The ACIT Corporate, Cochin V. M/s.Joy Alukkas(India) P. Ltd, Cochin

ITA 217/COCH/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8645 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 05-05-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 07-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K P GOPAKUMAR
• Assessee Lawyers: A S NARAYANAMOORTHY
• Keywords: Proportionate interest; Notional interest; Revenue expenditure; Capital expenditure

Judgement Text

ITA NO . 217/C/2015 1 IN THE INCOME TAX APPEL L A TE T R IBUNAL COCHIN BENCH , COCHIN BEFORE S/SH RI B P JAIN , A M & G EORGE GEORGE.K , J M ITA NO . 217/COCH/2015 (ASST YEAR 2008 - 0 9 ) THE ASST COMMR OF INCOME TAX(CORPORATE CIRCLE 1(2) KOCHI VS M/S JOY ALUKKAS (INDIA) P LTD MARINE DRIV E COCHIN 31 ( APPELLANT) (RESPONDENT) PAN NO. AABCJ1087G ASSESSEE BY SH A S NARAYANAMOORTHY REVENUE BY SH K P GOPAKUMAR, SR DR DATE OF HEARING 5 TH MAY 2016 DATE OF PRONOUNCEMENT 6 TH MAY 2016 OR D ER PER GEORGE GEORGE. K. J M: THIS APPEAL, AT THE INSTANCE OF THE REVENUE IS DIRECTED AGAINST THE CIT(A)S ORDER DATED 6.1.2015. THE RELEVANT ASSESSMENT YEAR IS 2008 - 09. 2 THE ISSUES THAT ARE RAISED IN THIS APPEAL READ AS UNDER: I) WHETHER THE EXPENDITURE INCURRED FOR RENOVATION OF THE LEASEHOLD PREMISES IS REVENUE EXPENDITURE & II) WHETHER INTEREST ON SUCH BORROWINGS ARE TO BE ALLOWED AS REVENUE EXPENDITURE. 3 THE BRIEF FACTS WITH REGARD TO THE ABOVE ISSUES ARE AS FOLLOWS: THE ASSESSEE HAD INCURRED EXPENDITURE ON IMPROVEMENT TO THE BUILDING TAK EN ON LEASE FOR THE PURPOSE OF SHOW - ROOM. THE AO, IN THE COURSE OF ASSESSMENT ITA NO . 217/C/2015 2 PROCEEDINGS , HAD NOTICED THAT THE PREMISES WERE TAKEN FOR LONG TERM LEASE AND INITIAL INVESTEMENT IN RENOVATING THE SHOW - ROOM HAD GIVEN THE ASSESSEE A BENEFIT OF ENDURING NATURE AND HENCE THE EXPENDITURE INCURRED OUGHT TO BE CONSIDERED AS CAPITAL EXPENDITURE AND DISALLOWED THE SAME. 3.1 SIMILARLY, PROPORTIONATE INTEREST WAS ALSO DISALLOWED ON BORROWED CAPITAL FOR THE REASON THAT THE SAME HAD BEEN EXPENDED FOR THE IMPROVEMENT TO THE LEASEHOLD PREMISES. 4 AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL TO THE FIRST APPELLATE AUTHORITY. THE CIT(A), FOLLOWING THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE FOR THE AY 2007 - 08 (ITA NO.230/COCH/2013 DATE D 20.1.2014) ALLOWED THE APPEAL OF THE ASSESSEE AND DELETED THE ADDITION MADE BY THE AO. THE RELEVANT FINDINGS OF THE CIT(A) READS AS FOLLOWS: 1.3 HAVING GONE THROUGH THE ORDER OF THE HONBLE HIGH COURT OF KERALA, IT IS FOUND THAT THIS ISSUE HAS BEEN SETTL ED IN FAVOUR OF THE ASSESSEE VIDE PARA 30 OF THE SAID ORDER WHICH IS REPRODUCED AS UNDER: THEREFORE, THE STAND OF THE REVENUE THAT THE TRIBUNAL WAS JUSTIFIED IN REJECTING THE CLAIM OF THE ASSESSES HAS TO BE REJECTED. IT IS MADE CLEAR THAT THE BUSINESS EXP ENDITURE IRRESPECTIVE OF CREATING ENDURING BENEFITS OR ADVANTAGE EVEN IT IT IS A PROFIT EARNING EFFORT UNLESS AT THE END OF THE TERM OF LEASE THE ITEMS ON WHICH EXPENDITURE WAS SPENT COULD BE RETRIEVED BY THE APPELLANTS ASSESSEE IT SHALL NOT AMOUNT TO CAP ITAL EXPENDITURE BUT IT CAN BE TERMED ONLY AS REVENUE EXPENDITURE . SINCE THE ISSUE HAS ALREADY BEEN SETTLED IN FAVOUR OF THE APPELLANT, THE ADDITION MADE BY THE AO ON THIS COUNT IS DELETED AND THE APPEAL ON THIS GROUND IS ALLOWED. ITA NO . 217/C/2015 3 4.1 SIMILARLY, THE DI SALLOWANCE OF INTEREST ON BORROWED CAPITAL WAS ALSO DELETED BY THE CIT(A) BY HOLDING AS UNDER: 3.3 AS A MATTER OF FAT, THE HONBLE JURISDICTIONAL HIGH OURT HAS ALREADY SETTLED THE ISSUE OF THE NATURE OF EXPENDITURE INCURRED ON IMPROVEMENT OF LEASEHOLD P ROPERTY, AS REVENUE IN NATURE, THE NOTIONAL DISALLOWANCE OF INTEREST U/S36(1)(III) COULD NOT BE SUSTAINABLE AS DISALLOWANCE EXPENDITURE. FURTHER, THE LD BENCH F ITAT, KOCHI HAS ALSO BEEN IN FAVOUR OF THE APPELLANT IN APPELLANTS OWN CASE FOR THE AY 2007 - 08 VIDE IT(TP) A NO 06/COCH/2013 DATED 9.5.2014 THAT THERE IS NO QUESTION OF ANY DISALLOWANCE OF NOTIONAL INTEREST ON THE BORROWED FUNDS. IN OTHER WORDS, IN VIEW OF THE JUDGMENT OF THE KERALA HIGH COURT HOLDING THAT THE EXPENDITURE INCURRED ON RENOVATION O F THE LEASEHOLD PREMISES FOR SETTING UP A NEW SHOWROOM IS REVENUE EXPENDITURE, THE INTEREST ON SUCH BORROWINGS HAS TO BE ALLOWED AS REVENUE EXPENDITURE. HENCE, THERE IS NO QUESTION OF ANY DISALLOWANCE. IN VIEW OF THE DECISION OF THE HONBLE KERALA HIGH COU RT ON THE ISSUE OF THE NATURE OF EXPENDITURE AND INTERPRETED BY THE LD BENCH F THE ITAT, KOCHI, DISALLOWANCE MADE BY THE AO IS DELETED AND THE APPEAL ON THIS GROUND IS ALLOWS. 6 AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. THE LD DR HAS GIVEN BRIEF NO TE. THE RELEVANT PORTION OF THE SAME READ AS UNDER: A) THE HON APPELLATE COMMISSIONER HAS NOT GIVEN ANY INDEPENDENT FINDING ON THE ISSUES, BUT HAS ONLY OBSERVED THAT THE HON KERALA HIGH COURT HAS DECIDED BOTH THE ISSUES IN FAVOUR OF THE ASSESSEE IN EARLIE R YEAR. B) FIRSTLY, THE ABOVE DECISION OF THE HON KERALA HIGH COURT HAD BEEN CONTESTED AGAINST BY THE REVENUE BY FILING SLP BEFORE THE HON SUPREME COURT OF INDIA. C) SECONDLY, THE HON KERALA HIGH COURT HAS, IN A VERY RECENT DECISION IN THE CASE OF INDUS MOTORS DISTINGUISHED THE ABOVE REFERRED TO DECISION IN FAVOUR OF THE PRESENT ASSESSEE AND AS, CLEARLY OPINE D THAT LAW LAID DOWN ITA NO . 217/C/2015 4 BY THE DIVISION BENCH OF THIS COURT IN JOY ALUKKAS INDIA P LD REQUIRES RECONSIDERATION. C) TAKING THE ABOVE FACTORS INTO CONS IDERATION, IT IS PRAYED THAT THE HON TRIBUNAL MAY BE PLEASED TO ADJUDICATE THE CASE IN FAVOUR OF THE REVENUE. 6.1 ON THE OTHER HAND, THE LD AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE RECENT FULL BENCH JUDGMENT OF THE HONBLE JURISDICTIO NAL HIGH COURT IN THE CASE OF INDUS MOTORS CO PVT LTD VS DCIT REPORTED IN (2016) 382 ITR 503(KERL) (FB) HAS CONFIRMED THE HONBLE KERALA HIGH COURT JUDGMENT IN ASSESSEES OWN CASE FOR THE AY 2007 - 08 (SUPRA) . 7 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE RELEVANT MATERIAL ON RECORD. I N THE INSTANT CASE, THERE IS NOTHING ON RECORD TO SUGGEST THE EXPENDITURE INCURRED ON IMPROVEMENT OF LEASEHOLD PREMISES ARE TO BE REIMBURSED TO THE ASSESSEE AT THE END OF THE LEASE PERIOD. THE HONBLE JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE FOR THE AY 2007 - 08 AT PARA 30 HAD CATEGORICALLY HELD THAT THE EXPENDITURE SPENT FOR LEASEHOLD PREMISES AND THE SAME WOULD NOT BE RETRIEVED, EVEN THOUGH THERE IS AN ENDURING BENEFIT , THE SAME SHALL NOT AMOUNT TO CAPITA L EXPE NDITURE; BUT IT CAN BE TERMED ONLY AS REVENUE EXPENDITURE . THEREFORE, IN VIEW OF THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE FOR THE AY 2007 - 08, WE HOLD THAT THE CIT(A) IS JUSTIFIED IN DELETING THE ADDITION MADE BY THE AO; NAMELY THE ITA NO . 217/C/2015 5 EXPENDITURE INCURRED ON IMPROVEMENT OF LEASEHOLD PREMISES AND THE INTEREST ON BORROWED CAPITAL. IT IS ORDERED ACCORDINGLY. 8 IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 6 TH DAY OF MA Y 2016 . SD/ - SD/ - ( B P JAIN ) ( GEORGE GEORGE K ) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN: DATED 6 TH M AY 2016 RAJ* COPY TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT(A) 4 . CIT , 5 . DR 6 . GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, COCHIN