M/s. A B T Limited, CHENNAI V. DCIT, Coimbatore

ITA 2103/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7644 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2017
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 12-07-2016
• Court: TRIBUNAL
• Department Lawyers: A V SREEKATH
• Assessee Lawyers: S SRIDHAR
• Keywords: Revenue expenditure; Capital expenditure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: CHENNAI . . . , !'. . # $ % , ' () BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S.SUNDER SINGH, ACCOUNTANT MEMBER ./ ITA NO.2103/MDS/2016 * +* /ASSESSMENT YEAR: 2012-13 M/S.A B T LIMITED, 180, RACE COURSE ROAD, COIMBATORE 641 018. [PAN: AABCA 8398 K] VS. THE DY. COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-I (1), COIMBATORE. ( ,- /APPELLANT) ( ./,- /RESPONDENT) ,- 0 1 / APPELLANT BY : MR.S.SRIDHAR, ADV. ./,- 0 1 /RESPONDENT BY : MR.A.V.SREEKATH, JCIT. # 0 2' /DATE OF HEARING : 12.01.2017 34+ 0 2' /DATE OF PRONOUNCEMENT : 22.02.2017 / O R D E R PER D.S.SUNDER SINGH , ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST AN ORDER DATED 30.05.2016 OF COMMISSIONER OF INCOME TAX (APPEALS)- 1, COIMBATORE, IN ITA NO.25/15-16 FOR THE AY 2012-13. 2.0 ALL THE GROUNDS OF THE APPEAL ARE RELATED TO THE D ISALLOWANCE OF CAPITALIZATION OF EXPENDITURE INCURRED ON LEASEHOLD LAND. DURING THE ITA NO.2103/MDS/2016 :- 2 -: ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER (HERE INAFTER REFERRED TO AS AO) FOUND THAT THE ASSESSEE COMPANY HAD CLAIMED A SUM OF 3,14,86,158/- AS REVENUE EXPENDITURE UNDER THE HEAD CONSTRUCTION OF BUILDINGS ON LEASEHOLD LAND. THE AO CALLED FOR THE DETAILS AND FROM THE DETAILS IT WAS FOUND BY THE A.O THAT THE EXPENDITUR E INCURRED BY THE ASSESS WAS IN THE NATURE OF CAPITAL EXPENDITURE BUT NOT THE REVENUE EXPENDITURE, HENCE INVOKING THE PROVISIONS OF EXPLA NATION-1 OF SECTION 32(1) THE A.O TREATED (OUT OF THE TOTAL AMOUNT OF 3,14,86,158/-) A SUM OF 2,72,17,670/- AS CAPITAL EXPENDITURE AND THE BALANC E AMOUNT OF RS.42,68,487/- WAS ALLOWED AS REVENUE EXPENDITURE. 3.0 THE ASSESSEE WENT ON APPEAL BEFORE THE COMMISSION ER OF INCOME TAX (APPEALS) (HEREINAFTER REFERRED TO AS CIT(A)) A ND THE LD.CIT(A) CONFIRMED THE ADDITION PLACING RELIANCE ON THE DECI SION OF HONBLE ITAT A BENCH IN ORDER NO.2077/MDS/2014 & ITA NO.1218/MDS/2 015 DATED 29.10.2015 IN ASSESSEES OWN CASE, HENCE THE ASSE SSEE IS ON APPEAL BEFORE US. 4.0 APPEARING FOR THE ASSESSEE, THE LD.COUNSEL REITERA TED THE SUBMISSIONS MADE BEFORE THE LD.CIT(A) AS UNDER: WE ARE RUNNING MARUTI SHOW ROOM AND SERVICE STATION AT VARIOUS PLACES ON LEASEHOLD LAND. AS PER THE AGREEMENT ENTERED WITH THE LESSOR, WE HA VE TO VACATE THE BUILDING AT ANY TIME BY GIVING 3 MONTHS NOTICE BY EITHER SIDE. AT THE TI ME OF VACATING THE BUILDING, WE CAN REMOVE THE CAPITAL MATERIAL AND THESE MATERIALS MAY NOT HAVE ORIGINAL STRENGTH AND WE CANNOT USE THE SAME FURTHER. ITA NO.2103/MDS/2016 :- 3 -: DURING THE A.Y.1990-91 & 1991-92, THE ITAT, CHENNAI HAD ALLOWED THIS TYPE OF EXPENDITURE, IN OUR OWN CASE. OUR PRINCIPAL M/S MARUTI SUZUKI INDIA LIMITED (MSIL) HAS BEEN ADVISING US TO CHANGE THE INTERIOR AND EXTERIOR AS PER THEIR NORMS. THESE NOR MS ARE SUBJECTED TO CHANGE FROM TIME TO TIME AND WE HAVE TO ADHERE TO THEIR ADVISE BY CHANG ING/REMODELING/ALTERING THE INTERIOR/EXTERIOR MADE TO MEET THEIR CHANGED CORPOR ATE IMAGE (CI) NORMS. IN VIEW OF THE ABOVE AND THOUGH THE INTERIOR AND EX TERIOR ARE LONG LASTING, WE ARE BOUND TO CHANGE THE SAME AS PER THE ADVISE GIVEN BY THEM FRO M TIME TO TIME AND THE EXPENSES ARE TO BE TREATED AS REVENUE EXPENDITURE. WE ARE ENCLOSING THE BREAK UP DETAILS OF REVENUE EX PENDITURE INCURRED DURING THE FY 2011- 12. 5.0 THE ASSESSEE ALSO SUBMITTED THAT DURING THE AY 199 0-91 & 1991-92, THE HONBLE ITAT HAS ALLOWED SUCH TYPE OF EXPENDITU RE IN THE ASSESSEES OWN CASE. THE ASSESSE ALSO GIVEN THE BREAKUP OF TH E EXPENDITURE AND ARGUED THAT THE EXPENDITURE UNDER THE HEAD CONSTRUC TION EXPENSES ARE, IN FACT, MAINTENANCE EXPENSES FOR UPKEEP OF THE PREMIS ES. THEREFORE, THE LD.AR ARGUED THAT EXPENDITURE SHOULD BE ALLOWED AS REVENUE EXPENDITURE. ON THE OTHER HAND, THE LD.DR RELIED ON THE ORDERS O F THIS TRIBUNAL IN ITA NO.2077/MDS/2014 & ITA NO.1218/MDS/2015. 6.0 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL PLACED ON RECORD. THE AY INVOLVED IS 2012-13, THE ASSESSEE HAS FURNI SHED TWO LEASE AGREEMENTS ONE FOR AMBATTUR INDUSTRIAL ESTATES AS P ER THE LEASE AGREEMENT, IT WAS ENTERED FOR AN INITIAL PERIOD OF THREE YEARS AND ON ITA NO.2103/MDS/2016 :- 4 -: EXPIRY OF THE THREE YEARS LEASE PERIOD, IT WILL BE RENEWED FOR FURTHER PERIOD OF THREE YEARS. THE SECOND AGREEMENT DATED 27.04.2 011 WAS FOR EAST COAST ROAD (IN SHORT ECR), AND ENTERED FOR A PERI OD OF 15 YEARS. THE ASSESSEE HAS TAKEN THE LEASED PREMISES FOR SUBSTANT IAL PERIOD AND AS PER CLAUSE-17 OF LEASE AGREEMENT DATED 27.04.2011, THE LEASE CAN BE TERMINATED BY 12 MONTHS NOTICE ON EITHER SIDE. SI MILARLY, AS PER LEASE AGREEMENT DATED 10.12.2010 OF AMBATTUR INDUSTRIAL E STATE LEASE CAN BE TERMINATED WITH SIX MONTHS NOTICE ON EITHER SIDE. HENCE, THE SUBMISSION OF LD.AR THAT THE ASSESSE HAS TO VACATE THE BUILDIN G AT ANY TIME BY GIVING THREE MONTHS NOTICE IS INCORRECT. THE ASSESSE HAS ENTERED INTO LEASE AGREEMENT FOR LONGER PERIODS AND THE LEASE WAS NOT FOR SHORT TERM PERIOD. THE ENTIRE EXPENDITURE INCURRED BY THE ASSESSE IN T HE NEW PREMISES WAS FOR BRINGING INTO EXISTENCE OF THE SHOWROOM/SERVICE CENTRE IS UNDOUBTEDLY A CAPITAL EXPENDITURE. THE ASSESSEE HAS GIVEN THE BREAKUP OF AS FOLLOWS: LEASE BUILDING DETAILS FOR A.Y. 2012-13 BRANCH PARTICULARS AMOUNT CONSTRUCTION EXPENSES RUNNING EXPENSES AMBATTUR TRUE VALUE H & R JOHNSON INDIA PURCHASE OF TILES & UNLOADING CHARGES 87930 87930 - ZENITH ENTERPRIESES PURCHASE OF AIR CONDITIONER 168001 - 168001 CONSTRUCTION DESIGNERS REDOR WORK 111523 111523 - MORNING STAR PURCHASE OF CHAIRS 10476 - 10476 PURCHASE OF S3N BOARD FROM MR.ART 35667 - 35667 PURCHASE OF ACCESSORIES FROM ZENITH ENTERPFSES& INSTALLATION 36645 - 36645 URCHASE OF INTERIOR MATERIAL FROM SINI INTERIOR FURNISHERS 168750 - 168750 PINKY ELECTRICALS PURCHASE OF ELECTRICAL ITEMS 7844 7844 - LB ENGINEERING PURCHASE OF 24000 - 24000 ITA NO.2103/MDS/2016 :- 5 -: SECURITY CABIN MR.ART PMNIING WORK 1872 - 1872 PURCHASE OF MATEAL FROM CEASEFIRE INDUSTRIES LTD 9113 - 9113 SKM CONSTRUCTION, CONSTRUCTION WORK BILL 1664325 1664325 - AISHWARYA ELECTRICAL POWER B.NO.318 84361 84361 - TERM LOAD INT @ 12.50% PAID UPTO PROJECT PERIOD CAPITALISED 72846 - 72846 2483353 1955983 527370 CONSTRUCTION OF STP TANK WORKS FOR SKM CONSTRUCTION FR AMR 201928 - 201928 CCCL BILL FOR AMR MARUTHI 5018652 5018652 - 5220580 5018652 201928 ECR MOHAMED ALL ECR RENT DURING PROJECT PERIOD 1789648 - 1789648 BUILDING PLAN APPROVAL EXP 50000 - 50000 FREIGHT EXPENSES 25500 - 25500 INCIDENTAL EXP FOR BUILDING LICENCE 35000 - 35000 PURCHASE FOR HYDRALIC OIL 23038 - 23038 NEW OFFICE BUILDING 19534173 19534173 - ARCHITECT BUILDING CONSULTING FEES 303325 303325 - LUNCH & TEA EXPENCES, BUS FARE & VEHICLE FUEL EXP, XEROX, BADGE MAKING CHARGES, POOJA 15922 - 15922 BRANCH OPENING CEREMONY EXPENSES 110498 - 110498 21887104 19837498 2049606 BHARANI APPLICATION OF TWO COATS OF EPOXY COATING FR CIVIL DOCTOR 24060 - 24060 APPLICATION OF ACID WASH, PRIMER & EPOXY TOP COAT & 4YELLOW 18900 - 18900 APPLICATION OF ACID WASH, PRIMER & EPOXY TOP COAT & 4YELLOW 7698 - 7698 APPLICATION OF BITUMEN SHEET LAYING 45880 - 45880 96538 - 96538 CUDDALORE FBRICATION WORK OF POLYCARBONATED SHEET SHED WASHING RAMP FROM A.R INDUSTRIES 838656 - 838656 CONSTRUCTION OF POLE POST FOUNDATION WORKS FROM S.K.M.CONSTRUCTIONS 31920 - 31920 RENOVATION WORK,SCAFFOLDING,TRANSPORT, HIRE,PLYWOOD,FRAMES FROM S.K.M.CONSTRUCTION 145050 - 145050 ITA NO.2103/MDS/2016 :- 6 -: FIXING OF READER FALSE CELING EXCLUDING COST FOR CONSTRUCTION DESIGN 25200 - 25200 CUDDALORE BRANCH COMPOUND WALL 150000 - 150000 CONSTRUCTION CIVIL WORK 405539 405539 - 1596365 405539 1190826 VILLUPURAM TOWARDS FIXING OF12MM GLASS DOOR,TOP & BOTTOM ALUMINIUM FRAME FR SKM CONSTRUCTION 26400 - 26400 TOWARDS FIXING OF ACP SHEET DOOR,ALUMINIUM COMPOSITE PANELSHEETS FROM CONST 21040 - 21040 TOWARDS AYUDHA POOJA WHITE WASH MADE BY HARIDASS 19064 - 19064 TOWARDS FALSE CELING WITH ARM STRONG SHEETS EXCLUDING COST FROM CONSTRUCTION DESIGNER 12000 - 12000 78504 - 78504 AWYTR 1 NO 1.5 HP/18 STAGE SUBMERSIBLE PUMP WITH CONDUCT RELAY PANEL PURCHASE FROM R.R INDUSTRIES 13755 - 13755 1.5 HP SUBMERSIBLE PUMP ERECTION LABOUR CHARGES R.RINDUSTRIES 3700 - 3700 1.5 FLAT CABLE 1233 POLY ROPE FOR PVC PIPE FITTING CHARGES N.S. MOTORS 9350 - 9350 BOREWELL AT AWYTR FOR 364FT NOW ACCOUNTED E.C.ENTERPRICES 96910 - 96910 123715 - 123715 GRAND TOTAL 31486158 27217672 4268487 7.0 FROM THE ABOVE BREAKUP OF THE EXPENDITURE, IT SEEN THAT THE ENTIRE EXPENDITURE AND CONSTRUCTION EXPENSES WERE INCURRED FOR ESTABLISHING THE NEW SHOWROOMS OR WORKSHOPS ON VARIOUS PLACES, EXCEP T IN THE CASE OF BHARANI AND VILLUPURAM. THIS IS EVIDENT FROM THE ABOVE BREAKUP OF EXPENDITURE WHICH CLEARLY SHOWS THAT THE EXPENDITUR E WAS FOR THE PURPOSE OF BRINGING THE NEW ASSET INTO EXISTENCE IN THE LEA SED PREMISES. IT IS CLEAR THAT THE ENTIRE EXPENSES FOR ECR WERE FOR INSTALLIN G AND COMMISSIONING THE ITA NO.2103/MDS/2016 :- 7 -: NEW SHOWROOM/SERVICE CENTRE. SIMILARLY, AMBATTUR SE RVICE CENTRE AND CUDDALORE ALSO SHOWS THAT THE EXPENDITURE INCURRED WAS FOR THE PURPOSE OF BRINGING NEW SHOWROOM INTO EXISTENCE. THE ASSESSEE RELIED ON THE DECISION OF HONBLE MADRAS HIGH COURT JUDGMENT IN T HE CASE OF CIT VS. AYUSH HOSPITALS RENDERED ON 10.10.2006. HONBLE MAD RAS HIGH COURT, IN THE CITED DECISION HELD THAT THE EXPENSES INCURRED TOWARDS PAINTING RELAYING OF THE DAMAGED PARTITIONS, ETC., HELD TO B E REVENUE EXPENSES. FROM THE BREAKUP GIVEN BY THE ASSESSEE WE DO NOT SE E ANY EXPENDITURE WHICH IS IN THE NATURE OF REVENUE. THE ASSESSEE ALS O DID NOT BRING ANY EVIDENCE TO PROVE THE REVENUE NATURE OF EXPENDITURE BEFORE US. ACCORDINGLY, WE HOLD THAT THE EXPENDITURE INCURRED FOR THE PURPOSE OF ESTABLISHING THE NEW SHOWROOM/SERVICE CENTRE IS CAP ITAL EXPENDITURE. HOWEVER WE DIRECT THE AO TO VERIFY THE BREAKUP OF T HE EXPENSES INCURRED BY THE ASSESSE AND TO TREAT THE EXPENSES INCURRED F OR ESTABLISHING/BRINGING THE NEW SHOWROOM, AS CAPITAL EXPENDITURE AND THE EXPENDITURE INCURRED TO UPKEEP THE ALREADY EXISTING ASSETS (SUCH AS PAINTING, RELAYING OF NEW TILES, PARTITIONS, ETC.), TO BE ALLOWED AS REVENUE EXPENDITURE. 8.0 WE SET ASIDE THE ORDERS OF LOWER AUTHORITIES AND R EMIT THE MATTER BACK TO THE FILE OF AO TO MAKE NECESSARY VERIFICATI ON OF THE EXPENDITURE AND DECIDE CAPITAL OR REVENUE NATURE ON MERITS. IT IS NEEDLESS TO SAY THAT THE A.O WILL GIVE OPPORTUNITY TO THE ASSESSEE. ITA NO.2103/MDS/2016 :- 8 -: 9.0 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND FEBRUARY, 2017, AT CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( !' . . # $ % ) (D.S.SUNDER SINGH) ' /ACCOUNTANT MEMBER /CHENNAI, 5 /DATED: 22 ND FEBRUARY, 2017. TLN 0 .2$6 76+2 /COPY TO: 1. ,- /APPELLANT 4. # 82 /CIT 2. ./,- /RESPONDENT 5. 69 .2 /DR 3. # 82 ( ) /CIT(A) 6. '* < /GF