Rialto Enterprises Pvt Ltd., CHENNAI V. JCIT, CHENNAI

ITA 803/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8760 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2016
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 31-03-2016
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , . , BEFORE SHRI CHANDRA POOJARI , ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I T.A. NO. 803 /MDS/2016 / ASSESSMENT YEAR :20 08 - 09 M/S. RIALTO ENTERPRISES PVT. LTD., RAYALA TECHNO PARK, 7 TH FLOOR, 144/7, OLD MAHABALIPURAM ROAD, KOTTIVAKKAM, CHENNAI 600 0 41 . [PAN: A AACR3589E ] VS. THE JOIN T COMMISSIONER OF INCOME TAX , CORPORATE RANGE 5 , CHENNAI 34 . ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI R. VIJAYARAGHAVAN, ADVOCATE / RESPONDENT BY : S HRI A.V. SREEKANTH , J CIT / DATE OF HEARING : 0 1 . 0 6 .201 6 / DATE OF P RONOUNCEMENT : 11 . 0 8 .201 6 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIO NER OF INCOME TAX (APPEALS) 3 , CHENNAI , DATED 17 . 02 .20 1 6 RELEVANT TO THE ASSESSMENT YEAR 20 08 - 09 . THE ONLY EFFECTIVE GROUND RAISED IN THE APPEAL OF THE ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF EXPENDITURE INCURRED ON REPA IRS AND MAINTENANCE IN THE LEASE HOLD PREMISES, AMOUNTING TO .27,09,957/ - AS CAPITAL EXPENDITURE. I.T.A. NO . 803 /M/ 16 2 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF ELECTRICAL, ENGINEERING GOODS, TOOTH BRUSH AND CLEANING BRUSHES. THE ASSESSEE FILED ITS RETURN OF INCOME ON 29.09.2008 DE CLARING A LOSS OF .63,89,379/ - . THE RETURN FILED BY THE ASSESSEE WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT]. SUBSEQUENTLY, THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) OF THE ACT W AS ISSUED TO THE ASSESSEE ON 14.08.2009. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT WAS COMPLETED ON 12.10.2010 ASSESSING THE TOTAL INCOME OF THE ASSESSEE AT .NIL AFTER MAKING VARIOUS ADDITIONS. 3. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) WITH REGARD TO THE DISALLOWANCE OF 27,09,957/ - , AN EXPENDITURE ON ACCOUNT OF REPLACEMENT OF FLOOR TILES TO KEEP THE MACHINERY IN THE STABLE POSITION. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND ALSO ON FACTS, THE LD. CIT(A) CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER. 4. ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. BY RELYING ON THE DECISION IN THE CASE OF CIT V. AYESHA HOSPITALS (P) LTD. 292 ITR 266 (MAD), THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE EXPENDITURE INCURRED BY THE ASSESSEE ON RELAYING OF DAMAGED FLOORS ON THE LEASEHOLD PREMISES SHOULD BE ALLOWED AS REVENUE EXPENDITURE AND PRAYED THAT THE ADDITION MADE BY THE ASSESSING OFFICER SHOULD BE DELETED. I.T.A. NO . 803 /M/ 16 3 5. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 6. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. T HE ASSESSEE HAD LAID A ROAD ON THE LEASED A SSET OF THE COMPANY DURING AUGUST , 2005. THE EXPENDITURE INCURRED TOWARDS SUCH ROAD LAYING HAD BEEN CAPITALIZED BY THE ASSESSEE. SIMILARLY, THE ASSESSEE HAD LAID NEW FLOOR ON THE LEASED ASSET OF THE COMPANY. IT HAD PURCHASED TILES FOR THE PURPOSE OF FLOOR LAYING. WHILE SCRUTINIZING THE COPIES OF LEDGER FURNISHED BY THE ASSESSEE DURING THE COURSE OF HEARING, IT WAS NOTICED THAT UNDER THE HEAD 'BUILDING MAINTENANCE' THE ASSESSEE HAS DEBITED AN AMOUNT OF .27,09,957/ - FOR THE PURPOSE OF PURCHASE OF TILES FOR FLOOR LAYING AND HAS CLAIMED AS A REVENUE EXPENDITURE. WHILE TREATING THE EXPENDITURE INCURRED TOWARDS LAYING OF THE ROAD ON THE LEASED A S SET AS CAPITAL EXPENDITURE, SAME TREATMENT SHOULD HAVE BEEN GIV EN FOR THE EXPENDITURE INCURRED TOWARDS LAYING OF FLOOR AS IT ALSO GIVES ENDURING BENEFIT TO THE ASSESSEE AND ADDING VALUE TO THE FIXED ASSET , W HEREAS , THE ASSESSEE HAS TAKEN A DIFFERENT STAND ON THE SIMILAR ISSUE. IN VIEW OF THE ABOVE, BY ALLOWING THE ELI GIBLE DEPRECIATION , THE ASSESSING OFFICER HAS TREATED THE AMOUNT OF .27,09,957 / - SPENT TOWARDS LAYING OF FLOOR AS CAPITAL IN NATURE AND DISALLOWED THE SAME . ON APPEAL, THE LD. CIT(A) CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE RELIED I.T.A. NO . 803 /M/ 16 4 ON THE DECISION IN THE CASE OF CIT V. AYESHA HOSPITALS (P) LTD. (SUPRA), WHEREIN, THE HON BLE JURISDICTIONAL HIGH COURT HAS OBSERVED AND HELD AS UNDER: 3. THE ASSESSEE IS A PRIVATE LIMITED COMPANY RUNNING A HOSPITAL IN A LEASED PREMISES. THE ASSESSMENT YEAR IS 1991 - 92 AND THE CORRESPONDIN G ACCOUNTING YEAR ENDED ON MARCH 31, 1991. THE ASSESSEE - COMPANY FILED A RETURN OF INCOME ON OCTOBER 28, 1991, SHOWING THE INCOME AT RS. 3,23,275. LATER THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE WAS ISSUED UNDER SECTION 143(2) OF THE INCOME - TAX ACT (HER EINAFTER REFERRED TO AS 'THE ACT'). THEN THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE INCOME - TAX ACT DETERMINING THE TOTAL INCOME AT RS. 6,80,890. WHILE COMPLETING THE ASSESSMENT, THE ASSESSING OFFICER MADE AN ADDITION OF RS. 1,85,557 AS UNWARR ANTED EXPENSES ON REPAIRS AND MAINTENANCE OF BUILDING AND HELD THAT IT IS A CAPITAL EXPENDITURE. AGGRIEVED BY THE ORDER, THE ASSESSEE FILED AN APPEAL BEFORE THE COMMISSIONER OF INCOME - TAX (APPEALS). THE COMMISSIONER OF INCOME - TAX (APPEALS) DISMISSED THE AP PEAL CONFIRMING THE ORDER OF THE ASSESSING OFFICER IN RESPECT OF THE EXPENDITURE. AGGRIEVED BY THE SAME, THE ASSESSEE FILED AN APPEAL BEFORE THE INCOME - TAX APPELLATE TRIBUNAL (HEREINAFTER REFERRED TO AS 'THE TRIBUNAL'). THE TRIBUNAL ALLOWED THE APPEAL AND SET ASIDE THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS). 4. LEARNED SENIOR STANDING COUNSEL APPEARING FOR THE REVENUE SUBMITTED THAT THE INCOME - TAX APPELLATE TRIBUNAL ERRED IN TREATING THE EXPENDITURE AS REVENUE WITHOUT APPRECIATING THE FACT THA T IT WOULD AMOUNT TO ACQUISITION OF A NEW CAPITAL ASSET. IT WAS FURTHER SUBMITTED THAT THE TRIBUNAL OUGHT TO HAVE APPRECIATED THAT THE CO - OWNERS OF THE PROPERTY AND THE DIRECTORS OF THE ASSESSEE - COMPANY ARE THE SAME PERSONS AND HAD COLLUDED AND HAVE EVADED THE ASSESSABILITY OF THE CAPITAL EXPENDITURE IN THE HANDS OF THE CO - OWNERS. AN ALTERNATIVE SUBMISSION ALSO HAS BEEN MADE THAT THE TRIBUNAL OUGHT TO HAVE APPLIED THE PROVISO UNDER EXPLANATION 1 TO SECTION 32(1) OF THE INCOME - TAX ACT, WHICH IS INSERTED BY T HE TAXATION LAWS (AMENDMENT AND MISCELLANEOUS PROVISIONS) ACT, 1986, WITH EFFECT FROM APRIL 1, 1988, AND HELD AS CAPITAL EXPENDITURE. 5. LEARNED COUNSEL APPEARING FOR THE ASSESSEE SUBMITTED THAT WHENEVER THE TENANT HAD INCURRED EXPENDITURE, IT WOULD AMO UNT TO ONLY REVENUE EXPENDITURE AND FURTHER STATED THAT EXPLANATION 1 TO SECTION 32(1) OF THE ACT IS NOT APPLICABLE TO THE FACTS OF THE CASE. 6. HEARD COUNSEL. THE ASSESSEE HAD SPENT A SUM OF RS.1,85,557 TOWARDS PAINTING, RE - LAYING OF THE DAMAGED FLOORS , PARTITIONS, ETC. THE CO - OWNERS WERE THE DIRECTORS OF THE APPELLANT. BUT THEY WERE SEPARATE ENTITIES. THE CO - OWNERS WERE ADMITTING THE RENTAL INCOME. THEY WERE ALSO PAYING TAX ON THE PROFITS I.T.A. NO . 803 /M/ 16 5 ARISING OUT OF THE HOSPITAL. THE LEASE DEED SPOKE OF THE NORMAL REQUIREMENTS WHICH THE CO - OWNERS PROVIDE. THE ASSESSEE WAS PUTTING THE BUILDING TO A SPECIAL USE. NO LANDLORD WOULD EVER INCUR OR UNDERTAKE TO BEAR THE EXPENDITURE. HERE THE EXPENDITURE WAS INCURRED BY THE ASSESSEE ON A LEASED PROPERTY AND THE SAME HAS TO BE ALLOWED AS REVENUE EXPENDITURE. THE TRIBUNAL HAS CORRECTLY FOLLOWED THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF CIT V. MADRAS AUTO SERVICE P. LTD. , WHEREIN THE SUPREME COURT HELD THAT THE EXPENDITURE INCURRED ON CONSTRUCTION OF A LEASED PREMISES B Y THE ASSESSEE WAS DEDUCTIBLE AS REVENUE EXPENDITURE. THE NATURE OF THE EXPENDITURE INDICATES THAT IT IS ONLY REVENUE EXPENDITURE FOR THE PURPOSE OF CARRYING ON BUSINESS. 7. AN ALTERNATIVE PLEA ALSO WAS MADE BY LEARNED STANDING COUNSEL FOR THE REVENUE T HAT THE PRESENT CASE COMES WITHIN THE PURVIEW OF EXPLANATION 1 TO SECTION 32(1) OF THE ACT WHICH IS INSERTED WITH EFFECT FROM APRIL 1, 1988. THE SAID EXPLANATION READS AS FOLLOWS: EXPLANATION 1. -- WHERE THE BUSINESS OR PROFESSION OF THE ASSESSEE IS CARRIED ON IN A BUILDING NOT OWNED BY HIM BUT IN RESPECT OF WHICH THE ASSESSEE HOLDS A LEASE OR OTHER RIGHT OF OCCUPANCY AND ANY CAPITAL EXPENDITURE IS INCURRED BY THE ASSESSEE FOR THE PURPOSE S OF THE BUSINESS OR PROFESSION ON THE CONSTRUCTION OF ANY STRUCTURE OR DOING OF ANY WORK, IN OR IN RELATION TO, AND BY WAY OF RENOVATION OR EXTENSION OF, OR IMPROVEMENT TO, THE BUILDING, THEN, THE PROVISIONS OF THIS CLAUSE SHALL APPLY AS IF THE SAID STRUC TURE OR WORK IS A BUILDING OWNED BY THE ASSESSEE. 8. FROM A READING OF THE ABOVE, IT IS CLEAR THAT IF THE LESSEE INCURS CAPITAL EXPENDITURE ON THE BUILDING OF THE NATURE MENTIONED ABOVE, THE SAID PROVISION TREATS THE BUILDING AS IF OWNED BY THE ASSESSEE . THE EXPLANATION IS AN EXCEPTIONAL ONE WHICH PERMITS DEPRECIATION IN CASES WERE THE ASSESSEE DOES NOT OWN A BUILDING. IN THE PRESENT CASE, THE TRIBUNAL HAD GIVEN A FINDING THAT IT IS A REVENUE EXPENDITURE ON THE GROUND THAT THE EXPENSE IS INCURRED ONLY TO WARDS PAINTING, RE - LAYING OF THE DAMAGED FLOORS, PARTITIONS, ETC. THIS EXPENDITURE CAN NEVER BE CONSIDERED TO BE A CAPITAL EXPENDITURE OF THE NATURE MENTIONED IN THE ABOVE EXPLANATION. 9. IN VIEW OF THE FOREGOING REASONS, WE FIND NO ERROR OR LEGAL INFIR MITY IN THE ORDER OF THE TRIBUNAL AND THE SAME DOES NOT REQUIRE INTERFERENCE. UNDER THESE CIRCUMSTANCES, WE ANSWER THE QUESTIONS OF LAW IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE AND THE TAX CASE IS DISMISSED. NO COSTS. 7. ADMITTEDLY, IN THE PRES ENT CASE, THE ASSESSEE HAS LAID NEW FLOOR ON THE LEASED ASSET OF THE COMPANY, FOR WHICH IT HAS PURCHASED TILES FOR THIS PURPOSE AND BY CLAIMING THE SAME AS REVENUE EXPENDITURE, DEBITED AN AMOUNT OF .27,09,957/ - UNDER THE HEAD BUILDING MAINTENANCE . HOWEVER, I.T.A. NO . 803 /M/ 16 6 THE ASSESSING OFFICER TREATED THE SAME AS CAPITAL EXPENDITURE AND ADDITION MADE WAS FURTHER CONFIRMED BY THE LD. CIT(A). ON SIMILAR FACTS AND CIRCUMSTANCES, THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. AYESHA HOSPITALS (P) LTD. (SUPRA) HAS OBSERVED THAT THE EXPENDITURE INCURRED BY THE ASSESSEE ON PAINTING, RELAYING OF DAMAGED FLOORS, PARTITIONS, ETC. IN LEASEHOLD PREMISES IS ALLOWABLE AS REVENUE EXPENDITURE AND RELEVANT PORTION OF THE ORDER IS REPRODUCED HEREINABOVE. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT, WE DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION MADE ON THIS ACCOUNT. THUS, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. 8 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THE 11 TH AUGUST, 201 6 AT CHENNAI. SD/ - SD/ - ( CHANDRA POOJARI ) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 11 . 0 8 .201 6 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.