M/s Prakash Arts, Vijayawada V. THE ACIT, Vijayawada

ITA 202/VIZ/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 6602 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 26-05-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: V MADHUVANI
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 143(3); 32; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO , HONBLE JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH , HONBLE ACCOUNTANT MEMBER ITA NO. 202 / VIZ /201 5 (ASST. YEAR : 20 1 0 - 11 ) M/S. PRAKASH ARTS, D.NO. 27 - 20 - 30, MUSEUM ROAD, VIJAYAWADA. V S . CIT, VIJAYAWADA . PAN NO. AAKFP 5545 K (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI G.V.N. HARI ADV OCATE . DEPARTMENT BY : SMT. V. MADHUVANI CIT DR DATE OF HEARING : 12 / 0 9 /201 7 . DATE OF PRONOUNCEMENT : 11 / 1 0 /201 7 . O R D E R PER V. DURGA RAO, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX , VIJAYAWADA , DATED 26 /0 3 /201 5 FOR THE ASSESSMENT YEAR 20 1 0 - 11 . 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE - M/S. PRAKASH ARTS IS ENGAGED IN THE BUSINESS OF ERECTING HOARDINGS, UNIPOLES, KIOSKS AND BUS SHELTERS ETC. FOR ADVERTISING, FILED ITS RETURN OF INCOME BY ADMITTING TOTAL INCOME OF 1,44,65,039/ - . THE RETURN FILED BY THE ASSESSEE WAS SELECTED FOR SCRUTINY AND ASSESSMENT IS COMPLETED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 2 ITA NO. 202/VIZ/2015 ( M/S. PRAKASH ARTS ) THE 'ACT') . SUBSEQUENTLY, LD. COMMISSIONER BY E XERCISING HIS POWERS CONFERRED UNDER SECTION 263, CALLED THE RECORDS AND ON EXAMINATION OF THE RECORDS, HE FOUND THAT THE ASSESSING OFFICER HAS NOT EXAMINED CERTAIN ISSUES PROPERLY AND , HENCE , THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER IS CONSIDERED AS ERRONEOUS IN SO FAR IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE WITHIN THE SCOPE OF SECTION 263 OF THE ACT. HENCE, A DETAILED SHOW - CAUSE NOTICE UNDER SECTION 263 DATED 19/01/2005 TO THE ASSESSEE CALLING FOR OBJECTIONS, IF ANY , IN WRITIN G . IN RESPONSE TO THE NOTICE ISSUED BY THE LD. COMMISSIONER, ASSESSEE SUBMITTED A DETAILED EXPLANATION. THE LD. COMMISSIONER AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE OBSERVED THAT IN THE PROFIT & LOSS ACCOUNT , THE ASSESSEE CLAIMED EXPENDITURE TOWARDS INTERIOR EXPENDITURE AT 37,88,072/ - . DURING SCRUTINY, DETAILS OF EXPENDITURE WAS FILED BEFORE THE ASSESSING OFFICER AND ALSO EXPLAINED THAT THE OFFICE BUILDING AT VIJAYAWADA , HEAD OFFICE WAS DEMOLISHED AND CONSTR UCTED A NEW OFFICE BUILDING , EXCEPT CIVIL WORK, ALL OTHER INTERIOR EXPENSES LIKE PARTITIONS, SANITARY, FLOORING, DESIGNING AND ELEVATION WORK EXPENSES WERE INCURRED BY THE ASSESSEE. INCIDENTALLY, IT IS NOTED THAT THE ASSESSEE HAS A PROPERTY ON LEASE FROM ITS PARTNER AND THER E FORE, LD.COMMISSIONER BY CONSIDERING THE PROVISIONS OF SECTION 30(A)(I) AND THE EXPLANATION FILED BY THE ASSESSEE , HE IS OF THE OPINION THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IS CAPITAL IN NATURE AND THER EFORE, THE ASSESSING OFFICER WITHOUT EXAMINING THE FACTS , MATERIAL AND LAW ON 3 ITA NO. 202/VIZ/2015 ( M/S. PRAKASH ARTS ) THIS ASPECT , ALLOWED THE EXPENSES CLAIMED BY THE ASSESSEE AS A REVENUE EXPENDITURE, WHICH IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. ACCORDINGLY, ASSESSMENT IS SET ASIDE AND DIRECTED THE ASSESSING OFFICER TO RE - DO THE ASSESSMENT AS PER HIS OBSERVATIONS IN ACCORDANCE WITH LAW. 3 . ON B E ING AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE TRIBUNAL. 4 . LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSING OFFICER AFTER EXAMINING ALL THE DETAILS, HE CAME TO A CONCLUSION THAT EXPENDITURE INCURRED BY THE ASSESSEE IS REVENUE IN NATURE. ACCORDINGLY, HE ALLOWED THE EXPENDITURE CLAIMED BY THE ASSES SEE. IT IS NOT THE CASE OF THE LD. COMMISSIONER THAT THE ASSESSING OFFICER HAS NOT EXAMINED THE DETAILS OF THE EXPENDITURE. THEREFORE, IT IS NOT A FIT CASE TO INVOKE SECTION 263 OF THE ACT. 5. ON THE OTHER HAND, L EARNED DEPARTMENTAL REPRESENTATIVE HAS SU BMITTED THAT THE EXPENSES INCURRED BY THE ASSESSEE ON LEASED PREMISES OF NEWLY CONSTRUCTED PROPERTY IS ENDURING IN NATURE AND THEREFORE , IT CANNOT BE CONSIDERED AS REVENUE EXPENDITURE AND CANNOT BE ALLOWED UNDER SECTION 30 OF THE ACT , IT IS ONLY A CAPITAL EXPENDITURE. IT IS FURTHER SUBMITTED THAT THE ASSESSING OFFICER IS AN INVESTIGATING OFFICER AND HE HAS TO MAKE ALL NECESSARY ENQUIRIES AND HAS TO EXAMINE WHETHER THE EXPENDITURE IS ALLOW ABLE OR NOT . IN THIS CASE, THE ASSESSING OFFI CER SIMPLY ACCEPTED THE EXPLANATION GIVEN BY THE ASSESSEE WITHOUT 4 ITA NO. 202/VIZ/2015 ( M/S. PRAKASH ARTS ) EXAMINING THE FACTS OF THE CASE ALLOWED EXPENDITURE CLAIMED BY THE ASSESSEE. THEREFORE, THE ORDER PASSED BY THE LD. COMMISSIONER BY EXERCISING HIS POWERS CONFERRED UNDER SECTION 263 IS IN A CCORDANCE WITH LAW HENCE, SAME MAY BE UPHELD . 6 . WE HAVE HEARD BOTH THE SIDES, PERUSED THE MATERIAL AVAILABLE ON RECORD AND ORDERS OF THE AUTHORITIES BELOW. 7 . THE CASE OF THE ASSESSEE IS THAT ASSESSEE IS IN THE BUSINESS OF ERECTING HOARDINGS FOR ADVERTISING . THE ASSESSEE HAS TAKEN NEWLY CONSTRUCTED PREMISES ON LEASE AND INCURRED EXPENDITURE TOWARDS PARTITIONS, SANITARY, FLOORING, DESIGNING AND ELEVATION WORK EXPENSES OF 37,88,072/ - . WHEN ASSESSING OFFICER ASKED THE ASSESSEE WHY THIS EXPENDITUR E CANNOT BE CONSIDERED AS A CAPITAL EXPENDITURE , T HE ASSESSEE HAS FILED A DETAILED NOTE AND ALSO DETAILS OF THE EXPENSES INCURR ED BY HIM. THE ASSESSING OFFICER AFTER CONSIDERING THE DETAILS, ALLOWED THE EXPENDITURE CLAIMED BY THE ASSESSEE AS REVENUE EXPENDITURE. SUBSEQ U ENT L Y, LD. COMMISSIONER WHILE EXERCISING POWERS UNDER SECTION 263, ISSUED A SHOW - CAUSE NOTICE AS TO WHY THE EXPENDITURE INCURRED CANNOT BE CONSIDERED AS A CAPITAL EXPENDITURE. IT WAS SUBMITTED BEFORE THE LD. COMMISSIONER THAT NEWLY CO NSTRUCTED PREMISES WAS TAKEN ON LEASE FOR THE PURCHASE OF BUSINESS. IT WAS SUBMITTED BEFORE THE LD. COMMISSIONER THAT THE EXPENDITURE INCURRED ON PREMISES , IS NOT OW N ED BY THE FIRM AND IT IS NOT TOWARDS ANY EXTENSION OR CONSTRUCTION OF ANY STRUCTURE GIVIN G RAISE TO ENDURING BENEFIT TO THE 5 ITA NO. 202/VIZ/2015 ( M/S. PRAKASH ARTS ) ASSESSEE. THEREFORE, THE EXPENDITURE HAS TO BE CONSIDERED AS REVENUE EXPENDITURE. THE LD. COMMISSIONER AFTER CONSIDERING THE EXPLAN A TION OF THE ASSESSEE OBSERVED THAT THOUGH , ASSESSEE HAS FILED ALL THE DETAILS BEFORE TH E ASSESSING OFFICER, THE ASSESSING OFFICER WITHOUT EXAMINING THE SAME , SIMPLY ACCEPTED THE EXPENDITURE INCURRED BY THE ASSESSEE AS REVENUE EXPENDITURE . ACCORDING TO THE LD. COMMISSIONER , AS PER SECTION 30(A)(I) OF THE ACT, THE EXPENDITURE INCURRED BY THE ASSESSEE CANNOT BE ALLOWED AS REVENUE EXPENDITURE. 8 . WE FIND T H A T THOUGH ASSESSEE HAS FILED ALL THE DETAILS BEFORE THE ASSESSING OFFICER, THE ASSESSING OFFICER SIMPLY ACCEPTED THE EXP LANATION GIVEN BY THE ASSESSEE AND DETAILS FILED BY THE ASSESSEE WERE NOT EXAMINED WHETHER IT IS ALLOWABLE EXPENDITURE OR NOT . IT IS A FACT THAT THE ASSESSEE HAS TAKEN PREMISES ON LEASE AND INCURRED EXPENDITURE FOR PARTITIONS, SANITARY, FLOORING, DESIGNIN G AND ELEVATION WORK , WHICH ARE DEFINITELY ENDURING NATURE TO THE PROPERTY. EXPLANATION TO SECTION 3 2 ( 1 ) IS AS UNDER: - WHERE THE BUSINESS OR PROFESSION OF THE ASSESSEE CARRIED ON IN A BUILDING NOT OWNED BY HIM BUT IN RESPECT OF WHICH THE ASSESSEE HOLDS A LEASE OR OTHER RIGHT OF OCCUPANCY AND ANY CAPITAL EXPENDITURE IS INCURRED BY THE ASSESSEE FOR THE PURPOSES OF THE BUSIN ESS OR PROFESSION 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 IMPROVEMENT TO, THE BUILDING, THEN THE PROVISIONS OF THIS CLAUSE SHALL APPLY AS IF THE SAID STRUCTURE OR WORK IS A BUILDING OWNED BY THE ASSESSEE. 9. FROM THE ABOVE, IT IS CLEAR THAT IF ANY EXPENDITURE INCURRED BY THE ASSESSEE ON A LEASED PREMISES FOR RENOVATION OR EXTENSION OR 6 ITA NO. 202/VIZ/2015 ( M/S. PRAKASH ARTS ) IMPROVEMENT, HE CAN CLAIM ONLY DEPRECIATION. THE ASSESSING OFFICER WITHOUT EXAMINING THE ABOVE PROVISION OF LAW, SIMPLY ALLOWED THE CLAIM MADE BY THE ASSESSEE, IN OUR OPINION, IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AND THEREFORE, THE LD. COMMISSIONER CORRECTLY EXERCISED HIS JUR ISDICTION UNDER SECTION 263 OF THE ACT. 10 . SO FAR AS MERITS OF THE CASE IS CONCERNED, IN THE CASE OF CIT V. BALLIMAL NAWAL KISHOR E (1997) 224 ITR 414(SC) (WHICH WAS FOLLOWED BY THE LD. COMMISSIONER) WHEREIN THE HON'BLE SUPREME COURT HAS CONSIDERED THE EXPRESSION OF THE WORDS CURRENT REPAIRS' . CURRENT REPAIRS MEANS EXPENDITURE ON BUILDINGS, MACHINERY, PLANT OR FURNITURE WHICH IS NOT FOR THE PURPOSE OF RENEWAL OR RESTORATION , BUT WHICH IS ONLY FOR THE PURPOSE OF PRESERVING OR MAINTAINING AN ALREADY EXISTING ASSET AND WHICH DOES NOT BRING A NEW ASSET INTO EXISTENCE OR DOES NOT GIVE TO THE ASSESSEE A NEW OR DIFFERENT ADVANTAGE. IN THE PRESENT CASE, THE ASSESSEE HAS INCURRED EXPENDITURE ON PARTITIONS, SA NITARY, FLOORING, DESIGNING AND ELEVATION WORK WHICH IS OBVIOUSLY ENDURING BENEFIT TO THE ASSESSEE. THEREFORE, THIS EXPENDITURE CANNOT BE CONSIDERED AS REVENUE EXPENDITURE AND IT HAS TO BE CONSIDERED ONLY AS CAPITAL EXPENDITURE. THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. M/S.SARAVANA SPINNING MILLS ( 2007 ) 293 ITR 201 ( SC ) HAS CONSIDERED THE EXPRESSION OF CURRENT REPAIRS. THE OBJECT OF THE EXPENDITURE IS NOT TO BRING A NEW ASSET INTO EXISTENCE, NOR IS IT S OBJECT THE OBTAINING OF A NEW OR FRESH ADVANTAGE . THE BASIC TEST TO FIND OUT AS TO WHAT WOULD CONST ITUTE 7 ITA NO. 202/VIZ/2015 ( M/S. PRAKASH ARTS ) CURRENT REPAIRS IS THAT THE EXPENDITURE MUST HAVE BEEN INCURRED TO 'PRESERVE AND MAINTAIN' AN ALREADY EXISTING ASSET, AND THE OBJECT OF THE EXPENDITURE MUST NOT BE TO BRING A NEW ASSET INTO EXISTENCE OR TO OBTAIN A NEW ADVANTAGE . KEEPING IN VIEW OF THE DECISIONS OF THE HON'BLE SUPREME COURT IN THE ABOVE REFERRED TO CASES, WE ARE OF THE OPINION THAT THE LD. COMMISSIONER CORRECTLY EXERCISED HIS JURISDICTION UNDER SECTION 263 OF THE ACT. IN VIEW OF THE ABOVE, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED . SO FAR AS CASE - LAW RELIED UPON BY THE ASSESSEE IN THE CASE OF SPI CINEMAS PVT. LTD. VS. ACIT (2016) 48 CCH 193 (HYD - TRIB.) HAS NO APPLICATION TO THE FACTS OF THE PRESENT CASE. 11 . IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON TH IS 1 1 T H DAY OF OCTOBER , 201 7 . S D / - S D / - ( D.S. SUNDER SINGH ) ( V. DURGA RAO ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 1 1 T H OCTOBER , 201 7 . VR/ - COPY TO: 1. THE ASSESSEE - M/S. PRAKASH ARTS, D.NO. 27 - 20 - 30, MUSEUM ROAD, VIJAYAWADA. 2. THE REVENUE CIT, VIJAYAWADA. 3. THE D.R . , VISAKHAPATNAM. 4. GUARD FILE. BY ORDER (VUKKEM RAMBABU) SR. PRIVATE SECRETARY, ITAT, VISAKHAPATNAM.