DCIT (OSD) 2(3), MUMBAI V. SATGURU INFOCORP SERVICES P.LATD, MUMBAI

ITA 616/MUM/2014

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0991 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2005-2006
• Appeal Filed On: 24-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Keywords: Capital asset; Business income; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E, MUMBAI BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ITA NOS.616 TO 618/M/2014 ASSESSMENT YEARS: 2005-06, 2006-07 & 2010-11 DCIT (OSD) 2(3), R.NO.552, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 VS. M/S. SATGURU INFOCORP. SERVICES PVT. LTD., 5 TH FLOOR, SUNTECK CENTRE, SUBHASH ROAD, VILE PARLE (E), MUMBAI 400 057 PAN: AAECS 6683A (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI RAKESH JOSHI, A.R. REVENUE BY : SHRI NEIL PHILIP, D.R. DATE OF HEARING : 02.07.2015 DATE OF PRONOUNCEMENT : 02.07.2015 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE ABOVE TITLED APPEALS RELEVANT TO ASSESSMENT YE ARS 2005-06, 2006-07 & 2010-11 HAVE BEEN PREFERRED BY THE REVENUE AGAINS T THE COMMON ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) [(HEREINAF TER REFERRED TO AS THE CIT(A)] DATED 23.10.2013. COMMON ISSUES HAVE BEEN RAISED IN ALL THE APPEALS. FOR THE SAKE OF CONVENIENCE THE FACTS HAVE BEEN TAK EN FROM ITA NO.616/M/2014 FOR A.Y. 2005-06. 2. THIS IS THE SECOND ROUND OF APPEAL BEFORE US. T HE REVENUE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN RELYING UPON THE DECISION OF THE HO N'BLE ITAT IN ASSESSEE'S OWN CASE FOR A.Y. 2007-08 WITHOUT APPRECIATING THAT THE DECISION OF HON'BLE ITAT HAS NOT BEEN ACCEPTED BY THE DEPARTMEN T AND APPEAL TO ITA NOS.616 TO 618/M/2014 M/S. SATGURU INFOCORP. SERVICES PVT. LTD. 2 HON'BLE BOMBAY HIGH COURT HAS BEEN FILED U/S.260A O F THE IT ACT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE EXPENDITURE ON CREATION OF NEW CABINS IN BUSINESS CENTRE AS REVENUE EXPENDITURE WITHOUT A PPRECIATING THAT THE AO HAD RIGHTLY TREATED THE SAME AS CAPITAL EXPENDITURE AS NEW ASSET HAD COME INTO EXISTENCE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN NOT FOLLOWING THE PRINCIPLES LAID D OWN BY THE HON'BLE SUPREME COURT IN THE CASES OF SARVANA SPINNING MILL S 293 ITR 201 AND SHREE MANGAYAR KARASI MILLS 315 ITR 114. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING THE PRIOR PERIOD EXPENSES IN CURRENT YEAR WITHOUT APPRECIATING THAT THE EXPENDITURE OF PRECEDING YEAR CANNOT BE ALLOWED IN THE CURRENT YEAR BY CONTRAVENING THE PRI NCIPLE OF MERCANTILE SYSTEM OF ACCOUNTING. 5. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, THE DECISION OF THE CIT(A) MAY BE SET ASIDE AND THA T OF THE AO RESTORED. GROUND NO.1 TO 3 3. A PERUSAL OF THE GROUND NOS.1 TO 3 REVEALS THAT THE REVENUE HAS CONTESTED THE FINDING OF THE LD. CIT(A) HOLDING THA T THE EXPENDITURE ON CREATION OF NEW CABINS IN BUSINESS CENTRE AS OF REV ENUE IN NATURE AS AGAINST TREATED BY THE ASSESSING OFFICER (HEREINAFTER REFER RED TO AS THE AO) AS CAPITAL IN NATURE. THE ASSESSEE HAS BEEN RUNNING A BUSINESS CENTRE AND OFFERING THE INCOME FROM THE SAID BUSINESS CENTRE AS BUSINESS INCOME OF THE ASSESSEE. THE AO DISALLOWED THE CLAIM OF REPAIR AND MAINTENANCE EXPE NSES OF RS.62,64,813/- BY TREATING THE SAME AS CAPITAL IN NATURE. SIMILAR DI SALLOWANCE WAS MADE BY THE AO IN RELATION TO A.Y. 2006-07 OF RS.1,17,65,564/-. THE ISSUE RELATING TO BOTH THE YEARS TRAVELLED TO THE TRIBUNAL AND THE TRIBUNA L SET ASIDE THE SAME TO THE FILE OF THE AO FOR DENOVO ADJUDICATION DIRECTING AS UNDER: 'WE FIND, THE LD. CIT(A) WHILE ALLOWING THE CLAIM O F THE ASSESSEE MERELY RELIED ON THE ARGUMENTS OF THE ASSESSEE THAT THE INCURRENC E OF THE EXPENSES AND THE ITA NOS.616 TO 618/M/2014 M/S. SATGURU INFOCORP. SERVICES PVT. LTD. 3 GENUINENESS OF PAYMENTS TO VARIOUS PARTIES ARE NOT DOUBTED. ACCORDING TO THE LD. CIT(A) THE PROPERTY BELONGS TO MMTC AND THE ASSESSE E HAS TO MAKE SOME CHANGES IN THE EXISTING FURNITURE AS PER THE NEED OF THE TE NANT AND NO NEW ASSET HAS COME INTO EXISTENCE. HOWEVER, THE FACTS SUBMITTED B Y THE LD. COUNSEL OF THE ASSESSEE REVEAL THAT IT IS A JOINT VENTURE BETWEEN THE ASSESSEE AND MMTC TO RUN A BUSINESS CENTRE. THE ASSESSEE HAS NOT MADE ANY CHAN GES IN THE PROPERTY AS PER THE NEEDS OF THE TENANT, RATHER IT HAS CONSTRUCTED CABI NS ETC IN THE PREMISES TOWARDS ITS CONTRIBUTION TO THE JOINT VENTURE. UNDER THESE CIRC UMSTANCES WE DEEM IT PROPER TO RESTORE THE ISSUE TO THE FILE OF THE AO WITH THE DI RECTION TO DECIDE THE ISSUE AFRESH AND IN ACCORDANCE WITH LAW.' 4. IN THE SET ASIDE PROCEEDINGS, THE AO AGAIN DISAL LOWED THE SAID EXPENDITURE HOLDING THE SAME AS CAPITAL IN NATURE. BEING AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A). BEFORE THE LD. CIT(A), THE ASSESSEE FILED A DETAILE D EXPLANATION THAT THE EXPENDITURE INCURRED BY THE ASSESSEE ON REPAIRS AND MAINTENANCE OF FURNITURE AND FIXTURES OF THE BUSINESS CENTRE WAS MADE FOR TH E BUSINESS REQUIREMENT OF RUNNING THE BUSINESS CENTRE AS THE ASSESSEE HAS TO INCUR THE SAID EXPENDITURE FOR MAKING THE BUSINESS CENTRE PREMISES SUITABLE TO THE CLIENTS BUSINESS. IT DID NOT GIVE ANY ENDURING BENEFIT TO THE ASSESSEE. IT WAS A LSO BROUGHT TO THE KNOWLEDGE OF THE LD. CIT(A) THAT THE IDENTICAL ISSUE FOR THE A.Y. 2007-08 VIDE ITA NO.6060/M/2010 DATED 19.12.2011 IN THE OWN CASE OF THE ASSESSEE TRAVELLED TO THE TRIBUNAL AND THE TRIBUNAL, AFTER CONSIDERING TH E SUBMISSIONS OF THE ASSESSEE, ALLOWED THE CLAIM OF THE ASSESSEE OBSERVI NG AS UNDER: 8. WE ARE OF THE CONSIDERED VIEW THAT THE LD. CIT( A) HAS RIGHTLY STATED THAT CONSIDERING THE TOTAL BLOCK OF FURNITURE AND FIXTUR ES AMOUNTING TO RS. 5.25 CRORES, THE REPAIRS AND MAINTENANCE EXPENDITURE OF RS. 60 L AKHS COULD NOT BE STATED TO BE UNREASONABLE, PARTICULARLY WHEN THE FU RNITURE AND FIXTURES WERE BEING USED FOR BUSINESS CENTRE. THE LD. CIT (A) HAS STATED THAT FURNITURE AND FIXTURES AT BUSINESS CENTRE REQUIRE INHERENTLY HIGH ER MAINTENANCE EXPENDITURE AS BUSINESS CENTRES ARE USED BY A LARGE NUMBER OF PEOPLE FOR COMMERCIAL PURPOSES RESULTING IN HIGHER WEAR-ANDTEA R OF THE FURNITURE ETC. THE LD. CIT (A) HAS FURTHER STATED THAT THE ASSESSE E ITSELF HAD CAPITALIZED A SUM OF RS. 28 LAKHS APPROXIMATELY ON ACCOUNT OF NEW FURNITURE AND FIXTURE. THE LEARNED DEPARTMENTAL REPRESENTATIVE HA S ALSO NOT DISPUTED THE OBSERVATION OF LD. CIT (A) THAT IN PRECEDING YEARS I.E., ASSESSMENT YEARS 2005- 06 AND 2006-07, SIMILAR DISALLOWANCES WERE MADE BY ASSESSING OFFICER AND WERE DELETED BY THE FIRST APPELLATE AUTHORITY. AT THE T IME OF HEARING, LEARNED ITA NOS.616 TO 618/M/2014 M/S. SATGURU INFOCORP. SERVICES PVT. LTD. 4 DEPARTMENTAL REPRESENTATIVE COULD NOT STATE AS TO W HETHER THE DEPARTMENT HAD ACCEPTED THE SAID ORDERS OF LD. CIT (A) OR NOT. 9. CONSIDERING THE ABOVE FACTS AND ALSO CONSIDERING THE DECISION OF HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. A.M. SI NGHVI, 302 ITR 26 WHEREIN IT WAS HELD THAT EVEN IF THE SUBSTANTIAL AMOUNT IS SPENT O N REPAIRS AND RENOVATION OF OFFICE PREMISES TAKEN ON RENT, IT IS TO BE ALLOWED AS REVE NUE EXPENDITURE BECAUSE NO CAPITAL ASSET IS ACQUIRED BY THE ASSESSEE. HENCE, W E HOLD THAT THERE IS NO INFIRMITY IN THE ORDER OF LD. CIT (A). THEREFORE, WE UPHOLD HIS ORDER BY REJECTING THE GROUNDS OF APPEAL TAKEN BY THE DEPARTMENT. 10. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISM ISSED. 5. THE LD. CIT(A) APPLYING THE SAME RATIO AS DECIDE D BY THE TRIBUNAL IN THE OWN CASE OF THE ASSESSEE ON THE IDENTICAL ISSUE ALLOWED THE CLAIM OF THE ASSESSEE VIDE COMMON ORDER FOR A.Y. 2005-06, 2006-0 7 & 2010-11. BEING AGGRIEVED, THE REVENUE HAS COME IN APPEAL BEFORE US . 6. WE FIND THAT THE ISSUE IS SQUARELY COVERED IN FA VOUR OF THE ASSESSEE BY THE FINDING OF THE TRIBUNAL IN THE OWN CASE OF THE ASSESSEE FOR A.Y. 2007-08. THE REVENUE IN ITS GROUNDS HAS TAKEN THE PLEA THAT THE REVENUE HAS NOT ACCEPTED THE ORDER OF THE TRIBUNAL AND HAS PREFERRE D AN APPEAL BEFORE THE HONBLE HIGH COURT. HOWEVER, THE LD. A.R. OF THE A SSESSEE HAS BROUGHT OUR ATTENTION TO THE ORDER DATED 11.03.14 OF THE HONBL E BOMBAY HIGH COURT PASSED IN THE OWN CASE OF THE ASSESSEE FOR A.Y. 200 7-08 VIDE ITA NO.623 OF 2012 WHEREIN THE HONBLE BOMBAY HIGH COURT HAS UPHE LD THE ORDER OF THE TRIBUNAL FOR A.Y. 2007-08. THUS, THE FINDING OF TH E TRIBUNAL THAT THE EXPENDITURE INCURRED BY THE ASSESSEE FOR MAINTAININ G FURNITURE, FIXTURES ETC. FOR RUNNING THE BUSINESS CENTRE WERE REVENUE IN NATURE AND THUS ALLOWABLE HAS BEEN UPHELD BY THE HONBLE BOMBAY HIGH COURT. THUS , THE ISSUE IS NOW SQUARELY COVERED BY THE DECISION OF THE HONBLE BOM BAY HIGH COURT IN THE OWN CASE OF THE ASSESSEE. THUS, THE CLAIM OF THE E XPENDITURE BY THE ASSESSEE ON THIS ISSUE FOR A.Y. 2005-06, 2006-07 & 2010-11 I S ACCORDINGLY ALLOWED. ITA NOS.616 TO 618/M/2014 M/S. SATGURU INFOCORP. SERVICES PVT. LTD. 5 7. THE SECOND ISSUE TAKEN BY THE REVENUE FOR A.Y. 2 005-06 IS IN RELATION TO THE DISALLOWANCE OF PRIOR PERIOD EXPENSES. THE AO DISALLOWED AN AMOUNT OF RS.2,44,800/- CLAIMED AS BUSINESS PROMOTION EXPENSE S ON THE GROUND THAT THE SAME PERTAINED TO THE PERIOD PRIOR TO THE ASSESSMEN T YEAR UNDER CONSIDERATION. 8. IN APPEAL, THE ASSESSEE EXPLAINED TO THE LD. CIT (A) THAT THE BILL OF RS.2,44,800/- THOUGH PERTAINED TO THE PRECEDING YEA R WAS RECEIVED BY THE ASSESSEE IN THE CURRENT YEAR WHICH WAS NOT DISPUTED BY THE AO. SINCE THE BILL WAS RECEIVED THIS YEAR, HENCE THE LIABILITY WAS CRY STALLIZED DURING THE YEAR UNDER CONSIDERATION. THE LD. CIT(A), RELYING UPON THE DECISION OF THE ITAT DELHI BENCH IN THE CASE OF GOETZE INDIA LTD. VS. C IT 115 ITD 119 (ITAT DEL.), HELD THAT SINCE THE QUANTUM OF ACTUAL LIABIL ITY WAS CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION, HENCE THE EXPENDITURE WAS ALLOWABLE DURING THE CURRENT YEAR. HE, THEREFORE, DELETED THE DISALLOWA NCE. 9. THE LD. D.R. COULD NOT POINT OUT ANY DIFFERENTIA TING FACT OR LAW WHICH MAY JUSTIFY OUR INFERENCE IN THE ABOVE FINDINGS OF THE LD. CIT(A) ON THIS ISSUE. WE, THEREFORE, DO NOT FIND ANY INFIRMITY IN THE ORD ER OF THE LD. CIT(A) ON THIS ISSUE ALSO. 10. IN THE RESULT, ALL THE APPEALS OF THE REVENUE A RE HEREBY DISMISSED. ORDER WAS PRONOUNCED IN THE OPEN COURT ON 02.07.201 5. SD/- SD/- (R.C. SHARMA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 27.10.2015. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI ITA NOS.616 TO 618/M/2014 M/S. SATGURU INFOCORP. SERVICES PVT. LTD. 6 THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.