INDIA CONNECTION IMPEX P. LTD, MUMBAI V. ACIT 10(1), MUMBAI

ITA 2436/MUM/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8713 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-01-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2006-2007
• Appeal Filed On: 29-03-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PITAMBAR DAS
• Assessee Lawyers: ISWAR P RATHI
• Keywords: Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI I BENCH BEFORE SHRI D.K.AGARWAL, JUDICIAL MEMBER & SHRI T.R.SOOD, ACCOUNTANT MEMBER I.T.A.NO.2436/MUM/2010 A.Y 2006-07 INDIA CONNECTION IMPEX PVT. LTD., DEEP PLAZA, UNIT NO.17 & 18, 2 ND FLOOR, OFF. LBS MARG, BEHIND ASHOK LEYLAND, KURLA (W), MUMBAI 400 070 PAN: AAACO 9108 A VS. ASST. COMMISSIONER OF I.T., CIRCLE 10(1), MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : MR. ISWAR P. RATHI. RESPONDENT BY : MR. PITAMBAR DAS. (JCIT) O R D E R PER T.R.SOOD, AM: IN THIS APPEAL, ASSESSEE HAS RAISED FOUR GROUNDS, OUT OF WHICH GROUNDS NOS.2 & 4 WERE NOT PRESSED BEFORE US AND, T HEREFORE, SAME ARE BEING DISMISSED AS NOT PRESSED. THE OTHER GROUN DS ARE AS UNDER: 1. THE LEARNED COMMISSIONER OF INCOME TAX [APPEALS ] HAS ERRED IN CONFIRMING RENOVATION EXPENSES AS CAPITAL EXPENDITU RE EVEN THOUGH SUFFICIENT EXPLANATIONS AND MATERIALS WERE PUT ON R ECORD TO PROVE THESE EXPENSES AS REVENUE EXPENDITURE. 3. THE LEARNED COMMISSIONER OF INCOME TAX [APPEALS] HAS ERRED IN CONFIRMING ` `` ` .1,00,000/- AS EXPENSES SPENT FOR PROFESSIONAL FEES PAID FOR INTERIOR DESIGN WORK. 2. AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS AO NOTICED THAT THE ASSESSEE HAS CLAIME D EXPENSES ON ACCOUNT OF REPAIRS AND MAINTENANCE AT ` `` ` .17,67,049/-. THE BILLS AND INVOICES FOR THE SAME WERE NOT FURNISHED. IT WAS NO TICED THAT THE EXPENDITURE WAS INCURRED MAINLY BY WAY OF VARIOUS M ATERIAL AND LABOUR 2 CHARGES FOR RENOVATION OF GALA NOS.119 & 120. THE A O WAS OF THE VIEW THAT SUCH A HEAVY EXPENDITURE COULD NOT BE CONSIDER ED AS REVENUE. HE, THEREFORE, TREATED THE SAME AS CAPITAL EXPENDITURE AND ALLOWED THE DEPRECIATION AT 10%. [THIS ISSUE HAS BEEN RAISED TH ROUGH GROUND NO.1]. 3. THE AO FURTHER NOTICED THAT A SUM OF ` `` ` .1,00,000/- HAS BEEN PAID TO M/S. DESIGNER COMBINE AS PROFESSIONAL FEES FOR T HE RENOVATION. THIS WAS ALSO CONSIDERED AS CAPITAL EXPENDITURE AND 10% DEPRECIATION WAS ALLOWED. [THIS ISSUE HAS BEEN RAISED THROUGH GROUND NO.3]. 4. ON APPEAL, LD. CIT[A] DECIDED THE ISSUE VIDE PAR A 2.3 AS UNDER: 2.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE. THE APPELLANT WAS DOING BUSINESS FROM ITS TWO SHOW ROOMS WHICH WE RE IN GALA NO.119 & 120. THE TOTAL AMOUNT SPENT ON RENOVATION WAS ` `` ` .17,47,049/-. FOR THE PURPOSES OF THIS RENOVATION, THE SERVICES OF INTERIOR DESIGNER WAS ALSO OBTAINED TO WHOM CHARGES OF ` `` ` .1,00,000/- WAS PAID. THE NATURE OF EXPENDITURE WHETHER IT IS A REVENUE OR CAPITAL IN NATURE DEPENDS ON FACTS OF EACH CASE. IN THE CAS E UNDER CONSIDERATION, THE APPELLANT INCURRED THIS AMOUNT F OR THE PURPOSES OF RENOVATION OF TWO GALAS. THE ENTIRE LAY OUT/INTERIO R/DESIGN/SETTING OF THE SHOW ROOM WAS RECEIVED/CHANGED. THUS, LOOKING INTO THE TOTAL AREA OF THE GALAS, THE AMOUNT SPENT ON RENOVATION AT ` `` ` .17,47,049/- PLUS ` `` ` .1 LAKH PAID TO THE INTERIOR DESIGNER, WAS SUBSTANTIAL. THE ENTIRE INTERIOR OF GALA WAS CHANGED AND HENCE, IT WAS NOT A CASE OF CURREN T REPAIRS AS CLAIMED BY THE APPELLANT. THE APPELLANT INCURRED EX PENDITURE ON PURCHASE OF PLYWOOD, PLUMBING MATERIAL, CEMENT, GLA SS, PAINT, ETC. AND ALSO LABOUR CHARGES. HAD THE EXPENDITURE BEEN INCUR RED ON PURCHASE OF ANY ONE OR TWO ITEMS, THE CASE WOULD HAVE FALL UNDE R CURRENT REPAIRS. BY RENOVATING THE ENTIRE GALA, THE APPELLANT OBTAIN ED A BENEFIT OF ENDURING NATURE. THEREFORE, IN MY VIEW, THE EXPENDI TURE WAS OF A CAPITAL NATURE. THE AO WAS, THEREFORE, JUSTIFIED IN TREATING THE SAID EXPENDITURE AS CAPITAL IN NATURE AND IN ALLOWING DE PRECIATION THEREON. THIS GROUND OF APPEAL IS DISMISSED. 5. BEFORE US, LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT NECESSARY DETAILS WERE FILED BEFORE THE AO AND CIT[A]. HE SUB MITTED THAT THESE PREMISES WERE LEASED PREMISES AND THE EXPENDITURE W AS BASICALLY 3 INCURRED TO RENOVATE THE GALAS SO THAT BETTER LOOK COULD BE PROVIDED TO THE PREMISES BECAUSE FOREIGN CUSTOMERS WERE VISITIN G THE SHOW ROOMS. HOWEVER, HE COULD NOT JUSTIFY THE HEAVY EXPENDITURE ON ACCOUNT OF ELECTRIC ITEMS WHICH WAS INCURRED AT ` `` ` .4,16,243/- ON 647 ITEMS AND SIMILARLY ON GLASS WHICH WAS INCURRED AT ` `` ` .1,77,187/- ON 126 ITEMS [AS PER DETAILS FILED AT PAGE 6 OF THE PAPER BOOK]. 6. ON THE OTHER HAND, LD. DR STRONGLY RELIED ON THE ORDER OF THE CIT[A]. 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIND THAT IT IS NOT CLEAR WHETHER WHOLE OF THE EXPENSES IS INCURRED ON RENOVATION OF THE PREMISES OR SOME NEW ITEMS HAVE ALSO BEEN CREATED E .G. PAINT OR USE OF POP TO SHOW THAT IT IS A CASE OF REPAIRS AND/OR RENOVATION. AT THE SAME TIME HEAVY EXPENSES ON ELECTRIC ITEMS OF ` `` ` .4,16,243/- AND GLASS AT ` `` ` .1,77,187/- IN SMALL PLACES SEEM TO SUGGEST THAT EX PENDITURE IS ON CAPITAL ACCOUNT. SINCE LD. COUNSEL OF THE ASSESSEE COULD NOT CLARIFY THIS, NO PURPOSE WOULD BE SERVED EVEN IF THE MATTER IS RE MANDED BACK TO THE FILE OF THE AO. THEREFORE CONSIDERING THE OVER ALL CIRCUMSTANCES OF THE CASE, WE ESTIMATE THAT A SUM OF ` `` ` .10,00,000/- SHOULD BE TREATED TOWARDS REPAIRS AND RENOVATION AND ALLOW IT AS REVE NUE EXPENDITURE AND BALANCE OF THE EXPENDITURE MAY BE TREATED AS CA PITAL EXPENDITURE. 8. AS FAR AS THE FEE PAID TO M/S DESIGNER COMBINE I S CONCERNED, THE WHOLE OF ` `` ` .1,00,000/- SHOULD BE TREATED AS REVENUE EXPENDITUR E BECAUSE IT CANNOT BE ALLOCATED SEPARATELY. THEREFOR E, WE SET ASIDE THE ORDER OF THE LD. CIT[A] AND DIRECT THE AO TO TREAT THE FEES OF 4 ` `` ` .1,00,000/- PAID TO M/S DESIGNER COMBINE AND FURTHE R A SUM OF ` `` ` .10,00,000/- OUT OF RENOVATION OF EXPENSES OF ` `` ` .17,67,049/- AS REVENUE EXPENDITURE AND THE BALANCE AMOUNT AS CAPIT AL EXPENDITURE. 9. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOW ED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF JANUARY, 2011. SD/- SD/- (D.K.AGARWAL) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 28 TH JANUARY, 2011. P/-*