M/s. Aspect Research & Managemetn P. ltd., New Delhi V. ITO, New Delhi

ITA 3204/DEL/2015

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 2916 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-03-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 16-05-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 20-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SARAS KUMAR
• Assessee Lawyers: ROHIT JAIN
• Keywords: Depreciation; Principle of natural justice; Additional evidence; Revenue expenditure; Capital expenditure; TDS; Set aside
• Section: 40(a)(ia); 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH SMC NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER I.T.A. NO.3204/DEL/2015 ASSESSMENT YEAR: 2007-08 ASPECT RESEARCH & MANAGEMENT P. LTD., A-49, MOHAN INDL. ESTATE, MATHURA ROAD, NEW DELHI. VS. ITO, WARD-2(2), NEW DELHI. TAN/PAN: AAFCA5555Q (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI ROHIT JAIN, ADV. & SHRI ADITYA VOHRA, ADV. RESPONDENT BY: SHRI SARAS KUMAR, SR.D.R. DATE OF HEARING: 10 12 2019 DATE OF PRONOUNCEMENT: 05 03 2020 O R D E R PER AMIT SHUKLA, JM THE AFORESAID APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE IMPUGNED ORDER DATED 25.02.2015, PASSED BY LD. COMMISSIONER OF INCOME TAX (APPEALS)-I, NEW DELHI F OR THE QUANTUM OF ASSESSMENT PASSED U/S.144/254 FOR THE ASSESSMENT YEAR 2007-08. IN THE REVISED GROUNDS OF APPEAL, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF RS.42,15,041/- TOWARDS REPAIR AND MAINTENANCE OF LE ASED PREMISES, HOLDING THAT THE EXPENDITURE WAS NOT GENU INE AND ALTERNATIVELY DISALLOWED BY THE LD. CIT(A) BY INVOK ING THE PROVISION OF SECTION 40(A)(IA). I.T.A. NO.3204/DEL/2015 2 2. THE ONLY ISSUE INVOLVED HERE IN THIS CASE IS, WH ETHER THE ADDITION ON RENOVATION EXPENSES ON LEASE HOLD PROPE RTY IS IN LINE WITH THE DIRECTION GIVEN BY THE TRIBUNAL IN TH E FIRST ROUND OF PROCEEDINGS. THE MATTER WAS REMANDED BACK BY THE TRIBUNAL AFTER OBSERVING AND HOLDING AS UNDER:- WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF BOTH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. THE ONLY DIS PUTE IN THIS APPEAL IS WITH REGARD TO THE ALLOWABILITY OF EXPENDITURE I NCURRED ON THE REPAIR OF THE LEASEHOLD PROPERTY, WHETHER THE SAME IS TO B E TREATED AS A REVENUE EXPENDITURE OR CAPITAL EXPENDITURE. IN OUR OPINION, REFERENCE TO THE LEASE DEED WOULD HELP IN ARRIVING AT A PROPE R CONCLUSION WITH REGARD TO THE NATURE OF THE EXPENDITURE. WE, THEREF ORE, ADMIT THE ADDITIONAL EVIDENCE IN THE FORM OF LEASE DEED. HOWE VER, THIS LEASE DEED WAS NOT BEFORE THE ASSESSING OFFICER AND, THER EFORE, THE NATURAL JUSTICE DEMANDS THAT THE ASSESSING OFFICER SHOULD B E GIVEN AN OPPORTUNITY TO EXAMINE THE ISSUE AFRESH IN THE LIGH T OF THE LEASE DEED. WE, THEREFORE, SET ASIDE THE ORDERS OF THE AUTHORIT IES BELOW ON THIS POINT AND RESTORE THE MATTER BACK TO THE FILE OF TH E ASSESSING OFFICER. WE DIRECT THE ASSESSEE TO PRODUCE THE LEASE DEED AN D ANY OTHER EXPLANATION/EVIDENCES WHICH HE WANTS TO PRODUCE BEF ORE THE ASSESSING OFFICER. THEREAFTER, THE ASSESSING OFFICE R IS DIRECTED TO READJUDICATE THE ISSUE AFRESH IN ACCORDANCE WITH LA W. 3. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IS ENGA GED IN THE BUSINESS OF DESIGNING SOFTWARE AND OFFERING CONSULT ANCY SERVICES TO VARIOUS MULTINATIONAL COMPANIES/AGENCIE S. FOR THE PURPOSE OF ITS BUSINESS, THE ASSESSEE HAS TAKEN PRE MISES AT A-49, MOHAN COOPERATIVE INDUSTRIAL ESTATE, MATHURA ROAD, NEW DELHI AND AT W-6, SECTOR 11 NOIDA ON LEASE THRO UGH MOU DATED 3 RD APRIL, 2006 AND 2 ND SEPTEMBER, 2006, I.T.A. NO.3204/DEL/2015 3 RESPECTIVELY. THE ASSESSEE UNDERTOOK REPAIR AND MAI NTENANCE EXPENSES OF THESE LEASE PREMISES. THE EXPENSES INCU RRED WERE IN THE NATURE OF NORMAL REPAIR AND RENOVATION EXPEN SES INVOLVING LAYING DOWN/REINFORCING OF FLOORING, TEMP ORARY PARTITION, ROOFING AND WALL COVERING ETC. IN THE OR IGINAL ASSESSMENT PROCEEDINGS PASSED U/S.143(3) VIDE ORDER DATED 24.12.2009, ASSESSING OFFICER HAS DISALLOWED THE EN TIRE REPAIR AND RENOVATION EXPENSES OF RS.42,15,041/- HOLDING I T TO BE CAPITAL EXPENDITURE. 4. BEFORE THE LD. CIT (A) IN THE FIRST ROUND, THE A SSESSEE HAS FILED COPIES OF LEASE DEED IN RESPECT OF LEASE PREMISES AS ADDITIONAL EVIDENCE AND REMAND REPORT WAS CALLED FO R. THE ASSESSING OFFICER HAD OBJECTED FOR ADMISSION OF ADD ITIONAL EVIDENCES. LD. CIT (A) REFUSED TO ADMIT THE SAID AD DITIONAL EVIDENCES AND DISMISSED THE APPEAL OF THE ASSESSEE. IN SECOND APPEAL, THE TRIBUNAL VIDE ORDER DATED 29 TH DECEMBER, 2011 IN ITA NO.3127/DEL/2011 HAS REMANDED THE ISSUE TO THE FILE OF THE ASSESSING OFFICER AS PER DIRECTION INCORPORATED ABOVE. THUS, THE LIMITED PURPOSE FOR DECIDING THE ISSUE WA S, WHETHER EXPENDITURE INCURRED WAS CAPITAL OR REVENUE IN NATU RE. IN THE SECOND ROUND OF PROCEEDINGS, THE ASSESSING OFFICER HAS AGAIN MADE THE DISALLOWANCE OF REPAIR AND RENOVATION EXPE NSES HOLDING IT TO BE CAPITAL IN NATURE. THE GENUINENESS OF THE EXPENDITURE AT NO STAGE WAS IN DOUBT. HOWEVER, IN F IRST APPEAL, THE LD. CIT (A) FOR THE FIRST TIME EVEN DOU BTED THE GENUINENESS OF THE EXPENSES INCURRED ON THE BASIS O F CERTAIN INQUIRIES CONDUCTED BEHIND THE BACK OF THE ASSESSEE IN THE I.T.A. NO.3204/DEL/2015 4 REMAND PROCEEDINGS AND ON THE BASIS OF THE REMAND R EPORT SUBMITTED BY THE ASSESSING OFFICER THE LD. CIT (A) HAS CONFIRMED THE DISALLOWANCE OF THE EXPENSES HOLDING IT TO BE NON GENUINE. ALTERNATIVELY, THE LD. CIT (A) HAS STA TED THE REPAIR AND RENOVATION EXPENSES ARE NOT ALLOWABLE SI NCE TDS WAS NOT DEDUCTED. 5. I HAVE HEARD BOTH THE PARTIES AT LENGTH AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. THE CONTENTION OF THE LD. COUNSEL BEFORE US IS THAT, THE ONLY ISSUE RAISED IN THE FIRST ROUND OF PROCEEDINGS WAS, WHETHER THE REPAIR AND RE NOVATION EXPENSES INCURRED IS CAPITAL OR REVENUE IN NATURE A ND NONE OF THE AUTHORITIES HAVE DOUBTED THE GENUINENESS OF THE EXPENSES EVER. HE SUBMITTED THAT THE ENTIRE DETAILS IN RESPE CT OF REPAIR AND RENOVATION WERE DULY FILED BEFORE THE ASSESSING OFFICER AND THE COPIES OF LEASE DEEDS WERE FILED AS ADDITIO NAL EVIDENCES BEFORE THE LD. CIT (A) WHICH WAS DULY FOR WARDED TO THE ASSESSING OFFICER FOR COMMENTS. ONCE THE LEASE DEEDS WERE NOT ADMITTED BY THE LD. CIT (A), THE TRIBUNAL HAS RESTORED THIS ISSUE ONLY TO EXAMINE, WHETHER THE RE PAIR AND RENOVATION EXPENSES ARE CAPITAL OR REVENUE IN NATUR E AND TO CONSIDER THE LEASE DEEDS FILED. THUS, HE SUBMITTED THAT IT WAS NOT OPEN TO THE ASSESSING OFFICER OR LD. CIT(A) TO UNDERTAKE ANY EXPARTE INQUIRIES BEHIND THE BACK OF THE ASSESS EE TO DOUBT EVEN THE GENUINENESS OF THE EXPENSES. HE SUBM ITTED THAT EVEN IF IT WAS HELD THAT THE EXPENDITURE INCUR RED WAS CAPITAL IN NATURE, THE ASSESSEE WAS STILL ENTITLED FOR DEPRECIATION AND NOW ASSESSEE CANNOT BE WORSE OFF P OSITION I.T.A. NO.3204/DEL/2015 5 AFTER THE MATTER IS REMANDED BY THE TRIBUNAL, IN SO FAR AS NOW THE ENTIRE EXPENDITURE STANDS DISALLOWED ON A DIFFE RENT FOOTING. WHEN TRIBUNAL HAS NO POWER OF ENHANCEMENT, THEN IT IS NOT OPEN FOR THE REVENUE TO MAKE OUT A NEW CASE ALTOGETHER. WITHOUT PREJUDICE, HE SUBMITTED THAT, F IRSTLY, THE INQUIRY WAS DONE WITHOUT PROVIDING ANY OPPORTUNITY FOR CROSS EXAMINATION OF THE PERSONS WHO HAVE STATED THAT THE Y HAD NOT CARRIED OUT ANY RENOVATION WORK AND BEHIND THE BACK OF THE ASSESSEE. SUCH INFORMATION OR MATERIAL CANNOT BE RE LIED UPON AND SUCH IT IS INADMISSIBLE IN LAW. THE ASSESSEE DU RING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS ITSELF HA S SUBMITTED THAT ALL THE DETAILS OF REPAIR AND RENOVA TION EXPENSES FOR PURCHASE OF MATERIALS AND GETTING INST ALLED BY PETTY CONTRACTORS. THE SAID EXPENDITURE WAS INCURRE D WAY BACK IN THE FINANCIAL YEAR 2006-07 AND NOW EXPARTE INQUIRIES CONDUCTED AFTER A GAP OF SEVEN YEARS CANNOT BE ACCE PTED. ANY STATEMENT OF A CONTRACTOR, DENYING HAVING DONE ANY WORK AFTER A GAP OF SEVEN YEAR CANNOT BE RELIED UPON ESPECIALL Y WHEN COPIES OF INVOICES RAISED BY THE SAME CONTRACTOR WE RE FILED. HE FURTHER SUBMITTED THAT REPAIR AND RENOVATION EXPENS ES INCURRED ON A LEASE PROPERTY WERE ALWAYS HELD TO BE REVENUE IN NATURE AND IN SUPPORT, HE RELIED UPON THE FOLLOW ING JUDGMENTS:- CIT VS AMWAY INDIA ENTERPRISES: 346 ITR 341 (DEL) CIT VS. ESCORTS FINANCE LTD. 155 TAXMAN 559 (DEL) CIT VS. HI LINE PENS (P) LTD. VS. CIT, 306 ITR 182 (DEL) INSTALMENT SUPPLY (P) LTD VS CIT 149 ITR 52 (DEL) I.T.A. NO.3204/DEL/2015 6 CIT VS AYESHA HOSPITALS (P) LTD: 292 ITR 266 (MAD) CIT VS DR. A.M. SINGHVI: 302 ITR 26 (RAJ) KANPUR DYEING & PRINTING CO VS CIT: 76 ITR 686 (ALL ) THIRU AROORAN SUGARS LTD. VS DCT: 350 ITR 324 (MAD) 6. REGARDING NON DEDUCTION OF TDS, HE SUBMITTED THA T, FIRSTLY, PROVISION OF SECTION 40(A)(IA) IS NOT APPL ICABLE IN THE PRESENT CASE, BECAUSE MAJOR EXPENDITURE IS TOWARDS P URCHASE OF MATERIAL AND ONLY SMALL PORTION RELATES TO LABOU R CHARGES, AND THEREFORE, TDS CANNOT BE DEDUCTED QUA THE MATER IAL PURCHASED. 7. ON THE OTHER HAND, LD. DR STRONGLY RELIED UPON T HE ORDER OF THE LD. CIT (A) AND SUBMITTED THAT THERE IS NO E NHANCEMENT OF INCOME ALBEIT THE EXPENDITURE WHICH WAS DISALLOWED ON THE FIRST ROUND OF PROCEEDINGS, SAME HAS BEEN DISALLOWE D ONCE AGAIN AND THIS TIME IN THE FIRST APPELLATE PROCEEDI NGS PROPER INQUIRY HAS BEEN MADE WHICH REVEALED THAT THE EXPEN SES CLAIMED BY THE ASSESSEE WERTE NOT GENUINE. THUS, TH E DISALLOWANCE MADE BY THE ASSESSING OFFICER AND CONF IRMED BY THE LD. CIT (A) SHOULD BE CONFIRMED. 8. IN THE PRESENT ROUND OF APPEAL, THE SCOPE OF THE PROCEEDINGS WAS CIRCUMSCRIBED TO THE DIRECTION OF T HE TRIBUNAL, WHICH WAS LIMITED TO, WHETHER THE REPAIR AND RENOVATION EXPENSES INCURRED ON A LEASE PROPERTY IS REVENUE EXPENDITURE OR IS CAPITAL IN NATURE. NOWHERE THE GE NUINENESS OF THE EXPENSES INCURRED WERE DOUBTED NOR THE BILLS AND VOUCHERS FOR THE PURCHASE OF MATERIAL AND FOR THE R ENOVATION I.T.A. NO.3204/DEL/2015 7 WORK FILED BEFORE THE AUTHORITIES BELOW WAS EVER DI SPUTED OR FOUND TO BE NON GENUINE. THE DIRECTION OF THE TRIBU NAL WAS VERY CATEGORICAL, FIRSTLY , TO ADMIT THE LEASE DEED; AND SECONDLY , TO DECIDE WHETHER THE EXPENDITURE INCURRED IS REVEN UE IN NATURE OR NOT. THE LD. ASSESSING OFFICER IN THE ASS ESSMENT ORDER HAS AGAIN TREATED THE EXPENDITURE AS CAPITAL IN NATURE. THE ENTIRE CONTEXT OF THE ADDITION GOT CHANGED WHEN IN THE COURSE OF THE APPELLATE PROCEEDINGS; LD. CIT (A) IN THE REMAND PROCEEDINGS GOT CONDUCTED CERTAIN INQUIRY THROUGH A SSESSING OFFICER, WHEREIN THE ASSESSING OFFICER SOUGHT INFOR MATION FROM THE PARTIES WHO HAVE CLAIMED TO HAVE PROVIDED SERVI CES TO THE ASSESSEE ON WHICH EXPENSES HAVE BEEN CLAIMED. ONE S HRI VISHAN KUMAR SHARMA WHO WAS CONTRACTOR AT THAT TIME , DENIED DOING ANY WORK FOR ASSESSEE AND NOTICES TO O THER CONTRACTORS REMAINED UNSERVED. NOW BASED ON THIS IN QUIRY CONDUCTED BEHIND THE BACK OF THE ASSESSEE AND WITHO UT CONFRONTING THE SAME, ADVERSE INFERENCE HAS BEEN DR AWN AND ENTIRE RENOVATION AND EXPENSES HAVE BEEN DISALLOWED . FIRST OF ALL, SUCH AN INQUIRY WAS NOT CALLED FOR, AS IT WAS BEYOND THE SCOPE OF SECOND ROUND OF PROCEEDINGS AND ANY INQUIR Y CONDUCTED BEHIND THE BACK OF THE ASSESSEE AFTER A G AP OF SEVEN YEARS, SAME CANNOT BE USED TO DRAW ANY ADVERS E INFERENCE, ESPECIALLY WHEN ASSESSEE HAS PRODUCED TH E ENTIRE BILLS AND INVOICES RAISED BY THE SAME CONTRACTORS A ND AFTER A GAP OF SUBSTANTIAL TIME OF SEVEN YEARS AN EX-PARTE STATEMENT GIVEN BEHIND THE BACK OF THE ASSESSEE HAS NO CREDIB ILITY. THE SAME CANNOT BE USED AS AN EVIDENCE AGAINST THE ASSE SSEE. I.T.A. NO.3204/DEL/2015 8 ACCORDINGLY, ANY SUCH MATERIAL OR EVIDENCE CANNOT B E USED AGAINST THE ASSESSEE AND THE SAME IS REJECTED. 9. NOW COMING TO THE ISSUE WHETHER THE EXPENDITURE INCURRED IS CAPITAL IN NATURE, IT IS AN UNDISPUTED FACT THAT THE ASSESSEE CARRIED OUT REPAIR AND RENOVATION EXPENSES ON A LEASE PROPERTY WHICH WAS TAKEN ON LEASE AND ANY SUC H REPAIR AND MAINTENANCE OF LEASE PROPERTY CANNOT BE HELD TO BE GIVING ANY ENDURING BENEFIT TO THE ASSESSEE, FIRSTLY FOR T HE REASON THAT LEASED PREMISES IS FOR TEMPORARY PERIOD AND NA TURE OF EXPENSES ARE PURELY IN NATURE OF REPAIRS. IN FACT S UCH KIND OF REPAIRS AND RENOVATION EXPENSES ON LEASED PREMISES HAS BEEN HELD AS REVENUE EXPENDITURE BY THE VARIOUS COURTS A S RELIED UPON BY THE LD. COUNSEL. ACCORDINGLY, I HOLD THAT E XPENDITURE INCURRED BY THE ASSESSEE IS ALLOWABLE AND THE ADDIT IONS MADE BY THE ASSESSING OFFICER ARE DELETED. 10. SUCH AN ADDITION OR DISALLOWANCE CANNOT BE MADE U/S 40(A)(IA), BECAUSE THE MAJOR EXPENSES RELATES TO PU RCHASE OF MATERIAL AND LABOUR PAYMENTS ARE FOR PETTY AMOUNTS, ON WHICH TDS LIABILITY IS NOT ATTRACTED. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH MARCH, 2020. SD/- [AMIT SHUKLA] JUDICIAL MEMBER DATED: 5 TH MARCH, 2020 PKK: