Case Law Details
Kirtilal Kalidas Jewellers Private Limited Vs ACIT (ITAT Chennai)
ITAT Chennai held that expenditure towards furniture maintenance which is incurred to make the lease premises workable and functional is revenue in nature.
Facts-
During the course of the assessment proceedings, AO noticed that the Assessee has debited huge expenditure under the head “Furniture Maintenance” and therefore called upon the Assessee to file necessary details. In response, the Assessee had filed details of expenditure under the head “Furniture Maintenance” which includes plywood purchases, hardware items and payment for carpentry works amounting to Rs.1,12,16,205/-. The Assessee claimed that these are temporary repairs for renovation of branch office of a leased premises and thus, the same cannot be capitalized, as the Assessee is not creating asset which gives enduring benefit.
AO, however rejected the arguments of the Assessee and made an addition towards the said expenditure after allowing depreciation at the rate of 5%.
CIT(A) rejected the appeal. Being aggrieved, the present appeal is filed.
Conclusion-
The Jurisdictional High Court of Madras in the case of the Commissioner of Income Tax-I, Chennai Vs. Armour Consultants Private Limited reported in [2013] 355 ITR 418 (Madras) held that the expenditure in the nature of partitions, vinyl flooring and interior decoration to make a leasehold office premises functional, is a revenue expenditure.
We find that although the Assessing Officer has considered the said expenditure as capital in nature which gives enduring benefit to the Assessee, but has not given any plausible reasons to the said conclusion. On the other hand, the Assessee has filed enough materials including certain judicial proceedings to justify its case, where the Hon’ble High Court of Madras in case of Commissioner of Income Tax-I, Chennai Vs. Armour Consultants Private Limited had considered very similar nature of expenditure like partitions, vinyl flooring and interior decorations for leased premises and held that the said expenditure incurred to make the lease premises workable and functional is revenue in nature.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This appeal filed by the Assessee is directed against order of the learned Commissioner of Income Tax (Appeals)-19, Chennai in appeal No.ITA No.103/18-19 [Appeal Ref. No.CIT(A), Chennai-19/10136/2019-20]; dated 23.03.2021. The assessment was framed by the Assistant Commissioner of Income Tax, Corporate Circle–2, Coimbatore for the Assessment Year 2013 – 2014, u/s.143(3) r.w.s.92CA(3) of the Income Tax Act, 1961 (hereinafter “the Act”) vide order dated 16.12.2016.
2. At the outset, it is noticed that this appeal of the Assessee is time barred by limitation by 16 days. It is noticed from the affidavit filed by the Assessee that the appeal documents were delivered at the Office of the Income Tax Appellate Tribunal on 19.05.2021 by Speed Post but was not considered as filed on 19.05.2021, due to the lockdown imposed by the Government of TN towards the outbreak of ‘Covid-19’ pandemic during the period.
However, the lockdown was partially relaxed on 07.06.2021 and the appeal documents were considered to be filed on 07.06.2021, thereby with a delay of 16 days.
It is a fact that ‘Covid-19’ pandemic was prevalent during the period and in term of the directions issued by the Hon’ble Supreme Court in Miscellaneous Application No.21/2022 in Suo Motu Writ Petition No.3 of 2020, we condone the delay of 16 days and admit the appeal of the Assessee for adjudication on merits.
3. The Assessee has raised various grounds that are exhaustive; and hence it is not needed to be reproduced.
4. The brief facts of the case are that the Assessee/Appellant Company is engaged in the business of trading in gold ornaments, diamonds and other precious stones. The Assessee/Appellant had filed its return of income for the Assessment Year 2013 – 2014 on 25.11.2013 admitting a total income of Rs.37,05,68,010/-. During the course of the assessment proceedings, the Assessing Officer noticed that the Assessee has debited huge expenditure under the head “Furniture Maintenance” and therefore called upon the Assessee to file necessary details. In response, the Assessee had filed details of expenditure under the head “Furniture Maintenance” which includes plywood purchases, hardware items and payment for carpentry works amounting to Rs.1,12,16,205/-. The Assessee claimed that these are temporary repairs for renovation of branch office of a leased premises and thus, the same cannot be capitalized, as the Assessee is not creating asset which gives enduring benefit.
5. The Assessing Officer, however was not satisfied with the explanation furnished by the Assessee, but was of the view that the expenditure incurred under the head “Furniture Maintenance” is not in the nature of temporary repairs but it is a capital expenditure which gives enduring benefit and thus, rejected the arguments of the Assessee and made an addition towards the said expenditure after allowing depreciation at the rate of 5%.
6. Being aggrieved by the Assessment Order, the Assessee preferred an appeal before the Commissioner of Income Tax (Appeals). The Assessee reiterated its submissions made before the Assessing Officer and contended that the expenditure incurred for renovation of the leased premises cannot be treated as capital expenditure which gives enduring benefits. The Commissioner of Income Tax (Appeals) after considering to the Assessee’s contentions, relied upon certain judicial proceedings, and sustained the additions made by the Assessing Officer towards the disallowance of furniture maintenance expenditure on the ground that the expenditure incurred by the Assessee is in the nature of capital expenditure which gives enduring benefits. The relevant findings of the learned Commissioner of Income Tax (Appeals) are as under:
“10. I have gone through the facts of the case, materials available and considered oral / written submissions of the Authorized Representative on the impugned issue. The relevant question that needs to be answered to address the issue is as to whether the work carried out by the Appellant in the rented premises constitutes to Capital Expenditure or Revenue Expenditure. The Appellant has been carrying on gold and diamond jewellery retail business. It is not disputed that the Appellant has taken these premises on rent; that the impugned items of work have been carried out by the Appellant in these rented premises. The Appellant has spruced up the rented premises to suit its specifications and for commercial purposes that include attracting customers as is evident from the perusal of nature and type of works that have been carried out.
10.1 In order to compensate for the loss on account of wear and tear, the legislature has provided the benefit of depreciation. Section 32 of the Act provides for Depreciation to compensate for the wear and tear of the assets owned and used by an Assessee for the purpose of its business. Section 37(1) of the Act provides for deduction of revenue expenditure incurred wholly and exclusively for the purpose of business.
10.2 I am of the view that the afore-mentioned expenditure incurred by the Appellant at the premises that was taken on lease in order to make such rented space fit for operational use by the Appellant for its business is capital expenditure; the Appellant’s nomenclature to couch such expenditure as renovation works is misleading; that the internal work that has been carried and that majority of expenditure was mainly in the form of plywood cost, small portion teakwood cost. Cost of fevicol. Abro tapes, nails, brass and SS screws, teakwood beedings, hinges, handles, glass works, door closures, lamination, etc. and the connected labour charges, perhaps to promote and augment the Appellant’s business for obvious reasons could not be construed as revenue expenditure.
10.3 The fact that such expenditure has been incurred on rented premises does not alter the character of the impugned expenditure in view of the provisions by way of Explanation to Section 32(1) of the Act. The said explanation reads as under:
“Explanation – 1 – Where the business or profession of the Assessee is carried on in a building not owned by him but in respect of which the Assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the Assessee for the purposes of the business or profession on the construction of any structure or doing of any work in or in relation to, and by way of renovation or extension of or improvement to the building them, the provisions of this clause shall apply as if the said structure or work is a building owned by the Assessee.
10.4 In view of the foregoing, I am of the view that the expenditures incurred by the Appellant would partake the character and nature of Capital Expenditure at the first place and that the nature of such Capital expenditure does not undergo metamorphosis in view of the position of law in terms of the above explanation inserted in the statute with effect from 01.04.1988. The expenditures have been incurred in such rented premises; and such expenditures have been incurred by the Appellant in such premises gives enduring benefits to the Appellant. The impugned expenditures were, it is clear, not incurred for carrying out any repair works nor were they incurred for undertaking maintenance work. Hence, the Assessing Officer has correctly held the impugned expenditure as Capital Expenditure and consequently no interference is called for in the Assessing Officer’s conclusion.
10.5 The ratio in the case of the Ooty Dasaprakash (supra) is not applicable to the facts of the Appellant’s case, for the issue in the said case was about replacement / refurnishing and modernizing the existing assets. The facts in the case of Haridas Bagath (supra) are distinguishable on contra-distinction to that of the Appellant in as much as the issue in that case was allowability on expenditure relating to provision of additional amenities whereas, the Appellant here has carried out durable work to promote its business. In the case of Liberty Group Marketing Division (supra), the decision was rendered in the context of providing neon bulbs for advertisement. In the case of Commissioner of Income Tax Vs. Delhi Press Samachar Patra Private Limited, the Assessee had incurred expenditure on repairs / reinforcement / replacement of dilapidated beams, pillars, walls, etc. of existing press building and the same held as an allowable expense under the head of current repairs which is not the case with the Appellant. In the case of the Indian Aluminium Company Limited (supra), the Hon’ble Court gave relief to the Assessee in respect of software development expenditure incurred by the Assessee holding it as revenue in nature on the ground that in a field where advancements are taking place rapidly and where technology which was once the state of the art becomes obsolete in a short time, the test of enduring nature cannot always reliably be applied; software industry is one such field where advancements and changes happen at a lightning space and it is difficult to attribute any degree of endurability even to system software let alone application software. Per contra, the Appellant has executed works in order to aid its business growth and the same endures enduring benefit to the Appellant.
10.6 In totality of the facts of the case and in view of the foregoing discussions, I am of the view that no interference is called for in the Assessing Officer’s action. Accordingly, the Appellant’s grounds connected to the issue of capitalization of furniture expenditure are dismissed.”
7. The learned Authorized Representative for the Assessee referred to a plethora of judicial proceedings including the decision of the Jurisdictional High Court of Madras in the case of the Commissioner of Income Tax-I, Chennai Vs. Armour Consultants Private Limited reported in [2013] 355 ITR 418 (Madras) and submitted that the Hon’ble High Court clearly held that the expenditure in the nature of partitions, vinyl flooring and interior decoration to make a leasehold office premises functional, is a revenue expenditure.
8. The learned Departmental Representative, Shri. P. Sajit Kumar, JCIT supporting the order of the Commissioner of Income Tax (Appeals) submitted that the Assessing Officer had brought out clear facts to the expenditure incurred under the head “Furniture Maintenance” as capital in nature which gives enduring benefits to the Assessee and therefore their order should be upheld.
9. We have heard both the parties, perused the materials available on record and had gone through the orders of the lower authorities. The Assessee had incurred an expenditure amounting to Rs.1,12,16,205/-towards furniture and maintenance expenditure which includes plywood purchases, hardware items and other carpentry works. The Assessee claims that the said expenditure is revenue in nature because the same has been incurred for the leased premises for the renovation of the branch office. The Assessing Officer has considered the said expenditure as capital in nature, because it gives enduring benefit to the Assessee.
10. We find that although the Assessing Officer has considered the said expenditure as capital in nature which gives enduring benefit to the Assessee, but has not given any plausible reasons to the said conclusion. On the other hand, the Assessee has filed enough materials including certain judicial proceedings to justify its case, where the Hon’ble High Court of Madras in case of Commissioner of Income Tax-I, Chennai Vs. Armour Consultants Private Limited (supra) had considered very similar nature of expenditure like partitions, vinyl flooring and interior decorations for leased premises and held that the said expenditure incurred to make the lease premises workable and functional is revenue in nature.
11. ITAT, Chennai in the case of Redington (India) Limited Vs. Additional Commissioner of Income Tax reported in [2015] 41 ITR (Trib.) 646 (Chennai) held that office cabins, wooden partitions, plastering, water proofing treatment, installation charges, flooring charges, etc for leased premises is current repairs which cannot be considered as capital expenditure which gives enduring benefits to the Assessee. The substance of ratio laid down by various Courts and Tribunals is that, if certain expenditure incurred to make the leasehold premises functional like partitions works, temporary repairs, flooring, etc., then the said expenditure should be allowed as revenue in nature. Therefore, we are of the considered view that the Assessing Officer has completely erred in making addition on furniture and maintenance expenditure as capital in nature. The Commissioner of Income Tax (Appeals) without appreciating the above facts had simply sustained the additions made by the Assessing Officer. Hence, we set aside the order passed by the learned Commissioner of Income Tax (Appeals) and direct the Assessing Officer to delete the addition made towards the furniture maintenance expenditure as capital in nature.
13. In the result, the appeal of the Assessee in I.T.A. No.151/Chny/2021 is allowed.
Order pronounced in the court on 19th October, 2022 at Chennai.
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