TaxTMI 
TaxTMI 
2013 (11) TMI 13
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..... The return of income for A.Y. 2007-08 was filed by it on 30-10-2007 declaring total income of Rs. 12,05,75,580/-. In the P&L account filed along with the said return, vehicle expenses of Rs. 31,57,360/- were debited by the assessee. During the course of assessment proceedings, the assessee was called upon by the A.O. to furnish the vehicle-wise and party-wise details of the vehicle expenses duly supported by the relevant vouchers. Although the assessee furnished certain details and also produced some vouchers for verification, the A.O. found that the said details did not contain vehicle-wise and party-wise information. He also noted that the complete vouchers of the vehicle expenses were not produced by the assessee for his verification. He, therefore, disallowed 10% of the total vehicle expenses claimed by the assessee treating the same as unverifiable to that extent. On appeal, the ld. CIT(A) confirmed the disallowance made by the A.O. on this issue for the same reasons as given by the A.O. 4. The ld. counsel for the assessee submitted that the assessee is running a Five Star Hotel and the vehicles are used mainly for the customers pick-up from and drop to domestic as well a....
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....07/- (50% of the foreign travel expenses) made by the A.O. and confirmed by the ld. CIT(A). 8. During the course of assessment proceedings, the conveyance and travel expenses aggregating to Rs. 28,55,651/- claimed by the assessee were examined by the A.O. and on such examination, he found that certain foreign travel expenditure were claimed by the assessee in support of which the details of air tickers purchased by the Director along with the supporting vouchers were furnished by the assessee. He also found that besides purchase of tickers, the assessee had claimed other expenditure of Rs. 3,98,150/- on account of foreign travel expenses for which no details or supporting vouchers were furnished by the assessee. In the absence of such details and supporting vouchers, other expenditure of Rs. 3,98,150/- was disallowed by him to the extent of 50%. Similarly, the conveyance expenses of Rs. 2,17,375/- and domestic travels expenses of Rs. 2,93,726/- were disallowed by him to the extent of 10% for want of the relevant details and supporting evidence. Accordingly, total expenses of Rs. 2,50,117/- were disallowed by the A.O. out of conveyance and travel expenses claimed by the assessee.....
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....nd professions fees and found on such examination that the expenses claimed by the assessee on legal and professional fees were inclusive of the following items:- Sr No. Name Nature of work Amount (Rs) 1 B.S. Vora Consultant for licenses 45,000 2 Shaukat Mukhi Interior Designing 22,44,600 3 Engineering Consultancy Services Engg. Consultancy Charges 1,40,300 4 Design Technic A.C. Consultancy Charges 1,12,240 5 Paritosh Parelkar Designing/Planning Concept 1,12,240 6 Jay Mavani Website Designing 12,000 Total 26,66,380 According to the A.O., the above expenses claimed by the assessee were of capital nature and since no satisfactory explanation was offered by the assessee in this regard, he made a disallowance on account of legal and professional fees treating the said expenses to the extent of Rs. 26,66,380/- as capital expenditure. On appeal, the ld. CIT(A) sustained the disallowance made by the A.O. on this issue after allowing a part relief to the assessee by treating the amount of Rs. 45,000/- paid to Mr. P.S. Vora towards consultancy charges as revenue expenditure. 1....
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....ng the relevant period for which huge expenditure was incurred as is evident from the fact that such expenditure of Rs. 5.69 crores was capitalized by the assessee to the building account in the year under consideration. As explained by the ld. counsel for the assessee from the copy of relevant plan placed at 184 of the paper book, the use of open space, existing main entrance etc. was restricted and in order to ensure that its normal hotel business continues even during this construction period, a temporary operational plan was prepared and executed by providing alternative access as well as open space without compromising on the strict requirements of Five Star Hotel or expectations of the customers staying in such hotel. This temporary operational plan was prepared by Shri Shaukat Mukhi, a professional interior designer, for which a sum of Rs. 22,44,600/- was paid to him as his professional fees. As rightly contended by the ld. counsel for the assessee the expenditure incurred by the assessee on payment of the said fees for preparing temporary operational plan thus did not result in any new asset or advantage of enduring nature in the capital field and the same therefore was all....
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....aid fund to the employees of the assessee company during the year under consideration. He, therefore, allowed the deduction to the assessee on this issue only to the extent of Rs.2,57,670/- and disallowed the balance amount of Rs. 4,79,450/-. On appeal, the ld.CIT(A) confirmed the said disallowance observing that the deduction was allowed by way of contribution towards an approved gratuity fund only to the extent of actual payment. 17. We have heard the arguments of both the sides and also perused the relevant material available on record. The condition for claiming deduction on account of payment of gratuity are stipulated in section 36(1)(v) of the Act and there is no dispute that the said conditions were duly satisfied in the case of the assessee inasmuch as the fund created by the assessee for the purpose was duly approved by the Income Tax Department and the said fund was meant exclusively for the benefit of the employees of which contributions was irrevocable. The only dispute is about the condition of actual payment of contribution which is required to be made by the employer to the gratuity fund. In the present case, the payment of contribution was made by the assessee t....
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.... ld. CIT(A) on this issue. It is observed that on the basis of submissions made on behalf of the assessee before him, the ld. CIT(A) has given appropriate direction to the A.O. to allow the assessee to produce the evidence showing the actual payment of leave encashment and to allow the relief accordingly by restricting the disallowance. We, therefore, uphold the impugned order of the ld. CIT(A) on this issue and dismiss ground No. 5 of assessee's appeal. 21. The issue raised in ground No. 6 of assessee's appeal relates to the addition of Rs. 2,37,12,234/- made by the A.O. and confirmed by the ld. CIT(A) on account of repairs and maintenance expenditure treating the same as of capital nature. 22. During the year under consideration, the assessee had claimed total expenditure of Rs. 5,01,67,446/- on account of repairs and maintenance which was inclusive of a sum of Rs. 2,24,90,641/- on account of repairs to building, Rs. 43,35,598/- on account of repairs to plant and machinery, Rs. 1,51,68,042/- on account of other repairs and Rs. 81,73,174/- on account of general repairs and maintenance. On verification of these expenses claimed by the assessee, the A.O. was of the opinion tha....
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.... to carpentary/polish 37,64,740/- 3,76,474/- 33,88,266/- Repairs & maintenance to furniture 16,13,660/- 1,61,366/- 14,52,294/- Total disallowance 2,37,12,054/- Accordingly total disallowance of Rs. 2,37,12,054/-was made by the A.O. on account of repairs and maintenance expenses claimed by the assessee treating the same as of capital nature. The disallowance made by the A.O. on account of repairs and maintenance expenditure was disputed by the assessee in the appeal filed before the ld. CIT(A) and the following submissions were made on behalf of the assessee in support of the assessee's case on this issue. "[(I) Renovation is different from repairs and the repairs should not be confused as renovation. (ii) The appellant's company runs a 5 star hotel and the total revenue depends upon ambience and new look it gets from time to time and as the assessee had to compete several 5 star hotels which have come up in the vicinity over the last 5 years. The construction was carried out in the compound of hotel property touching the existing hotel building, several area of the existing structure underwent damages and the POP marble entran....
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....t result in any enduring benefit to the assessee and since the same was incurred to maintain the existing assets of the assessee, it was rightly claimed as deduction being the expenditure of revenue nature. He contended that wherever certain expenditure debited under the head "repairs and maintenance" was found to be of capital nature giving enduring benefit, the assessee company itself had already capitalized the same. He submitted that the nature of expenditure cannot be decided on the basis of quantum of expenditure alone and it has to be seen that what benefit has accrued to the assessee as a result of such expenditure. He then invited our attention to the details given in Annexure-A of his written submissions giving details of each and every item of expenditure treated by the A.O. as of capital nature and explained the exact nature and purpose of such expenditure with reference to the said details as well as the copies of corresponding invoices/vouchers placed in his paper book. He contended that if the nature and purpose of the said expenditure is taken into consideration, it can be seen that the same was revenue in nature and hence allowable as deduction. He also contended t....
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.... increased so also the profit as well as the tax paid thereon. Out of the impugned disallowance on account of repairs and maintenance made by the A.O., a sum of Rs.1,33,86,279/- claimed by the assessee on account of repairs and maintenance in respect of building was disallowed by the A.O. treating the same as capital expenditure. The ld. Counsel for the assessee has furnished before us the details of the said expenditure along with the nature and purpose thereof as under:- The marble slab purchased for the temporary lobby created was required to be dismantled subsequently and could not be reused except in garden area and hence in the light of the explanation to point above in respect of temporary lobby this expenditure is also required to be considered as revenue in nature and allowed against the profit of the year for the purpose of the record it may be stated the major marble purchase for the new areas have been capitalized under the head Building in the fixed assets. 28. A perusal of the above details furnished by the assessee including especially the nature and purpose of the corresponding expenditure clearly shows that the same was incurred to implement the tem....
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....tside the hotel for use of drivers, staff and visitors to the parties in the back side lawn of the hotel. The one that was there during the earlier period was spoiled during renovation and had to be replace. SR No. PARTICULARS INVOICE NO. AMOUNT PAGE NO. 3 Conversion of Oven from LPG 607 26051 194 4 2 Nos SS Hot Food Trolly 196 91800 195 It is submitted that Rs. 26051 and Rs. 80715 out of Rs. 91800 had already been capitalized under the head plant and machinery and hence this addition will result in double jeopardy. SR No. PARTICULARS INVOICE NO. AMOUNT PAGE NO. 5 Tea/Coffee machine Water Boiler 131 41795 196 During the construction work undertaken by the hotel the pool side cafeteria was substantially wound9up due to dust and exposure to nature and had to be replaced. The description contain in the invoice dated 24/06/2006 clearly shows that these four items are minor items and are in use for most times in open areas and the life is not such that it may be capitalized. SR No. PARTICULARS INVOICE NO. AMOUNT PAGE NO. 6 2 Nos Cofee Parts 3110 37631 197 These are payment f....
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....e has furnished the details thereof as under:- REPAIR & MAINTENANCE : OTHERS SR No. PARTICULARS INVOICE AMOUNT PAGE NO. 1 Steam Coil For Boiler 1417 61875 207 The amount paid for replacement of burnt coil for boiler is not a machinery and has been correctly claimed under the head repair & maintenance - other and no disallowance is warranted to treat the same as capital expenditure. SR No. PARTICULARS INVOICE AMOUNT PAGE NO. 2 Panasonic KX FM 386 669 22568 208 Five Star hotels require that all items of use are new and up-to date and hence have to be continuously replaced for use of guest who expects five star luxuries in every item of use. The telephone systems which are not in working condition need to be replaced and not repaired and hence stock of such instrument need to be kept. The same are not such that their life is more than one year since the cost is hardly Rs. 500 to 1500 and have no guarantee or worth repairing. The sum of Rs. 22568 for 15 No. of telephone equipment including 1 for customer support desk is necessarily of a revenue nature allowable against the profit of the assessee. SR No. PARTICUL....
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....18853 248 36 Flushing Valve/Stop Cock 450 254541 249 37 Jet Speray/Bottle Spary 441 29691 250 38 GSp 110/EP 4312/Xenon 17 48487 251 39 Centrifugal Blower. Filter 5 42300 252 41 W L Indicator W/L Controller 5/9 30800 253-254 42 Switch 506 37000 256 These are replacement of various equipment which undergoes substantial wear and tear due to is 24 hours use. Considering the nature of the business of the assessee company and the quality and standard required to be provided to guest in a Five Star hotel and the same were wholly and necessarily incurred for the purpose of earning the income. SR.No. PARTICULARS BILL NO. AMOUNT PAGE NO. 40 Epson Printer Head 78 3952 255 The amount was paid for replacement of printer head for accounts department which is required to print voluminous books of account and is not in the nature of capital nature. The same needs to be allowed against the profit of the assessee. 34. We have carefully perused the above details furnished by the assessee and have also considered the nature and purpose of each item of such expenditure incurred by the assessee. It is observed that the following items of expenditure were incurred by the ass....
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....,64,740/- as under:- 6. Repair & Maintenance:- Carpantry/ Polising SR.No. PARTICULARS BILL NO. AMOUNT PAGE NO. 1 Labour Charges 1 1400000 258 2 Labour Charges 1 1350000 264 3 Labour Charges 3 439740 270 4 Painting & Polising 1 575000 276. During the construction work of the new wing furniture and wooden paneling of the across hall, lobby, store, bathroom, Parking area, Kitchen area, Directors cabin, F&B Manager cabin, Banquet Manager cabin & Reception areas were damaged, and got spoiled and the same needed to be restored with substantial modification and painting and got repaired, polished or fresh coat of veneer had stuck on same to give a fresh look to the them. On perusal of the details furnished by the assessee, it is observed that the nature of this expenditure is similar to the nature of expenditure incurred by the assessee on repairs and maintenance of building inasmuch as the same was incurred to implement the temporary operational plan prepared by the assessee with the help of Interior Designer Mr. Shaukat Mukhi to keep its hotel business running during its construction period. Following our conclusion drawn on the issue of allowability of repairs and maintenan....
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....incurred by the assessee for such implementation was incurred to keep the existing hotel business running and it did not result in creation of any new asset or advantage of enduring nature in the capital filed as rightly contended by the ld. counsel for the assessee. The nature of business of the assessee company of running the Five Star Hotel is to be kept in mind to decide the nature of expenditure incurred on repairs, whether capital or revenue as the assessee has to satisfy the high standards of ambience required to be maintained for such business and high expectations of the customers staying in the five Star Hotel. Having regard to all these facts of the case, we are of the view that the repairs and maintenance expenses incurred by the assessee on furniture and fixture cannot be treated as of capital nature and the same should be allowed as deduction being expenditure of revenue nature incurred wholly and exclusively for the purpose of business. 37. For the reasons given above, we partly allow ground No. 6 of the assessee's appeal and direct the A.O. to recompute and restrict the disallowance on account of repairs and maintenance expenses keeping in view of our observation....
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....rship firm of M/s Sea Princess realty was only 19% while the capital contributed by it was 90% of the total capital of the said firm. He accordingly invoked the provisions of section 60 to 63 of the Act and clubbed the interest income of Rs. 1,28,46,814/- earned by the firm of Sea Princess Realty with the income of the assessee company. On appeal, the ld. CIT(A) upheld the action of the A.O. on these issues for the following reasons given in para 1.4.1 to 1.4.6 of his impugned order:- "1.4.1 The appellant company has transferred assets to Sea Princess Investment & M/s Sea Princes Realty and by this arrangement the assessee company has transferred income of the asset to Ms Neeta Gundecha and Ms Veena Gundecha and family members of the promoters of the company. 1.4.2 The transfer of fund by the appellant company to the firms are revocable as the appellant company has right to withdraw the funds. 1.4.3. The words 'revocable' and 'transfer' in section 61 has to be given extended meaning ascribed to them by clauses (a) & (b) of section 61 where the word 'transfer' includes "arrangement". 1.4.4 As the appellant has made a revocable transfer of assets, the income chargeable to....
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....tal contribution by partners of the firm as transfer. In support of this contention, he relied on the definition of "transfer" and "revocable transfer" given in section 63 of the Act. He submitted that the capital contribution was made by the assessee company as a partner for the ostensible purpose and the same could not be treated as any arrangement to avoid tax as alleged by the A.O. He contended that the legislature has provided a special scheme of taxation of firms and that cannot be ignored by the Revenue Authorities. He submitted that the income earned by the respective partnership firms from the investments made out of capital contributions of the partners was duly offered to tax and the action of the authorities below in clubbing the said income again with the income of the assessee company has clearly resulted in double taxation, which is not permissible in law. In support of this contention, he relied, inter alia, on the decision of the Hon'ble Supreme Court in the case of Laxmipat Singhania vs. CIT (1969) 71 ITR 291 (SC) and ITO vs. Bachu Lal Kapoor (1966) 60 OTR 74 (SC). Without prejudice to this main submissions, the ld. counsel for the assessee also contented alternat....
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....not apply to any income arising to any person by virtue of a transfer-- (i) by way of trust which is not revocable during the lifetime of the beneficiary, and, in the case of any other transfer, which is not revocable during the lifetime of the transferee; or (ii) made before the first day of April, 1961, which is not revocable 1 for a period exceeding six years: Provided that the transferor derives no direct or indirect benefit from such income in either case. (2) Notwithstanding anything contained in sub-section (1), all income arising to any person by virtue of any such transfer shall be chargeable to income-tax as the income of the transferor as and when the power to revoke the transfer arises, and shall then be included in his total income. 63. "Transfer" and "revocable transfer" defined.--For the purposes of sections 60, 61 and 62 and of this section,-- (a) a transfer shall be deemed to be revocable if-- (i) it contains any provision for the re-transfer directly or indirectly of the whole or any part of the income or assets to the transferor, or (ii) it, in any way, gives the transferor a right to reassume power directly or indirectly over the whole or....
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....hat the same are to be decided by and between the partners. These aspects are decided by the partners as per the Partnership Deed entered into by between them and it is not necessary that the capital contribution of the partners should always be in the ratio of their share of profit. As pointed out by the ld. counsel for the assessee, the capital contribution in the case of two relevant partnership firms was to be made by the partners as may be required by the partnership firm from time to time and there was no such agreement between the partners that the same should always be in the profit sharing ratio of the concerned partners. The said two partnership firms were independent entities under the Income Tax Act chargeable to tax and the entire income received by them was already subjected to tax in their hands. In such circumstances, clubbing their income in the hands of the assessee company and charging the tax again amounted to double addition which, in our opinion, is not permissible in law as rightly contended by the ld. counsel for the assessee relying, inter alia, on the decision of Hon'ble Supreme court in the case of Laxmipat Singhania (supra) and in the case of Bachu Lal K....
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....relevant material available on record. It is observed that certain items of expenses claimed by the assessee under the head "repairs and maintenance" were disallowed by the A.O. treating the same as of capital nature on examination of the details filed by the assessee as well as the corresponding bills produced in support. The details of these items disallowed by the A.O. are given on page 3 of the assessment order which only give name of the parties, bill numbers and amounts. No further details are given by the A.O. to indicate the nature of expenses or even the purpose for which they were incurred. He has also not given any basis whatsoever to treat the said expenditure as of capital nature. The ld. CIT(A) has also not thrown any light on this important aspect and has merely confirmed the disallowance made by the A.O. on this issue by passing a very cryptic order. At the time of hearing before us, the ld. counsel for the assessee has furnished the relevant details of the impugned expenditure at page No. 215 to 218 of the paper book giving nature thereof as well as purpose for which the same was incurred. In A.Y. 2007-08, a similar issue was involved relating to disallowance of re....
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....nce and lobby had to be temporarily dismantled to provide for alternate ramp and side entry to the existing lobby of the hotel for use during the 9 to 10 months of construction. The Hotel could not afford to lose its clientele and the competitive advantage. Since the whole of the front from the compound wall upto the lobby had to be blocked, the architect made an interim plan for dismantling the fountain area and the water tank in front of the lobby which was to be closed and made non operative to enable construction of the Banquet halls above it. The compound wall had to be broken down to enable construction machinery and trucks to enter since there was no gap between the main road and hotel premises. The main lobby of the hotel had to be shifted temporally to the rear side of the hotel above the Swimming Pool and temporary front office as well as waiting lobby was created with service area and toilet. Though temporary in nature such areas had to be constructed keeping in view the Five Star standard. Steel Props had to be provided for the whole height of six floors of the hotel along the temporary entrance and lobby area at level one. The who....
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....ding/Patta BILL NO. AMOUNT 8A 116151 The POP work was in respect of the new porch and was claimed considering that life is not fixed due to exposure to the open car park area. SR. NO. PARTICULARS BILL NO. AMOUNT PAGE NO. 1 Nos. 15 Zone Fire 1023 Alarm 45000 213 This was done in compliance of fire department who conduct inspection and grand NOC. SR. NO. PARTICULARS BILL NO. AMOUNT PAGE NO. 10 Dibty Beside Controller 258 49105 214 11 AMC Charges. Diety Beside 291 Control 49105 215 17 Diety Beside Controller 257 49105 222 A sum of Rs. 49105 is payable every quarter to Pamba Electornics Systems Pvt. Ltd. for AMC contract regarding maintenance of Diety Bedside Controller. This is necessarily in the nature of revenue expenditure and the same has been added as capital expenditure erroneously under Item No. 10, 11 and 17. In-fact AMC charges is confirmed by item no. 11 on the face itself. SR. NO. 12 PARTICULARS Acrylic Sheet/Pyramid BILL NO. AMOUNT PAGE NO. 36 114007 216 The hotel of the assessee being in costal area needed to protect the poo....