DCIT, New Delhi V. M/s. CB Richard Ellis South Asia Pvt. Ltd., New Delhi

ITA 3940/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65605 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 1 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 24-09-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 26-08-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRITHI LAL
• Keywords: Revenue expenditure; Capital expenditure

Judgement Text

ITA NO. 3940/DEL/2011 & CO NO. 331/DEL/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B NEW DELHI BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 3940/DEL/2011 A.Y. : 2003-04 ACIT, CIR. 3(1), CR BLDG., NEW DELHI VS. M/S C.B. RICHARD ELLIS SOUTH ASIA PVT. LTD., PTI BUILDING, GF, PARLIAMENT STREET, NEW DELHI (PAN/GIR NO. : AAACC9308A) AND C.O. NO. 331/DEL/2011 (IN ITA NO. 3940/ DEL/2011) A.Y. 2003-04 M/S C.B. RICHARD ELLIS SOUTH ASIA PVT. VS. DCIT, CIR . 3(1), LTD., NEW DELHI PTI BUILDING, GF, PARLIAMENT STREET, NEW DELHI (PAN/GIR NO. : AAACC9308A) (APPELLANT) (APPELLANT) (APPELLANT) (APPELLANT) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) ASSESSEE BY : SH. GAUTAM JAIN, ADV. DEPARTMENT BY : SH. PRITHI LAL, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA : AM PER SHAMIM YAHYA : AM PER SHAMIM YAHYA : AM PER SHAMIM YAHYA : AM THIS APPEAL BY THE REVENUE AND CROSS OBJECTION BY T HE ASSESSEE EMANATE OUT OF ORDER OF THE LD. COMMISSIONER OF INCO ME TAX (APPEALS) DATED 21.6.2011 AND PERTAIN TO ASSESSMENT YEAR 200 3-04. ITA NO. 3940/DEL/2011 & CO NO. 331/DEL/2011 2 2. THE ISSUE RAISED IN THE REVENUES APPEAL IS THA T LD. COMMISSIONER OF INCOME TAX (A) ERRED IN DELETING THE ADDITION OF ` 43,83,621/- ON ACCOUNT OF RENOVATION EXPENSES. 3. THE ISSUE RAISED IN THE ASSESSEES CROSS OBJECT ION IS THAT LD. COMMISSIONER OF INCOME TAX (A) ERRED IN UPHOLDING TH E DISALLOWANCE OF ` 10,43,285/- OUT OF TOTAL EXPENDITURE OF ` 54,26,9 06/- REPRESENTING EXPENDITURE INCURRED ON REPAIR OF THE LEASED OFFICE PREMISES OF THE ASSESSEE COMPANY. 4. ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF RE AL ESTATE CONSULTANCY SERVICES, SITE MANAGEMENT SERVICES, PRO FESSIONAL ADVISORY AND PROJECT MANAGEMENT SERVICES. ASSESSING OFFICER ON ACCOUNT OF PERUSAL OF PROFIT AND LOSS ACCOUNT OBSERVED THAT AS SESSEE HAS DEBITED REPAIR AND MAINTENANCE EXPENSES AMOUNTING TO ` 86,5 6,299/-. OUT OF ABOVE EXPENSES HE OBSERVED THAT ` 54,26,906/- WAS I NCURRED ON OFFICE RENOVATION AND TEMPORARY ERECTION AT NEW DELHI OFFICE AND WHICH INCLUDED PAYMENT MADE TO INSTALLATION OF TEMPORARY PAR TITION, FURNITURE AND FITTINGS AND CIVIL WORKS. ON ENQUIR Y AS TO WHY THIS EXPENDITURE SHOULD NOT BE TREATED AS CAPITAL EXPEND ITURE. ASSESSEE SUBMITTED AS UNDER:- THE COMPANY TOOK PREMISES AT GROUND FLOOR PTI BUILDING, PARLIAMENT STREET, NEW DELHI FROM 1 ST JULY, 2002 ON 1 ST JULY, 2002 FOR A PERIOD OF THREE YEARS. THE COMPANY TOOK THE PREMISES IN SHELL SPACE WHICH WAS NOT IN A POSITION TO BE USED FOR OFFICE PURPOSES D UE TO NEGLECT AND BAD CONDITION OF THE PREMISES. THE COMPANY INCURRED CERTAIN EXPENDITURE IN REPAIRING AN D REMODELING THE LEASED PREMISES SUITABLE FOR ITS OFFIC E ITA NO. 3940/DEL/2011 & CO NO. 331/DEL/2011 3 NEEDS WITH BETTER FITTINGS AND BETTER FINISH. THE COMPANY HAS MADE THE LEASED PREMISES SUITABLE FOR OFFICE PURPOSES, I.E. TO SAY, PUT ITS BUSINESS ASSE T TO MORE PROFITABLE AND EFFICIENT USE. THE POSSESSION OF THE LEASED PREMISES IN THE SHAPE OF CUBICLES BY CONVERTING A BIG HALL INTO IT MAKES IT MORE SUITABLE FOR OFFICE PURPOSES. IT IS A CO NDITION OF CARRYING ON BUSINESS MORE PROFITABLY AND EFFICI ENTLY BY THE COMPANY. IN SUCH A CASE THE EXPENDITURE CAN BE REGARDED AS A REVENUE EXPENDITURE. THE EXPENDITURE ON THE REPAIRS OF THE BUILDING, WHICH ULTIMATELY BELONGS TO THE OWNERS AND NOT TO THE COMPANY, CANNOT ALSO BE SAID TO BE IN THE NATURE OF CAPITAL EXPENDITURE. 5. THE ASSESSEE COMPANY ALSO FURNISHED LEDGER ACCOU NTS AND BILLS AND VOUCHERS. ASSESSING OFFICER OPINED THAT IN T HE LEDGER ACCOUNTS FOLLOWING NOTING HAVE BEEN DONE. BEING THE EXPENSES TOWARDS THE NEW OFFICE SET UP AT PTI, DELHI. THE WOODEN WORK DONE BY ANANGRAM SYSTEMS. BEING THE CHARGES TOWARDS THE CONSULTANCY FEE TOWARDS THE PREPARATION OF DESIGN, DRAWINGS, SPECIFICATIONS FOR ELECTRICAL WORKS. 5.1 FROM THE ABOVE, ASSESSING OFFICER INFERRED THAT THE EXPENDITURE ARE CLEARLY ON CAPITAL IN NATURE AND WERE INCURRED FOR THE NEW OFFICE ITA NO. 3940/DEL/2011 & CO NO. 331/DEL/2011 4 BUILDING TAKEN ON LEASE. HENCE, ASSESSING OFFIC ER DISALLOWED THE AMOUNT OF ` 54,26,906/- BEING CAPITAL EXPENDITURE. 6. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (A) OBSERVED AT PAGE NO. 39 OF THE PAPER BOOK, ASSESSE E HAS DETAILED THE EXPENDITURE ON REPAIRS AND RENOVATION. FROM THIS LD. COMMISSIONER OF INCOME TAX (A) OBSERVED THAT A SUM OF ` 54,26,90 6/- HAS BEEN PAID TO M/S ANAGRAM SYSTEMS, M/S CONSOLIDATED CARPET, M/S VARISCON ENGINEERING SERVICES, TATA INFO INDIA LTD. AND MISCE LLANEOUS WORK. LD. COMMISSIONER OF INCOME TAX (A) FURTHER FOUND T HAT THE EXPENDITURE HAS BEEN INCURRED TOWARDS DISMANTLING A ND DISPOSAL, PLUMBING AND TOILET, BRICK WORKS, PLASTER IN RATIO, WATER PROOFING, BRICK BAT FILLING, GYPSUM PARTITION, DOOR FRAME, DOOR SHU TTER, STORAGE OVERHEAD, WORK STATION WITH DRAWER, GREEN MARBLE, G RANITE TILES, POP, PARTITION ALUMINUM FRAME, WOODEN FRAME, STORAGE, GYPS UM BOARD CEILING, COUNTER IN REPROGRAPHIC, TRAP DOOR CEILING , PARTITION PANEL, WORK- SURFACES, PEDESTAL DRAWER UNITS ETC., SUPPLYING AN D LAYING OF CARPETS, ELECTRIFICATION WORK, PURCHASE OF ELECTRICAL GOODS SUCH AS CABLES, PANELS, CONNECTORS ETC. AND MISCELLANEOUS WORK. FU RTHER, LD. COMMISSIONER OF INCOME TAX (A) OBSERVED THAT AN AMOUNT OF ` 10,43,285/- HAS BEEN INCURRED OUT OF THE TOTAL EXPE NSES OF ` 54,26,906/- ON THE MISCELLANEOUS WORK FOR PURPOSES O F MISCELLANEOUS REPAIRS. HOWEVER, LD. COMMISSIONER OF INCOME TAX (A) NOTED THAT NO DETAIL HAS BEEN FILED. 6.1 FROM THE ABOVE, LD. COMMISSIONER OF INCOME TAX (A) HELD THAT HE WAS UPHOLDING THE ADDITION OF ` 10,43,285/-. AS RE GARDS THE OTHER EXPENSES OF BALANCE OF ` 43,83,621/-, LD. COMMISSION ER OF INCOME TAX (A) OBSERVED THAT IT IS CRYSTAL CLEAR FROM THE EX PENDITURE DETAILED ITA NO. 3940/DEL/2011 & CO NO. 331/DEL/2011 5 ABOVE THAT THE SAME WAS INCURRED NOT FOR THE PURPOS E OF BRINGING ANY NEW ASSET. THE EXPENSES WERE FOR PURPOSES WHICH C AN BE CALLED TO HAVE ENABLED THE ASSESSEE TO FACILITATE ITS BUSINE SS IN A MORE PROFITABLE AND EFFICIENT MANNER. LD. COMMISSIONER OF INCOME TAX (A) FURTHER OBSERVED THAT THIS CANNOT BE CALLED EXPENDI TURE WHICH ARE OF PERMANENT IN NATURE. FURTHER, LD. COMMISSIONER OF IN COME TAX (A) NOTED THAT LEASE AGREEMENT ALSO PERMITS THE ASSESSEE TO MAKE TEMPORARY ALTERATIONS IN THE LEASED PREMISES. HENCE , LD. COMMISSIONER OF INCOME TAX (A) CONCLUDED THAT NO NEW ASSETS HAS BEEN CREATED AND THE LEASE AGREEMENT ALSO ONLY TA LKS ABOUT TEMPORARY ERECTIONS EXPENDITURE CANNOT BE SAID TO BE CAPITAL IN NATURE. HENCE, HE ALLOWED THE ASSESSEES CLAIM REGARDING EX PENDITURE OF ` 43,83,621/- AS REVENUE IN NATURE. 7. AGAINST THE ABOVE ORDER THE REVENUE FILED ITS APPEAL AND ASSESSEE FILED ITS CROSS OBJECTION BEFORE US. APROPOS REVENUES APPEAL APROPOS REVENUES APPEAL APROPOS REVENUES APPEAL APROPOS REVENUES APPEAL 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS. WE FIND THAT IN THIS CASE ASSESSEE HAS TAKEN THE LE ASED PREMISES FROM PRESS TRUST OF INDIA. AS PER THE LEASE AGREEMENT, I T COULD MAKE TEMPORARY ALTERATIONS/ERECTION TO SUIT ITS PURPOSE. THE ASSESSEE WAS NOT ALLOWED TO MAKE ANY PERMANENT ALTERATIONS/ERECTIO NS. TO ENABLE IT TO CARRY OUT ITS BUSINESS MORE PROFITABLE, ASSESSEE MADE CERTAIN CHANGES. THESE EXPENDITURES WERE INCURRED TOWARD S DISMANTLING AND DISPOSAL, PLUMBING AND TOILET, BRICK WORKS, PLASTER IN RATIO, WATER ITA NO. 3940/DEL/2011 & CO NO. 331/DEL/2011 6 PROOFING, BRICK BAT FILLING, GYPSUM PARTITION, DOOR FRAME, DOOR SHUTTER, STORAGE OVERHEAD, WORK STATION WITH DRAWER, GREEN MA RBLE, GRANITE TILES, POP, PARTITION ALUMINUM FRAME, WOODEN FRAME, S TORAGE, GYPSUM BOARD CEILING, COUNTER IN REPROGRAPHIC, TRAP DOOR C EILING, PARTITION PANEL, WORK-SURFACES, PEDESTAL DRAWER UNITS ETC., SUPPLYING AND LAYING OF CARPETS, ELECTRIFICATION WORK, PURCHASE OF ELEC TRICAL GOODS SUCH AS CABLES, PANELS, CONNECTORS ETC. AND MISCELLANEOUS WO RK. THE ABOVE LIST OF EXPENDITURES CLEARLY SHOW THAT THE CHANGES WERE TEMPORARY IN NATURE, THEY WERE NOT PERMANENT AND THE SAME WER E ALSO IN ACCORDANCE WITH THE LEASE AGREEMENT. THUS, THESE EXPENDITURES WERE OF REVENUE IN NATURE AND CANNOT BE SAID TO BE CAPIT AL IN NATURE. 9. FURTHER, WE FIND THAT LD. COUNSEL OF THE ASSESSEE HAS RELIED UPON THE DECISION OF THIS TRIBUNAL IN THE CASE OF UNITE D HOTELS LTD. VS. ADDL. C.I.T. IN I.T.A. NO. 3225/D/2012 FOR ASSESSMENT YEAR 2009-10. IN THIS CASE IT WAS HELD THAT ON EXAMINATION OF LIST OF ALTE RATIONS IT WAS DISCERNIBLE THAT THE EXPENDITURE WAS OF REVENUE IN NATURE AND CANNOT BE SAID TO BE CAPITAL IN NATURE. IT WAS FURTHER OBS ERVED THAT THE ASSESSING OFFICER HAS HIMSELF ADMITTED IN THE ASSESS MENT ORDER THAT EXPENDITURE INCURRED WERE FOR ENHANCING THE EFFICIE NCY OF THE HOTEL. IT WAS FURTHER OPINED THAT SUCH EXPENSES CANNOT BE SAI D TO BE ADDING TO THE SPACE OF HOTEL OR ADDING TO THE CAPACITY TO T HE HOTEL. THE ITA NO. 3940/DEL/2011 & CO NO. 331/DEL/2011 7 EXPENDITURE WAS ONLY TO PRESERVE THE EXISTING ASSET S. WE FIND THAT THE ABOVE CASE LAW IS ALSO APPLICABLE IN THE PRESENT CA SE. 10. LD. COUNSEL OF THE ASSESSEE FURTHER PLACED RELI ANCE THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF C.I. T. VS. IMPERIAL FASTNERS (P) LTD. IN I.T.A. NO. 160/2012. IN THIS CASE, ASSESSING OFFICER HAS NOTED THAT ASSESSEE HAS DEBITED A SUM OF ` 31,5 4,844/- TOWARDS REPAIR AND MAINTENANCE. ASSESSING OFFICER OPINED THAT THE SAME WAS GIVING ENDURING BENEFIT TO THE ASSESSEE FOR A PERIO D OF 10 YEARS I.E. THE PERIOD OF LEASE. HENCE, ASSESSING OFFICER DISA LLOWED THE CLAIM BY TREATING THE ENTIRE EXPENSES AS INCOME ON CAPITAL A CCOUNT. LD. COMMISSIONER OF INCOME TAX (A) AFFIRMED THE AFORESAI D ORDER OF THE ASSESSING OFFICER. HOWEVER, THE TRIBUNAL HELD THA T THE EXPENDITURE WAS REVENUE IN NATURE SHOULD BE ALLOWED. THE HONB LE HIGH COURT IN THIS REGARD CONSIDERED THE ISSUE AND CONCLUDED AS U NDER:- COUNSEL FOR THE REVENUE HAS NOT BEEN ABLE TO POINT OUT AND SHOW THAT THE AFORESAID EXPENSES WERE NOT INCUR RED ON REPLACEMENT OF PARTS, LUBRICATION ETC. NO NEW ASSET CAME INTO EXISTENCE. THE EXPENDITURE WAS INCURRED TO M AKE THE PLANT OPERATIONAL AND FUNCTIONAL. ITA NO. 3940/DEL/2011 & CO NO. 331/DEL/2011 8 ACCORDINGLY, THE HONBLE HIGH COURT DECIDED THE ISS UE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 11. IN THE BACKGROUND OF THE AFORESAID DISCUSSION AND PRECEDENTS RELIED UPON, WE DO NOT FIND ANY INFIRMITY IN THE ORD ER OF THE LD. COMMISSIONER OF INCOME TAX (A), ACCORDINGLY, WE UPHO LD THE SAME. ASSESSEES CROSS OBJECTION ASSESSEES CROSS OBJECTION ASSESSEES CROSS OBJECTION ASSESSEES CROSS OBJECTION 12. IN THE CROSS OBJECTION ASSESSEE HAS CONTESTED TH AT LD. COMMISSIONER OF INCOME TAX (A) HAS ERRED IN UPHOLDIN G THE DISALLOWANCE OF ` 10,43,285/- OUT OF TOTAL EXPENDIT URE OF ` 54,26,906/-. WHILE DISALLOWING THIS AMOUNT, LD. COMMISSIONER OF IN COME TAX (A) HAS NOTED THAT ASSESSEE HAS NOT PROVIDED ANY DETAIL REGARDING THIS EXPENDITURE. HOWEVER, BEFORE US LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE DETAILS IN THIS REGARD WERE SUBMI TTED BEFORE THE LD. COMMISSIONER OF INCOME TAX (A) AND LD. COMMISSIONER OF INCOME TAX (A) HAS ERRED IN MAKING THE AFORESAID OBSERVATION. IN THIS REGARD, LD. COUNSEL REFERRED TO THE BILLS ENCLOSED IN THE PAPER BOOK AT PAGES 75 TO 78. THE TOTAL OF THESE EXPENDITURE CAME TO ` 840,7 85/-. IN LIGHT OF THE ABOVE, LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT ON LY BILLS FOR ` 2,02,500/- WERE NOT EXPLAINED. LD. COUNSEL OF THE ASSESSEE PLEADED ITA NO. 3940/DEL/2011 & CO NO. 331/DEL/2011 9 THAT THIS EXPENDITURE ALSO OF REVENUE IN NATURE AND SHOULD HAVE BEEN ALLOWED AS SUCH. 12.1 LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HA ND SUBMITTED THAT THE LD. COMMISSIONER OF INCOME TAX (A) HAS GIVEN A CLEAR FINDING THAT ASSESSEE HAS NOT SUBMITTED THE NECESSARY DETAIL S. 13. WE HAVE CONSIDERED THE SUBMISSIONS AND PERUS ED THE RECORDS. WE FIND THAT LD. COMMISSIONER OF INCOME TAX (A) HAS N OTED THAT ASSESSEE HAS NOT SUBMITTED THE NECESSARY DETAILS BE FORE HIM. UNDER THE CIRCUMSTANCES, WE CONSIDER IT APPROPRIATE TO SEN D THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFIC ER SHALL CONSIDER THIS ISSUE, IN LIGHT OF THE SUBMISSION OF THE ASSESSEE. NEEDLESS TO ADD THAT THE ASSESSEE SHOULD BE GIVEN ADEQUATE OPPORTUNITY O F BEING HEARD. 14. IN THE RESULT, THE REVENUES APPEAL IS DISMISS ED AND ASSESSEES CROSS OBJECTION IS ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE OPEN COURT ON 27/9/2012. SD/- SD/- [ [[ [JOGINDER SINGH JOGINDER SINGH JOGINDER SINGH JOGINDER SINGH] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL JUDICIAL JUDICIAL JUDICIAL MEMBER MEMBER MEMBER MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE:- 27/9/2012 SRBHATNAGAR COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES