M/s.Lifestyle International Private Limited, Bangalore V. Assistant Commissioner of Income-Tax, Bangalore

ITA 2332/BANG/2016

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 6454 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 9 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-10-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 24-10-2019
• Assessment Year: 2007-2008
• Appeal Filed On: 30-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Tax effect; Revenue expenditure; Capital expenditure; Set aside
• Section: 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH A, BENGALURU BEFORE SHRI N.V.VASUDEVAN (VICE PRESIDENT) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NO. 2332/BANG/2016 (ASSESSMENT YEAR: 2007-08) M/S LIFESTYLE INTERNATIONAL (P) LTD., NO. 77, TOWN CENTRE, BUILDING NO.3, WEST WING, OFF HAL AIRPORT ROAD, BENGALURU-560037. PAN: AAACL2937J VS ACIT- CIRCLE 11(5), BENGALURU. APPELLANT RESPONDENT ASSESSEE BY SHRI K.R. VASUDEVAN, ADVOCATE REVENUE BY SHRI. SUNIL KUMAR AGARWAL, ADDL. CIT DATE OF HEARING 24 -10-2019 DATE OF PRONOUNCEMENT 24-10-2019 O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) -4, BENGALURU, DATED 29-09-2016 AND IT PERTAINS TO ASST. YEAR 2007-08. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL. I. DISALLOWANCE OF BROKERAGE EXPENSE 1. THE LEARNED ASSESSING OFFICER ['THE LEARNED AO'] AND LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ['THE LEARNED CIT(A)'] HAS ERRED IN DISALLOWING BROKERAGE EXPENSES AMOUNTING TO RS. 1,091,713. 2. THE LEARNED AO HAS ERRED IN NOT CONSIDERING THE FACTUAL SUBMISSIONS/ EXPLANATIONS, DETAILS OF PARTY-WISE BROKERAGE EXPENSE PAID AND TAX DEDUCTED AT SOURCE ON THE SAID PAYMENTS SUBMITTED BY THE APPELLANT ON 14 DECEMBER 2 ITA NO. 2332/BANG/2016 2009 AND 25 JULY 2016 BEFORE THE LEARNED AO AND LEARNED CIT(A) RESPECTIVELY. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, RESCIND AND MODIFY THE GROUNDS HEREIN ABOVE OR PRODUCE FURTHER DOCUMENTS, FACTS AND EVIDENCE BEFORE OR AT THE TIME OF HEARING OF THIS APPEAL. FOR THE ABOVE AND ANY OTHER GROUNDS WHICH MAY BE RAISED AT THE TIME OF HEARING, IT IS PRAYED THAT NECESSARY RELIEF MAY BE PROVIDED. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF RETAIL TRADE IN READYMADE GARMENTS AND OTHER HOUSEHOLD ACCESSORIES FILED ITS RETURN OF INCOME FOR A.Y. 2007-08 ON 31/10/2007, DECLARING TOTAL LOSS OF RS. 5,08,43,890/-. THE CASE HAS BEEN SELECTED FOR SCRUTINY AND THE ASSESSMENT HAS BEEN COMPLETED U/S 143(3) OF THE INCOME TAX ACT, 1961 ON 15/12/2009 AND DETERMINED TOTAL LOSS AT RS. 4,62,05,148/-, AFTER MAKING ADDITIONS TOWARDS DISALLOWANCES OF NIFT FEES, DISALLOWANCE OF PROFESSIONAL FEES AND DISALLOWANCE OF BROKERAGE EXPENSES ON THE GROUND THAT SAID EXPENDITURE IS IN NATURE THE NATURE OF CAPITAL EXPENDITURE WHICH GIVES ENDURING BENEFIT. THE ASSESSEE CARRIED MATTER IN APPEAL BEFORE FIRST APPELLATE AUTHORITY. THE LD. CIT(A) FOR DETAILED REASONS RECORDED IN APPELLATE ORDER DATED 29/09/2016, DELETED ADDITIONS TOWARDS NIFT FEES AND PROFESSIONAL FEES, BUT CONFIRMED ADDITIONS TOWARDS DISALLOWANCE OF BROKERAGE EXPENSES. THE ASSESSEE AS WELL AS THE REVENUE BEING AGGRIEVED WITH LD. CIT(A) ORDER, CARRIED MATTER IN FURTHER APPEAL BEFORE THE TRIBUNAL AND APPEAL FILED BY THE REVENUE WAS DISPOSED ON LOW TAX EFFECT CASES. THEREFORE, THE PRESENT APPEAL FILED BY THE ASSESSEE IS BEING SEPARATELY DISPOSED OFF, BY THIS ORDER. 3 ITA NO. 2332/BANG/2016 3. THE BRIEF FACTS OF IMPUGNED DISPUTE ARE THAT THE ASSESSEE COMPANY HAS INCURRED BROKERAGE CHARGES ON VARIOUS PREMISES TAKEN ON RENT AND CAPITALIZED BROKERAGE EXPENSES WHEREVER NEW PREMISES IS TAKEN ON RENT, HOWEVER IT HAS DEBITED BROKERAGE EXPENSES IN TO PROFIT AND LOSS ACCOUNT AS REVENUE EXPENDITURE WHEREVER CORRESPONDING EXPENSES HAS BEEN TREATED AS REVENUE IN NATURE. THE AO HAS DISALLOWED BROKERAGE EXPENSES DEBITED IN TO PROFIT AND LOSS ACCOUNT ON THE GROUND THAT THE ASSESSEE COMPANY HAS FAILED TO PRODUCE NECESSARY EVIDENCES AND ALSO ON THE GROUND THAT EXPENDITURE INCURRED UNDER THE HEAD BROKERAGE CHARGES IS IN THE NATURE OF CAPITAL EXPENDITURE WHICH GIVES ENDURING BENEFIT, BECAUSE THE PERIOD OF LEASE IS 5 TO 10 YEARS. 4. THE AR FOR THE ASSESSEE SUBMITTED THAT THE LD. CIT(A) HAS ERRED IN CONFIRMED DISALLOWANCE OF BROKERAGE CHARGES AS CAPITAL EXPENDITURE WITHOUT APPRECIATING FACT THAT THE ASSESSEE HAS PRODUCED NECESSARY EXPLANATION ALONG WITH EVIDENCES AND ALSO SAID EXPENDITURE HAS BEEN RIGHTLY TREATED AS REVENUE EXPENDITURE. THE LD. AR FURTHER SUBMITTED THAT IT HAS FILED NECESSARY DETAILS BEFORE THE AO AS WELL AS THE LD. CIT(A), BUT BOTH AUTHORITIES GROSSLY OVERLOOKED EXPLANATION FURNISHED BY THE ASSESSEE AND MADE ADDITIONS WITHOUT ASSIGNING ANY REASONS HOW BROKERAGE CHARGES IS COMES UNDER CAPITAL EXPENDITURE WHICH GIVES ENDURING BENEFIT TO THE ASSESSEE. 5. THE LD. DR ON THE OTHER HAND VEHEMENTLY SUPPORTED ORDERS OF THE LOWER AUTHORITIES. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS PARTLY CAPITALIZED BROKERAGE CHARGES IN TO FIXED ASSET ACCOUNT AND PARTLY DEBITED TO PROFIT AND LOSS ACCOUNT, EVEN THOUGH BOTH EXPENDITURE HAS BEEN INCURRED IN CONNECTION WITH PREMISES TAKEN ON RENT 4 ITA NO. 2332/BANG/2016 FOR SETTING UP NEW STORES. THEREFORE, THE AO HAS RIGHTLY DISALLOWED BROKERAGE CHARGES AS CAPITAL IN NATURE AND THE LD. CIT(A) HAS RIGHTLY AFFIRMED FINDINGS OF THE LD. ASSESSING OFFICER. IN THIS REGARD, HE RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN CASE OF PUNJAB STATE INDUSTRIAL VS. CIT (1997) 225 ITR 792. 6. WE HAVE HEARD BOTH PARTIES, PERUSED MATERIALS ON RECORD AND GONE THROUGH ORDERS OF THE REVENUE AUTHORITIES ALONG WITH CASE LAW CITED BY THE LD. DR. WE FIND THAT THE ASSESSEE HAD TAKEN CERTAIN PREMISES ON RENT TO SET ITS RETAIL STORES FOR WHICH IT HAS PAID BROKERAGE CHARGES TO PROFESSIONALS WHO FACILITATED TRANSACTIONS WITH LANDLORDS. THE PROFESSIONAL SERVICES AVAILED WAS IN CONNECTION WITH ABOVE RETAIL SPACE FOR WHICH IT PAYS RENT AND NOT FOR PROPERTY IT OWNS OR ANY ASSET WHICH IT HAS CAPITALIZED. THE MAIN RENTAL EXPENDITURE HAS BEEN TREATED AS REVENUE EXPENDITURE AND THE SAME WAS DISTURBED BY THE REVENUE. WHEN MAIN RENTAL EXPENSES ITSELF BEING REVENUE IN NATURE, THEN THERE IS NO WAY IT CAN BE CONCLUDED THAT BROKERAGE EXPENSES PAID FOR SERVICES RENDERED BY BROKERS IN CONNECTION WITH SAID RENTAL SPACE IS CAPITAL IN NATURE. THE BROKER SERVICES NOT BEING IN RELATION TO ANY ASSET OR CAPITAL EXPENDITURE AND IT BEING IN RELATION TO OCCUPATION OF RENTAL PREMISES WHICH IS ON REVENUE ACCOUNT, MUST BE NECESSARILY CONSTRUED ACCORDINGLY AND BE AS REVENUE IN NATURE WHICH IS DEDUCTIBLE U/S 37(1) OF THE INCOME TAX ACT, 1961, BUT IT CANNOT BE REGARDED AS CAPITAL EXPENDITURE WHICH GIVES ENDURING BENEFIT TO THE ASSESSEE. WE, THEREFORE ARE OF THE VIEW THAT THE AO AS WELL AS THE LD. CIT(A) WERE ERRED IN CONCLUDED THAT BROKERAGE EXPENDITURE IS IN CAPITAL NATURE WHICH GIVES ENDURING BENEFIT. IN SO FAR AS CASE LAW CITED BY THE LD. DR, WE FIND THAT THE CASE IN FACT SUPPORTS THE CASE OF THE ASSESSEE, WHERE THE HONBLE SUPREME COURT HELD THAT IF EXPENDITURE IS 5 ITA NO. 2332/BANG/2016 RELATED TO CAPITAL BASE THEN IT SHOULD BE IN TO CAPITAL ACCOUNT. THEREFORE, WE ARE OF THE VIEW THAT CASE LAW CITED BY THE LD. DR DOES NOT HELP THE CASE OF THE REVENUE. FURTHER, FACT OF THE MATTER IS THAT THERE IS A CONTRADICTION IN RESPECT SUBMISSION OF NECESSARY EVIDENCES IN AS MUCH AS THE ASSESSEE CLAIMS THAT IT HAS FURNISHED NECESSARY EXPLANATION, WHEREAS THE LD. AO CLAIMS THAT NO EXPLANATION HAS BEEN FURNISHED IN SUPPORT OF EXPENDITURE BEING REVENUE IN NATURE. WE, THEREFORE, SET ASIDE THE ISSUE TO THE FILE OF THE AO AND DIRECT THE AO TO CAUSE FURTHER VERIFICATION IN LIGHT OF CLAIM OF THE ASSESSEE THAT IT HAS FURNISHED EVIDENCES IN SUPPORT OF AND DECIDE THE ISSUE IN ACCORDANCE WITH LAW. 7. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH OCTOBER, 2019 SD/ - SD/ - (N. V. VASUDEVAN) VICE PRESIDENT (G. MANJUNATHA) ACCOUNTANT MEMBER BENGALURU, DT : 24-10-2019 COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE