DCIT, New Delhi V. M/s. Interocean Shipping India Pvt. Ltd., New Delhi

ITA 2104/DEL/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66033 (ITAT-DELHI)
• Duration Of Justice: 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 06-11-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 03-05-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SATPAL SINGH SENIOR
• Assessee Lawyers: K K SINGH FCAS
• Keywords: Depreciation; Capital expenditure
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C : NEW DELHI) SHRI I.C. SUDHIR, JUDICIAL MEMBER AND BEFORE SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.1628/DEL./2012 (ASSESSMENT YEAR : 2008-09) INTEROCEAN SHIPPING (INDIA) PVT. LTD., VS. ADDL.CI T, RANGE 11, 552, BANK COLONY, DEVLI VILLAGE, NEW DELHI. AMBEDKAR NAGAR, NEW DELHI 110 062. (PAN : AAACI0143F) ITA NO.2104/DEL./2012 (ASSESSMENT YEAR : 2008-09) ADDL.CIT, RANGE 11, VS. INTEROCEAN SHIPPING (INDIA ) PVT. LTD., NEW DELHI. 552, BANK COLONY, DEVLI VILLAGE, AMBEDKAR NAGAR, NEW DELHI 110 062. (PAN : AAACI0143F) (APPELLANT) (RESPONDENT) ASSESSEE BY : S/SHRI SANJIV RAI MEHRA & K.K. SINGH , FCAS REVENUE BY : SHRI SATPAL SINGH, SENIOR DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER : BOTH THESE CROSS APPEALS EMANATE FROM THE ORDER OF CIT (APPEALS)-XV, NEW DELHI DATED 24.02.2012. THE GROUNDS OF APPEAL IN A SSESSEES APPEAL READ AS UNDER :- ITA NOS.1628 & 2104/DEL./2012 2 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS )-XV, NEW DELHI ERRED IN LAW AND ON FACTS IN UPHOLDING DISALL OWANCE OF RS.20,34,723/- OUT OF CURRENT REPAIRS AND MAINTENAN CE EXPENSES AND BY TREATING THE SAME AS CAPITAL EXPENDITURE. 2. THE APPELLANT CRAVES LEAVE OF ADD AMEND OR DELET E ANY GROUND OF APPEAL. THE GROUNDS OF APPEAL IN REVENUES APPEAL READ AS U NDER :- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN DELETING THE ADDITION OF 41,06,565 /- MADE ON ACCOUNT OF DISALLOWANCE OF EXPENSES ON PAYMENTS MADE ON BEHALF OF FOREIGN SHIPOWNERS. 2. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEN D ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARING. 2. THE ONLY ISSUE INVOLVED IN ASSESSEES APPEAL BEI NG ITA NO.1628/DEL/2012 IS UPHOLDING THE DISALLOWANCE OF RS.20,34,723/- OUT OF CURRENT REPAIRS AND MAINTENANCE EXPENSES TREADING THE SAME AS CAPITAL I N NATURE. 3. THE CIT (A) HAS SUSTAINED THE ADDITION BY HOLDIN G AS UNDER :- 4.2 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND PERUSED THE ORDER OF THE ASSESSING OFFICER AND HAVE ALSO CONSIDERED THE FACTS AND THE EVIDENCES PLACED ON RECORDS. AS REGARDS GROUND NO.1 REGARDING CAPITALIZATION OF REPAIR EXPENSES, SINCE THESE PREMISES HAVE BEEN OCCUPIED BY THE APPE LLANT SINCE 1990, THEREFORE, I AM OF THE VIEW THAT THE APPELLANT'S CA SE IS SQUARELY COVERED BY EXPLANATION 1 TO SECTION 32(1) BECAUSE THE NATURE O F EXPENSE IS SUCH WHICH ENTIRELY FALLS IN THE CATEGORY OF RENOVATION OF BUILDING PREMISES. HENCE THE ACTION OF THE ASSESSING OFFICER IS CONFIR MED AND THE APPELLANTS GROUND IS REJECTED. 4. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. THE ADDITION HAS BEEN SUSTAINED BY INVOKING THE EXPLANATION 1 TO SECTION 32(1) WHER EIN THE CAPITAL EXPENDITURE INCURRED IN RESPECT OF A BUILDING NOT OWNED BY ASSE SSEE BUT IN RESPECT OF THAT ASSESSEE HOLDS A LEASE OR OTHER RIGHT OF OCCUPANCY FOR RENOVATION OR EXTENSION OR ITA NOS.1628 & 2104/DEL./2012 3 IMPROVEMENT TO SUCH BUILDING THEN THE PROVISIONS OF SECTION 32 FOR ALLOWING THE DEPRECIATION SHALL BE APPLICABLE. THUS, FOR INVOKI NG THE EXPLANATION TO SECTION 32(1), THE EXPENDITURE HAS TO BE CAPITAL IN NATURE. UNDER SECTION 30(A)(II), CURRENT REPAIRS EXPENSES ON PREMISES USED FOR BUSINESS PUR POSE ARE ALLOWABLE. REPAIRS MUST NOT INCLUDE CAPITAL EXPENDITURE. REPLACEMENT OF ITEMS FOR LONG TERM ON MANY YEARS WEAR AND TEAR CANNOT BE CURRENT REPAIRS. M ARBLING OF FLOOR CANNOT BE SAID AS CURRENT REPAIRS AS HELD IN THE CASE OF MODI SPINNIN G & WEAVING MILLS VS. CIT 160 ITR 656. THE COPY OF THE BILLS SUBMITTED BEFORE US SHOWS THAT RS.6,34,875/- WERE INCURRED ON MARBLE SLABS OF AROUND 2150 SQ.FT. @ RS .260 PER SQ.FT.. THIS EXPENDITURE ON MARBLE SLABS HAS DEFINITELY GIVEN BE NEFIT OF ENDURING NATURE. SUCH EXPENDITURE CANNOT BE SAID TO BE FOR CURRENT REPAIR S. EVEN IF IT IS REPLACEMENT THEN ALSO IT GIVES BENEFIT FOR LONG DURATIONS. THE RAT E OF THE MARBLE SLABS OF PER SQ.FT. OF RS.260/- WHICH ITSELF SUGGESTS THAT IT WAS A QUALIT Y MARBLE. THE COPY OF BILL OF M/S. MOTILAL CONTRACTOR ALSO SHOWS THAT THE EXPENDITURE WERE DEFINITELY OF CAPITAL IN NATURE GIVING ENDURING BENEFIT. THESE EXPENSES WER E NOT FOR CURRENT REPAIRS. THE EXPENSES WERE FOR PROVIDING AND FIXING DOOR WITH CH AUKHAT BOTH SIDE VINEER PU POLISH COMPLETE, FALSE CEILING, WOODEN PANELING, VE NTILATOR AND BINDING, WINDOW SUTTER AND CHAUKHAT, WINDOW GRILL, HIGH GLOSS ON WI NDOWS, ETC. PROVIDING AND FIXING WOODEN PANELS IN WALLS IN TOILETS AND DRAWING ROOMS , VENTILATOR AND BIDING, WINDOW SUTTER AND CHAUKHAT, WINDOW GRILL, HI-GLOSS ON BOTH SIDE OF WINDOW, PLASTIC EMULSION PAINT ON CEILING AND WALL, GLOSS BASE PANE L AND SKIRTING WHICH ARE DEFINITELY CAPITAL EXPENDITURE AND GIVING ENDURING BENEFIT. OTHER EXPENSES ARE ALSO RELATED TO THE RENOVATION WHICH CANNOT BE COVERED U NDER CURRENT REPAIRS. THUS, IN ITA NOS.1628 & 2104/DEL./2012 4 OUR CONSIDERED VIEW, THE MAJORITY OF THE EXPENDITUR E WAS OF CAPITAL IN NATURE GIVING BENEFIT OF ENDURING NATURE TO THE ASSESSEE. IN VIE W OF THIS FACTUAL ASPECT, WE ARE OF THE VIEW THAT THE CIT (A) IS JUSTIFIED IN CONFIRMIN G THE ADDITION BY TREATING THE SAME AS CAPITAL EXPENDITURE. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS DISMISSED. 6. IN APPEAL NO.2104/DEL/2012 FILED BY THE REVENUE, THE ONLY ISSUE INVOLVED IS DELETING THE ADDITION OF RS.41,06,565/- MADE ON ACC OUNT OF DISALLOWANCE OF EXPENSES ON PAYMENTS MADE ON BEHALF OF FOREIGN SHIP OWNERS. 7. THE CIT (A) HAS GRANTED THE RELIEF BY HOLDING AS UNDER :- 6. I HAVE GONE THROUGH THE SUBMISSION OF THE APPEL LANT AND FACTS AND EVIDENCES AVAILABLE ON RECORD. AFTER GOING THROUGH THE MODUS-OPERNDAI OF APPELLANT'S BUSINESS, IT IS SEEN THAT THE AO HAS MADE AN ADDITION OF RS.41,06,565 BEING 2% OF 'PAYMENTS MADE TO THIRD PA RTIES -WHICH ARE NOT ROUTED THROUGH THE APPELLANT'S BOOKS OF ACCOUNT S. THE APPELLANT CLAIMS THAT SINCE THESE 'PAYMENT TO THIRD PARTIES ARE ON ACCOUNT OF FOREIGNSHIP OWNERS ON ACCOUNT OF EXPENSES NAMELY ST EVEDORING INSURANCES SURVEYS, REPAIRS TO SHIP, PORT CHARGES E TC. FOR WHICH PROPER BILLS ARE AVAILABLE, HOWEVER IN RESPECT OF EXPENSES VIZ. TELEPHONE, LOCAL CONVEYANCE, POSTAGE AND COURIER, PRINTING ETC. ARE CHARGED ON AGREED BASIS AND IT IS ONLY THESE. 'CHARGES ON AGREED BASI S THE SUPPORTING VOUCHERS ARE NOT AVAILABLE WITH THE APPELLANT ON TH E VESSELS FILE MAINTAINED BY THEM. BUT THE APPELLANT HAS BROUGHT T O MY NOTICE THAT NO DOUBT THE BILLS FOR 'CHARGES ON AGREED BASIS ARE N OT AVAILABLE IN THE VESSELS FILES BUT THE RECOVERIES MADE ON EXPENSES I NCURRED ON AGREED BASIS ARE DULY BEEN REFLECTED ON THE INCOME SIDE OF THE PROFIT AND LOSS ACCOUNT UNDER THE HEAD 'RECOVERIES OF EXPENSES FROM OWNER'. THIS FACT IS TRUE FROM THE PERUSAL OF PROFIT AND LOSS ACCOUNT AS PER SCHEDULE II. FURTHER IT IS ALSO SEEN THAT ON THESE RECOVERIES WHICH ARE SHOWN BY THE APPELLANT AS ITS INCOME, THEY ARE PAYING 'SERVICE TAX' ALSO. HENCE IN VIEW OF THE ABOVE DISCUSSION, IN A SCENARI O WHERE AO HAS NOT POINTED OUT ANY SPECIFIC DISCREPANCIES AND THE THIR D PARTIES RECOVERIES ARE DULY BEEN CREDITED TO APPELLANT'S INCOME ON WHICH S ERVICE TAX TOO IS BEING PAID, IN SUCH AN EVENT, IN MY HUMBLE OPINION, AO IS NOT JUSTIFIED TO MAKE AN ADHOC DISALLOWANCE OF @2% ON THE GROUND THAT THE SAID EXPENSES ARE NOT SUPPORTED BY DOCUMENTARY EVIDENCES. HENCE ADDIT ION OF RS.41,06,565 IS DELETED. ITA NOS.1628 & 2104/DEL./2012 5 8. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE RAISED IN REVENUES APPEAL. THE CIT (A) HAS DELETED THE ADDITION BY HOLDING THAT AS SESSING OFFICER HAS NOT PINPOINTED ANY SPECIFIC DISCREPANCY AND THE THIRD P ARTIES RECOVERIES HAVE DULY BEEN CREDITED TO ASSESSEES INCOME ON WHICH SERVICE TAX TOO IS BEING PAID AND DELETED THE ADDITION. WE FIND THAT THE ASSESSING OFFICER HAS S PECIFICALLY MENTIONED THAT HE HAS GONE THROUGH THE DETAILS OF EXPENSES PAID BY THE AS SESSEE TO THE THIRD PARTIES AND SEVERAL PAYMENTS WERE NOT SUPPORTED BY THE DOCUMENT S PARTICULARLY THE EXPENSES CLAIMED UNDER THE HEAD MUTUALLY AGREED OR DISCUSSED AND OTHER PAYMENTS PAID IN CASH. THE ASSESSING OFFICER HAS ALSO DOUBTED THE G ENUINENESS OF THE PAYMENTS WHICH REMAINED UNPROVED BY THE ASSESSEE. ON THIS A CCOUNT, THE ESTIMATED ADDITION OF 2% OF THE TOTAL EXPENSES OF RS.20,53,28,258/- WA S MADE. THIS AMOUNT WAS PAID TO THIRD PARTIES. ASSESSEE HAD TRIED TO AVOID THE VERIFICATION BY CLAIMING THAT THESE EXPENSES WERE NOT ROUTED THROUGH P&L ACCOUNT AND TH ESE WERE REIMBURSEMENTS ONLY. IN OUR CONSIDERED VIEW, SUCH EXPENSES ARE P ART OF BUSINESS RUN BY ASSESSEE AND CORRESPONDING RECEIPTS ARE ALSO PART OF INCOME OF ASSESSEE. WE ARE ALSO OF THE VIEW THAT THE CIT (A) HAS GRANTED THE RELIEF WITHOU T VERIFYING THE GENUINENESS OF THE EXPENSES AS WELL AS VERIFYING THE SUPPORTING VOUCHE RS. CASH PAYMENTS BY NARRATING MUTUALLY AGREED OR DISCUSSED SHALL NOT BE SUFFICIEN T TO ESTABLISH THE GENUINENESS OF THE EXPENSES. TO WHOM PAID, FOR WHAT SERVICE, THES E WERE PAID ARE NECESSARY TO ESTABLISH THE GENUINENESS OF THE EXPENSES. PAGE 3 0 OF PAPER BOOK SHOWS ADDITIONAL CHARGES BUT NO NARRATION FOR WHAT PURPOSE THESE WER E SPENT. IN THE ABSENCE OF DETAIL, SUCH AD HOC DISALLOWANCE WAS JUSTIFIED. T HEREFORE, IN OUR CONSIDERED VIEW, ITA NOS.1628 & 2104/DEL./2012 6 THE CIT (A) WAS NOT JUSTIFIED IN GRANTING THE RELIE F ON THIS ISSUE. WE SET ASIDE THE ORDER OF THE CIT (A). 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLO WED. 10. TO SUM UP : THE APPEAL OF THE ASSESSEE IS DISMI SSED AND THE APPEAL OF THE REVENUE IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 14 TH DAY OF DECEMBER, 2012. SD/- SD/- (I.C. SUDHIR) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 14 TH DECEMBER, 2012 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XV, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.