Frankfinn Aviation Services Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 711/DEL/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3451 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 28-07-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 16-02-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANISH GUPTA
• Assessee Lawyers: JATIN JINDAL
• Keywords: Depreciation; Opportunity of being heard
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B NEW DELHI BEFORE SHRI R.P. TOLANI AND SHRI R.C. SHARMA ITA NO. 711/DEL/2010 A.Y. 2005-06 FRANKFINN AVIATION SERVICES PVT. LTD. VS. DCIT, C IRCLE 11(1), 721, SUNEJA TOWER-II, NEW DELHI. NEW DELHI. PAN/GIR NO. AAACF0226G ITA NO. 966/DEL/2010 A.Y. 2005-06 DCIT, CIRCLE 11(1), VS. FRANKFINN AVIATION SERVI CES PVT. LTD. NEW DELHI. 721, SUNEJA TOWER-II, NEW DELHI. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI KANCHAN KAUSHAL CA & SHRI JATI N JINDAL RESPONDENT BY : SHRI MANISH GUPTA SR. DR O R D E R PER R.P. TOLANI , J.M : THESE ARE CROSS APPEALS, ONE BY THE ASSESSEE AND OT HER BY REVENUE AGAINST THE ORDER OF CIT(A)-XIII, NEW DELHI DATED 24-12-200 9 FOR A.Y. 2005-06. 2. ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE & IN LAW, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) [CIT(A)] ERRED IN UPHOLDING THE ACTION OF THE LD. ASSESSING OFFICER [AO] OF DISALLOWING OF EXPENSES AMOUNTING TO R. 1,46,930/- UNDER SECTION 40(A)(IA) OF THE ACT WITHO UT APPRECIATING THAT THE SAME NEEDS TO BE ALLOWED TO A PPELLANT AS IT IS IN CONSONANCE WITH THE AMENDED PROVISIONS OF SECTION 40(A)(IA) OF THE ACT VIDE FINANCE ACT, 2008 WITH RE TROSPECTIVE EFFECT FROM APRIL 1,2005. 1.1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT ERRED ON IN NOT DIRECTING THE LD. AO TO ALLOW THE REMAINING EXPENDITURE AMOUNTING TO RS. 47,50,92 6/- ITA 711 & 966/DEL/10 FRANKFINN AVIATION SERVICES P. LTD. 2 DISALLOWED IN THE YEAR UNDER CONSIDERATION UNDER SE CTION 40(A)(IA) OF THE ACT IN THE SUBSEQUENT ASSESSMENT Y EAR I.E. 2006-07. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE & IN LAW, THE LD. CIT(A) ERRED IN NOW ALLOWING THE DEPRE CIATION @ 100% ON AN AMOUNT OF RS. 55,04,127/- [RS. 63,82,130 - RS. 8,78,003] BEING THE EXPENDITURE INCURRED ON PURELY TEMPORARY STRUCTURES SUCH AS WOODEN STRUCTURE, FALSE CEILING, PAINTING ETC. ON LEASEHOLD PREMISES. 2.1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT(A) ERRED IN NOT APPRECIATING THE F ACT THAT THE ALLEGED CIVIL, GLASS AND ELECTRICAL WORK ETC. ARE I NEXTRICABLY LINKED WITH THE TEMPORARY STRUCTURES AND HENCE THE SAME IS ALSO SUBJECT TO DEPRECIATION @ 100% UNDER SECTION 3 2 OF THE ACT. 3. REVENUES EFFECTIVE GROUND IS AS UNDER: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS . 63,82,130/- ON ACCOUNT OF DEPRECIATION ON EXPENDITURE INCURRED BY THE ASSESSEE ON LEASE HOLD IMPROVEMENTS. 4. LEARNED COUNSEL FOR THE ASSESSEE POINTED OUT THA T THE GROUND RAISED BY THE REVENUE IS AMBIGUOUS AND NOT EFFECTIVE INASMUCH AS CIT(A) HAS GIVEN RELIEF OF RS. 8,78,003/- PERTAINING TO TEMPORARY WOODEN STRUCTURE S. BOTH THE PARTIES AGREED THAT APPEALS MAY BE HEARD AND APPROPRIATE VIEW MAY BE TA KEN ON THE REVENUES GROUNDS. 5. BRIEF FACTS ARE THAT ASSESSEE IS IN THE BUSINESS OF PROVIDING EDUCATION AND VOCATIONAL TRAINING IN THE FIELD OF AIRHOSTESS/ CAB IN CREW, HOSPITALITY AND TRAVEL MANAGEMENT AND HAS OFFICES AT VARIOUS PLACES. DURIN G THE YEAR IN QUESTION THE ASSESSEE OPENED NEW OFFICES OR RENOVATED OLD OFFICE S AND INCURRED EXPENDITURE IN RESPECT OF RENOVATION OF OFFICES SITUATED AT CAMAC ST., SALT LAKE, SILIGURI, VIKAS MARG, INFANTORY ROAD, KANPUR, FIAT DELHI, RAJOURI G ARDEN, NOIDA, MUMBAI- ITA 711 & 966/DEL/10 FRANKFINN AVIATION SERVICES P. LTD. 3 THANE, MUMBAI-GHATKOPER. THE RENOVATION WAS DONE OF THESE PREMISES AND EXPENSES INCURRED WAS IN RESPECT OF WALL HANGER FIT TING, POLISHING, PVC FLOORING, PAINTING, MAIN DOOR REPAIRS, OFFICE RENOVATION, WOO DEN PARTITION, PVC FLOORING, FALSE CEILING, CARPENTRY WORK. BESIDES, SOME FABRI CATION OF AIRCRAFT MODEL ETC. WAS DONE IN ORDER TO FRAME CABIN CREW. ASSESSEE, THOUGH HAS CAPITALIZED THESE EXPENSES, HOWEVER, WHAT WAS CARRIED OUT WAS ERECTIO N OF SOME TEMPORARY WOODEN PARTITION AND TEMPORARY RENOVATIONS. THEREFORE, THE EXPENSES WERE ALLOWABLE EITHER AS 100% DEPRECIABLE ASSET OR OF EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. IT WAS PLE ADED THAT CABIN CREW TRAINING CENTER BUSINESS REQUIRES FREQUENT RENOVATION, REMOD ELING OF OFFICES, TRAINING AREAS AND TO MAINTAIN HIGH STANDARD ASSESSEE HAS TO TAKE UP FREQUENT RENOVATION. BESIDES THE ASSESSEES PREMISES BEING LEASED PREMISES, NO A SSET OWNED BY THE ASSESSEE CAME INTO EXISTENCE. THE DISALLOWANCE SHOULD BE DEL ETED. 6. APROPOS FIRST AND SECOND ISSUE, LEARNED COUNSEL FOR THE ASSESSEE CONTENDS THAT ABOVE EXPENDITURE HAS BEEN DELETED U/S 40A(IA) AND THE REMAINING EXPENDITURE HAS BEEN HELD TO BE ALLOWABLE IN 2006-07. HOWEVER, LEARNED CIT(A) THOUGH OBSERVED TO THIS EFFECT, HAS NOT GIVEN APPROPRIATE DIRECTION TO THIS EFFECT. 7. LEARNED COUNSEL FOR THE ASSESSEE DREW OUR ATTENT ION TO PAGES 53 TO 55 OF THE PAPER BOOK. THIS LIST HAS TWO PARTS: PART A PAYMENTS UP TO 28-2-2005: TOTAL EXPENSES PAYMENT 47,50,926/- 1,36,125/- PART B PAYMENTS IN THE MONTH OF MARCH 2005 AMOUNTS CREDITED PAYMENT OF TDS 1,46,930/- 4,286/- ITA 711 & 966/DEL/10 FRANKFINN AVIATION SERVICES P. LTD. 4 8. IT WAS EXPLAINED THAT PART A GIVES EACH AND EV ERY EXPENSES INCURRED BY THE ASSESSEE FROM 1-4-2004 TO 28-2-2005 AMOUNT LI ABLE FOR TDS; THE AMOUNT OF TDS; DUE DATE OF DEDUCTION OF TDS; AND DATE OF PAYM ENT OF TDS THEREON. LIST B IS ONLY IN RESPECT OF EXPENSE INCURRED IN MARCH 200 5, DEDUCTION AND PAYMENT OF TDS. LEARNED COUNSEL CONTENDS THAT APROPOS LIST A , SECTION 40(A)(IA), AS AMENDED BY THE FINANCE ACT 2010 W.E.F. 1-4-2010, NO W PRESCRIBES THAT IF THE TDS DUE HAS BEEN PAID ON OR BEFORE THE DUE DATE OF FILI NG OF RETURN U/S 139(1), THE PAYMENT SHALL BE ALLOWABLE IN THE YEAR IN WHICH IT WAS INCURRED. IT IS PLEADED THAT THIS AMENDMENT MAY BE HELD TO BE CLARIFICTORY IN NA TURE AS IT HAS BEEN INTRODUCED TO ALLEVIATE THE DIFFICULTIES PAUSED BY NOT ALLOWIN G THE EXPENSES IN THE SAME YEAR. 9. ALTERNATIVELY, IT IS PLEADED THAT THE LAW, AS EX ISTED, PROVIDED THAT IN CASE OF DELAYED TDS PAYMENT, THE EXPENSES SHALL BE ALLOWABL E IN THE YEAR IN WHICH TDS IS PAID. THIS GROUND WAS TAKEN BEFORE CIT(A). NO SU CH DIRECTION HAS BEEN GIVEN AND IT HAS CREATED ANOMALOUS SITUATION IN WHICH THE ASSESSEE HAS NOT BEEN ALLOWED THE EXPENSES IN THE YEAR OF INCURRING NOR THEY STAN D ALLOWED IN THE YEAR IN WHICH TDS IS PAID. THEREFORE, THE AO MAY BE DIRECTED TO A LLOW THE EXPENSES IN A.Y. 2006-07 IN WHICH TDS HAS BEEN PAID BY ASSESSEE. 10. APROPOS EXPENSES IN LIST B ABOVE, THESE EXPEN SES WERE INCURRED IN MARCH 2005 AND AS PER SECTION 40(A)(IA), APPLICABLE AT TH E RELEVANT TIME, IF THE TDS AMOUNT IS PAID BY 31 ST MAY 2005, THE EXPENSES WERE ALLOWABLE. 11. LEARNED DR CONTENDS THAT AS PER AMENDMENT INTRO DUCED BY SEC. 32(1) EXPLANATION 1 PROVIDES THAT IF ANY CAPITAL EXPENDI TURE IN RESPECT OF RENOVATION OF LEASE HOLD PREMISES IS ALLOWABLE BY WAY OF REGULAR DEPRECIATION ON RATES. RELIANCE WAS PLACED ON 293 ITR 170 (DEL.). IN SUPPORT OF ASS ESSEES CLAIM ABOUT 100% DEPRECIATION, LEARNED COUNSEL DREW OUR ATTENTION TO BREAK UP OF EXPENSES IN WHICH THE ASSESSEE HAS DEBITED AN AMOUNT OF RS. 44,21,895 /- TOWARDS CIVIL WORK AND ITA 711 & 966/DEL/10 FRANKFINN AVIATION SERVICES P. LTD. 5 CAPITALIZED. SAME CANNOT BE HELD TO BE REVENUE IN N ATURE. BESIDES, THE LEARNED CIT(A) WHILE GIVING RELIEF IN RESPECT OF TEMPORARY WOODEN STRUCTURES HAS NOT CONSIDERED THE PROVISIONS OF SECITON 32(1) EXPLANAT ION 1 IN PROPER PERSPECTIVE. 12. APROPOS TDS LEARNED DR SUPPORTS THE ORDER OF LO WER AUTHORITIES. 13. APROPOS FIRST ISSUE ABOUT RENOVATION, IN REJOI NDER THE LEARNED COUNSEL FOR THE ASSESSEE CONTENDS THAT THE DETAILED SITE WISE BREAK UP OF THE EXPENSES WILL DEMONSTRATE THAT THE EXPENDITURE INCURRED IS IN REL ATION TO POLISHING, DOOR REPAIRING, RENOVATION OF EXISTING OFFICES, REMOVAB LE PVC FLOORING, WHITE-WASHING, FALSE CEILING, PAINTING ETC. WAS PURELY REVENUE IN NATURE. NOMENCLATURE GIVEN BY THE ASSESSEE IN BOOKS CANNOT BE MADE TOOL TO DISALL OW THE EXPENSES, WHICH ARE CLEARLY REVENUE IN NATURE. AO HAS TO SEE THE REAL N ATURE OF TRANSACTIONS AND ALLOW DEDUCTION ACCORDINGLY. 14. WE HAVE HEARD RIVAL SUBMISSIONS AND HAVE GONE T HROUGH THE ENTIRE MATERIAL AVAILABLE ON RECORD. 15. APROPOS THE ISSUE IN GROUND NO. 2, THERE IS MER IT IN THE PLEA OF THE ASSESSEE THAT DUE TO WRONG CLASSIFICATION AND CAPITALIZATI ON OF EXPENSES, THE WHOLE CONTROVERSY HAS ARISEN AND EXPENSES INCURRED ARE P URELY IN THE NATURE OF REVENUE AND IS IN THE AVIATION CREW TRAINING BUSINESS, THE SAME NECESSITATES FREQUENT RENOVATIONS, PAINTINGS AND TRAINING REQUIREMENTS. FALSE CEILING WILL CONSTITUTE TEMPORARY STRUCTURE APART FROM MOCK AIR-CRAFT FOR TRAINING OF EMPLOYEES WHICH ALSO HAVE TO BE RENEWED FROM TIME TO TIME, POLISHIN G, PAINTING ALSO WILL CONSTITUTE REVENUE EXPENSES. IN OUR VIEW, THE ISSUE ABOUT CAPI TAL OR REVENUE NATURE OF EACH ITEM HAS NOT BEEN PROPERLY VERIFIED. MERE CAPITALIZ ATION OF EXPENSES WILL NOT DISENTITLE THE ASSESSEE FROM VALID CLAIM OF REVENU E EXPENSES. ITA 711 & 966/DEL/10 FRANKFINN AVIATION SERVICES P. LTD. 6 16. CIT(A) HAS HELD AN AMOUNT OF RS. 8,78,003/- AS PERTAINING TO TEMPORARY WOODEN STRUCTURES, WHICH CANNOT BE CLASSIFIED AS FU RNITURE AND THUS ALLOWABLE EXPENSES. WE SEE NO REASON TO DISTURB THE FINDING G IVEN BY THE CIT(A) THAT THIS AMOUNT REPRESENTS PURCHASE OF TEMPORARY WOODEN STRU CTURE NOT AMOUNTING TO FURNITURE, THEREFORE REVENUES GROUND IN THIS BEHAL F IS DISMISSED. 17. COMING TO THE BALANCE AMOUNT OF SUCH EXPENSES, THOUGH WE DO NOT APPRECIATE THE ASSESSEES PRACTICE OF CAPITALIZING REVENUE EXPENSES, NEVERTHELESS ACTUAL NATURE OF EXPENSES IS TO BE LOOKED INTO. IN VIEW THEREOF, WE SET ASIDE THE BALANCE ISSUE IN THIS BEHALF BACK TO THE FILE OF AO TO VERIFY THE CAPITAL AND REVENUE NATURE OF THE EXPENSES, PARTICULARLY KEEPING IN VIE W DETAILS THEREOF AS PAINTING, POLISHING, WHITE-WASH, CARPENTRY WORK & PVC FLOOR ING ETC. ASSESSEE IS ELIGIBLE FOR REVENUE EXPENSES IN RESPECT OF THESE ITEMS ON VERIFICATION. AO WILL DECIDE THE ISSUE AFRESH GIVING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD. 18. DISALLOWANCE OF EXPENSES OF RS. 1,46,930/- (PAR T-A), DISALLOWANCE OF EXPENDITURE FOR NON-DEDUCTION OF TDS U/S 40(A)(IA), DETAILS HAVE NOT BEEN VERIFIED BY AO. A PERUSAL OF DETAILS INDICATE THAT PART B EXPENSES I.E. OF RS. 1,46,930/- TDS WAS PAID BY THE ASSESSEE BY 31 ST MAY 2005 AS PROVIDED BY THE AMENDED PROVISIONS OF SECTION 40(A)(IA). SIMILARLY, IN RESP ECT OF PART A EXPENSES FOR WHICH TDS IS PAID IN NEXT FINANCIAL YEAR, THE ASSESSEE HA S TAKEN THE PLEA BEFORE CIT(A) THAT AN ALTERNATIVE CLAIM OF EXPENSES SHALL BE ALLO WED IN THE YEAR IN WHICH THE TDS IS PAID BY THE ASSESSEE, WHICH IS PROVIDED BY THE L AW ITSELF. IT HAS BEEN STATED THAT ASSESSEE HAS NOT CLAIMED THIS EXPENDITURE IN A.Y . 2006-07 AND NON-ISSUE OF DIRECTION HAS CREATED ANOMALOUS SITUATION IN WHICH THE DEDUCTION THOUGH ALLOWABLE BY LAW, WILL REMAIN TO BE GIVEN TO ASSESS EE. 19. AS FAR AS THE ASSESSEES PLEA OF AMENDMENT BY F INANCE ACT, 2010 SHOULD BE CONSIDERED AS CLARIFICATORY, WE ARE UNABLE TO ACCEP T THIS PROPOSITION. HOWEVER, ITA 711 & 966/DEL/10 FRANKFINN AVIATION SERVICES P. LTD. 7 ALTERNATE PLEA ABOUT ALLOWING THE EXPENSES IN A.Y. 2006-07 WHEN TDS IS PAID, DESERVES TO BE ACCEPTED. CONSEQUENTLY, WE SET ASIDE THIS ISSUE BACK TO THE FILE OF AO WITH ABOVE OBSERVATION TO VERIFY THE DETAILS AN D TO ALLOW THE FOLLOWING RELIEF TO THE ASSESSEE : (A) PART B EXPENSES - IF THE TDS IS PAID ON OR BEFORE 31-5-2005, THE SAME SHALL BE ALLOWED AS PER AMENDED PROVISIONS OF SECTI ON 40(A)(IA)(II). (B) IN RESPECT OF BALANCE I.E. PART A EXPENSES SU BJECT TO VERIFICATION ASSESSEE SHALL BE ALLOWED SUCH EXPENDITURE IN A.Y. 2006-07 I.E. THE YEAR IN WHICH THE PAYMENT OF TDS HAVE BEEN CLAIMED TO BE MA DE BY THE ASSESSEE. 20. IN VIEW OF FOREGOING, ASSESSEES APPEAL IS PART LY ALLOWED FOR STATISTICAL PURPOSES AND REVENUES APPEAL IS DISMISSED ON ABOVE TERMS. PRONOUNCED IN OPEN COURT ON 30 TH JULY, 2010. (R.C. SHARMA ) ( R.P. TOLA NI ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 30 TH JULY 2010. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR ITA 711 & 966/DEL/10 FRANKFINN AVIATION SERVICES P. LTD. 8