The ITO, Ward-4(3), Ahmedabad V. Inder Hotels Pvt.Ltd., Ahmedabad

ITA 1440/AHD/2009

• Counselvise Citation: 144020514 RSA 2009
• Duration Of Justice: 2 year(s) 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 05-10-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 05-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ALOK JOHRI
• Assessee Lawyers: P D SHAH
• Keywords: Depreciation; Tax effect; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

, , , , , , . .. .' ' ' ' ' ' ' ' , # # # # $ $ $ $ IN THE INCOME TAX APPELLATE TRIBUNAL : B BENCH : AHMEDABAD BEFORE HONBLE SHRI BHAVNESH SAINI, J.M. & HONBLE SHRI A.MOHAN ALANKAMONY, A.M.) . ITA NO. 1440/AHD./2009 : %&- 2006-2007 I.T.O., WARD-4(3), AHMEDABAD VS- I NDER HOTELS PVT. LTD., AHMEDABAD (PAN : AAACI 3674H) ()* /APPELLANT) ( +,)* /RESPONDENT ) )* - . / APPELLANT BY : SHRI ALOK JOHRI, CIT,DR. +,)* - . / RESPONDENT BY : SHRI P.D.SHAH, A.R. /0 - 12 # / DATE OF HEARING : 05/10/2011 3'% - 12# / DATE OF PRONOUNCEMENT : 16/12/2011 / ORDER PER SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER : THIS APPEAL IS FILED BY THE REVENUE, AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-VIII, AHMEDABAD IN APPEAL NO.CIT(A)- VIII/ITO/4(3)/25/08-09 DATED 19.01.2009 FOR THE ASS ESSMENT YEAR 2006-2007 PASSED UNDER SECTION 250 R.W.S.143(3) OF THE I.T. ACT, 196 1. 2. THOUGH THE REVENUE HAD, IN ITS GROUNDS OF APPEAL , RAISED FOUR GROUNDS, GROUND NOS.3 AND 4 BEING GENERAL AND NO SPECIFIC ISSUES INVOLVED, THEY HAVE BECOME INCONSEQUENTIAL. IN THE REMAINING GROUNDS, THE GRI EVANCES OF THE REVENUE WERE THAT (1) THE LD. CIT (A) ERRED IN DELETING THE DISALLOWANCE OF DEPOSITS WITH AEC (OF RS.11389/-) TREATING AS ELECTRICITY EXPENSES AN D (2) THE CIT (A) ALSO ERRED IN DELETING THE DISALLOWANCE OF RS.8,58,136/- OUT OF REPAIRS AND MAINTENANCE EXPENSES, TREATING THE SAME AS REVENUE EXPENDITURE . 3. BRIEFLY STATED, THE ASSESSEE COMPANY ENGAGED IN THE HOTEL BUSINESS, FURNISHED ITS E-RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER DISPUTE, ADMITTING A ITA NO. 1440-AHD-09 2 TOTAL INCOME OF RS.32.82 LAKHS WHICH WAS, INITIALLY , PROCESSED U/S 143(1) OF THE ACT AND, SUBSEQUENTLY, TAKEN UP FOR REGULAR ASSESSMENT U/S 143(3) OF THE ACT. 3.1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AFTER CONSIDERING THE EXPLANATION/CONTENTIONS OF THE ASSESSEE UNDER VARIO US HEADS, THE LD. AO HAD RESORTED TO DISALLOW/ADD, AMONG OTHERS, UNDER THE CAPTIONS, (I) ELECTRICITY EXPENSES; AND (II) MAINTENANCE EXPENSES , FOR THE REASONS RECORDED THEREIN . SINCE THESE TWO ISSUES BEING RELEVANT BEFORE THIS BENCH FOR ADJUDICATION, THEY A RE DEALT WITH IN THE FOLLOWING PARAGRAPHS, CHRONOLOGICALLY. ELECTRICITY EXPENSES : 3.2. IT WAS NOTICED BY THE LD. AO THAT THE ASSESSE E HAD MADE DEPOSIT AMOUNTING TO RS.11,389/- WITH AHMEDABAD ELECTRICITY COMPANY (AEC) FOR NEW CONNECTION ON 11.6.2005. HOWEVER, THE ASSESSEE HA D CLAIMED THAT THE SAID AMOUNT AS ELECTRICITY EXPENDITURE, BUT, SINCE THE AMOUNT WAS CATEGORIZED AS DEPOSIT AND ALSO BELONGS TO MOVEABLE ASSETS OF THE ASSESSEE; IT WAS REQUIRED BY THE ASSESSEE TO EXPLAIN AS TO WHY THE SAME SHOULD NOT BE DISALLOWED. IN COM PLIANCE, IT WAS CONTENDED BY THE ASSESSEE THAT IT HAD NOT DEPOSITED ANY AMOUNT WITH THE AEC DURING THE YEAR. THIS WAS DISPUTED BY THE LD. AO THAT IN THE ELECTRICITY ACCO UNT, THE ENTRY WITH FULL NARRATION SHOWED THAT THE AMOUNT WAS RELATED TO DEPOSIT FOR N EW CONNECTION. BRUSHING ASIDE THE ASSESSEES CLAIM, THE LD. AO ADDED BACK THE SUM OF RS.11,389/- WITH A NARRATION THAT THE AMOUNT WAS BELONGING TO DEPOSIT AND ALSO CATEGO RIZED TO MOVEABLE ASSETS OF THE ASSESSEE. MAINTENANCE EXPENSE S : 3.3 THE ASSESSEE HAD CLAIMED EXPENSES TO THE TUNE OF RS.9.52 LAKHS UNDER THE VARIOUS HEADS SUCH AS (I) SETUP OF AC PLANT, (II) C OMPUTER AND PARTS; (III) LIGHT FITTING AND INSTRUMENTS; (IV) FURNITURE; (V) KITCHEN EQUIPM ENT/UTENSIL ETC., AS REVENUE EXPENDITURE. AFTER DUE CONSIDERATION OF THE ASSESS EES SUBMISSION, THE LD. AO TOOK A STAND THAT THE CONTENTIONS OF THE ASSESSEE CANNOT B E ACCEPTED FOR THE REASONS RECORDED IN HIS IMPUGNED ORDER AND, ACCORDINGLY, DISALLOWED THE EXPENDITURE OF RS.9.52 LAKHS OUT OF MAINTENANCE EXPENSES. ITA NO. 1440-AHD-09 3 4. THE MATTER WAS CARRIED BY THE ASSESSEE BEFORE TH E FIRST APPELLATE AUTHORITY THAT THE AMOUNT OF RS.11,389/- WAS OUT OF INTEREST INCOM E. SINCE THE ELECTRICITY BILL FOR THE MONTH OF MAY, 2005 HAD BEEN ACCOUNTED FOR AFTER RED UCING THE AMOUNT OF INTEREST RECEIPTS FOR THE FINANCIAL YEAR 2004-05 OF RS.11,38 9/- AND THAT THE AMOUNT UNDER REFERENCE WAS NOT OF ELECTRICITY DEPOSIT, INSTEAD, IT WAS UNDER THE ACCOUNT OF ELECTRICITY EXPENSE WHICH DESERVES TO BE ALLOWED IN FULL. 4.1 WITH REGARD TO THE MAINTENANCE EXPENSES, THE A SSESSEE HAD FURNISHED AN ELABORATE SUBMISSION IN WHICH IT WAS EMPHASIZED THA T IN HOTEL INDUSTRY, WHEN EXPENDITURE WAS INCURRED IN RESPECT OF MAINTENANCE OF A.C. PLANT, COMPUTER AND PARTS, LIGHT FITTINGS AND INSTRUMENTS, FURNITURE, KITCHEN EQUIPMENTS, UTENSILS ETC., FOR THE FIRST TIME, IT WAS TREATED AS CAPITAL EXPENDITURE. SUBSE QUENTLY, ALL THESE ITEMS IN THE NATURE OF REPLACEMENTS WHICH WERE CONSIDERED AS REVENUE EX PENDITURE. ACCORDINGLY, THE EXPENDITURE INCURRED FOR REPLACEMENT OF OLD ITEMS W AS IN THE NATURE OF REVENUE EXPENSE WHICH WAS DULY ACCEPTED BY THE STATUTORY AU DITOR AND, ACCORDINGLY, IN 3CD REPORT, IT HAS BEEN CLASSIFIED AS REVENUE EXPENDITU RE. THE ASSESSEE HAD ALSO RELIED ON A NUMBER OF CASE LAWS TO DRIVE HOME ITS POINT. 4.2 AFTER TAKING INTO ACCOUNT THE CONTENTIONS OF T HE ASSESSEE, ESPECIALLY THE URGE OF THE ASSESSEE THAT THE EXPENDITURE INCURRED DID NOT ENHANCE THE EXISTING CAPACITY OF THE EQUIPMENTS ETC., AND ALSO EXTENSIVELY QUOTIN G A NUMBER OF JUDICIAL PRONOUNCEMENTS ON A SIMILAR ISSUE AS RECORDED IN HI S IMPUGNED ORDER UNDER CHALLENGE, THE LD. CIT (A) HAD DELETED THE ADDITION OF RS.8,58 ,136/- ON THIS COUNT WITH A FOLLOWING RIDER THAT - 9.11HOWEVER, THE EXPENSES ON NEW SPLIT A C AMOUNTI NG TO RS.19,600/- AND THREE NEW WATER COOLERS AMOUNTING TO RS.75,000/- CA NNOT BE TERMED AS TOWARDS REPLACEMENT OF OLD MACHINERY. IN FACT, THESE REPRE SENT THE ADDITION OF NEW MACHINERY IN THE BLOCK OF ASSETS OF THE APPELLANT. THEREFORE, THE DISALLOWANCE TO THAT EXTENT IS HEREBY CONFIRMED. HOWEVER, THE A O IS DIRECTED TO ALLOW DEPRECIATION THEREON AS PER THE ADMISSIBLE RATE ACC ORDINGLY. 5. AGITATED WITH THE DELETIONS OF RS.11,389/- AND R S.8,58,136/- UNDER THE HEADS ELECTRICITY EXPENSES AND MAINTENANCE EXPENSES R ESPECTIVELY BY THE LD. CIT (A), THE REVENUE HAS COME UP BEFORE THIS BENCH WITH THE PRESENT APPEAL. ITA NO. 1440-AHD-09 4 6. DURING THE COURSE OF HEARING, THE LD. D.R. HAD B RIEFLY ARGUED THAT THE LD. CIT (A) HAD ERRED IN LAW AND ON FACTS IN DELETING THE D ISALLOWANCES MADE BY THE LD. AO AND FAIRLY PLEADED THAT THE IMPUGNED ORDER OF THE L D. CIT (A) REQUIRES TO BE ASSAILED AND THAT OF THE LD. AO BE RESTORED. 7. ON THE OTHER HAND, THE LD. AR SUBMITTED THAT THE DISALLOWANCE OF AMOUNT OF RS.11389/- WAS OF INTEREST INCOME AND SINCE THE ELE CTRICITY BILL FOR MAY 2005 WAS ACCOUNTED FOR AFTER REDUCING THE AMOUNT INTEREST RE CEIPT OF FINANCIAL YEAR 2004-05 OF RS.11389/- (14400/- 3011/-), ENTRY FOR INTEREST R ECEIPT OF RS.11389/- WAS REQUIRED TO BE PASSED FOR BOOKING OF THE FULL BILL AMOUNT AND, ACCORDINGLY, THE SAID ENTRY WAS PASSED. THE SAID ENTRY WAS OF ACCOUNTING OF INTERE ST RECEIPT (NET OF TDS) AND THE SAME WAS DEBITED TO ELECTRICITY EXPENSES. COPY OF ELECT RICITY ACCOUNT, BILL OF THE ELECTRICITY, RELEVANT TDS CERTIFICATE, COPY OF ACCOUNT OF AHMEDA BAD ELECTRICITY DEPOSIT ACCOUNT [VIZ., AHMEDABAD ELECTRICITY DEPOSIT AND INTEREST T HEREON ACCOUNT] INTEREST INCOME FOR THE FINANCIAL YEAR 2004-05 AS ANNEXURE 3. [SOURCE: P 3 OF WRITTEN SUBMISSION BEFORE THE LD. CIT (A)] SINCE THE SAID AMOUNT WAS NOT OF E LECTRICITY DEPOSIT PAYMENT, BUT WAS OF ACCOUNTING OF ELECTRICITY EXPENSES, THE LD. CIT (A) HELD AGAINST THE ADDITION WHICH REQUIRES TO BE UPHELD. REGARDING MAINTENANCE EXPENS ES, THE LD. A.R. SUBMITTED THAT THE LD. CIT (A) HAD DELETED THE ADDITION TO THE EXT ENT OF RS.8,58,136/-, BUT CONFIRMED RS.19,600/- AND RS.75,000/- ON NEW SPLIT AC AND THR EE WATER COOLERS RESPECTIVELY TERMING THE EXPENSES NOT REPLACEMENTS OF OLD MACHIN ERY. SINCE THE LD. AO HIMSELF HAD TREATED THE SAID EXPENDITURE AS CAPITAL EXPENDITURE , THE LD. AO BE DIRECTED TO ALLOW DEPRECIATION ON THE AFORESAID ITEMS ETC. 7.1 THE LD. A.R. RELIED ON THE CASE LAWS IN THE CAS E OF ITO, MUMBAI V. M/S.LAXIMI JEWEL PVT. LTD., MUMBAI ITA NO.2165/MUM/2010 OF T HE ITAT, A BENCH, MUMBAI DATED 1.4.2011. 8. WE HAVE HEARD RIVAL SUBMISSIONS AND CAREFULLY PE RUSED THE MATERIALS FROM THE RECORD. IT IS OBSERVED THAT REGARDING DISALLOWANCE OF RS.11,389/-, IT WAS THE STAND OF THE LD. AO THAT IN THE ELECTRICITY ACCOUNT, THE ENT RY WITH FULL NARRATION SHOWED THAT THE AMOUNT WAS RELATED TO DEPOSIT OF NEW CONNECTION. A CCORDING TO THE LD. AO, SINCE THE ITA NO. 1440-AHD-09 5 AMOUNT WAS BELONGING TO DEPOSIT AND ALSO CATEGORIZE D TO MOVEABLE ASSETS OF THE ASSESSEE, HE HAD DISALLOWED THE SAME. HOWEVER, THE LD. CIT (A) TOOK A DIVERGENT VIEW ON THE BASIS OF THE DETAILS FURNISHED, IT WAS ESTAB LISHED THAT THE ASSESSEE HAD BEEN ALLOWED A CREDIT OF RS.11,389/- AS INTEREST BY THE TORRENT POWER AEC LTD., AND THE ASSESSEE HAD ALSO PASSED A CORRESPONDING ENTRY IN T HE RELEVANT ACCOUNT TO THAT EFFECT. ACCORDINGLY, THE LD. CIT (A) DELETED THE ADDITION W ITH AN OBSERVATION THAT IT CANNOT BE TREATED AS A DEPOSIT AS OBSERVED BY THE LD. AO IN H IS IMPUGNED ORDER. THE STAND OF THE LD. CIT (A) HAS NOT BEEN CONTRADICTED BY THE REVENU E WITH ANY DOCUMENTARY EVIDENCE EVEN AT THE STAGE OF HEARING BEFORE THIS BENCH. IN VIEW OF THE ABOVE, WE ARE OF THE CONSIDERED VIEW THAT THE FINDING OF THE LD. CIT (A) REQUIRES NO INTERFERENCE AT THIS STAGE. IT IS ORDERED ACCORDINGLY. 8.2 REGARDING MAINTENANCE EXPENSES, IT IS OBSERVED THAT THE MAIN ISSUE IN DISPUTE, AS ELABORATELY DEALT WITH BY THE LD. CIT (A) IN HIS IMPUGNED ORDER UNDER DISPUTE, WAS REGARDING THE NATURE OF THE EXPENSES INCURRED BY TH E ASSESSEE DURING THE RELEVANT PERIOD. AS RIGHTLY CONTESTED BY THE ASSESSEE, THOS E EXPENSES WERE BASICALLY INCURRED FOR THE MAINTENANCE OF EXISTING MACHINERY AND REPLA CEMENTS OF OLD FURNITURE AND KITCHEN-WARES AND ALSO THE EXPENDITURE INCURRED DID NOT IN ANY WAY ENHANCE THE EXISTING CAPACITY OF THE EQUIPMENTS. HOWEVER, THE LD. AO TOOK A DIVERGENT VIEW THAT THE ASSESSEE HAD PURCHASED NEW MACHINERY AND FURNIT URE ITEMS AND, THEREFORE, THE EXPENSES THEREON WERE REQUIRED TO BE CAPITALIZED. BUT, THE LD. AO HAD FAILED PLACE ANY PIECE OF DOCUMENTARY EVIDENCE ON RECORD TO PIN DOWN THE ASSESSEES CLAIM. AS A MATTER OF FACT, THE LD. CIT (A) TOOK PAINS TO ANALY ZE THE WORD CAPITAL BY EXTENSIVELY QUOTING VARIOUS JUDICIAL PRONOUNCEMENTS ON THE SUBJ ECT AND ARRIVED AT A CONCLUSION THAT THE EXPENDITURE CLAIMED TO THE EXTENT OF RS.8, 58,136/- [RS.9,52,736/- 19600 75000/- =858136/-] IS ALLOWABLE AS REVENUE EXPENDI TURE. HOWEVER, HE HAD DECLINED TO ACCEPT THE ARGUMENT ADVANCED BY THE LD. A R THAT TH E SPLIT AC OF RS.19600 AND THREE WATER COOLERS OF RS.75000/- AGGREGATING TO RS.94,60 0/- BEING REPLACEMENTS OF OLD MACHINERIES. WE ARE IN FULL AGREEMENT WITH THE FIN DING OF THE LD. CIT (A) ON THIS SCORE. IT IS ORDERED ACCORDINGLY. ITA NO. 1440-AHD-09 6 8.3. WITH REGARD TO THE LD. A RS SUBMISSIONS IN T HE WRITTEN SUBMISSION DT.5.10.2011 THAT SINCE THE LD. AO HIMSELF HAD TREA TED THE SAID EXPENDITURE OF RS.94600/- AS CAPITAL EXPENDITURE, THE LD. AO BE DI RECTED TO ALLOW DEPRECIATION ON THE AFORESAID SUM CANNOT BE ACCEDED TO SINCE THE ASSE SSEE HAD NOT FILED ANY CROSS OBJECTIONS TO CONSIDER ITS PLEA. HOWEVER, THE LD. CIT (A) WAS RIGHT IN HIS VIEW BY THE FOLLOWING OBSERVATION: 9.11HOWEVER, THE EXPENSES ON NEW SPLIT A C AMOUNT ING TO RS.19,600/- AND THREE NEW WATER COOLERS AMOUNTING TO RS.75,000/- CA NNOT BE TERMED AS TOWARDS REPLACEMENT OF OLD MACHINERY. IN FACT, THESE REPRE SENT THE ADDITION OF NEW MACHINERY IN THE BLOCK OF ASSETS OF THE APPELLANT. THEREFORE, THE DISALLOWANCE TO THAT EXTENT IS HEREBY CONFIRMED. HOWEVER, THE AO IS DIRECTED TO ALLOW DEPRECIATION THEREON AS PER THE ADMISSIBLE RATE ACC ORDINGLY. 8.4 THE ASSESSEE IS, THEREFORE, AT LIBERTY TO APPRO ACH THE LD. AO FOR REDRESSAL ON THIS POINT. 8.5. BEFORE PARTING WITH, WE LIKE TO REITERATE THAT WE HAVE PERUSED THE FINDINGS OF THE HONBLE ITAT, A BENCH, MUMBAI CITED SUPRA WHEREIN IT HAS BEEN ASSERTED THAT THE TAX EFFECT IN THAT CASE WAS ONLY RS.2,07 LAKHS AND AS PER THE INSTRUCTION NO.3 OF 2011 DT.9.2.2011 OF THE C.B.D.T, APPEAL BEFORE THE APPEL LATE TRIBUNAL CAN BE FILED WHERE THE TAX EFFECT EXCEEDS THE MONITORY LIMIT OF RS.3 L AKHS. ON THE STRENGTH OF THE BOARDS CIRCULAR CITED SUPRA , THE HONBLE BENCH HAD DISMISSED THE REVENUES APP EAL ON THE ISSUE OF TAX EFFECT INVOLVED. IN THE PRESENT CASE, AS PER THE ASSESSMENT ORDER, THE TAX EFFECT WAS TO THE TUNE OF RS.8.3 LAKHS AND, THEREFO RE, THE FINDING OF THE HONBLE TRIBUNAL ON WHICH THE ASSESSEE PLACED RELIANCE CAN NOT COME TO ITS RESCUE. 9. IN THE RESULT, THE REVENUES APPEAL IS DISMISSE D. 4 - 3'% 5 & 16 / 12 /2011 ' 6 - 70 8 THIS ORDER PRONOUNCED IN COURT ON 16/12/2011. SD/- SD/- (BHAVNESH SAINI) (A.MOHAN ALANKAMO NY) JUDICIAL MEMBER ACCOUNTANT M EMBER DATED : 16 /12/2011 ITA NO. 1440-AHD-09 7 - -- - +19 +19 +19 +19 :9%1& :9%1& :9%1& :9%1&- -- - 1. )* 2. +,)* 3. 1 /> 4. />- - 5. 97 +1 , , 8 6. 7B C4 , D/ F , 8 TALUKDAR/ SR. P.S.