GENESIS DATACOMP PRIVATE LIMITED, MUMBAI V. INCOME TAX OFFICER 9(1)(4), MUMBAI

ITA 4319/MUM/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0375 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 12-06-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N HEMALATHA
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES SMC, MUMBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ITA NO.4319/MUM/2017 ASSESSMENT YEAR : 2011-12 GENESIS DATACOMP PVT LTD, 18,37 & 38, THIRD FLOOR, PHIROJSHAH MEHTA ROAD, SANTACRUZ (W), MUMBAI 400 054 PAN AAACG4273E VS. ITO 16(1)(1) MUMBAI (APPELLANT) RESPONDENT) APPELLANT BY : MS NEELAM JADHAV RESPONDENT BY : MS N HEMALATHA DATE OF HEARING : 15 . 11 .201 7 DATE OF PRONOUNCEMENT : 05.02 . 201 8 O R D E R THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST ORDER OF LEARNED CIT(A)- 20, MUMBAI, DATED 16.03.2017 AND PERTAINS TO ASSESS MENT YEAR 2011-12. 2. THE GROUNDS OF APPEAL READ AS UNDER: 1. THE LEARNED CIT (A) ERRED IN CONFIRMING DISALLO WANCE OF RS. 14,81,003/- OUT OF REPAIRS & MAINTENANCE AND TREATI NG THE SAME AS CAPITAL EXPENDITURE. DISALLOWANCE WORKED OUT AT RS. 13,32,903/- AFTER ALLOWING RS. 1,48,100/- BEING 10% AS DEPRECIATION A N AMOUNT TREATED AS CAPITALIZED. THE APPELLANT PRAYS THAT THE ADDITION MADE IS ARBITRARY AND WITHOUT APPRECIATING CORRECT NATURE OF EXPENSES AND THEREFORE BE DELETED. 2. THE LEARNED CIT(A) HAS ALSO ERRED IN MAKING DISA LLOWANCE OF RS.57,346/- AS CAR EXPENSES BY TREATING THEM AS PERSONAL. 3. THE LEARNED CIT(A) ALSO ERRED IN MAKING DISALLOW ANCE OF RS. 179631/- OUT OF SUNDRY BALANCE WRITTEN OFF WHICH ARE NOT REC OVERABLE BY THE APPELLANT COMPANY. ITA NO.4319//MUM/2017 GENESIS DATACOMP PVT LTD 2 3. AT THE OUTSET LEARNED COUNSEL OF THE ASSESSEE SU BMITTED THAT SHE WILL NOT BE PRESSING GROUND NO. 2. ACCORDINGLY, THIS GROUND IS DISMISSED AS NOT PRESSED. 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF PROVIDING CAD & BIM SOLUTIONS TO THE AE C INDUSTRIES. THE ASSESSEE IS A FRANCHISE OF M/S AUTODESK INC BEING AUTHORIZED CENT RE TO PROVIDE TRAINING, TESTING AND CERTIFYING AUTODESK SOFTWARE USERS. 5. THE FIRST GROUND OF APPEAL RELATES TO DISALLOWANCE OUT OF REPAIRS AN D MAINTENANCE. DURING THE COURSE OF ASSESSMENT PROCEE DINGS THE ASSESSING OFFICER FOUND THAT THE ASSESSEE COMPANY HAD CLAIMED EXPENSE S ON REPAIRS AND MAINTENANCE AT RS 18,01,848/-. ON GOING THROUGH THE DETAILS FURNISHED IN THIS REGARD THE ASSESSING OFFICER NOTICED THAT OUT OF TH E SAME THE EXPENSES ON RENOVATION WORK CARRIED OUT DURING F.Y. 2010-11 CON SISTS OF RS 14,81,003/- WHICH WAS MADE ON THE RENTAL PREMISES TAKEN ON LEASE AT A PPLE PLAZA AT DADAR AND HI LIFE MALL, SANTACRUZ PREMISES. THE ASSESSEE SUBMITTED TH AT THE RENOVATION WORK WAS CARRIED OUT DUE TO BUSINESS NORMS OF AUTODESK INC. AND AT PRESENT THE OPERATION FROM THE SAID PREMISES WHERE RENOVATION WORK WAS CA RRIED OUT, HAD BEEN DISCONTINUED. THE CONTENTION OF THE ASSESSEE COMPAN Y WAS NOT ACCEPTED BY THE ASSESSING OFFICER FOR THE FOLLOWING REASONS: 1. FOR THE SANTACRUZ PREMISES THE ASSESSEE COMPANY PAID SERVICE CHARGES PER MONTH OVER AND ABOVE THE RENT FOR THE U SE OF RESPECTIVE PREMISES. 2. THE EXPENSES CLAIMED IN EARLIER YEARS NOT IN COM PARISON TO THE CLAIM OF CURRENT YEAR; 3. THE INCREASE IN SUCH CLAIM HAS NOT MADE ANY IMME DIATE EFFECT TO THE CURRENT YEAR SALE; 4. THERE IS NO DENYING OF THE FACT THAT THE FURNITU RE AND FIXTURES INSTALLED CAN BE REMOVED AND USED BY THE ASSESSEE COMPANY IN FUTURE. ITA NO.4319//MUM/2017 GENESIS DATACOMP PVT LTD 3 5. THE PRESENT STATUS OF THE FURNITURE AND FIXTURE HAS NOT BEEN FILED AS IT WAS SUBMITTED THAT AT PRESENT THE OPERATION FROM TH E SAID PREMISES WHERE RENOVATION WORK WAS CARRIED OUT HAD BEEN DISC ONTINUED. 6. IN VIEW OF THE ABOVE, THE ASSESSING OFFICER DISA LLOWED THE ENTIRE CLAIM OF RENOVATION EXPENSES I.E RS 14,81,003/- BEING CAPITA L IN NATURE AND THE SAME WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. HOWEVER, THE ASSESSEE COMPANY WAS ALLOWED DEPRECIATION ON THE SAID AMOUNT AT THE PRES CRIBED RATE OF 10% WHICH WORKS OUT TO RS 1,48,100/-. THE TOTAL DISALLOWANCE WORKS OUT TO RS 13,32,903/-AND THE SAME WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. THE ASSESSEE COMPANY WAS ALLOWED TO CAPITALIZE THE SAID EXPENSES ON RENOVATI ON WORKS. 7. ON ASSESSEE'S APPEAL, LEARNED CIT(A) CONFIRMED T HE ACTION OF THE ASSESSING OFFICER BY CONCLUDING AS UNDER IN THE PRESENT CASE IT IS NOTED THAT IT IS NOT A C ASE OF RENOVATION IN THE PREMISES BEING USED BY THE ASSESSEE SINCE LONG TO C ARRY OUT THE BUSINESS BUT RATHER THAT OF SETTING UP OF A NEW BUSINESS PRE MISES AND THE EXPENDITURE INCURRED ON THIS SETUP IS DEFINITELY CA PITAL IN NATURE AND CANNOT BE ALLOWED AS A REVENUE EXPENDITURE. HAVING REGARDS TO THE FACTS OF THE CASE AND IN VIEW OF THE JUDGEMENT OF THE HON 'BLE ITAT IN THE CASE OF VARDHMAN DEVELOPERS LTD VS ITO (ITAT MUMBAI) APPEAL NUMBER: I.T.A. NO. 6820/MUM/2012 AS DISCUSSED, THE DISALLOWANCE OF RS. 14,81,003/- MADE BY THE AO ON THIS ISSUE IS FOUND T O BE IN ORDER AND THE SAME IS UPHELD. THE ASSESSEE WOULD BE ENTITLED TO C LAIM DEPRECIATION ON THIS AMOUNT AND THE A.O. IS DIRECTED TO ALLOW THE S AME AS PER LAW. ACCORDINGLY THIS GROUND OF APPEAL IS DISMISSED. AGGRIEVED, AGAINST THE ABOVE ORDER ASSESSEE IS IN A PPEAL BEFORE THE ITAT. 8. I HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RE CORDS. LEARNED COUNSEL FOR THE ASSESSEE HAS GIVEN THE FOLLOWING SUBMISSION: THE APPELLANT COMPANY IS A 19 YEARS OLD MULTIFACET ED COMPANY PROVIDING SALES, SUPPORT AND TRAINING ON SOFTWARE'S FOR THE ENGINEERING MARKET PLACE. IT IS AN AUTODESK CERTIFIED RESELLER, AUTODESK CERTIFIED DESIGN, ARCHITECTURAL PARTNER & EDUCATIONAL PARTNER . DURING THE YEAR THE ITA NO.4319//MUM/2017 GENESIS DATACOMP PVT LTD 4 APPELLANT COMPANY HAD FILED RETURN OF INCOME ON 28/ 09/2011 DECLARING INCOME AT RS.21,74,360/-. 2. THE APPELLANT WAS CARRYING ITS BUSINESS FROM T HE RENTED PREMISES KNOWN AS 'HI-LIFE' IN UNIT NO.61 & 62, 34, 36, 38 A T SANTACRUZ AND 205 APPLE PLAZA AT DADAR FROM APRIL, 2010. (LEASE PERIO D IS ONLY FOR THREE YEARS). IT WAS RUNNING THE BUSINESS AS REPRESENTATIVE OF U S COMPANY M/S AUTODESK. DURING THE F.Y. 2010-11 THE US COMPANY M/ S AUTODESK HAD SUGGESTED TO CARRY OUT THE RENOVATION TO MEET THEIR REQUIREMENTS & TO MATCH THEIR STANDARDS THUS IT WAS COMPULSION THAT R ENOVATION WAS CARRIED ON RENTED PREMISES. THE ENTIRE RENOVATION WAS IN TH E NATURE OF REPAIRS WHICH INCLUDED REPAIRS TO FURNITURE, ELECTRIFICATIO N, WIRING ETC. THE ENTIRE EXPENSE OF RS.14,81,003/- WAS FOR THE PURPOSE OF BU SINESS. 3. DURING THE ASSESSMENT PROCEEDINGS, THE AO HAD DISALLOWED THE SAID REPAIRS EXPENDITURE OF RS.14,81,003/- STATING THAT IT WAS IN CAPITAL IN NATURE. 4. DURING THE CIT(A), THE APPELLANT HAD MADE A W RITTEN SUBMISSION ALONG WITH THE DOCUMENTS. 5. THE CIT(A) RELIED ON THE DECISION OF VARDHMAN DEVELOPERS LTD. V. ITO (2015) 68 SOT 107 (MUM)(TRIB.)(URO)CONFIRMED TH E ADDITION. PROPOSITIONS: 1. THE ADDITION MADE IS ARBITRARY AND WITHOUT APP RECIATING CORRECT FACTS OF NATURE OF EXPENSES. 2. THE EXPENDITURE INCURRED AS REPAIRS & MAINTENA NCE ON 2 LOCATIONS AT SANTACRUZ PREMISES RS.9,50,772/- & AT DADAR RS.5,30 ,232/-. BOTH THE PREMISES HAS TAKEN ON LEAVE & LICENSE BASIS & ALSO TAKEN THEIR EXISTING FURNITURE & FIXTURES THROUGH SEPARATE AGREEMENTS. T HE APPELLANT COMPANY PAID SERVICE CHARGES AGAINST USE OF FURNITU RE & FIXTURES & AIR CONDITIONERS PROVIDED BY THE LESSOR AS PER THE AGRE EMENTS. 3. THE AGREEMENT BETWEEN THE ASSESSEE AND THE LES SOR SPECIFICALLY PROVIDES THAT THE REPAIRS SHALL BE CARRIED OUT ONLY BY THE LESSEE SUBJECT TO PERMISSION OF LESSOR. FURTHER, THE EXPENSES IN QUES TION ARE ALLOWABLE UNDER SECTION 37(1). PERUSAL OF THE ITEMS OF EXPENS ES INCURRED BY THE ASSESSEE REVEAL THAT THE ASSESSEE HAS NOT MADE ANY CONSTRUCTION OF STRUCTURE. THEREFORE, THE RENOVATION EXPENSES IN QU ESTION WERE ALLOWABLE UNDER SECTION 30(A)(I) AS WELL AS UNDER SECTION 37( 1). 4. IN ORDER TO MAKE OVER THE EXISTING FURNITURE & FIXTURES TO THE NEEDS OF APPELLANT'S BUSINESS, IT INCURRED RS.14,81,003/- ON REFURNISHING THE SAME. FOR MAKING OVER THE FURNITURE USABLE FOR ITS BUSINESS. ITA NO.4319//MUM/2017 GENESIS DATACOMP PVT LTD 5 5. THE CLAUSE NO. 7 OF THE AGREEMENT PROVIDES TH AT 'THE PARTY WILL NOT MAKE ANY ADDITION/ALTERATION TO THE SAID ITEMS EXCE PT FOR THE UPKEEP OF THE SAME'. THEREFORE APPELLANT COMPANY IS NOT SUPPO SED TO MAKE ANY RENOVATION BUT THEY CAN REPAIR, REMAKE TO UPKEEP TH E SAME AS REQUIRED FOR THEIR BUSINESS NEEDS. 6. THE APPELLANT COMPANY HAD INCURRED EXPENSES TO WARDS PAINTING, FALSE CEILING, FIXING TILES, REPLACING GLASSES, WOO DEN PARTITIONS, REPLACEMENT OF ELECTRIC & TELEPHONE WIRING, EARTHLI NG, ETC. TO MAKE THE SAID PREMISES ONLY USABLE FOR THE PURPOSE OF ITS BU SINESS. 7. FURTHER, THE PROVISION OF S. 30, 31 & 37 SAY T HAT IF A TENANT UNDERTAKES TO BEAR THE COST OF REPAIRS, IT IS REASO NABLE THAT WHATEVER HE SPENT IS PERMISSIBLE DEDUCTION WHICH IS INCURRED WH OLLY & EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 8. ALL SUCH EXPENDITURE INCURRED ON PAINTING, WIR ING, FALSE CEILING, WOODEN PANELLING, ETC. ARE OF REVENUE EXPENDITURE & THE NATURE OF REPAIRS WAS NOT OF AN ENDURING CHARACTER. 9. NO BUSINESSMEN WILL INCURRED SUCH A HUGE EXPE NSE KNOWING THAT HE MAY HAVE TO DISCONTINUE THE USE OF PREMISES THEREFO RE IT IS NOT THE CASE IN WHICH DISALLOWANCE CAN BE MADE ONLY ON THE GROUN DS THAT THE USE OF PREMISES WERE DISCOUNTED, EXPENSES ARE NOT IN COMPA RISON OF EARLIER YEAR. 10. IN SUBSEQUENT YEARS THERE NO DISALLOWANCE OF AN Y EXPENDITURE (RENOVATION EXPENDITURE/ REPAIRS AND MAINTENANCE ET C.) 9. PER CONTRA LEARNED DEPARTMENTAL REPRESENTATIVE R ELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 10. UPON CAREFUL CONSIDERATION I FIND THAT ASSESSEE HAS INCURRED A SMALL EXPENDITURE OF RS 9,50,772/- AT SANTACRUZ AND RS 5, 30,232/- AT DADAR PREMISES. THESE ARE RENTED PREMISES. AS EVIDENT FROM THE SUBM ISSION HEREINABOVE, THE EXPENDITURE INCURRED IS TOTALLY OF REVENUE IN NATURE BEING RENOVATION AND REFURBISHING AT RENTED PREMISES. IN THE BACKDROP OF AFORESAID SUBMISSION AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE I AM OF THE CON SIDERED OPINION THAT THE TREATMENT OF THESE EXPENDITURE AS CAPITAL EXPENDITU RE IS NOT AT ALL JUSTIFIED. HENCE, I ITA NO.4319//MUM/2017 GENESIS DATACOMP PVT LTD 6 SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND DECID E THE ISSUE IN FAVOUR OF THE ASSESSEE. 11. APROPOS GROUND NUMBER THREE, THE ASSESSING OFFI CER HAS DENIED THE EXPENDITURE CLAIMED BEING BAD DEBT WRITTEN OFF. UPO N ASSESSEE'S APPEAL LEARNED CIT(A) HAS DIRECTED THE ASSESSING OFFICER TO VERIFY THE FACTS AS UNDER: I HAVE PERUSED THE ASSESSMENT ORDER AND SUBMISSION S MADE BY THE APPELLANT IN THIS REGARD. IT IS NOTED THAT THERE I S SOME MERIT IN THE CONTENTION OF THE APPELLANT. THE ASSESSEE IS ENTIT LED TO WRITE OFF OF THE BALANCE OUTSTANDING IF IT WAS OFFERED AS INCOME IN THE EARLIER YEAR AND THE SAME HAS BECOME A BAD DEBT WHICH IS WRITTEN OFF IN THE BOOKS OF ACCOUNTS. IN THIS REGARD THE AO IS DIRECTED TO VER IFY THE CLAIM OF THE ASSESSEE FORM RECORD AND IF FOUND ELIGIBLE AS PER P ROVISIONS OF LAW ALLOW THE CLAIM OF THE ASSESSEE. AGAINST THIS ORDER ASSESSEE IS IN APPEAL BEFORE THE ITAT. 12. UPON CAREFUL CONSIDERATION I FIND THAT THE GROU ND RAISED BY THE ASSESSEE IN THIS REGARD IS MISPLACED. LEARNED CIT(A) HAS NOT DI SMISSED THE ASSESSEE'S GROUND IN THIS REGARD BUT HAS REMITTED THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE THE VERACITY OF ASSESSEES CLAIM AND THEREA FTER DECIDE ACCORDINGLY. IN MY CONSIDERED OPINION, THERE IS NO INFIRMITY IN THE DI RECTION BY THE LEARNED CIT(A). HENCE, THIS GROUND RAISED BY THE ASSESSEE STANDS DI SMISSED. 13. IN THE RESULT, THIS APPEAL BY THE ASSESSEE STAN DS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 5 TH FEBRUARY,, 2018. SD/- (SHAMIM YAHYA) ACCOUNTANT MEMBER MUMBAI, DATED : 5 TH FEBRUARY,2018. SA ITA NO.4319//MUM/2017 GENESIS DATACOMP PVT LTD 7 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE C I T(A), 4. THE C I T 5. THE DR, SMC BENCH BY ORDER //TRUE COPY// (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, MUMBAI