M/s Vyoma Technologies Private Limited , Bangalore V. The Deputy Commissioner of Income Tax Circle-7(1)(2), Bangalore

ITA 2354/BANG/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 7896 (ITAT-BANGALORE)
• Duration Of Justice: 11 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-07-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2015-2016
• Appeal Filed On: 10-08-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 201; 13; 119

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI JASON P. BOAZ , ACCOUNTANT MEMBER I TA NO. 2354/ BANG / 2 018 ASSESSMENT YEAR : 2 015 - 16 VYOMA TECHNOLOGIES PVT. LTD., NO.247, RAJNI GANDHA APARTMENTS, VITTAL MALLYA ROAD, UB CITY, BANGALORE 560 001. PAN: AACCV 4949A VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 7(1)(2), BANGALORE. APP EL L ANT RESPONDENT APP ELL ANT BY : SHRI S. SRI DHAR, ADVOCATE R E SPONDENT BY : SHRI VIKAS SU RYAVAMSHI, ADDL.CIT(DR)(ITAT), BENGALURU. DATE OF HEARING : 17. 0 7 . 201 9 DATE OF PRONOUNCEMENT : 19 . 0 7 . 201 9 O R D E R PER N V VASUDEVAN, VICE PRESIDENT THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORD ER DATED 13.6.2018 OF CIT(APPEALS)-7, BENGALURU, RELATING TO ASSESSMENT YEAR 2015-16. 2. THOUGH THE ASSESSEE HAS RAISED AS MANY AS 6 GROU NDS OF APPEAL, THERE ARE ONLY TWO ISSUES WHICH NEED TO BE DECIDED IN THIS APPEAL. THE FIRST ISSUE IS WHETHER EXPENDITURE INCURRED TOWARDS INCRE ASE IN SHARE CAPITAL ON ACCOUNT OF WORKING CAPITAL REQUIREMENT CAN BE CONSI DERED AS REVENUE EXPENDITURE OR CAPITAL EXPENDITURE. THE ASSESSEE I NCURRED EXPENDITURE OF RS.2,42,100/- TOWARDS FEES PAID TO REGISTRAR OF COM PANIES (ROC), ITA NO. 2354/BANG/2018 PAGE 2 OF 7 PROFESSIONAL CHARGES, STAMP DUTY TOWARDS ISSUE OF S HARE CERTIFICATE IN CONNECTION WITH INCREASE OF SHARE CAPITAL OF THE CO MPANY BY ISSUING RS.65,00,000 WORTH OF PREFERENCE SHARE AND RS.15,00 ,000/- WORTH OF EQUITY SHARES. THE SAME WAS DISALLOWED BY THE REVENUE AUT HORITIES FOR THE REASON THAT THE EXPENDITURE WAS CAPITAL IN NATURE A S HELD BY THE HONBLE SUPREME COURT IN THE CASE OF PUNJAB STATE INDUSTRIA L DEVELOPMENT CORPORATION LTD. VS. CIT 225 ITR 792(SC) AND BROOKE BOND INDIA LTD. VS. CIT 225 ITR 798(SC). 3. IT IS AN ACCEPTED FACT, AS EVIDENT FROM VARIOUS JUDICIAL PRONOUNCEMENTS, THAT FEES PAID TO THE REGISTRAR OF COMPANIES FOR EXPANSION OF THE CAPITAL BASE OF A COMPANY IS DIREC TLY RELATED TO THE CAPITAL EXPENDITURE INCURRED BY THE COMPANY AND ALTHOUGH IN CIDENTALLY THAT WOULD CERTAINLY HELP IN THE BUSINESS OF THE COMPANY AND M AY ALSO HELP IN PROFIT MAKING, IT STILL RETAINS THE CHARACTER OF A CAPITAL EXPENDITURE SINCE THE EXPENDITURE IS DIRECTLY RELATED TO THE EXPANSION OF THE CAPITAL BASE OF THE COMPANY. THE HONBLE SUPREME COURT IN THE CASE OF CIT V. KODAK INDIA LIMITED, 253 ITR 445 (SC) REFERRED TO THE DECISION IN THE CASE OF PUNJAB STATE INDL. DEVE. CORPN. LTD V. C.I.T. (SC) WHEREIN IT WAS HELD THAT THE FEES PAID TO THE REGISTRAR OF COMPANI ES FOR EXPANSION OF THE CAPITAL BASE OF A COMPANY IS DIRECTLY RELATED TO TH E CAPITAL EXPENDITURE INCURRED BY THE COMPANY AND ALTHOUGH INCIDENTALLY T HAT WOULD CERTAINLY HELP IN THE BUSINESS OF THE COMPANY AND MAY ALSO HELP IN PROFIT MAKING, IT STILL RETAINS THE CHARACTER OF A CAPITAL EXPENDITURE SINC E THE EXPENDITURE IS DIRECTLY RELATED TO THE EXPANSION OF THE CAPITAL BA SE OF THE COMPANY AND HELD THAT EVEN IF THE OBJECT OF THE EXPENDITURE WAS TO INCREASE THE SHARE CAPITAL, PURSUANT TO THE DIRECTION OF THE RESERVE B ANK, IRRESPECTIVE OF WHETHER IT DID SO OR NOT, AFTER THE DIRECTION OF TH E RESERVE BANK OR OTHERWISE, THE CASE WOULD NEVERTHELESS BE COVERED B Y THE DECISION IN THE CASE OF PUNJAB STATE INDL. DEVE. CORPN. LTD V. CIT (SC). ITA NO. 2354/BANG/2018 PAGE 3 OF 7 4. IN VIEW OF THE LEGAL POSITION ON THE ISSUE AS EX PLAINED ABOVE, WE DO NOT FIND ANY MERIT IN THE RELEVANT GROUND OF APPEAL (GR.NO.2) RAISED BY THE ASSESSEE IN THIS APPEAL. 5. THE OTHER ISSUE RAISED BY THE ASSESSEE IN GR.NO. 3 TO 5 IS WITH REGARD TO DISALLOWANCE OF A SUM OF RS.22,69,050/- A S CAPITAL EXPENDITURE BY THE REVENUE AUTHORITIES. THE FACTS AND CIRCUMSTANC ES UNDER WHICH THE AFORESAID DISALLOWANCE OF EXPENDITURE WAS MADE BY T HE REVENUE AUTHORITIES ARE THAT THE ASSESSEE IS CARRYING ON THE BUSINESS O F OUTDOOR ADVERTISING AGENCY. IN THE COURSE OF ITS BUSINESS THE ASSESSEE ERECTS ELECTRONIC SCREENS FOR DISPLAY OF ADVERTISEMENT IN VARIOUS RAI LWAY STATIONS. THE COST OF SUCH ELECTRONIC SCREENS ARE CAPITALIZED IN THE B OOKS OF ACCOUNTS. AFTER INSTALLATION OF THE ELECTRONIC SCREENS IT HAS TO BE MAINTAINED PERIODICALLY. THE EXPENSES IN MAINTAINING THE SCREEN IS CLAIMED A S REVENUE EXPENDITURE. DURING THE PREVIOUS YEAR 278 NEW ELECTRONIC SCREENS WERE INSTALLED. THE ASSESSEE HAD ALREADY INSTALLED ELECTRONIC SCREEN IN THE PAST OF 930 ELECTRONIC SCREENS, WHICH IS THE OPENING BALANCE AS ON THE 1ST DAY OF THE PREVIOUS YEAR. THE NEW ELECTRONIC SCREEN HAD BEEN INSTALLED IN MUMBAI RAILWAY STATIONS. THE EXPENDITURE INCURRED IN INST ALLATION AND MAINTENANCE OF ELECTRONIC SCREEN DURING THE PREVIOUS YEAR WAS A S FOLLOWS:- DIVISION INSTALLATION REVENUE EXPENSES INSTALLATION CAPITALISATION EXPENSES NO. OF INSTALLATION DURING THE AY 2015-16 COST PER SCREEN REVENUE EXP COST PER SCREEN CAPITALISATION EXP INSTALLATION EXPENSES MUMBAI 17,37,955 23,57,955 278 6,252 377 INSTALLATION EXPENSES BANGALORE 3,92,752 - - - - INSTALLATION EXPENSES DELHI 1,38,343 - - - - 22,69,050 23,57,003 278 6,252 377 ITA NO. 2354/BANG/2018 PAGE 4 OF 7 6. THE AO HELD THAT THE EXPENDITURE IN QUESTION WAS CAPITAL EXPENDITURE AND HE THEREFORE DISALLOWED THE CLAIM O F THE ASSESSEE FOR DEDUCTION. THE CIT(A) UPHELD THE ORDER OF THE AO F OR THE REASONS GIVEN IN PARA 5.2 OF HIS ORDER WHICH READS THUS:- 5.2 BEFORE THE AO THOUGH IT WAS SUBMITTED THAT SC REEN MANAGEMENT EXPENSES ARE INCURRED FOR THE OLD SCREEN S. NO DETAILS OR BIFURCATION HAS BEEN FURNISHED BY THE APPELLANT EITHER BEFORE AO OR DURING APPEAL PROCEEDINGS AS REGARDS THIS CLA IM. IN FACT, THE APPELLANT HAS ADMITTED IN ITS WRITTEN SUBMISSIO N DATED 12-06- 2018 THAT THE COMPANY DOES NOT MAINTAIN SEPARATE DE TAILS FOR INSTALLATION CHARGES FOR NEW AND OLD ASSETS. THERE WAS NO EVIDENCE TO SUPPORT THE CLAIM OF OLD ASSETS AND NEW ASSETS AS MADE BY THE APPELLANT. INSTALLATION CHARGES ARE INC URRED FOR MAKING THE NEW ASSET READY FOR USE. IT HAS BEEN HEL D BY THE HON'BLE SC IN THE CASE OF DALMIA JAIN & CO 81 1TH 7 54 THAT IF THE EXPENDITURE WAS INCURRED TO CREATE ANY NEW ASSE T THEN THE SAME IS CAPITAL IN NATURE. IT HAS ALSO BEEN HELD BY THE APEX COURT IN THE CASE OF ARVIND MILLS LTD 197 ITR 422 THAT CA PITAL EXPENDITURE WOULD NOT BECOME REVENUE EXPENDITURE SI MPLY BY REASON THAT IT WAS INCURRED IN CONNECTION WITH BUSI NESS ACTIVITIES WHICH ULTIMATELY RESULTED IN EFFICIENTLY CARRYING O N DAY-TO-DAY BUSINESS. THE DECISIONS RELIED UPON BY THE APPELLAN T ARE FOUND TO BE BASED ON TOTALLY DIFFERENT FACTS AND HENCE ARE N OT APPLICABLE IN THIS CASE. 7. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESS EE IS IN APPEAL BEFORE THE TRIBUNAL. WE HAVE HEARD THE RIVAL SUBMI SSIONS AND ALSO LOOKED INTO THE DETAILS OF THE EXPENDITURE AND THE NATURE OF BUSINESS OF THE ASSESSEE AND ITS RELEVANCE TO THE ISSUE BEFORE US. THE ASSESSEE CAPITALIZES THE COST OF ERECTING ELECTRONIC SCREENS TREATING IT AS CAPITAL EXPENDITURE AND CLAIMS DEPRECIATION ON THE SAME. T HIS IS CLEAR FROM THE CHART OF EXPENSES REPRODUCED IN THE EARLIER PART OF THIS ORDER. AFTER INSTALLATION THE ELECTRONIC SCREENS NEED UPKEEP REP AIRS ETC. IN THIS APPEAL WE ARE CONCERNED WITH THE SUM OF RS.22,69,050. A P ERUSAL OF THE CHART ITA NO. 2354/BANG/2018 PAGE 5 OF 7 GIVEN IN THE EARLIER PART OF THIS ORDER SHOWS THAT THE BREAK-UP OF THE AFORESAID EXPENDITURE WAS RS.17,37,955 INCURRED IN MUMBAI RAILWAY STATIONS, RS,3,92,752 INCURRED IN BANGALORE RAILWAY STATION AND RS.1,38,343 INCURRED IN DELHI RAILWAY STATION. THE NEW INSTALL ATION OF SCREENS WAS ONLY IN MUMBAI RAILWAY STATION AND THEREFORE THE EXPENDI TURE INCURRED IN BANGALORE AND DELHI RAILWAY STATION CANNOT BE CONSI DERED AS CAPITAL EXPENDITURE AT ALL. THEREFORE, ADDITION TO THIS EX TENT IS HELD TO BE INCORRECT AND IS HEREBY DELETED. 8. AS FAR AS THE SUM OF RS.17,37,955/- INCURRED IN MUMBAI RAILWAY STATION IS CONCERNED, THE ASSESSEE HAS ITSELF CONSI DERED EXPENDITURE OF RS.23,57,003 AS CAPITAL EXPENDITURE AND CAPITALIZED IN THE BOOKS OF ACCOUNTS. THE ASSESSEE HAS CLAIMED RS.17,37,955 AS REVENUE EXPENDITURE. THE DETAILS OF THESE EXPENSES ARE GIV EN AT PAGE-52 OF ASSESSEES PAPER BOOK AND THE SAME IS AS FOLLOWS:- INSTALLATION EXPENSES MUMBAI DIVISION SL NO. PARTICULARS AMOUNT 1 ADVANCE 4,000 2 CAR 98,000 3 DEVELOPMENT 1,72,598 4 EXPENSE 2,400 5 FOOD 2,17,123 6 FUEL 3,000 7 MEDICAL 260 8 MISC 98,835 9 MOBILE 37,012 10 RAHUL 12,652 11 SANJEET 1 2,888 12 SATISH 2,538 13 STATIONERY 119 14 STAY 5,29,780 15 TRANSPORT 1,72,446 16 TRAVEL 3,65,747 17 VIKAS 5,450 18 WORK 3,107 TOTAL 17,37,955 ITA NO. 2354/BANG/2018 PAGE 6 OF 7 9. THE PROCESS OF ERECTING ELECTRONIC SCREENS FOR A DVERTISEMENT IS AN ONGOING PROCESS AND THE ASSESSEE HAS A TEAM TO THE WORK OF IDENTIFYING THE PLACES WHERE THESE SCREENS HAVE TO BE ERECTED A ND STUDY FEASIBILITY ETC. THE PROCESS INVOLVES TRAVELLING AND TAKING HE LP OF OTHER EMPLOYEES OF THE ORGANIZATION. THE EXPENSES WERE IN THE NATURE OF TRAVELLING, FOOD, MOBILE BILL ETC., WHICH CANNOT BE REGARDED AS CAPIT AL EXPENDITURE. GOING BY THE NATURE OF EXPENDITURE, WE ARE OF THE VIEW THAT THESE WERE REVENUE EXPENDITURE. THE FACT THAT THESE EXPENSES WERE GRO UPED UNDER THE HEAD INSTALLATION CHARGES, WILL NOT BE A GROUND TO TREAT THEM AS CAPITAL EXPENDITURE. WE THEREFORE HOLD THAT THE ADDITION M ADE BY THE AO AND SUSTAINED BY THE CIT(A) DESERVES TO BE DELETED AND THE SAME IS HEREBY DELETED. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 19 TH DAY OF JULY, 2019. SD/- SD/- ( JASON P. BOAZ ) ( N.V . VASU DEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, THE 19 TH JULY, 2019. / D ESAI S MURTHY / ITA NO. 2354/BANG/2018 PAGE 7 OF 7 COPY TO: 1. THE APP ELLANT 2. THE R ESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUA R D F ILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.