DCIT, Circle 2(1), New Delhi. Vs. Barista Coffee Company Ltd., Shop No.55, Community Centre, Basant Lok Market, Vasant Vihar,
May, 08th 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES : A : NEW DELHI
BEFORE SHRI R.S. SYAL, AM AND SHRI A.T. VARKEY, JM
Assessment Year : 2008-09
DCIT, Vs. Barista Coffee Company Ltd.,
Circle 2(1), Shop No.55, Community Centre,
New Delhi. Basant Lok Market,
Assessment Year : 2008-09
Barista Coffee Company Ltd., Vs. DCIT,
Shop No.55, Circle 2(1),
Community Centre, New Delhi
Basant Lok Market,
Assessee By : Shri K. Sampath, Advocate &
Shri Raja Kumar, Advocate.
Department By : Ms Y. Kakkar, DR
Date of Hearing : 06.05.2015
Date of Pronouncement : 07.05.2015
PER R.S. SYAL, AM:
This appeal by the Revenue and Cross Objection by the assessee
arise out of the order passed by the CIT(A) on 14.3.2013 in relation to
the assessment year 2008-09.
2. The only ground raised by the Revenue in its appeal is against the
deletion of disallowance of Rs.28,12,079/- out of repairs and
maintenance expenses treated by the Assessing Officer (AO) as capital
expenditure. Succinctly, the AO, during the course of assessment
proceedings, observed that a sum of Rs.30,40,193 was claimed as
deduction, which was, in fact, on account of purchase of `Plant and
machinery' as under:-
Bill Date Vendor Amount Items
11.01.2008 Cimbali SPA Rs.2793683.23 LA Cimbali Coffee machine
Junior grinder silver & LA
Cimbali Inoxba TUV coffee
Cimbali SPA Rs.121237.62
Cimbali SPA Rs.125271.95
3. As the assessee is engaged in the business of Coffee bars, the AO
opined that the Coffee machines and coffee grinders constituted its
capital assets. He held such assets to be profit earning apparatus and not
eligible for deduction as repairs and maintenance. On being called upon
to explain its stand, the assessee stated that the expenditure was not
much and was of revenue nature. Treating the purchase of these Coffee
machines and coffee grinders from LA Cimbali, SPA as capital
expenditure, the AO allowed depreciation on it amounting to
Rs.2,28,014/-. This resulted into an addition of Rs.28,12,079/-. The ld.
CIT(A) deleted this addition.
4. After considering the rival submissions and perusing the relevant
material on record, it is observed that though the assessee stated before
the AO that the expenditure of Rs.30.40 lac was of revenue nature, but it
changed its stand before the ld. CIT(A) and contended that these
machines were, in fact, capitalized by the assessee voluntarily and the
observations of the AO in this regard were wrong. It is evident that
there is an apparent contradiction between the stand taken by the
assessee before the AO on one hand and the ld. CIT(A) on the other.
The ld. AR vehemently argued that the amount was, in fact, capitalised
and not taken to revenue account. However, our attention was not
invited towards any material to substantiate such explanation. In our
considered opinion, the ends of justice would meet adequately if the
impugned order on this issue is set aside and the matter is restored to the
file of AO. We order accordingly and direct the AO to verify the view
canvassed by the assessee before the ld. CIT(A) in arguing that this
amount was, in fact, capitalized for the purposes of claiming
depreciation. If such a claim is found to be correct, then, of course,
there cannot be any question of making addition for Rs.28.12 lac. If, on
the other hand, the sum of Rs.30.40 lac is found to have been claimed as
revenue expenditure, then, the addition of Rs.28.12 lac be restored,
inasmuch as the expenditure incurred towards coffee machines and
coffee grinders is otherwise a capital expenditure, being a profit earning
apparatus of the assessee.
5. The first ground of the assessee's cross objection is against the
confirmation of addition of Rs.18,207/- u/s 43B of the Act. During the
course of assessment proceedings, it was noticed by the AO from the tax
audit report that a sum of Rs.18,207/-, being amount of work contract
tax remained unpaid before the filing of return within the meaning of
section 43B. Further, it was observed that the assessee did not add this
amount in the computation of total income. The AO made addition for
the said sum. It was argued before the ld. CIT(A) that the tax auditor
inadvertently qualified the audit report by mentioning that the said sum
was contract tax disallowable u/s 43B of the Act. The ld. AR contended
that there is no amount of tax payable by the assessee. We find that there
is an absence of details in this regard to demonstrate as to whether or not
the sum of Rs.18,207/-, in fact, remained payable as work contract tax.
Under such circumstances, we set aside the impugned order and remit
the matter to the file of AO for vetting the assessee's contention in this
regard. If it is found on such examination that work contract tax to that
tune, in fact, remained unpaid before the filing of return of income, then,
the disallowance should be sustained and in the otherwise situation the
issue be decided as per law.
6. The next ground is against confirmation of disallowance of
Rs.88,370/- on account of personal expenses. The facts apropos this
ground are that the assessee claimed deduction for entertainment
expenses amounting to Rs.95,899/- which included personal expenses of
director Partha Dutta Gupta amounting to Rs.45,992/- for Pizza and
dinners, etc. Staff welfare expenses amounting to Rs.19,55,074/-
included personal expenses of Shri Partha Dutta Gupta amounting to
Rs.42,378/-. The AO made total addition of Rs.3,37,784/- by treating
such total amount, including a sum of Rs.88,370/-, as personal
expenses u/s 37(1) of the Act. The assessee is aggrieved against the ld.
CIT(A) sustaining the addition to the extent of Rs.88,370/- comprising
two amounts, namely, Rs.45,992/- and Rs.42,378/-.
7. After considering the rival submissions and perusing the relevant
material on record, it is found that the assessee is a limited company.
There is no dearth of judicial precedents holding that there cannot be any
disallowance of expenses in the hands of company on account of
personal use by its Directors. The Hon'ble Gujarat High Court in Sayaji
Iron and Engineering Company vs. CIT (2002) 253 ITR 749 (Guj) has
held that there cannot be any disallowance of personal expenses for cars
on account of personal use by the director. It has been further held that
no disallowance can be made even by treating such expenditure as not
having been incurred for the business purpose. Similar view has been
taken by the Delhi Bench of the Tribunal in several cases including Dy.
CIT vs. Haryana Oxygen Ltd. (2001) 76 ITD 32 (Del). In view of the
above decisions, we hold that the ld. CIT(A) was not justified in
sustaining the disallowance to this extent. This ground is allowed.
8. The last ground is against the confirmation of disallowance on
account of repairs and maintenance expenses of Rs.1,78,578/- by
treating it as capital expenditure. The facts apropos this ground are that
the assessee purchased Printed frosted films amounting to Rs.1,98,419/-
and treated it as revenue expenditure. The AO held such amount to be
capital in nature. After allowing depreciation @ 10%, he disallowed the
remaining amount of Rs.1.78 lac. The ld. CIT(A) confirmed the
9. Having heard both the sides and perused the relevant material, we
find that the nature of expenditure incurred by the assessee to the tune of
Rs.1.98 lac is not emanating either from the assessment order or the
impugned order. Unless true nature of such expenditure is deduced, one
cannot reach a positive conclusion about the same being a capital or
revenue. Under such circumstances, we set aside the impugned order on
this score and send the matter back to the file of AO for elaborately
discussing the nature of such expenditure and then deciding the issue
afresh as per law, after entertaining objections from the assessee.
10. In the result, the appeal of the Revenue is allowed for statistical
purposes and the CO of the assessee is partly allowed.
The order pronounced in the open court on 07.05.2015.
[A.T. VARKEY] [R.S. SYAL]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated,07th May, 2015.
Copy forwarded to:
4. CIT (A)
5. DR, ITAT
AR, ITAT, NEW DELHI.