M/s Servomax India Limited, Hyderabad V. DCIT., Circle-3(1), Hyderabad, Hyderabad

ITA 1863/HYD/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2381 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 01-03-2018
• Assessment Year: 2010-2011
• Appeal Filed On: 08-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N SWAPNA
• Assessee Lawyers: B SATYANARAYANA MURTHY
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure
• Section: 143(3); 32

Judgement Text

ITA NO 1863 OF 2014 SERVOMAX INDIA LTD HYDERABAD. PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO.1863/HYD/2014 (ASSESSMENT YEAR: 2010-11) M/S. SERVOMAX INDIA LTD HYDERABAD PAN: A AFCS 0247 R VS DY. COMMISSIONER OF INCOME TAX, CIRCLE 3(1) HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI B. SATYANARAYANA MURTHY FOR REVENUE : SMT. N. SWAPNA, DR O R D E R PER SMT. P. MADHAVI DEVI, J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y 2010-11. IN T HIS APPEAL, THE ASSESSEE IS AGGRIEVED BY THE ORDER OF T HE LEARNED CIT (A)- IV, HYDERABAD, DATED 12.09.2014. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY, ENGAGED IN THE BUSINESS OF MANUFACTURE OF STABILIZE RS, POWER SAVERS AND TRANSFORMERS, FILED ITS RETURN OF INCOME FOR THE A.Y 2010-11 ON 14.10.2010 ADMITTING A TOTAL INCOME OF RS.8,06,95,210. DURING THE ASSESSMENT PROCEEDINGS U /S 143(3) OF THE ACT, THE AO OBSERVED FROM THE STATEMENT OF COMP UTATION OF INCOME THAT THE ASSESSEE HAS CLAIMED A SUM OF RS.87 ,50,963 AS REVENUE EXPENDITURE WITH THE NARRATION OTHER DEDUC TIONS. ON VERIFICATION OF THE CLAIM, THE AO NOTICED THAT THE ASSESSEE COMPANY HAS MADE CERTAIN ADDITION OF ASSETS TO LEAS EHOLD DATE OF HEARING: 1.3.2018 DATE OF PRONOUNCEMENT: 28.03.2018 ITA NO 1863 OF 2014 SERVOMAX INDIA LTD HYDERABAD. PAGE 2 OF 6 PREMISES AND CLAIMED THE ENTIRE EXPENDITURE AS REVE NUE. WHEN ASKED TO SUBSTANTIATE ITS CLAIM, THE ASSESSEE, VIDE LETTER DATED 21.03.2013 EXPLAINED THAT IT HAS MADE SOME ADDITION S TO THE LEASED PREMISES AT ITS MARKETING OFFICE, PROJECTS D IVISION OFFICE AND BRANCH OFFICE IN PUNE AND THE ADDITIONS ARE ON ACCO UNT OF FIXTURES LIKE PARTITIONS, FALSE ROOFING, GLASS AND MINOR CIV IL WORKS. IT IS SUBMITTED THAT THE AMOUNT SPENT ON ELECTRICAL INSTA LLATIONS IS SHOWN UNDER PLANT & MACHINERY. THE AO WAS HOWEVER , OF THE OPINION THAT THE ASSESSEE HAD MADE ADDITIONS TO THE ASSETS AND THE EXPENDITURE THEREON WAS CAPITAL IN NATURE. THER EFORE, HE DISALLOWED THE CLAIM OF REVENUE EXPENDITURE AND TRE ATING IT AS CAPITAL EXPENDITURE, ALLOWED ELIGIBLE DEPRECIATION THEREON. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A) WHO CONFIRMED THE ORDER OF THE AO AND THE ASSESSEE IS I N SECOND APPEAL BEFORE US BY RAISING THE FOLLOWING GROUNDS O F APPEAL: 1. THE ORDER OF THE HON'BLE COMMISSIONER OF INCOME TAX(APPEALS)-IV, IN SO FAR AS IT IS AGAINST THE APPELLANT-COMPANY, IS CONTRARY TO THE FACTS OF THE CASE AND PROVISIONS OF LAW. 2. THE HON'BLE COMMISSIONER OF INCOME TAX SHOULD HAVE APPRECIATED THAT THE APPELLANT-COMPANY IS ENTITLED TO DEDUCTION OF RS.82,OO,069/- SPENT ON RENOVATION/REPAIRS IN RESPECT OF THE LEASED PREMISES. THE HON'BLE COMMISSIONER OF INCOME TAX SHOULD HAVE APPRECIATED THAT THE EXPENDITURE DID NO T RESULT IN ANY ASSET OF ENDURING NATURE. 3. THE HON'BLE COMMISSIONER OF INCOME TAX SHOULD HAVE APPRECIATED THAT THESE EXPENSES RELATE TO PARTITIONS, FALSE-CEILING AND OTHER RENOVATION AND REPAIRS AND THE APPELLANT-COMPANY IS RIGHTLY ENTITL ED TO THE DEDUCTION THEREOF IN THE COMPUTATION OF TOTA L INCOME. 4. THE HON'BLE COMMISSIONER OF INCOME TAX SHOULD HAVE APPRECIATED THAT EXPLANATION-1 TO SECTION- 32(1)(II) DOES NOT COVER THE EXPENDITURE IN QUESTIO N. ITA NO 1863 OF 2014 SERVOMAX INDIA LTD HYDERABAD. PAGE 3 OF 6 5. THE HON'BLE COMMISSIONER OF INCOME TAX SHOULD HAVE SEEN THAT THE EXPENDITURE IS IN RESPECT OF LEA SED PREMISES AND THEREFORE, THE HON'BLE COMMISSIONER OF INCOME TAX (APPEALS) SHOULD HAVE DIRECTED FOR THE DEDUCTION THEREOF IN THE COMPUTATION OF TOTAL INCOME. 3. AFTER GOING THROUGH THE ASSESSMENT ORDER, WE FIN D THAT THE ASSESSEE HAD TAKEN THE FOLLOWING PREMISES ON LE ASE: I) PREMISES AT AMEERPET FOR A PERIOD OF 5 YEARS COMMENCING FROM 1.9.2009; II) PREMISES AT PUNE FOR A PERIOD OF 33 MONTHS COMMENCING FROM 25.4.2008 TO 24.01.2012; AND III) PREMISES AT ECIL POST, HYDERABAD FOR A PERIOD OF 25 YEARS. 4. FROM THE ASSESSMENT ORDER, IT IS ALSO SEEN THAT THE ASSESSEE HAS INCURRED AN EXPENDITURE ON THE BUILDIN G AT AMEERPET AND ALSO TOWARDS FURNITURE AND FIXTURES AT AMEERPET , HYDERABAD AS WELL AS AT PUNE. THE ASSESSEE HAS EXPLAINED THAT THE EXPENDITURE INCURRED ON FALSE CEILING IS DEBITED TO THE BUILDING A/C, WHILE THE EXPENDITURE INCURRED ON PARTITION ET C., IS DEBITED TO THE FURNITURE AND FIXTURES A/C. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE EXPENDITURE IS INCURRED TO MAKE THE LEASED BUILDING FIT FOR ASSESSEES BUSINESS PURPOSE S, TO CARRY ON ITS BUSINESS EFFECTIVELY AND EFFICIENTLY AND THEREF ORE, AND ACCORDING TO HIM, THE SAID EXPENDITURE IS REVENUE IN NATURE. HE PLACED RELIANCE UPON THE FOLLOWING CASE LAWS: I) ITAT HYDERABAD IN THE CASE OF SMT. S. PREMALATA V. DCIT (1995) 53 ITD 69. II) CIT VS. SHRI RAM REFRIGERATION INDUSTRIES LTD (2002) 253 ITR 783. ITA NO 1863 OF 2014 SERVOMAX INDIA LTD HYDERABAD. PAGE 4 OF 6 III) ITAT MUMBAI IN THE CASE OF ACIT VS. M/S. ITD CEMENTATION INDIA LTD (ITA NO.3669/MUM/2011). IV) ITAT HYDERABAD BENCH IN THE CASE OF DCIT V. CHAYA LAKSHMI CREATIONS (P) LTD IN ITA NOS. 250 TO 252/HYD/2010, DATED 30 TH JUNE, 2010. V) ITAT HYDERABAD BENCH IN THE CASE OF ACIT V. CHAYA LAKSHMI CREATIONS (P) LTD IN ITA NO.848/HYD/2012 DATED 7.11.2012. VI) HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. M/S. HI LINE PENS PVT LTD IN ITA NO.1202/2006 DATED 15.09.2008. 5. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND PLACED RELIANCE UPON THE FOLLOWING TWO DECISIONS TO ARGUE THAT THE EXPENDITU RE CLAIMED BY THE ASSESSEE IS CAPITAL IN NATURE: I) ITAT MUMBAI BENCH IN THE CASE OF VARDHMAN DEVELOPERS LTD VS. ITO REPORTED IN (2015) 55 TAXMANN.COM 370 (MUM-TRIB.) II) ITAT VISHAKHAPATNAM BENCH IN THE CASE OF ACIT VS. EFFFTRONICS SYSTEMS PVT. LTD REPORTED IN (2011) 15 TAXMANN.COM 345 (VIZAG). 6. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND THAT THE ASSESSEE HAS TAKEN THRE E PROPERTIES ON RENT BUT EXPENDITURE INCURRED DURING THE RELEVAN T FINANCIAL YEAR IS ONLY ON TWO PROPERTIES I.E. ONE AT AMEERPET , WHICH WAS TAKEN ON LEASE FOR 5 YEARS AND THE OTHER ONE AT PUN E WHICH WAS TAKEN ON LEASE FOR A PERIOD OF 33 MONTHS. THEREFORE , THE EXPENDITURE INCURRED ON FALSE CEILING AS WELL AS PA RTITION, GLASS ETC., CANNOT BE HELD TO BE CREATING ANY ASSET OF AN ENDURING NATURE. ANY EXPENDITURE INCURRED BY THE ASSESSEE, F OR MAKING ITA NO 1863 OF 2014 SERVOMAX INDIA LTD HYDERABAD. PAGE 5 OF 6 THE PREMISES SUITABLE FOR CARRYING ON ITS BUSINESS, ACCORDING TO ITS OWN STANDARD HAS BEEN HELD TO BE REVENUE IN NAT URE IN A NUMBER OF CASES. THE HON'BLE DELHI HIGH COURT IN TH E CASE OF CIT VS. M/S. HI LINE PENS PVT LTD IN ITA NO.1202/20 06 DATED 15.09.2008 HAD CONSIDERED SIMILAR EXPENDITURE INCUR RED TOWARDS FALSE CEILING, FIXING TILES, REPLACING GLAS SES, WOODEN PARTITIONS, REPLACEMENT OF ELECTRIC WIRING, EARTHIN G, REPLACEMENT OF GI PIPES ETC., AND AFTER TAKING NOTE OF ALL THE JUDICIAL PRECEDENTS ON THE ISSUE AS WELL AS THE APPLICABILIT Y OF EXPLANATION (1) TO SECTION 32(I) OF THE I.T. ACT HA S HELD THAT THE EXPENDITURE INCURRED TO MAKE ITS PREMISES TAKEN ON LEASE, SO AS TO MAKE THE PREMISES USABLE FOR BUSINESS ACTIVIT IES, IS REVENUE IN NATURE. THE RELEVANT PARA IS REPRODUCED HEREUNDER FOR READY REFERENCE: 16. AFTER HAVING CONSIDERED THE ARGUMENTS ADVANCED BY THE LEARNED COUNSEL FOR THE PARTIES AND EXAMINED THE DE CISIONS CITED BY THEM, WE ARE OF THE VIEW THAT THE ASSESSEES CLA IM FOR DEDUCTION UNDER SECTION 30(A)(I) HAS BEEN RIGHTLY A LLOWED BY THE TRIBUNAL. THE DECISIONS CITED BY THE LEARNED COUNSE L FOR THE REVENUE RELATE TO CURRENT REPAIRS . THERE IS A CLEAR DISTINCTION BETWEEN THE EXPRESSION REPAIRS AND THE EXPRESSION CURRENT REPAIRS . IT IS OBVIOUS THAT THE WORD REPAIRS IS MUCH WIDER THAN THE EXPRESSION CURRENT REPAIRS . THIS FACT HAS ALSO BEEN TAKEN NOTE OF BY THE SUPREME COURT IN THE CASE OF SARAVAN A SPINNING MILLS P. LTD. (SUPRA). THE EXPRESSION CURRENT REPA IRS IS ITA NO.1202-2006 10 OF 12 MUCH MORE RESTRICTED THAN THE WORD REPAIRS BECAUSE THE LATTER IS QUALIFIED BY THE WORD CURRE NT . WHAT THE ASSESSEE HAS DONE IN THE PRESENT CASE HAS BEEN CONSTRUED TO BE REPAIRS BY THE TRIBUNAL AS A FINDIN G OF FACT. IT HAS NOT BROUGHT ABOUT ANY NEW ASSET AND MORE IMPORTANTL Y IT WAS NOT THE INTENTION OF THE ASSESSEE TO BRING ABOUT ANY NE W CAPITAL ASSET. THE EXPENSES THAT WERE INCURRED BY THE ASSESSEE WER E TOWARDS REPAIRING THE PREMISES TAKEN ON LEASE SO AS TO MAKE IT MORE CONDUCIVE TO ITS BUSINESS ACTIVITY. SUCH EXPENSES W OULD CLEARLY FALL WITHIN THE EXPRESSION OF REPAIRS TO THE PREMIS ES AS APPEARING IN SECTION 30(A)(I). THE LEGISLATURE HAS MADE A DIS TINCTION BETWEEN EXPENSES INCURRED BY A TENANT FOR REPAIRS OF THE PREMISES AND EXPENSES INCURRED BY A PERSON WHO IS N OT A TENANT TOWARDS CURRENT REPAIRS TO THE PREMISES. THIS DISTINCTION HAS TO ITA NO 1863 OF 2014 SERVOMAX INDIA LTD HYDERABAD. PAGE 6 OF 6 BE GIVEN MEANING. PERHAPS THE LOGIC BEHIND THE DIST INCTION WAS THAT A TENANT WOULD, BY THE VERY NATURE OF HIS STAT US AS A TENANT, NOT UNDERTAKE EXPENDITURES AS WOULD ENDURE BEYOND H IS LIKELY PERIOD OF TENANCY OR CREATE A NEW ASSET. WHEREAS, A N OWNER MAY UNDERTAKE EXPENDITURES SO AS TO EVEN BRING ABOUT NE W ASSETS OF CAPITAL NATURE. IT WAS, THEREFORE, NECESSARY TO QUA LIFY THE EXPENDITURE ON REPAIRS. THE DEDUCTION WAS, THEREFOR E, LIMITED TO EXPENDITURE ON CURRENT REPAIRS ONLY. IT FOLLOWS, THEREFORE, THAT THE COST OF REPAIRS THAT HAVE BEEN INCURRED BY A TE NANT IN RESPECT OF SUCH PREMISES WOULD HAVE TO BE ALLOWED UNDER SEC TION 30(A)(I). THE QUESTION OF DISALLOWING SUCH AN EXPENDITURE AND RELEGATING THE ASSESSEE TO CLAIM DEPRECIATION UNDER SECTION 32 DOES NOT ARISE. THE ASSESSEE HAS NOT CLAIMED DEPRECIATION. I T HAS CLAIMED DEDUCTION UNDER SECTION 30(A)(I). ONCE THE ASSESSEE S CLAIM FALLS WITHIN THAT PROVISION THERE IS NO QUESTION OF CONSI DERING THE QUESTION OF APPLICABILITY OF SECTION 32. CONSEQUENT LY, THE QUESTION THAT HAS BEEN FRAMED IS ANSWERED IN FAVOUR OF THE A SSESSEE AND AGAINST THE REVENUE. THE APPEAL IS DISMISSED. ADMITTEDLY, IN THE CASE BEFORE US ALSO, THE EXPENDI TURE INCURRED HAS BEEN ON THE PREMISES WHICH HAVE BEEN T AKEN ON LEASE FOR A PERIOD OF 5 YEARS TO 33 MONTHS ONLY. TH EREFORE, WE ARE SATISFIED THAT THERE IS NO ASSET OF ENDURING NA TURE CREATED AND THE ASSESSEE IS ENTITLED TO CLAIM IT AS REVENUE EXPENDITURE. 7. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH MARCH, 2018. SD/- SD/- (B. RAMAKOTAIAH) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 28 TH MARCH 2018. VINODAN/SPS COPY TO: 1 VENUGOPAL & CHENOY, CAS, 4-1-889/16/2 TILAK ROAD, HYDERABAD 500001 2 DCIT, CIRCLE 3(1) HYDERABAD 3 CIT (A) - IV HYDERABAD 4 CIT III HYDERABAD 5 THE DR, ITAT HYDERABAD 6 GUARD FILE BY ORDER