IN THE INCOME TAX APPELLATE TRIBUNAL
`C' : NEW DELHI
DELHI BENCH `C
BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND
SIDHU, JUDICIAL MEMBER
SHRI H.S. SIDHU,
No.4994/Del/2012
ITA No.
2008-09
Assessment Year : 2008-
Deputy Commissioner of Vs. M/s Hotel Diplomat,
Income Tax, 9, Sardar Patel Marg,
Circle-14,
Central Circle- Diplomatic Enclave,
New Delhi. Chanakyapuri,
New Delhi 110 021.
PAN : AAAFH0266P.
(Appellant) (Respondent)
Appellant by : Shri Vikram Sahai, Sr.DR.
Respondent by : Shri Salil Aggarwal, Advocate and
Shri Shailesh Gupta, CA.
ORDER
PER G.D. AGRAWAL, VP :
This appeal by the Revenue is directed against the order of
learned CIT(A)-XXVI, New Delhi dated 21st May, 2012 for the AY 2008-
09.
2. The first ground of the Revenue's appeal reads as under:-
"On the facts and in the circumstances of the case, the
CIT(A) has erred in law and on facts in deleting the
addition of Rs.23,01,460/- made by the A.O. on account
of capital expenditure."
3. The facts of the case are that the assessee derives income from
running a hotel. For the year under consideration, the assessee
incurred expenditure of `90,40,792/- on repair and maintenance and
`16,49,721/- on apartment expenses. The complete details of these
expenses were furnished before the Assessing Officer. The Assessing
Officer found that the expenses under these heads were higher as
2 ITA-4994/Del/2012
compared to preceding years. He also referred to various bills for the
expenses which was for sanitary fittings, bill of decorator which was of
plaster of paris, false ceiling etc, bills for glass, door locks etc. He
treated 25% of the repair and maintenance expenses and 15% of the
apartment expenses as capital expenditure as under:-
(a) 25 percent of `Repair and Maintenance'
expenses claimed at Rs.9040792/- 2260200
(b) 15 percent of Apartment expenses
claimed at Rs.1649721/- 247400
2507600
As against Rs.2507600/- amount is wrongly taken at 2707600
4. Accordingly, he allowed depreciation on the above capital
expenditure and finally, the addition of `23,01,460/- was made. The
CIT(A) deleted the addition by referring to the decision of the ITAT for
AY 1996-97 wherein the similar addition made by the Assessing Officer
was disallowed. He also referred to various case laws and thereafter
concluded as under:-
"In view of the above discussion and since the
Assessing Officer has not conducted any enquiries to
test the nature of the expenditure incurred by the
appellant and brought on record any material contrary
to that of the appellant. I hold that the Assessing
Officer has not appreciated the facts justifying the
needs and necessity of the business of the appellant.
Mere mention of the bills describing the items and
amounts in the order is not sufficient to substantiate
that the said expenditure construes capital in nature
because the Assessing Officer has not drawn any nexus
between the bills and the resultant asset. Therefore,
the addition made by the Assessing Officer is not
supported by any evidence and hence an amount of
Rs.23,01,460/- is deleted and direct the Assessing
Officer to pass a consequential order treating the same
as revenue expenditure and at the same time to with
3 ITA-4994/Del/2012
draw the concomitant depreciation which has been
allowed on the said amount."
5. After considering the facts of the case and the arguments of
both the sides, we do not find any justification to interfere with the
order of learned CIT(A). Admittedly, the assessee is running a hotel in
which constant repair and maintenance is required. It was pointed out
by the learned counsel that the building from which the hotel business
is being run is an old rented premises and monthly rent of the building
is only `10,000/- per month, while the total receipt of the hotel is more
than `5 crores. He, therefore, pointed out that substantial expenditure
is required to be incurred by the assessee year after year so as to keep
the building properly maintained. He also pointed out that in last ten
years, i.e., from AY 1998-99 to 2007-08, no expenditure was disallowed
by the Assessing Officer, though, in most of the years, orders were
passed under Section 143(3). All these facts stated by the learned
counsel have not been controverted before us. The Assessing Officer
has not pointed out any specific item of expenditure which was, in his
opinion, capital expenditure. Genuineness of the expenditure has not
been doubted by him. However, on presumption basis, he treated
certain percentage of expenses to be capital expenditure. There is no
logic or basis for such presumption. In view of the totality of above
facts, we uphold the order of learned CIT(A) on this point and reject
ground No.1 of the Revenue's appeal.
6. Ground No.2 reads as under:-
"On the facts and in the circumstances of the case, the
CIT(A) has erred in law and on facts in deleting the
addition of Rs.30,72,418/- made by the A.O. on account
of additional compensation."
7. During the year under consideration, the assessee was required
to make the payment of additional compensation on the retrenchment
4 ITA-4994/Del/2012
of staff which was amounting to `30,72,418/-. The Assessing Officer
disallowed the same holding it also to be capital expenditure. The
CIT(A) has discussed the issue at length and thereafter held that the
additional compensation paid by the assessee was an allowable
deduction. The Revenue, aggrieved with the order of learned CIT(A), is
in appeal before us.
8. We have heard both the sides and perused relevant material
placed before us. After considering the facts of the case and the
arguments of both the sides, we do not find any justification for
treating the additional compensation paid to staff as capital
expenditure merely because it was a one time payment. The
Assessing Officer also observed that the additional compensation was
paid after the workmen ceased to be employees of the assessee firm
because they were retrenched once the normal compensation was
paid to them through an earlier agreement. In our opinion, the nature
of additional compensation is similar to the original compensation.
When the additional compensation is required to be paid, it only
enhances the original compensation. Merely because by the time
additional compensation is agreed to be paid by the assessee, the
employees cease to be employees of the assessee can be no ground
for treating additional compensation as a non-business expenditure.
The genuineness of the original compensation or additional
compensation is not in dispute. During the year under consideration,
the assessee firm paid the compensation to the employees at
`19,34,670/- as one time settlement for retrenchment of staff.
However, subsequently, it entered into another memorandum of
settlement with the staff and paid additional compensation of
`30,72,418/-. The Assessing Officer allowed the compensation paid as
per original agreement but disallowed the additional compensation. In
our opinion, the nature of original compensation and the additional
compensation remains the same. Both were paid in respect of
5 ITA-4994/Del/2012
retrenchment of the same staff. Merely because after the payment of
original compensation a further memorandum of settlement is entered
into and additional compensation is paid, it cannot be said that its
nature is different than the original compensation. In view of the
totality of above facts, we uphold the order of learned CIT(A) on this
point and reject ground No.2 of the Revenue's appeal.
9. In the result, the appeal of the Revenue is dismissed.
Decision pronounced in the open Court on 2nd January, 2015.
Sd/- Sd/-
SIDHU)
(H.S. SIDHU) AGRAWAL)
(G.D. AGRAWAL)
JUDICIAL MEMBER VICE PRESIDENT
Dated : 02.01.2015
VK.
Copy forwarded to: -
1. Appellant : Deputy Commissioner of
Circle-14,
Income Tax, Central Circle-
New Delhi.
2. Respondent : M/s Hotel Diplomat,
9, Sardar Patel Marg,
Diplomatic Enclave, Chanakyapuri,
New Delhi 110 021.
3. CIT
4. CIT(A)
5. DR, ITAT
Assistant Registrar
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