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Alpha Plus Technologies P. Ltd. Versus ITO, 8 (1) (1) , Mumbai

2016 (4) TMI 900 - ITAT MUMBAI

Claim for repair and maintenance expenditure - Held that:- The fact of the matter is that if any asset forming part of block of assets gets discarded, depreciation thereon on its unabsorbed cost continues to be available till the same gets totally charged or realized by way of sale/scrap, etc. In other words, the circumstances adversely impacting the realization of the benefit/advantage envisaged from the capital expenditure, even if unrealized – in whole or in part, would not render it as of re .....

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cupancy. The two are independent of each other. In the instant case, it has already been indicated that 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 expend .....

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owance 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/Mum/2015 - Dated:- 29-1-2016 - SHRI SANJAY ARORA, AM For The Appellant by : Shri Deepak Tralshawalla For The Respondent : Shri B. S. Bist ORDER Per Sanjay Arora, A. M.: This is an Appeal by .....

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d maintenance expenditure, preferred at ₹ 1,33,914/-, under the Act. The assessee, a company engaged in the business of development of software products and providing regulatory content services for BFSI sector, explained in the assessment proceedings that it incurred an expenditure of ₹ 8,39,482/- on setting up its business premises at Unit Nos. 638 and 639, 6th Floor, Laxmi Plaza, Laxmi Industrial Estate, New Link Road, Andheri (W), Mumbai, a leased premises, transferring its furni .....

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its operating statement for the year. The Assessing Officer (A.O.) was of the view that the accounting treatment cannot determine the deductibility, which was to be guided by the provision/s of law, relying for the purpose on the decision in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT [1997] 227 ITR 172 (SC), reproducing there-from. Capital expenditure, where incurred on or in relation to a building, qua which the assessee has lease hold or other right of occupancy, woul .....

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ion 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 .....

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the material on record, giving a careful consideration to the matter. 3.1 Before, however, proceeding to discuss the matter, it may be clarified that it was at the outset inquired from the ld. Authorized Representative (AR), the assessee s counsel, if any subsequent year - the treatment having implication there-for, was decided by the tribunal, or even before it, and who confirmed in the negative. 3.2 The issue at hand, as discerned, is if the impugned expenditure is a capital expenditure or is .....

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n repairs . Repairs, even if broadly construed, would only imply existence of an asset, on the preservation (in a good operating state) or maintenance of which the expenditure is incurred, as explained in New Shorrock Spinning & Manufacturing Co. Ltd. vs. CIT [1956] 130 ITR 338 (Bom), relied upon by the A.O. (refer para 4.4, 5 of the assessment order). It may, however, be clarified here that there is no concept of a deferred revenue expenditure under the Act. As such, where the expenditure i .....

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resent case, the premises had been acquired in a semifinished state; it requiring further work being performed thereon to make it fit for use. Surely, an occupier would do so in the manner he deems fit and proper. This explains the expenditure on flooring, electric 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 asse .....

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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 capital structure or the profit-making .....

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the same. The case law in the matter is legion, and toward which one may profitably cite some, viz. Assam Bengal Cement Co. Ltd. vs. CIT [1955] 27 ITR 34 (SC); Challapalli Sugars Ltd. vs. CIT [1975] 98 ITR 167 (SC); Empire Jute Co. Ltd. vs. CIT [1980] 124 ITR 1 (SC). As famously and succinctly put in Assam Bengal Cement Co. Ltd. (supra) (pg.44): You do not use it for the purpose of your concern, which means, for the purpose of carrying on your concern, but you use it to acquire the concern. This .....

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he men of commerce, shall obtain in the absence of any statutory definition or any indication to the contrary. This would also meet the assessee s reliance on CIT vs. Hi Line Pens P. Ltd. [2008] 306 ITR 182 (Del); the relevant expenditure (Rs.8.39 lacs) having been found in the nature of a set-up cost. True, the building is not owned by the assessee, who has only a right of occupancy in its respect, but then that is precisely what Explanation 1 to section 32(1), incorporated in the statute book .....

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ment 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 arrangeme .....

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er beneficial in view of the changed circumstances, viz. market conditions, technological obsolescence, etc. A machinery, for example, is bought to produce an item X. Soon after, another product Y, technically superior and/or cost/price efficient, hits the market, displacing X there-from, even as the firm had by then exhausted only a fraction of the productive capacity of the machinery. This example, in varying degrees, obtains as a regular feature in trade and industry, so that such changes for .....

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assessee, also forming part of its block of assets and, accordingly, depreciation would continue to be exigible thereon (section 43(6)(c)). Prior to the introduction of the concept of block of assets, terminal depreciation was allowed under such circumstances. Any monies realized on the sale of such machinery, no longer viable and discarded, or its scrapping, gets reduced from its written down value (WDV) of the relevant block of assets. All such fittings/materials as are embedded in the buildi .....

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the cost and, in fact, generating profit, over the lease term, or of bargaining an extension at the end of the term, etc. The fact of the matter is that if any asset forming part of block of assets gets discarded, depreciation thereon on its unabsorbed cost continues to be available till the same gets totally charged or realized by way of sale/scrap, etc. In other words, the circumstances adversely impacting the realization of the benefit/advantage envisaged from the capital expenditure, even i .....

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77; 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 .....

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roadly worded, and clearly states of a lease or other right of occupancy. Lease is a transfer under the Transfer of Property Act, while a leave and license arrangement is definitely not. But, surely, the leave and license arrangement gives the assessee a right of occupancy, so that the precise nature - in the technical sense, of the said right, is of little moment. 3.4 Then, again, it is open to be argued and, in any case, a consideration, that the lease or the right of occupancy is only for 24 .....

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, in any case, i.e., irrespective of extension, is not to be confused with the nature of the expenditure incurred - capital or revenue. In other words, the fallacy in the argument lies in determining the nature of the expenditure based on or with reference to the period of the right of occupancy. The two are independent of each other. In the instant case, it has already been indicated that the entire expenditure is in the nature of a set-up cost of the business. Even assuming, for which there is .....

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