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Before: SHRI R.K. PANDA & MS. SUCHITRA KAMBLE
This appeal is filed by the assessee against the order dated 17.10.2012 passed by the Ld. CIT(Appeals)-XVIII, New Delhi for AY 2008-09.
The Grounds of appeal
are as under: 1. “The entire order of the Commissioner of Income Tax (Appeals)-XVIII is based on conjectures, surmises, incorrect application of law and erroneous assumptions and is hence liable to be quashed.
2. That the CIT(A) has grossly erred in facts and law by upholding the order of the Deputy Commissioner of Income Tax – Circle 15(1), New Delhi, in disallowing part of the monthly lease rentals [being ‘principal repayment component embedded in lease rentals’] amounting to Rs. 17,66,631/- during the previous year under consideration alleging that such payment is towards acquisition of capital asset and accordingly, is an expenditure of capital nature. 2.1Without prejudice to the above ground, the CIT(A) has erred in denying the alternative claim of the assessee of allowing depreciation u/s 32 of the Act on actual cost of assets taken on finance lease.
That the CIT(A) has grossly erred in facts and law by upholding the order of the AO, in disallowing the revenue expenditure incurred on leasehold improvements amounting to Rs. 33,55,000/- during the previous year under consideration treating the same to be capital in nature. 3.1Without prejudice to the above ground, the CIT(A) has erred in facts of the case and in law in upholding order of the AO to the extent that the AO even failed to allow depreciation on expenditure incurred on leasehold improvement while computing the assessed income. The above grounds are mutually exclusive and without prejudice to each other. The assessee further craves leave to add, alter, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of appeal.”
3. Rio Tinto India Private Limited (‘the assessee’) was incorporated under the provisions of the Companies Act, 1956 on 19.12.1996 as a private limited company for providing technical, consultancy and training services to the exploration and mining industry. For the present assessment year, the assessee filed its return of income u/s 139(1) of the Income Tax Act, 1961 on 29.09.2008 based on the information available at that time. However, after the return was filed certain additional information regarding shares allotted to expatriate employees under a scheme named Mining Companies Comparative Plan (MCCP) was unveiled. Accordingly, the corporate tax return was revised on 19.02.2009 to consider the additional fringe benefit tax liability on shares issued under MCCP. The assessee incurred a loss of Rs. 5,61,11,178/- in the subject year. Accordingly, tax due on return income was declared Nil. However, TDS amounting to Rs. 5,47,619/- was deducted at source from income of the assessee during the subject year. Accordingly, refund of Rs. 5,47,619/- was claimed in the return of income. Subsequently, assessment proceedings were initiated against the assessee. A notice, dated 08.08.2011, was issued under section 143(2) of the Act and a questionnaire along with it was issued u/s 142(1) of the Act. In response to the above questionnaire, the assessee filed all the details in its time to time submissions. In these submissions, the assessee provided requisite information as well as detailed explanations on various queries raised during the course of assessment proceedings. Subsequently, the Assessing Officer passed the assessment order u/s 143(3) of the Act on 23.12.2011. In the said assessment order, following additions/disallowances have been made to the returned income:
• Principal payments towards finance lease amounting to Rs. 17,66,631/- • Leasehold improvements amounting to Rs. 33,55,000/-
Being aggrieved by the assessment order the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee.
The Ld. AR submitted that the assessee had claimed deduction of Rs. 17,66,631/- being payments made towards principal portion on account of certain vehicles being taken on finance lease. The Ld. AR submitted that the assessee before the Assessing Officer explained that the vehicles were capitalized in its books of accounts in accordance with requirements of Accounting Standard-19 on leases issued by the Institute of Chartered Accountants of India which requires capitalization of assessment acquired by the lessee in a finance lease agreement. The Ld. AR further submitted that depreciation on capitalized leased vehicles even though debited to profit and loss account by the assessee was duly added back by the assessee while computing its total income. Further, the assessee did not claim any depreciation u/s 32 of the Income Tax Act, 1961 in respect of the vehicles taken by the lessee under the finance lease agreement. Accordingly, an amount of Rs. 17,66,631/- was paid towards repayment of principal was reduced by computing taxable income of the assessee. The Ld. AR further submitted that the assessee did not capitalized such vehicles in the tax depreciation schedule and no tax depreciation was claimed in this regard. The Ld. AR relied upon the following decisions: i. IndusInd Bank Ltd. vs. Add. CIT (2012) 15 ITR (T) 89 (Mum) ii. CIT vs. Amway India Enterprises (2012) 346 ITR 341 (Del. HC)
5. As relates to ground no. 3 the Ld. AR submitted that during the assessment year the assessee incurred expenditure of Rs. 33,55,000/- on lease hold improvements these were in the nature of temporary structures, wooden partition etc. to be erected in the rented premises of the assessee. The above premises were occupied by the assessee for the purpose of its business. As per the lease and license agreements, the assessee is required to keep the interior walls, floors, ceiling, doors, windows, electrical fittings and installation and water connection in good order and condition and make good any damage and replace any damage or broken or missing articles electric fixtures or fittings. The Ld. AR further submitted that the assessee is required to provide at its own cost on going up keep, repairs and maintenance of the licensed premises. Therefore, the assessee rightly claimed these expenses as Revenue expenditure in the return of income. However, the same was disallowed by the Assessing Officer and the ground that the same capital in nature.
The Ld. DR relied upon the order of the Assessing Officer and CIT(A).
We have heard both the parties and perused all the records. As regards Ground No. 1 of the appeal is general in nature, therefore, the same is dismissed. The first issue i.e. Ground No. 2, 2.1 relating to disallowance of Rs. 17,66,631 relating to the part of the monthly lease rentals. Although the decision regarding this issue is decided against the assessee in order dated 22.06.2012 for AY 2007-08, the Ld. AR submitted that earlier bench has not considered the decision of the Special Bench in case of IndusInd Bank Ltd. (supra) as well as the decisions of varius High Court which are directly on this issue. It is the submission of the Ld. AR that either the assessee be allowed to claim depreciation or to allow lease rentals as revenue expenditure. We therefore, deem it proper to restore this issue to the file of the Assessing Officer with direction to adjudicate this issue a fresh in light of the decision in case of IndusInd Bank Ltd. (supra) and accordance with law. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Thus, Ground No. 2 and 2.1 are partly allowed for statistical purpose.
As relates to second issue i.e. Ground No. 3 and 3.1, the decision of the Hon’ble Delhi High Court in the case of CIT vs. Amway India Enterprises (2012) 346 ITR 341 held that in respect of the premises expenses which are incurred by the assessee on flooring, partition, wiring, fall ceiling, roofing, Air conditioner unit and duct, electrical wiring, laying network for setting up computer and for purchase of computer the same are in the nature of Revenue expenditure. The Hon’ble High Court has given the finding that whether an expenditure incurred is made on Revenue account or otherwise one would have to bear in mind the nature of the expenditure that is was it incurred for maintenance or preservation of an asset or was it expanded otherwise. If the expenditure was of the formal kind it would be in the nature of Revenue expenditure. In the light of the Hon’ble Delhi High Court decision it will be appropriate to remand this issue to the file of the Assessing Officer and after taking into cognizance the provisions of the Act the Assessing Officer may take a call for a proper justification. Needless to say the assessee be given opportunity of hearing by following principles of natural justice.
In the result, the appeal of the assessee is partly allowed for statistical purpose.
Order pronounced in the open court on 26.06.2018