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2009 (8) TMI 835

..... n, Vice President. - This appeal, filed at the instance of the assessee-AOP, is directed against the Order of the CIT(A) dated 14-12-2007 and it pertains to the assessment year 2004-05. The following grounds were urged by the assessee. (1)On the facts and in the circumstances of the case and in law, the learned CIT(A) was not justified in confirming the disallowance of Rs. 9,51,352 being the renovation expenses of the Mulund shop and holding the same to be capital expenditure. (2)The appellant submits that the CIT (A) has failed to appreciate the fact that the premises has been taken by the appellant on leave and licence basis for a period of 3 years and the nature of expenditure of Rs. 9,51,352 is such that the same has no enduring benefit so as to be classified as capital expenditure. (3)On the facts and in the circumstances of the case and in law, the CIT(A) has erred in confirming the disallowance of 10 per cent out of telephone expenses, 10 per cent out of staff welfare expenses and 10 per cent out of miscellaneous expenses holding the same to be personal in nature without any material to substantiate the same . 2. The facts necessary for the disposal of the appeal are stated .....

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..... ven though the expenditure was incurred on a leased premises it has to be treated as capital expenditure and depreciation was correctly allowed in the light of Explanation 1 to section 32 of the Act. 7. Further aggrieved, assessee is in appeal before us. Vide ground Nos. 1 and 2, the assessee contends that the disallowance of Rs. 9,51,352 is not in accordance with law. Learned Counsel submitted that assessee had taken shop premises on leave and license basis and incurred a total sum of Rs. 12,51,352 to renovate the premises out of which Rs. 3 lakhs was suo motu capitalized and the balance amount was treated as revenue expenditure since the expenditure incurred on the leased premises was only to generate more revenue and hence, it cannot be treated as bringing any advantage to the assessee of enduring nature. He adverted our attention to page 1 of the paper book (comprising page Nos. 1 to 103) and submitted that the expenditure incurred for civil works was capitalized by the assessee whereas, the expenditure on electrical works, purchase of Beams and Angles etc., was only in the form of replacement of the existing facilities and thus deserve to be considered as renovation expenditur .....

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..... e voluntarily capitalized a portion of the expenditure incurred on the leased premises which shows that assessee was not gaining any advantage in the form of low lease rentals or better business etc. It was also shown that the expenditure on carpet purchase has nothing to do with the leased premises since the carpet costing Rs. 64,300 would last for more than one year and hence it cannot be treated as revenue expenditure. Similarly the expenditure incurred on purchase of Beams and Angles clearly show that the expenditure had given the assessee an enduring advantage and thus strongly supported the Order passed by the first appellate authority. 10. As regards the disallowance of 10 per cent of the expenditure towards personal element of expenditure incurred on telephone etc., vide ground No. 3, the learned counsel submitted that the disallowance is excessive whereas the learned Departmental Representative relied upon the Order passed by the first appellate authority. 11. We have carefully considered the rival submissions and perused the record. We wish to address on the main issue first i.e., with regard to the expenditure of Rs. 9,51,352 incurred by the assessee on the Mulund shop. .....

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..... was not entitled, under any circumstances, for any compensation whatsoever on account of its putting-up the new construction in the place of the old. Acting under the lease deed the assessee invested a sum of Rs. 1,62,835 on construction of a new building on the said land and claimed it as business expenditure or as extra rent for the lease. In the backdrop of these facts, the Apex Court laid emphasis on the following principle if what is got rid of by a lump sum payment is an annual business expense chargeable against revenue, the lump sum payment should equally be regarded as a business expense. The Apex Court further noticed that right from the inception the building was of the ownership of the lessor and thus the assessee did not acquire any capital asset. The only benefit, which the assessee derived by spending the money, was that it got a lease of a new building at a low rent, thus saving considerable revenue expenditure, for the next 39 years. Therefore, the expenditure was considered as a revenue expenditure. 15. In the case of Bigjo s India Ltd. (supra), the Hon ble Delhi High Court was concerned with the assessment year 1998-99 wherein the assessee incurred certain expen .....

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..... s such as carpet, ladder, glass etc., need not be handed over to the lessor. Out of the total expenditure of approximately Rs. 12 lakhs on the same property, the assessee treated a sum of Rs. 3 lakhs as capital in nature which is specifically connected to the civil work and carpentry work. If there is a clause in the lease deed, as in the case of Madras Auto Service (P.) Ltd. (supra), with regard to lessor s right over the constructed portion of the building, the assessee would have claimed a sum of Rs. 3 lakhs also as revenue expenditure but such sum having been not declared as revenue expenditure, it shows that expenditure incurred on the renovation has given the assessee an enduring benefit and the ownership of the renovated items would not per se become the property of the lessor. Such being the case it is difficult to conceive that items like carpet etc., would fall in the category of items which are considered in the case of Madras Auto Service (P.) Ltd. (supra). In particular, the assessee has not placed any material, either before the tax authorities or before us to show that the lump sum payment in the form of renovation expenses has benefited the assessee in the form of r .....

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