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TMI Blog2013 (10) TMI 1459X X X X Extracts X X X X X X X X Extracts X X X X ..... h a part of assessee's land has also been notified. On the basis of the aforesaid draft notification, the assessee wrote a letter dated 8-8-2006 to the Commissioner, MCH, consenting to handover the land under draft notification to the MCH. The letter dated 29-9-2005 of MCH to the land acquisition Officer also clearly mentions about the consent given by the assessee for handing over of the land for the purpose of road widening at free of cost to the MCH. Thus, as can be seen the assessee had to part with its portion of land for road widening purposes of the MCH and accordingly the existing compound wall has to be demolished and a new boundary wall has to be constructed by incurring expenditure of ₹ 2,06,443/-. From these facts, it is clear that the purpose of construction of boundary wall is not to bring a new asset but only for the purpose of preserving and maintaining an already existing asset. Therefore, in our view the expenditure claimed towards construction of the compound wall is allowable as revenue expenditure. The Assessing Officer is directed to delete the addition of ₹ 2,06,443.00. The ground raised is allowed. Disallowance of provision for 'Sheraton ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts and in law in not treating provision made for 'Sheraton Preferred Guest Scheme' as liability in holding the expenditure towards this as a capital expenditure. Ground No. 1 relates to disallowance of an amount of ₹ 1,94,220/- by treating it as capital expenditure. 3. Briefly the facts are, the assessee is a company engaged in the business of hoteliering. For the impugned assessment year the assessee filed its return of income on 27-11-2006 declaring total income of ₹ 26,38,92,790/-. During the scrutiny assessment proceeding, the Assessing Officer on verification of the accounts noticed that the assessee has included the expenses for purchases of software under the head 'repairs and maintenance'. He therefore asked the assessee to justify how it could be treated as revenue expenditure. In reply, the assessee submitted that the expenditure did not result in enduring benefit as the life of software is invariably short and the same is bound to become technically obsolete very fast. In support of such contention the assessee also relied upon some decisions. 4. The Assessing Officer however rejected the claim of the assessee on the reasoning that from asst. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d at 60%. Note-7 to the aforesaid appendix defines computer software as under:- (7) 'Computer software' means any computer programme recorded on any disk, tape, media or other information storage device. 9. The aforesaid amendment under the old appendix-1 is applicable for assessment years 2003-04 to 2005-06. Under the new appendix-1 which is applicable for the assessment years 2006-07 onwards, the same item-5 has been retained along with Note-7. Thus, as per the old Appendix-1 and new appendix-1, computer software along with computer has been treated as capital asset and depreciation at a higher rate of 60% has been allowed considering the life and durability of the computer software. When the statute specifically provides for treating the computer software as a capital asset and allowing depreciation thereon, the expenditure incurred towards purchase of computer software cannot be treated as revenue expenditure. So far as the decisions relied upon by the learned authorised representative for the assessee are concerned, on examination of the same, it is found that all these decisions were concerning assessment years prior to the amendment made to the old appendix-1 from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of the hotel more profitably and that it was not in the nature of expenditure incurred to bring into existence a new asset or to obtain a new or fresh advantage. It was submitted that company has incurred expenditure of ₹ 8,30,317/- towards marble maintenance and which is required for cleaning and shining of the marble and which will be done by a third party on day to day basis. Similarly, AC refrigeration work is day to day maintenance of various ACs fixed at the hotel rooms. With regard to the expenditure of ₹ 1,33,830/-, the assessee submitted that the existing black tar road was damaged during the rains and hence the existing road was repaired on which expenditure was incurred. It was further submitted that no new roads were laid. It had merely improved the condition of the existing internal roads. This was intimately connected with efficient business operations. So far as expenditure of ₹ 2,06,443/- on construction of compound wall is concerned, it was submitted that the existing compound wall was demolished for road widening purposes of the Government. Therefore it was submitted that where the existing wall was demolished by the municipality for widening t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and maintaining an already existing asset. Therefore, in our view the expenditure claimed towards construction of the compound wall is allowable as revenue expenditure. The Assessing Officer is directed to delete the addition of ₹ 2,06,443.00. The ground raised is allowed. 15. In ground No. 3 the assessee has challenged the confirmation of disallowance of provision made for Sheraton preferred guest scheme amounting to ₹ 38,76,997/-. 16. Briefly the facts are, on verification of the information submitted by the assessee during the assessment proceedings the Assessing Officer noticed that the assessee has made a provision of ₹ 38,76,997/- towards Sheraton preferred guest scheme. In response to the query made by the Assessing Officer in this regard, the assessee submitted that the Five Star Hotel run by the assessee is an affiliate to the Sheraton Chain of Hotels which is administering a scheme akin to the frequent flyer program of airlines. As per the scheme, the guests who satisfy certain eligibility criteria are offered certain privileges and discounts on future stay in the chain of hotels anywhere in the world. The Assessing Officer was of the view that the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as capable of being estimated with any reasonable certainty. Such liability cannot be said as a liability in preasentie. Even the letter dated 5.10.1999 from Starwood Hotels Resorts Worldwide Inc. States on page 3 thereof when a hotel accepts a free night award, the programme then compensates the hotel or resort . In fact, the appellant has itself admitted that it was only a provision and even that the said provision had been made only on the basis of the past experience of the appellant itself. Accordingly, it also clear that the provision made by the appellant was not based on any actuarial calculation of provisions. Further, the appellant itself admitted that the provision so made is to be adjusted further for the current trends. Such admission itself shows that the liability was not capable of being estimated with reasonable certainty. From the facts therefore it is clear that it is not the case of the appellant that only the final quantum of liability was not known. Rather, in the appellant's case this itself is not established from any actuarial calculation whether any liability stood ascertained at the year end. I, therefore, do not find any infirmity in the action of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration of totality of facts and circumstances, we are inclined to remit the matter back to the file of the Assessing Officer for the purpose of verifying whether actually the assessee has paid the provision made and whatever provision was not paid was offered as income in the subsequent assessment years. If on verification of facts and materials on record the assessee's claim is found to be correct, there will be no case for disallowance of the provision made. The order passed by the CIT (A) to this extent is set aside and the issue is remitted to the file of the Assessing Officer. The Assessing Officer, of course shall afford a reasonable opportunity of being heard to the assessee in the matter. Hence the appeal is treated as partly allowed. ITA No.414/Hyd/2010 (department appeal):- 20. The department has filed this appeal being aggrieved the order of the CIT (A) in allowing the expenditure claimed towards repairs of building, machinery and others as revenue expenditure. 21. We have already discussed in detail the facts involved relating to the aforesaid issue while dealing with the ground Nos. 2 and 2.1 in assessee's appeal No. 464/Hyd/2010. As can be seen during the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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