ACIT 21(1), MUMBAI v. H GANOOMAL & SONS, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH: MUMBAI BEFORE SHRI T.R.SOOD ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR JUDICIAL MEMBER ITA NO.1079/MUM/2010 (ASSESSMENT YEAR: 2006-07) ACIT-21(1) 6 TH FLOOR ROOM NO.601 PRATYAKSHAKR BHAVAN BANDRA KURLA COMPLEX BANDRA (EAST) MUMBAI -400 051 REVENUE VS M/S. H. GANOOMAL AND SONS PLOT NO.5 & 6 NEHRU ROAD VILE PARLE (E) PAN: AAAFH 0761 P ASSESSEE ASSESSEE BY: SHRI F.V. IRANI REVENUE BY: SHRI R.S. SRIVASTAVA O R D E R PER R.S. PADVEKAR JM IN THIS APPEAL THE REVENUE HAS CHALLENGED THE IMPUG NED ORDER OF THE LD. CIT (A)-XXXII MUMBAI DATED 27.11.2009 FOR T HE A.Y. 2006-07. THE REVENUE HAS TAKEN THE FOLLOWING EFFECTIVE GROUN DS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT (A) ERRED IN DELETING THE ADDITION OF ` 29 59 167/- BEING REPAIRS TO HOTEL BUILDINGS TREATED AS CAPITAL EXPEN DITURE BY A.O. ITA 1079/M/2010 M/S. H. GANOOMAL AND SONS 2 2. BY TREATING THE REPAIRS TO HOTEL BUILDING AS A R EVENUE EXPENDITURE THE LD. CIT (A) HAS IGNORED THE FACT T HAT THOUGH THERE IS NO CREATION OF A NEW ASSET THE ASSESSEE HAS DERIVED ENDURING BENEFIT FROM THE VERY NATURE AND SCALE OF THE REPA IRS DONE. HENCE THE CIT (A) HAS ERRED IN NOT TAKING INTO CONSIDERAT ION ON THE DECISION OF THE S.C. IN THE CASE OF M/S. SARVANA SPINNING MI LLS (P) LTD. 293 ITR. 2. THE FACTS RELEVANT TO DECIDE THE ISSUE WHICH REV EAL FROM THE RECORDS BEFORE US ARE AS UNDER. THE ASSESSEE-FIRM IS IN TH E BUSINESS OF HOTEL. THE RETURN FILED BY THE ASSESSEE FOR THE A.Y. 2006- 07 WAS SELECTED FOR SCRUTINY AND ASSESSMENT WAS COMPLETED U/S.143(3). IT WAS NOTICED BY THE A.O. THAT THE ASSESSEE HAS DEBITED SUM OF ` 29 59 167/- TO THE PROFIT AND LOSS ACCOUNT UNDER THE REPAIRS. THE A.O. SOU GHT THE EXPLANATION OF THE ASSESSEE THE ASSESSEE FILED THE REPLY CLAIMING THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IS PURELY REVENUE EXPENDIT URE AS IT IS INCURRED ON THE BUILDING REPAIRS FOR MAINTAINING PRESERVING AND UP-KEEPING THE EXISTING FACILITIES. THE ASSESSEE ALSO CONTENDED T HAT THE SAID EXPENDITURE IS IN THE NATURE OF THE CURRENT REPAIRS. THE EXPLA NATION OF THE ASSESSEE BEFORE THE A.O. IS AS UNDER:- THE ASSESSEES HOTEL BUILDING IS VERY OLD. IN THE PAST THE ASSESSEE CONSTRUCTED ADDITIONAL FLOORS ON ITS EXISTING HOTEL BUILDING AND DUE TO WHICH ITS WALLS DEVELOP CRACK. THE ASSESSEE PURCH ASED SAND CENT OTHER BUILDING MATERIALS ETC. AND EMPLOYED WORKERS FOR PLASTERING OF INNER AND OUTER WALLS OF THE HOTEL BUILDING. THE ASSESSEE HAS REDONE THE ENTRANCE OF THE HOTEL B UILDING. THE ASSESSEE RE-FIXED AND REPLACED THE MARBLES FLOORING IN THE ENTRANCE ITA 1079/M/2010 M/S. H. GANOOMAL AND SONS 3 LOBBY TO GIVE NEW AND FRESH LOOK TO THE HOTEL BUILD ING. THE ASSESSEE HAS UPLIFTED AMBIENCE OF THE ENTRANCE TO ATTRACT MO RE CUSTOMERS. THE ASSESSEE INCURRED EXPENDITURE FOR PURCHASE OF M ARBLES SAND CEMENT TILES OTHER BUILDING MATERIALS ETC. AND EM PLOYED LABOURERS FOR MANSONARY WORK. FLOORING OF STAIRS AND LOBBY IN THE HOTEL BUILDING WERE DAMAGED DUE TO FREQUENT LUGGAGE MOVEMENT IN THE AREA. ASSESSEE INCURRED EXPENDITURE FOR PURCHASE OF MARBLES TILES CEMENT SAND BUILDING MATERIALS AND EMPLOYED WORKERS FOR REPAIR AND REDOI NG THE CORRIDORS AND LOBBY AREA OF THE HOTEL BUILDING. MARBLES FIXED IN THE LOBBY AND STAIRS WERE POLISHED REGULARLY TO UPKEEP AND MAINTAIN ATTRACTIVE AMBIENCE. THE ASSES SEE INCURRED EXPENDITURE ON PURCHASE OF POLISHING MATERIALS AND ENGAGED WORKERS FOR POLISHING OR MARBLE FLOORING FREQUENTLY SINCE THE HOTEL BUILDING EXPERIENCED MOVEMENT THROUGHOUT THE DAY. THE HOTEL BUILDING IS VERY OLD. THE LEAKAGE IN THE BATHROOMS IS THE MOST COMMON PROBLEM IN THE OLD BUILDING. THE ASSES SEE HAS REGULARLY CARRIED OUT REPAIRING OF BATHROOMS TO STO P SUCH LEAKAGE PROBLEMS. THE ASSESSEE PURCHASED TILES SAND CEME NT WATER PROOFING MATERIALS PLUMBING MATERIALS SANITARY ITE MS AND ENGAGED PLUMBERS AND WORKERS FOR REFIXING OF TILES PLUMBIN G AND SANITATION WORK. THE ASSESSEE PURCHASED SAND CEMENT WATER PROOFING MATERIALS TILES ETC. AND ENGAGED LABOURERS FOR WATER PROOFIN G WORK ON TERRACE AND OTHER WALLS OF THE HOTEL BUILDING. THERE WAS S LIPPAGE OF WATER IN THE HOTEL ROOMS AND BUILDING DURING HEAVY RAINS WHICH LASHED MUMBAI CITY ON AND AFTER 26TH JULY 2006. FALSE CE ILING INVOLVING ITA 1079/M/2010 M/S. H. GANOOMAL AND SONS 4 POP WORKS WERE REDONE WHICH WERE DAMAGED DUE TO WAT ER LEAKAGE IN THE HOTEL ROOMS. THE KITCHEN EXPERIENCED HEAVY WEAR AND TEAR IN THE HOTEL BUSINESS SINCE IT IS ISSUED IN VERY ROUGH MANNER THROUGH OUT THE DAY. THE ASSESSEE PURCHASED MARBLES TILES CEMENT SAND AND OTHER BUILDING MATERIAL TO REPAIR AND REPLACE FLOORING PLATFORM I N THE KITCHEN TO RESTORE THE SAME TO ITS USABLE CONDITION. ITS FLOO RING AND FURNITURE HAVE TO BE REPAIRED QUITE OFTEN. THE WALLS OF THE KITCHEN WERE PLASTERED AND REDONE AS THE SAME WERE FREQUENTLY DA MAGED DUE TO COOKING WORK HEAT AND ROUGH USE. NEITHER THE NEW ASSET HAS COME INTO EXISTENCE NOR W AS ANY BENEFIT OF ENDURING NATURE RECEIVED BY THE ASSESSEE. THE A SSESSEE HAS NOT MADE ANY ADDITIONS OR ALTERATION TO THE EXISTING AR EA OCCUPIED AND USE FOR ITS HOTEL BUSINESS. THE STRUCTURE OF THE B UILDING OR ITS HOTEL ROOMS HAS BEEN ALTERED BY THE ASSESSEE. THE EXPEND ITURE INCURRED ON BUILDING REPAIRS AND REPAIRS IS INCURRED FOR MAI NTAINING PRESERVING AND UP-KEEPING THE EXISTING FACILITIES T O ITS NEAR ORIGINAL CONDITIONS AND THEREFORE ARE IN THE NATURE OF CUR RENT REPAIRS. IN THE ASSESSEES HOTEL BUSINESS IT IS A COMMERCIAL E XPEDIENCY TO UPKEEP THE ROOMS AND BUILDING IN UP-TO-DATE CONDITI ONS TO ATTRACT CUSTOMERS. IT IS A PART OF PROFIT EARNING PROCESS AND REVENUE EXPENDITURE AND THEREFORE ALLOWABLE AS DEDUCTION F ROM THE BUSINESS INCOME. 3. THE A.O. WAS NOT IMPRESSED WITH THE EXPLANATION OF THE ASSESSEE. THE A.O. NOTED THAT THE EXPENDITURE CLAIMED BY THE ASSESSEE CANNOT BE TREATED AS THE EXPENDITURE ON THE CURRENT REPAIRS. THE CURRENT REPAIRS ARE ONLY SUCH REPAIRS AS NECESSARY TO COMPENSATE T HE DAY-TO-DAY WARE AND TEAR. THE A.O. NOTED THAT THE ASSESSEE HAS RED ONE THE ENTRANCE OF THE OFFICE BUILDING WORK OF PLASTERING OF WALLS F LOORING REPLACED WITH ITA 1079/M/2010 M/S. H. GANOOMAL AND SONS 5 MARBLES KITCHEN SINKS REPLACED WITH MARBLE AND HEN CE THE SAID EXPENDITURE IS GIVING ENDURING BENEFIT TO THE ASSES SEE. THE A.O. ALSO OBSERVED THAT DUE TO THE SAID EXPENDITURE ARE GIVIN G ENDURING BENEFIT TO THE ASSESSEE. THE A.O. ALSO OBSERVED THAT DUE TO T HE SAID EXPENDITURE THE ASSESSEE WOULD GET THE ENDURING BENEFIT. IT IS PERTINENT TO NOTE HERE THAT THE TOTAL EXPENDITURE INCURRED BY THE ASSESSEE ON REPAIRS UNDER THE DIFFERENT HEADS WAS AMOUNTING TO RS 88 09 699/- AND OUT OF THE SAID EXPENDITURE ONLY EXPENDITURE ON THE BUILDING REPAIR S TO THE EXTENT OF RS 29 59 167/- WAS TREATED AS CAPITAL EXPENDITURE BY T HE A.O. AND MADE THE ADDITION TO THE INCOME OF THE ASSESSEE DISALLOWING THE SAME. BUT AT THE SAME TIME ALLOWED THE DEPRECIATION ON IT. THE ASS ESSEE CARRIED THE ISSUE BEFORE THE LD. CIT (A). THE ASSESSEE REITERATED TH E ARGUMENT MADE BEFORE THE A.O. AND ALSO RELIED ON THE PLETHORA OF THE DEC ISIONS. THE LD. CIT (A) ACCEPTED THE PLEA OF THE ASSESSEE THAT THE EXPENDIT URE INCURRED ON THE BUILDING REPAIRS IS INCURRED FOR MAINTAINING PRESE RVING AND UP-KEEPING THE EXISTING ASSETS IN ITS ORIGINAL CONDITION AND H ENCE SAME IS IN THE NATURE OF THE CURRENT REPAIRS AND DIRECTED THE A.O. TO ALLOW THE EXPENDITURE CLAIMED BY THE ASSESSEE ON THE BUILDING REPAIRS. NOW THE REVENUE IN APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTI ES AND ALSO PERUSED THE RECORDS. WE HAVE ALSO CONSIDERED THE P RECEDENT RELIED ON BY THE LD. COUNSEL. AS PER THE FACTS ON RECORD IT IS SEEN THAT ON THE REPAIRS THE TOTAL EXPENDITURE INCURRED BY THE ASSESSEE IS T O THE EXTENT OF RS 88 09 699/- WHICH BREAK-UP GIVEN BY THE A.O. IN T HE ASSESSMENT ORDER WHICH IS AS UNDER:- SR.NO. DESCRIPTION AMOUNT ( ` `` ` ) 1 REPAIRS 11 10 923 2 FURNITURE REPAIRS 29 20 080 3 BUILDING REPAIRS 29 59 167 4 ELECTRIC REPAIRS 16 51 717 ITA 1079/M/2010 M/S. H. GANOOMAL AND SONS 6 5 OIL PAINTING COLOURING 4 63 266 6 MAINTENANCE 7 04 546 TOTAL RS 88 09 699 5. THE LIMITED CONTROVERSY IS IN RESPECT OF THE EXP ENDITURE ON THE REPAIRS OF THE BUILDING. THE ASSESSEE CLAIMING ENT IRE EXPENDITURE AS A REVENUE EXPENDITURE. THE ASSESSEE HIMSELF HAS ADMI TTED THAT THE FLOORING WAS REPLACED WITH THE MARBLE FLOORING IN T HE ENTRANCE LOBBY. THE ASSESSEE HAS ALSO REPLACED THE TILES. THOUGH THE A SSESSEE HAS CLAIMED THAT IT WAS ROUTINE REPAIRS AND NO ADVANTAGE OF THE ENDURING NATURE ACCRUED TO THE ASSESSEE. IN OUR OPINION THE ENTIRE EXPENDITURE CANNOT BE ALLOWED AS REVENUE EXPENDITURE AS ADMITTEDLY THE E NTRANCE LOBBY IS TOTALLY RENOVATED BY USING THE MARBLES. MOREOVER T HE KITCHEN FLOORING IS ALSO REPLACED WITH THE MARBLE MARBLE IS USED FOR T HE FLOORING IT CANNOT BE SAID THAT NO ENDURING BENEFIT IS DERIVED BY THE ASSESSEE. AT THE SAME TIME CONSIDERING THE TOTALITY OF THE FACTS WE ARE NOT IN FAVOUR OF ACCEPTING THE VIEW TAKEN BY THE A.O. THAT THE ENTIR E EXPENDITURE ON THE BUILDING REPAIRS IS TO BE TREATED AS CAPITAL EXPEND ITURE. HENCE TO END THE MATTER AS FACTS AVAILABLE ON RECORD WE REASON ABLY ESTIMATE 25% AS CAPITAL EXPENDITURE OUT OF RS 29 59 167/- AND TO TH AT EXTENT RESTORED THE ORDER OF THE A.O. AND BALANCE EXPENDITURE IS TREATE D AS A REVENUE EXPENDITURE. THE A.O. IS ACCORDINGLY DIRECTED TO R E-WORK THE DISALLOWANCE AS WELL AS DEPRECIATION. 6. IN THE RESULT REVENUES APPEAL IS PARTLY ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 15TH FEBRUARY 2011. SD/- SD/- ( T.R. SOOD ) ACCOUNTANT MEMBER ( R.S. PADVEKAR ) JUDICIAL MEMBER MUMBAI DATE: 15TH FEBRUARY 2011 ITA 1079/M/2010 M/S. H. GANOOMAL AND SONS 7 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) 32 MUMBAI. 4) THE CIT CITY-21 MUMBAI. 5) THE D.R. H BENCH MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T. MUMBAI *CHAVAN ITA 1079/M/2010 M/S. H. GANOOMAL AND SONS 8 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 04.02.2011 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 07.02.2011 SR.PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7 FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER