TODI & COMPANY, MUMBAI V. ACIT 21(3), MUMBAI

ITA 6371/MUM/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 1902 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-07-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2013-2014
• Appeal Filed On: 04-10-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAY KUMAR MENON
• Keywords: Depreciation; Revenue expenditure; Capital expenditure; Set aside
• Section: 271(1)(c)

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI SHRI SHAMIM YAHYA (AM) & SHRI PAVAN KUMAR GADALE (JM) I.T.A. NO. 6371/MUM/2019 (ASSESSMENT YEAR 2013-14) M/S. TODI & COMPANY C/O. PORWAL & POWRWAL LLP, 625, LAXMI PLAZA, 6 TH FLOOR, OFF.NEW LINK ROAD, ANDHERI(W), MUMBAI-400 053 PAN : AAAFT1739P VS. A CIT - 2 1 (3) ROOM NO.209, PIRAMAL CHAMBERS MUMBAI-400 012 ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY NONE DEPARTMENT BY VIJAY KUMAR MENON DATE OF HEARING 04.05 .2021 DATE OF PRONOUNCEMENT 01 .07 .2021 O R D E R PER SHAMIM YAHYA (AM) :- THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(A)-33 DATED 22.07.2019 AND PERTAINS TO ASSESSMENT YEAR 20 13-14. 2. THE GROUNDS OF APPEAL READ AS UNDER : ESTIMATED DISALLOWANCE OF RS. 26,40,199 OF REVENUE EXPENDITURE. 1.01 THE LEARNED CIT (A) ERRED IN CONFIRMING THE ADDITIO N OF EXPENDITURE AMOUNTING TO RS. 26,40,199 AFTER ALLOWANCE OF AN ES TIMATED AMOUNT OF RS. 20,00,000 FROM THE TOTAL DISALLOWANCE OF RS. 46,40, 199 AS CAPITAL EXPENDITURE. 1.02 THE LEARNED CIT (A) FAILED TO APPRECIATE TH E VARIOUS ISSUES RAISED IN THE APPEAL ON THIS GROUND AND ERRED IN PARTLY ALLOWING THIS GR OUNDS OF APPEAL. 3. BRIEF FACTS OF THE CASE ARE THAT THE AO OBSERV ED THAT ASSESSEE DURING THE YEAR HAD UNDERTAKEN A MAJOR REFURBISHMENT OF ITS BUSINESS PR EMISES AND EXPENDITURE, WHICH WAS CAPITALIZED AMOUNTED TO RS.59,22,000/-. FURTHER, HE OBSERVED THAT THE ASSESSEE HAD DEBITED A SUM OF RS.37,01,849/- ON ACCOUNT OF 'REPA IR AND MAINTENANCE'. THEREFORE, AO DIRECTED THE ASSESSEE TO SUBMIT ALONG WITH DOCUMENT ARY EVIDENCES, THE DETAILS OF ADDITION ITA NO.6371/MUM/2019 2 TO FACTORY PREMISES, NATURE OF REPAIRS & MAINTENANC E. ASSESSEE WAS ALSO DIRECTED TO FURNISH THE DETAILS OF LABOR CHARGES DEBITED UNDER THE HEAD 'MANUFACTURING EXPENSES' IN DIRECT EXPENSES. FROM THE PERUSAL OF THE SUBMISSION, AO OBSERVED TH AT DURING THE YEAR ASSESSEE HAD UNDERTAKEN A MAJOR RENOVATION/REFURBISHMENT OF ITS FACTORY & OFFICE PREMISES AND NATURE OF WORKS INVOLVED CIVIL WORK, STRUCTURAL GLA ZING, WOOD WORK, FALSE CEILING, WATERPROOFING, PLUMBING, ELECTRICAL WIRING AND FITT INGS, FLOORING, PLASTERING ETC. SOME OF THE BILLS HAVE BEEN REPRODUCED HEREWITH, WHICH GIVE CLEAR IDEA OF THE NATURE OF WORK DONE. 4. THEREAFTER, AO REFERRED TO SOME BILLS. FURTHER IN PARA 3.9, THE AO CUT & PASTED FROM SOME OTHER LD.CIT(A) ORDER AS UNDER:- 3.9 I HAVE CAREFULLY CONSIDERED ASSESSEE'S SUBM ISSION AND FOUND THE SAME NOT SATISFACTORY, WITHOUT ANY SUPPORTING DOCUMENTS AND HENCE NOT ACCE PTABLE. FROM THE AO'S FINDINGS AND BY ASSESSEE'S OWN ADMISSION IT HAS BEEN ESTABLISHED THAT DURING FY.2012-13 ASSESSEE CARRIED OUT A MAJOR RENOVATION OF ITS PREMISES, WHICH WAS N OT IN THE NATURE OF CURRENT REPAIRS, A CONDITION REQUIRED TO BE FULFILLED IN ORDER TO CLAI M THE EXPENSES AS DEDUCTION U/S.30(A)(II). INSTEAD THE EXPENDITURE WAS INCURRED IN ORDER TO AD APT THE PREMISES TO A NEW AND DIFFERENT ADVANTAGE. INDEED, ASSESSEE HIMSELF HAS ADMITTED THAT IT HAD INCURRED EXPENDITURE IN ORDER TO BRING INTO EXISTENCE A NEW ASSET. WHAT IS DEBATE D HERE IS THE ASSESSEE'S CLAIM OF CERTAIN PROPORTION OF THIS EXPENDITURE BEING IN THE NATURE OF CURRENT REPAIR. THE ISSUE INVOLVED, THUS, REDUCES TO AS TO WHETHER A CERTAIN PROPORTION OF TH E EXPENDITURE ON EXTENSIVE REPAIRS AND RENOVATION COULD BE ALLOWED AS TOWARDS CURRENT REPA IRS EVEN THOUGH IT WAS SPENT IN THE REGULAR COURSE OF THE RENOVATION. 5. THE AO FURTHER OBSERVED AS UNDER:- 3.11 FROM THE PERUSAL OF THE LEDGER OF 'BUILDING RE PAIR', IT IS CLEAR THAT WHAT ASSESSEE HAS CAPITALIZED IS MERELY THE COST OF CONCRETE AND STEE L (THAT IS ALSO NOT ENTIRELY) WHILE THE REST OF THE EXPENSES HAVE BEEN DEBITED UNDER THE HEAD CURRE NT REPAIR AND CLAIMED AS REVENUE EXPENDITURE EVEN THOUGH THEY-WERE INCURRED FOR THE SAME RENOVATION WHEREIN THE CONCRETE AND STEEL WAS USED. 3.12 THUS AS PER ASSESSEE, THE COST OF CIVIL WORK WAS CAPITALIZED WHILE THE REST CONSTITUTED CURRENT REPAIR. THIS EXPLANATION IS COMPLETELY MISP LACED. A PREMISES, IT MAY BE APPRECIATED, IS CONSTITUTED NOT MERELY BY, OR ONLY OF, CIVIL STR UCTURE, IN-AS-MUCH AS THE SAME BY ITSELF DOES ITA NO.6371/MUM/2019 3 NOT RENDER IT FUNCTIONAL FOR THE STATED PURPOSE OF ITS USER. RATHER ALL THE ANCILLARY CONSTRUCTION, REFURBISHMENT SUBSIDIARY AMENITIES, SERVICES ETC AR E TO BE AS NECESSARY IN ORDER TO RENDER THE PREMISES FUNCTIONAL. THEREFORE, ASSESSEE'S LOGIC OF TREATING ONLY CONCRETE AND STEEL COST AS CAPITAL EXPENDITURE WHILE OTHER EXPENDITURE AS REVE NUE IS NOT ACCEPTABLE FOR THE SIMPLE REASON THAT ENTIRE EXPENDITURE WAS INCURRED AT ONCE IN ORDER TO TRANSFORM THE PREMISES. 6. ACCORDINGLY, THE AO MADE THE FOLLOWING DISA LLOWANCES:- 3.18 TOTAL DISALLOWANCE WORKS OUT TO RS.46,40,99/ -. DEPRECIATION !10% BEING RS.2,32,010/- IS ALLOWED TO THE ASSESSEE. PENALTY P ROCEEDINGS U/S 271(1)(C) INITIATED SEPARATELY FOR FURNISHING INACCURATE PARTICULARS OF INCOME. 7. UPON ASSESSEES APPEAL LD. CIT(A) HELD THAT AO HAS NOT MADE PROPER ENQUIRY AND SUSTAINED ADHOC ADDITION, WITHOUT BRINGING ANYTHIN G FURTHER ON RECORD. 8. LD.CIT(A)S CONCLUSION IS AS UNDER:- 16. CONSIDERING THE ENTIRETY OF FACTS. I AM OF THE VIEW THAT THE ASSESSEE HAD INCURRED A SUBSTANTIAL AMOUNT ON ITS OFFICE AND FACTORY PREMIS ES ON WORKS INVOLVING CIVIL WORK, STRUCTURAL GLAZING, WOOD WORK, FALSE CEILING, WATER -PROOFING, PLUMBING, ELECTRICAL WIRING AND FITTINGS, FLOORING, PLASTERING ETC. THE SAME WAS NO T A ROUTINE REPAIR OR MAINTENANCE. IT WAS DONE TO MAKE THE PREMISES USABLE FOR A LONGER DURAT ION. THERE WAS ENHANCEMENT IN CAPACITY AND EFFICIENCY OF THE PREMISES. IT WAS NOT MERELY F OR RESTORING THE PREMISES TO ITS ORIGINAL CONDITION BUT DEFINITELY IT HAD BROUGHT NEW ADVANTA GE. THEREFORE, THE AO IS CORRECT IN TREATING THE EXPENDITURE INCURRED FOR WORKS INSIDE THE BUILDINGS ALSO AS CAPITAL EXPENDITURE. HOWEVER, THE AO HAD NOT EXAMINED ITEM WISE EXPENDIT URE TO CLASSIFY THE SAME AS CAPITAL OR REVENUE EXPENDITURE. HE HAS TREATED THE ENTIRE EXPE NSES UNDER A PARTICULAR LEDGER ACCOUNT AS CAPITAL EXPENDITURE. IT IS ALSO APPARENT THAT THE E XPENSES RELATED TO ROUTINE REPAIRS AND MAINTENANCE ARE ALSO DEBITED IN THOSE LEDGER ACCOUN TS WHICH ARE DEFINITELY REVENUE EXPENDITURE AND THE APPELLANT SHOULD GET THE BENEFI T OF THE SAME BEING REVENUE EXPENDITURE. IN VIEW OF ABOVE, THE ONLY METHOD IS FURTHER ESTIMA TION OF CAPITAL AND REVENUE EXPENDITURE SINCE ITEM WISE ADJUDICATION IS NOT POSSIBLE. CONSI DERING THE ENTIRELY OF FACTS, I AM OF THE VIEW THAT OUT OF RS. 46,40,199/- TREATED BY THE AO AS CAPITAL EXPENDITURE , RS.20,00,000/- IS ESTIMATED TO BE IN THE NATURE OF REVENUE EXPENDITUR E AND BALANCE RS.26,40,199/- TREATED AS CAPITAL EXPENDITURE BY THE AO IS HEREBY SUSTAINED. THE GROUND IS PARTLY ALLOWED. 9. AGAINST THIS ORDER ASSESSEE IS IN APPEAL BE FORE US. 10. WE HAVE HEARD THE LD. DR AND PERUSED THE REC ORD. WE NOTE THAT LD. CIT(A) HAS GIVEN A FINDING THAT AO HAS NOT MADE PROPER ENQUIRY . HENCE, LD.CIT(A) HAS SUSTAINED THE DISALLOWANCES PARTLY ON ADHOC BASIS. ITA NO.6371/MUM/2019 4 11. IT IS SETTLED LAW THAT DISALLOWANCES CANNOT B E MADE ON SURMISES AND CONJECTURES THE POWER OF LD.CIT(A) ARE CO-TERMINUS. WITH THAT OF.AO . THE LD.CIT(A) HAS GROSSLY ERRED IN NOT MAKING THE ENQUIRY, HE WAS OF THE OPINION S HOULD HAVE BEEN CONDUCTED. MOREOVER, THE REASONING THAT THE EXPENDITURE INCURR ED ON BUILDING REPAIR, REPAIR & MAINTENANCE AND LABOUR CHARGES, IN THIS REGARD BRIN G ABOUT AN EXPENDITURE OF CAPITAL NATURE ON AN ADHOC BASIS IS NOT SUSTAINABLE ON THE BASIS OF MATERIAL BROUGHT ON RECORD. THIS IS MORE SO, WHEN ASSESSEE HAS ALREADY CAPITALI ZED RS.59,22,000/- IN THIS REGARD. 12. HENCE, WE SET ASIDE THE ORDER OF AUTHORITIES BELOW AND ALLOW THE ASSESSEES GROUND. 13. IN THE RESULT, ASSESSEE APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 01.07.2021 SD/- SD/- ( PAVAN KUMAR GADALE) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTAN T MEMBER MUMBAI; DATED : 01/07/2021 SR.PS. THIRUMALESH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( ASSISTANT REGISTRAR) ITAT, MUMBAI