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TMI Blog2019 (7) TMI 223X X X X Extracts X X X X X X X X Extracts X X X X ..... rse weathering effects, replacement of parts and other incidental expenses is regularly required to be done. It is also relevant to note that such expenditure is a recurring expenditure which is required to be incurred by the assessee regularly and the same therefore cannot be said to have given any enduring benefit to the assessee in capital field. The Inspector has based his findings in the impugned report by watching a hoarding after a time gap of three years. The said hoardings had underwent changes in this long time span of three years. Repair works and replacement of parts had taken place in the last few years as per the demand of the advertising business. As such, the structure existing on the date the Inspector visited the site can in no circumstances be compared with the structure which existing in the relevant AY, being AY 2012-13. We note that the assessee has been following this practice of claiming the hoarding expenses as revenue expenses in all the earlier years also and the same was not disturbed by the learned AO in any of the preceding years. There is no change in the accounting policies of the assessee in the current year vis a vis the earlier years, hence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee. (b) That on the facts and circumstances of the case the ld. CIT(A) erred in ignoring the facts that hoardings are temporary structure and expenditure are incurred for facilitating the business operations and not acquisition of capital asset. The same be allowed in full. (c ) That on the facts and circumstances of the case the ld. CIT(A) erred in relying on the Inspector report without furnishing the same to assessee and fact that the same is supporting the assessee case and not otherwise as interpreted by ld. CIT(A). The same be allowed in full. (d) That on the facts and circumstances of the case the ld. CIT(A) erred in ignoring the settled law that hoarding charges are revenue expenditure. 2.(a) That on the facts and circumstances of the case the ld. CIT(A) erred in adding/disallowing of ₹ 7,76,500/- on Balaji Construction on wrong presumption and applying same analogy as Balaji Ads. (b) That on the facts and circumstances of the case the ld. CIT(A) erred on disallowing hoarding construction charges of ₹ 9,13,529/- as capital expenditure instead of revenue expenditure a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al expenditure, such amount has been debited in the profit loss account as revenue expenditure. The details of constructions at such sites, as furnished by the assessee, are as follows: Assessing Officer noted that the assessee has claimed total expenses of ₹ 17,40,000/- as cost construction for 8700 sq. ft. Thus, the per sq. ft. construction works out to ₹ 200/-. The assessee s submission was carefully perused by the assessing officer and observed that the cost of construction of hoardings per sq. ft. is as high as ₹ 200/-, that itself contradicts the claim of the assessee that the hoardings have a life of barely one year. The claim that for a construction having barely one year s longevity, the assessee would spend ₹ 200/-, as cost of construction per sq. ft. is not, acceptable. Thus, AO concluded that at this rate of construction, the assessee would get a structure which is fairly durable and capable of giving benefits / use value to the assessee far beyond the relevant financial year. The AO observed that having regard to the huge cost of construction, the only logical con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing effects, application of red oxide and painting was regularly required to be done. Similarly, cementing and plastering of foundation was also required to be done regularly in order to maintain the hoarding structures. Keeping in view the nature of business activity carried on by the assessee, the ld Counsel submitted that the expenditure incurred by the assessee to maintain the structures used or hoardings is revenue in nature. 8. On the other hand, the ld. DR has primarily reiterated the stand taken by the Assessing Officer which we have already noted in our earlier para and the same is not being repeated for the sake of brevity. 7. We have heard both the parties and perused the material available on record. We note that ld assessing officer made the addition solely on the ground that the cost of construction of hoardings per sq. ft. is as high as ₹ 200/-, which itself contradicts the claim of the assessee that the hoardings have a life of barely one year. The claim that for a construction having barely one year s longevity, the assessee would spend ₹ 200/- as cost of construction per sq. ft. is not, acceptable. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advertising business in the name of another proprietorship concern, M/s Balaji construction . A sum of ₹ 4,30,988/- was credited to the profit loss account of the said concern under the head advertising fees . Another sum of ₹ 3,27,255/- was credited on account of display charges . Against this income, deduction of ₹ 9,13,529/- was claimed on account of hoarding construction charges. Since the hoarding construction charges in this case is far more than the receipts under relevant heads, the hoardings in this case are supposed to give enduring benefits of more than one year and by the same analogy, as discussed above in para seven of this order, the hoarding of construction charges of ₹ 9,13,529/- was treated by assessing officer as capital expenditure and hence the disallowances was made. However, AO noticed that having regard to the nature of business of the assessee, these hoardings are treated as plant and machinery for the assessee and depreciation @ 15% was allowed by AO. 9. We note that the hoardings are subjected to vagaries of rain, storm, vandalism, weather, theft, miscreants, damages etc., thus, the activities in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross-examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the appellant wanted to cross-examine those dealers and what extraction the appellant wanted from them. We note that the fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expenditure incurred by the assessee to maintain the structures used (or hoardings is revenue in nature especially when the Quantum of expenditure incurred is considered in the light of the fact that there were 15 hoardings which were exposed to climate. It is also relevant to note that such expenditure is a recurring expenditure which is required to be incurred by the assessee regularly and the same therefore cannot be said to have given any enduring benefit to the assessee in capital field. Moreover, even if the hoarding expenditure claimed by the assessee is inclusive of replacement of M.S. Angles etc., as noted by the A.O., the same is in the nature of replacement of parts of the hoarding structure which cannot be treated as capital expenditure. As such, considering all the facts of the case, we are of the view that the assesse is entitled to deduction on account of hoarding expenditure being in the nature of revenue expenditure. In that view of the matter, we delete the disallowance made by the A.O. and confirmed by the Id. CIT(A) on this issue and allow the appeal of the assessee. Therefore, applying the ratio of the above notedjudicial precedents, to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tise in the assessee's line of business. etc. were also not furnished. Hence the comparability with and material difference from other employees were not adequately established. Thus, in absence of aforementioned specific details regarding Smt. Nidhi Kejriwal, wife of the assessee, and heaving regard to the business of the assessee, it was held by AO that the salary paid to Smt. Kejriwal is excessive and unreasonable, therefore, a sum of ₹ 50,000/- out of total salary of ₹ 1,92,000/- paid to Smt. Nidhi Kejriwal, was disallowed u/s 40A(2)(b) of the Act on estimate and added to the total income of the assessee. 14. Aggrieved by the order of the Assessing Officer the assessee carried the matter in appeal before the Ld. CIT(A) who has dismissed the appeal of the assessee. Aggrieved by the order of the Ld. CIT(A) the assessee is in appeal before us. 15. Before us, ld Counsel for the assessee reiterated the submissions made before the lower authorities. Whereas,the ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer which we have already noted in our earlier para and the same is not being re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the context of the AO's discretion under Section 40A of the Act. The CBDT had clarified that whenever an AO proposes disallowance, he has to examine the matter in a fair and reasonable manner and what should be borne in mind is that the provision is intended to check evasion of tax through excessive or unreasonable payments to relatives and associateconcerns, and should not be so applied as to cause hardship in bona fide cases . We note that in assessee`s case, the learned AO has not recorded any finding as to how the payment made to Smt Nidhi Kejriwal is excessive under Section 40A(2) of the Act. The AO ought to have determined what constitutes the fair market value of the services rendered and disallow the difference between what is claimed by the assessee in the books and what is fair market value of such services. However, as evident from the facts of the case, no such exercise was undertaken by the AO during assessment, therefore, addition made by the assessing officer is based of guess work and needs to be deleted.For that we rely on the judgment of the Delhi High Court in the case of CIT vs. Modi Revlon Pvt. Ltd. (2012) 78 DTR 0342 (Del- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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