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Income Tax Appellate Tribunal, CHANDIGARH BENCHES ‘A’ CHANDIGARH
Before: SMT. DIVA SINGH & DR. B.R.R. KUMAR
PER DR. B.R.R. KUMAR, A.M:
The present appeal has been filed by the Revenue against the order of the Ld. CIT(A)-1, Chandigarh dt. 08/03/2017. 2. The Revenue has raised the following grounds of appeal:
On the facts & in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing appeal of the assessee without appreciating the facts of the case.
On the facts and in the circumstances of the case and in law the Ld. CIT(A) has erred in quashing the order passed u/s 148 of the Income Tax Act by observing that the mistake to be rectified was not apparent from record.
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in treating the expenditure of Rs. 38,36,145/- as revenue expenditure and only the amount of Rs 9,75,417/- as capital expenditure without appreciating the facts, whereas the AO was right in capitalizing the amount of Rs. 48,11,562/- as furniture and fixture and allowing depreciation @ 10% after proper verification of the facts and application of mind.
The appellant craves to leave to add or amend any grounds of appeal before the appeal is heard or disposed off. 5. It is prayed that the order of the Ld. CIT(A) be cancelled and that of the assessing officer may be restored.
Ground No. 2 pertains to quashing of the order passed under section 148
of the Income Tax Act doesn’t emanate from the record before us. Hence this
ground treated as dismissed.
Brief facts of the case are that the assessee had been carrying on the
business of purchase/sale of jewellery as franchisee of Titan Industries Ltd. During
the year under consideration, the assessee shifted from SCO-43, NAC, Pocket
No. l, Manimajra to SCO-40, NAC, Pocket No.l, Manimajra, Chandigarh(U.T.) The
assessee had incurred expenditure amounting to Rs 48,11,562/- on repair &
renewals to modify, refurbish and appropriately equip the showroom and
claimed as revenue expenditure. The Assessing Officer treated the expenditure
an amount of Rs 48,11,562/- on account of repair & maintenance of buildings
capital in nature as against claimed by appellant to be revenue.
The relevant portion of the assessment order is as under:
"The above mentioned expenses were incurred for the purpose of making the new premise i.e SCO No 40, Pocket No 1, Manimajara, Chandigarh, fit for use. The expenses so incurred are not recurring in nature. They are also enduring in nature as the nature of expenses incurred like ceiling, flooring, electrical and plumbing, tiling works are onetime expenses with long term benefits and need to be capitalized. 4.7 The AR in his reply has also stated that the premise is take on lease and the items cannot be taken away by the assessee at the end of the lease period and hence cannot be called as an asset in the hands of the assessee. This argument of the assessee is not acceptable as the Act has already clarified the above issue." 5. Before the Ld. CIT(A) the assessee has filed written submissions as
under:
"The assessee had been carrying on the business of purchase/ sale of jewellery as Franchisee of Titan Industries Ltd. During the year under consideration, the assessee shifted from SCO-43, NAC, Pocket No.l, Manimajra to SCO-40, NAC, Pocket No.l, Manimajra, Chandigarh(U.T) As jewellery shops are required to maintain high Standards of Interior Decor, more particularly as franchisee of Titan Industries ltd., the Asseessee has incurred expenditure amounting to Rs 48,11,562/ - on Repair & renewals to modify, refurbish and appropriately equip the Showroom in accordance with the Company's approved policy and scheme. Details of expenses along with copy of ledger a/c are enclosed.
It is the intention of the Company and the Franchisee that the show room shall at all times be among the best designed, maintained and operated showrooms. As Franchisee the firm has to ensure compliance of this intention at all times to both safeguard and further the reputation of the Company and its products. From the above , it is clear that the expenditure was the bare minimum needed to make the showroom operational as per standards of Titan Industries ltd. Undisputedly, no new structure was created with incurring of the above expenses. It was only a case of relaying the tiles, change of window glasses, change of electrical bulbs, tubes, switches , paint work, wood work, decoration, furnishing, POP work etc. The Ld. AO has not disputed all these facts. The repair expenses was reasonable proportionate to capitalized value and repair was necessitated due to business exigencies, Ld AO was unjustified in holding the said expenses to be capital in nature as against claimed by appellant to be revenue, by merely deciding the same based on total value of repair expenses. This addition deserves to be deleted. The main contention of A.O. is that it is a non-recurring expenditure incurred with enduring benefit. It will be worthwhile to mention here the Observations of Hon'ble Supreme Court on enduring benefit, in Empire jute Co. Ltd. Vs CIT (1980) 124 ITR 0001 'There may be cases where expenditure, even if incurred for obtaining advantage of enduring benefit, may, none the less, be on revenue account and the test of m enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of advantage in a commercial sense and it is only where the advantage is in capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The test of enduring benefit is, therefore, not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case' A.O. has mechanically applied the test of enduring benefit without properly appreciating the facts of the case. In fact, Titan industries ltd. Had withdrawn the franchisee from the firm in April 2014 and firm had to vacate the premises and could not retrieve the items. Therefore, no enduring business advantage accrued and no new profit making asset came into existence."
Ld. CIT(A) after considering the assessment order as well as submissions of
the assessee found that most of the expenditure pertains to the Civil Work such
as Plywood, pipes, plumbing, hardware, POP, Contractor, Paints, Electrical
works, Tiles, Glasses, Furnishing, Decoration, Wallpaper works, Sofa sets etc. The
Ld. CIT(A) held that as the assessee is engaged in the business of purchase/sale
of jewellery therefore, the assessee is required to provide conducive
atmosphere and meet the requirements of the customers. The expenditure in
question has merely enabled the assessee to remain competitive in the market
and retain the customer's preferences and loyalty towards its brand name. Also,
the assessee has not acquired a new line of business by repair and renovation.
Thus no capital asset / new asset has been created. The objective of the
expenditure which is claimed by the assessee as an expenditure for repairs &
maintenance is to preserve and maintain an already existing asset. The object
of the expenditure is not to bring a new asset into existence, nor is its object the
obtaining of a new or fresh advantage. The repair expenditure claimed by the
appellant does not give benefit of an enduring nature giving rise to capital
asset. The assessee would need to restore the premises to the good condition
and therefore the ducting, plumbing, electrical work, cabling, painting etc. that
had been installed or repaired is required to run the business. It is also observed
that Titan industries Ltd. had withdrawn the franchisee from the firm in April 2014.
The facts of this case are clearly distinguishable since in the present appeal the
assessee has merely improved the existing asset by carrying out repairs for
facilitating its business and not effacement has taken place for bringing into
existence a new asset.
The Ld. CIT(A) further held that on examination, the item wise expenditure
on record, the expenditure amounting to Rs. 9,75,417/- which has been incurred
by the assessee on marble, granite stone, stone, hardware, POP ceiling,
decoration (not defined), aluminum panel, sofa set, is treated as capital
expenditure as it would not come within the meaning of current repairs. The
remaining expenditure on electrical works, plumbing, glass, paint, Wallpaper,
etc is treated as revenue nature.
During the proceeding before us the Ld. DR strongly relied on the order of
the Assessing Officer. It was argued that the assessee in the garb of renovation
has built up a new asset which is the fully renovated hence to that extent it
should be treated as capital asset. And since the Assessing Officer has already
allowed depreciation @ 10% on the furniture and fittings the action of the Ld.
CIT(A) cannot be held to be valid.
We have gone through the material before us and the rationale given by
the Ld. CIT(A). It is a fact on record that no new asset has been brought into
existence so as to be treat the expenses as capital in nature. The categorical
finding has been given by the Ld. CIT(A) about the works undertaken and has
correctly determined an expenses of Rs. 9,75,417/- as capital expenditure.
Hence we decline to interfere in the well reasoned order of the Ld. CIT(A),
consequently the appeal of the Revenue stands dismissed.
In the result appeal of the Revenue is dismissed.
Order pronounced in the Open Court.
Sd/- Sd/- (DIVA SINGH) (DR. B.R.R. KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 08/03/2018 AG
Copy to: The Appellant, The Respondent, The CIT, The CIT(A), The DR