DCIT Vs Torque Automotive Pvt. Ltd. (ITAT Ahmedabad)
The brief facts of the case is that the assessee is engaged in the business of sales and services of Skoda cars and spares. The assessee company during this Financial Year has renovated its four showrooms at Ahmedabad, Rajkot, Surat and Baroda as per Skoda Company’s Corporate Identity Look Policy. The assessee had to change the signboard, logo, color, tiles, furniture, etc. completely with that of the old one. Thus, the assessee claimed under repair and maintenance of building expenses account, Rs. 11,29,19,528/-. The Assessing Officer issued a show-cause notice why the renovation expenses of four showrooms should not be treated as capital expenditure and allow appropriate depreciation. In response the assessee replied that it has not brought a new asset in the place of existing asset and there is no structural change to the building. As per the requirements of the Skoda Company, all these renovations are being made for which the Skoda Company offer incentive discount on sale of cars and the above expenses is compensated in due course of its business. The above explanation was not accepted by the Assessing Officer and allowed depreciation of Rs. 81,08,525/- and added balance amount of RS. 10,48,11,003/- as the income of the assessee and also initiated penalty proceedings under Section 271(1)(c) of the Act.
The Ld. CIT(A) held that the expenses were incurred for efficiently using the existing space in a better manner and also to suit the principal’s requirement and since no new floor area has been added or any capital asset has come into existence. The expenses on repairs under renovation are allowable as revenue expenditure
On perusal of the material and the facts is the case in Landmark Automobiles Pvt. Ltd. are identical in nature. The Coordinate Bench followed jurisdictional High Court judgment in the case of Desai Bros. (cited Supra) and other High Court judgments. In our considered view this issue is no more res integra. Therefore, respectfully following the ratio of the judgment rendered by the Coordinate Bench in the case of Landmark Automobiles Pvt. Ltd. we have no hesitation in confirming the order passed by the CIT(A) holding that the expenditure incurred by the assessee for renovating its four business showrooms are revenue in nature.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal is filed by the Revenue against the order dated 09.07.2018 passed by the Commissioner of Income Tax (Appeals)-8, Ahmedabad relating to the Assessment Year 2015-16.
2. Solitary ground raised by the Revenue is that the Ld. CIT(A) erred in law and on facts in treating capital expenditure of Rs. 10,48,11,003/- as revenue expenditure.
3. The brief facts of the case is that the assessee is engaged in the business of sales and services of Skoda cars and spares. The assessee company during this Financial Year has renovated its four showrooms at Ahmedabad, Rajkot, Surat and Baroda as per Skoda Company’s Corporate Identity Look Policy. The assessee had to change the signboard, logo, color, tiles, furniture, etc. completely with that of the old one. Thus, the assessee claimed under repair and maintenance of building expenses account, Rs. 11,29,19,528/-. The Assessing Officer issued a show-cause notice why the renovation expenses of four showrooms should not be treated as capital expenditure and allow appropriate depreciation. In response the assessee replied that it has not brought a new asset in the place of existing asset and there is no structural change to the building. As per the requirements of the Skoda Company, all these renovations are being made for which the Skoda Company offer incentive discount on sale of cars and the above expenses is compensated in due course of its business. The above explanation was not accepted by the Assessing Officer and allowed depreciation of Rs. 81,08,525/- and added balance amount of RS. 10,48,11,003/- as the income of the assessee and also initiated penalty proceedings under Section 271(1)(c) of the Act.
4. Aggrieved against the same, the assessee filed an appeal before the Commissioner of Income Tax (Appeals)-8, Ahmedabad. The Ld. CIT(A) held that the expenses were incurred for efficiently using the existing space in a better manner and also to suit the principal’s requirement and since no new floor area has been added or any capital asset has come into existence. The expenses on repairs under renovation are allowable as revenue expenditure following the judgment dated 12.12.2014 of the Hon’ble ITAT, Ahmedabad Bench in the case of ACIT (OSD)-I vs. Landmark Automobiles Pvt. Ltd. in ITA No. 333/Ahd/2011 wherein it has held as follows:
“8. On appeal, the CIT(A) allowed the claim of the assessee for entire expenses of Rs.1,11,58,689/- as revenue expenditure and while doing so, he held as under:-
“It is to be appreciated that the appellant is carrying on the same business at the very same premises since 1998. The expenses were incurred to meet the standard specification of the Honda Company. No new area has been added by incurring such expenses. The complete details of these expenses are at Pages 95 to 99 of the Paper Book which can be summarized as under:-
