TMI Blog2017 (2) TMI 985X X X X Extracts X X X X X X X X Extracts X X X X ..... held them to be capital expenditure and not revenue expenditure. We do not subscribe to the view of the Ld. CIT A as the facility tools and materials for resorts are small items which are required for the day to day use in resort. Such as housekeeping items of dustbins holders garbage dustbins etc are also held to be a capital expenditure. As the nature of expenditure incurred by the assessee no capital asset has come into existence but are the day today expenditure or minor expenditure for running business which is already in existence, such expenditure are incurred. According to us these expenditure cannot be held to be capital in nature and therefore we reverse the decision of Ld. CIT appeal in holding that the sum of ₹ 3192313/- is capital expenditure. In the result ground of the appeal of the assessee is allowed. - ITA No.2331/Del/2012, ITA No. 6688/Del/2013, ITA No. 2182/Del/2012 - - - Dated:- 13-2-2017 - SHRI H.S.SIDHU, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER For The Assessee : Sh. SS Rana, CIT DR For The Revenue : Sh. CS Agarwal, Sr. Adv Sh. Ravi Mall, Adv ORDER PER PRASHANT MAHARISHI, A. M. 1. Out of the bunch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned Commissioner of Income Tax (Appeals) further erred in law out of total disallowance made by learned Assessing Officer of ₹ 3,35,33,933/- on account of revenue expenses claimed on crockery, cutlery, utensils etc. 3.1 That the learned Commissioner of Income Tax (Appeals) overlooked the fact that the appellant company was running a resort near Sohna, two restaurants in Gurgaon, fitness centers and business centers. Thus, the expenditure so made on all the above said items was merely consumables and were expended for proper conduct of the business, as it is the expenditure made in obtaining inventories for the proper running of resort and restaurant businesses. 3.2 That the learned Commissioner of Income Tax (Appeals) further overlooked the basic fact that the resort at Sohna was renovated and this was the first year after its renovation, so comparatively bigger amount was needed to be invested in the inventories of said consumables, which the appellant company did, as was also the need of the business. Thus, no capital asset came into existence and as such, disallowance sustained by learned CIT (A) is beyond any logic. 4. That further the learned Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riefly stated the facts of the case are that assessee is engaged in the business of hospitality and runs resorts and restaurants at Gurgaon. It also runs business centers at Pune, Hyderabad. It filed its return of income on 14/10/2000 showing loss of ₹ 129075807/ which was subsequently revised on 29/07/2009 increasing the loss to ₹ 203850132/ . The Ld. assessing officer has noted a fact that a survey was conducted under section 133A in the case of Vatika Ltd on 04/02/2010 and certain incriminating documents were impounded during the survey. Subsequently assessment under section 143 (3) of the income tax act was made on 28/12/2010 at a loss of ₹ 14646906/-. The Ld. assessing officer disallowed following expenditure:- a. disallowance of leasehold expenses on considering the same is capital expenditure ₹ 65518642/- b. disallowance of expenses on cutlery utensils etc considering the same is capital expenditure of ₹ 33539332/- c. disallowance of expenses in view of impounded documents of ₹ 100051049/ 6. Above disallowances were challenged before the Ld. CIT (A) by assessee and Ld. CIT appeal confirmed the disallowance of ₹ 6551 864 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he disallowed the above sum of ₹ 65518642/ treating it as a capital expenditure. The Ld. CIT (A) confirmed the above disallowance therefore the assessee is in appeal before us. 9. The Ld. authorized representative of the assessee submitted that assessee had taken the premises at Hyderabad in Pune on rent and has paid rent. In these premises expenses were incurred which are revenue in nature. He further submitted that the assessee has submitted the complete details to the Ld. assessing officer and therefore the statement of the Ld. assessing officer that assessee has failed to substantiate it is a revenue expenditure and no details were filed is devoid of any merit. He further submitted that all such details were available for the period till 04/02/2008 when the survey was conducted, as it was part of the impounded documents. He further submitted that the details was submitted before the Ld. assessing officer vide its submission dated 24/12/2010 and the details of such expenditure were also given to the Ld. assessing officer which are placed at page No. 309 of the paper book. He further submitted that the improvement in the existing structure was made by the assessee in or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not in respect of laying of a structure therefore the expenditure incurred does not represent capital expenditure as the expenditure incurred is not for doing any work in or in relation to and by way of extension or renovation of premises by making structural changes and the same is therefore revenue expenditure and deserves to be allowed. He further relied on 15 decisions of various Hon‟ble high courts wherein the expenditure has been held to be revenue in nature with respect to renovation etc. During the course of the hearing he also filed an additional written submission to submit that the assessee has premises at Pune under leave and license agreement dated 07/11/2006 of 26000 square feet for 5 years only. With respect to the Hyderabad premises which was taken under a lease deed dated 20/02/2007 of 23538 ft. for a period of 3 years. He further submitted that expenditure of ₹ 34671983/ was incurred at Pune for which the details are available at page number 310 to 376 of the paper book and a sum of ₹ 30846669/-was incurred at Hyderabad the details of which are available at page number 377 to 432 of the paper book. He further submitted that there is no evid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... going into the vexed issue is to what constitute capital expenditure and what does not. He further held that in respect of construction put up by the assessee on lease hold land and the ownership of land to which the constructed property is carried belongs to the lessor, the lessee it was felt in the past was neither entitled to the deduction of the outlay on construction on the ground that it is a capital expenditure not was allowed depreciation on the ground that as he was not the absolute owner of the property. He further held that it was in this context the explanation 1 was provided for depreciation on capital expenditure incurred by the appellant for the purpose of the business of profession on construction on any structure in or in relation to end by way of renovation and expansion for improvement to the building. Intention of the legislature while providing this explanation is crystal clear that in such cases depreciation would be admissible on the cost of expenditure. On this premises he upheld the disallowance made by the Ld. AO of ₹ 65518642/ as a capital expenditure. 12. The provisions explanation 1 to section 32 (1) (ii) of the income tax act provides as und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture. In view of this we do not approve the finding of the Ld. CIT appeal given in para number 6.3.3 of his order and para number 6.4.1 of his order wherein he has held that it is not required to go into the vexed question of whether they Expenditure incurred by the assessee is revenue are capital in nature. According to us, unless there is a capital expenditure incurred by the assessee the provisions of explanation (1) to section 32 (1) (ii) cannot be attracted. The Ld. CIT appeal has confirmed disallowance only on this aspect without examining whether assessee has incurred any capital expenditure. 14. Canvassing that expenditure incurred by the assessee is revenue in nature, before us the Ld. authorized representative has placed plethora of judicial precedents wherein it is held that the expenditure incurred by the assessee is revenue in nature. However we are of the considered opinion that while considering the judicial precedents it is more important to look into the facts of that particular case and how the Hon‟ble courts have applied law to those facts and ratio laid down under those judicial precedents are required to be considered. Whether expenditure is a capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue expenditure. These tests are thus mutually exclusive and have to be applied to the facts of each particular case in the manner above indicated. It has been rightly observed that in the great diversity of human affairs and the complicated nature of business operations it is difficult to lay down a test which would apply to all situations. One has therefore got to apply these criteria one after the other from the business point of view and come to the conclusion whether on a fair appreciation of the whole situation the expenditure incurred in a particular case is of the nature of capital expenditure or revenue expenditure in which latter event only it would be a deductable allowance under section 10(2)(xv) of the Income-tax Act. The question has all along been considered to be a question of fact to be determined by the Income-tax authorities on an application of the broad principles laid down above and the Courts of law would not ordinarily interfere with such findings of fact if they have been arrived at on a proper application of those principles. Further the Hon ble Supreme Court in case of KTM TM Abdul Kayoom versus CIT 44 ITR 689 (SC) has also held that none of the te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upplying of lighting fixtures and addressable fire alarm system. In case of total of H VAC works a sum of ₹ 3293218/- was spent. In case of plumbing work it is the automatic sprinkler systems which is one of the main expenditure incurred. Over and above these expenditure, assessee has further incurred a sum of ₹ 2000301/- as additional civil, interior works expenditure electrical works expenditure plumbing and firefighting works expenditure etc. The details compiled and submitted by the assessee is general in nature, such as tabulated expenditure titled as Civil, interior works expenditure electrical works expenditure On analysis of these evidences it is apparent that these bills do not suggest nature of expenditure incurred. To determine whether it is revenue expenditure the onus would be higher on the assessee to prove it when it has capitalized the same in books of accounts and accepted by the shareholders and auditors. It can be very well done by producing the exact nature of work done with maps and plans, report of the architect, tender or order to the contractor, etc. and many more things. Merely because the permission has not been obtained b= from the corporati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been incurred by the assessee on crockery cutlery utensils and other consumables etc. Ld. assessing officer has held them to be capital expenditure in nature. The assessee has stated that a sum of ₹ 57927543/ was incurred by the assessee out of which a sum of ₹ 3353 332/- has been considered by the assessee as consumed during the year and the balance amount of ₹ 25024249/- has been considered as the closing stock and it is shown as an inventory in schedule 7 annexed with the balance sheet. Therefore according to the assessee these items of the expenditure are revenue and are consumables stores and therefore they are fully allowable as deduction. However Ld. assessing officer has rejected the contention of the assessee and held them to be capital expenditure. The assessee aggrieved by the order of the Ld. assessing officer preferred appeal before the Ld. CIT appeal who in turn held that out of a sum of ₹ 33533933/ a sum of ₹ 30347020/- are revenue in nature and the balance ₹ 3192313/- is capital expenditure and confirmed the disallowance. 18. the Ld. authorized representative submitted that the Ld. CIT appeal has erred in holding that a su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital in nature. Further with respect to the kitchen equipments such as cutlery of staff cafeteria and kitchen utensils cannot also be held to be capital expenditure because of the reason that the restaurant and the resort has been restarted during the year . It is not the case of the revenue that these are the new purchases for starting of the new restaurants and resorts. Furthermore a total claim of ₹ 1794501/- on account of expenses on testing kits, tools, tool bags etc which are been purchased for the resort area as it has become operational during the year under consideration and therefore the Ld. CIT appeal has held them to be capital expenditure and not revenue expenditure. We do not subscribe to the view of the Ld. CIT A as the facility tools and materials for resorts are small items which are required for the day to day use in resort. Such as housekeeping items of dustbins holders garbage dustbins etc are also held to be a capital expenditure. As the nature of expenditure incurred by the assessee no capital asset has come into existence but are the day today expenditure or minor expenditure for running business which is already in existence, such expenditure are inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground No. 3 of the appeal of the revenue is dismissed. 28. Now we come to ground No. 4 of the appeal of the revenue which is against deletion of the disallowance of ₹ 10005049/ paid by the assessing officer on the basis of the pages retrieved from the hard disk of the computer impounded during the survey proceedings on 04/02/2008 in the premises of assessee. 29. Learned departmental representative submitted that the assessee has been asked to explain the details of these expenditure however the expenses incurred by the assessee are excessive and not explained. Therefore the addition was made on the basis of the documents impounded during the survey. He further submitted that the learned CIT appeal has erred in deleting the about addition made by the Ld. assessing officer. 30. Ld. authorized representative submitted that that Ld. CIT appeal has directed the assessee to reconcile the expenses between impounded documents and what is reflected in the profit and loss account and balance sheet. Reconciliation was furnished before the Ld. CIT appeal who asked Ld. assessing officer to submit its comments on it. The Ld. AO did not find any discrepancy in the reconsideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hows that appellant has claimed total expenditure of ₹ 380844404/- whereas the assessing officer has considered such expenses at ₹ 311935101/- only There is not even a whisper in assessment order as to how this figure is computed m the order of assessment. More over as per impounded documents upto 04.02.2008 figures of Vatika Hospitality and Fox restaurant only have been considered which are again subject to change because of activities of the company from 05.02.2008 to 31.03.2008 which have not been considered by the assessing officer at ail Expenses under the projects like 'Go' of ₹ 201100634/- 'Business Centre' ₹ 109835926/- 6.6.4 During the course of hearing in appellate proceedings appellant was again directed to reconcile the same. Appellant has filed a reconciliation statement with regard to the impounded documents and the balance sheet and profit toss account A perusal to the reconciliation statement so filed shows that the accounts are duly reconciled and no and no discrepancy is found on such reconciliation. The reconciliation furnished by 'he appellant was sent to the assessing officer also for his comments The assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wance of ₹ 3192313/- is part of Ground No 3 of the appeal of the assessee. 39. The Ld. departmental representative relied upon the order of the Ld. assessing officer whereas the Ld. authorized representative relied upon the order of the Ld. CIT appeal. 40. We have carefully considered the rival contentions. As the addition sustained by the Ld. CIT (A) of ₹ 3192313/ has been deleted by us while deciding ground no.3 of the appeal of the assessee , we confirm the finding of the ld CIT (A) in deleting the penalty on the above disallowance confirmed by the ld CIT (A). 41. With respect to penalty on the disallowance of ₹ 65518642/ is concerned, we have set aside the whole issues back to the file of the ld CIT (A) while deciding ground no 2 of the appeal of the assessee, therefore it would be premature to decide the issue of penalty when the quantum issue is pending. Therefore we set aside the ground of the penalty leviable on the above disallowance back to the file of the ld. AO to decide the issue afresh after the order of the ld CIT (A) considering the decision of honourable jurisdictional high court and honourable supreme court considered by the ld CIT (A) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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