Loading judgment…
Facts
Dewan Jewellers, operating a Tanishq retail store, incurred Rs. 54,62,703/- on showroom fittings, claiming it as revenue expenditure. The Assessing Officer (AO) and Commissioner of Income Tax (Appeals) (CIT(A)) treated it as capital expenditure, allowing depreciation, leading to the current appeal. There was also a 29-day delay in filing the appeal, for which condonation was sought.
Held
The Tribunal condoned the delay in filing the appeal. On merits, it observed that the expenditure was for fittings in rented premises under a 9-year lease, with obligations to change designs as per Titan Company Ltd.'s requirements. Concluding that no new asset was created, nor was an enduring benefit derived, the Tribunal held that the expenditure on fixtures and fittings is revenue in nature, setting aside the lower authorities' orders.
Key Issues
Whether showroom fitting expenses of Rs. 54,62,703/- are revenue or capital expenditure; Condonation of 29 days delay in filing the appeal.
Sections Cited
143(3), 144B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “SMC”, DELHI
ORDER
PER VIKAS AWASTHY, JM:
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi (hereinafter referred to as 'the CIT(A)') dated 27.09.2023, for assessment year 2020-21.
The solitary issue raised by the assessee in appeal is against the findings of the CIT(A) in treating expenditure incurred towards show room fitting expenses Rs.54,62,703/- as capital expenditure.
3. The appeal is time barred by 29 days. The assessee has filed an application seeking condonation of delay in filing of appeal. The Revenue has not raised any (AY 2018-19) serious objection in condoning the delay. After perusing the said application, I am of considered view that the delay in filing of appeal is not intentional but was for the reasons stated therein which appears to be bonafide. The delay of 29 days is filing of appeal is condoned and appeal is admitted to be heard on merits.
The facts of the case, in brief, as emanating from records are, the assessee is engaged in the business of managing and operating a retail store, named 'Tanishq,' under the flagship of M/s. Titan Company Ltd. (hereinafter referred to as ‘the Company’). The assessee incurred expenditure towards showroom fittings aggregating to Rs. 54,62,703/- and debited the same to Profit and Loss account. During assessment proceedings the Assessing Officer (AO) held the expenditure as capital in nature and allowed depreciation on the same. Aggrieved by the assessment order dated 14.09.2022 passed u/s. 143(3) r.w.s 144B of the Income Tax Act, 1961(hereinafter referred to as ‘the Act’), the assessee filed appeal before the CIT(A). The First Appellate Authority rejected assessee’s contention and upheld the assessment order. Hence, present appeal by the assessee.
Shri Ankit Malik, appearing on behalf of the assessee submits that the assessee entered into management agency agreement with Titan Company Ltd. for managing and operating jewellery store under the brand name “Tansihq”. As per the agreement the assessee was required to bear interior decoration of the storeroom including structural modifications, installation of furniture fittings etc. The copy of management agency agreement is at page 11 to 33 of the paper book. The assessee claimed expenditure on fixture and fittings including interior designing as Revenue and debited the same to P&L Account. The AO re- characterize the nature of expenditure as capital and allowed depreciation on the (AY 2018-19) same. The ld. AR submitted that the AO and the CIT(A) have failed to appreciate the terms and conditions of the agreement. There is a termination clause in the agreement, according to which the Company has right to terminate the agreement in case conditions are violated; the assessee is under obligation to change showroom interior designs to the satisfaction of the Company. He further submitted that the fittings and fixtures were made in the rented premises; therefore, the assessee did not intend to derive any enduring benefit or create any asset. Hence, the assessee has rightly claimed it as Revenue expenditure. To support his contentions, the ld. AR placed reliance on the decision in the case of PCIT vs. Joy Alukkas (India) Pvt. Ltd. 452 ITR 271 (SC).
Per contra, Shri Sanjay Tripathi representing the department vehemently defended the impugned order. The ld. DR submits that the assessee has entered into a lease agreement with the owner of the premises for a period of 9 years. Thus, the assessee would derive long term enduring benefit from the expenditure incurred on fittings and fixtures. The assessee has incurred expenditure once for all and has created an asset of enduring nature. Hence, the AO and CIT(A) have rightly rejected assessee’s claim of expenditure as revenue and have held it to be capital expenditure. The ld. DR prayed upholding the impugned order and dismissing appeal of the assessee.