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2015 (10) TMI 1277 - ITAT CHENNAI

2015 (10) TMI 1277 - ITAT CHENNAI - [2015] 43 ITR (Trib) 260 (ITAT [Chen]) - Disallowance of Lease hold Land Expenses - Held that:- In the instant case, it is an admitted fact that the assessee has taken land on lease for setting up of project for processing of coir. It is also undisputed that the assessee has constructed the building at the leased premises. Thus the assessee has constructed super structure. These construction activities carried out by the assessee if put on to the test of Expla .....

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SUPREME Court] we are not considering the various judgments cited by the Ld. AR. In view of the above, we find no merit in the arguments of the assessee's counsel on this issue - Decided against assessee. - ITA No. 700/Mds/2014 - Dated:- 11-9-2015 - N. R. S. Ganesan, JM And Chandra Poojari, AM For the Petitioner : Shri S Sridhar, Adv. For the Respondent : Shri P Radhakrishnan, IRS, JCIT ORDER Per Chandra Poojari, Accountant Member This appeal by the assessee is directed against the order of .....

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ncurred on the factual matrix of the case and further having noticed the decisions rendered by the Jurisdictional High Court, the action to classify such expenses as capital resulting in the disallowance of such sum in the computation of taxable total income was wrong, erroneous, unjustified, incorrect and not sustainable in law. 4. The CIT (Appeals) failed to appreciate that the provisions especially explanation (1) below section 32 of the Act was wrongly understood by the Assessing Officer and .....

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s and justification. 7. The CIT (Appeals) erred in sustaining the disallowance of tractor rent amounting to ₹ 1,35,000/- in the computation of taxable total income without assigning proper reasons and justification. 8. The CIT (Appeals) failed to appreciate that there was no proper opportunity given before passing the impugned order and any order passed in violation of the principles of natural justice is nullity in law." 3. The facts of the case are that the assessee is a manufacture .....

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looring so that the material stored was not damaged due to rain water. As there was not fencing around the plot, the assessee also erected barbed fencing all around the plot. Thus, the following expenses incurred on leasehold land were charged as revenue expenditure:- 01. Fencing ₹ 1,89,262/- 02. Temporary shed ₹ 8,88,843/- 03. Compound wall ₹ 1,00,272/- 04. Flooring Expenses ₹ 7,20,585/- Total ₹ 18,98,962/- The Assessing Officer disallowed the above expenses as cap .....

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. In this context, the assessee contention that the expenditure incurred thereon should be allowed as revenue expenditure is not justified. Hence, the Assessing Officer disallowed the revenue expenditure claimed after allowing due depreciation as laid down in Explanation 1 to sec. 32." Aggrieved, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals) 4. The Commissioner of Income Tax (Appeals) observed that the disallowance of ₹ 18,98,962/- being lease hold L .....

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treated the same as capital in nature and allowed a depreciation. Since the department has filed SLP on the decision of the jurisdictional High Court in the case TVS Lean Logistics Ltd., 293 ITR 432 and also the revenue has filed appeal in RMKV & Sons, Tirunelvelli before the Tribunal on similar issues and also taking into account in the case of M/s. Remington (India) Limited wherein it was held that "if the expenditure has becomes an integral part of the leased property, then the same .....

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of appeal filed by the assessee is dismissed. Against this, the assessee is in appeal before us. 5. The ld. Authorised Representative for assessee submitted that in this case, the assessee has taken land on leasehold and the assessee had put temporary fencing and temporary shed with metal sheet roofing and laid concrete flooring and the assessee also erected barbed fencing all around the plot. On land taken on lease, there were no buildings or super structures. The Ld. AR submitted that after t .....

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of possessing for the limited period, since the building/super structure was constructed by the assessee, the assessee need not pay rent periodically. The Ld. AR reiterated that the assessee had not acquired any asset or advantage of an enduring nature. The assessee is not the owner of these facilities, but had only a right of possession for a limited period. These structures were put up for the business purposes and had to be demolished/removed after the period of lease and hence are not of pe .....

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expenses were treated as revenue expenditure for the reason that no asset or advantage of an enduring nature was acquired out of such expenses. The Ld. AR submitted that as can be seen from the details of expenditure incurred at each location and nature of facilities created, these facilities are not of a permanent nature and no civil structure has been created. The expenses were only to make the structure useful to the assessee during the tenure of the lease period which was for a short period. .....

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s treating the same as capital expenditure. On appeal, the Commissioner of Income Tax (Appeals) following the decision of the co-ordinate Bench of this Tribunal in assessee's own case for the assessment year 2008-09 deleted the disallowance, against which the Revenue is in appeal before us. This Tribunal while dealing with similar issue in assessee's own case for the assessment year 2008-09 observed as under:- "iv. The fourth ground of appeal of the assessee relates to repairs of le .....

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ption to extend with the consent of both parties. An Explanation 1 to Section 32(1) clearly spells out that where the business or provision of the assessee is carried on in a building not owned by him, in respect of which the assessee holds a lease or other right sof occupancy, any capital expenditure is incurred by the assessee for the purpose of the business or profession on the construction of any structure or doing of any work in or in relation to and byway of renovation or extension or impr .....

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ered the rival submissions. A perusal of the breakup of the expenses which have been disallowed clearly shows that the expenditures are on the interior decorations and creation of the office atmosphere. The expenditure has not resulted in any building coming into existence nor has the existing building been modified or the structure altered. As the existing building has not been altered and there is no change to its structure as a result of the expenditure incurred by the assessee, it cannot be .....

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rsed on this issue and the Assessing Officer is directed to grant the assessee the claim of revenue expenditure in regard to the said expenditure. Consequently, the depreciation as allowed by the Assessing Officer on the said expenditure which has been capitalized would stand reversed. Whether the expenditure incurred on renovation of a building is capital or revenue, is a question of fact. The same has to be decided on the facts of each case. We find that the facts of the case of the assessee a .....

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expenditure on civil work which includes demolition, painting, flooring and partition etc. as revenue expenditure. The Tribunal after considering Explanation 1 to section 32(1) and also the decision of the co-ordinate Bench of this Tribunal in the case of M/s. Sundaram BNP Paribas Asset Management Company Ltd. Vs. ACIT in ITA No.518/Mds/2010 dated 7th January, 2011, held that expenditure incurred by the assessee is revenue in nature. Respectfully following the said decision, we hold that the ex .....

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that "expenditure incurred by assessee on painting relaying of damaged floors, partitions etc., is leasehold premises is allowable as revenue expenditure". (iii) Further, he relied on the judgment of the jurisdictional High Court in the case of CIT vs. TVS Lean Logistics Ltd, 293 ITR 432, wherein it was held that "where the words of a statute are absolutely clear and unambiguous, rule of literal construction has to be followed, even if literal interpretation results in hardship o .....

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s in the case of CIT vs. TVS Lean Logistics (supra) is totally misplaced. More so, he submitted that the order of the Tribunal in the case of ABT Ltd vs.ACIT 21 ITR (Trib) 634 is also not on the same facts. In that case, the Tribunal decided the issue in favour of the assessee on the reasoning that the expenditure incurred by the assessee towards refurnishing repairs and improvements of the leased premises used for business purposes can always be a revenue expenditure and not capital expenditure .....

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on which the assessee constructed super structure and claimed as revenue expenditure. The same was disallowed by the CIT(A). The Ld. DR contended that the assessee constructed the building in the leased land and it is not the case of renovation of the leased building or improvement of the leased building as in the case of ABT Ltd cited supra as held by the Tribunal. For settling the controversy, we have to go through the Explanation 1 to sec. 32(1) of the Act which was inserted by the Taxation L .....

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essee for the purposes of business or profession on the construction of any structure or doing of any work in or in relation to, and by way of renovation or extension of improvement to, building then, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee." 8. To fall within the ambit of Explanation 1 questions which are to be answered are: (i) Whether the assessee is carrying on business or profession in a leased building or other rig .....

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project for processing of coir. It is also undisputed that the assessee has constructed the building at the leased premises. Thus the assessee has constructed super structure. These construction activities carried out by the assessee if put on to the test of Explanation 1 would show that the construction made by the assessee on the leased out premises would amount to capital expenditure. The assessee in order to support his case has relied on the judgment of the Madras High Court in the case of .....

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1 to section 32(1) of the Act depends upon the construction of any structure or doing any work or in relation to and by way of renovation, extension or improvement to the building which is put up in a building taken on lease by him for carrying on his business and profession of the assessee, but not in a case of construction of any structure or doing any work or relation to where such building is put up/constructed for the purpose of business or the profession of the assessee in a land taken on .....

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lly when a literal reading thereof produces an intelligible result an any departure from the literal rule would really be amending the law in the garb of interpretation, which is not permissible and which would be destructive of judicial discipline. 11. The Supreme Court of India in the case of Madras Auto Service (P) Ltd., 233 ITR 468 while dealing with a similar controversy has observed as under: "5 In order to decide whether this expenditure is revenue expenditure or capital expenditure, .....

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l savings in monthly rent for a period of 39 years by expending these amounts. The saving in expenditure was a saving in revenue expenditure in the form of rent. Whatever substitutes for revenue expenditure should normally be considered as revenue expenditure. Moreover, assessee in the present case did not get any capital asset by spending the said amounts. The assessee therefore could not have claimed any depreciation. Looking to the nature of the advantage which the assessee obtained in a comm .....

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