TaxTMI 
TaxTMI 
TaxTMI 
2017 (2) TMI 985
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.... 2 That the learned Commissioner of Income Tax (Appeals) has erred in law and on facts in sustaining a disallowance of Rs. 6,55,18,642/- on account of expenditure incurred on repairs of premises taken on lease for the purpose of running a business centre, by holding such expenditure to be capital expenditure. 2.1 That the learned Commissioner of Income Tax (Appeals) overlooked the basic fact that such expenditure was incurred to renovate and repair the building to carry on the business properly, without making any structural changes, moreover, the appellant company was not the owner of the said property and as per the lease deed, the appellant company was not allowed to carry on any major structural changes in the said property. 2.2 That the learned Commissioner of Income Tax (Appeals) erred in law and on facts by ignoring the copy of lease deed as furnished by the appellant company, as the appellant company was never allowed to install any permanent structure to the premises and as such, the appellant company only installed temporary furniture and fixtures which were removable as and when the lease period expires. 2.3 That the learned Commissioner of Income Tax (Appeals) f....
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....ts. 2. Is On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in directing the Assessing Officer to verify the facts and allow depreciation on the expenses incurred on additions and renovation etc. amounting to Rs. 6,5,5,18,642/-on repair and maintenance of leased premises in Pune and Hyderabad in accordance with law. 3. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the disallowance of Rs. 3,03,47,020/- out of total disallowance of Rs. 3,35,39,332/- made by the Assessing officer in respect of revenue expenses claimed by the assessee in respect of crockery, cutlery, utensils etc. holding the same to be capital expenditure. 4. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the disallowance of Rs. 10,00,51,0497- made by the assessing officer on the basis of pages as retrieved from the hard disc, of the computer impounded during the survey proceedings held on 4.2.2008 in the premises of M7s Vatika Hospitality Pvt. Ltd. 5. The order of Ld. CIT(A) is perverse in law and on facts." 4. The revenue has raised the following grounds of appeal in ITA No. 6688/Del/2013 for the As....
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....ity private limited, assessee, were also required to be explained. It was noted that the assessee has capitalized leasehold expenses of Rs. 65518642/- and claimed depreciation of Rs. 6876288/- in the books of accounts as per the companies act. However according to the income tax act depreciation on these capital expenditure worked out to Rs. 6551864/-. In the original return, assessee claimed it is a capital expenditure but in the revised return of the income the assessee changed its opinion and claimed it as revenue expenditure. On query by the Ld. assessing officer it was explained that assessee started its business centre at Pune and Hyderabad during the year on leasehold premises not owned by the assessee and expenses were incurred on repair of these leasehold premises. The Ld. assessing officer has noted that the leasehold improvements involve fabrication of workstations, electric installations, furniture and fittings, which obviously have higher expenses, then the expenses on dustbins, quilt, mattress fabric and stitching etc were incurred. He further held that expenditure were incurred on account of civil, plumbing and H AVC - Pune and Hyderabad. He further held that assesse....
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....as not revenue expenditure in nature. For this he referred to the celebrated decision of the Hon‟ble Supreme Court in case of 227 ITR 172. He further placed reliance on the decision of the Hon‟ble Delhi High Court in case of CIT versus Hi line pens private limited 306 ITR 182 wherein the Hon‟ble high court has held that the expenditure incurred on repairs and operation of leasehold premises is revenue expenditure. He further submitted that unless and until the expenditure is incurred on structural changes in the property the expenditure incurred is not capital in nature. He further stated that the mere fact that the expenditure is substantial by itself is insufficient to conclude that such expenditure is not revenue expenditure. For this reason he also referred to the gross revenue earned by the assessee from the business to Rs. 147819997/-. He further referred to the decision of the Hon‟ble Supreme Court in case of Empire Jute company Ltd versus CIT 124 ITR 1 to submit that the expenditure incurred enured for a longer period does not and cannot make it a capital expenditure. He further submitted that the assessee has got its account audited after obtaining ....
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....ture in nature and therefore should have been allowed as deduction. 10. The Ld. departmental representative relied upon the orders of the lower authority and submitted that the assessee has incurred the expenditure which are capital in nature and the assessee could not prove that these are the revenue expenditure and assessee has not derived any benefit of enduring nature therefore disallowance has rightly been made. He submitted that the Ld. assessing officer has noted that the leasehold improvement charges include fabrication of workstations, electric installations, furniture and fittings, which obviously are capital in nature. He further referred to the order of the Ld. CIT appeal specifically para No. 6.3 wherein it has been held that the appellant has made extensive addition alteration in the said premises to suit its requirement. He therefore referred to the provisions of section 32 (1) (ii) and submitted that the explanation 1 of that section covers the issue in favour of the revenue. 11. We have carefully considered the rival contentions and it is noted that the Ld. CIT appeal has dealt with this issue in para number 6.3.3 of his order to hold that when the appellant is a....
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....ation or extension of or improvement to the building then only such expenditure would be considered as building owned by the assessee and depreciation thereon will be allowed. Explanation 1 to section 32(1)(i) of the Income-tax Act, 1961, does not intend to lay down that whenever expenditure has been incurred by the assessee for the purpose of business or profession on the construction of any structure or doing of any work in or in relation to or by way of renovation or improvement to the building, such expenditure has to be mandatorily treated as capital expenditure. The Explanation only meant that in the event any capital expenditure is incurred by the assessee, the provisions of section 32(1) shall be applicable as if the structure or work is a building owned by the assessee. The words "any capital expenditure" used in Explanation 1 to section 32(1) indicate that the legal fiction has to be read when any capital expenditure is incurred. Thus whether any capital expenditure has been incurred is a question, which has to be decided on the basis of the facts of each case and relevant tests applicable. Explanation 1 cannot be read to mean that when works mentioned therein are carried....
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....t of view of what is acquired or from the point of view of what is the source from which the expenditure is incurred. If the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business it is properly attributable to capital and is of the nature of capital expenditure. If on the other hand it is made not for the purpose of bringing into existence any such asset or advantage but for running the business or working it with a view to produce the profits it is a revenue expenditure. If any such asset or advantage for the enduring benefit of the business is thus acquired or brought into existence it would be immaterial whether the source of the payment was the capital or the income of the concern or whether the payment was made once and for all or was made periodically. The aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure. The source or the manner of the payment would then be of no consequence. It is only in those cases where this test is of no avail that one may go to the test of fixed or circulating capital and consider whether t....
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....s. 34671983/- has been incurred at Pune and a sum of Rs. 30846659/- have been incurred at Hyderabad and the nature of such expenditure is civil, interior, plumbing and HAVC. Further at page No. 309 to 432 of the paper book various details with respect to expenses were submitted. Page No. 309 is the similar extract which was discussed at page No. 257 of the paper book earlier. The page No. 310 is the copy of the Ledger account of the expenditure incurred at Pune. The page No. 312 of the paper book is a bill for Rs. 37282753/- raised by M/s Fibre fill interiors and constructions dated 06/09/2007. The nature of work carried on in that is civil, interior work electrical works, HVAC work and plumbing work. Page No. 315 to page No. 376 were the progressive bills of interior electrical HVA C and plumbing work. The details of work carried on shows that brick masonry work is created for partition walls with cement mortar , block masonry work, cutouts, cement concrete screen over RCC slab , Indian patent flooring, RCC work, reinforcement work tiles flooring work etc. The appellant has further submitted the breakup of such work at page No. 379 of the paper book which shows that civil, interio....
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....issue here is not purely legal in nature but is factual as held by the Hon‟ble Supreme Court who has held that that the issue of capital expenditure versus revenue expenditure is always based on the facts and even the smallest twist in the fact may change the decision. Further, it would be travesty of justice if we decide the issues on such limited and scanty details. Therefore in the interest of justice we set aside ground No. 2 of the appeal of the assessee to the file of the Ld. CIT A to decide the issue afresh after examining the relevant evidence which are already available on record or which may further be required to arrive at a decision and then to decide the issue on merit. If after examination it is found that the expenditure incurred by the assessee is capital in nature then provisions of expression 1 to section 32 (1) (ii) would be applied otherwise the claim of the assessee may be allowed u/s 30 (a)(i) of the act. Needless to say that proper opportunity of hearing or to adduce further evidence may be granted to the assessee in this regard before deciding the issue. In the result ground No. 2 of the appeal of the assessee is allowed with above direction. 17. Now ....
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....and the assessee has considered Rs. 33539333/- as revenue expenditure which has been consumed during the year. Remaining sum of Rs. 25088211/- has been considered under the head inventory in schedule 7. The breakup of the item on which the expenditure had been incurred as consumed was furnished before the Ld. CIT appeal at page No. 298 to 300 of the paper book. We are of the opinion prima facie that whatever has been consumed during the year cannot be held to be capital expenditure unless there is a finding given by the Ld. assessing officer or Ld. CIT appeal that such expenditure has resulted into benefit of enduring nature. In the present case the assessee is a private limited company and it has recognized the expenditure as revenue expenditure . It has been accepted by the auditor of the company. Furthermore we have also seen the details furnished at page No. 298 to 300 of the paper book. According to us they are in the nature of crockery, utensils, cutlery, linen and other consumable materials . the list contains 53 such headings. These are necessary expenditure required to be incurred for the purpose of running of the restaurant and resort. The Ld. CIT appeal has held that out....
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....d Hyderabad in accordance with the law. We have already decided the issue of allowability of these expenses while deciding ground No. 2 of the appeal of the assessee wherein we have set aside the whole issue back to the file of the Ld. CIT A for deciding issue afresh. In view of this the ground No. 2 of the appeal of the revenue is also set aside to the file of the Ld. CIT (A) accordingly. 26. Ground No. 3 of the appeal of the revenue is against the deletion of disallowance of sum of Rs. 30347020/- made by the Ld. assessing officer holding it to be capital in nature out of the total disallowance of Rs. 33539332/- incurred on account of crockery, cutlery, utensils etc holding the same to be capital expenditure. 27. We have already decided this issue about the total expenditure of Rs. 3353933/- to submitted by the assessee at page No. 298 - 300 of the paper book. While deciding ground No. 3 of the appeal of the assessee we hold that these are the normal expenditure which are required to be incurred for the purpose of day to day running and maintenance of the resort which has restarted during the year. The Ld. CIT appeal has allowed these expenditure holding it to be revenue in natu....
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....balance sheet figures the appellant stated that since the time allowed is very less it cannot be done and also since the impounded papers are only up to 04.02.2008 and the balance sheet prepared by it is of 31.03.2008, the same could not be reconciled. It was further stated that appellant has many projects out of which only two accounts were impounded i.e. of Vatika Hospitality and The Fox whereas the accounts of GO (Gym), business centers. Western Resort are not available on the record, therefore, appellant showed its inability to reconcile. 6.6.2 From the order of the assessing officer in this regard it is apparent that the expenses uf Rs. 5.00.99.653/- are shown in impounded documents from 01 04.2007 to 04 02 2008 He has out of total expenses referred as claimed in audited accounts of Re-31 91 35,1017- segregated expenses of Rs.. 15.92.00.961/- and assumed the difference of the two figures amounting to Rs. 10.00,51.0497- as excessive expenses claimed by the appellant and made addition thereof in the order of assessment 6.6.3 A comparison/ Reconciliation prepared by the appellant shows that there were five various activities out of which in some of the activities appellant ha....
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....is dismissed 33. Ground No. 5 and 6 of the appeal of the revenue are general in nature and therefore they are dismissed. 34. In the result appeal of the revenue in ITA No. 2331/del/2012 is dismissed. 35. ITA No. 6688/D/2013 for assessment year 2008 - 09 is filed by the revenue against the order of the Ld. CIT A deleting the penalty under section 271 (1) ( c) amounting to Rs. 2,33,55,000/-. 36. The Ld. assessing officer has imposed the penalty amounting to Rs. 23355000/- on the assessee on the a. disallowance of Rs. 65518642/- of expenditure incurred on repair of lease premises holding the same to be capital expenditure in nature and b. disallowance of expenditure incurred on crockery, cutlery, utensil etc holding the same to be capital expenditure amounting to Rs. 3192313/- 37. The Ld. CIT A deleted the penalty based on the decision of the jurisdictional Honourable High Court in case of CIT versus Udaipur hotels Ltd. 35 taxmann.com 207 ( Delhi) and Honorable supreme court in case of CIT V Reliance petro products Limited 322 ITR 158 (sc) . 38. Both the parties submitted before us that the issue of disallowance of Rs. 65518642/- has been dealt with in ground No. 2 of the appe....