Income Tax Appellate Tribunal - Amritsar
Bright Enterprises P.Ltd.,, Jalandhar vs Department Of Income Tax on 29 April, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH; AMRITSAR.
BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER
AND SH. B.P.JAIN, ACCOUNTANT MEMBER
I.T.A. No.531(Asr)/2009
Assessment year:2006-07
PAN :AAACB9469K
M/s. Bright Enterprises (P) Ltd; vs. The Deputy Commr. of Income tax
MBD House, Railway Road, Central Circle-II, Jalandhar.
Jalandhar.
(Appellant) (Respondent)
I.T.A. No.28(Asr)/2010
Assessment year:2006-07
PAN : AAACB9469K
The Deputy Commr. of Income tax vs. M/s. Bright Enterprises (P) Ltd;
Central Circle-II, Jalandhar. MBD House, Railway Road,
Jalandhar.
(Appellant) (Respondent)
I.T.A. No.432(Asr)/2012
Assessment year:2006-07
PAN :AAACB9469K
M/s. Bright Enterprises (P) Ltd; vs. The Deputy Commr. of Income tax
MBD House, Railway Road, Central Circle-II, Jalandhar.
Jalandhar.
(Appellant) (Respondent)
Assessee by: Sh.Sudhir Sehgal,
Department by:Sh.Tarsem Lal, DR
Date of hearing: 29/04/2014
Date of pronouncement:21/05/2014
2 ITA No.531 & 432(Asr)/2009 & 12
ITA No.28(Asr)/2010
ORDER
PER BENCH ;
These two appeals of the assessee and one cross appeal of the revenue arise from the orders of the CIT(A), Jalandhar, dated 13.10.2009 & 13.09.2012 for the assessment year 2006-07.The assessee in ITA No.531(Asr)/2009 has raised following grounds of appeal:
"1. That the Ld. CIT(A) has erred in upholding the additions made by the AO on account of repair & maintenance expenses without any legal justification.
a) M/s. Suvidha Engg. Ltd. Rs.1,39,66,383/-
b) M/s. Usha Craft Rs. 13,68,375/-
c) M/s. S.K.Sanitation Rs. 88,12,982/-
d) M/s. Gencon India Pvt. Ltd. Rs. 13,32,000/-
e) M/s. Saify Decorator Rs. 19,08,637/-
2. That the Ld. CIT(A) has erred in sustaining disallowance of lease rent of Rs.66,99,660/- though the same was paid in accounting year relevant to year under consideration.
3. That the Ld. CIT(A) has erred in holding that assessee had acquired a benefit to enduring nature. That the facts mentioned in the assessment order upheld by the ld. CIT(A) are patently wrong and are challenged.
4. That the ld. CIT(A) ought to have allowed proper opportunity before deciding the issue against the assessee.
5. That no addition was called for in view of the facts and circumstances of the case.
6. That no addition was called for in view of the facts and circumstances of the case.3 ITA No.531 & 432(Asr)/2009 & 12
ITA No.28(Asr)/2010
7. That the order of the ld. CIT(A) is against law and facts of the case.
8. That proper opportunity should have been allowed.
9. Any other ground pressed at the time of hearing.
2. In ITA No.28(Asr)/2010, the Revenue has raised following grounds of appeal:
"1. The Ld. CIT(A) has erred both in law and on facts of the case in holding that expenditure of Rs.10,81,561/- was of repair in nature and not capital expenditure, as held by the A.O.
2. The Ld. CIT(A) has erred both in law and on facts of the case in holding that expenditure of Rs.42,41,416/-, only 50% was capital expenditure, as held by the AO.
3. That the appellant craves leave to add or amend the grounds of appeal on or before the appeal is heard and disposed off.
4. It is prayed that the order of the CIT(A) be set aside and that of the A.O. be restored.
3. In ITA No. 432(Asr)/2012, the assessee has raised following grounds of appeal:
"1. That the ld. CIT(A) has erred in confirming the action of the AO in assuming the jurisdiction and issuing notice u/s 153C of the Act.
2. That notwithstanding above said ground of appeal, it is submitted that the ld. CIT(A) has erred in upholding the action of the AO in assessing income of Rs.57,10,19,499/- against the returned income of Rs.52,70,52,488/- as per original return filed by the assessee.
3. That the Ld. CIT(A) has erred to consider that similar addition as made in the returned income by the AO had already been made in the assessment already framed u/s 143(3) for the same 4 ITA No.531 & 432(Asr)/2009 & 12 ITA No.28(Asr)/2010 year and appear for which is pending before ITAT, Amritsar and as such it amount to duplicate addition in the same year.
4. That the addition has been confirmed against the facts and circumstances of the case.
5. That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off."
4. The Revenue has raised the following additional ground:
"On the facts and in the circumstances of the case, the ld. CIT(A) has wrongly not enhanced the income by disallowing the lease rent at Rs.1,33,99,320/- pertaining to years prior to the assessment year under consideration inn his co-terminus jurisdiction with that of the A.O."
5. The additional ground raised by the Revenue being legal ground, goes into the root of the matter and therefore, is admitted in view of the decision of the Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. vs CIT reported in 229 ITR 383.
6. Now, we take up appeal of the assessee in ITA No.531(Asr)/2009. As regards ground No.1, the brief facts of the case are that the assessee had claimed certain expenditure totaling Rs.3,35,67,415/- as having been incurred towards repair and maintenance. The AO asked the assessee to submit bills and vouchers and copy of agreement towards repairs and maintenance of five of the six parties to whom payments were made. After examining the bills, the AO came to a preliminary finding that the expenditure was not in the nature of current repairs but was capital expenditure. The assessee submitted before the AO that no new assets of 5 ITA No.531 & 432(Asr)/2009 & 12 ITA No.28(Asr)/2010 enduring nature were acquired. The bill of M/s. Suvidha Engg. (P) Ltd. was stated to be in respect of repair and maintenance of existing system of air conditioning in the hotel and no new air-conditioner was purchased by the assessee. The bills of other parties were stated to be for repair/replacement of interior decoration and repair to existing building decoration. The AO examined the different case laws on the subject, including that of Hon'ble Supreme Court in the case of Ballimal Naval Kishore and Others vs. CIT 224 ITR 414 (SC) and summarized her conclusions based on these decisions in para 5.6 of the assessment order. She examined the nature of work done by each of these parties in light of the conclusion drawn by her. In respect of bill of M/s. Suvidha Engg. (P) Ltd. she noted that contract for the work was not submitted though asked for. From the description of the work undertaken as per the bills, she came to the conclusion that the expenditure was not for the repair and maintenance of existing system of air conditioner but for the supply, installation, testing and commissioning of high capacity centralized air conditioning for hotel building and that complete work in this regard including that of cooling tower, ducts for air distribution, A.C. Plant room etc. had been provided. She held that this was not repair expenditure but for providing new system which was enduring in nature. In respect of bill of M/s. S.K. Sanitation (P) Ltd., the AO noted that 6 ITA No.531 & 432(Asr)/2009 & 12 ITA No.28(Asr)/2010 though the final running bill only was submitted, the work contract was not submitted. She noted that from the bill and ledger account, it appeared that fire and safety equipment were provided and installed by the contractors and she held the expenditure to be capital in nature. She also noted that the bill itself mentioned that it was for alteration work, which could not be current repairs. She also noted that complete bills were not submitted. In respect of bill of Usha Craft, the AO noted that the assessee had failed to submit the copy of agreement. From the bills, it was found that expenditure was incurred for providing and fixing wooden wardrobe, mirror, teak wood shutter, skirting of teak wood, pelmet etc. The AO held the expenditure to be towards purchase of furniture and fixture and doors and windows which could not be allowed as current repairs or as revenue expenditure. In respect of bill of M/s. Interior Plus, the AO noted that copy of work contract was not given. As per the bills, the alteration was for wooden ceiling, marble flooring and wall paneling for restaurant and for ceiling, wall paneling, POP ceiling and free standing column. She held that expenditure was not for repairs but was capital in nature. In respect of bill of M/s. Saify Interior Decorator the bills showed the expenditure was in respect of POP false ceiling, wall paneling, wooden border, free standing column etc. which the AO has held to be capital in nature. The bills of M/s. Gencon India (P) Ltd. 7 ITA No.531 & 432(Asr)/2009 & 12
ITA No.28(Asr)/2010 in respect of work on marble flooring, thick cement flooring, POP false ceiling, providing and fixing door frames, wooden paneling, mirror paneling, storage, display box etc was also held to be capital expenditure and not repairs.
7. Thereafter, the assessee made the submissions which were sent to the AO for comments. The Ld. CIT(A) after considering the comments of the AO and submissions of the assessee. confirmed the action A.O. with regard to disallowance of Rs.1,64,31,039/- in respect of payment to M/s. Suvidha Engg. Ltd. . As regards the expenditure /payment made to M/s. Usha Craft , the AO's action in treating the same capital in nature was upheld by the ld. CIT(A) alongwith the payment made to M/s. S.K. Sanitatiaons (P) Ltd., which action was also upheld by the ld. CIT(A). The expenditure made with regard to Saify Interior Decorators, the ld. CIT(A) estimated the expenditure at 50% as being on supply of new fixtures in the form of columns, doors, teak wood with architecture etc. as capital in nature and balance 50% expenditure in the nature of "current repairs". The expenditure with regard to M/s. Gencon India (P) Ltd. was also confirmed by the ld. CIT(A).
8. We have heard the rival contentions and perused the facts of the case. The assessee is running a five star hotel at Noida and construction of which was completed in the year 2002. It was stated that the receipts from the hotel 8 ITA No.531 & 432(Asr)/2009 & 12 ITA No.28(Asr)/2010 for the year ending 31.03.2004, 31.03.2005 & 31.03.2006 relevant to assessment years 2004-05, 2005-06 & 2006-07 are at Rs.5,30,81,843/-, Rs.25,34,69,809/- & Rs.36,82,49,985/- respectively. The assessee has claimed repair and maintenance expenditure of Rs.33,567,415/-. It was stated that the Project Engineer of the assessee vide his letter dated 15.12.2004, copy placed at PB addressed to the Director Finance submitted detailed report regarding the mal-functioning of HVAC system of Oriental Restaurant and the Kitchen Area and it would be difficult to cope up with any accident or fire and pointed out the specific defects in the building and mal-functioning of the various systems, equipments etc. It was stated that since inception the turnover of the assessee has arisen from Rs.5.30 crores to Rs.36,82,49,985/- and no formal tenders were called for the repair work., since the construction of hotel was completed only three years before and the assessee knew the parties who could undertake the desired repairs as pointed out by the Project Manager. The AO made no enquiries with the parties who undertook such works. It was stated that AO and the ld. CIT(A) has not discussed as to which new asset has come into existence and in what manner the assessee has obtained enduring benefit. On the contrary, no new asset had come into existence. Regarding various expenditure, it was submitted by the Ld. counsel for the assessee party-wise as under: 9 ITA No.531 & 432(Asr)/2009 & 12
ITA No.28(Asr)/2010 A) M/s. Suvidha Engineers India ltd. repair bill of Rs.1,64,31,039/-
1. The AO has wrongly inferred in respect of bills of M/s. Suvidha Engineers India Ltd. that the entire expenditure of Rs.1,64,31,039/- related to replacement and installation of HVAC (Air conditioning system).. In fact, the party wise details of the expenditure incurred are given in the above table. It may be seen there from that expenses of Rs.65,99,300/- only were incurred on repairs to air conditioners for which work was undertaken by M/s. Suvidha Engineers India Limited. Expenditure of Rs.5,58,950/-, 16,53,930/- , 14,28,136/-, 19,17,500/-, 42,68,730/- and 4,493/- paid to Suvidha Engineers India Limited related to cost of repair and replacement of electrical bulbs, repair to laundry equipments, repair to plumbing and heating, repair of poor and general repair respectively. Thus, the AO was not correct in assuming that the entire expenditure of Rs.1.64 crores in respect of work undertaken by Suvidha Engineering India Limited was for HVAS air- conditioning system.
2. The Ld. CIT(A) while confirming the addition of Rs.1.64 crore, mentioned almost each and every item of the bill of the Suvidha Engineers and lastly mentioned that the description of the work carried out in the bills indicate that a complete Air Conditioning system has been installed. The CIT(A)'s while mentioning his comments did not give any factual finding that show these parts which are shown in the bill will make the whole another air conditioning system and installed therein. Thus, it is totally wrong in saying that the assessee has established another air condition unit.
3. The ld. CIT(A) had reasoned while confirming the addition that the assessee has replaced the parts of air conditioning system and relying on the judgment of Hon'ble Apex Court in the case of CIT vs. Sri Mangayarkarasi Mills (P) Ltd. (2009) 224 CTR (SC) 513 held that the replacement is not covered under the current repairs.
4. Reliance in this regard is also placed on the following judgments by the ld. CIT(A).
- CIT vs. Loyal Textile Mills Ltd. (2006) 284 ITR 658 (Mad)
- CIT vs. Kandagiri Spinning Mills Ltd. (2008) 6 DTR (Mad) 123
- CIT vs. Rajaram Mills (P) Ltd. (2008) 3012 ITR 10 10 ITA No.531 & 432(Asr)/2009 & 12 ITA No.28(Asr)/2010
- CIT vs. Gitanjali Mills Ltd. 265 ITR 681 (2004)
- Comsat Max Ltd. 124 TTJ 86
- CIT vs. Lake Palace Hotels and Motels P. Ltd. 258 ITR 562 (Raj.)
5. Further, the Ld. CIT(A) majorly relying on the judgment of Hon'ble Apex Court in the case of CIT vs. Sri Mangayarkarasi Mills (P) Ltd. (supra). In this regard it is submitted that this judgment is not applicable to the case of the assessee on the following points:
In this case, the respondent doing In our case the Assessee is in the business in the textile industry business of Five Star Hotel established which is established in 2002 The respondent had incurred the The assessee has made expenditure on the replacement of expenditure in repairs and the machinery which forms part maintenance of air conditioner of the chain of production system in the kitchen area of process. Hotel Building which is required to maintain the five star standard of the hotel.
The Hon'ble court while deciding The Ld. CIT(A) affirmed the the issue considered that the each addition made by the AO on the machine is a textile mill is part of fact that the assessee had replaced the integrated process of the old parts of the air manufacture of yarn and is conditioning system and the integrally connected to the other replacement does not amount into machines in the mill for the current repairs.
production of the final product.
Thus, each machine in a textile Thus, disallowed the expenditure mill should be treated of Rs.1,64,31,039/- on the above independently as such and not as finding.
a mere part of an entire composite machinery of the spinning mill and decided that the expenditure is capital expenditure.
Reason for non-applicability of above judgment of CIT Madurai vs. Sri Mangayarkarasi mills P. Ltd. in the case of the assessee.11 ITA No.531 & 432(Asr)/2009 & 12
ITA No.28(Asr)/2010
1. Firstly, the basis for non-applicability of the judgment is industry i.e. the assessee is in the hotel industry and the judgment is purely based on the textile industry.
2. A hotel room as a complete package. When a person books a hotel room, he books it in a perfect condition with proper ACs, furniture and other facilities like laundry, pool etc. The hotel industry has to regularly maintain the Air conditioning , furniture & decorations requirements and proper care is reuired for the fire & safety equipments. As the assessee is a five star hotel, then the high standard services are must requirement for the assessee for that reason the repair expenditure had been made.
3. Here in the hotel industry, the replacement once made are not for a long time because improvements will be required in less than a decade's time because of changing fashions & technology.
4. As against the nature of our industry, the ld. CIT(A) relied the case of the Apex Court which is totally different from the business of the assessee. The case relied by the ld. CIT(A) is squarely on the textile mill.
The Hon'ble apex Court while deciding the issue specifically mentioned that each machine in a textile mill is a part of the integrated process of manufacture of yarn and replacement of such old machine with the new amount to bringing a new asset into existence. Thus, held capital expenditure for such replacement. This judgment cannot be relied in our case of the assessee which is in the hotel industry and the judgment given by the Hon'ble Apex court is only applied to the Textile Industry.
5. In our case, some portion of the Air Conditioner had malfunctioning but it did not affect the entire working of the Hote. The repairs were carried on while the hotel was being run and whereas in the case before the Hon'ble Supreme Court, the total production has stopped due to integrated process and thus, the judgment is not applicable.
6. In view of the above finding, the judgment of the Hon'ble Apex Court in the case of CIT Madurai vs. Sri 12 ITA No.531 & 432(Asr)/2009 & 12 ITA No.28(Asr)/2010 Mangayarkarasi Mills P. Ltd. (supra) is not applicable to the case of assessee.
6. Lastly we are relying on the judgment of the Hon'ble Delhi High Court whose facts are very similar to the facts in our case. The relevant part of the decision of the judgment is extracted as follows:
In the case of CIT vs. M/s. Volga Restaurant "We have carefully considered the submissions urged on both sides and perused the papers placed before us in the light of the authorities referred to above. From the details placed before us, it is clear that the assessed had entrusted the job of re-starting its air conditioning plant to Voltas Ltd but at the same time it had not given the entire work to Voltas Ltd. Rs., 75804/- was paid to Voltas Ltd for repairing and replacing the air conditioning plant and restarting it. The other equipments required for restarting the air conditioning plant were acquired by the assessed itself such as two electric motors from M/s Seimens India Ltd for Rs. 9838/- three pumping sets for Rs.6465/- from M/s Rajasthan Krishi Udyog, six starters for Rs.6122 from Naval Electric & Machinery Stores. Apart from the above the assessed had spent a sum of Rs. 2792 for electric wiring etc Rs. 17656 was spend for repairing the furnishings as could be seen from the amount paid to M/s. Continental Furnishers. The assessed had also paid Rs. 4283/- to Behari Lal Sons Co for pipes supplied by them and it also spent a sum of Rs. 1041/- on plastering and Rs. 1523/- for wall photographs. Thus, it would be seen that the various items of expenditure were incurred by the assessed by way of replacement and repairs of the damaged parts of the air conditioning plant of its restaurant where some of the parts of the air conditioning plant, such as electric motors, pumping sets etc were completely damaged, the assessed had to remove them and replace them with new motors and new pumping sets, starters etc. But that does not mean that what the assessed put up was an entirely new air conditioning plant after scraping the old plant which was damaged in the fire as a total loss.13 ITA No.531 & 432(Asr)/2009 & 12
ITA No.28(Asr)/2010 The judgment placed before us clearly establish that the assessee had tried to restore the same by replacing the damaged parts of the plant with new parts of machinery of the plant. The order of the CIT(A) shows that the cost of providing a new air conditioning plant of 27.5 tons would approximately be Rs.2,15,000/-. In the light of the above fact, it would be clear that the expenses incurred by the assessee were only in the nature of revenue expenditure incurred for the purpose of repairing and restoring its damaged air conditioning plant to its original working condition."
B. S.K. Sanitation) repair expenses of Rs.88.1 lacs
1. During the year, the assessee had incurred the expenditure of Rs.88.1 lacs on repair to building, fire & safety waste removal & general repairs.
2. The entire expenditure incurred was related to the existing assets already installed on the assessee for the last three years.
In fact, the value of the building owned by the assessee before the beginning of the accounting year under reference was Rs.11,18,00,000/-.
3. As already mentioning in the point No.1, the assessee has incurred the expenditure on repairs of building, fire & safety, waste removal & general repair of Rs.42,48,324/-, 27,00,021/-, 4,00,161/- & 14,64,476/- respectively in respect of the repair of building of Rs.42,48,324/- is concerned, it is submitted that no hotel can start its business operations until it established an super structure i.e. building . These expenditure has been incurred on the already existing building asset of Rs.11,18,00,000/- standing in the balance sheet of the assessee. It is totally wrong on saying that the expenditure now incurred was capital.
4. With respect to the fire & safety expenditure it is submitted that it is entirely unreasonable to assume that there was no existing fire and safety equipment in a five star hotel which is a mandatory requirement for running a hotel. In this connection, we would like to refer to report dated 7.7.2003 of the Station, Phase-1, Noida, certifying that Fire Fighting System was in place and was regularly being maintained.
5. As regards to the waste removal expenses & general expenses, it is submitted that the waste removal expenses are incurred in 14 ITA No.531 & 432(Asr)/2009 & 12 ITA No.28(Asr)/2010 relation to removal of the waste arising during the repair work and the general expenses are incurred with respect to the existing assets which were already in place.
6. Lastly, the CIT(A) had confirmed the disallowance just on the fact that the bill of S.K. Sanitation is for the alteration work done in the hotel and the alteration work does not amount to repairs. The CIT(A) had mentioned his views without providing any explanation and support of any judgment to hold his opinion about the allowability of alteration work expenditure. There are various judgments which supports our view that the alteration work is in the nature of revenue expenditure, reliance in this regard is placed on the following judgments:
- CIT vs. I.C.I. (India ) Ltd. (19830 139 ITR 105 (Cal.)
- CIT vs. Hindustan Zinc Ltd. (2010) 322 ITR 478
- Herbalife Intertional India (P) Ltd. vs. ACIT (2006) 101 ITD 450 (Del.)
- ITO vs. I.B.P. Ltd. 91987) 28 TTJ (Cal) 400
- DCIT vs. Paramount Hotels Ltd. (2001) 76 ITD 25 (Mumbai) C. M/s. Usha Crafts (Repair Expenditure of Rs.15,20,417/-
1. The assessee had got the work of repair of Rs.15,20,417/- done through the party namely M/s. Usha Carafts under the various heads that are repairs of building, painting & decoration, furniture & general repairs of Rs.1,63,230/-, 2,79,640/-, 1,52,702.85 & 9,24,844.15 respectively.
2. The entire expenditure incurred was related to the existing assets already installed on by the assessee for the last three years. The value of the building owned by the assessee at the beginning of the year is already been mentioned. The assessee owned the furniture worth of Rs.2.94 crores. Therefore, the expenditure incurred by the assessee for repairs of existing assets was in the nature of "Current Repairs".
D. M/s. Safety Interior Decorators (Repair expenditure of Rs.42,41,416/-) 15 ITA No.531 & 432(Asr)/2009 & 12 ITA No.28(Asr)/2010
1. The assessee had got the work of repair of Rs.42,41,416/- done through the party namely M/s. Safety Interior Decorator under the heads that are painting and decoration & general repairs of Rs.42,34,874/- & 6,542.20/- respectively.
2. The expenditure had been incurred on POP false ceiling wall paneling, wall covering, teak wood work etc.
3. These expenditures became necessary while carrying out the work of HVAC air conditioning system and other equipments etc.
4. There is no structural change in the asset except what was required to the existing structure due to the damage to the property while carrying out the other repairs. No new asset has been come into existence.
5. The Ld. CIT(A) had wrongly relied on the judgment of Hon'ble Apex Court in the case of CUT Madurai vs. Sri Mangayarkarasi Mills P. Ltd. (supra), as per the above detailed discussion made regarding this judgment.
6. Further, reliance in this regard is placed on the judgment of the Hon'ble Tribunal in the case of Nirula & Co. (P) Ltd. vs. ITO (1992) (Del) (TM) wherein it is decided that the interior decoration expenses are covered as a revenue expenditure 43 ITD 21 (TM).
E. M/s. Gencon India (P) Ltd. (Repair expenditure of Rs.14,80,000/-)
1. The assessee had got the work of repair of Rs.14,80,000/- done through the party namely M/s. Gencon India (P) Ltd. under the heads repair to building of Rs.14,80,000/-
2. The expenditure had been incurred on Marble flooring, thick cement flooring and fixing POP, false ceiling wooden door frames, wooden paneling, mirror paneling, mirror paneling, storage display box and shutters etc.
3. These expenditure became necessary while carrying out the work of HVAC air conditioning system and other equipment etc.
4. The Ld. CIT(A) had confirmed the addition with the finding that the assessee had incurred the expenditure on the entire flooring ceiling etc. This finding of the Ld. CIT(A & the A.O. 16 ITA No.531 & 432(Asr)/2009 & 12 ITA No.28(Asr)/2010 that the entire flooring and ceiling had been done, is not supported by any cogent material on record.
5. Civil marble work and ceiling work is one of the affected area due to the repair work as it is mentioned in the report of the project engineer in point no. 6 of its report.
6. These repairs were necessitates because while carrying out other repairs to HVAC, building etc. These portions were affected 7 damaged. One of these items related to any new asset. Such repairs related to the already existing assets.
9. The submissions of the assessee are found to be convincing. As regards M/s.Suvidha Engineers India Ltd, the same is related to the cost of repair and replacement of electrical bulbs, repair to laundry equipments, repair to plumbing and heating, repair of pool and general repair and the AO was not justified in assuming that the entire expenditure of Rs.1,64,31,039/- was for HVAC air conditioning system. There is no finding how the said parts replaced which are shown in the bill will make the whole air conditioning unit of such a big hotel werehin around 2.5 crores are already invested on the air conditioning system and accordingly no new air conditioning unit comes into being. The reliance placed by the Ld. CIT(A) on the decision of various courts of law is not applicable, as discussed hereinabove. Therefore, the addition so made is directed to be deleted.
10. As regards the expenditure relating to M/s. S.K. Sanitation amounting to Rs.88.1 lacs on repair to building, fire & safety, waste removal & general 17 ITA No.531 & 432(Asr)/2009 & 12 ITA No.28(Asr)/2010 repairs, on perusal it was found that expenditure was incurred on existing assets already installed on by the assessee for the last three years and therefore, the ld. CIT(A) was not justified in confirming the action of the A.O. The addition so made is directed to be deleted.
11. With regard to payment made and expenditure incurred of Rs.15,20,417/- relating to M/s. Usha Crafts, which has been incurred on various heads like repairs of building, painting & decoration, furniture & general repairs, we are of the view that the expenditure has been incurred on existing assets. The assessee owned the furniture worth Rs. 2.94 crores and the ld. CIT(A) is not justified in confirming the action of the A.O. In the facts and circumstances, the ld. CIT(A) is not justified in confirming the action of the A.O. and the addition so made is directed to be deleted.
12. With regard to the expenditure and payment of Rs.42,41,416/- to M/s. Saify Interior Decorators and M/s. Gencon India (P) Ltd. of Rs.14,80,000/-, it was submitted that these are current repairs on the existing assets and no new asset has come into existence. Thus, the additions so made are directed to be deleted.
13. As regards ground No.2, the brief facts of the case are that the A.O. disallowed a lease rent of Rs.66,99,660/- being advance and no payment made during the assessment year. Before the ld. CIT(A), the assessee made 18 ITA No.531 & 432(Asr)/2009 & 12 ITA No.28(Asr)/2010 the submissions, which were sent to the A.O. for comments. The Ld. CIT(A) after taking into consideration the comments of the A.O. and submissions of the assessee confirmed the action of the A.O.
14. The Ld. DR in additional ground as submitted that in this case, an addition of Rs.66,99,660/- had been made by the AO. The addition was made on the issue that the assessee had entered into a lease agreement as lessee on 24.03.2011 with NODIA and in terms of this lease has agreed to pay Rs.8,12,08,000/- as premium and further agreed to pay lease rent of Rs.11/- per sq. meter for first two years and @ 2.5% of the premium amount for the next 8 years. Out of the total premium amount of Rs.8,12,08,000/- a sum of Rs.2,03,02,000/- was paid by the assessee to the lessor at the time of executing of lease deed and the remaining sum of premium was payable in six monthly installment of Rs.76,13,250/- w.e.f. from 25.05.1999 till 25.11.2002.. During the A.Y. 2006-07 year, the assessee had claimed a sum of Rs.2,23,32,220/- on account of lease rent and the same has been claimed in the P & L account during the assessment proceedigns. The AO in the assessment order stated that the amount is on account of lease of 10 years and hence has disallowed a sum of Rs.66,99,660/- only on account of rent paid in advance for 3 years, while the lease was factually for 10 years. 19 ITA No.531 & 432(Asr)/2009 & 12
ITA No.28(Asr)/2010 14.1 The Ld. DR further submitted that the ld. CIT(A) in Para 4.5 of his order has noted that the assessee did not pay any lease rent till May, 2006, when it was asked to pay a one time payment in terms of NOIDA's letter dated 07.03.2006 asking the assessee to pay the lease rent of Rs.2,23,32,200/-. The Ld. CIT(A) having noticed that the assessee has not paid lease rent for previous six years but had claimed the entire liability of 10 years during the year under consideration, ought to have allowed lease rent of Rs.22,33,220/- relevant to the A.Y. 2006-07 only. In doing so, the Ld. CIT(A) should have enhanced the income of the assessee by a sum of Rs.1,33,99,120/- (Rs.22332000-Rs.6699660-Rs.2233220)..In this context, it is pertinent to mention here that a liability of any other assessment year can be charged to the profits of another year only in one exception being that such liability should be ascertained for such year. The Hon'ble Supreme Court in the case of CIT vs. Swadeshi and Flour Mills Private Ltd. reported at 53 ITR 134 had held that bonus payable to the employees was settled by an award of the Industrial Tribunal, the liability on account of bonus gets ascertained in the year in which the dispute is settled by the Industrial Tribunal. The Hon'ble Kerala High Court in the case of CIT vs. Parshotam Gokuldas reported at 237 ITR 115 has held that a contractual liability stems from conditions of agreement.The said liability could be claimed as 20 ITA No.531 & 432(Asr)/2009 & 12 ITA No.28(Asr)/2010 deduction when the dispute is settled which is not so, in this case. Liability was not to be deducted in the assessment year in question during which the dispute was pending. In case of the present assessee, there is nothing on record to suggest that the assessee had not paid the lease rent due to any dispute between the assessee and the lessor. Thus, the contractual liability for lease rent for the previous year relevant to the assessment year under consideration at Rs.22,33,220/- could only be charged to profit of the year.
15. We have heard the rival contentions and perused the facts of the case. With regard to ground No.2 of the assessee and additional ground of the Revenue, we concur with the views of the ld. CIT(A), whose order is well reasoned. For the sake of convenience, we reproduce para 4.6 & 4.7 of the order of the CIT(A) as under:
"4.6. The first issue to be decided is whether the payment of lease rent made by the assesse is covered under the provisions of section 43B(a) of the I.T. Act. This clause covers any sum payable by the assessee by way of tax, duty, cess or fee by whatever name called, under any law for the time being in force. The assessee has incurred liability to pay lease rent under the agreement entered into with NOIDA. In my opinion, lease rent for the land taken on 90 years lease by the assessee is not of the nature of tax, duty, cess or fee. Lease rent is payable by the assessee under a contractual agreement with an Authority created by the Govt. It is a commercial agreement and though payable to a semi-Govt. body, is not a charge paid under the force of law but is paid for utilization of property under control of the Authority. In the case of CIT vs. Sri Balaji & Co 246 ITR 750 (Kar), the issue before the Hon'ble High Court was whether "list" payable to the Govt. by the assessee could be considered within the purview of provisions of section 43B of the I.T. Act, 1961. The Hon'ble High 21 ITA No.531 & 432(Asr)/2009 & 12 ITA No.28(Asr)/2010 Court examined the various words used in clause (a) to section 43b. Reference was made in this decision to the judgment in the case of Harshankar and Ors. Vs. Dy. Excise and Taxation Commissioner and Ors. (1975) SC 1121 in which it was observed that a tax was compulsory exaction of money by public authority for public purposes enforceable by law and was not a payment for services rendered. It was further noted that in the case of Omparkash Aggarwal vs. Giri Raj Kishore and Ors 164 ITR 376 (SC), the essential characteristics of a tax as distinguished from other forms of imposition which, in a general sense are enclosed within it, were observed. The essence of taxation is compulsion, that is to say, it is imposed under statutory power without the taxpayer's consent and the payment is enforced by law. The second characteristic of tax was law that it was an imposition made for public purposes without reference to any special benefit to be conferred on the payer of the tax. There is no element of quid pro quo between the tax payer and public authority in collection of tax. Another feature of taxation noted was that it was a part of the common burden, the quantum of imposition depending upon capacity of tax payer to common burden, the quantum of imposition depending upon capacity of tax payer to pay. In respect of fees, it was observed that it was a charge for a special service rendered to individuals by some govt. agencies, though in many cases the costs were arbitrarily assessed. Reference was made to the decision in the case of CIT vs. Varas International (P) Ltd. 225 ITR 831 (Kal) in which it was observed that periodical license for relation vend of foreign liquor granted on the basis of license fee means consideration received by the Govt. for parting with its exclusive privilege to deal in intoxicants and such fee was neither a tax nor a duty nor a fee, nor cess. This view has been affirmed in a recent decision of the Hon'ble Supreme Court in the case of CIT vs. Bowell & Co. Ltd 180 Taxman 514 (SC). In this decision the Hon'ble Apex Court have noted that S. 43B(a) contained the words "Tax", "Duty", "Cess" or "Fee" and the expenses ' by whatever name called' following these words had to take colour these four words and in the genus of taxation. "Taxation" was compulsory exaction in the exercise of state's power of taxation where levy and collection was duly authorized by law. It was further held that a liability founded on principle of contract could not be a 'tax' in its technical sense as an impost (a compulsory levy), general, local or special. 'License fee" under State excise laws relating to permission to do trade in intoxicants was held by the Hon'ble Apex Court as not 22 ITA No.531 & 432(Asr)/2009 & 12 ITA No.28(Asr)/2010 falling within the meaning of 'tax' etc. u/s 43B, as it was the price or consideration which the Govt. charged to the licensees for parting with its exclusive privilege and granting them to the licensees. In my view, the payment of lease rent by the assessee being for the use of land does not par take the character of tax, duty, cess or fee. It is not an impost levied by the State Govt. under authority of law. Every liability payable to the Govt./Semi Govt. agency does not come within the purview of section 43b of the Act. The payment should be of the nature of tax, duty etc. to fall within the purview of section 43b . Payment of lease rent, not being in the nature of tax, duty, etc., is held not to be covered by the provisions of section 43B.
4.7. The next question is whether the payment is allowable as deduction u/s 37 since the expenditure is undoubtedly 'revenue' in nature and has even been considered as such by the AO. The appellant has not disputed the AO's contention that the sum of Rs.66,99,660/- was in relation to the lease rent for the subsequent three years. The payment has been made pursuant to a demand notice issued by the Authority asking the assessee to make a "one time lease rent"
payment . In my opinion, even though the payment has been made as a one time payment, deduction cannot be allowed for the payment of future lease rent included in the payment. This is for the reason that as per the contract between the assessee and NOIDA, lease rent was payable on an annual basis. The payment made by the assessee is not a one time payment for the duration of entire lease period of 90 years. The assessee has stated that the contract was to be renewed every ten years. However, that does not appear to be factually correct since the agreement with NOIDA only provides for modification in the lease rent every ten years. The one time payment made by the assessee has been in the form of premium paid or incurred at the time of entering into the contract. The subsequent payments are annual lease rent. Debiting of the annual lease rent for several years together in one year will give an inaccurate picture of the profits of the assessee in one year. There is nothing to show that the contract between NOIDA and the assessee has been changed to provide for a one time payment for the entire ten years. A lessor may require the leassee to pay rent for several months or years at one time, and the lessee may, agree to make such payments. However, in the mercantile system of accounting which the assessee is following- it is the income and expenditure of every year which needs to be considered to arrive at 23 ITA No.531 & 432(Asr)/2009 & 12 ITA No.28(Asr)/2010 the business income for an assessment year, the lease rent paid for several years needs to be spread over equally between the different assessment years involved. There is no indication that any special discount has been received by the assessee for making the one time payment. The payment is not in the nature of, say, a one time registration tax of road tax levied on motor cars for the life of the vehicle. It is simply a one time payment of annual lease rent. In my opinion, even though the payment has been made by the assessee pursuant to the demand by NOIDA, it merely represents a collective payment of annual lease rent which should be considered for allowance annually. The payment for subsequent rent can only be considered as advance rent. The disallowance of Rs.66,99,660/- made by the AO is, therefore, upheld."
15.1 In the facts and circumstances of the case, we find that the order of the ld. CIT(A) is quite reasoned one and accordingly, we dismiss the additional ground raised by the Ld. DR and that of the assessee confirming the views of the Ld. CIT(A). Thus, ground No.2 of the assessee and additional ground raised by the Department are dismissed.
16. Grounds No. 3 to 9 of the assessee are general in nature and therefore, did not require any adjudication.
17. Thus, appeal of the assessee in ITA No.531(Asr/2009 is partly allowed.
18. Now, we take up the appeal of the Revenue in ITA No.28(Asr)/2010. As regards ground No.1 of the Revenue, the brief facts of the case are that the assessee engaged M/s. Interior plus for the alteration work of restaurant 24 ITA No.531 & 432(Asr)/2009 & 12 ITA No.28(Asr)/2010 and business centre at Hotel. The assessee has failed to submit the copy of work contract. The bill specified alteration work and item wise description is mentioned as under:
i) Wooden ceiling for restaurant
ii) Marble flooring for restaurant
iii) Wall paneling for restaurant
iv) POP ceiling for Business Centre
v) Wall Paneling for Business Centre
vi) False ceiling
vii) Free standing column
The alteration work is not in nature of current repair and is hence not allowable u/s 30(a) of I.T.Act. Further, it is a one time expenditure and an advantage of enduring benefit has been derived by the assessee. Further, structural changes in the building by creating the ceiling, flooring, wall and free standing column had been made. The expense is not allowable u/s 37(1) of I.T.Act. Rs.10,81,561/- is hence added to the returned income and depreciation @ 10% of Rs.1,81,156/- is allowed.
19. The Ld. CIT(A) deleted the addition so made for the reasons mentioned in his order.
20. We have heard the rival contentions and perused the facts of the case. We concur with the views of the ld. CIT(A) that the expenditure was necessitated by the damage caused due to the air conditioning work 25 ITA No.531 & 432(Asr)/2009 & 12 ITA No.28(Asr)/2010 undertaken and on examination of the bill, which shows different areas for which alteration work had been done, which includes the wooden ceiling, cove lighting, business centre and some extra items, which mentions the percentage from 10% to 90% and for a few items 100%. We find no infirmity in the order of the Ld. CIT(A) that these are current repairs . The Ld. CIT(A) has rightly deleted the addition. Thus, ground No.1 of the Revenue is dismissed.
21. In ground No.2, the revenue has contended that the ld. CIT(A) erred in holding that out of expenditure of Rs.42,41,416/-, only 50% was capital expenditure and the balance 50% was revenue expenditure without appreciating that whole of the expenditure of Rs.42,41,416/- was capital expenditure.. As discussed above, as per bill of M/s. Saify Interior Decorator dated 25.1.2006, it was stated to be for alteration work. and the bill for POP work was for false ceiling on flat and vertical surface, plastic paint, wall paneling, wall covering, supply of teak wood alongwith architecture, wooden border, free standing column, main door etc. and we find no infirmity in the order of the ld. CIT(A). We have already held and allowed expenditure at 100% in assessee's appeal hereinabove and accordingly ground No.2 of the Revenue is dismissed.
26 ITA No.531 & 432(Asr)/2009 & 12
ITA No.28(Asr)/2010
22. Grounds No. 3 & 4 of the Revenue are general in nature and therefore, require no adjudication. Thus, the appeal of the Revenue in ITA No.28(Asr)/2010 is dismissed.
23. Now, we take up the appeal of the assessee in ITA No.432(Asr)/2012 for the A.Y. 2006-07. The assessee has also filed appeal against the order dated 13.09.2012 of Ld. CIT(A)-I, Ludhiana for the assessment year 2006- 07 in which same additions have been made under section 143(3) of the Act by the A.O. which are claimed to be duplicate additions, though the assessee has raised grounds of appeal, which are reproduced hereinabove.
24. Ground No.1 of the assessee is not pressed and the same is demised as not pressed.
25. In grounds No. 2 & 3, it has been claimed that duplicate additions have been made by the AO under assessment made u/s 153C of the Act, which has been made under section 143(3) of the Act dated 15.12.2008 for the assessment year 2006-07. Since the appeal having been decided against the order of the A.O. by the ld. CIT(A) vide order dated 13.10.2009 hereinabove and we have decided the appeal against the said additions sustained or deleted by the ld. CIT(A) hereinabove. Therefore, this appeal has become infructuous and is dismissed.
27 ITA No.531 & 432(Asr)/2009 & 12
ITA No.28(Asr)/2010
26. In the result, the appeal of the assessee in ITA No.531(Asr)/2009 is partly allowed and appeal of the Revenue in ITA No.28(Asr)/2010 is dismissed whereas the appeal of the assessee in ITA NO.432(Asr)/2012 is dismissed as infructuous.
Order pronounced in the open court on 21st May, 2014.
Sd/- Sd/-
(H.S. SIDHU) (B.P. JAIN)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 21st May, 2014
/SKR/
Copy of the order forwarded to:
1. The Assessee:M/s. Bright Enterprises (P) Ltd; MBD House, Railway Road, Jalandhar.
2. The DCIT C.C.II, Jalandhar.
3. The CIT(A), Jalandhar/Ludiana-I
4. The CIT, Jalandhar.
5. The SR DR, ITAT, Amritsar.
True copy By order (Assistant Registrar) Income Tax Appellate Tribunal, Amritsar Bench: Amritsar