M.Murali, Coimbatore v. ACIT, Coimbatore

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH C CHENNAI BEFORE SHRI U.B.S. BEDI J.M. & SHRI ABRAHAM P. GEORGE A.M. I.TA. NO.1089/MDS/2010 ASSESSMENT YEAR 2007-08 THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE II COIMBATORE VS . SHRI M. MURALI 101 MAHADEV BASHYAKARULU ROAD WEST R.S. PURAM COIMBATORE 641 002. [PAN: AAACC8424H] C.O. NO. 73/MDS/2010 [IN I.TA. NO.1089/MDS/2010] ASSESSMENT YEAR 2007-08 SHRI M. MURALI 101 MAHADEV BASHYAKARULU ROAD WEST R.S. PURAM COIMBATORE 641 002. VS. THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE II COIMBATORE I.TA. NO.1079/MDS/2010 ASSESSMENT YEAR 2007-08 SHRI M. MURALI 101 MAHADEV BASHYAKARULU ROAD WEST R.S. PURAM COIMBATORE 641 002. VS. THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE II COIMBATORE (APPELLANT) (RESPONDENT) REVENUE BY : SHRI B. SRINIVAS ASSESSEE BY : SHRI R. VIJAYARAGHAVAN O R D E R PER U.B.S. BEDI J.M. THE CROSS APPEALS OF THE DEPAR TMENT AND THE ASSESSEE AND CROSS OBJECTION OF THE ASSESSEE ARISE FROM THE ORDER OF THE LD. CIT( A) I COIMBATORE DATED 23.04.2010 RELEVANT TO T HE ASSESSMENT YEAR 2007-08. ITA NO.1089 CO 73 AND I.T.A. NO.1079/MDS/10 2 2. SINCE THESE MATTERS WERE HEARD TOGET HER AND ARISE OUT OF THE SAME ORDER THEREFORE BEING DISPOSED OF BY THIS SINGL E ORDER FOR THE SAKE OF CONVENIENCE. 3. FACTS INDICATE THAT THE ASSESSEE FILED THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2007-08 ON 31 .10.2007 DECLARING LOSS OF ` .11 43 160/-. NOTICE UNDER SECTION 143(2) DATED 04. 09.2008 WAS ISSUED TO THE ASSESSEE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS T HE DETAILS OF EXPEND ITURE ON BUILDING MAINTENANCE AMOUNTING TO ` .43 03 218/- WERE VERIFIED. THE ASSESSING OFFICER FOUND THAT THE EXPENDITURE CLAIMED INCLUDED EXP ENDITURE IN ENDURI NG BENEFIT TO THE ASSESSEE. HENCE T HE ENTIRE AMOUNT OF ` .43 03 218/- WAS TREATED AS CAPITAL EXPENDITURE AND DEPRECIATION WAS ALLOWED THEREON. 3. THE ASSESSEE TOOK UP THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY AND CHALLENGED THE AC TION OF THE ASSESSING OFFICE R MAINLY ON THE GROUND THAT NO NEW ASSET WAS CREATED AND THE EX PENSES WERE ONLY TOWARDS ROUTINE MAINTENANCE TO SUIT THE BUSINESS R EQUIREMENTS AND WHILE REFERRING ASSESSING OFFICERS RELIANCE ON THE DECISIONS OF ITAT MUMBAI BENCH IN THE CASE OF THE LIVING ROOM DESIGNERS VS. ITO DAT ED 31.08.2009 AND THE HONBLE HIGH COURT DELHI IN THE CASE OF M/S. BIGJOS I NDIA LTD. VS. CIT (2007) 293 ITR 170 TO MAINTAIN THAT THE HUGE EXPENSES TOWARDS FLOORINGS ETC. CAN BE SAID TO HAVE AN ENDURING BENEFIT AND ARE THEREFORE TO BE TREATED AS CAPITAL EXPENDITURE. THE LD. AR SUBMITTED THE BREAK- UP OF THE SAID EXPENDITURE. BEFORE THE LD . CIT(A) IT WAS AR GUED THAT THE ASSESSEE IS IN THE BUSINESS OF PREPAR ATION OF SWEETS AND SAVOURIE S AND HAS TAKEN PREMISES ON LEASE FOR THE PURPOSES OF SALES BRANC HES KITCHEN STORES DORMITORIES AND ITA NO.1089 CO 73 AND I.T.A. NO.1079/MDS/10 3 QUARTERS. THE PREMISES HAVE TO BE KEPT CL EAN AND HYGIENIC AT ALL TIMES TO PREVENT CONTAMINATION WHICH W OULD RESULT IN DISASTER THE ASSESSEE. THE SAID EXPENSES WERE MADE TO THE ABOVE OBJ ECTIVE AND IT IS A REGULAR FEATURE. THE LD. AR RELIED UPON THE FOLLOWING DECISIONS:- CIT VS. OOTY DASPRAKASH (1999) 237 ITR 902 CIT VS. ANDAVAN CALENDERING MILLS (1994) 210 ITR 815 (MAD) CIT VS HARIDOSS BAGATHE & CO. (P) LTD. (1999) 240 ITR 169 (MAD). IT WAS FURTHER ARGUED BY THE LD. AR OF THE ASSESSEE IN THE FIRST APPEAL THAT NO NEW ASSET WERE BROUGHT INTO EXISTENCE AND THE MAGNITUDE OF OUTLAY OR TH E PERIOD FOR REPAIR WAS NOT THE REAL TEST TO DETERMINE THE NATURE OF EXPENDITURE. 4. THE LD. CIT(A) WHILE CONSIDERING AND PARTLY ACCEPTING THE PLEA OF THE ASSESSEE HAS WHILE REPRODUCING PORTION OF T HE DECISION IN THE CASE OF EMPIRE JUTE COMPANY LTD. VS. CIT (1980) 124 ITR 1 (SC) HAS CONCLUDED TO RESTRICT AN AMOUNT OF ` .17 15 727/- AS CAPITAL EXPENDITURE AND ALLOWED RELIEF TO THE ASSESSEE TO THE EXTENT OF ` .25 87 491/- BEING REVENUE EXPENDITURE. PARA 8 9 AND 10 OF THE ORDER OF THE LD. CIT(A) IS REPRODUCED AS UNDER: 8. FROM THE FACTS AND CIRCUM STANCES OF THE CASE AND THE EXAMINATION OF RELEVANT DOCUMENTS IT IS CLEAR THAT THREE NEW SHOPS WERE CONSTRUCTED BY THE APPELLANT FOR WHICH THE OUTLAY AMOUNTED TO ` .17 15 726.9/-. THESE SH OPS ARE CLEARLY NEW ASSE TS IN THE HANDS OF APPELLANT AND THE EXPENDITURE TOWARDS BUILDING THEM IS CERTAINLY TO BE TREATED AS CAPITAL EXPENDITURE. AS REGARDS THE REMAINING AMOUNT OF EXPENSES CLAIMED CONSIDERING THE NATURE OF THE BUSINESS OF THE APPELLANT IT IS IMPERATIVE THAT HIGHEST STANDARDS OF CLEANLINESS AND HYGIENE ARE TO BE MAINTAINED AT THE PREMISES. IT IS A NECESSITY TO FOLLOW STRICT AND REGULAR ROUTINE FOR MAINTEN ANCE. IT IS ALSO ESSENTIAL FOR THE APPELLANT TO MAKE STRUCTURAL CHA NGES NOW AND THEN AND ALSO PROVIDE FOR NEW DECORATIVE ITEMS IN ORDER TO ATTRACT CUSTOMERS. THE SAID ITA NO.1089 CO 73 AND I.T.A. NO.1079/MDS/10 4 EXPENSES AMOUNTING TO ` .25 87 491/- CAN THEREFORE BE SAID TO HAVE BEEN INCURRED FOR THE DAY TO DAY RUNNING OF THE BUSINESS AND NOT FOR THE CREATION OF ANY NEW A SSET OR BENEFIT OF ENDURING NATURE AS HELD BY THE ASSESSING OFFICER. 9. MOREOVER THE CASE LAWS CITE D BY THE ASSESSING OFFICER AND ALSO THE AUTHORIZED REPRESENTATIVE DO NO T FURTHER THEIR RESPECTIVE CASES INASMUCH AS THE FACTS AND CIRCUMST ANCES IN THE CITED DECISIONS ARE DIFFERENT FROM THE PRESENT APPEAL. I AGAIN QUOTE THE HONBLE SUPREME COURT IN THE CASE CITED SUPRA. THERE HAVE BEEN NUMEROUS DECISIONS WHERE THIS QUESTION HAS BEEN DEBATED BUT IT IS NOT POSSIBLE TO RECONCILE THE REASONS GIVEN IN ALL OF THEM SINCE EACH DECISION HAS TURNED UPON SOME PARTICULAR ASPECT WHICH HAS BEEN REGARDED AS CRUCIAL AND NO GENERAL PRINCI PLE CAN BE DEDUCED FROM ANY DECISION AND APPLIED BLINDLY TO A DIFFERENT KIND OF CASE WHERE THE CONSTELLATION OF FACTS MAY BE DISSIMILAR AND OTHER FACTORS MAY BE PRESENT WHICH MAY GIVE A DIFFERENT HUE TO THE CASE. 10. IN VIEW OF THE ABOVE I AM OF THE OPINION THAT THE EXPENSES AMOUNTING TO `. 17 15 727/- IS CAPITAL EXPE NDITURE AND THE REMAINING EXPENDITURE OF ` .25 87 491/- IS REVENUE EXPENDITURE. THE ASSESSING OFFICER IS DIRECTED ACCORDINGLY. 5. THE REVENUE AGGRIEVED BY THIS OR DER OF THE LD. CIT(A) IN ALLOWING SUBSTANTIAL RELIEF TO THE ASSESSEE TO THE EXTENT OF ` .25 87 491/- TREATING IT TO BE REVENUE EXPENDITURE HAS FILED THE APPEAL WHEREAS THE ASSESSEE HAS ALSO FILED APPEAL AGAINST CONFIRMING PART ADDITION OF ` .17 15 727/- AND CO HAS ALSO BEEN FILED BY THE ASSESSEE TO SUPPORT THE ORDER OF THE LD. CIT(A) AS REGARDS APPEAL OF THE DEPARTMENT IS CONCERNED. 5.1 THE DEPARTMENT HAS CHALLENGED THE ACTI ON OF THE LD. CIT(A) IN HOLDING THAT THE EXPENDITURE INCURRED BY T HE ASSESSEE ON MAINTENANCE OF BRANCHES IS REVENUE ITA NO.1089 CO 73 AND I.T.A. NO.1079/MDS/10 5 EXPENDITURE WHEREAS HE OUGHT TO HAVE CONSIDERED THAT THE EXPENDITURE INCURRED FOR LAYING NEW FLOORING ETC. FOR PROVIDING NEW DECORATIVE ITEMS IN ORDER TO ATTRACT CUSTOMERS GAVE ENDURING BENEFIT TO THE ASSESSEE AND SHOULD BE CAPITALIZED. 5.2 THE LD. DR WHILE RELYING UPON T HE ORDER OF THE ASSESSING OFFICER HAS PLEADED FOR SETTING ASIDE THE ORDER OF THE LD. CIT(A) AND REST ORING THAT OF THE ASSESSING OFFICER AND WHILE REFERRING TO PAGE 2 PARA 3 OF THE ORDER OF THE ASSESSING OFFICER THE LD. DR SUBMITTED THAT SINCE AL L THE EXPENDITURE INCURRED GAVE LONGER LIFE TO THE ASSET AND AS SUCH OF ENDURING NATURE. THEREFORE THE ASSESSING OFFICER HAS RIGHTLY CATEGORIZED IT AS CAPITAL EXPENDIT URE AND ALLOWED THE PERMISSIBLE DEPRECIATION ON THE SAME. WHEREAS THE LD. CIT(A) HAS JUST DELETED THE ADDITION WITHOUT CONSIDERING THIS VITAL ASPECT. THEREFORE THE ORDER OF THE LD. CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER SHOULD BE RESTORED IN WHICH THE ASSESSING OFFICER HAS RELIED UPON PRECEDENTS WHICH ARE VERY RELEVANT AND APPEAL OF THE REVENUE SHOULD BE ALLOWED. 6. THE LD. COUNSEL FOR THE ASSESSEE WH ILE REITERATING THE SUBMISSIONS AS MADE BEFORE THE LOWER AUTHORITIE S HAS PLEADED FOR DELETING TH E ENTIRE ADDITION MADE BY THE ASSESSING OFFICER AND TO THE EXTENT CONFIRMED BY THE LD. CIT(A) BECAUSE WHATEVER WORK HAS BEEN UNDER TAKEN BY THE ASSESSEE I.E. FOR BRINGING THE ASSETS TAKEN ON LEASE TO RUN THE BUSINESS AND LEASED PREMISES HAVE BEEN REPAIRED AND IMPROVED TO MAKE IT CONGENIAL FOR THE BUSINESS OF THE ASSESSEE WHICH IS OF MANUFACTURING AND SALE OF SWEETS AND SA VOURIES FOR WHICH VERY CLEAN AND HYGIENICALLY FIT PLACE IS NEEDED AND IT CA NNOT BE SAID THAT ANY ENDURING BENEFIT IS ITA NO.1089 CO 73 AND I.T.A. NO.1079/MDS/10 6 THERE BUT IT IS NECESSARILY TO BE DONE TO MANUFACTURE AND SELL THE ITEMS BEING DEALT BY THE ASSESSEE. SO NEITHER THE ASSE SSING OFFICER IS JUSTIFIED IN MAKING THE ADDITION NOR THE LD. CIT(A) IS JUSTIFIED IN GIVING PART RELIEF TO THE ASSESSEE AS ENTIRE ADDITION IS NOT AT ALL SUSTAINABLE. IT WAS THUS PRAYED FOR DELETIN G THE ENTIRE ADDITION. RELIANCE WAS ALSO PLACED ON 275 ITR 125 (GUJ) 292 ITR 266 (MAD) 306 ITR 182 (DELHI) 293 ITR 432 (MAD) AND 2010-TIOL-651-ITAT-MUM. 7. THE LD. DR IN ORDER TO COUNTER T HE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT T HE LD. CIT(A) HAS CATEGORICALLY STATED IN PARA 8 OF HIS ORDER THAT THREE NEW SHOPS WERE CONSTRUCTED BY TH E ASSESSEE FOR THE OUTLAY AMOUNTING TO ` .17 15 726.90 AND THESE SHOPS ARE CL EARLY NEW ASSETS IN THE HANDS OF THE ASSESSEE AND THE EXPENDITURE TOWA RDS BUILDING THEM IS CERTAINLY TO BE TREATED AS CAPITAL EXPENDITURE. BUT T HE ASSESSEES AR HAS STATED THAT THE ASSESSEE HAS NOT PURCHASED ANY NEW SHOP AND ALL THE BUSINESS IN DIFFERENT PLACES ARE BEING RUN IN THE LEASED PREMISES AND TH IS FACT HAS NOT BEEN LOOKED INTO BY THE ASSESSING OFFICER OR THE LD. CIT(A). THEREFOR E IN CASE THE PLEA OF THE ASSESSEE IN RESTORING THE ORDER OF THE ASSESSING OFFICE R IS NOT FOUND FAVOURABLE THEN THE ISSUE IN THIS REGARD SHOULD BE RESTORED BACK ON THE FILE OF THE ASSESSING OFFICER FOR ASCERTAINING THE FACTS AND SUBJECT TO TH IS RELIEF SHOULD BE GIVEN/CONFIRMED. 8. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN CASE MATTER IS TO BE RESTORED BACK ON THE FILE OF THE ASSE SSING OFFICER WHETHER THE ASSESSEE HAS ACQUIRED ANY SHOP OR NEW ASSETS WHICH HAS BEEN STATED TO HAVE BEEN CONSTRUCTED BY HIM THEN DIRECTION SHOULD BE ISSUED TO THE ASSESSING OFFICER TO ITA NO.1089 CO 73 AND I.T.A. NO.1079/MDS/10 7 ASCERTAIN IF THE ASSESSEE HAS NOT ACQUIRED ANY ASSET OF ITS OWN SUCH AS SHOPS AND SPENT THE AMOUNT ONLY ON REPAIRS AND RENOVAT ION ETC. THEN THE EXPENDITURE TO THAT EXTENT SHOULD BE ALLOWED. 9. WE HAVE HEARD BOTH THE SIDES CONS IDERED THE MATERIALS ON RECORD AND LOOKED INTO THE DETAILS OF VARIOUS EXPENDITURE INCURRED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION AS I NDICATED IN ANNEXURE B FILED BEFORE US. AFTER CAREFULLY CONSIDERING THE ENTIRETY OF FACTS CIRCUMST ANCES OF THE CASE MATERIAL ON RECORD AND CASE LAW CITED WE ARE OF THE OPINION THAT IF ANY EXPENDITURE IS INCURRED FOR SMOOTH RUNNING OF THE BUSINESS BY IM PROVING THE ASSETS TAKEN ON RENT FOR RUNNING OF THE BUSINESS EXPENDITUR E OF THE NATURE DESCRIBED IN THE ACCOUNTS SHOULD BE ALLOWED AS REVENUE EXPENDITURE. BUT SO FAR AS TH E LD. CIT(A)S FINDINGS THAT THREE NEW SHOPS WERE CONSTRUCTED BY THE ASSESSE E FOR WHICH THE OUTLAY AMOUNTING TO ` .17 15 726.90 IS CONCERNED THE ASSESSEES CATEGORICAL STATEMENT THAT THESE SHOPS WERE ALSO TAKEN ON LEASE THE ASSESSEE IS NOT OWNER OF THE SHOP AND NECESSARY REPAIRS AND RENOVATION HAVE B EEN CARRIED OUT TO MAKE THE PREMISES CONGENIAL TO THE RUNNING OF THE BUSINESS OF THE ASSESS EE. THEREFORE WE WHILE CONFIRMING THE ACTION OF THE LD . CIT(A) IN ALLOWING THE PA RT RELIEF TO THE ASSESSEE SET ASIDE THE ISSUE IN RELATION TO EXPENDITURE OF ` .17 15 726.90 ON STATED CONSTRUCTION OF THREE NEW SHOPS AND TO HAV E RE-LOOK ON THESE ASSETS AND IN CASE IT IS FOUND THAT THESE SHOPS ARE ALSO ON LEASE BASIS THE EXPENDITURE WOULD BE ALLOWED AS REVENUE EXPENDITURE AND IF IT IS FOUND BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS ACTUALLY PURCHASED THE S HOPS AND CONSTRUCTED THESE BY MAKING ITA NO.1089 CO 73 AND I.T.A. NO.1079/MDS/10 8 EXPENDITURE OF ` .17 15 726.90 THEN IT WILL AMOUNT TO CAPITAL EXPENDITURE AND HE WILL ALLOW PERMISSIBLE DEPRECIATION ON THE SA ME. WITH THESE OBSERVATIONS THE APPEAL OF THE REVENUE IS DISMISSED AND CO OF THE ASSESSEE WH ICH IS SUPPORTIVE OF THE ORDER OF THE LD. CIT(A) HAVING BECOME INFR ACTUOUS IS ALSO DISMISSED WHERE AS THE APPEAL OF THE ASSESSEE WOULD BE TREATED TO HAVE BEEN PARTL Y ALLOWED FOR STATISTICAL PURPOSE. 10. IN THE RESULT THE APPEAL OF THE DEPARTMENT AND CO OF THE ASSESSEE IS DISMISSED AND THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON 18.02.2011. SD/- SD/- (ABRAHAM P. GEORGE) ACCOUNTANT MEMBER (U.B.S. BEDI) JUDICIAL MEMBER CHENNAI DATED THE 18.02.2011 VM/- COPY TO : APPELLANT/RES PONDENT/CIT(A)- /CIT /DR