TaxTMI 
TaxTMI 
2014 (3) TMI 1006
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....oking Explanation 1 to section 32 (1) of the Act except the stationery, security, telecom, statutory and miscellaneous expenses. 2. That Commissioner of Income Tax (Appeals) erred on facts and in law in not following the directions of the Tribunal wherein, the Tribunal directed that all revenue expenditures, particularly expenditure on travel, should be treated as revenue in nature. 2.1 Without prejudice, the Commissioner of Income Tax (Appeals) erred on facts in law in not directing allowance of depreciation on expenses, alleged to be capital expenditure, in terms of Explanation 1 to section 32(1) of the Act, held to be applicable to the facts of the case. 3. In cross-appeals, the revenue has raised identical grounds of appeal and the grounds of appeal as raised in ITA No. 939/Chd/2009 read as under : 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing appeal of the assessee without appreciating the facts of the case. 2. On the facts and circumstances of the case and in law, the Ld. CIT(A) vide his composite order dated 09/07/2009 in appeal No. 537- 538/P/208-09 for the A.Y. 2000-01 and 200I-02 has erred in deleting the additi....
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....the claim of the assessee was allowed. In respect of second claim on account of renovation of leased premises, the Commissioner of Income Tax (Appeals) considered the import of Explanation 1 to section 32 of the Act and observed that the question arising in the appeal was whether large scale expenditure incurred by the assessee was within the definition of doing of any work or improvement of building. The Commissioner of Income Tax (Appeals) further observed that a hall has been converted into a full fledged top class show room. In other words, the assessee did not construct the four walls but undertook large scale work and also made improvement to the building. This is evident from the fact that the assessee has even engaged consultants. The project management fee itself is Rs. 3780000/-. The assessee had given a chart of renovation expenses. The perusal of chart shows that all the expenses have been incurred in relation to this work of improvement of building. The Hon'ble ITAT has referred that there are certain expenses on traveling, etc. which are purportedly revenue in nature. This is a general observation. However, we have to see the context in which the expenditure is in....
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....he issue at page 62 of the Paper Book had deliberated upon the legality of the claim of the assessee and thereafter vide para 54 and 55 at page 165 of the Paper Book had directed the Assessing Officer to give a factual finding in respect of the claim of the expenditure. Admittedly, the assessee had claimed the expenditure totaling Rs. 5.21 Cr under the head 'repair/renovation' of two office premises which had been taken on lease by the assessee. The ld. AR for the assessee pointed out that even if the provisions of the Explanation to section 32 (1) are applied, then certain expenses which are relatable to the leased premises are to be allowed as a revenue expenditure in the hands of the assessee. The ld. AR for the assessee thereafter, elaborately took us through the various heads of expenditure claimed by the assessee during the year under consideration as revenue expenditure, which are tabulated at pages 14 and 15 of the Paper Book. It was pointed out by the ld. AR for the assessee that two offices in leased premises were established by the assessee during the year i.e. one at DLF, Gurgaon and the other at JSR, Delhi and the entire expenditure was incurred in setting up the offic....
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....he Commissioner of Income Tax (Appeals) as revenue expenditure and the balance has been held as expenditure of capital nature. The ld. AR for the assessee further placed reliance on various case laws in relation to the allowability of each sub-head of expenditure booked under the head repair/renovation expenses and we shall make reference to the same at the relevant time. The ld. AR for the assessee has elaborated upon the distinguishing features of the case laws relied upon by the Commissioner of Income Tax (Appeals). 10. The ld. DR for the revenue pointed out that the Tribunal had set aside the matter back to the file of Assessing Officer but the assessee failed to furnish any details before the Assessing Officer except one paper. It was pointed out to the ld. DR for the revenue during the course of hearing that the assessee had furnished the Paper Book containing the documents numbering 1 to 192 in Paper Book with a certificate that all these documents annexed in the Paper Book were filed before the lower authorities and no new evidence was being adduced and the revenue has failed to controvert the said certificate of the assessee. It was further pointed out by the ld. DR for t....
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....000-01 and Rs. 47,41,243/- in assessment year 2001-02. In the first round of assessment proceedings, the said expenditure was held to be capital in nature by both the Assessing Officer and the Commissioner of Income Tax (Appeals). The Tribunal (supra) vide order dated 21.03.2007 vide paras 49 to 55 had deliberated upon the issue at length. The Assessing Officer had disallowed the claim of the assessee in view of the Explanation 1 to section 32(1) of the Act and held the same to be capital expenditure, which reasoning was also applied by the Commissioner of Income Tax (Appeals) to decide the issue. The Tribunal vide para 54 to 55 considered the ambit of the provisions of Explanation 1 to section 32(1) of the Act and observed as under : "54. We have carefully considered the rival submissions. The entire case of the revenue is built on the provisions of Explanation 1 to Section 32(1) of the Act. We, therefore, deem it expedient to reproduce the same which is as under: "Where the business, or profession of the assessee is carried on in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by....
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.... in this regard. The details of the expenses in question have been placed at page 64 to 65 of the Paper book. We have also perused the orders of the lower authorities and find that the Assessing Officer as well as the CIT(Appeals) had proceeded on the assumption, evidently without making any verification, that the expenses are of capital nature merely because they are incurred on a leased premises. The aspect as to whether or not the expenditure is of revenue or capital in nature is depending on its factual contours which has not been subjected to any verification by the lower authorities. A mere perusal of the details of expenditure listed out at pages 64 and 65 of the Paper book reveals that the heads of expenditure listed out are numerous and inter-alia include travel expenses, statutory expenses, shifting/installation expenses etc. which purportedly are of revenue nature. However there are other expenditure heads which would need verification of facts since the requisite details are not on record. Therefore, for this purpose we deem it fit and proper to set aside the order of the CIT(Appeals) and direct the Assessing Officer to carry out the necessary exercise in this regard. T....
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.... nature. However, the matter was set aside to the file of Assessing Officer to verify the facts vis-à-vis other expenditure heads as the requisite details were not available on record. The Assessing Officer was directed to only exclude such expenditure which are of capital nature within the purview of Explanation 1 to section 32 (1) of the Act. The Assessing Officer was also directed to consider the case-laws adverted to by the assessee before the Tribunal in determining the nature of the expenditure in question. 16. The Assessing Officer in second round of proceedings repeated the additions as made in the first round of assessment proceedings on account of the facts that the assessee had failed to furnish the requisite evidence during the assessment proceedings. The Commissioner of Income Tax (Appeals) considered the nature of expenses in line with the import of Explanation 1 to section 32 of the Income Tax Act and disallowed the expenditure being capital in nature except expenditure incurred on security services, telecommunication expenses, advertisement expenses and miscellaneous expenses. 17. The first aspect of the issue raised before us is that since the present proc....
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....en made available, which is factually incorrect. - The assessing officer failed of appreciate that details of the aforesaid expenditure Incurred on leased premises at DLF Gurgaon and New Delhi were duly filed vide letter dated 30.04.2007 and 03.04.2007 respectively [refer Ito 13 of PB for A.Y. 2000-01]. - On perusal of the details of the expenses incurred placed at pages 14 and 15 of the paper book for assessment year 2000-01, it will kindly be noticed that renovation expenses comprises of, inter alia, the following: i. Rs. 4,18,27,604.75 toward temporary/wooden partitions/fittings, whitewashing, false ceiling, interior work, sanitary fittings, fire detection system, ducting for air conditioning, etc: ii. Rs. 41,86,755 towards consultancy expenses paid to Cushman & Wakefield, Currie & Brown and other consultants for rendering professional advice in relation to the renovation work; iii. Rs. 50,20,070 towards architecture fees, temporary art work; iv. Rs. 72,12,870 towards carpets and tile; v. Rs. 12,63,330 towards travelling and shifting/installation expenses; vi. Rs. 8,87,694 towards Stationeries, plants, boards; vii. Other revenue expenses like telecommunication expenses,....
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....of the said party M/s Sachdeva Sons are placed on record from page 42 to 85. The perusal of the bills reflect the said party to have carried on brick work for walls, pillars, parakit in cement motor and also providing RCC for A.C. ducts/pipes. Further, it has also carried out work under the sub- head 'concrete' i.e. providing and laying M-20 grade re-enforce cement providing flooring by granite i.e. laying of granite, vitrified tiles as marbles etc. and further woodwork has been carried on by the said concern by way of fabricating and fixing in possession selected wood and frames, glazed panel doors and shutters etc. Further, it has also carried on the work of wall finishing i.e. providing and laying 12 to 15mm thick plaster in cement motor and also providing and applying plaster of paris. The said concern also provided false ceiling and interior works i.e. providing and fabricating various furniture and fixtures for work stations and in addition extra items and also carrying out sanitary works and system of water supply. The observation of the Commissioner of Income Tax (Appeals) was that the assessee had taken on lease large hall which was converted into an office with provisions....
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.... expenditure. 24. The ld. AR for the assessee further placed reliance on CIT Vs Escorts Finance Ltd. [205 CTR (Del) 574] for the proposition that amount spent on providing wooden partition, painting of leased premises, carrying out repairs to make the premises workable was revenue expenditure as the nature of repairs was not of enduring character so as to categorize the same as capital expenditure. 25. In the facts of the case before the Hon'ble Delhi High Court in CIT Vs Hi Line Pens (P) Ltd. 306 ITR 182 (Del), the replacement was of certain parts such as internal wires and G.I. pipes and as the expenses were incurred towards leveling the premises taken on lease, such expenses were held to be repairs to the premises under section 30A(i) of the Act. 26. The ld. AR for the assessee, though in the written submissions had placed reliance on series of decisions but during the course of hearing, the abovesaid decisions, as referred by us were referred by the ld. AR for the assessee. 27. In respect of the expenditure incurred on tiles, whether the same is capital or revenue in nature, the ld. AR for the assessee placed reliance on the ratio laid down in Installment Supply Pvt. Lt....
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....nt by the assessee, otherwise than as tenant, the amount paid by him on only current repairs would be allowable and where the assessee was occupying the premises as a tenant, the repairs to the premises would be allowable as revenue expenditure. 30. The next sub-head on expenditure is under which consultancy expenses have been paid to Cushman & Wakefield, Currie and Brown and other consultants for rendering professional advice in relation to the renovation work totaling Rs. 41,86,755/-. The ld. AR for the assessee has placed on record the bill raised by Cushman & Wakefield dated 14.06.2000 for Rs. 220,500/- being 20% of the total fee payable after two months of project completion for JSR Project. The perusal of the bill placed at page 16 of the Paper Book reflects that the said concern was a global real estate consultant and it was put to the ld. AR for the assessee that what is the connection with the repair and renovation work carried out by the assessee and the services rendered by the said concern. The ld. AR for the assessee was unable to meet the same. The total consultancy fee paid by the assessee was Rs. 4,20,000/- as booked under JSR, Delhi and further expenditure has bee....
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....ferred to by us in the paras herein above, the expenditure incurred by the assessee on the renovation of its office has brought into existence certain items of enduring nature and certain expenditure has been incurred by the assessee on renovation of building which is revenue in nature. The assessee has failed to provide the complete details under the various sub-heads of expenditure and both the Assessing Officer and the Commissioner of Income Tax (Appeals) have failed to address the said issue on the surmise that the assessee had not furnished complete details before them. Even before us, though the assessee has furnished sample bills which have been filed before us and referred to by us in the paras herein above, but the perusal of the said bills reflect the expenditure being incurred on flooring, cementing, plastering of walls, laying of sanitary lines and pipes which are admittedly of enduring benefit of the assessee and are capital in nature. The assessee has converted a large hall into an office with attached bathrooms for which the inlay work had been carried out by the experts arranged by the assessee and even architectural fee of Rs. 25 lacs has been paid by the assessee ....
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.... in any addition to capital assets. The aforesaid expenses were part of ERP implementation and were not of enduring nature. Once the expenses on implementation of ERP package are treated as of revenue nature there can not be any reason not to treat the aforesaid expenses also to be of revenue nature." 2.3.1 It appears that the Assessing Officer did not ask for any further details from the assessee. The assessee has attempted to explain the true nature of the expenses saying that these are the expenditure on account of payments made to Bharti and V- SAT for the purpose of connectivity. In my opinion, the assessee has incurred a revenue expenditure on voice telecom circuit and data telecom circuit usage. Initially, it was not clear whether the said expenditure is on account of certain equipment or not. The assessee categorically stated that these are the payments made to telecom companies for the usage of leased lines. In my opinion, the said expenditure is revenue in nature. This ground of the assessee is allowed." 35. The ld. AR for the assessee was directed during the course of hearing to produce the bills to verify whether the expenditure has been incurred for the purpose of co....