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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 assessee for Assessment Year 2010-11 against the order of the ld CIT(A)-XVIII, New Delhi dated 09.07.2014 for the Assessment Year 2011-12. 2. The assessee has raised the following grounds of appeal:- “1. That on the facts and in the circumstances of the case and in law, the order passed by the ld Commissioner of Income-tax (Appeals) XVIII (CIT(A) is contrary to the factual and legal position and thus is bad in law.
2. That on the facts and in the circumstances of the case and in law and ld CIT(A) has erred in holding that the repair and maintenance expenses amounting to Rs. 34,35,090/- is capital in nature and therefore, not allowable as revenue expenditure.”
Ramabagh Palace Hotel Pvt Ltd Vs. DCIT (Assessment Year: 2011-12) 3. The solitary ground of appeal that the repair and maintenance expenditure amounting to Rs. 34,35,090/- is capital in nature and therefore, not allowable as revenue expenditure.
4. The brief facts of the case is that the assessee is a company engaged in the business of running a hotel, which consists of five units as a composite business. The assessee filed its return of income on 30.09.2011 declaring income of Rs. 5938591/-. Assessment u/s 143(3) of the Act was passed on 10.12.2014 wherein, the ld AO disallowed the sum of Rs. 5419234/- under the head “repair and maintenance” expenditure holding that same is not revenue expenditure but capital expenditure. The ld AO vide para No. 3 has dealt with the whole issue as under:- “3. Furthermore, the assessee during the year under consideration incurred a repair and maintenance expenditure amounting to Rs.7,28,03,050/- towards 'Building', 'Machinery' and 'Others'. The assessee company vide its submission dated 27.01.2014 provided unit wise break-up of the expenses under the head "Repair and Maintenance", alongwith copy of ledger accounts for each type of payments. Also the assessee in the same submission provided Income Tax Returns / account confirmation of various vendors undertaking the Repair and Maintenance during the year under consideration, 3.1. The assessee also provided the details alongwith the copy of invoices of more than Rs. 1,00,000/- with respect to repair and maintenance. For the said expenditure the assessee filed the ledger accounts, bank statement of vendors and copy of return of income of vendors for the relevant assessment year. I have examined the information furnished by the assessee and the repair and maintenance expenditure have actually been incurred by the assessee for the business purposes. There is no doubt about the expenditure being genuine. 3.2. However, it is also important to note that the genuineness of expenditure per se does not lead to allowance the 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 Page | 2 Ramabagh Palace Hotel Pvt Ltd Vs. DCIT (Assessment Year: 2011-12) expenditure is a revenue or capital has to be decided having regard to the nature of expenditure and its advantage to the assessee. On perusal of the details filed and corresponding supporting documents, I noticed that there are certain expenses, which given impression of enduring benefit to the appellant and fall on the capital account. The assessee has debited such expenses in different head of repairs. Brief details of such expenses are given below: S. Amount in INR Vendor Nature of Work Done Comments No.
Rs. 19,84,144/- Designers Guild Providing major repairs Expenses clearly of for supply of fabrics enduring nature 2. Rs. 17,45,662/- Floor & furnishing Providing major repairs Expenses clearly of India Pvt. Ltd. for supply of, fabrics r enduring nature.
Rs. 16,89,428/- Kapoor Enterprises Major work in relation to Expenses clearly of supply of lamps enduring nature Total Rs.54,19,234/-
The assessee aggrieved with Assessment order has preferred an appeal before ld CIT(A) who decided the issue holding that out of the total expenditure of Rs. 5419234/-, the expenditure amounting to Rs. 3435090/- is capital in nature. He decided the issue partly in favour of the assessee vide para No. 6 of this order as under:- “{6} In this regard, I have gone through the finding of the Assessing Officer in the assessment order and submission filed by the learned Authorized Representative of the appellant from time to time and I found that there is a total addition of Rs. 54,19,234/- pertaining to following three parties:- S.No. Amount in INR Vendor Nature of work done Comments 1. Rs. 19,84,144/- Designers Guild Providing major repairs for Expenses clearly of: supply of fabric enduring nature 2 R s. 1745662 Floor & Furnishing India Providing major repairs for Expenses clearly of Pvt Ltd supply of-fabrics, enduring nature. 3. Rs. 1689428/- Kapoor Major work in relation to r Expenses clearly of Expenses supply of lamps enduring nature. Total Rs. 54,19,234/- With regard to amount of Rs. 17,45.662/- pertaining to Floor and Furnishing India Pvt Ltd , it is found that it pertains to providing major repair for supply of fabric and Rs Ramabagh Palace Hotel Pvt Ltd Vs. DCIT (Assessment Year: 2011-12) 16,89,428/- pertains to M/s Kapoor Enteprises in relation to supply of Lamps. I have verified the nature of expenses and I found that these expenses are of enduring nature and cannot be treated as revenue expenditure. Therefore, I am in agreement with findings of the Assessing Officer that out of Rs. 54,19,234/- expenditure amounting to Rs. 34,35,090/- (17,45,662+16,89,428) are in the nature of capital expenditure, but for expenditure of Rs. 19,84,144/- appellant has submitted that these pertains to fabric replacing which does not give rise to enduring benefit and this is a yearly exercise which is being done in the past also and no addition has been made in this regard. For the last three expenditure have been incurred viz as under:- Assessment Year Amount 2008-09 32,57,202 2009-10 52,25,796 2010-11 17,02,888 Total 1,01,85,886 It is further submitted that no addition has been made on this account in these years. After considering the appellant's reply I am convinced that amount of Rs. 19,84,144/- is not of giving rise to enduring benefits, therefore, this is allowed as revenue expenditure. Thus appellant gets relief of Rs. 19,84,144/-“ 6. The assessee aggrieved with the order has preferred an appeal before us.
The ld AR vehemently contested the above disallowance confirmed by the ld CIT(A) and stated that the assessee is in the business of the running a hotel and the expenditure incurred on supply of fabrics and supply of lamps have been considered as capital expenditure. He further stated that identical issue arose in the case of the assessee in earlier years and same expenditure has been allowed as revenue expenditure by the coordinate bench and it was also upheld by the Hon'ble Delhi High Court. He further stated that for Assessment Year 2006-07 in and Ramabagh Palace Hotel Pvt Ltd Vs. DCIT (Assessment Year: 2011-12) 3801/Del/2009 the coordinate bench vide para No. 33 to 34 of the order as under:- “33. Ground No. 2 of the appeal of the assessee is against the confirmation of the disallowance out of the repairs and maintenance expenses of Rs. 32015530/- by the Ld. CIT (A) holding that it is capital in nature and are not allowable as revenue expenditure. The details of such expenditure are given at page No. 16 of the order of the Ld. CIT (A) as under:- a. changing of the floor tiles/replacing of doors providing quota stone pathways at Rambagh Palace wherein a sum of Rs. 8505016/- has been incurred on repairs and maintenance. b. Rs 1.29 crore has been incurred with respect to the dismantling and removal of the existing flooring tiles, plasters cement concrete sintering unsettling at Ramgarh Lodge. c. Rs. 30.21 lakhs have been incurred for conference room at Ram Bagh palace by dismantling stone masonry and existing floor tiles and re-fixing doors and windows with wall paneling. d. Rs. 52.03 Lacs was incurred at Ramgarh Lodge in Room number 101 - 102 and 203 to 208 where opening and shifting moving doors and windows were replaced with the fixed doors for giving proper shapes. e. Rs. 7.57 lakhs incurred at Sawai Madhopur Lodge for replacement of sanitary fittings, f. Rs. 2.86 Lacs at Rambagh palace hotel for indoor and outdoor swimming pool changes due to reduction in depth and g. Rs. 12.46 lakhs were incurred at well for replacement of old pipes and for increasing the depth of tube well due to low water level.
On perusal of the above expenses we do not find that there is any increase in the capacity of the hotel or any other new facilities have been added to the existing facilities. Most of the expenditure have been incurred by the assessee for modification of existing facilities to make it more usable looking to the standard of the Hotel and the various tourists and international guests using it. In the appeal of the assessee for assessment year 2006 - 07 we have decided the Ramabagh Palace Hotel Pvt Ltd Vs. DCIT (Assessment Year: 2011-12) identical issue and deleted the disallowance on the ground that if there is no increase in the capacity of the hotel and no new facilities have been added , merely renovating or modifying the existing facilities do not result in any benefit of enduring nature and therefore the expenditure incurred on such modification renovation etc is allowable as revenue expenditure. As issue is now squarely covered in favour of the assessee by the decision of the Hon'ble Karnataka High Court in 233 Taxman 177 wherein, expenditure on refurnishing on hotel rooms is held to be revenue in nature. As expenditure disallowed by ld CIT(A) were for renovation of existing facilities only and it also does not meet the test of increase in any additional capacity in the hotel, the amount of Rs. 32015530/- incurred by the assessee cannot be held to be an expenditure which results in to benefit of enduring nature to the assessee and therefore they cannot be held to be capital expenditure. In the result disallowance made by Ld. CIT (A) cannot be upheld. In result we reverse the finding of the Ld. CIT (A) and direct the AO to delete the disallowance of Rs. 32015530/-. Hence, ground No. 2 of the appeal of the assessee is allowed.”