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Income Tax Appellate Tribunal, Hyderabad ‘ B ‘ Bench, Hyderabad
Before: Smt. P. Madhavi Devi & Shri B. Ramakotaiah
Per Smt. P. Madhavi Devi, J.M.
This is assessee’s appeal for the A.Y 2010-11. In this appeal, the assessee is aggrieved by the order of the learned CIT (A)- IV, Hyderabad, dated 12.09.2014.
Brief facts of the case are that the assessee company, engaged in the business of manufacture of stabilizers, power savers and transformers, filed its return of income for the A.Y 2010-11 on 14.10.2010 admitting a total income of Rs.8,06,95,210. During the assessment proceedings u/s 143(3) of the Act, the AO observed from the statement of computation of income that the assessee has claimed a sum of Rs.87,50,963 as revenue expenditure with the narration ‘other deductions’. On verification of the claim, the AO noticed that the assessee company has made certain addition of assets to leasehold Page 1 of 6
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premises and claimed the entire expenditure as revenue. When asked to substantiate its claim, the assessee, vide letter dated 21.03.2013 explained that it has made some additions to the leased premises at its marketing office, projects division office and branch office in Pune and the additions are on account of fixtures like partitions, false roofing, glass and minor civil works. It is submitted that the amount spent on electrical installations is shown under “Plant & Machinery”. The AO was however, of the opinion that the assessee had made additions to the assets and the expenditure thereon was capital in nature. Therefore, he disallowed the claim of revenue expenditure and treating it as capital expenditure, allowed eligible depreciation thereon. Aggrieved, the assessee preferred an appeal before the CIT (A) who confirmed the order of the AO and the assessee is in second appeal before us by raising the following grounds of appeal: “1. The Order of the Hon'ble Commissioner of Income Tax(Appeals)-IV, in so far as it is against the appellant-company, is contrary to the facts of the case and provisions of law.
The Hon'ble Commissioner of Income Tax should have appreciated that the appellant-company is entitled to deduction of Rs.82,OO,069/- spent on Renovation/Repairs in respect of the leased premises. The Hon'ble Commissioner of Income Tax should have appreciated that the expenditure did not result in any asset of enduring nature.
The Hon'ble Commissioner of Income Tax should have appreciated that these expenses relate to partitions, false-ceiling and other renovation and repairs and the appellant-company is rightly entitled to the deduction thereof in the Computation of Total Income.
The Hon'ble Commissioner of Income Tax should have appreciated that Explanation-1 to Section- 32(1)(ii) does not cover the expenditure in question.
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The Hon'ble Commissioner of Income Tax should have seen that the expenditure is in respect of leased premises and therefore, the Hon'ble Commissioner of Income Tax (Appeals) should have directed for the deduction thereof in the Computation of Total Income”.
After going through the assessment order, we find that the assessee had taken the following premises on lease: i) Premises at Ameerpet for a period of 5 years commencing from 1.9.2009;
ii) Premises at Pune for a period of 33 months commencing from 25.4.2008 to 24.01.2012; and
iii) Premises at ECIL Post, Hyderabad for a period of 25 years.
From the assessment order, it is also seen that the assessee has incurred an expenditure on the building at Ameerpet and also towards furniture and fixtures at Ameerpet, Hyderabad as well as at Pune. The assessee has explained that the expenditure incurred on false ceiling is debited to the building a/c, while the expenditure incurred on partition etc., is debited to the furniture and fixtures a/c. The learned Counsel for the assessee submitted that the expenditure is incurred to make the leased building fit for assessee’s business purposes, to carry on its business effectively and efficiently and therefore, and according to him, the said expenditure is revenue in nature. He placed reliance upon the following case laws: i) ITAT Hyderabad in the case of Smt. S. Premalata v. DCIT (1995) 53 ITD 69.
ii) CIT vs. Shri Ram Refrigeration Industries Ltd (2002) 253 ITR 783.
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iii) ITAT Mumbai in the case of ACIT vs. M/s. ITD Cementation India Ltd (ITA No.3669/Mum/2011).
iv) ITAT Hyderabad Bench in the case of DCIT v. Chaya Lakshmi Creations (P) Ltd in ITA Nos. 250 to 252/Hyd/2010, dated 30th June, 2010.
v) ITAT Hyderabad Bench in the case of ACIT v. Chaya Lakshmi Creations (P) Ltd in ITA No.848/Hyd/2012 dated 7.11.2012.
vi) Hon'ble Delhi High Court in the case of CIT vs. M/s. Hi Line Pens Pvt Ltd in ITA No.1202/2006 dated 15.09.2008.
The learned DR, on the other hand, supported the orders of the authorities below and placed reliance upon the following two decisions to argue that the expenditure claimed by the assessee is capital in nature:
i) ITAT Mumbai Bench in the case of Vardhman Developers Ltd vs. ITO reported in (2015) 55 Taxmann.com 370 (Mum-Trib.)
ii) ITAT Vishakhapatnam Bench in the case of ACIT vs. Effftronics Systems Pvt. Ltd reported in (2011) 15 Taxmann.com 345 (Vizag).
Having regard to the rival contentions and the material on record, we find that the assessee has taken three properties on rent but expenditure incurred during the relevant financial year is only on two properties i.e. one at Ameerpet, which was taken on lease for 5 years and the other one at Pune which was taken on lease for a period of 33 months. Therefore, the expenditure incurred on false ceiling as well as partition, glass etc., cannot be held to be creating any asset of an enduring nature. Any expenditure incurred by the assessee, for making
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the premises suitable for carrying on its business, according to its own standard has been held to be revenue in nature in a number of cases. The Hon'ble Delhi High Court in the case of CIT vs. M/s. Hi Line Pens Pvt Ltd in ITA No.1202/2006 dated 15.09.2008 had considered similar expenditure incurred towards false ceiling, fixing tiles, replacing glasses, wooden partitions, replacement of electric wiring, earthing, replacement of GI pipes etc., and after taking note of all the judicial precedents on the issue as well as the applicability of Explanation (1) to section 32(i) of the I.T. Act has held that the expenditure incurred to make its premises taken on lease, so as to make the premises usable for business activities, is revenue in nature. The relevant para is reproduced hereunder for ready reference:
“16. After having considered the arguments advanced by the learned counsel for the parties and examined the decisions cited by them, we are of the view that the assessee’s claim for deduction under Section 30(a)(i) has been rightly allowed by the Tribunal. The decisions cited by the learned counsel for the revenue relate to „current repairs‟. There is a clear distinction between the expression „repairs‟ and the expression „current repairs‟. It is obvious that the word „repairs‟ is much wider than the expression „current repairs‟. This fact has also been taken note of by the Supreme Court in the case of Saravana Spinning Mills P. Ltd. (supra). The expression „current repairs‟ is ITA No.1202-2006 10 of 12 much more restricted than the word „repairs‟ because the latter is qualified by the word „current‟. What the assessee has done in the present case has been construed to be repairs by the Tribunal as a finding of fact. It has not brought about any new asset and more importantly it was not the intention of the assessee to bring about any new capital asset. The expenses that were incurred by the assessee were towards repairing the premises taken on lease so as to make it more conducive to its business activity. Such expenses would clearly fall within the expression of repairs to the premises as appearing in Section 30(a)(i). The legislature has made a distinction between expenses incurred by a tenant for „repairs‟ of the premises and expenses incurred by a person who is not a tenant towards „current repairs‟ to the premises. This distinction has to
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be given meaning. Perhaps the logic behind the distinction was that a tenant would, by the very nature of his status as a tenant, not undertake expenditures as would endure beyond his likely period of tenancy or create a new asset. Whereas, an owner may undertake expenditures so as to even bring about new assets of capital nature. It was, therefore, necessary to qualify the expenditure on repairs. The deduction was, therefore, limited to expenditure on „current repairs‟ only. It follows, therefore, that the cost of repairs that have been incurred by a tenant in respect of such premises would have to be allowed under Section 30(a)(i). The question of disallowing such an expenditure and relegating the assessee to claim depreciation under Section 32 does not arise. The assessee has not claimed depreciation. It has claimed deduction under Section 30(a)(i). Once the assessee’s claim falls within that provision there is no question of considering the question of applicability of Section 32. Consequently, the question that has been framed is answered in favour of the assessee and against the revenue. The appeal is dismissed.
Admittedly, in the case before us also, the expenditure incurred has been on the premises which have been taken on lease for a period of 5 years to 33 months only. Therefore, we are satisfied that there is no asset of enduring nature created and the assessee is entitled to claim it as revenue expenditure. 7. In the result, assessee’s appeal is allowed.
Order pronounced in the Open Court on 28th March, 2018.
Sd/- Sd/- (B. Ramakotaiah) (P. Madhavi Devi) Accountant Member Judicial Member Hyderabad, dated 28th March 2018. Vinodan/sps Copy to: 1 Venugopal & Chenoy, CAs, 4-1-889/16/2 Tilak Road, Hyderabad 500001 2 DCIT, Circle 3(1) Hyderabad 3 CIT (A)-IV Hyderabad 4 CIT – III Hyderabad 5 The DR, ITAT Hyderabad 6 Guard File By Order
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