ASIAN ADVERTISING, MUMBAI V. ITO 12(3)(4), MUMBAI

ITA 4386/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8416 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 23-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M C OMI NINGSHEN
• Assessee Lawyers: HEMANT J VORA
• Keywords: Depreciation; Business expenditure; Revenue expenditure; Capital expenditure
• Section: 143(3); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE SHRI DT GARASIA, JM AND SHRI ASHWANI TANEJA, AM I.T.A. NO. 4386/MUM/2014 ASSESSMENT YEAR: 2009 - 10 M/S ASIAN ADVERTISING 4 PARKE H VORA CHAMBERS, 66 NAGINDAS MAS TER RD, FORT, MUMBAI400001 PAN NO: AAAFA1477D VS. INCOME TAX OFFICER 12(3)(4), MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI HEMANT J. VO R A, AR RESPONDENT BY : SHRI M.C. OMI NINGSHEN, DR DATE OF HEARING : 07/02/2017 DATE OF PRONOUNCEMENT : 17 /02/2017 O R D E R PER D. T. GARASIA, JM : THE CAPTIONED APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A) - 23 , MUMBAI DATED 14/03/ 2014, PERTAINING TO THE ASSESSMENT YEAR 2009 - 10, WHICH IN TURN HAS ARISEN FROM THE ORDER PASSED BY THE ASSESSING OFFICER DATED 21/11/2011 UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. THE RE ARE TWO GROUNDS IN THIS APPEAL : 2 ITA NO. 4386/MUM/2014 M/S ASIAN ADVERTISING 1. HOAR DINGS EXPENSES 1.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN CONFIRMING TREATMENT OF HOARDING EXPENSES INCURRED IN RESPECT OF HOARDINGS AMOUNTING TO RS.8,13,810/ - BEING AS CAPITAL EXPENDITURE AND ADDING RS.6,91,738/ - TO THE APPELLANT S INCOME AFTER ALLOWING DEPRECIATION AT 10%. 1.2 THE LEARNED CIT (A) FAILED TO APPRECIATE THAT THE SAID EXPENSES WERE REVENUE IN NATURE AND AS SUCH ALLOWABLE U/S. 31 AND/OR SEC. 37 OF THE I T ACT AND NEITHER ANY NEW ASSET WAS CREATED NOR DID IT RESULT IN ANY ENDURING BENEFIT AS ALLEGED. 2. INTEREST ON LOAN 2.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT (A) ERRED IN CONFIRMING ADDITION OF RS.1,73,294/ - BEING AD - HOC 25% OUT OF TOTAL INTEREST CLAIMED. 2.2 THE LEARNED CIT (A) FAILE D TO APPRECIATE THAT INTEREST EXPENSE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE APPELLANT AS AMOUNTS RECEIVABLE ARE OUTSTANDING ON ACCOUNT OF SALES CONDUCTED BY THE APPELLANT AND THERE IS DIRECT NEXUS BETWEEN THE EXPENDITURE AN D BUSINESS PURPOSE. 2.3 THE LEARNED CIT(A) OUGHT TO HAVE HELD THAT THE ESTIMATED DISALLOWANCE IS AD - HOC, ARBITRARY AND UNCALLED FOR . 3 . THE ASSESSEE HAS FILED THE RETURN OF INCOME ON 25TH SEPTEMBER 2009 DECLARING INCOME OF RS.4,00,466/ - . T HE ASSESSEE IS IN THE BUSINESS OF EXHIBITING CINEMA SLIDES AND SHORT FILMS IN THEATRES AND SOLE CONCESSIONARIES AND ALSO IN ALLIED BUSINESS RELATED TO OUTDOOR ADVERTING. DURING THE YEAR , ASSESSEE HAS RECEIVED INCOME FROM HOARDING SI TES GIVEN TO ITS SISTER CONCERN, M/S. CREATION P UBLICITY PVT. LTD. AND T HE INCOME THEREON WAS SHOWN AT RS.80.03 LACS. T HE SHORT FACTS OF THE CASE ARE THAT ASSESSEE HAS CLAIMED HO AR DING EXPENSES OF RS . 9 , 35 , 7 10/ - , OUT OF WHICH AMOUNT OF RS. 83,900 / - AND RS. 3,800 / - WE RE IN THE NATURE OF MINOR REPAIRS . THE OTHER EXPENSES WERE WITH RESPECT TO LABOUR CHARGES FOR HEAVY AND EX T ENSIVE REPAIRING OF EXISTING PERMANENT STEEL STRUCTURE 3 ITA NO. 4386/MUM/2014 M/S ASIAN ADVERTISING WITH CEMENT CONCRETE. THE AO WAS OF THE VIEW THAT TH E S E EXPENSES W H EREIN THE NATURE OF CAPITAL EXPEN DITURE GIVING ENDURING BENEFIT AND WERE NOT IN THE NATURE OF CURRENT REPAIRS . THE AO NOTED THAT THE STRUCTURE OF HO AR DING MAINLY CONSIST S OF FRAMES MADE WITH METAL REINFORCED BY CEMENT AND THE ENTIRE FRAME AND FOUNDATION HA S BEEN RE CONSTRUCTED. THE AO AND CIT(A) HA VE RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF BALIMAL NAVAL KISHORE & ANOTHER VS. CIT , 224 ITR 414 AND HELD THAT THE EXPENDITURE OF RS. 8,13,810 / - IS CAPITAL IN NATURE AND HE ALLOWED THE DEPRECIATION AND DISALLOWANCE OF RS. 6,91,738 / - WAS MADE. THE CIT(A) CONFIRMED THE DISALLOWANCE . 4 . DURING THE COURSE OF HEARING , LD. AR SUBMITTED THAT A SIMILAR ISSUE AROSE IN AY 2007 - 08 WHEREIN THE SAME F I RM HAS SHOWN THE INCOME PARTICULAR OF RS.54 . 2 3 LAKHS AND WHEREIN THE CIT(A) HAS DISALLOW ED THE CLAIM BUT THE TRIBUNAL AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE HAS ALLOWED THE CLAIM FOLLOWING THE ORDER OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF M / S. EMPRESS ADVERTISING V S. ITO IN IT A NO. 418 4/ MUM /20 12 DATED 31.7.2014 . 5 . THE LD. DR RELIED UPON THE ORDER OF THE REVENUE AUTHORITIES BELOW . 6 . WE HAVE HEARD RIVAL CONT ENTIONS OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE , WE FIND THAT IN ASSESSEES OWN CASE IN ITA NO. 2349 / MUM /2013 DATED 23.3.2016 , A SIMILAR ISSUE HAD COME UP BEFORE THE TRIBUNAL AND THE TRIBUNAL HAS ALLOWED THE CLAIM OF ASSESSEE BY OBSERVING AS UNDER: 23 . WE HAVE CONSIDERED THE RIVAL SUBMISSION AND ALSO P ERUSED THE MATERIAL AVAILABLE ON RECORD INCLUDING THE ORDERS OF THE TRIBUNAL. THE ASSESSEE FIRM HAS UNDERTAKEN REPAIRS OF THE HOARDING STRUCTURES WITH RESPECT TO THE EXISTING STRUCTURE. WE FIND THAT THE ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF THE TAX - 4 ITA NO. 4386/MUM/2014 M/S ASIAN ADVERTISING P AYER BY THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF EMPRESS ADVERTISING (SUPRA) BEING SISTER CONCERN OF THE ASSESSEE FIRM ON IDENTICAL FACTS AND ISSUES IN THE APPEAL, M/S EMPRESS ADVERTISING V. ITO IN ITA NO. 4184/MUM/2012 FOR THE ASSESSMENT YEA R 2007 - 08 WHEREBY MUMBAI TRIBUNAL VIDE ITS ORDER DATED 31 - 07 - 2014 (COPY OF THE ORDER PLACED IN THE PAPER BOOK AT PAGE 108 - 111) HELD AS UNDER: - 3. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE, THE ASSESSEE WAS HAVING 15 HOARDINGS INSTALLED IN THE CITY DURING THE COURSE OF ITS BUSINESS OF OUTDOOR ADVERTISEMEN T AND TOTAL INCOME OF ABOUT RS. 88 LACS WAS GENERATED FROM THIS ACTIVITY GIVING A NET PROFI T OF ABOUT RS.18 LACS AS SHOWN BY THE ASSESSEE IN THE P&L ACCOUNT. THERESE HOARDINGS WERE REQUIRED TO BE MAINTAINED BY THE ASSESSEE AND IN ORDER TO AVOID CORROSION OF THE STRUCTURE AND OTHER ADVERSE WEATHERING EFFECTS, APPLICATION OF RED OXIDE AND PAINTING WAS REGULARLY REQUIRED TO BE DONE. SIMILARLY, CEMENTING AND PLASTERING OF FOUNDATION WAS ALSO REQUIRED TO BE DONE REGULARLY IN ORDER TO MAINTAIN THE HOARDING STRUCTURES. KEEPING IN VIEW THE NATURE OF BUSINESS ACTIVITY CARRIED ON BY THE ASSESSEE, WE ARE OF THE VIEW THAT EXPENDITURE INCURRED BY THE ASSESSEE TO MAINTAIN THE STRUCTURES USED FOR HOARDING IS A REVENUE IN NATURE ESPECIALLY WHEN THE QUANTUM OF EXPENDITURE INCURRED IS CONSIDERED IN THE LIGHT OF THE FACT THAT THERE WERE 15 HOARDING WHICH WERE EXPOSE D TO CLIMATE. IT IS ALSO RELEVANT TO NOTE THAT SUCH EXPENDITURE IS A RECURRING EXPENDITURE WHICH IS REQUIRED TO BE INCURRED BY ASSESSEE REGULARLY AND THE SAME THEREFORE CANNOT BE SAID TO HAVE GIVEN ANY ENDURING BENEFIT TO THE ASSESSEE IN CAPITAL FIELD. MOR EOVER, EVEN IF THE HOARDING EXPENDITURE CLAIMED BY THE ASSESSEE IS INCLUSIVE OF REPLACEMENT OF M.S. ANGLES ETC., AS NOTED BY THE A.O., THE SAME IS IN THE NATURE OF 5 ITA NO. 4386/MUM/2014 M/S ASIAN ADVERTISING REPLACEMENT OF PARTS OF THE HOARDING STRUCTURE WHICH CANNOT BE TREATED AS CAPITAL EXPENDITUR E. AS SUCH, CONSIDERING ALL THE FACTS OF THE CASE, WE ARE OF THE VIEW THAT THE ASSESSEE IS ENTITLED TO DEDUCTION ON ACCOUNT OF HOARDING EXPENDITURE BEING IN THE NATURE OF REVENUE EXPENDITURE. IN THAT VIEW OF THE MATTER, WE DELETE, THE DISALLOWANCE MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) ON THIS ISSUE AND ALLOW THE APPEAL OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE AFORE - STATED DECISION OF THE MUMBAI TRIBUNAL IN THE CASE OF EMPRESS ADVERTISING(SUPRA) AS THE FACTS AND ISSUES INVOLVED ARE IDENTICAL, WE ALLOW THIS GROUND OF APPEAL RAISED BY THE ASSESSEE FIRM IN FAVOUR OF THE ASSESSEE FIRM. WE ORDER ACCORDINGLY. WE FIND THAT A SIMILAR ISSUE HA S COME UP IN THIS YEAR , THEREFORE, RESPECTFULLY FOLLOWING THE SAME WE ALLOW THE CLAIM OF THE ASSESSEE. I N TH E RESULT , THE ASSESSEES APPEAL IS ALLOWED. 7 . THE SECOND ISSUE RELATES TO AD - HOC DISALLOWANCE OF INTEREST. THE ASSESSEE CLAIM ED INTEREST EXPENSES OF RS.6 , 93 , 178 / - WHICH CONSTITUTE S THE MAJOR EXPENSES FOR THE YEAR. I T WAS SEEN FROM THE DETAIL S OF BUSINESS ACTIVITY DURING THE YEAR THAT THE ENTIRE RECEIVABLES IS FROM ITS GROUP CONCERN WHICH INCLUDES M/S CREATIVE PUBLICITY LTD. THE AO WAS OF OPINION THAT THE BUSINESS FUND HAD BEEN UTILISED BY THE ASSESSEE TO ADVANCE INTEREST FREE CREDIT TO ITS SUN DRY DEBTORS BEING SISTER CONCERN OF THE ASSESSEE. THE AO WAS OF THE VIEW THAT ASSESSEE WAS H AVING INTEREST COST U NITS FUND S AND SAID FUNDS WERE UTILISED TO ADVANCE CREDIT TO SUNDRY DEBTORS FOR UNDULY LONG PERIOD. THE PART OF INTEREST DISALLOW ABLE HAS NOT B EEN INCURRED FOR THE PURPOSE OF THE BUSINESS. THEREFORE, TH E ACTION OF THE ASSESSEE I N UTILIS ING HIS FUND FOR SISTER CONCERN OF THE ASSESSEE 6 ITA NO. 4386/MUM/2014 M/S ASIAN ADVERTISING AND NOT UTILISING THE BORROW ED FUND S IN HIS OWN BUSINESS IS TO REDUCE THE TAX LIABILITY, THEREFORE, HE DISALLOWED 2 5% OF THE INTEREST AND HELD THAT IT WAS NOT INCURRED FOR THE BUSINESS OF ASSESSEE. THE MATTER CARRIED TO CIT(A) AND CIT(A) HAS CONFIRMED THE DISALLOWANCE . 8 . DURING THE COURSE OF HEARING , THE LD. AR SUBMITTED THAT A SIMILAR ISSUE HAD COME UP BEFORE THE TRIBUNAL IN AY 2007 - 08 AND THE TRIBUNAL HAS CONSIDERING THE DECISION IN ASSESSEES FIRM GROUP CON CERN, M/S. CREASONS HAS ALLOWED THE CLAIM OF THE ASSESSEE. WE FIND THAT THE TRIBUNAL HAS ALLOWED THE CLAIM OF THE ASSESSEE RELATING TO INTEREST PAYMENT AND HELD THAT WHOLE OF THE AMOUNT WAS INCURRED FOR BUSINESS EXPENDITURE BY OBSERVING AS UNDER: 16. WE HAVE CONSIDERED THE RIVAL CONTENTION AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE OBSERVED THAT THE ASSESSEE FIRM HAS BORROWED FUNDS WHICH WERE UTILIZED FOR THE PURPOSE OF ITS BUSINESS. THE AS SESSEE HAS MADE TURNOVER OF RS. 54.23 LACS WHICH WAS WITH RESPECT TO TRANSACTIONS WITH M/S CREATIONS PUBLICITY P. LTD., ASSESSEES GROUP CONCERN AND THIS IS THE ONLY SALE MA DE BY THE ASSESSEE FIRM DURING THE ASSESSMENT YEAR. THE ASSESSEE FIRM STATED THAT THE SAID SALE HAS BEEN MADE BASED ON COMMERC IAL EXPEDIENCY. WE HAVE OBSERVED THAT IDENTICAL MATTER OF ALLOWABILITY OF CLAIM OF INTEREST EXPENDITURE WAS DECIDED BY THE MUMBAI - TRIBUNAL IN ITA NO. 6846/MUM/2013 FOR THE ASSESSMENT YEAR 2007 - 08 VIDE ORDERS DATED 27.05.2014 IN THE CASE OF GROUP CONCERN OF THE ASSESSEE FIRM I.E. M/S CREASONS AS UNDER: 8. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF LEARNED DEPARTMENT REPRESENTATI VE AND PERUSED THE RECORD. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS OBTAINED LOAN FOR BUSINESS PURPOSE AND UTILISED THE SAME FOR THE PURPOSE OF BUSINESS. INTEREST PAID BY THE 7 ITA NO. 4386/MUM/2014 M/S ASIAN ADVERTISING ASSESSEE ON SUCH LOAN WAS ALLOWED AS DEDUCTION FROM YEAR TO YEAR. THEREFORE, TH ERE IS NOT DISPUTE WITH REGARD TO THE FACT THAT EXPENDITURE IS WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS. THE ASSESSEE IS AT LIBERTY TO ARRANGE ITS AFFAIRS IN SUCH A WAY WHICH WOULD STRENGTHEN BUSINESS RELATIONS AND THE ASSESSING OFFICER CANNOT PUT HIMSELF IN THE SHOES OF THE BUSINESSMAN TO DECIDE AS TO WHAT WOULD BE THE COURSE OF ACTION THAT NEEDS TO BE TAKEN IN A GIVEN SITUATION. IN THE INSTANT CASE THE ASSESSEE EXPLAINED THE REASONS FOR PERMITTING GROUP CONCERNS LONG TERM CREDIT. MERELY BECAUSE THE ASSESSING OFFICER VIEWS ITS OTHERWISE, EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS CANNOT BE DISALLOWED, PARTICULARLY IN THE LIGHT OF THE DECISION OF HONBLE APEX COURT IN THE CASE OF S.A. BUILDERS LTD. (SUPRA). 9. HAVING REGARD TO OVERA LL CIRCUMSTANCES OF THE CASE, I AM OF THE FIRM VIEW THAT THE TAX AUTHORITIES HAVE NOT MADE OUT ANY CASE FOR DISALLOWANCE OF 25% OF THE TOTAL CLAIM. THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE CLAIM IN ITS ENTIRETY. RESPECTFULLY FOLLOWING THE AFORE - SAI D ORDERS OF THE CO - ORDINATE BENCH OF THE TRIBUNAL AS DETAILED ABOVE WHICH WAS ON IDENTICAL ISSUE, WE ALLOW THE CLAIM OF INTEREST EXPENDITURE OF RS.34,932/ - OF THE ASSESSEE COMPANY WHICH WAS DISALLOWED BY THE CIT(A) VIDE ORDERS DATED 31. 12.2012. WE ORDER AC CORDINGLY. R ESPECTFULLY FOLLOWING THE DECISION IN ASSESSEES OWN CASE FOR AY 2007 - 08 , WE ALLOW THE CLAIM OF THE ASSESSEE. 9 . I N THE RESULT , ASSESSEES APPEAL IS ALLOWED. 8 ITA NO. 4386/MUM/2014 M/S ASIAN ADVERTISING ORDER PRONOUNCED IN THE OPEN COURT 17 FEBRUARY, 2017 SD/ - SD/ - (ASHWANI TANEJA) ACCOUNTANT MEMBER (D.T. GARASIA) JUDICIAL MEMBER MUMBAI, DATE D : 17 FEBRUARY, 2017 *RAHUL SHARMA* COPY TO : 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT(A) CONCERNED 4) THE CIT CONCERNED 5) THE D.R, H BENCH, MUMBAI 6) GUARD FILE BY ORDER DY./ASSTT. REGISTRAR I.T.A.T, MUMBAI