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K.R. Bakes P. Ltd. Versus Assistant Commissioner of Income-Tax

2015 (5) TMI 1035 - ITAT CHENNAI

Disallowance of expenditure incurred on leased premises - revenue v/s capital expenditure - Held that:- It is essential that the expenditure incurred on the construction of any structure on the leased premises should result in enduring benefit. That any expenditure incurred for civil work by a lessee in respect of the leased premises, without any further proof cannot be said to be capital expenditure or revenue expenditure. In order to find out the nature of expenditure, it is necessary to find .....

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ne whether the expenditure is revenue expenditure or capital expenditure. What would apply to civil work equally applies to electrical work or interior decoration. The assessee had not stated the nature of civil works constructed, the nature of interior decoration made to the leasehold premises and also the nature of electrical work undertaken. In the absence of that material and without proper application of mind, the assessing authority proceeded on the footing that the expenditure constituted .....

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jari (Accountant Member) 1. This appeal by the assessee is directed against the order of the Commissioner of Income-tax (Appeals)- I, Coimbatore, dated April 22, 2013. 2. The grievance of the assessee in this appeal is with regard to confirming the disallowance of expenditure amounting to ₹ 20,65,165 incurred on leased premises at Kadavanthara, ₹ 6,46,929 at Alinchuvadu, ₹ 2,36,550 at Palarivattam, Coimbatore, as capital expenditure against the claim of the assessee as revenue .....

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ture. Aggrieved, the assessee went in appeal before the Commissioner (Appeals). 4. On appeal, the Commissioner (Appeals), after examining the details furnished by the assessee and the order of the Assessing Officer, observed that the expenditure towards rods, pipes, angles, etc., at Kadavanthara amounts to ₹ 8,06,328. These rods, pipes were used for the construction of a temporary shed. He has also verified the lease deed of the Kadavanthara branch property. The initial lease deed was ente .....

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expenditure/business expenditure. On account of interior decorations, the assessee has spent ₹ 12,58,837 at this branch. The interior decoration includes wooden panelling, class box/structures to display the bakery products, etc. This expenditure was incurred by the assessee taking into consideration that the lease period was for a period of 10 years. The amount has been spent by the assessee on the leasehold premises to make it suitable to carry out business in the showrooms. The assessee .....

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y of renovation or extension or improvement in the building ?" 5. If the answer to the aforementioned questions is in the affirmative, the assessee falls within the purview of Explanation 1 to section 32(1). In the instant case, it is an admitted fact that the assessee has taken several buildings on lease for setting up of bakery business. It is also undisputed that the assessee has carried out renovation, restructuring including flooring, false ceiling, sanitary works, partition, wall pane .....

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634 (Chennai) (order dated January 3, 2013), wherein it was held that "We can conclude that 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". The Bench held that the new electrical fittings, renovation of existing building are capital in nature. While delivering the judgment, the Tribunal has considered the judgment of the Madras High Court in the case of .....

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enditure as capital in nature. 6. As far as Alinchuvadu branch is concerned, the Commissioner (Appeals) observed that the expenditure incurred in this branch was for ₹ 6,46,929. The expenditure was incurred towards the interiors, floor tiling and construction of temporary shed. The lease agreement for this branch was entered on October 23, 2008, and was for a period of 5 years. A temporary shed for workers stay was constructed along with interiors, floor tiling and temporary shed. Followin .....

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y the authorised representative, this table has to be replaced once in two years. However, the assessee has not furnished any details with regards to the nature of table which has been replaced in this branch, the Commissioner (Appeals) confirmed the action of the Assessing Officer in treating the expenditure as capital in nature. Against this, the assessee is in appeal before us. 8. The learned authorised representative placed reliance on the judgment of the Kerala High Court in the case of Joy .....

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k and claimed as revenue expenditure. The same was rejected by the Commissioner (Appeals). The learned Departmental representative contended that the assessee made new addition in the leased building and it is not the case of renovation of the leased building or improvement of the leased building as in the case of Joy Alukkas Pvt. Ltd., cited supra as held by the Kerala High Court. For settling the controversy, we have to go through Explanation 1 to section 32(1) of the Act which was inserted by .....

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expenditure is incurred by the assessee for the purposes of 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." 11. To fall within the ambit of Explanation 1 the questions which are to be answered are : "(i) Whether the assessee is carrying on .....

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t that the assessee has taken building on lease for setting up of bakery. It is also undisputed that the assessee has carried on interior work in the leased building. These interior decoration works carried out by the assessee if put on to the test of Explanation 1 would show that the construction made by the assessee on the leased out premises would amount to capital expenditure. The assessee in order to support his case has relied on the judgment of the Madras High Court in the case of CIT v. .....

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t does not, to attract Explanation 1 to section 32(1) of the Act depends upon the construction of any structure or doing any work or in relation to and by way of renovation, extension or improvement to the building which is put up in a building taken on lease by him for carrying on his business and profession of the assessee, but not in a case of construction of any structure or doing any work or relation to where such building is put up/constructed for the purpose of business or the profession .....

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e legislative intent and even assuming there is a defect or any omission in the words used in the Legislature, the court cannot correct or make up the deficiency, especially when a literal reading thereof produces an intelligible result and any departure from the literal rule would really be amending the law in the garb of interpretation, which is not permissible and which would be destructive of judicial discipline. 15. The Supreme Court of India in the case of CIT v. Madras Auto Service (P) Lt .....

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at a very concessional rent. The expenditure therefore, was made in order to secure a long lease of new and more suitable business premises at a lower rent. In other words, the 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, the assessee in the present .....

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nue expenditure when the expenditure did not bring into existence any capital asset for the company. The asset which was created belonged to somebody else and the company derived an enduring business advantage by expending the amount. In all these cases, the expenses have been looked upon as having been made for the purpose of conducting the business of the assessee more profitably or more successfully. In the present case also since the asset created by spending the said amounts did not belong .....

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