RICHA AGARAWAL, RAIPUR V. ACIT. CIR 3(1), RAIPUR

ITA 98/BIL/2016

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 4843 (ITAT-RAIPUR)
• Duration Of Justice: 2 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-10-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 02-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RAJESH GOLCHHA
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 37

Judgement Text

1 ITA NO. 98/BIL/2016 IN THE INCOME TAX APPE LLATE TRIBUNAL RAIPUR BENCH: RAIPUR BEFORE SHRI R. K. PANDA, ACCOUNTANT ME MBER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER I.T.A .NO. 98/RPR/201 6 (A.Y 2012-13) RICHA AGARWAL PROP. M/S RAGHAV ADVERTISING NATHANI COMPOUND, BEHIND ITI PARISAR, SHYAM NAGAR, RAIPUR AAXPA20401D (APPELLANT) VS ACIT, CIR 3(1) GROUND FLOOR, OLD BUILDING, AAYAKAR BHAWAN, NEAR RAJ BHAVAN, CIVIL LINES, RAIPUR (RESPONDENT) APPELLANT BY SH. RAJESH GOLCHHA, CA RESPONDENT BY SH. AJIT KUMAR LASKAR, DR ORDER PER SUCHITRA KAMBLE, JM THE PRESENT APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER DATED 08/02/2016 PASSED BY CIT(A)-1, RAIPUR (CG) FOR A SSESSMENT YEAR 2012-13. 2. THE GROUNDS OF APPEAL ARE AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEARNED ASSESSING OFFICER GROSSLY ERRED IN ADDITION OF RS. 39,43,415/- BEING AN EXPENDITURE OF CAPITAL NATURE. 3. THE ASSESSEE IS HAVING A PROPRIETORSHIP, M/S RAG HAV ADVERTISING AND DERIVES HER INCOME THROUGH ADVERTISING BUSINESS. TH E ASSESSEE FILED RETURN OF INCOME ON 07.02.2013 DECLARING INCOME OF RS.22,10,6 70/- THROUGH E-FILING. THE DATE OF HEARING 17.08.2018 DATE OF PRONOUNCEMENT 24.10.2018 2 ITA NO. 98/BIL/2016 RETURN WAS PROCESSED UNDER SECTION 143(1) OF THE IN COME TAX ACT, 1961. THE CASE WAS SELECTED FOR SCRUTINY AND A NOTICE U/S 143 (2) WAS ISSUED ON 28.08.2013. THE ASSESSEE THROUGH AUTHORIZED REPRESE NTATIVE/CHARTERED ACCOUNTANT SUBMITTED WRITTEN REPLY, COMPUTATION OF INCOME, TDS CERTIFICATES, CHALLANS OF SELF ASSESSMENT AND ADVANCE TAX PAYMENT , ALONG WITH AUDIT REPORT U/S 44AB OF THE ACT AND DOCUMENTS RELATING TO THE Q UESTIONNAIRE. THE ASSESSING OFFICER MADE ADDITION OF RS. 39,43,415/- IN RESPECT OF STEEL FRAMES BY HOLDING THE SAME AS CAPITAL EXPENDITURE. THE ASS ESSING OFFICER ALSO MADE ADDITION OF RS. 3,07,790/- TOWARDS FOREIGN TRAVEL. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) PARTLY ALLOWED THE AP PEAL OF THE ASSESSEE. 5. THE LD. AR SUBMITTED THAT THE ASSESSEE SALES THE SPACE FOR ADVERTISEMENT THROUGH HOARDING BOARDS WHEREIN THE OWNERSHIP OF TH E SAID BOARD REMAINS WITH THE ASSESSEE. THE ASSESSEE ONLY CHARGES RENT FROM T HE CUSTOMERS AS PER THEIR ORDER/REQUIREMENT AND THUS, IT IS A SERVICE RENDERE D TO THE CUSTOMERS THEREFORE, THE ASSESSEE CHARGES SERVICE TAX FOR THE SAID OPERATION. FOR ANY ADDITION TO THE HOARDING BOARDS, THE ASSESSEE CAPIT ALIZED THE EXPENSES INCURRED AS THE BOARDS ARE THEIR ASSETS AND HAVING USEFUL LI FE FOR MORE THAN A YEAR. HENCE, THE ASSESSEE DID THE CAPITALIZATION AND CLAI MED DEPRECIATION AS PER THE INCOME TAX ACT AND RULES. IN RESPECT OF SALE OF GLO W SIGN AND SIGN BOARDS AS GOODS COVERED UNDER THE DEFINITION OF GOODS UNDER T HE SALE OF GOODS ACT FOR WHICH THE ASSESSEE CHARGES VALUE ADDED TAX (VAT) AT RATES PREVAILING AT THE TIME OF OUTRIGHT SALE OF THE SAID BOARDS. THUS, THE ASSESSEE GENERATES REVENUE FROM SALE OF SUCH BOARDS AND COST INCURRED MAINLY C ONSISTS OF IRON TUBES, ANGLES, SHEETS, PIPES AND FLEX ETC. WHICH NO DOUBT IS REVENUE IN NATURE. THE LD. AR FURTHER SUBMITS THAT AT THE TIME OF SALE OF GLOW SIGN BOARDS TO CUSTOMERS, THE ASSESSEE TRANSFER THE POSSESSION AS WELL AS THE OWNERSHIP IN THE PROPERTY AS THE BOARDS AFTER SALE IS THE PROPERTY O F BUYER AND NOT THAT OF SELLER. THUS, AS PER THE ACCOUNTING PRINCIPLES, THE ASSESSE E RECOGNIZES THESE SALES AS 3 ITA NO. 98/BIL/2016 100% REVENUE AND ALL THE EXPENDITURES ARE CLAIMED A S REVENUE EXPENDITURES. THE LD. AR SUBMITS THAT EXPENDITURE FALLING UNDER T HE CAPITAL NATURE I.E. EXPENDITURE RELATING TO HOARDING BOARDS WHOSE USEFU L LIFE IS MORE THAN A YEAR WAS PROPERLY CAPITALIZED IN BOOKS AMOUNTING TO RS.4 6,12,703/- WHICH IS REFLECTED IN THE SCHEDULE OF FIXED ASSETS FORMING I NTEGRAL PART OF AUDITED FINANCIAL STATEMENTS OF THE ASSESSEE. THE LD. AR RE LIED UPON THE DECISION OF THE HONBLE DELHI HIGH COURT IN CASE OF CIT VS. ORIENT CERAMICS AND INDUSTRIES LTD. (2013) 358 ITR 49. 6. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AND THE ORDER OF THE CIT(A). THE LD. DR FURTHER SUBMITTED THAT THE OWNER SHIP ISSUE IS TAKEN FOR THE FIRST TIME BY THE ASSESSEE IN THE PRESENT ASSESSMEN T YEAR AND THERE IS ONLY SCREEN STRUCTURE AND NO GLOW SIGN WHICH IS A PERMAN ENT STRUCTURE SET OUT BY THE ASSESSEE. THEREFORE, THE LD. DR SUBMITTED THAT THE CIT(A) RIGHTLY CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL T HE RELEVANT MATERIALS AVAILABLE ON RECORDS. IT IS PERTINENT TO NOTE THAT THE ASSESSEE IS HAVING TWO TYPES OF ACTIVITIES RELATING TO HER ADVERTISING BUS INESS. FIRST, THAT OF HOARDING BOARD WHICH ARE PERMANENT STRUCTURE. SECONDLY GLOW SIGN AND SIGN BOARD WHICH ARE SOLD TO THE CUSTOMERS AND THE OWNERSHIP I S WITH THE CUSTOMERS. THE DOCUMENTS PRODUCED BEFORE THE ASSESSING OFFICER AND THE CIT(A) REVEAL THAT THESE TWO TYPES OF ACTIVITIES ARE PRESENT AND THE S AME WERE NEVER DISPUTED BY THE REVENUE AT ANY STAGE. THE HONBLE DELHI HIGH CO URT IN CASE OF ORIENT CERAMICS AND INDUSTRIES LTD. (SUPRA) HELD AS UNDER: 7. COMING TO THE EXPENDITURE ON GLOW SIGN BOARDS IN CURRED BY THE ASSESSEE, THE ISSUE WAS AS TO WHETHER THE SAID EXPENDITURE IS REVENUE OR CAPITAL IN NATURE. THE PLEA OF THE ASSESSEE WAS THAT THESE GLO W SING BOARDS ARE OF PERISHABLE NATURE, WHICH THE ASSESSEE HAD DISPLAYED AT THE VARIOUS OUTLETS OF ITS DEALERS AND THEREFORE, THE ENTIRE AMOUNT SHOULD BE TREATED AS REVENUE EXPENDITURE AND WAS ALLOWABLE UNDER SECTION 37 OF T HE ACT AS BUSINESS 4 ITA NO. 98/BIL/2016 EXPENDITURE. THE AO, HOWEVER, DID NOT ACCEPT THE SU BMISSION OF THE ASSESSEE HOLDING AS UNDER: '4.3 GLOW SING BOARDS ARE MADE OF MATERIALS LIKE ST EEL/ALUMINUM FRAMES AND PLASTIC SHEETS AND DISPLAY THE INFORMATION FOR LONG PERIODS SUBJECT TO MINOR REPAIRS. CONSIDERING THE USEFUL LIFE OF THE B OARDS, ASSESSEE COMPANY WAS RIGHTLY TREATING THE EXPENDITU RE AS CAPITAL EXPENDITURE IN THE EARLIER YEARS I.E. PRIOR TO A YR 05-06. THERE IS NO CHANGE IN CIRCUMSTANCES FOR CHANGING THE TREATMENT OF EXPE NDITURE FROM CAPITAL TO REVENUE. DURING THE A YR 2005-06 THE ASSESSING OFFI CER HAD CONCLUDED THAT THE ASSESSEE COMPANY CANNOT BE ALLOWED TO CHAN GE THE ACCOUNTING TREATMENT OF PARTICULAR ITEM WITHOUT ANY BASIS.' 8. THUS, ONLY ON THE GROUND THAT THE FRAMES OF THES E GLOW SING BOARDS ARE MADE OF STEAL/ALUMINUM, THE AO CAME TO THE CONCLUSI ON THAT THE EXPENDITURE INCURRED THEREUPON WAS CAPITAL IN NATURE. HE WAS AL SO INFLUENCED BY THE FACT THAT TILL THE PREVIOUS YEAR, THE ASSESSEE HAD ITSEL F CAPITALIZED THE EXPENDITURE AND ONLY FROM THE ASSESSMENT YEAR 2005-06, ACCOUNTI NG POLICY IN REGARD TO INCURRING ON EXPENDITURE ON GLOW SING BOARDS WAS CH ANGED BY THE ASSESSEE. 9. THE CIT (A) DELETED THIS ADDITION HOLDING IT TO BE EXPENDITURE OF REVENUE IN NATURE. 10. THE ORDER OF THE CIT (A) HAS BEEN UPHELD BY THE TRIBUNAL AND IN ARRIVING AT THE CONCLUSION THAT THE EXPENDITURE WAS OF REVENUE NATURE, THE TRIBUNAL HAS FOLLOWED THE JUDGMENT OF THE PUNJAB & HARYANA HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. LIBERTY GROUP MARKET ING DIVISION [(2009) 315 ITR 125]. 11. WE HAVE GONE THROUGH THE SAID JUDGMENT RENDERED BY THE PUNJAB & HARYANA HIGH COURT. THE COURT DEALT WITH THE SAME I SSUE, VIZ., EXPENDITURE ON GLOW SING BOARDS AND HELD THE EXPENDITURE TO BE REVENUE IN NATURE IN THE FOLLOWING MANNER: '14. CONSIDERING THE ABOVE PRINCIPLE OF LAW, IN THE PRESENT CASE, IT IS TO BE SEEN AS TO WHETHER THE EXPENDITURE INCURRED BY THE ASSESSEE ON GLOW SIGN BOARDS WAS WITH A VIEW TO BRINGING INTO EXISTENCE A N ASSET OR AN ADVANTAGE FOR THE ENDURING BENEFIT OF THE BUSINESS. IN OUR OPINION, THE EXPENDITURE INCURRED BY THE ASSESSEE ON GLOW SIGN B OARDS DOES NOT BRING INTO EXISTENCE AN ASSET OR ADVANTAGE FOR THE ENDURI NG BENEFIT OF THE 5 ITA NO. 98/BIL/2016 BUSINESS, WHICH IS ATTRIBUTABLE TO THE CAPITAL. THE GLOW SIGN BOARD IS NOT AN ASSET OF PERMANENT NATURE. IT HAS A SHORT LIFE. THE MATERIALS USED IN THE GLOW SIGN BOARDS DECAY WITH THE EFFECT OF WEATHER. THEREFORE, IT REQUIRES FREQUENT REPLACEMENT. THE TRIBUNAL HAS ALSO RECORDE D A FINDING THAT THE ASSESSEE HAS TO INCUR EXPENDITURE ON GLOW SIGN BOAR DS REGULARLY IN ALMOST EACH YEAR. THIS FACT ITSELF SHOWS THAT THE ADVANTAG E ACCRUED FROM THE USE OF THE GLOW SIGN BOARDS IS NOT OF ENDURING NATURE. THUS, THE EXPENDITURE BY THE ASSESSEE ON THESE GLOW SIGN BOARDS DID NOT BRIN G INTO EXISTENCE ANY ASSET OR ADVANTAGE FOR THE ENDURING BENEFIT OF THE BUSINESS. THE ASSESSEE HAS SPENT THE EXPENDITURE ON THE GLOW SIGN BOARDS W ITH AN OBJECT TO FACILITATE THE BUSINESS OPERATION AND NOT WITH AN O BJECT TO ACQUIRE ASSET OF ENDURING NATURE. THEREFORE, THE SAID EXPENDITURE WA S OF REVENUE NATURE AND THE TRIBUNAL HAS RIGHTLY TREATED THE SAME AS OF REVENUE NATURE.' THUS, THE EXPENDITURE IS REVENUE IN NATURE AND RIG HTLY CLAIMED BY THE ASSESSEE. THE CIT(A) AS WELL AS THE ASSESSING OFFIC ER ARE NOT CORRECT IN MAKING THE ADDITION. WE THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) AND ALLOW THE APPEAL OF THE ASSESSEE. 8. IN RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH OCTOBER, 2018 . SD/- SD/- (R. K. PANDA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 24/10/2018 *R.N COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT PRIVATE SECRETAR Y.. RAIPUR BENCH, RAIPUR. 6 ITA NO. 98/BIL/2016 DATE OF DICTATION 22.10.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 22.10.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS .10.2018 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT .10.2018 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .10.2018 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER