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Income Tax Appellate Tribunal, MUMBAI BENCHES “SMC”, MUMBAI
Before: Shri Shamim Yahya
O R D E R This is an appeal by the assessee directed against order of learned CIT(A)- 20, Mumbai, dated 16.03.2017 and pertains to assessment year 2011-12. 2. The grounds of appeal read as under:
“1. The learned CIT (A) erred in confirming disallowance of Rs. 14,81,003/- out of repairs & maintenance and treating the same as capital expenditure. Disallowance worked out at Rs. 13,32,903/- after allowing Rs. 1,48,100/- being 10% as depreciation an amount treated as capitalized. The appellant prays that the addition made is arbitrary and without appreciating correct nature of expenses and therefore be deleted.
2. The learned CIT(A) has also erred in making disallowance of Rs.57,346/- as car expenses by treating them as personal.
3. The learned CIT(A) also erred in making disallowance of Rs. 179631/- out of sundry balance written off which are not recoverable by the appellant company.”
pressing ground no. 2. Accordingly, this ground is dismissed as not pressed.
Brief facts of the case are that the assessee is a company engaged in the business of providing CAD & BIM Solutions to the AEC Industries. The assessee is a franchise of M/s Autodesk Inc being authorized centre to provide training, testing and certifying Autodesk software users.
5. The first ground of appeal relates to disallowance out of repairs and maintenance. During the course of assessment proceedings the Assessing Officer found that the assessee company had claimed expenses on repairs and maintenance at Rs 18,01,848/-. On going through the details furnished in this regard the Assessing Officer noticed that out of the same the expenses on renovation work carried out during F.Y. 2010-11 consists of Rs 14,81,003/- which was made on the rental premises taken on lease at Apple Plaza at Dadar and Hi Life Mall, Santacruz premises. The assessee submitted that the renovation work was carried out due to business norms of Autodesk Inc. and at present the operation from the said premises where renovation work was carried out, had been discontinued. The contention of the assessee company was not accepted by the Assessing Officer for the following reasons:
For the Santacruz premises the assessee company paid service charges per month over and above the rent for the use of respective premises.
2. The expenses claimed in earlier years not in comparison to the claim of current year;
3. The increase in such claim has not made any immediate effect to the current year sale;
4. There is no denying of the fact that the furniture and fixtures installed can be removed and used by the assessee company in future.
The present status of the furniture and fixture has not been filed as it was submitted that at present the operation from the said premises where renovation work was carried out had been discontinued.
6. In view of the above, the Assessing Officer disallowed the entire claim of renovation expenses i.e Rs 14,81,003/- being capital in nature and the same was added to the total income of the assessee. However, the assessee company was allowed depreciation on the said amount at the prescribed rate of 10% which works out to Rs 1,48,100/-. The total disallowance works out to Rs 13,32,903/-and the same was added to the total income of the assessee. The assessee company was allowed to capitalize the said expenses on renovation works.
7. On assessee's appeal, learned CIT(A) confirmed the action of the Assessing Officer by concluding as under “In the present case it is noted that it is not a case of renovation in the premises being used by the assessee since long to carry out the business but rather that of setting up of a new business premises and the expenditure incurred on this setup is definitely capital in nature and cannot be allowed as a revenue expenditure. Having regards to the facts of the case and in view of the Judgement of the Hon'ble ITAT in the case of Vardhman Developers Ltd Vs ITO (ITAT Mumbai) Appeal Number: as discussed, the disallowance of Rs. 14,81,003/- made by the AO on this issue is found to be in order and the same is upheld. The assessee would be entitled to claim depreciation on this amount and the A.O. is directed to allow the same as per law. Accordingly this ground of appeal is dismissed.”
Aggrieved, against the above order assessee is in appeal before the ITAT.
8. I have heard both the counsel and perused the records. Learned counsel for the assessee has given the following submission:
“The Appellant Company is a 19 years old multifaceted Company providing sales, support and training on Software's for the Engineering market place. It is an Autodesk Certified Reseller, Autodesk Certified Design, Architectural Partner & Educational Partner. During the year the
2. The Appellant was carrying its business from the rented premises known as "Hi-Life" in unit No.61 & 62, 34, 36, 38 at Santacruz and 205 Apple Plaza at Dadar from April, 2010. (Lease Period is only for Three Years). It was running the business as representative of US Company M/s Autodesk. During the F.Y. 2010-11 the US Company M/s Autodesk had suggested to carry out the renovation to meet their requirements & to match their standards thus it was compulsion that renovation was carried on rented premises. The entire renovation was in the nature of repairs which included repairs to furniture, electrification, wiring etc. The entire expense of Rs.14,81,003/- was for the purpose of business.
3. During the assessment proceedings, the AO had disallowed the said repairs expenditure of Rs.14,81,003/- stating that it was in capital in nature.
4. During the CIT(A), the Appellant had made a Written Submission along with the Documents.
5. The CIT(A) relied on the decision of Vardhman Developers Ltd. v. ITO (2015) 68 SOT 107 (Mum)(Trib.)(URO)confirmed the addition.
Propositions: 1. The addition made is arbitrary and without appreciating correct facts of nature of expenses.
The expenditure incurred as repairs & maintenance on 2 locations at Santacruz premises Rs.9,50,772/- & at Dadar Rs.5,30,232/-. Both the premises has taken on leave & license basis & also taken their existing furniture & fixtures through separate agreements. The Appellant Company paid service charges against use of furniture & fixtures & air conditioners provided by the Lessor as per the agreements.
The agreement between the assessee and the lessor specifically provides that the repairs shall be carried out only by the lessee subject to permission of lessor. Further, the expenses in question are allowable under section 37(1). Perusal of the items of expenses incurred by the assessee reveal that the assessee has not made any construction of structure. Therefore, the renovation expenses in question were allowable under section 30(a)(i) as well as under section 37(1).
4. In order to make over the existing furniture & fixtures to the needs of Appellant's business, it incurred Rs.14,81,003/- on refurnishing the same. For making over the furniture usable for its business.
5 Genesis Datacomp Pvt Ltd 5. The clause no. 7 of the agreement provides that "The party will not make any addition/alteration to the said items except for the upkeep of the same". Therefore Appellant Company is not supposed to make any renovation but they can repair, remake to upkeep the same as required for their business needs.
The Appellant Company had incurred expenses towards painting, false ceiling, fixing tiles, replacing glasses, wooden partitions, replacement of electric & telephone wiring, earthling, etc. to make the said premises only usable for the purpose of its business.
Further, the provision of s. 30, 31 & 37 say that if a tenant undertakes to bear the cost of repairs, it is reasonable that whatever he spent is permissible deduction which is incurred wholly & exclusively for the purpose of business.
All such expenditure incurred on painting, wiring, false ceiling, wooden panelling, etc. are of revenue expenditure & the nature of repairs was not of an enduring character.
9. No businessmen will incurred such a huge expense knowing that he may have to discontinue the use of premises therefore it is not the case in which disallowance can be made only on the grounds that the use of premises were discounted, expenses are not in comparison of earlier year.
10. In subsequent years there no disallowance of any expenditure (Renovation Expenditure/ Repairs and Maintenance etc.)”
Per Contra learned departmental representative relied upon the orders of the authorities below.
Upon careful consideration I find that assessee has incurred a small expenditure of Rs 9,50,772/- at Santacruz and Rs 5,30,232/- at Dadar premises.
These are rented premises. As evident from the submission hereinabove, the expenditure incurred is totally of revenue in nature being renovation and refurbishing at rented premises. In the backdrop of aforesaid submission and on the facts and circumstances of the case I am of the considered opinion that the treatment of these expenditure as capital expenditure is not at all justified. Hence, I assessee.
Apropos ground number three, the Assessing Officer has denied the expenditure claimed being bad debt written off. Upon assessee's appeal learned CIT(A) has directed the Assessing Officer to verify the facts as under:
“I have perused the assessment order and submissions made by the appellant in this regard. It is noted that there is some merit in the contention of the appellant. The assessee is entitled to write off of the balance outstanding if it was offered as income in the earlier year and the same has become a bad debt which is written off in the books of accounts. In this regard the AO is directed to verify the claim of the assessee form record and if found eligible as per provisions of law allow the claim of the assessee.”
Against this order assessee is in appeal before the ITAT.
Upon careful consideration I find that the ground raised by the assessee in this regard is misplaced. Learned CIT(A) has not dismissed the assessee's ground in this regard but has remitted the matter to the file of the Assessing Officer to examine the veracity of assessee’s claim and thereafter decide accordingly. In my considered opinion, there is no infirmity in the direction by the learned CIT(A).
Hence, this ground raised by the assessee stands dismissed.
In the result, this appeal by the assessee stands partly allowed. Order pronounced in the open court on this day of 5th February,, 2018.