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Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD
Before: SMT. ANNAPURNA GUPTA & SHRI T.R. SENTHIL KUMAR
आदेश/O R D E R PER T.R. SENTHIL KUMAR, JUDICIAL MEMBER: This appeal is filed by the Revenue against the order dated 09.07.2018 passed by the Commissioner of Income Tax (Appeals)- 8, Ahmedabad relating to the Assessment Year 2015-16.
Solitary ground raised by the Revenue is that the Ld. CIT(A) erred in law and on facts in treating capital expenditure of Rs. 10,48,11,003/- as revenue expenditure.
The brief facts of the case is that the assessee is engaged in the business of sales and services of Skoda cars and spares. The assessee company during this Financial Year has renovated its
ITA No.1990/Ahd/2018 A.Y. 2015-16 2 four showrooms at Ahmedabad, Rajkot, Surat and Baroda as per Skoda Company’s Corporate Identity Look Policy. The assessee had to change the signboard, logo, color, tiles, furniture, etc. completely with that of the old one. Thus, the assessee claimed under repair and maintenance of building expenses account, Rs. 11,29,19,528/-. The Assessing Officer issued a show-cause notice why the renovation expenses of four showrooms should not be treated as capital expenditure and allow appropriate depreciation. In response the assessee replied that it has not brought a new asset in the place of existing asset and there is no structural change to the building. As per the requirements of the Skoda Company, all these renovations are being made for which the Skoda Company offer incentive discount on sale of cars and the above expenses is compensated in due course of its business. The above explanation was not accepted by the Assessing Officer and allowed depreciation of Rs. 81,08,525/- and added balance amount of RS. 10,48,11,003/- as the income of the assessee and also initiated penalty proceedings under Section 271(1)(c) of the Act.
Aggrieved against the same, the assessee filed an appeal before the Commissioner of Income Tax (Appeals)-8, Ahmedabad. The Ld. CIT(A) held that the expenses were incurred for efficiently using the existing space in a better manner and also to suit the principal’s requirement and since no new floor area has been added or any capital asset has come into existence. The expenses on repairs under renovation are allowable as revenue expenditure following the judgment dated 12.12.2014 of the Hon’ble ITAT, Ahmedabad Bench in the case of ACIT (OSD)-I vs. Landmark
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Automobiles Pvt. Ltd. in ITA No. 333/Ahd/2011 wherein it has held as follows:
“8. On appeal, the CIT(A) allowed the claim of the assessee for entire expenses of Rs.1,11,58,689/- as revenue expenditure and while doing so, he held as under:-
“It is to be appreciated that the appellant is carrying on the same business at the very same premises since 1998. The expenses were incurred to meet the standard specification of the Honda Company. No new area has been added by incurring such expenses. The complete details of these expenses are at Pages 95 to 99 of the Paper Book which can be summarized as under:-
1 Marble, Tiles & Wooden flooring 13,79,990/- 2 Steel For washing shade, partition and for 4,86,951/- floor strengthening as also railing for stair case 3 Sanitary & Hardware fittings 1,74,897/- 4 Paint & Wooden blinds & Pest control 4,36,719/- 5 Glass and Aluminium door / windows 40,12,749/- (4026668 – 13919) 6 Fees to various Consultants 7,48,965/- 7 Bills of Design Council, Shreeji Construction, 37,85,257/- and other labour charges for re-doing plaster, breaking/shifting, etc. 8 Misc. expenses 1,33,161/- Total 1,11,58,689/-
It is to be appreciated that by incurring these expenses, the appellant has not acquired any new capital asset. Out of the major expenses of Rs.71,86,752/-, only 45% is disallowed being capital expenses which is not in accordance with law. Under the scheme of the Income Tax Act, the expenses can be either a capital expenditure or revenue expenditure but there is no provision to hold very same expenditure partially as capital and partially as revenue. The treatment to 45% expenditure as capital is purely subjective and without any basis. If major part thereof i.e. 55% is considered as revenue expenditure, it supports the view of the appellant that the entire expenditure which is purely for renovation of the existing building without adding any further floor area will always be revenue expenditure and not capital expenditure. As regards the expenses of Rs.24,25,216/- considered entirely as capital expenditure, the same is broadly classified as under:-
Expenses on flooring by replacing with 13,17,318/- marble, tiles & wood. 2. Consultancy fees to Architect, Engineers, 6,10,750/- Designers 3. PCC work in workshop 1,46,228/- 4. SS Railing in the stairs. 1,37,709/- 5. Sanitary & Hardware fittings 25,193/-
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Venetian Blinds 51,857/- 7. Fiber sheet shade and M.S.grill 39,865/- 8. Misc. 96,296/- Total 24,25,216/-
Since the appellant has only changed the existing floor or re-laid the existing workshop floor, the expenses are purely revenue in nature. The AO after summarizing the expenses of Rs.24,25,216/, on Page 10 of his order observed that "the assessee is spending amounts in the purchase of tiles, blinds, sanitary fittings, electrical fittings, partition of floor. All these expenses cannot be claimed as revenue expenses" However, the AO lost sight of the fact that all these expenses are incurred by way of replacing the existing floor/fittings. What is disallowable is expenses being capital in nature but not which are incurred by replacing the existing one.
The reliance of the AO on the decision of Hon'ble ITAT, Delhi in the case of Punj Hospitality Pvt. Ltd. which in turn has relied upon the decision of the Hon'ble Supreme Court in the case of Ballimal Navalkishore vs. CIT 224 ITR 414 on the contrary supports the case of the assessee. If as per the test laid down by the Hon'ble Court as noted in the Page 13 of the Assessment order is "the expression current repairs means - expenditure for the purpose of preserving or maintaining an already existing asset and which does not bring new asset into existence" This test is fulfilled as no new asset has come into existence but the expenses incurred are only for preserving or maintaining an already existing asset. Another test noted in the said decision is that "they are such repairs as are attended to as & when need arises which must be by test of commercial expediency." Here also, this test is complied with. The expenses are incurred on the basis of Dealer Development Guide set-up by Honda Company and since the assessee being in the sole business of dealing in Cars / Spares of Honda Company can legitimately think it expedient to prepare its show room, workshop in accordance with such standards
The Hon'ble Supreme Court in the case of Alembic Chemical Works Co. Ltd. V/s. CIT 177 ITR 377 held,
"It would, in our opinion, be unrealistic to ignore the rapid advances in researches in antibiotic medical microbiology and to attribute a degree of endurability and permanence to the technical know-how at any particular stage in this fast changing area of medical science. The state of the Art in some of these areas of high priority research is constantly updated so that the know-how cannot be said to be the element of the requisite degree of durability and non-phemerality to share the requirements and qualifications of an enduring capital asset. The rapid strides and science and technology in the field should make us a little slow and circumspect in too readily pigeonholing an outlay, such as this as capital."
The idea of 'once for all’ payment and 'enduring benefit' are not to be treated as something akin to statutory conditions; nor are the notions of 'capital' or 'revenue’ adjudicial fetisn. What is capital expenditure and what is revenue are not eternal varieties but must needs be flexible so as to respond to the changing economic realities of business. The expression 'asset or advantage
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of an enduring nature' was evolved to emphasize the element of a sufficient degree of durability appropriate to the context.
There is also no single definite criterion which by itself, is determinative whether a particular outlay is capital or revenue. The 'once for all' payment test is also inconclusive. What is relevant is the purpose of the outlay and its intended object and effect, considered in a common-sense way having regard to the business realities. In a given case, the test of 'enduring benefit' might break down. In CIT v. Associated Cement Co. Ltd. JT 282 (2) 287 this Court said:
...... As observed by the Supreme Court in the decision in Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1 (SC) that there may be cases where expenditure, even if incurred for obtaining an advantage of enduring benefit, may, nonetheless, be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principles laid down in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test......".
In the case of CIT V/s. Bharat Suryoday Co. Ltd. 202 ITR 942 the assessee was required to demolish one side wall around its premises by the Municipality for the purpose of widening the road. Thus, the expenses incurred for demolition of wall and rebuilding the same was held to be revenue expenditure. The Hon'ble Gujarat High Court held that since the wall was required to be build as a necessity for running of the business, the expenses were incurred more in the nature of repair rather than creation of a new capital asset and hence allowable as revenue expenses.
In the case of Ahmedabad Mfg. & Calico Pvt. Ltd. V/s. CIT 162 ITR 800, the Hon'ble Gujarat High Court was considering the case as to whether the expenses incurred for reconditioning of the existing room to accommodate IBM Machines was capital or revenue expenditure. The authorities below observed that though new room has been created, since no new asset came into existence but merely to accommodate installation of IBM machine, the expenses were held to be revenue in nature.
Most of the decisions of Hon'ble Supreme Court as well as Hon'ble Gujarat High Court supports the case of the assessee. Since in the present case, the expenses were incurred for efficiently using the existing space in a better manner as also to suit the principles requirement, and since no new floor area has been added or any capital asset has come into existence and hence, the expenses on repairs & renovation are allowable as revenue expenditure. The AO was also not justified in partially treating the major expenses of Rs.71,86,7527- to the extent of 45% as capital and balance 55% as revenue. The expenses based on the copies of the bills filed and the nature of the same are found to be revenue in nature and hence allowable as such.
Accordingly, the disallowance of Rs.56,59,254/- is to be deleted. Consequently, the depreciation allowed on the same is also to be withdrawn. As such appellant gets relief of Rs.50,93,329/-.”
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The Departmental Representative supported the order of the Assessing Officer and the Authorized Representative of the assessee supported the order of the CIT(A). 10. We have heard the rival submissions and perused the orders of the lower authorities and material available on record. In the instant case, we find that no material was brought on record to show that any new asset was acquired by the assessee. We find that the Hon’ble Gujarat High Court the case of ACIT vs. Desai Bros., (1977) 108 ITR 14 (Guj.), held that even replacement of the petrol engine by a diesel engine would not bring into existence a new asset and was allowable as current repairs. Further, the Hon’ble Calcutta High Court in the case of CIT vs. Rameshwar Prasad Kejriwal & Sons (P.) Ltd., (1994) 74 taxman 124 (Cal.), held that replacement of parts of a machine, even if such replacement was more than cost of the machine itself, would qualify for deduction as revenue expenditure as no new asset or advantage of enduring benefit was brought into existence by any such expenditure. 11. We agree with the finding of the CIT(A) that after treating 55% of the expenditure of Rs.71,86,752/- as revenue, there was no justifiable basis for the Assessing Officer to arbitrarily treat 45% of the same expenditure as capital in nature. The expenditure incurred can be either capital or revenue but it cannot be partly Revenue and partly capital. In respect of balance amount of Rs.24,25,216/-, the CIT(A) found that the same was incurred for replacing the existing asset and not for acquiring any new asset. In absence of any material brought before us to show that any new asset which was not existing earlier was acquired by the assessee incurring the expenditure of Rs. Rs.24,25,216/-, we do not find any good reason to interfere with the order of the CIT(A) which is hereby confirmed and the ground of appeal of the Revenue is dismissed. 12. In the result, the appeal of the Revenue is dismissed.”
Aggrieved against the same the Revenue is in appeal before us. None appeared on behalf of the assessee in spite of services of notice through Income Tax Department that too by affixture. So with the help of the Ld. D.R. we proceed with to decide this appeal with materials available on record. The Ld. D.R. appearing for the Revenue supported the order of the Assessing Officer and pleaded that the expenses are capital in nature. However, he could not produce any contra judgment as relied by the Ld. CIT(A) in its order or any judicial pronouncement in favour of the Revenue.
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We have given our thoughtful consideration and perused the materials available on record. On perusal of the material and the facts is the case in Landmark Automobiles Pvt. Ltd. are identical in nature. The Coordinate Bench followed jurisdictional High Court judgment in the case of Desai Bros. (cited Supra) and other High Court judgments. In our considered view this issue is no more res integra. Therefore, respectfully following the ratio of the judgment rendered by the Coordinate Bench in the case of Landmark Automobiles Pvt. Ltd. we have no hesitation in confirming the order passed by the CIT(A) holding that the expenditure incurred by the assessee for renovating its four business showrooms are revenue in nature. Thus, the Revenue’s ground is devoid of any merits and the same is rejected.
In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the Court on 23.11.2022 at Ahmedabad.
Sd/- Sd/- (ANNAPURNA GUPTA) (T.R. SENTHIL KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad, dated 23/11/2022 TRUE COPY Tanmay, Sr. P.S. आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त ( अपील ) / The CIT(A)- 5. �वभागीय ��त�न�ध , आयकर अपील�य अ�धकरण , राजोकट/DR,ITAT, Ahmedabad, 6. गाड� फाईल /Guard file. आदेशानुसार/ BY ORDER,
सहायक पंजीकार (Asstt. Registrar) आयकर अपील�य अ�धकरण, ITAT, Ahmedabad