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2016 (1) TMI 706 - ITAT CHENNAI

2016 (1) TMI 706 - ITAT CHENNAI - TMI - Expenditure incurred on leased out premises - CIT(A) treated as capital in nature liable to be disallowed - Held that:- As decided in assessee’s own case for the assessment years 2005-06 and 2008-09 [2013 (2) TMI 265 - ITAT CHENNAI ] it is essential that the expenditure incurred on the construction of any structure on the leased premises should result in saving of the revenue expenditure at the subsequent stage. In the present case, from the pleadings of b .....

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assessee on leasehold land is capital expenditure - Decided against assessee - I.T.A.Nos.2077/Mds/2014, 1218/Mds/2015 - Dated:- 29-10-2015 - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER For The Appellant : Dr. Anita Sumanth, Advocate For The Respondent : Mr. M.Srinivasa Rao, CIT DR ORDER Per Challa Nagendra Prasad, JM: These two appeals are filed by the assessee against the orders of Commissioner of Income Tax (Appeals)-I, Coimbatore dated 21.07.2014 .....

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t as capital expenditure. This expenditure was booked under the head construction of building on leasehold land . The assessee claimed this expenditure as revenue expenditure as according to it, it is only an expenditure incurred on leasehold land for conducting business, therefore, it is allowable as revenue expenditure. On appeal, the Commissioner of Income Tax (Appeals) sustained the disallowance following the order of the coordinate bench in assessee s own case for the assessment years 2005- .....

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of co-ordinate Bench of the Tribunal for the assessment years 2005-06 and 2008-09. 6. Heard both sides. Perused orders of lower authorities and the decisions relied on. The Commissioner of Income Tax (Appeals) elaborately considered the issue of whether the expenditure incurred by the assessee is capital expenditure or revenue expenditure with reference to the submissions of the assessee and the contentions of the Assessing Officer as under:- 7. I have gone through the submissions made by the ap .....

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nditure incurred on the construction and renovation was held as capital in nature invoking the provisions of Explanation 1 to Section 32(1) of the Income Tax Act, 1961, by the Assessing Officer. The submissions of the Authorized Representative that the judgment of the Jurisdictional High Court in the case of CIT Vs TVS Lean Logistics Limited is applicable to the facts of the appellant's case cannot be accepted considering the facts of the case .. The Hon'ble lTAT has categorically stated .....

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lease deed agreements entered into by the assessee with the lessor, the following were noticed : The lessee shall put-up any structure including permanent structures required for smooth conduct of their business, For such structures they should not claim any compensation from the lessor and ..... ," leased property". The Assessing Officer after considering all the above facts, allowed the expenditure incurred in respect of repairs and renovation amounting to Rs.l,94,35,296/- as revenu .....

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xpenditure as capital in nature. 9. During the course of appellate proceedings, the Authorized Representative stated that with regard to the premises at Ambattur Industrial Estate, an agreement has been entered into with M/s. The Indo Swiss Synthetic Gem Manufacturing Co. Ltd. dated 01.11.2000 and the rent per sq. ft. is an amount of ₹ 1.04 only (Rs.25,000/- per month for an total area of 24,050 sq. ft). Thus the learned Authorized Representative argued that the appellant had obtained subs .....

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licensor agrees to grant license to the licensee for permission to use the property. The agreement of hcense was for a period of 360 months i.e. for a period of 30 years. The agreement does not specify the advance / deposit paid by the appellant company to M/s. The Indo Swiss Synthetic Gem manufacturing Company Limited. The fee payable shall be enhanced by mutual consent for an initial period of 36 months i.e, three years. The appellant has not furnished further details to support this case. It .....

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in the case of the appellant on similar issues for the Asst. Year 2008-09, I agree with the Assessing Officer in treating the amount of Rs. .15,03,51,310/- as capital expenditure. The grounds of appeal are DISMISSED. 7. Further we find that identical issue has come up before the co-ordinate Bench in assessee s own case for the assessment years 2005-06 and 2008-09 in ITA Nos. 1557 & 1558/Mds/2011 dated 03.01.2013 and the Tribunal upheld the disallowance holding that expenditure incurred on l .....

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quirements, the assessee had carried out renovations, interior decoration, new construction and repairs of the buildings taken on leasehold basis. The assessee claimed the entire expenditure incurred on leased premises as revenue expenditure. For the assessment year 2005-06, the assessee claimed expenditure to the tune of ₹ 75,11,775/- towards construction/renovation of leased buildings as revenue expenditure. Similarly, for the assessment year 2008-09 the assessee had claimed ₹ 65,5 .....

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empted income; & iii) Unexplained fixed deposits under section 68 of the Act. Aggrieved against the assessment order for the respective assessment years, the assessee preferred appeals before the CIT(A). For the assessment year 2005-06, the CIT(A) vide order dated 12.7.2011 partly allowed the appeal of the assessee. The CIT(A) held that the amount spent on construction of overhead tank, washing ramp, oil change, final inspection & wheel pit and extension of shed from existing workshop fo .....

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the assessee with regard to higher rate of depreciation on windmills and unexplained cash credit under section 68 of the Income Tax Act, the CIT(A) allowed the appeal of the assessee. Aggrieved against the orders of the CIT(A) for the respective assessment years, both the Revenue and the assessee have come in second appeal before the Tribunal. Since common issues are involved in these appeals, they are taken up together for disposal. 4. Shri Vikram Vijayaraghavan appearing on behalf of the asses .....

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reported as 293 ITR 432(Mad) and another judgement of the jurisdictional High Court in Tax Case (Appeal ) No.197 of 2005 titled M/s. Thiru Arooran Sugars Ltd. vs. DCIT., decided on 26.07.2011 and stated that expenditure incurred on temporary structure such as false ceiling and office renovation does not amount to capital expenditure. The counsel for the assessee further submitted that the assessee had taken several premises on lease throughout the State of Tamil Nadu for setting up of service s .....

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e. The amount has been spent by the assessee on the leasehold premises to make it suitable to carry out business in the showrooms and service centres. The assessee has failed to show any benefit of enduring nature derived from the renovation/reconstruction on the leased out premises. The DR contended that in view of Explanation I to Section 32(1) of the Act which clearly states that any expenditure incurred by the assessee on the leased premises has to be capitalized. The expenditure incurred by .....

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., reported as 293 ITR 170(Del). 6. The DR submitted that as regards the issues taken up by the Revenue in appeal for the assessment year 2008-09 are concerned, the first issue relates to higher rate of depreciation on windmills. The case of the assessee is covered by the order of the Chennai Bench of the Tribunal in the case of K.Ravi Vs. ACIT., reported as 2 ITR (Trib) 752 (Chennai). On the issue of unexplained cash credit made under section 68 of the Act, the DR submitted that the assessee co .....

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ee as well as in ITA No.1705/Mds/2011 filed by the Revenue. In ITA No.1557/Mds/2011 the assessee has also impugned the reopening of the assessment, since the issue was not pressed by the assessee before the CIT(A), therefore, the same cannot be subject matter of adjudication before the Tribunal as well. Confronted with the situation, the counsel for the assessee made a statement that he is not pressing the issue of reopening before the Tribunal. 8. Explanation 1 to section 32(1) which was insert .....

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e is incurred by the assessee for the purposes of the 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, or improvement to, the building, then, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee. 9. 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 i .....

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several buildings on lease for setting up of service stations. It is also undisputed that the assessee has carried out renovation, repair including flooring, false ceiling, sanitary works, partition, wall paneling, doors, cupboards etc. at the leased premises. The assessee has made certain changes/additions in the existing structures viz., construction of washing ramps, oil change & wheel alignment pit, extension of workshop shed for additional space, overhead tank, electrical works, demolit .....

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istics Ltd. (supra). In the said case, the assessee had constructed a building on the leased land for the business advantage. The Hon ble Court held that the entire cost of construction is admissible as revenue expenditure. Explanation 1 categorically states that the business or profession is carried on in a leased building and not on land. The Hon ble High Court in para 4.4 of the judgement further held as under:- 4.4 What constitutes a capital expenditure and what does not, to attract Expln.1 .....

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ase by the assessee. Thus, it is clear that the ratio laid down by the Hon ble Madras High Court in the said judgement does not support the case of the assessee. 10. In the present case, the assessee has taken building on lease and made certain additions in the existing structure. It is not the case of the assessee where the assessee has constructed a new building on the leased land. The Hon ble High Court has further held in the aforesaid case that the language employed in a statute is the dete .....

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gement of the jurisdictional High Court in the case of M/s. Thiru Arooran Sugars Ltd.(supra). In the said case, the Hon ble High Court has referred to the construction of temporary structure by means of false ceiling and office renovation, which was held to be revenue in nature. 12. The Hon ble Supreme Court of India in the case of Madras Auto Service (P) Ltd.(supra) while dealing with a similar controversy has observed as under:- 5. In order to decide whether this expenditure is revenue expendi .....

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e assessee made substantial 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 a .....

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