Income Tax Appellate Tribunal - Ahmedabad
Express Hotels Pvt. Ltd.,, Baroda vs Dy.Cit., Circle-1(2),, Baroda on 22 March, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "C" BENCH AHMEDABAD
BEFORE, SHRI S. S. GODARA, JUDICIAL MEMBER
AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER
ITA No.102/Ahd/2013
(Assessment Year:2008-09)
Express Hotels Pvt. Ltd.
R. C. Dutt Road, Alkapuri, Vadodara Appellant
Vs.
Dy. Commissioner of Income Tax,
Circle - 1(2),
Income Tax Department, Aayakar
Bhavan, Race Course Circle, Vadodara-7 Respondent
PAN: AAACE4316L
आवेदक क ओर से/By Assessee : Shri M. K. Patel, A.R.
राज व क ओर से/By Revenue : Shri Pradeep Kumar Majmudar,
Sr. D.R.
सन
ु वाई क तार ख/Date of Hearing : 21.03.2017
घोषणा क तार ख/Date of
Pronouncement : 22.03.2017
ORDER
PER S. S. GODARA, JUDICIAL MEMBER
This assessee's appeal for assessment year 2008-09 emanates against the CIT(A)-I, Baroda's order dated 07.06.2011, passed in appeal no.CAB- I/101/10-11, partly upholding Assessing Officer's action disallowing 100% ITA No. 102/Ahd/2013 [ Express Hotels P. Ltd. vs. DCIT] A.Y. 2008-09 -2- of repairs & maintenance expenditure of buildings and plant & machinery to the tune of Rs.69,43,468/- & Rs.45,00,394/- to that of 90% and 80%; respectively, in proceedings u/s.143(3) of the Income Tax Act, 1961; in short "the Act".
2. It is evident at the outset that the assessee's instant appeal suffers from delay in filing of 491days. It has also filed a condonation petition. It emerges that the assessee had earlier filed ITA No.1979/Ahd/2011 against the very lower appellate order. The department conducted a survey in assessee's case on 12 & 13th December, 2011 during pendency of its abovestated appeal. The assessee's authorized person Shri Hiren A. Gandhi got recorded his statement accepting that 35% amount of repairs alike the one in hand pertaining to building plant and machinery over the period of five years from financial year 2007-08 relevant to the impugned assessment year could be considered to the Revenue expenditure and balance 65% as capital expenditure. The assessee then withdrew its abovestated appeal. It thereafter chose to file Section 264 revision petition. Learned CIT-I, Baroda passed his order on 21.12.2012 that the above petition was hit by bar of jurisdiction u/s.264(4)(c) of the Act. Since the CIT(A) had already dealt with the issue. The assessee then withdrew the said petition as well on 21.12.2012 once again coming back to this tribunal by way of the instant appeal. All this has caused a delay of 491 days in question. The Revenue is fair enough in not disputing above solemn averments. We therefore are of the view that the assessee has been able to prove all its bonafides so as to get the impugned delay condoned as it was pursuing its remedy before other forums. The fact also remains that its former appeal had also not been adjudicated on merits. We thus condone the impugned delay of 491 days. The assessee's condonation petition is accepted.
ITA No. 102/Ahd/2013 [ Express Hotels P. Ltd. vs. DCIT]A.Y. 2008-09 -3- 3. We now advert to merits of the issue. The assessee is in hotel
business. It claimed repairs to hotel building by way of various fittings and decorations to the tune of Rs.69,43,468/- along with that of plant and machinery of Rs.45,00,394/- pertaining to refrigeration, air conditioners and other items. The Assessing Officer disallowed the same in assessment order dated 18.10.2010 by observing that sustainable enduring benefits and advantages had accrued to assessee from the above two claims. He thus treated the same to be capital expenditure.
4. The CIT(A) partly upholds the Assessing Officer's action as under:
"4.2 I have considered the matter. As per section 30(a)(ii)/31(i), amount incurred towards "current repairs" of buildings/plant and machinery or furniture is allowable as a deduction subject to the condition in Explanation below section 30/31 that such amount shall not include any expenditure in the nature of capita! expenditure. Further, as held by Hon'ble Supreme Court in the case of Ballimal Naval Kishore (1997) 224 1TR 414 (SC), the test evolved by Chagla C.J. in New Shorrock Spinning and Manufacturing Co Ltd v CIT is the most appropriate one regarding expression "current repairs". In the case of New Shorrock Spinning and Manufacturing Co Ltd v CIT, Chagla C3. observed that the expression "current repairs" means expenditure on buildings, machinery, plant or furniture which is not for the purpose of renewal or restoration but which is only for the purpose of preserving or maintaining an already existing asset and which does not bring a new asset into existence or does not give to the assessee a new or different advantage. In the case of Saravana Spinning Mills Pvt. Ltd. (2007) 293 ITR 201 (SC), it was held that expression "current repairs" denotes repairs which are attended to when the need for them arises, such expenditure must have been incurred to preserve and maintain an already existing asset and the object of expenditure must not be to obtain a new advantage. It was also held by the Hon. Supreme Court in the case of Saravana Spinning Mills Pvt. Ltd. that in order to decide allowance of expenditure on repairs u/s 31(i), even if certain expenditure is revenue in nature, still it may not fall in the connotation of the words current repairs" u/s 31(i). The exact nature of repair work done by the appellant was not ascertainable from the ledger account of repairs submitted. During appellate proceedings, appellant was therefore, asked to file a detailed note on the nature of the repair works carried out with explanation about bills above Rs.50,000/-
mentioning exact purpose of the repair works carried out. Appellant did not submit detailed note on the works carried out as asked for nor it was elaborated as to how expenditure of such magnitude year after year constitutes 'repairs' or "current repairs'. Appellant only submitted details of bills above Rs.50,000/- with narration in some of the cases specifying the location in the hotel where the work was carried out. Appellant has two hotels called Express Towers (H1) and ITA No. 102/Ahd/2013 [ Express Hotels P. Ltd. vs. DCIT] A.Y. 2008-09 -4- Express Residency (H2). Item nos. 4, 5, 6, 1, 14, 15, 52, 60, 104, 105, 106, 109, 113, 119, 123 and 124 of the details submitted for building repairs are stated to be for Room Nos. 301 to 312 of Express Residency Hotel (H2). These items are bills above Rs 50,000/- for purchasing material of various kinds for these rooms. Item nos. 14, 25, 26 & 27 of the details submitted for repairs to plant and machinery are also purchase of material for Room Nos. 305 - 312 in Hotel Express Residency (H2). Item No. 123 & 124 are towards consultancy fees of Rs.1,91,012/- to interior decorator and designer, Dipen Gada and Associates for interior decoration and design of Banquet Hall and rooms on 3rd floor of Hotel Express Residency (H2). The nature and scale of material purchased coupled with fact of engagement of interior decorator on substantial fees shows that renovation and not repairs of rooms on 3rd floor as well as the Banquet Hall of Hotel Express Residency (H2) was carried out. Similarly, item nos. 8, 14, 62, 103, 114, etc of .details submitted for repairs to building pertain to Maple, Hall, kitchen, lobby, guest area, staircase, etc of Hotel Express Residency (H2). As per item No, 112, interior designer, Shavin Interior was also engaged and paid Rs.1,79,456/- for renovation of Maple Hall and kitchen at Hotel Express Residency (H2). It is therefore evident that renovation and not repairs of these portions, i e. Maple Hall, kitchen, lobby, guest area, staircase, etc was carried out, Further, in the written submissions filed, appellant has submitted that expenditure of Rs.4,94,264/- including on following items would be of capital nature as per CIT(A)'s orders in appellant's case for AY 05-06-to AY 07-0.8:
Vaccum cleaner : Rs. 1,41,828/-
Split AC : Rs.1,29,000/-
Solar Water Heater : Rs. 96,000/-
Expenditure for purchase of plant and machinery having independent functioning, in any case is of capital nature and not allowable as 'current repairs'. For remaining items, appellant has not specified as to where exactly in. the hotels and for what purpose the material purchased was utilized. Appellant's contention that the expenditure qualifies as 'current repairs' cannot, therefore be accepted on its face value. In this context, relevant is to note that appellant claimed following amounts under the head repairs to building and repairs to plant and machinery over the years;
AY Repairs & maintenance to Repairs & maintenance to
building (Rs.) plant and machinery (Rs.)
2005-06 45,84,858/- 41,11,215/-
2006-07 32,31,898/- 44,60,153/-
2007-08 42,41,633/- 79,30,366/-
As per the balance sheet as on 31.3.2008, gross block of buildings was Rs.92,81,309/- and of plant & machinery Rs.2,55,91,042/-. The quantum of expenditure shown and claimed towards repairs/current repairs is thus not at all commensurate with the gross block value of the buildings and is unusually high vis-a-vis gross block value of plant & machinery. This itself shows that the ITA No. 102/Ahd/2013 [ Express Hotels P. Ltd. vs. DCIT] A.Y. 2008-09 -5- expenditure classified under the head 'repairs' was not merely for preserving or maintaining already existing assets but was substantially towards renewal, restoration and renovation of the hotel, thus not satisfying the test for "current repairs" laid down by the Supreme Court in the case of New Shorrock Spinning and Manufacturing Co. Ltd. As discussed, expenditure booked as repairs by the appellant includes expenditure of capital nature also, which in any case cannot be claimed u/s 30(a)(ii)/31. Considering all aspects, it would be fair to consider 10% of expenditure claimed as repairs to building, i.e. 10% of Rs.69,43,468/- to be in the nature of 'current repairs' allowable u/s 30(a)(ii). Balance expenditure claimed towards repairs of building would not be allowable under any other provision of the IT. Act as per decision in the case of Saravana Spinning Mills Ltd., 293 ITR 201 (SC) and disallowance is confirmed to such extent. Out of expenditure of Rs.45,00,394/- claimed as-repairs to plant & machinery,, it would be fair to consider 20% as 'current repairs' allowable u/s 31, Disallowance of balance expenditure out of Rs.45,00,394/- claimed as repairs to plant and machinery is confirmed for the same reasons as for repairs to building. Depreciation allowed by the AO may be modified accordingly.
5. We have heard both the parties. Relevant findings perused. The sole issue between the parties is about treatment of assessee's repair claims pertaining to its hotel building and plant & machinery. Both the lower authorities except to the extent of minor fraction in lower appellate order hold the same as capital expenditure. It emerges that this tribunal's co-ordinate benches in assessment years 2005-06 to 2007-08 have already decided the very issue in assessee's favour. Pages 1 to 16 of the paper book contain a compilation of said orders. The factual position however is different in succeeding assessment years wherein the assessee has itself treated 65% of the above heads of expenses as capital expenditure and 35% to be Revenue expenditure as per its authorized person's survey statement operative from the impugned assessment year. The assessee's sole endeavor accordingly before us is to claim only 35% of the expenditure as revenue and balance 65% to be capital expenditure as per its above survey statement. Learned Departmental Representative appearing at Revenue's behest fails to dispute all the abovestated survey developments as well as treatment of the very head of expenditure as revenue in nature in preceding assessment years and partly capital and partly revenue expenditure in latter assessment years. We ITA No. 102/Ahd/2013 [ Express Hotels P. Ltd. vs. DCIT] A.Y. 2008-09 -6- therefore accept assessee's limited contention and direct the Assessing Officer to treat 65% of the impugned claims as capital expenditure entitled for depreciation and balance 35% as revenue expenditure. He shall accordingly frame consequential assessment as per law.
6. This assessee's appeal is partly allowed in above terms.
[Pronounced in the open Court on this the 22nd day of March, 2017.] Sd/- Sd/-
(AMARJIT SINGH) (S. S. GODARA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad: Dated 22/03/2017
True Copy
S.K.SINHA
आदे श क त ल
प अ े
षत / Copy of Order Forwarded to:-
1. राज व / Revenue
2. आवेदक / Assessee
3. संबं धत आयकर आयु!त / Concerned CIT
4. आयकर आयु!त- अपील / CIT (A)
5. )वभागीय ,-त-न ध, आयकर अपील य अ धकरण, अहमदाबाद /
DR, ITAT, Ahmedabad
6. गाड3 फाइल / Guard file.
By order/आदे श से,
उप/सहायक पंजीकार
आयकर अपील य अ धकरण, अहमदाबाद ।