVELY. THE LESSEE WHO TAKES SUCH PREMISES ON RENT IS REQUI RED TO INCUR EXPENSES FOR MAKE THE PREMISES FIT FOR RETAILING EF FICIENTLY & PROFITABLY. THE APPELLANT COMPANY OPERATES AN INTERNATIONAL BRA ND, ' RITU KUMAR '. IT IS THEREFORE IMPERATIVE THAT THE INFRASTRUCTURE, FIXTURES, DECOR AND THE AMBIENCE AT THE RETAIL OUTLETS REMAINS CONSISTENT T HROUGHOUT INDIA. THE APPELLANT THEREFORE INCURS THE EXPENSES ON CARRYING OUT REPAIR SO AS TO ENABLE IT TO RUN ITS RETAIL OPERATIONS EFFECTIVELY, EFFICIENTLY AND PROFITABLY. BY INCURRING SUCH EXPENSES THE LESSEE I.E. THE APPE LLANT DOES NOT ACQUIRE ANY CAPITAL ASSET NOR DERIVES ANY BENEFIT O F ENDURING NATURE. THE AO HOWEVER WITHOUT APPRECIATING THESE BASIC JUR ISDICTIONAL FACTS DISALLOWED THE ENTIRE EXPENSES INCURRED ON REPAIRS & MAINTENANCE.' FROM A PERUSAL OF THE MATERIAL FACTS BROUGHT ON REC ORD AND AS STATED ON BEHALF OF THE APPELLANT. IT IS APPARENT THAT THE ASSESSING OFFICER HAS NOT APPRECIATED THE FACTS OF THE CASE IN ENTIRETY KEEPING IN VIEW T HE DIRECTIONS OF THE HON'BLE TRIBUNAL ' TO PLACE ON RECORD THE DETAILS OF THE EXPENSES SO A S TO JUSTIFY ITS CLAIM THAT THE EXPENDITURE IS REVENUE IN NATURE AND NOT CAPITAL '. IN FACT, THE HON'BLE ITAT HAS RESTORED THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER TO DETERMINE THE NATURE OF EXPENDITURE INCU RRED BY THE APPELLANT, PARTICULARLY IN VIEW OF THE EXPLANATION INSERTED UN DER SECTIONS 30 AND 31 BY THE FINANCE ACT, 2003, W.E.F. 1-4-2004. THE EXPLANA TION INSERTED BELOW SECTION 30 READS AS UNDER: 'EXPLANATION- FOR THE REMOVAL OF DOUBTS, IT IS HERE BY DECLARED THAT THE AMOUNT PAID ON ACCOUNT OF THE COST OF REPAIRS REFER RED TO IN SUB-CLAUSE (I), AND THE AMOUNT PAID ON ACCOUNT OF CURRENT REPA IRS REFERRED TO IN SUB-CLAUSE (II), OF CLAUSE (A), SHALL NOT INCLUDE A NY EXPENDITURE IN THE NATURE OF CAPITAL EXPENDITURE.' J. SIMILAR IS THE EXPLANATION INSERTED BELOW SECTION 3 1 OF THE ACT, WHICH READS AS UNDER: 'EXPLANATION-FOR THE REMOVAL OF DOUBTS, IT IS HEREB Y DECLARED THAT THE AMOUNT PAID ON ACCOUNT OF CURRENT REPAIRS SHALL NOT INCLUDE ANY EXPENDITURE IN THE NATURE OF CAPITAL EXPENDITURE.' NOW, THE APPELLANT HAS PLACED ON RECORD THE DETAILS OF EXPENDITURE INCURRED CLAIMED UNDER THE HEAD 'CURRENT REPAIRS', THE ASSES SING OFFICER FOUND SUCH EXPENDITURE TO BE FOR 'THE NATURE OF EXPENSES WERE CIVIL WORK, FALSE CEILING WORK, CARPENTRY WORK, ELECTRICAL WORK, FLOORING WOR K, SANITARY AND PLUMBING WORK, GRILLS, COLLAPSIBLE GATES, STAIRCASES, SHUTT ERS, RAILINGS, AC DUCTS, ETC. THESE ARE IN NATURE OF FIXED ASSETS WHICH PROVIDES ENDURING BENEFIT TO THE ASSESSEE,' WHEREAS, THE CLAIM OF THE APPELLANT IS T HAT OUT OF RS.1,61,94,830/-, ONLY AN AMOUNT OF RS. RS.4,00,273/- WAS OF CAPITAL IN NATURE. NOW, THE ISSUE INVOLVED IS WHETHER THE EXPENDITURE INCURRED BY THE APPELLANT COMPANY ON THE FACTS AND IN THE CIRCUMSTANCES OF. THE CASE WAS IN THE CAPITAL EXPENDITURE OR REVENUE EXPENDITURE. AS POINTED OUT BY THE APPELLAN T, IN ITS OWN CASE FOR A.YR. 2002-03, WHEREIN EXACTLY THE SAME ISSUE WAS INVOLVE D, WHERE THE AO HAD DISALLOWED REPAIRS & MAINTENANCE EXPENSES AMOUNTING TO RS. 82,23,049/-, THE ITAT KOLKATA IN ITA NO.1173/KOI/2006 DATED 25.0 5.2007 EXPRESSED THE SAME VIEW AS EXPRESSED BY THE APEX COURT THAT ONLY THOSE ITA NO. 1276 &1309/KOL/2014 A.Y 2004-05 RITIKA PVT. LTD. VS. DCIT, CIR-12 KOL. PAGE 12 REPLACEMENT/REPAIRS EXPENSES WHICH RESULTED IN ANY PLANT/MACHINERY, CAPABLE OF BEING OPERATED INDEPENDENTLY SHOULD BE TREATED A S CAPITAL EXPENDITURE. THE TRIBUNAL HAD CONSIDERED THE COMPLETE BREAK-UP OF RE PAIRS & MAINTENANCE WHICH WAS FILED BY THE ASSESSEE. IT POINTED OUT THR EE INSTANCES WHEREIN IT WAS OF THE VIEW THAT EXPENDITURE WAS ON ACCOUNT OF PURC HASE OF INDEPENDENT & NEW MACHINERIES AND THEREFORE THE SAME WAS TREATED TO BE CAPITAL IN NATURE. THE BALANCE WAS ALLOWED AS REVENUE EXPENDITURE ON B EING SATISFIED THAT IT RESULTED IN MAKING LEASED PREMISES FIT, TO BE USED EFFICIENTLY. IN RETAIL SHOPS/OUTLETS OF THE APPELLANT. IT IS ALSO NOTED FR OM THE INFORMATION PLACED ON RECORD THAT THE ORDER OF THE ITAT, KOLKATA WAS CHAL LENGED BY THE DEPARTMENT BEFORE THE CALCUTTA HIGH COURT. THE HIGH COURT IN I TS ORDER IN ITA NO. 268 OF 2008 DATED 29.07.2008 DISMISSED THE APPEAL OF THE R EVENUE. THE HIGH COURT CONCURRED THAT THE REPAIRS & MAINTENANCE COSTS INCU RRED BY THE ASSESSEE ON RENTED PREMISES WAS REVENUE IN NATURE AND ACCORDING LY THE ORDER OF THE ITAT WAS UPHELD. THE SAME VIEW WAS AGAIN TAKEN BY THE IT AT IN ASSESSEE'S OWN CASE FOR AY 2003-04 IN ITA NO. 1174/KOL/2008. THIS DECISION WAS ALSO CHALLENGED BY THE REVENUE U/S 260A. BY ITS JUDGMENT DATED 29.07.2009 IN ITA NO. 41 OF 2009 THE HIGH COURT DISMISSED THE REVENUE S APPEAL OBSERVING AS FOLLOWS:- 'UNDISPUTEDLY THE ASSESSEE MADE CERTAIN RENOVATIONS AND REPAIRS IN ITS EXISTING SHOW ROOM IN RENTED ACCOMMODATION. THE ASS ESSING OFFICER THOUGHT, SUCH EXPENSES, INCURRED BY THE ASSESSEE, W ERE CAPITAL EXPENDITURE. THE TRIBUNAL BELOW, IN OUR VIEW, VERY RIGHTLY HELD THAT EXPENDITURE ON RENOVATION & SUBSTANTIAL REPAIRS ARE REVENUE EXPENDITURE WHICH INCURRED IN LEASE PREMISES.' FROM THE OBSERVATIONS OF THE HON'BLE JURISDICTIONAL HIGH COURT, IT CANNOT BE SAID THAT THE FACTS OF THE CASE FOR THE PRESENT ASS ESSMENT YEAR ARE DISTINGUISHABLE FROM THOSE OF A.YR. 2002-03 AND THA T THE PRINCIPLE OF LAW LAID DOWN BY THE HIGH COURT IS NOT APPLICABLE ON THE FAC TS AND IN THE CIRCUMSTANCES OF THE CASE. IN THIS REGARD, REFERENCE MAY ALSO BE MADE TO THE P ROPOSITIONS OF LAW LAID DOWN IN THE FOLLOWING CASES: (I) ASSESSEE INCURRED EXPENSES TOWARDS REPAIRING OF RENTED PREMISES FOR CARRYING ON ITS BUSINESS ACTIVITY WITHOUT ANY INTEN TION TO BRING NEW CAPITAL ASSET INTO EXISTENCE AND SUCH EXPENSES FALL WITHIN THE PURVIEW OF THE EXPRESSION 'REPAIRS TO PREMISES' UNDER SECTION 30(A )(I) AND HENCE ADMISSIBLE. [CIT V. HI LINE PENS PVT. LTD. (2008) 306 ITR 182, 189(DEL)]' (II) THE EXPRESSION ' CURRENT REPAIRS ' IN SECTION 31 MEANS EXPENDITURE ON BUILDING, MACHINERY, PLANT WHICH IS NOT FOR RENEWAL OR RESTORATION. IT IS ONLY FOR PRESERVING OR MAINTAINING AN ALREADY EXISTING ASSET WHICH DOES NOT BRING A NEW ASSET INTO EXISTENCE OR DOES NOT GIVE TO THE AS SESSEE A NEW OR DIFFERENT ADVANTAGE AND THEY MUST BE SUCH REPAIRS AS ARE ATTE NDED TO AS AND WHEN THE NEED FOR THEM ARISES AND THE QUESTION AS TO WHEN A BUILDING, MACHINERY, PLANT OR FURNITURE REQUIRES REPAIRS AND WHEN THE NEED ARI SES MUST BE DECIDED NOT BY ANY ACADEMIC OR THEORETICAL TEST BUT MUST BE DECIDE D BY THE TEST OF COMMERCIAL EXPEDIENCY. BUT IF THE AMOUNT SPENT WAS FOR THE PURPOSE OF BRINGING INTO EXISTENCE A NEW ASSET OR OBTAINING A NEW ADVANTAGE, THEN SUCH AN EXPENDITURE WOULD NOT BE AN EXPENDITURE OF A REV ENUE NATURE BUT IT WOULD ITA NO. 1276 &1309/KOL/2014 A.Y 2004-05 RITIKA PVT. LTD. VS. DCIT, CIR-12 KOL. PAGE 13 BE A CAPITAL EXPENDITURE. [CIT V. VOLGA RESTAURENT, (2002) 253 ITR 405, 408 (DEL)]. (III) IN CIT V. OOTY DASAPRAKASH [(1999) 237 ITR 90 2, 904 (MAD.)], THE EXPENDITURE INCURRED SOLELY FOR REPAIRS AND MODERNI ZING THE HOTEL AND REPLACING THE EXISTING COMPONENTS OF THE BUILDING, FURNITURE AND FITTINGS, WITH A VIEW TO CREATE A CONDUCIVE AND BEAUTIFUL ATMOSPHERE FOR THE PURPOSE OF RUNNING THE BUSINESS OF A HOTEL, HAS BEEN HELD NOT TO BE OF AN ENDURING NATURE AND WAS HELD ALLOWABLE AS REVENUE EXPENDITURE UNDER SECTION 37(1) OR AS CURRENT REPAIRS UNDER SECTION 31. IN CIT V. VOLGA RESTAURANT (2002) 253 ITR 405 (DEL) ], WHERE A RESTAURANT IS RENOVATED INVOLVING LARGE OUTLAY IN REPLACEMENT OF AIR-CONDITIONING PLANT AND PARTS OF ELECTRIC MOTORS, ETC., TO RENOVATE THE SAM E AFTER A FIRE, THE ENTIRE AMOUNT WAS HELD TO BE ALLOWABLE. IN THE CASE OF CIT V. HOTEL CONTROL (P.) LTD. (2004 ) 265 ITR 109 (UTTARANCHAL), THE ASSESSEE WHO WAS A RUNNING A HOTEL IN MUSSOORIE CLAIMED DEDUCTION OF. FOLLOWING EXPENDITURE ON REPAIRS NECESSITATED BY CL IMATIC CONDITIONS: (A) CONVERSION OF MANUAL LATRINES TO FLUSH LATRINE ; (B) REPLACEMENT OF CEMENT ROOF BY A TILED ROOF; (C)CONSTRUCTION OF WATER TANK; (D) REPLACE OF CEMENT CONCRETE FLOOR BY KOTA STONE S; (E)FIXING OF TILES IN THE KITCHEN (F) REPAIRS OF FURNITURE; (IV) IT WAS HELD THAT THE EXPENDITURE WAS NECESSARY IN ORDER TO MAINTAIN AND UPKEEP THE HOTEL AND THEREFORE WAS IN THE NATURE OF CURRENT EXPENDITURE. IN CIT V. LAXMI TALKIES (2005) 275 ITR 125 (GUM, WHERE THE ASSESSEE HAS INCURRED THE EXPENDITURE ON REPAIR AND RENOVATION J UST TO IMPROVE THE ORDINARY ACTIVITY OF THE BUSINESS BY ATTRACTING MORE CUSTOME RS INTO THE THEATRE BUT NOT BY ADDING ANY FIXED ASSET IN THE PREMISES, IT WAS H ELD THAT EXPENDITURE INCURRED IS DEDUCTIBLE. (V) IN THE CASE OF PRAKASH ASPHALTING AND TOLL HIGH WAY LTD. VS. ASSTT. CIT (2010) 16 ITJ 164 (TRIBUNAL-INDORE), WHERE IN RESPE CT OF RENTED PREMISES, THE ASSESSEE INCURRED VARIOUS EXPENSES ON REPAIR OF PRE MISES INCLUDING EXPENSES ON TILES AND FLOORING, IT HAS BEEN HELD TH AT THE EXPENDITURE INCURRED ON MERE COSMETIC CHANGE IN PREMISES IS NOT CAPITAL AND THAT THE EXPENDITURE IN PRESENT CASE IS ALLOWABLE AS ' CURRENT REPAIRS '. HAVING REGARD TO THE FACTS OF THE CASE AND THE EMER GING LEGAL POSITION COVERED BY THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE APPELLANT'S OWN CASE, I AM OF THE VIEW THAT THE ASSESSING OFFICER W AS NOT JUSTIFIED IN TREATING THE ENTIRE AMOUNT OF EXPENSES OF RS.1,61,94,830/- A S CAPITAL IN NATURE. THE ASSESSING OFFICER IS DIRECTED TO TREAT ONLY AN AMOU NT OF RSA,00,273/- AS ADMITTED BY THE APPELLANT AS CAPITAL EXPENDITURE AN D ALLOW THE REST OF THE AMOUNT OF RS.1,57,94,557/- AS OF REVENUE NATURE. T HIS GROUND OF APPEAL IS ACCORDINGLY ALLOWED. THE REVENUE, BEING AGGRIEVED, IS IN APPEAL BEFORE U S. 23. BEFORE US LD. DR VEHEMENTLY RELIED ON THE ORDER OF AO WHEREAS LD. AR RELIED ON THE ORDER OF LD. CIT(A). HE SUBMITTED THE DETAILS OF REPAIR AND ITA NO. 1276 &1309/KOL/2014 A.Y 2004-05 RITIKA PVT. LTD. VS. DCIT, CIR-12 KOL. PAGE 14 MAINTENANCE EXPENSES INCURRED BY IT OVER A PERIOD O F SEVERAL YEARS WHICH ARE ENCLOSED ON ANNEXURE-3. 24. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AT THE OUTSET, IT WAS OBSERVED THAT ASSESSEE HAS BEEN CLAIMING SIMILAR EXPENSES IN ALL THE YEARS AND SAME HAS BEEN ACCEPTED BY REVENUE. THE NECESSARY DETAILS OF THE SIMILAR EX PENSES HAVE BEEN ENCLOSED IN ANNEXURE 3 OF THIS ORDER. WE ALSO FIND THAT SIMILAR EXPENSE WAS ALSO ALLOWED IN ASSESSEES OWN CASE IN ITA NO.867/KOL/2012 DATED 03.07.2015 THE RELEVANT EXTRACT OF THE ORDER IS REP RODUCED BELOW:- 9.WE HAVE HEARD THE RIVAL SUBMISSIONS AND GONE THRO UGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ITAT IN ASSESSESS OWN CASE HAS HELD THAT THE EXPENDITURE TOWARDS COST OF EQUIPMENT AND FURNITURE NOT FALLING WITHIN THE EXPRESSIONS REPAIRS , REPLACEMENT , RENOVATION DID NOT HAVE CHARACTER OF REVENUE EXPENDITURE AND THESE ASSETS W ERE BUSINESS ASSETS INSTALLED IN THE BUSINESS PREMISES. BUT IN RESPECT OF THE REMAINING EXPENDITURE IN THAT YEAR WHICH INCLUDED EXPENDITURE RELATING TO REPAIR AND RENOVATION OF EXISTING FURNITURE AND FIXTURES AND IT WAS HELD THA T THE EXPENDITURE WAS INCURRED ONLY FOR ENABLING THE ASSESSEE TO CARRY ON ITS BUSINESS MORE EFFECTIVELY AND PROFITABLY AND THEREFORE WAS REVENU E IN NATURE. IT IS FURTHER HELD BY ITAT THAT WHEREIN ASSESSEE CARRIED REPAIRS, RENO VATION, RECONSTRUCTION ETC., TO THE LEASE PREMISES WITH THE VIEW TO FACILITATE C ARRYING OF BUSINESS MORE EFFICIENTLY AND PROFITABLY THE EXPENDITURE IS REVEN UE IN NATURE BECAUSE SUCH EXPENDITURE DOE NOT RESULT IN CREATION OF ANY ASSET BELONGING TO THE ASSESSEE. FURTHER, HON'BLE CALCUTTA HIGH COURT HAS CONFIRMED ITAT DECISION AND THE DEPARTMENTS APPEAL AGAINST TRIBUNALS ABOVE ORDER IN ITAT NO. 41 OF 2009 HAS BEEN DISMISSED ON 29.07.2009. THEREFORE, APPLYI NG THE RATIO AND DECISION OF HON'BLE ITAT ON THE DETAILS OF EXPENDITURE IN RE SPECT OF EXPENSED HELD BY THE AO TO BE OF CAPITAL IN NATURE HAVE BEEN EXAMINE D AND CONSIDERED WITHIN THE PARAMETERS OF THE DECISION OF THE ITAT. WE FIND ON DETAILED EXAMINATION OF THE EXPENSES CONSIDERED BY THE AO AS CAPITAL IN NAT URE, IT IS SEEN THAT MAJOR PART OF THE EXPENSES ARE IN THE NATURE OF REPAIRS A ND RENOVATION AND ARE REVENUE IN NATURE IN THIS YEAR ALSO. OUT OF THIS EX PENDITURE OF RS.71,18,403/-, IT WAS FOUND THAT ONLY EXPENDITURE OF RS.8,000/- AT 21 , CENTRAL MARKET PUNJABI BAG, NEW DELHI FOR INSTALLATION OF CCTDV AND RS.1,8 9,300/- AT 9, HIGH ST. PHOENIX, MUMBAI FOR LOOSE FURNITURE AS WELL AS RS.3 4,792/- FOR PROJECTOR FOR STORE TOTALING RS.2,32,092/- ONLY CAN BE CONSIDERED TO BE IN THE NATURE OF CAPITAL EXPENDITURE REPRESENTING COST OF ASSETS WHI CH CAN BE CONSIDERED AS BUSINESS ASSETS INSTALLED IN THE BUSINESS PREMISES. THEREFORE, WE UPHELD THE ORDER OF CIT(A) RESTRICTING THE DISALLOWANCE AT RS. 2,32,092 AND THE REMAINING AMOUNT OF RS.68,86,311/- TREATING AS REVENUE EXPEND ITURE. ACCORDINGLY, THE APPEAL OF REVENUE IS DISMISSED. ITA NO. 1276 &1309/KOL/2014 A.Y 2004-05 RITIKA PVT. LTD. VS. DCIT, CIR-12 KOL. PAGE 15 RESPECTFULLY FOLLOWING THE SAME, WE FIND NO REASON TO INTERFERE IN THE ORDER OF LD. CIT(A). WE UPHOLD THE SAME. HENCE, THIS GROUND OF REVENUE IS DISMISSED. 25. IN THE RESULT, REVENUES APPEAL IS DISMISSED. 26. IN COMBINED RESULT, APPEAL OF ASSESSEE STANDS ALLOW ED AND THAT OF REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT 30 /08/2017 SD/- SD/- (ABY. T. VARKEY) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP &!'(- 30 / 08 /201 7 / COPY OF ORDER FORWARDED TO:- 1. /ASSESSEE-RITIKA PVT. LTD. 138, BELIAGHATA ROAD, KO LKATA-15 2. /REVENUE-DCIT CIR-12, P-7, CHOWRINGHEE SQUARE, KOLK ATA-69 3.'0'1 2 / CONCERNED CIT KOLKATA 4. 2- / CIT (A) KOLKATA 5.56788!1 , 1 , / DR, ITAT, KOLKATA 6.7:;<= / GUARD FILE. BY ORDER/ , /TRUE COPY/ SR. PRIVATE SECRETARY, HEAD OF OFFICE/DDO 1 ,