M/s Able Advertising, Bangalore V. ACIT, Bangalore

ITA 321/BANG/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68340 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 01-10-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 05-03-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: BIJOY KUMAR
• Assessee Lawyers: VINAY MRUTHYUNJAYA
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

ITA NO.321 OF 2012 ABLE ADVERTISING BANGALORE PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE ABENCH, BANGALORE BEFORE SHRI N. BARTHVAJASANKAR, VICE PRESIDENT AND SHRI GEORGE GEORGE K. JUDICIAL MEMBER ITA NO.321/BANG/2012 (ASSESSMENT YEAR: 2005-06) M/S. ABLE ADVERTISING, NO.5/1 G.C. RICH HOMES, RICHMOND ROAD, BANGALORE 560025 PAN: AAEFA 4948 D VS. ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 7(1) BANGALORE (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI VINAY MRUTHYUNJAYA, FCA DEPARTMENT BY: SHRI BIJOY KUMAR PANDA, DR DATE OF HEARING: 01/10/2013 DATE OF PRONOUNCEMENT: 11/10/2013 O R D E R PER GEORGE GEORGE K. J.M. THIS APPEAL AT THE INSTANCE OF THE ASSESSEE IS DIR ECTED AGAINST THE CIT(A)S ORDER DATED 05.01.2012. THE RE LEVANT ASSESSMENT YEAR IS 2005-06. 2. THE EFFECTIVE GROUNDS RAISED READ AS FOLLOWS: 2 THE HON'BLE CIT (A) HAS ERRED IN PARTIALLY UPHOLDING THE ADDITION MADE BY THE AO ON ACCOUNT OF HOARDING MAINTENACNE EXPENSES TREATING IT IS CAPITA L IN NATURE TO THE EXTENT OF 50% OF THE TOTAL EXPENDITURE. HERE THE CIT (A) HAS FAILED TO APPRECI ATE THE FACTS AND THE DOCUMENTS PRODUCED SUBSTANTIATING SUCH EXPENDITURE. 3. THE HON'BLE CIT (A) IS NOT JUSTIFIED IN DISALLOW ING 50% OF THE TOTAL EXPENDITURE OF HOARDING MAINTENANCE EXPENSES OF RS.2,02,72,305/- WHEREAS ITA NO.321 OF 2012 ABLE ADVERTISING BANGALORE PAGE 2 OF 6 THE ASSESSING OFFICER HAD DISALLOWED 80% OF EXPENSES COMPRISING OF STEEL PURCHASE OF RS.1,62,58,113/- ONLY. THE HON'BLE CIT (A) HAS INADVERTENTLY DISALLOWED 50% WHOLE HOARDING MAINTENANCE EXPENSES WHEREAS ONLY THE STEEL PURCHASES WAS SUBEJCT MATTER OF APEPAL . 3. BRIEFLY STATED THE FACTS ARE AS FOLLOWS: THE ASSESSEE IS A PARTNERSHIP FIRM CARRYING ON THE BUSINESS OF OUTDOOR ADVERTISING. FOR THE CONCERNED ASSESSMENT YEAR THE RETURN OF INCOME WAS FILED ON 19.10.2005 D ECLARING A TOTAL INCOME OF RS.50,06,579/-. THE ASSESSMENT WAS TAKEN UP FOR SCRUTINY BY ISSUANCE OF NOTICE U/S 143(2) OF TH E ACT. ASSESSING OFFICER, DURING THE COURSE OF THE SCRUTIN Y ASSESSMENT NOTICED THAT THE ASSESSEE FIRM CLAIMED A SUM OF RS.2,02,72,305 TOWARDS HOARDING MAINTENANCE EXPENSE S AND OUT OF THIS AMOUNT THE ASSESSEE HAD CLAIMED A SUM O F RS.1,62,58,113 TOWARDS PURCHASE OF STEEL. THE ASSES SING OFFICER COMPLETED THE SCRUTINY ASSESSMENT BY ALLOWI NG ONLY 20% OUT OF AN AMOUNT OF SPENT ON PURCHASE OF STEEL AS REVENUE EXPENSES AND TREATED THE BALANCE OF RS.1,30 ,06,490/- AS CAPITAL EXPENDITURE AND ALLOWED DEPRECIATION AS PER RULES. THUS, SCRUTINY ASSESSMENT U/S 143(3) WAS COMPLETED BY DETERMINING THE TOTAL INCOME AT RS.1,47,61,441/-. T HE RELEVANT FINDINGS OF THE ASSESSING OFFICER READ AS FOLLOWS: 17. AS DISCUSSED ABOVE, ASSESSEE HAS CLAIMED RS.1,62,58,113/- AS HOARDING MAINTENANCE EXPENDITURE FOR PURCHASE OF STEEL. IT IS BUT NATURA L THAT HOARDINGS ARE TO BE MAINTAINED AND SOMETIMES STEEL COMPONENTS MAY ALSO BE REQUIRED. CONSIDERING THE FACTS, 20% OF THE ABOVE QUOTED EXPENDITURE IS ALLOWED AS REVENUE EXPENDITURE ON ACCOUNT OF NORMAL WEAR AND TEAR WHICH WORKS OUT TO RS.30,51,622/-. THE BALANCE AMOUNT OF RS.1,30,06,490/- IS HEREBY ITA NO.321 OF 2012 ABLE ADVERTISING BANGALORE PAGE 3 OF 6 CAPITALIZED AND ADDED BACK, ON WHICH ASSESSEE IS ELIGIBLE FOR DEPRECIATION AS PER THE INCOME TAX ACT RULES. WHILE DOING SO, I WOULD LIKE TO CLARIFY THAT ASSESSEE HAS ALSO BEEN ALLOWED REPAIR AND MAINTENANCE EXPENDITURE OF RS.40,14,192 (2,02,72,3051,62,58,113) OVER AND ABOVE RS.30,51,622/-. 4. AGGRIEVED BY THE ADDITION, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORI TY. THE CIT (A) DISALLOWED 50% OF THE TOTAL EXPENDITURE OUT OF THE HOARDING MAINTENANCE EXPENSES OF RS.2,02,72,305/-. THEREFORE , ON ACCOUNT OF REDUCTION TO 50% OF THE TOTAL HOARDING E XPENSES, THE AMOUNT THAT WAS ADDED BACK AND CAPITALIZED WAS A SUM OF RS.1,01,36,152/- INSTEAD OF RS.1,30,06,490/- CAPITA LIZED BY THE ASSESSING OFFICER. THE RELEVANT FINDINGS OF THE CIT (A) READ AS FOLLOWS: 7. AFTER CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND AFTER EXAMINING THE ARGUMENTS OF THE ASSESSING OFFICER AND THAT OF THE APPELLANT, I AM OF THE CONSIDERED OPINION THAT OUT OF THE TOTAL EXPENDITURE OF RS.2,02,72,305 CLAIMED BY THE APPELLANT 50% CAN BE ALLOWED AS REVENUE EXPENDITURE AND THE REMAINING 50% CAN BE CAPITALIZED. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO ADOPT THE TOTAL INCOME OF THE APPELLANT AS UNDER AND THE APPEAL IS PARTLY ALLOWED. TOTAL INCOME AS RETURNED - RS. 50,06,573 ADD HOARDING EXPENSES CAPITALIZED-RS.1,01,36 ,152 AS DISCUSSED ABOVE - RS.1,51,42,725 LESS DEPRECIATION ON HOARDINGS - RS. 25,34,0 38 NET TAXABLE INCOME - RS.1,26,08,687 5. THE ASSESSEE, BEING AGGRIEVED, IS IN APPEAL BEFO RE US. THE LEARNED AR REITERATED THE SUBMISSIONS MADE BEFORE T HE INCOME TAX AUTHORITIES, WHEREAS THE LEARNED DR SUBMITTED T HAT THE FINDINGS OF THE ASSESSING OFFICER AS WELL AS THE CI T (A) ARE ITA NO.321 OF 2012 ABLE ADVERTISING BANGALORE PAGE 4 OF 6 JUSTIFIED SINCE THE BENEFIT DERIVED FROM THE AGREEM ENT ENTERED INTO WITH BBMP FOR PUTTING UP MEDIAN HOARDINGS IS F OR A PERIOD OF FOUR YEARS AND, THEREFORE, THE EXPENDITUR E INCURRED FOR THE CURRENT YEAR WOULD GENERATE INCOME TO THE A SSESSEE FOR FUTURE YEARS ALSO AND A PORTION OF THE EXPENSES HAS BEEN RIGHTLY CAPITALIZED. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. THE ASSESSEE GENERATE S INCOME FROM ADVERTISING HOARDINGS WHICH HAVE PRIMARILY OF THREE TYPES (I) BOARD HOARDINGS OWN, (II) BOARD HOARDINGS L EASED (III) MEDIAN HOARDINGS LEASED (INTRODUCED DURING THE RE LEVANT ASSESSMENT YEAR). THE DETAILS OF THE HOARDINGS ERE CTED, LEASED AND MAINTAINED BY THE ASSESSEE FOR THE PAST FEW YEA RS AND CURRENT YEARS ARE AS FOLLOWS: PARTICULARS AY 2002- 03 AY 2003- 04 AY 2004- 05 AY 2005- 06 OWN HOARDINGS 39 46 52 54 LEASED HOARDINGS 7 8 10 19 LEASED MEDIANS 0 0 0 119 6.1 FROM THE ABOVE TABLE, IT IS CLEAR THAT THERE HA S BEEN A SIGNIFICANT INCREASE IN LEASED HOARDINGS DURING THE YEAR UNDER APPEAL AND, FURTHER, AS MUCH AS 119 OF THEM ARE NEW MEDIAN HOARDINGS LEASED DURING THE YEAR. THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH BRUHAT BANGALORE MAHANAGARA PALIKE (BBMP) TO ERECT THE ROAD MEDIANS. IN RETURN, THE AS SESSEE WAS ITA NO.321 OF 2012 ABLE ADVERTISING BANGALORE PAGE 5 OF 6 ENTITLED TO COLLECT THE REVENUE FROM THEIR CUSTOMER S FOR ADVERTISING DISPLAYED ON SUCH HOARDINGS. WE HAVE PE RUSED THE AGREEMENT ENTERED INTO BY THE ASSESSEE AND THE BBMP . THE AGREEMENT IS FOR A PERIOD OF FOUR YEARS. THE EXPENS ES FOR PUTTING UP THESE MEDIAN HOARDINGS ARE PRIMARILY THE EXPENDITURE INCURRED UNDER THE HEAD HOARDING MAINT ENANCE EXPENSES AMOUNTING TO RS.2,02,72,305. THE EXPENSES WHICH WERE INCURRED IN THE CURRENT YEAR FOR PUTTING UP ME DIAN HOARDING WILL GIVE THE ASSESSEE INCOME FOR THE NEXT 4 YEARS. THEREFORE, IDEALLY THE PART OF EXPENSES OUGHT TO HA VE BEEN CLAIMED AS A DEFERRED REVENUE EXPENSES IN THE SUBSE QUENT YEARS. ON THE CONTRARY THE ASSESSING OFFICER HAS TR EATED 20% OF THE EXPENSES INCURRED FOR PURCHASE OF STEEL AS C APITAL IN NATURE AND GRANTED DEPRECIATION AS PER RULES. THE C IT (A) ON HIS PART, HAD DISALLOWED 50% OF RS.2,02,72,305/-. 6.2 AS STATED EARLIER, THE EXPENSES FOR PUTTING UP NEW MEDIAN HOARDINGS HAS GENERATED INCOME TO ASSESSEE N OT ONLY FOR THIS CONCERNED ASSESSMENT YEAR BUT ALSO FOR THE NEXT THREE SUCCEEDING ASSESSMENT YEARS. THEREFORE, THERE WAS N OTHING WRONG IN THE INCOME TAX AUTHORITIES IN TREATING A P ART OF THE EXPENSES AS CAPITAL IN NATURE AND GRANTING DEPRECIA TION ON THE SAME. 6.3 HOWEVER, WE HAVE NOTICE THAT THE CIT (A) HAS DI SALLOWED 50% OF THE TOTAL EXPENDITURE OUT OF THE HOARDING MA INTENANCE EXPENSES OF RS.2,02,72,305/-, WHEREAS THE ASSESSING OFFICER HAD DISALLOWED 80% OF THE EXPENSES COMPRISING OF ST EEL PURCHASES OF RS.1,62,58,113/-. THE FACT OF THE MATT ER IS THAT ITA NO.321 OF 2012 ABLE ADVERTISING BANGALORE PAGE 6 OF 6 THE STEEL PURCHASE OF RS.1,62,58,113/- WAS ONLY A S UBJECT MATTER OF APPEAL BEFORE THE CIT (A) AND NOT THE WHO LE HOARDING MAINTENANCE EXPENSES OF RS.2,02,72,305/-. HENCE THE CIT (A) WHILE PARTIALLY ALLOWING THE APPEAL OUGHT TO HAVE C ONSIDERED ONLY THE STEEL PURCHASES AS CAPITAL EXPENSES AND NO T OF THE WHOLE HOARDING MAINTENANCE EXPENSES. THEREFORE, WE LIMIT THE DISALLOWANCE OF 50% TO RS.1,62,58,113/- AS CAPITAL IN NATURE. HENCE, THE DISALLOWANCE IS RESTRICTED TO RS.81,29,0 56/- INSTEAD OF RS.1,01,36,152/- AS SUSTAINED BY THE CIT (A). 7. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE I S PARTLY ALLOWED AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH OCTOBER, 2013. SD/- SD/- (N. BARTHVAJASANKAR) (GEORGE GEORGE K) VICE PRESIDENT JUDICIAL MEMBER BANGALORE DATED 11 TH OCTOBER, 2013. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCHES, BANGALORE