Asst.Commissioner of Income Tax, Central Circle-13(1), Hyderabad V. M/s SPI Chinemas (P) Limited, Nellore

ITA 451/HYD/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 87419 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 16-03-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 14-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAMAKRISHNA BANDI
• Assessee Lawyers: S RAVI; A V RAGHURAM
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure
• Section: 32

Judgement Text

. IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER AND SMT.ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO.451/HYD/14 : ASSESSMENT YEAR 2009 - 10 ASSTT . COMMISSIONER OF INCOME - TAX CIRCLE 13(1), HYDERABAD V/S. M/S. SPI CINEMAS (P) LTD. NELLORE (PAN AABCC 7343 L ) (APPELLANT) (RESPONDENT) APPELLANT BY : S HRI RAMAKRISHNA BANDI DR RESPONDENT BY : SHRI S.RAVI & SHRI A.V.RAGHURAM DATE OF HEARING 16.3.2015 DATE OF PRONOUNCEMENT 18.3.201 5 O R D E R PER P.M.JAGTAP, ACCOUNTANT MEMBER : TH IS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) - V HYDERABAD DATED 29.11.2013 AND IN THE SOLITARY SUBSTANTIVE GROUND RAISED THEREIN, THE REVENUE HAS CHALL E N GE D THE ACTION OF TH E LEARNED CIT(A) IN DELETING THE DISALLOWANCE MA D E BY THE ASSESSING OFFICER BY TR E ATING THE REPAIRS AND MAIN T ENANCE EXPENSES OF RS.4,40,12,739 IN C URRED BY THE ASSESSEE ON BUILDING AND THEATRES AS CAPITAL EXPENDITURE . 2. THE ASSESSEE IN TH E PRESENT CASE IS A COMPANY, WHI C H IS ENG AG ED IN TH E BU S IN ES S O F OPERATING CINEMA THEATRES (MULTIPLEX) TAKEN ON LEASE . TH E RETURN OF INCOME F O R THE Y E AR UN D ER CO NS ID E RATION WAS FILED BY IT ON 30.9.200 9 , DE C LARING TOTAL INCOME OF RS .1,55,24,250. IN THE PROFIT & LOSS ACCOUNT FIL E D ALON G WITH TH E I TA NO. 451 /H YD/20 1 4 M/S. SPI CINEMAS (P) LTD. , NELLORE 2 SAID RETURN, THE EXPENDITURE INCURRED ON MAINTENANCE OF BUIL D IN G AMOUNTING TO RS .2,52,11,901 AND ON MAINTENANCE O F TH E ATRES AMOUN T IN G TO RS.1,88,838 W A S DEBI T ED BY THE ASSESSEE . WH EN THE ASSESSEE WAS CALLED UPON BY THE ASSESSING OFFICER TO EXPLAIN WHY THE SAID EXPENDITURE SHOULD NO T TR E ATED AS CAPITAL EXPENDITURE, IT WAS POINTED OUT BY THE ASSESSEE THAT SIMILAR EXPENDITURE INCURRED BY IT DURING THE ASSESSMENT YEAR S 2003 - 04, 200 5 - 0 6 AND 2006 - 07 HAS BEEN ALLO W ED BY TH E TRIBUNAL TREATING THE SAME AS REVENUE IN NATURE, VIDE I T S COMMON ORDER DATED 30.6.2010, IN ITA NOS.250 TO 252/HYD/2010. SINCE THE SAID DECISION OF THE TRIBUNAL WAS N OT ACCEPTED BY TH E D E P A RTMENT, AND AN APP E AL UN D ER S.2 60A WAS FIL E D BEFORE THE HON'BLE ANDHRA PRADESH HIGH COURT, THE ASSESSING OFFICER TR E ATED THE EXPENDITURE INCURRED BY THE ASSESSEE ON MA I N T ENAN C E OF BUILDING A N D THEATRES AMOUN T IN G TO RS.4,40,12,739 AS CAPITAL EXPENDITURE AND ALLOWED ONLY DEPRECIATION TH E R EON AT THE R ATE OF 10%, WHICH RESULTED IN SUBSTANTIAL DISALLOWANCE. 3. THE DISALLOWANCE MADE BY TH E ASSESSING OFFICER ON AC C OUN T OF REPAIRS AND MAIN T ENANCE TO THE BUILDING AND THEATRES WAS CHALLENGED BY THE ASSESSEE IN AN APPEAL FILED BE F ORE THE LEARNE D CIT(A) AND AFTER CONSIDERING THE SUB MIS SIONS MADE BY THE ASSESSEE AS WELL AS THE MATERIAL AVAILABLE ON RECORD, THE LEARNED CIT(A) DEL E TED THE DISALLOWANCE MADE BY TH E ASSESSING OFFICER FOR THE FOLLO W IN G REAS O N S GIVEN IN PARAGRAPHS 5.3 AND 5.4 OF HIS I MPUGN E D ORDER - 5.3 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT, ASSESSMENT ORDER, CASE - LAWS, ORDERS OF CIT (APPEALS) - II, HYDERABAD AND ITAT, HYDERABAD. THE CIT (APPEALS) - II, HYDERABAD, VIDE ITANOS.317 , 318 / 08 - 09 AND 0248 / CIT A - I I / 07 - 08 DATED 24 - 12 - 2009 FOR A.YS 2003 - 04, 2005 - 06 AND 2006 - 07 AND IN ITA NO.190 / CIT (A) - II / 2009 - 10 DATED 14 - 3 - 2012 FOR A.Y.2007 - 08 RESPECTIVELY, IN THE APPELLANT'S OWN CASE, I.E., FORMERLY KNOWN AS M / S CHAYA LAKSHMI CREATIONS (P) LIMITED, (SUBSEQUENTLY THE ASSESSEE CHANGED THE NAME I TA NO. 451 /H YD/20 1 4 M/S. SPI CINEMAS (P) LTD. , NELLORE 3 TO SP CINEMAS (P) LIMITED WITH THE SAME PAN : AABCC 7343 L) HAS UPHELD THE CONTENTION OF THE APPELLANT AND DIRECTED THE ALLOWANCE OF THE REVENUE EXPENDITURE INCURRED BY THE APPELLANT ON REPAIRS AND MAINTENANCE OF BUILDING AND THEATRE. ON APPEAL BY THE DEPARTMENT, THE HON'BLE ITAT, HYDERABAD IN ITA NO.250, 251, 252/HYD/10 DATED 30 - 06 - 2010, FOR THE A.YS 2003 - 04, 2005 - 06 AND 2006 - 07, IN THE APPELLANT'S OWN CASE, ALSO UPHELD THE DECISION OF THE CIT (APPEALS). THE A.O. HAD TREATED THE SAME AS CAPITAL EXPENDITURE WITHOUT ANY COGENT REASONS SIMPLY STATING THAT THE DEPARTMENT HAS FILED AN APPEAL BEFORE THE HONBVLE AP HIGH COURT. THE APPELLANT STATED THAT THE EXPENDITURE DID NOT CREATE ANY NEW ASSET OF ENDURING NATURE AND SUBMITTED TH E DETAILED BREAK - UP OF ITEM - WISE EXPENDITURE WITH RELEVANT LEDGER EXTRACTS OF ALL THE ABOVE EXPENDITURE TOGETHER WITH THE COPIES OF THE BILLS/VOUCHERS IN SUPPORT OF ITS CONTENTION THAT THE NATURE OF THE EXPENDITURE WAS PURELY REVENUE IN NATURE. 5.4 I HAVE CAREFULLY EXAMINED THE DETAILS SUBMITTED BY THE APPELLANT FOR THE TOTAL EXPENDITURE OF RS. 4,40,12,749 AND FOUND THEM TO BE CORRECT AND THE EXPLANATION OF THE APPELLANT IS ACCEPTED. RESPECTFULLY F OLLOWING THE ORDERS OF THE CIT (APPEALS) AND HON'BLE IT AT, HYDERABAD AND THE CASE - LAWS CITED BY THE APPELLANT, I HOLD THAT THE EXPENDITURE OF RS. 4,40,12,739 INCURRED TOWARDS REPAIRS AND MAINTENANCE O F BUILDING AND THEATRE IS REVENUE EXPENDITURE AND HENCE, DELETE THE ADDITION OF RS. 4,40,12,739. AGGRIEVED BY THE O R DER OF THE LEARNED CIT(A), REVENUE HAS PREFERRED THIS APP E AL B E FORE THE TRIBUNAL. 4. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. ALTHOUGH THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS CON T ENDED T HAT THE QUESTION AS TO WH E TH E R THE EXPENDITURE IN QUESTION INCURRED BY THE ASSESSEE ON MAIN T ENA N CE OF BUILDING AND THEATRES IS CAPITAL OR REVENUE WILL DEPEND ON THE CO S T OF ACQUIS I TION OF THE REL E VANT ASSET S AND THE TURNOVER O F THE ASSESSEE, WE ARE UNABLE TO ACCEPT THE SAME. IN OUR OPINION, TH E NATURE OF THE EXPENDITURE I NCURRED BY THE ASSESSEE ON REP A I R S AN D MAIN TENA NCE OF THE BUILDING AND THEATRES IS REQUI R ED TO B E SEEN IN THE LIGHT OF THE N A TU R E OF THE BU S IN ES S O F TH E ASSESSEE IN I TA NO. 451 /H YD/20 1 4 M/S. SPI CINEMAS (P) LTD. , NELLORE 4 ORDER TO DECIDE WHETHER THE SAME IS CAPITAL OR REVENUE. IN THIS REGA R D, WE HAVE PERUSED THE DETAILS O F THE EXPENDITURE INCURRED BY THE ASSESSEE ON MAIN T ENANCE OF BUILDING AND THEATRES AS PL A CED AT P A GES 20 TO 28 OF THE ASSESSEES PAPER BOOK AND FIND THAT THE NATURE OF THE EXPEN DITURE, AS CLAIMED BY THE ASSESSEE IN TH E YEAR UN D ER CONSID E RATION , IS SIMILAR TO THE EXPENDITURE IN C URRED BY THE ASSESSEE IN ASSESSMENT YEAR 2003 - 04, 2005 - 06 AND 2006 - 07, WHICH HAS BEEN ALLOWED BY TH E TRIBUNAL VIDE ITS COMMON ORDER DATED 30 TH JUN E , 201 0 (SUPRA), HOL D IN G TH E SAME TO B E OF R E VENUE IN NATURE, FOR THE FOLLO W ING REASONS GIV E N IN PARAG RAPH 23. 23. IN VIEW OF THE ABOVE CASE LAWS, IT IS OBVIOUS THAT W HENEVER AN EXPENDITURE WAS INCURRED IN THE PROCESS OF EARNING OF PROFIT IT HAS TO BE ALLOWED AS REVENUE EXPENDITURE. IN SUCH A CASE THE EXPENDITURE INCURRED BY THE ASSESSEE WOULD BE OUTSIDE THE PURVIEW OF EXPLANATION (1) TO SECTION 32 OF THE ACT. IN THE CASE BEFORE US, IT IS NOT IN DISPUTE THAT THE EXPENDITURE WAS INCURRED FOR EARTH FILLING, REP AIR OF CHAIRS, REPLACEMENT OF DAMAGED CHAIRS, REPAIR OF UNDERGROUND SLUMP, DRAINAGE AND CABLE WORK, WALL PAPER FIXING, DUST OPENING REPAIR, CARPENTRY AND PLUMBING, REPAIR OF FALSE CEILING, ETC. THE ASSESSEE HAS ALSO CHANGED THE MARBLE FLOORING, INCURRED EX PENDITURE ON CLEANING MATERIAL, PAYMENT TO TEMPORARY EMPLOYEES, WATCH AND WARD, ETC. EVEN THOUGH THE EXISTING FLOORING WAS CHANGED IT MAY FALL IN THE REVENUE FIELD. HOWEVER, THE CIT(A) HIMSELF CONFIRMED THE EXPENDITURE WITH REGARD TO CHANGE OF MARBLE FLOOR ING AS CAPITAL EXPENDITURE. HOWEVER, HE ALLOWED THE OTHER EXPENSES AS REVENUE EXPENDITURE. THE ASSESSEE HAS ALSO PAID CONSULTANCY CHARGES. IT IS PERTINENT TO NOTE THAT WHEN THE ASSESSEE HAS REPAIRED THE FALSE CEILING OF THE CINEMA THEATRE, HE HAS TO ENSURE THE SOUND PROOF IN SIDE THE THEATRE BUILDING. THEREFORE, HE HAS TO NECESSARILY CONSULT A CONSULTANT AND THERE IS NOTHING WRONG IN PAYING THE CONSULTANCY CHARGES FOR SUCH REPAIRS. FALSE CEILING WAS REPAIRED WITHOUT ALTERING THE STRUCTURE OF THE BUILDING. T HE ASSESSEE HAS ALSO INCURRED EXPENDITURE IN PURCHASING CLEANING MATERIAL, PROJECTOR MAINTENANCE, PAYMENT OF CHARGES TO TEMPORARY STAFF, ETC. THESE EXPENSES ARE ONLY FOR THE PURPOSE OF CARRYING ON OF THE BUSINESS AND DOES NOT BRING ANY CAPITAL ASSET INTO E XISTENCE. THEREFORE, IN OUR OPINION, THE CIT(A) HAS RIGHTLY ALLOWED THE SAME AS REVENUE EXPENDITURE. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LOWER AUTHORITY. ACCORDINGLY THE SAME IS CONFIRMED. 5. AS THE ISSUE INVOLVED IN THE Y E AR UN D ER CON S ID E RATION AS WELL AS ALL TH E M A TE R IAL FACTS RELEVANT THE R ETO ARE SIMILAR TO THAT OF I TA NO. 451 /H YD/20 1 4 M/S. SPI CINEMAS (P) LTD. , NELLORE 5 ASSESSMENT YEARS 200 3 - 04, 2005 - 06 AND 2006 - 07, WE RESPECT F ULLY FOLLO W THE ORD E R PASSED BY TH E TRIBUNAL FOR THE SAID YE A RS, AND UPHOL D THE IMPU G N E D ORD E R OF THE LEARNED CIT(A), ALLO W IN G TH E DEDUCTIONS CLAIMED BY THE ASSESSEE ON ACCOUN T O F REPAI R AND MAIN T EN AN CE EXPENSE S TO THE BUILDING AND THEATRES TR E ATIN G THE SAME AS OF REVENUE NATURE. 6. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 18 TH M ARCH, 2015 SD/ - SD/ - ( ASHA VIJAYARAGHAVAN ) ( P.M.JAGTAP ) JUDICIAL MEMBER ACCOUNTANT MEMBER D T/ - 18 TH MARCH, 201 5 COPY FORWARDED TO: 1. M/S. SPI CINEMAS (P) LTD. (FORMERLY KNOWN AS CHAYALAKSHMI CREATIONS PVT. LTD.) 24 - 02 - 1870, 2 ND FLOOR, 3 RD CROSS, CENTRAL AVENUE, MAGUNTA LANE, NELLORE 2 . ASSTT. COMMISSIONER OF INCOME - TAX CIRCLE 13(1) HYDERABAD 3. COMMISSIONER OF INCOME - TAX(APPEALS) V HYDERABAD 4. COMMISSIONER OF INCOME - TAX I , HYDERABAD 5. DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S