Full Text
HIGH COURT OF DELHI
Date of Decision: 13th August, 2013
CIT ..... Appellant
Through Mr. Sanjeev Sabharwal, Sr.
Standing Counsel with Mr. Puneet Gupta, Jr. Standing
Counsel.
Through Mr. Ajay Vohra with Ms. Kavita Jha, Advocates.
HON'BLE MR. JUSTICE SANJEEV SACHDEVA SANJIV KHANNA, J (ORAL)
JUDGMENT
1. Having heard the counsel for the parties, the following substantial question of law is framed: “Whether the Income Tax Appellate Tribunal was right in holding that the expenditure incurred on painting, polishing, white wash, PVC flooring etc. should be treated as revenue expense, after making reference to its earlier order dated 13.07.2010 in relation to the Assessment Year 2005-06.”
2. With the consent of the parties, we take up the appeal for final hearing and disposal. As a short and limited issue is involved, we proceed to 2013:DHC:4037 dictate our decision.
3. The respondent is a limited company engaged in providing education and vocational training in the field of Air Hostess/Cabin Crew and Travel Management.
4. In respect of Assessment Year 2007-08, vide assessment order dated 30.12.2009, the Assessing Officer made addition of Rs.1,99,69,640/- relying upon Explanation 1 to Section 32 of the Income Tax Act, 1961 (“Act” in short). He held that the said expenses were incurred on renovation and improvement of the lease hold premises and therefore should be capitalized. The said expenditure was not incurred on one premises but several properties taken on rent all over India.
5. Commissioner of Income Tax (Appeals) has given bifurcation of the said expenses, which are as under:- S.N
1. Carpentry Work 57,62,609/-
2. Painting and 4,06,897/- Whitewashing
3. Polishing 3,84,176/-
4. PVC Flooring 20,05,658/-
5. Interior- False Ceiling etc. 60,56,492/-
6. Temporary Wooden structure 48,60,654/-
7. Electricity work 25,11,808/-
8. Others 3,462/- Total 2,19,91,756/-
6. With regard to the item at serial No.1 i.e. Carpentry work, the appellate authority has observed as under:- “(b) In so far as expenses on carpentry work is concerned the appellant has submitted vide his letter dated 22.09.2010 that carpentry work is basically various types of wooden work which is under taken by using and replacing the old partitions or for fitting of locks, handles, cupboards etc. in the temporary partitions/wooden structure of the premises. The breakup of such expenses have also been provided in a chart form by the appellant from which it is seen that these expenses have been incurred at various locations throughout India. Copies of some of the bills relating to carpentry work have also been filed. It is observed that prima facie the expense on carpentry work is also allowable as revenue expense under section 30(a)(i) of the IT Act/37(1) in accordance with the principles laid down in the case of High-line (supra) and also the observations of ITAT in case of the appellant itself for AY 2005-06. However the possibility of some of such expenses falling within New Appendix-I, Part A (Tangible assests)-II “Furniture and fixture” under the depreciation schedule IT Rules cannot be ruled out in the sense that a furniture and fitting which falls within the meaning of this depreciation schedule should be capitalized and depreciation allowed on these items as per the rules. The AO is accordingly directed allow the expenses on “carpentry works” upon examining the nature of expenses in terms of above observations.
7. With regard to the other expenses except electrical work, the same were allowed as revenue expenses or current repairs. CIT (Appeals) held that as far as electrical work is concerned, the assessee was entitled to depreciation.
8. Both the Revenue and the assessee preferred cross appeals before the Tribunal. By the impugned order, the appeal of the respondent stands dismissed with regard to the electrical fittings or electrical work but with regard to UPS, it has been directed that the respondent assessee was entitled to depreciation @ 60%.
9. On the question of other expenses, subject matter of the table reproduced in paragraph 5 above (except carpentry work), the Tribunal has quoted their earlier order for the Assessment Year 2005-06, decided on 13.07.2010. Relevant portion of the order dated 13.07.2010 reads:- “Apropos the issue in ground no.2, there is merit in the plea of the assessee that due to wrong classification and capitalization of expenses, the whole controversy has arisen and expenses incurred are purely in the nature of the revenue and is in the aviation crew training business, the same necessitates frequent renovations, paintings and training requirements. False ceiling will constitute temporary structure apart from mock air-craft for training of employees which also have to be renewed from time to time, polishing, painting also will constitute revenue expenses. In our view, the issue about capital or revenue nature of each item has not been property verified. Mere capitalization of expenses will not disentitle the assessee from valid claim of revenue expenses. CIT (A) has held an amount of Rs.8,78,003/as pertaining to temporary wooden structures, which cannot be classified as furniture and thus allowable expenses. We see no reason to disturb the finding given by the CIT(A) that this amount represents purchase of temporary wooden structure not amounting to furniture, therefore revenue’s ground in this behalf is dismissed. Coming to the balance amount of such expenses, though we do not appreciate the assessee’s practice of capitalizing revenue expenses, nevertheless actual nature of expenses is to be looked into. In view thereof, we set aside the balance issue in this behalf back to the file of AO to verify the capital and revenue nature of the expenses, particularly keeping in view details thereof as painting, polishing, white wash, carpentry work & PVC flooring etc. assessee is eligible for revenue expenses in respect of these items on verification. AO will decide the issue afresh after giving the assessee an opportunity of being heard.”
10. Tribunal in the Assessment Year 2005-06 had directed that the expenses pertaining to temporary wooden structure would be allowed as a revenue expense after recording that the same was not furniture. However, with regard to the other expenses i.e. painting, polishing, PVC flooring etc., it was directed that the nature, type and character of the expenditure would be examined afresh by the Assessing Officer, who shall verify whether they were capital or revenue in nature. Contrary to the directions given in the order dated 13.07.2010 for the Assessment Year 2005-06, the Tribunal by the impugned order has directed as under:-
11. Directions or finding given in para 6 are contrary to the directions which were given in the order dated 13.07.2010 for the Assessment Year 2005-06, which was followed by the Tribunal. This is an error which has to be corrected. There is no discussion in the order of the Tribunal on the nature, type and quality of the expenditure incurred. The Tribunal apparently followed the order for the Assessment Year 2005-06 but failed to notice that in the said year, an order of remand was passed for verification. In other words, contention of the respondent assessee has been accepted in the present case, without verification.
12. During the course of hearing, we had asked learned counsel for the parties whether it would be appropriate to remand the issue to the Assessing Officer or the Tribunal to examine the question. Counsel have stated that in view of the order of the Tribunal for the Assessment Year 2005-06 dated 13.07.2010 and as verification of the facts is required, the issue may be remanded to the Assessing Officer.
13. In view of the aforesaid position, we accept the appeal and answer the question of law mentioned above, in favour of the appellant/revenue and against the respondent/assessee but with an order of remand to the Assessing Officer to verify the nature and character of the expenditure incurred i.e. whether the expenditure was capital or revenue in nature.
14. At this stage, learned counsel for the respondent/assessee submits that pursuant to the remand order for the Assessment Year 2005-06, the Assessing Officer has accepted the claim of the assessee. It will be open to the respondent/assessee to rely upon the said order before the Assessing Officer.
15. We also record that we are not framing any substantial question of law on the question whether the respondent/assessee is entitled to depreciation @ 60% on UPS and printers. This issue is covered against the Revenue by decision of this Court in CIT vs. BSES Rajdhani Power Ltd. in ITA No.1266/2010 decided on 31.08.2010.
16. Appeal is disposed of. No costs.
SANJIV KHANNA, J. SANJEEV SACHDEVA, J. AUGUST 13, 2013