DR MALVIKA KOHLI, MUMBAI V. ACIT CIR- 11(3), MUMBAI

ITA 3765/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0249 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 04-04-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 18-06-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B S BIST
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 143(3); 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F MUMBAI BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 3765 / MUM/20 15 ASSESSMENT YEAR: 2008 - 09 DR. MALVIKA KOHLI VS. ACIT CIR 11(3) 3, COMMON WEALTH, MADAM CAMA MUMBAI ROAD, FORT MUMBAI - 400020 PAN NO. AAPPK3618P (APPELLANT) (RESPONDENT) ASSESSEE BY : MR . BHUPENDRA SHAH , AR REVENUE BY: MR. B.S. BIST , DR DATE OF HEARING : 04/04 /2017 DATE OF PRONOUNCEMENT: 22/06/2017 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RE LEVANT ASSESSMENT YEAR IS 2008 - 09 . THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER (APPEALS) - 7 , MUMBAI AND ARISES OUT OF THE ORDER U/S 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT). 2. THE EFFECTIVE GROUND OF APPEAL FILED BY THE ASSESSEE READ S AS UNDER : IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (A) ERRED IN CONFIRMING A SUM OF RS. 8,98,550/ - OUT OF RS. 11,63,150/ - DISALLOWED BY THE ASSESSING OFFICER UNDER THE HEAD CURRENT REPAIRS TO THE RENTAL PREMIS ES EVEN THOUGH ALL THE 3 PREMISES WERE TAKEN ON RENT. ITA NO. 3765 /MUM/201 5 2 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAS DEBITED RS.12,92,389/ - AS REPAIRS CLINIC. IN RESPONSE TO A QUERY RAISED BY THE AO TO EXPLAIN WHY THE SAID EXPENSES BE NOT TREATED AS CAPITAL EXPENDITURE, THE ASSESSEE SUBMITTED THAT AS PER THE DOCUMENTS FILED , THE REPAIRS OF THE CLINIC WAS DISMANTLING OF OLD FURNITURE, DISMANTLING PLASTERS OF WALL, REMOVING OUTDATED TILES ETC. THE AO WAS NOT CONVINCED WITH THE ABOVE EXPLANATION OF TH E ASSESSEE AS HE FOUND THAT THE EXPENDITURE IN QUESTION WAS NOT IN THE NATURE OF CURRENT REPAIRS RATHER IT WAS IN THE NATURE OF CAPITAL EXPENDITURE. THEREFORE, THE AO TREATED THE AMOUNT OF RS.12,92,389/ - AS CAPITAL EXPENDITURE AND ALLOWED DEPRECIATION @ 10% ON IT WHICH COMES TO RS.1,29,239/ - . THEREBY, THE AO DISALLOWED THE BALANCE AMOUNT OF RS.11,63,150/ - . 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A) WHO HELD AS UNDER : THE FACTS OF THE CASE ARE THAT THE ASSE SSEE GOT RENOVATION OF HER BUSINESS PERMISSION CARRIED OUT THROUGH M/S INTERCRAFT AND THE DETAILS IN THIS REGARD HAVE BEEN PRODUCED BEFORE ME. IT IS SEEN THAT M/S INTERCRAFT HAVE SUBMITTED BILLS IN RESPECT OF LABOUR CHARGES AND MATERIALS. ALTHOUGH THE AGGR EGATE EXPENDITURE CLAIMED BY THE ASSESSEE IS RS.12,92,389/ - , THE BILLS OF M/S INTERCRAFT ARE ONLY FOR AN AGGREGATE AMOUNT OF RS.8,82,000/ - (RS.6,57,892/ - FOR MATERIALS AND RS.2,24,108/ - FOR LABOUR). HENCE, THE NATURE OF BALANCE OF EXPENDITURE CLAIMED BY T HE ASSESSEE AT RS.4,10,389/ - IS NOT ASCERTAINABLE. THEREFORE, DISALLOWANCE TO THE EXTENT OF RS.3,69,350/ - (90% OF RS.4,10,389/ - ) IS UPHELD. 3.5. I HAVE GONE THROUGH THE BALANCE EXPENDITURE DETAILS INCURRED THROUGH M/S INTERCRAFT INCLUDING THE VOUCHERS FOR MATERIALS IN AGGREGATE, AMOUNTING TO RS.8,82,000/ - . IT IS SEEN THAT THE ASSESSEE CARRIES OUT HER PROFESSION FROM PREMISES NOS. 403 (TAKEN ON RENT DURING THE YEAR), 408 ITA NO. 3765 /MUM/201 5 3 AND 306. IN THE FORWARDING LETTER OF M/S INTERCRAFT, THE DESCRIPTION REGARDING THE RENOV ATION WORK CARRIED OUT (LABOUR BILLS OF THE RS.2,24,108/ - ) IS AS UNDER: SUB: LABOUR BILLS TOWARDS THE RENOVATION AT YOUR PREMISES AT DOCTOR HOUSE PREMISES 403/408/306. 3.6. FURTHER, THE MATERIAL BILLS FOR THE SAME HAD BEEN ISSUED BY VARIOUS PARTIES IN TH E NAME OF M/S INTERCRAFT (IN AGGREGATE RS.6,57,892/ - ). IT IS THUS EVIDENT THAT THE RENOVATION WORK HAS NOT ONLY BEEN CARRIED OUT IN THE NEWLY HIRED PREMISES NO. 403 BUT ALSO IN PREMISES NOS. 408 AND 306. THEREFORE, IN VIEW OF THE ABOVE FACTS, THE ARGUMENTS OF THE ASSESSEE DO NOT HAVE MUCH MERIT SO FAR AS THE RENOVATION WORK CARRIED OUT IN RESPECT OF PREMISES NOS. 408 AND 306 IS CONCERNED. SINCE FULL AND COMPLETE DETAILS OF RENOVATION WORK IN RESPECT OF ALL THREE PREMISES HAVE NOT BEEN SEPARATELY FURNISHED, I CONSIDER IT APPROPRIATE TO DIVIDE THE EXPENDITURE OF RS.8,82,000/ - INTO THREE PARTS AND ATTRIBUTE ONE PART TO THE HIRED PREMISES NO. 403. THEREFORE, AN AMOUNT OF RS.2,94,000/ - IS ATTRIBUTED TO PREMISES NO. 403 AND IN VIEW OF THE DECISIONS CITED BY THE AS SESSEE AS WELL AS LOOKING TO THE NATURE OF EXPENDITURE INCURRED, THE SAME IS CONSIDERED AS REVENUE EXPENDITURE. SINCE THE AO HAS ALREADY GRANTED ALLOWANCE FOR 10% OF THE SAME AS DEPRECIATION, THE BALANCE DISALLOWANCE OF RS.2,64,600/ - IS DIRECTED TO BE DELE TED. THE DISALLOWANCE MADE BY THE AO IN RESPECT OF PREMISES NOS. 408 AND 306 IS UPHELD. THUS OUT OF AGGREGATE DISALLOWANCE OF RS.11,63,150/ - , THE ASSESSEE GETS RELIEF OF RS.2,64,600/ - AND THE BALANCE DISALLOWANCE OF RS.8,98,550/ - IS CONFIRMED. 5 . THE LD. C OUNSEL OF THE ASSSESSEE FILES A PAPER BOOK (P/B) CONTAINING (I) WRITTEN SUBMISSIONS FILED ON 26.12.2014 BEFORE CIT(A), (II) ACKNOWLEDGEMENT OF IT RETURN, (III) COMPUTATION OF TOTAL INCOME, (IV) BALANCE SHEET, (V) INCOME & EXPENDITURE A/C, (VI) TAX AUDIT R EPORT WITH ANNEXURES, (VII) PROOF OF AGREEMENT OF RENTAL PREMISES, (VIII) DETAILS OF REPAIRS TO PREMISES, (VIIII) BILLS OF REPAIRS, ITA NO. 3765 /MUM/201 5 4 (X) LETTER DATED 30.11.2010 TO THE ASSESSING OFFICER AND (XI) ITAT ORDER IN CASE OF J UST DIAL PVT. LTD . (ITA NO. 3200/MUM/2010) . 6 . ON THE OTHER HAND, THE LD. DR RELIES ON THE ORDER OF THE LD. CIT(A). ALSO RELIANCE IS PLACED BY HIM ON THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF RPG ENTERPRISES LTD. VS. DCIT (2016) 386 ITR 401 (BOM). 7 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE BEGIN WITH THE DECISION RELIED ON BY THE LD. COUNSEL OF THE ASSESSEE. IN M/S JUST DIAL PVT. LTD. (SUPRA) , THE ASSESSEE HAD TAKEN ON LEASE CERTAIN PREMISES AND INCURRED EXPENDITURE TO PUT THEM INTO USE FOR ITS OFFICE. IN THE RENOVATION WORK , THE ASSESSEE UNDERTOOK FLOORING AND SANITATION WORK, WHICH ACCORDING TO THE REVENUE CANNOT BE ALLOWED AS REPAIRS AND RENOVATION AS THESE EXPENSES WOULD PROVIDE LONG AND ENDURING BENEFIT TO THE ASSESSEE . THE AO AND THE LD. CIT(A) HELD THE SAID EXPENSES AS CAPITAL IN NATURE. THE ITAT OBSERVED THAT SINCE THE REPAIRS AND RENOVATIONS WERE DONE ONLY FOR THE PERIOD OF STAY, WHICH MAY BE SHORT OR LONG, IT CANNOT BE SAID TO RESULT IN ENDURING BENEFIT TO THE ASSE SSEE. THUS IT WAS HELD AS REVENUE EXPENDITURE. WE OBSERVE THAT IN THE INSTANT APPEAL, THE ASSESSEE FAILED TO FILE BEFORE THE LD. CIT(A) COMPLETE DETAILS OF RENOVATION WORK IN RESPECT OF THE THREE PREMISES SEPARATELY. IN VIEW OF THE ABOVE, THE CASE OF THE ASSESSEE IS DISTINGUISHABLE FROM THE DECISION IN M/S JUST DIAL PVT. LTD. (SUPRA) . 7 .1 WE NOW TURN T O THE DECISION IN THE CASE OF RPG ENTERPRISES LTD. (SUPRA) RELIED ON BY THE LD. DR. IN THAT CASE SINCE THE YEAR 1995, THE ASSESSEE WAS IN OCCUPATION AS A TENANT OF A FLOOR OF A BUILDING. DURING ITA NO. 3765 /MUM/201 5 5 THE RELEVANT YEAR, THE ASSESSEE DEBITED RS.47.63 LACS TO THE P ROFIT AND LOSS ACCOUNT UNDER THE HEAD REPAIRS AND MAINTENANCE WHILE DETERMINING ITS INCOME. OUT OF THE AFORESAID AMOUNT OF EXPENDITURE, AN AMOUNT OF RS.31.32 LACS W AS RELATED TO THE RENTED PREMISE S. THE AO ON EXAMINATION OF THE NATURE OF EXPENSES FOUND T HAT THE SAME WERE SUBSTANTIALLY CAPITAL IN NATURE, I.E. RENOVATING THE SAID PREMISES BY DOING CIVIL WORK. HOWEVER, SOME PART OF ITS EXPENDITURE WAS FOUND TO BE REVENUE IN NATURE, SUCH AS PLASTERING. THEREFORE, THE AO ATTRIBUTED 75% OF THE EXPENDITURE CLAIM ED AS CAPITAL AND 25% AS REVENUE. THE AO ALLOWED REVENUE EXPENDITURE SO ATTRIBUTED AND ALSO 10% OF DEPRECIATION U/S 32 ON THE CAPITAL EXPENDITURE. BOTH THE CIT(A) AND ITAT UPHELD THE ORDER OF THE AO. IN FURTHER APPEAL, THE HONBLE HIGH COURT HELD THAT WHE RE ASSESSEE CLAIMED AN EXPENDITURE TO BE FOR REPAIRS AND MAINTENANCE BUT IT WAS, IN FACT, ON ACCOUNT OF RENOVATION OF PREMISES TAKEN ON RENT WHICH LED TO ENDURING BENEFIT FOR A LONG PERIOD OF TIME, INASMUCH AS IT ENABLED THE ASSESSEE TO ACCOMMODATE LARGE N UMBER OF EMPLOYEES AND ALSO FACILITATED TRADING OPERATIONS, SAID EXPENDITURE WAS CAPITAL IN NATURE. 7 .2 ON EXAMINATION OF THE FACTS, WE FIND THAT IN THE INSTANT CASE, THE ASSESSEE HAS CLAIMED DURING THE FY 2007 - 08 RENOVATION EXPENDITURE OF RS.12,92,389/ - . THE ASSESSEE GOT RENOVATION WORKS DONE THROUGH M/S INTERCRAFT. THE ASSESSEE COULD FILE BEFORE THE LD. CIT(A) BILLS OF M/S INTERCRAFT ONLY FOR AN AGGREGATE AMOUNT OF RS.8,82,000/ - (RS.6,57,892/ - FOR MATERIALS AND RS.2,24,108/ - FOR LABOUR). AS THE ASSESSEE FAILED TO FILE THE DETAILS OF BALANCE EXPENDITURE, THE LD. CIT(A) HAS RIGHTLY SUSTAINED DISALLOWANCE OF RS.3,69,350/ - (90% OF RS.4,10,389/ - ). ITA NO. 3765 /MUM/201 5 6 7 .3 WE FIND THAT THE DIVISION OF EXPENDITURE OF RS.8,82,000/ - BY THE LD. CIT(A) IN THREE PARTS AND ATTRIBUTING ON E PART TO THE HIRED PREMISES NO. 403 AND MAKING DISALLOWANCE IN RESPECT OF PREMISES NO. 408 AND 306 IS NOT BASED ON REASONS. 8 . HAVING GONE THROUGH THE FACTS AND DECISIONS RELIED ON BY THE LD. COUNSEL OF THE ASSESSEE AND THE LD. DR, WE RESTRICT THE DISALL OWANCE TO RS.3,69,350/ - ONLY AS DELINEATED AT PARA 6.2 IN PLACE OF RS.8,98,550/ - DONE BY THE LD. CIT(A) . 9 . IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN C OURT ON 22/06/2017. SD/ - SD/ - ( MAHAVIR SINGH ) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI : DATED: 22/06/2017 RAHUL SHARMA , SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI