M/s Swanmandir Jewel Designer Private Limited , Tumkur V. Assistant Commissioner of Income Tax Circle-1 , Tumkur

ITA 141/BANG/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 8937 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 6 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 01-07-2021
• Assessment Year: 2012-2013
• Appeal Filed On: 16-01-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: RAVISHANKAR S V
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure; Set aside
• Section: 37(1); 80G; 274; 13; 32; 6

Judgement Text

ITA NO.141 /BANG/2018 M/S. SWARNMANDIR JEWEL DESIGNER PVT. LTD., TUMKUR IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: BANGALORE BEFORE SHRI B. R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NO.141/BANG/2018 ASSESSMENT YEAR: 2012 13 M/S. SWARNMANDIR JEWEL DESIGNER PVT. LTD. 2 ND FLOOR, SANTRUPTHI COMPLEX VIVEKANANDA ROAD TUMKUR 572101 PAN NO : AANCS1355A VS. ACIT CIRCLE-1 TUMKUR APPELLANT RESPONDENT APPELLANT BY : SHRI RAVISHANKAR S.V., A.R. RESPONDENT BY : SHRI KANNAN NARAYANAN, D.R. DATE OF HEARING : 01.07.2021 DATE OF PRONOUNCEMENT : 10.08.2021 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 3.11.2017 PASSED BY LD. CIT(A)-10 BENGALURU AND IT RELATES TO THE ASSESSMENT YEAR 2012-13. 2. THE GROUNDS URGED BY THE ASSESSEE RELATE TO THE FOLLOWING TWO ISSUES:- A) DISALLOWANCE OF REPAIR EXPENSES RS.21.30 LAKHS B) DISALLOWANCE OF DONATION PAID TO ASSOCIATION RS.7,6 2,500/- 2 THE ASSESSEE HAS ALSO POINTED OUT A COMPUTATION ERR OR MADE BY THE A.O. IN GROUND NO.6 OF THE GROUNDS OF APPEAL. 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANU FACTURE AND SALE OF GOLD, SILVER AND PLATINUM JEWELLERY AND OTH ER PRECIOUS METAL AND STONES. 4. THE FIRST ISSUE RELATES TO DISALLOWANCE OF REPA IR EXPENSES TREATING THE SAME AS CAPITAL IN NATURE. THE A.O. N OTICED THAT THE ASSESSEE HAS CLAIMED RS.29.70 LAKHS AS REPAIR EXPEN SES. THE A.O. TREATED THE SAME AS CAPITAL IN NATURE AND ACCORDING LY DISALLOWED THE CLAIM AFTER ALLOWING DEPRECIATION OF 10% THEREO N. ACCORDINGLY, HE DISALLOWED A SUM OF RS.26,73,520/-. THE LD. CIT (A) PARTIALLY ALLOWED THE CLAIM AND CONFIRMED DISALLOWANCE TO THE EXTENT OF RS.21,30,530/- WHICH CONSISTED OF THE FOLLOWING ITE MS:- A) FLOOR EXPENSES - RS.2,83,478/- B) RENOVATION OF DISTRIBUTORS AND CUSTOMERS DISPLAY AR EA - RS.15,84,418/- C) WASTE MITIGATION AND UPKEEPING OF PRODUCTION PROCES S - RS.2,62,684/- 5. THE LD. A.R. SUBMITTED THAT THE ASSESSEE HAS INCURRED ALL THESE EXPENSES IN A BUILDING TAKEN ON LEASE IN ORDE R TO SUIT THE BUSINESS ACTIVITIES CARRIED ON BY THE ASSESSEE. AL L THESE EXPENSES HAVE BEEN INCURRED IN ORDER TO CREATE BETTER WORKIN G ENVIRONMENT. HE SUBMITTED THAT THE ASSESSEE HAS NOT CARRIED ON R ENOVATION OR EXTENSION OR IMPROVEMENT OF BUILDING RESULTING IN C REATION OF ANY CAPITAL ASSET AS MENTIONED IN EXPLANATION 1 TO SECT ION 32 OF THE INCOME TAX ACT, 1962 (HEREINAFTER REFERRED AS THE ACT). IN SUPPORT OF HIS CONTENTIONS, THE LD. A.R. PLACED RELIANCE ON THE FOLLOWING CASE LAWS: 3 A. DCIT VS. BIJESH THAKKAR (2012) 17 TAXMANN.COM 174 (MUM.) B. CIT VS. ANUSH SHARES & SECURITIES PVT. LTD. (2015) 62 TAXMANN.COM 287 (MAD.) C. INDUS MOTOR COMPANY PVT LTD. VS. DCIT (2017) 88 TAXMANN.COM 229 (KER.) 6. ON THE CONTRARY, THE LD. D.R. SUBMITTED THAT TH E ASSESSEE HAS TAKEN THE BUILDING ON LEASE FOR MORE THAN 3 YEA RS AND HENCE THESE EXPENSES INCURRED BY THE ASSESSEE WILL HAVE E NDURING BENEFIT. ACCORDINGLY, HE SUBMITTED THAT THE ABOVE SAID EXPEN SES HAVE BEEN RIGHTLY TREATED AS CAPITAL EXPENDITURE BY LD. CIT(A ). 7. WE HAVE HEARD RIVAL CONTENTIONS ON THIS ISSUE A ND PERUSED THE RECORD. WE NOTICE THAT THE ASSESSEE HAS INCURR ED EXPENSES FOR REPAIRING THE FLOORING, RENOVATING THE DISTRIBUTORS AND CUSTOMERS DISPLAY AREA AND WASTE MITIGATION AND PRODUCTION PR OCESS SYSTEMS. THE NATURE OF EXPENSES INCURRED BY THE ASSESSEE HAS BEEN NARRATED BY THE A.O. AS UNDER:- (A) FLOORING EXPENSES: THE BUILDING IS ABOUT 15 YEA RS OLD AND THE FLOORING WAS LAID OUT OF MOSAIC TILES THE WEAR AND TEAR DURI NG THE SAID YEARS WAS OBSTRUCTING THE MOVEMENT OF MEN AND MATERIAL AN D AFFECTED OUR PRODUCTION. DURING THE F.Y.2011-12 WE HAVE LAID VIT RIFIED TILES FOR THE ENTIRE PRODUCTION, ADMINISTRATION AND MANAGERIAL AR EA COMPRISING OF ABOUT 20,000 SQ.FT. THE TOTAL EXPENDITURE INCURRED IN THIS REGARD DURING THE F Y 2011-12 AMOUNTS TO RS_2,83.478/- B) RENOVATION OF DISTRIBUTORS AND CUSTOMERS DISPLAY AR EA; THE TURNOVER OF THE COMPANY HAS BEEN INCREASING EVERY YEAR & THE VOLUME OF DISTRIBUTORS & CUSTOMERS HAVE ALSO INCREASED. WE CA TER TO ALMOST THE ENTIRE COUNTRY AND DISTRIBUTORS VISIT OUR FACTORY F OR OVERSEEING THE MANUFACTURING FACILITIES. WE HAVE RENOVATED THE ENT IRE MARKETING DISPLAY AND PRODUCTION AREA BY INSTALLING FALSE CEI LING, ELECTRICAL PIPELINES, SWITCHES, MINOR REPAIRS TO WALLS ETC. TH E TOTAL EXPENDITURE INCURRED IN THIS REGARD DURING THE F Y 2011-12 AMOU NTS TO RS.15,84.418/- 4 C) WASTE MITIGATION AND UP KEEPING OF PRODUCTION PROCE SS & OTHER EXPENSES: WE ARE ENGAGED IN MANUFACTURE OF GOLD AND SILVER JE WELLERY WHERE THE PROCESSING OF RAW MATERIALS INTO FINISHED GOODS UND ERGOES OF PRODUCTION. IN ALL THE VARIOUS STATES OF PRODUCTION PROCESS THERE ARE CHANCES OF GENERATION OF PROCESS LOSS WHICH HAS TO BE MITIGATED TO A LARGE EXTENT SINCE THE RAW MATERIAL COMPRISES OF PR ECIOUS METALS. IN ORDER TO MITIGATE/ELIMINATE PROCESS LOSS WHICH HAS TO BE MITIGATED TO A LARGE EXTENT SINCE THE RAW MATERIAL COMPRISES OF PRECIOUS METALS. IN ORDER TO MITIGATE/ELIMINATE PROCESS LOSS WE HAVE TO KEEP THE SURROUNDINGS VERY TIDY AND CLEANING HAS TO BE UNDER TAKEN QUITE OFTEN. ALSO WE HAVE INCURRED EXPENDITURE IN RESPECT OF EXT RACTION OF PRECIOUS METAL FROM LOSS GENERATED DURING THE PRODU CTION PROCESS IN THE FORM OF DUST HAND WASH AND SUCH OTHER FORMS BY REPLACING THE OLD WATER TANK, PIPE LINES. CONTAINERS, SINK ETC WE HAV E INCURRED EXPENSES IN RESPECT OF RENOVATION OF M D CHAMBER. DESIGNERS ROOK. RECEPTION CHAMBER, SECURITY PREMISES FOR THE UPKEEP OF THE PR EMISES AND IN TUNE WITH RECENT EXPECTATION OF THE MARKETING AND DISTRI BUTION AGENTS. THE TOTAL EXPENDITURE INCURRED IN THIS REGARD DURING TH E F Y 2011-12 AMOUNTS TO RS.2,62,684/- ADMITTEDLY, THESE EXPENSES HAVE BEEN INCURRED ON TH E BUILDING TAKEN ON LEASE. THOUGH THESE EXPENSES CAN BE CONSI DERED AS RENOVATION EXPENSES, YET WE NOTICE THAT IT HAS NOT RESULTED IN CREATION OF ANY CAPITAL ASSET ATTRACTING EXPLANATIO N 1 TO SECTION 32 OF THE ACT. THE HONBLE HIGH COURT OF MADRAS HAS C ONSIDERED AN IDENTICAL ISSUE IN THE CASE OF ANUSH SHARES & SECUR ITIES PVT. LTD. (SUPRA) AND IT HAS BEEN HELD AS UNDER: 11. NEXT ISSUE RELATES TO DEDUCTION CLAIMED FOR T HE EXPENDITURE INCURRED TOWARDS FIXING FALSE CEILING, PAINTING, ELECTRICAL CABLING AND CERTAIN CIVIL WORKS IN THE RENTED PREMISES OF THE ASSESSEE. WHILE ACCORDIN G TO THE ASSESSEE, THE SAME HAS TO BE TREATED AS REVENUE EXPENDITURE, ACCORDING TO THE REVENUE, THE SAME SHALL BE TREATED AS CAPITAL II EXPENDITURE. WHEREAS, THE TRI BUNAL BY RELYING ON THE DECISIONS OF OUR HIGH COURT REPORTED IN (I) CIT V. AYESHA HOSPITALS (P.) LTD. [2006] 292 ITR 266 (MAD) AND (II) THIRUAROORAN SUG ARS LTD. V. DY. CIT [,2013]32LIR 324/213 TAXMAN 90 (MAG,)/31TAXMANN.COM 3 (MAD.), HELD THE EXPENSES INCURRED AS REVENUE EXPENDITURE AND ACCORD INGLY ALLOWED DEDUCTION ON ACCOUNT OF THE SAME. FOR BETTER APPRECIATION, PARA 5.3 OF THE ORDER OF THE TRIBUNAL IS EXTRACTED HEREUNDER: '5.3. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS APPARENT FROM THE FACTS OF THE CASE IT IS NOT DISPUTED THAT THE EXPENDITURE WERE INCURRED TOWARDS FIXING FALSE CEILING, PAINTING, ELECTRICAL CABLING AND CERTAIN CIVIL WORK S ETC., IN THE RENTED PREMISES OF THE ASSESSEE. VARIOUS JUDICIAL AUTHORIT IES HAS HELD THAT IN 5 SUCH CIRCUMSTANCE THE EXPENDITURE HAS TO BE TREATED AS REVENUE EXPENDITURE. THE ASSESSEE HAS RELIED IN THE FOLLOWI NG TWO CASES :- (I) CIT V.AYESHA HOSPITALS PVT. LTD., [2006] 292 ITR 2 66 (MAD). HELD : DISMISSING THE APPEAL, THAT THE ASSESSEE HAD SPENT A SUM OF RS.1,85,557/- TOWARDS PAINTING, RE-LAYING OF THE DA MAGED FLOORS, PARTITIONS, ETC. THE CO- OWNERS WERE THE DIRECTORS OF THE ASSESSEE. BUT THEY WERE SEPARATE ENTITIES. THE CO-OWNERS WERE ADM ITTING THE RENTAL INCOME. THEY WERE ALSO PAYING TAX ON THE PROFITS AR ISING OUT OF THE HOSPITAL. THE LEASE DEED SPOKE OF THE NORMAL REQUIR EMENTS WHICH THE CO- OWNERS PROVIDED. THE ASSESSEE WAS PUTTING THE BUILD ING TO A SPECIAL USE. NO LANDLORD WOULD EVER INCUR OR UNDER - TAKE TO BEAR THE EXPENDITURE. THE EXPENDITURE WAS INCURRED BY THE ASSESSEE ON A L EASED PROPERTY AND HAD TO HE ALLOWED AS REVENUE EXPENDITURE. (II) THIRUAROORAN SUGARS LTD. (SUPRA). HELD : THAT THE TEMPORARY STRUCTURE BY MEANS OF FAL SE CEILING AND OFFICE RENOVATION HAD NOT RESULTED IN ANY CAPITAL EXPENDIT URE. FROM THE ABOVE DECISIONS AND THE FACTS BEFORE US WE DO NOT HAVE ANY HESITATION TO HOLD THAT THE AFORESAID EXPENSES OF R S.26,92,718/- HAS TO BE TREATED AS REVENUE EXPENDITURE AND DEDUCTION ON ACC OUNT OF THE SAME HAS TO BE ALLOWED. IT IS HEREBY DECIDED ACCORDINGLY.' IN VIEW OF SUCH SETTLED PROPOSITION OF LAW, THE FIN DING SO RENDERED BY THE TRIBUNAL WARRANTS NO INTERFERENCE BY THIS COURT AND NO SUBSTANTIAL QUESTIONS OF LAW ARISE IN THIS TAX CASE APPEAL. 8. WE ARE OF THE VIEW THAT THE ABOVE SAID TWO DECI SIONS ARE SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CAS E. FOLLOWING THE ABOVE SAID DECISIONS, WE SET ASIDE THE ORDER PASSED BY LD CIT(A) AND DIRECT THE A.O. TO DELETE THE DISALLOWANCE. 9. SINCE WE HAVE FULLY DELETED THE DISALLOWANCE MA DE BY THE A.O. OUT OF REPAIR EXPENSES, THE ARITHMETICAL ERROR POIN TED OUT BY THE ASSESSEE IN GROUND NO.6 SHALL BECOME INFRUCTUOUS. 10. THE NEXT ISSUE RELATES TO DISALLOWANCE OF DONA TION MADE TO ALL INDIA GEMS & JEWELLERY TRADE FEDERATION. THE ASSES SEE HAS GIVEN A DONATION OF RS.15.25 LAKHS TO ALL INDIA GEMS & JEWE LLERY TRADE FEDERATION AND CLAIMED THE SAME AS REVENUE EXPENDIT URE. THE A.O. HELD THAT THE DONATION AMOUNT IS ELIGIBLE FOR DEDUC TION U/S 80G OF 6 THE ACT. ACCORDINGLY HE PROPOSED TO DISALLOW 50% O F THE CLAIM. THE AUTHORISED REPRESENTATIVE, WHO APPEARED BEFORE THE AO, ALSO ACCEPTED THE DISALLOWANCE BEFORE THE AO. ACCORDINGL Y, THE A.O. DISALLOWED 50% OF THE DONATION PAID BY THE ASSESSEE , IMPLIEDLY ALLOWING THE DEDUCTION U/S 80G OF THE ACT @ 50%. T HE LD. CIT(A) CONFIRMED THE SAME AND HENCE THE ASSESSEE IS IN APP EAL BEFORE US. 11. THE LD. A.R. SUBMITTED THAT THE ASSESSEE HAS B ECOME MEMBER OF ALL INDIA GEMS & JEWELLERY TRADE ASSOCIAT ION AND IT HAS PARTICIPATED IN A PROGRAMME CALLED PERFECT MANUFAC TURER OF INDIA, 2011-13 (PMI) ORGANISED BY THE ABOVE SAID FEDERATI ON. THE ASSESSEE HAS PAID A SUM OF RS.11.63 LAKHS FOR PARTI CIPATING IN THE ABOVE SAID PROGRAMME. IN ADDITION TO THAT, THE ASS ESSEE HAS ALSO PAID A SUM OF RS.15.25 LAKHS TO THE FEDERATION AS C ORPUS DONATION. THE LD. A.R. SUBMITTED THAT SINCE THE ALL INDIA GEM S & JEWELLERY TRADE FEDERATION IS WORKING FOR THE INTEREST OF THE BUSINESS CARRIED ON BY THE ASSESSEE, THERE IS BUSINESS EXPEDIENCY IN GIVING ABOVE SAID DONATION, I.E., IT IS FOR PROMOTING BUSINESS I NTEREST OF THE ASSESSEE. ACCORDINGLY, HE SUBMITTED THAT THE ENTIR E AMOUNT OF DONATION GIVEN BY THE ASSESSEE IS ALLOWABLE AS DEDU CTION U/S 37(1) OF THE ACT. 12. WITH REGARD TO THE ACCEPTANCE OF THE ADDITI ON BY THE THEN LD. A.R., THE LD. AUTHORISED REPRESENTATIVE SUBMITTED T HAT THE THEN LD. A.R. HAS ACCEPTED THE SAME WITHOUT UNDERSTANDING TH E CORRECT FACTS AND LAW. THE LD. A.R. SUBMITTED THAT PAYMENT OF DO NATION WAS COMPULSORY FOR PARTICIPATING IN THE PMI PROGRAMME A ND HENCE THERE WAS NO OPTION FOR THE ASSESSEE NOT TO PAY THE SAID AMOUNT. ACCORDINGLY, HE CONTENDED THAT THE ENTIRE AMOUNT OF RS.15.25 LAKHS SHOULD BE ALLOWED AS DEDUCTION. 7 13. ON THE CONTRARY, THE LD. D.R. SUBMITTED THAT T HE ABOVE SAID PAYMENT WAS TOWARDS CORPUS OF THE ASSOCIATION WHICH IS ELIGIBLE FOR DEDUCTION U/S 80G OF THE ACT. THOUGH THE ASSESSEE SUBMITS THAT THERE WAS BUSINESS COMPLETION FOR CONTRIBUTING THE ABOVE SAID RS.15.50 LAKHS FOR PARTICIPATING INDIA PMI PROGRAMM E, THERE IS NO EVIDENCE TO SUPPORT THE SAID CONTENTION. HE SUBMIT TED THAT THE LD. A.R. HAS ACCEPTED THE DISALLOWANCE BEFORE THE A.O. AND HENCE, THE ASSESSEE CANNOT TAKE A DIFFERENT STAND AT THIS STAG E. 14. IN THE REJOINDER, THE LD. A.R. PLACED HIS RELI ANCE THAT IT IS RENDERED BY HONBLE HIGH COURT OF RAJASTHAN IN THE CASE OF ADDL. CIT VS RAJASTHAN SPINNING & WEAVING MILLS LTD. (200 5) 274 ITR 465 TO SUPPORT ITS CLAIM. 15. WE HEARD RIVAL CONTENTIONS AND PERUSED THE REC ORD. THE ASSESSEE HAS FURNISHED COPIES OF RECEIPTS GIVEN BY THE ASSOCIATION ACKNOWLEDGING RECEIPT OF RS.15.25 LAKHS FROM PAGES 37 TO 40 OF THE PAPER BOOK. ALL THE RECEIPTS CLEARLY SHOW THAT THE PAYMENT HAVE BEEN RECEIVED BY ALL INDIA GEMS & JEWELLERY TRADE F EDERATION TOWARDS DONATION. THE ASSESSEE HAS FURNISHED A COP Y OF APPLICATION FORM FOR PARTICIPATING IN THE PMI PROGRAMME IN PAGE S 34 & 35 OF THE PAPER BOOK. WITH REGARD TO THE AMOUNT OF RS.15 LAK HS, THE ASSESSEE HAS STATED AS UNDER:- I FURTHER WISH TO MAKE A CORPUS DONATION OF RS.15 LAKHS TO CGF RECOGNISING THE VALUE IN ITS BRINGING TO TRADE AND EDUCATION AND WELL BEING OF THE COMMUNITY. THE ABOVE SAID STATEMENT WOULD SHOW THAT THE PAYMEN T OF RS.15.25 LAKHS WAS VOLUNTARY AND NOT UNDER COMPULSION. EVEN OTHERWISE, AS RIGHTLY POINTED OUT BY LD. D.R., THERE IS NO MATERI AL TO SHOW THAT THE DONATION WAS MADE UNDER COMPULSION. ON THE CONTRAR Y, THE ABOVE SAID EXTRACT TAKEN FROM THE APPLICATION FORM SHOW T HAT THE DONATION WAS GIVEN TO THE FEDERATION RECOGNISING THE VALUE I N ITS BRINGING NOT ONLY TO TRADE BUT ALSO TO EDUCATION AND WELLBEING O F THE COMMUNITY. 8 HENCE, IT IS CLEARLY PROVED THAT THE DONATION IS A GENERAL DONATION MADE BY THE ASSESSEE TO THE ASSOCIATION/FEDERATION. IN THE CASE OF RAJASTHAN SPINNING & WEAVING MILLS LTD., THE CONTRI BUTION MADE BY THE ASSESSEE WAS MADE TOWARDS EXPORT PROMOTION EVEN T WHICH WAS EXPECTED TO BE UTILISED PROMOTING BUSINESS OF EXPOR TS OF ALL ITS MEMBERS. SO THE FACTS PREVAILING IN RAJASTHAN SPIN NING & WEAVING MILLS PVT. LTD., ARE DIFFERENT AND HENCE THE SAID D ECISION CANNOT BE TAKEN SUPPORT OF BY THE ASSESSEE. IT IS ALSO PERTIN ENT TO MENTION THAT THE ASSESSEE HAS ACCEPTED THIS DISALLOWANCE BE FORE THE A.O. ACCORDINGLY, WE CONFIRM THE ORDER PASSED BY LD. CIT (A) ON THIS ISSUE. 16. IN THE RESULT, THE APPEAL FILED BY THE ASSESSE E IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH AUG, 2021 SD/- (BEENA PILLAI) JUDICIAL MEMBER SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 10 TH AUG, 2021. VG/SPS 9 COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.