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Income Tax Appellate Tribunal, MUMBAI BENCHES “C”, MUMBAI
Before: Shri Joginder Singh, & Shri Ramit Kochar
Per Joginder Singh (Judicial Member) The assessee as well as the Revenue is in cross appeal for assessment year 2010-11 against the impugned order dated 21/01/2014 of the ld. First Appellate Authority, Mumbai. In the appeal of the Revenue (ITA No.2247/Mum/2014), the first ground pertains to deleting the disallowance of Rs.12,48,00,000/-, claimed as deduction u/s 54 of the Income Tax Act, 1961 (hereinafter the Act).
During hearing, the ld. CIT-DR, Shri Ajit Kumar Srivastava along with Shri Rajat Mittal, ld. DR, placed reliance upon the assessment order by defending the addition made by the Ld. Assessing Officer. On the other hand, Shri N. Jayendran, ld. counsel for the assessee defended the impugned order by placing reliance upon the decision in CIT vs Mrs. Hilla J.B. Wadia, (1995) 216 ITR 376 (Bom.), CIT vs Smt. Bharti C. Kothari (2000) 244 ITR 352 (Kol.), CIT vs R.L. Sud (2000) 245 ITR 727 (Del.). Our attention was also invited to the agreement dated 29/10/2009 for the purchase of the residential flat (pages 50 to 64 of the paper book) and developers confirmation along with receipt of payments
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received against the purchase of flat (page 65 to 68 of the paper book). The crux of the argument is in support to the impugned order.
2.1. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee claimed exemption u/s 54 of the Act to the extent of Rs.12.48 crores. The Ld. Assessing Officer sought details of the purchasing of new property, which were filed vide letter dated 29/10/2009. The Ld. Assessing Officer was of the view that the letter was not an agreement for purchase of the property and was merely letter of expressing the desire to purchase the house. The Ld. Assessing Officer asked the assessee to produce the registered purchase agreement to which the assessee filed the registered agreement dated 27/03/2012 for purchase of new property entered between the assessee and M/s Genext Hardware & Parts Pvt. Ltd. and M/s Capricon Reality Ltd. The Ld. Assessing Officer was of the view that the purchase agreement between the assessee and the seller was dated 27/03/2012, which is beyond two years from the date of sale of the original asset, being 21/09/2009. He concluded that the assessee did not purchase the property within two years, therefore, claimed deduction u/s 54 of the Act was not available to the assessee. The Ld. Assessing Officer also disallowed the claimed of stamp duty charges paid on the purchase of new property observing that the same cannot be
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categorized as wholly and exclusively incurred for the sale of original property.
2.2. The aggrieved assessee carried the matter before the First Appellate Authority, wherein, the factual matrix was considered. Certain cases were relied upon as mentioned at page-8 of the impugned order and finally the issue was decided in favour of the assessee, directing the Assessing Officer to allow the claimed deduction u/s 54 of the Act. The Revenue is aggrieved and is in appeal before this Tribunal.
2.3. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, we find that the entire cost of purchase of Rs.12.48 crores was paid by the assessee within a period of three month from the date of sale of old asset, therefore, we find merit in the contention of the assessee. The decision in CIT vs R.L. Sood, (supra), Shashi Verma vs CIT (224 ITR 106) (MP) along with the cases cited before us and also mentioned in the impugned order, supports the case of the assessee. The assessee finally got the new asset registered on 27/03/2012, which was within a period of three years from the date of sale of original asset. The Hon'ble jurisdictional High Court in the case of CIT vs Mrs. Hilla J.B. Wadia, (1995) 216 ITR 376 (Bom.) held that for claiming exemption u/s 54 of the Act, if there is substantial
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investment in the new property and domain over it within the prescribed period, the property used as a residence, the assessee is entitled to exemption u/s 54 of the Act. The Hon'ble High Court also considered CBDT Circular No.471 dated 15/10/1986. While coming to this conclusion, the Hon'ble Court duly considered the decision in CI T vs Mrs. Sehjada Begum 173 ITR 397 (AP), CIT vs Subramaniya Bhatt 165 ITR 571 (Karn.), Shanta Ben P. Gandhi vs CIT129 ITR 218 (Guj.). In the light of the foregoing discussion, facts on record, and the judicial pronouncements, we find no infirmity in the conclusion of the Ld. Commissioner of Income Tax (Appeal), therefore, this ground of the Revenue is dismissed.
The next ground pertains to deleting the disallowance of brokerage paid of Rs.13,76,544/-. The argument advanced by the ld. CIT-DR is that the assessee could not satisfactorily prove the services were rendered by the broker. On the other hand, the ld. counsel for the assessee, defended the conclusion arrived at in the impugned order by contending that necessary details were filed by the assessee.
3.1. We have considered the rival submissions and perused the material available on record. We find that the assessee claimed Rs.13,76,544/- paid as brokerage as cost of the new asset. The Ld. Assessing Officer issued notices u/s 133(6) to M/s Homebay Residential Pvt. Ltd. who submitted the copies of invoice and confirmed the receipt of brokerage.
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The payments were made through account payee cheque by the assessee, therefore, we find no infirmity in the conclusion of the Ld. Commissioner of Income Tax (Appeal), thus, this ground of the Revenue is also dismissed.
Now, we shall take up the appeal of the assessee in ITA No.1993/Mum/2014, wherein, the only ground raised by the assessee pertains to upholding the assessment order in not deduction from the full value of sale consideration the indexed cost of improvement of the flat for a sum of Rs.38,37,169/-. The ld. counsel for the assessee invited our attention to page 30 and 31 of the paper book, containing the details of expenses. The Ld. DR invited our attention to page- 14 of the impugned order.
4.1. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the ld. Assessing Officer noted that the assessee deducted Rs.38,37,169/- on account of indexed cost of improvement of the original asset. The ld. Assessing Officer, from the details, filed by the assessee, observed that the cost of improvement are in the nature of repairs and maintenance such as installation of air-conditioner, curtains, lining material, carpentary work, polish work, painting works, windows, electrical work, civil and plumbing work, etc. The assessee placed reliance upon the decision in CIT vs Ramaswamy Mudaliyar (196 ITR 939). The Ld. Assessing Officer observed that the assessee sold the property after
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almost three years of having incurring the said expenditure, therefore, he rejected the claim of deduction. On appeal before the Ld. Commissioner of Income Tax (Appeal) decided against the assessee. The assessee is in appeal before this Tribunal.
4.2. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, we find that the Hon'ble jurisdictional High Court on the issue in hand in the case of RPG Enterprises Ltd. vs DCIT (2016) 138 DTR 0049 (Bom) : (2016) 386 ITR 0401 (Bom) : (2016) 240 TAXMAN 0614 (Bombay), vide order dated 29/06/2016 made an elaborate discussion and held as under:-
“1. This appeal under Section 260A of the Income Tax Act, 1961 (the Act) challenges the order dated 18th April, 2001 of the Income Tax Appellate Tribunal (Tribunal). The impugned order dated 18 April 2001 relates to A.Y. 1996-97. 2. On 30 July 2004 this appeal was admitted on the following substantial question of law:— "Whether on the facts and in the circumstances of the case and in law, Income Tax Appellate Tribunal was correct in holding that the expenditure to the extent of 75% of Rs. 31,32,841/- was capital in nature?" 3. Brief facts leading to this appeal are as under :— (a) Since the year 1995, the appellant was in occupation as a tenant of 7th floor of Ceat Mahal, Worli, Mumbai (said premises). The appellant was paying a monthly rent of Rs. 73,530/-. In the A.Y. 1996-97, the appellant filed its return of income declaring an income of Rs. 17.46 lakhs. The appellant had debited a sum of Rs. 47.63 lakhs to the Profit and Loss account under the head "Repairs and Maintenance" while determining its income. Out of the aforesaid amount of Rs. 47.63 lakhs as expenditure,
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an amount of Rs. 31.32 lakhs related to the said premises. The Assessing Officer on examination of the nature of expenses found that the same were substantially capital in nature i.e. renovating the said premises by doing civil work. However, some part of its expenditure were found to be revenue in nature, example plastering. Therefore, the Assessing officer attributed 75% of the expenditure claimed as capital and 25% as revenue i.e. Rs. 23.49 lakhs (capital expenditure) and Rs. 7.83 lakhs (revenue expenditure) aggregating to Rs. 31.32 lakhs. The Assessing Officer allowed 10% depreciation i.e. Rs. 2.34 lakhs on the capital expenditure of Rs. 23.49 lakhs under Section 32 of the Act and an further amount of Rs. 7.83 lakhs as revenue expenditure. The aforesaid exercise resulted in the Assessing officer passing an order dated 18th July 1999 determining the appellant's income at Rs. 41.25 lakhs.
(b) Being aggrieved, the appellant carried the issue of repairs and maintenance, in appeal to the Commissioner of Income Tax (Appeal) [CIT (A)]. On consideration of the nature of expenditure incurred by the appellant, the CIT (A) held that substantial expenses incurred on the said premises was on account of major structural renovation. Thus, capital in nature. Therefore the CIT (A) by order dated 24th February 2000 upheld the Assessment order dated 18th July 2004 of the Assessing Officer disallowing the claim of Rs. 23.49 lakhs as Revenue expenditure.
(c) Being aggrieved, the appellant carried the issue of nature of expenditure in appeal to the Tribunal. The impugned order of the Tribunal on facts found that substantially, the expenditure on renovation gives a benefit or advantage of enduring nature. Therefore substantially on capital account qualifying for depreciation in terms of Explanation-I to Section 32 of the Act. In the circumstances, it upheld the order of the CIT (A), holding that the expenditure to the extent of Rs. 23.49 lakhs out of Rs. 31.32 lakhs is on capital account and cannot be allowed as revenue expenditure.
Being aggrieved, the appellant is in appeal and the appeal has been admitted on the above question of law. Mr. Jhaveri, learned Counsel appearing for the appellant in support submits as under :-
(a) The expenditure of Rs. 31.32 lakhs claimed on account of repairs and maintenance of the said premises is allowable as revenue expenditure. This is no longer res integra in view of the decisions of this Court in CIT v. Talathi and Panthaky Associated (P.) Ltd. [2012] 343 ITR 309/205 Taxman 309/18 taxmann.com 367 (Bom.) and CIT v. Hede Consultancy (P.) Ltd. [2002] 258 ITR 380/[2003] 127 Taxman 597 (Bom.). In the above cases, it is submitted that on an identical factual situation the expenditure on renovation of tenanted premises has been allowed as revenue expenditure under Section 37 of the Act;
(b) The expenditure of Rs. 31.32 lakhs incurred on renovation of the said premises being repairs is allowable under Section 30 of the Act; and
(c) In any case there is no basis indicated for apportioning the expenditure in the ratio of 75% and 25% between capital and revenue account. Therefore, the finding of the authorities is not sustainable;
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We find that the appellant was a tenant of the said premises. It was paying monthly rent of Rs. 73,530/- from April, 1995 onwards under the agreement dated 15th February, 1995. Further the agreement provided that the cost of repairs and renovation i.e. civil, electrical, plumbing, polishing etc. would be carried out by the appellant at its own expenses after taking prior permission from the landlord. All the Authorities under the Act have rendered a finding of fact that the so called "repairs and maintenance" were in fact extensive renovation involving civil work. This expense resulted in an advantage/benefit of a enduring nature in as much as it inter alia resulted in the appellant being able to accommodate more number of employees and facilitate improving its trading operations. Thus the benefit obtained by the appellant, according to the Authorities was substantially in the capital field and could not be entirely allowed as revenue expenditure. The submission on behalf of the appellant, before us, that as the appellant does not own the premises the expenditure incurred on renovation goes to the benefit of the owner of the said premises, therefore in the hands of the tenant it can only be revenue expenditure is more then met by the impugned order of the Tribunal. This in view of the fact that the impugned order places reliance upon Explanation-I to Section 32 of the Act, which allows depreciation to a tenant in case of any capital expenditure incurred for renovation/improvement to the building in the hands of the tenant by deeming the tenant to be the owner of the premises. In this case the benefit of depreciation has been given to the appellant on the capital expenditure incurred for renovation.
Mr. Jhaveri, learned Counsel for the appellant-assessee then submits that on an identical fact situation expenditure incurred by tenant has been allowed as revenue expenditure by this Court. Therefore it is submitted that the entire issue is no longer open to debate as it stands concluded in favour of the appellant by the decisions of this Court in Talathi & Panthaki Associates (P.) Ltd. (supra) and Hede consultancy (P.) Ltd. (supra). In Talathi & Panthaki Associates (P.) Ltd. (supra) the tenant of the premises had contributed a sum of Rs. 1.50 crores to the work of repairs and restoration/reconstruction of the building in which it was a tenant. The entire amount of Rs. 1.50 crores was claimed as revenue expenditure. The assessee therein had entered into an agreement with the developer to contribute Rs. 1.50crores for the reconstruction/repairs/restoration of the building in consideration of there being no increase in the rent payable by the assessee in the new structure to that being paid in the old structure. It was in the aforesaid facts that it was held that where a lump- sum payment of Rs. 1.50 crores gets rid of annual business expenses chargeable against revenue then the lumpsum is to be regarded as a revenue/business expenditure. The benefit obtained by the assessee in the above case was premises at a lower rent in view of the contribution made to the developer for repairing/reconstructing the premises. Thus, the expenditure was in the revenue field and allowable under Section 37 of the Act. In the present facts, nothing is on record to indicate that there was any advantage secured by the appellant in the revenue field. There was no decrease in the rent nor was there any embargo on future increase in the rent in consideration of the expenditure for renovation. Therefore, the above decision would not apply to the facts of the present case.
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Similarly, the decision of this Court in Hede consultancy (P.) Ltd. (supra) upon which also reliance is placed upon also dealt with the situation where the amount expended for interior decoration and renovating of a godown premises so as to be converted into an office premises was allowed as a revenue expenditure, will not apply to the present facts. This is because in that case the tenant got the benefit of lower rent in view of the expenditure incurred on renovation. It was in that context that this Court upheld the view of the Tribunal that the expenditure for repairs and renovation was in the revenue field. As pointed out above, in the present case, there is nothing on record to indicate that any benefit was obtained by the assessee in the revenue field for having expended the amount of Rs. 31.32 lakhs for repairs/renovation of the office premises. Thus, the aforesaid decisions would have no application to the facts of the present case.
It was next contended there is no basis indicated by the Authorities under the Act for apportioning the expenditure in the ratio of 75% and 25% between capital and revenue account by the Revenue. We find that the authorities on facts found that some of the expenditure incurred out of Rs. 31.32 lakhs was incurred for maintenance such as plastering etc. This allowing of 25% was on the basis of an estimate. Nothing has been shown to us that the estimation by the authorities on the basis of facts found was in any way arbitrary or perverse. Thus we find no merit in the above submission.
In the view taken by us that the expenditure of 75% of Rs. 31.32 lacs i.e. Rs. 23.49 lakhs is on capital account, the submission to claim deduction on account of Section 30 of the Act made by the Appellant need not be examined. Nor the decision of the Delhi High Court in CIT v. Hi Line Pens (P.) Ltd. [2008] 306 ITR 182/175 Taxman 132 (Delhi) relied upon for interpretation of Section 30 of the Act need be examined. This for the reason that the Explanation to Section 30 of the Act itself provides that the amount paid on the cost of repairs would not include any expenditure which is in the nature of capital expenditure. Although this Explanation to Section 30 of the Act was introduced in 2004 w.e.f. 1st April, 2004, the Explanation itself clarifies that it has been introduced for removal of doubts. Therefore, it would be applicable even for the period prior 1st April, 2004 including the subject Assessment year. It is for the above reason the learned Counsel for the appellant very fairly did not even attempt to suggest that deduction under Section 30 of the Act would be available even in respect of capital expenditure.
In the above view, the concurrent finding of fact by the Authorities under the Act that the expenditure incurred claiming to be the repairs and maintenance was in fact on account of renovation of the premises, leading to enduring benefit to the appellant assessee in as much as it enabled the appellant to accommodate larger number of employees and also facilitate its trading operations. This benefit would be available to it for a long period of time and thus, was capital in nature. It was in the above view that the Tribunal granted the benefit of depreciation to the extent the claim as revenue expenditure was disallowed.
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In the above view, we find that the view taken by the Authorities under the Act including the Tribunal, cannot be faulted as the appellant has failed to establish that the expenditure of Rs. 31.32 lakhs claimed as "Repairs and Maintenance" was in the revenue field. In the above view, the substantial question of law as framed hereinabove in paragraph 2 is answered in the affirmative i.e. in favour of the respondent Revenue and against the appellant assessee. 12. The appeal is disposed of in the above terms. The assessee is directed to produce the necessary evidence in support of his claim. In the light of the above order from Hon'ble jurisdictional High Court in the case of RPG Enterprises Ltd., the ld. Assessing Officer is directed to examine the claim of the assessee and after considering the factual matrix decided in accordance with law. The assessee be given opportunity of being heard, thus, this ground of the assessee is remanded back to the file of the Assessing Officer and thus allowed for statistical purposes.
Finally, the appeal of the Revenue is dismissed and that of the assessee is allowed for statistical purposes.
This Order was pronounced in the open court in the presence of ld. representatives from both sides at the conclusion of the hearing on 24/04/17. Sd/- Sd/- (Ramit Kochar) (Joginder Singh) लेखा सद�य / ACCOUNTANT MEMBER �या�यक सद�य / JUDICIAL MEMBER मुंबई Mumbai; �दनांक Dated : 26/04/2017 f{x~{tÜ? P.S/.�न.स. आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent.
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आयकर आयु�त(अपील) / The CIT, Mumbai. 4. आयकर आयु�त / CIT(A)- , Mumbai 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील�य अ�धकरण, मुंबई / ITAT, Mumbai