TMI Blog2011 (9) TMI 1037X X X X Extracts X X X X X X X X Extracts X X X X ..... ities are justified in disallowing the amortization of building expenses to the extent of ₹ 1,41,32,214/- for the asst. year 2005-06. 2.2 Since the issues involved are inter-connected/inter linked and it pertains to the same assessee, these appeals are heard and disposed off together by this consolidated order for the sake of convenience and brevity. 3. The common issue for both the asst. years is regarding depreciation/amortization expenses of the building. 3.1 Briefly stated the facts in relation to the above issue are as follows:- The assessee is a company engaged in the business of hospitality running a hotel. In the return of income filed for the asst. years 2005-06 and 2006-07, the assessee had claimed expenditure under the head amortization of leasehold amounting to ₹ 1,41,32,214/- for each of the asst. years. The assessee company had constructed a hotel building on a leasehold land. As per the lease agreement, the lease was for a period of 25 years from 1992 to 2017. The lease rent was ₹ 5000/- per month. According to the lease agreement, on termination of the lease, the land along with the building will be reverted back to the lessor and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly terminated during the year ending 31/3/2006. ii) The assessee company also found fault with the conclusion drawn by the AO at para 4.3 of his order (asst. year 2006- 07) wherein it is stated thus:- 4.3 But in the instant case the facts are different. Here the Hotel building never belonged to the lessor. On the land taken on lease a new building came up ie the hotel came up and in the lease deed it is nowhere mentioned that any building that would be constructed on the land would be automatically become the property of the lessor . It was submitted that the conclusion drawn by the AO upon reading the lease agreement is quite contrary to the covenants contained therein. The lease deed clearly states that any structure that stands on the lease land would be transferred to the lessor on the termination of the lease and the lessor would not pay compensation towards the same. iii) It was further submitted that the expenditure incurred in such a situation in respect of the building ought to be treated as revenue expenditure and not as a capital expenditure irrespective of the fact that the same has been erroneously treated as a capital expenditure in the past. For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for the asst. year 2006-07 and the assessee being aggrieved for the asst. year 2005-06 are in appeal before us. 9. The learned AR reiterated the contentions raised before the Income Tax Authorities. He also relied on the judgement of the Hon ble Delhi High Court in the case of CIT v Bharat Aluminium Co. Ltd. (2010) (187 Taxman 111). 10. The learned DR, on the other hand, submitted that the CIT(A) has erred in holding that the expenditure claimed under the head amortization of leasehold is to be allowed as a revenue expenditure. It was submitted that the same is clearly in the nature of capital loss and not allowable as a revenue expenditure. It was also contended that the CIT(A) has erred in concluding that the assessee company is entitled to claim depreciation/amortization of the entire WDV amounting to ₹ 2,82,64,428/- in the asst. year 2006-07 though the same was amortised by the assessee over a period of 2 years. 11. We have carefully considered the rival submissions, diligently perused the relevant case records and also the case laws of various judiciaries relied on during the course of hearing. 11.1. Though the Revenue had vehemently argued that the amor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TVS Lean Logistic Ltd reported in (2007) 293 ITR 432 (Mad) held, among others, that The assessee did not acquire a capital asset but had put up a construction of the building only for business advantage with the result that the entire construction cost was admissible as revenue expenditure. 11.3. In conformity with the ratios laid down by the Hon ble Courts referred above, we are of the firm view that the Ld. CIT (A) was justified in his observation that (at the cost of repetition) 6.3 ..In view of this finding of fact that the hotel building was effectively transferred to the lessor on 31.3.2006, I hold that the appellant can be treated as the effective owner in possession of the Hotel doing hotel business for the entire FY 2005-06 and, therefore, entitled for claim of depreciation or even amortization of the rest of the WDV i.e., ₹ 2,82,64,428/- in this assessment year only. In view of this, I find the alternate claim of the appellant that the entire balance of depreciation/amortization of ₹ 2,82,64,428/- be allowed in this year only as the effective transfer took place on 31.3.2006 justified. 11.4 Moreover, the judgement of the Hon ble Delh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crores was incurred wholly and exclusively for the conduct of its business; and that since the department had itself allowed ₹ 7.61 crores (Rs.22.68 15.07 crores) in the earlier year, it could not take contrary view that the expenditure was not allowable. He therefore held that the entire expenditure of ₹ 15.07 crores was allowable as business expenditure u/s 37(1). He also held that as the expenditure was to provide an enduring benefit, it could be spread over a period of five years. The Commissioner (Appeals), therefore, allowed the expenditure of ₹ 3.76 crores as revenue/business expenditure. On further appeal, the Tribunal upheld the action of the Commissioner(Appeals). 11.5. On revenue s appeal, the Hon ble High Court held - The expenditure of ₹ 22.68 crores was of revenue nature. No doubt, till the asst. year 1994- 95, the part of the expenditure of ₹ 22.68 crores was allowed every year and it was loosely called as depreciation. What could be said was that the revenue expenditure was allowed every year at the rates on which depreciation was allowed. Since that was wrong practice adopted, the CAG rightly advised the assessee to change th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the lease deed came into effect in the AY 2006-07 and, thus, in our view, the appellant cannot take sanctuary in the Delhi High Court s ruling to its stride which is entirely on a different footing. Therefore, we are of the firm view that the authorities below were in their sphere to rightly deny the appellant s claim of amortization of building to the extent of ₹ 1.41 crores for the AY 2005-06. 12. In the result, ground nos.2 3 raised by revenue in ITA No.471/10 ground nos.2 3 raised by the assessee in ITA No.495/10 are dismissed. 13. Ground nos.4 and 5 in ITA No.471/10 (Revenue s appeal) relate to the issue whether deduction can be claimed in respect of delayed payment of employees monthly contribution to PF and ESI. 13.1 The AO in the course of scrutiny assessment noticed that the assessee had not remitted the contribution to the PF account and ESI within the due date for the months of November, 2005 and December, 2005 and January, 2006 to the extent of ₹ 1,23,432/- and ₹ 16,511/-. The above amounts were disallowed by the AO. 13.2 Before the first appellate authority, it was submitted that the statutory liabilities are paid by the asse ..... 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