KEWALRAJ & CO.,MUMBAI vs. ADDLL.COMM OF INCME TAX RG. 12(2), MUMBAI

2. The first issue to be decided in this appeal is as to whether the ld CITA was justified in sustaining the disallowance of Rs 2,00,000/- made by the ld AO towards Repairs & Maintenance in the facts and circumstances of the case.

We have heard the rival submissions. We find that the assessee is a partnership firm engaged in the business of manufacturing of tooth brushes and shaving brushes and also engaged in wind electricity generation. We find that the assessee had claimed deduction towards repairs and maintenance to the tune of Rs 7,95,182/- in the return of income. The ld AO had called for the details which were duly furnished. We find that the ld AO had observed that an amount of Rs 2,00,000/- was paid to Rushi Construction on account of fixing of glass window, making door and door frames, fixing aluminium windows, marble and kadappa, tiles fixing etc which is capital in nature and hence disallowed the same in the assessment. The ld AO treated the aforesaid expenditure to give enduring benefit to the assessee and accordingly capitalized the same and granted depreciation at the rate of 5% since the asset was put to use for less than 180 days, which was confirmed by the ld CITA. We find from the pages 1 to 5 of the paper book filed before us contains the bills for Rs 1,10,000/- and page 6 contains bill for Rs 90,000/- which totals to Rs 2,00,000/-. It is not in dispute that these repair works were carried out in the factory premises of the assessee which was taken on rent by the assessee. The address of the said premises as stated in the order of the ld CITA is Plot No. 33, Lonavala Industrial Co-op Estate, Nangargaon, Lonavala, District Pune.

3.1. We find that the assessee had submitted before the lower authorities that - a) the assessee had stated that besides the factory area that was used for production, the assessee also had areas earmarked for office purposes where the managerial and administrative staff used to sit, wherein wooden partition, wooden doors, wooden windows etc were already there; b) the toilets and septic tank were in bad shape and needed repairs ; c) the security cabin was in bad shape ; 3.2. The assessee also had submitted that it had dismantled the wooden partitions since they were in a bad shape and unusable condition and made new partitions thereby repairing the glass window and other related items. It is not in dispute that all these repair works were carried out by the assessee in the rented premises which was used for the purpose of business of the assessee. Since these repairs were carried out on a rented premises and cannot be taken away by the assessee on vacation of the rented premises, there is no existence of any asset for the assessee. No doubt that pursuant to carrying out of these repairs, the assessee would get enduring benefit of conducting its business in a smooth environment but such enduring benefit would only be in the revenue field in the facts and circumstances of the instant case. It is now well settled by the Hon’ble Supreme Court that expenditure incurred by the assessee on repairs which gives enduring benefit in the revenue field would have to be squarely allowable as deduction in the assessment. The ld AR also placed reliance on the decision of Hon’ble Jurisdictional High Court in the case of CIT vs Chowgule and Co. Pvt Ltd reported in 214 ITR 523 (Bom) which also supports the case of the assessee. In view of the aforesaid observations in the facts of the instant case and respectfully following the judicial precedent relied upon hereinabove, we hold that the expenditure in the sum of Rs 2,00,000/- is only revenue expenditure and is eligible for deduction. Accordingly, the Ground No. 1 raised by the assessee is allowed.

The last issue to be decided in this appeal is as to whether the ld CITA was justified in sustaining the disallowance of Rs 3,57,457/- made by the ld AO towards Club and Hotel expenses in the facts and circumstances of the case.

We have heard the rival submissions. We find that the assessee furnished the details of sales promotion expenses as required by the ld AO. From the perusal of the same, the ld AO observed that a sum of Rs 2,93,688/- was paid towards club and an amount of Rs 2,66,608/- was paid towards hotel expenses. The club payments include payments made to Cricket Club of India, Bombay Presidency Golf Club, National Sports Club and United Services Club. Further under the head of hotel payment, the assessee incurred a sum of Rs 63,769/- towards outstanding liability. We find that the assessee vide letter dated 25.2.2013 submitted that the nature of business of the assessee is sale through Canteen Stores Department (CSD) wherein, the assessee had to incur various expenses to entertain the customers and also distribute gifts for which the assessee has incurred the expenses for the purpose of business. We find that the ld AO observed that the club payments have got no business nexus with the assessee and accordingly disallowed a sum of Rs 2,93,688/- in the assessment. In respect of outstanding liability towards hotel expenses in the sum of Rs 63,769/-, the ld AO observed that no evidences were submitted by the assessee in this regard and accordingly proceeded to disallow the same in the assessment. In effect, he disallowed a total sum of Rs 3,57,457/- ( 2,93,688 + 63,769) in the assessment towards the club and hotel expenses, which was upheld by the ld CITA. We find that the main customers of the assessee is Defense department and its personnel wherein the assessee is mandated to incur certain entertainment expenses in order to secure its business. However, the personal element of expenditure incurred thereon in the hands of the assessee firm could not be ignored as pointed out by the ld DR before us and when this was confronted before the ld AR, he agreed for estimated disallowance on a reasonable basis in respect of club expenses. Accordingly, we hold that the disallowance of 20% of Rs 2,93,688/- towards club expenses would meet the ends of justice. In respect of outstanding liability of Rs 63,769/- , the ld AR argued that the total outstanding liabilities as on 31.3.2010 was Rs 4,80,805.54 which did not include any sum of Rs 63,769/- and it was not known as to how this figure was arrived at by the ld AO in the assessment. We find that the revenue had also not brought any evidence on record to prove the fact as to how this figure of Rs 63,769/- was arrived by them in the order. Hence we direct the ld AO to delete the said disallowance of Rs 63,769/-. Accordingly, the Ground No. 2 raised by the assessee is partly allowed.

In the result, the appeal of the assessee is partly allowed.