HAFELE INDIA P. LTD, MUMBAI V. ITO WD 8(20(2), MUMBAI

ITA 6806/MUM/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71795 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 20-11-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 28-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PITAMBER DAS
• Assessee Lawyers: BRIJMOHAN POORANMAL AGA RWAL
• Keywords: Depreciation; Revenue expenditure
• Section: 37

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL H HH H BENCH, BENCH, BENCH, BENCH, MUMBAI MUMBAI MUMBAI MUMBAI , . . . !' !' !' !' , # # # # $% $% $% $% BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM & & & & SHRI SHRI SHRI SHRI N. K. BILLAIYA N. K. BILLAIYA N. K. BILLAIYA N. K. BILLAIYA, AM , AM , AM , AM ./ I.T.A I.T.A I.T.A I.T.A. NO. . NO. . NO. . NO.6806/MUM/2010 6806/MUM/2010 6806/MUM/2010 6806/MUM/2010 ( & & & & ' ' ' ' / ASSESSMENT YEAR :2006-07) M/S HAFELE INDIA PVT. LTD. OFFICE NO. 3, BUILDING A BETA-I, THINK TECHNO CAMPUS, OFF J. V. L. R, OPP. KANJURMARG (E) MUMBAI-400042 / VS. INCOME TAX OFFICER, WARD 8(2)(2), ROOM NO. 216A, AAYAKAR BHAVAN, M. K. ROAD MUMBAI-400020 %( # ./ ) ./ PAN/GIR NO. :AABCH2726A ( (* / APPELLANT APPELLANT APPELLANT APPELLANT) .. ( +,(* / RESPONDENT RESPONDENT RESPONDENT RESPONDENT) & && & -. -. -. -. 0 1 0 1 0 1 0 1 /ASSESSEE BY : SHRI BRIJMOHAN POORANMAL AGARWAL % % % % 0 1 0 1 0 1 0 1 / REVENUE BY : SHRI PITAMBER DAS 0 00 0 .# .# .# .# / DATE OF HEARING : 20 TH NOVEMBER 2013 23' 23' 23' 23' 0 00 0.# .# .# .# /DATE OF PRONOUNCEMENT: 27 TH NOVEMBER 2013 $4 / O R D E R PER : , . . / VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 26.5.2010 OF COMMISSIONER OF INCOME TAX(APPEALS) FO R THE ASSESSMENT YEAR 2006-07. 2. THE ASSESSEE HAS RAISED THE SOLITARY GROUND IN T HIS APPEAL AS UNDER: THE ASSESSING OFFICER (INCOME TAX OFFICER, WARD 8( 2)(2), MUMBAI) HAS ERRED IN DISALLOWING AND ADDING BACK AN AMOUNT OF ` 25,73,659/- BEING IN HIS OPINION THE EXCESS CLAIM OF DEPRECIATION BY WRONGLY INVOKING THE PROVISION OF E XPLANATION 1 TO SECTION 32(1) AND THE LEARNED COMMISSIONER OF IN COME TAX (APPEALS) 17 HAS ERRED IN CONFIRMING THE DISALLOW ANCE MADE BY THE ASSESSING OFFICER. ITA NO.6806/M/2010 HAFELE INDIA PVT. LTD. 2 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE A.O NOTED THAT THE ASSESSEE HAS CLAIMED DEPRECIATION ON THE EXPENDITUR E ON IMPROVEMENTS/RENOVATION OF THE LEASE HOLD PREMISES (THREE PREMISES). THE DEPRECIATION HAS BEEN CLAIMED AT ` 36,23,726/- WHICH WORKED OUT TO ABOUT 40% OF THE AMOUNT OF EXPENDITURE. THE A.O FOU ND THAT THE CLAIM OF THE ASSESSEE IS EXCESS OF THE DEPRECIATION RATE PRE SCRIBED UNDER THE SCHEDULE. THE ASSESSEE CONTENDED THAT THE EXPENDITU RE WAS NOT CAPITAL IN NATURE AND WAS TREATED AS DEFERRED REVENUE EXPENDIT URE FOR A PERIOD OF LEASE (33-36 MONTHS). THE ASSESSEE RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN CASE OF MADRAS INDUSTRIAL INVESTME NT CORPORATION LTD. VS CIT 255 ITR 802. THE A.O DID NOT ACCEPT THE CONT ENTION OF THE ASSESSEE AND POINTED OUT THAT THE ASSESSEE HAS CAPITALISED T HE EXPENDITURE AND CLAIMED DEPRECIATION THEREFORE, IT CANNOT BE CLAIME D AS CURRENT REPAIRS. FURTHER THE A.O HAS OBSERVED THAT IF THE EXPENDITUR E IS REVENUE IN NATURE THEN IT HAD TO BE CLAIMED IN THE YEAR IT WAS INCURR ED. THE ASSESSING OFFICER HAS HELD THAT THE NATURE OF EXPENDITURE REVEALS THA T IT GAVE ENDURING BENEFIT TO THE ASSESSEE FOR A CONSIDERABLE PERIOD. APPLYING THE EXPLANATION 1 SECTION 32(1) OF THE ACT, THE A.O ALL OWED DEPRECIATION AT 10% AND THE EXCESS CLAIM OF ` 25,73,659/- WAS DISAL LOWED. ON APPEAL, THE CIT(A) HAS CONFIRMED THE ACTION OF THE A.O. 4. BEFORE US THE LD. A.R OF THE ASSESSEE HAS SUBMIT TED THAT THE ASSESSEE HAS TAKEN OFFICE PREMISES ON LEASE AT BANG ALORE, MUMBAI AND DELHI FOR A PERIOD OF 33 TO 36 MONTHS. THE ASSESSEE HAS INCURRED EXPENDITURE ON RENOVATION/REPAIR WORK INCLUDING FUR NITURE AND FIXTURE AS ITA NO.6806/M/2010 HAFELE INDIA PVT. LTD. 3 WELL AS PLUMBING WORK. THESE EXPENDITURE WERE IN NA TURE OF REPAIR AND DOES NOT GIVE BENEFIT OF ENDURING NATURE. THE LD. A .R HAS FURTHER SUBMITTED THAT SINCE NO ASSET IS BROUGHT INTO EXIST ENCE THEREFORE, THE SAID EXPENDITURE CANNOT BE TREATED AS CAPITAL IN NATURE. THE LEASE PERIOD IS FOR A SHORT DURATION OF 33 TO 36 MONTHS THEREFORE, AS P ER PRUDENT ACCOUNTING PRINCIPLE THE ASSESSEE HAS DEFERRED THE EXPENDITURE AND CLAIM AS DEPRECIATION OVER THE LEASE PERIOD OF THE ASSET INS TEAD OF CLAIMING AS REVENUE EXPENDITURE IN THE YEAR IN WHICH THESE EXPE NDITURE ARE INCURRED. HE HAS RELIED UPON THE FOLLOWING DECISIONS: CIT VS AYESHA HOSPITALS P. LTD. 292 ITR 266 (MAD) CIT VS MADRAS AUTO SERVICE (P.) LTD. 233 ITR 468 (S C) CIT VS HEDE CONSULTANCY PVT. LTD. AND ANOTHER 258 I TR 380 (BOM) 5. THE LD. A.R HAS SUBMITTED THAT THE EXPENDITURE I NCURRED ON LEASE OR PREMISES FOR A SHORT PERIOD CANNOT BE TREATED AS CA PITAL IN NATURE AND THEREFORE THE CLAIM OF THE ASSESSEE UNDER DEFERRED REVENUE EXPENDITURE SHOULD BE ALLOWED. 6. ON THE OTHER HAND, THE LD. D.R HAS SUBMITTED THA T THE ASSESSEE ITSELF HAS INCLUDED THE EXPENDITURE INCURRED ON THE LEASE PREMISES IN THE BLOCK OF ASSETS WHICH SHOWS THAT THE ASSESSEE AS TR EATED THE EXPENDITURE AS CAPITAL AND CLAIM THE DEPRECIATION ON THE SAME. HE HAS FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAS NOT DISALL OWED THE CLAIM OF THE ASSESSEE BUT HE HAS RESTRICTED THE CLAIM AS PER THE RATE OF DEPRECIATION PRESCRIBED UNDER THE SCHEDULE. THE LD. D.R HAS FURT HER SUBMITTED THAT THE A.O HAS NOT TREATED THE EXPENDITURE DIFFERENTLY FRO M THE TREATMENT GIVEN ITA NO.6806/M/2010 HAFELE INDIA PVT. LTD. 4 BY THE ASSESSEE ITSELF. HE HAS RELIED UPON THE ORDE RS OF THE AUTHORITIES BELOW. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. THE ASSESSEE HAS INCURRED THE E XPENDITURE OF ` 96,68,604/- ON RENOVATION/IMPROVEMENT OF THE THREE PREMISES TAKEN ON LEASE AT BANGALORE, MUMBAI AND DELHI RESPECTIVELY. THE ASSESSEE HAS CLAIMED DEPRECIATION ON THIS EXPENDITURE BY SPREADI NG OVER THIS EXPENDITURE TO THE PERIOD OF LEASE. THUS, THE ASSES SEE HAS CLAIMED ` 36,25,726/- AS DEPRECIATION WHICH THE A.O FOUND AS EXCESS IN COMPARISON TO THE RATE OF DEPRECIATION PROVIDED UNDER THE SCHE DULE. THERE IS NO DISPUTE THAT THIS EXPENDITURE IS INCURRED FOR RENOV ATION AND IMPROVEMENT OF THE PREMISES TAKEN ON LEASE AND MAKING THE SAME FIT FOR THE USE OF THE ASSESSEES BUSINESS AND THEREFORE THE SAID EXPENDIT URE DOES NOT FALL UNDER THE CURRENT REPAIRS U/S 31 OF THE INCOME TAX ACT. HOWEVER, THE SAID EXPENDITURE DOES NOT BRING INTO EXISTENCE ANY NEW A SSET. THUS, THE ALLOWABILITY OF THE EXPENDITURE IN QUESTION CAN BE CONSIDERED ONLY U/S 37 OF THE INCOME TAX ACT. SINCE THE ASSESSEE HAS NOT P RODUCED BEFORE US THE RELEVANT LEASE AGREEMENT TO SHOW THE TERMS AND COND ITIONS OF THE LEASE AND THE CONSEQUENTIAL EFFECT OF EXPIRY OF LEASE ON THE HUGE EXPENDITURE INCURRED BY THE ASSESSEE ON THE LEASE HOLD PREMISES WHICH ARE TAKEN FOR A SHORT PERIOD OF 33 TO 36 MONTHS. WE FURTHER NOTE TH AT THE LEASE AGREEMENTS WERE ALSO NOT EXAMINED BY THE AUTHORITIE S BELOW. THOUGH THE ASSESSEE HAS INCLUDED THE SAID EXPENDITURE IN THE B LOCK OF ASSETS HOWEVER, IN VIEW OF THE FACT THAT THE PREMISES IN Q UESTION WERE TAKEN ON ITA NO.6806/M/2010 HAFELE INDIA PVT. LTD. 5 LEASE FOR A SHORT PERIOD OF TIME AND THEREFORE PRIM A FACIE THE SAID EXPENDITURE CANNOT BE TREATED AS THE EXPENDITURE IN CURRED FOR CREATING ANY ASSET OR TAKING ANY ENDURING BENEFIT OUT OF IT. SINCE THE ASSESSEE HAS NOT PRODUCED THE ALL RELEVANT RECORD EITHER BEFORE US OR BEFORE THE AUTHORITIES BELOW, THEREFORE, IN THE INTEREST OF JU STICE WE SET ASIDE THE ISSUE TO THE RECORD OF THE ASSESSING OFFICER TO RE- EXAMINE THE ISSUE IN THE LIGHT OF TERMS AND CONDITIONS OF THE LEASE AGREEMEN TS TO BE PRODUCED BY THE ASSESSEE. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 27 TH DAY OF NOVEMBER 2013 SD/- SD/- ( . . !' ) # $% (N. K. BILLAIYA) ACCOUNTANT MEMBER ( ) & $% (VIJAY PAL RAO) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 27 TH NOVEMBER 2013 SUBODH COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI