New User   Login      
Tax Management India .com TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2015 (5) TMI 572 - ITAT PUNE

2015 (5) TMI 572 - ITAT PUNE - TMI - Disallowance of renovation or maintenance expenditure of a part of the hotel building - revenue expenditure or capital expenditure - Held that:- As relying on Comfort Living Hotels P. Ltd. vs. CIT, (2014 (3) TMI 585 - DELHI HIGH COURT ) mere increase in the room size due to inclusion of balcony area would not result in creation of any new asset or increased profit yielding capacity so as to render the expenditure capital in nature.

In-fact, the ben .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

(A) and direct the Assessing Officer to delete the disallowance and treat the expenditure of ₹ 1,44,03,077/- as revenue in nature in terms of section 37(1) of the Act. - Decided against revenue. - ITA No.1726/PN/2013 - Dated:- 10-4-2015 - Shri G.S. Pannu And MS. Sushma Chowla JJ For the Appellant : Mr. C. H. Naniwadekar For the Respondent : Mr. Rajesh Damor ORDER Per G. S. Pannu, AM The captioned appeal by the assessee is directed against the order of the Commissioner of Income Tax (Appeal .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

llant is a company incorporated under the provisions of the Companies Act, 1956 and is, interalia, engaged in the business of locomotive and running of a hotel unit located at Khandala. The Assessing Officer noted that in relation to the hotel unit, assessee claimed expenditure of ₹ 1,58,21,689/- under the head repairs and maintenance. The said expenditure was incurred by the assessee on renovation of 33 executive rooms in the hotel, waterproofing of roof top and restaurant and lobby in fr .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

iture incurred on waterproofing of roof top and on restaurant and lobby in front of restaurant amounting to ₹ 14,18,612/- was held to be a revenue expenditure and the balance of ₹ 1,44,03,077/- has been held to be a capital expenditure eligible for the depreciation allowance. Not being satisfied with the order of the CIT(A), assessee is in appeal before us. 4. In the context of the above dispute at the outset, we may refer to the details of the impugned expenditure which have been cu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

alse ceiling work, repairing and replacing furniture items in the room like wardrobe, luggage rack, cabinet for mini-bar, headboard, bed-side table, trap door and mirrors for toilets 65,32,362 Purchase of tiles 13,93,576 External plumbing work including pipes, valves, thermal insulation for hot water pipes etc. 5,91,341 Breaking and removal of false-ceiling, aluminum window walls, bathroom flooring, sanitary fitting in bathroom, balcony railings, wager and sewage pipelines, removal of wardrobes, .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

concealed cistern flush, showers, health faucets, stop cocks, basin mixer, angle valves, bottle trap, WC toilet seat with covers, wash basins 12,82,461 Purchase of various types of steel plates and bars mainly used for RCC intermediate band on brick wall, extended support to balcony enclosed, roof area outside rooms and windows 12,00,856 MDF skirting and MDF T-profile 1,05,348 MS Sheets, polycarbonate sheets and fabrication charges for pergola (small fittings outside windows and roofing to prev .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

y due to weather and heavy rainfall. It was pointed out that with the passage of time and new trends, it become essential to incorporate new trends to attract new customers and also to retain old customers. The Ld. Representative pointed out that last major renovation of the hotel was undertaken in the year 2000/2001 which is a very long period and considering that the hotel was a three star hotel facility, the building had undergone significant wear and tear due to passage of time, weather cond .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tion to say that renovation undertaken for the 33 rooms have resulted in creation of any additional capacity so as to hold such expenditure as a capital expenditure. In the course of the hearing, the Ld. Representative vehemently argued that the impugned expenditure is allowable as a revenue expenditure in terms of section 37(1) of the Act on account of commercial expediency, which was adequately brought out before the lower authorities. In this context, it has also been highlighted that such co .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

and, the Ld. Departmental Representative appearing for the Revenue pointed out that the impugned expenditure was related to addition/expenses of the hotel building renovation which provided enduring benefit to the assessee, and was to be understood as capital in nature. 7. We have carefully considered the rival submissions. It s a trite law that the question as to whether a particular expenditure is capital or revenue in nature is a mixed question of law and facts and no universal principle is a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

en a cursory glance shows that no new asset has been created. In-fact, Assessing Officer also agrees to the aforesaid proposition in para 6 of the assessment order as the following discussion would show :- It is agreed that the assessee has not brought into existence any new asset but the assessee has itself admitted to obtain a new advantage by renovating the hotel in terms of competitive edge in the hotel industry in Khandala. 8. The aforesaid discussion by the Assessing Officer shows that the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

. Before the lower authorities, assessee made written submissions whereby the commercial expediency was sought to be demonstrated in the follows words :- The commercial expediency for incurring the renovation expenses have been stated earlier. Briefly, it is submitted that: a. The hotel is a three star hotel, located in hilly area and faces very high rainfall and hence the hotel building requires very high maintenance and also requires renovation periodically due to weather and heavy rainfall. b .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the hotel industry, periodic upgradation of facilities and change of ambience, as well as renovation of the infrastructure, including rooms, restaurants etc. is a regular feature. e. Khandala being a tourist place, there is a lot of competition in this business. In order to compete with the new hotels which have fresh look and have the new and modern facilities, the existing hotels also required to change on a continuous basis. f. The last major renovation of the hotel was undertaking in the yea .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ought out by the assessee before the lower authorities have not been disputed. The assertions made by the assessee clearly point out that what the assessee sought to achieve by incurring the expenditure was to retain its business by offering and upgrading its facilities for existing as well as new customers. In-fact, the detail of the expenditure also reveal that it has been incurred on upgrading the facilities, change of ambience and renovation of the infrastructure including rooms, restaurant, .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

iness point of view rather than upon the juristic classification of the legal rights, if any secured, employed or exhausted in the process. 10. The import of the aforesaid observations is that the controversy ought to be addressed in the context of the business necessity or expediency. If the out-going expenditure is targeted to retain the regular customers and also attracted new customers with upgradation of facilities and change of ambience, it would certainly qualify to be an objective of bus .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he capacity of the room. On this basis, it is sought to be made out that this has resulted in enhanced profit yielding capacity and therefore a portion of the impugned expenditure is capital in nature. In our considered opinion, a mere increase in the room space on account of enclosing of the balcony area would not show any increase in capacity or creation of any new asset so as to render such expenditure as a capital expenditure. In-fact, in this context, the Ld. Representative for the assessee .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version