IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "G" NEW DELHI
BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER
AND
SHRI C.M. GARG : JUDICIAL MEMBER
ITA No. 1016 & 1017/Del/2013
Asstt. Yr: 2008-09 & 2009-10
Parivar Properties Pvt. Ltd. Vs. DCIT Cen. Circle-12,
rd
13-B, 3 Floor, Netaji Subhash Marg, New Delhi.
Daryaganj, New Delhi.
PAN: AAACP 7755 Q
( Appellant ) ( Respondent )
Appellants by : Shri Rajiv Saxena Adv. &
Shri Abhishek Verma Adv.
Respondent by : Shri Ramesh Chandra CIT (DR)
Date of hearing : 16-07-2014
Date of order : 25-07-2014.
ORDER
PER S.V. MEHROTRA, A.M:
These appeals, by the assessee, are directed against CIT(A)-XXXI,
New Delhi's separate orders dated 15-1-2013 relating to A.Ys. 2008-09 &
2009-10. Identical issues have been raised in both the appeals, therefore,
they were heard together and are being disposed of by this common order
for the sake of convenience.
2. Brief facts, for A.Y. 2008-09, are that search and seizure operations
u/s 132 of the I.T. Act was carried out in Rajdarbar Group of cases on 31-7-
2008. Notice u/s 153C was issued to the assessee requiring it to file return
2 ITA 1016 & 1017/D/13
M/s Parivar Properties Pvt. Ltd.
for A.Y. 2008-09. The assessee filed its return of income declaring `Nil'
income. AO observed that assessee company was engaged in the business of
construction, purchase and sale of property. It purchased the old constructed
property, (Jubli Cinema), at Koria Pool, Delhi, in F.Y. 1999-2000 and
shown the same as fixed asset. He noted that in the year under consideration
no business activity was carried out by the assessee company. However, it
had capitalized expenses of Rs. 41,90,920/- in the value of fixed asset. He
noted that these expenses comprised of mainly house tax, security expenses,
legal & professional expenses, interest paid, telephone expenses; and
electricity expenses. As assessee did not file any explanation regarding
justification of capitalization of expenses, the AO concluded that u/s 48 the
expenses incurred to keep the asset in existence is not an allowable
expenditure and, therefore, he did not accept the assessee's contention of
capitalizing the expenses of Rs. 41,80,920/-.
2.1. Before ld. CIT(A) it was, inter alia, submitted by assessee that the
addition had been made without any incriminating material being found in
course of search. Ld. CIT(A) rejected this plea of the assessee, inter alia,
observing that the legislature in their wisdom have deemed it fit not to
restrict the assessment u/s 153A to disclosed income found during the
search. He further observed that there is no requirement that assessment can
be done only if evidences relating to undisclosed income have been seized.
2.2. It was further submitted that the assessee company had not done any
business activity during A.Y. 2008-09 and it was only engaged in renewal of
building Jubli Cinema, at Koria Pool, Delhi, for which he had incurred the
sum of Rs. 41,80,920/-, as under:
3 ITA 1016 & 1017/D/13
M/s Parivar Properties Pvt. Ltd.
S. No. Nature of expenses Amount (Rs.)
1. Electricity Expense 25186.00
2. House Tax 3642474.00
3. Interest paid 221290.00
4. Professional Fee 150000.00
5. Security Charges 137160.00
6. Telephone Expense 4710.00
7. Water Charges 100.00
Total 4180920.00
2.3. It was further, inter alia, pointed out that the capitalization of the
expenses is governed by AS-10 as declared by the Institute of Chartered
Accountants of India and the cost of an item of fixed asset comprises its
purchase price, including import duties and other non-refundable taxes or
levies and any directly attributable cost of bringing the asset to its working
condition for its intended use. It was, therefore, submitted that the expenses
incurred by the assessee company qualified to be part of cost of fixed asset,
which was meant for the part of the business within the meaning of sec.
2(14) of the Act and could not be considered u/s 48 of the Act. The assessee
further pointed out that cost of improvement u/s 55 includes everything by
doing which there is an enhancement in the value of the asset or there is a
rise in the price of the asset.
2.4. Ld. CIT(A) allowed Rs. 40,00,924/- out of Rs. 41,80,920/- and
rejected the balance amount for the reason that they were meant for keeping
the company or asset in existence and had no relation either to acquisition or
improvement of the fixed asset in question. Hence, they could not be added
in the value of the fixed asset.
3. Being aggrieved with the order of ld. CIT(A), the assessee is in appeal
before us on following common grounds for A.Y. 2008-09 & 2009-10:
"1. On the facts and the circumstances of the case whether
the Ld. CIT(A)-XXXI is correct in dismissing the grounds of
4 ITA 1016 & 1017/D/13
M/s Parivar Properties Pvt. Ltd.
appeal that the assessment has not been framed o the material
seized pursuant to an action taken u/s 132 of the Act but the
reassessment has been made not based on search material
found in the action taken by the department which is illegal in
law in view of the decision of ITAT in the mater of All Cargo
Global Logistics Ltd. Vs. DCIT ITA no. 5018 to 5022 and
5059/M/2010.
2. That on the facts and the circumstances of the case the
Ld. CIT(A)-XXXI has erred in disallowing the capitalization of
expense of Rs. 179996/- in A.Y. 2008-09 & 147921/- for A.Y.
2009-10 in the cost of fixed assets illegally and therefore is
liable to quashed.
4. At the hearing ld. counsel for the assessee did not press ground no. 1,
hence the same stands dismissed, being not pressed.
5. We have considered the submissions of both the parties and have
perused the record of the case. There is no dispute that the entire amount had
been incurred towards the renovation of building Jubli Cinema, at Koria
Pool, Delhi. The part disallowance has been confirmed by ld. CIT(A) on the
ground that the expenditure was meant for keeping the company or asset in
existence. This implied that he was rather agreeable that the impugned
amount was eligible for claiming deduction as revenue expenditure. Since
assessee had only capitalized the expenses, therefore, there was no reason to
sustain the part disallowance.
6. Ld. CIT(A) has sustained the disallowance because he had considered
the cost of improvement of the fixed asset u/s 55. Since fixed asset was
under renovation and that was the only asset which was being renovated by
assessee company, therefore, the assessee had rightly capitalized the
5 ITA 1016 & 1017/D/13
M/s Parivar Properties Pvt. Ltd.
incidental expenses. We, therefore, do not find any reason to sustain the part
disallowance confirmed by ld. CIT(A). Ground is allowed.
7. In A.Y. 2009-10 the assessee had capitalized Rs. 1,47,921/- in the
value of fixed asset on account of electricity expenses, interest paid, security
charges, telephone expenses; and water charges. The assessing officer
disallowed the claim by observing that expenses incurred to keep the asset in
existence was not an allowable expenditure with the provisions of section 48
of the I.T. Act. In appeal, ld. CIT(A) confirmed the action of assessing
officer.
8. For the reasons given by us in A.Y. 2008-09 on the issue in question,
herein also we allow the claim by holding that assessee had rightly
capitalized the incidental expenses and there was no reason to disallow the
expenses. We, therefore, delete the addition in question.
9. In the result, both the appeals stand partly allowed.
Order pronounced in open court on 25-07-2014.
Sd/- Sd/-
( C.M. GARG ) ( S.V. MEHROTRA )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 25-07-2014.
MP
Copy to :
1. Assessee
2. AO
3. CIT
4. CIT(A)
5. DR
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