Ita/312/2014 Of Commissioner Of Income Tax Ii Chd v. M/S Glaxo Smithkline Consumer Healthcare Ltd

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH ITA No. 312 of 2014 (O&M)Date of decision: 2.9.2015 Commissioner of Income Tax II, Chandigarh ..-.-- Appe M/s Glaxo Smithkline Consumer Healthcare Limited .....Responde CORAM: HON’BLE MR. JUSTICE AJAY KUMAR MITTALHON’BLE MR. JUSTICK RAMENDRA JAIN TiWhether Reporters ofthe local papers may be allowed to see thejudgment?judgment? 2 To be referred to the Reporters or not?onWhether thejudgment should be reported in the digest?onWhether thejudgment should be reported in the digest? Present: Ms. Urvashi Dhugga, Advocate for the appellant-revenue.Mr. Rohit Jain, Advocate for the respondent-assessee. Ajay Kumar Mittal,J. 1,This order shall dispose of ITA Nos.309 and 312 of 2014 as theissue involved in both the appeals is identical. However, the facts are beingextracted from ITA No.312 of 2014. 2 ITA No.312 of 2014 has been preferred by the revenue undersection 260A of the income Tax Act, 1961 (in short, “the Act’) against the ITA No.312 of 2014 (O&M) order dated 6.3.2014, Annexure A.6 passed by the income Tax appellateTribunal, Chandigarh Bench 'A’ Chandigarh in ITA No.929/CHD/2009, forthe assessment year 2000-01, claiming following substantial questions oflaw:- “1. Whether on the facts and in the circumstances of the caseand in law, the Hon'ble ITAT was justified in holding part ofexpenses related to large scale renovation running into morethan one financial year and resulting into conversion of a hallinto a full fledged top class show room as allowable beingrevenue expenditure and remaining part of these as notallowable being capital expenditure? 11) Whether on the facts and in the circumstances of the caseand in law, the Tribunal was justified in allowing/estimating70% of the expenditure as revenue expenditure whereas it hasalso itself observed that the expenditure incurred on flooring,cementing, plastering of walls, laying of sanitary lines andpipes which on one hand are of enduring benefit and capital innature?” 3.A few facts relevant for the decision of the controversyinvolved as narrated in ITA No.312 o 2014 may be noticed. The assesseecompany deals in manutacturing and trading of malted products such asHorlicks, Boost etc. The assessee filed return of income for the assessmentyear 2000-01 on 14.11.2000 atL1,00,77,74,936/-. Initial assessment in thecase was completed under Section 143(3) of the Act at an income of|41,10,49,98,156/-. In the assessment proceedings, deduction under ChapterVIA under Section 80G of the Act amounting to |7,54,194/- was allowedand deduction ot L1,32,15,921/- claimed under section 8SOHHC of the Acwas reduced to v1,12,21,363/-. Deduction of =a11,72,30,053/- claimedunder Section 801 of the Act was disallowed. Expenditure of |=a56,94,220/- ITA No.312 of 2014 (O&M) 3.A few facts relevant for the decision of the controversyinvolved as narrated in ITA No.312 o 2014 may be noticed. The assesseecompany deals in manutacturing and trading of malted products such asHorlicks, Boost etc. The assessee filed return of income for the assessmentyear 2000-01 on 14.11.2000 atL1,00,77,74,936/-. Initial assessment in thecase was completed under Section 143(3) of the Act at an income of|41,10,49,98,156/-. In the assessment proceedings, deduction under ChapterVIA under Section 80G of the Act amounting to |7,54,194/- was allowedand deduction ot L1,32,15,921/- claimed under section 8SOHHC of the Acwas reduced to v1,12,21,363/-. Deduction of =a11,72,30,053/- claimedunder Section 801 of the Act was disallowed. Expenditure of |=a56,94,220/- ITA No.312 of 2014 (O&M) incurred towards product development andLy1,68,32,340/- towardsconsumer product research were treated as capital expenditure. Interest onborrowed capital claimed at.=a4,06,55,312/- was disallowed and capitalizedamount of LC3,77,605,412/- claimed in the computation of income asenterprise expenses not charged was treated as capital expenditure andidepreciation of 60% was allowed thereon. The Assessee company incurredsubstantial expenditure amounting to=a4,77,59,930/- on renovation/interiordecoration on leased office premises. The renovation expenditure wasclaimed by the assessee as revenue expenditure. The Assessing Officerwhile passing the original order dated 26.3.2003, Annexure A.l madeaddition by disallowing expenditure incurred on renovation. The saidaddition was made primarily holding that the expenditure was capital innature and accordingly depreciation @ 10% was allowed by the AssessingOfficer. It was held that in terms of Explanation 1 to Section 32(1) of theAct, any expenditure incurred towards renovation/improvement of leasedbuilding was to be held as capital in nature. On appeal by the assessee, theCommissioner of Income Tax (Appeals) |CIT(A)]| upheld the order of thAssessing Officer. The Tribunal restored the issue of expenditure incurredon account of renovation/interior decoration at the leased office premises tothe file of the Assessing Officer and directed the Assessing Officer to verifythe details of expenditure and ascertain which expenditure fell within thepurview of Explanation | to Section 32(1) of the Act out of the totalexpenditure of“a4,77,59,930/- incurred on renovation and_ interiordecoration. In reassessment proceedings in order under section 254/143(3)of the Act dated 30.12.2008, the entire expenditure claimed was addedagain. No documentary evidence was filed by the assessee regarding ITA No.312 of 2014 (O&M) expenses on renovation and interior decoration. The CIT(A) on appeal videorder dated 9.7.2009, Annexure A.5 allowed partial relief in respect ofrenovation expenses. The revenue did not file any appeal. However, theassessee went in appeal before the Tribunal. Vide order dated 6.3.2014,Annexure A.6, the Tribunal bifurcated the expenditure under variousheads:- an44,18,27,604.75 towards temporary/woodenpartitions/fittings, whitewashing, false ceiling, interior work,Sanitary fittings, fire detecting system, ducting for airconditioning etc, 11)L¥41,86,755/- towards consultancy expenses paid toCushman and Wakefield, Currie and Brown and otherconsultants for rendering professional advice in relation tothe renovation work; 111)zy50,20,070/- towards architecture fees, temporary art work' Iv)Vv72,12,870/- towards carpets and tile; VvL¥12,63,330/- towards travelling and shifting/installation CXPCNses, v1)Vv8,8/7,694/- towards Stationeries, plants, boards vil) Other revenue expenses like telecommunicationexpenses, expenditure on security services and othermiscellaneous expenses.” Hence the instant appeal by the revenue. 4 We have heard learned counsel for the parties. 11)L¥41,86,755/- towards consultancy expenses paid toCushman and Wakefield, Currie and Brown and otherconsultants for rendering professional advice in relation tothe renovation work; 111)zy50,20,070/- towards architecture fees, temporary art work' Iv)Vv72,12,870/- towards carpets and tile; VvL¥12,63,330/- towards travelling and shifting/installation CXPCNses, v1)Vv8,8/7,694/- towards Stationeries, plants, boards vil) Other revenue expenses like telecommunicationexpenses, expenditure on security services and othermiscellaneous expenses.” Hence the instant appeal by the revenue. 4 We have heard learned counsel for the parties. 5 Learned counsel for the revenue submitted that underExplanation | to Section 32 of the Act, the assessee could claim onlydepreciation as the amount spent by it was capital in nature. It was urgedthat the Tribunal had erred in bifurcating the renovation expenses byholding 70% as revenue and only 30% as capital in nature. Support was ITA No.312 of 2014 (O&M) gathered from the judgment of the Apex Court in |CIT Vs. SarvanaSpinning Mills P. Limited,(2007)293 ITR 201, judgments of this Court inM/s Liberty Group Marketing Division, Liberty House, Railway Road,Karnal vs. CIT, Aayakar Bhawan, Sector 13, Karnal, LITA No.97 of 2012decided on 17.9.2013,Uttar Bharat Exchange Limited vs. Commissionerof Income Tax, Dethi,(1965) Vol. IV ITR 550 (P&H),Silver ScreenEnterprises vs. Commissioner ofIncome Tax, Patiala, (1972) 85 ITR 578(P&H), |M/s Associated Engineers vs. Commissioner of Income Tax,Income Tax Office, Aaykar Bhavan, Amritsar, ITA No.82 of 2005,decided on 16.7.2014 and judgment of Delhi High Court in Modi Spinning& Weaving Mills Co. Limited vs. Commissioner of Income Tax,(1993)200 ITR 544 (Del.). 6 On the other hand, learned counsel for the assessee supportedthe findings recorded by the Tribunal.foNo doubt, under Explanation | to Section 32 of the Act, wherean assessee carrying on any business or profession in a building which isnot owned by him, expends amount on renovation, extension orimprovement to the leased building, then the same is capitalized and theassessee is entitled to claim depreciation in respect thereof. 8S.Adverting to the factual matrix herein, the Tribunal bifurcatedthe expenditure under various heads as follows:- a44,18,27,604.75 towards temporary/woodenpartitions/fittings, whitewashing, false ceiling, interior work,Sanitary fittings, fire detecting system, ducting for airconditioning etc, 11)L¥41,86,755/- towards consultancy expenses paid toCushman and Wakefield, Currie and Brown and otherconsultants for rendering professional advice in relation to the renovation work; 111)Zz50,20,070/- towards architecture fees, temporary art work' Iv)Vv72,12,870/- towards carpets and tile; VvL¥12,63,330/- towards travelling and shifting/installation CXPCNses, v1)Vv8,8/7,694/- towards Stationeries, plants, boards vii) Other revenue expenses like telecommunicationexpenses, expenditure on security services and othermiscellaneous expenses.” Q | The Tribunal on perusal of the evidence estimated the revenue expenditure and came to the conclusion that 70% expenditure was revenueand 30% was capital. The relevant findings recorded by the Tribunal read thus:- 11)L¥41,86,755/- towards consultancy expenses paid toCushman and Wakefield, Currie and Brown and otherconsultants for rendering professional advice in relation to the renovation work; 111)Zz50,20,070/- towards architecture fees, temporary art work' Iv)Vv72,12,870/- towards carpets and tile; VvL¥12,63,330/- towards travelling and shifting/installation CXPCNses, v1)Vv8,8/7,694/- towards Stationeries, plants, boards vii) Other revenue expenses like telecommunicationexpenses, expenditure on security services and othermiscellaneous expenses.” Q | The Tribunal on perusal of the evidence estimated the revenue expenditure and came to the conclusion that 70% expenditure was revenueand 30% was capital. The relevant findings recorded by the Tribunal read thus:- “33. Now the only aspect to be considered is the allowability ofthe expenditure incurred on temporary wooden partition, fittings,white washing etc. and on carpet tiles amounting to Ly418crorres and<a72.12 lacs. As referred to by us in the parashereinabove, the expenditure incurred by the assessee on therenovation of its office has brought into existence certain itemsof enduring nature and certain expenditure has been incurred bythe assessee on renovation of building which is revenue innature. The assessee has failed to provide the complete detailsunder the various sub heads of expenditure and both theAssessing Officer and the Commissioner of Income Tax(Appeals) have failed to address the said issue on the surmisethat the assessee had not furnished complete details before them.Even before us, though the assessee has furnished sample billswhich have been filed before us and referred to by us in theparas hereinabove but the perusal of the said bills reflect theexpenditure being incurred on flooring, cementing, plastering ofwalls, laying of sanitary lines and pipes which are admittedly ofenduring benefit of the assessee and are capital in nature. The assessee has converted a large hall into an office with attachedbathrooms for which the inlay work had been carried out by theexperts arranged by the assessee and even architectural fee of=25 lacs has been paid by the assessee for carrying out thedifferent operations. In the totality of the above said facts andcircumstances, we are of the view that the expenditure incurredby the assessee consist of both capital and revenue expenditure.However, in the absence of complete details, we are constrainedto estimate the disallowance of capital expenditure in the handsof the assessee. We hold that out of the total expenditure, 30% ofthe expenditure incurred by the assessee is capital in nature andthe same merits to be disallowed in the hands of the assessee inboth the years. The said disallowance is in respect of two subheads of expenditure of|LT4 1S cr. And=a72.12 lacs. In respectof other expenses, we have already dealt upon the issues in theparas herein above. The Assessing Officer is directed torecompute the income in the hands of the assessee in line withour directions. The grounds of appeal raised by the assessee arethus partly allowed in both the assessment years.” 10.Learned counsel for the revenue has not been able to show thatthe findings recorded by the Tribunal are erroneous or perverse in anymanner. The view adopted by the Tribunal in the given facts andcircumstances is a plausible view. The legal proposition enunciated in thejudgments cited by the learned counsel for the revenue is well recognizedbut these pronouncements being based on individual fact situation involvedtherein do not help her. Consequently, no substantial question of law arises. ll. |Viewed from another angle, the case here relates to theassessment years 2000-01 and 2001-02 where the allowability of theexpenditure is not in dispute but the issue is whether it had to be allowed inone year aS revenue expenditure or by way of depreciation underExplanation 1 to Section 32 of the Act by spreading it over the years. AtGURBAX SINGH2015.12.11 10:08I attest to the accuracy andintegrity of this documentHigh Court Chandigarh ITA No.312 of 2014 (O&M) ll. |Viewed from another angle, the case here relates to theassessment years 2000-01 and 2001-02 where the allowability of theexpenditure is not in dispute but the issue is whether it had to be allowed inone year aS revenue expenditure or by way of depreciation underExplanation 1 to Section 32 of the Act by spreading it over the years. AtGURBAX SINGH2015.12.11 10:08I attest to the accuracy andintegrity of this documentHigh Court Chandigarh ITA No.312 of 2014 (O&M) present, the number of years that have gone by from the initial year has beenabout more than thirteen years. Learned counsel for the revenue has notbeen able to demonstrate that there had been any change in the rate oftaxation during these years. Thus, even if the substantial portion of theexpenditure had been capitalized and depreciation allowed underExplanation | to Section 32 of the Act, at the prevalent rate admissibleunder the Act and the Income Tax Rules, 1962, the entire amount wouldhave been allowed as deduction on account of depreciation by now and thecase would be revenue neutral. Therefore, in such circumstances as well,we do not find any justification in interfering with the order of the Tribunal.12. |In view of the above, the appeal stands dismissed. (Ajay Kumar Mittal)(Ramendra Jain)Judge JudgeSeptember 2, 2015?/%?Judge