Income Tax Appellate Tribunal - Kolkata
Video Plaza, Kolkata vs Assessee on 10 August, 2009
आयकर अपीलीय अधीकरण, Ûयायपीठ - "बी", कोलकाता,
IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH : KOLKATA
(सम¢) ौी बी. आर. िमƣल,् Ûयायीक सदःय, एवं ौी सी.डȣ.राव, लेखा सदःय
[Before Sri B. R. Mittal, JM & Sri C. D. Rao , AM]
आयकर अपील संÉया / ITA No.2051/Kol/2009
िनधॉरण वषॅ/Assessment Year : 2006-07
Video Plaza . -Vs- Income-tax Officer, Wd-1(4), Duirgapur
(PA No.AAEFV 1227 A)
(अपीलाथȸ/APPELLANT ) (ू×यथȸ/RESPONDENT)
For the Appellant: : ौी़/Sri S. Bandyopadhyay
For the Respondent ौी़/Sri Sanjay Bera
आदे श/ORDER
Per B. R. Mittal, (ौी बी.
बी. आर.
आर. िमƣल ् ), Ûयायीक सदःय)
सदःय :
The assessee has filed this appeal for assessment year 2006-07 against the order of the Ld. CIT(A) dated 10th August, 2009 on the following grounds :
"1. The Ld. CIT(A) has, on the facts and under the circumstances and in law, erred in confirming the addition made by AO of Rs.679,331/- (wrongly taken in grounds of appeal before CIT(A) as Rs.686,444/-] being charges paid to bank for credit facilities for expansion of business.
2. That the Ld. CIT(A) has, likewise, further erred in not giving any decision on assesee's ground of addition made by AO Rs.5,837/- being bank charges against bounced cheques."
2. At the time of hearing, the Ld. AR did not press ground no. 2 of the appeal. Hence, ground No. 2 of the appeal is rejected.
3. In respect of ground no. 1 of the appeal, relevant facts are that the assessee does business of electric and electronic items. The assessee purchased one plot of land measuring 18.05 cottahs of land to start one hotel thereon. In connection with setting up a hotel project, the assessee obtained finance facilities from State Bank of India. The State Bank of India debited bank charges, inter alia, towards sanction fee, processing charges etc. aggregating to Rs.6,79,331/- related to the said new project. During the course of assessment proceedings, the AO considered the said expenditure i.e. bank charges of Rs.6,79,331/- as capital expenditure and disallowed the same. Being aggrieved, the assesee filed appeal before the first appellate authority.
24. On behalf of the assessee it was contended that the assessee firm at the relevant time was engaged in trading of electronic and other consumer goods and ventured to expand its trading activities to develop the business into a departmental store (shopping complex) adding other consumer goods and also a restaurant-cum-hotel. Pursuant thereto, the assessee obtained the credit facilities from State Bank of India. The assessee contended that the said new project is an integrated project of expansion of existing show room of trading activities. That there was a case of common management, common funds, common bank account where from cheques were issued to trading parties as well. Therefore, the expansion of trading activities with added facilities could not be treated as a new line of business. On behalf of the assessee reliance was placed on the decisions of the Hon'ble Apex Court in the case of DCIT Vs. Core Health Care Ltd. 298 ITR 194 and JCIT Vs. United Phosphorus 299 ITR 9.
5. The Ld. CIT(A) after considering the submissions of the assessee has held that the above two decisions relied by the assessee are not applicable to the case of the assessee as these cases relate to allowing of deduction of interest paid u/s. 36(1)(iii) of the I. T. Act. It was also stated by the Ld. CIT(A) that the hotel project was not completed during the relevant previous year. That it was opened on 7th May, 2006 i.e. after the end of the relevant previous year. The Ld. CIT(A) has further observed that even if it was a case of disallowance of interest, the above two decisions would not be applicable in view of the amendment made by the Finance Act, 2003 by inserting a proviso to clause 36(1)(iii) to provide that no deduction would be allowed in respect of any amount of interest paid in respect of capital borrowed for acquisition of new asset for expansion of existing business for the period beginning from the date of which the capital was borrowed for the acquisition of the asset till the date on which such asset was first to be used. The Ld. CIT(A)has further stated that the assessee had embarked on a new line of business namely, the hotel business as the business of running a hotel is completely different and distinct from the existing business of retail trade in electronic goods. Since SBI sanctioned the credit facilities for a shopping cum hotel, the said bank charges were relatable to the new project and could not be allowed as revenue expenditure in the assessment year under consideration. Hence, the assessee is in further appeal before the Tribunal.
6. During the course of hearing, the Ld, AR mostly made his submissions on the lines of the submissions made before the authorities below. He further submitted that the 3 cases cited by the Ld. CIT(A) namely Ashoke Marketing Ltd. Vs. CIT 208 ITR 941, Hyderabad Allwyn Metal Works Ltd. Vs. CIT 98 ITR 555 and the case of CIT Vs. Mcgaw Rabindra Laboratories (I) Ltd. 132 ITR 401 are not correctly applied to the case of the assesee as the facts of those cases are different than the facts of the case of the assessee.
7. Further, the Ld. AR submitted that the assessee has expanded his existing business by setting up a departmental store (shopping Complex-cum-Restaurant cum Hotel). The Ld. AR submitted that the new project is only an extension of the existing business of the assessee as there is a common management, common control and the books of accounts of both the businesses are same and accordingly, the banking facilities obtained by the assessee are only for existing trading activities and, therefore, bank charges have to be allowed as revenue. Expenditure to the assessee. The Ld. AR also referred to the decision of the Hon'ble Apex Court in the case of B. R. Ltd. Vs. V. P. Gupta, CIT113 ITR 647 to substantiate his above submission. He further submitted that the orders of the authorities below will be reversed and the expenditure claimed by the assessee be allowed as revenue expenditure.
8. On the other hand, the Ld.DR supported the order of the Ld. CIT(A). He submitted that the bank charges have been debited by the SBI for sanction of facilities in connection with new business of restaurant cum hotel to be set up by the assesee. He submitted that the existing business and the new business are two different lines and the set up of restaurant cum hotel could not be said to be an expansion of the existing business of the assessee. He submitted that the order of the Ld. CIT(A) is to be confirmed to hold that the bank charges are capital expenditure.
9. We have carefully considered the orders of the authorities below and the submissions of the learned representatives of both the parties. We have also gone through the cases cited by the Ld. AR as also the cases relied on by the Ld. CIT(A) and referred by the Ld. DR during the course of his submission (supra).
10. There is no dispute to the fact that the existing business of the assesee is to retail trade in electronic and electrical items. There is also no dispute to the fact that the assessee has purchased one piece of land in City Centre, Durgapur and was in the process of setting up a hotel project on this plot of land. In this regard, the assessee has obtained financial facilities from SBI and a copy of the sanction of credit facilities by SBI to the assessee is placed at pages 10 to 19 of the paper book. We observe that SBI debited a 4 sum of Rs.6,79,331/- as bank charges relating to the said facilities given to the assessee for the new project i.e. hotel project. We observe that out of the said bank charges, a sum of Rs.6 lacs (approx.) relates to sanction fee and processing charges for grant of credit facilities. There is no dispute to the fact that the said hotel project was not completed in the relevant previous year. It was opened on 7th May, 2006 i.e. after the end of the relevant previous year. We are of the considered view that the setting up of the restaurant cum hotel project by the assessee is a new line of business altogether. We do not find any substance in the submission of the assessee that the setting up of the above project is an expansion of existing trading activities of the assessee. Even if there is a common management, common bank account and common books of accounts are maintained by the assesee for the existing business as well as for the new project to be set up, it could not be said that the setting up of the hotel project by the assesee is an expansion activities of the assesee of its existing business. In view of the above, we are of the considered view that the cases cited by the Ld. AR before the Ld. CIT(A) as well as the case of the Hon'ble Apex Court namely, B. R. Ltd. (supra) are not relevant to the facts of the case of the assessee. On the other hand, we are of the considered view that the decision of the Andhra Pradesh High Court in the case of Hyderabad Allwy Metal Works Ltd. (Supra) and the decision of the Hon'ble jurisdictional High Court in the case of Ashoke Marketing Ltd. (supra) and also the decision of the Hon'ble Gujarat High Court in the case of Mcgaw Rabindra Laboratories (I) Ltd. (supra) squarely applied to the facts of the case of the assessee. Therefore, we hold that the Ld. CIT(A) has rightly held that the said expenditure towards bank charges of Rs.6,79,331/- related to the new project i.e. restaurant cum hotel project is capital expenditure and would have to be capitalized as cost of the project and the same cannot be allowed as revenue expenditure for the assessment year under consideration. Therefore, we uphold the order of the Ld. CIT(A) and reject ground No. 1 of the appeal taken by the assessee.
11. In the result, the appeal of the assessee is dismissed.
Order is pronounced in the open Court on 6.8.2010
Sd/- Sd/-
सी.
सी.डȣ.
डȣ.राव,
राव, लेखा सदःय ौी बी.
बी. आर.
आर. िमƣल ् Ûयायीक सदःय
(C. D. Rao) (B. R. Mittal)
Accountant Member Judicial Member
(तारȣख)
तारȣख) Dated : 6th August, 2010
5
वǐरƵ िनǔज सिचव Jd.(Sr.P.S.)
आदे श कȧ ूितिलǒप अमेǒषतः- Copy of the order forwarded to:
1. अपीलाथȸ /Appellant - M/x. Video Plaza, C/o V. N. Purohit & Co., Chartered Accountants, 32B, G. C. Avenue, 2nd floor, Kolkata-13.
2 ू×यथȸ/ ITO, Ward-1(4),Durgapur
3. आयकर किमशनर/The CIT, Durgapur
4. आयकर किमशनर (अपील)/The CIT(A), Durgapuri .
5. वभािगय ूितनीधी / DR, Kolkata Benches, Kolkata स×याǒपत ूित/True Copy, आदे शानुसार/ By order, उप पंजीकार/Deputy Registrar.