LIPI DATA SYSTEMS LTD, MUMBAI v. ADDL CIT RG 3(2), MUMBAI

ITA 7084/MUM/2008 | 2004-2005
Pronouncement Date: 21-09-2011 | Result: Partly Allowed

Appeal Details

RSA Number 708419914 RSA 2008
Assessee PAN AAACL0916F
Bench Mumbai
Appeal Number ITA 7084/MUM/2008
Duration Of Justice 2 year(s) 9 month(s) 9 day(s)
Appellant LIPI DATA SYSTEMS LTD, MUMBAI
Respondent ADDL CIT RG 3(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 21-09-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 21-09-2011
Date Of Final Hearing 12-09-2011
Next Hearing Date 12-09-2011
Assessment Year 2004-2005
Appeal Filed On 12-12-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH MUMBAI BEFORE SHRI R.V. EASWAR PRESIDENT AND SHRI RAJENDRA SINGH (AM) ITA NO. 7084/M/2008 ASSESSMENT YEAR:2004-2005 LIPI DATA SYSTEMS LTD. 1 MITTAL CHAMBERS NARIMON POINT MUMBAI 400 021. PAN: AAACL0916F THE ADDL. COMMISSIONER OF INCOME TAX RANGE 3(2) R.NO.605 AAYAKAR BHAVAN M.K. ROAD MUMBAI 400 020. (APPELLANT) (RESPONDENT) ASSESSEE BY: REVENUE BY: SHRI S.G. DANDAWATE SHRI P.K.B. MENON DATE OF HEARING: DATE OF PRONOUNCEMENT: 12-09-2011 21-09-2011 O R D E R PER RAJENDRA SINGH (AM): THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 10.9.2008 OF CIT (A) FOR THE ASSESSMENT YEAR 2004-05. THE ASSES SEE IN THIS APPEAL HAS RAISED DISPUTES ON TWO DIFFERENT GROUNDS. 2. THE FIRST DISPUTE IS REGARDING ALLOWABILITY OF D EDUCTION ON ACCOUNT OF INTEREST PAID BY THE ASSESSEE ON THE BARROWINGS FOR ACQUISIT ION OF RESIDENTIAL HOUSE FOR THE MANAGING DIRECTOR. THE ASSESSEE HAD PURCHASED A F LAT NO.205 SAMUDRA MAHAL SITUATED AT DR. ANNI BESANT ROAD WORLI MUMBAI FO R A SUM OF RS. 4.72 CRORES ON 31.10.2002 FOR THE PURPOSE OF PROVIDING RESIDENTIAL ACCOMMODATION TO THE CMD OF THE ASSESSEE COMPANY. THE FLAT HAD BEEN PURCHASED FROM THE BARROWED FUNDS ON WHICH INTEREST OF RS. 23 02 032/- HAD BEEN PAID FOR THE RELEVANT YEAR. THE ITA 7084/M/2008 LIPI DATA SYSTEMS LTD. 2 ASSESSEE THEREFORE CLAIMED DEDUCTION OF THE SAID AMOUNT. WHILE COMPUTING THE BUSINESS INCOME THE AO NOTED THAT THE SAME ISSUE H AD ARISEN IN THE ASSESSMENT YEAR 2003-04 IN WHICH YEAR ALSO THE ASSESSEE HAD CL AIMED DEDUCTION ON ACCOUNT OF INTEREST AND DEPRECIATION. THE ASSESSEE HAD CLAIME D THAT FLAT HAD BEEN PROVIDED TO THE CMD W.E.F. 15.08.2003 AND PRIOR TO THAT IT HAD BEEN USED FOR TRANSIT ACCOMMODATION FOR THE EMPLOYEES. HOWEVER THE CLAI MS HAD BEEN DISALLOWED BY THE AO IN THAT YEAR AS THE FLAT WAS NOT READY FOR U SE. THE ASSESSING OFFICER THEREFORE DISALLOWED THE CLAIM OF INTEREST THIS YE AR ALSO. IN APPEAL CIT (A) HELD THAT THE INTEREST PAID FOR THE PERIOD FOR WHICH THE ASSET WAS NOT IN ACTUAL USE HAS TO BE CAPITALIZED AND THEREFORE DIRECTED THE AO TO CAPITALIZE THE INTEREST FOR THE PERIOD UP TO 15.8.2003 AND ALLOW THE INTEREST FOR T HE REMAINING PERIOD AS THE REVENUE EXPENDITURE. AGGRIEVED BY THE SAID DECISIO N THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3. WE HAVE HEARD BOTH THE PARTIES IN THE MATTER. T HE LEARNED AR FOR THE ASSESSEE POINTED OUT THAT THE ISSUE WAS COVERED BY THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE IN THE ASSESSMENT YEAR 2003-04 IN ITA NO. 6616/M/2006 IN WHICH THE TRIBUNAL ALLOWED THE CLAIM OF INTEREST. WE HAVE PERUSED THE SAID ORDER OF THE TRIBUNAL IN WHICH THE TRIBUNAL HELD THAT THE FLAT PURCHASED WAS THE BUSINESS ASSET TO BE USED FOR THE PURPOSE OF BUSINESS AND TH EREFORE INTEREST PAID ON THE LOANS TAKEN FOR PURCHASE OF BUSINESS ASSET WAS ALLO WABLE AS DEDUCTION. THE TRIBUNAL ACCORDINGLY ALLOWED THE CLAIM OF DEDUCTION ON ACCOUNT OF INTEREST. FACTS OF THIS YEAR ARE IDENTICAL AND THEREFORE RESPECTFU LLY FOLLOWING THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2003-04 (SUPRA) WE SET ASIDE THE ORDER OF THE CIT (A) ON THIS POINT AND ALLOWED THE CLAIM OF THE ASSESSEE IN REGARD TO INTEREST. ITA 7084/M/2008 LIPI DATA SYSTEMS LTD. 3 4. THE SECOND DISPUTE IS REGARDING THE DISALLOWANCE OF A SUM OF RS. 28 06 350/- CLAIMED BY THE ASSESSEE ON ACCOUNT OF R EPAIR OF THE FLAT NO.205 SAMUDRA MAHAL TO BE USED AS RESIDENTIAL ACCOMMODAT ION FOR THE CMD. THE AO NOTED THAT THE ASSESSEE HAD CLAIMED SUBSTANTIAL EXP ENDITURE ON ACCOUNT OF REPAIR OF THE FLAT AS PER THE DETAILS GIVEN BELOW:- I. BUILDING REPAIR - RS. 22 48 694/- II. ELECTRICAL REPAIR - RS. 4 25 676/- III. FURNITURE AND FIXTURES - RS. 1 39 918/- 4.1. THE ASSESSEE SUBMITTED THAT AFTER TAKING OVER THE POSSESSION OF THE FLAT MINOR REPAIRS WERE CARRIED OUT WHICH WERE CLAIMED A S DEDUCTION. EXPENDITURE ON REPAIR DID NOT BRING IN ANY NEW ASSET OR ANY BENEFI T OF ENDURING NATURE. THE FLAT PURCHASED WAS A SECOND HAND FLAT WHICH REQUIRED REP AIR AND RENOVATION WHICH WAS CARRIED OUT TO MAKE IT FIT FOR OCCUPATION OF THE CM D AND THEREFORE THE EXPENDITURE SHOULD BE ALLOWED. THE AO HOWEVER DID NOT ACCEPT ED THE CONTENTIONS RAISED AND IT WAS OBSERVED BY HIM THAT THE REPAIR WORK DONE WA S IN CONTINUATION OF THE REPAIR CARRIED OUT IN THE EARLIER PERIOD WHICH WAS CAPITAL IZED BY THE ASSESSEE. THEREFORE THE AO HELD THAT EXPENSES INCURRED PRIOR TO THE DAT E OF POSSESSION BY THE CMD I.E 15.8.2003 HAD TO BE TREATED AS CAPITAL EXPENDITURE. HE ACCORDINGLY CAPITALIZED THE EXPENDITURE AND ALLOWED THE DEPRECIATION ON THE SAM E. IN APPEAL THE CIT (A) AGREED WITH THE FINDING OF THE AO THAT THE REPAIR E XPENSES WERE IN CONTINUATION OF THE REPAIR WORK DONE IN THE EARLIER YEAR WHICH WAS OBVIOUSLY TO GIVE A NEW LOOK TO THE FLAT TO MAKE IT FIT FOR OCCUPATION BY THE CMD. FURTHER THE ASSESSEE COULD NOT BRING OUT ANY DISTINCTION BETWEEN THE REPAIR DONE I N THE EARLIER YEAR AND THIS YEAR. HE THEREFORE CONFIRMED THE ORDER OF THE AO IN TRE ATING THE EXPENDITURE AS CAPITAL EXPENDITURE. AGGRIEVED BY THE SAID DECISION THE A SSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. ITA 7084/M/2008 LIPI DATA SYSTEMS LTD. 4 4.2. BEFORE US THE LEARNED AR FOR THE ASSESSEE REI TERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES THAT THE FLAT WAS A SE COND HAND FLAT WHICH REQUIRED SUBSTANTIAL REPAIR WHICH SHOULD BE ALLOWED AS THE F LAT WAS A BUSINESS ASSET. IT WAS ALSO POINTED OUT THAT THE FURNITURE WERE OLD AND US ED ITEMS WHICH HAD BEEN REPAIRED AND SIMILARLY THE ELECTRICAL REPAIR CONSIS TED OF REPLACEMENT OF OLD PARTS. THE EXPENDITURE WAS THEREFORE OF THE NATURE OF TH E REPAIR TO THE BUILDING WHICH SHOULD BE ALLOWED. THE LEARNED DR ON THE OTHER HAN D STRONGLY SUPPORTED THE ORDER OF THE LOWER AUTHORITIES BELOW. IT WAS POINT ED OUT THAT THERE WAS NO MATERIAL ON THE RECORD TO SHOW THAT THE FURNITURE AND FIXTUR ES ETC. WERE OLD AND USED ITEMS. MOREOVER IT WAS FURTHER SUBMITTED THAT SI MILAR EXPENDITURE IN THE EARLIER YEAR HAD BEEN CAPITALIZED BY THE ASSESSEE AND THERE FORE TREATMENT GIVEN BY THE AO THIS YEAR HAS TO BE ACCEPTED. 4.3. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING ALLOWABILITY OF EXPENDITUR E CLAIMED ON REPAIR OF THE FLAT PURCHASED BY THE ASSESSEE FOR THE PURPOSE OF RESIDE NCE OF THE CMD. THE ASSESSEE HAD PURCHASED THE FLAT IN THE EARLIER YEAR AND SUBS TANTIAL REPAIR WORK HAD BEEN DONE IN THE EARLIER YEAR ALSO WHICH THE ASSESSEE IT SELF HAD CAPITALIZED. THE FLAT WAS OCCUPIED BY THE CMD ONLY FROM 15.8.2003. OBVIOUSLY THE FLAT PURCHASED WAS NOT FIT FOR THE OCCUPATION BY THE CMD AND SUBSTANTIAL E XPENDITURE HAD TO BE INCURRED ON RENOVATION OF THE FLAT. THE ASSESSEE HAD CLAIME D THAT IN THE EARLIER PERIOD THE FLAT HAD BEEN USED AS A TRANSIT ACCOMMODATION FOR T HE STAFF BUT THIS CLAIM WAS NOT SUPPORTED BY ANY EVIDENCE. IN FACT IN THE ASSESSME NT YEAR 2003-04 SUCH CLAIM MADE BY THE ASSESSEE HAD NOT BEEN ACCEPTED BY THE T RIBUNAL IN THE ORDER DATED 23.12.2008 IN ITA NO.6616/M/2006. THE FLAT WAS A N EWLY ACQUIRED CAPITAL ASSET AND THEREFORE ANY EXPENDITURE INCURRED TO MAKE IT FIT FOR USE PRIOR TO THE ACTUAL USE HAS TO BE TREATED AS CAPITAL EXPENDITURE. IN F ACT SIMILAR EXPENDITURE INCURRED ITA 7084/M/2008 LIPI DATA SYSTEMS LTD. 5 BY THE ASSESSEE IN THE EARLIER YEAR HAS BEEN CAPITA LIZED BY THE ASSESSEE ITSELF. WE THEREFORE SEE NO INFIRMITY IN THE ORDER OF THE LOWER AUTHORITIES TREATING THE EXPENDITURE AS CAPITAL EXPENDITURE. THE ORDER OF T HE CIT (A) IS THEREFORE UPHELD. 5. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALL OWED PARTLY. THE ORDER WAS PRONOUNCED IN OPEN COURT ON 21 ST SEPTEMBER 2011 SD/- SD/- (R.V. EASWAR) (RAJENDRA SINGH) PRESIDENT ACCOUNTANT MEMBER DATE :21-09-2011 AT :MUMBAI OKK COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) MUMBAI CONCERNED 4. THE CIT MUMBAI CITY CONCERNED 5. THE DR A BENCH ITAT MUMBAI // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI