INGA LABORATORIES P.LTD, MUMBAI V. DCIT 8(2), MUMBAI

ITA 4799/MUM/2012

• Counselvise Citation: 479919914 RSA 2012
• Duration Of Justice: 1 year(s) 8 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-04-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 02-04-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 20-07-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PITAMBER DAS
• Assessee Lawyers: KUNJAN GANDHI
• Keywords: Business income; Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

, VKBZ VKBZ VKBZ VKBZ INCOME TAX APPELLATE TRIBUNAL,MUMBAI - I BENCH. .. , ! , BEFORE S/SH.I.P.BANSAL, JUDICIAL M EMBER & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO.4799/MUM/2012, ' ' ' ' # # # # / ASSESSMENT YEAR-2009-10 INGA LABORATORIES PVT. LTD., INGA HOUSE, MAHAKALI CAVES ROAD, ANDHERI (E),MUMBAI-400093 VS DCIT 8 (2), AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 PAN: AAACI1737K ( $% / APPELLANT) ( &'$% / RESPONDENT) '() '() '() '() * * * * / ASSESSEE BY : SHRI KUNJAN GANDHI + * / REVENUE BY : SHRI PITAMBER DAS ' ' ' ' + ++ + ), ), ), ), / DATE OF HEARING : 02-04-2014 -.# + ), / DATE OF PRONOUNCEMENT : 02-04-2014 ' ' ' ' , 1961 + ++ + 254 )1( )/) )/) )/) )/) 0 0 0 0 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,AM ! ! ! ! ' ' ' ' : CHALLENGING THE ORDER DT. 12.06.2012 OF THE CIT(A)- 17,MUMBAI, ASSESSEE HAS FILED FOLLOWING GROUNDS OF APPEAL : 1) THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-17 ,MUMBAI, HAS ERRED IN CONFIRMING THE DISALLOWANCE OF EXPENDITURE INCURRED ON REPAIRS OF BUILDING RS. 24,08,758/- ON THE PREMISES GIVEN ON RENTAL TO S.KUMAR NATIONWIDE LTD. AND THEREBY NO T APPRECIATING THE FACTS OF THE CASE AND THE NATURE OF EXPENSES INCURRED. 2) THE ASSESSEE RESERVES RIGHT TO ADD, ALTER OR AMEND THE ABOVE GROUNDS OF APPEAL AS AND WHEN FOUND NECESSARY. 2. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF MANUFAC TURER OF DRUGS AND PHARMACEUTICALS, FILED ITS RETURN OF INCOME ON 30.09.2009 DECLARING TOTAL INCOME OF RS. 13,01,77,00/-.ASSESSING OFFICER (AO) FINALISED THE ASSESSMENT ON 10.10.2011 DETERMI NING THE TOTAL INCOME OF THE ASSESSEE AT RS. 1,57,77,060/-. 3. THE EFFECTIVE GROUND OF APPEAL IS ABOUT DISALLOWANC E OF EXPENDITURE AMOUNTING TO RS. 24.08 LACS DEBITED UNDER THE HEAD OTHER OPERATING EXPENSES. D URING THE ASSESSMENT PROCEEDINGS AO FOUND THAT TURNOVER OF THE ASSESSEE HAD INCREASED BY 8.06 5% WHEREAS THE EXPENDITURE HAD INCREASED BY 3.04% AS COMPARED TO THE CORRESPONDING FIGURES FOR THE LAST YEAR, THAT THE AFORESAID INCREASED IN OPERATING EXPENSES WAS ON ACCOUNT OF ASSESSEES CLA IM OF CAPITAL EXPENDITURE AS REVENUE EXPENDITURE. HE ASKED THE ASSESSEE TO FILE DETAILS OF RS. 24.08 LACS INCURRED UNDER THE HEAD REPAIRS AND MAINTENANCE OF THE BUILDING. HE FURTHER DIRECT ED THE ASSESSEE TO EXPLAIN AS TO WHY THE EXPENSES SHOULD NOT BE CAPITALIZED. AFTER CONSIDERI NG THE SUBMISSION OF THE ASSESSEE, AO HELD THAT AS PER THE LEASE-DEED DATED 09.02.2005 ASSESSEE HAD TAKEN THE PREMISES ON LEASE FOR A PERIOD OF 9 YEARS FROM 01.04.2005, THAT AS PER THE AGREEMENT DA TED 09.02.2007 BETWEEN THE ASSESSEE AND M/S S.KUMAR NATIONWIDE LTD. (SANL) ASSESSEE HAD LEASED OUT THE PREMISES TO SANL FOR A PERIOD OF 24 MONTHS (09.02.2007 TO 08.02.2010), THAT FROM THE PERUSAL OF AGREEMENT IT WAS EVIDENT THAT INTENTION OF THE ASSESSEE WAS TO ENHANCE INCOME BY INCURRING CAPITAL EXPENDITURE BY WAY OF 2 ITA NO.4799/MUM/2012 INGA LABORATORIES PVT. LTD RENOVATION OF BUILDING, THAT THE EXPENSES RESULTED IN ENDURING BENEFIT TO THE ASSESSEE, THAT THE RENTAL AGREEMENT HAD A CONDITION OF RENEWAL OF THE AGREEMENT AFTER A PERIOD OF TWO YEARS, THAT THE FRUITS OF EXPENDITURE WOULD BE ENJOYED BY THE ASSES SEE FOR A LONG PERIOD OF TIME. REFERRING TO THE EXPLANATION 1 TO 32 OF THE ACT, HE HELD THAT EXPEND ITURE INCURRED BY THE ASSESSEE IN CONNECTION WITH RENOVATION OF LEASE-HOLD PREMISES HAD TO BE TA KEN AS CAPITAL EXPENDITURE. FINALLY, AMOUNT IN QUESTION WAS CAPITALISED BY THE AO. HOWEVER, HE HEL D THAT THE ASSESSEE WAS ENTITLED FOR DEPRECIATION AS PER THE INCOME-TAX RULES (1962(RULE S). HE FURTHER HELD THAT MOST OF THE EXPENDITURE ON THE REPAIRS OF BUILDING WAS INCURRED DURING THE 2 ND HALF OF THE YEAR, THAT ASSESSEE WAS ENTITLED TO CLAIM DEPRECIATION @ 5%. AFTER WORK ING OUT THE DEPRECIATION OF RS. 2.40 LACS HE MADE AN ADDITION OF RS. 21.67 LACS TO THE BUSINESS INCOME OF THE ASSESSEE. 4 .ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPE LLATE AUTHORITY (FAA). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDE R, HE HELD THAT SIMILAR ISSUE HAS BEEN DECIDED BY HIS PREDECESSOR AGAINST THE ASSESSEE FOR THE YEA R 22008-09, THAT THE EXPENDITURE WAS CAPITAL IN NATURE AND NEEDED TO BE DISALLOWED. 5. BEFORE US, AUTHORISED REPRESENTATIVE (AR) SUBMITTED THAT YEAR UNDER APPEAL WAS THE 2 ND YEAR, THAT ASSESSEE HAD TO CARRY OUT GENERAL REPAIRS OF T HE BUILDING, THAT THE TENANT WAS SITTING IN THE BUSINESS PREMISES, THE EXPENDITURE INCURRED BY IT W AS OF REVENUE NATURE.DEPARTMENTAL REPRESENTATIVE (DR) SUPPORTED THE ORDER OF THE FAA. IT WAS BROUGHT TO OUR NOTICE THAT WHILE DECIDING TH E APPEAL FOR THE AY 2008-09 (ITA NO. 7986/MUM/2011)-DT. 05.07.2013 ITAT MUMBAI DISMISSED THE APPEAL FILED BY THE ASSESSEE ON THE IDENTICAL ISSUE AS UNDER: 9.WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE LD. REPRESENTATIVES OF THE PARTIES AND THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE ALSO CAREF ULLY CONSIDERED CASES CITED BY THE LD.AR OF THE ASSESSEE (SUPRA).WE HAVE ALSO GONE THROUGH THE COPI ES OF THE AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND ITS LESSEE VIZ. INDO GERMAN ALKALOIDS, A PARTNERSHIP FIRM AND ALSO SISTER CONCERN OF THE ASSESSEE AND HAVE ALSO GONE THROUGH THE COPY O F LEAVE AND LICENSE AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND M/S S.KUMAR NATIONWIDE LTD . DATED 9.2.2007 COPY OF WHICH IS PLACED AT PAGES 1 TO 29 OF THE PAPER BOOK. 10.WE OBSERVE THAT THE ASSESSEE HAS TAKEN THE SAID PREMISES VIDE AGREEMENT DATED 1.4.2005 AT A MONTHLY RENT OF RS.3000/- PER MONTH FROM ITS SISTER CONCERN, A PARTNERSHIP FIRM, FOR A PERIOD OF 9 YEARS. IT IS RELEVANT TO STATE THAT THE SAID AGREEM ENT IS ON STAMP PAPER OF RS.20/- IS NOT REGISTERED AGREEMENT, THOUGH, THE LEASE DEED EXECUTED FOR A PE RIOD OF 9 YEARS. THE COMPLETE AREA OF THE PREMISES COMPRISES APPROXIMATELY 1500 SQ FT ON FIRS T FLOOR AND 2 ND FLOOR WITH 16 TO 18 CAR PARKING PLACES ALLOCATED IN THE SAID PREMISES.WE OBSERVE TH AT THE ASSESSEE HAS RENOVATED THE SAID PREMISES BY INCURRING THE EXPENDITURE AGGREGATING TO RS 59,6 5,835/- IN FINANCIAL YEAR 2007-08, RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION WE ARE NOT AWARE AS TO WHETHER THE ASSESSEE HAS INCURRED ANY EXPENDITURE IN THE PRECEDING FINANCIAL YEAR AND/OR IN THE SUCCEEDING ASSESSMENT YEAR AS WELL.THE ASSESSEE AFTER INCURRING THE SAID EXPENDITURE HAS LET OUT THE SAID PREMISES TO M/S S.KUMAR NATIONWIDE LTD AT A MONTHLY RENT OF RS.15,0 0,000/- FOR A FIXED PERIOD OF 24 MONTHS, BESIDES TAKING INTEREST FREE REFUNDABLE ADVANCE OF RS.1,80,00,000/-. ON PERUSAL OF THE AGREEMENT ENTERED BY THE ASSESSEE, IT IS OBSERVED FROM THE CL AUSE 3.1 THAT NONE OF THE PATTY IS ENTITLED TO TERMINATE THIS AGREEMENT DURING THE SAID LOCK-IN-PE RIOD OF 24 MONTHS BEGINNING FROM 9.2.2007 TILL 8.2.2009. THE ABOVE TERMS AND CONDITIONS OF THE AGR EEMENT ITSELF ESTABLISHES THAT THE FIRST LEASE AGREEMENT ENTERED INTO BY THE ASSESSEE WITH ITS SIS TER CONCERN, A PARTNERSHIP FIRM TO TAKE THE SAID PREMISES ON RENT ON MONTHLY RENT OF RS.3000/- AND T HEREAFTER SPENT THE SAID AMOUNT OF RS.59,65,000/- IN THE FINANCIAL YEAR RELEVANT TO TH E YEAR UNDER CONSIDERATION AND LET OUT THE SAID PREMISES AT MONTHLY RENT OF RS.15,00,000/- APPEARS TO BE A COLOURABLE DEVICE. SINCE THE SAID ISSUE IS RIOT BEFORE US AND THE AO HAS ALREADY ASSESSED I NCOME SO RECEIVED BY THE ASSESSEE UNDER THE HEAD BUSINESS INCOME AND WE HAVE CONFINED OURSELV ES KEEPING IN VIEW THE ABOVE FACTS AS TO WHETHER TIE SAID EXPENDITURE INCURRED BY THE ASSESS EE TO RENOVATE THE SAID PREMISES IS TO BE ALLOWED AS CAPITAL EXPENDITURE OR AS A REVENUE EXPE NDITURE WE HAVE ALREADY STATED HEREINABOVE THE DETAILS OF THE EXPENDITURES INCURRED BY THE ASS ESSEE. 3 ITA NO.4799/MUM/2012 INGA LABORATORIES PVT. LTD CONSIDERING THE ABOVE FACTS, WE ARE OF THE CONSIDER ED VIEW THAT THE SAID EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE FOR COMPLETE RENOVATION OF THE BUILDING TO SUIT THE REQUIREMENT OF LICENSEE VIZ.M/S.S.KUMAR NATIONWIDE LTD, AS THE ASSESSEE ITS ELF CONTENDED BEFORE THE LD. CIT(A) (PARAGRAPH 4.2 OF IMPUGNED ORDER),WE ARE OF THE CONSIDERED VIE W THAT THE SAID EXPENDITURE CANNOT BE SAID TO BE A REVENUE EXPENDITURE BUT IT IS A CAPITAL EXPEND ITURE GIVING ENDURING BENEFITS TO THE ASSESSEE IN THE FORM OF REGULAR RECEIPT OF MONTHLY RENT AT THE RATE OF RS.15,00,000/- PER MONTH AND INTEREST FREE REFUNDABLE SECURITY DEPOSITS OF RS.1,80,00,000/-.HE NCE, WE ARE OF THE CONSIDER VIEW THAT THE LD.CIT(A) HAS RIGHTLY HELD THAT THE SAID EXPENDITUR E INCURRED BY THE ASSESSEE IN RELATION TO THE PREMISES UNDER CONSIDERATION FOR COMPLETE RENOVATIO N TO SUIT THE REQUIREMENTS OF LICENCEE IS A CAPITAL EXPENDITURE AND THE ASSESSEE IS ENTITLED TO DEPRECIATION. EXPLANATION TO SECTION 32(1) OF THE ACT ALSO STIPULATES THAT ALL THE EXPENDITURES INCUR RED BY THE ASSESSEE IN RELATION TO LEASE PREMISES FOR RENOVATION OR EXTENSION OR IMPROVEMENT IS ENTIT LED TO DEPRECIATION AS IS SHOWN BY THE ASSESSEE.HENCE, WE UPHOLD THE ORDER OF THE LD. CIT( A). BEFORE WE PART WITH THIS GROUND OF 1, WE MAY STATE THAT THE CASES CITED BY THE LD.AR ARE NOT RELEVANT TO THE FACTS OF THESE CASE BEFORE US FOR THE REASONS THAT IN THESE CASES THE EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE FOR RENOVATING AND/REPAIRS OF THE BUILDING TO KEEP BUSINESS ADVANT AGE USING MODERN PREMISES AT A LOWER RENT -MADRAS AUTO SERVICE (P) LTD (SUPRA) (II)TO CONTINUE THE TENANT IN THE PREMISES IN LIEU OF MAKING CONTRIBUTION TOWARDS RE-CONSTRUCTION OF THE PREMISES TALATHI AND PANTHAKY ASSOCIATED P.LT D(SUPRA) (III)CONSTRUCTION WAS MADE FOR THE PURPOSE OF PROPE R UTILIZATION OF THE PREMISES FOR BUSINESS OF THE ASSESSEE.-NILA PRODUCTS LIMITED (SUPRA) IV)TO CARRY OUT THE REPAIRS TO IMPROVE BAD CONDITIO N OF THE BUILDING WHICH ASSESSEE ITSELF USING FOR ITS BUSINESS PURPOSES- SANDOZ (P) LTD (SUPRA) V)FOR RENOVATION OF THE OFFICE PREMISES ETC. WE OBS ERVE THAT IN THE OTHER CASES ALSO WHICH ARE RELIED ON BY THE ASSESSEE BEFORE US, EXPENDITURE HA S BEEN INCURRED TO RENOVATE ITS PREMISES WHICH ARE USED FOR BUSINESS PURPOSES AND NOT TO CREATE A SOURCE TO EARN INCOME. HENCE THE SAID CASES ARE NOT RELEVANT TO THE FACTS OF THE CASE BEFORE US . 11.ACCORDINGLY, GROUND NO.1 OF THE APPEAL TAKEN BY THE ASSESSEE IS REJECTED. WE FIND THAT THERE IS NO CHANGE IN THE CIRCUMSTANCE S/FACTS OF THE CASE UNDER CONSIDERATION AND THE FACTS OF THE AY 2008-09, DECIDED BY THE TRIBUNAL. O NE OF US WAS PARTY TO THE ORDER PASSED ON 05.07.2013. WE FIND THAT ASSESSEE HAD INCURRED ADDI TIONAL EXPENDITURE OF RS. 24.08 LACS DURING THE YEAR UNDER APPEAL IN ADDITION TO THE EXPENDITURE AM OUNTING TO RS. 59 LACS, INCURRED LAST YEAR. EXPENDITURE OF BOTH THE AYS PROVE THAT SAME WAS NOT OF REVENUE NATURE.WE FIND THAT AO HAS ALLOWED DEPRECIATION FOR THE LEASED PREMISES AND TH E FAA HAS ENDORSED HIS ORDER, WE ARE OF THE VIEW THAT ORDER OF THE FAA DOES NOT SUFFER FROM ANY LEGAL INFIRMITY. THEREFORE, FOLLOWING THE ORDER FOR THE EARLIER YEAR, WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAINST THE ASSESSEE. AS A RESULT,APPEAL FILED BY THE ASSESSEE STANDS DIS MISSED. 1)2 '() + UK UKUK UK 3 + ) 45. ORDER PRONOUNCED IN THE OPEN COURT ON 2 ND APRIL,2014 . 0 + -.# 6 7' 2 &5 ,201 4 . + / 8 SD/- SD/- ( .. / I.P. BANSAL) ( ! ! ! ! / RAJENDRA) / JUDICIAL MEMBER /ACCOUNTANT MEMBER / MUMBAI, 7' /DATE: 02.04 . 2014. SK 0 0 0 0 + ++ + &)9 &)9 &)9 &)9 : 9#) : 9#) : 9#) : 9#) / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / $% 2. RESPONDENT / &'$% 3. THE CONCERNED CIT(A)/ ; < , 4. THE CONCERNED CIT / ; < 5. DR I BENCH, ITAT, MUMBAI / 9=/ &)' VKBZ VKBZ VKBZ VKBZ , . . . 4 ITA NO.4799/MUM/2012 INGA LABORATORIES PVT. LTD 6. 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