Income Tax Appellate Tribunal - Kolkata
Ritika Pvt. Ltd., Kolkata vs Dcit, Cir-12, Kolkata, Kolkata on 30 August, 2017
आयकर अपील य अधीकरण, यायपीठ - "B" कोलकाता, IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH "B" KOLKATA Before Shri Aby.T Varkey, Judicial Member and Shri Waseem Ahmed, Accountant Member ITA No.1276 & 1309/Kol/2014 Assessment Year :2004-05 Ritika Pvt. Ltd. V/s. DCIT, Circle-12, Aayakar 138, Beliaghata Road, Bhawan, P-7, Kolkata-15 Chowringhee Square, [P AN No. AABCR 5510 Kolkata-69 N] DCIT, Circle-12, P-7, V/s. M/s Ritika Pvt. Ltd.
Chowringhee Square, 138, Beliaghata Road,
Aayakar Bhawan, 7 t h Kolkata-15
Floor, Kolkata-69
अपीलाथ /Appellant .. यथ /Respondent
आवेदक क ओर से/By Assessee Shri D.S. Damle, FCA
राज व क ओर से/By Respondent Shri SaurabhKumar, Addl. CIT-DR
सन
ु वाई क तार
ख/Date of Hearing 06-07-2017
घोषणा क तार
ख/Date of Pronouncement -08-2017
आदे श /O R D E R
PER BENCH:-
These are cross-appeal filed by the assessee as well as Revenue is directed against the common order of Commissioner of Income Tax (Appeals)-XII, Kolkata dated 21.03.2014. Assessment was framed by DCIT, Circle-12, Kolkata u/s 254/143(3) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') vide his orders dated 27.12.2012 for assessment year 2004-05.
ITA No. 1276 &1309/Kol/2014 A.Y 2004-05 Ritika Pvt. Ltd. Vs. DCIT, Cir-12 Kol. Page 2
Shri D.S. Damle, Ld. Authorized Representative appeared on behalf of assessee and Shri Saurabh Kumar, Ld. Departmental Representative represented on behalf of Revenue.
2. Both the appeals are heard together and are being disposed of by way of consolidate order for the sake of brevity.
First we take up assessee's appeal in ITA No.1276/Kol/2014.
3. Grounds raised by assessee per its appeal are as under:-
"1) For that on the facts and in the circumstances of the case, the CIT(A) was unjustified in law and on facts to uphold the disallowance of foreign travel expenses incurred by the appellant in respect of foreign travel undertaken by the employees of the appellant without appreciating facts and circumstances of the case.
2) For that on the facts and in the circumstances of the case, the appellant having incurred expenditure on foreign travel undertaken by the employees wholly and exclusively for business purpose; the CIT(A) ought not to have upheld the disallowance of the foreign travel expenditure particularly when the AO did not bring on record any material to disprove that the foreign travel was not undertaken for business purposes.
3) For that on the facts and in the circumstances of the case, the AO be directed to allow the deduction for expenditure incurred on foreign travel undertaken by employees other than Mrs. Ritu Kumar.
4) For that on the facts and in the circumstances of the case, the CIT(A) was unjustified in law and on facts in upholding the disallowance to the extent of 75% of the film sponsorship expenses even though the appellant had placed before the lower authorities all the material facts establishing the commercial expediency involved in incurring film sponsorship expenses.
5) For that on the facts and in the circumstances of the case, the CIT(A) having accepted that the expenditure was incurred or laid out wholly for business purposes and on that basis having allowed deduction to the extent of 25% thereof; the CIT(A) could not arbitrarily uphold the disallowance in respect of film sponsorship expenses to the extent of 75% and such decision of the CIT(A) being wholly arbitrary and unreasonable the disallowance deserves to be deleted.
6) For that on the facts and in the circumstances of the case, the AO be directed to allow deduction for the entire film sponsorship expenses amounting to Rs.32,23,337/-.
7) For that the appellant craves leave to submit additional grounds and/or amend or alter the grounds already taken either at the time of hearing of the appeal or before."
4. Ground No 1 to 3 are inter-related and therefore being taken up together. The issue raised is that Ld. CIT(A) erred in confirming the order of ITA No. 1276 &1309/Kol/2014 A.Y 2004-05 Ritika Pvt. Ltd. Vs. DCIT, Cir-12 Kol. Page 3 Assessing Officer by sustaining the disallowance on account of foreign travel expenses for ₹17,40,537/- only.
5. Briefly stated facts are that assessee is a private limited company engaged in business of distribution, marketing and sale of readymade garment from showrooms which are located on PAN India basis. The assessee is promoting its business under the brand name "Ritu Kumar". The assessee in the year under consideration has incurred foreign travel expense of three persons namely, Mrs. Ritu Kumar, Ms. Neelam Arora and Shri Amabrish Prakash Kumar for ₹17,40,537/- only. The assessee along with other persons as mentioned above has travelled various foreign countries during the year and details of foreign countries where assessee has travelled are placed on page 5 and 6 of the assessment order.
6. The assessee has also filed the vouchers containing the details of payment for foreign travelling expenses. The assessee also submitted the clipping of various newspapers to justify the achievements made by Mrs. Ritu Kumar in the field of fashion. The necessary detail is recorded in pages to 11 of the assessment order. However, the AO disregarded the contention of assessee by observing as under:-
i) The print out of website showing the details of events took place during the year cannot be the basis of justification for the travelling expenses.
ii) There is no evidence suggesting that Mrs. Ritu Kumar and others were present in the fair. The assessee has not produced any document evidencing that Mrs. Ritu Kumar has attended the events. The assessee has not furnished the necessary details of events attended by her rather it has submitted newspaper clipping to justify the foreign travelling. The newspaper clippings show that Mrs. Ritu Kumar is a renowned fashion designer and has attended many conferences and seminars etc. but necessary details in support of her foreign travelling expenses suggesting the business connection with the assessee has not been produced by the assessee.
ITA No. 1276 &1309/Kol/2014 A.Y 2004-05 Ritika Pvt. Ltd. Vs. DCIT, Cir-12 Kol. Page 4
In view of above, the AO disallowed the claim of foreign travelling expenses for ₹17,40,537/- only and added to the total income of assessee.
7. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee submitted before Ld. CIT(A) that assessee-company engaged in business of fashion designing of garments. These garments are purchased by rich class ladies and their likings of dress are highly influenced by the trends and fashions which are prevailing all over the world. Therefore, the assessee attended various fashions, shows, exhibitions and trade fairs to understand prevailing trend world-wide. The employees of assessee used to collect fresh samples of products, fabrics and other garments from the fairs in order to understand the prevailing trend in the society.
The assessee and its executives have attended various fashion shows held in Paris, London, New York and these are the cities known as fashion capital of world. The allegations of AO that there is no evidence to suggest that assessee has attended those fairs are baseless. It is because assessee used to attend these fairs in order to keep its up-to-date fashion industries. There is no requirement under the provision of law for claiming the expenses that assessee has to prove her attendance in those fairs. The assessee further submitted similar expenses were incurred in earlier years as well as in subsequent year and in none of the case same were disallowed in any assessment year which were framed u/s. 143(3) of the Act. However, Ld. CIT(A) after considering the submission of assessee has confirmed the order of AO by observing as under:-
"5.1.2 The appellant claimed Rs.1740537/- as foreign expenses for travel of three persons i.e. Mrs. Ritu Kumar, Ms. Neelam Aror and Shri Ambrish Prakash Kumar. During the course of proceedings, the Assessing Officer required the appellant to produce copy of Board resolution or any such documents showing the approval of such tours to show that the foreign tour has been expended for purpose of business. The Assessing Officer further wanted the appellant to furnish wanted copies of letter written to foreign embassy showing purpose of each visits. He also asked the appellant for furnishing the names, address and designation of persons undertaking the travel. For want of details the same was added back. Before CIT(A) assessee submitted the names of person undertaking the foreign travel, statement of foreign travel expenses with supporting bills and voucher and evidence for incurring these expenses. Remand report was sought from AO CIT(A) allowed ITA No. 1276 &1309/Kol/2014 A.Y 2004-05 Ritika Pvt. Ltd. Vs. DCIT, Cir-12 Kol. Page 5 expenses of Mrs Ritu Kumar but upheld the disallowance in other two persons. Before ITAT assessee stated that page 165 to 244 of paper book contain the description of foreign tour expenses. It stated that page 165 to 168 contain statement of foreign tour expense with the details such as country visited, period of visit, amount paid for ticket and other details regarding the purpose of visit. The Assessing Officer noted that in appeal before the ITAT, the Ld. DR had submitted that the claim of the appellant was not supported with any documentary proof brought on record regarding the foreign travels of the persons and after considering such submissions, the Hon'ble Tribunal observed that 'we find merit in the arguments of the ld. DR Mr. D.R. Sindhal inasmuch as necessary evidence in support of the claim made is not available on record.'. The Tribunal directed that '...The AO shall allow the assessee to place on record relevant evidences which the assessee may care to lead in support of the claim which have not been placed on record as on date. Anny correspondence with the designers or brochure of fashion shows visited by the assessee for the year under consideration in regard to claim put forth etc may be placed before the AO namely that a specific conference took place in a country at a point of time.' In view of thee directions of the Hon'ble Tribunal, the Assessing Officer required the appellant to submit copy of relevant pages of submission discussed in the Tribunal's order as also details as per direction of ITAT to justify the claim of expenses. The appellant filed before the Assessing Officer the copies of details of foreign tours of the Director and employees for participating in various events in Dubai, France, USA and other foreign countries, as were produced before the ITAT and also website print out of the various programmes. The Assessing Officer after analyzing the details as furnished by the appellant has drawn a chart along with his comments, which formed part of the assessment order and which is made as Annexure 'A' (copy enclosed) to this order.
The Assessing Officer observed that printout of website showing date of events in the year 2010 and 2012 cannot be an evidence that the event had taken place in the year 2003. Without prejudice even if the event has supposed to have taken place it cannot be established that Smt Ritu Kumar and others were present at the fair. According to the Assessing Officer, there was no document evidencing their attendance at the said events; from the newspaper clippings it is seen that in majority of cases the events were not related to places visited; and in many instances the year of visit were irrelevant. The Assessing Officer further noted that the newspaper clipping showed that Mrs Ritu Kumar is a popular and renowned fashion designer, that she attends many conferences, seminars, etc., but the specific claim made in the profit & loss account has not been supported by any specific evidence in this background, the Assessing Officer held that the travelling expenses of Rs.1740537/- could not be held to be for business purpose and the same has been disallowed accordingly."
Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us.
ITA No. 1276 &1309/Kol/2014 A.Y 2004-05 Ritika Pvt. Ltd. Vs. DCIT, Cir-12 Kol. Page 6
8. Before us Ld. AR for the assessee reiterated the same arguments that were made before Ld. CIT(A) whereas Ld. AR also enclosed the details of expenses claimed by assessee in respect of foreign travelling expenses in earlier years as well as in subsequent year also. He also compared its travelling expenses with the total turnover of assessee. The necessary details enclosed as per Annexure-1.
On the other hand, Ld. DR vehemently relied on the order of Authorities Below.
9. We have heard the rival contentions of both the parties and perused the material available on record. At the outset, we find that similar foreign travelling expenses were allowed by this Co-ordinate Bench of this Tribunal in assessee's own case in ITA No.1022/Kol/2012 vide order dated 03.07.2015. The relevant operative portion of this order is reproduced below:-
5.We have heard rival submissions and gone through the facts and circumstances of the case. We find that AO himself from AYs 2002-03 to 2011-12 except in AY 2004-05 and 2005-06 the foreign travels have been allowed. Even the assessee is engaged in manufacturing and export of ready-
made garments and outfit and assessee has disclosed the turnover of its exports, it is imperative on the part of assessee to send its Directors or Merchandisers to earn export orders from the outside India and for that purpose, assessee has to incur these expenses. Accordingly, we are of the view that these expenses are genuine business expenses and no part of it can be disallowed and accordingly this issue of assessee's appeal is allowed."
Consistent with the view taken by the Co-ordinate Bench, we allow this claim of the assessee. It was also observed that similar expenses were claimed in the earlier years and subsequent year but no disallowance was warranted except in one case wherein the Hon'ble Tribunal deleted the addition as discussed above as evident from the Annexure-1 is enclosed with the order. Hence, this ground of assessee is allowed.
10. Next ground No.4 to 6 are inter-related and therefore being taken up together. The issue is that Ld. CIT(A) erred in restricting the allowance of film sponsorship expenses to the extent 25% of total expense.
11. The assessee in the year under consideration has sponsored the production of two films namely "Road to Ladakh" and "Little Terrorist".
ITA No. 1276 &1309/Kol/2014 A.Y 2004-05 Ritika Pvt. Ltd. Vs. DCIT, Cir-12 Kol. Page 7
Accordingly, assessee incurred an expense of ₹32,33,337/- on the sponsorship of the movies. The purpose behind the movies was to promote the brand of the assessee "Ritu Kumar". Further, the name of the assessee was also exhibited in the movie as cosmetic and fashion designer. As per the assessee, the cost was incurred to promote its products all over the world. However, the AO observed that there was the promotion of Mrs. Ritu Kumar as designer in the film. There was no benefit derived by the assessee as no brand of it was promoted. The AO also observed there was no increase/ promotion in the sales of the company which is arising out of the sponsorship of these movies. Therefore, the AO held that the expenses is incurred on sponsorship of movies are not connected with the business of assessee and accordingly the amount was disallowed by adding it to the total income of assessee.
12. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that the expense were incurred solely for the promotion of the company's products. The assessee also submitted that similar expenses were also claimed in the earlier years and no disallowance was made. However, Ld. CIT(A) after considering the submission made by the assessee granted relief in part of by observing as under:-
"5.2.3 Decision:
I have carefully considered the facts of the case, the finding of the Assessing Officer and the submissions put forth on behalf of the appellant. I am inclined to accept the claim of the appellant that the claim of expenditure on sponsorship was separate from shooting expenses debited in the profit and loss account. The facts and material brought on record clearly show that the appellant has incurred expenses on sponsorship of the two films as claimed. However, even during the course of re-examination of the claim of the appellant, the appellant could not adduce any additional evidence, other than those produced before the Hon'ble Tribunal in support of the claim that expenditure to the extent of Rs.32,33,337/- has been wholly and exclusively laid out for business purposes. Therefore, having regard to the facts and circumstances, I consider it reasonable to follow the order of my predecessor-in-office, wherein he has allowed 25% of the expenses as reasonable on account of sponsorship expenses. The ITA No. 1276 &1309/Kol/2014 A.Y 2004-05 Ritika Pvt. Ltd. Vs. DCIT, Cir-12 Kol. Page 8 Assessing Officer is directed to restrict the disallowance to Rs.24,25,000/-. The appellant gets a relief of Rs.8,08,337/- on this account."
Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us.
13. Before us Ld. AR for the assessee reiterated the same arguments that were made before Ld. CIT(A). He further submitted that the details of expenses claimed by assessee over a period of certain year which are enclosed as per Annexure-2 On the other hand, Ld. DR vehemently relied on the order of Authorities Below.
14. We have heard the rival contentions of both the parties and perused the material available on record. In the instant case the expense incurred by assessee on the sponsorship of two movies were disallowed by AO on the ground that it has no nexus with the commercial activity of assessee. However, Ld. CIT(A) confirmed the disallowance to the extent of 75% of the total expense.
However in this regard, we find that assessee has claimed similar kind of expense in the earlier & subsequent years on the movies which had been allowed by Revenue in assessments framed u/s 143(3) of the Act. The necessary details are enclosed in annexure- 2 of this order. Further, we also find that there is no difference in the facts and circumstances of the assessee. Thus, in our considered view the principle of consistency can be applied as enunciated by the Hon'ble Apex Court in the case of in the case of Radhasoami Satsang vs. Commissioner of Income Tax (1992) 193 ITR 0321 (SC) wherein it was observed in the absence of any material change in the facts, the Revenue should not take a different view in the other year. Therefore, following the rule of principle of consistency we delete the addition made by the Authorities Below. Respectfully following the precedent of the judgment of Hon'ble Supreme Court we reverse the order of Authorities Below ITA No. 1276 &1309/Kol/2014 A.Y 2004-05 Ritika Pvt. Ltd. Vs. DCIT, Cir-12 Kol. Page 9 and direct the AO to delete the addition. Hence, this ground of assessee is allowed.
15. Last ground in this appeal of assessee is general in nature and does not require any separate adjudication.
16. In the result, assessee's appeal is allowed.
Coming to Revenue's appeal in ITA No.1309/Kol/2014.
17. First issue raised by Revenue in this appeal is that Ld. CIT(A) erred in restricting the disallowance made by AO to the extent of 75% on the expense of film sponsorship for ₹32,23,337/-.
18. At the outset, it was observed that we have already adjudicated this inter-related issue in assessee's appeal in ITA No.1276/Kol/2014 vide para 11 to 14 of this order wherein we have allowed the entire expense claimed by assessee. Respectfully following the same we confirm the order of Ld. CIT(A). Hence, this ground of Revenue is dismissed.
19. Next issue raised by Revenue in this appeal is that Ld. CIT(A) erred in restricting the disallowance made by the AO on the expense of ₹1,61,94,830/- under the head "repair" and "maintenance".
20. The assessee in the year under consideration has claimed expense of ₹1,61,94,830/- under the head "repair" & "maintenance" by debiting in profit and loss account. This expense was incurred for civil work, false ceiling work, cupboard work, electrical work, floor work etc. All these expenses were incurred on the premises taken on lease by the assessee. The AO during the course of assessment proceedings requested the assessee to furnish the details of expenses incurred in relation to repair and maintenance but assessee failed to furnish any details. Therefore AO disallowed the same and added to the total income of assessee.
21. Aggrieved, assessee preferred an appeal before Ld. CIT(A). Before Ld. CIT(A) assessee submitted that all the expenses were incurred on leasehold ITA No. 1276 &1309/Kol/2014 A.Y 2004-05 Ritika Pvt. Ltd. Vs. DCIT, Cir-12 Kol. Page 10 premises and no fixed asset was generated out of these expenses. Therefore this cannot be held as capital in nature. The assessee also claimed to have furnished complete break-up and details of repair and maintenance expense to the AO at the time of assessment proceedings. The AO treated all the expenses as capital in nature and accordingly made the disallowance. AO also erred in not allowing the depreciation if these expenses are treated as capital in nature. The assessee also submitted that various show-rooms were taken on lease for a period of three years which are renovated. There was renewable clause for the extension of lease at the end of term but subject to mutual agreement between the assessee and the lessor. Ld. CIT(A) after considering the submission of the assessee deleted the addition made by AO by observing as under:-
5.4.4. Decision:
I have carefully considered the facts of the case, the submissions of the appellant and the material placed on record. In the original proceedings u/s 143(3) these expenses were disallowed by the Assessing Officer which was deleted by the CIT(Appeals). On appeal the ITAT set aside the issue back to the file of Assessing Officer to decide the nature of repairs & maintenance in light of the amendment in Section 30 & 31 of the Income-tax Act, 1961. The Assessing Officer, after considering the explanation offered by the appellant observed that "the nature of expenses were civil work, false ceiling work, carpentary work, electrical work, flooring work, sanitary and plumbing work, grills, collapsible gates, staircases, shutters, railings, AC ducts, etc. These are in nature of fixed assets which provides enduring benefit to the assessee, There was need to determine the period of benefit from these assets. Assessee was asked to show the frequency of these expenses by giving the previous date of purchase and the later date of purchase of the same item. No details were furnished." It was In this back-ground, that the Repairs and maintenance expenses of an amount Rs.1,61,94,830/- was treated as capital expense. On the other hand, the appellant has explained the back-ground of the claim as revenue expenditure in the following terms:
"At the outset the appellant would like to place the facts on record which ore pertinent to the issue involved in these grounds. As stated above the appellant is engaged in the business of marketing & .selling ready-made garments from retail outlets & showrooms which are located across India. The showrooms being operated by the appellant are taken on operating lease. The lease is generally for a period of three years which is renewable at the end of the term at the option of the lessee as well as the lessor. These premises are not thus owned by the appellant and repairs ore carried out keeping in view of the facts that the premises would remain with the assessee for short durations. In today's commercial world, the retail spaces are let out in bare conditions and do not have any infrastructure or fixtures in order to ITA No. 1276 &1309/Kol/2014 A.Y 2004-05 Ritika Pvt. Ltd. Vs. DCIT, Cir-12 Kol. Page 11 enable the lessee to carry on retailing business efficiently & effectively. The lessee who takes such premises on rent is required to incur expenses for make the premises fit for retailing efficiently & profitably. The appellant company operates an international brand, 'Ritu Kumar'. It is therefore imperative that the infrastructure, fixtures, decor and the ambience at the retail outlets remains consistent throughout India. The appellant therefore incurs the expenses on carrying out repair so as to enable it to run its retail operations effectively, efficiently and profitably. By incurring such expenses the lessee i.e. the appellant does not acquire any capital asset nor derives any benefit of enduring nature. The AO however without appreciating these basic jurisdictional facts disallowed the entire expenses incurred on repairs & maintenance."
From a perusal of the material facts brought on record and as stated on behalf of the appellant. it is apparent that the Assessing Officer has not appreciated the facts of the case in entirety keeping in view the directions of the Hon'ble Tribunal "to place on record the details of the expenses so as to justify its claim that the expenditure is revenue in nature and not capital". In fact, the Hon'ble ITAT has restored the matter back to the file of the Assessing Officer to determine the nature of expenditure incurred by the appellant, particularly in view of the Explanation inserted under sections 30 and 31 by the Finance Act, 2003, w.e.f. 1-4-2004. The Explanation inserted below section 30 reads as under:
"Explanation- For the removal of doubts, it is hereby declared that the amount paid on account of the cost of repairs referred to in sub-clause
(i), and the amount paid on account of current repairs referred to in sub-clause (ii), of clause (a), shall not include any expenditure in the nature of capital expenditure." j.
Similar is the Explanation inserted below section 31 of the Act, which reads as under:
"Explanation-For the removal of doubts, it is hereby declared that the amount paid on account of current repairs shall not include any expenditure in the nature of capital expenditure."
Now, the appellant has placed on record the details of expenditure incurred claimed under the head 'current repairs', The Assessing Officer found such expenditure to be for "the nature of expenses were civil work, false ceiling work, carpentry work, electrical work, flooring work, sanitary and plumbing work, grills, collapsible gates, staircases, shutters, railings, AC ducts, etc. These are in nature of fixed assets which provides enduring benefit to the assessee," Whereas, the claim of the appellant is that out of Rs.1,61,94,830/-, only an amount of Rs. Rs.4,00,273/- was of capital in nature. Now, the issue involved is whether the expenditure incurred by the appellant company on the facts and in the circumstances of. the case was in the capital expenditure or revenue expenditure. As pointed out by the appellant, in its own case for A.Yr. 2002-03, wherein exactly the same issue was involved, where the AO had disallowed repairs & maintenance expenses amounting to Rs. 82,23,049/-, the ITAT Kolkata in ITA NO.1173/KoI/2006 dated 25.05.2007 expressed the same view as expressed by the Apex Court that only those ITA No. 1276 &1309/Kol/2014 A.Y 2004-05 Ritika Pvt. Ltd. Vs. DCIT, Cir-12 Kol. Page 12 replacement/repairs expenses which resulted in any plant/machinery, capable of being operated independently should be treated as capital expenditure. The Tribunal had considered the complete break-up of repairs & maintenance which was filed by the assessee. It pointed out three instances wherein it was of the view that expenditure was on account of purchase of independent & new machineries and therefore the same was treated to be capital in nature. The balance was allowed as revenue expenditure on being satisfied that it resulted in making leased premises fit, to be used efficiently. in retail shops/outlets of the appellant. It is also noted from the information placed on record that the order of the ITAT, Kolkata was challenged by the Department before the Calcutta High Court. The High Court in its order in ITA No. 268 of 2008 dated 29.07.2008 dismissed the appeal of the Revenue. The High Court concurred that the repairs & maintenance costs incurred by the assessee on rented premises was revenue in nature and accordingly the order of the ITAT was upheld. The same view was again taken by the ITAT in assessee's own case for AY 2003-04 in ITA No. 1174/Kol/2008. This decision was also challenged by the Revenue u/s 260A. by its judgment dated 29.07.2009 in ITA No. 41 of 2009 the High Court dismissed the Revenue's appeal observing as follows:-
"Undisputedly the assessee made certain renovations and repairs in its existing show room in rented accommodation. The Assessing Officer thought, such expenses, incurred by the assessee, were capital expenditure. The Tribunal below, in our view, very rightly held that expenditure on renovation & substantial repairs are revenue expenditure which incurred in lease premises."
From the observations of the Hon'ble jurisdictional High Court, it cannot be said that the facts of the case for the present Assessment Year are distinguishable from those of A.Yr. 2002-03 and that the principle of law laid down by the High Court is not applicable on the facts and in the circumstances of the case.
In this regard, reference may also be made to the propositions of law laid down in the following cases:
(i) Assessee incurred expenses towards repairing of rented premises for carrying on its business activity without any intention to bring new capital asset into existence and such expenses fall within the purview of the expression 'repairs to premises' under section 30(a)(i) and hence admissible. [CIT v. Hi Line Pens Pvt. Ltd. (2008) 306 ITR 182, 189(Del)]"
(ii) The expression 'current repairs' in section 31 means expenditure on building, machinery, plant which is not for renewal or restoration. It is only for preserving or maintaining an already existing asset which does not bring a new asset into existence or does not give to the assessee a new or different advantage and they must be such repairs as are attended to as and when the need for them arises and the question as to when a building, machinery, plant or furniture requires repairs and when the need arises must be decided not by any academic or theoretical test but must be decided by the test of commercial expediency. But if the amount spent was for the purpose of bringing into existence a new asset or obtaining a new advantage, then such an expenditure would not be an expenditure of a revenue nature but it would ITA No. 1276 &1309/Kol/2014 A.Y 2004-05 Ritika Pvt. Ltd. Vs. DCIT, Cir-12 Kol. Page 13 be a capital expenditure. [CIT v. Volga Restaurent, (2002) 253 ITR 405, 408 (Del)].
(iii) In CIT v. Ooty Dasaprakash [(1999) 237 ITR 902, 904 (Mad.)], the expenditure incurred solely for repairs and modernizing the hotel and replacing the existing components of the building, furniture and fittings, with a view to create a conducive and beautiful atmosphere for the purpose of running the business of a hotel, has been held not to be of an enduring nature and was held allowable as revenue expenditure under section 37(1) or as current repairs under section 31.
In CIT v. Volga Restaurant (2002) 253 ITR 405 (Del)], where a restaurant is renovated involving large outlay in replacement of air-conditioning plant and parts of electric motors, etc., to renovate the same after a fire, the entire amount was held to be allowable.
In the case of CIT v. Hotel Control (P.) Ltd. (2004) 265 ITR 109 (Uttaranchal), the assessee who was a running a hotel in Mussoorie claimed deduction of. following expenditure on repairs necessitated by climatic conditions:
(a) Conversion of manual latrines to flush latrine;
(b) Replacement of cement roof by a tiled roof;
(c)Construction of water tank;
(d) Replace of cement concrete floor by Kota stones;
(e)Fixing of tiles in the kitchen
(f) Repairs of furniture;
(iv) It was held that the expenditure was necessary in order to maintain and upkeep the hotel and therefore was in the nature of current expenditure. In CIT v. Laxmi Talkies (2005) 275 ITR 125 (Gum, where the assessee has incurred the expenditure on repair and renovation just to improve the ordinary activity of the business by attracting more customers into the theatre but not by adding any fixed asset in the premises, it was held that expenditure incurred is deductible.
(v) In the case of Prakash Asphalting and Toll Highway Ltd. Vs. Asstt. CIT (2010) 16 ITJ 164 (Tribunal-Indore), where in respect of rented premises, the assessee incurred various expenses on repair of premises including expenses on tiles and flooring, it has been held that the expenditure incurred on mere cosmetic change in premises is not capital and that the expenditure in present case is allowable as "current repairs".
Having regard to the facts of the case and the emerging legal position covered by the decision of the jurisdictional High Court in the appellant's own case, I am of the view that the Assessing Officer was not justified in treating the entire amount of expenses of Rs.1,61,94,830/- as capital in nature. The Assessing Officer is directed to treat only an amount of RsA,00,273/- as admitted by the appellant as capital expenditure and allow the rest of the amount of Rs.1,57,94,557/- as of revenue nature. This ground of appeal is accordingly allowed."
The Revenue, being aggrieved, is in appeal before us.
23. Before us Ld. DR vehemently relied on the order of AO whereas Ld. AR relied on the order of Ld. CIT(A). He submitted the details of repair and ITA No. 1276 &1309/Kol/2014 A.Y 2004-05 Ritika Pvt. Ltd. Vs. DCIT, Cir-12 Kol. Page 14 maintenance expenses incurred by it over a period of several years which are enclosed on Annexure-3.
24. We have heard the rival contentions of both the parties and perused the material available on record. At the outset, it was observed that assessee has been claiming similar expenses in all the years and same has been accepted by Revenue. The necessary details of the similar expenses have been enclosed in Annexure 3 of this order. We also find that similar expense was also allowed in assessee's own case in ITA No.867/Kol/2012 dated 03.07.2015 the relevant extract of the order is reproduced below:-
"9.We have heard the rival submissions and gone through the facts and circumstances of the case. We find that the ITAT in assesses's own case has held that the expenditure towards cost of equipment and furniture not falling within the expressions "repairs", "replacement", "renovation' did not have character of revenue expenditure and these assets were business assets installed in the business premises. But in respect of the remaining expenditure in that year which included expenditure relating to repair and renovation of existing furniture and fixtures and it was held that the expenditure was incurred only for enabling the assessee to carry on its business more effectively and profitably and therefore was revenue in nature. It is further held by ITAT that wherein assessee carried repairs, renovation, reconstruction etc., to the lease premises with the view to facilitate carrying of business more efficiently and profitably the expenditure is revenue in nature because such expenditure doe not result in creation of any asset belonging to the assessee. Further, Hon'ble Calcutta High Court has confirmed ITAT decision and the department's appeal against Tribunal's above order in ITAT No. 41 of 2009 has been dismissed on 29.07.2009. Therefore, applying the ratio and decision of Hon'ble ITAT on the details of expenditure in respect of expensed held by the AO to be of capital in nature have been examined and considered within the parameters of the decision of the ITAT. We find on detailed examination of the expenses considered by the AO as capital in nature, it is seen that major part of the expenses are in the nature of repairs and renovation and are revenue in nature in this year also. Out of this expenditure of Rs.71,18,403/-, it was found that only expenditure of Rs.8,000/- at 21, Central Market Punjabi Bag, New Delhi for installation of CCTDV and Rs.1,89,300/- at 9, High St. Phoenix, Mumbai for loose furniture as well as Rs.34,792/- for Projector for Store totaling Rs.2,32,092/- only can be considered to be in the nature of capital expenditure representing cost of assets which can be considered as business assets installed in the business premises. Therefore, we upheld the order of CIT(A) restricting the disallowance at Rs.2,32,092 and the remaining amount of Rs.68,86,311/- treating as revenue expenditure. Accordingly, the appeal of revenue is dismissed."
ITA No. 1276 &1309/Kol/2014 A.Y 2004-05 Ritika Pvt. Ltd. Vs. DCIT, Cir-12 Kol. Page 15
Respectfully following the same, we find no reason to interfere in the order of Ld. CIT(A). We uphold the same. Hence, this ground of Revenue is dismissed.
25. In the result, Revenue's appeal is dismissed.
26. In combined result, appeal of assessee stands allowed and that of Revenue is dismissed.
Order pronounced in the open court 30/08/2017
Sd/- Sd/-
(Aby. T. Varkey) (Waseem Ahmed)
(Judicial Member) (Accountant Member)
Kolkata,
*Dkp
&दनांकः- 30/08/2017 कोलकाता ।
आदे श क
त ल प अ े षत / Copy of Order Forwarded to:-
1. आवेदक/Assessee-Ritika Pvt. Ltd. 138, Beliaghata Road, Kolkata-15
2. राज व/Revenue-DCIT Cir-12, P-7, Chowringhee Square, Kolkata-69
3. संब1ं धत आयकर आय2 ु त / Concerned CIT Kolkata
4. आयकर आय2 ु त- अपील / CIT (A) Kolkata
5. 5वभागीय 8त8न1ध, आयकर अपील य अ1धकरण, कोलकाता / DR, ITAT, Kolkata
6. गाड; फाइल / Guard file.
By order/आदे श से, /True Copy/ Sr. Private Secretary, Head of Office/DDO आयकर अपील य अ1धकरण, कोलकाता ।