M.S.A. Motors, Kurnool, Hyderabad V. Addl. CIT, Kurnool Range, Kurnool, Kurnool

ITA 794/HYD/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6278 (ITAT-HYDERABAD)
• Duration Of Justice: 7 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 25-10-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 27-05-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P CHANDRA SEKHAR
• Assessee Lawyers: B SATYANARAYANA MURTY
• Keywords: Depreciation; Business expenditure; Assessment record; Revenue expenditure
• Section: 143(3); 32; 27; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 794/HYD/2016 ASSESSMENT YEAR: 2011-12 MSA MOTORS, KURNOOL PAN ABLF S3128F VS. ADDL. COMMISSIONER OF INCOME-TAX, KURNOOL RANGE, KURNOOL. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI B. SATYANARAYANA MURTY REVENUE BY : SHRI P. CHANDRA SEKHAR DATE OF HEARING : 14-12-2016 DATE OF PRONOUNCEMENT : 13-01-2017 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF CIT, KURNOOL CHARGE, KURNOOL DATED 28/03/2016 FO R AY 2011-12, WHEREIN THE ASSESSEE HAS RAISED THE FOLLOWING GROUN DS OF APPEAL: 1. THE ORDER OF THE HON'BLE COMMISSIONER OF INCOME TAX PASSED U/S.263 OF THE INCOME TAX ACT, IN SO FAR AS IT IS AGAINST THE APPELLANT-FIRM, IS CONTRARY TO THE FACTS OF THE CASE AND THE PROVISIONS OF LAW. 2. THE HON'BLE COMMISSIONER OF INCOME TAX IS NOT JU STIFIED IN PASSING AN ORDER U/S.263 WHEN THE ASSESSING OFFICER HAD ALLOWED THE CLAIM FOR DEDUCTION IN RESPECT OF EXPEN DITURE INCURRED ON THE LAND TAKEN ON LEASE. 3. THE HON'BLE. COMMISSIONER OF INCOME TAX IS NOT J USTIFIED IN HOLDING THAT THE ORDER OF THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. 4. THE HON'BLE COMMISSIONER OF INCOME TAX ERRED IN HOLDING THE AMOUNT OF RS.24,59,729/- INCURRED BY THE APPELLANT- FIRM IN 2 ITA NO. 794/H/16 MSA MOTORS, KURNOOL RESPECT OF THE LAND TAKEN ON LEASE IS CAPITAL EXPEN DITURE AND IS NOT ELIGIBLE FOR DEDUCTION IN THE COMPUTATION OF TO TAL INCOME. 5. THE HON'BLE COMMISSIONER OF INCOME TAX FAILED TO APPRECIATE THAT THE APPELLANT-FIRM IS RIGHTLY ELIGIBLE TO THE DEDUCTION OF RS.24,59,729/- IN SO FAR IT IS COVERED BY THE JUDIC IAL DICTA INCLUDING THE DECISION OF THE SUPREME COURT JUDGEME NT IN THE CASE OF CIT VS. MADRAS AUTO SERVICE (P) LTD. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE FIRM FILED ITS RETURN OF INCOME FOR THE AY 2011-12 ON 26/09/2011 A DMITTING AN INCOME OF RS. 38,07,188/- FROM BUSINESS OF DEALERSH IP IN MARUTI CARS AND THEIR SERVICES. THE ASSESSMENT WAS COMPLETED BY THE AO U/S 143(3) DETERMINING THE INCOME OF THE ASSESSEE AT RS . 52,60,754/-, AS AGAINST THE RETURNED INCOME OF RS. 38,07,188/-, BY MAKING SOME ADDITIONS. 3. THEREAFTER, THE CIT HAD AN OCCASION TO EXAMINE THE ASSESSMENT RECORDS FOR AY. 2011-12 AND ON PERUSAL O F THE RECORDS, IT WAS OBSERVED THAT THE ASSESSEE-FIRM CLAIMED AN AMOU NT OF RS.24,59,729/- AS REVENUE EXPENDITURE UNDER THE HEA D WORKSHOP CONSTRUCTIONS. HE OBSERVED THAT DURING THE COURSE O F ASSESSMENT PROCEEDINGS, THE ASSESSEE-FIRM HAS RELIED UPON THE HON'BLE SUPREME COURT JUDGEMENT IN THE CASE OF CIT VS. MADRAS AUTO SERVICE (P) LTD (233 ITR 468), WHICH PERTAINS TO ASST. YEAR 1968-69 AND 1969-70, TO CLAIM THE ABOVE MENTIONED EXPENDITURE AS REVENUE EX PENDITURE AND THE ASSESSEE-FIRM'S CLAIM WAS ACCEPTED BY THE A.O. THE CIT OBSERVED THAT IN VIEW OF THE EXPLANATION 1 TO SECTION 32(1) INSERTED WITH EFFECT FROM 01/04/1988, THE ASSESSEE-FIRM'S CLAIM OF ALLOW ANCE OF SAID SUM UNDER REVENUE EXPENDITURE IS NOT CORRECT AND THE EX PENDITURE IS HOWEVER ELIGIBLE FOR DEPRECIATION IN ACCORDANCE WIT H THE EXPLANATION 1 TO SECTION 32(1) OF THE I.T. ACT, 1961. 3. 1 IN VIEW OF THE ABOVE OBSERVATIONS, THE CIT WAS OF THE VIEW THAT THE ORDER PASSED BY THE ASSESSING OFFICER IS ERRONE OUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. ACCORDINGL Y, A NOTICE U/S. 263 DATED 07/01/2016 WAS ISSUED TO THE ASSESSEE TO SHOW CAUSE AS TO 3 ITA NO. 794/H/16 MSA MOTORS, KURNOOL WHY THE ASSESSMENT SHOULD NOT BE REVISED OR CANCELL ED U/S 263 OF THE ACT. IN RESPONSE, THE ASSESSEE-FIRM FILED ITS WRITT EN SUBMISSIONS AT THE TIME OF HEARING ON 22/01/2016. 3.2 AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE, THE CIT SET ASIDE THE ORDER OF THE AO AND DIRECTED THE AO TO RE -DO THE ASSESSMENT IN ACCORDANCE WITH THE DIRECTIONS GIVEN IN HIS ORDER, BY OBSERVING AS UNDER: 4. I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE ASSESSEE. IT IS SEEN THAT THE ASSESSEE HAS RELIED U PON THE SUPREME COURT'S JUDGEMENT REFERRED TO SUPRA TO CLAI M THE EXPENDITURE INCURRED TOWARDS WORKSHOP CONSTRUCTION ON LEASE- LAND AS ALLOWABLE BUSINESS EXPENDITURE. HOWEVER, TH IS JUDGEMENT OF THE SUPREME COURT IS RENDERED WITH REFERENCE TO THE ASSESSMENT YEARS 1968-69 AND 1969-70. THEREAFTER EX PLANATION 1 HAS BEEN INTRODUCED WITH EFFECT FROM 01/04/1988 T O SECTION 32(1) WHERE IT IS CLARIFIED THAT IN A CASE WHERE TH E BUSINESS OF THE ASSESSEE IS CARRIED ON IN A LEASED PREMISES AND ANY EXPENDITURE IS INCURRED ON THE CONSTRUCTION OF ANY STRUCTURE BY WAY OF RENOVATION, EXTENSION OR IMPROVEMENT, THEN T HE PROVISIONS OF SECTION 32 WOULD APPLY TO THE ASSESSEE, AS IF TH E BUILDING WAS OWNED BY THE ASSESSEE. FURTHER, WITH EFFECT FROM A. Y. 2004-05, THE PROVISIONS OF SECTIONS 30 & 31 HAVE ALSO BEEN A MENDED TO STATE THAT NO EXPENDITURE WHICH IS CAPITAL IN NATUR E CAN BE ALLOWED UNDER THE HEAD OF CURRENT REPAIRS OF BUILDI NG OR PLANT AND MACHINERY. IN THE ASSESSEE'S CASE, THE EXPENDIT URE OF RS.24,59,729/- HAS BEEN INCURRED ON THE CONSTRUCTIO N OF A WORKSHOP ON LAND THAT HAS BEEN LEASED OUT FROM A RE LATED PARTY FOR A PERIOD OF 10 YEARS. THE EXPENDITURE IS CLEARL Y CAPITAL IN NATURE AND IS NOT COVERED WITHIN THE AMBIT OF SECTI ONS 30 AND 31 OF THE ACT. HOWEVER, TAKING INTO ACCOUNT THE EXPLAN ATION INTRODUCED TO SECTION 32(1), THE ASSESSEE WOULD BE ELIGIBLE TO CLAIM DEPRECIATION ON THE ASSET CREATED. 5. THE ASSESSING OFFICER HAS FAILED TO CONSIDER THE AMOUNT INCURRED FOR CONSTRUCTION OF WORKSHOP, CLAIMED BY T HE ASSESSEE AS REVENUE EXPENDITURE, FOR DISALLOWANCE WHILE COMP LETING THE ASSESSMENT AND, THEREFORE, THE ASSESSMENT IS ERRONE OUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE TO THIS EXT ENT. FOR THE REASONS GIVEN IN THE EARLIER PARAGRAPHS, THE ASSESS ING OFFICER IS DIRECTED TO RE-COMPUTE THE INCOME OF THE ASSESSEE, AFTER DISALLOWING THE AMOUNT OF RS.24,59,729/-, AND ALLOW ING DEPRECIATION ON THE WORKSHOP BUILDING. THE ASSESSME NT IS SET ASIDE WITH DIRECTIONS TO RE-DO THE ASSESSMENT IN AC CORDANCE WITH THE AFOREMENTIONED DIRECTIONS. 4 ITA NO. 794/H/16 MSA MOTORS, KURNOOL 4. AGGRIEVED BY THE ORDER OF THE CIT, THE ASSESSEE IS IN APPEAL BEFORE US RAISING THE AFOREMENTIONED GROUNDS. 5. LD. AR OF THE ASSESSEE FILED A PAPER BOOK CONTAI NING THE FOLLOWING: 1. COPY OF THE STATEMENT OF TOTAL INCOME, DEPRECIAT ION STATEMENT, TRADING AND PROFIT & LOSS A/C AND BALANC E SHEET FOR THE AY 2011-12. PAGES 1 TO 12. 2. COPY OF THE LEASE AGREEMENT BETWEEN MD. SHAHED A LI KHAN AND MSA MOTORS PAGES 13 TO 16 3. COPY OF THE LEASE AGREEMENT MD. MASOOD ALI KHAN AND MSA MOTORS. PAGES 17 TO 20 4. COPY OF THE LEASE AGREEMENT AHMED ALI KHAN AND M /S MSA MOTORS. PAGES 21 TO 26 5. COPY OF THE REPLY DATED 22/01/2016 AGAINST THE S HOW CAUSE NOTICE U/S 263 PAGES 27 TO 34 6. COPY OF THE LETTER DATED 19/12/2013 ADDRESSED TO ADDITIONAL COMMISSIONER OF INCOME-TAX, KURNOOL PAGES 35 & 36 . THE LD. AR RELIED ON THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. M/S TVS LEAN LOGISTICS LTD., A COPY OF WHICH IS AVAILABLE AT PAGES 37 TO 44. 6. ON THE OTHER HAND LD. DR RELIED ON THE ORDER OF THE CIT AND PLACED RELIANCE ON THE FOLLOWING CASES: 1. ASST. CIT VS. EFFTRONICS SYSTEMS (P) LTD., [201 1] 133 ITD 460 (VIZAG) 2. CIT VS. MADURA COATS, [2012] 19 TAXMANN.COM 74 ( MAD.) 7. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL FACTS ON RECORD AS WELL AS THE DECISIONS CITED BY BOTH TH E COUNSELS. THE LD. CIT HAS INVOKED SECTION 263 OF THE ACT AND CONSIDER ED THE ASSESSMENT AS ERRONEOUS AND PREJUDICIAL TO THE INTE RESTS OF REVENUE DUE TO THE FACT THAT THE ASSESSEE HAS INCURRED EXPE NDITURE IN MODIFYING AND IMPROVING THE LEASED PROPERTY AND CLA IMED IT AS REVENUE EXPENDITURE. CIT HAS APPLIED EXPLANATION 1 A OF SECTION 32, AS PER WHICH, WHERE THE BUSINESS OF THE ASSESSEE IS CARRIED ON IN THE 5 ITA NO. 794/H/16 MSA MOTORS, KURNOOL LEASED PROPERTY AND ANY EXPENDITURE IS INCURRED ON THE CONSTRUCTION OF ANY STRUCTURE BY WAY OF RENOVATION, EXTENSION OR IM PROVEMENT, THEN, SECTION 32 WILL APPLY AND ACCORDINGLY, THE ASSESSEE CAN CLAIM DEPRECIATION ON THE VALUE SPENT ON SUCH IMPROVEMENT OR CHANGES IN THE STRUCTURE. THE AR HAS RELIED ON THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. M/S TVS LEAN LOGI STICS LTD., (SUPRA). ON CAREFUL READING OF THE SAID DECISION, I N THAT CASE, THE ASSESSEE HAS TAKEN ONLY THE LAND ON LEASE AND BUILT THE BUILDING FOR THE PURPOSE OF RUNNING THE BUSINESS AND THE HONBLE HIGH COURT HELD THAT THE EXPLANATION 1A OF SECTION 32 WILL NOT APPL Y IN THE GIVEN CASE. BUT IN THE CASE BEFORE US, THE ASSESSEE HAS TAKEN O N LEASE THE SEMI- FINISHED BUILDING WITH OTHER STRUCTURE AND THE ASSE SSEE HAD MADE THE MODIFICATION AND IMPROVEMENT TO THE SEMI-FINISHED S TRUCTURE TO SUIT THE REQUIREMENT OF WORK SHOP (REFER PAGE 21 OF PAPE R BOOK). HENCE, THE DECISION OF THE HONBLE MADRAS HIGH COURT WILL NOT APPLY TO THE CASE UNDER CONSIDERATION. AFTER INTRODUCTION OF THE EXPLANATION 1A TO SECTION 32, THERE IS NO OTHER JUDICIAL PRONOUNCEMEN T RELATING TO THIS SUBJECT APART FROM THE DECISION OF THE MADRAS HIGH COURT. IN OUR CONSIDERED VIEW, THE ASSESSEE HAS ONLY MODIFIED AND IMPROVED THE LEASED PROPERTY TO SUIT THE REQUIREMENT OF ITS BUSI NESS. HENCE, THE EXPLANATION 1A TO SECTION 32 WILL APPLY TO THE AS SESSEES CASE AND THE FINDINGS OF LD. CIT IS PROPER. ACCORDINGLY, WE ARE INCLINED TO UPHOLD THE ORDER OF CIT PASSED U/S 263 OF THE ACT. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISS ED. PRONOUNCED IN THE OPEN COURT ON 13 TH JANUARY, 2017. SD/- SD/- (D. MANMOHAN) (S. RIFAUR RAHM AN) VICE PRESIDENT A CCOUNTANT MEMBER HYDERABAD, DATED: 13 TH JANUARY, 2017 KV 6 ITA NO. 794/H/16 MSA MOTORS, KURNOOL COPY TO:- 1) M/S MSA MOTORS, C/O VENUGOPAL & CHENOY, CAS., 4 -1-889/16/2, TILAK ROAD, HYDERABAD 500 001. 2) ADDL. CIT, KURNOOL RANGE, KURNOOL 3) CIT, KURNOOL CHARGE, KURNOOL 4) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 5) GUARD FILE