ACIT, CC-XXIII, Kolkata, Kolkata V. M/s. Southern Avenue Inn (P) Ltd., Kolkata

ITA 66/KOL/2012

• Counselvise Citation: 6623514 RSA 2012
• Duration Of Justice: 3 year(s) 9 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-10-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 01-09-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 12-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S L KOCHAR LD S
• Keywords: Capital expenditure
• Section: 143(3)

Judgement Text

I.T.A. NO. 66/KOL/2012 ASSESSMENT YEAR: 2008-2009 PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA B BENCH, KOLKATA BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI WASEEM AHMED(ACCOUNTANT MEMBER) I.T.A. NO. 66/ KOL. / 2012 ASSESSMENT YEAR : 2008-2009 ASSISTANT COMMISSIONER OF INCOME TAX,............ ...APPELLANT CENTRAL CIRCLE-XXIII, KOLKATA, 18, RABINDRA SARANI, 5 TH FLOOR, KOLKATA-700 001 -VS.- M/S. SOUTHERN AVENUE INN (P) LIMITED,............ RESPONDENT 73, SOUTHERN AVENUE, KOLKATA-700 029 [PAN : AACCP 9969 Q] APPEARANCES BY: SHRI AMITABH CHOWDHURY, ADDITIONAL CIT, LD D. R., FOR THE APPELLANT SHRI S.L. KOCHAR, ADVOCATE, LD.ADVOCATES FOR & SHRI ANIL KOCHAR THE RESPONDENT DATE OF CONCLUDING THE HEARING : SEPTEMBER 24, 201 5 DATE OF PRONOUNCING THE ORDER : OCTOBER 15 , 2015 O R D E R PER WASEEM AHMAD: THIS APPEAL OF THE REVENUE ARISES OUT OF ORDER OF L D. COMMISSIONER OF INCOME TAX (APPEALS), CENTRAL-III, KOLKATA IN APPEAL NO. 74/CC-XXIII/CIT(A)/C-III/10-1 1 DATED 16.11.2011 QUA THE ASSESSMENT YEAR 2008-09, WHICH IS AGAINST THE ORDER OF ASSESSMENT PASSED UND ER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (HEREINA FTER REFERRED TO AS THE ACT). I.T.A. NO. 66/KOL/2012 ASSESSMENT YEAR: 2008-2009 PAGE 2 OF 7 1. THE SHORT ISSUE WHICH IS REQUIRED TO BE ADJUDICATE D IN THIS APPEAL IS THAT WHETHER THE LD. WHETHER THE COMMISS IONER OF INCOME TAX (APPEALS) WAS JUSTIFIED OR NOT IN DEL ETING THE ADDITION OF RS.17,45,918 MADE UNDER SECTION 36( 1)(III) OF THE ACT ON ACCOUNT OF INTEREST PAID ON LOAN BORR OWED DURING THE YEAR UNDER CONSIDERATION. THE ASSESSMENT YEAR INVOLVED IS 2008-09 AND THE IMPUGNED ORDER WAS PASS ED BY THE LD. CIT(APPEALS) ON 16 TH NOVEMBER, 2011. BRIEF FACTS OF THE CASE 2. THE ASSESSEE IS A PRIVATE LIMITED COMPANY, WHICH IS ENGAGED IN THE BUSINESS OF RUNNING A HOTEL. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE STARTED MAJOR RENO VATION OF THE HOTEL BUILDING AND INCURRED AN EXPENSE OF RS.1, 85,75,761/-. FROM THE BALANCE-SHEET IT WAS SHOWN THAT THE ASSESS EE TOOK FRESH UNSECURED LOANS FROM M/S. DEVANSHI CONSULTANT S PVT. LTD. AS ON 31.03.2008 TO THE TUNE OF RS.2,50,00,000/- (L OAN RS.1,50,00,000/- AND AS ON 31.03.2008 WAS AMOUNTING TO RS.4,00,00,000/-). THE SOLITARY ISSUE ARISING FROM THE SAME RELATES TO THE ADDITION OF RS.17,45,918/- MADE BY THE ASSESSING OFFICER, ON ACCOUNT OF LOANS RECEIVED BY THE ASSESSEE TREATING THE SAME AS INCLUSION FOR ACQUISITION OF AN ASSET FOR THE PURPOSE OF EXTE NSION OF ITS BUSINESS. ON THE BASIS OF THE ABOVE OBSERVATIONS, T HE ASSESSING OFFICER HELD THAT NO NEW ASSET WAS ACQUIRED DURING THE YEAR AND THAT THERE WAS ONLY AN EXTENSION OF THE EXISTIN G BUSINESS BY STATING THAT PROVISIONS OF SECTION 36(1)(III) WA S NOT APPLICABLE IN THIS CASE. HENCE, DISALLOWED THE INT EREST EXPENSES CLAIMED BY ASSSESSEE. I.T.A. NO. 66/KOL/2012 ASSESSMENT YEAR: 2008-2009 PAGE 3 OF 7 APPEAL BEFORE LD CIT(A) 3. AGAINST THE ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3), AN APPEAL WAS PREFERRED BY THE ASSE SSEE BEFORE THE LD. CIT(APPEALS) DISPUTING THE ADDITION OF RS.17,45,918/- MADE BY THE ASSESSING OFFICER. AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE AS WELL AS THE MATERIAL AVAILABLE ON RECORD, THE LD. CIT (A PPEALS) SUMMARIZED HIS FINDINGS ON THE ISSUE AS UNDER:- 6. I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF T HE APPELLANT AND HAVE ALSO PERUSED THE ASSESSMENT ORDER ON THIS ISSUE. THE APPELLANT IS IN THE BUSINE SS OF RUNNING A HOTEL. DURING THE YEAR THE APPELLANT MADE A CAPITAL EXPENDITURE OF RS.1,85,75,761/- TOWARDS MAJOR RENOVATION OF THE HOTEL BUILDING WHIC H IS SHOWN IN THE BALANCE SHEET AS CAPITAL WORK IN PROGRESS. THE A.O. OBSERVED FROM THE BALANCE SHEET THAT THE APPELLANT TOOK FRESH UNSECURED LOAN TO THE TUNE OF RS.2,50,00,000/- (LOAN AS ON 31.03.2007 WAS RS.1,50,00,000/- AND AS ON 31.03.2008 WAS RS.4,OO,OO,OOO/-). THE A.O. ALSO OBSERVED THAT EXCEPT THE CAPITAL WORK IN PROGRESS THERE WAS NO SIGNIFICANT INCREASE IN THE VALUE OF ANY OTHER ASSE TS OR REDUCTION IN VALUE OF ANY LIABILITY. HE, THEREFO RE, CONCLUDED THAT THE ENTIRE CAPITAL WORK IN PROGRESS WAS CARRIED OUT BY UTILISING THE FRESH LOAN ACCEPTE D DURING THE YEAR. THE TOTAL INTEREST INCURRED ON SUC H LOAN AMOUNTED TO RS.19,70,630/-. HE FURTHER OBSERVED THAT EXCEPT THE INTEREST AMOUNTING TO RS.2,24,712/- PAYABLE TO M/S. DEVANSH CONSULTANTS PVT. LTD. THE BALANCE INTEREST OF RS.17,45,918/- WA S PAID/PAYABLE ON FRESH LOANS TAKEN DURING THE YEAR. HE SOUGHT AN EXPLANATION FROM THE APPELLANT THAT WHY SUCH INTEREST SHOULD NOT BE DISALLOWED AS PER THE PROVISO TO SEC.36(1)(III) OF THE I.T. ACT. 1961 . IN REPLY THE APPELLANT MADE A DETAILED SUBMISSION WHICH HAS BEEN STATED IN THE PARAGRAPH 7 OF THE SUBMISSION OF THE APPELLANT. HERE THE APPELLANT HAS STATED THAT THEY HAVE NOT ACQUIRED ANY ASSET FOR EXTENSION OF THEIR EXISTING BUSINESS. THEIR BUSINES S REMAINED CONFINED TO THE SAME PLACE AND THEY DID NOT SPEND ANY AMOUNT TO HAVE ANY OTHER PROPERTY TO EXTEND THE CIRCLE OF THEIR BUSINESS. IN VIEW OF THI S THE PROVISO TO SEC.36(1)(III) ARE NOT APPLICABLE IN THEIR CASE. I.T.A. NO. 66/KOL/2012 ASSESSMENT YEAR: 2008-2009 PAGE 4 OF 7 7. HOWEVER, IN THE ASSESSMENT ORDER THE A.O. HAS GIVEN DIFFERENT VERSION OF THE APPELLANT'S REPLY WH ICH IS REPRODUCED AS UNDER :- 'IT ONLY SUBMITTED THAT NO NEW ASSET WAS ACQUIRED DURING THE YEAR AND THAT THERE WAS ONLY AN EXTENSION OF THE EXISTING BUSINESS. SO PROVISO TO SEC.36(1)(III) IS NOT APPLICABLE. IT IS CLEAR FROM THE APPELLANT'S SUBMISSION BEFORE THE A.O. THAT THEY NEVER ADMITTED THAT THERE WAS AN EXTENSION OF THE EXISTING BUSINESS. HOWEVER, THE A. O. SOMEHOW INTERPRETED THAT THERE HAS BEEN AN EXTENSION OF THE EXISTING BUSINESS AND CONSIDERED T HE EXPLANATION OF THE APPELLANT AS UNSATISFACTORY AND WITH THIS INTERPRETATION DISALLOWED THE INTEREST AMOUNT. THE PROVISO TO SEC.36(1)(III) REFERS TO ANY AMOUNT OF INTEREST PAID IN RESPECT OF CAPITAL BORRO WED FOR ACQUISITION OF AN ASSET FOR EXTENSION OF EXISTI NG BUSINESS OR PROFESSION (WHETHER CAPITALISED IN THE BOOKS OF A/CS OR NOT). SO THE DETERMINING FACTOR FO R APPLICATION OF THIS PROVISO IS - (1) THERE SHOULD B E ACQUISITION OF AN ASSET AND (2) SUCH ACQUISITION IS FOR EXTENSION OF EXISTING BUSINESS. IN THE INSTANT CASE EXPENDITURE HAVE BEEN INCURRED FOR SOME REPAIR AND REPLACEMENT WORK WHICH INCLUDED REPLACEMENT OF FLOORING AND A LIFT AND SUCH REPLACEMENTS ARE FOR T HE SMOOTH CONDUCT OF IT HE EXISTING BUSINESS AND NOT F OR THE EXTENSION OF THE EXISTING BUSINESS. HAD THERE BEEN ADDITION OF SOME NEW ROOMS OR RESTAURANTS OR SOME OTHER NEW FACILITY THEN IT COULD HAVE BEEN TREATED AS EXTENSION OF EXISTING BUSINESS. THE A.O. HAS NOT DISPUTED THE NATURE OF WORK UNDERTAKEN OR HAS MADE ANY CASE THAT ANY NEW FACILITY HAS BEEN CONSTRUCTED. THEREFORE, TAKING ALL FACTS AND CIRCUMSTANCES INTO CONSIDERATION, I AM OF THE OPINI ON THAT THE WORK UNDERTAKEN BY THE APPELLANT DOES NOT INCLUDE ACQUISITION OF AN ASSET FOR THE PURPOSE OF EXTENSION OF ITS BUSINESS. THEREFORE, PROVISO TO SEC.36(1)(III) IS NOT APPLICABLE IN THIS CASE AND T HE ADDITION IS NOT JUSTIFIED. THE A.O. IS DIRECTED TO DELETE THE ADDITION OFRS.17,45,918/-. 4. ON THE BASIS OF THE ABOVE FINDINGS AS WELL AS FOR T HE OTHER REASONS GIVEN IN HIS IMPUGNED ORDER, THE LD. CIT(AP PEALS) DELETED THE ADDITION MADE BY THE ASSESSING OFFICER OBSERVING THAT THE ASSESSING OFFICER HAS NOT DISPUTED THE NAT URE OF WORK UNDERTAKEN OR HAS MADE ANY CASE THAT ANY NEW FACILI TY HAS I.T.A. NO. 66/KOL/2012 ASSESSMENT YEAR: 2008-2009 PAGE 5 OF 7 BEEN CONSTRUCTED AND THAT THE WORK UNDERTAKEN BY TH E ASSESSEE DOES NOT INCLUDE ACQUISITION OF AN ASSET FOR THE PU RPOSE OF EXTENSION OF ITS BUSINESS. LD. CIT(APPEALS), THEREF ORE, DELETED THE ADDITION MADE BY THE ASSESSING OFFICER STATING THAT THE PROVISO TO SECTION 36(1)(III) WAS NOT APPLICABLE IN THIS CASE. AGGRIEVED BY THE ORDER OF THE LD. CIT(APPEALS), THE REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 5. SUBMISSIONS ON BEHALF OF APPELLANT IT WAS ARGUED BY THE LD D.R. THAT THE WORK CARRIED OUT BY THE ASSESSEE WAS CERTAINLY IN THE NATURE OF EXTENSI ON OF BUSINESS BECAUSE THE VALUE OF BUSINESS AND PROPERTY WOULD BE INCREASED AND IT AMOUNTS TO CAPITAL EXPEND ITURE AND THE ORDER PASSED BY THE LD CIT(A) IS BASES ON CONJECTURE AND SURMISES AND THEREFORE LIABLE TO BE SET ASIDE AND ORDER PASSED BY THE LD. A.O. IS TO BE CON FIRMED. 6. SUBMISSIONS ON BEHALF OF ASSESSEE ON THE CONTRARY IT IS ARGUED BY THE LD COUNSEL OF T HE ASSESSEE THAT THE WORK CARRIED BY THE ASSESSEE IS N OT DISPUTED BY THE LD. A.O. AND THERE ARE NO ADVERSE MATERIAL BY WHICH IT CAN BE ESTABLISHED THAT THE SA ME AMOUNTS TO EXTENSIONS OF EXISTING BUSINESS AND THE LD. CIT(A) PASSED AN REASONED ORDER THEREFORE LIABLE TO BE AFFIRMED. ORDER WITH REASONS 5. WE HAVE HEARD THE ARGUMENTS OF BOTH SIDES AND AL SO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE LD. ADDL. CIT (D.R.) FOR THE REVENUE HAS CONTENDED THAT SOME OF THE FINDINGS RECORDED BY THE LD. CIT (APPEALS) IN HIS I MPUGNED ORDER ARE NOT CORRECT, INASMUCH AS, INTEREST INCOME IN THE HANDS OF THE CONCERNED CREDITOR HAD ACCRUED AS ASSU MED BY HIM BUT THE SAME WAS NOT ACTUALLY RECEIVED BY THE P ARTY, WE I.T.A. NO. 66/KOL/2012 ASSESSMENT YEAR: 2008-2009 PAGE 6 OF 7 FIND THAT LD A.O. ERRED IN INTERPRETING THAT THERE HAS BEEN AN EXTENSION OF THE EXISTING BUSINESS AND CONSIDERED T HE EXPLANATION OF THE APPELLANT AS UNSATISFACTORY AND WITH THIS INTERPRETATION DISALLOWED THE INTEREST AMOUNT. THE PROVISO TO SEC.36(1)(III) SPECIFICALLY DEALS WI TH TWO SITUATIONS FIRST THERE SHOULD BE ACQUISITION OF AN ASSET AND SECONDLY SUCH ACQUISITION IS FOR EXTENSION OF EXIST ING BUSINESS. IN THE INSTANT CASE EXPENDITURE HAVE BEEN INCURRED FOR SOME REPAIRS AND REPLACEMENT WORKS WHICH INCLUDED REPLAC EMENT OF FLOORING AND LIFT AND SUCH REPLACEMENTS ARE FOR THE SMOOTH CONDUCT OF THE EXISTING BUSINESS AND NOT FOR THE EX TENSION THEREOF AND EVEN OTHERWISE THAT CAN NOT BE CONSTRUE D AS EXTENSION OF BUILDING BECAUSE IT IS ADMITTED FACT T HAT THE ASSESSEE HAS NOT CONSTRUCTED OR ADDED SOME NEW ROOM S OR RESTAURANTS OR SOME OTHER NEW FACILITY AND EVEN OTH ERWISE THE LD. A.O. HAS NOT DISPUTED THE NATURE OF WORK UNDERT AKEN OR HAS MADE ANY CASE THAT ANY NEW FACILITY HAS BEEN CONSTR UCTED, THEREFORE THE WORK CARRIED BY THE ASSESSES CAN NOT BE TREATED AS EXTENSION OF EXISTING BUSINESS. CONTENTION OF LD D.R THAT THE WORK CARRIED OUT BY THE ASSESSEE WAS CERTAINLY IN T HE NATURE OF EXTENSION OF BUSINESS BECAUSE THE VALUE OF BUSINESS AND PROPERTY WOULD BE INCREASED AND IT AMOUNTS TO CAPIT AL EXPENDITURE HAVING NO ESSENCE AND NOT TENABLE UNDER THE FACTS AND CIRCUMSTANCES AS DEMONSTRATED AND EVIDENT. THER EFORE, TAKING ALL FACTS AND CIRCUMSTANCES INTO CONSIDERATI ON, WE ARE OF THE OPINION THAT THE WORK UNDERTAKEN BY THE APPELLA NT DOES NOT INCLUDE ACQUISITION OF AN ASSET FOR THE PURPOSE OF EXTENSION OF ITS BUSINESS THEREFORE, PROVISO TO SEC.36 (1)(III) IS NOT APPLICABLE IN THIS CASE AND THE ADDITION IS NOT JUS TIFIED. ON THE AFORESAID OBSERVATION, WE ARE INCLINED TO DISMISS T HE INSTANT APPEAL WITHOUT ANY COST. I.T.A. NO. 66/KOL/2012 ASSESSMENT YEAR: 2008-2009 PAGE 7 OF 7 HENCE IT IS O R D E R E D THE INSTANT APPEAL BE AND THE SAME BE DISMISSED BUT WITHOUT COST AND ORDER PASSED BY THE LD CIT(A) IS H EREBY AFFIRMED . PRONOUNCED IN OPEN COURT ON 15 DAY OF OCTO BER, 2015. SD/- SD/- MAHAVIR SINGH WASEEM AHMED (JUDICIAL MEMBER) (ACCOUNTA NT MEMBER) KOLKATA, THE 15 DAY OF OCTOBER, 2015 COPIES TO : (1) ASSISTANT COMMISSIONER OF INCOME TA X, CENTRAL CIRCLE-XXIII, KOLKATA, 18, RABINDRA SARANI, 5 TH FLOOR, KOLKATA-700 001 (2) M/S. SOUTHERN AVENUE INN (P) LIMITED, 73, SOUTHERN AVENUE, KOLKATA-700 029 (3) COMMISSIONER OF INCOME-TAX (APPEALS), CENTRAL-I II, KOLKATA (4) COMMISSIONER OF INCOME TAX (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER TRUE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCHES, KOLKATA