M/s Rohit Bal Designs Pvt. Ltd.,, New Delhi v. DCIT, New Delhi

ITA 2089/DEL/2013 | 2009-2010
Pronouncement Date: 02-04-2014 | Result: Dismissed

Appeal Details

RSA Number 208920114 RSA 2013
Assessee PAN AABCR5401J
Bench Delhi
Appeal Number ITA 2089/DEL/2013
Duration Of Justice 11 month(s) 22 day(s)
Appellant M/s Rohit Bal Designs Pvt. Ltd.,, New Delhi
Respondent DCIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 02-04-2014
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted F
Tribunal Order Date 02-04-2014
Date Of Final Hearing 01-04-2014
Next Hearing Date 01-04-2014
Assessment Year 2009-2010
Appeal Filed On 10-04-2013
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F NEW DELHI BEFORE SH. R. S. SYAL AM AND SH. A. T. VARKEY J M I.T.A .NO.-2089/DEL/2013 : ASSTT. YEAR : 2009-10 M/S ROHIT BAL DESIGNS PVT. LTD. C-328 1 ST FLOOR DEFENCE COLONY NEW DELHI. VS DCIT CIRCLE-15(1) C. R. BUILDING NEW DELHI. (APPELLANT) (RESPONDENT) PAN NO. AABCR5401J ASSESSEE BY : SH. SUMANT CHADHA CA & SMT. ANJU GOEL CA. REVENUE BY : SMT. ME ENAKSHI VOHRA SR. DR. DATE OF HEARING : 01.04.2014 DATE OF PRONOUNCEMENT : 02.04.2014 ORDER PER R. S. SYAL AM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT (A) ON 17.01.2013 IN RELATION TO THE ASSESSMENT YEAR 2009-10. 2. THE ONLY ISSUE RAISED IN THIS APPEAL IS AGAINST THE ALLOWING OF DEPRECIATION @ 10% ON CERTAIN ITEMS AS AGAINST 1 00% CLAIMED BY THE ASSESSEE. BRIEFLY STATED THE FACTS OF THE C ASE ARE THAT THE ASSESSEE IS ENGAGED IN MANUFACTURING AND SALES OF H IGH FASHION GARMENTS. ON PERUSAL OF THE DEPRECIATION CHART IT WAS OBSERVED BY THE AO THAT THE ASSESSEE HAD CLAIMED DEPRECIATIO N @ 100% ON EMPORIO SHOWROOM BEING PREMISES NO. 338 DLF EMPORI O I.T.A .NO. 2089/DEL/2013 . ROHIT BAL DESIGNS PVT. LTD. 2 VASANT KUNJ NEW DELHI WHICH WAS TAKEN ON LEASE FRO M M/S REGENCY PARK PROPERTY MANAGEMENT PVT. LTD. VIDE LEA SE DEED DATED 22.01.2009. THE SAID PREMISES WAS TAKEN ON LE ASE FOR A PERIOD OF 3 YEARS EXTENDABLE BY A FURTHER PERIOD OF 6 YEARS. THE AO CALLED UPON THE ASSESSEE TO EXPLAIN AS TO WHY DE PRECIATION ON EMPORIO SHOWROOM FURNITURE SHOULD NOT BE RESTRICTED TO 10% AS AGAINST CLAIMED AT 100%. BREAK-UP OF TOTAL EXPENDIT URE OF RS.53 61 659/- INCURRED BY THE ASSESSEE UNDER THE H EAD `SHOWROOM EMPORIO REPRODUCED ON PAGES 2 & 3 OF T HE ASSESSMENT ORDER IS AS FOLLOWS :- SL. NO. DESCRIPTION AMOUNT 1. WOOD INLAY TABLE WOOD INLAY LOTUS TABLE HANDEE 141619 2. OTTOMAN 600 X 1200 OTTOMAN 600 X 600 OTTOMAN 7 50 X 750 SOFA TABLE SOLD WOOD SHELLS WOODAN RODS 210488 3. LIGHTING FIXTURE 163547 4. CANSOLE SIZE 1500 X 600 C.P. TEAK WOOD TABLE SI ZE 1200 X 600 C.P. TEAK WOOD CONSOLE WITH DRAWER 73688 5. HANDCRAFTED MUGHAL HUQQA BASE SCULPTURE BRASS 6 86000 6. REGGIANIS BISIO 11322.10 WITH 11306 OPTICS VEN TURES IBU 70W PHILIPS CDM-T35W/830 23920 7. STENCIL C/ I 3025 8. LABOUR WORK 1500 9. 2AB MIRROR FRAMES FOR GLP STENCIL ON THE WALL G/ L LOTUS FLOWER G/L ON LETTER 26345 10. CUTTING & INSTALLATION OF GOLD 2 ANGLE 5 440 11. SUPPLY OF LED ILLUMINATED M.S. SIGNAGE 58700 12. STEEL CHANNEL IN DESIRED FINISH TRIMLESS QR 11 1 LUINAIRES ETC. 175568 13. FLOWER CUT DESIGN MILD STEEL SHEED 20 GUAGE 237 375 14. 9 X 8 ROUTE CUT SIGN SHEET WITH TRANSFERLATIER 4000 15. ORAMS QR 111 100W/24 ETC. 50W ELECTRONIC TRA NSFORMER 7718 16. FOR PEACOCK FABRICATING AND FIXING BRASS PEACOC K ETC. 365625 17. CIVIL WORK FLOURING WORK IN COUNT WOOD FINIS HING WORKS ETC. 3178092 I.T.A .NO. 2089/DEL/2013 . ROHIT BAL DESIGNS PVT. LTD. 3 3. IN SUPPORT OF ITS CLAIM FOR DEPRECIATION AT 100% ON THE ABOVE ITEMS THE ASSESSEE STATED THAT THE SAID AMOU NT WAS INCURRED ON RENOVATION WHICH CONSISTED OF CIVIL WORK FLOORI NG WORK COUNTER WORK FINISHING WORK DOORS AND GLASSING WO RK MISCELLANEOUS ACCESSORIES AND LIGHTING ETC. THE NO RMAL LIFE OF WHICH WAS BETWEEN ONE TO TWO YEARS. THE AO DID NOT CONCUR WITH THE SUBMISSIONS ADVANCED ON BEHALF OF THE ASSESSEE. HE HELD SUCH EXPENDITURE TO HAVE BEEN INCURRED FOR CREATING STRU CTURE GIVING ENDURING BENEFIT TO THE ASSESSEE. IT WAS OPINED THA T THE AMOUNT WAS IN THE NATURE OF FURNITURE AND FIXTURE ELIGIBLE FOR DEPRECIATION @ 10% PER ANNUM. THE AO ALSO TOOK NOTE OF THE MANDA TE EXPLANATION 1 SECTION 32(1). RESULTANTLY DEPRECIAT ION WAS ALLOWED @ 10% PER ANNUM WHICH RESULTED INTO DISALLO WANCE OF DEPRECIATION TO THE TUNE OF RS.32 25 548/-. THE LD. CIT (A) ACCEPTED THE ASSESSEES CONTENTION FOR ALLOWING 100 % DEPRECIATION OF ALL ITEMS EXCEPT THE FOLLOWING: I. EXPENDITURE OF RS.31 78 092/- ON CIVIL AND FLOOR ING WORK; II. EXPENDITURE OF RS.6 86 000/- ON PURCHASE OF BRA SS HAND CRAFTED MUGHAL HUQQA. III. EXPENDITURE OF RS.3 65 625/- ON FABRICATION AN D FIXING OF BRASS PEACOCK. 4. THE ASSESSEE IS IN APPEAL AGAINST THE SUSTENANCE OF ADDITION TO THIS LIMITED EXTENT. THE REVENUE APPEARS TO HAV E ACCEPTED THE I.T.A .NO. 2089/DEL/2013 . ROHIT BAL DESIGNS PVT. LTD. 4 IMPUGNED ORDER INASMUCH AS NO APPEAL FILED BY THE R EVENUE HAS BEEN BROUGHT TO OUR NOTICE BY THE LD. DR. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS IN THE LIGHT OF MATERIAL PLACED BEFORE US AND PRECEDENTS RELIED ON. THE LD. AR WAS FAIR ENOUGH NOT TO PRESS AGAINST THE SUSTENANCE OF DISAL LOWANCE ON ACCOUNT OF THE REDUCED RATE OF DEPRECIATION IN RESP ECT OF SECOND AND THIRD ITEMS BEING EXPENDITURE OF RS.6.86 LACS AND RS. 3.65 LAC. HE PRESSED AND FOCUSED HIS ARGUMENTS ONLY ON THE EXPENDITURE OF RS.31.78 LAC INCURRED ON `CIVIL AND FLOORING WORK. IT WAS SUBMITTED THAT THE ENTIRE AMOUNT BE ALLOWED AS DEDUCTION U/S 37(1) OF THE ACT AS IT WAS INCURRED ON THE ITEM S WHICH WERE NOT RETRIEVABLE ON THE EXPIRY OF LEASE. IN SUPPORT OF THE CONTENTION THAT THE ENTIRE AMOUNT SHOULD BE ALLOWED AS DEDUCTION THE LD. AR RELIED ON THE JUDGMENT OF THE HONBLE KE RALA HIGH COURT IN JOY ALUKKAS INDIA PVT. LTD. [TS-144-HC-2014 (KER)] HC. 6. BEFORE DEALING WITH THE CONTENTION RAISED ON BEHALF OF THE ASSESSEE IN THIS REGARD IT WOULD BE APPOSITE TO NO TE THAT THE SAID PREMISES WAS TAKEN ON LEASE IN THE PREVIOUS YEAR RE LEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION FOR A PERIOD OF 3 YEARS EXTENDABLE FOR A FURTHER PERIOD OF SIX YEARS. THE L D. CIT(A) HAS RECORDED A CATEGORICAL FINDING THAT THE BUILDING WA S TO REMAIN I.T.A .NO. 2089/DEL/2013 . ROHIT BAL DESIGNS PVT. LTD. 5 WITH THE ASSESSEE FOR A PERIOD OF 9 YEARS. SUCH CON TENTION HAS NOT BEEN CONTROVERTED BY THE LD. AR WITH ANY COGENT EVI DENCE WORTH THE NAME. THIS SHOWS THAT THE SAID PREMISES WAS TO REMAIN WITH THE ASSESSEE FOR A PERIOD OF NINE YEARS ON LEASE BA SIS AND THE LEASE STARTED IN THE RELEVANT FINANCIAL YEAR ITSELF. THE ASSESSEE ON TAKING POSSESSION OF THE PREMISES INCURRED TOTAL E XPENDITURE OF RS.53.61 LAC ON RENOVATION OF THIS PREMISES AND CLA IMED IT AS REVENUE IN NATURE. 7. THE HONBLE SUPREME COURT IN THE CASE OF BALLIMAL NAVAL KISHORE VS. CIT 1997 224 ITR 414 (SC) HAS HELD THAT THE EXPENDITURE INCURRED BY THE ASSESSEE ON TOTAL RENOV ATION OF CINEMA THEATRE BY INSTALLING NEW MACHINERY NEW FUR NITURE NEW SANITARY FITTING AND NEW ELECTRICAL INSTALLATION B ESIDES EXTENSIVE REPAIR OF STRUCTURE OF BUILDING TO BE CAPITAL EXP ENDITURE AND NOT ALLOWABLE AS CURRENT REPAIRS. THIS JUDGMENT INDICAT ES THAT ANY CAPITAL EXPENDITURE ON TOTAL RENOVATION IS LIABLE T O BE CONSIDERED AS CAPITAL EXPENDITURE. THE HONBLE JURISDICTIONAL HIGH COURT IN BIGJOS INDIA LTD. VS. CIT (2007) 293 ITR 170 (DEL) CONSIDERED ALMOST A SIMILAR SITUATION AS IS OBTAINING BEFORE U S IN THE PRESENT APPEAL. IN THAT CASE THE ASSESSEE A LICENSEE OF THE SHOWROOM ERECTED NEW COUNTERS AND BUILT A NEW LIFT SHAFT AT A NEW SITE. IT WAS HELD THAT SUCH EXPENDITURE WAS NOT IN THE NATUR E OF CURRENT REPAIRS BUT CAPITAL EXPENDITURE NOT DEDUCTIBLE IN F ULL. ADVERTING I.T.A .NO. 2089/DEL/2013 . ROHIT BAL DESIGNS PVT. LTD. 6 TOT THE FACTS OF THE INSTANT CASE WE FIND THAT THE PRESENT FACTS ARE ON ALL FOURS WITH THAT CONSIDERED BY THE HONBLE HI GH COURT IN BIGJOS (SUPRA) . IT IS EVIDENT FROM THE DESCRIPTION OF THE ITEMS O N WHICH THE ABOVE REFERRED EXPENDITURE HAS BEEN INCUR RED THAT IT IS A CASE OF RENOVATION OF PREMISES IMMEDIATELY AFTER TA KING IT ON LEASE. AS SUCH THERE CAN BE NO QUESTION OF REPLACE MENT. WE CANNOT HELP IF THE REVENUE HAS ACCEPTED THE PART DE LETION OF DISALLOWANCE BY THE LD. CIT(A). BE THAT AS IT MAY W E ARE CONCERNED ONLY WITH THE ITEMS OF DISALLOWANCE RAKED UP IN THE PRESENT APPEAL AND HOLD THAT THE LD. CIT(A) HAS TAK EN UNEXCEPTIONAL VIEW IN TREATING THEM AS CAPITAL EXP ENDITURE. 8. AT THIS STAGE IT IS RELEVANT TO NOTE THAT TH E TAX LAWS (AMENDMENT AND MISCELLANEOUS PROVISIONS) ACT 1986 INSERTED EXPLANATION 1 TO SECTION 32 W.E.F. 1.4.1988 WHICH READS AS UNDER: EXPLANATION-1. WHERE THE BUSINESS OR PROFESSION OF THE ASSESSEE IS CARRIED ON IN A BUILDING NOT OWNED BY H IM BUT IN RESPECT OF WHICH THE ASSESSEE HOLDS A LEASE OR OTHE R RIGHT OF OCCUPANCY AND ANY CAPITAL EXPENDITURE IS INCURRED BY THE ASSESSEE FOR THE PURPOSES OF THE BUSINESS OR PROFES SION ON THE CONSTRUCTION OF ANY STRUCTURE OR DOING OF ANY WORK IN OR IN RELATION TO AND BY WAY OF RENOVATION OR EXTENSIO N OF OR IMPROVEMENT TO THE BUILDING THEN THE PROVISIONS OF THIS CLAUSE SHALL APPLY AS IF THE SAID STRUCTURE OR WORK IS A BUILDING OWNED BY THE ASSESSEE . I.T.A .NO. 2089/DEL/2013 . ROHIT BAL DESIGNS PVT. LTD. 7 9. A BARE PERUSAL OF THE ABOVE EXPLANATION REVEALS THAT WHERE A BUSINESS IS CARRIED ON IN A BUILDING NOT OWNED BY THE ASSESSEE BUT IN RESPECT OF WHICH IT HOLDS A LEASE OR EITHER OCCUPANCY RIGHTS THEN THE EXPENDITURE ON I. THE CONSTRUCTION OF A STRUCTURE OR II. DOING OF ANY WORK IN OR IN RELATION TO AND BY WAY O F RENOVATION OR EXTENSION OF OR IMPROVEMENT TO THE BUILDING SHALL BE CONSIDERED AS STRUCTURE OR WORK IN THE NATURE OF BUILDING OWNE D BY THE ASSESSEE FOR THE PURPOSE OF DEPRECIATION. THE ESSEN CE OF EXPLANATION 1 TO SECTION 32 IS THAT ANY CAPITAL EXP ENDITURE BY THE ASSESSEE ON A BUILDING NOT OWNED BY HIM IN WHICH H E CARRIES ON THE BUSINESS SHALL BE CONSIDERED AS BUILDING OWNE D BY HIM FOR THE PURPOSES OF SECTION 32 TO THE EXTENT OF THE A MOUNTS SPENT ON THE CONSTRUCTION OF STRUCTURE OR DOING OF ANY WORK IN OR IN RELATION TO AND BY WAY OF RENOVATION OR EXTENSION OR IMPROVE MENT TO THE BUILDING. IT THEREFORE FOLLOWS THAT IN ORDER TO BR ING ANY AMOUNT WITHIN THE AMBIT OF EXPLANATION 1 TO SECTION 32 IT IS PARAMOUNT THAT THE EXPENDITURE INCURRED BY THE ASSESSEE ON TH E PREMISES IN THE CAPACITY OF NON-OWNER SHOULD FIRSTLY BE IN THE NATURE OF CAPITAL EXPENDITURE AND THEN IT SHOULD FALL WITHIN ANY OR B OTH THE CLAUSES AS DISCUSSED ABOVE. IF THESE CONDITIONS GET SATISFI ED THEN THE AMOUNT INCURRED FOR SUCH WORKS WOULD FALL FOR CONSI DERATION UNDER EXPLANATION 1 TO SECTION 32. IN SUCH A CASE THE AMOUNT SO I.T.A .NO. 2089/DEL/2013 . ROHIT BAL DESIGNS PVT. LTD. 8 INCURRED CAN BE CONSIDERED AS REVENUE BUT WOULD BE CAPITALIZED ENTITLING THE ASSESSEE TO DEPRECIATION AS PER THE E LIGIBLE RATE. 10. NOW WE ESPOUSE THE JUDGMENT IN THE CASE OF JOY ALUKKAS INDIA (SUPRA) WHICH IS THE TRUMP CARD OF THE LD. AR. IN THIS CA SE THE HONBLE HIGH COURT HAS HELD THAT IF THE ITEM RE SULTING FROM THE INCURRING OF THE EXPENDITURE IS IRRETRIEVABLE A T THE END OF THE LEASE PERIOD THEN IT SHOULD BE CONSIDERED AS REVEN UE EXPENDITURE. THIS RETRIEVAL TEST FORMULATED BY THE HONBLE HIGH COURT IS TO BE SEEN IN THE BACKDROP OF THE FACTS PREVAILING IN THA T CASE. IT IS NOT A STATUTORY PRESCRIPTION SO AS TO BE UNIVERSALLY APPL ICABLE. IF THIS TEST IS BROUGHT TO THE LOGICAL CONCLUSION THEN EVERY EXP ENDITURE EVEN ON CONSTRUCTION OF STRUCTURE BY THE NON-OWNER WOULD BECOME REVENUE WHICH IS CONTRARY TO THE UNAMBIGUOUS MANDA TE OF EXPL. 1 TO SECTION 32. THIS RETRIEVAL TEST BEING THE RATIO DECIDENDI OF THE CASE CAN BE VALIDLY APPLIED WHERE THE LEASE PER IOD IS ONE YEAR. WE ARE CONFRONTED WITH A SITUATION IN WHICH LEASE P ERIOD IS NINE YEARS. BE THAT AS IT MAY THE HONBLE HIGH COURT FU RTHER CONSIDERED THE PRESCRIPTION OF EXPL. 1 TO SEC. 32 IN THE SAME CASE AND HELD THAT : IF THE EXPENDITURE WERE TO BE CONSIDERED AS CAPITAL EXPENDITURE IN THE HANDS OF THE OWNER IT H AS TO BE CONSIDERED AS CAPITAL EXPENDITURE IN THE HANDS OF T HE TENANT WHO IS THE ASSESSEE SO FAR DEPRECIATION AND OTHER BENEF ITS ARE CONCERNED. IT FURTHER OBSERVED THAT IF THE EXPENDIT URE HAS TO BE I.T.A .NO. 2089/DEL/2013 . ROHIT BAL DESIGNS PVT. LTD. 9 TREATED AS REVENUE EXPENDITURE IN THE HANDS OF THE OWNER IT WOULD AMOUNT TO REVENUE EXPENDITURE EVEN IN THE HANDS OF THE ASSESSEE TENANT. IN OTHER WORDS SECTION 32(1) (I) OF THE INCOME TAX ACT READ WITH EXPLANATION 1 THERETO WOULD ONLY MEAN WHATEVER THE OWNER OF THE BUILDING IS ENTITLED SO FAR AS BENEFIT S OF OTHER DEPRECIATION WILL BE APPLICABLE TO THE CASE OF THE ASSESSEE WHO TAKES THE BUILDING ON LEASE . FROM THE ABOVE DISCUSSION IT FOLLOWS THAT THE RETRIEVAL TEST IS NOT THE ONLY TES T LAID DOWN BY THE HONBLE HIGH COURT. IT HAS TO BE READ ALONG WITH TH E CLARIFICATION GIVEN BY THE HONBLE COURT ON THE EXPL. 1 TO SEC. 3 2 WHICH MAKES IT CLEAR IN NO UNCERTAIN TERMS THAT THE CAPIT AL EXPENDITURE INCURRED WHETHER BY THE OWNER ON HIS PREMISES OR BY A NON- OWNER ON THE PREMISES TAKEN ON RENT OR LEASE ETC. FOR CARRYING ON HIS BUSINESS SHALL NOT BE ALLOWED AS DEDUCTION IN FULL IN THE YEAR OF ITS INCURRING BUT WILL BE CAPITALIZED ENTITLING IT TO DEPRECIATION. WHEN WE VIEW THE EXPENDITURE OF RS.31.78 LAC INCURR ED BY THE ASSESSEE ON `CIVIL WORK FLOORING WORK AND FINISHI NG WORK ETC THE SAME DOES NOT PASS THE TEST OF REVENUE EXPENDIT URE TO BE DEDUCTIBLE IN FULL. IN OUR CONSIDERED OPINION THIS AMOUNT HAS BEEN RIGHTLY CAPITALIZED BY THE AO AS WELL AS LD. CIT(A) MAKING THE ASSESSEE ELIGIBLE FOR DEPRECIATION ON IT. WE THERE FORE UPHOLD THE IMPUGNED ORDER ON THIS ISSUE. I.T.A .NO. 2089/DEL/2013 . ROHIT BAL DESIGNS PVT. LTD. 10 12. IN THE RESULT THE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 02/04/2014. SD/- SD/- (A. T. VARKEY) (R. S. SYAL) JUDICIAL MEMBER ACCOUNTANT M EMBER DATED: 02/04/2014 *AK VERMA* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR DATE INITIAL 1. DRAFT DICTATED ON 01/04/2014 PS 2. DRAFT PLACED BEFORE AUTHOR 02/04/2014 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 03/04/2014 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 03/04/2014 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER. *