Ramabagh Palace Hotel Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 5167/DEL/2014

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9004 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 2 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 19-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURENDER PAL
• Keywords: Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

PAGE | 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F : NEW DELHI BEFORE SHRI AMIT SHUKLA , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 5167/DEL/2014 (ASSESSMENT YEAR: 2011 - 12 ) RAMABAGH PALACE HOTEL PVT LTD, C/O. PRICEWATERHOUSE COOPERATIVE PVT LTD, SUCHETA BHAWAN, GATE NO. 2, 3 RD FLOOR, 11A, VISHNU DIGAMBER MARG, NEW DELHI PAN: AAACH6899P VS. DCIT, CIRCLE - 15(1), NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AJAY VOHRA, SR. ADV SHRI ADITYA VOHRA, ADV REVENUE BY: SHRI SURENDER PAL, SR. DR DATE OF HEARING 03/10 / 2018 DATE OF PRONOUNCEMENT 1 1 / 12 / 2018 O R D E R PER PRASHANT MAHARISHI , A. M. 1. THIS APPEAL IS FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 2010 - 11 AGAINST THE ORDER OF THE LD CIT(A) - XVIII, NEW DELHI DATED 09.07.2014 FOR THE ASSESSMENT YEAR 2011 - 12. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER PASSED BY THE LD COMMISSIONER OF INCOME - TAX (APPEALS) XVIII (CIT(A) IS CONTRARY TO THE FACTUAL AND LEGAL POSITION AND THUS IS BAD IN LAW. 2. THAT ON THE FACTS AND IN THE CIRCUMST ANCES OF THE CASE AND IN LAW AND LD CIT(A) HAS ERRED IN HOLDING THAT THE REPAIR AND MAINTENANCE EXPENSES AMOUNTING TO RS. 34,35,090/ - IS CAPITAL IN NATURE AND THEREFORE, NOT ALLOWABLE AS REVENUE EXPENDITURE. RAMABAGH PALACE HOTEL PVT LTD VS. DCIT ITA NO. 5167/DEL/2014 (ASSESSMENT YEAR: 2011 - 12) PAGE | 2 3. THE SOLITARY GROUND OF APPEAL THAT THE REPAIR AND MAINTENANCE EXPENDITURE AMOUNTING TO RS. 34,35,090/ - IS CAPITAL IN NATURE AND THEREFORE, NO T ALLOWABLE AS REVENUE EXPENDITURE. 4. THE BRIEF FACTS OF THE CASE IS THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF RUNNING A HOTEL, WHICH CONSISTS OF FIVE UNITS AS A COMPOSITE BUSINESS. THE ASSESSEE FILED ITS RETURN OF INCOME ON 30.09.2011 DECLARING INCOME OF RS. 5938591/ - . ASSESSMENT U/S 143(3) OF THE ACT WAS PASSED ON 10.12.2014 WHEREIN, THE LD AO DISALLOWED THE SUM OF RS. 5419234/ - UNDER THE HEAD RE PAIR AND MAINTENANCE EXPENDITURE HOLDING THAT SAME IS NOT REVENUE EXPENDITURE BUT CAPITAL EXPENDITURE. THE LD AO VIDE PARA NO. 3 HAS DEALT WITH THE WHOLE ISSUE AS UNDER: - 3. FURTHERMORE, THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION INCURRED A REPAIR AND MAINTENANCE EXPENDITURE AMOUNTING TO RS.7,28,03,050/ - TOWARDS 'BUILDING', 'MACHINERY' AND 'OTHERS'. THE ASSESSEE COMPANY VIDE ITS SUBMISSION DATED 27.01.2014 PROVIDED UNIT WISE BREAK - UP OF THE EXPENSES UNDER THE HEAD 'REPAIR AND MAINTENANCE', ALONGWITH COPY OF LEDGER ACCOUNTS FOR EACH TYPE OF PAYMENTS. ALSO THE ASSESSEE IN THE SAME SUBMISSION PROVIDED INCOME TAX RETURNS / ACCOUNT CONFIRMATION OF VARIOUS VENDORS UNDERTAKING THE REPAIR AND MAINTENANCE DURING THE YEAR UNDER CONSIDERATION, 3.1. THE ASSESSE E ALSO PROVIDED THE DETAILS ALONGWITH THE COPY OF INVOICES OF MORE THAN RS. 1,00,000/ - WITH RESPECT TO REPAIR AND MAINTENANCE. FOR THE SAID EXPENDITURE THE ASSESSEE FILED THE LEDGER ACCOUNTS, BANK STATEMENT OF VENDORS AND COPY OF RETURN OF INCOME OF VENDOR S FOR THE RELEVANT ASSESSMENT YEAR. I HAVE EXAMINED THE INFORMATION FURNISHED BY THE ASSESSEE AND THE REPAIR AND MAINTENANCE EXPENDITURE HAVE ACTUALLY BEEN INCURRED BY THE ASSESSEE FOR THE BUSINESS PURPOSES. THERE IS NO DOUBT ABOUT THE EXPENDITURE BEING GE NUINE. 3.2. HOWEVER, IT IS ALSO IMPORTANT TO NOTE THAT THE GENUINENESS OF EXPENDITURE PER SE DOES NOT LEAD TO ALLOWANCE THE EXPENDITURE. UNDER THE LAW, TWIN CONDITIONS HAVE TO BE SATISFIED BEFORE CLAIMING EXPENDITURE AS REVENUE EXPENDITURE. ONE IS THAT TH E EXPENDITURE HAS TO BE INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE, AND SECOND IS THAT SUCH EXPENDITURE SHOULD NOT BE A CAPITAL EXPENDITURE. WHETHER THE RAMABAGH PALACE HOTEL PVT LTD VS. DCIT ITA NO. 5167/DEL/2014 (ASSESSMENT YEAR: 2011 - 12) PAGE | 3 EXPENDITURE IS A REVENUE OR CAPITAL HAS TO BE DECIDED HAVING REGARD TO THE NATURE OF EXPENDIT URE AND ITS ADVANTAGE TO THE ASSESSEE. ON PERUSAL OF THE DETAILS FILED AND CORRESPONDING SUPPORTING DOCUMENTS, I NOTICED THAT THERE ARE CERTAIN EXPENSES, WHICH GIVEN IMPRESSION OF ENDURING BENEFIT TO THE APPELLANT AND FALL ON THE CAPITAL ACCOUNT. THE ASSES SEE HAS DEBITED SUCH EXPENSES IN DIFFERENT HEAD OF REPAIRS. BRIEF DETAILS OF SUCH EXPENSES ARE GIVEN BELOW: S. NO. AMOUNT IN INR VENDOR NATURE OF WORK DONE COMMENTS 1. RS. 19,84,144/ - DESIGNERS GUILD PROVIDING MAJOR REPAIRS FOR SUPPLY OF FABRICS EXPENSES CLEARLY OF ENDURING NATURE 2. RS. 17,45,662/ - FLOOR & FURNISHING INDIA PVT. LTD. PROVIDING MAJOR REPAIRS FOR SUPPLY OF, FABRICS R EXPENSES CLEARLY OF ENDURING NATURE. 3. RS. 16,89,428/ - KAPOOR ENTERPRISES MAJOR WORK IN RELATION TO SUPPLY OF LAMPS EXPENSES CLEARLY OF ENDURING NATURE TOTAL RS.54,19,234/ - 5. THE ASSESSEE AGGRIEVED WITH ASSESSMENT ORDER HAS PREFERRED AN APPEAL BEFORE LD CIT(A) WHO DECIDED THE ISSUE HOLDING THAT OUT OF THE TOT AL EXPENDITURE OF RS. 5419234/ - , THE EXPENDITURE AMOUNTING TO RS. 3435090/ - IS CAPITAL IN NATURE. HE DECIDED THE ISSUE PARTLY IN FAVOUR OF THE ASSESSEE VIDE PARA NO. 6 OF THIS ORDER AS UNDER: - {6} IN THIS REGARD, I HAVE GONE THROUGH THE FINDING OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER AND SUBMISSION FILE D BY THE LEARNED AUTHORIZED REPRESENTATIVE OF THE APPELLANT FROM TIME TO TIME AND I FOUND THAT THERE IS A TOTAL ADDITION OF RS. 54,19,234/ - PERTAINING TO FOLLOWING THREE PARTIES: - S.NO. AMOUNT IN INR VENDOR NATURE OF WORK DONE COMMENTS 1. RS. 19,84,144/ - DESIGNERS GUILD PROVIDING MAJOR REPAIRS FOR SUPPLY OF FABRIC EXPENSES CLEARLY OF : ENDURING NATURE 2 R S. 1745662 FLOOR & FURNISHING IND IA PVT LTD PROVIDING MAJO R REPAIRS FOR SUPPLY OF - FABRICS , EXPENSES CLEARLY OF ENDURING NATURE. 3. RS. 1689428/ - KAPOOR EXPENSES MAJOR WORK IN RELATION TO R SUPPLY OF LAMPS EXPENSES CLEARLY OF ENDURING NATURE. TOTAL RS. 54,19,234/ - WITH REGARD TO AMOUNT OF RS. 17,45.662/ - PERTAINING TO FLOOR AND FURNISHING INDIA PVT LTD , IT IS FOUND THAT IT PERTAINS TO PROVIDING MAJOR REPAIR FOR SUPPLY OF FABRIC AND RS RAMABAGH PALACE HOTEL PVT LTD VS. DCIT ITA NO. 5167/DEL/2014 (ASSESSMENT YEAR: 2011 - 12) PAGE | 4 16,89,428/ - PERTAINS TO M/S KAPOOR ENTEPRISES IN RELATION TO SUPPLY OF LAMPS. I H AVE VERIFIED THE NATURE OF EXPENSES AND I FOUND THAT THESE EXPENSES ARE OF ENDURING NATURE AND CANNOT BE TREATED AS REVENUE EXPENDITURE. THEREFORE, I AM IN AGREEMENT WITH FINDINGS OF THE ASSESSING OFFICER THAT OUT OF RS. 54,19,234/ - EXPENDITURE AMOUNTING T O RS. 34,35,09 0/ - (17,45,662+16,89,428) ARE IN THE NATURE OF CAPITAL EXPENDITURE, BUT FOR EXPENDITURE OF RS. 19,84,144/ - APPELLANT HAS SUBMITTED THAT THESE PERTAINS TO FABRIC REPLACING WHICH DOES NOT GIVE RISE TO ENDURING BENEFIT AND THIS IS A YEARLY EXERC ISE WHICH IS BEING DONE IN THE PAST ALSO AND NO ADDITION HAS BEEN MADE IN THIS REGARD. FOR THE LAST THREE EXPENDITURE HAVE BEEN INCURRED VIZ AS UNDER: - ASSESSMENT YEAR AMOUNT 2008 - 09 32,57,202 2009 - 10 52,25,796 2010 - 11 17,02,888 TOTAL 1,01,85,886 IT IS FURTHER SUBMITTED THAT NO ADDITION HAS BEEN MADE ON THIS ACCOUNT IN THESE YEARS. AFTER CONSIDERING THE APPELLANT'S REPLY I AM CONVINCED THAT AMOUNT OF RS. 19,84,144/ - IS NOT OF GIVING RISE TO ENDURING BENEFITS, THEREFORE, THIS IS ALLOWED AS REVENUE E XPENDITURE. THUS APPELLANT GETS RELIEF OF RS. 19,84,144/ - 6. THE ASSESSEE AGGRIEVED WITH THE ORDER HAS PREFERRED AN APPEAL BEFORE US. 7. THE LD AR VEHEMENTLY CONTESTED THE ABOVE DISALLOWANCE CONFIRMED BY THE L D CIT(A) AND STATED THAT THE ASSESSEE IS IN THE BU SINESS OF THE RUNNING A HOTEL AND THE EXPENDITURE INCURRED ON SUPPLY OF FABRICS AND SUPPLY OF LAMPS HAVE BEEN CONSIDERED AS CAPITAL EXPENDITURE. HE FURTHER STATED THAT IDENTICAL ISSUE AROSE IN THE CASE OF THE ASSESSEE IN EARLIER YEARS AND SAME EXPENDITURE HAS BEEN ALLOWED AS REVENUE EXPENDITURE BY THE COORDINATE BENCH AND IT WAS ALSO UPHELD BY THE HON'BLE DELHI HIGH COURT. HE FURTHER STATED THAT FOR ASSESSMENT YEAR 2006 - 07 IN ITA NO. 3605/DEL/2009 AND RAMABAGH PALACE HOTEL PVT LTD VS. DCIT ITA NO. 5167/DEL/2014 (ASSESSMENT YEAR: 2011 - 12) PAGE | 5 3801/DEL/2009 THE COORDINATE BENCH VIDE PARA NO. 33 TO 3 4 OF THE ORDER AS UNDER: - 33. GROUND NO. 2 OF THE APPEAL OF THE ASSESSEE IS AGAINST THE CONFIRMATION OF THE DISALLOWANCE OUT OF THE REPAIRS AND MAINTENANCE EXPENSES OF RS. 32015530/ - BY THE LD. CIT (A) HOLDING THAT IT IS CAPITAL IN NATURE AND ARE NOT ALLO WABLE AS REVENUE EXPENDITURE. THE DETAILS OF SUCH EXPENDITURE ARE GIVEN AT PAGE NO. 16 OF THE ORDER OF THE LD. CIT (A) AS UNDER: - A. CHANGING OF THE FLOOR TILES/REPLACING OF DOORS PROVIDING QUOTA STONE PATHWAYS AT RAMBAGH PALACE WHEREIN A SUM OF RS. 8505016/ - HAS BEEN INCURRED ON REPAIRS AND MAINTENANCE. B. RS 1.29 CRORE HAS BEEN INCURRED WITH RESPECT TO THE DISMANTLING AND REMOVAL OF THE EXISTING FLOORING TILES, PLASTERS CEMENT CONCRETE SINTERING UNSETTLING AT RAMGARH LODGE. C. RS. 30.21 LAKHS HAVE B EEN INCURRED FOR CONFERENCE ROOM AT RAM BAGH PALACE BY DISMANTLING STONE MASONRY AND EXISTING FLOOR TILES AND RE - FIXING DOORS AND WINDOWS WITH WALL PANELING. D. RS. 52.03 LACS WAS INCURRED AT RAMGARH LODGE IN ROOM NUMBER 101 - 102 AND 203 TO 208 WHERE OPEN ING AND SHIFTING MOVING DOORS AND WINDOWS WERE REPLACED WITH THE FIXED DOORS FOR GIVING PROPER SHAPES. E. RS. 7.57 LAKHS INCURRED AT SAWAI MADHOPUR LODGE FOR REPLACEMENT OF SANITARY FITTINGS, F. RS. 2.86 LACS AT RAMBAGH PALACE HOTEL FOR INDOOR AND OUTDOOR SWIMMING POOL CHANGES DUE TO REDUCTION IN DEPTH AND G. RS. 12.46 LAKHS WERE INCURRED AT WELL FOR REPLACEMENT OF OLD PIPES AND FOR INCREASING THE DEPTH OF TUBE WELL DUE TO LOW WATER LEVEL. 34. ON PERUSAL OF THE ABOVE EXPENSES WE DO NOT FIND THAT THERE IS AN Y INCREASE IN THE CAPACITY OF THE HOTEL OR ANY OTHER NEW FACILITIES HAVE BEEN ADDED TO THE EXISTING FACILITIES. MOST OF THE EXPENDITURE HAVE BEEN INCURRED BY THE ASSESSEE FOR MODIFICATION OF EXISTING FACILITIES TO MAKE IT MORE USABLE LOOKING TO THE STANDAR D OF THE HOTEL AND THE VARIOUS TOURISTS AND INTERNATIONAL GUESTS USING IT. IN THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2006 - 07 WE HAVE DECIDED THE RAMABAGH PALACE HOTEL PVT LTD VS. DCIT ITA NO. 5167/DEL/2014 (ASSESSMENT YEAR: 2011 - 12) PAGE | 6 IDENTICAL ISSUE AND DELETED THE DISALLOWANCE ON THE GROUND THAT IF THERE IS NO INCREASE IN THE CAPACI TY OF THE HOTEL AND NO NEW FACILITIES HAVE BEEN ADDED , MERELY RENOVATING OR MODIFYING THE EXISTING FACILITIES DO NOT RESULT IN ANY BENEFIT OF ENDURING NATURE AND THEREFORE THE EXPENDITURE INCURRED ON SUCH MODIFICATION RENOVATION ETC IS ALLOWABLE AS REVENU E EXPENDITURE. AS ISSUE IS NOW SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN 233 TAXMAN 177 WHEREIN, EXPENDITURE ON REFURNISHING ON HOTEL ROOMS IS HELD TO BE REVENUE IN NATURE. AS EXPENDITURE DISALLOWED B Y LD CIT(A) WERE FOR RENOVATION OF EXISTING FACILITIES ONLY AND IT ALSO DOES NOT MEET THE TEST OF INCREASE IN ANY ADDITIONAL CAPACITY IN THE HOTEL, THE AMOUNT OF RS. 32015530/ - INCURRED BY THE ASSESSEE CANNOT BE HELD TO BE AN EXPENDITURE WHICH RESULTS IN T O BENEFIT OF ENDURING NATURE TO THE ASSESSEE AND THEREFORE THEY CANNOT BE HELD TO BE CAPITAL EXPENDITURE. IN THE RESULT DISALLOWANCE MADE BY LD. CIT (A) CANNOT BE UPHELD. IN RESULT WE REVERSE THE FINDING OF THE LD. CIT (A) AND DIRECT THE AO TO DELETE THE D ISALLOWANCE OF RS. 32015530/ - . HENCE, GROUND NO. 2 OF THE APPEAL OF THE ASSESSEE IS ALLOWED. 8. HE THEREFORE, SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE. 9. THE LD DR SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND ALSO PERUSED THE ORDERS OF THE LOWER AUTHORITIES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE HAS SUBMITTED THE COMPLETE DETAILS OF THE REPAIRS AND MAINTENANCE EXPENDITURE, HOWEVER, THE LD AO NOTED THAT EX PENDITURE OF RS. 17 , 45 , 662/ - INCURRED BY THE ASSESSEE FOR SUPPLY OF FABRICS AND RS. 16 , 89 , 428/ - INCURRED BY THE ASSESSEE FOR SUPPLY OF LAMPS ARE CAPITAL EXPENDITURE AS THESE ARE THE EXPENSES CLEARLY OF ENDURING NATURE. THE LD CIT(A) ALSO CONFIRMED THE ABOV E ADDITION AND STATED THAT THESE ARE THE EXPENDITURE OF ENDURING NATURE. SIMILAR KIND OF EXPENDITURE HAVE BEEN ALLOWED TO THE ASSESSEE IN PAST HOLDING THAT SAME ARE REVENUE EXPENDITURE IN NATURE. IT IS REQUIRED TO BE APPRECIATED THAT THE ASSESSEE IS ENGAGE D IN THE BUSINESS OF RUNNING A HOTEL AND EXPENDITURE OF RAMABAGH PALACE HOTEL PVT LTD VS. DCIT ITA NO. 5167/DEL/2014 (ASSESSMENT YEAR: 2011 - 12) PAGE | 7 FABRICS AS WELL AS LAMPS ARE NOT CAPITAL EXPENDITURE BUT ARE REVENUE IN NATURE BECAUSE OF THEIR LIMITED USEFUL LIFE AND RECURRING NATURE. IDENTICAL ISSUES HAVE BEEN DECIDED IN THE CASE OF THE ASSESSEE FROM ASSESSMENT YEAR 2006 - 07 TO 2009 - 10, BY THE COORDINATE BENCH VIDE ORDER DATED 17.04.2017 IN ITA NO. 3605/DEL/2009 AND 3801/DEL/2009 FOR THE ASSESSMENT YEAR 2006 - 07, WHICH HAS BEEN UPHELD BY THE HON'BLE HIGH COURT . THE DECISION OF THE COORDINATE BENCH IN EARLIER YEARS HAVE ALSO BEEN CONFIRMED BY THE HON'BLE DELHI HIGH COURT. IN VIEW OF THE THIS WE REVERSE THE FINDING OF THE LOWER AUTHORITIES AND DIRECT THE AO TO DELETE THE DISALLOWANCE OF RS. 3435090/ - . GROUND NO. 1 AND 3 ARE ALLOWED. 11. ACCORDINGLY, THE A PPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 1 / 12 / 2018 . - SD/ - - SD/ - ( AMIT SHUKLA ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 1 1 / 12 / 2018 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI