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Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI D.S.SUNDER SINGH
आदेश / O R D E R
PER D.S.SUNDER SINGH, ACCOUNTANT MEMBER:
This is an appeal filed by the assessee against the Order dated 05.04.2016 of Commissioner of Income Tax (Appeals)-1, Chennai, in for the AY 2012-13.
ITA No.1503/Mds/2016 :- 2 -:
2.0 Ground Nos.1 & 8 are general in nature which do not require specific adjudication.
3.0 Ground Nos.2-6 are related to the addition of Rs.59,24,141/- representing the disallowance of depreciation on furniture & fixtures. The AO found that the assessee has claimed 100% depreciation on interiors and furniture & fixtures stating that these items are temporary structures which were valued at Rs.65,82,378/-. The AO called for the details of the interior works done by the assessee and observed from the invoices that the expenditure was incurred for interior, carpentry, painting, security system, modular furniture, chairs and net work etc. Since all the expenses are capital in nature, the AO treated the entire expenses as capital expenditure and the same is not allowable u/s.31 of IT Act ,under the head current repairs and accordingly held it as capital asset and allowed the depreciation @10% treating the same as furniture and fixers, which resulted in addition of Rs.59,24,141/-.
4.0 Aggrieved by the Order of the AO, the assessee went on appeal before the CIT(A) and Ld.CIT(A) dismissed the assessee’s appeal holding that the expenditure in question was neither repair work nor to be treated as current repairs. For ready reference, we extract the relevant paragraphs of the Ld.CIT(A) Para No.5-10 as under:
I have carefully considered the facts in issue, the reasons based on which the AO has preferred the disallowance / addition, the arguments advanced by the appellant and material on record. The AO held that the amount of Rs.65,82,378/- incurred towards improvement on leasehold premises was to be capitalized in terms of Explanation 1 to ITA No.1503/Mds/2016 :- 3 -:
s.32(1). It was also noted that the appellant had claimed the entire expenditure to the tune of Rs.65,82,378/- after excluding a sum of Rs.25,44,265/- towards current repairs which was negated by the AO in view of the provisions of s.32(1) r.w. Explanation. The appellant had while pressing its case at the appellate stage split up the entire expenditure into as many as several components by segregating them towards interior carpentry and painting, electrical works, cabling and networking work, ducting tiling and wall paneling.
Renovation per se would be a composite item of activity which would be violated in its concept if the same is split up into smaller fragments. This is so as these smaller individual activities would not make available any facility which could be used by the appellant void of the other co-related activities. Renovation therefore would encompass and include the sum total of all such activities to make available a common facility for the use of the appellant. Simply put, all activities put together result in restoring to good and usable condition and such an exercise would include repairs as a integral part thereof. In any case renovation as this would not qualify to be considered as “current repairs” and to that extent the appellant would be the beneficiary to the usage of the facility for several years during the lease period of the premises.
The case of the appellant rests on the plea that it is a leasehold premise and hence expenditure should be treated as being towards current repairs notwithstanding the provision in Explanation 1 to s.32(1). In my considered view, this cannot be accepted for the reason that there is a specific provision to deal with such expenditure. Furthermore, the rights and entitlements of the appellant are not adversely impaired as the expenditure qualifies for depreciation and in the event that the premises are vacated the appellant is entitled to terminal benefits with regard to the expenditure / investment made. It may not be out of place to mention that almost all facilities as the one operated by the appellant are run from leased premises. Most of them being on long lease terms.
Also with regard to the claim preferred by the appellant u/s.37 and not u/s.32, the same is not tenable on facts and in law. It is settled law that the provisions of s.37 are applicable in respect of general expenses, where expenditure not specified in s.30 to s.36 are to be considered. As also, expenditure which is not capital or personal in nature and which is wholly and exclusively laid out or expended for the purpose of business. These exclude expenses for any purpose which is an offence or prohibited by law etc. Sec.37(1) therefore being a residual provision, cannot be taken aid of, unless and until it is established that none of the provisions of s.30 to 36 are applicable to a given case. This view finds support from the ratio in Malwa Vanaspati and Chemical Company Ltd v. CIT 154 ITR 655 (MP) and Khimji Visram and Sons P Ltd v CIT 209 ITR 993 (Guj.).
In this context, it will serve useful purpose to refer to the decision of the Hon’ble Kerala High Court dated 18.8.2015 in lndus Motor Company P Ltd v. DCIT 378 ITR 707. While examining a similar claim the Hon’ble Court observed “.... after the introduction of Explanation 1 to section 32(1) of the Act, there is no scope left out at all for any interpretation since by a legal fiction, the assessee is treated as the owner of the building for the period of his occupation. This means that by refurbishing, decorating or by doing interior work in the building and enduring benefit was derived by the assessee for the period of occupation and, therefore, is capital expenditure and not revenue expenditure “ According to us, by adding Explanation 1 to section 32(1) Parliament has manifested its legislative intention to treat the expenditure incurred by the assessee on leasehold building as capital expenditure and, therefore, Explanation I to section 32(1) cannot be subjected to any further interpretation. Further the language of Explanation 1 is very plain and clear and there is no scope for providing a different meaning for the words used and, hence, we are bound to consider the question by giving the literal meaning to the expressions and phraseologies by the legislature applied.” Further applying the ratio, amongst others, obtaining in the case of Madras Auto Service P Ltd 233 ITR 468 the Hon’ble High Court, the jurisdictional ITAT in its order dated 11.9.2015 in for the A.Y.2008- 09 in the case of the Continental Enterprises v. ITO has dismissed the claim of 100% depreciation by the assessee.
For the detailed reasons discussed and illustrations made in the foregoing and applying the ratio as above, the view taken by the AO in rejecting the claim of the appellant as a revenue expenditure is upheld. This ground of appeal is dismissed.
ITA No.1503/Mds/2016 :- 4 -:
5.0 During the appeal hearing, the Ld.AR submitted that the assessee has undertaken repair works in the leased premises and works were carried in the leased premises. The Ld.AR further submitted that the assessee has taken the premises for short term lease and at the time of vacating the leased premises, the temporary structures cannot be removed or re-used on vacating the premises and it would be completely wasteful expenditure and loss to the assessee. The assessee also submitted the Paper Book with details of item-wise purchase of various materials and works carried on by the assessee. The Ld.AR further argued that all the works carried on by the assessee were temporary structures which are eligible for deduction @100% depreciation.
6.0 On the other hand, the Ld.DR argued that the assessee has taken the premises on lease and fixed the furniture and fixtures in the lease hold premises and carried on interior carpentry painting works and created an asset in the leasehold premises. The asset created was not disputed by the assessee since the assessee himself has categorized the expenditure as asset and claimed 100% depreciation. The assessee has not carried on any repairs or renovation to the existing assets to claim the expenditure as current repairs u/s.31 of IT Act. The assessee has created permanent asset which is enduring in nature and accordingly, the Ld.DR argued that the AO rightly categorized it as furniture & fixtures and allowed depreciation @10% and no interference is called for.
ITA No.1503/Mds/2016 :- 5 -:
7.0 We heard the rival submissions and perused the material placed before us.
The assessee has incurred the expenditure through M/s.Kaveri Build tech for an amount of Rs.65,82,377/- relating to the items of assets.
Separate break up of wall paneling and purchase of tiles are included in the total sum of Rs.65,82,377/-. The assessee has taken the premises on lease and argued that unless the expenditure incurred for construction of any structure or improvement, extension etc., in the leasehold premises, it does not fall under Explanation-1 to Sec.32 of IT Act to hold it as asset.
The assessee has furnished the bills for purchase of tiles, wall paneling, networking, electrical works carpentry etc., in the paper book but not furnished the exact details of composite work done with the items purchased. The different invoices for wood, tiles, modular furniture cannot establish the composite item of work done to conclude whether the expenditure in question was capital expenditure or not. Even if the electrical works, carpentry works carried out in the leasehold premises, the same can be categorized as furniture and fixtures depending on the nature of works carried out. The terms of lease, the duration of lease, names and address of the leasehold premises, etc., were not furnished by the assessee. As per the Assessment Order, the assessee himself has treated the works carried on in the leased premises as assets and claimed the depreciation @100%. The 100% depreciation is allowed only on ITA No.1503/Mds/2016 :- 6 -: temporary structures. The assessee has not established that the expenditure incurred was towards the temporary structures by providing the necessary evidences with the composite work done in each premises.
The tabulation made by the Ld.CIT(A) indicates that the expenditure incurred was capital expenditure Therefore, the assessee’s request for treating the temporary structures cannot be accepted. Having created asset of enduring nature, the expenditure cannot be allowed u/s.37(1) of IT Act. Therefore, we hold that the AO has rightly treated the interior works as furniture and fixtures and allowed depreciation @10%.
Accordingly, we uphold the order of the Ld.CIT(A) and dismiss the assessee’s ground of appeal.
8.0 Ground Nos.7 & 8 are related to the addition of Rs.1,83,958/- on account of belated payment of PF. The assessee has remitted the contribution of PF to the PF A/c beyond the due date specified under the respective PF Act & Pension Scheme etc. However, the above amounts were remitted to the respective accounts before the due date of filing the return of income. This issue is squarely covered by the Hon’ble jurisdictional High Court in the case of Industrial Security & Intelligence India Pvt. Ltd. Tax Case (Appeal) Nos.585 & 586 of 2015 & M.P.No.1 of 2015 in favour of assessee.
ITA No.1503/Mds/2016 :- 7 -:
Respectfully following the decision of the Hon’ble jurisdictional High Court, the assessee’s appeal is allowed and order of the lower authorities are set-aside.
9.0 In the result, the appeal of the assessee is partly allowed.
Order pronounced in the Open Court on June 08, 2017, at Chennai.