Y.S. Sane Associates, Pune V. Dy. CIT, Circle-5, Pune

ITA 936/PUN/2013

• Counselvise Citation: 93624514 RSA 2013
• Duration Of Justice: 1 year(s) 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 29-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHAILAJA RAI
• Keywords: Capital asset; Depreciation; Business expenditure; Competent authority; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NO.936/PN/2013 (A.Y: 2008-09) Y.S. SANE ASSOCIATES JW CONSULTANTS LLP 201, SAI RADHE, 100, KENNEDY ROAD, BEHIND HOTEL LE-MERIDIEN, PUNE 411001 PAN: AAAFY0884E APPELLANT VS. ADDL.CIT, RANGE-5, PUNE RESPONDENT APPELLANT BY : SMT. DEEPA K HARE RESPONDENT BY : SMT. SHAI LAJA RAI DATE OF HEARING: 10.07.2014 DATE OF ORDER : 31.07.2014 ORDER PER SHAILENDRA KUMAR YADAV, J.M: THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-III, [IN SH ORT CIT(A)], PUNE, DATED 31.10.2011 FOR A.Y. 2008-09 ON THE FOLL OWING GROUNDS. 1. GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO ONE ANOT HER. 2. ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-III, P UNE ERRED IN UPHOLDING THE ORDER OF ADDITIONAL COMMISSI ONER OF INCOME TAX, RANGE 5, THAT REPAIRS & RENOVATIONS EXPENSES TO THE TUNE OF RS.55,73,294/- TO ITS LEASE D OFFICE PREMISES ARE CAPITAL EXPENDITURE & NOT CURRENT REPA IRS. DISALLOWANCE MADE BE DELETED. 2 ITA NO.936 OF 13 Y.S. SANE ASSOCIATES 3. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, DELETE OR SUBSTITUTE ALL OR ANY OF THE ABOVE GROUND OF APPEAL . 4. SUCH ORDER AND SUCH OTHER ORDERS BE PASSED AS DEEM FIT AND PROPER. 2. THE ASSESSEE IS A FIRM UNDERTAKING STRUCTURAL EN GINEERING AND CONSULTANCY SERVICES. FROM THE RETURN OF INCOM E FILED FOR THE YEAR UNDER CONSIDERATION, THE ASSESSING OFFICER OBS ERVED THAT THE ASSESSEE HAS DEBITED AN EXPENDITURE OF 65,53,571/- TOWARDS RENOVATION OF NEW OFFICE PREMISES, ADMEASURING 9100 SQ. FT., ACQUIRED AT SAI CHAMBERS, SANGAMWADI, PUNE. THE AS SESSING OFFICER OBSERVED THAT BEFORE OCCUPYING THE SAID PRE MISES IN THE SECOND HALF OF NOVEMBER, 2007, THE ASSESSEE HAD ENG AGED THE SERVICES OF INTERIOR DESIGNER M/S. NAVMITI DESIGNS BY PAYING AN AMOUNT OF 4 LACS. BESIDES, THE ASSESSEE WAS ALSO FOUND TO H AVE ENGAGED SERVICES OF ARCHITECT M/S. ARCHILAB SOLUTIO NS BY PAYING 21,35,990/-. THE ASSESSING OFFICER FURTHER OBSERVE D THAT BASED ON THE ARCHITECTURAL DESIGNS AND INTERIOR DESIGNS, THE ASSESSEE UNDERTOOK MAJOR RENOVATION WORKS BY CREATING NEW FU RNITURE AND FIXTURES, PARTITIONS, EXECUTIVE CABINS, RENOVATION OF EXISTING WOODEN STAIRCASE USING GRANITE, NEW FLOORING BY VIT RIFIED TILES, SANITARY INSTALLATIONS, ELECTRICAL FITTINGS, LIGHTI NGS, PLUMBING FITTINGS, ETC. HE HAS ALSO FOUND THAT THE ASSESSEE GOT THE EXISTING WORK STATION. TAKING ALL ASPECTS OF RENOVATION, ET C., HE HAS OBSERVED THAT MAJOR REPAIRS, ETC. WERE NOTHING BUT SUBSTITUTION OF OLD ASSETS BY A NEW ONE. THE ASSESSING OFFICER HAS TAKEN INTO ACCOUNT THE DRAWINGS, INTERIOR DESIGN, ETC. FOR THE PURPOSE OF MAN POWER USED FOR THE RENOVATION AND HE WAS OF THE VIE W THAT THE ASSESSEE HAD INCURRED EXPENDITURE IN RELATION TO FI XED CAPITAL I.E. BUILDING DUE TO WHICH UTILITY AND APPEARANCE OF THE ASSET INCREASED WHICH GAVE ENDURING BENEFIT TO THE ASSESS EE. 3. THE ASSESSING OFFICER ISSUED A SHOW CAUSE NOTICE CALLING UPON THE ASSESSEE AS TO WHY THE IMPUGNED EXPENDITUR E SHOULD 3 ITA NO.936 OF 13 Y.S. SANE ASSOCIATES NOT BE TREATED AS CAPITAL EXPENDITURE. THE ASSESSE E HAS RAISED THE FOLLOWING CONTENTIONS BEFORE THE ASSESSING OFFI CER WHICH READS AS UNDER: A. THE PREMISES IN RESPECT OF WHICH EXPENDITURE HA S BEEN INCURRED ARE LEASED PREMISES. B. LEASE DEED PROVIDED FOR RETURN OF PROPERTY ON DETERMINATION OF LEASE IN AS IS WHERE AS CONDITION C. SINCE EXPENDITURE WAS INCURRED ON A LEASED PREMI SES, IT CANNOT BE SAID THAT THE EXPENDITURE HAS RESULTED IN ENDURING BENEFIT TO THE ASSESSEE D. EXPENDITURE IS OF A REVENUE NATURE AND INCURRED SOLELY, EXCLUSIVELY AND WHOLLY FOR THE SMOOTH CONDU CT OF THE BUSINESS OF THE ASSESSEE. E. EXPENDITURE IS TOWARDS REPAIRS F. THE APPELLANT PLACED RELIANCE ON VARIOUS JUDICIA L PRONOUNCEMENTS, NAMELY CIT VS. MADRAS AUTO REPORTED IN 233 ITR 468, B & A PLANTATIONS VS. CIT REPORTED IN 242 ITR 22, MODI SPINNING AND WEAVING MILLS CO. LTD. V. REPORTED IN 200 ITR 544 ETC. IN SUPPORT OF ITS CONTENTIONS. G. A PERUSAL OF THE FIXED ASSETS SCHEDULE OF THE A SSESSEE REVEALS THAT THERE ARE NO ASSETS IN THE CATEGORY OF 'BUILDINGS'. THE ASSESSEE CANNOT BE EXPECTED TO CRE ATE A FICTITIOUS ASSET UNDER THE NOMENCLATURE OF' REPAI RS AND RENEWALS OR RENOVATIONS'. THIS SHOULD LEAD TO PREPOSTEROUS REFLECTIONS IN THE BALANCE SHEET. 3.1 THE ASSESSING OFFICER HAVING CONSIDERED THE SUB MISSIONS ON BEHALF OF ASSESSEE HAS CONCLUDED AS UNDER: I. IT IS CLEAR THAT AFTER INSERTION OF PROVISIONS OF SEC. 32(1A)/EXPLN. 1 TO SEC.32(1), THE EXPENDITURE COULD NOT BE CLAIMED TO BE REVENUE EXPENDITURE FOR REASON ONLY THAT IT IS IN RELATION TO A PROPERTY OF WHICH THE ASSESSEE WAS A LESSEE. II. THE EXPENDITURE CANNOT BE TERMED AS CURRENT REPAIR S AS THE OBJECT OF EXPENDITURE WAS NOT TO PRESERVE AN D MAINTAIN AN ALREADY EXISTING ASSET. FURTHER, BY INCURRING THIS EXPENDITURE, ASSESSEE OBTAINED DEFIN ITE ADVANTAGE. 4 ITA NO.936 OF 13 Y.S. SANE ASSOCIATES III. THE VERY FACT THAT THE SERVICES OF ARCHITECT AND IN TERIOR DESIGNER WERE UTILIZED ALSO PROVES THE FACT THAT TH E WORK CARRIED OUT BY THE ASSESSEE WAS NOT 'REPAIRS'. FOR 'REPAIRS' SERVICE OF ARCHITECT AND INTERIOR DESIGNE R ARE NOT NECESSARY. IV. SINCE THE EXPENDITURE IS NOT TOWARDS 'CURRENT REPAI RS', THE SAME IS NOT ALLOWABLE AS DEDUCTION. V. IF THE EXPENDITURE IS INCURRED IN RESPECT OF PREDOMINANTLY FIXED CAPITAL ASSETS, THE EXPENDITURE CANNOT BE CLAIMED TO BE REVENUE EXPENDITURE FOR REASON ONLY THAT IT FACILITATES THE ASSESSEE'S BUSI NESS. A BUSINESS EXPENDITURE WHETHER CAPITAL OR REVENUE SERVES THE SAME PURPOSE I.E. TO FACILITATE THE MANAGEMENT AND CONDUCT OF BUSINESS TO BE CARRIED ON MORE EFFICIENTLY OR MORE PROFITABLY. VI. AS PER THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF EMPIRE JUTE CO. LTD., WHAT DISTINGUISHES A CAPITAL EXPENDITURE FROM REVENUE EXPENDITURE IS THE FACT THAT FORMER IS RELATED TO FIXED CAPITAL OF THE ASSESSEE AND THE LATTER LEAVES THE FIXED CAPITAL UNTOUCHED. VII. IN THE PRESENT CASE, THE EXPENDITURE INCURRED BY TH E ASSESSEE RELATES TO BUILDING WHICH IS MOST OBVIOUS AND CLASSIC EXAMPLE OF FIXED CAPITAL. VIII. THE PORTION OF THE BUILDING TAKEN ON LEASE BY THE ASSESSEE WAS REQUIRED TO BE ADAPTED TO THE ASSESSEE S BUSINESS NEEDS. IT IS APPARENT THAT THE EXPENDITUR E WAS INCURRED ON THE BUILDING SO THAT IT MAY YIELD T O THE ASSESSEE AFRESH ADVANTAGE NOT FORTHCOMING FROM THE LEASED OUT PREMISES IN ITS ORIGINAL CONDITION. IX. AS DISCUSSED ABOVE, IT IS NOT A CASE OF SUBSTITUTIO N OF OLD ASSET BY NEW ASSET. IN FACT, NEW ASSET WAS CRE ATED BY THE ASSESSEE. X. AS A RESULT OF RENOVATION OF THE NEW OFFICE PREMISE S THE PROFIT MAKING APPARATUS OF THE ASSESSEE HAS ENLARGE D. XI. SINCE THE EXPENDITURE IS CAPITAL EXPENDITURE, SAME IS NOT ALLOWABLE AS DEDUCTION U/S.37 OF THE ACT. 3.2 THUS, THE ASSESSING OFFICER HELD THAT OUT OF TH E TOTAL CLAIM OF 65,43,471/-, MOST OF THE EXPENDITURE WAS INCURRED T OWARDS CREATION OF ASSETS AND NOT REPAIRS. AS PER THE ASS ESSING OFFICER 5 ITA NO.936 OF 13 Y.S. SANE ASSOCIATES ONLY AN AMOUNT OF 35,000/- FOUND TO BE PAID TOWARDS REPAIR OF EXISTING CHAIRS WAS HELD TO BE IN THE NATURE OF CUR RENT REPAIRS. AT THE SAME TIME, THE ASSESSING OFFICER ALSO ATTRIBUTE D 5% OF THE EXPENDITURE TOWARDS POSSIBLE REPAIRS DRAWING THE IN FERENCE THAT IT CANNOT BE HELD THAT NO REPAIRS HAD BEEN CARRIED OUT BY THE ASSESSEE AT ALL. THE DISALLOWANCE WAS THUS, WORKED OUT BY THE ASSESSING OFFICER AS UNDER: TOTAL CLAIM : RS.65,53,471/- LESS: REPAIRS OF CHAIRS : RS. 35,000/- ------------------- BALANCE : RS.65,18,471/- LESS: 5% TOWARDS POSSIBLE REPAIRS : RS. 3,25,923/ - ------------------- TOTAL DISALLOWANCE : RS.61,92,548/- 3.3 THUS, OUT OF THE TOTAL CLAIM OF 65,53,471/-, AN AMOUNT OF 61,92,548/- WAS HELD TO BE DISALLOWABLE BY TREATIN G THE SAME AS CAPITAL EXPENDITURE. HOWEVER, THE DEPRECIATION @ 10% AS APPLICABLE TO BUILDING WAS ALLOWED BY THE ASSESSING OFFICER RESULTANTLY A NET DISALLOWANCE OF 55,73,294/- WAS MADE. 4. THE MATTER WAS CARRIED BEFORE FIRST APPELLATE AU THORITY, WHEREIN THE VARIOUS CONTENTIONS WERE RAISED ON BEHA LF OF ASSESSEE AND THE CIT(A) HAVING CONSIDERED THE SAME, UPHELD T HE ORDER OF THE ASSESSING OFFICER. THE SAME HAS BEEN OPPOSED B EFORE US ON BEHALF OF ASSESSEE, INTER ALIA, SUBMITTED THAT THE CIT(A) ERRED IN UPHOLDING THE ORDER OF ADDITIONAL COMMISSIONER OF I NCOME TAX THAT REPAIRS & RENOVATION EXPENSES TO THE TUNE OF 55,73,294/- TO ITS LEASED OFFICE PREMISES ARE CAPITAL EXPENDITU RE & NET CURRENT REPAIRS. THE ASSESSEE HAS RAISED VARIOUS FACTUAL A ND LEGAL SUBMISSIONS IN SUPPORT OF HIS CONTENTIONS AND REQUE STED TO DELETE THE DISALLOWANCE IN QUESTION. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS STRONGLY SU PPORTED THE ORDER OF AUTHORITIES BELOW AND SUBMITTED THAT THE R EPAIRS AND 6 ITA NO.936 OF 13 Y.S. SANE ASSOCIATES RENOVATION EXPENSES TO THE TUNE OF 55,73,294/- TO ITS LEASED OFFICE PREMISES WAS RIGHTLY UPHELD BY THE AUTHORITI ES BELOW AS CAPITAL EXPENDITURE AND NOT CURRENT REPAIRS. 5. AFTER GOING THROUGH THE RIVAL SUBMISSIONS AND MA TERIAL ON RECORD, WE FIND THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF STRUCTURAL CONSULTANCY ACTIVITIES OF THE FIRM ARE S PREAD ALL OVER INDIA AND PROVIDES SERVICES TO ITS VARIOUS CONSTRUC TION CONGLOMERATES. FOR THE YEAR UNDER CONSIDERATION, T HE ASSESSEES TURNOVER WAS CLAIMED TO BE TO THE TUNE OF 15.31 CRORES. THE PARTNERS OF FIRM ARE CLAIMED TO BE QUALIFIED ENGINE ERS. THE TOTAL MANPOWER EMPLOYED BY THE ASSESSEE IS 154 PERSONS. THE ASSESSEE CONDUCTS ITS BUSINESS FROM THE LEASED PREM ISES. DURING THE YEAR, THE ASSESSEE HAD INCURRED AN EXPENDITURE OF 61,53,571/- ON REPAIRS AND MAINTENANCE ON PREMISES AT SAI CHAMBERS, SANGAMWADI, PUNE. THE DETAILS OF THE SAM E ARE, AS UNDER: 1 INTERIOR DESIGNERS CHARGES, MAKING / REARRANGING OF PARTITIONS, REFURBISHING, WATER PROOFING, ETC. 25,35,990 2 WOODEN MATERIAL 16,33,372 3 FLOORING & LABOUR CHARGES 4,37,384 4 ELECTRICAL MATERIAL 7,76,382 5 MATERIAL FOR INTERIOR WORK 3,95,335 6 ELECTRICAL CHARGES 2,91,504 7 FROSTED FILMS 2,25,451 8 GLASS & ALUMINUM 70,964 9 PVC CHANNEL ETC. 79,729 10 DRY LANDSCAPE 44,770 11 CHAIR REPAIRING 35,000 12 PLUMBING 21,190 13 CONNECTORS 6,400 TOTAL 65,53,471 ACCORDING TO THE CONCERNED ASSESSING OFFICER, THE ABOVE EXPENDITURE WAS INCURRED FOR CREATION OF NEW ASSETS . THE REASONS FOR TREATING THE EXPENDITURE AS CAPITAL EXPENDITURE HAVE BEEN DETAILED IN 3.1 OF THIS ORDER. THE ASSESSEES ARGU MENTS ON THE SAME ARE DETAILED IN 3 OF THIS ORDER. THE MAIN THR UST OF 7 ITA NO.936 OF 13 Y.S. SANE ASSOCIATES CONTENTION OF THE ASSESSING OFFICER THAT THE RENOVA TION HAS YIELDED DEFINITE ADVANTAGE OF ENDURING NATURE TO TH E ASSESSEE, SO THE SAME IS CAPITAL IN NATURE, HENCE, NOT ALLOWABLE U/S.37 OF THE ACT. THE MAIN ARGUMENT OF THE ASSESSEE HAS BEEN TH AT HE HAS OCCUPIED THE ABOVE SAID PREMISES VIDE REGISTERED LE AVE & LICENSE AGREEMENT EXECUTED BETWEEN THE OWNER AND THE FIRM. THE RENT FOR THE SAME HAS PAID REGULARLY AND THE TAX HAS ALS O BEEN DEDUCTED U/S.194I OF THE ACT. THE ABOVE EXPENSES A S DETAILED IN PARA 5 OF THIS ORDER SHOW THAT ALL EXPENSES ARE ON ACCOUNT OF REPAIRS OF THE LEASED PREMISES WHICH WERE NOT DISPU TED BY THE REVENUE AUTHORITIES. 6. WE FIND THAT BY FINANCE ACT, 2003, AN EXPLANATIO N IS INSERTED AFTER CLAUSE (C) OF SECTION 30 SO AS TO CL ARIFY THAT THE AMOUNT PAID ON ACCOUNT OF COST OF REPAIRS AND AMOUN T PAID ON ACCOUNT OF CURRENT REPAIRS SHALL NOT INCLUDE ANY EX PENDITURE IN NATURE OF CAPITAL EXPENDITURE. THE AMOUNT SPENT ON REPAIR OF PREMISES TAKEN ON LEAVE IS ALLOWABLE DEDUCTION U/S. 30(A)(IA) EVEN IF REPAIR IS EXTENSIVE PROVIDED IT HAS CONDUCTED AN Y INTEREST OF BUSINESS. THE QUANTUM OF EXPENDITURE IS NOT RELEVA NT TO DETERMINE THE ISSUE AS HELD BY HONBLE HIGH COURT O F RAJASTHAN IN THE CASE OF CIT VS. DR. A.M. SINGHVI (2008) 302 ITR 26 (RAJ). A SIMILAR VIEW HAS BEEN TAKEN BY THE HONBLE HIGH COU RT OF DELHI IN THE CASE OF BIGJOS INDIA LTD. VS. CIT (2007) 293 I TR 170 (DEL). THE HONBLE HIGH COURT OF MADRAS IN THE CASE OF CIT VS. AYESHA HOSPITALS PVT. LTD. (2007) 292 ITR 266 (MAD) HAS HE LD THAT EXPENDITURE ON REPAIRS AND PRINTING IN PREMISES TAK EN ON LEASE IS REVENUE EXPENDITURE. THE HONBLE HIGH COURT OF BOM BAY IN THE CASE OF NILA PRODUCTS LTD. VS. CIT (1984) 148 ITR 9 9 (BOM) WHEREIN, THE ASSESSEE TOOK ONE SHED ON LEASE FOR A PERIOD OF LESS THAN 12 MONTHS UNDER LEASE DEED, THE ASSESSEE WAS P ERMITTED TO MAKE PERMANENT ALTERATION AND ADDITION IN THE SHED WHICH WAS ALSO ALLOWED TO REMOVE WHILE HANDING OVER VACANT PO SSESSION OF 8 ITA NO.936 OF 13 Y.S. SANE ASSOCIATES THE SHED TO THE LESSOR, IT WAS HELD THAT THE AMOUNT SPENT BY THE ASSESSEE FOR ADDITION ON ALTERATION IN THE SHED CON STITUTES REVENUE EXPENDITURE. THE ISSUE BEFORE US IS WHETHE R IT IS AN EXPENDITURE OF REVENUE, IT HAS TO BE DECIDED BY THE QUANTUM OF EXPENDITURE OF MONEY. EXPENDITURE IS NOT SOLE CRIT ERIA FOR DECIDING THE ISSUE AT HAND. NORMALLY, FOR MAKING M AJOR STRUCTURAL CHANGE IN A BUILDING, REVISED SITE PLAN IS NECESSARY AND IF ANY ADDITION, ALTERATION INCLUDING REPAIRS I S DONE AT THE STRENGTH OF REVISION OF BUILDING PLAN BY THE LESSEE WITH THE CONSENT OF THE LESSOR, AS ALLOWED BY THE COMPETENT AUTHORITY AS BUILDING BYELAWS APPLICABLE TO PROPERTY IN QUESTION . IN SUCH SITUATION, IT WILL AMOUNT STRUCTURAL CHANGE AND EXP ENDITURE FOR THE SAME CAN BE SAID TO BE CAPITAL EXPENDITURE. WE FIND NOTHING ON RECORD TO SUGGEST THAT IN THE PRESENT CASE, THAT THERE IS REVISION OF BUILDING PLAN OF THE PREMISES IN QUESTI ON FOR CARRYING OUT REPAIRS IN QUESTION. SO, IT CANNOT BE SAID THA T IT HAS INCURRED EXPENDITURE FOR BRINGING THE ASSETS OF ENDURING NAT URE BY WAY OF REPAIRS BUT IT IS SIMPLY REPAIRS TO ENJOY THE LEASE D PROPERTY SUITABLE TO ITS BUSINESS NEED. ACCORDINGLY, THE AU THORITIES BELOW WERE NOT JUSTIFIED IN NEGATING THE CLAIM OF THE ASS ESSEE THAT REPAIRS AND RENOVATION EXPENDITURE TO THE TUNE OF R S.55,73,298/- TO ITS LEASED OFFICE BY HOLDING SAME AS CAPITAL EXP ENDITURE AND NOT CURRENT REPAIRS. ACCORDINGLY, THE DISALLOWANCE IN QUESTION IS DIRECTED TO BE DELETED. 7. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS A LLOWED. PRONOUNCED IN THE OPEN COURT ON THIS THE DAY 31 ST OF JULY, 2014. SD/- SD/- (G.S. PANNU) (SHAILENDRA KUMAR YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 31 ST JULY, 2014 GCVSR 9 ITA NO.936 OF 13 Y.S. SANE ASSOCIATES COPY TO:- 1) ASSESSEE 2) DEPARTMENT 3) THE CIT(A)-III, PUNE 4) THE CIT-III, PUNE 5) THE DR, A BENCH, I.T.A.T., PUNE. 6) GUARD FILE BY ORDER //TRUE COPY// SENIOR PRIVATE SECRETARY, I.T.A.T., PUNE