ACIT, Circle-13(1), Hyderabad V. M/s. Chaya Lakshmi Creations Pvt.Ltd., Hyderabad

ITA 848/HYD/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66429 (ITAT-HYDERABAD)
• Duration Of Justice: 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-11-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 29-05-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: M H NAIK
• Assessee Lawyers: C P RAMASWAMY
• Keywords: Capital asset; Business expenditure; Opportunity of being heard; Revenue expenditure; Capital expenditure
• Section: 115JB; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.848/HYD/2012- ASSTT. YEAR: 2007-08 ACIT, CIR-13(1), HYDERABAD. .... APPELLANT VS. M/S. CHAYA LAKSHMI CREATIONS PVT. LTD., JUBILEE HILLS, HYD. PAN:AABCC 7343 L RESPONDENT APPELLANT BY : SHRI M.H. NAIK RESPONDENT BY : SRI C.P. RAMASWAMY DATE OF HEARING : 27-09-2012 DATE OF PRONOUNCEMENT : 07-11- 2012 ORDER PER SAKTIJIT DEY, J.M.: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER DATED 14-03-2012 PASSED IN APPEAL NO.0190/CIT (A)-I I/09-10 AND IT PERTAINS TO THE ASSESSMENT YEAR 2007-08. 2. THOUGH THE REVENUE HAS RAISED AS MANY AS 9 GRO UNDS, THE ONLY ISSUE ARISING OUT OF THE GROUNDS IS WITH REGARD TO THE AL LOWANCE OF CERTAIN EXPENDITURES INCURRED TOWARDS REPAIRS AND MAINTENANCE OF THE BUI LDING AND THEATRE COMPLEX AS REVENUE EXPENDITURE. 3. BRIEFLY, THE FACTS ARE THE ASSESSEE, A PRIVATE L IMITED COMPANY IS ENGAGED IN THE BUSINESS OF EXHIBITING FEATURE FILMS IN A TH EATRE COMPLEX TAKEN ON LEASE AT 2 ITA NO.848 OF 2012 M/S. CHAYA LAKSHMI CREATIONS PVT. LTD., HYD. CHENNAI. FOR THE ASSESSMENT YEAR UNDER DISPUTE, TH E ASSESSEE FILED ITS RETURN OF INCOME ON 26-10-2007 DECLARING A TOTAL INCOME OF RE S.4,11,07,505/- AND AFTER SET OFF OF BROUGHT FORWARD LOSSES, THE INCOME WAS R EDUCED TO NI. UNDER THE NORMAL PROVISIONS OF THE ACT AND PAID TAX ON BOOK P ROFITS OF RS.1,41,93,351/- AS PER SECTION 115JB OF INCOME-TAX ACT. IN COURSE OF S CRUTINY ASSESSMENT PROCEEDINGS, THE AO WHILE EXAMINING THE ACCOUNTS OF THE ASSESSEE NOTICED THAT DURING THE YEAR, THE ASSESSEE HAS INCURRED SUBSTANT IAL EXPENDITURE FOR MODERNISATION OF THE BUILDING THROUGH CONTRACTORS B Y WAY OF REPAIRS TO THE BUILDING, FALSE CEILING, CHANGING OF COLUMNS, AND T HE TIE BEAMS FOR RENOVATION WORK, FLOORING, PAINTING, PLUMBING, CARPENTRY WORK, FABRICATION OF STRUCTURAL, RENOVATION OF THE CANTEEN UNIT, SEAT CHANGING ETC., FOR TOTAL CONSIDERATION OF RS.2,00,91,718/- UNDER THE HEAD REPAIRS AND MAINTEN ANCE TO BUILDING AND THEATRE. THE AO FURTHER NOTICED THAT THE REPAIRS AN D MAINTENANCE CHARGES INCURRED DURING THE YEAR INCLUDED DISMANTLING AND S CRAMBLING WORKS, FABRICATION AND INTERIOR WORKS, WALL PAPER FIXING, FIXING OF AL UMINIUM PANELS ETC. IN ADDITION TO THE BUILDING INTERIOR CONSULTANCY CHARGES OF RS. 22,89,563/-. THE AO AFTER EXAMINING THE DETAILS WAS OF THE VIEW THAT THE EXPE NDITURES INCURRED WAS NOT FOR REPAIRS AND MAINTENANCE BUT THE SAME IS INCURRED FO R THE PURPOSE OF RENOVATION AND MODERNISATION WITH AN INTENTION OF DERIVING END URING BENEFIT FOR THE SUBSEQUENT YEARS. WHEN THE THESE FACTS WERE PUT B EFORE THE ASSESSEE BY THE AO, THE ASSESSEE EXPLAINED THAT THE EXPENDITURE INC URRED WAS FOR REPAIRS AND RENOVATION AND THIS EXPENDITURE DID NOT INCREASE TH E EXISTING SEATING CAPACITY OF THEATRE NOR CREATED ANY CAPITAL ASSETS OF ENDURING BENEFIT IN NATURE. THE EXPENDITURE BROADLY CONSISTED OF EXPENSES INCURRED IN EARTH EXCAVATION WORKS, BRICK WORKS, PLASTERING AND TRENCH WORKS, PIPE LAYI NG WORKS ETC. SIMILARLY THE THEATRE MAINTENANCE INCLUDES REPLACING THE EXISTING SEATS ETC. ACCORDING TO THE ASSESSEE, THESE EXPENSES DID NOT CREATE ANY FRESH S EATING CAPACITY OR ANY CAPITAL ASSET OF ENDURING BENEFIT IN NATURE AND THEREFORE T HE EXPENDITURE IS OF REVENUE NATURE. SINCE THE SAID EXPENDITURE IS NOT OF CAPITA L NATURE, IT CANNOT BE CAPITALISED. THE AO HOWEVER DID NOT ACCEPT THE CON TENTION OF THE ASSESSEE TO TREAT THE EXPENDITURE CLAIMED AS REVENUE EXPENDITUR E. THE AO OBSERVED THAT THE RENOVATION AND MODERNISATION WORK COMMENCED DUR ING THE ASSESSMENT YEAR 2003-04 AND CONTINUED TILL THE ASSESSMENT YEAR 2007 -08. THE AO OPINED THAT ON ACCOUNT OF RENOVATION OF THE THEATRE, THE BUSINE SS OF THE ASSESSEE WAS 3 ITA NO.848 OF 2012 M/S. CHAYA LAKSHMI CREATIONS PVT. LTD., HYD. IMPROVED AND THE BENEFIT OF ENDURING NATURE ACCRUED TO THE ASSESSEE DURING THE SUBSEQUENT YEARS ALSO . THE AO OBSERVED THAT THOUGH THE THEATRE HAS NOT BEEN DEMOLISHED AND NEW CONSTRUCTION TAKEN UP BUT ON ACC OUNT OF SUBSTANTIAL REPLACEMENTS IN CHAIRS, LANDSCAPING, FALSE CEILING, SEAT CHANGING ETC., AND OTHER IMPROVEMENTS MADE TO THE THEATRE AND THE AMENITIES PROVIDED, THE THEATRES HAVE GOT A NEW SHAPE AND AS A RESULT OF RENOVATION OF THE THEATRE, COLLECTIONS HAVE BEEN INCREASED IN THE SUBSEQUENT YEAR WHICH HA S TO BE TREATED AS ENDURING BENEFIT TO THE ASSESSEE. 4. THE AO RELYING UPON HIS REASONING ON THE BASIS OF WHICH HE HAS MADE SIMILAR ADDITIONS IN THE ASSESSMENT YEARS 2004-05, 2005-06 AND 2006-07 HELD THAT THE EXPENDITURE INCURRED UNDER THE HEAD REPAI RS AND MAINTENANCE OF THE BUILDING AND THEATRE AS CAPITAL EXPENDITURE, HENCE CANNOT BE ALLOWED. 5. THE ASSESSEE BEING AGGRIEVED OF THE DISALLOWANCE OF EXPENDITURE MADE BY THE AO, FILED AN APPEAL BEFORE THE CIT (A). THE CIT (A) FOLLOWING HER OWN ORDER ON IDENTICAL ISSUE IN ITA NOS. 0317 &0318/08-09 AND 0248/CIT(A)-II/07-08, DATED 24-12-2009 WHICH WAS CONFIRMED BY THE ITAT, HY DERABAD BENCH IN ITA NOS.250,251 AND 252/HYD/2010 FOR ASSESSMENT YEAR 20 03-04, 2005-06 AND 2006-07 HELD THAT OUT OF THE EXPENDITURE CLAIMED UN DER THE HEAD REPAIRS AND MAINTENANCE, THE EXPENDITURE INCURRED ON MARBLE F LOORING IS THE WORK OF LONG LASTING NATURE AND PROVIDES ENDURING BENEFIT TO THE ASSESSEE AND TREATED THE EXPENDITURE ON MARBLE FLOORING AND CHANGING OF FLOO R TILES AS IN THE NATURE OF CAPITAL EXPENDITURE AND HELD THE OTHER EXPENDITURE INCURRED UNDER REPAIRS AND MAINTENANCE TO BE ALLOWED AS REVENUE EXPENDITURE. 6. THE LEARNED DR SUPPORTING THE REASONING MADE BY THE AO IN THE ASSESSMENT ORDER, SUBMITTED THAT THE EXPENDITURE IN CURRED, SINCE IN THE NATURE OF PROVIDING ENDURING BENEFIT TO THE ASSESSEE, IT H AS TO BE TREATED AS CAPITAL EXPENDITURE. 7. THE LEARNED AR, ON THE OTHER HAND SUBMITTED THAT THE ISSUE IS COVERED BY THE DECISION OF ITAT, HYDERABAD BENCH IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2003-04, 2005-06 AND 2006-07 IN IT A NOS.250, 251 AND 252/HYD/2010 DATED 30-6-2010. 4 ITA NO.848 OF 2012 M/S. CHAYA LAKSHMI CREATIONS PVT. LTD., HYD. 8. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE HAVE ALSO PERUSED THE ORDER OF THE CO-ORDINATE BENC H DELIVERED IN ASSESSEES OWN CASE IN ITA NOS.250, 251 AND 252/HYD/2010 DATED 30-6-2010 (SUPRA). ON EXAMINING THE ORDER OF THE CO-ORDINATE BENCH OF TH E TRIBUNAL, IT IS SEEN THAT IN THOSE ASSESSMENT YEARS ALSO, THE ASSESSEE HAD CLAIM ED EXPENDITURE UNDER THE HEAD REPAIRS AND MAINTENANCE WHICH INCLUDED EXPEN DITURE TOWARDS MARBLE FLOORING, EARTH FILLING WORKS, UNDERGROUND SUMP REP AIRING, DRAINAGE AND CABLE WORKS, WALL PAPER FIXING, DUST OPENING, CARPENTRY, PLUMBING WORKS, FALSE CEILING REPAIR, SEAT REPAIR, PEST CONTROL, HOUSEKEEPING MAT ERIAL, THEATRE CLEANING, CHARGES ON BANDOBUST AND FIXING OF CHAIRS ETC. THE AO DISALLOWED THE EXPENDITURE CLAIMED BY TREATING THEM AS CAPITAL IN NATURE. THE CIT (A) HOWEVER ALLOWED THE EXPENDITURES EXCEPTING THE EXPENDITURE INCURRED TOWARDS MARBLE FLOORING. THE ITAT WHILE DECIDING THE APPEAL OF TH E DEPARTMENT HELD IN THE FOLLOWING MANNER:- 22. WE FIND THAT THE APEX COURT HAD AN OCCASION TO CONSIDER AN IDENTICAL ISSUE IN THE CASE OF CIT VS. KALYANJI MAVJI & CO. (1980) 122 ITR 49. IN THE CASE BEFORE THE APEX COURT THE ASSESSEE INCURRED THE EXPENDITURE ON PAYMENT OF SURFACE RENT, MINIMUM ROYALTY AND ON ACCOUNT OF SALARY FOR THE WA TCH AND WARD AND CLAIMED IT AS A BUSINESS EXPENDITURE. THE ASSESSEE HAS ALSO I NCURRED EXPENDITURE FOR RENOVATING THE BUILDING, RECONDITIONING OF MACHINER Y AND CLEARING OF DEBRIS. THE ASSESSEE CLAIMED THE EXPENDITURE AS REVENUE EXPENDI TURE. THE APEX COURT AFTER REFERRING TO EARLIER DECISION IN THE CASE OF ASSAM BENGAL CEMENT CO. LTD. VS. CIT (1955) 27 ITR 34 FOUND THAT THE EXPENDITURE INCURRE D BY THE ASSESSEE WAS IN THE PROCESS OF PROFIT EARNING. THEREFORE, IT HAS TO BE ALLOWED AS REVENUE EXPENDITURE. 23. IN VIEW OF THE ABOVE CASE LAWS, IT IS OBVIOUS T HAT WHENEVER AN EXPENDITURE WAS INCURRED IN THE PROCESS OF EARNING OF PROFIT IT HAS TO BE ALLOWED AS REVENUE EXPENDITURE. IN SUCH A CASE THE EXPENDITURE INCURR ED BY THE ASSESSEE WOULD BE OUTSIDE THE PURVIEW OF EXPLANATION (1) TO SECTION 32 OF THE ACT. IN THE CASE BEFORE US, IT IS NOT IN DISPUTE THAT THE EXPENDITURE WAS I NCURRED FOR EARTH FILLING, REPAIR OF CHAIRS, REPLACEMENT OF DAMAGED CHAIRS, REPAIR OF UN DERGROUND SLUMP, DRAINAGE AND CABLE WORK, WALL PAPER FIXING, DUST OPENING REPAIR, CARPENTRY AND PLUMBING, REPAIR OF FALSE CEILING, ETC. THE ASSESSEE HAS ALSO CHANG ED THE MARBLE FLOORING, INCURRED EXPENDITURE ON CLEANING MATERIAL, PAYMENT TO TEMPOR ARY EMPLOYEES, WATCH AND WARD, ETC. EVEN THOUGH THE EXISTING FLOORING WAS C HANGED IT MAY FALL IN THE REVENUE FIELD. HOWEVER, THE CIT(A) HIMSELF CONFIRMED THE E XPENDITURE WITH REGARD TO CHANGE OF MARBLE FLOORING AS CAPITAL EXPENDITURE. HOWEVER, HE ALLOWED THE OTHER 5 ITA NO.848 OF 2012 M/S. CHAYA LAKSHMI CREATIONS PVT. LTD., HYD. EXPENSES AS REVENUE EXPENDITURE. THE ASSESSEE HAS ALSO PAID CONSULTANCY CHARGES. IT IS PERTINENT TO NOTE THAT WHEN THE ASSE SSEE HAS REPAIRED THE FALSE CEILING OF THE CINEMA THEATRE, HE HAS TO ENSURE THE SOUND PROOF IN SIDE THE THEATRE BUILDING. THEREFORE, HE HAS TO NECESSARILY CONSULT A CONSULTANT AND THERE IS NOTHING WRONG IN PAYING THE CONSULTANCY CHARGES FOR SUCH RE PAIRS. FALSE CEILING WAS REPAIRED WITHOUT ALTERING THE STRUCTURE OF THE BUIL DING. THE ASSESSEE HAS ALSO INCURRED EXPENDITURE IN PURCHASING CLEANING MATERIA L, PROJECTOR MAINTENANCE, PAYMENT OF CHARGES TO TEMPORARY STAFF, ETC. THESE EXPENSES ARE ONLY FOR THE PURPOSE OF CARRYING ON OF THE BUSINESS AND DOES NOT BRING ANY CAPITAL ASSET INTO EXISTENCE. THEREFORE, IN OUR OPINION, THE CIT(A) H AS RIGHTLY ALLOWED THE SAME AS REVENUE EXPENDITURE. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LOWER AUTHORITY. ACCORDINGLY THE SAME IS CONFIRMED. AFTER CONSIDERING THE FACTS ON RECORD AND THE ORDER OF THE CO-ORDINATE BENCH AS EXTRACTED HEREINABOVE IN THE ASSESSEES OWN CASE, W E ARE OF THE CONSIDERED VIEW THAT THE MATTER SHOULD BE REMITTED BACK TO THE FILE OF THE AO FOR VERIFYING THE NATURE OF EXPENDITURE CLAIMED UNDER THE HEAD REPAI RS AND MAINTENANCE. IF THE NATURE OF EXPENDITURE CLAIM UNDER THE HEAD REPAIRS AND MAINTENANCE FOR THE ASSESSMENT YEAR UNDER DISPUTE ARE FOUND TO BE THE S AME WHICH WAS CONSIDERED BY THE ITAT IN ASSESSEES OWN CASE FOR ASSESSMENT YE ARS 2003-04, 2005-06 AND 2006-07 AND ALLOWED AS REVENUE EXPENDITURE, THEN TH E AO SHOULD ALSO ALLOW THE SAME AS REVENUE EXPENDITURE FOR THE IMPUGNED ASSESS MENT YEAR. THE AO SHALL AFFORD A REASONABLE OPPORTUNITY OF BEING HEARD TO T HE ASSESSEE BEFORE FINALLY DECIDING THE APPEAL AFTER FOLLOWING OUR AFORESAID D IRECTION. 9. IN THE RESULT, THE APPEAL FILED BY THE DEPARTMEN T IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 07 -11-2012. SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER SD/- (SAKTIJIT DEY) JUDICIAL MEMBER HYDERABAD, DATED THE 7 TH NOVEMBER, 2012. 6 ITA NO.848 OF 2012 M/S. CHAYA LAKSHMI CREATIONS PVT. LTD., HYD. COPY TO:- 1) ACIT, CIRCLE-13(1), HYDERABAD. 2)M/S.CHAYA LAKSHMI CREATIONS PVT. LTD., PLOT NO.26 5H, ROAD NO.10, JUBILEE HILLS, HYDERABAD. 3) THE CIT (A)-II, HYDERABAD. 4) THE CIT CONCERNED, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABA D. JMR*