DCIT, CHENNAI V. M/s. Jainsons Corporation Ltd., CHENNAI

ITA 2173/CHNY/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4867 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 21-06-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 24-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R VISWANATHAN
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHENNAI BENCH C : CHENNAI [BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER] I.T.A NO.2173/MDS/2010 ASSESSMENT YEAR : 2003-04 THE DY. CIT COMPANY CIRCLE III(4) CHENNAI VS M/S JAINSONS CORPORATION LTD NO.33, ROYAPETTAH HIGH ROAD CHENNAI 600 004 [PAN AACJ7633B ] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R.VISWANATHAN RESPONDENT BY : NONE O R D E R PER HARI OM MARATHA, JUDICIAL MEMBER: THIS APPEAL OF THE REVENUE, FOR ASSESSMENT YEA R 2003-04, IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A), CHENN AI, DATED 22.9.2010. THE FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPE AL: 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOM E TAX(APPEALS) IS CONTRARY TO THE LAW AND FACTS OF TH E CASE. 2. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS ) HAS ERRED IN DELETING THE IMPROVEMENT EXPENSES CAPITALI SED OF ` 4,21,567/-. 2.1 THE LEARNED CIT(A) OUGHT TO HAVE SEEN THAT AS P ER EXPLANATION TO 32(1) ANY IMPROVEMENT TO LEASE HOLD BUILDING IS ONLY CAPITAL EXPENDITURE. 2.2 THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS ERRED IN DELETING THE COST OF NAME BOARDS CAPITALIS ED OF ` ITA 2173/2010 :- 2 -: 1,37,109/-. 2.3 IT IS SUBMITTED THAT THE ASSETS INVOLVED ARE E NDURING IN NATURE AND DO NOT GET DESTROYED OR DEPRECIATED IN A YEAR AND THE BENEFITS WILL BE AVAILABLE FOR SEVERAL YEAR S. 3. THE LEARNED CIT(A) HAS ERRED IN DELETING THE DE PRECIATION ON GOODWILL DISALLOWED OF ` 1,37,109/-. 3.1 IT IS SUBMITTED THAT THE ORDER OF THE HON'BLE ITAT IN ITA NOS.1365-68/JMDS/J08 RELIED ON BY THE CIT(A) HAS NO T BECOME FINAL AS APPEAL HAS BEEN PREFERRED BY THE REVENUE BEFORE THE HON'BLE HIGH COURT OF MADRAS ON THIS ISSUE. 4. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) BE SET ASIDE A ND THAT OF THE ASSESSING OFFICER BE RESTORED. 2. AT THE TIME OF HEARING, NOBODY WAS PRESENT ON BE HALF OF THE ASSESSEE-RESPONDENT, THEREFORE, WE HEARD THE APPEAL EX-PARTE, ESPECIALLY BECAUSE WE FOUND THE ORDER OF THE LD. CI T(A) TO BE CORRECT. 3. THE FIRST ISSUE OF THIS APPEAL RELATES TO DELETION OF ADDITION OF ` 4,21,567/- MADE ON ACCOUNT OF IMPROVEMENT EXPENSES WHICH WAS CAPITALIZED. THE FACTS APROPOS THIS ISSUE ARE THA T THE ASSESSEE IS ENGAGED IN THE BUSINESS OF RETAIL TRADING IN CONSUM ER DURABLE GOODS. ALL THE BRANCHES OF THE COMPANY ARE BEING OPERATED FROM THE LEASED BUILDINGS. THE COMPANY INCURRED EXPENDITURE IN TH E LEASED BUILDING IN THE FORM OF FALSE CEILING, ALUMINIUM GLASS PARTITIO N WORK, ALUMINIUM GRILL, PARTITION, PAINTING ETC TO GET THE PLACE FIT FOR THE BUSINESS OF THE COMPANY AND TO PRESENT AN INVITING APPEARANCE TO TH E CUSTOMERS. ITA 2173/2010 :- 3 -: THESE EXPENSES ARE STATED TO HAVE BEEN INCURRED IN CONNECTION WITH THE EXTENSION OF THE EXISTING BUSINESS AND THE EXPE NDITURE IN QUESTION DOES NOT BRING ANY ENDURING BENEFIT TO THE ASSESSEE . THE TENURE OF LEASE IS STATED TO BE SHORTED AND LIKELY TO BE TERM INATED BEFORE THE LEASE PERIOD WHEN THE BUSINESS CONDITIONS ARE NOT V IABLE. THE ASSESSEE RELIED ON EXPLANATION TO SECTION 32(1) OF THE ACT WHICH WAS INTRODUCED WITH EFFECT FROM 1.4.1988. REFERRING TO THIS EXPLANATION, IT WAS ARGUED THAT ANY EXPENDITURE INCURRED ON THE CON STRUCTION OF ANY STRUCTURE OR RENOVATION OR EXTENSION OR IMPROVEMENT TO THE LEASED BUILDING IN THE FORM OF CONSTRUCTION HAS TO BE TREA TED AS CAPITAL EXPENDITURE, BUT IN THE PRESENT CASE, THE COMPANY H AD NOT INCURRED ANY SUCH CAPITAL EXPENDITURE AND THE EXPENDITURE RE LATES TO WOODEN PARTITIONS, SHELVES ETC WHICH DO NOT HAVE ANY ENDUR ING BENEFIT AND HAS TO BE ALLOWED AS REVENUE EXPENDITURE. THE ASSESSIN G OFFICER WAS NOT AGREEABLE BUT THE LD. CIT(A) HAS FALLEN IN LINE WIT H THE CONTENTION OF THE ASSESSEE. NOW, THE REVENUE IS AGGRIEVED. 4. AFTER HEARING THE LD.DR, WE FIND THAT THE EXPENDITU RE IN QUESTION INCURRED ON FALSE CEILING, ALUMINIUM GLASS PARTITIO N WORK, ALUMINIUM GRILLS, PARTITION, PAINTING ETC. CANNOT BE TREATED AS A CAPITAL EXPENDITURE BECAUSE IT WOULD NOT BRING ANY BENEFIT OF ENDURING NATURE TO THE ASSESSEE PARTICULARLY WHEN THE PROPERTY HAS BEEN TA KEN ON LEASE. ITA 2173/2010 :- 4 -: SIMILAR ISSUE WAS DECIDED BY THE TRIBUNAL IN ASSES SEES OWN CASE IN I.T.A.NOS. 1365-68/MDS/2008, ORDER DATED 29.65.2009 , BY HOLDING THAT SUCH EXPENDITURE ON IMPROVEMENT IN LEASEHOLD PREMIS ES ARE TO BE TREATED AS REVENUE EXPENDITURE. THE TRIBUNAL HAS REFERRED TO THE DECISIONS OF HON'BLE MADRAS HIGH COURT RENDERED IN THE CASES OF HARIDAS BHAGATH & CO. PVT LTD, 240 ITR 169 AND THAT OF CIT VS SAKTHI FINANCE LTD, 291 ITR 83 (MAD). THE RATIO OF ABOVE DECISIONS FAVOURS THE CASE OF THE ASSESSEE. ACCORDINGLY, WE CONFIRM THE IMPUGNED DELETION AND DISMISS THE GROUND RAISED BY THE REVEN UE IN THIS REGARD. 5. LIKEWISE, THE DELETION OF ADDITION OF ` 1,97,371/- WHICH WAS ON ACCOUNT OF EXPENDITURE INCURRED ON THE COST OF NAME BOARDS AND DISPLAY BOARDS ADDED OUT OF THE TOTAL CLAIM OF ` 2,17,357/-, BY THE ASSESSING OFFICER. THE BOARDS ON WHICH NAME AND LO CATION OF THE BUSINESS WAS DISPLAYED CONSISTED OF ACRYLIC SHEETS, ZINC SHEETS, GLASS, TUBE LIGHTS, ALUMINUM FRAMES ETC. IT WAS DEFINITEL Y SUBJECTED TO EROSION, HENCE, HAVING A SHORT LIFE. TO A GREATER EXTENT, THIS CONTENTION OF THE ASSESSEE HAS BEEN ACCEPTED BY THE ASSESSING OFFICER BUT THE LD. CIT(A) HAS FOUND THIS EXPENDITURE TO BE ONLY OF REVENUE NATURE. THE REASONS GIVEN ABOVE WITH REGARD TO IMP ROVEMENT EXPENSES WOULD APPLY, MUTATIS MUTANDIS, TO THIS ISS UE ALSO. ITA 2173/2010 :- 5 -: ACCORDINGLY, WE UPHOLD THE IMPUGNED DELETION AND DI SMISS THE GROUND RAISED BY THE REVENUE IN THIS RESPECT. 6. THE ONLY REMAINING GROUND OF THIS APPEAL IS REGARDI NG ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF GOODWIL L. IN THE DEPRECIATION STATEMENT, THE ASSESSEE HAS CLAIMED DE PRECIATION OF ` 1,37,109/- @ 25% OF GOODWILL AND TRADE NAME. THE A SSESSEE HAD PAID TO THE ERSTWHILE PARTNERSHIP FIRM A SUM OF ` 13 LAKHS TOWARDS TRADE NAME AND HAD CAPITALIZED IT UNDER THE HEAD GOOD WILL. DEPRECIATION HAS BEEN CLAIMED @ 10% FROM THE ASSESS MENT YEAR 2000-01 ONWARDS. THIS EXPENDITURE WAS INCURRED TOW ARDS ACQUIRING THE TRADE NAME. THE BREAK-UP OF THE GOODWILL IS AS UNDER: 1. JAINSONS CORPORATION LTD. ADYAR 1,00,000 2. JAINSONS CORPORATION LTD. ROYAPETTAH 50,000 3. JAINSONS CORPORATION LTD., T. NAGAR AND UPCOUNTRY BRANCHES 11,00,000 4. JAINSONS CORPORATION LTD. PURASAWALKKAM 50 ,000 13,00,000 7. THE ASSESSING OFFICER HAS NOT TREATED THIS EXPENDIT URE TOWARDS ANY INTANGIBLE ASSETS AS CONTEMPLATED IN SECTION 32 OF THE ACT. THE REASON GIVEN BY THE ASSESSING OFFICER IS THAT CONTR AST TO A TRADE MARK, GOODWILL GETS APPRECIATED INSTEAD OF DEPRECIATED, IN THE COURSE OF CARRYING ON OF THE BUSINESS. THE ASSESSING OFFICER FOUND THAT GOODWILL DOES NOT FALL UNDER THE LIST OF INTANGIB LE ASSETS GIVEN U/S 32 OF THE ACT, THEREFORE, HE DECLINED TO GRANT DEPRECI ATION AND DISALLOWED ITA 2173/2010 :- 6 -: ` 1,37,109/-. THIS ADDITION HAS BEEN DELETED BY THE LD. CIT(A) AFTER FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE IN I.T.A.NO. 1365-68/MDS/08 (SUPRA). SINCE THE ISSUE STANDS COVERED BY THE TRIBUNAL ORDER IN ASSESSEES OWN CASE, WE HAVE TO FOLLOW THE DECISION OF THE CO-ORDINATE BENCH AND THEREFORE, WE CANNOT ALLOW THIS GROUND OF REVENUES APPEAL. 8. IN THE RESULT, THE APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21.6.2011. SD/- SD/- (DR. O.K. NARAYANAN) VICE-PRESIDENT (HARI OM MARATHA) JUDICIAL MEMBER DATED: 21 ST JUNE, 2011 RD COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR