DCIT, CHENNAI V. N.Raghunath, CHENNAI

ITA 2281/CHNY/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8967 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2016
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 09-06-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 17-12-2015
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH J
• Assessee Lawyers: T N SEETHARAMAN
• Keywords: Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI , ! ' . #$ % &' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NOS.2280,2281 & 2282/MDS./2015 / ASSESSMENT YEARS : 2008-09,2009-10 & 2010-11 DEPUTY COMMISSIONER OF INCOME TAX, NON-CORPORATE CIRCLE-2, CHENNAI-34. VS. MR.N.RAGHUNATH, NEW NO.19,OLD NO.9, JUDGE JAMBULINGAM STREET, MYLAPORE,CHENNAI -4. [PAN ACCPR 4059 E ] ( () / APPELLANT) ( *+() /RESPONDENT) / APPELLANT BY : MR.A.V.SREEKANTH,JCIT,DR /RESPONDENT BY : MR.T.N.SEETHARAMAN,ADVOCATE / DATE OF HEARING : 09 - 06 - 201 6 / DATE OF PRONOUNCEMENT : 29 - 06 - 2016 , / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER ALL THESE THREE APPEALS FILED BY THE REVENUE ARE DIRECTED AGAINST THE COMMON ORDER OF THE LEARNED COMMISSIONER OF INC OME TAX(A)-2, CHENNAI DATED 30.09.2015 PERTAINING TO THE ASSESSME NT YEARS 2008- 09,2009-10 & 2010-11 . SINCE ISSUES INVOLVED IN A LL THESE REVENUES ITA NOS.2280,2281,2282/MDS./15 :- 2 -: APPEALS ARE COMMON IN NATURE, THESE APPEALS ARE CLU BBED TOGETHER, HEARD TOGETHER, DISPOSED OFF BY THIS COMMON ORDER F OR THE SAKE OF CONVENIENCE. 2. THE COMMON GROUND IN ALL THESE THREE APPEALS IS THAT THE CIT(A) ERRED IN HOLDING THAT THE EXPENDITURE INCURRED ON T EMPORARY WOODEN STRUCTURES ARE ALLOWABLE AS REVENUE EXPENDITURE. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A RETAILER OF READY MADE GAMENTS IN THE NAME OF M/S.VAISHNAVIS, M/S.NAR AYANS, M/S.VINAYAS, M/S.VISWARAGS AND HAS TAKEN SEVERAL BU ILDINGS ON LEASE FOR SETTING UP OF RETAIL GARMENT SHOWROOMS. THE AS SESSEE CARRIED OUT RENOVATION, REPAIRS AT THE LEASED PREMISES. THE ASS ESSEE CLAIMED 100% DEPRECIATION ON TEMPORARY WOODEN STRUCTURES FO R THE VARIOUS ASSESSMENT YEARS UNDER CONSIDERATION, AS FOLLOWS:- DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THA T IN THE BOOKS OF ACCOUNTS, THE ASSESSEE HAD CLAIMED DEPRECIATION @ 1 00% ONLY ON SUCH INTERIOR DECORATION. THE AO HAD NOT ACCEPTED THE A SSESSEES CLAIM THAT DEPRECIATION AT 100% IS ALLOWABLE OR ALTERNATELY, T HE EXPENDITURE INCURRED ON TEMPORARY STRUCTURES (INTERIOR DECORATI ON) IS DEDUCTIBLE AS ASSESSMENT YEAR CLAIM OF DEPRECIATION (RS.) 2008-09 44,60,041 2009-10 84,58,091 2010-11 39,75,029 ITA NOS.2280,2281,2282/MDS./15 :- 3 -: REVENUE EXPENDITURE AND ALLOWED APPLICABLE DEPRECIA TION @ 10%. AGGRIEVED, THE ASSESSEE CARRIED THE APPEAL BEFORE T HE CIT(A). 3.1 ON APPEAL, THE LD.CIT(A) OBSERVED THAT THE ASSESSEE, IN ORDER TO CARRY OUT HIS BUSINESS AS A GARMENT RETAILER, HAS E NTERED INTO AGREEMENTS WITH BRANDS SUCH AS TITAN, ADDIDAS ETC. AND HAS CAR RIED OUT EXTENSIVE DESIGNING OF PREMISES TAKEN ON LEASE, IN ACCORDANCE WITH THE SPECIFICATIONS OF THESE BRANDS, IN ORDER TO BRING THE SHOWROOMS IN CONFORMITY WITH THE DESIGN SPECIFICATIONS OF THE PARTICULAR BRAND. A PE RUSAL OF THE LETTER OF INTENT ISSUED BY TITAN INDUSTRIES LTD. DT. 15.3.2012 TO TH E ASSESSEE SHOWS THAT THE TERMS OF SETTING UP AN EXCLUSIVE FAST TRACK STORES HAVE BEEN STATED AS FOLLOWS: B) AN INTERIOR DESIGN CONSULTANT (IDC) NOMINATED B Y THE COMPANY WILL DESIGN THE SHOWROOM. THE SELECTION OF THE CONTRACTOR AND APPROVAL OF THE MATERIALS TO BE USED FOR THE WORKS WILL BE AT THE SOLE DISCRETION OF THE IDC IN CONSULTATION WITH THE COMPANY. C) THE COMPLETION OF THE SHOWROOM AND MATERIALS TO BE USED FOR THE WORKS, ARE TO BE AS SPECIFIC BY THE IDC APPROVE D BY THE COMPANY. D) ON SUCCESSFUL COMPLETION OF THE SHOWROOM IN ACCO RDANCE WITH DESIGNS AND MATERIALS APPROVED BY TITAN YOU WILL EN TER INTO A FRANCHISE AGREEMENT WITH US. AS FAR AS ADDIDAS, IS CONCERNED, THE TERMS ARE AS F OLLOWS: 2. THE IMAGE OF THE BRAND STORE. FURNITURE AND EQU IPMENT 2. 1 THE FRANCHISEE SHALL STRUCTURE, DECORATE AND E QUIP THE INTERIOR AND EXTERIOR OF THE BRAND STORE IN CONFORM ITY WITH THE ITA NOS.2280,2281,2282/MDS./15 :- 4 -: ADIDAS DESIGN SPECIFICATIONS (AS COMMUNICATED FROM TIME TO TIME TO THE FRANCHISEE) AND IN ACCORDANCE WITH THE PLANS PREVIOUSLY SUBMITTED TO AND APPROVED BY A-INDIA AND UTILIZING THE SERVICES OF DESIGNERS, SUPERVISORS AND CONTRACTORS PREVIOUSLY NOMINATED OR APPROVED BY A-INDIA. ANY ALTERATION TO THE APPROVED PLANS SHALL BE SUBJECT TO A-INDIA PRIOR CONSENT THE FRANCHISEE SHALL INVEST IN THE INTERIORS, FURNITURE AND EQUIPM ENT OF THE BRAND STORE. 2. 2. THE FRANCHISEE SHALL AT ITS OWN COST, PURCHAS E AND INSTALL IN THE BRAND STORE ALL NECESSARY EQUIPMENT (INCLUDING BUT NOT LIMITED TO SOFTWARE AND HARDWARE EQUIPMENT, AIR CON DITIONERS, AUDIO EQUIPMENT) (HEREINAFTER COLLECTIVELY REFERRED TO AS THE EQUIPMENT 7 AS PREVIOUSLY APPROVED BY OR SPECIFIED FROM TIME TO TIME BY INDIA. 2.3. THE FRANCHISEE SHALL MAINTAIN AT ALL TIMES THE INTERIOR AND EXTERIOR OF THE BRAND STORE IN GOOD CONDITION. IF, AT ANY TIME, A-INDIA IS REASONABLY OF THE OPINION THAT THE FRAN CHISEE IS NOT COMPLYING WITH SUCH OBLIGATIONS, A-INDIA MAY, WITHO UT PREJUDICE TO ANY OTHER REMEDY AVAILABLE TO IT, INCLUDING TERM INATION OF THIS AGREEMENT, NOTIFY THE FRANCHISEE OF THE ACTIONS IT REQUIRES FROM THE FRANCHISEE IN ORDER TO ENSURE COMPLIANCE WITH S UCH OBLIGATIONS, AND THE FRANCHISEE SHALL, AT ITS OWN E XPENSE, COMPLY WITH SUCH REQUIREMENTS FORTHWITH. ITA NOS.2280,2281,2282/MDS./15 :- 5 -: 2.4. WITHOUT PREJUDICE TO THE GENERALITY OF SECTION 2.3 ABOVE, WHEN REQUIRED BY A-INDIA TO DO SO AND, IN ANY EVENT , ONCE IN EVERY THREE YEARS, THE FRANCHISES SHALL CARRY OUT M AINTENANCE AND RENEWAL PROGRAM ON THE INTERIOR AND EXTERIOR OF THE BRAND STORE, THIS MAY INCLUDE RENOVATION OR REPLACEMENT OF THE F URNITURE AND EQUIPMENT AND UPDATING THE FASCIA, IMAGE, LAY-OUT A ND STYLE OF THE BRAND STORE BY CARRYING OUT ALL REFURBISHMENT W ORK DEEMED NECESSARY BY A-INDIA SO AS TO COMPLY WITH THE LATES T ADIDAS DESIGN AND IMAGE. FURTHER, LD.CIT(A) OBSERVED THAT IN ORDER TO BRING INTO EXISTENCE THE SHOWROOM OF A PARTICULAR BRAND, THE ASSESSEE HAS CA RRIED OUT CERTAIN SPECIFIC INTERIOR WORKS INVOLVING THE INTERIORS, FURNITURE, AND EQUIPMENT OF THE PREMISES. THE ASSESSEE HAS TAKEN ON LEASE THE SAID PREMISES AND CARRIED OUT THE INTERIOR DECORATION WORK, IN LINE WITH THE SPEC IFICATION OF THE BRAND WHOSE PRODUCTS ARE THEN SOLD BY THE APPELLANT AS A RETAIL ER/FRANCHISEE, DEPENDING ON WHETHER IT IS MBO OR EBO. 3.2 LD.CIT(A) DISCUSSED MANY JUDICIAL PRONOUNCEME NTS IN HIS ORDER IN SUPPORT OF ALLOWING DEPRECIATION @ 100% ON SUCH INT ERIOR WORKS. FURTHER, CIT(A) EXPLANED THE WORDINGS OF THE EXPLANATION 1 T O SECTION 32(1), IT IS CLEAR THAT THIS EXPLANATION APPLIES TO A SITUATION WHERE, THE PREMISES HAS BEEN TAKEN ON LEASE AND THE ASSESSEE HAS INCURRED C APITAL EXPENDITURE ON: (I) THE CONSTRUCTION OF ANY STRUCTURE (II) DOING OF ANY WORK IN OR IN RELATION TO, AND BY WAY OF RENOVATION OR EXTENSION OF, OR IMPROVEMENT TO, THE BUILDING. ITA NOS.2280,2281,2282/MDS./15 :- 6 -: THE LD.CIT(A) OBSERVED THAT ALTHOUGH THE NATURE OF THE WORK IS EXTENSIVE, THE WORK CARRIED OUT BY THE ASSESSEE IN THE PREMISE S TAKEN ON LEASE, HAS NOT RESULTED IN ANY KIND OF ALTERATION, WHATSOEVER, TO THE BUILDING CONSTITUTING THE SAID PREMISES. THE EXPENDITURE IS TOWARDS DESIG NING OF A SHOWROOM, COMPRISING OF INTERIOR WORKS AND HE DISTINGUISHED T HE ORDER OF CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S ABT LTD. VS. ACIT, COIMBATORE IN ITA NOS. 1557 & 1558/MDS/2011 DATED 3.1.2013. ACCOR DINGLY, CIT(A) DECIDED THE ISSUE IN DISPUTE IN FAVOUR OF ASSESSEE BY OBSERVING IT AS A REVENUE EXPENDITURE. AGAINST THE DECISION OF CIT(A ), THE REVENUE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. WE HAVE CAREFULLY GONE THROUGH THE ORDER OF THE LD. CIT(A). IN OUR OPINION, THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSE SSEE BY THE JUDGMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. AR MOUR CONSULTANT (P) LTD. REPORTED IN (2013) 355 ITR 418(MAD.) WHEREIN HELD T HAT:- THE EXPENDITURES WERE MADE BY THE ASSESSEE MAINLY TOWARDS CHARGES FOR DESIGN, LAYOUT AND MATERIAL CON STRUCTION, FABRICATION WORKS. BOTH THE APPELLATE AUTHORITIES H AD POINTED OUT THAT THE ASSESSEE-COMPANY WAS REQUIRED TO INCUR SUCH EXPENDITURE FOR PROVIDING PARTITIONS, VINYL FLOORIN G AND THE INTERIOR DECORATION IN ORDER TO PROVIDE BUSINESS AM BIENCE AND ACHIEVE FUNCTIONAL UTILITY. THE COMMISSIONER OF INC OME-TAX (APPEALS) HAD SPECIFICALLY POINTED OUT THAT THE EXP ENDITURE MADE BY THE ASSESSEE TO MAKE THE PREMISES MORE USEF UL AND ENHANCE ITS FUNCTIONAL UTILITY WILL NOT COME UNDER THE PURVIEW OF CAPITAL EXPENDITURE AND BY FOLLOWING THE DECISION O F THIS COURT REPORTED IN CIT V. SANCO TRANS LTD. [2006] 284 ITR 51 (MAD) ITA NOS.2280,2281,2282/MDS./15 :- 7 -: THE COMMISSIONER (APPEALS) FOUND THAT THOSE EXPENDI TURES ARE TO BE ALLOWED ONLY AS A REVENUE EXPENDITURE AND ALSO HELD THAT THE ASSESSEE WAS ONLY A LESSEE I N RESPECT OF THE PREMISES IN WHICH IT WAS SETTING UP ITS OFFICE AT MUMBAI. THE LEASE PERIOD WAS 30 MONTHS. THE DEDUCTION WAS S OUGHT IN RESPECT OF THE EXPENSES MADE TOWARDS DESIGNING AND LAY OUT AS WELL AS OTHER TEMPORARY PARTITION AND CONSTRUCTI ON MADE FOR MAKING THE OFFICE FUNCTIONAL. THEREFORE, THE EXPEND ITURE ON SETTING UP OF A NEW OFFICE AT MUMBAI OF RS.57,25,03 6 WAS ALLOWABLE AS REVENUE EXPENDITURE. 5. BEING SO, IN OUR OPINION THE CIT(A) HAS TAKEN C ORRECT VIEW OF THE FACTS OF THE CASE AND DECIDED THAT THE EXPENDITURE INCURR ED ON LEASED PREMISES ON TEMPORARY WOODEN STRUCTURE (INTERIOR DECORATION) IS A REVENUE EXPENDITURE. ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IN AL L THESE APPEALS IS DISMISSED. 6. IN THE RESULT, ALL THE THREE APPEALS OF THE REV ENUE ARE DISMISSED. ORDER PRONOUNCED ON 29 TH JUNE, 2016, AT CHENNAI. SD/ - SD/ - ! ' # . $ %& ' ( DUVVURU RL REDDY ) ) % / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER () / CHENNAI *+ / DATED: 29 TH JUNE, 2016 K S SUNDARAM +,-- ./-0/ / COPY TO: - 1 . / APPELLANT 3. - 1-!' / CIT(A) 5. /23- 4 / DR 2. / RESPONDENT 4. - 1 / CIT 6. 3&-5 / GF