ITO 15(1)(4), MUMBAI V. PRISM INTERIORS, MUMBAI

ITA 358/MUM/2010

• Counselvise Citation: 35819914 RSA 2010
• Duration Of Justice: 1 year(s) 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 13-07-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 14-01-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ALEXANDER CHANDY
• Assessee Lawyers: SATENDRA PANDEY
• Keywords: Business expenditure; Opportunity of being heard; Revenue expenditure
• Section: 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C, MUMBAI BEFORE SHRI D.MANMOHAN, (VP) AND SHRI R.K. PANDA , (AM) ITA NO.358/MUM/2010 ASSESSMENT YEAR : 2006-07 THE ITO-15(1)(4) ROOM NO.108, MATRU MANDIR, 1 ST FLOOR, TARDEO ROAD, MUMBAI-400 007 VS. M/S. PRISM INTERIORS 16, BAITUL AMAN, NAGPADA JUNCTION, BELLASIS ROAD, MUMBAI-400 008 PAN NO: AAHFP 9026 G (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ALEXANDER CHANDY RESPONDENT BY : SHRI K. GOPAL & SHRI SATENDRA PANDEY O R D E R PER R.K. PANDA, A.M. THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER DATED 11.11.2009 PASSED BY THE CIT(A)-23, MUMBAI RELATING TO A.Y. 2006-07. 2. THE GROUNDS OF APPEAL NO. 1 RAISED BY THE REVEN UE READS AS UNDER : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) ERRED IN ALLOWING THE REPAIRS AND MAINTENANC E EXPENSES OF RS.18,57,856/- DISALLOWED BY THE AO IGNORING THE FA CT THAT THERE IS NO CLAUSE TO INCUR SUCH EXPENSES IN LEAVE & LICE NSE AGREEMENT, AND IF AT ALL INCURRED, THE SAME IS TO B E REIMBURSED TO THE LICENSEE GIVING RISE TO NOT INCURRING ANY EXPEN DITURE. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF DEALERS IN ALL TYPES OF FURNITURES AND INTERIOR ACCESSORIES. DURING THE COURSE OF ASSESSMENT PROCEE DINGS, THE AO NOTED ITA NO: 358/MUM/2010 M/S. PRISM INTERIORS 2 FROM THE DETAILS OF ADMINISTRATIVE EXPENSES OF RS.3 2,90,975/- THAT IT INCLUDES REPAIRS AND MAINTENANCE EXPENSES OF RS.18, 57,856/-. THE AO NOTED THAT THE PLACE OF BUSINESS IS IN PUNE AT PLOT NO.03, SITUATED AT FINAL PLOT NO.88, RAMWADI, PUNE 411 014. FURTHER, THE S AME IS ON RENTED PREMISES ADMEASURING 11,163 SQ. FT. OF GROUND FLOOR , LOWER 1 ST FLOOR AND UPPER 1 ST FLOORS AS PER THE LEAVE & LICENSE AGREEMENT DATED 22.08.2005 FOR A PERIOD OF 60 MONTHS ON MONTHLY COMPENSATION OF RS .1,00,000/- P.M. FOR THE 1 ST 33 MONTHS AND RS.1,15,000/- P.M. FOR THE REMAINING 27 MONTHS. WHILE GOING THROUGH THE LEAVE & LICENSE AGREEMENT, THE AO NOTED THAT ALL THE WORKS OF REPAIRS ETC. OF MAJOR STRUCTURAL NATUR E IN OR ABOUT THE LICENSED PREMISES SHALL BE THE RESPONSIBILITY OF THE LICENSO R TO UNDERTAKE OR TO BEAR FOR THE SAME. FROM THE DETAILS FURNISHED BY THE ASS ESSEEE, THE AO NOTED THAT THE ASSESSEE HAS INCURRED AN AMOUNT OF RS.15,2 2,564/- FOR CIVIL WORK AND RS.3,10,692/- FOR ELECTRIC INSTALLATION. ACCORD ING TO THE AO, IN VIEW OF THE CONDITIONS AGREED UPON BETWEEN THE LICENSOR AND THE ASSESSEE, THE EXPENDITURE IS BOUND TO BE INCURRED BY THE LICENSOR OR TO BE GOT REIMBURSED FROM THE LICENSOR. SINCE THE ASSESSEE DID NOT GIVE CONTRACT TO GET IT REPAIRED AND NO SUCH DOCUMENTS WERE FILED AND SINCE IT IS TH E INITIAL STAGE OF COMMENCEMENT OF BUSINESS, THEREFORE, THE AO WAS OF THE OPINION THAT THE INTERIOR DECORATION AND FURNITURE EXPENSES ARE NOT A REVENUE EXPENDITURE BUT CAPITAL IN NATURE. HE, THEREFORE, DISALLOWED TH E CLAIM OF RS.18,57,856/- AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSES SEE. 4. IN APPEAL, THE LD. CIT(A) DELETED THE ADDITION. ACCORDING TO HIM THE LEDGER ACCOUNT OF REPAIRS AND MAINTENANCE, COPIES O F BILLS AND VOUCHERS ETC. ITA NO: 358/MUM/2010 M/S. PRISM INTERIORS 3 SHOW THAT MOST OF THE ITEMS ARE MISCELLANEOUS IN NA TURE, WHICH WERE REQUIRED FOR GETTING REPAIRED THE RENTAL PREMISES, SO THAT IT LOOKS LIKE A GOOD FURNITURE SHOWROOM. HE OBSERVED THAT MOST OF THE EX PENDITURE ARE FOR INSTALLATION OF ELECTRIC CABLE WIRE, MISCELLANEOUS ELECTRIC DEVICES, FIXTURE OF POLISHED TILES, LABOUR EXPENDITURE FOR SUCH FITTING AND FIXTURES, ELECTRIC FITTING FOR LIGHTING, CEILING FIXTURES, FIXTURE OF PLAIN GL ASS FOR SHOWROOM AND MISCELLANEOUS CIVIL WORK OF MAINTAINING THE ROOF, S IDE WALL, REPAIRING OF MEZZANINE FLOOR, SANITARY WORK, PAINTING OF ENTIRE PREMISES, EXPENDITURE RELATING TO THE ACCESSORIES OF THE WINDOWS, FLOOR C ARPET FOR SHOWROOM, ARCHITECT FEE FOR CONSULTANCY, ALUMINIUM SECTIONS, LAMPS AND RELATED EXPENDITURE. ACCORDING TO HIM SUCH EXPENDITURES HAV E BEEN INCURRED NOT AS A NEW CONSTRUCTION OF A BUILDING OR CREATION OF A S HOWROOM OF A PROPERTY OWNED BY THE ASSESSEE. THE PREMISES IS TENANTED PRO PERTY WHICH WAS EARLIER USED AS A GODOWN TO STORE COLD DRINKS ETC. WHICH WA S NOT IN GOOD SHAPE OR CONDITION. THEREFORE, IT WAS THE COMPULSION OF THE ASSESSEE TO GET IT REPAIRED AND CORRECTED THE DILAPIDATED CONDITION WHICH IS OB VIOUSLY A ROUTINE BUSINESS EXPENDITURE. RELYING ON A COUPLE OF DECISI ONS, THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE AS REVENUE EXPEN DITURE. 5. AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 6. THE LD. DR SUBMITTED THAT HUGE EXPENDITURE HAS B EEN INCURRED IN A TENANTED PROPERTY AND THE BENEFIT IS OF ENDURING IN NATURE. THEREFORE, THE LD. CIT(A) WAS NOT JUSTIFIED IN TREATING THE EXPEND ITURE AS REVENUE IN NATURE. ITA NO: 358/MUM/2010 M/S. PRISM INTERIORS 4 FURTHER, FULL DETAILS WERE NOT GIVEN BEFORE THE AO. HE ACCORDINGLY, SUPPORTED THE ORDER OF THE AO. 7. THE LD. COUNSEL FOR THE ASSESEE ON THE OTHER HAN D, SUBMITTED THAT THE ASSESSEE HAS TAKEN THE PREMISES ON LEASE FOR A PERI OD OF 5 YEARS FOR ITS FURNITURE SHOWROOM. THIS PROPERTY WAS EARLIER USED AS A GODOWN TO STORE COLD DRINKS ETC. WHICH WAS NOT IN GOOD SHAPE OR CON DITION. THE ASSESSEE HAS INCURRED THE EXPENDITURE TO BRING IT TO A PROPER CO NDITION TO RUN ITS BUSINESS SMOOTHLY AND EFFICIENTLY. THE EXPENDITURE INCURRED BY THE ASSESSEE IS FOR THE PURPOSE OF BUSINESS AND HAS TO BE ALLOWED AS REVENU E EXPENDITURE. 8. REFERRING TO THE COPY OF THE LEAVE & LICENSE AGR EEMENT, HE SUBMITTED THAT ONLY THE STRUCTURAL ALTERATIONS OR ADDITION OF A PERMANENT NATURE SHALL BE BORNE BY THE LICENSOR. THEREFORE, THE OBSERVATIO N OF THE AO THAT THE EXPENDITURE SHOULD HAVE BEEN BORNE BY THE LICENSOR OR SHOULD HAVE BEEN REIMBURSED TO THE ASSESSEE IS INCORRECT. REFERRING TO THE DETAILS OF EXPENDITURE AT PAPER BOOK AT PG. NO. 46 AND 47, HE DREW THE ATTENTION OF THE BENCH TO THE NATURE OF EXPENSES AND SUBMITTED THAT THE SAME IS REVENUE IN NATURE. REFERRING TO THE DECISION OF THE DELHI BENC H OF THE TRIBUNAL IN THE CASE OF DCIT VS. EDS ELECTRONIC DATA SYSTEMS (P) LT D. REPORTED IN 26 SOT 483, HE SUBMITTED THAT IN THE LIGHT OF THE ABOVE ME NTIONED DECISION, THE EXPENDITURE HAS TO BE ALLOWED AS REVENUE IN NATURE. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE LD. CIT(A) AND THE PAPER BOOK FILED BEFORE US. WE HAVE ALSO CONSIDERED THE VARIOUS DECI SIONS CITED BEFORE US. ITA NO: 358/MUM/2010 M/S. PRISM INTERIORS 5 THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE H AS TAKEN THE PREMISES ON LEASE FOR A PERIOD OF 5 YEARS FOR THE PURPOSE OF IT S FURNITURE SHOWROOM. AS PER CLAUSE 10B OF THE LICENSE AGREEMENT, ALL THE WO RKS OF REPAIRS ETC OF MAJOR STRUCTURAL NATURE IN THE LICENSED PREMISES SHALL BE THE RESPONSIBILITY O F THE LICENSOR TO UNDERTAKE OR TO BEAR FOR THE SAME. THER EFORE, THE AO WAS OF THE OPINION THAT THE EXPENDITURE OF RS.18,57,856/- INCU RRED BY THE ASSESSEE SHOULD HAVE BEEN BORNE BY THE LICENSOR OR SHOULD HA VE BEEN REIMBURSED TO THE ASSESSEE BY THE LICENSOR. ALTERNATIVELY, SINCE THE EXPENDITURE WAS INCURRED FOR INTERIOR DECORATION AND FURNITURE AT T HE INITIAL STAGE OF COMMENCEMENT OF BUSINESS, THE SAME SHOULD BE TREATE D AS CAPITAL IN NATURE. 10. WE FIND THE ASSESSEE HAD NOT GIVEN THE ITEM-WIS E DETAILS OF EXPENDITURE BEFORE THE AO AND GAVE THOSE DETAILS ON LY TO THE LD. CIT(A). THEREFORE, THE AO HAD NO OCCASION TO GO THROUGH THE NATURE OF EXPENSES AND COME TO THE CORRECT CONCLUSION. THE LD. CIT(A) HAD ALSO NOT CALLED FOR A REMAND REPORT FROM THE AO NOR GAVE AN OPPORTUNITY T O HIM TO GO THROUGH THOSE DETAILS. UNDER THESE CIRCUMSTANCES, WE ARE OF THE CONSIDERED OPINION THAT THE MATTER SHOULD GO BACK TO THE FILE OF AO WI TH THE DIRECTION TO DECIDE THE ISSUE AFRESH AND IN ACCORDANCE WITH LAW AFTER G IVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACC ORDINGLY. THE GROUND RAISED BY THE REVENUE IS ACCORDINGLY ALLOWED FOR ST ATISTICAL PURPOSE. 11. THE GROUNDS OF APPEAL NO. 2 RAISED BY THE REVEN UE READS AS UNDER : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) ERRED ON FACTS AS WELL AS IN LAW IN DELETING THE ADDITION OF ITA NO: 358/MUM/2010 M/S. PRISM INTERIORS 6 RS.11,95,815/- MADE BY THE AO IN THE ASSESSMENT BEI NG VALUE OF EXCESS STOCK FOUND DURING THE COURSE OF SURVEY OPER ATION BY THE INVESTIGATION WING OF I.T. DEPARTMENT. 12. FACTS OF THE CASE, IN BRIEF, ARE THAT DURING TH E COURSE OF SURVEY AT THE BUSINESS PREMISES OF THE ASSESSEE ON 17.08.2005, TH E SURVEY TEAM VALUED THE INVENTORY ON THE DAY OF SURVEY AND DETERMINED T HE EXCESS STOCK AT RS.14,94,769/-. DURING THE COURSE OF ASSESSMENT PRO CEEDINGS, THE AO CONFRONTED THE SAME TO THE ASSESSEE. IT WAS SUBMITT ED BY THE ASSESSEE THAT ANNEXURE-I AND ANEXURE-II SHOWING STOCK INVENTORY A S ON 17.08.2005 COMPRISE OF STOCK OF M/S. PRISM INTERIOR AND M/S. H AWA EXPORTS. IT WAS SUBMITTED THAT M/S. HAWA IS A SUPPLIER OF FURNITURE TO M/S. PRISM INTERIOR. FURTHER, INVENTORY AS PER ANNEXURE-I AND ANNEXURE-I I HAVE BEEN VALUED AT MRP. IT WAS SUBMITTED THAT ALL THE ITEMS STATED IN ANNEXURE-II ARE SUPPORTED BY PURCHASE INVOICES AND ARE ACCOUNTED FO R IN THE BOOKS OF ACCOUNTS AND THERE WAS NO UNACCOUNTED PURCHASES AND THEREFORE, THERE CANNOT BE SUPPRESSED SALES ALSO. 13. HOWEVER THE AO WAS NOT CONVINCED WITH THE EXPLA NATION GIVEN BY THE ASSESSEE. ACCORDING TO HIM DURING THE COURSE OF SUR VEY OPERATION, THE ASSESEE DID NOT CONVINCE THE SURVEY TEAM WITH SUPPO RTING DOCUMENTS THAT THE EXCESS VALUE OF FURNITURE FOUND BELONGED TO M/S . HAWA EXPORTS. THEREFORE, AFTER GIVING 20% DISCOUNT WHICH THE ASSE SSEE ALLOWS TO ITS CUSTOMERS BEING THE INITIAL YEAR OF BUSINESS TO ATT RACT CUSTOMERS, THE AO MADE AN ADDITION OF RS.11,95,815/-. 14. IN APPEAL, THE LD. CIT(A) DELETED THE ADDITION BY HOLDING AS UNDER :- ITA NO: 358/MUM/2010 M/S. PRISM INTERIORS 7 I HAVE CONSIDERED THE ISSUE IN ITS ENTIRETY AND FOU ND THAT NEITHER SURVEYING AUTHORITIES NOR ASSESSING OFFICER HAS POI NTED OUT ANY DISCREPANCY OF QUANTITY OF THE STOCK AND VALUATION OF THE STOCK HAS BEEN SHOWN MERELY ON THE NOTIONAL BASIS BY REDU CING 25% OF THE GP FROM THE MRP OF THE GOODS IN STOCK. THIS CAN BE DONE ONLY IF THE BUSINESS OF THE APPELLANT IS OF MANY YEARS A ND DUE TO SUPPRESSION OF GROSS PROFIT YEAR TO YEAR, THERE WOU LD BE UNACCOUNTED STOCK HAVING ACCUMULATED EFFECT THEREON . HERE, IT IS NOT THE CASE ALIKE. IN THIS CASE, IT IS AN ADMITTED FACT THAT BUSINESS WAS STARTED 2/3 MONTHS BACK AND IN THE MON TH OF AUGUST, SURVEY WAS CONDUCTED ON 17.08.2005 THUS, UN ACCOUNTED QUANTITY OF THE STOCK WAS TO BE UNEARTHED, WHICH WA S NOT THERE, THEREFORE, THERE IS NO PROPRIETY ON THE PART OF THE SURVEYING AUTHORITIES OR ON THE PART OF THE AO TO ESTIMATE TH E VALUE OF SUCH GOODS ACCORDING TO THEIR NOTION. IN FACT, THERE IS NO DISCREPANCY OF THE STOCK RECORDED IN THE BOOKS OF ACCOUNT AND FOUN D PHYSICALLY. THE STATEMENT OF MR. FAISAL Z. HAWA AS REPRODUCED A BOVE ALSO REVEALS THE FACT THAT THERE WAS NO DISCREPANCY OF Q UANTITY OF THE STOCK, WHICH WAS VERIFIED AND EXPLAINED AS SUCH, TH ERE WAS NO SUPPRESSION OF PURCHASE BY THE APPELLANT. AS REGARD S MRP, I.E. THE MAXIMUM SELLING PRICE IS ALWAYS SUBJECTED TO NE GOTIATION, WHICH CAN BE HAVING EFFECT IN SUBSEQUENT YEARS IF T HE GP IN SALES ACCOUNT IS SUPPRESSED. BUT HERE IS THE CASE OF FIRS T YEAR, WHERE NO SUCH GP CAN BE PRESUMED TO BE THERE UNLESS FROM SALES BILLS RATIO OF GP IS ESTABLISHED IN RESPECT OF EACH ITEM OF STOCK FOUND DURING THE COURSE OF SURVEY PROCEEDINGS. IT IS FOUN D FROM THE RECORDS ITSELF THAT THERE WAS NO DISCREPANCY OF PUR CHASE OF GOODS HENCE, ONLY FOR THE SAKE OF ADDITION, SUCH NOTIONAL ADDITION HAS BEEN MADE BY THE ASSESSING OFFICER THAT TOO HALF HE ARTEDLY WITHOUT ASSESSMENT YEAR VALID REASON OR SUBSTANTIAL GROUND, THEREFORE, ADDITION MADE OF RS.11,95,815/- IS DIREC TED TO BE DELETED FROM THE ASSESSMENT. 15. AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A), TH E REVENUE IS IN APPEAL BEFORE US. 16. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE LD. CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. ADMITTEDLY, THIS IS THE FIR ST YEAR OF OPERATION OF THE ASSESSEE. THE FINDING OF THE LD. CIT(A) THAT NEITHE R THE SURVEYING AUTHORITIES NOR THE AO HAS POINTED OUT ANY DISCREPA NCY OF QUANTITY OF THE ITA NO: 358/MUM/2010 M/S. PRISM INTERIORS 8 STOCK COULD NOT BE CONTROVERTED BY THE LD. DR. WE F IND THE DIFFERENCE IN STOCK AROSE BECAUSE OF VALUATION OF THE SAME ON NOT IONAL BASIS BY REDUCING 25% OF THE GP FROM THE MRP OF THE GOODS IN STOCK. T HERE IS NO EVIDENCE ON RECORD TO SHOW THAT EITHER THERE IS SUPPRESSED PURC HASE OR SUPPRESSED SALES. FROM THE COPIES OF THE STATEMENT RECORDED DU RING THE COURSE OF SURVEY, WE FIND THE DIRECTOR OF THE COMPANY IN HIS REPLY TO Q.NO.12 HAD STATED THAT IN HAWA EXPORTS THEY ARE EXPECTING GP O F 20 TO 25% ON SALES AND IN M/S. PRISM INTERIOR THE GOODS WERE SOLD AT M RP LESS NORMAL DISCOUNT AND THE GP IS IN THE RANGE OF 40 TO 50% ON SALES. T HEREFORE, THE VALUATION OF THE STOCK ON NATIONAL BASIS BY REDUCING 25% OF THE GP FROM THE MRP OF THE GOODS IN OUR OPINION, CANNOT GIVE A CORRECT PICTURE FOR VALUATION OF STOCKS. IN VIEW OF THE DETAILED ORDER PASSED BY THE LD. CIT(A) AND IN THE ABSENCE OF ANY DISTINGUISHABLE FEATURES BROUGHT TO OUR NOTICE BY T HE REVENUE, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A). WE ACCORD INGLY UPHOLD THE SAME. THE GROUND RAISED BY THE REVENUE IS THEREFORE, DISMISSE D. 17. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 27 TH DAY OF JULY, 2011. SD/- ( D. MANMOHAN ) VICE PRESIDENT SD/- (R.K. PANDA) ACCOUNTANT MEMBER MUMBAI, DATED : 27/07/2011 ITA NO: 358/MUM/2010 M/S. PRISM INTERIORS 9 COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. 4. CIT (A) 5. THE DR, C - BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ROSHANI