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Income Tax Appellate Tribunal, “C” Bench, Mumbai
O R D E R Per Shamim Yahya (AM) :-
This appeal by the Assessee is directed against the order of learned CIT(A)-2 dated 01.10.2019 and pertains to Assessment Year 2011-12.
2. The grounds of appeal read as under : (1) "On the facts and in the circumstances of the case & in law the learned Assessing Officer has erred in treating revenue expenditure on repairs and maintenance Rs. 1340678/- , license fees software Rs. 497000/- and registration fees of Rs. 815000/-as capital expenditure and making a addition of Rs. 2652678/- to the income of the appellant (2) "On the facts and in the circumstances of the case & in law the learned CIT(A)-2 , Nasik has erred in not adjudicating GOA No.l raised by the appellant relating to treatment of revenue expenditure amounting to Rs. 2652658/- as capital expenditure by the AO.
Brief facts of the case are that assessee is running a specialty hospital under the name Life Line Hospital at Panvel.
4. During the course of assessment the AO made various disallowances as under:-
3. During the year the assessee has debited an amount of Rs. 28,87,076/-. On perusal of the details it is seen that assessee has paid Rs. 1340678/- to various parties. On verification of these expenses it is seen that they are in the nature of capital expenditure and not a revenue. expenditure which can be debited to profit and loss account . Therefore the same is disallowed and added to the income of the assessee.
It is seen from the profit and loss account that the assessee has debited an amount of Rs 4,62,000 as software expenses which were paid for implementation of Palash Software for management of medical records and hospital operations . Assessee has also paid an amount of Rs 35,000/to the software company for implementation of SQL. These expenses are incurred for acquiring a capital asset which offers an enduring benefit to the assessee . Therefore the same is added to the income of the assessee being expenses in capital nature and not allowable as revenue expenditure which has been debited by the assessee in his profit and loss account . I may cite the decision of the Honourable Rajasthan High Court in the case of CIT Vs Arawali Constructions (P)Ltd (Raj) 259ITR 30,ITAT Delhi bench decision in the case of Escorts Ltd Vs ACIT (ITAT Del) 104ITD 427 and the decision of Pune bench of ITAT in the case of Sudarshan Chemicals Industries Ltd Vs ACIT (ITAT Pune 110 ITD 171. Therefore these amounts are added to the income of the assessee.
Assessee has debited an amount of Rs 815000/. Assessee has been asked to submit the details of these expenses . During the assessment proceedings assessee has submitted that these expenses include an amount of Rs 248700 paid to HDFC Bank for sanction of facilities which were availed for repayment of earlier credit facilities obtained from Reliance Capital Ltd . This being an expenses in the nature of capital ,the same is added to the income of the assessee.
Assessee also paid Rs 80000 paid for approval of diploma of National Board which is a post graduate course and also Rs 4,68,000 were paid to colleague of physicians and surgeons for permission for students for CPS course . These two expenses are also in the nature of capital expenditure which gives enduring benefits for the assessee .Therefore the same is added to the income of the assessee.
During the year the assesee has debited an amount of Rs.22000/- as donations. The same is not an allowable as a deduction under section 37(1) of the I T Act therefore the same is added to the income of the assessee.
5. Assessee raised following grounds before Ld.CIT(A).
On the facts and in the circumstances of the case & in law the Ld.A.O. has erred in treating revenue expenditure incurred by the appellant f Rs.2674678/- as capital expenditure.
On the facts and in the circumstances of the case & in law the Ld.AO has erred in not allowing depreciation u/s. 32 of the Act on Rs.2674678/- treated as capital expenditure by him.
6. Ld.CIT(A) while adjudicating failed to apply his mind. He allowed the ground No.2 which was without prejudice to ground No.1 and held that since, he has allowed ground No.2, he is not adjudicating this ground.
We may refer to the Ld.CIT(A)’s order as under:-
5.0 Ground NO.2 is decided before Ground NO.1 and it has been directed against the assessment order of the AO for not allowing depreciation u/s. 32 of the Act on the addition of Rs.26,74,678/- 5.1 On perusal of the assessment order and submission of the appellant, it is seen that, the AO has treated the following expenses as capital expenditure as against the claim of the appellant as revenue expenses. The Break up is as under:- i) Out of Repairs and maintenance Rs.13,40,678/- ii) Out of Software expenses Rs. 4,97,000/- iii) Out of registration fees Rs. 8,15,000/- Total Rs. 26,52,678 The balance amount of 722,000/- is disallowed on account of donation u/s.37(i) of the Act.
The dispute in Ground No.2 of the appellant is that, on the facts and circumstances in law, the assessing officer has erred in not allowing depreciation u/s.32 of the Act on the addition of Rs. 26,52,678/- ( Addition of Rs.22,000/- on account of donation is excluded for the purpose of depreciation). In fact, the AO should have allowed depreciation as the claim of revenue expenses by the appellant has been disallowed as capital expenses and not as bogus expenditure. Therefore, the Assessing Officer is directed to allow the claim depreciation at the applicable rates u/s.32 of the Act.
In view of the above stated facts, the appeal of the appellant on this ground is allowed. Ground No.2 is allowed.
6.0 Ground No.1 is directed against the addition of Rs.26,74,678/- on account of expenses as against the claim of revenue expenditure by the appellant.
6.1 This ground is not adjudicated, since the appeal has been decided in favour of the Ground No.2 and the AO has been directed to allow depreciation at the applicable rates u/s.32 of the Act.
Out of Rs. 26,74,678/-, an amount of Rs.22,000/- is disallowed on account of donation U/s.37(1) of the Act. In this regard, the appellant has not disputed in the appellate proceedings, therefore, the addition made by the AO is confirmed and the same is added to the total income of the appellant.
As noted above, we find that Ld.CIT(A) has failed to adjudicate the main ground before him, which was with relation to the treatment of expenditure claimed by the assessee as revenue expenditure, but were disallowed by the AO holding that there were capital expenditure Ld.CIT(A) adjudicated the without prejudice ground in affirmative which claimed that depreciation should be provided if the expenditure is capitalized. The main grounds needs to be adjudicated. Hence, in the interest of justice, this matter is remitted to Ld.CIT(A) for fresh adjudication in order to make his order complete.
Needles to add, assessee should be granted adequate opportunity of being heard.
In the result, assessee’s appeal allowed for statistical purpose.
Pronounced in the open court on 06.09.2021.