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TMI Blog2019 (12) TMI 145X X X X Extracts X X X X X X X X Extracts X X X X ..... t that the Appellant as a Lessee obtained premises on highly subsidised rental in order to compensate for refurbishment expense required to be incurred on the rented premises belonging to the land owner. 4. Because, the ld. CIT(A) has erred in holding that the amount of Rs. 24,68,323/ - written off on account of bad debt was not allowable since the same had not been taken into account while computing the income of the previous year or earlier previous years. 5. Because, the ld. CIT(A) has erred in confirming the addition of Rs. 24,68,323/ - without application of mind to the proper facts as available on record. 6. Because, the ld. CIT(A) has erred in failing to understand that the aggregate expenses of Rs. 24,68,323/- were revenue in nature and allowable, if not as bad debt then other revenue heads. 2. Brief facts of the case are that the assessee is a company engaged in the business of providing creative services, design, strategy, branding, website, advertising, photography, cinema works, film-making and other consultancy services, filed its return of income for Assessment Year 2012-13 declaring total loss at Rs. 1,04,24,954/-. The case was selected for scrutiny. During th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rised to carry out the necessary beautification of compound and water and new electricity connection to keep watch and ward of the tenanted premises and other necessary expenses. The assessee incurred such expenses in the premises obtained by assessee. 4. The contention of assessee was not accepted by Assessing Officer. The Assessing Officer concluded that expenses are capital in nature as it was incurred for creating a new asset. The claim of the assessee that they undertake the renovation work and debited the expenses in Profit & Loss A/c is not acceptable as the owner of premises has not authorized the assessee to carry out repair and renovation work. The Assessing Officer disallowed the entire expenditure of Rs. 95,81,077/-. 5. The Assessing Officer further noted that the assessee has written of Rs. 24,68,323/-. The assessee was asked to substantiate it claim. The assessee filed its reply dated 09.02.2015 and furnished the working of bad-debts written off. The assessee furnish the following details/working: "6.2 The assessee vide letter dated 09.02.2015 has made the submission in this regard and the relevant portion is reproduced as under: "Bad-debts Rs. 24,68,323/- " &n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and maintain an existing warehouse but to bring a' new creative studio into existence and thereby attain new advantages that the original asset was not designed to offer nor capable of offering. This con9~usion is further strengthened by the fact that the premises are leased @ Rs. 45,000/- per month for a period of 36 months. Thus, over the period of leave & licence, the appellant was required to pay Rs. 26,20,000/-. As against this, the appellant incurred Rs. 95,81,077/- on "refurbishing". Any prudent person would incur expense of more than 600% of 3 years' rental value of a premise only if there was substantial new advantage or addition to the original asset. Applying the ratio laid down by jurisdictional IT AT, the treatment accorded by Assessing Officer is upheld. However, it is also noted that part of the expenses such as cabinets, furniture etc., were incurred on items that constitute office furnishing. These are not part of new assets or advantages in context of the decision of Hon'ble ITAT cited above. Therefore, the Assessing Officer is directed to verify and allow expenditure on purchase of office furniture. This ground is partly allowed. 8. The disallowanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... repair. The assessee company negotiated in July 2008 with the trustee of the Trust for its office use as a Photography Studio. In the negotiation, the assessee was assured that there would be no difficulty in getting the change of user from Warehouse into a modern office. However, no permission was granted, for change of user, the assessee could not use the tenanted premises. The BMC sealed the tenanted property and it could not be made usable nor did the landlord fulfill its obligation and responsibilities under the lease for suitable user. The tenanted premise was sealed by BMC which prevented the assessee from further repair. The said premises despite making expenditure remained unusable as the BMC never allowed the renovation in the tenanted premises. The assessing officer disallowed the entire expenses, however, the ld CIT(A) granted substantial relief to the assessee. The ld. AR of the assessee submits that as of now, the dispute remains only of Rs. 1,86,831/-. 11. The landlord also filed a Suit for Recovery of rent despite the fact that the premises could not be used due to legal bar of its user. The ld. CIT(A) allowed only expenditure incurred on cabinets furniture or it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enses. In the result, this ground of appeal is allowed for statistical purpose. 14. Ground No.4 & 5 relates to disallowance of bad-debt. The ld. AR of the assessee during the hearing submits that she is not pressing these grounds of appeal. Considering the submission of ld. AR of the assessee, these grounds of appeal are dismissed as not pressed. 15. Ground No.6 relates to claim of bad-debt in the nature of revenue expenses. This ground of appeal is claimed by assessee in alternative of ground no.4 & 5. The ld. AR of the assessee submits that the landlord of the tenanted premises filed a suit for recovery of possession and arrears of rent / leaves and licence fees before the Civil Court. The Civil Court passed an interim order against the assessee for payment of mesne profit by way of compensation to the landlord. The copy of order of Small Cause Court dated 23.10.2015 is filed on record. The ld. AR further submits that the assessee could use the tenanted premises despite incurring huge expenses and the landlord recovered the rent or leaves and licence charges, therefore, the assessee is entitled for expenses as a revenue expenses, if not allowed as bad-debt. 16. On the other ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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