The ITO, Ward-8(2), Ahmedabad V. Sun & Silver Inn Pvt.Ltd., Ahmedabad

ITA 2334/AHD/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60608 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 25-07-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 14-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S S JHA
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD , !', #$ # % BEFORE SHRI MUKUL KR.SHRAWAT, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER ./ I.T.A. NO.2334/AHD/2010 ( ( ( ( ( / / / / ASSESSMENT YEAR : 2004-05) ITO WARD-8(2) AHMEDABAD / VS. SUN & SILVER INN PVT.LTD. HOTEL PRESIDENT BUILDING NR.SAMIR COMPLEX OPP.MUNI.MARKET NAVRANGPURA, AHMEDABD ) #$ ./*+ ./ PAN/GIR NO. :AACCS 7698 M ( ), / // / APPELLANT ) .. ( -.), / RESPONDENT ) ), / # / APPELLANT BY : SHRI S.S.JHA, SR.D.R. -.), 0 / # / RESPONDENT BY : SHRI MANISH J.SHAH 1 0 '$ / / / / DATE OF HEARING : 25/7/2012 23( 0 '$ / DATE OF PRONOUNCEMENT : 27/7/12 #4 / O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL AT THE BEHEST OF THE REVENUE WH ICH HAS EMANATED FROM THE ORDER OF LEARNED CIT(APPEALS)-XIV, AHMEDAB AD DATED 08/04/2010 AND THE SUBSTANTIVE GROUND IS REPRODUCE D BELOW:- 1) THE LD. COMMISSIONER OF INCOME-TAX(A)-XIV, AHME DABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWA NCE TREATING AS CAPITAL IN NATURE OF RS.17,38,395/- MADE BY THE ASS ESSING OFFICER ON ACCOUNT OF CAPITAL EXPENDITURE. ITA NO.2334/AHD /2010 ITO VS. SUN & SILVER INN PVT.LTD. ASST.YEAR - 2004-05 - 2 - 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S.143(3) R.W.S. 147 OF THE IT ACT DATED 06 /11/2009 WERE THAT THE ASSESSEE-COMPANY IS IN HOTEL BUSINESS. IT WAS NOT ED BY THE AO THAT UNDER THE HEAD REPAIRS TO FURNITURE AND FIXTURE A SUM OF RS.17,38,395/- WAS DEBITED TO P&L ACCOUNT. THE NATURE OF EXPEN DITURE WAS STATED TO BE REPLACEMENT OF MIRRORS IN ROOMS, REPLACEMENT OF PLYWOOD PANELS AND REPAIR OF PLASTER MOULDED ROOF, ETC. WITHIN THE HOT EL PREMISES. THE NECESSITY TO REPLACE THE WOODEN WORK WAS ON ACCOUNT OF DAMAGE CAUSED BY WHITE-ANTS. THE ASSESSEE HAS PLACED RELIANCE O N (I) CIT VS. DASAPRAKASH 114 ITR 210 (MAD.), (II) CIT VS. EAGLE THEATRE 165 ITR 93 (DEL.), (III) CIT VS. BHARAT SURYODAYA MILLS CO. LT D. (1993) 202 ITR 942 (GUJ.), (IV) CIT VS. MADRAS SPINNERS LTD. (1994) 2 07 ITR 35 (KER.), (V) CIT VS. SATYADEV CHEMICALS LTD. (1997) 226 ITR 95,9 6 (GUJ), (VI) CIT VS. BINNY LTD. (1995) 215 ITR 536, 540 (MAD) & (VII ) CIT VS. P.VERIAH 211 ITR 244,245 (KER.). HOWEVER, THE AO WAS NOT C ONVINCED AND OPINED THAT SUCH A HUGE EXPENDITURE WAS INCURRED FO R PURCHASE OF PLY- WOOD FOR MAKING NEW FURNITURE AND FIXTURE AND, THER EFORE, DERIVED ENDURING BENEFIT. ON VERIFICATION OF BILLS, IT WA S ALSO NOTED BY THE AO THAT A SUBSTANTIAL AMOUNT OF RS.8,68,543/- WAS ALSO PAID FOR LABOUR CHARGES. ACCORDING TO AO, THERE WAS NO BILL THROUG H WHICH IT COULD BE INDICATED THAT THE OLD STRUCTURE WAS REMOVED OR REP LACED. ACCORDING TO AO, THE WOOD PANEL WORK WAS A NEW CONSTRUCTION AND, THEREFORE, A CAPITAL ASSET WAS CREATED. RESULTANTLY, THE SAID AMOUNT WAS DISALLOWED, HOWEVER DEPRECIATION WAS ALLOWED BY TREATING THE EX PENDITURE AS CAPITAL ITA NO.2334/AHD /2010 ITO VS. SUN & SILVER INN PVT.LTD. ASST.YEAR - 2004-05 - 3 - IN NATURE. BEING AGGRIEVED, THE MATTER WAS CARRIE D BEFORE THE FIRST APPELLATE AUTHORITY. 3. BEFORE LD.CIT(A), THE DETAILS OF THE EXPENSES WE RE FURNISHED AND IT WAS ALSO PLEADED THAT THE EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. AFTER CONSIDERING THE SUBMISSIONS, LD.CIT(A) HAS DECIDED THE ISSUE IN ASS ESSEES FAVOUR IN THE FOLLOWING MANNER:- 2.3. I HAVE CONSIDERED THE FACTS OF THE CASE AND T HE SUBMISSIONS OF THE APPELLANT. THE BASIS OF DRAWING INFERENCE O F TREATING REPAIR EXPENSES AS DISALLOWABLE BEING CAPITAL EXPENDITURE BY THE A.O. SOLELY ON PRESUMPTION THAT BY PURCHASE & UTILIZATIO N OF PLYWOOD, ITS POLISH OR COLOUR WERE MEANT FOR CREATING OF NEW WOODEN PANELS AND NEW GLASS WORK. FIRST OF ALL THIS INFERENCE IS NOT SUPPORTED BY ANY INDEPENDENT INQUIRY IN THIS REGARD AND NO MATER IAL WHATSOEVER HAS BEE BROUGHT ON RECORD TO SHOW THAT NEW WOODEN P ANELS WERE CREATED BY THE APPELLANT. THE BILLS OF GLASSES PRO DUCED BEFORE ME CLEARLY SHOWS PURCHASE OF MIRROR AND NO HOTEL INDUS TRY CAN FUNCTION FROM DAY ONE WITHOUT MIRRORS BEING FITTED IN ROOMS & BATHROOMS. THEREFORE, NEW MIRRORS PURCHASED ARE OB VIOUSLY FOR REPLACEMENTS. THUS, FACTUALLY, THE PRESUMPTION OR THE INFERENCE OF THE A.O. IS WITHOUT ANY INDEPENDENT ENQUIRY OR MATE RIAL BEING BROUGHT ON RECORD SUPPORTING SUCH INFERENCE. ON TH E OTHER HAND, THE APPELLANT HAD FURNISHED ALL THE BILLS FOR PURCH ASE AS WELL AS EVEN IN THE LABOUR BILLS IT HAS CLEARLY BEEN MENTIO NED THAT OLD PANELS HAVE BEEN REPLACED. THUS, ON ONE HAND, THE INFERENCE OF A.O. WITHOUT ANY SUPPORTING MATERIAL BEING PLACED O N RECORD WHEREAS ON THE OTHER HAND, THE DOCUMENTARY EVIDENCE S PRODUCED CLEARLY SHOWS REPAIRS/REPLACEMENTS AND NOT FOR ANY NEW FURNITURE OR FIXTURE AS HELD BY THE A.O. BESIDES THE JUDICIA L PRONOUNCEMENTS AS RELIED ON BY THE APPELLANT CLEARLY AND UNEQUIVOC ALLY SUPPORTS THE FACTS OF THE CASE. THE HON.MADRAS HIGH COURT I N THE CASE OF CIT VS. DASAPRAKASH, SUPRA WAS CLEARLY IN FAVOUR OF THE APPELLANT. ITA NO.2334/AHD /2010 ITO VS. SUN & SILVER INN PVT.LTD. ASST.YEAR - 2004-05 - 4 - IN VIEW OF ABOVE FACTS, I HOLD THAT THE EXPENDITURE OF RS.17,38,395/- WAS INCURRED FOR REPAIRS/REPLACEMENT OF OLD WOODEN PANELS/MIRRORS ETC. AND WAS SQUARELY COVERED WITHIN THE TERMINOLOGY OF REVENUE EXPENDITURE AND WAS RIGHTLY ALLOWED IN THE ORIGINAL ASSESSMENT. I, THEREFORE, DIRECT THE A.O. TO DELETE THE DISALLOWANCE SO MADE TREATING THE SAME AS CAPITAL I N NATURE. 4. FROM THE SIDE OF THE REVENUE, LD.SR.DR MR.S.S. J HA APPEARED AND ARGUED THAT THERE WAS NO CONVINCING EVIDENCE TO EST ABLISH THAT THE WOODEN PANEL WAS DESTROYED BY WHITE-ANTS. THE ASSE SSEE HAS INCURRED A HUGE AMOUNT WHICH PROVES THAT CERTAIN NEW ASSET WAS CREATED. IT WAS NOT A PETTY EXPENDITURE FOR REPLACEMENT OR REPAIR OF DA MAGED WOODEN PANEL AS INFORMED BY THE ASSESSEE. HE HAS THEREFORE CON TESTED THAT BY REVERSING THE ORDER OF THE CIT(A), THE ACTION OF TH E AO MAY BE CONFIRMED. 5. FROM THE SIDE OF THE RESPONDENT-ASSESSEE, LD.AR MR.MANISH SHAH APPEARED AND EXPLAINED THAT THE HOTEL IS IN EXISTEN CE SINCE LAST 25 YEARS. THE HOTEL IS HAVING ABOUT 45 ROOMS AND DUE TO HEAVY RAINS AND FLOOD IN SOME AREAS OF AHMEDABAD THE DAMAGE WAS CAUSED IN TH E WOODEN FURNITURE AND WOODEN PANELS. IT WAS A BUSINESS REQ UIREMENT BECAUSE THE HOTEL INDUSTRY BEING A SERVICE INDUSTRY, THEREFORE SHOULD LOOK NEAT AND CLEAN. IN ADDITION TO THE CASE LAWS CITED BEFORE THE LOWER AUTHORITIES, LD.AR HAS ALSO PLACED RELIANCE ON (I) CIT VS. DASAP RAKASH (1978) 114 ITR 210(MAD.), (II) CIT VS. KALYANJI MAVJI & CO. (1 980) 122 ITR 49(SC), (III) CIT VS. OOTY DASAPRAKASH (1999) 237 ITR 902(MAD.) AND (IV) CIT VS. LAKE PALACE HOTELS & MOTELS (P) LTD. ( 2002) 258 ITR 562(RAJ.). ITA NO.2334/AHD /2010 ITO VS. SUN & SILVER INN PVT.LTD. ASST.YEAR - 2004-05 - 5 - 6. WE HAVE HEARD BOTH THE SIDES AT SOME LENGTH. WE HAVE ALSO EXAMINED THE CONTENTS OF THE COMPILATION CONTAINING INVOICES FOR PURCHASE OF PLYWOOD AND GLASSES. THERE ARE NUMBER OF INVOICES FOR PURCHASES OF VARIOUS SIZES OF PLYWOOD-SHEET, GLASS AND WOOD. THIS IS AN ACCEPTED FACT THAT THE ASSESSEE IS IN HOTEL INDUSTR Y. DUE TO THIS REASON, THE ASSESSEE IS EXPECTED TO KEEP THE PREMISES IN GOOD S HAPE AS ALSO NEAT AND CLEAN. IT WAS EXPLAINED THAT THE VISITORS EXPECT A HOTEL SHOULD LOOK BEAUTIFUL. THEREFORE, THE VEHEMENT ARGUMENT IS THA T THE EXPENDITURE WAS A BUSINESS REQUIREMENT. BY EXAMINING THE INVOICES AND OTHER DETAILS OF THE EXPENSES, IT CAN BE NOTICED THAT NO NEW ASSET W AS CREATED. THE LABOUR WAS ENGAGED FOR REPLACEMENT OF OLD WOODEN PA NEL AND REPAIR OF THE DAMAGED FURNITURE. ON THE BASIS OF THESE FAC TS, WE CAN HOLD THAT THE ASSESSEE BEING IN HOTEL INDUSTRY, THEREFORE THE EXP ENDITURE INCURRED FOR INTERIOR DECORATION WITH A VIEW TO PROVIDE A COMFOR TABLE STAY TO CUSTOMERS; THE EXPENDITURE WAS NOTHING BUT REVENUE IN NATURE ALLOWABLE U/S.37 OF IT ACT. FOR THIS LEGAL PROPOSITION, REL IANCE PLACED ON CIT VS. DASAPRAKASH 114 ITR 210 (MAD.). ACCORDING TO US , IN FACT, A CAREFUL STUDY OF THE NATURE OF EXPENDITURE WOULD GIVE A CLE AR INDICATION ABOUT THE WORK DONE. ON THAT BASIS, ONE CAN ASCERTAIN WHETHE R A NEW ASSET HAS BEEN CREATED. BY THE STUDY OF THE NATURE OF EXPEND ITURE, IT CAN BE ASCERTAINED WHETHER THE ASSESSEE HAS STARTED A NEW LINE OF REVENUE GENERATION OR STARTED GETTING AN ALTOGETHER NEW ADV ANTAGE OF ENDURING BENEFIT. THEREFORE, WE ARE OF THE VIEW THAT SUBST ANTIAL REPAIR MAY BE ADVANTAGEOUS FOR RETAINING AN EXISTING ASSET BUT SU CH AN ENDURING BENEFIT MAY NOT LEAD TO A CONCLUSION THAT A CAPITAL ASSET H AS BEEN CREATED THROUGH WHICH A NEW ENDURING ADVANTAGE WAS CREATED. AT T HIS JUNCTURE, WE HAVE ITA NO.2334/AHD /2010 ITO VS. SUN & SILVER INN PVT.LTD. ASST.YEAR - 2004-05 - 6 - TO KEEP IN MIND THAT THE ASSESSEES BUSINESS IS SUC H THAT THE HOTEL PREMISES SHOULD NOT LOOK SHABBY, RATHER SHOULD LOOK ATTRACTIVE. THEREFORE, WE CAN UNDISPUTEDLY HOLD THAT THE EXPEND ITURE IN QUESTION WAS A BUSINESS REQUIREMENT AS DECIDED BY THE ASSESSEE T O INCUR SUCH HUGE EXPENDITURE ON COMMERCIAL CONSIDERATION. FROM THE CASE LAWS CITED IT IS EVIDENT THAT IN RESPECT OF HOTEL INDUSTRY IT WAS HE LD THAT EVEN THE MODERNIZATION OF HOTEL BUILDING IS ALLOWABLE AS REV ENUE EXPENDITURE BECAUSE SUCH AN EXPENDITURE WAS FOUND TO BE INCURR ED WITH A VIEW TO CREATE A CONDUCIVE AND BEAUTIFUL ATMOSPHERE FOR RUN NING HOTEL BUSINESS. WE THEREFORE CONCLUDE THAT THE EXPENDITURE INCURRED FOR REPLACEMENT OF DAMAGED WOODEN PANEL AND FURNITURE FOR IMPROVEMENT OF THE EXISTING INTERIOR OF THE HOTEL WAS BY NO STRETCH OF IMAGINAT ION COULD BE TREATED AS INCURRED FOR CREATION OF A CAPITAL ASSET BUT TO BE HELD AS REVENUE EXPENDITURE. RESULTANTLY, THE FINDINGS OF THE LD. CIT(A) IS HEREBY CONFIRMED AND GROUND IS DISMISSED. 7. IN THE RESULT, REVENUES APPEAL STANDS DISMISSED . SD/- SD/- ( !' ) ( ) #$ ( ANIL CHATURVEDI ) ( MUKU L KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 27/ 7 /2012 5'.., .../ T.C. NAIR, SR. PS ITA NO.2334/AHD /2010 ITO VS. SUN & SILVER INN PVT.LTD. ASST.YEAR - 2004-05 - 7 - #4 0 -6 7#6( #4 0 -6 7#6( #4 0 -6 7#6( #4 0 -6 7#6(/ COPY OF THE ORDER FORWARDED TO : 1. ), / THE APPELLANT 2. -.), / THE RESPONDENT. 3. 8 / CONCERNED CIT 4. 8() / THE CIT(A)-XIV, AHMEDABAD 5. 6;< - , , / DR, ITAT, AHMEDABAD 6. <= >1 / GUARD FILE. #4 #4 #4 #4 / BY ORDER, .6 - //TRUE COPY// ? ?? ?/ // / * * * * ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD 1. DATE OF DIRECT DICTATION ON COMPUTER .25.7.12 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 26.7.12 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S27.7.12 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 27.7.12 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER