TMI Blog2021 (9) TMI 245X X X X Extracts X X X X X X X X Extracts X X X X ..... years would not itself render the expenditure capital in nature . Explanation 1 to section 32(1) of the I.T.Act relied on by the CIT(A) is of no help to the revenue. Explanation 1 to section 32(1) of the I.T.Act only permits the assessee to claim depreciation on capital expenditure incurred on leased premises taken by the assessee. On the other hand, if the expenditure incurred by the assessee is on the revenue front, whether the premises is taken on lease or not is immaterial and the same is always an allowable deduction - CIT(A) misinterpreted Explanation 1 to section 32(1) of the I.T.Act - we hold that the assessee is entitled to deduction as revenue expenditure. Ex-gratia payment payment made to the employees is not a statutory payment, and hence, not liable for disallowance u/s 43B - CIT(A) rejected the plea of the assessee since the assessee has not filed a revised return - HELD THAT:- It is an admitted position of law that powers of the CIT(A) are coterminous with that of the Assessing Officer can exercise. CIT(A) while hearing an appeal has all the powers which an Assessing Officer can exercise. CIT(A) ought to have independently considered the issue raised before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an appeal to the first appellate authority. The CIT(A) confirmed the view taken by the Assessing Officer. The CIT(A) placed reliance on the judgment of the Hon ble Madras High Court in the case of CIT v. ETC Travel Agency (P.) Ltd. in IT Appeal No.2442 of 2008 (judgment dated 26.06.2019). The CIT(A) also relied on Explanation 1 to section 32(1) of the I.T.Act. The relevant finding of the CIT(A), reads as follow:- As seen from the body of judgment Hon ble Madras High Court has considered all the relevant cases on the subject including Helene pens (p) Ltd. case, Indus Motor Company Ltd. and Joyallukkas India (p) Ltd. and held that the renovation expenses are capital expenditure within the meaning of expl. (1) to Sec.32(1). In the present case all the facts are almost similar to the case presented above decided by Madras High Court. Accordingly, relying on the decision of Madras High Court I hold that expenditure is capital in nature. 4. The assessee being aggrieved, has raised this issue before the Tribunal. The assessee has filed a paper book enclosing the copies of lease deed, copies of invoices / bills for incurring expenditure of ₹ 12,95,867. The learned Couns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ebrahim H. Timber Mart 3,28,330 7. Shirodkar - Falnikar Associates (Architect Fees) 88,445 8. Miscellaneous expenses (hardware material, pest control treatment, glass, vertical blinds, etc. 1,57,660 Total 12,95,867 6.1 The copies of the invoices / bills for incurring the above such expenditure of ₹ 12,59,867 is placed on record at pages 17 to 55 of the paper book filed by the assessee. On scrutiny of the same, it is seen that expenditure incurred by the assessee towards repairs and renovation to the leased premises cannot be stated to be a capital expenditure. It is very important to note that under leave and licence agreement dated 05.12.2013, the assessee is barred from carrying out any alteration with regard to the structure without prior approval from the licensor. The admitted facts is that there is no addition / increase to premises on account of incurring of the impugned expenditure. 6.2 The Hon ble jurisdictional High Court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to section 32(1) of the I.T.Act only permits the assessee to claim depreciation on capital expenditure incurred on leased premises taken by the assessee. On the other hand, if the expenditure incurred by the assessee is on the revenue front, whether the premises is taken on lease or not is immaterial and the same is always an allowable deduction. Therefore, the CIT(A) misinterpreted Explanation 1 to section 32(1) of the I.T.Act. 6.4 In the light of the aforesaid reasoning and the judgment of the Hon ble jurisdictional High Court, cited supra, we hold that the assessee is entitled to deduction of sum of ₹ 12,95,867 as revenue expenditure. It is ordered accordingly. Ex-gratia payment of ₹ 56,94,720. 7. The assessee consistently follows a policy of paying exgratia to all those employees, who by virtue of their emoluments are not covered by the Payment of Bonus Act, 1965. While computing the taxable income, the assessee, inadvertently, included ex-gratia payment of ₹ 56,94,720 for disallowance u/s 43B of the I.T.Act. According to the assessee, this ex-gratia is not statutory payment, and therefore, not covered under the provisions of section 43B of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re coterminous with that of the Assessing Officer can exercise. The CIT(A) while hearing an appeal has all the powers which an Assessing Officer can exercise. The CIT(A) ought to have independently considered the issue raised before him de hors the fact that the issue was not considered by the Assessing Officer. In this context, we rely on the judgment of the Hon ble Apex Court in the case of Jute Corporation of India Ltd. v. CIT (supra). Further, the judgment of the Hon ble Supreme Court in the case of Goetze (India) Limited v. CIT reported in 284 ITR 323 only impinge upon the powers of the Assessing Officer to consider a claim which is not made in the return of income, whereas, such restriction is not there with regard to power of an Appellate Authority. We are of the view that the issue of ex-gratia payment, whether it can be subjected to disallowance u/s 43B of the I.T.Act needs examination by the Assessing Officer. Accordingly, this issue is restored to the files of the A.O. The A.O. is directed to offer a reasonable opportunity of hearing to the assessee and take a decision in accordance with law. It is ordered accordingly. 11. In the result, the appeal filed by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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