M/S. A B T LIMITED,CHENNAI vs. DCIT, COIMBATORE

आदेश / O R D E R PER D.S.SUNDER SINGH, ACCOUNTANT MEMBER:

This is an appeal filed by the assessee against an Order dated 30.05.2016 of Commissioner of Income Tax (Appeals)-1, Coimbatore, in for the AY 2012-13.

2.0 All the grounds of the appeal are related to the disallowance of capitalization of expenditure incurred on leasehold land. During the ITA No.2103/Mds/2016 :- 2 -: assessment proceedings, the Assessing Officer (hereinafter referred to as ‘AO’) found that the assessee company had claimed a sum of ₹3,14,86,158/- as Revenue expenditure under the head construction of buildings on leasehold land. The AO called for the details and from the details it was found by the A.O that the expenditure incurred by the assess was in the nature of capital expenditure but not the Revenue expenditure, hence invoking the provisions of Explanation-1 of section 32(1) the A.O treated (out of the total amount of ₹3,14,86,158/-) a sum of ₹2,72,17,670/- as capital expenditure and the balance amount of Rs.42,68,487/- was allowed as Revenue expenditure.

3.0 The assessee went on appeal before the Commissioner of Income Tax (Appeals) (hereinafter referred to as CIT(A)) and the Ld.CIT(A) confirmed the addition placing reliance on the decision of Hon’ble ITAT ‘A’ Bench in Order No.2077/Mds/2014 & dated 29.10.2015 in assessee’s own case, hence the assessee is on appeal before us.

4.0 Appearing for the assessee, the Ld.Counsel reiterated the submissions made before the Ld.CIT(A) as under:

We are running Maruti Show room and Service Station at various places on Leasehold Land. As per the agreement entered with the Lessor, we have to vacate the building at any time by giving 3 months notice by either side. At the time of vacating the building, we can remove the capital material and these materials may not have original strength and we cannot use the same further.

ITA No.2103/Mds/2016 :- 3 -:

During the A.Y.1990-91 & 1991-92, the ITAT, Chennai had allowed this type of expenditure, in our own case.

Our principal M/s Maruti Suzuki India Limited (MSIL) has been advising us to change the interior and exterior as per their norms. These norms are subjected to change from time to time and we have to adhere to their advise by changing/remodeling/altering the interior/exterior made to meet their changed Corporate image (CI) norms.

In view of the above and though the interior and exterior are long lasting, we are bound to change the same as per the advise given by them from time to time and the expenses are to be treated as Revenue expenditure.

We are enclosing the break up details of revenue expenditure incurred during the FY 2011- 12.

5.0 The assessee also submitted that during the AY 1990-91 & 1991-92, the Hon’ble ITAT has allowed such type of expenditure in the assessee’s own case. The assesse also given the breakup of the expenditure and argued that the expenditure under the head construction expenses are, in fact, maintenance expenses for upkeep of the premises. Therefore, the Ld.AR argued that expenditure should be allowed as Revenue expenditure.

On the other hand, the Ld.DR relied on the orders of this Tribunal in & ITA No.1218/Mds/2015.

6.0 We heard the rival submissions and perused the material placed on record.

The AY involved is 2012-13, the assessee has furnished two lease agreements one for Ambattur Industrial Estates as per the lease agreement, it was entered for an initial period of three years and on ITA No.2103/Mds/2016 :- 4 -: expiry of the three years lease period, it will be renewed for further period of three years. The second agreement dated 27.04.2011 was for East Coast Road (in short ‘ECR’), and entered for a period of 15 years. The assessee has taken the leased premises for substantial period and as per Clause-17 of lease agreement dated 27.04.2011, the lease can be terminated by 12 months’ notice on either side. Similarly, as per lease agreement dated 10.12.2010 of Ambattur industrial estate lease can be terminated with six months’ notice on either side. Hence, the submission of Ld.AR that the assesse has to vacate the building at any time by giving three months notice is incorrect. The assesse has entered into lease agreement for longer periods and the lease was not for short term period.

The entire expenditure incurred by the assesse in the new premises was for bringing into existence of the Showroom/Service Centre is undoubtedly a capital expenditure. The assessee has given the breakup of as follows:

LEASE BUILDING DETAILS FOR A.Y. 2012-13

Construction Running BRANCH PARTICULARS AMOUNT expenses Expenses H & R JOHNSON INDIA PURCHASE 87930 87930 - OF TILES & Unloading charges ZENITH ENTERPRIESES 168001 - 168001 PURCHASE OF AIR CONDITIONER CONSTRUCTION DESIGNERS 111523 111523 - REDOR WORK MORNING STAR PURCHASE OF 10476 - 10476 CHAIRS AMBATTUR PURCHASE OF S3N BOARD FROM 35667 - 35667 TRUE MR.ART VALUE PURCHASE OF ACCESSORIES 36645 - 36645 FROM ZENITH ENTERPFSES& Installation URCHASE OF INTERIOR MATERIAL 168750 - 168750 FROM SINI INTERIOR FURNISHERS PINKY ELECTRICALS PURCHASE 7844 7844 - OF ELECTRICAL ITEMS LB ENGINEERING PURCHASE OF 24000 - 24000

ITA No.2103/Mds/2016 :- 5 -:

SECURITY CABIN MR.ART PMNIING WORK 1872 - 1872 PURCHASE OF MATEAL FROM 9113 - 9113 CEASEFIRE INDUSTRIES LTD SKM CONSTRUCTION, 1664325 1664325 - CONSTRUCTION WORK BILL AISHWARYA ELECTRICAL POWER 84361 84361 - B.NO.318 TERM LOAD INT @ 12.50% PAID 72846 - 72846 UPTO PROJECT PERIOD CAPITALISED 2483353 1955983 527370

CONSTRUCTION OF STP TANK 201928 - 201928 WORKS FOR SKM CONSTRUCTION FR AMR CCCL BILL FOR AMR MARUTHI 5018652 5018652 - 5220580 5018652 201928 MOHAMED ALl ECR RENT DURING 1789648 - 1789648 PROJECT PERIOD BUILDING PLAN APPROVAL EXP 50000 - 50000

FREIGHT EXPENSES 25500 - 25500 INCIDENTAL EXP FOR BUILDING 35000 - 35000 LICENCE PURCHASE FOR HYDRALIC OIL 23038 - 23038 NEW OFFICE BUILDING 19534173 19534173 - ARCHITECT BUILDING 303325 303325 - ECR CONSULTING FEES LUNCH & TEA EXPENCES, BUS 15922 - 15922 FARE & VEHICLE FUEL EXP, XEROX, BADGE MAKING CHARGES, POOJA

BRANCH OPENING CEREMONY 110498 - 110498 EXPENSES 21887104 19837498 2049606

APPLICATION OF TWO COATS OF 24060 - 24060 EPOXY COATING FR CIVIL DOCTOR APPLICATION OF ACID WASH, 18900 - 18900 PRIMER & EPOXY TOP COAT & BHARANI 4YELLOW APPLICATION OF ACID WASH, 7698 - 7698 PRIMER & EPOXY TOP COAT & 4YELLOW APPLICATION OF BITUMEN SHEET 45880 - 45880 LAYING 96538 - 96538 FBRICATION WORK OF 838656 - 838656 POLYCARBONATED SHEET SHED WASHING RAMP FROM A.R INDUSTRIES CONSTRUCTION OF POLE POST 31920 - 31920 CUDDALORE FOUNDATION WORKS FROM S.K.M.CONSTRUCTIONS RENOVATION 145050 - 145050 WORK,SCAFFOLDING,TRANSPORT, HIRE,PLYWOOD,FRAMES FROM S.K.M.CONSTRUCTION

ITA No.2103/Mds/2016 :- 6 -:

FIXING OF READER FALSE CELING 25200 - 25200 EXCLUDING COST FOR CONSTRUCTION DESIGN CUDDALORE BRANCH COMPOUND 150000 - 150000 WALL CONSTRUCTION CIVIL WORK 405539 405539 - 1596365 405539 1190826 TOWARDS FIXING OF12MM 26400 - 26400 GLASS DOOR,TOP & BOTTOM ALUMINIUM FRAME FR SKM CONSTRUCTION TOWARDS FIXING OF ACP 21040 - 21040 SHEET DOOR,ALUMINIUM COMPOSITE PANELSHEETS FROM CONST VILLUPURAM TOWARDS AYUDHA POOJA 19064 - 19064 WHITE WASH MADE BY HARIDASS TOWARDS FALSE CELING 12000 - 12000 WITH ARM STRONG SHEETS EXCLUDING COST FROM CONSTRUCTION DESIGNER 78504 - 78504 1 NO 1.5 HP/18 STAGE 13755 - 13755 SUBMERSIBLE PUMP WITH CONDUCT RELAY PANEL PURCHASE FROM R.R INDUSTRIES 3700 - 3700 1.5 HP SUBMERSIBLE PUMP ERECTION LABOUR CHARGES R.RINDUSTRIES AWYTR 9350 - 9350 1.5 FLAT CABLE 1233 POLY ROPE FOR PVC PIPE FITTING CHARGES N.S. MOTORS BOREWELL AT AWYTR FOR 96910 - 96910 364FT NOW ACCOUNTED E.C.ENTERPRICES 123715 - 123715 GRAND TOTAL 31486158 27217672 4268487 7.0 From the above breakup of the expenditure, it seen that the entire expenditure and construction expenses were incurred for establishing the new Showrooms or Workshops on various places, except in the case of Bharani and Villupuram. This is evident from the above breakup of expenditure which clearly shows that the expenditure was for the purpose of bringing the new asset into existence in the leased premises. It is clear that the entire expenses for ECR were for installing and commissioning the ITA No.2103/Mds/2016 :- 7 -: new Showroom/Service Centre. Similarly, Ambattur Service Centre and Cuddalore also shows that the expenditure incurred was for the purpose of bringing new showroom into existence. The assessee relied on the decision of Hon’ble Madras High Court judgment in the case of CIT vs. Ayush Hospitals rendered on 10.10.2006. Hon’ble Madras High Court, in the cited decision held that the expenses incurred towards painting relaying of the damaged partitions, etc., held to be Revenue expenses.

From the breakup given by the assessee we do not see any expenditure which is in the nature of revenue. The assessee also did not bring any evidence to prove the revenue nature of expenditure before us.

Accordingly, we hold that the expenditure incurred for the purpose of establishing the new Showroom/Service Centre is capital expenditure.

However we direct the AO to verify the breakup of the expenses incurred by the assesse and to treat the expenses incurred for establishing/bringing the new Showroom, as capital expenditure and the expenditure incurred to upkeep the already existing assets (such as painting, relaying of new tiles, partitions, etc.), to be allowed as Revenue expenditure.

8.0 We set aside the orders of lower authorities and remit the matter back to the file of AO to make necessary verification of the expenditure and decide capital or Revenue nature on merits. It is needless to say that the A.O will give opportunity to the assessee.

ITA No.2103/Mds/2016 :- 8 -:

9.0 In the result, the appeal of the assessee is allowed for statistical purposes.

Order pronounced in the Open Court on 22nd February, 2017, at Chennai.