SEAPRINCESS HOTELS & PROPERTIES P.LTD, MUMBAI v. ACIT (OSD) 2(3), MUMBAI

ITA 2466/MUM/2013 | 2009-2010
Pronouncement Date: 09-10-2013 | Result: Partly Allowed

Appeal Details

RSA Number 246619914 RSA 2013
Assessee PAN AABCS4665D
Bench Mumbai
Appeal Number ITA 2466/MUM/2013
Duration Of Justice 6 month(s) 7 day(s)
Appellant SEAPRINCESS HOTELS & PROPERTIES P.LTD, MUMBAI
Respondent ACIT (OSD) 2(3), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 09-10-2013
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted E
Tribunal Order Date 09-10-2013
Assessment Year 2009-2010
Appeal Filed On 01-04-2013
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH MUMBAI .. !'# $ $ $ $ %$$ $&; ( !'# !) BEFORE SHRI P.M. JAGTAP AM AND DR. S.T.M. PAVALAN JM !./ I.T.A. NO.2286/MUM/2013 ( (+ & $ & (+ & $ & (+ & $ & (+ & $ & / / / / ASSESSMENT YEAR : 2007-08) !./ I.T.A. NO.2466/MUM/2013 ( (+ & $ & (+ & $ & (+ & $ & (+ & $ & / / / / ASSESSMENT YEAR : 2009-10) M/S SEAPRINCESS HOTELS & PROPERTIES PVT. LTD. 509 GUNDECHA CHAMBERS NAGINDAS MASTER ROAD FORT MUMBAI 400 023. + + + + / VS. ADDL. COMMISSIONER OF INCOME TAX 2(3) MUMBAI. #- !./ PAN : AABCS4665D ( -. / // / APPELLANT ) .. ( /0-. / RESPONDENT ) -. 1 2 ! / APPELLANT BY : SHRI VIMAL PUNMIYA /0-. 1 2 ! / RESPONDENT BY : SHRI ROUMUAN PAITE !+$ 1 / // / DATE OF HEARING : 12-08-2013 34 1 / DATE OF PRONOUNCEMENT : 09-10-2013 '5 / O R D E R PER P.M. JAGTAP A.M. : .. !'# THESE TWO APPEALS FILED BY THE ASSESSEE AGAINST TWO SEPARATE ORDERS PASSED BY THE LD. CIT(A) - 6 MUMBAI DATED 5-3-2013 & 14-3-2013 FOR ASSESSMENT YEARS 2007-08 AND 2009-10 INVOLVE SOME C OMMON ISSUES AND THE SAME THEREFORE HAVE BEEN HEARD TOGETHER AND ARE BEI NG DISPOSED OF BY THIS SINGLE CONSOLIDATED ORDER FOR THE SAKE OF CONVENIEN CE. ITA 2286/M/13 & 2466/M/13 2 2. THE ISSUE RAISED IN GROUND NO. 1 OF ASSESSEES A PPEAL FOR A.Y. 2007-08 RELATES TO THE DISALLOWANCE OF RS. 3 15 736/-MADE B Y THE A.O. AND CONFIRMED BY THE LD. CIT(A) BEING 10% OF THE TOTAL VEHICLE EX PENSES OF RS. 31 57 630/- CLAIMED BY THE ASSESSEE. 3. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS ENGAGED IN THE BUSINESS OF RUNNING A FIVE STAR HOTEL AND RESTAURAN T. THE RETURN OF INCOME FOR A.Y. 2007-08 WAS FILED BY IT ON 30-10-2007 DECL ARING TOTAL INCOME OF RS. 12 05 75 580/-. IN THE P&L ACCOUNT FILED ALONG WIT H THE SAID RETURN VEHICLE EXPENSES OF RS. 31 57 360/- WERE DEBITED BY THE ASS ESSEE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE WAS CALLED UPON BY THE A.O. TO FURNISH THE VEHICLE-WISE AND PARTY-WISE DETAILS OF THE VEHICLE EXPENSES DULY SUPPORTED BY THE RELEVANT VOUCHERS. ALTHOUGH THE A SSESSEE FURNISHED CERTAIN DETAILS AND ALSO PRODUCED SOME VOUCHERS FOR VERIFIC ATION THE A.O. FOUND THAT THE SAID DETAILS DID NOT CONTAIN VEHICLE-WISE AND P ARTY-WISE INFORMATION. HE ALSO NOTED THAT THE COMPLETE VOUCHERS OF THE VEHICL E EXPENSES WERE NOT PRODUCED BY THE ASSESSEE FOR HIS VERIFICATION. HE THEREFORE DISALLOWED 10% OF THE TOTAL VEHICLE EXPENSES CLAIMED BY THE ASSESS EE TREATING THE SAME AS UNVERIFIABLE TO THAT EXTENT. ON APPEAL THE LD. CIT (A) CONFIRMED THE DISALLOWANCE MADE BY THE A.O. ON THIS ISSUE FOR THE SAME REASONS AS GIVEN BY THE A.O. 4. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS RUNNING A FIVE STAR HOTEL AND THE VEHICLES ARE USED MAINLY FOR THE CUSTOMERS PICK-UP FROM AND DROP TO DOMESTIC AS WELL AS INTERNATIONAL AIR PORT. HE SUBMITTED THAT THE VEHICLES ARE ALSO USED BY THE DIRECTORS AN D EMPLOYEES OF THE ASSESSEE COMPANY DURING THE COURSE OF THE BUSINESS. HE CONT ENDED THAT THE VEHICLE EXPENSES THUS WERE WHOLLY AND EXCLUSIVELY INCURRED BY THE ASSESSEE COMPANY FOR THE PURPOSE OF ITS BUSINESS AND THE DISALLOWANC E MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) TO THE EXTENT OF 10% ON ADHOC BASIS FOR NON- FURNISHING OF VEHICLE-WISE AND PARTY-WISE DETAILS I S NOT SUSTAINABLE. ITA 2286/M/13 & 2466/M/13 3 5. THE LD. D.R. ON THE OTHER HAND RELIED ON THE O RDERS OF THE AUTHORITIES BELOW IN SUPPORT OF THE REVENUES CASE ON THIS ISSU E. 6. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IN OUR OPINI ON KEEPING IN VIEW THE NATURE OF ASSESSEES BUSINESS OF RUNNING A FIVE STA R HOTEL THE VEHICLE EXPENSES WERE REQUIRED TO BE INCURRED FOR PROVIDING FACILITY OF PICK-UP AND DROP TO THE CUSTOMERS AS WELL AS FOR USE OF CAR BY ITS DIRECTORS AND EMPLOYEES DURING THE COURSE OF BUSINESS. THIS POSITION WAS A CCEPTED EVEN BY THE A.O. HIMSELF WHEN HE ALLOWED 90% OF THE VEHICLE EXPENSES . HE HOWEVER MADE A DISALLOWANCE OF 10% OF VEHICLE EXPENSES MAINLY ON T HE GROUND THAT VEHICLE- WISE AND PARTY-WISE DETAILS COULD NOT BE FURNISHED BY THE ASSESSEE. IN OUR OPINION THESE DETAILS WERE NOT VERY RELEVANT KEEPI NG IN VIEW THE MAIN USE OF THE VEHICLES IN THE BUSINESS OF THE ASSESSEE TO PIC K-UP THE CUSTOMERS FROM AIR PORT AND DROP THEM BACK. MOREOVER THE SUPPORTING VOUCHERS FOR THE VEHICLE EXPENSES ALONG WITH BOOKS OF ACCOUNT WERE PRODUCED BY THE ASSESSEE BEFORE THE A.O. FOR VERIFICATION AND NO INSTANCE OF ANY UN -VERIFIABLE ELEMENT INVOLVED THEREIN WAS SPECIFICALLY POINTED OUT BY THE A.O. H AVING REGARD TO ALL THESE FACTS OF THE CASE WE ARE OF THE VIEW THAT THE DISA LLOWANCE OF VEHICLE EXPENSES OF 10% MADE BY THE A.O. WITHOUT POINTING OUT EVEN A SINGLE INSTANCE OF UN- VERIFIABLE ELEMENT INVOLVED IN THE SAID EXPENSES WA S NOT SUSTAINABLE AND THE LD. CIT(A) IS NOT JUSTIFIED IN CONFIRMING THE SAME. WE THEREFORE DELETE THE SAID DISALLOWANCE MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) AND ALLOW GROUND NO. 1 OF ASSESSEES APPEAL FOR A.Y. 2007-08. 7. THE ISSUE RAISED IN GROUND NO. 2 OF ASSESSEES A PPEAL FOR A.Y. 2007-08 RELATES TO THE DISALLOWANCE OF RS.21 738/- (10% OF THE CONVEYANCE EXPENSES) RS. 29 373/- (10% OF DOMESTIC TRAVEL EXPENSES) AND RS. 1 99 007/- (50% OF THE FOREIGN TRAVEL EXPENSES) MADE BY THE A.O. AND C ONFIRMED BY THE LD. CIT(A). 8. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE CONVEYANCE AND TRAVEL EXPENSES AGGREGATING TO RS. 28 55 651/- CLAI MED BY THE ASSESSEE WERE ITA 2286/M/13 & 2466/M/13 4 EXAMINED BY THE A.O. AND ON SUCH EXAMINATION HE FO UND THAT CERTAIN FOREIGN TRAVEL EXPENDITURE WERE CLAIMED BY THE ASSESSEE IN SUPPORT OF WHICH THE DETAILS OF AIR TICKERS PURCHASED BY THE DIRECTOR AL ONG WITH THE SUPPORTING VOUCHERS WERE FURNISHED BY THE ASSESSEE. HE ALSO FO UND THAT BESIDES PURCHASE OF TICKERS THE ASSESSEE HAD CLAIMED OTHER EXPENDITURE OF RS. 3 98 150/- ON ACCOUNT OF FOREIGN TRAVEL EXPENSES FO R WHICH NO DETAILS OR SUPPORTING VOUCHERS WERE FURNISHED BY THE ASSESSEE. IN THE ABSENCE OF SUCH DETAILS AND SUPPORTING VOUCHERS OTHER EXPENDITURE OF RS. 3 98 150/- WAS DISALLOWED BY HIM TO THE EXTENT OF 50%. SIMILARLY THE CONVEYANCE EXPENSES OF RS. 2 17 375/- AND DOMESTIC TRAVELS EXPENSES OF RS. 2 93 726/- WERE DISALLOWED BY HIM TO THE EXTENT OF 10% FOR WANT OF THE RELEVANT DETAILS AND SUPPORTING EVIDENCE. ACCORDINGLY TOTAL EXPENSES OF RS. 2 50 117/- WERE DISALLOWED BY THE A.O. OUT OF CONVEYANCE AND TRAVEL EXPENSES CLAIMED BY THE ASSESSEE. 9. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE LD. REPR ESENTATIVES OF BOTH THE SIDES HAVE MAINLY REITERATED THE SAME ARGUMENTS AS RAISED BY THEM ON THE ISSUE INVOLVED IN GROUND NO. 1 OF THE ASSESSEES APPEAL. AS ALREADY OBSERVED BY US WHILE DECIDING THE ISSUE INVOLVED IN GROUND NO. 1 NOT A SINGLE INSTANCE WAS SPECIFICALLY POINTED OUT BY THE A.O. SHOWING ANY UN -VERIFIABLE ELEMENT INVOLVED IN THE EXPENSES CLAIMED BY THE ASSESSEE ON ACCOUNT OF CONVEYANCE AND TRAVELING EXPENSES. EVEN THE EXPENSES INCURRED BY THE ASSESSEE ON PURCHASE OF AIR TICKETS FOR THE FOREIGN TRAVEL OF T HE DIRECTORS OF THE ASSESSEE COMPANY WERE ALLOWED BY THE A.O. THEREBY ACCEPTING THAT THE FOREIGN TOURS WERE UNDERTAKEN FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. IN THESE CIRCUMSTANCES THE A.O. IN OUR OPINION WAS NOT JU STIFIED IN DISALLOWING 50% OF THE OTHER EXPENDITURE INCURRED DURING THE SAID F OREIGN TOURS BY THE DIRECTORS OF THE ASSESSEE COMPANY FOR WANT OF SUPPO RTING VOUCHER OVERLOOKING THE FACT THAT SUCH EXPENDITURE WAS REQUIRED TO BE I NCURRED BY THE DIRECTORS OF THE ASSESSEE COMPANY DURING THEIR FOREIGN TOURS WHI CH WERE UNDISPUTEDLY UNDERTAKEN FOR THE PURPOSE OF BUSINESS. MOREOVER AS SUBMITTED BY THE LD. ITA 2286/M/13 & 2466/M/13 5 COUNSEL FOR THE ASSESSEE NO DISALLOWANCE OUT OF CO NVEYANCE AND TRAVELING EXPENSES WAS MADE BY THE A.O. EITHER IN THE EARLIER YEAR OR EVEN IN THE SUBSEQUENT YEARS. HAVING REGARD TO ALL THESE FACTS OF THE CASE WE ARE OF THE VIEW THAT THE DISALLOWANCE MADE BY THE A.O. AND CON FIRMED BY THE LD. CIT(A) OUT OF CONVEYANCE AND TRAVEL EXPENSES IS NOT SUSTAI NABLE AND DELETING THE SAME WE ALLOW GROUND NO. 2 OF ASSESSEES APPEAL. 10. THE ISSUE RAISED IN GROUND NO. 3 OF ASSESSEES APPEAL FOR A.Y. 2007-08 RELATES TO THE DISALLOWANCE MADE BY THE A.O. AND CO NFIRMED BY THE LD. CIT(A) ON ACCOUNT OF PROFESSIONAL FEES PAID BY THE ASSESSE E TO THE INTERIOR DECORATORS ETC. TREATING THE SAME AS CAPITAL EXPENDITURE TO TH E EXTENT OF RS. 26 21 380/-. 11. DURING THE YEAR UNDER CONSIDERATION THE ASSESS EE WAS FOUND TO HAVE INCURRED A TOTAL EXPENDITURE OF RS. 40 70 071/- ON ACCOUNT OF LEGAL AND PROFESSIONAL FEES AS AGAINST SIMILAR EXPENDITURE TO THE EXTENT OF RS. 11 25 310/- CLAIMED BY THE ASSESSEE IN THE IMMEDIAT ELY PRECEDING YEAR IE. A.Y. 2006-07. THE A.O. THEREFORE PROCEEDED TO EX AMINE THE EXPENSES CLAIMED BY THE ASSESSEE ON LEGAL AND PROFESSIONS FE ES AND FOUND ON SUCH EXAMINATION THAT THE EXPENSES CLAIMED BY THE ASSESS EE ON LEGAL AND PROFESSIONAL FEES WERE INCLUSIVE OF THE FOLLOWING I TEMS:- SR NO. NAME NATURE OF WORK AMOUNT (RS) 1 B.S. VORA CONSULTANT FOR LICENSES 45 000 2 SHAUKAT MUKHI INTERIOR DESIGNING 22 44 600 3 ENGINEERING CONSULTANCY SERVICES ENGG. CONSULTANCY CHARGES 1 40 300 4 DESIGN TECHNIC A.C. CONSULTANCY CHARGES 1 12 240 5 PARITOSH PARELKAR DESIGNING/PLANNING CONCEPT 1 12 240 6 JAY MAVANI WEBSITE DESIGNING 12 000 TOTAL 26 66 380 ACCORDING TO THE A.O. THE ABOVE EXPENSES CLAIMED B Y THE ASSESSEE WERE OF CAPITAL NATURE AND SINCE NO SATISFACTORY EXPLANATIO N WAS OFFERED BY THE ASSESSEE IN THIS REGARD HE MADE A DISALLOWANCE ON ACCOUNT OF LEGAL AND PROFESSIONAL FEES TREATING THE SAID EXPENSES TO THE EXTENT OF RS. 26 66 380/- ITA 2286/M/13 & 2466/M/13 6 AS CAPITAL EXPENDITURE. ON APPEAL THE LD. CIT(A) SUSTAINED THE DISALLOWANCE MADE BY THE A.O. ON THIS ISSUE AFTER ALLOWING A PAR T RELIEF TO THE ASSESSEE BY TREATING THE AMOUNT OF RS. 45 000/- PAID TO MR. P.S . VORA TOWARDS CONSULTANCY CHARGES AS REVENUE EXPENDITURE. 12. THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET EXPLAINED THE NATURE OF EXPENDITURE INCURRED BY THE ASSESSEE ON PAYMENT OF PROFESSIONAL FEE. HE SUBMITTED THAT THE PAYMENT TO ENGINEERING CONSULTAN CY SERVICES WAS MADE FOR ELECTRICAL PLUMBING DRAINAGE AND FIRE-FIGHTIN G LINES WHILE THE PAYMENT TO DESIGN TECHNIC WAS MADE FOR DESIGNING THE AIR COOLI NG SYSTEM SO THAT ENERGY COST WILL BE REDUCED AND COOLING SYSTEM WILL WORK E FFECTIVELY. HE SUBMITTED THAT SIMILARLY AN AMOUNT OF RS. 1 12 240/- WAS PAI D TO PARITOSH PARELKAR FOR DESIGNING AND PLANNING WHILE RS. 12 000/- WAS PAID TO JAY MAVANI FOR AMENDING AND UPDATING WEB-SITES. HE CONTENDED THAT THIS SORT OF EXPENSES IS REQUIRED TO BE REGULARLY INCURRED BY THE ASSESSEE W HO IS RUNNING A FIVE STAR HOTEL TO KEEP THE ENTIRE SYSTEM WORKING ROUND THE C LOCK AND SIMILAR TYPE OF EXPENDITURE INCURRED IN THE EARLIER YEARS WAS DULY ALLOWED BY THE A.O. AS REGARDS THE PROFESSIONAL FEES OF RS. 22 44 600/- PA ID TO SHAUKAT MUKHI FOR INTERIOR DESIGNING HE SUBMITTED THAT CONSTRUCTION OF TWO ADDITIONAL FLOORS CONSTITUTING BANQUET HALLS WAS DONE DURING THE RELE VANT PERIOD AND FOR THIS PURPOSE A TEMPORARY OPERATIONS PLAN WAS PREPARED A ND IMPLEMENTED TO KEEP THE BUSINESS OPERATIONS OF THE ASSESSEE COMPANY GOI NG WITHOUT DISTURBING ITS NORMAL BUSINESS. HE SUBMITTED THAT THE SERVICES OF SHAUKAT MUKHI INTERIOR DESIGNER WERE AVAILED TO MAKE SUCH OPERATIONAL PLA N AND SINCE THE SAID PLAN WAS IMPLEMENTED TEMPORARILY THERE WAS NO ENDURING BENEFIT THAT HAD OCCURRED TO THE ASSESSEE AS A RESULT OF EXPENDITURE INCURRED ON PAYMENT OF FEES TO SHAUKAT MUKHI. HE CONTENDED THAT THE SAID EXPENDITURE WAS INCURRED FOR RUNNING THE EXISTING BUSINESS ACTIVITY OF THE A SSESSEE COMPANY AND THE SAME THEREFORE WAS RIGHTLY CLAIMED AS DEDUCTION U/S 37(1) OF THE ACT BEING WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS. ITA 2286/M/13 & 2466/M/13 7 13. THE LD. D.R. ON THE OTHER HAND SUBMITTED THAT THE EXPENDITURE IN QUESTION INCURRED BY THE ASSESSEE ON PAYMENT OF PRO FESSIONAL FEES WAS OF CAPITAL NATURE AS RIGHTLY HELD BY THE AUTHORITIES B ELOW AND THE ASSESSEE THEREFORE WAS NOT ENTITLED FOR DEDUCTION OF THE SAM E U/S 37(1) OF THE ACT. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERV ED THAT THE CONSTRUCTION OF TWO ADDITIONAL FLOORS IN THE EXISTING HOTEL BUILDIN G OF THE ASSESSEE COMPANY WAS CARRIED ON DURING THE RELEVANT PERIOD FOR WHICH HUGE EXPENDITURE WAS INCURRED AS IS EVIDENT FROM THE FACT THAT SUCH EXPE NDITURE OF RS. 5.69 CRORES WAS CAPITALIZED BY THE ASSESSEE TO THE BUILDING ACC OUNT IN THE YEAR UNDER CONSIDERATION. AS EXPLAINED BY THE LD. COUNSEL FOR THE ASSESSEE FROM THE COPY OF RELEVANT PLAN PLACED AT 184 OF THE PAPER BOOK T HE USE OF OPEN SPACE EXISTING MAIN ENTRANCE ETC. WAS RESTRICTED AND IN O RDER TO ENSURE THAT ITS NORMAL HOTEL BUSINESS CONTINUES EVEN DURING THIS CO NSTRUCTION PERIOD A TEMPORARY OPERATIONAL PLAN WAS PREPARED AND EXECUTE D BY PROVIDING ALTERNATIVE ACCESS AS WELL AS OPEN SPACE WITHOUT CO MPROMISING ON THE STRICT REQUIREMENTS OF FIVE STAR HOTEL OR EXPECTATIONS OF THE CUSTOMERS STAYING IN SUCH HOTEL. THIS TEMPORARY OPERATIONAL PLAN WAS PR EPARED BY SHRI SHAUKAT MUKHI A PROFESSIONAL INTERIOR DESIGNER FOR WHICH A SUM OF RS. 22 44 600/- WAS PAID TO HIM AS HIS PROFESSIONAL FEES. AS RIGHT LY CONTENDED BY THE LD. COUNSEL FOR THE ASSESSEE THE EXPENDITURE INCURRED B Y THE ASSESSEE ON PAYMENT OF THE SAID FEES FOR PREPARING TEMPORARY OP ERATIONAL PLAN THUS DID NOT RESULT IN ANY NEW ASSET OR ADVANTAGE OF ENDURIN G NATURE IN THE CAPITAL FIELD AND THE SAME THEREFORE WAS ALLOWABLE AS DEDUC TION U/S 37(1) OF THE ACT BEING THE EXPENDITURE OF REVENUE NATURE INCURRED WH OLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE ASSESSEES BUSINESS. IT IS WORTH WHILE TO NOTE HERE THAT THE CONSTRUCTION WORK WAS CARRIED ON DURING THE PERIOD FROM AUGUST 2005 TO NOVEMBER 2006 AND THE FACT THAT THE TURNOVER OF TH E ASSESSEE DURING THE FINANCIAL YEAR 2005-05 TO 2006-07 INCREASED TO RS. 18.71 AND RS. 26.46 CRORES AS AGAINST THE TURNOVER OF RS. 15.21 CRORES IN THE FINANCIAL YEAR 2004- 05 CLEARLY SHOWS THAT THE TEMPORARY OPERATIONAL PLA N IMPLEMENTED BY THE ITA 2286/M/13 & 2466/M/13 8 ASSESSEE DURING THE CONSTRUCTION PERIOD REALLY WORK ED EFFECTIVELY RESULTING INTO PROFIT OF RS. 7.60 AND RS. 12.03 IN FINANCIAL YEAR 2005-06 AND 2006-07 RESPECTIVELY AS AGAINST THE PROFIT OF RS. 5.41 CROR ES EARNED BY THE ASSESSEE COMPANY IN A.Y. 2004-05. AS REGARDS THE OTHER SMAL L ITEMS OF PAYMENT MADE BY THE ASSESSEE ON ACCOUNT OF PROFESSIONAL FEES WE ARE OF THE VIEW THAT GOING BY THE NATURE OF THE CORRESPONDING SERVICES AVAILED BY THE ASSESSEE AS EXPLAINED BY THE LD. COUNSEL FOR THE ASSESSEE THE SAID PAYMENTS WERE MADE TO UPKEEP AND MAINTAIN THE EXISTING SYSTEMS AVAILABLE IN THE HOTEL BUILDING AND THE SAME BEING IN THE NATURE OF EXPENDITURE REGULAR LY INCURRED FOR THE PURPOSE OF ASSESSEES BUSINESS OF RUNNING A FIVE ST AR HOTEL THE SAME CANNOT BE TREATED AS CAPITAL EXPENDITURE ESPECIALLY WHEN I T DID NOT RESULT IN BRINGING INTO EXISTENCE ANY NEW CAPITAL ASSET OR ANY ENDURIN G ADVANTAGE IN THE CAPITAL FILED TO THE ASSESSEE. IN THAT VIEW OF THE MATTER WE DELETE THE ADDITION MADE BY THE A.O. AND CONFIRMED LD. CIT(A) ON ACCOUNT OF DISALLOWANCE OF PROFESSIONAL FEES PAID BY THE ASSESSEE AND ALLOW GR OUND NO. 3 OF THE ASSESSEES APPEAL FOR A.Y. 2007-08. 15. THE ISSUE RAISED IN GROUND NO. 4 RELATES TO THE ADDITION OF RS. 4 79 450/- MADE BY THE A.O. AND CONFIRMED BY THE LD . CIT(A) ON ACCOUNT OF PAYMENT OF GRATUITY. 16. DURING THE YEAR UNDER CONSIDERATION THE ASSESS EE HAD MADE A PAYMENT OF RS.7 37 120/- ON ACCOUNT OF GRATUITY TO THE SEA PRINCESS HOTEL & PROPERTIES PVT. LIMITED EMPLOYEES GROUP GRATUITY SC HEME. IN THIS REGARD IT WAS NOTICED BY THE A.O. THAT THE FUND SO CREATED WA S DULY APPROVED AND THE AMOUNT OF GRATUITY CREDITED TO THE SAID FUND BY THE ASSESSEE WAS AS PER THE ACTUARIAL VALUATION. THE A.O. HOWEVER NOTICED TH AT THE PAYMENT OF GRATUITY ONLY TO THE EXTENT OF RS. 2 57 670/- WAS MADE OUT O F THE SAID FUND TO THE EMPLOYEES OF THE ASSESSEE COMPANY DURING THE YEAR U NDER CONSIDERATION. HE THEREFORE ALLOWED THE DEDUCTION TO THE ASSESSEE ON THIS ISSUE ONLY TO THE EXTENT OF RS.2 57 670/- AND DISALLOWED THE BALANCE AMOUNT OF RS. 4 79 450/-. ON APPEAL THE LD.CIT(A) CONFIRMED THE SAID DISALLO WANCE OBSERVING THAT THE ITA 2286/M/13 & 2466/M/13 9 DEDUCTION WAS ALLOWED BY WAY OF CONTRIBUTION TOWARD S AN APPROVED GRATUITY FUND ONLY TO THE EXTENT OF ACTUAL PAYMENT. 17. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE CONDITI ON FOR CLAIMING DEDUCTION ON ACCOUNT OF PAYMENT OF GRATUITY ARE STIPULATED IN SECTION 36(1)(V) OF THE ACT AND THERE IS NO DISPUTE THAT THE SAID CONDITIONS WE RE DULY SATISFIED IN THE CASE OF THE ASSESSEE INASMUCH AS THE FUND CREATED B Y THE ASSESSEE FOR THE PURPOSE WAS DULY APPROVED BY THE INCOME TAX DEPARTM ENT AND THE SAID FUND WAS MEANT EXCLUSIVELY FOR THE BENEFIT OF THE EMPLOY EES OF WHICH CONTRIBUTIONS WAS IRREVOCABLE. THE ONLY DISPUTE IS ABOUT THE COND ITION OF ACTUAL PAYMENT OF CONTRIBUTION WHICH IS REQUIRED TO BE MADE BY THE EM PLOYER TO THE GRATUITY FUND. IN THE PRESENT CASE THE PAYMENT OF CONTRIBUT ION WAS MADE BY THE ASSESSEE TO THE GRATUITY FUND IN THE YEAR UNDER CON SIDERATION ITSELF BUT THE IMPUGNED DISALLOWANCE WAS MADE BY THE AUTHORITIES B ELOW ON THE GROUND THAT THE PAYMENT WAS NOT MADE TO THE EMPLOYEES OUT OF THE FUND DURING THE YEAR UNDER CONSIDERATION. IN OUR OPINION THE AUTH ORITIES BELOW APPEAR TO HAVE MISCONSTRUED THE PROVISIONS OF SECTION 36(1)(V ) OF THE ACT WHICH REQUIRES THAT THE CONTRIBUTION IS PAID BY THE EMPLOYER TO TH E GRATUITY FUND AND THE PAYMENT MADE TO THE EMPLOYEES OUT OF THAT FUND IS N OT RELEVANT IN THIS CONTEXT. SINCE THE PAYMENT WAS DULY MADE BY THE AS SESSEE TO THE GRATUITY FUND DURING THE YEAR UNDER CONSIDERATION AS MENTION ED BY THE A.O. IN PARA 4 OF HIS IMPUGNED ORDER WE ARE OF THE VIEW THAT THE CONDITIONS STIPULATED IN SECTION 36(1)(V) OF THE ACT WERE FULFILLED AND THE ASSESSEE WAS ENTITLED TO THE DEDUCTION ON ACCOUNT OF GRATUITY SO PAID TO THE FUN D DURING THE YEAR UNDER CONSIDERATION. IN THAT VIEW OF THE MATTER WE DELE TE THE DISALLOWANCE MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) ON THIS IS SUE AND ALLOW GROUND NO. 4 OF THE ASSESSEES APPEAL. 18. THE ISSUE RAISED IN GROUND NO. 5 OF THE ASSESSE ES APPEAL RELATES TO THE ADDITION OF RS. 1 98 247/- MADE BY THE A.O. AND CON FIRMED BY THE LD. CIT(A) ON ACCOUNT OF LEAVE ENCASHMENT. ITA 2286/M/13 & 2466/M/13 10 19. IN THE P&L ACCOUNT FILED BY THE ASSESSEE ALONG WITH RETURN OF INCOME A SUM OF RS. 2 29 991/- WAS DEBITED BY THE ASSESSEE O N ACCOUNT OF LEAVE ENCASHMENT. AS FOUND BY THE A.O. OUT OF THE SAID AMOUNT A SUM OF RS. 31744/- ONLY WAS ACTUALLY PAID BY THE ASSESSEE ON A CCOUNT OF LEAVE ENCASHMENT TO THE EMPLOYEES DURING THE YEAR UNDER C ONSIDERATION AND THERE WAS NO EVIDENCE FILED BY THE ASSESSEE TO SHOW THAT THE BALANCE AMOUNT OF RS. 1 98 247/- WAS PAID. HE THEREFORE MADE A DISALLO WANCE OF RS. 1 98 247/- ON ACCOUNT OF LEAVE ENCASHMENT. BEFORE THE LD. CIT (A) IT WAS SUBMITTED BY THE ASSESSEE THAT THE ENTIRE AMOUNT ON ACCOUNT OF L EAVE ENCASHMENT WAS ACTUALLY PAID DURING THE YEAR UNDER CONSIDERATION I TSELF BUT THE A.O. NEVER SPECIFICALLY CALLED FOR THE DETAILS THEREOF. ACCORD INGLY THE LD. CIT(A) DIRECTED THE A.O. TO ALLOW THE ASSESSEE TO PRODUCE SUCH EVID ENCE SHOWING THE ACTUAL PAYMENT OF LEAVE ENCASHMENT AND TO ALLOW APPROPRIAT E RELIEF TO THE ASSESSEE ON THIS ISSUE. 20. AFTER HAVING CONSIDERED THE RIVAL SUBMISSIONS A ND PERUSING THE RELEVANT MATERIAL AVAILABLE ON RECORD WE FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE LD. CIT(A) ON THIS ISSUE. IT IS OBSERVED THAT ON T HE BASIS OF SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE BEFORE HIM THE LD. CIT(A ) HAS GIVEN APPROPRIATE DIRECTION TO THE A.O. TO ALLOW THE ASSESSEE TO PROD UCE THE EVIDENCE SHOWING THE ACTUAL PAYMENT OF LEAVE ENCASHMENT AND TO ALLOW THE RELIEF ACCORDINGLY BY RESTRICTING THE DISALLOWANCE. WE THEREFORE UPHOL D THE IMPUGNED ORDER OF THE LD. CIT(A) ON THIS ISSUE AND DISMISS GROUND NO. 5 OF ASSESSEES APPEAL. 21. THE ISSUE RAISED IN GROUND NO. 6 OF ASSESSEES APPEAL RELATES TO THE ADDITION OF RS. 2 37 12 234/- MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) ON ACCOUNT OF REPAIRS AND MAINTENANCE EXPEND ITURE TREATING THE SAME AS OF CAPITAL NATURE. 22. DURING THE YEAR UNDER CONSIDERATION THE ASSESS EE HAD CLAIMED TOTAL EXPENDITURE OF RS. 5 01 67 446/- ON ACCOUNT OF REPA IRS AND MAINTENANCE ITA 2286/M/13 & 2466/M/13 11 WHICH WAS INCLUSIVE OF A SUM OF RS. 2 24 90 641/- O N ACCOUNT OF REPAIRS TO BUILDING RS. 43 35 598/- ON ACCOUNT OF REPAIRS TO PLANT AND MACHINERY RS. 1 51 68 042/- ON ACCOUNT OF OTHER REPAIRS AND RS. 8 1 73 174/- ON ACCOUNT OF GENERAL REPAIRS AND MAINTENANCE. ON VERIFICATION OF THESE EXPENSES CLAIMED BY THE ASSESSEE THE A.O. WAS OF THE OPINION THAT C ERTAIN ITEMS OF THESE EXPENSES CLAIMED BY THE ASSESSEE WERE OF CAPITAL NA TURE. HE THEREFORE REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY THE SAME SHOULD NOT BE DISALLOWED BEING OF CAPITAL NATURE. IN REPLY IT WAS SUBMITTE D BY THE ASSESSEE THAT THE CONSTRUCTION WAS CARRIED OUT IN THE COMPOUND OF THE HOTEL PROPERTY TOUCHING THE EXISTING HOTEL BUILDING AND SINCE SEVERAL AREA OF THE EXISTING STRUCTURE GOT DAMAGED BECAUSE OF THE SAID CONSTRUCTION MAJOR EXP ENDITURE WAS REQUIRED TO BE INCURRED ON POP WORK AND THE ENTRANCE LOBBY. IT WAS ALSO SUBMITTED THAT DURING THE CONSTRUCTION PERIOD A SPECIAL FACILITY WAS REQUIRED TO BE CREATED TO INGRESS WITHOUT ANY RISK TO THE GUEST AND WITHOUT A NY EXPOSURE TO THE DUST AND POLLUTION ON ACCOUNT OF CIVIL WORK UNDER PROGRE SS. IT WAS CONTENDED THAT THE EXPENDITURE INCURRED FOR THIS PURPOSE WAS ENTIR ELY REVENUE IN NATURE AND THE SAME THEREFORE WAS CLAIMED AS DEDUCTION. IT WAS ALSO POINTED OUT THAT WHENEVER THE EXPENDITURE INCURRED WAS CAPITAL IN NA TURE THE ASSESSEE ITSELF HAD ALREADY CAPITALIZED THE SAME. IN THIS REGARD IT WAS BROUGHT TO THE NOTICE OF THE A.O. THAT ORIGINALLY A SUM OF RS. 4 10 12 34 0/- WAS DEBITED TO THE REPAIRS AND MAINTENANCE ACCOUNT ON ACCOUNT OF CIVIL WORK OUT OF WHICH A SUM OF RS. 1 85 21 699/- WAS DULY CAPITALIZED AND ONLY THE BALANCE AMOUNT OF RS. 2 24 90 641/-WAS CLAIMED AS REPAIRS TO BUILDING. 23. THE A.O. DID NOT FIND THE SUBMISSIONS MADE BY T HE ASSESSEE ON THIS ISSUE TO BE ACCEPTABLE. ACCORDING TO HIM CERTAIN EXPENSES CLAIMED BY THE ASSESSEE UNDER THE HEAD REPAIRS AND MAINTENANCE W ERE CLEARLY OF CAPITAL NATURE NOT ALLOWABLE AS DEDUCTION. HE THEREFORE PROCEEDED TO EXAMINE THE EXPENSES CLAIMED BY THE ASSESSEE UNDER THE HEAD RE PAIRS AND MAINTENANCE AND HELD ON SUCH EXAMINATION THAT THE SAID EXPENSES TO THE FOLLOWING EXTENT WERE OF CAPITAL NATURE:- ITA 2286/M/13 & 2466/M/13 12 ACCORDINGLY TOTAL DISALLOWANCE OF RS. 2 37 12 054/- WAS MADE BY THE A.O. ON ACCOUNT OF REPAIRS AND MAINTENANCE EXPENSES CLAIMED BY THE ASSESSEE TREATING THE SAME AS OF CAPITAL NATURE. THE DISALLO WANCE MADE BY THE A.O. ON ACCOUNT OF REPAIRS AND MAINTENANCE EXPENDITURE WAS DISPUTED BY THE ASSESSEE IN THE APPEAL FILED BEFORE THE LD. CIT(A) AND THE FOLLOWING SUBMISSIONS WERE MADE ON BEHALF OF THE ASSESSEE IN SUPPORT OF THE ASSESSEES CASE ON THIS ISSUE. [(I) RENOVATION IS DIFFERENT FROM REPAIRS AND THE REPAIRS SHOULD NOT BE CONFUSED AS RENOVATION. (II) THE APPELLANTS COMPANY RUNS A 5 STAR HOTEL AN D THE TOTAL REVENUE DEPENDS UPON AMBIENCE AND NEW LOOK IT GETS FROM TIM E TO TIME AND AS THE ASSESSEE HAD TO COMPETE SEVERAL 5 STAR HOTELS W HICH HAVE COME UP IN THE VICINITY OVER THE LAST 5 YEARS. THE CONSTRUC TION WAS CARRIED OUT IN THE COMPOUND OF HOTEL PROPERTY TOUCHING THE EXISTIN G HOTEL BUILDING SEVERAL AREA OF THE EXISTING STRUCTURE UNDERWENT DA MAGES AND THE POP MARBLE ENTRANCE OF THE LOBBY NEEDED TO BE REPLACED. EXPENDITURE PERTAINING TO THE SAME BEING OF A REVENUE NATURE HA S BEEN DEBITED TO REPAIRS AND MAINTENANCE. DURING THE PERIOD OF CONST RUCTION OF THE ADDITIONAL PREMISES THE ASSESSEE HAD TO CREATE A SP ECIAL FACILITY TO INGRESS WITHOUT ANY RISK TO THE GUEST AND WITHOUT E XPOSURE TO THE DUST AND POLLUTION ON ACCOUNT OF CIVIL WORK UNDER PROGRE SS. IT MAY BE POINTED OUT THAT THE COST OF ADDITIONAL BUILDING CO MPLEX HAS BEEN CAPITALIZED AT RS. 5 68 69 809/- UNDER THE HEAD BUI LDING IN FIXED ASSETS SCHEDULE. THE APPELLANT SUBMITTED THAT UNDER VARIOUS HEAD OF REPAIR & MAINTENANCE LIKE BUILDING COMPUTER HARDWARE ETC. PA RT OF THE EXPENDITURE HAS BEEN CAPITALIZED. DESCRIPTION AMT. TREATED AS CAPITAL EXPENDITURE (RS) DEPRECIATION ALLOWED (RS) NET DISALLOWANCE(RS) REPAIRS & MAINTENANCE TO BUILDING 1 33 86 279/- 13 38 627/- 1 20 47 652 REPAIRS & MAINTENANCE TO COMPUTER HARDWARE 9426/- 5656/- 3770/- REPAIRS & MAINTENANCE TO KITCHEN EQUIPMENT 2 41 515/- 24 151/- 2 27 364/- REPAIRS & MAINTENANCE TO FIRE FIGHTING EQUIPMENT 2 12 616/- 21 262/- 1 91 354/- REPAIRS & MAINTENANCE TO OTHERS 71 12 815/- 7 11 281/- 64 01 534/- REPAIRS & MAINTENANCE TO CARPENTARY/POLISH 37 64 740/- 3 76 474/- 33 88 266/- REPAIRS & MAINTENANCE TO FURNITURE 16 13 660/- 1 61 366/- 14 52 294/- TOTAL DISALLOWANCE 2 37 12 054/- ITA 2286/M/13 & 2466/M/13 13 (IV) THE EXPENDITURE CLAIMED IS REVENUE IN NATURE A ND ARE THEREFORE ALLOWABLE BASED ON VARIOUS CASE LAWS REFERRED BY TH E APPELLANT. 24. THE LD. CIT(A) DID NOT FIND MERIT IN THE SUBMIS SIONS MADE ON BEHALF OF THE ASSESSEE. ACCORDING TO HIM THE IMPUGNED EXPEN DITURE INCURRED BY THE ASSESSEE WAS NOT IN THE NATURE OF CURRENT REPAIRS B UT THE SAME WAS INCURRED FOR EXTENSIVE RENOVATION OF THE HOTEL. HE HELD THA T ALTHOUGH THE ASSESSEE HAD CAPITALIZED PART OF THE REPAIRS EXPENDITURE THE VA RIOUS ITEMS OF EXPENDITURE AS POINTED OUT BY THE A.O. WERE ALSO OF CAPITAL NAT URE FOR WHICH DEDUCTION WAS WRONGLY CLAIMED BY THE ASSESSEE TREATING THE SA ME AS OF REVENUE NATURE. HE HELD THAT THE SAID EXPENDITURE WAS NOT IN THE NA TURE OF CURRENT REPAIRS AND THE SAME THEREFORE WAS NOT DEDUCTIBLE EITHER U/ S 30 OR U/S 37 OF THE ACT. ACCORDINGLY THE DISALLOWANCE MADE BY THE A.O. ON A CCOUNT OF REPAIRS AND MAINTENANCE EXPENDITURE TREATING THE SAME AS OF CAP ITAL NATURE WAS CONFIRMED BY THE LD. CIT(A). 25. THE LD. COUNSEL FOR THE ASSESSEE REITERATED BEF ORE US THE SUBMISSIONS MADE ON THE ISSUE INVOLVED IN GROUND NO. 3 RELATING TO THE ALLOWABILITY OF PROFESSIONAL FEES PAID TO SHRI SHAUKAT MUKHI FOR IN TERIOR DESIGNING WORK IN ORDER TO REDECORATE THE DAMAGED AREA OF THE EXISTIN G HOTEL BUILDING OF THE ASSESSEE. HE SUBMITTED THAT THE CONSTRUCTION WORK WAS CARRIED OUT IN THE COMPOUND OF THE HOTEL PROPERTY OF THE ASSESSEE TOUC HING THE EXISTING HOTEL BUILDING AND DUE TO THE DAMAGE OCCURRED TO THE SEVE RAL AREAS OF THE EXISTING STRUCTURE MAJOR REPAIR WORK WAS REQUIRED TO BE DON E TO THE ENTRANCE LOBBY AS WELL AS THE OTHER DAMAGED AREA. HE CONTENDED THAT THIS MAJOR EXPENDITURE INCURRED BY THE ASSESSEE DID NOT RESULT IN ANY ENDU RING BENEFIT TO THE ASSESSEE AND SINCE THE SAME WAS INCURRED TO MAINTAI N THE EXISTING ASSETS OF THE ASSESSEE IT WAS RIGHTLY CLAIMED AS DEDUCTION B EING THE EXPENDITURE OF REVENUE NATURE. HE CONTENDED THAT WHEREVER CERTAIN EXPENDITURE DEBITED UNDER THE HEAD REPAIRS AND MAINTENANCE WAS FOUND TO BE OF CAPITAL NATURE GIVING ENDURING BENEFIT THE ASSESSEE COMPANY ITSEL F HAD ALREADY CAPITALIZED THE SAME. HE SUBMITTED THAT THE NATURE OF EXPENDITU RE CANNOT BE DECIDED ON ITA 2286/M/13 & 2466/M/13 14 THE BASIS OF QUANTUM OF EXPENDITURE ALONE AND IT HA S TO BE SEEN THAT WHAT BENEFIT HAS ACCRUED TO THE ASSESSEE AS A RESULT OF SUCH EXPENDITURE. HE THEN INVITED OUR ATTENTION TO THE DETAILS GIVEN IN ANNEX URE-A OF HIS WRITTEN SUBMISSIONS GIVING DETAILS OF EACH AND EVERY ITEM O F EXPENDITURE TREATED BY THE A.O. AS OF CAPITAL NATURE AND EXPLAINED THE EXA CT NATURE AND PURPOSE OF SUCH EXPENDITURE WITH REFERENCE TO THE SAID DETAILS AS WELL AS THE COPIES OF CORRESPONDING INVOICES/VOUCHERS PLACED IN HIS PAPER BOOK. HE CONTENDED THAT IF THE NATURE AND PURPOSE OF THE SAID EXPENDIT URE IS TAKEN INTO CONSIDERATION IT CAN BE SEEN THAT THE SAME WAS REV ENUE IN NATURE AND HENCE ALLOWABLE AS DEDUCTION. HE ALSO CONTENDED THAT THE NATURE OF THE BUSINESS OF THE ASSESSEE IS REQUIRED TO BE SEEN WHICH IN THE PR ESENT CASE IS RUNNING A FIVE STAR HOTEL. HE CONTENDED THAT THE TOTAL REVENU E OF ANY FIVE STAR HOTEL DEPENDS ON ITS AMBIENCE AS WELL AS THE NEW LOOK IT GETS FROM TIME TO TIME. HE CONTENDED THAT MAJOR EXPENDITURE IS REQUIRED TO BE INCURRED REGULARLY FOR THIS PURPOSE AND SINCE THE SAME DOES NOT RESULT IN CREAT ION OF ANY NEW ASSET BUT ONLY HELPS IN MAINTAINING THE EXISTING ASSET IT IS OF REVENUE IN NATURE BEING EXPENDITURE INCURRED ON REPAIRS AND MAINTENANCE. IN SUPPORT OF THIS CONTENTION HE INTER ALIA RELIED ON THE FOLLOWING J UDICIAL PRONOUNCEMENTS: 1. CIT V. HOTEL CONTROL PVT. LTD. (2004) 265 ITR 109 2. CIT V. ICI(INDIA) (P) LTD. (1983) 139 ITR 105 (CAL. ) 3. CIT V. CHOWGULE & CO. (P) LTD. (1995) 214 ITR 523(B OM) 4. CIT V. BHARAT CINEMA (1980) 121 ITR 165 (P&H) 5. CIT V. SRI HARI MILLS PVT. LTD. (1999) 237 ITR 188( MAD.) 6. ALEMBIC CHEMICAL WORKS CO. LTD. V. CIT (1989) 177 I TR 377 (SC) 26. THE LD. D.R. ON THE OTHER HAND STRONGLY RELIE D ON THE ORDERS OF AUTHORITIES BELOW IN SUPPORT OF THE REVENUES CASE THAT THE IMPUGNED EXPENDITURE CLAIMED BY THE ASSESSEE AS REPAIRS AND MAINTENANCE BEING OF CAPITAL NATURE WAS RIGHTLY DISALLOWED. HE SUBMITTE D THAT SPECIFIC FINDINGS ITA 2286/M/13 & 2466/M/13 15 WERE GIVEN BY THE A.O. IN HIS ASSESSMENT ORDER IN R ESPECT OF EACH AND EVERY ITEM OF EXPENDITURE TREATED BY HIM AS OF CAPITAL NA TURE AND THE LD. CIT(A) HAS RIGHTLY UPHELD THE ACTION OF THE A.O. ON THIS ISSUE RELYING ON THE SAID FINDINGS. 27. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS ALREADY H ELD BY US WHILE DECIDING THE ISSUE INVOLVED IN GROUND NO.3 OF THE ASSESSEES APP EAL THAT THE EXPENDITURE INCURRED ON PAYMENT OF PROFESSIONAL FEES WAS ALLOWA BLE AS DEDUCTION BEING REVENUE IN NATURE AS THE SAME DID NOT RESULT IN CRE ATION OF ANY NEW ASSET OR ANY ADVANTAGE OF ENDURING NATURE IN THE CAPITAL FIE LD. AS NOTED BY US THE SUM OF RS. 2244600/- WAS PAID BY THE ASSESSEE TO MR . SHAUKAT MUKHI INTERIOR DECORATOR FOR DESIGNING A TEMPORARY OPERAT IONAL PLAN AND AS SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE THE EXPENDITURE IN QUESTION WAS MAINLY INCURRED TO IMPLEMENT THE SAID OPERATION AL PLAN DURING THE CONSTRUCTION PERIOD. WE HAVE ALREADY TAKEN NOTE OF THE FACT THAT THE TURNOVER OF THE HOTEL OF THE ASSESSEE DURING THE CONSTRUCTIO N PERIOD WAS INCREASED SO ALSO THE PROFIT AS WELL AS THE TAX PAID THEREON. O UT OF THE IMPUGNED DISALLOWANCE ON ACCOUNT OF REPAIRS AND MAINTENANCE MADE BY THE A.O. A SUM OF RS.1 33 86 279/- CLAIMED BY THE ASSESSEE ON ACCO UNT OF REPAIRS AND MAINTENANCE IN RESPECT OF BUILDING WAS DISALLOWED B Y THE A.O. TREATING THE SAME AS CAPITAL EXPENDITURE. THE LD. COUNSEL FOR TH E ASSESSEE HAS FURNISHED BEFORE US THE DETAILS OF THE SAID EXPENDITURE ALONG WITH THE NATURE AND PURPOSE THEREOF AS UNDER:- ITA 2286/M/13 & 2466/M/13 16 CONSIDERED AS REVENUE EXPENDITURE TO BE ALLOWED AGA INST THE INCOME EARNED DURING THE SAID PERIOD. SR NO. PARTICULARS INVOICE NO. AMOUNT PAGE NO. 4 MARBLE SLAB PURCHASED 2351 332836 185 ITA 2286/M/13 & 2466/M/13 17 THE MARBLE SLAB PURCHASED FOR THE TEMPORARY LOBBY C REATED WAS REQUIRED TO BE DISMANTLED SUBSEQUENTLY A ND COULD NOT BE REUSED EXCEPT IN GARDEN AREA AND HENCE IN TH E LIGHT OF THE EXPLANATION TO POINT ABOVE IN RESPEC T OF TEMPORARY LOBBY THIS EXPENDITURE IS ALSO REQUIRED T O BE CONSIDERED AS REVENUE IN NATURE AND ALLOWED AG AINST THE PROFIT OF THE YEAR FOR THE PURPOSE OF THE RECORD IT MAY BE STATED THE MAJOR MARBLE PURCHASE FOR THE NE W AREAS HAVE BEEN CAPITALIZED UNDER THE HEAD BUILDING IN THE FIX ED ASSETS. 28. A PERUSAL OF THE ABOVE DETAILS FURNISHED BY THE ASSESSEE INCLUDING ESPECIALLY THE NATURE AND PURPOSE OF THE CORRESPOND ING EXPENDITURE CLEARLY SHOWS THAT THE SAME WAS INCURRED TO IMPLEMENT THE T EMPORARY OPERATIONAL PLAN PREPARED BY THE ASSESSEE WITH THE HELP OF INTE RIOR DESIGNER MR. SHAUKAT MUKHI TO KEEP ITS HOTEL BUSINESS GOING DURING THE C ONSTRUCTION PERIOD. IT ALSO CLEARLY SHOWS THAT THE SAID EXPENDITURE DID NOT RES ULT INTO CREATION OF ANY NEW CAPITAL ASSET OR ADVANTAGE OF ENDURING NATURE IN TH E CAPITAL FIELD FOR THE ASSESSEE. ON THE OTHER HAND THE SAID EXPENDITURE WAS INCURRED BY THE ASSESSEE COMPANY WHOLLY AND EXCLUSIVELY TO KEEP ITS EXISTING BUSINESS RUNNING DURING THE CONSTRUCTION PERIOD AND THE SAME IN OUR OPINION THEREFORE WAS REVENUE EXPENDITURE ALLOWABLE AS DEDU CTION BEING THE BUSINESS EXPENDITURE. 29. AS REGARDS THE EXPENDITURE INCURRED BY THE ASSE SSEE ON REPAIRS TO COMPUTER WHICH IS TREATED BY THE A.O. AS WELL AS BY THE LD. CIT(A) AS CAPITAL NATURE THE DETAILS FURNISHED BY THE ASSESSEE SHOW THAT THE SAME WAS INCURRED BY THE ASSESSEE ON PURCHASE OF PRINTER AND PEN DRIVE. IN THIS REGARD THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMIT TED THAT THE COST OF PRINTER PURCHASED BY THE ASSESSEE HAD ALREADY BEEN CAPITALI ZED. KEEPING IN VIEW THIS SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE WE DIRECT THE A.O. TO VERIFY THE STAND OF THE ASSESSEE AND ALLOW APPROPRIATE RELIEF TO THE ASSESSEE ON SUCH VERIFICATION. AS REGARDS THE PURCHASE OF PENDRIVES THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT SUCH PENDRIVES HAVE NO GUARANTEED LIFE AND THE SAME BEING IN THE NATURE OF COMPUTER ACCESSORY THE EXPENDITURE ON PURCHASE OF PEN DRIVE SHOULD BE ALLOWED AS DEDUCTION BEING R EVENUE IN NATURE. WE AGREE WITH THIS CONTENTION OF THE LD. COUNSEL FOR T HE ASSESSEE AND DIRECT THE A.O. TO ALLOW THE EXPENDITURE ON PURCHASE OF PEN DR IVE AS BUSINESS EXPENDITURE BEING REVENUE IN NATURE. ITA 2286/M/13 & 2466/M/13 18 30. AS REGARDS THE DISALLOWANCE MADE BY THE A.O. BY TREATING THE REPAIRS AND MAINTENANCE OF KITCHEN EQUIPMENTS TO THE EXTENT OF RS. 2 41 516/- AS OF CAPITAL NATURE THE LD. COUNSEL FOR THE ASSESSEE HA S FURNISHED THE RELEVANT DETAILS OF THE SAME AS UNDER:- SR NO. PARTICULARS INVOICE NO. AMOUNT PAGE NO. 1 1 NOS.SS SALMANDER 52 13413 192 THIS IS AN ANNUAL REPLACEMENT OF HEARING EQUIPMENT WHICH UNDERGOES SUBSTANTIAL WEAR AND TEAR DUE TO ITS 24 HOURS USE. THIS IS PART OF THE EQUIPMENT AND NOT THE EQUIPMENT ITSELF. SR NO. PARTICULARS INVOICE NO. AMOUNT PAGE NO. 2 WATER COOLER 159 30825 193 ONE WATER COOLER IS KEPT OUTSIDE THE HOTEL FOR USE OF DRIVERS STAFF AND VISITORS TO THE PARTIES IN THE BACK SIDE LAWN OF THE HOTEL. THE ONE THAT WAS THERE DURING THE EARLIER PERIOD WAS SPOILED DURING RENOVATION AND HAD TO BE REPLACE. SR NO. PARTICULARS INVOICE NO. AMOUNT PAGE NO. 3 CONVERSION OF OVEN FROM LPG 607 26051 194 4 2 NOS SS HOT FOOD TROLLY 196 91800 195 IT IS SUBMITTED THAT RS. 26051 AND RS. 80715 OUT OF RS. 91800 HAD ALREADY BEEN CAPITALIZED UNDER THE HEAD PLANT AND MACHINERY AND HENCE THIS A DDITION WILL RESULT IN DOUBLE JEOPARDY. SR NO. PARTICULARS INVOICE NO. AMOUNT PAGE NO. 5 TEA/COFFEE MACHINE WATER BOILER 131 41795 196 DURING THE CONSTRUCTION WORK UNDERTAKEN BY THE HOTE L THE POOL SIDE CAFETERIA WAS SUBSTANTIALLY WOUND9UP DUE TO DUST AND EXPOSURE TO NATURE AND HAD TO BE REPLACED. THE DESCRIPTION CONTAIN IN THE INVOICE DATED 24/06/2006 CLEARLY SHOWS THAT THESE FOUR ITEMS ARE MINOR ITEMS AND ARE IN USE FOR MOST TIMES IN OPEN A REAS AND THE LIFE IS NOT SUCH THAT IT MAY BE CAPITALIZED. SR NO. PARTICULARS INVOICE NO. AMOUNT PAGE NO. 6 2 NOS COFEE PARTS 3110 37631 197 THESE ARE PAYMENT FOR PARTS OF THE COFFEE MAKING MA CHINE AND DUE TO ITS CONTINUE USE 24 HOURS X 365 DAYS THIS HAVE TO REPLACE VERY REGULARL Y AND NEED TO BE ALLOW4ED AS REVENUE EXPENDITURE. AS REGARDS THE SUBMISSION OF THE ASSESSEE THAT THE EXPENDITURE INCURRED ON CONVERSION OF OVEN FROM LPG AND PURCHASE OF 2 NOS. OF SS HOT FOOD TROLLEY HAD ALREADY BEEN CAPITALIZED BY THE ASSESSEE UNDER THE HEAD PLANT AND MACHINERY WE DIRECT THE A.O. TO VERIFY THE SAME AN D ALLOW APPROPRIATE RELIEF TO THE ASSESSEE ON SUCH VERIFICATION. 31. AS REGARDS THE OTHER EXPENDITURE INCURRED BY TH E ASSESSEE MAINLY ON REPLACEMENT OF CERTAIN ITEMS IT IS WELL SETTLED TH AT IF THE EXPENDITURE IS INCURRED ON REPLACEMENT OF THE CONCERNED ASSET AS A WHOLE OR SUBSTANTIALLY THE WHOLE SUCH EXPENDITURE IS OF CAPITAL NATURE. ON THE OTHER HAND IF THE ITA 2286/M/13 & 2466/M/13 19 EXPENDITURE IS INCURRED ON REPLACEMENT OF PART OF A SSET OR MACHINERY THE SAME IS OF REVENUE NATURE. IN THIS REGARD WE FIND THAT THE ITEMS PURCHASED BY THE ASSESSEE SUCH AS SS SALMANDER PART OF COFFE E MAKING MACHINE CONSTITUTED THE EXPENDITURE INCURRED ON REPLACEMENT OF THE PART OF KITCHEN EQUIPMENTS AND THE SAME IN OUR OPINION WAS EXPEND ITURE OF REVENUE NATURE. ON THE OTHER HAND THE EXPENDITURE INCURRED BY THE ASSESSEE ON PURCHASE OF WATER COOLER AND TEA/COFFEE MACHINE WATER BOILER I N OUR OPINION WAS THE EXPENDITURE INCURRED ON REPLACEMENT OF CORRESPONDIN G KITCHEN EQUIPMENTS AS A WHOLE WHICH BY THEMSELVES WERE INDEPENDENT EQUIPM ENTS AND THE SAID EXPENDITURE THEREFORE WAS OF CAPITAL NATURE AS RI GHTLY HELD BY THE AUTHORITIES BELOW. 32. AS REGARDS THE EXPENDITURE INCURRED ON REPAIRS AND MAINTENANCE OF FIRE FIGHTING EQUIPMENT IT IS OBSERVED THAT THE SAID EX PENDITURE TO THE EXTENT OF RS. 1 84 816/- WAS INCURRED BY THE ASSESSEE ON GIC PIPE AND THE SAME BEING A REPLACEMENT OF PART OF FIRE FIGHTING SYSTEM IT I N OUR OPINION IS ALLOWABLE AS REVENUE EXPENDITURE. SIMILARLY THE BALANCE EXPEND ITURE OF RS. 37 800/- INCURRED BY THE ASSESSEE ON CONVENTIONAL PHOTO ELEC TRIC BEING PART OF THE FIRE FIGHTING EQUIPMENT CONSTITUTED THE EXPENDITURE INCU RRED ON REPLACEMENT OF PART OF FIRE FIGHTING SYSTEM AND THE SAME IN OUR O PINION IS ALSO ALLOWABLE AS REVENUE EXPENDITURE. 33. AS REGARDS THE EXPENDITURE INCURRED BY THE ASSE SSEE ON OTHER REPAIRS AND MAINTENANCE WHICH HAS BEEN TREATED AS OF CAPITA L NATURE TO THE EXTENT OF RS. 71 12 815/- THE LD. COUNSEL FOR THE ASSESSEE H AS FURNISHED THE DETAILS THEREOF AS UNDER:- ITA 2286/M/13 & 2466/M/13 20 REPAIR & MAINTENANCE : OTHERS SR NO. PARTICULARS INVOICE NO. AMOUNT PAGE NO. 1 STEAM COIL FOR BOILER 1417 61875 207 THE AMOUNT PAID FOR REPLACEMENT OF BURNT COIL FOR B OILER IS NOT A MACHINERY AND HAS BEEN CORRECTLY CLAIMED UNDER THE HEAD REPAIR & MAIN TENANCE OTHER AND NO DISALLOWANCE IS WARRANTED TO TREAT THE SAME AS CAPI TAL EXPENDITURE. SR NO. PARTICULARS INVOICE NO. AMOUNT PAGE NO. 2 PANASONIC KX FM 386 669 22568 208 FIVE STAR HOTELS REQUIRE THAT ALL ITEMS OF USE ARE NEW AND UP-TO DATE AND HENCE HAVE TO BE CONTINUOUSLY REPLACED FOR USE OF GUEST WHO EX PECTS FIVE STAR LUXURIES IN EVERY ITEM OF USE. THE TELEPHONE SYSTEMS WHICH ARE NOT I N WORKING CONDITION NEED TO BE REPLACED AND NOT REPAIRED AND HENCE STOCK OF SUCH I NSTRUMENT NEED TO BE KEPT. THE SAME ARE NOT SUCH THAT THEIR LIFE IS MORE THAN ONE YEAR SINCE THE COST IS HARDLY RS. 500 TO 1500 AND HAVE NO GUARANTEE OR WORTH REPAIRIN G. THE SUM OF RS. 22568 FOR 15 NO. OF TELEPHONE EQUIPMENT INCLUDING 1 FOR CUSTOMER SUPPORT DESK IS NECESSARILY OF A REVENUE NATURE ALLOWABLE AGAINST THE PROFIT OF THE ASSESSEE. SR NO. PARTICULARS INVOICE NO. AMOUNT PAGE NO. 3 PANASONIC KX TES 659 38420 209 4 6 NOS SPLIT AC 707 136500 5 6 NOS STEEL LOCKER 27 21600 210 THESE ARE FOR REPLACEMENT OF THE OLD EQUIPMENTS IN THE BANQUET OFFICE WHICH GOT SPOLED OR CORRODED BY EFFLUX OF TIME AND DUE TO CON STRUCTION WORK. SR NO. PARTICULARS INVOICE NO. AMOUNT PAGE NO. 6 SUPPLY OF FIX NO. 1 DCSS 5 BOAR 1 119423 211 THE SUM OF RS. 119423 IS ESSENTIALLY A REPLACEMENT OF MAL-FUNCTIONING DCSS 5 BOARD AND INDICATOR PANEL OF THE LIFT OF THE FIVE S TAR HOTEL WHICH IS USED BY THE GUEST AS WELL AS STAFF FOR MOVEMENT UP AND DOWN THE FLOOR S SEVERAL TIMES AND IS REQUIRED TO BE KEPT IN WORKING CONDITION. THE PAYMENT MADE TO OTIS IS ONLY TO KEEP THE LIFT WORKING AND IS CERTAINLY NOT A CAPITAL EXPENDITURE AND DESERVES TO BE ALLOWED AS REVENUE EXPENDITURE. ITA 2286/M/13 & 2466/M/13 21 SR NO. PARTICULARS INVOICE NO. AMOUNT PAGE NO. 13 CCTV CAMERA/MOUNT CAMERA 185 156800 217 IT IS SUBMITTED THAT RS. 156800 HAD ALREADY BEEN CA PITALIZED UNDER THE HEAD PLANT AND MACHINERY AND HENCE THIS ADDITION WILL RESULT I N DOUBLE JEOPARDY. ITA 2286/M/13 & 2466/M/13 22 SR NO. PARTICULARS INVOICE NO. AMOUNT PAGE NO. 21 COMPOUND GATE LABOUR CHRG 185 156800 217 THIS EXPENDITURE WAS NECESSITATED ON ACCOUNT OF THE ACCIDENTAL MOVEMENT OF THE CRANE WITHIN THE COMPOUND SINCE IT COULD NOT MANEUVER AND DAMAGE D THE COMPOUND GATE AND TEMPORARILY A MS GATE HAD TO BE BROUGHT AN FIXED TO PROTECT THE P REMISES AND THE MATERIAL LYING IN THE ITA 2286/M/13 & 2466/M/13 23 SR NO. PARTICULARS INVOICE NO. AMOUNT PAGE NO. 28 SUPPLY OF CENTRIFUGAL BLOWER 11 19688 241 29 SUPPLY OF CENTRIFUGAL BLOWER 15 21038 242 THE CENTRIFUGAL BLOWERS ARE REQUIRED FOR EXHAUST AI R FROM THE BASEMENT AS WELL AS THE KITCHEN AND HAVE TO BE KEPT READY IN STOCK FOR ANY FAILURE OF THE EXISTING BLOWER AS PER THE SAFETY REQUIREMENT OF STATUTORY COMPLIANCE AND HENC E IS NOT A STANDALONE MACHINERY ITEM OF A CAPITAL NATURE AND THEREFORE NEEDS TO BE WRITT EN OFF AS REVENUE NATURE. ITA 2286/M/13 & 2466/M/13 24 SR NO. PARTICULARS INVOICE NO. AMOUNT PAGE NO. 32 WASTE COUPLING/ELBOW 2433 28672 THE AMOUNT PAID TO THE KRISHNA CERAMICS WHO ARE WHO LESALERS FOR PIPES AND SANITARY FITTINGS ARE FOR OVER 300 HUNDRED OF SCORES ITEMS TO BE KEPT IN STOC K FOR REPAIR AND REPLACEMENT FROM TIME TO TIME AND HENCE REVENUE EXPENDITURE ALLOWABLE. SR.NO. PARTICULARS BILL NO. AMOUNT PAGE NO. 30 HAND DRYER PURCHASED 70 29284 243 31 DRY VACCUM CLEANER 056A 92250 244 34 HAND DRYER PURCHASED 74 14642 247 33 DOOR LOCK PURCHASED 351 142036 246 35 5 DOOR LOCKS/9 BRASS DOOR LOGO 247 118853 248 36 FLUSHING VALVE/STOP COCK 450 254541 249 37 JET SPERAY/BOTTLE SPARY 441 29691 250 38 GSP 110/EP 4312/XENON 17 48487 251 39 CENTRIFUGAL BLOWER. FILTER 5 42300 252 41 W L INDICATOR W/L CONTROLLER 5/9 30800 253-254 42 SWITCH 506 37000 256 THESE ARE REPLACEMENT OF VARIOUS EQUIPMENT WHICH UN DERGOES SUBSTANTIAL WEAR AND TEAR DUE TO IS 24 HOURS USE. CONSIDERING THE NATURE OF THE BUSINESS O F THE ASSESSEE COMPANY AND THE QUALITY AND STANDARD REQUIRED TO BE PROVIDED TO GUEST IN A FIVE STAR HOTEL AND THE SAME WERE WHOLLY AND NECESSARILY INCURRED FOR THE PURPOSE OF EARNING THE INCOME. SR.NO. PARTICULARS BILL NO. AMOUNT PAGE NO. 40 EPSON PRINTER HEAD 78 3952 255 THE AMOUNT WAS PAID FOR REPLACEMENT OF PRINTER HEAD FOR ACCOUNTS DEPARTMENT WHICH IS REQUIRED TO PRINT VOLUMINOUS BOOKS OF ACCOUNT AND IS NOT IN THE NATUR E OF CAPITAL NATURE. THE SAME NEEDS TO BE ALLOWED AGAINST THE PROFIT OF THE ASSESSEE. 34. WE HAVE CAREFULLY PERUSED THE ABOVE DETAILS FUR NISHED BY THE ASSESSEE AND HAVE ALSO CONSIDERED THE NATURE AND PURPOSE OF EACH ITEM OF SUCH EXPENDITURE INCURRED BY THE ASSESSEE. IT IS OBSERV ED THAT THE FOLLOWING ITEMS OF EXPENDITURE WERE INCURRED BY THE ASSESSEE ON REP LACEMENT OF THE CORRESPONDING ASSET AS SUCH AND THE SAID ASSETS HAV ING INDEPENDENT EXISTENCE AND USE THE EXPENDITURE INCURRED ON PURC HASE/REPLACEMENT OF THE SAID ITEMS IN OUR OPINION WAS OF CAPITAL NATURE:- (I) 6 NOS OF SPILT AC - RS. 1 36 500/- (II) 6 NOS. STEEL LOCKER - RS. 21 600/- (III) CCTV CAMERA - RS. 1 56 800/- (IV) 2 NOS. SOFA - RS. 60 330/- (V) SS WATER BOILER - RS. 22 500/- (VI) DRY VACCUM CLEANER - RS. 92 250/- ITA 2286/M/13 & 2466/M/13 25 (VII) HAND DRYER - RS. 29 284/- (VIII) HAND DRYER - RS. 14 642/- IN OUR OPINION HAVING REGARD TO THE NATURE OF THE ABOVE EXPENDITURE AS WELL AS THE PURPOSE THEREOF TO REPLACE/PURCHASE THE CORR ESPONDING ASSETS THE EXPENDITURE INCURRED IS OF CAPITAL NATURE AS RIGHTL Y HELD BY THE AUTHORITIES BELOW. AS REGARDS THE SUBMISSION OF THE ASSESSEE T HAT THE EXPENDITURE OF RS. 1 56 800/- INCURRED ON PURCHASE OF CCTV CAMERA WAS ALREADY CAPITALIZED BY THE ASSESSEE THE A.O. IS DIRECTED TO VERIFY THE SA ME AND ALLOW APPROPRIATE RELIEF TO THE ASSESSEE ON SUCH VERIFICATION. BESID ES THIS EXPENDITURE WE FIND THAT THE REMAINING EXPENDITURE INCURRED BY THE ASSE SSEE ON OTHER REPAIRS AND MAINTENANCE WAS OF REVENUE NATURE AS THE SAME WAS I NCURRED ON REPLACEMENT OF PARTS OF THE MACHINERY OR EQUIPMENTS OR SYSTEMS AND THE SAME THEREFORE WAS ALLOWABLE AS DEDUCTION BEING EXPENDITURE INCURR ED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. FOR INSTANCE THE TEL EPHONE INSTRUMENTS PURCHASE BY THE ASSESSEE WERE PART OF INTERCOM SYST EM INSTALLED IN THE HOTEL BUILDING OF THE ASSESSEE WHILE THERE WERE OTHER ITE MS PURCHASED BY THE ASSESSEE SUCH AS STEAM COIL FOR BOILER CAPACITOR CONTROLLERS ETC. WHICH WERE PARTS OF ASSETS OF THE ASSESSEE FORMING THE ELECTRI CAL INSTALLATION. THERE WERE ALSO CERTAIN EXPENSES INCURRED BY THE ASSESSEE WHIC H WERE OF RECURRING NATURE SUCH AS AMC CHARGES ETC. WHICH WERE REVENUE EXPENDITURE GOING BY ITS NATURE AND PURPOSE. ACCORDINGLY WE DIRECT THE A.O. TO RECOMPUTE THE DISALLOWANCE TO BE MADE BY TREATING THE OTHER REPAI RS AND MAINTENANCE EXPENDITURE AS OF CAPITAL NATURE ON THE BASIS OF OU R OBSERVATIONS/FINDINGS GIVEN ON THE VARIOUS ITEMS OF EXPENDITURE. 35. AS REGARDS THE CARPENTRY AND POLISH EXPENSES CL AIMED BY THE ASSESSEE UNDER THE HEAD REPAIRS & MAINTENANCE AND TREATED BY THE AUTHORITIES BELOW AS OF CAPITAL NATURE THE LD. COUNSEL FOR THE ASSES SEE HAS FURNISHED THE DETAILS OF SUCH EXPENDITURE AGGREGATING TO RS. 37 64 740/- AS UNDER:- ITA 2286/M/13 & 2466/M/13 26 6. REPAIR & MAINTENANCE:- CARPANTRY/ POLISING SR.NO. PARTICULARS BILL NO. AMOUNT PAGE NO. 1 LABOUR CHARGES 1 1400000 258 2 LABOUR CHARGES 1 1350000 264 3 LABOUR CHARGES 3 439740 270 4 PAINTING & POLISING 1 575000 276 DURING THE CONSTRUCTION WORK OF THE NEW WING FURNIT URE AND WOODEN PANELING OF THE ACROSS HALL LOBBY STORE BATHROOM PARKING AREA KITCHEN AREA DIRECT ORS CABIN F&B MANAGER CABIN BANQUET MANAGER CABIN & RECEPTION AREAS WERE DAMAGED AND GOT SPOIL ED AND THE SAME NEEDED TO BE RESTORED WITH SUBSTANTIAL MODIFICATION AND PAINTING AND GOT REPAI RED POLISHED OR FRESH COAT OF VENEER HAD STUCK ON SAME TO GIVE A FRESH LOOK TO THE THEM. ON PERUSAL OF THE DETAILS FURNISHED BY THE ASSESSEE IT IS OBSERVED THAT THE NATURE OF THIS EXPENDITURE IS SIMILAR TO THE NATURE OF EXPENDITURE INCURRED BY THE ASSESSEE ON REPAIRS AND MAINTENANCE OF BUILDING INASMUCH AS THE SAME WAS INCURRED TO IMPLEMENT THE TEMPORARY OPERATIONAL PLAN PREPARED BY THE ASSESSEE WITH THE HELP OF INTERIOR DESIGNER MR. SHA UKAT MUKHI TO KEEP ITS HOTEL BUSINESS RUNNING DURING ITS CONSTRUCTION PERI OD. FOLLOWING OUR CONCLUSION DRAWN ON THE ISSUE OF ALLOWABILITY OF RE PAIRS AND MAINTENANCE TO BUILDING ALREADY RENDERED HEREINABOVE WE DIRECT TH E A.O. TO TREAT THE EXPENDITURE ON CARPENTRY AND POLISHING AS OF REVENU E EXPENDITURE AND ALLOW THE DEDUCTION CLAIMED BY THE ASSESSEE FOR THE SAME. 36. AS REGARDS THE REPAIRS AND MAINTENANCE TO FURNI TURE AND FIXTURE WHICH HAS BEEN DISALLOWED BY THE AUTHORITIES BELOW BY TRE ATING THE SAME TO THE EXTENT OF RS. 16 13 660/- AS OF CAPITAL NATURE THE LD. COUNSEL FOR THE ASSESSEE HAS FURNISHED THE DETAILS THEREOF AS UNDER:- 7. REPARI & MAINTENANCE:- FURNITURE & FIXTURE: SR.NO. PARTICULARS BILL NO. AMOUNT PAGE NO. 1 LABOUR CHARGES 1 1350388 278 2 SLOTTED ANGLE RACKS/ SHELVES 37 138375 284 3 SOFA/CHAIR/BED COVER ETC 7845 285 4 HEATER 505 3088 286 5 AIR BLOWER 103 5063 287 6 WOODEN TABLE LAMP 1586 4058 288 7 6NO. FAN 9712 7200 289 8 ALARM SYSTEM PUSH BUTTONS 84 20172 290 9 EMERGENCY LIGHTS 84 20172 290 ITA 2286/M/13 & 2466/M/13 27 10 EMERGENCY LIGHTS 911 9095 292 11 CEILING FAN 8719 5400 293 12 TELEPHONE 1103 3650 294 13 CORDLESS TELEPHONE 26070601 2600 295 14 NOKIA HANDSET 5090601 17160 296 15 TANDOOR 161 15750 297 16 HEATER 578 5625 298 THE ABOVE DETAILS SHOW THAT THE EXPENDITURE IN QUES TION INCURRED BY THE ASSESSEE ON REPAIRS AND MAINTENANCE OF FURNITURE AN D FIXTURE WAS ALSO PART OF TOTAL EXPENDITURE INCURRED BY THE ASSESSEE ON IMPLE MENTATION OF THE TEMPORARY OPERATION PLAN WHICH WAS PREPARED WITH TH E HELP OF INTERIOR DESIGNER MR. SHAUKAT MUKHI IN ORDER TO KEEP THE EXI STING BUSINESS OF HOTEL RUNNING DURING THE CONSTRUCTION PERIOD. THE FACT TH AT THE SUBSTANTIAL PART OF THIS EXPENDITURE WAS INCURRED BY THE ASSESSEE ON LA BOUR CHARGES FURTHER SUBSTANTIATES THE CASE OF THE ASSESSEE. THE A.O. O N THE OTHER HAND HAS NOT GIVEN ANY BASIS IN SUPPORT OF HIS STAND THAT THE SA ID EXPENDITURE WAS OF CAPITAL NATURE. HE HAS NOT POINTED OUT AS TO HOW TH E SAID EXPENDITURE RESULTED IN CREATION OF ANY NEW ASSET OR ADVANTAGE OF ANY ENDURING NATURE IN THE CAPITAL FIELD. AS ALREADY DISCUSSED BY US THE TEMPORARY OPERATIONAL PLAN IMPLEMENTED BY THE ASSESSEE DURING THE CONSTRUCTION PERIOD HELPED THE ASSESSEE TO KEEP THE EXISTING HOTEL BUSINESS GOING WITHOUT DISTURBING THE TURNOVER. AS A MATTER OF FACT THE TURNOVER OF THE HOTEL BUSINESS OF THE ASSESSEE WAS INCREASED DURING THE CONSTRUCTION PERI OD AS A RESULT OF THE SUCCESSFUL IMPLEMENTATION OF THE TEMPORARY OPERATIO NAL PLAN DURING THE CONSTRUCTION PERIOD WHICH CLEARLY ESTABLISHES THAT THE EXPENDITURE INCURRED BY THE ASSESSEE FOR SUCH IMPLEMENTATION WAS INCURRE D TO KEEP THE EXISTING HOTEL BUSINESS RUNNING AND IT DID NOT RESULT IN CRE ATION OF ANY NEW ASSET OR ADVANTAGE OF ENDURING NATURE IN THE CAPITAL FILED A S RIGHTLY CONTENDED BY THE LD. COUNSEL FOR THE ASSESSEE. THE NATURE OF BUSINE SS OF THE ASSESSEE COMPANY OF RUNNING THE FIVE STAR HOTEL IS TO BE KEPT IN MIN D TO DECIDE THE NATURE OF EXPENDITURE INCURRED ON REPAIRS WHETHER CAPITAL OR REVENUE AS THE ASSESSEE HAS TO SATISFY THE HIGH STANDARDS OF AMBIENCE REQUI RED TO BE MAINTAINED FOR SUCH BUSINESS AND HIGH EXPECTATIONS OF THE CUSTOMER S STAYING IN THE FIVE STAR ITA 2286/M/13 & 2466/M/13 28 HOTEL. HAVING REGARD TO ALL THESE FACTS OF THE CASE WE ARE OF THE VIEW THAT THE REPAIRS AND MAINTENANCE EXPENSES INCURRED BY THE AS SESSEE ON FURNITURE AND FIXTURE CANNOT BE TREATED AS OF CAPITAL NATURE AND THE SAME SHOULD BE ALLOWED AS DEDUCTION BEING EXPENDITURE OF REVENUE NATURE IN CURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 37. FOR THE REASONS GIVEN ABOVE WE PARTLY ALLOW GR OUND NO. 6 OF THE ASSESSEES APPEAL AND DIRECT THE A.O. TO RECOMPUTE AND RESTRICT THE DISALLOWANCE ON ACCOUNT OF REPAIRS AND MAINTENANCE EXPENSES KEEPING IN VIEW OF OUR OBSERVATIONS/FINDINGS GIVEN ABOVE ON TH IS ISSUE. 38. THE ISSUE RAISED IN GROUND NO. 7 OF THE ASSESSE ES APPEAL RELATES TO THE DISALLOWANCE OF RS. 1 32 265/- MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) U/S 14A R.W.S. RULE 8-D OF INCOME TAX RULES 1962. AT THE TIME OF HEARING BEFORE US THE LD. COUNSEL FOR THE ASSESSEE HAS NOT PRESSED THIS GROUND. THE SAME IS ACCORDINGLY DISMISSED AS NOT P RESSED. 39. THE ISSUES RAISED IN GROUND NO. 8 OF THE ASSESS EES APPEAL FOR A.Y. 2007-08 RELATING TO INTEREST CHARGED U/S 234B AND 2 34C OF THE ACT ARE CONSEQUENTIAL IN NATURE AND THE A.O. IS ACCORDINGLY DIRECTED TO ALLOW CONSEQUENTIAL RELIEF TO THE ASSESSEE ON THESE ISSUE S. 40. NOW WE SHALL TAKE UP THE APPEAL OF THE ASSESSE E FOR A.Y. 2009-10 GROUND NO. 1& 2 OF WHICH INVOLVE THE SIMILAR ISSUES RELATING TO ADDITION OF RS. 1.98 CRORES AND RS. 1 15 62 133/- MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) BY WAY OF CLUBBING THE INCOME IN THE HANDS O F THE ASSESSEE RELYING ON THE PROVISIONS OF SECTION 60 TO 63 OF THE ACT. 41. DURING THE COURSE OF ASSESSMENT PROCEEDING THE A.O. FOUND THAT THE ASSESSEE COMPANY WAS A PARTNER IN TWO FIRMS NAMELY M/S SEA PRINCESS INVESTMENT AND M/S SEA PRINCESS REALTY. HE ALSO FO UND THAT M/S SEA PRINCESS INVESTMENT WAS ENGAGED IN THE BUSINESS OF FINANCING AND HAD ITA 2286/M/13 & 2466/M/13 29 RECEIVED INCOME ONLY FROM INTEREST OF RS. 1 98 84 8 51/- ON THE FIXED DEPOSIT AND LOANS GIVEN. THE SAID FIRM HAD TWO MORE PARTNE RS BESIDES THE ASSESSEE COMPANY NAMELY (1) NEETA GUNDECHA AND (2) MEENA GUN DECHA HAVING PROFITS SHARE OF 33% EACH. THE SAID TWO PARTNERS THUS HAD A LMOST EQUAL SHARE OF PROFIT WITH THAT OF ASSESSEE COMPANY WHICH WAS HAVI NG 34% PROFIT SHARE. AS FOUND BY THE A.O. THE ENTIRE CAPITAL OF THE SAID F IRM HOWEVER WAS EFFECTIVELY CONTRIBUTED BY THE ASSESSEE COMPANY BUT INTEREST IN COME EARNED WAS ENJOYED BY THE OTHER TWO PARTNERS IN EQUAL RATIO WITHOUT CO NTRIBUTING ANY CAPITAL OR WITHOUT DOING ANY BUSINESS ACTIVITY. HE HELD THAT THE ASSESSEE COMPANY THUS WAS USING THE TOOL OF PARTNERSHIP BASICALLY TO AVOI D ACCUMULATION OF PROFITS IN ITS HANDS AND ACCORDINGLY INVOKING THE PROVISIONS O F SECTION 60 TO 63 OF THE ACT THE INTEREST INCOME OF RS. 1.98 CRORES RECEIVE D BY THE FIRM OF SEA PRINCESS INVESTMENT ON TRANSFER OF FUNDS BY THE ASSESSEE COM PANY WAS CLUBBED BY HIM IN THE HANDS OF THE ASSESSEE. SIMILARLY HE FOUND T HAT THE PROFIT SHARE OF THE ASSESSEE COMPANY IN OTHER PARTNERSHIP FIRM OF M/S S EA PRINCESS REALTY WAS ONLY 19% WHILE THE CAPITAL CONTRIBUTED BY IT WAS 90 % OF THE TOTAL CAPITAL OF THE SAID FIRM. HE ACCORDINGLY INVOKED THE PROVISIO NS OF SECTION 60 TO 63 OF THE ACT AND CLUBBED THE INTEREST INCOME OF RS. 1 28 46 814/- EARNED BY THE FIRM OF SEA PRINCESS REALTY WITH THE INCOME OF THE ASSES SEE COMPANY. ON APPEAL THE LD. CIT(A) UPHELD THE ACTION OF THE A.O. ON THE SE ISSUES FOR THE FOLLOWING REASONS GIVEN IN PARA 1.4.1 TO 1.4.6 OF HIS IMPUGNE D ORDER:- 1.4.1 THE APPELLANT COMPANY HAS TRANSFERRED ASSETS TO SEA PRINCESS INVESTMENT & M/S SEA PRINCES REALTY AND BY THIS ARR ANGEMENT THE ASSESSEE COMPANY HAS TRANSFERRED INCOME OF THE ASSE T TO MS NEETA GUNDECHA AND MS VEENA GUNDECHA AND FAMILY MEMBERS O F THE PROMOTERS OF THE COMPANY. 1.4.2 THE TRANSFER OF FUND BY THE APPELLANT COMPANY TO THE FIRMS ARE REVOCABLE AS THE APPELLANT COMPANY HAS RIGHT TO WIT HDRAW THE FUNDS. 1.4.3. THE WORDS REVOCABLE AND TRANSFER IN SECT ION 61 HAS TO BE GIVEN EXTENDED MEANING ASCRIBED TO THEM BY CLAUSES (A) & (B) OF SECTION 61 WHERE THE WORD TRANSFER INCLUDES ARRANGEMENT. 1.4.4 AS THE APPELLANT HAS MADE A REVOCABLE TRANSFE R OF ASSETS THE INCOME CHARGEABLE TO INCOME-TAX ARISING FROM SUCH I NCOME IS REQUIRED TO BE INCLUDED IN THE TOTAL INCOME OF THE APPELLANT . ITA 2286/M/13 & 2466/M/13 30 1.4.5 THE APPELLANTS ARGUMENT THAT THE FORMS ARE N OT DUMMY OR DORMANT ORGANIZATION IS FOUND TO BE FACTUALLY INCOR RECT. M/S SEA PRINCES INVESTMENT DOES NOT DO ANY BUSINESS BUT EAR NS ONLY INTEREST INCOME FROM THE ASSETS TRANSFERRED BY THE APPELLANT COMPANY AND CONSIDERING PRESENT YEARS PROFIT THE EFFECTIVE CAP ITAL OF MS NEETA AND MS VEENA IS NEGATIVE. THE APPELLANT COMPANY HAS CO NTRIBUTED 85% OF CAPITALS IN M/S SEA PRINCES REALTY AND ITS SHARE IS ONLY 19% AND THE INCOME OF THE FIRM GENERATED OUT OF THE REVOCABLE T RANSFER OF ASSETS WOULD OTHERWISE BE SHARED BY: OTHER PARTNERS ADDING 81% OF SHAREHOLDING EVEN THOUGH HARDLY CONTRIBUTING ANY CA PITAL. 1.4.6 THE APPELLANTS ARGUMENT THAT THE INCOME HAS BEEN TAXED IN THE HANDS OF THE FIRM THEREFORE THE INCOME SHOULD NOT BE DOUBLES TAXED IS NOT VALID IN CASE OF SPECIAL PROVISIONS OF THE INCO ME TAX ACT RELATING TO MEASURES TO CURB AVOIDANCE OF TAX LIKE CHAPTER V OF THE INCOME TAX AC. THE APPELLANT IS NOT EXPECTED TO INDULGE IN PRACTIC ES TO AVOID PAYMENT OF TAX AND THE SPECIAL PROVISIONS OF ACT LIKE SECTI ON 60 61 & 64 IS TO BE INTERPRETED STRICTLY. 42. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE PROVISIONS OF SECTION 60 TO 63 OF THE ACT ARE APPLICABLE WHEN THE RE IS A TRANSFER OF ASSET EITHER REVOCABLE OR NOT. HE CONTENDED THAT THE ASSE SSEE IN THE PRESENT CASE HAD MADE THE INVESTMENT IN THE PARTNERSHIP FIRM BY WAY OF CAPITAL CONTRIBUTION WHICH CANNOT BE TREATED AS A TRANSFER. HE SUBMITTED THAT THE PARTNERSHIP FIRMS ARE GOVERNED BY INDIAN PARTNERSHI P ACT 1932 AND AS PER THE RELEVANT PROVISIONS OF THE SAID ACT THE PROFIT SHARING RATIO OF THE PARTNERS AS WELL AS THE CAPITAL CONTRIBUTION OF EACH PARTNER IS TO BE DETERMINED AS PER THE PARTNERSHIP DEED. HE SUBMITTED THAT AS PER THE RELEVANT PARTNERSHIP DEEDS THE CAPITAL WAS REQUIRED TO BE CONTRIBUTED B Y THE PARTNERS AS PER THE REQUIREMENTS OF THE FIRM AND THERE WAS NO REQUIREME NT THAT THE SAID CAPITAL SHOULD BE IN THE RATIO OF PROFIT SHARING. HE SUBMIT TED THAT BOTH THE PARTNERSHIP FIRMS WERE INDEPENDENT ENTITIES HAVING ACTIVE EXISTENCE AND THE SAME WERE GOVERNED BY RELEVANT PARTNERSHIP DEEDS. H E CONTENDED THAT LEGAL FICTION IS CREATED U/S 60 TO 63 OF THE ACT FOR THE SPECIFIC PURPOSE AND THE SAME CANNOT BE EXTENDED BEYOND SUCH PURPOSE TO TREAT THE CAPITAL CONTRIBUTION BY PARTNERS OF THE FIRM AS TRANSFER. IN SUPPORT OF THI S CONTENTION HE RELIED ON THE DEFINITION OF TRANSFER AND REVOCABLE TRANSFER G IVEN IN SECTION 63 OF THE ACT. HE SUBMITTED THAT THE CAPITAL CONTRIBUTION WAS MADE BY THE ASSESSEE COMPANY AS A PARTNER FOR THE OSTENSIBLE PURPOSE AND THE SAME COULD NOT BE ITA 2286/M/13 & 2466/M/13 31 TREATED AS ANY ARRANGEMENT TO AVOID TAX AS ALLEGED BY THE A.O. HE CONTENDED THAT THE LEGISLATURE HAS PROVIDED A SPECIAL SCHEME OF TAXATION OF FIRMS AND THAT CANNOT BE IGNORED BY THE REVENUE AUTHORITIES. HE SUBMITTED THAT THE INCOME EARNED BY THE RESPECTIVE PARTNERSHIP FIRMS F ROM THE INVESTMENTS MADE OUT OF CAPITAL CONTRIBUTIONS OF THE PARTNERS W AS DULY OFFERED TO TAX AND THE ACTION OF THE AUTHORITIES BELOW IN CLUBBING THE SAID INCOME AGAIN WITH THE INCOME OF THE ASSESSEE COMPANY HAS CLEARLY RESULTED IN DOUBLE TAXATION WHICH IS NOT PERMISSIBLE IN LAW. IN SUPPORT OF THI S CONTENTION HE RELIED INTER ALIA ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF LAXMIPAT SINGHANIA VS. CIT (1969) 71 ITR 291 (SC) AND ITO VS . BACHU LAL KAPOOR (1966) 60 OTR 74 (SC). WITHOUT PREJUDICE TO THIS M AIN SUBMISSIONS THE LD. COUNSEL FOR THE ASSESSEE ALSO CONTENTED ALTERNATIVE LY THAT IF THE PROVISIONS OF SECTION 60 TO 63 OF THE ACT ARE HELD TO BE APPLICAB LE TO CLUB THE INCOME OF THE PARTNERSHIP FIRMS WITH THE INCOME OF THE ASSESSEE CREDIT FOR TAX PAID BY THE SAID PARTNERSHIP FIRMS WHICH ARE ALSO ASSESSED AT M AXIMUM TAX RATE WILL BE GIVEN TO THE ASSESSEE AS PER THE PROVISIONS OF SECT ION 199 READ WITH RULE 36A OF THE INCOME TAX RULES 1962. HE CONTENDED THAT TH ERE MAY NOT BE ANY ADDITIONAL TAX LIABILITY IN SUCH CASE AND THE ALLEG ATION OF THE A.O. THAT THE FIRM HAS BEEN USED BY THE ASSESSEE AS A TOOL TO AVOID TA X IS BASELESS. HE ALSO POINTED OUT THAT THE PARTNERSHIP FIRM OF M/S SEA PR INCESS REALTY HAD MADE INVESTMENT IN VARIOUS LANDS BEFORE THE ASSESSEE COM PANY BECAME PARTNER IN THE SAID FIRM ON 1-4-2006 WHICH CLEARLY SHOWS THAT AS A RESULT OF HUGE CONTRIBUTION OF CAPITAL THE ASSESSEE HAD BECOME EN TITLED TO ENJOY THE BENEFIT OF INCREASE IN THE VALUE OF THE SAID LAND. 43. THE LD. D.R. ON THE OTHER HAND STRONGLY RELIE D ON THE ORDERS OF THE AUTHORITIES BELOW IN SUPPORT OF THE REVENUES CASE AND SUBMITTED THAT THE REASONS GIVEN BY THE LD. CIT(A) IN PARA 1.4.1 TO 1. 4.6 OF HIS IMPUGNED ORDER WHILE UPHOLDING THE ACTION OF THE A.O. ON THIS ISSU E MAY BE TAKEN INTO CONSIDERATION WHILE DECIDING THIS ISSUE. ITA 2286/M/13 & 2466/M/13 32 44. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSER VED THAT THE IMPUGNED ADDITION HAVE BEEN MADE BY THE A.O. AND CONFIRMED B Y THE LD. CIT(A) TO THE TOTAL INCOME OF THE ASSESSEE BY CLUBBING THE INCOME OF TWO PARTNERSHIP FIRMS NAMELY M/S SEA PRINCESS INVESTMENT AND M/S SEA PRIN CESS REALTY BY INVOKING THE PROVISIONS OF SECTION 60 TO 63 OF THE ACT WHICH READ AS UNDER:- 60. TRANSFER OF INCOME WHERE THERE IS NO TRANSFER OF ASSETS.--ALL INCOME ARISING TO ANY PERSON BY VIRTUE OF A TRANSFER WHETH ER REVOCABLE OR NOT AND WHETHER EFFECTED BEFORE OR AFTER THE COMMENCEME NT OF THIS ACT SHALL WHERE THERE IS NO TRANSFER OF THE ASSETS FRO M WHICH THE INCOME ARISES BE CHARGEABLE TO INCOME-TAX AS THE INCOME O F THE TRANSFEROR AND SHALL BE INCLUDED IN HIS TOTAL INCOME. 61. REVOCABLE TRANSFER OF ASSETS.--ALL INCOME ARISI NG TO ANY PERSON BY VIRTUE OF A REVOCABLE TRANSFER OF ASSETS SHALL BE C HARGEABLE TO INCOME- TAX AS THE INCOME OF THE TRANSFEROR AND SHALL BE IN CLUDED IN HIS TOTAL INCOME. 62. TRANSFER IRREVOCABLE FOR A SPECIFIED PERIOD.--( 1) THE PROVISIONS OF SECTION 61 SHALL NOT APPLY TO ANY INCOME ARISING TO ANY PERSON BY VIRTUE OF A TRANSFER-- (I) BY WAY OF TRUST WHICH IS NOT REVOCABLE DURING T HE LIFETIME OF THE BENEFICIARY AND IN THE CASE OF ANY OTHER TRANSFER WHICH IS NOT REVOCABLE DURING THE LIFETIME OF THE TRANSFEREE; OR (II) MADE BEFORE THE FIRST DAY OF APRIL 1961 WHIC H IS NOT REVOCABLE 1 FOR A PERIOD EXCEEDING SIX YEARS: PROVIDED THAT THE TRANSFEROR DERIVES NO DIRECT OR I NDIRECT BENEFIT FROM SUCH INCOME IN EITHER CASE. (2) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SECTI ON (1) ALL INCOME ARISING TO ANY PERSON BY VIRTUE OF ANY SUCH TRANSFE R SHALL BE CHARGEABLE TO INCOME-TAX AS THE INCOME OF THE TRANSFEROR AS AN D WHEN THE POWER TO REVOKE THE TRANSFER ARISES AND SHALL THEN BE INCLU DED IN HIS TOTAL INCOME. 63. 'TRANSFER' AND 'REVOCABLE TRANSFER' DEFINED.--F OR THE PURPOSES OF SECTIONS 60 61 AND 62 AND OF THIS SECTION -- (A) A TRANSFER SHALL BE DEEMED TO BE REVOCABLE IF-- (I) IT CONTAINS ANY PROVISION FOR THE RE-TRANSFER D IRECTLY OR INDIRECTLY OF THE WHOLE OR ANY PART OF THE INCOME OR ASSETS TO TH E TRANSFEROR OR ITA 2286/M/13 & 2466/M/13 33 (II) IT IN ANY WAY GIVES THE TRANSFEROR A RIGHT T O REASSUME POWER DIRECTLY OR INDIRECTLY OVER THE WHOLE OR ANY PART O F THE INCOME OR ASSETS; (B) ' TRANSFER ' INCLUDES ANY SETTLEMENT TRUST CO VENANT AGREEMENT OR ARRANGEMENT. 45. IT IS MANIFEST FROM THE ABOVE PROVISIONS THAT I F THERE IS ANY TRANSFER WHETHER REVOCABLE OR NOT THE INCOME ARISING TO ANY PERSON FROM SUCH ASSETS SHALL BE CHARGEABLE TO TAX AS THE INCOME OF THE TRA NSFEROR AND SHALL BE INCLUDED IN HIS TOTAL INCOME. THE TERMS TRANSFER AND REVOCABLE TRANSFER FOR THE PURPOSES OF SECTION 60 TO 62 ARE DEFINED IN SEC TION 63 WHICH PROVIDES THAT A TRANSFER SHALL BE DEEMED TO BE REVOCABLE IF IT CO NTAINS ANY PROVISION FOR THE RE-TRANSFER DIRECTLY OR INDIRECTLY OF THE WHOLE OR IN PART OF THE INCOME OR ASSETS TO THE TRANSFEROR OR IT IN ANY WAY GIVES THE TRANSF EROR A RIGHT TO RE-ASSUME POWER DIRECTLY OR INDIRECTLY OVER THE WHOLE OR ANY PART OF THE INCOME OR ASSETS. THE TRANSFER INCLUDES ANY SETTLEMENT TRUST COVENA NT AGREEMENT OR ARRANGEMENT. THE DEFINITION GIVEN ON SECTION 63(B) THUS INCLUDES ANY SETTLEMENT TRUST COVENANT AGREEMENT OR ARRANGEME NT WHEREBY THERE IS A TRANSFER OF AN ASSET. AS RIGHTLY CONTENDED BY THE L D. COUNSEL FOR THE ASSESSEE THERE WAS HOWEVER NO SUCH TRANSFER BY WAY OF ANY SETTLEMENT TRUST COVENANT AGREEMENT OR ARRANGEMENT AND IT WAS A CASE OF CONTRIBUTION OF CAPITAL MADE BY THE ASSESSEE COMPANY IN THE PARTNER SHIP FIRMS IN THE CAPACITY OF A PARTNER WHICH DID NOT RESULT ON ANY S UCH TRANSFER. THE DEFINITION OF REVOCABLE TRANSFER GIVEN IN SECTION 63(A) OF THE ACT ON THE OTHER HAND ENVISAGES THAT THERE SHOULD BE A TRANSFER FIRST AS THE SAME TALK ABOUT CONDITION INVOLVING RE-TRANSFER OF ANY PART OF THE INCOME OR ASSETS TO THE TRANSFEROR. IN THE PRESENT CASE INVOLVING CONTRIBUT ION OF CAPITAL BY THE PARTNER OF THE FIRM THERE IS NO TRANSFER AS SUCH AND THERE FORE THE QUESTION OF RE- TRANSFER DIRECTLY OR INDIRECTLY OF THE WHOLE OR PAR T OF THE INCOME OR ASSETS TO THE TRANSFEROR DOES NOT ARISE. THE CAPITAL REMAINS THE LIABILITY OF THE PARTNERSHIP FIRM AND THE SAME IS PAYABLE AS SUCH TO THE PARTNERS. THE PARTNER IS ALWAYS ENTITLED TO RECEIVE BACK HIS CAPI TAL FROM THE PARTNERSHIP FIRM AND THE QUESTION OF RIGHT TO REASSUME THE POWER OF THE WHOLE OR ANY PART OF THE INCOME OR ASSETS DOES NOT ARISE. ITA 2286/M/13 & 2466/M/13 34 46. AS RIGHTLY CONTENDED BY THE LD. COUNSEL FOR THE ASSESSEE THE SHARE OF PROFIT OF THE PARTNERS AND THE CAPITAL CONTRIBUTION MADE BY THEM ARE GOVERNED BY THE PARTNERSHIP ACT WHICH PROVIDES THAT THE SAME ARE TO BE DECIDED BY AND BETWEEN THE PARTNERS. THESE ASPECTS ARE DECIDED BY THE PARTNERS AS PER THE PARTNERSHIP DEED ENTERED INTO BY BETWEEN THEM AND I T IS NOT NECESSARY THAT THE CAPITAL CONTRIBUTION OF THE PARTNERS SHOULD ALW AYS BE IN THE RATIO OF THEIR SHARE OF PROFIT. AS POINTED OUT BY THE LD. COUNSEL FOR THE ASSESSEE THE CAPITAL CONTRIBUTION IN THE CASE OF TWO RELEVANT PARTNERSHI P FIRMS WAS TO BE MADE BY THE PARTNERS AS MAY BE REQUIRED BY THE PARTNERSHIP FIRM FROM TIME TO TIME AND THERE WAS NO SUCH AGREEMENT BETWEEN THE PARTNER S THAT THE SAME SHOULD ALWAYS BE IN THE PROFIT SHARING RATIO OF THE CONCER NED PARTNERS. THE SAID TWO PARTNERSHIP FIRMS WERE INDEPENDENT ENTITIES UNDER T HE INCOME TAX ACT CHARGEABLE TO TAX AND THE ENTIRE INCOME RECEIVED BY THEM WAS ALREADY SUBJECTED TO TAX IN THEIR HANDS. IN SUCH CIRCUMSTAN CES CLUBBING THEIR INCOME IN THE HANDS OF THE ASSESSEE COMPANY AND CHARGING T HE TAX AGAIN AMOUNTED TO DOUBLE ADDITION WHICH IN OUR OPINION IS NOT PE RMISSIBLE IN LAW AS RIGHTLY CONTENDED BY THE LD. COUNSEL FOR THE ASSESSEE RELYI NG INTER ALIA ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF LA XMIPAT SINGHANIA (SUPRA) AND IN THE CASE OF BACHU LAL KAPOOR (SUPRA). MOREOV ER WHEN THE SAID INCOME WAS SUBJECTED TO TAX IN THE HANDS OF THE PARTNERSHI P FIRMS AT THE MAXIMUM MARGINAL RATES IT CANNOT BE SAID BY ANY STRETCH OF IMAGINATION THAT THERE WAS ANY ARRANGEMENT MADE BY THE ASSESSEE TO USE THE PAR TNERSHIP FIRMS AS A TOOL TO AVOID TAX AS ALLEGED BY THE A.O. FURTHERMORE T HE FACT THAT THE PARTNERSHIP FIRM OF M/S SEA PRINCESS REALTY HAD ALREADY MADE IN VESTMENT IN VARIOUS LANDS DURING THE COURSE OF ITS BUSINESS BEFORE THE ASSESSEE COMPANY BECAME PARTNER THEREOF ON 1-4-2006 AND THEREBY BECAME ENTI TLED TO ENJOY THE BENEFIT OF INCREASED VALUE OF THE SAID LAND AS A RESULT OF CONTRIBUTION OF ITS CAPITAL ESTABLISHES THAT THE CAPITAL CONTRIBUTION WAS NOT M ADE BY THE ASSESSEE FIRM TO USE THE PARTNERSHIP FIRMS AS TOOL TO AVOID TAX. IN OUR OPINION THE CAPITAL WAS CONTRIBUTED BY THE PARTNERS AS PER THE REQUIREMENT OF THE FIRM AS DECIDED FROM TIME TO TIME KEEPING IN VIEW THE DIFFERENT BUS INESS CONSIDERATIONS AND ITA 2286/M/13 & 2466/M/13 35 THIS WAS ONE OF SUCH CONSIDERATIONS FOR THE ASSESSE E COMPANY TO MAKE SUBSTANTIAL CONTRIBUTION IN THE PARTNERSHIP FIRM OF M/S SEA PRINCESS REALTY. 47. KEEPING IN VIEW THE CONCEPT OF THE PARTNERSHIP FIRM AS GOVERNED BY THE PARTNERSHIP ACT AS WELL AS THE SCHEME OF TAXATION O F THE PARTNERSHIP FIRMS WHICH ARE RECOGNIZED AS SEPARATE ENTITIES FOR INCOM E TAX PURPOSE AND HAVING REGARD TO THE TAXATION PURPOSE WE ARE OF THE VIEW THAT THE PROVISIONS OF SECTION 60 TO 63 OF THE ACT CANNOT BE APPLIED TO CL UB THE INCOME OF TWO PARTNERSHIP FIRMS NAMELY M/S SEA PRINCESS INVESTMEN T AND M/S SEA PRINCESS REALTY WITH THE INCOME OF THE ASSESSEE AND THE LD. CIT(A) IN OUR OPINION WAS NOT JUSTIFIED IN UPHOLDING THE ACTION OF THE A.O. I N CLUBBING THE INCOME OF THE SAID TWO PARTNERSHIP FIRMS IN THE HANDS OF THE ASSE SSEE BY INVOKING THE SAID PROVISIONS. IN THAT VIEW OF THE MATTER WE DELETE T HE ADDITIONS MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) TO THE TOTAL I NCOME OF THE ASSESSEE BY CLUBBING THE INCOME OF TWO PARTNERSHIP FIRMS WITH T HE INCOME OF THE ASSESSEE AND ALLOW GROUND NO. 1 & 2 OF ASSESSEES APPEAL FOR A.Y.2009-10. 48. THE ISSUE RAISED IN GROUND NO. 3 RELATES TO THE DISALLOWANCE OF RS. 1 05 31 756/- MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) BY TREATING THE REPAIRS AND MAINTENANCE EXPENDITURE CLAIMED BY THE ASSESSEE AS OF CAPITAL NATURE. 49. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERV ED THAT CERTAIN ITEMS OF EXPENSES CLAIMED BY THE ASSESSEE UNDER THE HEAD RE PAIRS AND MAINTENANCE WERE DISALLOWED BY THE A.O. TREATING THE SAME AS OF CAPITAL NATURE ON EXAMINATION OF THE DETAILS FILED BY THE ASSESSEE AS WELL AS THE CORRESPONDING BILLS PRODUCED IN SUPPORT. THE DETAILS OF THESE IT EMS DISALLOWED BY THE A.O. ARE GIVEN ON PAGE 3 OF THE ASSESSMENT ORDER WHICH O NLY GIVE NAME OF THE PARTIES BILL NUMBERS AND AMOUNTS. NO FURTHER DETA ILS ARE GIVEN BY THE A.O. TO INDICATE THE NATURE OF EXPENSES OR EVEN THE PURP OSE FOR WHICH THEY WERE INCURRED. HE HAS ALSO NOT GIVEN ANY BASIS WHATSOEVE R TO TREAT THE SAID ITA 2286/M/13 & 2466/M/13 36 EXPENDITURE AS OF CAPITAL NATURE. THE LD. CIT(A) HA S ALSO NOT THROWN ANY LIGHT ON THIS IMPORTANT ASPECT AND HAS MERELY CONFIRMED T HE DISALLOWANCE MADE BY THE A.O. ON THIS ISSUE BY PASSING A VERY CRYPTIC OR DER. AT THE TIME OF HEARING BEFORE US THE LD. COUNSEL FOR THE ASSESSEE HAS FUR NISHED THE RELEVANT DETAILS OF THE IMPUGNED EXPENDITURE AT PAGE NO. 215 TO 218 OF THE PAPER BOOK GIVING NATURE THEREOF AS WELL AS PURPOSE FOR WHICH THE SAM E WAS INCURRED. IN A.Y. 2007-08 A SIMILAR ISSUE WAS INVOLVED RELATING TO D ISALLOWANCE OF REPAIRS AND MAINTENANCE AND BASED ON THE DETAILS FURNISHED BY T HE LD. COUNSEL FOR THE ASSESSEE THE SAME HAS ALREADY BEEN DECIDED BY US I N THE FOREGOING PORTION OF THIS ORDER AFTER GIVING OUR FINDINGS/OBSERVATION. A PERUSAL OF THE DETAILS FURNISHED BY THE LD. COUNSEL FOR THE ASSESSEE SHOWS THAT GOING BY THE NATURE AND PURPOSE OF THE IMPUGNED EXPENDITURE THE SAME I S REVENUE EXPENDITURE AS IT DOES NOT RESULT IN BRINGING INTO EXISTENCE AN Y NEW ASSET OR ADVANTAGE OF ENDURING NATURE IN THE CAPITAL FIELD. HOWEVER KEE PING IN VIEW THAT THERE IS NO FINDING RECORDED EITHER BY THE A.O. OR THE LD. CIT( A) SPECIFICALLY ON THIS ASPECT WE FIND IT JUST AND PROPER TO RESTORE THIS ISSUE TO THE FILE OF THE A.O. TO DECIDE THE SAME AFRESH AFTER VERIFYING THE NATURE AND PURP OSE OF THE 8IMPUGNED EXPENDITURE. THE LD. COUNSEL FOR THE ASSESSEE HAS A LSO BROUGHT TO OUR NOTICE CERTAIN FACTUAL MISTAKES MADE BY THE A.O. WHILE DET ERMINING THE QUANTUM OF DISALLOWANCE. THE A.O. IS THEREFORE DIRECTED TO CON SIDER THE SAME. THIS ISSUE IS ACCORDINGLY RESTORED TO THE FILE OF THE A.O. FOR DECIDING THE SAME AFRESH AFTER GIVING THE ASSESSEE SUFFICIENT OPPORTUNITY OF BEING HEARD. GROUND NO. 3 OF ASSESSEES APPEAL IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSE. 50. GROUND NO. 4 RAISED BY THE ASSESSEE INVOLVING T HE ISSUE RELATING TO THE ADDITION OF RS. 3 79 424/- MADE BY THE A.O. U/S 40( A)(IA) OF THE ACT AND CONFIRMED BY THE LD. CIT(A) HAS NOT BEEN PRESSED BY THE LD. COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING BEFORE US. THE SAM E IS DISMISSED AS NOT PRESSED. 51. THE ISSUES RAISED BY THE ASSESSEE IN GROUND NO. 5 RELATING TO INTEREST CHARGED U/S 234A 234B AND 234C ARE CONSEQUENTIAL A ND THE A.O. IS ITA 2286/M/13 & 2466/M/13 37 ACCORDINGLY DIRECTED TO ALLOW CONSEQUENTIAL RELIEF TO THE ASSESSEE ON THESE ISSUES. 52. IN THE RESULT BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH OCTOBER 2013. . '5 1 34 6'+7 09-10-2013 4 1 SD/- SD/- (DR. S.T.M. PAVALAN) (P.M. JAGTAP ) ( !'# JUDICIAL MEMBER !'# / ACCOUNTANT MEMBER MUMBAI ; 6'+ DATED 09-10-2013. $.(+.!./ RK SR. PS '5 1 /(8% 9% '5 1 /(8% 9% '5 1 /(8% 9% '5 1 /(8% 9% / COPY OF THE ORDER FORWARDED TO : 1. -. / THE APPELLANT 2. /0-. / THE RESPONDENT. 3. : () / THE CIT(A)- 30 MUMBAI 4. : / CIT CITY 19 MUMBAI 5. %$= /((+ / DR ITAT MUMBAI I BENCH 6. >& ? / GUARD FILE. '5+! '5+! '5+! '5+! / BY ORDER !0% /( //TRUE COPY// @ @ @ @/ // /!A !A !A !A ( DY./ASSTT. REGISTRAR) / ITAT MUMBAI