ABT Limited, CHENNAI V. DCIT, Coimbatore

ITA 2077/CHNY/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96289 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-10-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 14-09-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 06-08-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: M SRINIVASA RAO
• Assessee Lawyers: DR ANITA SUMANTH
• Keywords: Unexplained cash credit; Capital asset; Depreciation; Revenue expenditure; Capital expenditure
• Section: 68

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , A B ENCH, CHENNAI . , ! # , $ & BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./ I.T.A.NOS.2077/MDS/2014 & 1218/MDS/2015 ( / ASSESSMENT YEARS: 2010-11 & 2011-12) M/S. ABT LTD. 180, RACE COURSE ROAD, COIMBATORE-641 018. VS DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-I(1), COIMBATORE. PAN:AABCA8398K ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : DR. ANITA SUMANTH, ADVOCATE /RESPONDENT BY : MR. M.SRINIVASA RAO, CIT DR /DATE OF HEARING : 14 TH SEPTEMBER, 2015 /DATE OF PRONOUNCEMENT : 29 TH OCTOBER, 2015 / O R D E R PER CHALLA NAGENDRA PRASAD, JM: THESE TWO APPEALS ARE FILED BY THE ASSESSEE AGAINST THE ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS)- I, COIMBATORE DATED 21.07.2014 AND 13.03.2015 FOR THE ASSESSMENT YEARS 2010-11 AND 2011-12 RESPECTIVELY. 2. THE COMMON ISSUE IN BOTH THESE APPEALS IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOL DING THE ORDER OF ASSESSMENT TREATING THE EXPENDITURE IN CURRED AMOUNTING TO ` 10,39,58,102/- AND ` 15,03,51,310/- ON 2 ITA NOS. 2077/MDS/2014 & 1218/MDS/2015 LEASED OUT PREMISES AS CAPITAL IN NATURE LIABLE TO BE DISALLOWED. 3. THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENTS DISALLOWED EXPENDITURE INCURRED ON LEAS EHOLD LAND BY THE ASSESSEE TREATING IT AS CAPITAL EXPEND ITURE. THIS EXPENDITURE WAS BOOKED UNDER THE HEAD CONSTRUCTIO N OF BUILDING ON LEASEHOLD LAND. THE ASSESSEE CLAIMED T HIS EXPENDITURE AS REVENUE EXPENDITURE AS ACCORDING TO IT, IT IS ONLY AN EXPENDITURE INCURRED ON LEASEHOLD LAND FOR CONDUCTING BUSINESS, THEREFORE, IT IS ALLOWABLE AS REVENUE EXP ENDITURE. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APPEALS) SUSTAINED THE DISALLOWANCE FOLLOWING THE ORDER OF T HE CO- ORDINATE BENCH IN ASSESSEE S OWN CASE FOR THE ASSE SSMENT YEARS 2005-06 AND 2008-09 AGAINST WHICH THE ASSESSE E IS IN APPEAL BEFORE US. 4. COUNSEL FOR THE ASSESSEE SUBMITS THAT EXPENDITUR E INCURRED BY THE ASSESSEE IS ONLY REVENUE EXPENDITUR E AND NOT CAPITAL EXPENDITURE. SHE FURTHER SUBMITS THAT I N ASSESSEES OWN CASE, THE TRIBUNAL ALREADY HELD FOR THE 3 ITA NOS. 2077/MDS/2014 & 1218/MDS/2015 ASSESSMENT YEARS 1991-92 AND 1993-94 THAT EXPENDITU RE ON LEASEHOLD PREMISES AS REVENUE EXPENDITURE. 5. DEPARTMENTAL REPRESENTATIVE SUPPORTS THE ORDERS OF LOWER AUTHORITIES AND HEAVILY PLACES RELIANCE ON TH E DECISION OF CO-ORDINATE BENCH OF THE TRIBUNAL FOR THE ASSES SMENT YEARS 2005-06 AND 2008-09. 6. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHOR ITIES AND THE DECISIONS RELIED ON. THE COMMISSIONER OF IN COME TAX (APPEALS) ELABORATELY CONSIDERED THE ISSUE OF W HETHER THE EXPENDITURE INCURRED BY THE ASSESSEE IS CAPITAL EXPENDITURE OR REVENUE EXPENDITURE WITH REFERENCE T O THE SUBMISSIONS OF THE ASSESSEE AND THE CONTENTIONS OF THE ASSESSING OFFICER AS UNDER:- 7. I HAVE GONE THROUGH THE SUBMISSIONS MADE BY THE APPELLANT AND ALSO THE ORDER OF THE ASSESSING OFFIC ER. THE MAIN ISSUE OF DISPUTE IS REGARDING THE CLAIM OF EXPENDITURE ON THE CONSTRUCTION, RENOVATION OF THE BUILDINGS IN LEASE LAND. THE APPELLANT IN THE COURS E OF ITS BUSINESS, ENTERED INTO AGREEMENT FOR LEASE OF LAND AND BUILDING IN .RESPECT OF WHICH IT INCURS EXPENDITURE ON CONSTRUCTION, RENOVATION AND REPAIRS. THE REPAIRS D ONE DURING THE COURSE OF BUSINESS FOR THE MAINTENANCE O F THE BUILDING ARE ALLOWED AS REVENUE EXPENDITURE. HOWEVE R, THE EXPENDITURE INCURRED ON THE CONSTRUCTION AND RENOVATION WAS HELD AS CAPITAL IN NATURE INVOKING T HE PROVISIONS OF EXPLANATION 1 TO SECTION 32(1) OF THE INCOME 4 ITA NOS. 2077/MDS/2014 & 1218/MDS/2015 TAX ACT, 1961, BY THE ASSESSING OFFICER. THE SUBMISSIONS OF THE AUTHORIZED REPRESENTATIVE THAT T HE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CA SE OF CIT VS TVS LEAN LOGISTICS LIMITED IS APPLICABLE TO THE FAC TS OF THE APPELLANT'S CASE CANNOT BE ACCEPTED CONSIDERING THE FACTS OF THE CASE .. THE HON'BLE LTAT HAS CATEGORICALLY STAT ED THAT THE RATIO LAID DOWN BY THE HON'BLE MADRAS HIGH COURT IN THE CASE OF TVS LEAN LOGISTICS DOES NOT SUPPORT THE CASE OF THE ASSESSEE IN THEIR ORDER FOR THE ASST. YEAR 2008-09. 8. THE ASSESSING OFFICER IN HIS ORDER HAS STATED THAT THE CLAIM OF THE ASSESSEE IN RESPECT OF RS.16,97,86,606/- WHI CH IS THE EXPENDITURE INCURRED ON THE 'LAND' AND 'LAND AND BU ILDING' COMES UNDER THE AMBIT OF EXPLANATION 1 OF SECTION 3 2(1) OF THE INCOME TAX ACT, 1961. ON GOING THROUGH MOST OF THE LEASE DEED AGREEMENTS ENTERED INTO BY THE ASSESSEE WITH T HE LESSOR, THE FOLLOWING WERE NOTICED : THE LESSEE SHALL PUT-UP ANY STRUCTURE INCLUDING PER MANENT STRUCTURES REQUIRED FOR SMOOTH CONDUCT OF THEIR BUS INESS, FOR SUCH STRUCTURES THEY SHOULD NOT CLAIM ANY COMPENSATION F ROM THE LESSOR AND ..... ,' LEASED PROPERTY'. THE ASSESSING OFFICER AFTER CONSIDERING ALL THE ABOVE FACTS, ALLOWED THE EXPEND ITURE INCURRED IN RESPECT OF REPAIRS AND RENOVATION AMOUN TING TO RS.L,94,35,296/- AS REVENUE EXPENDITURE AS THESE AR E IN THE NATURE OF MINOR REPAIRS ON THE EXISTING ASSET. THE BALANCE OF RS.15,03,51,310/- WAS DISALLOWED AS REVENUE EXPENDI TURE FOR THE REASON THAT THESE ARE CAPITAL EXPENDITURE INCUR RED IN CONSTRUCTION OF NEW PERMANENT BUILDING FOR CONDUCTI NG THE BUSINESS IN THE LEASEHOLD LAND WHICH GIVES THE ASSE SSEE AN ENDURING BENEFIT. INVOKING EXPLANATION 1 TO SECTION 32(1), THE ASSESSING OFFICER DISALLOWED THE CLAIM O F REVENUE EXPENDITURE AND ALLOWED DEPRECIATION TREATING THE E XPENDITURE AS CAPITAL IN NATURE. 9. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE AUTHORIZED REPRESENTATIVE STATED THAT WITH REGARD TO THE PREMI SES AT AMBATTUR INDUSTRIAL ESTATE, AN AGREEMENT HAS BEEN E NTERED INTO WITH M/S. THE INDO SWISS SYNTHETIC GEM MANUFAC TURING CO. LTD. DATED 01.11.2000 AND THE RENT PER SQ. FT. IS AN AMOUNT OF RS.1.04 ONLY (RS.25,000/- PER M ONTH FOR AN TOTAL AREA OF 24,050 SQ. FT). THUS THE LEARNED AUTHORIZED REPRESENTATIVE ARGUED THAT THE APPELLANT HAD OBTAIN ED SUBSTANTIAL BENEFIT BY WAY OF DISCOUNTED RENT AND T HIS CLEARLY AMOUNTS TO A REVENUE BENEFIT. THIS SUBMISSI ON IS SUPPORTED SQUARELY BY THE JUDGMENT OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF MADRAS AUTO SERVICES (156 ITR 740). 10. I HAVE EXAMINED THE LEASE AGREEMENTS BETWEEN M/S. THE INDO SWISS SYNTHETIC GEM MANUFACTURING COMPANY LIMI TED AND THE APPELLANT. IT IS CLEAR THAT THIS AGREEMENT WAS BETWEEN LICENSOR AND LICENSEE AND WAS CATEGORICALLY STATED AS THAT IT 5 ITA NOS. 2077/MDS/2014 & 1218/MDS/2015 WAS NOT A LEASE AGREEMENT. THE LICENSOR AGREES TO G RANT LICENSE TO THE LICENSEE FOR PERMISSION TO USE THE P ROPERTY. THE AGREEMENT OF HCENSE WAS FOR A PERIOD OF 360 MONTHS I.E. FOR A PERIOD OF 30 YEARS. THE AGREEMENT DOES NOT SPECIFY THE ADVANCE / DEPOSIT PAID BY THE APPELLANT COMPANY TO M/S. THE INDO SWISS SYNTHETIC GEM MANUFACTURING COMPANY LIMITED. THE FEE PAYABLE SHALL BE ENHANCED BY MUTUA L CONSENT FOR AN INITIAL PERIOD OF 36 MONTHS I.E, THREE YEARS. THE APPELLANT HAS NOT FURNISHED FURTHER DETAILS TO SUPPORT THIS C ASE. IT IS ALSO PERTINENT TO MENTION THAT THIS AGREEMENT IS NOT REL ATED TO ANY OF THE EXPENDITURE INCURRED BY THE APPELLANT FOR THE A SST. YEAR 2011-12. IN ALL THE AGREEMENTS FILED BY THE APPELLANT, I.E. LEASE DEEDS, IT IS VERY CLEAR THAT THE LEASE AGREEMENTS ARE FOR A PERIOD OF 5 TO 10 YEARS AND WHICH WILL BE FURTHER EXTENDED ON MUTUAL AGREEMENT. SINCE THE FACTS OF THE CASE ARE S IMILAR AS IN THE EARLIER ASST. YEARS, FOLLOWING MY OWN ORDER IN THE EARLIER ASST. YEARS, AND THE ORDER OF THE HON'BLE ITAT IN THE CASE OF THE APPELLANT ON SIMILAR ISSUES FOR THE ASS T. YEAR 2008-09, I AGREE W ITH THE ASSESSING OFFICER IN TREATING THE AMOUNT OF ` .15,03,51,310/- AS CAPITAL EXPENDITURE. THE GROUNDS OF APPEAL ARE DISMISSED. 7. FURTHER WE FIND THAT IDENTICAL ISSUE HAS COME UP BEFORE THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE FOR T HE ASSESSMENT YEARS 2005-06 AND 2008-09 IN ITA NOS. 1 557 & 1558/MDS/2011 DATED 03.01.2013 AND THE TRIBUNAL UP HELD THE DISALLOWANCE HOLDING THAT EXPENDITURE INCURRED ON LEASEHOLD LAND IS CAPITAL EXPENDITURE OBSERVING AS UNDER:- 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS A COMPANY REGISTERED UNDER THE PROVISIONS OF THE COMPANIES ACT AND IS ENGAGED IN THE BUSINESS OF PAR CEL SERVICE, MARUTI DEALERSHIP AND SERVICE STATION, PET ROL BUNK, WIND ENERGY AND FETTLING. THE ASSESSEE COMPAN Y FOR THE PURPOSE OF SETTING UP MARUTI SERVICE STATIO N HAD TAKEN VARIOUS PREMISES ON LEASE THROUGHOUT THE STA TE OF TAMIL NADU. TO MAKE THE BUILDING SUITABLE ACCORDING TO ITS REQUIREMENTS, THE ASSESSEE HAD CARRIED OUT RENOVATIONS, INTERIOR DECORATION, NEW CONSTRUCTION AND REPAIRS OF THE BUILDINGS TAKEN ON LEASEHOLD BASIS. THE ASSESSEE CLAIMED THE ENTIRE EXPENDITURE INCURRED ON LEASED PREMISES AS REVENUE EXPENDITURE. FOR THE 6 ITA NOS. 2077/MDS/2014 & 1218/MDS/2015 ASSESSMENT YEAR 2005-06, THE ASSESSEE CLAIMED EXPENDITURE TO THE TUNE OF ` 75,11,775/- TOWARDS CONSTRUCTION/RENOVATION OF LEASED BUILDINGS AS REVE NUE EXPENDITURE. SIMILARLY, FOR THE ASSESSMENT YEAR 200 8-09 THE ASSESSEE HAD CLAIMED ` 65,53,204/- AS REVENUE EXPENDITURE TOWARDS CONSTRUCTION/RENOVATION OF BUI LDING ON LEASED PREMISES. THE ASSESSING OFFICER DISALLOW ED THE EXPENDITURE AS REVENUE AND CAPITALIZED THE SAME . THE ASSESSING OFFICER ALLOWED DEPRECIATION @ 10% TREATING THE EXPENDITURE AS CAPITAL. APART FROM THE ABOVE ADDITION, THE ASSESSING OFFICER INTER-ALIA MADE ADD ITIONS ON THE FOLLOWING COUNTS FOR ASSESSMENT YEAR 2008-09 :- I) EXCESS DEPRECIATION CLAIMED BY THE ASSESSEE ON WINDMILLS; II) EXPENDITURE INCURRED FOR EARNING EXEMPTED INCOME; & III) UNEXPLAINED FIXED DEPOSITS UNDER SECTION 68 OF THE ACT. AGGRIEVED AGAINST THE ASSESSMENT ORDER FOR THE RESPECTIVE ASSESSMENT YEARS, THE ASSESSEE PREFERRED APPEALS BEFORE THE CIT(A). FOR THE ASSESSMENT YEAR 2005-06, THE CIT(A) VIDE ORDER DATED 12.7.2011 PART LY ALLOWED THE APPEAL OF THE ASSESSEE. THE CIT(A) HELD THAT THE AMOUNT SPENT ON CONSTRUCTION OF OVERHEAD TANK, WASHING RAMP, OIL CHANGE, FINAL INSPECTION & WHEEL PIT AND EXTENSION OF SHED FROM EXISTING WORKSHOP FOR FR ONT OFFICE IS CAPITAL IN NATURE. THE CIT(A) ALLOWED THE REMAINING EXPENDITURE TO THE TUNE OF ` 3.82 LAKHS INCURRED ON DISMANTLING OF RCC WELL, DEMOLITION OF WALL, ELECTRICAL WORKS, INTERLOCKING, RENOVATION OF EXIST ING SHED ETC. AS REVENUE IN NATURE. 3. FOR THE ASSESSMENT YEAR 2008-09, THE CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE ON THE IS SUE OF EXPENDITURE INCURRED BY THE ASSESSEE ON CONSTRUCTION/RENOVATION OF LEASED BUILDING FOR THE AFOREMENTIONED REASONS. AS REGARDS THE CLAIM OF THE ASSESSEE WITH REGARD TO HIGHER RATE OF DEPRECIATIO N ON WINDMILLS AND UNEXPLAINED CASH CREDIT UNDER SECTION 68 OF THE INCOME TAX ACT, THE CIT(A) ALLOWED THE APPEA L OF THE ASSESSEE. AGGRIEVED AGAINST THE ORDERS OF THE CIT(A) FOR THE RESPECTIVE ASSESSMENT YEARS, BOTH THE REVENUE AND T HE ASSESSEE HAVE COME IN SECOND APPEAL BEFORE THE 7 ITA NOS. 2077/MDS/2014 & 1218/MDS/2015 TRIBUNAL. SINCE COMMON ISSUES ARE INVOLVED IN THESE APPEALS, THEY ARE TAKEN UP TOGETHER FOR DISPOSAL. 4. SHRI VIKRAM VIJAYARAGHAVAN APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE EXPENDITURE INCU RRED BY THE ASSESSEE ON THE LEASED PREMISES SHOULD BE ALLOWED AS REVENUE EXPENDITURE AS THE ASSESSEE HAS SPENT AMOUNT TO MAKE THE LEASED PREMISES SUITABLE F OR CONDUCTING BUSINESS. THE COUNSEL FOR THE ASSESSEE SUBMITTED THAT EXPLANATION 1 TO SECTION 32(1) WILL NOT APPLY IN THE PRESENT CASE. IN ORDER TO SUPPORT HIS CONTENTIONS, THE COUNSEL FOR THE ASSESSEE RELIED ON THE JUDGEMENT OF THE HONBLE MADRAS HIGH COURT IN THE C ASE OF CIT VS. TVS LEAN LOGISTICS LTD., REPORTED AS 293 ITR 432(MAD) AND ANOTHER JUDGEMENT OF THE JURISDICTIONA L HIGH COURT IN TAX CASE (APPEAL ) NO.197 OF 2005 TIT LED M/S. THIRU AROORAN SUGARS LTD. VS. DCIT., DECIDED O N 26.07.2011 AND STATED THAT EXPENDITURE INCURRED ON TEMPORARY STRUCTURE SUCH AS FALSE CEILING AND OFFIC E RENOVATION DOES NOT AMOUNT TO CAPITAL EXPENDITURE. THE COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE ASSESSEE HAD TAKEN SEVERAL PREMISES ON LEASE THROUGHOUT THE STATE OF TAMIL NADU FOR SETTING UP O F SERVICE STATIONS. THE DETAILS OF SOME OF THE PREMI SES COULD NOT BE SUPPLIED TO THE LOWER AUTHORITIES AS T HEY WERE NOT FULLY COMPILED AT THAT TIME. NOW COMPILAT ION HAS BEEN DONE, THE DETAILS OF EXPENDITURE CAN NOW BE SUPPLIED. 5. ON THE OTHER HAND, DR. S.MOHARANA REPRESENTING THE DEPARTMENT SUBMITTED THAT THE CIT(A) HAS WRONGL Y ALLOWED AMOUNT OF ` 28,66,775/- OUT OF ` 75,11,775/- FOR THE ASSESSMENT YEAR 2005-06 INCURRED BY THE ASSESSE E TOWARDS CONSTRUCTION/RENOVATION EXPENSES AS REVENUE EXPENDITURE. THE AMOUNT HAS BEEN SPENT BY THE ASSESSEE ON THE LEASEHOLD PREMISES TO MAKE IT SUIT ABLE TO CARRY OUT BUSINESS IN THE SHOWROOMS AND SERVICE CENTRES. THE ASSESSEE HAS FAILED TO SHOW ANY BENEFI T OF ENDURING NATURE DERIVED FROM THE RENOVATION/RECONSTRUCTION ON THE LEASED OUT PREMISE S. THE DR CONTENDED THAT IN VIEW OF EXPLANATION I TO SECTION 32(1) OF THE ACT WHICH CLEARLY STATES THAT ANY EXPENDITURE INCURRED BY THE ASSESSEE ON THE LEASED PREMISES HAS TO BE CAPITALIZED. THE EXPENDITURE IN CURRED BY THE ASSESSEE FOR THE CONSTRUCTION OF NEW STRUCT URES, REPAIRS, RENOVATION OF EXISTING BUILDING HAS TO BE CAPITALIZED. IN ORDER TO SUPPORT HIS CONTENTIONS, T HE DR 8 ITA NOS. 2077/MDS/2014 & 1218/MDS/2015 RELIED ON THE JUDGEMENT OF THE HONBLE SUPREME COUR T OF INDIA IN THE CASE OF CIT VS. MADRAS AUTO SERVICE (P ) LTD., REPORTED AS 233 ITR 468(SC), THE JUDGEMENT OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. TV S LEAN LOGISTICS LTD., (SUPRA) AND THE JUDGEMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF BIGJOS IND IA LTD. VS. CIT., REPORTED AS 293 ITR 170(DEL). 6. THE DR SUBMITTED THAT AS REGARDS THE ISSUES TAKEN UP BY THE REVENUE IN APPEAL FOR THE ASSESSMEN T YEAR 2008-09 ARE CONCERNED, THE FIRST ISSUE RELATES TO HIGHER RATE OF DEPRECIATION ON WINDMILLS. THE CASE OF THE ASSESSEE IS COVERED BY THE ORDER OF THE CHENNAI BEN CH OF THE TRIBUNAL IN THE CASE OF K.RAVI VS. ACIT., RE PORTED AS 2 ITR (TRIB) 752 (CHENNAI). ON THE ISSUE OF UNEXPLAINED CASH CREDIT MADE UNDER SECTION 68 OF TH E ACT, THE DR SUBMITTED THAT THE ASSESSEE COULD NOT FURNISH DETAILS TO SUBSTANTIATE GENUINENESS OF THE TRANSACTIONS. THE DR STRONGLY SUPPORTED THE ORDERS OF THE ASSESSING OFFICER ON THIS ISSUE. 7. WE HAVE HEARD THE SUBMISSIONS MADE BY BOTH THE PARTIES. WE HAVE PERUSED THE ORDERS PASSED BY THE AUTHORITIES BELOW AND THE JUDGEMENTS/ORDERS REFERRE D TO BY THE REPRESENTATIVES OF BOTH THE SIDES. THE ISSU E RELATING TO NATURE OF EXPENDITURE INCURRED BY THE ASSESSEE ON LEASEHOLD PREMISES ARISES IN ITA NO.155 7 & 1558/MDS/2011 FILED BY THE ASSESSEE AS WELL AS IN I TA NO.1705/MDS/2011 FILED BY THE REVENUE. IN ITA NO.1557/MDS/2011 THE ASSESSEE HAS ALSO IMPUGNED TH E REOPENING OF THE ASSESSMENT, SINCE THE ISSUE WAS N OT PRESSED BY THE ASSESSEE BEFORE THE CIT(A), THEREFOR E, THE SAME CANNOT BE SUBJECT MATTER OF ADJUDICATION B EFORE THE TRIBUNAL AS WELL. CONFRONTED WITH THE SITUATIO N, THE COUNSEL FOR THE ASSESSEE MADE A STATEMENT THAT HE I S NOT PRESSING THE ISSUE OF REOPENING BEFORE THE TRIBUNAL . 8. EXPLANATION 1 TO SECTION 32(1) WHICH WAS INSERT ED BY THE TAXATION LAWS (AMENDMENT AND MISCELLANEOUS PROVISIONS) ACT, 1986 WITH EFFECT FROM 1.4.1988 DEA LS WITH THE SITUATION WHERE THE EXPENDITURE HAS BEEN INCURR ED BY THE ASSESSEE ON CONSTRUCTION OF ANY STRUCTURE ON LEASEHOLD PREMISES. THE EXPLANATION 1 IS REPRODUCED HEREIN BELOW:- [EXPLANATION 1.WHERE THE BUSINESS OR PROFESSION O F THE ASSESSEE IS CARRIED ON IN A BUILDING NOT OWNED BY HIM BUT IN RESPECT OF WHICH THE ASSESSEE HOLDS A LEASE OR 9 ITA NOS. 2077/MDS/2014 & 1218/MDS/2015 OTHER RIGHT OF OCCUPANCY AND ANY CAPITAL EXPENDITUR E IS INCURRED BY THE ASSESSEE FOR THE PURPOSES OF THE 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 T O, THE BUILDING, THEN, THE PROVISIONS OF THIS CLAUSE SHALL APPLY AS IF THE SAID STRUCTURE OR WORK IS A BUILDING OWNED B Y THE ASSESSEE. 9. TO FALL WITHIN THE AMBIT OF EXPLANATION 1 QUEST IONS WHICH ARE TO BE ANSWERED ARE : (I) WHETHER THE ASSESSEE IS CARRYING ON BUSINESS O R PROFESSION IN A LEASED BUILDING OR OTHER RIGHTS OF OCCUPANCY? (II) WHETHER THE ASSESSEE HAS INCURRE D ANY CAPITAL EXPENDITURE FOR THE PURPOSE OF BUSINESS ON THE CONSTRUCTION OF ANY STRUCTURE OR DOING OF ANY W ORK IN OR IN RELATION TO AND BY WAY OF RENOVATION OR EXTEN SION OR IMPROVEMENT IN THE BUILDING. IF THE ANSWER TO THE AFOREMENTIONED QUESTIONS IS I N AFFIRMATIVE, THE ASSESSEE FALLS WITHIN THE PURVIEW OF EXPLANATION 1 TO SECTION 32(1). IN THE INSTANT CA SE, IT IS AN ADMITTED FACT THAT THE ASSESSEE HAS TAKEN SEVERA L BUILDINGS ON LEASE FOR SETTING UP OF SERVICE STATIO NS. IT IS ALSO UNDISPUTED THAT THE ASSESSEE HAS CARRIED OUT RENOVATION, REPAIR INCLUDING FLOORING, FALSE CEILIN G, SANITARY WORKS, PARTITION, WALL PANELING, DOORS, CUPBOARDS E TC. AT THE LEASED PREMISES. THE ASSESSEE HAS MADE CERTAIN CHANGES/ADDITIONS IN THE EXISTING STRUCTURES VIZ., CONSTRUCTION OF WASHING RAMPS, OIL CHANGE & WHEEL ALIGNMENT PIT, EXTENSION OF WORKSHOP SHED FOR ADDIT IONAL SPACE, OVERHEAD TANK, ELECTRICAL WORKS, DEMOLITION OF WALLS AND PARTITIONS, CONSTRUCTION AND SEWAGE CONNE CTION AND RENOVATION OF SHED TO SUIT THE NORMS OF MARUTI UDYOG LTD. ALL THESE CONSTRUCTION AND RENOVATION ACTIVITI ES CARRIED OUT BY THE ASSESSEE IF PUT ON TO THE TEST O F EXPLANATION 1 WOULD SHOW THAT RENOVATION/REPAIR/ADD ITION MADE BY THE ASSESSEE ON THE LEASED OUT PREMISES WOU LD AMOUNT TO CAPITAL EXPENDITURE. THE ASSESSEE IN ORD ER TO SUPPORT HIS CASE HAS RELIED ON THE JUDGEMENT OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF TVS LEAN LOGISTICS LTD. (SUPRA). IN THE SAID CASE, THE ASSE SSEE HAD CONSTRUCTED A BUILDING ON THE LEASED LAND FOR T HE BUSINESS ADVANTAGE. THE HONBLE COURT HELD THAT TH E ENTIRE COST OF CONSTRUCTION IS ADMISSIBLE AS REVENU E EXPENDITURE. EXPLANATION 1 CATEGORICALLY STATES THA T THE BUSINESS OR PROFESSION IS CARRIED ON IN A LEASED BU ILDING 10 ITA NOS. 2077/MDS/2014 & 1218/MDS/2015 AND NOT ON LAND. THE HONBLE HIGH COURT IN PARA 4.4 OF THE JUDGEMENT FURTHER HELD AS UNDER:- 4.4 WHAT CONSTITUTES A CAPITAL EXPENDITURE AND WHAT DOES NOT, TO ATTRACT EXPLN.1 TO SECTION 32(1) OF TH E ACT DEPENDS UPON THE CONSTRUCTION OF ANY STRUCTURE OR D OING ANY WORK OR IN RELATION TO AND BY WAY OF RENOVATION , EXTENSION OR IMPROVEMENT TO THE BUILDING WHICH IS P UT 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/CONSTRUCT ED FOR THE PURPOSE OF BUSINESS OR THE PROFESSION OF THE ASSESSEE IN A LAND TAKEN ON LEASE BY THE ASSESSEE. THUS, IT IS CLEAR THAT THE RATIO LAID DOWN BY THE H ONBLE MADRAS HIGH COURT IN THE SAID JUDGEMENT DOES NOT SUPPORT THE CASE OF THE ASSESSEE. 10. IN THE PRESENT CASE, THE ASSESSEE HAS TAKEN BUILDING ON LEASE AND MADE CERTAIN ADDITIONS IN THE EXISTING STRUCTURE. IT IS NOT THE CASE OF THE ASSES SEE WHERE THE ASSESSEE HAS CONSTRUCTED A NEW BUILDING O N THE LEASED LAND. THE HONBLE HIGH COURT HAS FURTHER HELD IN THE AFORESAID CASE THAT THE LANGUAGE EMPLOYED IN A STATUTE IS THE DETERMINATIVE FACTOR OF THE LEGISLAT IVE EVENT 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 RE SULT AND ANY DEPARTURE FROM THE LITERAL RULE WOULD REALLY BE AMENDING THE LAW IN THE GARB OF INTERPRETATION, WHI CH IS NOT PERMISSIBLE AND WHICH WOULD BE DESTRUCTIVE OF J UDICIAL DISCIPLINE. 11. THE COUNSEL FOR THE ASSESSEE HAS RELIED ON ANOTHER JUDGEMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S. THIRU AROORAN SUGARS LTD.(SUPRA). IN T HE SAID CASE, THE HONBLE HIGH COURT HAS REFERRED TO T HE CONSTRUCTION OF TEMPORARY STRUCTURE BY MEANS OF FAL SE CEILING AND OFFICE RENOVATION, WHICH WAS HELD TO BE REVENUE IN NATURE. 12. THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF MADRAS AUTO SERVICE (P) LTD.(SUPRA) WHILE DEALI NG WITH A SIMILAR CONTROVERSY HAS OBSERVED AS UNDER:- 11 ITA NOS. 2077/MDS/2014 & 1218/MDS/2015 5. IN ORDER TO DECIDE WHETHER THIS EXPENDITURE IS REVENUE EXPENDITURE OR CAPITAL EXPENDITURE, ONE HAS TO LOOK AT THE EXPENDITURE FROM A COMMERCIAL POINT OF VIEW. WHAT ADVANTAGE DID THE ASSESSEE GET BY CONSTRUCTING A BUILDING WHICH BELONGED TO SOMEBODY ELSE AND SPENDI NG MONEY FOR SUCH CONSTRUCTION? THE ASSESSEE GOT A LO NG LEASE OF A NEWLY CONSTRUCTED BUILDING SUITABLE TO I TS OWN BUSINESS AT A VERY CONCESSIONAL RENT. THE EXPENDITU RE 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, ASSESSEE IN THE PRESENT CASE DID NOT GET ANY CAPITAL ASSET BY SPENDING THE SAID AMOUNTS. THE ASSESSEE THEREFORE COULD NOT HAVE CLAIMED ANY DEPRECIATION. LOOKING TO THE NATURE OF THE ADVANTAG E WHICH THE ASSESSEE OBTAINED IN A COMMERCIAL SENSE, THE EXPENDITURE APPEARS TO BE REVENUE EXPENDITURE. THEREAFTER, THE HONBLE APEX COURT REFERRING TO SE VERAL CASES DECIDED HELD AS UNDER:- 11. ALL THESE CASES HAVE LOOKED UPON EXPENDITURE W HICH DID BRING ABOUT SOME KIND OF AN ENDURING BENEFIT TO THE COMPANY AS A REVENUE EXPENDITURE WHEN THE EXPENDITU RE 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 A SSET CREATED BY SPENDING THE SAID AMOUNTS DID NOT BELONG TO THE ASSESSEE BUT THE ASSESSEE GOT THE BUSINESS ADVANTAGE OF USING MODERN PREMISES AT A LOW RENT, T HUS SAVING CONSIDERABLE REVENUE EXPENDITURE FOR THE NEX T 39 YEARS, BOTH THE TRIBUNAL AS WELL AS THE HIGH COURT HAVE RIGHTLY COME TO THE CONCLUSION THAT THE EXPENDITURE SHOULD BE LOOKED UPON AS REVENUE EXPENDITURE. 13. FROM THE ABOVE JUDGEMENT, WE CAN CONCLUDE THAT IT IS ESSENTIAL THAT THE EXPENDITURE INCURRED ON TH E CONSTRUCTION OF ANY STRUCTURE ON THE LEASED PREMISE S 12 ITA NOS. 2077/MDS/2014 & 1218/MDS/2015 SHOULD RESULT IN SAVING OF THE REVENUE EXPENDITURE AT THE SUBSEQUENT STAGE. IN THE PRESENT CASE, FROM THE PLEADINGS OF BOTH THE SIDES, IT CANNOT BE ASCERTAIN ED WHETHER THE ASSESSEE IS GETTING ENDURING BENEFIT OF REVENUE NATURE FROM THE ADDITIONAL STRUCTURE OR RENOVATION/REPAIRS UNDERTAKEN BY THE ASSESSEE ON TH E LEASED OUT PREMISES. IN OUR CONSIDERED OPINION, THE CASE OF THE ASSESSEE VERY MUCH FALLS WITHIN THE AMBIT OF EXPLANATION 1 OF SECTION 32(1) OF THE ACT. THEREF ORE, BOTH THE APPEALS OF THE ASSESSEE ARE DISMISSED BEIN G DEVOID OF MERIT. 8. RESPECTFULLY FOLLOWING THE SAID DECISION OF THE TRIBUNAL, WE UPHOLD THE ORDER OF THE COMMISSIONER OF INCOME T AX (APPEALS) IN HOLDING THAT EXPENDITURE INCURRED BY T HE ASSESSEE ON LEASEHOLD LAND IS CAPITAL EXPENDITURE AND REJECT THE GROUNDS RAISED BY THE ASSESSEE. 9. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH OCTOBER, 2015. SD/- SD/- ( # ) ( & (# ) ( CHANDRA POOJARI ) ( CHALLA NAG ENDRA PRASAD ) * / ACCOUNTANT MEMBER ( * / JUDICIAL MEMBER ( /CHENNAI, , /DATED 29 TH OCTOBER, 2015 SOMU ./ 0/ /COPY TO: 1. APPELLANT 2.RESPONDENT 3. 1 () /CIT(A) 4. 1 /CIT 5. / 5 /DR 6. /GF .