ITO, New Delhi V. M/s Eden Park Hotels P. Ltd., New Delhi

ITA 469/DEL/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3479 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 12-07-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 27-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y KAKKAR
• Keywords: Rule of consistency; Additional evidence; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH B DELHI) BEFORE SHRI A.D. JAIN AND SHRI SHAMIM YAHYA ITA NO. 469(DEL)2011 ASSESSMENT YEAR: 2006-07 INCOME TAX OFFICER, M/S. EDE N PARK HOTELS P. LTD., WARD 11(1), NEW DELHI. V. THE QUTUB HOT EL, SHAHEED JEET SINGH MARG, NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY: MS. Y. KAKKAR, SR. DR RESPONDENT BY: SHRI M.P . RASTOGI, ADVOCATE ORDER PER A.D. JAIN, J.M. THIS IS DEPARTMENTS APPEAL FOR ASSESSMENT YEAR 200 6-07 CONTENDING THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS ) HAS ERRED IN DELETING DISALLOWANCE OF ` 36,07,250/- CONCERNING RENOVATION EXPENSES. 2. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF HOTEL INDUSTRY. DURING THE YEAR, IT DECLARED INCOME FROM SALES AND SERVICES RENDERED AND OTHER INCOME, TO THE TUNE OF ` 18,07,37,693/-. EXPENSES WERE SHOWN TO HAVE INCURRED AT ` 14,78,35,908/-. A PROFIT OF ` 3,29,01,785/- THUS RESULTED. 3. THE AO OBSERVED THAT AS PER THE TAX AUDIT REPORT , DURING THE YEAR, THE ASSESSEE COMPANY HAD INCURRED RENOVATION EXPENS ES OF ` 45,09,062/- AND ITA 469(DEL)2011 2 HAD CLAIMED IT AS DEDUCTION. OBSERVING THAT THE R ENOVATION EXPENSES WERE OF AN ENDURING NATURE AND WERE ALLOWED IN FULL IN A PARTICULAR YEAR, THE AO ALLOWED 1/5 TH OF THE SAME, AMOUNTING TO ` 9,01,812/-. THE BALANCE OF ` 36,07,250/- WAS DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE. 4. BY VIRTUE OF THE IMPUGNED ORDER, THE LD. CIT(A) DELETED THE DISALLOWANCE. 5. AGGRIEVED, THE DEPARTMENT IS IN APPEAL. 6. CHALLENGING THE IMPUGNED ORDER, THE LD. DR HAS C ONTENDED THAT THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF ` 36,07,250/- PERTAINING TO RENOVATION EXPENSES; THAT WHILE DOING SO, THE LD. C IT(A) HAS FAILED TO CONSIDER THAT THE DISALLOWANCE HAD CORRECTLY BEEN M ADE BY THE AO, KEEPING IN VIEW THE PRINCIPLE OF CONSISTENCY; THAT IN THE E ARLIER YEARS, THE ASSESSEE HAD ITSELF CLAIMED ONLY 1/5 TH OF THE RENOVATION EXPENSES IN THE RETURN FILED, WHEREAS THE REMAINING EXPENSES HAD BEEN TREATED AS DEFERRED REVENUE EXPENSES AND CLAIMED IN THE SUCCEEDING YEARS; THAT THE LD. CIT(A) FURTHER FAILED TO CONSIDER THAT VIDE ORDER SHEET ENTRY DATE D 4.8.2008, THE AO HAD SPECIFICALLY ASKED THE ASSESSEE TO FURNISH DOCUMENT S SUPPORTING THE EXPENSES CLAIMED AND THE ASSESSEE FAILED TO FILE ANY SUCH EV IDENCE; AND THAT THE ASSESSEE FILED EVIDENCE ONLY BEFORE THE LD. CIT(A) AND THE CIT(A) ITA 469(DEL)2011 3 ERRONEOUSLY TOOK INTO CONSIDERATION WITHOUT AFFORDI NG THE AO ANY OPPORTUNITY TO REBUT THE SAME. 7. THE LEARNED DR HAS PLACED RELIANCE ON THE FOLLOW ING CASE LAWS:- 1. LIBERTY CINEMA V. CIT, 52 ITR 153(CAL); 2. RUPRAG (P)LTD. V. CIT 104 ITR 469(ORRI); 3. RATLAM BONE MILLS V. CIT, 147 ITR 148(MP); 4. ASIAN HOTELS LTD. V. DCIT, 101 ITD 247 (DEL); 5. BIGJOS INDIA LTD. V. CIT, 293 ITR 170; 6. CIT V. HOTEL LAKE END, 267 ITR 62; AND 7. SENAPATHY SYNAMS INSULATIONS(P)LTD. V. CIT, 248 I TR 656. 8. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTH ER HAND, STRONGLY SUPPORTING THE IMPUGNED ORDER, HAS SUBMITTED THAT T HERE IS NO DISPUTE ABOUT THE EXPENSES BEING REVENUE IN NATURE; THAT THERE IS NO CONCEPT OF DEFERRED REVENUE EXPENDITURE; AND THAT THE EXPENDITURE IN QU ESTION NEEDED TO BE ALLOWED IN THE YEAR OF INCURRENCE. RELIANCE HAS B EEN PLACED ON 117 ITD 1(AHD.) (SB), 255 ITR 802 (SC), 172 TAXMAN 268(DEL) . 9. WE HAVE HEARD THE PARTIES AND HAVE PERUSED THE M ATERIAL ON RECORD. THE EXPENDITURE IN QUESTION HAS BEEN OBSERVED BY TH E LD. CIT(A), FROM THE DETAILS OF RENOVATION EXPENSES FILED BY THE ASSESSE E, TO BE PAINT OF EXTERNAL SERVICES, STAIRS OF APARTMENTS, REPLACEMENT OF TILE S, BATH TUBS, FIXTURES, FLOOR TILES, BATH FITTING, TUBE LIGHT FITTINGS, PLUMBING WORKS, REPLACEMENT OF WOODEN FLOORING IN THE GUEST ROOMS, CIVIL, ELECTRIC AL AND MISC. WORKS IN ITA 469(DEL)2011 4 EXISTING HEALTH CLUB, SWIMMING POOL, TIME OFFICE, C IVIL, ELECTRICAL AND MISC.INTERIOR WORKS IN EXISTING GUEST ROOMS AND APA RTMENTS, WATER PROOFING TREATMENT ON RCC FLOOR, LAWN DEVELOPMENT AND SHIFTI NG OF PLANTS AND REPLACEMENT OF WINDOW FRAMES AND GLASSES. 10. THE FIRST QUESTION BEFORE US IS AS TO WHETHER T HE LD. CIT(A) HAS ERRED IN ADMITTING AND CONSIDERING THE ADDITIONAL EVIDENC E AT THE BACK OF THE AO. IN THIS REGARD, IT HAS BEEN SUBMITTED BY THE LEARNE D COUNSEL FOR THE ASSESSEE THAT NO ADDITIONAL EVIDENCE WAS EVER FILED BEFORE T HE LD. CIT(A) AND IT WAS ONLY COPIES OF BILLS AND VOUCHERS WHICH WERE DULY P RODUCED BY THE ASSESSEE BEFORE THE AO IN THE ASSESSMENT PROCEEDINGS WHICH W ERE AGAIN SUBMITTED IN THE FIRST APPELLATE PROCEEDINGS BEFORE THE LD. CIT( A). 11. THE PERUSAL OF THE IMPUGNED ORDER DOES NOT EVIN CE ANY ADDITIONAL EVIDENCE HAVING BEEN EITHER ADMITTED OR CONSIDERED BY THE LD. CIT(A). THE DEPARTMENT HAS ALSO NOT BEEN ABLE TO SHOW WHAT WAS THE ADDITIONAL EVIDENCE ENTERTAINED BY THE LD. CIT(A) AT THE BACK OF THE AO . THEREFORE, FINDING NO FORCE IN THIS GRIEVANCE OF THE DEPARTMENT, THE SAME IS REJECTED. 12. COMING TO THE MERITS OF THE CASE, THE ISSUE IS AS TO WHETHER THE EXPENDITURE HAS WRONGLY BEEN TREATED BY THE LD. CIT (A) TO BE REVENUE EXPENDITURE ALLOWABLE IN THE YEAR UNDER CONSIDERATI ON AND TREATED AS REVENUE EXPENDITURE. THE REASONING ADOPTED BY THE AO TO M AKE THE DISALLOWANCES ITA 469(DEL)2011 5 THAT THE RENOVATION EXPENSES ARE OF ENDURING NATURE AND CANNOT BE ALLOWED IN FULL IN A PARTICULAR YEAR. HE HAS, AS SUCH, ALLOW ED 1/5 TH OF THE TOTAL EXPENDITURE CLAIMED AND HAS DISALLOWED THE BALANCE AMOUNTING TO ` 36,07,250/-, ALLEGEDLY AS PER THE PAST HISTORY OF T HE CASE. THUS, EVIDENTLY, THERE IS NO DISPUTE ABOUT THE NATURE OF THE EXPENDI TURE BEING REVENUE. IT IS ONLY THAT 1/5 TH OF THE ENTIRE EXPENDITURE CLAIMED HAS BEEN ALLOWED DURING THE YEAR AND THE REST HAS BEEN DISALLOWED. THE CASE L AWS PERTAINING TO THE DISPUTE QUA THE NATURE OF THE EXPENDITURE ARE THUS NOT INVOKEABLE HERE. 13. IN MADRAS INDUSTRIAL INVESTMENT CORPN. LTD. V. CIT 225 ITR 802(SC), IT HAS BEEN HELD, INTER ALIA, THAT ORDINAR ILY, REVENUE EXPENDITURE WHICH IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PU RPOSE OF BUSINESS MUST BE ALLOWED IN ITS ENTIRETY IN THE YEAR IN WHICH IT IS INCURRED; THAT IT CANNOT BE SPREAD OVER A NUMBER OF YEARS EVEN IF THE ASSESSEE HAS WRITTEN IT OFF IN ITS BOOKS, OVER A PERIOD OF YEARS. 14. IN CIT, DELHI-II V. JAI PARABOLIC SPRING LT D., 172 TAXMAN 258(DEL), IT HAS BEEN HELD, INTER ALIA, THAT THE RE VENUE EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS MUST BE ALLOWED IN ITS ENTIRETY IN THE YEAR IN WHICH IT WAS INCURRED, EVEN IF THE ASSESSEE HAS WRITTEN IT OFF IN ITS BOOKS OVER A PERIOD OF A NUMBER OF YE ARS. WHILE HOLDING SO, MADRAS INDUSTRIAL INVESTMENT CORPN. LTD. (SUPRA), WAS RELIED ON. ITA 469(DEL)2011 6 15. IN ASSISTANT COMMISSIONER OF INCOME TAX, AHMED ABAD CIRCLE-I, AHMEDABAD VS. ASHIMA SYNTEX LTD. 117 ITD 1(AHD)(SB ), IT HAS BEEN HELD THAT THOUGH THE TAX PAYER MAY HAVE WRITTEN OFF EXPE NDITURE IN ITS BOOKS OF ACCOUNT OVER A PERIOD OF SAY 5 YEARS, IT MUST BE AL LOWED IN ITS ENTIRETY IN THE YEAR IN WHICH IT HAS BEEN INCURRED, IF IT IS REVENU E EXPENDITURE AND HAS BEEN WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS. IT WAS ALSO OBSERVED THAT THE CONCEPT OF DEFERRED REVENUE EXPEN DITURE IS ESSENTIALLY AN ACCOUNTING CONCEPT AND ALIEN TO THE ACT. MOREOVER, THE DEFERRED REVENUE EXPENDITURE IS ESSENTIALLY REVENUE IN NATURE AND TH E DECISION TO TREAT THE SAME AS DEFERRED REVENUE ONLY REPRESENTS A MANAGEME NT DECISION TAKEN IN VIEW OF THE MAGNITUDE OF THE EXPENDITURE INVOLVED. FOR THE PURPOSE OF ALLOWABILITY OF ANY EXPENDITURE UNDER THE ACT, WHAT IS MATERIAL IS THE CLASSIFICATION BETWEEN THE CAPITAL AND REVENUE AND THE SAME DOES NOT RECOGNIZE ANY CONCEPT OF DEFERRED REVENUE EXPENDITU RE. 16. IN CIT V. SIRPUR PAPER MILLS, 237 ITR 41(SC), IT HAS BEEN HELD THAT SECTION 36(1)(IV) OF THE I.T. ACT DOES NOT CONTEMPL ATE ANY DISTRIBUTION OF THE DEDUCTION CLAIMED; AND THAT UNDER THE SAID SECTION, THE DEDUCTION IS AVAILABLE IN THE ASSESSMENT YEAR RELATING TO THE PREVIOUS YEA R IN WHICH THE PAYMENT WAS MADE AND IT MUST BE SO GRANTED. ITA 469(DEL)2011 7 17. HENCE, IT IS EVIDENT THAT UNDER THE INCOME TAX ACT, THERE IS NO RECOGNITION OF THE TERM DEFERRED REVENUE EXPENDITU RE. 18. IN VIEW OF THE ABOVE, WE FIND THE ACTION OF THE LD. CIT(A) IN DELETING THE DISALLOWANCE TO BE PERFECTLY JUSTIFIED AND IN A CCORDANCE WITH LAW. THE SAME IS, THEREFORE, CONFIRMED, REJECTING THE GROUND S RAISED BY THE DEPARTMENT. 19. IN THE RESULT, THE APPEAL FILED BY THE DEPARTME NT IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29.07.2011. SD/- SD/- (SHAMIM YAHYA) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 29.07.2011 *RM COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR TRUE COPY BY ORDER DEPUTY REGISTRAR