Rohde & Schwarz India Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 831/DEL/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66082 (ITAT-DELHI)
• Duration Of Justice: 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 31-10-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 17-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRISITTA SINGEIT
• Keywords: Depreciation; Difference of opinion; Commercial expediency; Change of opinion; Revenue expenditure; Capital expenditure
• Section: 143(3); 147; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH F NEW DELHI) BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO.831/DEL/2012 ASSESSMENT YEAR : 2003-04 ROHDE & SCHWARZ INDIA DCIT, PVT. LTD., A-27, IST FLOOR, CIRCLE-15 (1), MOHAN COOPERATIVE INDL. ESTATE, NEW DELHI. MATHURA ROAD, NEW DELHI. V. (APPELLANT) (RESPONDENT) PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO.AAACR AAACR AAACR AAACR- -- -3267 3267 3267 3267- -- -P PP P APPELLANT BY : SHRI K.SAMPATH, ADVOCATE. RESPONDENT BY : MS. PRISITTA SINGEIT, SR. DR. ORDER PER TS KAPOOR, AM: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD CIT(A) DATED 2.12.2011. THE GROUNDS RAISED BY THE ASSESSE E ARE AS UNDER:- BASED NON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE AP[PELLANT RESPECTFULLY SUBMITS THAT: 1. THE LD CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE ACIT IN INVOKING SECTION 147 AFTER THE EXPIRY OF FOUR YEARS E SPECIALLY WHEN THERE HAS BEEN NO FAILURE ON THE PART OF THE AP PELLANT. ITA NO831/DEL/2012 2 2. THE LD CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF ACIT IN TREATING AN AMOUNT OF ` .13,66,251/- AS CAPITAL IN NATURE. 3. THE LD CIT(A) HAS ERRED IN NOT TAKING INTO CONSIDE RATION THE PRINCIPLES OF COMMERCIAL EXPEDIENCY AND ORDINARY COM MERCIAL TRADING EMERGING FROM VARIOUS JUDICIAL PRECEDENTS REL IED UPON BY THE APPELLANT IN ITS SUBMISSIONS BEFORE THE LD CIT(A) WH ILE HOLDING THAT THE REPAIR & MAINTENANCE EXPENDITURE H AS BEEN INCURRED FOR THE PROMOTION OF BUSINESS OF THE APPELLAN T. IN FACT, THE LD CIT(A) HAS GONE FURTHER TO CONCLUDE THAT THE EXPENDITURE INCURRED ON PURCHASE OF THESE ASSETS CONFERS A BENEFIT I N THE CAPITAL FIELD TO THE APPELLANT. 4. THE APPELLANT PRAYS FOR APPROPRIATE RELIEF BASED O N THE SAID GROUNDS OF APPEAL AND THE FACTS AND CIRCUMSTANCES OF TH E CASE. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMP ANY IS ENGAGED IN THE BUSINESS OF TRADING IN TESTING & MEASURI NG EQUIPMENT AND COMMUNICATION FOR BROAD-CASTING SYSTEM. MOST OF TH E SALES MADE BY THE ASSESSEE ARE TO GOVT. DEPARTMENTS INCLUDING DEFEN CE ESTABLISHMENT. THE ASSESSMENT OF THE ASSESSEE WAS COMPLETED O N 22.3.2006 U/S 143(3) ON A TOTAL INCOME OF ` .4,77,0,580/- AGAINST THE RETURNED INCOME OF ` .4,74,09,530/-. THE CASE OF THE ASSESSEE WAS REOPENED U/S 147/148 OF THE ACT ON THE BASIS THAT THE ASSESSEE HAD CLAIMED CERTAIN EXPENDITURE AS REVENUE EXPENDITURE W HICH IN FACT WAS A CAPITAL EXPENDITURE. THE REASONS RECORDED WERE AS UN DER:- THE ASSESSMENT IN THIS CASE WAS COMPLETED ON 22.3.2006 DETERMINING AN INCOME OF ` .4,77,00,580/-. DURING THE YEAR THE ASSESSEES COMPANY HAD DEBITED THE P&L ACCOUNT BY AN AMO UNT ITA NO831/DEL/2012 3 OF ` .30,37,949/- AS REPAIRS AND MAINTENANCE UNDER OFFICE & ADMINISTRATIVE EXPENSES. HOWEVER, THE DETAILS THEREOF SH OWED THAT AN AMOUNT OF ` .14,77,694/- WAS INCURRED FOR MASSONING, FLOORING & PAINTING WORK ETC. OF THE NEW HYDERABAD OFFICE BEFORE SHIFTING THEREIN. SIMILARLY ` .31,320/- WAS INCURRED FOR ELECTRIC WIRING, LAW CABLING, ETC. OF THE NEW OFFICE AT MUMB AI. THUS, OUT OF ` .30,37,949/- A SUM OF ` .15,09,014/- WAS INCURRED FOR THE NEW OFFICES HAS BEEN TREATED AS REVENUE IN NATURE BY THE A SSESSEE WHICH ARE EVIDENTLY CAPITAL IN NATURE AND ARE REQUI RED TO BE ADDED BACK. THUS THE ASSESSEE HAS FAILED TO DISCLOSE ALL MA TERIAL FACTS TRULY AND FULLY THAT WERE NECESSARY FOR ASSESSMENT. HERE IT IS RELEVANT TO MENTION THE EXPLANATION 1 IN SECTION 1 47 THAT STATES THAT PRODUCTION BEFORE THE ASSESSING OFFICER OF ACCOUNT BOOKS OR OTHER EVIDENCE FROM WHICH MATERIAL EVIDENCE COULD WITH THE DILIGENCE HAVE BEEN DISCOVERED BY THE ASSESSING OFFI CER WILL NOT NECESSARILY AMOUNT TO DISCLOSURE WITH THE MEANING O F THE FOREGOING PROVISION. 3. THE RE-ASSESSMENT WAS COMPLETED AFTER MAKING ADDITION OF ` .15,09,014/- BEING EXPENSES DEBITED TO P&L ACCOUNT OF CAPITAL NATURE. HOWEVER, DEPRECIATION AMOUNTING TO ` .75,450/- WAS ALLOWED ON THE ABOVE ALLEGED CAPITAL EXPENDITURE. 4. AGGRIEVED, WITH THE RE-ASSESSMENT, THE ASSESSEE FILED AP PEAL BEFORE LD CIT(A) AND IT WAS SUBMITTED AS UNDER:- I) THAT THE DETAIL INCLUDING NATURE OF EXPENSES LIKE MASSO NING, PAINTING & FLOORING WORK ETC. AND ALSO THE FACT THAT THE PREMISES WERE RENTED WERE SUBMITTED BEFORE LD ASSISTANT COMMISSIONER DURING THE PROCEEDINGS U/S 143(3) AND AS SUC H THE REOPENING AFTER THE EXPIRY OF FOUR YEARS WAS NOT VALID IN LAW. ITA NO831/DEL/2012 4 II) THAT NO NEW ASSET HAS BEEN BOUGHT AND IT WAS NOT THE INTENTION OF THE ASSESSEE TO BRING ABOUT ANY NEW CAPITA L ASSET. THE EXPENSES THAT WERE INCURRED BY THE ASSESSEE WERE TOWARDS REPAIRING, & MAINTENANCE OF PREMISES TAKEN ON LEASE SO AS TO MAKE IT MORE CONDUCIVE TO ITS BUSINESS ACTIVITY. III) THAT THE LEGISLATURE HAS MADE A DISTINCTION BETWEEN TH E EXPENSES INCURRED BY TENANT FOR REPAIRS OF THE PREMISES AND EXPENSES INCURRED BY A PERSON WHO IS NOT A TENANT TOWA RDS CURRENT REPAIRS TO THE PREMISES AND THE LOGIC BEHIND DISTINCTION WAS THAT A TENANT WOULD BY THE VERY NATUR E OF HIS STATUS AS A TENANT NOT UNDERTAKE EXPENDITURE AS WOULD E NDURE BEYOND HIS LIKELY PERIOD OF TENANCY OR CREATE A NEW ASSET WHEREAS AN OWNER MAY UNDERTAKE AN EXPENDITURE SO AS TO BRING ABOUT NEW ASSET OF CAPITAL NATURE. RELIANCE WA S PLACED ON THE JUDGMENTS IN THE FOLLOWING CASES:- 1. CIT V. HI LINE PENS (P) LTD. 175 TAXMAN 132 (DEL.). 2. DCIT V. LAZARD INDIA PVT. LTD. 41 SOT 72 (MUM.). 5. THE LD CIT(A) AFTER HEARING THE SUBMISSIONS OF ASSESSEE DID NOT ACCEPT THE CONTENTION OF ASSESSEE AND UPHELD THE ADDITI ON MADE BY THE ASSESSING OFFICER. HOWEVER, HE REDUCED THE AMOUNT O F ADDITION BY AN AMOUNT OF ` .1,42,763/- WHICH WAS INCURRED FOR PAINTING THE BUIL DING. THE LD CIT(A) HAD FURTHER HELD THAT BUILDING TAKEN ON RENT WAS A NEWLY CONSTRUCTED/RENOVATED BUILDING AND THE EXPENSES HAS BE EN INCURRED ONLY FOR KEEPING ITS FUNCTIONAL UTILITY. 6. AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THIS TRIB UNAL. 7. AT THE OUTSET, THE LD AR OF THE ASSESSEE SUBMITTED THA T ORIGINAL ASSESSMENT ORDER WAS PASSED ON 22.3.2006 U/S 143(3) AND FUR THER ITA NO831/DEL/2012 5 RECTIFICATION NOTICE U/S 154 WAS ISSUED ON 27.11.2006. HE TOOK US TO PAGE 14 OF PAPER BOOK WHERE A NOTICE U/S 154/155 WAS PLACED. THE LD AR INVITED OUR ATTENTION TO THE NATURE OF MISTAKE PR OPOSED TO BE RECTIFIED AND READ OUT THE SAME. IN VIEW OF THE NOTI CE U/S 154, THE LD AR ARGUED THAT COMPLETE DETAILS WERE THERE IN THE FI LE OF ASSESSING OFFICER REGARDING EXPENSES ON REPAIRS & MAINTENANCE AN D THAT IS WHY THE ASSESSING OFFICER COULD OBSERVE THAT THERE WAS SOME MI STAKE WHICH NEEDED RECTIFICATION. HE FURTHER ARGUED THAT REOPENING WAS BAD IN LAW AS THE LIMITATION EXPIRED ON 31.3.2008 WHERE AS THE NOTICE U/S 147 WAS ISSUED ON 26.3.2010. IN VIEW OF PROVISO TO SECT ION 147 HE ARGUED THAT LIMITATION IN THIS CASE HAS EXPIRED ON 31. 3.208 AND THE NOTICE DATED 26.3.2010 WAS VALID ONLY IF THE ASSESSEE HA D NOT FULLY AND TRULY DISCLOSED ALL MATERIAL FACTS NECESSARY FOR THE ASS ESSMENT . CONTINUING HIS ARGUMENT HE STATED THAT THE NATURE OF MISTAKE PROPOSED TO BE RECTIFIED ON THE NOTICE U/S 154 CLEARLY ESTABLI SHES THAT ALL MATERIAL WAS AVAILABLE WITH THE ASSESSING OFFICER AND RE-ASSESSMENT PROCEEDINGS WERE STARTED ONLY FOR CHANGE OF OPINION. RELIANCE WAS PLACED ON THE JUDGMENTS IN THE FOLLOWING CASES:- 1. HONDA SIEL POWER PRODUCTS LTD. V. DCIT 340 ITR 64 (S C). 2. RAJ RANI GULATI V. UNION OF INDIA 329 ITR 370. 3. DHAMPUR SUGAR MILLS LTD. V. ACIT 330 ITR 72. 4. SARTHAK SECURITIES CO. P. LTD. V. ITO 329 ITR 110. 5. SATNAM OVERSEAS LTD. & ANOTHER V. ADDL. CIT 329 ITR 2 37 & 6. INFOTECH LTD. V. ACIT 329 ITR 257. 7. ON MERITS, THE LD AR ARGUED THAT ASSESSEE IS A TENANT AND HAD INCURRED CERTAIN REPAIRS WHICH WERE NECESSARY FOR SETTI NG UP OF OFFICE. IN THIS RESPECT HE RELIED UPON THE CASE LAW OF CIT V. BHAGAT INDUSTRIES CORPN. LTD. 126 ITR 645 (P&H) WHEREIN IT WAS HELD TH AT EVEN WHERE A ITA NO831/DEL/2012 6 PART OF REPAIRS WERE DURABLE, THE DEDUCTION WAS ALLO WABLE AS REVENUE EXPENDITURE. SIMILARLY RELIANCE WAS PLACED IN THE CA SE OF CIT V. JK INDUSTRIES 125 ITR 218 (CAL.) WHEREIN IT WAS HELD THAT WOODEN PANELING WAS A REVENUE EXPENDITURE. RELIANCE WAS ALSO PLACED IN THE CASE OF RAMPUR DISTILLERY 140 ITR 725 WHEREIN IT WAS HELD THA T BUILDING TAKEN ON RENT AND EXPENSES INCURRED FOR MAKING IT A GODOWN FIT FOR STORAGE WAS A REVENUE EXPENDITURE. SIMILARLY, THE CASE LAW OF CIT V. MADRAS AUTO SERVICE PVT. LTD. 233 ITR 468 WAS RELIED WHERE IN THE OLD BUILDING WAS DEMOLISHED AND NEW BUILDING WAS CONSTRUCTED AND TH E SAME WAS ALLOWED AS REVENUE EXPENDITURE. 8. THE LD DR, ON THE OTHER HAND, ARGUED THAT THE QU ESTION OF REOPENING WAS NOT PRESSED BEFORE LD CIT(A) AND HENCE I T IS A NEW GROUND. IN THIS CASE HE RELIED UPON THE CASE LAW OF C IT V. PREMIUM CAPITAL MARKET 151 TAXMAN 194 AND HE FURTHER RELIED UPON THE ORDER OF ASSESSING OFFICER AND LD CIT(A). 9. THE LD AR IN HIS REJOINDER STATED THAT THE MATTER OF REOPENING WAS TAKEN BEFORE LD CIT(A) BUT LD CIT(A) DID NOT COM MENT UPON IT. IN THIS RESPECT HE TOOK US TO PAGE 62 OF PAPER BOOK WHERE IN PARA 2 OF SUBMISSIONS TO LD CIT(A) RELATED TO REOPENING AFTER THE EXPIRY OF FOUR YEARS. HE FURTHER ARGUED THAT EVEN IF IT WAS NOT TAK EN BEFORE LD CIT(A), THE ASSESSEE WAS FREE TO TAKE THIS GROUND BEFORE ITAT. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PA RTIES AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE HAVE NOTED THAT ASSESSMENT WAS COMPLETED U/S 143(3) ON 22.3.2006 AND LIMITATION FOR RE-ASSESSMENT U/S 147/148 EXPIRED ON 31.3.2008. AS P ER PROVISO OF SECTION 147/148 THE RE-ASSESSMENT PROCEEDINGS IN A CASE WH ERE ASSESSMENT IS COMPLETED U/S 143(3) CAN BE REOPENED AFTER EXPIRY OF ITA NO831/DEL/2012 7 FOUR YEARS IF THE ASSESSEE HAD FAILED TO DISCLOSE FULLY AN D TRULY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT. FROM THE MAT ERIAL AVAILABLE IN FILE ESPECIALLY COPY OF RECTIFICATION N OTICE PLACED AT PAGE 14 OF PAPER BOOK, THE NATURE OF MISTAKE PROPOSED TO BE RECTIFIED IS AS UNDER:- THE SCRUTINY ASSESSMENT IN YOUR CASE FOR ASSESSMENT YEAR 2003-04 WAS COMPLETED ON 22.3.2006 DETERMINING AN IN COME OF ` .4,77,00,580/-. DURING THE YEAR THE ASSESSEE COMPANY HA D DEBITED THE P&L A/C BY AN AMOUNT OF ` .30,37,949/- AS REPAIRS & MAINTENANCE UNDER OFFICE AND ADMINISTRATIVE EXPENSES. OUT OF THIS AMOUNT ` .14,77,694/- HAD BEEN SPENT FOR ITS NEW OFFICE AT HYDERABAD BEFORE SHIFTING THEREIN. SIMILARLY, ` .31,320/- SPENT FOR ITS NEW OFFICE AT MUMBAI. THUS OUT OF ` .30,37,949/- A SUM OF 15,09,914/- INCURRED FOR NEW OFFICE WHICH WAS EVIDEN TLY CAPITAL IN NATURE AND REQUIRED TO BE ADDED BACK THE MISTAKE WHI CH IS OBVIOUS AND PATENT IS REQUIRED TO BE RECTIFIED. FROM THE WORDING OF MISTAKE PROPOSED TO BE RECTIFIED, IT IS APPARENT THAT COMPLETE DETAIL OF EXPENSES WERE THERE IN THE FI LE OF ASSESSING OFFICER WHICH HE COULD HAVE DISALLOWED IN THE ORIGI NAL ASSESSMENT U/S 143(3) AND THEREFORE, WE ARE OF THE OPINION THAT RE -ASSESSMENT PROCEEDINGS IN THIS CASE ARE ON ACCOUNT OF CHANGE OF O PINION ONLY AS THE NECESSARY MATERIAL ON WHICH RE-ASSESSMENT PROCEEDING S WERE STARTED WAS ALREADY THERE IN THE FILE OF ASSESSING OFFICE R. THEREFORE, WE HOLD THAT REOPENING WAS BAD IN LAW. 11. MOREOVER, THE NATURE OF EXPENSES INCURRED BY THE ASSESSEE THOUGH MAY BE CONSIDERED TO BE OF A LITTLE ENDURING NATURE BUT VARIOUS JUDICIAL PRONOUNCEMENTS AS RELIED UPON BY THE LD AR H AD HELD THAT ITA NO831/DEL/2012 8 EVEN IF THE BENEFIT OF A REVENUE EXPENDITURE IS OF A N ENDURING NATURE, THE EXPENSES INCURRED BY A TENANT ON RENTED BUILDING FOR MAKING THE BUILDING FIT FOR THEIR BUSINESS USE IS OF REVENUE NATURE . IN VIEW OF THE ABOVE, WE HOLD THAT THE EXPENSES INCURRED BY THE ASSESSEE WERE OF REVENUE NATURE. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS AL LOWED. 13. ORDER PRONOUNCED IN THE OPEN COURT ON 21ST DAY O F DECEMBER, 2012. SD/- - SD/- (U.B.S. BEDI) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DT.21.12.2012. HMS COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). DATE OF HEARING 31.10.2012 DATE OF DICTATION 18.12.2012 DATE OF TYPING 18.12.2012 DATE OF ORDER SIGNED BY 21.12.2012 BOTH THE MEMBERS & ITA NO831/DEL/2012 9 PRONOUNCEMENT. DATE OF ORDER UPLOADED ON NET 21.12.2012 & SENT TO THE BENCH CONCERNED.