Hi Tours (India) Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 4953/DEL/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4236 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 18-04-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 12-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K RAVI RAM CHANDRAN
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI DELHI DELHI DELHI, BENCH , BENCH , BENCH , BENCH C CC C, , , , NEW DELHI NEW DELHI NEW DELHI NEW DELHI BEFORE SHRI C. L. SETHI, JUDICIAL MEMBER AND SHRI K. D. RANJAN, ACCOUNTANT MEMBER ITA NO. 4953/DEL/2010 (ASSESSMENT YEAR 2005-06) HI TOURS (INDIA) PVT. LTD., VS. DCIT, CIRCLE 12(1) , 37, REGAL BUILDING, NEW DELHI PARLIAMENT STREET, NEW DELHI (APPELLANT) (RESPONDENT) PAN APPELLANT BY: SHRI GAUTAM JAIN, C.A. RESPONDENT BY: SHRI K RAVI RAMCHANDRAN, SR. DR ORDER ORDER ORDER ORDER PER K. D. RANJAN, AM: PER K. D. RANJAN, AM: PER K. D. RANJAN, AM: PER K. D. RANJAN, AM: 1. THIS APPEAL BY THE ASSESSEE FOR THE ASSESSMENT Y EAR 2005-06 ARISES OUT OF ORDER OF LD. CIT(A) XI, NEW DELHI. T HE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE REPRODUCED AS UND ER: 1) THAT ON FACTS AND IN LAW THE ORDERS PASSED BY T HE ASSESSING OFFICER AND PARTLY CONFIRMED BY THE CIT( A) ARE BAD IN LAW AND VOID AB-INITIO. 2) THAT THE LD. CIT(A) HAS ERRED BOTH IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE FOREIGN EXCHANGE FLUCTUA TION OF ` 49,855/-. 3) THE LD. CIT(A) HAS ERRED IN CONFIRMING DISALLOWA NCE OF REPAIR & MAINTENANCE EXPENSES OF ` 4,61,272/-. IT IS AGAINST FACTS AND AGAINST THE PROVISION OF LAW. 2. THE 1 ST ISSUE FOR CONSIDERATION RELATES TO CONFIRMATION OF DISALLOWANCE ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUA TION OF ` 49,855/-. THE FACTS OF THE CASE STATED IN BRIEF AR E THAT THE ASSESSEE IN ITS RETURN OF INCOME HAD CLAIMED FOREIGN EXCHANG E FLUCTUATION LOSS AMOUNTING TO ` 1,51,238/-. THE ASSESSEE WAS ASKED TO FURNISH DETAILS OF FOREIGN EXCHANGE LOSS AND EXPLAIN AS TO WHY THE CLAIM I.T.A.NO. 4953/DEL/2010 2 SHOULD NOT BE DISALLOWED. ON PERUSAL OF DETAILS F ILED IN RESPONSE TO THE QUERY RAISED BY THE ASSESSING OFFICER, THE ASSE SSING OFFICER NOTED THAT THE ASSESSEE HAD CLAIMED A LOSS OF ` 49, 855/- ON ACCOUNT OF REINSTATEMENT OF DEBTORS AT THE END OF THE YEAR. IT WAS SUBMITTED BY THE ASSESSEE THAT DUE TO FOREIGN EXCHANGE FLUCTU ATION REMITTANCE RECEIVED WERE AT LOWER AMOUNT THAN THE AMOUNT PROVI DED FOR IN THE BANKS WHICH RESULTED IN THE EXCHANGE LOSS. THIS SU BMISSION OF THE ASSESSEE WAS REJECTED BY THE ASSESSING OFFICER ON T HE GROUND THAT FOR ALLOWING THE LOSS ON ACCOUNT OF FOREIGN EXCHANG E FLUCTUATION TO BE CONSIDERED FOR DEDUCTION, THE LOSS MUST ACTUALLY BE SUFFERED IN THE RELEVANT PREVIOUS YEAR. ACTUAL SUFFERING OF LO SS WOULD ARISE ONLY AT THE TIME OF REMITTANCE AND NOT BEFORE. THE ASSE SSING OFFICER THEREFORE, TREATED THE FOREIGN EXCHANGE FLUCTUATION LOSS OF ` 49,855/- AS NOTIONAL LOSS AND DISALLOWED THE SAME. 3. ON APPEAL, LD. CIT(A) RELYING ON VARIOUS DECISIO NS, HAD HELD THAT THERE WAS NO EXPENDITURE INCURRED WITHIN THE M EANING OF SECTION 37(1) FOR WHICH THE CLAIM WAS LODGED BY THE ASSESSEE. LD. CIT(A) ACCORDINGLY UPHELD THE DISALLOWANCE. 4. BEFORE US, LD. A.R. FOR THE ASSESSEE SUBMITTED T HAT THE ASSESSEE HAD EXPORTED GOODS DURING THE YEAR. THE S ALE PROCEEDS THEREOF HAD BEEN RECEIVED IN THE YEAR UNDER CONSIDE RATION. SINCE THE SALE PRICE WERE RECORDED IN THE BOOKS OF ACCOUN TS WAS HIGHER THAN THE AMOUNT RECEIVED DURING THE YEAR DUE TO FOR EIGN EXCHANGE FLUCTUATION, THE ASSESSEE HAD SUFFERED LOSS OF ` 49 ,855/-. THE FOREIGN EXCHANGE FLUCTUATION LOSS IS ON REVENUE ACC OUNT. HE PLACED RELIANCE ON THE DECISION OF HON'BLE SUPREME COURT I N THE CASE OF CIT VS WOODWARD GOVERNOR INDIA PVT. LTD. 312 ITR 254. ON THE OTHER HAND LD. SR. DR SUPPORTED THE ORDER OF LD. CIT(A). 5. WE HAVE HEARD BOTH THE PARTIES. THE LD. A.R. FO R THE ASSESSEE HAS STATED THAT THE LOSS SUFFERED ON ACCOUNTS OF FO REIGN EXCHANGE I.T.A.NO. 4953/DEL/2010 3 FLUCTUATION IS NOT NOTIONAL LOSS BUT ACTUAL LOSS IN CURRED BY IT. THE ASSESSEE HAD FILED DETAILS INDICATING BILLING AMOUN T AND THE AMOUNT RECEIVED AND ALSO THE DATE ON WHICH THE PAYMENTS WE RE RECEIVED. UNDER THESE CIRCUMSTANCES THE LOSS SUFFERED BY THE ASSESSEE IS THE ACTUAL LOSS, WHICH HAS BEEN BY THE ASSESSEE ON RECE IPT OF SALE CONSIDERATION IN THE YEAR UNDER CONSIDERATION. THE REFORE, NO DISALLOWANCE ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUA TION LOSS CAN BE MADE. MOREOVER, THE ISSUE IS COVERED BY THE DECISI ON OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS WOODWARD GOVERN OR INDIA PVT. LTD. (SUPRA) WHEREIN IT HAS BEEN HELD THAT EXPRESSI ON ANY EXPENDITURE HAS BEEN USED IN SECTION 37 OF INCOME TAX ACT, 1961 TO COVER BOTH EXPENSES INCURRED AS WELL AS AN AMO UNT WHICH IS REALLY A LOSS EVEN THOUGH SUCH AMOUNT HAS NOT GON E OUT FROM THE POCKET OF THE ASSESSEE. THE LOSS SUFFERED BY THE A SSESSEE ON ACCOUNT OF FLUCTUATION IN THE RATE OF FOREIGN EXCHA NGE AS ON THE DATE OF BALANCE SHEET IS AN ITEM OF EXPENDITURE U/S 37(1 ) OF THE ACT. THEREFORE, THE ASSESSING OFFICER IS DIRECTED TO ALL OW THE CLAIM OF THE ASSESSEE. 6. THE NEXT ISSUE FOR CONSIDERATION RELATES TO CONF IRMATION OF DISALLOWANCE OF REPAIR & MAINTENANCE EXPENSE OF ` 4 ,61,272/-. THE FACTS OF THE CASE RELATING TO THIS GROUND OF APPEAL ARE THAT THE ASSESSEE HAD SPENT ` 5,12,525/- ON ACCOUNT OF REPAI R & MAINTENANCE EXPENSES. THE EXPENSES INCURRED ARE IN RESPECT OF CEMENT, BRICKS, STONE DUST ETC. SINCE THE EXPENDITURE WAS INCURRED ON CEMENT, BRICKS, STONE DUST ETC, THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT THE EXPENDITURE WAS OF ENDURING NATURE. THE A SSESSING OFFICER TREATED THE AMOUNT OF ` 5,12,525/- AS CAPITAL IN NA TURE AND ALLOWED DEPRECIATION THEREON @ 10% WHICH RESULTED IN ADDITI ON OF ` 4,61,272/- ON APPEAL, LD. CIT(A) CONFIRMED THE STA ND OF THE ASSESSING OFFICER ON THE GROUND THAT THE BENEFIT OF ENDURING NATURE WAS DERIVED BY THE ASSESSEE. I.T.A.NO. 4953/DEL/2010 4 7. BEFORE US, LD. A.R. FOR THE ASSESSEE SUBMITTED T HAT ASSESSEE HAS INCURRED THE EXPENDITURE ON REPAIR & MAINTENANC E. THE AMOUNT OF ` 5,12,525/- WAS INCURRED ON BUILDING MATERIAL L IKE CEMENT, BRICKS, STONE DUST ETC. THE ASSESSING OFFICER HAD ALLOWED THE LABOUR CHARGES AS REVENUE EXPENDITURE WHEREAS HE HAS CAPIT ALIZED THE EXPENDITURE ON THE GROUND THAT ASSET OF ENDURING NA TURE HAVE BEEN CREATED. LD. A.R. FOR THE ASSESSEE FURTHER SUBMITT ED THAT THE EXPENDITURE WAS INCURRED TOWARDS REPAIR & MAINTENAN CE OF LEASED PREMISES. THE EXPENDITURE INCURRED IS ALLOWABLE U/ S 30(A)(I) OF THE ACT. SINCE NO NEW ASSET HAS BEEN CREATED, THE EXPE NDITURE IS ALLOWABLE AS REVENUE EXPENDITURE. HE PLACED RELIAN CE ON THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS DELHI PRADESH SAMACHAR P. LTD. 322 ITR 590 AND THE DECISI ON IN THE CASE OF HILINE PENS P. LTD. REPORTED IN 306 ITR 182 (DEL .). ON THE OTHER HAND, LD. D.R. SUPPORTED THE ORDER OF CIT(A). 8. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THE ASSESSING OFFIC ER HAD CAPITALIZED THE BUILDING MATERIAL AND HAS ALLOWED THE LABOUR CH ARGES TO THE TUNE OF ` 10 LACS AS REVENUE EXPENDITURE AS INFORMED BY THE LD. A.R. FOR THE ASSESSEE. THE LABOUR CHARGES CANNOT BE SEGREGA TED FROM BUILDING MATERIAL. IN THE ASSESSMENT ORDER, THE AS SESSING OFFICER HAS NOT IDENTIFIED AS TO WHAT ASSET HAS BEEN CREATE D. HE HAS SIMPLY TREATED THE AMOUNT OF ` 5,12,525/- AS CAP[ITAL EXPE NDITURE. LD. CIT(A) HAS CONFIRMED THE DISALLOWANCE MERELY ON RE LYING ON VARIOUS DECISIONS. HON'BLE DELHI HIGH COURT IN THE CASE O F CIT VS HILINE PENS (P) LTD., HAS HELD THAT THERE IS CLEAR DISTINC TION BETWEEN THE EXPRESSION REPAIR AND EXPRESSION CURRENT REPAIRS . THE WORD REPAIR IS MUCH WIDER THAN THE EXPRESSION CURRENT REPAIR. THE EXPRESSION CURRENT REPAIR IS MUCH MORE RESTRICTED T HAN THE WORD REPAIR BECAUSE THE LATER IS QUALIFIED WITH THE WORD CURRENT. THERE IS DISTINCTION BETWEEN THE EXPENSES INCURRED BY A TENA NT FOR REPAIR OF PREMISES AND THE EXPENSES INCURRED BY A PERSON WHO IS NOT TENANT, I.T.A.NO. 4953/DEL/2010 5 TOWARDS CURRENT REPAIR TO THE PREMISES. A TENANT WOULD, BY THE VERY NATURE OF HIS STATUS AS TENANT, NOT UNDERTAKES EXPENDITURE AS WOULD ENDURE BE YOND HIS LIKELY PERIOD OF TENANCY OR CREATE A NEW ASSET, WHEREAS AN OWNER MAY UNDERTAKE EXPENDITURE S O AS TO BRING ABOUT NEW ASSET OF CAPITAL NATURE. THE ASSESSEE HA S INCURRED EXPENDITURE ON REPAIR/ MAINTENANCE / RENOVATION OF THE RENTED PREMISES. THE EXPENDITURE INCURRED BY THE ASSESSEE ON REPAIR OF RENTED PREMISES FALLS U/S 30(A)(I) AND THEREFORE, T HERE WAS NO QUESTION OF APPLICABILITY OF SECTION 32. SINCE THE ASSESSING OFFICER HAD ALLOWED THE EXPENDITURE INCURRED ON LABOUR CHAR GES AS REVENUE EXPENDITURE, IN OUR CONSIDERED OPINION, THE AMOUNT INCURRED ON ACCOUNT OF BUILDING MATERIAL ALONE CANNOT BE CAPITA LIZED. THEREFORE, THE ASSESSING OFFICER IS DIRECTED TO TREAT THE EXPE NDITURE OF ` 5,12,525/- AS REVENUE EXPENDITURE. ACCORDINGLY, TH E DISALLOWANCE MADE BY THE ASSESSING OFFICER IS DELETED. HOWEVER THE ASSESSING OFFICER WILL BE ENTITLED TO WITHDRAW THE CLAIM OF D EPRECIATION ALLOWED BY HIM BY TREATING THE BUILDING MATERIAL AS CAPITAL EXPENDITURE. 9. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS A LLOWED. 10. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST APR., 2011. SD./- SD./- (C. L. SETHI) (K. D. RANJAN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED:21 ST APR., 2011 SP. COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT TRUE COPY: BY ORDER 4. CIT(A) 5. DR DY. REGISTRAR, ITAT, NEW DELHI