DCIT, New Delhi V. Barista Coffee Company Ltd., New Delhi

ITA 3587/DEL/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 91038 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-05-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 06-05-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 04-06-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: Y KAKKAR
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure
• Section: 43B; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : A : NEW DELHI BEFORE SHRI R.S. SYAL, AM AND SHRI A.T. VARKEY, JM ITA NO.3587/DEL/2013 ASSESSMENT YEAR : 2008-09 DCIT, CIRCLE 2(1), NEW DELHI. VS. BARISTA COFFEE COMPANY LTD., SHOP NO.55, COMMUNITY CENTRE, BASANT LOK MARKET, VASANT VIHAR, NEW DELHI. PAN: AABCB5798A CO NO.301/DEL/2014 (ITA NO.3587/DEL/2013) ASSESSMENT YEAR : 2008-09 BARISTA COFFEE COMPANY LTD., SHOP NO.55, COMMUNITY CENTRE, BASANT LOK MARKET, VASANT VIHAR, NEW DELHI. PAN: AABCB5798A VS. DCIT, CIRCLE 2(1), NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K. SAMPATH, ADVOCATE & SHRI RAJA KUMAR, ADVOCATE. DEPARTMENT BY : MS Y. KAKKAR, DR ITA NO.3587/DEL/2013 CO NO.301/DEL/2014 2 DATE OF HEARING : 06.05.2015 DATE OF PRONOUNCEMENT : 07.05.2015 ORDER PER R.S. SYAL, AM: THIS APPEAL BY THE REVENUE AND CROSS OBJECTION BY THE ASSESSEE ARISE OUT OF THE ORDER PASSED BY THE CIT(A) ON 14.3 .2013 IN RELATION TO THE ASSESSMENT YEAR 2008-09. 2. THE ONLY GROUND RAISED BY THE REVENUE IN ITS APP EAL IS AGAINST THE DELETION OF DISALLOWANCE OF RS.28,12,079/- OUT OF R EPAIRS AND MAINTENANCE EXPENSES TREATED BY THE ASSESSING OFFIC ER (AO) AS CAPITAL EXPENDITURE. SUCCINCTLY, THE AO, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, OBSERVED THAT A SUM OF RS.30,40,193 WA S CLAIMED AS DEDUCTION, WHICH WAS, IN FACT, ON ACCOUNT OF PURCH ASE OF PLANT AND MACHINERY AS UNDER:- BILL DATE VENDOR AMOUNT ITEMS 11.01.2008 CIMBALI SPA RS.2793683.23 LA CIMBALI COFFEE MACHINE JUNIOR GRINDER SILVER & LA CIMBALI INOXBA TUV COFFEE GRINDERS. CIMBALI SPA RS.121237.62 CIMBALI SPA RS.125271.95 TOTAL RS.30,40,193/ - ITA NO.3587/DEL/2013 CO NO.301/DEL/2014 3 3. AS THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CO FFEE BARS, THE AO OPINED THAT THE COFFEE MACHINES AND COFFEE GRINDERS CONSTITUTED ITS CAPITAL ASSETS. HE HELD SUCH ASSETS TO BE PROFIT E ARNING APPARATUS AND NOT ELIGIBLE FOR DEDUCTION AS REPAIRS AND MAINTENANCE. ON BEING CALLED UPON TO EXPLAIN ITS STAND, THE ASSESSEE STATED THAT THE EXPENDITURE WAS NOT MUCH AND WAS OF REVENUE NATURE. TREATING THE PURCHA SE OF THESE COFFEE MACHINES AND COFFEE GRINDERS FROM LA CIMBALI, SPA A S CAPITAL EXPENDITURE, THE AO ALLOWED DEPRECIATION ON IT AMOU NTING TO RS.2,28,014/-. THIS RESULTED INTO AN ADDITION OF R S.28,12,079/-. THE LD. CIT(A) DELETED THIS ADDITION. 4. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, IT IS OBSERVED THAT THOUGH THE ASSESSEE STATED BEFORE THE AO THAT THE EXPENDITURE OF RS.30.40 LAC WAS OF REVENUE NATURE, BUT IT CHANGED ITS STAND BEFORE THE LD. CIT(A) AND CONTEND ED THAT THESE MACHINES WERE, IN FACT, CAPITALIZED BY THE ASSESSEE VOLUNTARILY AND THE OBSERVATIONS OF THE AO IN THIS REGARD WERE WRONG. IT IS EVIDENT THAT THERE IS AN APPARENT CONTRADICTION BETWEEN THE STAN D TAKEN BY THE ITA NO.3587/DEL/2013 CO NO.301/DEL/2014 4 ASSESSEE BEFORE THE AO ON ONE HAND AND THE LD. CIT( A) ON THE OTHER. THE LD. AR VEHEMENTLY ARGUED THAT THE AMOUNT WAS, I N FACT, CAPITALISED AND NOT TAKEN TO REVENUE ACCOUNT. HOWEVER, OUR ATT ENTION WAS NOT INVITED TOWARDS ANY MATERIAL TO SUBSTANTIATE SUCH E XPLANATION. IN OUR CONSIDERED OPINION, THE ENDS OF JUSTICE WOULD MEET ADEQUATELY IF THE IMPUGNED ORDER ON THIS ISSUE IS SET ASIDE AND THE M ATTER IS RESTORED TO THE FILE OF AO. WE ORDER ACCORDINGLY AND DIRECT THE AO TO VERIFY THE VIEW CANVASSED BY THE ASSESSEE BEFORE THE LD. CIT(A) IN ARGUING THAT THIS AMOUNT WAS, IN FACT, CAPITALIZED FOR THE PURPOSES O F CLAIMING DEPRECIATION. IF SUCH A CLAIM IS FOUND TO BE CORRE CT, THEN, OF COURSE, THERE CANNOT BE ANY QUESTION OF MAKING ADDITION FOR RS.28.12 LAC. IF, ON THE OTHER HAND, THE SUM OF RS.30.40 LAC IS FOUND TO HAVE BEEN CLAIMED AS REVENUE EXPENDITURE, THEN, THE ADDITION OF RS.28.12 LAC BE RESTORED, INASMUCH AS THE EXPENDITURE INCURRED TOWARDS COFFEE MACHINES AND COFFEE GRINDERS IS OTHERWISE A CAPITAL EXPENDITURE, BEING A PROFIT EARNING APPARATUS OF THE ASSESSEE. ITA NO.3587/DEL/2013 CO NO.301/DEL/2014 5 5. THE FIRST GROUND OF THE ASSESSEES CROSS OBJECTI ON IS AGAINST THE CONFIRMATION OF ADDITION OF RS.18,207/- U/S 43B OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE AO FROM THE TAX AUDIT REPORT THAT A SUM OF RS.18,207/-, BEING AMOU NT OF WORK CONTRACT TAX REMAINED UNPAID BEFORE THE FILING OF RETURN WIT HIN THE MEANING OF SECTION 43B. FURTHER, IT WAS OBSERVED THAT THE ASS ESSEE DID NOT ADD THIS AMOUNT IN THE COMPUTATION OF TOTAL INCOME. THE AO M ADE ADDITION FOR THE SAID SUM. IT WAS ARGUED BEFORE THE LD. CIT(A) THAT THE TAX AUDITOR INADVERTENTLY QUALIFIED THE AUDIT REPORT BY MENTION ING THAT THE SAID SUM WAS CONTRACT TAX DISALLOWABLE U/S 43B OF THE ACT. THE LD. AR CONTENDED THAT THERE IS NO AMOUNT OF TAX PAYABLE BY THE ASSES SEE. WE FIND THAT THERE IS AN ABSENCE OF DETAILS IN THIS REGARD TO DEMONSTR ATE AS TO WHETHER OR NOT THE SUM OF RS.18,207/-, IN FACT, REMAINED PAYABLE A S WORK CONTRACT TAX. UNDER SUCH CIRCUMSTANCES, WE SET ASIDE THE IMPUGNED ORDER AND REMIT THE MATTER TO THE FILE OF AO FOR VETTING THE ASSESS EES CONTENTION IN THIS REGARD. IF IT IS FOUND ON SUCH EXAMINATION THAT WO RK CONTRACT TAX TO THAT TUNE, IN FACT, REMAINED UNPAID BEFORE THE FILING OF RETURN OF INCOME, THEN, ITA NO.3587/DEL/2013 CO NO.301/DEL/2014 6 THE DISALLOWANCE SHOULD BE SUSTAINED AND IN THE OTH ERWISE SITUATION THE ISSUE BE DECIDED AS PER LAW. 6. THE NEXT GROUND IS AGAINST CONFIRMATION OF DISAL LOWANCE OF RS.88,370/- ON ACCOUNT OF PERSONAL EXPENSES. THE F ACTS APROPOS THIS GROUND ARE THAT THE ASSESSEE CLAIMED DEDUCTION FOR ENTERTAINMENT EXPENSES AMOUNTING TO RS.95,899/- WHICH INCLUDED PE RSONAL EXPENSES OF DIRECTOR PARTHA DUTTA GUPTA AMOUNTING TO RS.45,992/ - FOR PIZZA AND DINNERS, ETC. STAFF WELFARE EXPENSES AMOUNTING TO RS.19,55,074/- INCLUDED PERSONAL EXPENSES OF SHRI PARTHA DUTTA GUP TA AMOUNTING TO RS.42,378/-. THE AO MADE TOTAL ADDITION OF RS.3,37 ,784/- BY TREATING SUCH TOTAL AMOUNT, INCLUDING A SUM OF RS.88,370/-, AS PERSONAL EXPENSES U/S 37(1) OF THE ACT. THE ASSESSEE IS AGG RIEVED AGAINST THE LD. CIT(A) SUSTAINING THE ADDITION TO THE EXTENT OF RS. 88,370/- COMPRISING TWO AMOUNTS, NAMELY, RS.45,992/- AND RS.42,378/-. 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, IT IS FOUND THAT THE ASSESSEE I S A LIMITED COMPANY. THERE IS NO DEARTH OF JUDICIAL PRECEDENTS HOLDING T HAT THERE CANNOT BE ANY ITA NO.3587/DEL/2013 CO NO.301/DEL/2014 7 DISALLOWANCE OF EXPENSES IN THE HANDS OF COMPANY ON ACCOUNT OF PERSONAL USE BY ITS DIRECTORS. THE HONBLE GUJARAT HIGH COURT IN SAYAJI IRON AND ENGINEERING COMPANY VS. CIT (2002) 253 ITR 749 (GUJ) HAS HELD THAT THERE CANNOT BE ANY DISALLOWANCE OF PERSO NAL EXPENSES FOR CARS ON ACCOUNT OF PERSONAL USE BY THE DIRECTOR. IT HAS BEEN FURTHER HELD THAT NO DISALLOWANCE CAN BE MADE EVEN BY TREATING SUCH E XPENDITURE AS NOT HAVING BEEN INCURRED FOR THE BUSINESS PURPOSE. SIM ILAR VIEW HAS BEEN TAKEN BY THE DELHI BENCH OF THE TRIBUNAL IN SEVERAL CASES INCLUDING DY. CIT VS. HARYANA OXYGEN LTD. (2001) 76 ITD 32 (DEL). IN VIEW OF THE ABOVE DECISIONS, WE HOLD THAT THE LD. CIT(A) WAS NO T JUSTIFIED IN SUSTAINING THE DISALLOWANCE TO THIS EXTENT. THIS G ROUND IS ALLOWED. 8. THE LAST GROUND IS AGAINST THE CONFIRMATION OF D ISALLOWANCE ON ACCOUNT OF REPAIRS AND MAINTENANCE EXPENSES OF RS.1 ,78,578/- BY TREATING IT AS CAPITAL EXPENDITURE. THE FACTS APROP OS THIS GROUND ARE THAT THE ASSESSEE PURCHASED PRINTED FROSTED FILMS AMOUNT ING TO RS.1,98,419/- AND TREATED IT AS REVENUE EXPENDITURE. THE AO HELD SUCH AMOUNT TO BE CAPITAL IN NATURE. AFTER ALLOWING DEPRECIATION @ 1 0%, HE DISALLOWED THE ITA NO.3587/DEL/2013 CO NO.301/DEL/2014 8 REMAINING AMOUNT OF RS.1.78 LAC. THE LD. CIT(A) CO NFIRMED THE DISALLOWANCE. 9. HAVING HEARD BOTH THE SIDES AND PERUSED THE RELE VANT MATERIAL, WE FIND THAT THE NATURE OF EXPENDITURE INCURRED BY THE ASSESSEE TO THE TUNE OF RS.1.98 LAC IS NOT EMANATING EITHER FROM THE ASSESS MENT ORDER OR THE IMPUGNED ORDER. UNLESS TRUE NATURE OF SUCH EXPENDI TURE IS DEDUCED, ONE CANNOT REACH A POSITIVE CONCLUSION ABOUT THE SAME B EING A CAPITAL OR REVENUE. UNDER SUCH CIRCUMSTANCES, WE SET ASIDE TH E IMPUGNED ORDER ON THIS SCORE AND SEND THE MATTER BACK TO THE FILE OF AO FOR ELABORATELY DISCUSSING THE NATURE OF SUCH EXPENDITURE AND THEN DECIDING THE ISSUE AFRESH AS PER LAW, AFTER ENTERTAINING OBJECTIONS FR OM THE ASSESSEE. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALL OWED FOR STATISTICAL PURPOSES AND THE CO OF THE ASSESSEE IS PARTLY ALLOW ED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 07.05.201 5. SD/- SD/- [A.T. VARKEY] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED,07 TH MAY, 2015. ITA NO.3587/DEL/2013 CO NO.301/DEL/2014 9 DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.