Income Tax Appellate Tribunal - Delhi
Frankfinn Aviation Services Pvt. Ltd., ... vs Department Of Income Tax on 3 September, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH: 'B, DELHI)
Before Shri S. V. Mehrotra, Accountant Member
And
Shri Kul Bharat, Judicial Member
ITA No.684/Del / 2012
(Assessment Year-2008-09)
DCIT Vs. Frankfinn Aviation Services Pvt. Ltd.
Circle -11(1), 721, Suneja Tower-II,
C. R. Building Dstrict Centre, Janakpuri,
New Delhi. New Delhi
PAN: AAACF0226G
(APPELLANT) (RESPONDENT)
CO No. 102/Del/2012
(In ITA No. 684/Del/2012)
Frankfinn Aviation Services Pvt. Ltd., Vs. DCIT,
721, Suneja Tower -II, Circle-11(1)'
District Centre, Janakpuri, Room No. 312,
C.R. Building
New Delhi. New Delhi.
PAN: AAACF0226G
(APPELLANT) (RESPONDENT)
ASSESSEE BY : Ms. Meeta Sinha, Sr. DR
REVENUE BY :Shri K. M. Gupta, Adv.
Date of hearing : 03.09.2012
Date of pronouncement :14/09/2012
ORDER
2 ITA No.684/Del/2012
PER S.V. Mehrotra, Accountant Member
This is an appeal filed by the Revenue against the order dated 29.11.2011 of CIT (A)-XIII, New Delhi relating to assessment year 2008-09 on following grounds of appeal:
"1. On the facts and circumstance of the case and in law, the Ld. CIT (A) has erred in deleting the addition of Rs.74,66,415/- made on account of disallowance of depreciation on leasehold improvements/ temporary structure.
2. The appellant craves to add, alter or amend any ground of appeal raised above at the time of hearing."
2. Brief facts of the case are that the assessee company, in the relevant assessment year, was engaged in business of providing vocational training in the filed of aviation, hospitality and travel management of cabin crew and job aspirants including providing job assistance support. It was also in the trade of development of music albums land publication of aviation magazines.
3. The Assessing Officer noticed that the assessee had claimed depreciation@ 100% on account of expenses incurred of Rs.8,14,88,332/- under the head lease hold improvements. The Assessing Officer notices that the rate of depreciation had been applied depending on the number of days the assets were put to use during the relevant year. The assessee was asked to submit the details of expenses, nature and reason behind claiming 3 ITA No.684/Del/2012 depreciation @ 100% . The assessee company explained that the vocational training centre was being run in leased premises where the above expenses had been incurred. It was pointed out that assessee was not the owner of the premises but paying rent regularly to the land lord and the above expenses were in the nature of running expenses which were required to be incurred thorough out the year. Therefore the claim of depreciation @ 100% by way of grouping the expenses under the head lease hold improvement was made. The Assessing Officer did not accept the assessee's contention, inter-alia observing as under:
" The entire renovation works have been treated by the assessee as temporary erection which is not correct because the premises in which these renovation work have been carried out are on lease rent for the longer period i.e. 3 years to 5 years (till the termination of the lease agreement). The assessee is not going to dismantle these structures within a year so as to provide the nature of temporary erection. The assessee has not submitted any evidence to substantiate that in any lease premise the erected structure or renovated structure have to be dismantled or removed. After carrying out extensive renovation work with the leased premise, the nature of work loses its separate identity and its original identity merged with the leased premise i.e. building on which the assessee is entitled for depreciation @ 100% only and separate depreciation under any other head can not be provided on the ground that the actual nature of work has lost its separate identity. In fact, these expenses are for improving the fixed assets i.e. the premises where the assessee is running its training centres. These are going to produce benefits to the assessee for several years which, in any way, have to be capitalized with the block of assets under the head furniture and fixtures on which the 4 ITA No.684/Del/2012 assessee is entitled for depreciation in view of explanation (1) to section 32 (1) of I. T. Act which stipulate:
" where the business of profession of the assessee is carried on in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of business or profession on the construction of any structure or doing of any work in or in relation to, and by way of renovation or extension of, or improvement to, the building, then, the provision s of this clause shall apply as if the said structure or work is a building owned by the assessee."
In view of the above discussion, an amount of Rs.8,14,88,332/- is to be capitalized under the head buildings. The assessee on the capitalized amount is worked out as under:-
1. On Rs.6,78,39,969/- @ 10% as the assets was used for more than 180 days at Rs.67,83,996/-.
2. On Rs.1,36,48,363/- @ 5% as the asset was used forless than 180 days at Rs.6,82,418/-.
Accordingly, total depreciation is allowed at Rs.74,66,414/- and balance amount of Rs.7,40,21,918/- is added to the total income of the assessee. Penalty proceedings u/s 271 (1) (c) of I. T. Act, 1961 is initiated separately for furnish inaccurate particulars thereby concealing the income."
4. Before Ld. CIT (A) it was submitted that the similar issue had also arisen in the assessment year 2005-06, wherein Ld. CIT (A) partly accepted the contentions of the assessee. Both assessee and Department filed appeals against the order of Ld. CIT (A) before the ITAT, Delhi, which vide its order dated July 30, 2010 observed as under:
" CIT (A) has held an amount of Rs.8,78,003/- as pertaining to temporary structure, which cannot be classified as furniture and thus allowable expenses. We see no reason to disturb the finding given by the CIT (A) that this amount represents purchase of temporary wooden structure not amounting to furniture, therefore, revenue's ground in this 5 ITA No.684/Del/2012 behalf is dismissed. Coming to the balance amount of such expenses, though we do not appreciate the assessee's practice of capitalizing revenue expenses, nevertheless actual nature of expenses is to be looked into. In view thereof, we set aside the balance issue in this behalf back to the file of Assessing Officer to verify the capital and revenue nature of the expenses, particularly keeping in view details thereof as painting, polishing, white-wash, carpentry work & PVC flooring etc. assessee is eligible for revenue expenses in respect of these items on verification. Assessing Officer will decide the issue afresh giving the assessee an opportunity of being heard."
5. Thus, it was submitted that the ITAT upheld the claim of the company that expenditure incurred on temporary wooden structure was not in the nature of structure, therefore, eligible for depreciation @ 100% and, therefore, dismissed the appeal of the Revenue and upheld the claim of the assessee in this regard for balance amount, the ITAT held that expenditure incurred in the nature of painting, polishing, white-wash, carpentry work & PVC flooring etc. were in the nature Revenue expenses and, therefore, should be allowed as a deduction u/s 30 or 37 (1) of the Act and allowed the appeal of the assessee. In pursuance of these findings the assessee filed complete details and bifurcation of expenditure incurred as under:
S No. Particular Amount
1 Carpentry work 15446126
2 Painting and Whitewashing 2760507
3 PVC Flooring 7848546
4 Interior- False Ceiling etc. 17001807
5 Temporary Wooden structure 25173450
6 Electricity work 13240426
6 ITA No.684/Del/2012
7 Others 17470
Total 81488332
6. Ld. CIT (A) following the order for assessment year 2005-06 dated 30th July, 2010 and 2007-08 dated 27th May, 2011. ITAT gave findings that assessee was entitled to depreciation in respect of various items.
(i) Assessee entitled to 100% depreciation in respect of temporary wooden partitions amounting to Rs.2,51,73,450/-.
(ii) Expenditure incurred on painting, polishing, white-wash, carpentry work & PVC flooring and interior fall ceiling etc. was Revenue in nature and is to be considered u/s 37.
(iii) Carpentry work Ld. CIT (A) has restored the matter to Assessing Officer for examining nature of expenses in view of new Appendix-1, part A (tangible assets)-II "Furniture and fixture" under the depreciation schedule of IT Rules.
(iv) As electricity work for Rs.1,32,40,426/-
7. Ld. DR submitted that the matter may be restored back to the file of Assessing Officer for examining the details in pursuance of the directions of Tribunal for the assessment year 2005-06 and 2007-08.
8. Ld. Counsel for the assessee submitted that the facts in assessment year 2005-06 the matter was restored to the file of Assessing Officer 7 ITA No.684/Del/2012 because the bifurcation in respect of various expenses was not furnished before the Lower Revenue Authorities. However in the assessment year 2007-08 Tribunal has not restored the matter to the file of Assessing Officer and has upheld the findings of Ld. CA.
9. We have considered the submissions of both the parties and have perused the record of the case. As far as depreciation in regard to temporary wooden structure is concerned we find that Tribunal in assessment year 2005-06 in para 16 has observed as under:
"CIT (A) has held an amount of Rs.8,78,003/- as pertaining to temporary wooden structure, which cannot be classified as furniture and thus allowable expenses. We see no reason to disturb the finding given by the CIT (A) that this amount represents purchase of temporary wooden structure not amounting to furniture, therefore, Revenue's ground in this behalf is dismissed."
In assessment year 2007-08 Tribunal followed the order for assessment year2005-06.
10. We do not find any reason to interfere with the findings of Ld. CIT (A) on this count. As far as expenditure on carpentry work is concerned we have find that Ld. CIT (A) has restored the matter to the file of Assessing Officer observed as under:
" In so far as expenses on carpentry work is concerned the appellant has submitted vide his letter dated22.09.2010 that carpentry work is basically various types of wooden work which is under taken by using and replacing the old partitions of for fitting 8 ITA No.684/Del/2012 of locks, handles, cup0boards etc. in the temporary partitions/ wooden structure of the premises. The breakup of such expenses have also been provided in a chart from by the appellant from which it is seen that these expenses have been incurred at various locations through out India. In A.Y 2007-08 the expenditure has been held to be Revenue in nature with the directions that the possibility of some of such expenses falling within New Appendix- 1, Part A (tangible assets)-II "furniture and fixture" under the depreciation schedule of IT rules cannot be ruled out in the sense that a furniture and fitting which falls within the meaning of this depreciation schedule should be capitalized and depreciation allowed on theses items as per the rules. The Assessing Officer was accordingly directed to allow the expenses on "carpentry works" upon examining the nature of expenses in terms of above observations. As the facts are identical for A.Y 2008-09 the Assessing Officer is directed to examine the carpentry expenses from the point of view of being "Furniture and fixture" assets. On the items so identified depreciation at prescribed rates is to be allowed, the rest of the expenditure on carpentry is to be allowed as revenue expenses. Assessing Officer to give effect accordingly."
11. We find that the directions of Ld. CIT (A) are in accordance with law and, therefore, we do not interfere with the order of Ld. CIT (A) as far as expenditure on on painting and white-wash- Rs.27,60,507/, PVC flooring- Rs.7848546/- and interior fall ceiling, Interior - false ceiling etc.- Rs.17001807/-and others Rs.17470/- is concerned Tribunal has held these expenses of Revenue nature hence we do not find any reason to interfere with the order of Ld. CIT (A) accordingly we uphold the same. In the result the Departments appeal is dismissed. Now we come to the CO.
9 ITA No.684/Del/2012
12. Wherein the assessee has raised following ground:
"1. That on the facts and circumstances of the case and in law, the Ld. CIT (A) erred in not allowing the expenditure incurred on electrical work as revenue expenditure amounting to Rs.1,32,40,426/- without appreciating that the same is integral part of total expenditure on leasehold improvements during the year and does not have its separate existence."
13. Having heard both the parties we find that this issue is covered against the assessee by the order of Tribunal for assessment year 2007-08 vide order dated 27th May, 2011 wherein Tribunal has observed as under:
" We have heard the rival contentions in the light of material produced and precedents relied upon. Assessee's counsel has inter-alia referred to the Tribunal decision as dealt with in the above order and tried to place reliance upon the same on this issue. Ld. DR on the other hand relied upon the order of Ld. CIT (A). We have carefully perused the matter. We find that ITAT has not given any judgment on this issue. Hence this cannot be said to be covered by ITAT's order as above. We find that Ld. CIT (A) on this issue has held that electrical fittings from part of tangible assets under IT Rules 1962. Hence the Ld. CIT (A) held that since electrical fittings has specific rate of depreciation provided, upon capitalization of these expenses, therefore, claim of assessee to allow this expenditure as revenue expenditure is not acceptable. Moreover he has further rightly observed that electrical fittings can be also used by assessee even after lease premises are vacated. Accordingly we do not find any infirmity in the order of Ld. CIT (A) on this issue and we uphold the same.
Hence ground no.1 of the C. O. stands dismissed."
Respectfully following the decision of Tribunal the C. O filed by assessee is dismissed.
Order pronounced in open court on 14 /09/ 2012.
10 ITA No.684/Del/2012
Sd/- Sd/-
(Kul Bharat) (S.V.Mehrotra)
Judicial member Accountant Member
Dated the 14th day of September, 2012
S.Sinha
Copy forwarded to
1. APPELLANT
2. RESPONDENT
3. CIT
4. CIT (A)
5. CIT(ITAT), New Delhi.
AR,ITAT
NEW DELHI.
By Order
Dy. Registrar
// C O P Y//
1. Date of Dictation:
2. Draft placed before the Author on:
3. Draft proposed and placed before second member on:
4. Draft discussed/approved by the second member on:
5. Approved draft came to Sr. P.S on:
6. Date of Pronouncement:
7. File sent to Bench clerk on:
8. Date on which file given to Head clerk on:
9. Date of dispatching the order on: