M/S Spi Chinemas (P) Limited,, ... vs Department Of Income Tax

ITA No.451/Hyd/14 : Assessment year 2009-10

Asstt. Commissioner of Income- V/s. M/s. SPI Cinemas (P) Ltd. tax Circle 13(1), Hyderabad Nellore

(PAN - AABCC 7343 L)

(Appellant) (Respondent)

Appellant by : Shri Ramakrishna Bandi DR

Respondent by : Shri S.Ravi & Shri A.V.Raghuram

Date of Hearing 16.3.2015 Date of Pronouncement 18.3.2015

ORDER

Per P.M.Jagtap, Accountant Member :

This appeal is preferred by the Revenue against the order of the learned Commissioner of Income-tax (Appeals)-V Hyderabad dated 29.11.2013 and in the solitary substantive ground raised therein, the Revenue has challenged the action of the learned CIT(A) in deleting the disallowance made by the Assessing Officer by treating the repairs and maintenance expenses of Rs.4,40,12,739 incurred by the assessee on building and theatres as capital expenditure.

2. The assessee in the present case is a company, which is engaged in the business of operating cinema theatres (multiplex) taken on lease. The return of income for the year under consideration was filed by it on 30.9.2009, declaring total income of Rs.1,55,24,250. In the Profit & Loss Account filed alongwith the 2 ITA No.451/Hyd/2014 M/s. SPI Cinemas (P) Ltd., Nellore

said return, the expenditure incurred on maintenance of building amounting to Rs.2,52,11,901 and on maintenance of theatres amounting to Rs.1,88,838 was debited by the assessee. When the assessee was called upon by the Assessing Officer to explain why the said expenditure should not treated as capital expenditure, it was pointed out by the assessee that similar expenditure incurred by it during the assessment years 2003-04, 2005-06 and 2006-07 has been allowed by the Tribunal treating the same as revenue in nature, vide its common order dated 30.6.2010, in ITA Nos.250 to 252/Hyd/2010. Since the said decision of the Tribunal was not accepted by the department, and an appeal under S.260A was filed before the Hon'ble Andhra Pradesh High Court, the Assessing Officer treated the expenditure incurred by the assessee on maintenance of building and theatres amounting to Rs.4,40,12,739 as capital expenditure and allowed only depreciation thereon at the rate of 10%, which resulted in substantial disallowance.

3. The disallowance made by the Assessing Officer on account of repairs and maintenance to the building and theatres was challenged by the assessee in an appeal filed before the learned CIT(A) and after considering the submissions made by the assessee as well as the material available on record, the learned CIT(A) deleted the disallowance made by the Assessing Officer for the following reasons given in paragraphs 5.3 and 5.4 of his impugned order-

5.3 I have carefully considered the submissions of the appellant, assessment order, case-laws, orders of CIT (Appeals)-II, Hyderabad and ITAT, Hyderabad. The CIT (Appeals)-II, Hyderabad, vide ITANos.317,318 / 08-09 and 0248 / CIT A-II / 07-08 dated 24-12-2009 for A.Ys 2003-04, 2005-06 and 2006-07 and in ITA No.190 / CIT (A)-II/2009-10 dated 14-3-2012 for A.Y.2007-08 respectively, in the appellant's own case, i.e., formerly known as M/s Chaya Lakshmi creations (P) Limited, (subsequently the assessee changed the name 3 ITA No.451/Hyd/2014 M/s. SPI Cinemas (P) Ltd., Nellore

to SP Cinemas (P) Limited with the same PAN : AABCC 7343 L) has upheld the contention of the appellant and directed the allowance of the revenue expenditure incurred by the appellant on repairs and maintenance of building and theatre. On appeal by the Department, the Hon'ble ITAT, Hyderabad in ITA No.250, 251, 252/Hyd/10 dated 30-06-2010, for the A.Ys 2003- 04, 2005-06 and 2006-07, in the appellant's own case, also upheld the decision of the CIT (Appeals). The A.O. had treated the same as capital expenditure without any cogent reasons simply stating that the department has filed an appeal before the Hon'bvle AP High Court. The appellant stated that the expenditure did not create any new asset of enduring nature and submitted the detailed break-up of item-wise expenditure with relevant ledger extracts of all the above expenditure together with the copies of the bills/vouchers in support of its contention that the nature of the expenditure was purely revenue in nature.

5.4 I have carefully examined the details submitted by the appellant for the total expenditure of Rs.4,40,12,749 and found them to be correct and the explanation of the appellant is accepted. Respectfully following the orders of the CIT (Appeals) and Hon'ble ITAT, Hyderabad and the case-laws cited by the appellant, I hold that the expenditure of Rs.4,40,12,739 incurred towards repairs and maintenance of building and theatre is revenue expenditure and hence, delete the addition of Rs.4,40,12,739.

Aggrieved by the order of the learned CIT(A), Revenue has preferred this appeal before the Tribunal.

4. We have heard the arguments of both the sides and also perused the relevant material on record. Although the Learned Departmental Representative has contended that the question as to whether the expenditure in question incurred by the assessee on maintenance of building and theatres is capital or revenue will depend on the cost of acquisition of the relevant assets and the turnover of the assessee, we are unable to accept the same. In our opinion, the nature of the expenditure incurred by the assessee on repairs and maintenance of the building and theatres is required to be seen in the light of the nature of the business of the assessee in 4 ITA No.451/Hyd/2014 M/s. SPI Cinemas (P) Ltd., Nellore

order to decide whether the same is capital or revenue. In this regard, we have perused the details of the expenditure incurred by the assessee on maintenance of building and theatres as placed at pages 20 to 28 of the assessee's paper book and find that the nature of the expenditure, as claimed by the assessee in the year under consideration, is similar to the expenditure incurred by the assessee in assessment year 2003-04, 2005-06 and 2006-07, which has been allowed by the Tribunal vide its common order dated 30th June, 2010 (supra), holding the same to be of revenue in nature, for the following reasons given in paragraph 23.

"23. In view of the above case laws, it is obvious that whenever an expenditure was incurred in the process of earning of profit it has to be allowed as revenue expenditure. In such a case the expenditure incurred by the assessee would be outside the purview of Explanation (1) to section 32 of the Act. In the case before us, it is not in dispute that the expenditure was incurred for earth filling, repair of chairs, replacement of damaged chairs, repair of underground slump, drainage and cable work, wall paper fixing, dust opening repair, carpentry and plumbing, repair of false ceiling, etc. The assessee has also changed the marble flooring, incurred expenditure on cleaning material, payment to temporary employees, watch and ward, etc. Even though the existing flooring was changed it may fall in the revenue field. However, the CIT(A) himself confirmed the expenditure with regard to change of marble flooring as capital expenditure. However, he allowed the other expenses as revenue expenditure. The assessee has also paid consultancy charges. It is pertinent to note that when the assessee has repaired the false ceiling of the cinema theatre, he has to ensure the sound proof in side the theatre building. Therefore, he has to necessarily consult a consultant and there is nothing wrong in paying the consultancy charges for such repairs. False ceiling was repaired without altering the structure of the building. The assessee has also incurred expenditure in purchasing cleaning material, projector maintenance, payment of charges to temporary staff, etc. These expenses are only for the purpose of carrying on of the business and does not bring any capital asset into existence. Therefore, in our opinion, the CIT(A) has rightly allowed the same as revenue expenditure. We do not find any infirmity in the order of lower authority. Accordingly the same is confirmed."

5. As the issue involved in the year under consideration as well as all the material facts relevant thereto are similar to that of 5 ITA No.451/Hyd/2014 M/s. SPI Cinemas (P) Ltd., Nellore

assessment years 2003-04, 2005-06 and 2006-07, we respectfully follow the order passed by the Tribunal for the said years, and uphold the impugned order of the learned CIT(A), allowing the deductions claimed by the assessee on account of repair and maintenance expenses to the building and theatres treating the same as of revenue nature.

6. In the result, appeal of the Revenue is dismissed.

Order pronounced in the court on 18th March, 2015

Sd/- Sd/-

(Asha Vijayaraghavan) (P.M.Jagtap) Judicial Member Accountant Member

Dt/- 18th March, 2015

Copy forwarded to:

1. M/s. SPI Cinemas (P) Ltd. (Formerly known as Chayalakshmi Creations Pvt. Ltd.) 24-02-1870, 2nd Floor, 3rd Cross, Central Avenue, Magunta Lane, Nellore

2. Asstt. Commissioner of Income-tax Circle 13(1) Hyderabad

3. Commissioner of Income-tax(Appeals) V Hyderabad

4. Commissioner of Income-tax I, Hyderabad

5. Departmental Representative, ITAT, Hyderabad.

B.V.S