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M/s Aries Exports Pvt. Ltd. Versus Deputy Commissioner of Income Tax – Circle 3 (1) , Mumbai

2016 (11) TMI 663 - ITAT MUMBAI

Nature of expense - substantial repairs - revenue or capital expenditure - Held that:- The ratio of decision of Hon’ble Bombay High Court in RPG Enterprises Limited (2016 (7) TMI 71 - BOMBAY HIGH COURT ) is directly applicable in the instant case , and by undertaking of this substantial repairs , it could not be said that no enduring benefit has resulted to the assessee as the said major and substantial renovation work has led to improvements in its trading operations which would bring enduring .....

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enses which are in nature of current repairs in view of provisions of Section 30 of the Act. The AO shall verify the contentions of the assessee on facts and in the light of the afore-stated decision of Hon’ble Bombay High Court in the case of RPG Enterprises Limited(supra) on merits. The issue is therefore set aside and restored to the file of the AO for de-novo adjudication of the issue by the AO on merits. - I.T.A. No. 5841/Mum/2012 - Dated:- 7-9-2016 - Shri Mahavir Singh, Judicial Member And .....

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der dated 20th December, 2011 passed by the learned Assessing Officer (hereinafter called the AO ) u/s 143(3) of the Income Tax Act,1961 (Hereinafter called the Act ). 2. The grounds of appeal raised by the assessee company in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called the Tribunal ) read as under:- On the facts and under the circumstances of the case and in law, the learned Commissioner of Income Tax Appeals erred in confirming the action of Asse .....

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of repairs and maintenance expenses and on perusal of the details filed by the assessee, the A.O. observed that part of the repair expenses were capital in nature. The assessee was asked to explain as to why the renovation expenses should not be capitalized and how it can be allowable as revenue expenditure. In reply, the assessee submitted as under :- "The total expenditure of Renovation for the year ended 31-03- 2009 is ₹ 94,61,331/- out of which ₹ 57,05,072/- has been capita .....

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termination of Rent Agreement. The assessee further submitted that the rent paid for the premises is very low as compared to the prevailing rent in the area and hence the assessee has incurred such expenditure for office renovation. The assessee relied on the decision of Hon ble Bombay High Court in the case of CIT v. Hedge Consultancy Pvt. Ltd. 127 Taxman 597 (Bom) and the decision of the Tribunal in the case of Living Room Designers v. ITO (Mum) (Trib.) . The A.O. considered the submissions of .....

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ular repairs but capital addition in the form of partitions, marble flooring, tables, civil works etc. and a sum of ₹ 7,95,548/- has been paid as architect fees for these capital expenditure. The AO observed that the explanation to Section 30 of the Act inserted w.e.f. 01-04-2004 clearly states that the current repairs shall not include any expenditure in the nature of capital expenditure. The A.O. observed that the assessee had shifted out of the leased premises to an interim premises for .....

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tinction between current repairs and capital repairs. Similarly the assessee s reliance in the case of CIT v. Hedge Consultancy, 127 Taxman 597 is also misplaced on account of the reasons mentioned above as the case pertained to assessment year 1988-89. Thus, in nutshell the A.O. rejected the contentions of the assessee and held that the expenses of ₹ 37,56,259/- out of repairs and maintenance is capital expenditure and depreciation @ 50% of 10% i.e. 5% was allowed to the assessee while th .....

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as well as expenses incurred on furniture and fixtures which are fixed to the office and cannot be removed without substantial damage and making the item non-usable. It was submitted that the premises was taken on leave and license basis and was not owned by the assessee, hence, the A.O. erred in treating the same as capital expenditure. The assessee submitted that once the rental agreement expires, these items will be removed but the flooring and POP and other such identical expenses cannot be .....

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was taken on leave and license basis by the assessee and thus was not owned by the assessee. The total amount spent on account of renovation was at ₹ 94,61,331/-, out of which ₹ 57,05,072/- was capitalized by the assessee and balance of ₹ 37,56,259/- was claimed as revenue expenditure. The assessee has also paid separately an amount of ₹ 7,95,548/- as architect fees for the work of renovation. The assessee had shifted out of the lease premise to another premise for a peri .....

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Hon ble Andhra Pradesh High Court in the case of Sri Rama Talkies v. CIT [1966] 59 ITR 63 3. Hon ble Bombay High Court in the case of CIT v. Vasant Screens [1980] 124 ITR 835. 4. Hon ble Bombay High Court in the case of CIT v. Ballimal Nawalkishore [1976] 119 ITR 292 Thus, it was observed that the assessee had spent a large amount of money on renovation of the premises which has brought a new asset into existence and has resulted in an enduring benefit to the assessee and hence the addition mad .....

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and balance of ₹ 37,56,259/- was claimed as revenue expenditure as these amounts are expended on items of floor marbles and its fixing, civil work, flooring, civil work and painting on the premise etc. and hence these cannot be removed from the premise hence these are written off as revenue expenditure. The ld. Counsel drew our attention to the paper book page 2 which contains all the details of the repair expenses of ₹ 37,56,259/- such as breaking old plaster, floor marbles and fixi .....

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31/- was incurred towards the above renovation work and out of which an amount of ₹ 57,05,072/- was capitalized by the assessee and while balance of ₹ 37,56,259/- was claimed as revenue expenditure on the ground that the expenses on items which cannot be removed from the premises were incurred, as the amount was incurred on floor marble and its fixing, POP, civil work, flooring, false ceiling, plastering and painting etc. The ld. Counsel drew our attention to the paper book page 2 wh .....

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e equipment, furniture and fixtures, computers etc. . The assessee also submitted that since this premise is a rental premise no capital asset has been created in favour of the assessee as when the assessee will vacate the premises, these repair expenses to the tune of ₹ 37,56,259/- will not be having any value/utility for the assessee as these cannot be removed and taken along with. Whereas the revenue has contended that the assessee has brought new asset into existence which has resulted .....

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renovation i.e. civil, electrical, plumbing, polishing etc. would be carried out by the appellant at its own expenses after taking prior permission from the landlord. All the Authorities under the Act have rendered a finding of fact that the so called "repairs and maintenance" were in fact extensive renovation involving civil work. This expense resulted in an advantage/benefit of a enduring nature in as much as it inter alia resulted in the appellant being able to accommodate more num .....

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ure is more then met by the impugned order of the Tribunal. This in view of the fact that the impugned order places reliance upon Explanation-I to Section 32 of the Act, which allows depreciation to a tenant in case of any capital expenditure incurred for renovation/improvement to the building in the hands of the tenant by deeming the tenant to be the owner of the premises. In this case the benefit of depreciation has been given to the appellant on the capital expenditure incurred for renovation .....

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a) the tenant of the premises had contributed a sum of ₹ 1.50 crores to the work of repairs and restoration/reconstruction of the building in which it was a tenant. The entire amount of ₹ 1.50 crores was claimed as revenue expenditure. The assessee therein had entered into an agreement with the developer to contribute ₹ 1.50crores for the reconstruction/repairs/restoration of the building in consideration of there being no increase in the rent payable by the assessee in the new .....

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nue field and allowable under Section 37 of the Act. In the present facts, nothing is on record to indicate that there was any advantage secured by the appellant in the revenue field. There was no decrease in the rent nor was there any embargo on future increase in the rent in consideration of the expenditure for renovation. Therefore, the above decision would not apply to the facts of the present case. 7. Similarly, the decision of this Court in Hede consultancy (P.) Ltd. (supra) upon which als .....

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on was in the revenue field. As pointed out above, in the present case, there is nothing on record to indicate that any benefit was obtained by the assessee in the revenue field for having expended the amount of ₹ 31.32 lakhs for repairs/renovation of the office premises. Thus, the aforesaid decisions would have no application to the facts of the present case. 8. It was next contended there is no basis indicated by the Authorities under the Act for apportioning the expenditure in the ratio .....

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expenditure of 75% of ₹ 31.32 lacs i.e. ₹ 23.49 lakhs is on capital account, the submission to claim deduction on account of Section 30 of the Act made by the Appellant need not be examined. Nor the decision of the Delhi High Court in CIT v. Hi Line Pens (P.) Ltd.[2008] 306 ITR 182/175 Taxman 132 (Delhi) relied upon for interpretation of Section 30 of the Act need be examined. This for the reason that the Explanation to Section 30 of the Act itself provides that the amount paid on t .....

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ggest that deduction under Section 30 of the Act would be available even in respect of capital expenditure. 10. In the above view, the concurrent finding of fact by the Authorities under the Act that the expenditure incurred claiming to be the repairs and maintenance was in fact on account of renovation of the premises, leading to enduring benefit to the appellant assessee in as much as it enabled the appellant to accommodate larger number of employees and also facilitate its trading operations. .....

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s in the revenue field. In the above view, the substantial question of law as framed hereinabove in paragraph 2 is answered in the affirmative i.e. in favour of the respondent Revenue and against the appellant assessee. 12. The appeal is disposed of in the above terms. In our considered view, the ratio of decision of Hon ble Bombay High Court in RPG Enterprises Limited(supra) is directly applicable in the instant case , and by undertaking of this substantial repairs , it could not be said that n .....

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