TMI Blog2012 (12) TMI 238X X X X Extracts X X X X X X X X Extracts X X X X ..... In two different locations the assessee would be carrying on the business of retail trading in Reebok shoes and footwear – Held that:- As the goods in which the assessee is trading are one and the same, merely by opening new showrooms it cannot be said that the assessee is starting a new business. Whether the expenditure on civil and electrical works incurred in leasehold premises would fall in the capital field – Held that:- Lease is for a period of 4 years only and the assessee was to pay for lease rental as well interest-free security deposit for the lease and also that the assessee is required to incur the expenditure for interior and exterior works for carrying on the business as per 'brand' specifications. Therefore, it cannot be said that the assessee is deriving an enduring benefit nor can it be said that any capital asset has been created in favour of the assessee. Expenditure incurred is revenue in nature. In favour of assessee Expenditure on Keyman insurance policy - Partners of firm - AO held that as these partners are not employees of the firm – Held that:- As the partners are 'connected with the business of the assessee' and therefore are covered by the second p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rage and sales promotion expenses without deduction of tax at source u/s 194H and therefore the disallowance u/s 40(a)(ia) has been made. He submitted that without going into the merits of the disallowance, the issue is covered by the decision of the Special Bench of the Tribunal, Vishakapatnam in the case of Merilyn Shipping Transports v. Addl. CIT 136 ITD 23 wherein it has been held that disallowance u/s 40a(ia) can be made only when the amount is payable as on 31st March of every year and it cannot be invoked to disallow expenditure which had actually been paid during the previous year without TDS. The learned Departmental Representative, however, supported the orders of the authorities below. 4. Having heard both the parties and having considered the material on record, we find that this issue is covered by the decision of the Special Bench of the Tribunal in the case of Merilyn Shipping Transports (supra). Respectfully following the same, we remand this issue to the file of the AO to verify as to whether the amounts have been paid during this previous year and only if they are not paid but are payable as on 31st of the relevant previous year, can the provisions of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be held to be repair expenditure and therefore is not allowable u/s 30(a)(i) of the Act. 6.3 As regards the applicability of sec. 37 of the Act, he held that the assessee was getting enduring benefit from the asset created by setting up a new showroom and therefore it is capital in nature and cannot be allowed u/s 37 of the Act. However, he held that the assessee is eligible for depreciation at the rate of 10% on the capitalization of this amount as most of the items were furniture and electrical in nature. However, he held that depreciation at the rate of of the prescribed rate is allowable as the bills for these items are accounted for in the books of the assessee only on 31-3-2006 and therefore these items were put to use for less than 180 days. 7. Aggrieved by the disallowance by the AO, the assessee preferred an appeal before the CIT(A). The assessee reiterated its submissions made before the AO and also relied upon various decisions to bring out the distinction between capital and revenue expenditure. It was submitted that merely because expenditure results in enduring benefit to the assessee would not determine the capital nature of the expenditure. It was submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... According to him, it is also to be seen whether there is any creation of new asset which has enlarged the scope of profit making to come to the conclusion that it is in the nature of capital expenditure. Another argument put forth by the learned counsel for the assessee is that even though the expenditure is on setting up of a new showroom, it cannot be held that the assessee is starting a new business as it is for the expansion of its business. Therefore, according to him, the expenditure is to be held as revenue in nature. In support of his arguments, learned counsel for the assessee placed reliance upon the following decisions: (i) CIT v. Sakthi Sugars Ltd., (ii) Digital Equipment India Ltd. v. Dy. CIT [2006] 103 TTJ 329 (Bang - ITAT), (iii) CIT v. Escorts Finance Ltd. [2006] (iv) Fition Hotel v. ITO (2008 40-A BCAJ 293 - ITAT - Mumbai) (v) CIT v. Rex Talkies [1984] 148 ITR 560 (vi) CIT v. B.V. Ramachandrappa Sons [1991] 191 ITR 34 (vii) CIT v. HEDE Consultancy (P.) Ltd. (viii) CIT v. Bharat Commercial Corpn. [1997] 226 ITR 242 (Pat.) (ix) Banashankari Medical Oncology Research Centre Ltd. v. Asstt. CIT [IT Appeal No. 1217/Bang/0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, we find that the AO has erroneously held that there was no termination clause in the agreement of lease and that the lease is permanent. We find that the lease is for a period of 4 years only and the assessee was to pay for lease rental as well interest-free security deposit for the lease and also that the assessee is required to incur the expenditure for interior and exterior works for carrying on the business as per 'brand' specifications. In such a situation, it cannot be said that the assessee is deriving an enduring benefit nor can it be said that any capital asset has been created in favour of the assessee. The quantum of expenditure cannot determine the nature of the expenditure. Therefore, respectfully following the decisions relied upon by the learned counsel for the assessee we hold that this expenditure is revenue in nature. This ground of appeal is accordingly allowed. 10. As we have already allowed ground No.1, the ground No. 2 which is without prejudice to ground No.1, needs no adjudication. 11. As regards ground No. 3, brief facts of the case are that the assessee has taken insurance policies on three of its partners totalling to an amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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