TMI Blog2016 (4) TMI 900X X X X Extracts X X X X X X X X Extracts X X X X ..... the entire expenditure is in the nature of a set-up cost of the business. Even assuming, for which there is nothing on record to suggest so, that the business was already set up at the previous location, dislocation is disruptive of its business and would accordingly be required to be set up again. To the extent this entails additional expenditure, the same only implies a higher capital expenditure in-as-much as the capital work or assets discarded (at the old location) cannot be put to use again. Such discarded assets shall, however, continue to be subject to depreciation under law, as explained earlier. In view of the foregoing, the assessee’s claims cannot be acceded to, and the treatment accorded by the Revenue is to be upheld. It may also be clarified that though the assessee has impugned the entire expenditure claimed (Rs.11.34 lacs), the net (of depreciation) disallowance is only for ₹ 91,940/- (1,33,914 – 41,974). An acceptance of the assessee’s claim (at any further appellate stage) would entail withdrawal of depreciation and, as explained earlier, an allowance of the entire expenditure incurred for ₹ 8.39 lacs. - Decided against assessee - I.T.A. No. 2462 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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. Accordingly, disallowing the claim for expenditure, he allowed the assessee depreciation on expenditure of ₹ 8,39,482/-, i.e., at ₹ 41,974/-. In appeal, the assessee emphasized that the expenditure was not capital expenditure, being required to be incurred for the smooth conduct of its operations, leaving the capital structure untouched. Two, the premises was not a leased premises, but in fact a leave and license arrangement. The provision of Explanation 1 to section 32(1) would therefore not apply. In view of the ld. CIT(A), the assessee s claims were not factually correct, with it itself admitting vide its letter dated 04.10.2013 to the premises being leased. The said provision had been rig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ric wiring, work stations, etc. How, it is wondered, could premises in a raw or semi-finished state be used by the assessee for its purposes, i.e., the development of software, requiring, besides skilled human resource and intangible assets, all the necessary physical infrastructure. It is not the case of the premises being used by the assessee earlier, making changes only to enable a better user, wherein again it shall have to be seen, if any asset or advantage of an enduring nature enures as a result of the said expenditure. Total renovation is, after all, only capital expenditure (Ballimal Nawal Kishor Anr. v. CIT [1997] 224 ITR 414 (SC)). How could, for example, the assessee work without work stations, electric cables, proper flooring, etc. which is required as much as (say) furniture and fixture, computers, etc. Why, even expenditure on plastering and painting, normally regarded as maintenance expenditure, where for the first time, would have to be regarded as a part of the set-up cost the premises being made ready only for its intended user. The same, together with the furniture and fixture and plant and machinery (comprising computer systems, etc.) forms part of the capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital asset not owned by the assessee by carving an exception for a building for which it holds a right of occupancy. This would also meet the argument of the ld. AR, made relying on the decision in the case of CIT vs. Dr. A. M. Singhvi [2002] 302 ITR 26 (Raj), of the redundancy of such expenditure on the expiry of the lease in-as-much as electric fittings, flooring, ceiling, paneling, etc., get in whole or in part, attached to the building and are not removable. Implicit in the argument is a tacit admission of the life of these assets, forming part of the building, exceeding in terms of the period of user the term of the lease arrangement. That consideration, appealing at first blush, inas-much as the expenditure is rendered unproductive or of no use after the time period of the lease, is misleading. The same in fact is applicable to any capital expenditure for that matter. It is incurred on an assessment of the cost-benefit analysis, formal or non-formal, with benefits likely to arise over future. Future is always uncertain, so that it could be that the assets or the rights acquired by incurring the expenditure remain no longer beneficial in view of the changed circumstances, vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... envisaged from the capital expenditure, even if unrealized in whole or in part, would not render it as of revenue nature, and the law provides for a complete absorption of such expenditure, i.e., as that which does not suffer from such an impact. 3.3 The next limb of the assessee s argument is that it is not a lease but a leave and license arrangement. That is, in fact, the only aspect highlighted by the assessee per its sole ground raised, as under:- 1. Sustaining the addition made by the AO for Repairs Maintenance Expenses of ₹ 1,33,914/- on the ground that the Office Premises is taken on Lease and NOT on leave and License and therefore the said expenditure is of Capital Nature. It may be clarified that, even so, all the relevant aspects of the case have been discussed in view of the arguments as made during hearing. Toward the said ground, firstly, there is no basis for us to determine or hold either way the assessee s case being sans any material on record. Once, therefore, the Revenue authorities have held it to be a lease, i.e., as the arrangement was described (which though is not binding) by the assessee before the A.O., it was incumbent on the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee s reliance on other decisions before the ld. CIT(A), which we have perused. The decision arrived at is consistent with facts as found and the law as laid down in the binding decisions cited supra. Reference in this regard may also be made to the decision by the tribunal in Vardhman Developers Ltd. vs. ITO (in ITA No. 6820/Mum/2012 dated 04.2.2015), wherein the issue is dealt with at length, referring to decisions inter alia in the case of CIT vs. Saravana Spinning Mills (P.) Ltd. [2007] 293 ITR 201 (SC); Ballimal Nawal Kishor Anr. (supra), besides New Shorrock Spg. Mfg. Co. Ltd. (supra). 4. In view of the foregoing, the assessee s claims cannot be acceded to, and the treatment accorded by the Revenue is to be upheld. It may also be clarified that though the assessee has impugned the entire expenditure claimed (Rs.11.34 lacs), the net (of depreciation) disallowance is only for ₹ 91,940/- (1,33,914 41,974). An acceptance of the assessee s claim (at any further appellate stage) would entail withdrawal of depreciation and, as explained earlier, an allowance of the entire expenditure incurred for ₹ 8.39 lacs. I decide accordingly. 5. In the result, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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