APURVA NATVAR PARIKH & COMPANY P.LTD ( FORMERLY KNOWN PARIKH & CO P. LTD), MUMBAI V. DCIT CEN CIR 40, MUMBAI

ITA 2093/MUM/2013

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8142 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 9 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 17-06-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 15-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MADHUR AGARWALA
• Assessee Lawyers: RAJAT MITTAL
• Keywords: Capital asset; Depreciation; Source of fund; Revenue expenditure; Capital expenditure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL BENCH C MUMBAI BEFORE HONBLE S/SHRI JOGINDER SINGH (JM), AND RAJESH KUMAR, ( AM ) I.T.A. NO. 2093/ MUM/201 3 ( / ASSESSMENT YEA R :2 0 09 - 10 ) APURVA NATVAR P ARIKH AND CO. PVT.LTD (FORMERLY KNOWN AS NATVAR PARIKH AND CO.P.LTD), 96, CHEMBUR MANKHURD LINK ROAD, SHIVAJI NAGAR, MUMBAI - 400043 / VS. THE DY.COMMISSIONER OF INCOME TAX, CC - 38 , ROOM NO.653,6 TH FLOOR, AAYAKAR BHAVAN, M K ROAD, MUMBAI - 400020 / ASSESSEE BY : SHRI MADHUR AGARWALA / ASSESSEE BY : SHRI RAJAT MITTAL PAN : A AACN2937Q / DATE OF HEARING : 2 6 . 10 .2017 / DATE OF PRONOUNCEMENT : 21. 1 2 .2017 / O R D E R P ER RAJESH KUMAR, A. M: THIS IS AN APPEAL FILED BY THE ASSESSEE CHALLENGING THE ORDER OF THE LD.CIT(A) - 38 , MUMBAI, DATED 20.1 2 . 2012 FOR THE ASSESSMENT YEAR 20 0 9 - 10 . 2. THE ISSUE RAISED BY THE ASSESSEE IN THE FIRST GROUND OF APPEAL IS AGAINST THE UPHOLDIN G THE ACTION OF THE AO IN DISALLOWING THE EXPENSES OF RS.1,45,20,421 / - TOWARDS WAREHOUSING EXPENSES BEING EXPENDITURE ON REPAIRS ON THE GROUND THAT THE EXPENDITURE HAS RESULTED INTO ENDURING BENEFIT IN RESPECT OF CAPITAL ASSET HELD BY THE APPELLANT AND THE SAME IS IN THE NATURE OF A CAPITAL EX PENDITURE. 2 I.T.A. NO. 2093 /MUM/201 3 3. FACTS OF THE CASE ARE THAT THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAS DEBITED A SUM OF RS.1,61,33,801/ - TOWARDS WAREHOUSING EXPENSES CONSISTING OF PAYMENT FOR COST OF BRICKS, CEMENT STEEL, TMT BARS ETC. ACCORDINGLY, THE AO ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE AS TO WHY THE SAME SHOULD NOT BE TREATED AS CAPITAL EXPENDITURE WHICH WAS REPLIED BY THE LETTER DATED 7.12.2011 BY SUBMITTING THAT THE ASSESSEE HAS R EPAIRED THE COMPOUND WALL WHICH WAS BROKEN AT SEVERAL PLACE S AND ALSO STATED THAT THE SAID WALL WAS CONSTRUCT ED LONG BACK SOME WHERE IN THE YEAR 1974 - 75 AND WAS DAMAGED DUE TO MOVEMENT OF TRAILERS, FORKLIFTS AND THEREFORE THE SURFACE OF THE PLOT HAS TO BE REPAIRED. HOWEVER, THE AO WAS NOT SATISF IED WITH THE REPLY OF THE ASSESSEE AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE H OWEVER ALLOWED THE DEPRECIATION AT THE RATE OF 10% RESULTING INTO DISALLOWANCE OF RS.1,45,20,421/ - . IN THE APPELLATE PROC EEDINGS, THE FAA CONFIRMED THE ACTION OF THE AO VIDE PARA 8 OF THE APPELLATE ORDER WHICH IS AS UNDER : 8. THE FACTS OF THE CASE, THE GROUNDS OF APPEAL, THE STAND TAKEN BY THE A0 IN THE ASSESSMENT ORDER AND THE WRITTEN SUBMISSIONS FILED BY THE APPELLANT H AVE BEEN CAREFULLY CONSIDERED. IN FACTUAL TERMS, THE APPELLANT HAS INCURRED A HUGE EXPENDITURE OF RS.L,61,33,801/ - TOWARDS THE EXCAVATION IN SOIL, COST OF BRICKS, CEMENT, STEEL, TMT BARS ETC. AND CARRIED OUT A CONSTRUCTION. THE CONSTRUCTION ACTIVITY INCLU DED RENOVATING THE PREMISES / COMPOUND WALL AND THE OTHER BASIC REQUIREMENT OF THE GODOWN AREAS WHICH IS A PRE - CONDITION FOR CARRYING OUT THE KIND OF BUSINESS THE APPELLANT IS INVOLVED. THE LARGE SCALE REPAIRS INVOLVING EXCAVATION IN SOIL, COST OF BRICK S , C EMENT, STEEL, TMT BARS ETC. AND THE COSTS INCURRED THEREOF CLEARLY INDICATE THAT THE ACTIVITY HAD THE EFFECT OF CARRYING OUT CONSTRUCTION / RENOVATION OF THE WAREHOUSING FACILITIES 3 I.T.A. NO. 2093 /MUM/201 3 WHICH HAS AN ENDURING BENEFIT IN RESPECT OF CAPITAL ASSETS HELD BY THE APPELLANT. THE FACTS INDICATE THAT THE BENEFIT THAT FLOW FROM THE LARGE SCALE EXPENDITURE INCURRED WOULD CERTAINLY BE OVER A PERIOD OF SEVERAL YEARS TO COME AND THE SAME CANNOT BE TRIVIALIZED BY CLAIMING THAT IT HAS NO ENDURING BENEFIT. IT IS SEEN FROM THE PROFIT & LOSS ACCOUNT THAT THE APPELLANT HAS RECEIVED WAREHOUSING INCOME OF ONLY RS.10 LAKHS APPROXIMATELY, WHILE IT HAS OTHER INCOME RUNS INTO SEVERAL CRORES OF RUPEES. THE MEAGER INCOME DERIVED FROM WAREHOUSING FACILITIES, AS COMPARED TO THE EXPENSES IN CURRED FOR RENOVATING THE WAREHOUSING FACILITIES MAKES IT CLEAR THAT IN ORDER TO EARN INCOME OVER A PERIOD OF TIME, . CERTAIN ADDITIONAL INVESTMENTS HAVE BEEN MADE IN THE WAREHOUSING FACILITIES. THEREFORE, THE CONTENTION OF THE APPELLANT THAT THE EXPENDITU RE AMOUNTING TO RS.L,61,33,801/ - OUGHT TO HAVE BEEN ALLOWED AS REVENUE EXPENDITURE IS DEVOID OF MERIT. IN SIMILAR FACTS AND CIRCUMSTANCES, THE HON'BLE COURTS HAVE HELD AS UNDER: (I) ARVIND MILLS LTD. VS. CIT (197 ITR 422) (SC) WHEREIN THE HON'BLE SUPREME COURT HAS HELD THAT CAPITAL EXPENDITURE WOULD NOT BECOME REVENUE EXPENDITURE SIMPLY BY REASON THAT IT WAS INCURRED IN CONNECTION WITH BUSINESS ACTIVITIES WHICH ULTIMATELY RESULTED IN EFFICIENTLY CARRYING DAY TO DAY BUSINESS. (II) . MODELLS WOOLENS LTD. VS. CIT (120 ITR 726) (BOM.) WHEREIN THE HON'BLE HIGH COURT HAS HELD THAT THE EXPENDITURE INCURRED FOR CONVERTING A KACHA ROAD INTO PUCCA ROAD WAS NOT DEDUCTIBLE AS REVENUE EXPENDITURE BECAUSE IT WAS NOT AN ORDINARY REPAIR THAT WAS CARRIED OUT TO AN EXISTI NG ROAD AND IT WAS NOTHING SHORT OF REMAKING THE ROAD WHICH WAS IN A WAY ALTOGETHER A NEW ROAD AND THEREFORE, THE EXPENDITURE INCURRED FOR THAT PURPOSE WAS, THEREFORE. IN THE NATURE OF CAPITAL EXPENDITURE AND NOT DEDUCTIBLE AS REVENUE EXPENDITURE. (III) SUCH A VIEW WAS ALSO EXPRESSED ON A SIMILAR ISSUE BY THE HOU'BLE KERALA HIGH COURT IN THE CASE OF CIT VS. GLEN VIEW RUBBER CO. PVT. LTD. 8.1 HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, IT IS HEREBY HELD THAT THE EXPENDITURE OF RS.1,61,33,80 1L - HAS BEEN RIGHTLY CONSIDERED BY THE A.O AS CAPITAL EXPENDITURE AND DEPRECIATION AT THE APPLICABLE RATES HAS BEEN ALLOWED. THEREFORE, NO INTERFERENCE IS CALLED FOR 4 I.T.A. NO. 2093 /MUM/201 3 4 . THE LD. AR VEHEMENTLY SUBMITTED BEFORE US THAT THE LD. CIT(A) HAS GROSSLY ERRED IN UP HOLDING THE ORDER OF THE AO BY NOT APPRECIATING ALL THE FACTS OF THE CA S E IN CORRECT PERSPECTIVE. THE LD. AR SUBMITTED THAT THE SAID EXPENDITURE WAS INCURRED BY THE ASSESSEE FOR REPA IRING THE COMPO UND WALL WHICH WAS IN A DILAPIDATED CONDI TION AND HAS TO BE REPAIRED BY I NCURRING THE SAID EXPENSES SUCH AS EXCAVATION , LABOUR CHARGES AND PURCHASE OF MATERIALS ETC BUT ALL WERE REVENUE IN NATURE. THE LD. AR IN SUPPORT OF HIS CONTENTION HEAVILY RELIED ON THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE C A S E OF CIT V/S SOUTHERN ROADWAYS LTD REPORTED IN (2008) 304 ITR 84(MAD). THE LD. AR SUBMITTED BEFORE US THAT THE EXPENDITURE INCURRED FOR THE SAME BE TREATED AS R E V ENUE EXPENDITURE AND ACCORDINGLY PRAYED THAT THE ORDER OF FAA BE REVERSED AND THE AO BE DIRECTED TO DELETE THE ADDITION. 5 . WE HAVE CAREFULLY HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL PLACED BEFORE US INCLUDING THE IMPUGNED ORDERS AND CASE LAW RELIED UPON BY THE ASSESSEE. THE UNDISPUTED FACTS OF THE ISSUE ARE THAT THE ASSESSE E HAS INCURRED AN EXPENDITURE TO THE TUNE OF RS. 1 ,61,33,801/ - ON THE REPAIRS OF COMPOUND WALL WHICH COMPRISES PAYMENT FOR COST OF BRICKS, CEMENT STEEL, TMT BARS , EXCAVATION AND LABOUR CHARGES ETC. NOW THE ISSUE BEFORE US IS WHETHER THE REPAIR OF COM POUND WALL CONSTITUTES REVENUE EXPENSES IN NATURE OR FALLS UNDER THE CATEGORY OF CAPITAL EXPENDITURE. AFTER EXAMINING THE FACTS ON RECORDS AND RELEVANT CONTENTIONS, WE FIND THAT THE EXPENDITURE IS CLEARLY 5 I.T.A. NO. 2093 /MUM/201 3 OF REVENUE IN NATURE AS THE SAME WERE INCURRED TO REPAIR AND RESTORE THE DILAPIDATED WALL . MOREOVER , THE CA SE OF THE ASSESSEE FINDS SUPPORT OF THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF SOUTHERN ROADWAYS LTD (SUPRA), WHEREIN IT HAS BEEN HELD THAT THE EXPENDIT URE INCURRED ON COMPO UND WALL IS REVENUE EXPENDITURE. WE, THEREFORE, RESPECTFULLY FOLLOWING THE RATIO OF THE DECISION OF HONBLE MADRAS HIGH COURT (SUPRA) SET ASIDE THE ORDER OF THE LD.CIT(A) AND DIRECT THE AO TO DELETE THE ADDITION. GROUND NO.1 TAKEN BY THE ASSESSEE STANDS ALLOWED. 6 . THE ISSUE TAKEN BY THE ASSESSEE IN GROUNDS OF APPEAL NO.2 IS WITH REGARD TO DISALLOWANCE OF RS.1,26,65,630/ - U/S 40(A)(IA) OF THE ACT IN RESPECT OF PAYMENT MADE TO SAIKRUPA FOOD SERVICES PRIVATE LIMITED (SKFS) ON THE GROUND THAT THE AS SESSEE FAILED TO DEDUCT THE TAX AT SOURCE. THE LD. COUNSEL AT THE OUTSET SUBMITTED THAT AS PER THE SECOND PROVISO TO SECTION 201 OF THE ACT, THE ASSESSEE HAS ALREADY FURNISHED A CERTIFICATE THAT THE RECIPIENT HAS ALREADY OFFERED THE SAID AMOUNT IN THE IN COME TAX RETURN AND DULY PAID TAXES THEREON, THEREFORE, THE ISSUE IS COVERED BY THE SECOND PROVISO TO SECTION 201 OF THE ACT AND HENCE NO DISALLOWANCE U/S 40(A)(IA) SHOULD BE MADE AND PRAYED THAT THE SAME SHOULD BE DELETED . THE LD. AR ALSO PLACED ON REC ORD A DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V/S ANSAL LAND MARK TOWNSHIP P LTD REPORTED IN (2015) 377 ITR 635(DEL) AND STATED THAT THE 6 I.T.A. NO. 2093 /MUM/201 3 HONBLE DELHI HIGH COURT HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND THE SAME ANALOGY BE APPLIED FOR IN THIS CA S E ALSO. 7 . THE LD. DR ON THE OTHER HAND RELIED ON THE ORDER OF AUTHORITIES BELOW. 8 . WE FIND THAT NO DISALLOWANCE IS CALLED FOR AS THE RECIPIENT HAS ALREADY PAID THE TAXES ON THE SOURCES OF INCOME AND DUE CERTIFICATE WAS FURNISHED BY THE ASSESSEE. WE ALSO FIND THAT THE CASE LAW RELIED UPON BY THE LD. AR IN THE CASE OF ANSAL LAND MARK TOWNSHIP P LTD (SUPRA) SUPPORT THE ISSUE OF THE ASSESSEE. IN VIEW OF THE FACTS AND LEGAL POSITION ,WE ARE INCLINED TO SET ASIDE THE ORDER OF CIT(A ) AND DIRECT THE AO TO DELETE THE DISALLOWANCE. THE GROUND OF THE ASSESSEE IS ALLOWED 9 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 21ST DEC , 2017 . S D SD (JOGINDER SINGH ) ( RAJESH KUMAR ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 21 . 1 2 . 2017 SR.PS:SRL: / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI 6 . / GUARD F ILE / BY ORDER, T RUE COPY / (DY ./ASSTT. REGISTRAR) , / ITAT, MUMBAI