TMI Blog2013 (10) TMI 1459X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income Tax (Appeals) erred on facts and in law in not appreciating that expenditure incurred on building new wall, pursuant to demolition of existing wall by the municipality was in the nature of revenue expenditure. 3. That the Commissioner of Income Tax (Appeals) erred on facts and in law in upholding the action of the assessing officer in disallowing provision for 'Sheraton preferred guest scheme' amounting to ₹ 38,76,997/-. 3.1 That the Commissioner of Income Tax (Appeals) erred on facts and in law in not treating provision made for 'Sheraton Preferred Guest Scheme' as liability in holding the expenditure towards this as a capital expenditure. Ground No. 1 relates to disallowance of an amount of ₹ 1,94,220/- by treating it as capital expenditure. 3. Briefly the facts are, the assessee is a company engaged in the business of hoteliering. For the impugned assessment year the assessee filed its return of income on 27-11-2006 declaring total income of ₹ 26,38,92,790/-. During the scrutiny assessment proceeding, the Assessing Officer on verification of the accounts noticed that the assessee has included the expenses for purchas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heard the submissions of the parties and perused the materials on record as well as the orders of the revenue authorities on this issue. It is not disputed that the assessee has claimed the expenditure claimed towards purchase of application software as revenue expenditure by debiting it to the profit and loss account. However, as can be seen there is an amendment to the old Appendix-1 of IT Rules 1962 as per which item-5 under the head machinery and plant reads as under:- (5) Computers including computer software. The rate of depreciation is provided at 60%. Note-7 to the aforesaid appendix defines computer software as under:- (7) 'Computer software' means any computer programme recorded on any disk, tape, media or other information storage device. 9. The aforesaid amendment under the old appendix-1 is applicable for assessment years 2003-04 to 2005-06. Under the new appendix-1 which is applicable for the assessment years 2006-07 onwards, the same item-5 has been retained along with Note-7. Thus, as per the old Appendix-1 and new appendix-1, computer software along with computer has been treated as capital asset and depreciation at a higher rate of 60% has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for preservation of existing assets. While contesting each of the items of expenditures disallowed the assessee contended that none of the expenditure was in the nature of enduring benefit but the expenditure was towards maintenance and preservation of existing asset and it was only of a recurring nature. It was submitted that certain items like reflective cones, fixing of tiles, false ceiling, laying of BT road at Hotel, construction of compound wall, tiles, fixing of tiles, kota stone granites, digitization of hotel cleaning etc., were made only to facilitate the running of the hotel more profitably and that it was not in the nature of expenditure incurred to bring into existence a new asset or to obtain a new or fresh advantage. It was submitted that company has incurred expenditure of ₹ 8,30,317/- towards marble maintenance and which is required for cleaning and shining of the marble and which will be done by a third party on day to day basis. Similarly, AC refrigeration work is day to day maintenance of various ACs fixed at the hotel rooms. With regard to the expenditure of ₹ 1,33,830/-, the assessee submitted that the existing black tar road was damaged during t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition Officer also clearly mentions about the consent given by the assessee for handing over of the land for the purpose of road widening at free of cost to the MCH. Thus, as can be seen the assessee had to part with its portion of land for road widening purposes of the MCH and accordingly the existing compound wall has to be demolished and a new boundary wall has to be constructed by incurring expenditure of ₹ 2,06,443/-. 14. From these facts, it is clear that the purpose of construction of boundary wall is not to bring a new asset but only for the purpose of preserving and maintaining an already existing asset. Therefore, in our view the expenditure claimed towards construction of the compound wall is allowable as revenue expenditure. The Assessing Officer is directed to delete the addition of ₹ 2,06,443.00. The ground raised is allowed. 15. In ground No. 3 the assessee has challenged the confirmation of disallowance of provision made for Sheraton preferred guest scheme amounting to ₹ 38,76,997/-. 16. Briefly the facts are, on verification of the information submitted by the assessee during the assessment proceedings the Assessing Officer noticed that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of accounting followed is also recognised by AS-1. In support of such contention, the assessee also relied upon a number of decisions of the Hon'ble Supreme Court, different High Courts as well as different Benches of the ITAT. 18. The CIT (A) however rejecting the contentions of the assessee sustained the disallowance by holding as under : 9. I have gone through the submissions of the appellant. Even though any liability had arisen during the year on account of such scheme, it is clear that every guest would not finally avail of this scheme. Therefore, the liability cannot be said as capable of being estimated with any reasonable certainty. Such liability cannot be said as a liability in preasentie. Even the letter dated 5.10.1999 from Starwood Hotels Resorts Worldwide Inc. States on page 3 thereof when a hotel accepts a free night award, the programme then compensates the hotel or resort . In fact, the appellant has itself admitted that it was only a provision and even that the said provision had been made only on the basis of the past experience of the appellant itself. Accordingly, it also clear that the provision made by the appellant was not based on any act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision. He has further contended that whatever amount is left out is reversed in the books and offered to tax. A perusal of the statements submitted as at pages 111-113 of the paper book shows that out of total provision of ₹ 49,48,543/-the assessee has paid an amount of ₹ 28,73,204/- and the assessee has offered as income by reversal of earlier years provision during the financial year 2005-06 relevant to the assessment year under dispute. The learned A.R. has further contended that similar provisions made for SPG scheme in the earlier and subsequent assessment year have been accepted. On a consideration of totality of facts and circumstances, we are inclined to remit the matter back to the file of the Assessing Officer for the purpose of verifying whether actually the assessee has paid the provision made and whatever provision was not paid was offered as income in the subsequent assessment years. If on verification of facts and materials on record the assessee's claim is found to be correct, there will be no case for disallowance of the provision made. The order passed by the CIT (A) to this extent is set aside and the issue is remitted to the file of the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure on thermostat, compressors etc., were regular expenses for maintaining the plant and machinery of the appellant which are required for the running of the hotel. Obviously, such expenses did not bring in any new or fresh advantages. It is also a known fact that marbles, air conditioners etc., require regular maintenance, cleaning, for keeping the hotel in a good and presentable shape. Accordingly, these expenses are to be held in the nature of maintenance expenses only and cannot be considered as bringing any benefit of enduring nature to the appellant. Therefore, the appellant is held as eligible for claiming expenditure of ₹ 17,78,472/- out of the total expenditure of ₹ 19,84,915/- considering by the Assessing Officer as capital expenditure. Ground Nos. 4,5 and 6 are therefore partly allowed. 24. As can be seen from the nature of expenditure claimed and the finding recorded by the CIT (A), the expenditure were purely in the nature of repair and maintenance of existing assets. Neither any new asset has been brought into existence nor there is any enduring benefit to the assessee. In the aforesaid circumstances, we are of the view that the CIT (A) was per ..... X X X X Extracts X X X X X X X X Extracts X X X X
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