Ball Beverage Packaging (India) Pvt. Ltd. Vs ACIT (ITAT Delhi)
ITAT Delhi held that expenditure towards infrastructure development of leased property is revenue expenditure. Accordingly, treating such expenditure as capital in nature is unsustainable in law.
Facts- The appellant company entered into the infrastructure development agreement with M/s Sri City (P) Limited to provide and maintain common facilities and amenities outside the leased property of Assessee Company used for its business/factory. In consideration of aforesaid common facilities and amenities, assessee company paid Rs.13,36,15,059/- to M/s Sri City (P) Limited.
The issue involved here is that as per assessee the same is revenue expenditure, whereas, as per AO it is capital expenditure.
CIT(A) deleted the addition. Being aggrieved, revenue has preferred the present appeal.
Conclusion- Held that AO had erred in taking the property as ownership property of the assessee. As per the agreement agreement of Infrastructure Development, assessee company entered into a separate infrastructure development agreement with Sri City Pvt. Ltd. to maintain common facilities and amenities outside the owned property of the assessee company, hence AO has clearly erred.
Held that in a case where the advantage consists merely in facilitating the assessee’s business operation or enabling management to conduct business in a more efficient manner, leaving the fixed capital untouched, then such expenditure would be on revenue account, even though the advantage may endure for an indefinite time.
FULL TEXT OF THE ORDER OF ITAT DELHI
These cross appeals filed by the assessee and Revenue are directed against the order of ld. CIT (A)-38, New Delhi pertaining to assessment year 2015-16.
2. The Revenue has taken the following grounds of appeal :-
“1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) is right in deleting the addition made on account of disallowance of Infrastructure development expenses amounting to Rs.12,24,32,850/- which were considered by AO as capital expenditure.
2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) is right in deleting the addition made by the Assessing Officer on account of disallowance made u/s 40(a)(i) of the I.T Act, 1961 of the Foreign Remittances (TDS u/s 195 not made) amounting to Rs.7,75,31,468/- .
3. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT (A) is right in deleting the addition made by the Assessing Officer on account of disallowance of loss on foreign currency fluctuation amounting to Rs.6,18,30,027/-.
4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is right in reducing the addition made on account of other expenses amounting to Rs.21,68,000/- to Rs.10,84,000/- particularly when the expenses are not fully verifiable.
5. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) is right in deleting the addition made by the Assessing Officer on account of disallowance of legal expenses amounting to Rs.11,56,765/- which was related to plant (capital expenditure).
3. The assessee has taken the following grounds of appeal :-
“1. That Learned Commissioner of Income Tax (Appeal)-38 grossly erred in sustaining the addition of Rs.10,84,000/- in the assessment order passed by Ld. Assistant Commissioner of Income Tax Circle 4(1) Delhi u/s 143(3) of the I.T Act, 1961.
2. That Ld. CIT (Appeal) grossly erred both in law and on facts reducing the adhoc addition by 1% of total miscellaneous expenses from original disallowance at the rate of 2%.”
4. First, we take up Revenue’s appeal being ITA No.6680/Del/2019.
5. Apropos issue of addition made on account of disallowances of Infrastructure development expenses to Rs.12,24,32,850/- which were considered by AO as Capital Expenditure : On this issue, AO noticed from the agreement of infrastructure development that the assessee has taken the property on the lease of 99 years, which was as good as ownership and expenses incurred on the development of this property should be capitalized. Accordingly, AO held expenditure of Rs.13,60,36,499/- as capital nature and its claim in profit and loss account was disallowed. AO further held that on capitalization of Rs.13,60,36,499/-, depreciation was allowed at the rate of 10% being land and building expenses. Accordingly, AO disallowed Rs.12,24,32,850/-after giving the benefit of depreciation @ 10%.
6. Against this order, assessee appealed before the ld. CIT (A). Ld. CIT (A) observed from the agreement of Infrastructure Development produced during appellate proceedings that assessee company entered into a separate infrastructure development agreement with Sri City Pvt. Ltd. to maintain common facilities and amenities outside the owned property of the assessee company. The AO took the property as owned by the assessee company but this is not the case here. He also observed that the Hon’ble Supreme Court in the case of L.H. Sugar Factory and Oil Mills Pvt. Ltd. (125 ITR 293) has followed its decision in the case of Lakshmiji Sugar Mill Co. Pvt. Ltd. and has made the observation that in a case where the advantage consists merely in facilitating the assessee’s business operation or enabling management to conduct business in a more efficient manner, leaving the fixed capital untouched, then such expenditure would be on revenue account, even though the advantage may endure for an indefinite time. Accordingly, ld. CIT (A) deleted the aforesaid addition.
7. Against the aforesaid order, Revenue is in appeal before us. We have heard both the parties and perused the records.
8. The ld. DR for the Revenue relied upon the order of the Assessing Officer.
9. Counsel for the assessee submitted written submissions and his submission with respect to this ground is as under :-
“(i) The facts in brief are that appellant company entered into the infrastructure development agreement with M/s Sri City (P) Limited on 27th November, 2017 (kindly see pages 77 to 86 of PB) to provide and maintenance of common facilities and amenities outside the leased property of Assessee Company used for its business/ factory. Such facilities are common and shared among other owners located in the DTZ (Domestic Tariff Zone) including the assessee company. In consideration of aforesaid common facilities and amenities, assessee company paid Rs.13,36,15,059/- to M/s Sri City (P) Limited. Refer clause 3.1 of aforesaid agreement place at page no.79 of paper book and debited to profit and loss account.
(ii) It is most respectfully submitted that in the aforesaid agreement it was clearly mentioned that the assessee company shall get “Right to Access and Use” of the said common facilities and amenities. Agreement placed at page no.78 Clause C of the paper book.
(iii) It is further submitted that under identical circumstances and with regards to the same developer, Hon’ble ITAT Mumbai in the case of Kellogg India (P) Ltd. vs. ACIT reported in 186 ITD 10 has decided the issue in favour of assessee and has held that “consideration paid for maintenance of common area will be revenue expenditure”. Thus, the aforesaid issue is a covered issue and as such, it is prayed that the said expenditure be allowed as Revenue expenditure. Therefore, the finding of AO at page 3 of the order, that the said expenditure needs to be capitalized is misplaced in law and is based on misappreciation of facts.
iv) Reliance is also placed on following case laws:
