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2019 (12) TMI 145

..... the assessee incurred expenditure which is capital in nature and hit by the provision of section 37(1) - HELD THAT:- CIT(A) upheld the action of AO of impugned order and granted part relief to the assessee on the expenses incurred on certain items. We have noted that the lower authorities has not disputed that assessee has obtained a tenanted premises for running its business for setting up a Studio. Further, there is no dispute that the premises could not be utilized as its user from Warehouse to office premises was not sanctioned by BMC. The premise was sealed in the month of October 2008. The leave and licence agreement was executed on 01.05.2008. The assessee has claimed expenses which consist of furniture and fixture fixing of interior, installation of water and electricity connection, fencing of the tenanted premises. Assessee fairly submitted that ld CIT(A) has granted substantial relief to the assessee. We have noted that order giving effect to the order of ld CIT(A) is not placed on record The assessee has furnished the break-up of all these expenses, details of which are available at page no. 213 of Paper Book. We find merit in the submissions assessee, that the assessee .....

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..... as capital expenditure ignoring the fact that the Appellant is a lessee.. 3. Because, the ld. CIT(A) has erred in ignoring the fact 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 ₹ 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 ₹ 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 ₹ 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 it .....

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..... the necessary repair work for converting the tenanted premises into office premises. As per the agreement, the assessee is authorised 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 ₹ 95,81,077/-. 5. The Assessing Officer further noted that the assessee has written of ₹ 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 date .....

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..... dvantages" and they far exceed the entitlement envisaged in the agreement. The expenditure was not to preserve 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 @ ₹ 45,000/- per month for a period of 36 months. Thus, over the period of leave & licence, the appellant was required to pay ₹ 26,20,000/-. As against this, the appellant incurred ₹ 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 Asses .....

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..... licence would be fit for its use as office etc. and would be repaired by the landlord. However, the landlord not carried out any 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 ₹ 1,86,831/-. 11. The landlord also filed a Suit for Recovery of rent despite the fact that the pre .....

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..... ay that before passing the order, the Assessing Officer shall grant opportunity to the assessee to substantiate the claim / expenses. 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 lice .....

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