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* IN THE HIGH COURT OF DELHI AT NEW DELHI
% DECIDED ON: 10.03.2014
+ ITA 67/2001
M/S COMFORT LIVING HOTELS P. LTD. ..... Appellant
Through: Mr. Prakash Kumar with
Mr. Sheel Vardhan, Advocates.
versus
COMMISSIONER OF INCOME TAX-III ..... Respondent
Through: Mr. Rohit Madan, Sr. Standing Counsel
with Mr. Pabitra Roy Choudhary, Jr. Standing
Counsel.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE R.V. EASWAR
MR. JUSTICE S.RAVINDRA BHAT (OPEN COURT)
1. The following questions of law arise for consideration:
(1) Whether the Tribunal was justified in holding that the
sum of Rs. 5 lacs was capital in nature and was not
revenue expenditure that could properly be deducted?
(2) Whether the Tribunal was justified in holding that no
depreciation was allowable on a sum of Rs.3,59,803/-
claimed as expenditure on temporary constructions?
2. Briefly, the facts are that the assessee was carrying on
hospitality business, i.e., managing a hotel. It had claimed during
the relevant time in its return for the Assessment Year 1989-90 a
ITA 67/2001 Page 1
sum of `10,30,253/- towards building repairs and expenses. The
Assessing Officer compared this sum with the amounts claimed in
previous years and sought an explanation. The assessee states that it
had undertaken extensive repairs on the ground floor, removed walls
in the rear room and constructed a bar. According to it, the changes
were essential to increase the sitting capacity in the bar and the
expenses did not bring into existence any new asset but was to
enhance its profit yielding capacity and, therefore, ought not to be
considered as capital. The Assessing Officer accepted the explanation
in part but added `5 lakhs which, according to him, was capital in
nature. The asssesee appealed to the Commissioner of Income Tax
(Appeals) ("CIT(A)"), which found that the Assessing Officer was not
justified in treating half the expenditure as capital merely because
some walls were removed and sitting capacity in the bar was
increased. After carrying an inspection and relying upon various
decisions, the CIT(A) held that the expenditure was revenue
expenditure and set aside the findings of the Assessing Officer. The
Revenue carried the matter in appeal to the Income Tax Appellate
Tribunal ("ITAT"). The ITAT, in its impugned order, held that the
reversal by the CIT(A) of `5 lakhs addition was not justified. It relied
upon the judgment in Ballimal Naval Kishore v. Commissioner of
Income Tax, (1997) 224 ITR 414 and restored the disallowance to the
extent held by the Assessing Officer.
3. Counsel for the assessee-appellant argues that the reasoning of
both the Assessing Officer and the ITAT is flawed because there is no
indication as to why even the 50% that was allowed should be treated
ITA 67/2001 Page 2
as revenue expenditure given the nature of the construction. It was
argued in this regard that the entire expenses had to be treated in the
revenue stream because it merely enhanced the income generating
capacity of the assessee and did not in any manner create any new
asset. Learned counsel relied upon the decision in Empire Jute Co.
Ltd. v. Commissioner of Income Tax, (1980) 124 ITR 1 and the
decision of a Division Bench of this Court in Instalment Supply (P)
Ltd. v. Commissioner of Income Tax, (1984) 149 ITR 52 (Del).
4. Counsel for the Revenue on the other hand submitted that the
facts in Ballimal Naval Kishore (supra) were closer to the facts of this
case and that the impugned order cannot be characterized as
unreasonable. He also relied upon the Madras High Court ruling in
CIT v. Ooty Dasaprakash, (1999) 237 ITR 902.
5. In our opinion, in this case, the ITAT has not adequately dealt
with the reasoning of the CIT(A) who had, in fact, carried out the site
inspection after which he held that the entire expenses had to be
treated as revenue expenditure. We also notice that the ITAT does
not clearly point to the creation of any new asset. Rather, it is only the
sitting capacity of the existing bar that was increased with the
renovation carried out. Considering these factors, the ratio in Empire
Jute Company (supra) that an action that merely facilitates the
assessee's business (making it more profitable), whilst leaving the
fixed capital untouched, is squarely applicable.
6. For these reasons, the first question framed has to be answered
in favour of the assessee.
7. The second question, i.e., depreciation @ 100% of roofing was
ITA 67/2001 Page 3
claimed by the assessee on the basis that the construction was
temporary in nature. The AO disallowed this on the assumption that
the construction included two sets of toilets and that it involved the
use of marble and false ceiling. The Tribunal was persuaded to
uphold this view more or less on the strength of the same reasoning,
i.e., use of marble glaze tiles and fall ceiling. This Court is of the
opinion that the materials on record show that the construction was
not authorised and appears to have been put up only for the
convenience of workers who were engaged by the assessee. The
record also indicates that the constructions were subsequently
demolished although after the Commissioner's order. In these
circumstances, the depreciation claimed to the tune of 100% cannot
be termed so unreasonable as to warrant reversal of the CIT(A)'s
view.
8. This question is also answered in favour of the assessee and
against the Revenue.
9. In view of the above findings, the appeal is hereby allowed
without any order as to costs.
S. RAVINDRA BHAT
(JUDGE)
R.V.EASWAR
(JUDGE)
MARCH 10, 2014
/vks/
ITA 67/2001 Page 4
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