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Income Tax Appellate Tribunal, DELHI BENCH “F”: NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M. 1. This appeal is filed by the ld AO against the order of the ld CIT(A)-XVIII, New Delhi dated 11.04.2014 for the Assessment Year 2010-11. 2. The revenue has raised the following grounds of appeal:- “1. That on the facts & circumstances of the case and in law, Ld. CIT(A) has erred in restricting the addition to Rs. 11,46,800/- on account of expenditure treated as capital in nature and thereby giving a relief of Rs. 42,57,511/- by allowing only those expenses to be capitalized, having invoices exceeding Rs. 1.00 lac. 1.1 that on the facts & circumstances of the case, Ld. CIT(A) has erred in restricting the above disallowance to Rs. 11,46,800/- by not appreciating the fact that quantum of individual bill in a bundle of on-going works cannot be valid criteria for accepting part of the expense as capital and balance as revenue.
2. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the disallowance of Rs. 25,67,330/- made by the AO on account of Director’s Travel Expenditure by relying on the order of the AO for Assessment Year 2011-12 in which this expenditure had not been disallowed ignoring the fact that each assessment year is considered a separate year for assessment. 2.2 On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the above disallowance by ignoring the fact that it is unfair to extrapolate the inference drawn by the AO in one assessment year into the reasoned conclusion drawn by another AO for an earlier year. 2.3 On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the above disallowance by not appreciating the fact that as per the agreement all the expenses related to the business/foreign travel of the company will be brone by M/S India Hotels Co.Ltd.”
Brief facts of the case is that the assessee company is engaged in the hotel business consisting of five units filed return of income on 06.10.2010 declaring income of Rs. 31562645/-. The assessment u/s 143(3) of the Act was passed on 26.03.2013 at a total income of Rs. 38993755/- . The assessment was challenged before the ld CIT(A), who partly allowed the appeal of the assessee. Therefore, the ld revenue contested before us against the various disallowance deleted by the ld AO.
The first ground of appeal is against the disallowance of repairs and maintenance expenditure of Rs. 5404311/- which was restricted by the ld CIT(A) to only Rs. 1146800/-. The assessee during the year incurred the repair expenditure of Rs. 38629221/-. The ld AO carried out verification of that expenditure and stated that out of above expenditure Rs. 5404311/- is capital expenditure incurred which has an enduring benefit to the assessee. Therefore, he disallowed the same by holding as under:- “Repairs and Maintenance The assessee during the year under consideration made a repair and maintenance of Rs. 3,86,29,221/- towards "Building", "Machinery" and "Others". The assessee vide submission dated December 26,2012 provided unit wise breakup of the expense under the head of Repair and Maintenance account, along with copy of ledger accounts for each type of payment. The assessee 6 also furnished the bank accounts / account confirmation of various vendors from whom the Repair and Maintenance has been undertaken during the year under consideration. The assessee vide submission dated March 04, 2013 also filed the details along with the copies of invoices more than Rs 1 lakh with respect to repair and maintenance. Further the assessee has also filed the activity wise break up, Page | 2
party wise details along with the PAN of the parties vide submission dated March 19, 2013. I have examined the information furnished by the Assessee and find that the expenditure is incurred by the assessee for the business purpose and there is no doubt on the genuineness of the said expenditure. However, it is also important to note that genuineness of expenditure per se does not lead to allowance of expenditure. Under the law, twin conditions have to be satisfied before claiming expenditure as revenue expenditure. One is that the expenditure has to be incurred for the purpose of business of the assessee, and second is that such expenditure should not be a capital expenditure. Whether the expenditure is a revenue or capital has to be decided having regard to the nature of expenditure and its advantage to the assessee. On a perusal of details filed ana corresponding supporting documents, I noticed that certain expenses, which give impression of enduring benefit to the appellant and fall on capital account. Asses see has debited such expenses in different head of repairs. A brief detail of such expenses is as follows:
Amount in INR Vendor Nature of work done Comments 15,39,779 Sunshine decorators Providing major repair to Expenses building incurred was enduring in 8,57,601 Kedar Nath Bairwa Replacement of tiles and nature, hence stones capitalized 7,40,569 Rajputana Electric Trading Major work in relation to electrical work 7,15,342 Dilip Water Proofing Water proofing treatment on various locations in the hotel premises 6,94,471 R.C Build up Tile and stone work on the floors of the hotel premises 4,39,279 Ekta Engineering Works Fabrication work for the laying ! structures ; 4,17,270 Chandra Singh Contractor Building major repairs 54,04,311 Total .. .. . . In view of the above, the above expenses of Rs 54,04,311/- in my opinion, should not be allowed as revenue expenses and deserve to be treated as capital expenses. Accordingly, the assessee is only eligible to claim depreciation thereon at 10% rate. The other expenses do not bring into existence nor obtain a new or different advantage to the assessee, are held to be revenue in nature.”
On appeal before the learned Commissioner of income tax appeals the assessee submitted additional evidences to which the AO himself agreed for admission and therefore same were admitted. The ld CIT(A) examined the claim of the assessee and held that out of Rs. 5404311/- the expenditure of Rs. 1146800/- is having the benefit of enduring nature to the assessee. Therefore he confirmed the disallowance of INR 1146800/-and deleted the disallowance of INR 42577511/- Therefore, the revenue is agitated against the above disallowance deleted by the ld CIT(A).
The ld DR vehemently submitted that the assessee has incurred various expenditure under the head “repairs and maintenance” which are in the nature of capital expenditure but it was claimed as revenue expenditure. The ld CIT(A) without considering the nature of expenditure has deleted the disallowance partly. 7. The learned authorised representative submitted that the relief given by the learned Commissioner of income tax appeals is with respect to 80. Repair expenditure. The detail chart were submitted to show that the expenditure disallowed by the learned assessing officer, which are deleted by the learned CIT appeal were not of enduring nature. 8. We have carefully considered the rival contentions and also perused the orders of the lower authorities. The Learned Commissioner Of Income Tax Appeals has deleted disallowance of the expenditure which are in nature of scrubbing, crack filing, the filling, paintwork, repair work of the great, tank chamber fountain falls and tiles. The part of the disallowance deleted was out of the expenditure related to the electrical work such as wiring and light fitting and supply of CVC pipe box for driver toilet room and supply of wire for outdoor lights. Part of the expenditure were also held to be revenue expenditure, which are in the nature of water works at existing spa, health club, indoor swimming pool and conference all et cetera. Certain tiles were replaced in kitchens which were held also as repair expenditure. Part of the expenditure incurred by the assessee for fixing tin shed at swimming pool, repair of cooling tower shaft and repair of kitchen pipeline et cetera. The learned CIT – A, has held that these expenditure are not incurred by assessee which has any enduring benefit to the assessee, but a regular repair. As it is apparent that assessee is engaged in the hotel industry and running 5 units is a Page | 4 composite business such expenditure are in the nature of routine expenditure and cannot be called as capital expenditure resulting into any enduring benefit to the assessee. Further, on appreciation of the detail chart submitted by the assessee total disallowance was INR 5 404311/– out of which the learned Commissioner of income tax appeals has carefully analyzed and held that Rs. 1146800/– is a capital expenditure and INR 4257511/– is revenue in nature. The learned departmental representative also could not point out that any of the expenditure allowed by the CIT – A, is of any enduring nature and therefore being a capital expenditure hence disallowable. Further, the judicial precedent in assessee’s own case for assessment year 2006 – 07 and 2009 – 10 of the Honorable High court also covers the issue that such expenditure are not capital expenditure. In view of this we do not find any infirmity in the order of the CIT – A, and therefore same is confirmed. Accordingly, ground number 1 of the appeal is dismissed. The 2nd ground of appeal
is against the disallowance of Rs. 2567330/– 9. out of the directors travelling expenditure deleted by the learned CIT appeal by relying on the order of the assessing officer for assessment year 2011 – 12 in which this expenditure has not been disallowed. The grievance of the revenue is that each year is a separate assessment year and therefore if the learned assessing officer has not disallowed the same in the next year. Same cannot be used for deleting the disallowance.
10. The assessee has incurred a total expenditure of INR 9 822218/– on account of travelling expenditure. Out of which the foreign travel expenditure of the directors is of Rs 2567230. The learned assessing officer examined the detail and asked the assessee to furnish certain details, which were examined by him. The assessee submitted same. The learned AO’s stated that these expenses are not related to the business of the company as the company is not procuring any business from outside India. As per the terms of the operational agreement with Indian hotel company limited , company do not have to incur any Page | 5 expenditure for foreign tourist and not to meet any travel agent. Because all the expenses relating to business operation of the company is being looked after by Indian hotel company limited, therefore, he disallowed. The learned CIT – A deleted the disallowance holding that the learned assessing officer himself has admitted that these kind of expenditure is an allowable expenditure in assessment proceedings for assessment year 2011 – 12.
The learned departmental representative vehemently supported the order of the learned AO.
The learned authorised representative submitted that in the subsequent year. The learned assessing officer has himself accepted that these expenditure our regular business expenditure of the assessee. Further, he relied upon para number 9.1 of the order of the learned CIT – A to justify that the expenditure are genuine and incurred for earning the business of the assessee.
We have carefully considered the rival contentions. The assessee has incurred these expenditure and claimed as an allowable expenditure for the purposes of the business of the assessee. The coordinate bench in assessee’s own case for assessment year 1997 – 98 has also held that expenditure incurred for foreign travel is for the business purposes of the assessee. On further as the learned assessing officer has also subsequently accepted the claim of the assessee, we do not find any infirmity in the order of the learned Commissioner Of Income Tax Appeals. Accordingly, ground number 2 of the appeal of the revenue is dismissed.