Cadensworth (India) Ltd., CHENNAI V. ACIT, CHENNAI

ITA 163/CHNY/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96460 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2015
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 09-11-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 21-01-2015
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Depreciation; Rectification of order; Difference of opinion; Change of opinion; Revenue expenditure; Capital expenditure
• Section: 143(3); 142(1); 148; 154

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL D BENCH, CHENNAI . , . , BEFORE SHRI D . KARUNAKARA RAO , ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NO. 1 6 3/MDS/2015 / ASSESSMENT YEAR :20 07 - 08 M/S. CADENSWORTH (INDIA) LTD., GUINDY HOUSE , 95, MOUNT ROAD, GUINDY, CHENNAI 600 032. [PAN: A A BCC9872E ] VS. THE ASSISTANT COMMISSIONER OF INCOME TAX , CO MPANY CIRCLE I(3), CHENNAI 600 034 . ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI R. VIJAYARAGHAVAN, ADVOCATE / RESPONDENT BY : SHRI A.V. SREEKANTH , J CIT / DATE OF HEARING : 0 9 . 11 .201 5 / DATE OF P RONOUNCEMENT : 20 . 1 1 .201 5 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : TH IS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX ( APPEALS ) I , CHENNAI , DATED 2 9 . 1 0 .20 1 4 RELEVANT TO THE ASSESSMENT YEAR 2007 - 08. THE GROUNDS ARE ARGUMENTATIVE AND THE ISSUE THAT EMANATES FROM THE GROUNDS RELATES TO THE ALLOWABILITY OF DEPRECIATION AT THE RATE OF 100% ON THE TEMPORARY STRUCTURE. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SERVICING OF COMPUTERS, COMPUTER PERIPHERALS AND I.T.A. NO . 1 6 3 /M/ 15 2 TELECOMMUNICATION PRODUCTS AND TRADING OF TELECOMMUNICATION PRODUCTS. THE ASSESSEE HAS FILED ITS RETURN ADMITTING TOTAL INCOME OF .3,20,66,880/ - . THE CASE OF THE ASSESSEE WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT]. SUBSEQUENTLY, ON VERIFICATION OF THE RECORDS, THE ASSESSING OFFICER ISSUED NOTICE UNDER SECTION 154 OF THE ACT TO RECTIFY THE WRONG C LAIM OF 100% DEPRECIATION ON INTERIORS, NON - ADD BACK OF FEES TO ROC, PROVISION FOR GRATUITY AND LEAVE ENCASHMENT BUT THE ASSESSEE HAS OBJECTED TO THE RECTIFICATION ON THE CLAIM OF 100% DEPRECIATION. THE ASSESSING OFFICER PASSED RECTIFICATION ORDER UNDER SE CTION 154 OF T HE ACT ON 28.09.2010 BY DROPPING THE OTHER MISTAKES EXCEPT THAT INCORRECT CLAIM OF EXPENSES OF .25,000/ - TO REGISTRAR OF COMPANIES. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS STATED THAT SINCE THE ASSESSEE HAS OBJECTED TO THE RECTIFICATION UNDER SECTION 154 WITH REGARD TO THE CLAIM OF 100% DEPRECIATION ON FALSE CEILING AND PARTITIONS INCURR ED AT THE RENTED PREMISES, IT EVOLVES A CASE OF INCOME ESCAPING ASSESSMENT AND THEREFORE, NOTICE UNDER SECTION 148 OF THE ACT WAS ISSUED ON 31.08.2010 FOR REOPENING THE ASSESSMENT. THE ASSESSEE HAS OBJECTED TO THE NOTICE ISSUED UNDER SECTION 148 AND REQUES TED THE ASSESSING OFFICER TO DROP THE PROCEEDINGS UNDER SECTION 148 STATING THAT THE NEW RECOURSE OF REASSESSMENT IS A MERE CHANGE OF OPINION, WHEN THE PROCEEDINGS UNDER SECTION 154 HAD BEEN RESORTED TO EARLIER. AGAINST WHICH, THE ASSESSING OFFICER , IN VIE W OF THE RATIO LAID DOWN BY THE HON BLE ALLAHABAD HIGH COURT IN THE CASE OF G.P. AGARWAL V. ACIT 208 ITR 795, PROCEEDED AND I.T.A. NO . 1 6 3 /M/ 15 3 TO VERIFY THE CORRECTNESS OF THE CLAIM, THE RETURN OF INCOME FILED BY THE ASSESSEE WAS TAKEN UP FOR SCRUTINY BY ISSUING NOTICE UNDER SECTION 143(2) OF THE ACT ON 28.09.2010. SUBSEQUENTLY, NOTICE UNDER SECTION 142(1) OF THE ACT WAS ISSUED ON 25.11.2011 AND AFTER VERIFICATION OF THE DETAILS, THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) R.W.S. 147 OF THE ACT ON 21.12.2011 BY DETERMIN ING THE TOTAL INCOME OF THE ASSESSEE AT .3,22,34,230/ - AND DISALLOWED VARIOUS CLAIMS OF THE ASSESSEE. 3. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A), BY FOLLOWING HI S OWN ORDER FOR THE LATER ASSESSMENT YEAR 2008 - 09 IN ITA NO. 381/2010 - 11/A - I DATED 24.03.2014, DISMISSED THE GROUND RAISED BY THE ASSESSEE WITH RE GARD TO THE DISALLOWANCE OF DEPRECIATION AT THE RATE OF 100% ON TEMPORARY STRUCTURE IN THE LEASE PREMISES . THE SAID ORDER OF THE LD. CIT(A) FOR THE LATER ASSESSMENT YEAR 2008 - 09 WAS CARRIED TO THE ITAT VIDE I.T.A. NO. 1369/MDS/2014 AND THE TRIBUNAL PASSED ORDER ON 18.03.2015 CONFIRMING THE ORDER OF THE LD. CIT(A). 4. NOW , THE ASSESSEE IS IN APPEAL BEFORE THE TRI BUNAL FOR THE ASSESSMENT YEAR 2007 - 08 . THE LD. COUNSEL FOR THE ASSESSEE STRONGLY ARGUED THAT THE EXPENDITURE INCURRED BY THE ASSESSEE ARE IN THE NATURE OF REVENUE ITEMS AND ARE ELIGIBLE FOR DEPRECIATION AT THE RATE OF 100% . HE ALSO RELIED ON VARIOUS DECISI ONS INCLUDING THE DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT IN I.T.A. NO . 1 6 3 /M/ 15 4 THE CASE OF THIRU AROORAN SUGARS LTD. V. DCIT [2013] 350 ITR 324. THE LD. COUNSEL FOR THE ASSESSEE FILED A COPY OF THE ORDER OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2008 - 09 (SUPRA) AND SUBMITTED THAT THE FACTS ARE DIFFERENT IN THE ASSESSMENT YEAR UNDER CONSIDERATION AND BINDING ON THE JUDGEMENT OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF THIRU AROORAN SUGARS LTD. V. DCIT (SUPRA). REFERRING TO THE FACTS OF THE PRESENT CASE, TH E LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE EXPENDITURE INVOLVED IN THIS YEAR RELATES TO PARTITION AND FALSE CEILINGS, PAINTING, FLOORING, NETWORK CABLING, ETC. [PARA 4.1 OF THE ORDER OF THE LD. CIT(A)]. REFERRING TO THE PARA 2 OF THE ASSESSMENT ORD ER, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER CONSIDERED ONLY FALSE CEILING AND PARTITIONS. REFERRING TO PARA 4.1 2 OF THE ASSESSMENT ORDER, THE LD. COUNSEL FOR THE ASSESSEE READ OUT THE DETAILS OF EXPENDITURE OF RS.99,827/ - . 5. ON THE OTHER HAND, THE LD. DR STRONGLY SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 6. WE HAVE HEARD BOTH THE SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ASSESSEE CARRIED ON ITS BUSINESS IN A RENTAL PREMI SES WHICH CANNOT BE USED FOR THE BUSINESS UNLESS THE ASSESSEE MAKE S IT FIT FOR THE BUSINESS. THE ASSESSING OFFICER, BY RELYING ON THE DECISION OF THE HON BLE MADRAS HIGH COURT IN THE CASE OF INDIAN METAL & METALLURGICAL LTD. 141 ITR 40 AND THE DECISION OF THE HON BLE BOMBAY I.T.A. NO . 1 6 3 /M/ 15 5 H IGH COURT IN THE CASE OF NEW SHARROCK SPINNING & MANUFACTURING CO. LTD. V. CIT 30 ITR 338, TREATED THE EXPENDITURE INCURRED BY THE ASSESSEE FOR IMPROVEMENT IN LEASEHOLD BUILDING AS CAPITAL EXPENDITURE AND CLASSIFIED THE ASSET AS FURNITU RE AND FITTINGS, ALLOWED DEPRECIATION AT THE RATE OF 10% AMOUNTING TO .9,983 AND DISALLOWED 90% AMOUNTING TO .89,844 AND ADDED TO THE TAXABLE INCOME OF THE ASSESSEE. ON APPEAL BEFORE THE LD. CIT(A), THE ASSESSEE HAS FILED A DETAILED WRITTEN SUBMISSION AN D CONTESTED AGAINST THE ABOVE DISALLOWANCE MADE BY THE ASSESSING OFFICER. THE LD. CIT(A) HAS PASSED THE ORDER BY FOLLOWING HIS OWN ORDER FOR THE ASSESSMENT YEAR 2008 - 09 IN ASSESSEE S OWN CASE AND DISMISSED THE GROUND RAISED BY THE ASSESSEE. BEFORE US THE L D. COUNSEL FOR THE ASSESSEE FILE D A DETAILED WRITTEN SUBMISSION AND ARGUED THAT THE TEMPORARY STRUCTURES ERECTED FOR ASSESSEE S BUSINESS CAN NEITHER BE MODIFIED NOR REUSABLE AND IN THE EVENT OF VACATING THE LEASED PREMISES, THE ASSESSEE WOULD NOT BE IN THE POSITION TO REMOVE THE TEMPORARY STRUCTURE, BUT BREAK THE SAME AND DISPOSE AS SCRAP. THEREFORE, HE HAS SUBMITTED THAT THE EXPENDITURE INCURRED FOR ERECTING TEMPORARY STRUCTURE TO THE LEASED PREMISES ARE REVENUE EXPENDITURE AND RELIED ON VARIOUS DECISION O F VARIOUS COURTS INCLUDING THE LATEST DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF THIRU AROORAN SUGARS LTD. V. DCIT (SUPRA) , WHEREIN, IT WAS HELD THAT EXPLANATION 1 TO SECTION 32(1)(II) OF THE ACT IS AN EXCEPTIONAL ONE WHICH PERMITS DE PRECIATION IN CASE WHERE THE ASSESSEE DOES NOT OWN A BUILDING, IN RESPECT OF WHICH THE I.T.A. NO . 1 6 3 /M/ 15 6 ASSESSEE INCURS CAPITAL EXPENDITURE ON THE CONSTRUCTION OF ANY STRUCTURE OR DOING OF ANY WORK, IN OR IN RELATION TO, AND BY WAY OF RENOVATION OR EXTENSION OF, OR IMPROV EMENT TO THE BUILDING . THE HON BLE HIGH COURT HAS FURTHER HELD THAT THE TEMPORARY STRUCTURE BY MEANS OF FALSE CEILING AND OFFICE RENOVATION HAD NOT RESULTED IN ANY CAPITAL EXPENDITURE. 7. THE CASE OF THE REVENUE IS THAT THE AS SESSEE DERIVES BENEFIT OUT OF THE ABOVE RENOVATION WORKS YEAR AFTER YEAR AND THE BENEFIT DERIVED IS OF ENDURING NATURE FOR WHICH , THE ASSESSEE HAS CLAIMED DEPRECIATION AT THE RATE OF 100% . HOWEVER, BEFORE US, THE ASSESSEE HAS NOT FILED THE LEASE DEED DOCUM ENT, THOUGH THE ASSESSEE HAS FILED COPY OF THE TAX INVOICE AND OTHER BILLS TOWARDS PURCHASE OF MATERIALS FOR THE ABOVE PARTITION/FALSE CEILING WORKS. ON PERUSAL OF PARA 4.1 OF THE ORDER OF THE LD. CIT(A) AND PARA 2 OF THE ASSESSMENT ORDER, WE FIND THAT THE RE IS NO CLARITY ON THE NATURE OF THE ASSET, ON WHICH DEPRECIATION AT THE RATE OF 100% IS CLAIMED. THE COPY OF THE INVOICE NO. DA/63 DATED 16.10.2006 RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE ONLY DESCRIBES THE LIST OF ITEMS OF RAW MATERIALS PURCHASE D BY THE ASSESSEE. IT DOES NOT DESCRIBE THE NATURE OF FIXED ASSET. THEREFORE, THERE IS NEED FOR BASIC FACTS RELATING TO THE ASSETS IN QUESTION, IF THERE ARE PARTITIONS, CEILING, ETC. OR OTHERWISE. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, WE SET ASID E THE ORDER PASSED BY THE LD. CIT(A) AND REMIT THE MATTER BACK TO THE ASSESSING OFFICER TO VERIFY THE LEASE DEED AND OTHER DOCUMENTS AS MAY BE I.T.A. NO . 1 6 3 /M/ 15 7 FILED BY THE ASSESSEE AND DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW AFTER ALLOWING SUFFICIENT OPPORTUNITY OF HEARING TO THE ASSESSEE BY KEEPING IN VIEW OF THE RATIO LAID DOWN BY THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF THIRU AROORAN SUGARS LTD. V. DCIT (SUPRA) . 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED ON THE 20 TH NOVEMBER , 2015 AT CHENNAI. SD/ - SD/ - ( D. KARUNAKARA RAO ) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 20 . 1 1 .201 5 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.