Metro Ortem Limited, New Delhi V. DCIT, Circle 6 (1), New Delhi

ITA 2551/DEL/2008

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 5790 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 30-03-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 25-07-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G S SAHOTA
• Keywords: Depreciation; Business expenditure; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E DELHI BEFORE SHRI RAJPAL YADAV AND SHRI K.G. BANSAL I.T.A.NO. 2551(DEL)/2008 ASSESSMENT YEAR: 2003-04 M/S METRO ORTEM LIMITED., DE PUTY COMMISSIONER OF INCOME 134/4 & 134/5, ZAMRUDPUR, VS. TAX, CIRCLE 6(1), NEW DELHI. NEAR AJIT ARCADE, KAILASH COLONY, NEW DELHI-48. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ANIL BHALLA, C.A. RESPONDENT BY: SHRI G.S. SAHOTA, SR. DR ORDER PER K.G. BANSAL ; AM THIS APPEAL OF THE ASSESSEE EMANATES FROM THE O RDER OF THE CIT(APPEALS)-IX, NEW DELHI, AND IT PERTAINS TO ASSESSMENT YEAR 2003- 04. THE CORRESPONDING ORDER OF ASSESSMENT WAS FRAMED BY THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 6(1), NEW DELH I, ON 20.3.2006, UNDER THE PROVISION OF SECTION 143(3) OF THE I NCOME-TAX ACT, 1961. THE ASSESSEE HAS TAKEN THREE GROUNDS IN THE APPEAL TO THE EFFECT THAT THE LD. CIT(APPEALS) ERRED IN -(I) ALLOWING DEPRECIATION ON TEMPORARY WOODEN STRUCTURE @ 15% INSTEAD OF 100%; (II) DISALLOWING DEDUCTION U/S 80-IB ON EXPORT INCENTIVES; AND (III) DISALLOWING DEDUCT ION U/S 80-HHC ON THE ITA NO. 2551(DEL)/2008 2 AMOUNT OF RS. 2,44,431/-, BEING EXCESS PROVISIO N WRITTEN BACK TO THE PROFIT AND LOSS ACCOUNT. 2. IN REGARD TO GROUND NO.1, IT IS MENTIONED IN TH E ASSESSMENT ORDER THAT THE ASSESSEE INCURRED EXPENDITURE OF RS. 2,96,48 1/- ON ERECTING TEMPORARY WOODEN STRUCTURE AND PURCHASE OF FURNITURE. 5 0% OF THE EXPENDITURE IN RESPECT OF FURNITURE WAS TREATED AS CAPITAL EXPENDITURE. DEDUCTION @ 100% OF THE COST WAS CLAIMED IN RESPECT OF T EMPORARY WOODEN STRUCTURE, WHICH WAS IN THE NATURE OF NEW CABINS ERECTED IN THE OFFICE PREMISES TO BE USED AS MANAGERS CABIN AND COMPUTER CABI N. THE AO WAS OF THE VIEW THAT THE CABINS WERE NOT TEMPORARY STRU CTURES AS THEY COULD BE USED OVER A NUMBER OF YEARS. THEREFORE, THE EXPENDITURE WAS CAPITALIZED AND DEDUCTION WAS ALLOWED @ 15% AGAINST THE CLAIM OF 100%. 2.1 AGGRIEVED BY THIS ORDER, THE APPEAL WAS FIL ED BEFORE THE CIT(APPEALS)-IX, NEW DELHI. AFTER CONSIDERING T HE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDER, HE AGREED WIT H THE VIEW OF THE AO THAT THE CABINS COULD BE USED OVER A NUMBER OF YE ARS AND, IN FACT, AFTER THEIR ERECTION IN FINANCIAL YEAR 2002-03, TH EY WERE BEING USED TILL THE ITA NO. 2551(DEL)/2008 3 HEARING OF THE APPEAL IN JULY, 2007. THEREFORE, HE CONFIRMED THE ORDER OF THE AO. 2.2 BEFORE US, THE LD. COUNSEL DREW OUR ATTENT ION TO PAGE 1 OF THE PAPER BOOK, WHEREIN IT IS MENTIONED THAT THE EXISTING PREMISES NEEDED RE- DESIGNING FOR EFFECTIVE USE OF THE SPACE MEANT FOR THE ADMINISTRATION BLOCK. THIS EXPENDITURE DID NOT LEAD TO CREATI ON OF ANY NEW SPACE. THE DETAILS OF THE EXPENDITURE WERE PLACED IN THE P APER BOOK FROM PAGES 11 TO 19, WHICH ARE IN THE NATURE OF PURCHASE OF W OOD, GLASS AND OTHER SUNDRY ITEMS. HIS CASE WAS THAT THE CABINS WERE TEMPORARY STRUCTURES, REQUIRING READJUSTMENTS FROM TIME TO TIME. IN THE ALTERNATIVE, IT WAS ARGUED THAT THE EXPENDITURE WAS OF REVENUE NA TURE. 2.3 IN REPLY, THE LD. DR REFERRED TO THE ORDE RS OF AUTHORITIES BELOW, IN WHICH A CLEAR FINDING WAS GIVEN THAT THE WOODE N CABINS WERE BEING USED FROM THE YEAR OF ERECTION IN FINANCIAL YEAR 2002-03 TILL JULY, 2007. THIS FACT SHOWS THAT THE CABINS WERE NOT TEM PORARY STRUCTURES. THEREFORE, IT WAS ARGUED THAT THE ORDER OF TH E LD. CIT(A) IN THE MATTER MAY BE CONFIRMED. COMING TO THE ISSUE OF THE E XPENDITURE BEING REVENUE EXPENDITURE, IT WAS AGITATED THAT THE ASSESSEE IS MAKING OUT A ITA NO. 2551(DEL)/2008 4 NEW CASE, AS SUCH ARGUMENT WAS NOT TAKEN UP BEFORE ANY OF THE LOWER AUTHORITIES. 3. WE HAVE CONSIDERED THE FACTS OF THE CASE AND RIVAL SUBMISSIONS. SINCE THE WOODEN STRUCTURE HAS BEEN USED FOR ABOUT FIVE YEARS, WE TEND TO AGREE WITH THE LOWER AUTHORITIES THAT IT IS NOT A TEMPORARY STRUCTURE. COMING TO THE ALTERNATE ARGUMENT, IT IS SEEN THAT ALL THE FACTS ARE THERE ON RECORD. THE EFFECT OF CLAIM OF 100% DEDUCTI ON BY WAY OF DEPRECIATION IS SIMILAR TO THE CLAIM OF THE EXPE NDITURE BEING REVENUE IN NATURE. THUS, WE ARE OF THE VIEW THAT ARGUM ENT IN THIS BEHALF DOES NOT AMOUNT TO MAKING A NEW CASE. NONETHELESS, I NCOME-TAX PROCEEDINGS ARE ALSO NOT ADVISORIAL PROCEEDINGS, BECAUSE TH E AIM IS TO ARRIVE AT THE CORRECT TOTAL INCOME. IN VIEW OF THIS, WE ALLOW AND CONSIDER THE ALTERNATIVE CLAIM PUT UP BY THE LD. COUNSEL. IN THIS CONNECTION, THE LD. COUNSEL REFERRED TO THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF INSTALLMENT SUPPLY PVT. LTD. VS. CIT (1984) 1 49 ITR 52. IN THAT CASE, THE ASSESSEE HAD CARRIED OUT REPAIRS IN THE TE NANTED PREMISES TO MAKE THE OFFICE SUITABLE FOR HANDLING MORE BUSINESS. THE EXPENDITURE WAS ALSO INCURRED TO UPGRADE FITTINGS, FLOORING AND WOOD WORK. THE HONBLE COURT FURNISHED THE DESCRIPTION OF THE EXPENDITURE A T PAGE 55 OF THE JUDGMENT ITA NO. 2551(DEL)/2008 5 AND THEREAFTER CAME TO THE CONCLUSION THAT THE EXPENDITURE CONSTITUTED REVENUE EXPENDITURE AS AN OLD ASSET HAD BEEN RE-MODELED FOR COMMERCIAL EXPEDIENCY. THE EXPENDITURE DOES N OT ASSUME THE CHARACTER OF CAPITAL EXPENDITURE AS THE BUILDING DID N OT BELONG TO THE ASSESSEE. FROM THE AFORESAID DECISION, IT WILL BE CLEAR THAT THE COURT WAS HEAVILY INFLUENCED BY THE FACT THAT THE REPAIRS WERE CARRIED OUT IN THE TENANTED PREMISES. IN THE INSTANT CASE, THE PREMISES BELONG TO THE ASSESSEE. THE HONBLE COURT HAD ALSO REFERRED TO THE DECIS ION OF HONBLE SUPREME COURT IN THE CASE OF EMPIRE JUTE COMPANY LTD. VS . CIT, (1980) 124 ITR 1, IN WHICH IT WAS MENTIONED THAT THE SOLE BA SIS OF THE DECISION WAS THAT THE REPAIRS REPRESENTED CAPITAL EXPENDITURE BECAUSE A LONG-TERM ADVANTAGE ENURED TO THE BENEFIT OF THE ASSESS EE. THE HONBLE COURT MENTIONED THAT A NUMBER OF TESTS HAVE BEEN EVOLVED TO DISTINGUISH BETWEEN A CAPITAL EXPENDITURE AND A REVENUE EXPENDITURE, BUT NO TEST IS PARAMOUNT OR CONCLUSIVE. THERE IS NO EVER-EMBR ACING FORMULA WHICH CAN PROVIDE A READY SOLUTION TO THE PROBLEM. THUS, EVERY CASE HAS TO BE DECIDED ON ITS OWN, KEEPING IN MIND THE BROAD PICTURE OF THE WHOLE OPERATION IN RESPECT OF THE EXPENDITURE. ONE O F THE TESTS IS WHETHER THE BENEFIT ENURED IN THE CAPITAL FIELD OR THE RE VENUE FIELD. WHEN LOOKED FROM THIS POINT OF VIEW, IT IS FOUND THAT THERE IS NO INCREASE IN THE AREA ITA NO. 2551(DEL)/2008 6 AND NO NEW STRUCTURE HAS BEEN CREATED. THE EXISTING PREMISES HAVE BEEN RE-MODELED FOR EFFICIENT CARRYING ON OF THE BUSINESS. THEREFORE, WE ARE OF THE VIEW THAT THE EXPENDITURE IS IN T HE REVENUE FIELD. ACCORDINGLY, GROUND NO. 1 IS ALLOWED. 4. IT WAS THE ADMITTED POSITION THAT GROUND NO. 2, REGARDING DEDUCTION U/S 80-IB ON EXPORT INCENTIVES (DEPB), STANDS D ECIDED AGAINST THE ASSESSEE BY THE APEX COURT IN THE CASE OF LIBERT Y INDIA VS. CIT (2009) 317 ITR 218. RESPECTFULLY FOLLOWING THIS DECISION , GROUND NO. 2 IS DISMISSED. 5. IN REGARD TO GROUND NO. 3, THE FINDING IN TH E IMPUGNED ORDER IS THAT THE EXCESS PROVISION WRITTEN BACK, AMOUNTING T O RS. 2,44,431/-, IS IN RESPECT OF LEAVE ENCASHMENT PROVISION CLAIMED AS BUSINESS EXPENDITURE IN THE EARLIER YEAR. THIS INCOME IS OF AN EARL IER YEAR AND, THEREFORE, IT WOULD FALL UNDER CLAUSE (BAA) OF THE EXPLANATION TO SECTION 80-HHC. THUS, THE ACTION OF THE AO WAS CONFIRMED. 5.1 THE LIMITED ARGUMENT OF THE LD. COUNSEL WAS THAT THE EXPRESSION PROFITS OF BUSINESS HAS BEEN DEFINED IN CLAU SE (BAA) OF THE EXPLANATION ITA NO. 2551(DEL)/2008 7 TO MEAN PROFITS OF BUSINESS AS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS AS REDUCED BY CERTAIN AMOUNT S. THE PROVISION FOR LEAVE ENCASHMENT WRITTEN BACK IN THIS YEAR DO ES NOT FALL UNDER THE AMOUNTS TO BE REDUCED FROM THE PROFITS OF BUSIN ESS. FURTHER, SECTION 41(1), UNDER WHICH THE AMOUNT IS BROUGHT TO TAX , FALLS UNDER CHAPTER IV- D REGARDING PROFITS AND GAINS OF BUSINESS OR PROFESSION. A STATEMENT WAS MADE AT THE BAR THAT THIS AMOUNT WAS DEDUC TED IN COMPUTING THE PROFIT OF BUSINESS OF THE EARLIER YEAR AND THE POSITION HAS NOT BEEN CHANGED AS A CONSEQUENCE OF WRITE BACK OF THIS AMOUNT IN THIS YEAR. 5.2 IN REPLY, THE LD. DR RELIED ON THE ORDER OF THE LD. CIT(APPEALS), WHICH WE HAVE ALREADY STATED. 5.3 WE HAVE CONSIDERED THE FACTS OF THE CASE AN D RIVAL SUBMISSIONS. WE TEND TO AGREE WITH THE LD. COUNSEL THAT IN VIEW OF THE DEFINITION OF THE TERM PROFITS OF BUSINESS GIVEN IN THE AFORESA ID CLAUSE (BAA), VARIOUS SECTIONS FROM SECTIONS 29 TO 44DA WILL HAVE TO BE CONSIDERED TO COMPUTE IT. THE AMOUNT WAS REDUCED WHILE COMPUTING THE DEDUCTION IN THE EARLIER YEAR. THE AMOUNT HAS BEEN BROUGHT TO T AX IN THIS YEAR U/S 41(1). ITA NO. 2551(DEL)/2008 8 THEREFORE, THIS INCOME IS ALSO ENTITLED TO DED UCTION U/S 80HHC. IN THE GROUND, GROUND NO. 3 IS ALLOWED. 6. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 31 ST MARCH, 2010. SD/- SD/- (RAJPAL YADAV) (K.G.BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: 31.03.2010. SP SATIA COPY OF THE ORDER FORWARDED TO:- 1. M/S METRO ORTEM LTD., NEW DELHI. 2. DY. CIT, CIRCLE-6(1), NEW DELHI. 3. CIT(A) 4. CIT, NEW DELHI. 5. DR, ITAT, NEW DELHI. ASSISTANT REGISTRA R.