AI Drafter 
TaxTMI 
TaxTMI 
2019 (7) TMI 223
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....at on the facts and circumstances of the case the ld. CIT(A) erred in ignoring the facts that hoardings are temporary structure and expenditure are incurred for facilitating the business operations and not acquisition of capital asset. The same be allowed in full. (c ) That on the facts and circumstances of the case the ld. CIT(A) erred in relying on the Inspector report without furnishing the same to assessee and fact that the same is supporting the assessee case and not otherwise as interpreted by ld. CIT(A). The same be allowed in full. (d) That on the facts and circumstances of the case the ld. CIT(A) erred in ignoring the settled law that hoarding charges are revenue expenditure. 2.(a) That on the facts and circumstances of the case the ld. CIT(A) erred in adding/disallowing of Rs. 7,76,500/- on Balaji Construction on wrong presumption and applying same analogy as Balaji Ads. (b) That on the facts and circumstances of the case the ld. CIT(A) erred on disallowing hoarding construction charges of Rs. 9,13,529/- as capital expenditure instead of revenue expenditure and allowing the depreciation on it of 15%. The expenses claimed of Rs. 9,13,529....
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.... are as follows: Assessing Officer noted that the assessee has claimed total expenses of Rs. 17,40,000/- as cost construction for 8700 sq. ft. Thus, the per sq. ft. construction works out to Rs. 200/-. The assessee's submission was carefully perused by the assessing officer and observed that the cost of construction of hoardings per sq. ft. is as high as Rs. 200/-, that itself contradicts the claim of the assessee that the hoardings have a life of barely one year. The claim that for a construction having barely one year's longevity, the assessee would spend Rs. 200/-, as cost of construction per sq. ft. is not, acceptable. Thus, AO concluded that at this rate of construction, the assessee would get a structure which is fairly durable and capable of giving benefits / use value to the assessee far beyond the relevant financial year. The AO observed that having regard to the huge cost of construction, the only logical conclusion which emerges is that the hoardings have a life of more than one year, quite contrary to the claim of the assessee. With this view of the matter, the hoarding construction charges paid to M/s Monark Marketing Pvt Ltd. to the tune of Rs. 17,40,000/-, o....
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....nditure incurred by the assessee to maintain the structures used or hoardings is revenue in nature. 8. On the other hand, the ld. DR has primarily reiterated the stand taken by the Assessing Officer which we have already noted in our earlier para and the same is not being repeated for the sake of brevity. 7. We have heard both the parties and perused the material available on record. We note that ld assessing officer made the addition solely on the ground that the cost of construction of hoardings per sq. ft. is as high as Rs. 200/-, which itself contradicts the claim of the assessee that the hoardings have a life of barely one year. The claim that for a construction having barely one year's longevity, the assessee would spend Rs. 200/- as cost of construction per sq. ft. is not, acceptable. AO noticed that because, at this rate of construction, the assessee would get a structure which is fairly durable and capable of giving benefits / use value to the assessee far beyond the relevant financial year. On this backdrop of facts, the Departmental Inspector was deputed by the assessing officer to conduct a field enquiry and furnish a report regarding the construction of the....
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....harges in this case is far more than the receipts under relevant heads, the hoardings in this case are supposed to give enduring benefits of more than one year and by the same analogy, as discussed above in para seven of this order, the hoarding of construction charges of Rs. 9,13,529/- was treated by assessing officer as capital expenditure and hence the disallowances was made. However, AO noticed that having regard to the nature of business of the assessee, these hoardings are treated as plant and machinery for the assessee and depreciation @ 15% was allowed by AO. 9. We note that the hoardings are subjected to vagaries' of rain, storm, vandalism, weather, theft, miscreants, damages etc., thus, the activities indulged by the assessee are part of its normal activities of advertisements and publicity. The assessee has incurred the hoarding charges for facilitating the business operations and not with the object of acquiring any capital asset. The assessee is in the business of advertising and these expenses with regard to the hoarding structures is a part of the normal and day to day business of the assessee. The hoardings are temporary structures and are made with angles of ....
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....ortunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross-examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the appellant wanted to cross-examine those dealers and what extraction the appellant wanted from them." We note that the financial year involved in the current appeal is FY 2011-12 and the Inspector's report was given in the month of Feb - March 2015 (approx.)i.e after almost three years. The Inspector has based his findings in the impugned report by watching a hoarding after a time gap of three years. The said hoardings had underwent changes in this long time span of three years. Repair works and replacement of parts had taken place in the last few years as per the demand of the advertising business. As such, the structure exis....
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....nclusive of replacement of M.S. Angles etc., as noted by the A.O., the same is in the nature of replacement of parts of the hoarding structure which cannot be treated as capital expenditure. As such, considering all the facts of the case, we are of the view that the assesse is entitled to deduction on account of hoarding expenditure being in the nature of revenue expenditure. In that view of the matter, we delete the disallowance made by the A.O. and confirmed by the Id. CIT(A) on this issue and allow the appeal of the assessee. " Therefore, applying the ratio of the above notedjudicial precedents, to the facts of the assessee`s case, it is abundantly clear that hoarding expenses incurred by the assessee are revenue in nature and are not capital in nature. The assesse is entitled to deduction on account of hoarding expenditure being in the nature of revenue expenditure. Therefore, we delete the addition made by AO of Rs. 14,79,000/-, and Rs. 7,76,500/- respectively, and allow the ground No.1 and 2 raised by assessee. 12. Grounds No. 3 raised by the assessee relates to disallowance of Rs. 50,000/- u/s 40A(2)(b) of the Act. 13. Brief facts qua the issue are that during the s....
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.... in appeal before the Ld. CIT(A) who has dismissed the appeal of the assessee. Aggrieved by the order of the Ld. CIT(A) the assessee is in appeal before us. 15. Before us, ld Counsel for the assessee reiterated the submissions made before the lower authorities. Whereas,the ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer which we have already noted in our earlier para and the same is not being repeated for the sake of brevity. 16. We have heard both the parties and perused the material available on record. Before we deliver our opinion on this issue, let us go through the provisions of section 40A (2) of the Act, which is reproduced below for ready reference. "40A Expenses or payments not deductible in certain circumstances. (1) .. ... (2) (a) Where the assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in clause (b) of this sub-section, and the Assessing Officer is of opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimat....
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....lue of such services. However, as evident from the facts of the case, no such exercise was undertaken by the AO during assessment, therefore, addition made by the assessing officer is based of guess work and needs to be deleted.For that we rely on the judgment of the Delhi High Court in the case of CIT vs. Modi Revlon Pvt. Ltd. (2012) 78 DTR 0342 (Del- HC) wherein it was held as follows: "In order to determine whether the payment is not sustainable, the AO has to first return a finding that the payment made is excessive, under Section 40-A (2) of the Income Tax Act. If it is found to be so, then the AO has to determine what constitutes the fair market value of the services rendered and disallow the difference between what is claimed and what is such value determined (as fair market value). Apart from the fact that no such exercise was undertaken by the AO, the Court sees that the assessment order went off into a tangent, in following a method that was clearly inapplicable. The annual cap of 30 lakh payable to managerial personnel applied to public limited companies, and not those such as the assessee. This aspect was noticed by the CIT(A) who set aside the disallowance.....