DCIT, New Delhi V. M/s. Hotel Deiplomat, New Delhi

ITA 4994/DEL/2012

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 8804 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-01-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 09-12-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 21-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIKRAM SAHAI
• Keywords: Depreciation; Revenue expenditure; Capital expenditure

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 G.D. AGRAWAL, VICE BEFORE SHRI G.D. AGRAWAL, VICE BEFORE SHRI G.D. AGRAWAL, VICE BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND PRESIDENT AND PRESIDENT AND PRESIDENT AND SHRI SHRI SHRI SHRI H.S. SIDHU H.S. SIDHU H.S. SIDHU H.S. SIDHU, JUDICIAL , JUDICIAL , JUDICIAL , JUDICIAL MEMBER MEMBER MEMBER MEMBER ITA NO ITA NO ITA NO ITA NO . .. . 4994/DEL/2012 4994/DEL/2012 4994/DEL/2012 4994/DEL/2012 ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR : : : : 2008 2008 2008 2008 - -- - 09 0909 09 DEPUTY COMMISSIONER OF DEPUTY COMMISSIONER OF DEPUTY COMMISSIONER OF DEPUTY COMMISSIONER OF INCOME TAX, INCOME TAX, INCOME TAX, INCOME TAX, CENTRAL CIRCLE CENTRAL CIRCLE CENTRAL CIRCLE CENTRAL CIRCLE- -- -14, 14, 14, 14, NEW NEW NEW NEW DELHI. DELHI. DELHI. DELHI. VS. VS. VS. VS. M/S HOTEL DIPLOMAT, M/S HOTEL DIPLOMAT, M/S HOTEL DIPLOMAT, M/S HOTEL DIPLOMAT, 9, SARDAR PATEL MARG, 9, SARDAR PATEL MARG, 9, SARDAR PATEL MARG, 9, SARDAR PATEL MARG, DIPLOMATIC ENCLAVE, DIPLOMATIC ENCLAVE, DIPLOMATIC ENCLAVE, DIPLOMATIC ENCLAVE, CHANAKYAPURI, CHANAKYAPURI, CHANAKYAPURI, CHANAKYAPURI, NEW DELHI NEW DELHI NEW DELHI NEW DELHI 110 021. 110 021. 110 021. 110 021. PAN : AAAFH0266P. PAN : AAAFH0266P. PAN : AAAFH0266P. PAN : AAAFH0266P. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VIKRAM SAHAI, SR.DR. RESPONDENT BY : SHRI SALIL AGGARWAL, ADVOCATE AND SHRI SHAILESH GUPTA, CA. ORDER ORDER ORDER ORDER PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP : :: : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(A)-XXVI, NEW DELHI DATED 21 ST MAY, 2012 FOR THE AY 2008- 09. 2. THE FIRST GROUND OF THE REVENUES APPEAL READS A S UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING TH E ADDITION OF RS.23,01,460/- MADE BY THE A.O. ON ACCO UNT OF CAPITAL EXPENDITURE. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE DERI VES INCOME FROM RUNNING A HOTEL. FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE INCURRED EXPENDITURE OF `90,40,792/- ON REPAIR AND MAINTENANCE AND `16,49,721/- ON APARTMENT EXPENSES. THE COMPLETE D ETAILS OF THESE EXPENSES WERE FURNISHED BEFORE THE ASSESSING OFFICE R. THE ASSESSING OFFICER FOUND THAT THE EXPENSES UNDER THESE HEADS W ERE HIGHER AS ITA-4994/DEL/2012 2 COMPARED TO PRECEDING YEARS. HE ALSO REFERRED TO V ARIOUS BILLS FOR THE EXPENSES WHICH WAS FOR SANITARY FITTINGS, BILL OF D ECORATOR WHICH WAS OF PLASTER OF PARIS, FALSE CEILING ETC, BILLS FOR GLAS S, DOOR LOCKS ETC. HE TREATED 25% OF THE REPAIR AND MAINTENANCE EXPENSES AND 15% OF THE APARTMENT EXPENSES AS CAPITAL EXPENDITURE AS UNDER: - (A) 25 PERCENT OF REPAIR AND MAINTENANCE EXPENSES CLAIMED AT RS.9040792/- 2260200 (B) 15 PERCENT OF APARTMENT EXPENSES CLAIMED AT RS.1649721/- 247400 2507600 AS AGAINST RS.2507600/- AMOUNT IS WRONGLY TAKEN AT 2707600 4. ACCORDINGLY, HE ALLOWED DEPRECIATION ON THE ABOV E CAPITAL EXPENDITURE AND FINALLY, THE ADDITION OF `23,01,460 /- WAS MADE. THE CIT(A) DELETED THE ADDITION BY REFERRING TO THE DEC ISION OF THE ITAT FOR AY 1996-97 WHEREIN THE SIMILAR ADDITION MADE BY THE ASSESSING OFFICER WAS DISALLOWED. HE ALSO REFERRED TO VARIOUS CASE L AWS AND THEREAFTER CONCLUDED AS UNDER:- IN VIEW OF THE ABOVE DISCUSSION AND SINCE THE ASSESSING OFFICER HAS NOT CONDUCTED ANY ENQUIRIES T O TEST THE NATURE OF THE EXPENDITURE INCURRED BY THE APPELLANT AND BROUGHT ON RECORD ANY MATERIAL CONTRA RY TO THAT OF THE APPELLANT. I HOLD THAT THE ASSESSIN G OFFICER HAS NOT APPRECIATED THE FACTS JUSTIFYING TH E NEEDS AND NECESSITY OF THE BUSINESS OF THE APPELLAN T. MERE MENTION OF THE BILLS DESCRIBING THE ITEMS AND AMOUNTS IN THE ORDER IS NOT SUFFICIENT TO SUBSTANTI ATE THAT THE SAID EXPENDITURE CONSTRUES CAPITAL IN NATU RE BECAUSE THE ASSESSING OFFICER HAS NOT DRAWN ANY NEX US BETWEEN THE BILLS AND THE RESULTANT ASSET. THEREFO RE, THE ADDITION MADE BY THE ASSESSING OFFICER IS NOT SUPPORTED BY ANY EVIDENCE AND HENCE AN AMOUNT OF RS.23,01,460/- IS DELETED AND DIRECT THE ASSESSING OFFICER TO PASS A CONSEQUENTIAL ORDER TREATING THE SAME AS REVENUE EXPENDITURE AND AT THE SAME TIME TO WITH ITA-4994/DEL/2012 3 DRAW THE CONCOMITANT DEPRECIATION WHICH HAS BEEN ALLOWED ON THE SAID AMOUNT. 5. AFTER CONSIDERING THE FACTS OF THE CASE AND THE ARGUMENTS OF BOTH THE SIDES, WE DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDER OF LEARNED CIT(A). ADMITTEDLY, THE ASSESSEE IS RUNNING A HOTEL IN WHICH CONSTANT REPAIR AND MAINTENANCE IS REQUIRED. IT WAS POINTED OUT BY THE LEARNED COUNSEL THAT THE BUILDING FROM WHICH THE HOTEL BUSINESS IS BEING RUN IS AN OLD RENTED PREMISES AND MONTHLY RENT OF THE BUILDING IS ONLY `10,000/- PER MONTH, WHILE THE TOTAL RECEIP T OF THE HOTEL IS MORE THAN `5 CRORES. HE, THEREFORE, POINTED OUT THAT SU BSTANTIAL EXPENDITURE IS REQUIRED TO BE INCURRED BY THE ASSESSEE YEAR AFT ER YEAR SO AS TO KEEP THE BUILDING PROPERLY MAINTAINED. HE ALSO POINTED OUT THAT IN LAST TEN YEARS, I.E., FROM AY 1998-99 TO 2007-08, NO EXPENDI TURE WAS DISALLOWED BY THE ASSESSING OFFICER, THOUGH, IN MOST OF THE YE ARS, ORDERS WERE PASSED UNDER SECTION 143(3). ALL THESE FACTS STATE D BY THE LEARNED COUNSEL HAVE NOT BEEN CONTROVERTED BEFORE US. THE ASSESSING OFFICER HAS NOT POINTED OUT ANY SPECIFIC ITEM OF EXPENDITUR E WHICH WAS, IN HIS OPINION, CAPITAL EXPENDITURE. GENUINENESS OF THE E XPENDITURE HAS NOT BEEN DOUBTED BY HIM. HOWEVER, ON PRESUMPTION BASIS , HE TREATED CERTAIN PERCENTAGE OF EXPENSES TO BE CAPITAL EXPEND ITURE. THERE IS NO LOGIC OR BASIS FOR SUCH PRESUMPTION. IN VIEW OF TH E TOTALITY OF ABOVE FACTS, WE UPHOLD THE ORDER OF LEARNED CIT(A) ON THI S POINT AND REJECT GROUND NO.1 OF THE REVENUES APPEAL. 6. GROUND NO.2 READS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING TH E ADDITION OF RS.30,72,418/- MADE BY THE A.O. ON ACCO UNT OF ADDITIONAL COMPENSATION. 7. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSE E WAS REQUIRED TO MAKE THE PAYMENT OF ADDITIONAL COMPENSATION ON T HE RETRENCHMENT ITA-4994/DEL/2012 4 OF STAFF WHICH WAS AMOUNTING TO `30,72,418/-. THE ASSESSING OFFICER DISALLOWED THE SAME HOLDING IT ALSO TO BE CAPITAL E XPENDITURE. THE CIT(A) HAS DISCUSSED THE ISSUE AT LENGTH AND THEREA FTER HELD THAT THE ADDITIONAL COMPENSATION PAID BY THE ASSESSEE WAS AN ALLOWABLE DEDUCTION. THE REVENUE, AGGRIEVED WITH THE ORDER O F LEARNED CIT(A), IS IN APPEAL BEFORE US. 8. WE HAVE HEARD BOTH THE SIDES AND PERUSED RELEVAN T MATERIAL PLACED BEFORE US. AFTER CONSIDERING THE FACTS OF T HE CASE AND THE ARGUMENTS OF BOTH THE SIDES, WE DO NOT FIND ANY JUS TIFICATION FOR TREATING THE ADDITIONAL COMPENSATION PAID TO STAFF AS CAPITAL EXPENDITURE MERELY BECAUSE IT WAS A ONE TIME PAYMEN T. THE ASSESSING OFFICER ALSO OBSERVED THAT THE ADDITIONAL COMPENSATION WAS PAID AFTER THE WORKMEN CEASED TO BE EMPLOYEES OF TH E ASSESSEE FIRM BECAUSE THEY WERE RETRENCHED ONCE THE NORMAL COMPEN SATION WAS PAID TO THEM THROUGH AN EARLIER AGREEMENT. IN OUR OPINION, THE NATURE OF ADDITIONAL COMPENSATION IS SIMILAR TO THE ORIGIN AL COMPENSATION. WHEN THE ADDITIONAL COMPENSATION IS REQUIRED TO BE PAID, IT ONLY ENHANCES THE ORIGINAL COMPENSATION. MERELY BECAUSE BY THE TIME ADDITIONAL COMPENSATION IS AGREED TO BE PAID BY THE ASSESSEE, THE EMPLOYEES CEASE TO BE EMPLOYEES OF THE ASSESSEE CAN BE NO GROUND FOR TREATING ADDITIONAL COMPENSATION AS A NON-BUSIN ESS EXPENDITURE. THE GENUINENESS OF THE ORIGINAL COMPENSATION OR ADD ITIONAL COMPENSATION IS NOT IN DISPUTE. DURING THE YEAR UN DER CONSIDERATION, THE ASSESSEE FIRM PAID THE COMPENSATION TO THE EMPL OYEES AT `19,34,670/- AS ONE TIME SETTLEMENT FOR RETRENCHMEN T OF STAFF. HOWEVER, SUBSEQUENTLY, IT ENTERED INTO ANOTHER MEMO RANDUM OF SETTLEMENT WITH THE STAFF AND PAID ADDITIONAL COMPE NSATION OF `30,72,418/-. THE ASSESSING OFFICER ALLOWED THE CO MPENSATION PAID AS PER ORIGINAL AGREEMENT BUT DISALLOWED THE ADDITIONA L COMPENSATION. IN OUR OPINION, THE NATURE OF ORIGINAL COMPENSATION AN D THE ADDITIONAL COMPENSATION REMAINS THE SAME. BOTH WERE PAID IN R ESPECT OF ITA-4994/DEL/2012 5 RETRENCHMENT OF THE SAME STAFF. MERELY BECAUSE AFT ER THE PAYMENT OF ORIGINAL COMPENSATION A FURTHER MEMORANDUM OF SETTL EMENT IS ENTERED INTO AND ADDITIONAL COMPENSATION IS PAID, IT CANNOT BE SAID THAT ITS NATURE IS DIFFERENT THAN THE ORIGINAL COMPENSATION. IN VIEW OF THE TOTALITY OF ABOVE FACTS, WE UPHOLD THE ORDER OF LEA RNED CIT(A) ON THIS POINT AND REJECT GROUND NO.2 OF THE REVENUES APPEA L. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 2 ND JANUARY, 2015. SD/- SD/- ( (( ( H.S. SIDHU H.S. SIDHU H.S. SIDHU H.S. SIDHU ) )) ) (G.D. AGRAWAL (G.D. AGRAWAL (G.D. AGRAWAL (G.D. AGRAWAL ) )) ) JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT DATED : 02.01.2015 VK. COPY FORWARDED TO: - 1. APPELLANT : DEPUTY COMMISSIONER OF DEPUTY COMMISSIONER OF DEPUTY COMMISSIONER OF DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE INCOME TAX, CENTRAL CIRCLE INCOME TAX, CENTRAL CIRCLE INCOME TAX, CENTRAL CIRCLE- -- -14, 14, 14, 14, NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. 2. RESPONDENT : M/S HOTEL DIPLOMAT, M/S HOTEL DIPLOMAT, M/S HOTEL DIPLOMAT, M/S HOTEL DIPLOMAT, 9, SARDAR PATEL MARG, 9, SARDAR PATEL MARG, 9, SARDAR PATEL MARG, 9, SARDAR PATEL MARG, DIPLOMATIC ENCLAVE, CHANAKYAPURI, DIPLOMATIC ENCLAVE, CHANAKYAPURI, DIPLOMATIC ENCLAVE, CHANAKYAPURI, DIPLOMATIC ENCLAVE, CHANAKYAPURI, NEW DELHI NEW DELHI NEW DELHI NEW DELHI 110 021. 110 021. 110 021. 110 021. 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR