DCIT, CHENNAI V. N.Raghunath, CHENNAI

ITA 3223/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4386 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-06-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 24-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS PAVUNA SUNDARI
• Assessee Lawyers: T N SEETHARAMAN
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI ... , , # BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ I.T.A. NOS. 3223 & 3224/MDS/2016 / ASSESSMENT YEARS : 2011-12 & 2012-13 DEPUTY COMMISSIONER OF INCOME TAX, NON-CORPORATE CIRCLE -2, CHENNAI 600 034. VS. SHRI N. RAGHUNATH, NEW NO. 19, OLD NO. 9, JUDGE JAMBULINGAM STREET, MYLAPORE, CHENNAI 600 004. [PAN: ACCPR 4059E] ( / APPELLANT) ( / RESPONDENT) % & / APPELLANT BY : MRS. PAVUNA SUNDARI, JCIT )*% & / RESPONDENT BY : SHRI. T.N. SEETHARAMAN, ADVOCATE & /DATE OF HEARING : 30.05.2017 & /DATE OF PRONOUNCEMENT : 07.06.2017 /O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER: THESE TWO APPEALS ARE FILED BY REVENUE AGAINST TH E COMMON ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-2, CHEN NAI DATED 19.09.2016 FOR THE ASSESSMENT YEARS2010-11, 2011-12 AND 2012-13. S INCE, THE ISSUE INVOLVED IN :-2-: I.T.A. N0. 3223 & 3224/MDS/2016 THESE APPEALS ARE COMMON IN NATURE, THEY ARE CLUBBE D TOGETHER, HEARD TOGETHER AND DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE COMMON GROUNDS OF APPEALS ARE EXTRACTED AS U NDER: 2.1 THE LEARNED CIT(A) ERRED IN HOLDING THAT THE EX PENDITURE INCURRED ON INTERIOR DECORATION OF SHOW ROOMS, INVO LVING HUGE SUMS ARE ALLOWABLE AS REVENUE EXPENDITURE/TEMPORARY PART ITIONS ELIGIBLE FOR 100% DEPRECIATION, WITHOUT APPRECIATING THE FACT TH AT THE MODIFICATIONS EFFECTED PROVIDES ENDURING BENEFIT TO THE ASSESSEE AND FURTHER THE INTERIORS ARE NOT TEMPORARY STRUCTURES, BUT CAPABLE OF LASTING FOR MANY YEARS? 2.2 THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATE THE FACT THAT THE INTERIOR WORK INVOLVING DESIGNING OF SHOWROOMS WITH ELECTRICAL INSTALLATIONS AND THE MATERIAL USED THEREIN HAVE AN ENDURING VALUE AND ENDURING BENEFIT FOR ENHANCEMENT OF ASSESSEES BUSINESS ACTIVITY AND ARE AKIN TO CAPITAL ASSET UNDER FURNITURE AND FITTINGS ONLY. 2.3 THE LEARNED CIT(A) FAILED TO APPRECIATE THE FAC T THAT IN THE BOOKS OF ACCOUNTS THE ASSESSEE HAD CLAIMED DEPRECIA TION AT 10% ONLY ON SUCH INTERIOR DECORATION, AND ONLY FOR THE PURPO SE OF COMPUTATION OF TOTAL INCOME, THE ASSESSEE HAS CLAIMED DEPRECIAT ION AT 100% FROM WHICH IT IS EVIDENT THAT THE ASSESSEE HAS CLAIMED D EDUCTION UNDER THE I.T. ACT ONLY TO DIMINISH THE TAX BURDEN. 2.4 THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED TH E DECISION OF THE HONBLE APEX COURT IN THE CASE OF CIT VS. SRI M ANGAYARKARASI MILLS P LTD (224 CTR 513 (SC), RATIONAL OF WHICH IS SQUAR ELY APPLICABLE TO THE FACTS OF THIS CASE WITH REGARD TO DIFFERENTIAL TREATMENT OF EXPENDITURE FOR THE PURPOSE OF PROFIT IN THE BOOKS AND FOR THE PURPOSE OF INCOME-TAX, IN THE INCOME COMPUTATION STATEMENT. :-3-: I.T.A. N0. 3223 & 3224/MDS/2016 2.5 THE LEARNED CIT(A) ERRED IN APPLYING THE DECISI ON OF THE HONBLE ITAT RELATING TO THE EARLIER YEARS (2008-09 TO 2010-11), WHEREIN THE HONBLE ITAT HAD RELIED ON THE JURISDIC TIONAL HIGH COURT WHEREAS THE FACTS OF THIS CASE ARE DISTINGUISHABLE FROM THE FACTS THAT OF M/S. ARMOUR CONSULTANTS PRIVATE LIMITED IN AS MU CH AS IN THE PRESENT CASE, THE ASSESSEE HAD TREATED THE INTERIOR DECORATION AS CAPITAL IN THE BOOKS FOR THE PURPOSE OF PROFIT, WIT H A CLAIM OF 10% DEPRECIATION, WHEREAS FOR THE PURPOSE OF INCOME-TAX , THE INTERIOR DECORATION WAS TREATED AS TEMPORARY PARTITIONS ELIG IBLE FOR 100% DEPRECIATION, AND SUCH A DIFFERENTIAL TREATMENT WAS NOT INVOLVED IN THE RELIED DECISION OF THE HONBLE HIGH COURT IN THE CA SE OF M/S. ARMOUR CONSULTANTS PRIVATE LIMITED. 3. SHRI N. RAGHUNATH, THE ASSESSEE, AN INDIVIDUAL, IS A RETAILER IN READYMADE GARMENTS IN THE NAME OF M/S. VAISHNAVIS, M/S. NARAY ANS, M/S. VINAYAS, M/S. VISWARAGS. IN THE ASSESSMENTS MADE FOR THE ASSESSM ENT YEARS 2011-12 AND 2012-13, THE ASSESSEE CLAIMED RS. 2,15,27,833/- AND RS. 2,00,36,508/- IN THE RESPECTIVE YEARS 100% DEPRECIATION ON TEMPORARY WOO DEN STRUCTURES, ALTHOUGH, IN THE BOOKS OF ACCOUNT HE HAD CLAIMED DEPRECIATION @ OF 10% ONLY. THE TEMPORARY WOODEN STRUCTURE IS NOTHING BUT INTERIOR DECORATION EFFECTED TO THE BUILDINGS AND SHOWROOMS IN WHICH THE ASSESSEE IS CA RRYING ON READYMADE GARMENT BUSINESS. THE NATURE OF EXPENSES AND THE M AJOR HEADS OF EXPENSES INCURRED WERE FALSE CEILING WORK, TILES, CARPENTRY WORK, WOODS & PLYWOODS, PAINTING, INTERIOR WORK AND TOUGHENED GLASS IN THE LEASED PREMISES. THE AO HELD THAT THE INTERIOR DECORATION WHICH MAY INCLUDE PART ITION, FALSE CEILING ETC., WOULD GIVE ENDURING BENEFITS TO THE ASSESSEE AND AS THESE STRUCTURES ARE NEVER :-4-: I.T.A. N0. 3223 & 3224/MDS/2016 DISMANTLED AT REGULAR INTERVALS. PLACING RELIANCE ON THE DECISION OF THE HONBLE ITAT, CHENNAI IN ITA NOS. 1557 & 1558/MDS/2011 DATE D 03.01.2013 IN THE CASE OF M/S. A B T LTD. VS. ACIT AND THE SUPREME COURTS OBSERVATION IN THE CASE OF CIT VS. MANGAYARKARASI MILLS PVT. LTD., (224 CTR 51 3) (SC), THE AO TREATED THE EXPENDITURE AS CAPITAL IN NATURE AND ALLOWED DEPREC IATION @ OF 10%. 4. AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE T HE CIT(A)-2, CHENNAI. THE CIT(A) HELD THAT IDENTICAL ISSUE AROSE FOR CONSIDER ATION IN THE APPELLANTS CASE FOR ASSESSMENT YEAR 2008-09, 2009-10 AND 2010-11 IN ITA NO. 235, 236 & 237/CIT(A)-2/2014-15, IN WHICH SHE UPHOLD THE APPEL LANTS CLAIM THAT THE NATURE OF INTERIOR WORKS CARRIED OUT IN THE VARIOUS PREMIS ES TAKEN ON LEASE TO BRING THE SHOWROOM INTO EXISTENCE ARE IN THE NATURE OF REVENU E EXPENDITURE AND ALLOWED THESE APPEALS. THE REVENUE FILED APPEALS BEFORE TH E HONBLE ITAT, CHENNAI AGAINST THESE ORDERS. THE JURISDICTIONAL ITAT VIDE ORDER DATED 29.06.2016 IN ITA NO. 2280, 2281 & 2282/MDS/2015 DISMISSED THE APPEAL S OF THE REVENUE, CONFIRMING THE CIT(A) ORDER. IN VIEW OF THAT, SHE HELD THAT THE EXPENDITURE INCURRED ON LEASE PREMISES ON TEMPORARY WOODEN STRU CTURE (INTERIOR DECORATION) FOR ASSESSMENT YEARS 2011-12 & 2012-13 AT RS. 2,15, 27,833/- AND RS. 2,00,36,508/- ARE REVENUE EXPENDITURE. AGGRIEVED, T HE REVENUE FILED THESE APPEALS. 5. THE DR ARGUED THE CASE ON THE LINES OF THE ASSES SING OFFICER AND ON THE GROUNDS OF APPEAL. CONTRA, THE AR INVITED OUR ATTE NTION TO THE CIT(A) ORDER IN :-5-: I.T.A. N0. 3223 & 3224/MDS/2016 ITA NO. 235, 236 & 237/CIT(A)-2/2014-15 DATED 30.09 .2005, WHEREIN THE CIT(A) RELYING ON THE FOLLOWING DECISIONS A) CIT VS AYESHA HOSPITALS P. LTD (2007) 292 ITR 2 66 (MAD) B) THIRU AROORAN SUGARS LTD. VS. DCIT (2013) 350 I TR 324 (MAD) C) CIT VS ARMOUR CONSULTANTS P. LTD (2013) 355 ITR 418 (MAD) D) CIT VS. AMRUTANINA LTD. (2011) 15 TAXMANN.COM 3 92 (MAD) E) M/S. SUNDARAM BNP PARIBAS ASSET MANAGEMENT COMP ANY LTD. VS. ACIT ITA NO. 518 & 519/MDS/2010 F) M/S. EMDEE APPARELS VS. ACIT (2012) 28 TAXMANN.C OM 10 (BANG.) AND ON A DETAILED ORDER ALLOWED THE APPEAL AFTER DISTIN GUISHING THE CASE OF M/S. A B T LTD. THE CIT(A) WHILE ALLOWING THE APPEAL TOOK COG NIZANCE OF HOW THE JURISDICTIONAL HIGH COURT DISCUSSED AND DISTINGUISH ED THE CASE OF CIT VS. SREE MANGAYARKARASI MILLS P LTD, 224 CTR 513 (SC) IN CIT VS. ARMOUR CONSULTANTS P LTD IN 355 ITR 418 (MAD). FURTHER, THE AR SOUGHT OU R ATTENTION TO THIS TRIBUNAL DECISION IN ITA NO. 2280, 2281 & 2282/MDS/2015 DATE D 29.06.2016. 6. WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH THE MATERIAL. THE RELEVANT PORTION OF THE ORDER OF THE ITAT, (SUPRA) IS EXTRACTED AS UNDER: 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. WE HAVE CAREFULLY GONE THROUGH THE ORDER OF THE LD. CIT(A). IN OUR OPINION, THE ISSUE IS SQUARELY COVERED IN FA VOUR OF THE ASSESSEE BY THE JUDGMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. ARMOUR CONSULTANT (P) LTD. REPORTED IN (2013) 355 I TR 418(MAD.) WHEREIN HELD THAT:- :-6-: I.T.A. N0. 3223 & 3224/MDS/2016 THE EXPENDITURES WERE MADE BY THE ASSESSEE MAINLY TOWARDS CHARGES FOR DESIGN, LAYOUT AND MATER IAL CONSTRUCTION, FABRICATION WORKS. BOTH THE APPELLATE AUTHORITIES HAD POINTED OUT THAT THE ASSESSEE-COMPA NY WAS REQUIRED TO INCUR SUCH EXPENDITURE FOR PROVIDIN G PARTITIONS, VINYL FLOORING AND THE INTERIOR DECORAT ION IN ORDER TO PROVIDE BUSINESS AMBIENCE AND ACHIEVE FUNCTIONAL UTILITY. THE COMMISSIONER OF INCOME-TAX (APPEALS) HAD SPECIFICALLY POINTED OUT THAT THE EXPENDITURE MADE BY THE ASSESSEE TO MAKE THE PREMIS ES MORE USEFUL AND ENHANCE ITS FUNCTIONAL UTILITY WILL NOT COME UNDER THE PURVIEW OF CAPITAL EXPENDITURE AND B Y FOLLOWING THE DECISION OF THIS COURT REPORTED IN CI T V. SANCO TRANS LTD. [2006] 284 ITR 51 (MAD) THE COMMISSIONER (APPEALS) FOUND THAT THOSE EXPENDITURE S ARETO BE ALLOWED ONLY AS A REVENUE EXPENDITURE AND ALSO HELD THAT THE ASSESSEE WAS ONLY A LESSEE IN RESPECT OF THE PREMISES IN WHICH IT WAS SETTING UP ITS OFFICE AT MUMBAI. THE LEASE PERIOD WAS 30 MONTHS. T HE DEDUCTION WAS SOUGHT IN RESPECT OF THE EXPENSES MAD E TOWARDS DESIGNING AND LAY OUT AS WELL AS OTHER TEMP ORARY PARTITION AND CONSTRUCTION MADE FOR MAKING THE OFFI CE FUNCTIONAL. THEREFORE, THE EXPENDITURE ON SETTING U P OF A NEW OFFICE AT MUMBAI OF RS.57,25,036 WAS ALLOWABLE AS REVENUE EXPENDITURE. 5. BEING SO, IN OUR OPINION THE CIT(A) HAS TAKEN CO RRECT VIEW OF THE FACTS OF THE CASE AND DECIDED THAT THE EXPENDIT URE INCURRED ON LEASED PREMISES ON TEMPORARY WOODEN STRUCTURE (INTE RIOR DECORATION) IS A REVENUE EXPENDITURE. ACCORDINGLY, THE GROUND R AISED BY THE REVENUE IN ALL THESE APPEALS IS DISMISSED. :-7-: I.T.A. N0. 3223 & 3224/MDS/2016 6. IN THE RESULT, ALL THE THREE APPEALS OF THE REVE NUE ARE DISMISSED. SINCE THIS TRIBUNAL HAS EXAMINED THE IMPUGNED ISSUE IN THIS CASE IN THE EARLIER YEARS AND ALLOWED THE APPEALS AND WHEN THERE IS NO CHANGE IN FACT OR IN LAW, FOLLOWING THE ABOVE DECISION, THE APPEALS OF THE RE VENUE FOR ASSESSMENT YEARS 2011-12 & 2012-13 ARE DISMISSED. 7. IN THE RESULT, THE REVENUES APPEALS ARE DISMISS ED. ORDER PRONOUNCED ON WEDNESDAY, THE 07 TH DAY OF JUNE, 2017 AT CHENNAI. SD/- ( . . . ) (N.R.S. GANESAN) ! ' /JUDICIAL MEMBER SD/- ( ) (S. JAYARAMAN) ' /ACCOUNTANT MEMBER /CHENNAI, 0 /DATED: 07 TH JUNE, 2017 JPV & )12 32 /COPY TO: 1. %/ APPELLANT 2. )*% /RESPONDENT 3. 4 ( )/CIT(A) 4. 4 /CIT 5. 2 ) /DR 6. 7 /GF