B and A Digi Tactical Solutions Private Ltd., CHENNAI V. ACIT, CHENNAI

ITA 1503/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4336 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 26-05-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P RADHAKRISHNAN
• Assessee Lawyers: N V BALAJI
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: CHENNAI . . . , !.. $ , ) BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S.SUNDER SINGH, ACCOUNTANT MEMBER ./ ITA NO.1503/MDS/2016 * * /ASSESSMENT YEAR: 2012-13 M/S. B & A DIGI TACTICAL SOLUTIONS PVT. LTD., NO.1, LALITHAPURAM STREET, ROYAPETTAH, CHENNAI-600 014. VS. THE ASST. COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-1(2), CHENNAI-34. [PAN: AAECB 3553 G ] ( - /APPELLANT) ( ./- /RESPONDENT) - 0 / APPELLANT BY : MR.N.V.BALAJI, ADV. ./- 0 /RESPONDENT BY : MR.P. RADHAKRISHNAN, JCIT 0 /DATE OF HEARING : 17.04.2017 0 /DATE OF PRONOUNCEMENT : 08.06.2017 / O R D E R PER D.S.SUNDER SINGH , ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER DATED 05.04.2016 OF COMMISSIONER OF INCOME TAX (APPEALS)- 1, CHENNAI, IN ITA NO.265/CIT(A)-1/14-15 FOR THE AY 2012-13. ITA NO.1503/MDS/2016 :- 2 -: 2.0 GROUND NOS.1 & 8 ARE GENERAL IN NATURE WHICH DO NO T REQUIRE SPECIFIC ADJUDICATION. 3.0 GROUND NOS.2-6 ARE RELATED TO THE ADDITION OF RS.5 9,24,141/- REPRESENTING THE DISALLOWANCE OF DEPRECIATION ON FU RNITURE & FIXTURES. THE AO FOUND THAT THE ASSESSEE HAS CLAIMED 100% DEPRECI ATION ON INTERIORS AND FURNITURE & FIXTURES STATING THAT THESE ITEMS A RE TEMPORARY STRUCTURES WHICH WERE VALUED AT RS.65,82,378/-. THE AO CALLED FOR THE DETAILS OF THE INTERIOR WORKS DONE BY THE ASSESSEE AND OBSERVED FR OM THE INVOICES THAT THE EXPENDITURE WAS INCURRED FOR INTERIOR, CARPENTR Y, PAINTING, SECURITY SYSTEM, MODULAR FURNITURE, CHAIRS AND NET WORK ETC . SINCE ALL THE EXPENSES ARE CAPITAL IN NATURE, THE AO TREATED THE ENTIRE EXPENSES AS CAPITAL EXPENDITURE AND THE SAME IS NOT ALLOWABLE U /S.31 OF IT ACT ,UNDER THE HEAD CURRENT REPAIRS AND ACCORDINGLY HELD IT A S CAPITAL ASSET AND ALLOWED THE DEPRECIATION @10% TREATING THE SAME AS FURNITURE AND FIXERS, WHICH RESULTED IN ADDITION OF RS.59,24,141/-. 4.0 AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WEN T ON APPEAL BEFORE THE CIT(A) AND LD.CIT(A) DISMISSED THE ASSES SEES APPEAL HOLDING THAT THE EXPENDITURE IN QUESTION WAS NEITHER REPAIR WORK NOR TO BE TREATED AS CURRENT REPAIRS. FOR READY REFERENCE, WE EXTRACT THE RELEVANT PARAGRAPHS OF THE LD.CIT(A) PARA NO.5-10 AS UNDER: 5. I HAVE CAREFULLY CONSIDERED THE FACTS IN ISSUE, THE REASONS BASED ON WHICH THE AO HAS PREFERRED THE DISALLOWANCE / ADDITION, THE ARGUMENTS ADVANCED BY THE APPELLANT AND MATERIAL ON RECORD. THE AO HELD THAT THE AMOUNT OF R S.65,82,378/- INCURRED TOWARDS IMPROVEMENT ON LEASEHOLD PREMISES WAS TO BE CAPITAL IZED IN TERMS OF EXPLANATION 1 TO ITA NO.1503/MDS/2016 :- 3 -: S.32(1). IT WAS ALSO NOTED THAT THE APPELLANT HAD CL AIMED THE ENTIRE EXPENDITURE TO THE TUNE OF RS.65,82,378/- AFTER EXCLUDING A SUM OF RS.25,44 ,265/- TOWARDS CURRENT REPAIRS WHICH WAS NEGATED BY THE AO IN VIEW OF THE PROVISIONS OF S .32(1) R.W. EXPLANATION. THE APPELLANT HAD WHILE PRESSING ITS CASE AT THE APPELLATE STAGE SPLIT UP THE ENTIRE EXPENDITURE INTO AS MANY AS SEVERAL COMPONENTS BY SEGREGATING THEM TOWA RDS INTERIOR CARPENTRY AND PAINTING, ELECTRICAL WORKS, CABLING AND NETWORKING WORK, DUCT ING TILING AND WALL PANELING. 6. RENOVATION PER SE WOULD BE A COMPOSITE ITEM OF A CTIVITY WHICH WOULD BE VIOLATED IN ITS CONCEPT IF THE SAME IS SPLIT UP INTO SMALLER FRAGME NTS. THIS IS SO AS THESE SMALLER INDIVIDUAL ACTIVITIES WOULD NOT MAKE AVAILABLE ANY FACILITY WH ICH COULD BE USED BY THE APPELLANT VOID OF THE OTHER CO-RELATED ACTIVITIES. RENOVATION THEREFO RE WOULD ENCOMPASS AND INCLUDE THE SUM TOTAL OF ALL SUCH ACTIVITIES TO MAKE AVAILABLE A CO MMON FACILITY FOR THE USE OF THE APPELLANT. SIMPLY PUT, ALL ACTIVITIES PUT TOGETHER RESULT IN R ESTORING TO GOOD AND USABLE CONDITION AND SUCH AN EXERCISE WOULD INCLUDE REPAIRS AS A INTEGRA L PART THEREOF. IN ANY CASE RENOVATION AS THIS WOULD NOT QUALIFY TO BE CONSIDERED AS CURRENT REPAIRS AND TO THAT EXTENT THE APPELLANT WOULD BE THE BENEFICIARY TO THE USAGE OF THE FACILI TY FOR SEVERAL YEARS DURING THE LEASE PERIOD OF THE PREMISES. 7. THE CASE OF THE APPELLANT RESTS ON THE PLEA THAT IT IS A LEASEHOLD PREMISE AND HENCE EXPENDITURE SHOULD BE TREATED AS BEING TOWARDS CURR ENT REPAIRS NOTWITHSTANDING THE PROVISION IN EXPLANATION 1 TO S.32(1). IN MY CONSIDE RED VIEW, THIS CANNOT BE ACCEPTED FOR THE REASON THAT THERE IS A SPECIFIC PROVISION TO DE AL WITH SUCH EXPENDITURE. FURTHERMORE, THE RIGHTS AND ENTITLEMENTS OF THE APPELLANT ARE NOT AD VERSELY IMPAIRED AS THE EXPENDITURE QUALIFIES FOR DEPRECIATION AND IN THE EVENT THAT TH E PREMISES ARE VACATED THE APPELLANT IS ENTITLED TO TERMINAL BENEFITS WITH REGARD TO THE EX PENDITURE / INVESTMENT MADE. IT MAY NOT BE OUT OF PLACE TO MENTION THAT ALMOST ALL FACILITI ES AS THE ONE OPERATED BY THE APPELLANT ARE RUN FROM LEASED PREMISES. MOST OF THEM BEING ON LON G LEASE TERMS. 8. ALSO WITH REGARD TO THE CLAIM PREFERRED BY THE A PPELLANT U/S.37 AND NOT U/S.32, THE SAME IS NOT TENABLE ON FACTS AND IN LAW. IT IS SETTLED L AW THAT THE PROVISIONS OF S.37 ARE APPLICABLE IN RESPECT OF GENERAL EXPENSES, WHERE EXPENDITURE N OT SPECIFIED IN S.30 TO S.36 ARE TO BE CONSIDERED. AS ALSO, EXPENDITURE WHICH IS NOT CAPIT AL OR PERSONAL IN NATURE AND WHICH IS WHOLLY AND EXCLUSIVELY LAID OUT OR EXPENDED FOR THE PURPOSE OF BUSINESS. THESE EXCLUDE EXPENSES FOR ANY PURPOSE WHICH IS AN OFFENCE OR PRO HIBITED BY LAW ETC. SEC.37(1) THEREFORE BEING A RESIDUAL PROVISION, CANNOT BE TAKEN AID OF, UNLESS AND UNTIL IT IS ESTABLISHED THAT NONE OF THE PROVISIONS OF S.30 TO 36 ARE APPLICABLE TO A GIVEN CASE. THIS VIEW FINDS SUPPORT FROM THE RATIO IN MALWA VANASPATI AND CHEMICAL COMP ANY LTD V. CIT 154 ITR 655 (MP) AND KHIMJI VISRAM AND SONS P LTD V CIT 209 ITR 993 (GUJ .). 9. IN THIS CONTEXT, IT WILL SERVE USEFUL PURPOSE TO REFER TO THE DECISION OF THE HONBLE KERALA HIGH COURT DATED 18.8.2015 IN LNDUS MOTOR COMPANY P LTD V. DCIT 378 ITR 707. WHILE EXAMINING A SIMILAR CLAIM THE HONBLE COURT OBSERVE D .... AFTER THE INTRODUCTION OF EXPLANATION 1 TO SECTION 32(1) OF THE ACT, THERE IS NO SCOPE LEFT OUT AT ALL FOR ANY INTERPRETATION SINCE BY A LEGAL FICTION, THE ASSESS EE IS TREATED AS THE OWNER OF THE BUILDING FOR THE PERIOD OF HIS OCCUPATION. THIS MEANS THAT B Y REFURBISHING, DECORATING OR BY DOING INTERIOR WORK IN THE BUILDING AND ENDURING BENEFIT WAS DERIVED BY THE ASSESSEE FOR THE PERIOD OF OCCUPATION AND, THEREFORE, IS CAPITAL EXP ENDITURE AND NOT REVENUE EXPENDITURE ACCORDING TO US, BY ADDING EXPLANATION 1 TO SECTION 32(1) PARLIAMENT HAS MANIFESTED ITS LEGISLATIVE INTENTION TO TREAT THE EXPENDITURE INCU RRED BY THE ASSESSEE ON LEASEHOLD BUILDING AS CAPITAL EXPENDITURE AND, THEREFORE, EXPLANATION I TO SECTION 32(1) CANNOT BE SUBJECTED TO ANY FURTHER INTERPRETATION. FURTHER THE LANGUAGE OF EXPLANATION 1 IS VERY PLAIN AND CLEAR AND THERE IS NO SCOPE FOR PROVIDING A DIFFERENT MEANING FOR THE WORDS USED AND, HENCE, WE ARE BOUND TO CONSIDER THE QUESTION BY GIVING THE LITERA L MEANING TO THE EXPRESSIONS AND PHRASEOLOGIES BY THE LEGISLATURE APPLIED. FURTHER APPLYING THE RATIO, AMONGST OTHERS, OBTAINING IN THE CASE OF MADRAS AUTO SERVICE P LTD 233 ITR 468 THE HONBLE HIGH COURT, THE JURISDICTIONAL ITAT IN ITS ORDER DATED 11.9.2015 IN ITA NO.700/MDS/2014 FOR THE A.Y.2008- 09 IN THE CASE OF THE CONTINENTAL ENTERPRISES V. IT O HAS DISMISSED THE CLAIM OF 100% DEPRECIATION BY THE ASSESSEE. 10. FOR THE DETAILED REASONS DISCUSSED AND ILLUSTRA TIONS MADE IN THE FOREGOING AND APPLYING THE RATIO AS ABOVE, THE VIEW TAKEN BY THE AO IN REJE CTING THE CLAIM OF THE APPELLANT AS A REVENUE EXPENDITURE IS UPHELD. THIS GROUND OF APPEA L IS DISMISSED. ITA NO.1503/MDS/2016 :- 4 -: 5.0 DURING THE APPEAL HEARING, THE LD.AR SUBMITTED THA T THE ASSESSEE HAS UNDERTAKEN REPAIR WORKS IN THE LEASED PREMISES AND WORKS WERE CARRIED IN THE LEASED PREMISES. THE LD.AR FURTHER S UBMITTED THAT THE ASSESSEE HAS TAKEN THE PREMISES FOR SHORT TERM LEAS E AND AT THE TIME OF VACATING THE LEASED PREMISES, THE TEMPORARY STRUCTU RES CANNOT BE REMOVED OR RE-USED ON VACATING THE PREMISES AND IT WOULD BE COMPLETELY WASTEFUL EXPENDITURE AND LOSS TO THE ASSESSEE. THE ASSESSEE ALSO SUBMITTED THE PAPER BOOK WITH DETAILS OF ITEM-WISE PURCHASE OF VARIOUS MATERIALS AND WORKS CARRIED ON BY THE ASSESSEE. TH E LD.AR FURTHER ARGUED THAT ALL THE WORKS CARRIED ON BY THE ASSESSEE WERE TEMPORARY STRUCTURES WHICH ARE ELIGIBLE FOR DEDUCTION @100% DEPRECIATION . 6.0 ON THE OTHER HAND, THE LD.DR ARGUED THAT THE ASSESSEE HAS TAKEN THE PREMISES ON LEASE AND FIXED THE FURNITURE AND F IXTURES IN THE LEASE HOLD PREMISES AND CARRIED ON INTERIOR CARPENTRY PAINTING WORKS AND CREATED AN ASSET IN THE LEASEHOLD PREMISES. THE ASSET CREATED WAS NOT DISPUTED BY THE ASSESSEE SINCE THE ASSESSEE HIMSELF HAS CATEGOR IZED THE EXPENDITURE AS ASSET AND CLAIMED 100% DEPRECIATION. THE ASSESS EE HAS NOT CARRIED ON ANY REPAIRS OR RENOVATION TO THE EXISTING ASSETS TO CLAIM THE EXPENDITURE AS CURRENT REPAIRS U/S.31 OF IT ACT. THE ASSESSEE HAS CREATED PERMANENT ASSET WHICH IS ENDURING IN NATURE AND ACCORDINGLY, THE LD.DR ARGUED THAT THE AO RIGHTLY CATEGORIZED IT AS FURNITURE & FIXTUR ES AND ALLOWED DEPRECIATION @10% AND NO INTERFERENCE IS CALLED FOR . ITA NO.1503/MDS/2016 :- 5 -: 7.0 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL PLACED BEFORE US. THE ASSESSEE HAS INCURRED THE EXPENDITURE THROUGH M/S.KAVERI BUILD TECH FOR AN AMOUNT OF RS.65,82,377/- RELATING TO TH E ITEMS OF ASSETS. SEPARATE BREAK UP OF WALL PANELING AND PURCHASE OF TILES ARE INCLUDED IN THE TOTAL SUM OF RS.65,82,377/-. THE ASSESSEE HAS TAKEN THE PREMISES ON LEASE AND ARGUED THAT UNLESS THE EXPENDITURE INCURR ED FOR CONSTRUCTION OF ANY STRUCTURE OR IMPROVEMENT, EXTENSION ETC., IN TH E LEASEHOLD PREMISES, IT DOES NOT FALL UNDER EXPLANATION-1 TO SEC.32 OF I T ACT TO HOLD IT AS ASSET. THE ASSESSEE HAS FURNISHED THE BILLS FOR PURCHASE O F TILES, WALL PANELING, NETWORKING, ELECTRICAL WORKS CARPENTRY ETC., IN THE PAPER BOOK BUT NOT FURNISHED THE EXACT DETAILS OF COMPOSITE WORK DONE WITH THE ITEMS PURCHASED. THE DIFFERENT INVOICES FOR WOOD, TILES, MODULAR FURNITURE CANNOT ESTABLISH THE COMPOSITE ITEM OF WORK DONE TO CONCLU DE WHETHER THE EXPENDITURE IN QUESTION WAS CAPITAL EXPENDITURE OR NOT. EVEN IF THE ELECTRICAL WORKS, CARPENTRY WORKS CARRIED OUT IN TH E LEASEHOLD PREMISES, THE SAME CAN BE CATEGORIZED AS FURNITURE AND FIXTUR ES DEPENDING ON THE NATURE OF WORKS CARRIED OUT. THE TERMS OF LEASE, T HE DURATION OF LEASE, NAMES AND ADDRESS OF THE LEASEHOLD PREMISES, ETC., WERE NOT FURNISHED BY THE ASSESSEE. AS PER THE ASSESSMENT ORDER, THE ASS ESSEE HIMSELF HAS TREATED THE WORKS CARRIED ON IN THE LEASED PREMISES AS ASSETS AND CLAIMED THE DEPRECIATION @100%. THE 100% DEPRECIATION IS A LLOWED ONLY ON ITA NO.1503/MDS/2016 :- 6 -: TEMPORARY STRUCTURES. THE ASSESSEE HAS NOT ESTABLI SHED THAT THE EXPENDITURE INCURRED WAS TOWARDS THE TEMPORARY STRU CTURES BY PROVIDING THE NECESSARY EVIDENCES WITH THE COMPOSITE WORK DON E IN EACH PREMISES. THE TABULATION MADE BY THE LD.CIT(A) INDICATES THAT THE EXPENDITURE INCURRED WAS CAPITAL EXPENDITURE THEREFORE, THE AS SESSEES REQUEST FOR TREATING THE TEMPORARY STRUCTURES CANNOT BE ACCEPTE D. HAVING CREATED ASSET OF ENDURING NATURE, THE EXPENDITURE CANNOT BE ALLOWED U/S.37(1) OF IT ACT. THEREFORE, WE HOLD THAT THE AO HAS RIGHTLY TREATED THE INTERIOR WORKS AS FURNITURE AND FIXTURES AND ALLOWED DEPRECI ATION @10%. ACCORDINGLY, WE UPHOLD THE ORDER OF THE LD.CIT(A) A ND DISMISS THE ASSESSEES GROUND OF APPEAL. 8.0 GROUND NOS.7 & 8 ARE RELATED TO THE ADDITION OF RS .1,83,958/- ON ACCOUNT OF BELATED PAYMENT OF PF. THE ASSESSEE HAS REMITTED THE CONTRIBUTION OF PF TO THE PF A/C BEYOND THE DUE DAT E SPECIFIED UNDER THE RESPECTIVE PF ACT & PENSION SCHEME ETC. HOWEVER, T HE ABOVE AMOUNTS WERE REMITTED TO THE RESPECTIVE ACCOUNTS BEFORE THE DUE DATE OF FILING THE RETURN OF INCOME. THIS ISSUE IS SQUARELY COVERED B Y THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF INDUSTRIAL SECURITY & INTELLIGENCE INDIA PVT. LTD. TAX CASE (APPEAL) NOS.585 & 586 OF 2015 & M.P.NO.1 OF 2015 IN FAVOUR OF ASSESSEE. ITA NO.1503/MDS/2016 :- 7 -: RESPECTFULLY FOLLOWING THE DECISION OF THE H ONBLE JURISDICTIONAL HIGH COURT, THE ASSESSEES APPEAL IS ALLOWED AND ORDER O F THE LOWER AUTHORITIES ARE SET-ASIDE. 9.0 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON JUNE 08, 201 7, AT CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( ! . . $ ) (D.S.SUNDER SINGH) /ACCOUNTANT MEMBER /CHENNAI, 5 /DATED: JUNE 08, 2017. TLN 0 .$6 76 /COPY TO: 1. - /APPELLANT 4. 8 /CIT 2. ./- /RESPONDENT 5. 6 . /DR 3. 8 ( ) /CIT(A) 6. * /GF