ADDL CIT RG 18(3), MUMBAI V. CHEM AMIT, MUMBAI

ITA 5818/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1405 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 03-11-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DEEPAK SUTARIA
• Assessee Lawyers: V G GINDE
• Keywords: Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C,MUMBAI BEFORE SHRI D.K. AGARWAL (JM) & SHRI R.K. PANDA (AM ) I.T.A.NO.5818/MUM/2009 (A.Y. 2006-07) DY.COMMR. OF INCOME-TAX, CIR. 18(1), MUMBAI. VS. M/S. CHEM AMIT, 105-A, NEELAM CENTER, HIND CYCLE RD., WORLI, MUMBAI-400 030. APPELLANT RESPONDENT APPELLANT BY SHR I DEEPAK SUTARIA. RESPONDENT BY SHRI V. G. GINDE. O R D E R PER R.K. PANDA, AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER DATED 13-08- 2009 OF THE CIT(A)-XXVIII, MUMBAI, RELATING TO ASST T. YEAR 2006-07. 2. THE ONLY EFFECTIVE GROUND RAISED BY THE REVENUE READS AS UNDER : ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS .7,97,322/- ON ACCOUNT OF EXPENDITURE ON REPAIRS WITHOUT APPREC IATING THE FACT THAT THE EXPENDITURE ON CURRENT REPAIRS WERE C APITAL IN NATURE. 2.1 THE FACTS OF THE CASE, IN BRIEF, ARE THAT THE A SSESSEE FIRM IS ENGAGED IN THE BUSINESS OF SUPPLYING COMMERCIAL, STATISTICAL AND T ECHNICAL INFORMATION TO FOREIGN ENTERPRISES AND RECEIVING SERVICE CHARGES IN CONVER TIBLE FOREIGN EXCHANGE. THE AO, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, NO TED THAT THE ASSESSEE HAS DEBITED REPAIRS & MAINTENANCE EXPENSES OF RS.8,96,7 84/- TO THE P & L A/C. ON BEING ASKED BY THE AO, THE ASSESSEE PRODUCED THE BI LLS AND VOUCHERS IN RESPECT OF THESE EXPENSES. ON EXAMINATION OF THE BILLS AND VOUCHERS, THE AO NOTED THAT THE EXPENSES PERTAIN TO MARBLE FLOORING, DIRECTORS OFFICE, TRAP DOOR, ETC. THE AO ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE SAME SH OULD NOT BE TREATED AS CAPITAL EXPENDITURE. HOWEVER, THE AO WAS NOT SATISF IED WITH THE EXPLANATION GIVEN ITA 5818/M/09 CHEM AMIT 2 BY THE ASSESSEE THAT THE SAME IS REVENUE IN NATURE. ACCORDING TO THE AO, BY INCURRING THE EXPENSES FOR COMPLETE RENOVATION OF OFFICE PREMISES, THE ASSESSEE DERIVED ENDURING BENEFIT. HE NOTED THAT THE ASSESSE E FIRM HAS TAKEN UP COMPLETE RENOVATION OF ASSESSEES OFFICE PREMISES AFTER A L ONG GAP AND THEREFORE THIS RENOVATION BEING OF ENDURING NATURE HAS TO BE TREAT ED AS CAPITAL EXPENDITURE. HE ACCORDINGLY REJECTED HE CLAIM OF THE ASSESSEE TREAT ING THE SAME AS REVENUE EXPENDITURE AND ALLOWED DEPRECIATION. WHILE DOING S O, HE RELIED ON A COUPLE OF DECISIONS. 3. BEFORE THE CIT(A), THE ASSESSEE FILED THE DETAIL S OF EXPENSES WHICH ARE AS UNDER : S.NO. PAYMENT MADE TO AMOUNT (RS) REMARK 1 M/S.JENECO ITALIA MARBLE 2,65, 098/- PAID FOR MARBLE USED TO REPLACE THE EXISTING FLOORING OF THE OFFICE. 2 M/S.MANMOHAN DECORE 5,31,738/- REPAIRING OF PARTNERS CABIN, REPLACEMENT OF DOORS AND STAFF STORE S ETC. 3. MS. GAURI PHADNIS 44,080/- DESIGN CONSULTANCY 4. M/S. FCML PROJECTS 45 ,000/- PURCHASE OF ITEMS FOR REPLACEMENT OF WC, ANGLE VALVE, SINGLE LEVER BATH SHOWER MIRROR ETC. TOTAL 8,85,916/- ___________________________________________________ ______________ RELYING ON A COUPLE DECISIONS, THE ASSESSEE SUBMITT ED THAT THE SAME HAS TO BE TREATED AS REVENUE IN NATURE. IT WAS SUBMITTED THAT THE ASSESSEE EARNED SIZEABLE COMMISSION FROM FOREIGN PRINCIPALS WHO VISITED THE OFFICE PREMISES OF THE ASSESSEE FOR BUSINESS MEETING. IN ORDER TO IMPRESS THE VISITORS, IT IS ESSENTIAL THAT THE OFFICE OUTLOOK AND GET-UP SHOULD BE IMPRESSIVE AND WELL PREPARED. ITA 5818/M/09 CHEM AMIT 3 ACCORDINGLY, THE ASSESSEE TOOK SOME REPAIR WORK AFT ER A SPAN OF 10 YEARS WHICH WAS DRIVEN PURELY BY BUSINESS CONSIDERATIONS AND CO MMERCIAL EXPEDIENCY. IT WAS SUBMITTED THAT BY REPLACING THE EXISTING FLOOR WITH MARBLE FLOORING, THE ASSESSEE HAS NOT CREATED ANY NEW ASSET AND IT HAS ADDED ONLY BETTER LOOK TO THE OFFICE PREMISES. SIMILARLY, BY REPAIRING AND REPLACING THE PARTNERS CABIN AND MODIFYING THE STORAGE SPACE, REPLACEMENT OF STAFF DOOR, ETC. , THE ASSESSEE HAS NOT CREATED ANY ADDITIONAL FLOOR SPACE AND ONLY OBTAINED OPTIMU M UTILIZATION OF THE EXISTING OFFICE PREMISES. SIMILARLY, THE EXPENDITURE INCURRE D FOR PURCHASE OF CERTAIN BATH ROOM FITTINGS WAS ONLY TO REPLACE THE OLD FITTINGS. THE PAYMENT OF RS.44,080/- TO GAURI PHADNIS WAS FOR DESIGN CONSULTANCY. THEREFORE , BY NO STRETCH OF IMAGINATION THE EXPENDITURE CAN BE TREATED AS CAPITAL IN NATURE . 3.1 BASED ON THE ARGUMENTS ADVANCE BY THE ASSESSEE AND FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F EMPIRE JUTE CO. LTD. VS. CIT REPORTED IN (1980) 134 ITR 1, THE CIT(A) HELD THAT THE EXPENDITURE IS REVENUE IN NATURE. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), TH E REVENUE IS IN APPEAL BEFORE US. 4. AFTER HEARING BOTH THE SIDES, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A). ADMITTEDLY, THE EXPENDITURE HAS BEEN IN CURRED BY THE ASSESSEE ON ITS OWN PREMISES TOWARDS REPLACEMENT OF THE EXISTING FL OOR WITH MARBLE FLOORING, REPAIRING OF PARTNERS CABIN AND REPLACEMENT OF DOO R ETC., REPLACEMENT OF CERTAIN BATH ROOM FITTINGS AND PAYMENT TOWARDS DESIGN CONSU LTANCY. IT IS THE CASE OF THE REVENUE THAT BY INCURRING SUCH EXPENDITURE THE ASSE SSEE HAS DERIVED AN ENDURING BENEFIT. HOWEVER, ACCORDING TO THE ASSESSE E, BY INCURRING THE EXPENDITURE, THE ASSESSEE HAS NOT CREATED ANY NEW A SSET AND IT HAS REPLACED CERTAIN ITEMS TO GIVE A BETTER LOOK TO THE EXISTING FLOORING AND DIRECTORS CABIN. FROM THE DETAILS PRODUCED BEFORE THE CIT(A), WE FIN D THE EXPENDITURE INCURRED FOR ITA 5818/M/09 CHEM AMIT 4 MARBLES WAS TO REPLACE THE EXISTING FLOORING. SIMIL ARLY, THE EXPENDITURE HAS BEEN INCURRED TOWARDS REPAIR OF PARTNERS CABIN AND REPL ACEMENT OF DOOR AND STORAGE SPACE ETC. AND PURCHASE OF BATH ROOM FITTINGS TO RE PLACE THE EXISTING ONE APART FROM CERTAIN CONSULTANCY EXPENSES. CONSIDERING THE NATURE OF EXPENDITURE AND THE VOLUME OF BUSINESS, WHERE THE ASSESSEE FILED RETURN AT AN INCOME OF RS.59.36 LAKHS, THIS CANNOT BE TREATED AS CAPITAL I N NATURE. WE FURTHER FIND IN THE ORDER OF THE AO IT IS NOTED THAT THE ASSESSEE HAS INCURRED THE EXPENDITURE AFTER A LONG GAP. THEREFORE, WE FIND SUFFICIENT FORCE IN TH E SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE EXPENDITURE IS INCURRED F OR REPLACEMENT OF THE EXISTING ASSETS AND NO NEW ASSET HAS BEEN CREATED SO AS TO T REAT THE EXPENDITURE AS CAPITAL IN NATURE. IT HAS HELD BY THE HONBLE SUPRE ME COURT IN THE CASE OF EMPIRE JUTE CO. LTD. (SUPRA) THAT IF THE ADVANTAGE IS MERE LY IN FACILITATING THE ASSESSEES BUSINESS OPERATIONS OR ENABLING THE MANAGEMENT TO C ONDUCT THE BUSINESS IN MORE EFFICIENT MANNER OR MORE PROFITABLY, WHILE LEA VING THE FIXED CAPITAL UNTOUCHED, THE EXPENDITURE WOULD BE ON REVENUE ACCO UNT, EVEN THOUGH ADVANTAGE MAY ENDURE FOR INDEFINITE FUTURE. SINCE, IN THE INSTANT CASE, NO NEW ASSET HAS BEEN CREATED AND THE EXPENSES ARE INCURRE D BY THE ASSESSEE ONLY IN FACILITATING THE ASSESSEES BUSINESS OPERATIONS IN A MORE EFFICIENT MANNER AND SINCE THE AMOUNT OF EXPENDITURE IS VERY SMALL, CONS IDERING THE TURNOVER AND PROFIT OF THE ASSESSEE, WE DO NOT FIND ANY INFIRMIT Y IN THE ORDER OF CIT(A) TREATING THE EXPENDITURE INCURRED BY THE ASSESSEE AS REVENUE IN NATURE. THE GROUND RAISED BY THE REVENUE IS ACCORDINGLY DISMISSED. 5. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ITA 5818/M/09 CHEM AMIT 5 ORDER PRONOUNCED ON THE 30TH DAY OF JUNE, 2010. SD/- SD/- (D.K. AGARWAL) ( R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI:30TH JUNE , 2010 . NG: COPY TO : 1. ASSESSEE. 2.DEPARTMENT. 3 CIT(A)-XXVIII,,MUMBAI. 4 CIT-18,MUMBAI. 5.DR,C BENCH,MUMBAI. 6. MATER FILE. (TRUE COPY) BY ORDER, ASST.REGISTRAR, ITAT, MUMBAI. ITA 5818/M/09 CHEM AMIT 6 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 25-6-2010 SR.PS/ 2 DRAFT PLACED BEFORE AUTHOR 28-6-2010 SR.PS/ 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/ 6. KEPT FOR PRONOUNCEMENT ON SR.PS/ 7. FILE SENT TO THE BENCH CLERK SR.PS/ 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER