DCIT Circle 1, Tirupur V. Eastman Exports Global Clothing (P) Limited, Tirupur

ITA 2227/CHNY/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 8528 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 26-07-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: T BANUSEKAR
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure
• Section: 37(1); 13; 22; 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , D B ENCH, CHENNAI , . , & BEFORE SHRI MAHAVIR SINGH, VICE-PRESIDENT AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./ I.T.A.NOS.2227 & 2228/CHNY/2018 ( / ASSESSMENT YEARS: 2011-12 & 2012-13) THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-I TIRUPUR. VS M/S. EASTMAN EXPORTS GLOBAL CLOTHING PVT.LTD. NO.10, 12, 2 ND STREET, KUMAR NAGAR SOUTH, TIRUPUR-641 603. PAN: AACCC 0952E ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. SRINIVASA RAO, CIT /RESPONDENT BY : MR. T.BANUSEKAR, C.A /DATE OF HEARING : 07.07.2021 /DATE OF PRONOUNCEMENT : 09.08.2021 / O R D E R PER G.MANJUNATHA, AM: THESE TWO APPEALS FILED BY THE REVENUE ARE DIRECTED AGAINST SEPARATE, BUT IDENTICAL ORDERS OF THE LEARN ED CIT (A)-3, COIMBATORE, BOTH DATED 21.05.2018 AND PERTAIN TO AS SESSMENT YEARS 2011-12 & 2012-13. SINCE, FACTS ARE IDENTICAL AND ISSUES ARE COMMON, FOR THE SAKE OF CONVENIENCE, THESE APPE ALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF, BY THIS CONSOLIDATED ORDER. 2. THE REVENUE HAS MORE OR LESS FILED COMMON GROUN DS OF APPEAL FOR BOTH ASSESSMENT YEARS, THEREFORE, FOR THE SAKE OF 2 ITA NOS.2227 & 2228/CHNY/2018 BREVITY, GROUNDS OF APPEAL FILED IN ITA NO.2227/CHN Y/2018 FOR ASSESSMENT YEAR 2011-12 ARE REPRODUCED AS UNDER:- I. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IS AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. WHETHER THE LD. CIT(A) WAS RIGHT IN TREATING THE EXPENDITURE AS REVENUE WHEN THE CONTRACT ITSELF IS NULL AND VOI D, A. AS PER CONTRACT ACT, A VOID CONTRACT IS ILLEGIT IMATE AND UNENFORCEABLE FROM THE START BECAUSE OF THE WAY IT WAS DRAFTED. IN THE CASE OF THE ASSESSEE THE LEASE PER IOD OF 5 YEARS EXTENDABLE BY 25 MONTHS IS ILLEGITIMATE AND UNENFORCEABLE BECAUSE THE CONSTRUCTION PERIOD ITSEL F IS 5 YEARS EXTENDABLE TO 36 MONTHS LEAVING NO TIME FOR THE LEA SE TO OPERATE. B. FROM THE ABOVE THERE IS NO LEASE PERIOD LEFT SIN CE SHADOWED BY CONSTRUCTION PERIOD AND HENCE THE WORKING OF REV ENUE SAVING BY THE ID. CIT(A) IS BASELESS. 3. WHETHER THE LD. CIT(A) WAS JUSTIFIED IN HOLDING THE EXPENDITURE TO BE REVENUE WHEN THE ENTIRE AGREEMENT SHOWS THAT IT IS ONLY A DEVICE TO AVOID TAX AND NOT A GEN UINE TRANSACTION AS ENUNCIATED IN VARIOUS CASE LAWS AND HENCE, CORPORATE VEIL HAS TO BE LIFTED. 4. WHETHER THE LD. CIT(A) WAS JUSTIFIED IN TREATING THE EXPENDITURE AS REVENUE WHEN THE LAND OWNER WILL BE LEFT WITH LAND ONLY SINCE THE ASSESSEE HAS EVERY RIGHT TO RET AIN THE OWNERSHIP OF SUPERSTRUCTURE, CONSIDERING THE SCALE OF EXPENDITURE INVOLVED. 5. WHETHER THE LD. CIT(A) WAS JUSTIFIED IN TREATING THE EXPENDITURE AS REVENUE WHEN THE ASSESSEE WILL CONTI NUE TO ENJOY THE FRUITS OF CAPITAL EXPENDITURE TO ETERNITY , SINCE THE LEASE AGREEMENT IS SILENT ON THE ISSUE OF RENEWABIL ITY OF LEASE OF SUPERSTRUCTURE. 3 ITA NOS.2227 & 2228/CHNY/2018 6. WHETHER THE LD. CIT(A) WAS JUSTIFIED IN ALLOWING THE APPEAL OF THE ASSESSEE WHEN THE QUESTION OF SAVINGS OF EXP ENDITURE DOES NOT ARISE CONSIDERING THE PECULIAR NATURE OF T HE FACTS OF THE CASE. 7. WHETHER THE LD. CIT(A) WAS JUSTIFIED IN IGNORING THE FACTS. THAT THE PAYMENT IS FOR THE PURPOSE FOR CREATING AN ASSET OF ENDURING IN NATURE AND CONSEQUENTLY IS OF A CAPITAL NATURE. 8. WHETHER THE LD. CIT(A) WAS JUSTIFIED IN ALLOWING THE SUM OF RS. 7,49,49,895/- ON THE GROUND THAT BUILDING CONST RUCTION ON A LEASE HOLD LAND IS REVENUE IN NATURE. 9. WHETHER THE LD. CIT(A) WAS JUSTIFIED IN IGNORING THE FACT THAT BUILDING CONSTRUCTION ON A LEASE HOLD LAND IS NOTHI NG BUT CREATION OF AN ASSET OF ENDURING BENEFIT WHICH IS G OING TO BE USEFUL FOR THE ASSESSEE COMPANY ON LONG TERM BASIS TO BE UTILIZED OVER A PERIOD OF TIME. ACCORDINGLY, THE SA ME IS ONLY CAPITAL IN NATURE ELIGIBLE FOR DEPRECIATION UNDER T HE INCOME TAX ACT. 10. WHETHER THE LD. CIT(A) WAS JUSTIFIED IN IGNORIN G THE FACT THAT JUST BECAUSE THE BUILDING IS CONSTRUCTED ON A LEASE HOLD LAND THE SAME CANNOT BECOME REVENUE EXPENDITURE BEC AUSE THE INVESTMENT IS TOWARDS CONSTRUCTION OF A BUILDIN G WHICH HAS A LIFE BEYOND THE CURRENT FINANCIAL YEAR AND ACCORD INGLY NOTHING BUT A CAPITAL EXPENDITURE. 11. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, THE ORDER OF THE CIT(A)-3, COIMBAT ORE MAY BE CANCELLED AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURE A ND EXPORT OF KNITTED AND WOVEN GARMENTS & GENERATION A ND SALE OF POWER THROUGH WINDMILL, FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2011-12 ADMITTING TOTAL INCOME OF RS. 24,21,36,760/-. THE CASE HAS BEEN SUBSEQUENTLY SELE CTED 4 ITA NOS.2227 & 2228/CHNY/2018 FOR SCRUTINY AND ASSESSMENT HAS BEEN COMPLETED U/S.143(3) OF THE ACT, ON 31.03.2014 DETERMINING T OTAL INCOME AT RS.49,20,77,183/- BY MAKING VARIOUS ADDIT IONS INCLUDING ADDITIONS TOWARDS DISALLOWANCE OF COST OF CONSTRUCTION OF BUILDING ON LEASEHOLD LAND AS CAP ITAL IN NATURE. ON APPEAL, THE LEARNED CIT(A) BY RELIED UPO N THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT OF MA DRAS IN THE CASE OF M/S.TVS LEAN LOGISTICS LTD., REPORTED IN 293 ITR 432 ALLOWED APPEAL FILED BY THE ASSESSEE. THE DEPARTMENT HAS FILED FURTHER APPEAL BEFORE THE TRIB UNAL AGAINST ORDER OF THE LEARNED CIT(A) AND THE ITAT., CHENNAI, VIDE ITS ORDER IN ITA NO.101 TO 103/CHNY/2 016 DATED 21.09.2016 HAS REMITTED THE ISSUE TO FILE OF THE ASSESSING OFFICER TO DECIDE THE ISSUE AFRESH IN LIG HT OF JUDGEMENT OF HONBLE JURISDICTIONAL HIGH COURT OF M ADRAS IN THE CASE OF M/S.TVS LEAN LOGISTICS LTD. (293 IT R 432) AND THE DECISION OF HON'BLE SUPREME COURT IN THE CA SE OF M/S. MADRAS AUTO SERVICE (P) LTD., REPORTED IN 23 3 ITR 468, WITH A DIRECTION TO THE ASSESSING OFFICER TO R E-EXAMINE THE ISSUE WHETHER EXPENDITURE INCURRED ON CONSTRUCT ION OF 5 ITA NOS.2227 & 2228/CHNY/2018 SUPER STRUCTURE ON LEASEHOLD LAND RESULTED IN SAVI NGS OF ANY REVENUE EXPENDITURE IN THE FORM OF MONTHLY REN T AT SUBSEQUENT STAGE IN FUTURE OR NOT. 4. THE ASSESSING OFFICER HAS TAKEN UP PROCEEDINGS F OR RE-EXAMINATION OF THE ISSUE, CONSEQUENT TO THE DIRE CTION OF THE TRIBUNAL AND CALLED UPON THE ASSESSEE TO JUSTIF Y ITS CASE IN LIGHT OF FINDINGS OF THE TRIBUNAL AND DECIS ION OF THE HON'BLE SUPREME COURT IN THE CASE OF MADRAS AUTO SE RVICE P.LTD. (SUPRA) AND TO FILE EVIDENCES TO PROVE THAT IS THERE ANY SAVING ON ACCOUNT OF FUTURE PAYMENT OF RENT ON ACCOUNT OF CONSTRUCTION OF BUILDING ON LEASEHOLD LANDS. THE ASSESSING OFFICER, AFTER ANALYZING LEASE DEED DATE D 02.05.2010 AND ALSO DECISIONS OF THE HON'BLE SUPRE ME COURT IN THE CASE OF MADRAS AUTO SERVICE P.LTD.(SU PRA), CAME TO THE CONCLUSION THAT CASE LAWS RELIED UPON B Y THE ASSESSEE HAS NO APPLICATION AND DISTINGUISHABLE TO THE FACTS OF THE ASSESSEES CASE, BECAUSE IN THE ASSESS EES CASE IT HAD EVERY RIGHT TO RETAIN OWNERSHIP OF SU PER STRUCTURE, ELECTRICAL AND OTHER INSTALLATIONS, WHE REAS IN THE 6 ITA NOS.2227 & 2228/CHNY/2018 CASE BEFORE THE HON'BLE SUPREME COURT, OWNERSHIP O F NEW BUILDING VESTED WITH THE LAND OWNER. THE ASSESSING OFFICER FURTHER NOTED THAT THE ASSESSEE HAS FAILED TO DEMO NSTRATE WITH EVIDENCES HOW EXPENDITURE INCURRED FOR CONSTR UCTION OF BUILDING ON LEASEHOLD LAND RESULTED IN REDUCTIO N OF REVENUE EXPENDITURE IN FORM OF RENT IN SUBSEQUENT F INANCIAL YEARS AND HENCE, OPINED THAT EXPENDITURE INCURRED O N CONSTRUCTION OF BUILDING ON LEASEHOLD LAND IS IN TH E NATURE OF CAPITAL EXPENDITURE, WHICH CANNOT BE ALLOWED AS DEDUCTION, ACCORDINGLY, MADE ADDITION TOWARDS EXPENDITURE, HOWEVER, ALLOWED DEPRECIATION @10% AS ALLOWED TOWARDS BUILDING UNDER THE ACT. THUS, THE A O HAS MADE ADDITIONS TO BALANCE AMOUNT TO THE TOTAL INCOM E OF THE ASSESSEE. 5. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE LEARNED CIT(A). BEFORE THE LEARNED CIT(A), THE ASSESSEE HAS REITERA TED ITS ARGUMENTS MADE BEFORE THE ASSESSING OFFICER AND SUBMITTED THAT THE ASSESSEE HAS SAVED SUBSTANTIAL A MOUNT 7 ITA NOS.2227 & 2228/CHNY/2018 IN FORM OF RENT PAYMENT IN SUBSEQUENT FINANCIAL YEA RS, WHEN COMPARED TO AMOUNT INCURRED FOR CONSTRUCTION O F BUILDING ON LEASEHOLD LAND AND THUS, CASE OF THE AS SESSEE IS SQUARELY COVERED BY THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF M/S. MADRAS AUTO SERVICE (P) LTD. (SUPRA) AND THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT OF MADRAS IN THE CASE OF TVS LEAN LOGISTICS LTD. (SUPRA). THE LEARNED CIT(A), AFTER CONSIDERING RELE VANT SUBMISSIONS OF THE ASSESSEE AND ALSO BY RELIED UPO N THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF M /S. MADRAS AUTO SERVICE (P) LTD. (SUPRA) HELD THAT THE ASSESSEES CASE IS NOT COVERED UNDER EXPLANATION (1 ) TO SECTION 32(1) OF THE ACT. THE LD. CIT(A) FURTHER HE LD THAT AS PER THE DECISION OF HONBLE SUPREME COURT IN THE CA SE OF MOTHER HOSPITAL (P) LTD (SUPRA), IT IS ONLY WHEN TH E ASSESSEE HOLDS A LEASE RIGHT OR OTHER RIGHT OF OCC UPANCY AND ANY CAPITAL EXPENDITURE IS INCURRED FOR CONSTR UCTION OF ANY STRUCTURE OR DOING OF ANY WORK IN RELATION TO A ND BY WAY OF RENOVATION OR EXTENSION OF OR IMPROVEMENT TO THE BUILDING AND THE EXPENDITURE ON CONSTRUCTION INCUR RED BY 8 ITA NOS.2227 & 2228/CHNY/2018 THE ASSESSEE, THAT ASSESSEE WOULD BE ENTITLED TO DEPRECIATION TO THE EXTENT OF SUCH EXPENDITURE INCU RRED FOR CONSTRUCTION OR IMPROVEMENT OF BUILDING. IN THIS CA SE ON PERUSAL OF FACTS, CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF M/S. MADRAS AUTO SERVICE (P) LTD. (SUPRA) AND THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT OF MA DRAS IN THE CASE OF TVS LEAN LOGISTICS LTD. (SUPRA), WHERE IT WAS CLEARLY HELD THAT THE ASSESSEE DID NOT ACQUIRE CA PITAL ASSET, BUT HAS PUT UP CONSTRUCTION OF BUILDING ONL Y FOR BUSINESS ADVANTAGE ON LEASEHOLD LAND AND HENCE, EN TIRE COST OF CONSTRUCTION IS ADMISSIBLE AS REVENUE EXPEN DITURE. THE LEARNED CIT(A) HAS ALSO RECORDED CATEGORICAL F INDING THAT ASSESSEE HAS PAID NOMINAL RENT FOR LAND AND T HUS, SAVED SUBSTANTIAL AMOUNT OF RENTAL INCOME, WHICH RE SULTED IN MONETARY BENEFIT. THEREFORE, HE OPINED THAT THE ASSESSING OFFICER HAS ERRED IN TREATING EXPENDITURE INCURRED FOR CONSTRUCTION OF BUILDING ON LEASEHOLD LAND AS CAPITAL IN NATURE AND ACCORDINGLY, DELETED ADDITI ONS MADE 9 ITA NOS.2227 & 2228/CHNY/2018 TOWARDS COST OF CONSTRUCTION OF BUILDING. AGGRIEVED BY THE LEARNED CIT(A) ORDER, THE REVENUE IS IN APPEAL BEF ORE US. 6. THE LEARNED DR SUBMITTED THAT THE LEARNED CIT(A) HAS ERRED IN TREATING EXPENDITURE INCURRED FOR CONS TRUCTION OF BUILDING ON LEASEHOLD LAND AS REVENUE EXPENDITUR E, EVEN THOUGH CONTRACT BETWEEN THE PARTIES ITSELF IS NULL AND VOID, BECAUSE AS PER AGREEMENT BETWEEN THE PARTIES, LEASE PERIOD WAS FIVE YEARS AND WAS FURTHER EXTENDABLE BY 25 MONTHS. HOWEVER, CONSTRUCTION PERIOD ITSELF IS FIVE YEARS AND FURTHER EXTENDABLE TO 36 MONTHS LEAVING NO TIME FOR LEASE TO OPERATE SO AS TO GET FINANCIAL BENEFIT. T HE DR FURTHER SUBMITTED THAT THE LEARNED CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT CASE OF THE ASSESSEE IS SQUARELY C OVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF M/S. MADRAS AUTO SERV ICE (P) LTD. (SUPRA) AND THE DECISION OF HON'BLE HIGH C OURT OF MADRAS IN THE CASE OF TVS LEAN LOGISTICS LTD. (SUP RA), WITHOUT APPRECIATING FACTS IN THOSE TWO CASES, THE ASSESSEE HAS DERIVED CLEAR BENEFIT OF SAVINGS IN RENT BY C ONSTRUCTING SUPER STRUCTURE ON LAND AND UNDER THOSE FACTS, THE HON'BLE 10 ITA NOS.2227 & 2228/CHNY/2018 SUPREME COURT AND THE HONBLE MADRAS HIGH COURT CA ME TO THE CONCLUSION THAT COST OF CONSTRUCTION INCURRE D ON LEASEHOLD LAND IS REVENUE IN NATURE, WHICH IS DEDUC TIBLE UNDER THE ACT. THE LEARNED DR FURTHER REFERRING TO THE PROVISIONS OF SECTION 37 OF THE INCOME TAX ACT, 196 1 HAS SUBMITTED THAT AS PER SECTION 37 OF THE ACT, IF ANY EXPENDITURE IS IN THE NATURE OF CAPITAL IN NATURE, SAME CANNOT BE ALLOWED AS DEDUCTION. IN THIS CASE, ALTHO UGH, THE ASSESSING OFFICER HAS INVOKED PROVISIONS OF EXPLANA TION (1) TO SECTION 32(1) OF THE ACT, BUT FACTS OF THE PRESE NT CASE WARRANTS APPLICATION OF PROVISIONS OF SECTION 37 O F THE ACT, BECAUSE AGREEMENT BETWEEN THE PARTIES ITSELF IS VOID AND AB INITIO. HE FURTHER REFERRING TO VARIOUS JUDICIAL PRECEDENT S, INCLUDING THE DECISION OF HONBLE GUJARAT HIGH COUR T IN THE CASE OF CIT VS. EXPRESS HOTELS PVT.LTD. REPORTED IN 281 ITR 160 ARGUED THAT SINCE THE TRIBUNAL IS FINAL FACT FI NDING AUTHORITY, IT HAS TO DETERMINE CORRECT TAX LIABILIT Y OF THE ASSESSEE UNDER THE ACT. IF AT ALL, THE ASSESSING OF FICER HAS NOT APPRAISED FACTS IN RIGHT PERSPECTIVE, THEN THE TRIBUNAL IS HAVING EVERY AUTHORITY TO APPLY PROVISIONS IN RIGHT 11 ITA NOS.2227 & 2228/CHNY/2018 PERSPECTIVE OF LAW TO DETERMINE CORRECT TAX LIABILI TY OF THE ASSESSEE. SINCE THE ASSESSING OFFICER HAS BY INADVE RTENT ERROR NOT APPLIED PROVISIONS OF SECTION 37 OF THE A CT, EVEN THOUGH EXPENDITURE WAS CAPITAL IN NATURE. THEREFORE , HE SUBMITTED THAT THE TRIBUNAL SHOULD APPRISE FACTS AN D DECIDE THE ISSUE WITHIN THE FRAMEWORK OF THE PROVIS IONS OF SECTION 37 OF THE ACT. IN THIS REGARD, HE HAS RELIE D UPON THE FOLLOWING JUDICIAL PRECEDENTS:- 1. CIT VS.EXPRESS HOTELS P.LTD ( 281 ITR 160) (GU J) 2.CIT VS. ICE SUPPLIERS CORPORATION (64 ITR 195(P &H) 3.CIT VS. INDIAN EXPRESS (MADURAI) (140 ITR 705)(M AD) 4.CITVS. MAHALAKSHMI TEXTILE MILLSLTD.(66 ITR 710) (SC) 7. THE LEARNED AR FOR THE ASSESSEE, ON THE OTHER H AND, STRONGLY SUPPORTING ORDER OF THE LEARNED CIT(A) SUB MITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT., CHENNAI IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2013-14 & 2016-17, WHERE THE TRIBUNAL UNDER IDENTICAL SET OF FACTS AND BY FOLL OWING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F CIT 12 ITA NOS.2227 & 2228/CHNY/2018 VS. M/S. MADRAS AUTO SERVICE (P) LTD. (SUPRA), UPH ELD ORDER OF THE LEARNED CIT(A) IN DELETING ADDITIONS M ADE BY THE ASSESSING OFFICER TOWARDS DISALLOWANCE OF COST OF CONSTRUCTION OF STRUCTURE ON LEASEHOLD LAND. THE F ACTS BEING IDENTICAL FOR THE YEAR UNDER CONSIDERATION, T HE LEARNED CIT(A) BY FOLLOWING DECISION OF THE TRIBUN AL IN ASSESSEES OWN CASE FOR THE EARLIER YEARS HAS DEL ETED ADDITIONS MADE BY THE ASSESSING OFFICER AND HIS OR DER SHOULD BE UPHELD. AS REGARDS ARGUMENTS OF THE LEAR NED DR, IN LIGHT OF CERTAIN JUDICIAL PRECEDENTS ON APPL ICATION OF RIGHT PROVISIONS OF THE ACT, THE AR SUBMITTED THAT SINCE THERE IS CLEAR DIRECTION FROM THE TRIBUNAL ON NON-A PPLICATION OF EXPLANATION (1) TO SECTION 32(1) OF THE ACT, THE QUESTION WHETHER SECTION 37(1) IS APPLICABLE OR NOT IS ACADE MIC IN NATURE. THEREFORE, HE SUBMITTED THAT THERE IS NO ME RIT IN ARGUMENTS OF THE LEARNED DR THAT TRIBUNAL HAS EVERY RIGHT TO COMPUTE CORRECT TAX LIABILITY OF THE ASSESSEE IN ACCORDANCE WITH LAW. HE FURTHER SUBMITTED THAT NO D OUBT, THE TRIBUNAL BEING FINAL FACT FINDING AUTHORITY IS HAVING RIGHT TO EXAMINE THE ISSUE WHICH IS SUBJECT MATTER OF APP EAL 13 ITA NOS.2227 & 2228/CHNY/2018 BEFORE THE TRIBUNAL, BUT IT CANNOT IMPROVE ORDER OF THE ASSESSING OFFICER TO BRING INTO TAX ANY INCOME WHI CH IS NOT AT ALL SUBJECT MATTER OF APPEAL OR THE CASE OF THE ASSESSING OFFICER. THEREFORE, CASES LAWS RELIED UPON BY THE L EARNED DR ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT C ASE AND NEEDS TO BE REJECTED. 8. WE HAVE HEARD BOTH THE PARTIES, PERUSED MATERIAL S AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIES BELOW ALONG WITH CASE LAWS CITED BY BOT H SIDES. THE ISSUE WHETHER CONSTRUCTION COST INCURRED ON BUI LDING CONSTRUCTED ON LEASEHOLD LAND IS REVENUE OR CAPITAL IN NATURE IS NO LONGER A RES INTEGRA . THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2013-14 & 2016-17 IN ITA NO.1676 & 1677 /CHNY/2019 HAS CONSIDERED AN IDENTICAL ISSUE IN LIGHT OF AGREEMENT BETWEEN THE PARTIES AND HELD THAT ASSESSEES CASE IS SQUARELY COVERED BY THE DECISION OF THE HON'BLE SU PREME COURT IN THE CASE OF IN THE CASE OF CIT VS. M/S. MADRAS AUTO SERVICE (P) LTD. (SUPRA) AND THE DECISION OF HON'BLE 14 ITA NOS.2227 & 2228/CHNY/2018 JURISDICTIONAL HIGH COURT OF MADRAS IN THE CASE OF CIT VS. M/S.TVS LEAN LOGISTICS LTD. (SUPRA), AND AFTER CON SIDERING RELEVANT FACTS DELETED ADDITIONS MADE BY THE ASSE SSING OFFICER TOWARDS DISALLOWANCE OF COST OF CONSTRUCTI ON INCURRED ON LEASEHOLD LAND. THE RELEVANT FINDINGS O F THE TRIBUNAL ARE AS UNDER:- 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IN THE EARLIER ROUND OF LITIGATION, THIS TRIBUNAL IN I.T.A. NO.291 /MDS/2017, EXAMINED THIS ISSUE AND REMITTED BACK THE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO RE-EXAMINE TH E MATTER IN THE LIGHT OF THE JUDGMENT OF APEX COURT IN MADRAS AUTO SERVICE (P.) LTD. (SUPRA) AND THE JUDGMENT OF MADRAS HIGH COURT IN TV S LEAN LOGISTICS LTD. (SUPRA). NOW, THE ASSESSING OFFICER HAS MADE A DISTINCTION BETWEEN THE CASES BEFORE THE APEX COURT AND MADRAS HIGH COURT ON THE ONE HAND AND THE CASE OF THE ASSE SSEE ON THE OTHER HAND. THIS DISTINCTION MADE BY THE ASSESSING OFFICE R, ACCORDING TO THE LD. REPRESENTATIVE, IS NOT CORRECT. WE HAVE GON E THROUGH THE ORDERS OF THE ASSESSING OFFICER AND BOTH THE CASES BEFORE THE APEX COURT AND THE HIGH COURT. IN THE CASE OF THE ASSESS EE BEFORE THE HIGH COURT AND APEX COURT, THE VACANT PROPERTY WAS TAKEN ON LEASE AND THE COST OF CONSTRUCTION WAS CLAIMED BY INCURRI NG HEAVY EXPENDITURE. IN BOTH THE CASES, THE ASSESSEE WAS PA YING A NOMINAL RATE OF RENT WHEN COMPARED TO THE MARKET RATE OF LE ASE. WE MAY SAY THAT THE RENT PAID BY THE ASSESSEE MAY PERTAIN TO T HE LAND SINCE THE SUPERSTRUCTURE BELONGS TO THE ASSESSEE. AFTER EXPIR Y OF LEASE, THE ASSESSEE HAS TO DEMOLISH OR MAY LEAVE THE CONSTRUCT ION AS SUCH AND VACATE THE PREMISES. IN BOTH THE CASES, THE ASSESSE E HAS TO LOSE THE 15 ITA NOS.2227 & 2228/CHNY/2018 INVESTMENT MADE FOR CONSTRUCTION. THEREFORE, AS RIG HTLY SUBMITTED BY THE LD. REPRESENTATIVE FOR THE ASSESSEE, THE DISTIN CTION MADE BY THE ASSESSING OFFICER BETWEEN THE CASE OF THE ASSESSEE AND THE CASES BEFORE THE APEX COURT AND THE MADRAS HIGH COURT IS NOT CORRECT. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE FACTS OF THE CASE ARE IDENTICAL TO THAT OF THE MADRAS HIGH COURT AND APEX COURT. 6. WE HAVE CAREFULLY GONE THROUGH THE JUDGMENT OF APEX COURT IN THE CASE OF MADRAS AUTO SERVICE (P) LTD. (SUPRA). THE A PEX COURT AT PARA 6 OF ITS JUDGMENT OBSERVED AS FOLLOWS:- 6. THE TEST FOR DISTINGUISHING BETWEEN CAPITAL EXP ENDITURE AND REVENUE EXPENDITURE IN OUR COUNTRY WAS LAID DOWN BY THIS CO URT IN ASSAM BENGAL CEMENT CO. LTD. V. CIT [1955] 27 ITR 34 . IN THAT C ASE, THE APPELLANT- COMPANY HAD ACQUIRED FROM THE GOVERNMENT OF ASSAM L EASE OF CERTAIN LIMESTONE QUARRIES FOR A PERIOD OF 20 YEARS FOR THE PURPOSE OF MANUFACTURE OF CEMENT. THE LESSEE HAD, INTER ALIA, AGREED TO PA Y AN ANNUAL SUM DURING THE WHOLE PERIOD OF THE LEASE AS A PROTECTION FEE A ND IN CONSIDERATION OF THAT PAYMENT, THE LESSOR UNDERTOOK NOT TO GRANT TO ANY P ERSON ANY LEASE, PERMIT OR PROSPECTING LICENCE FOR LIMESTONE. THIS COURT EX AMINED TESTS LAID DOWN IN VARIOUS CASES FOR DISTINGUISHING BETWEEN CAPITAL EX PENDITURE AND REVENUE EXPENDITURE. ONE OF THE STANDARD TESTS NOW IN USE W AS LAID DOWN IN THE CASE OF ATHERTON V. BRITISH INSULATED AND HELSBY CABLES LTD. [1925] 10 TC 155. IT SAID (PAGE 40 OF 27 ITR) : WHEN AN EXPENDITURE IS MADE, NOT ONLY ONCE AND FOR ALL BUT WITH A VIEW TO BRINGING INTO EXISTENCE AN ASSET OR AN ADVANTAGE FOR THE ENDURING BENEFIT OF A TRADE, I THINK THAT T HERE IS VERY GOOD REASON (IN THE ABSENCE OF SPECIAL CIRCUMSTANCES LEADING TO AN OPPOSITE CONCLUSION) FOR TREATING SUCH AN EXPENDITURE AS PROPERLY ATTRIBUTAB LE NOT TO REVENUE BUT TO CAPITAL. WHETHER BY SPENDING THE MONEY ANY ADVANTA GE OF AN ENDURING NATURE HAS BEEN OBTAINED OR NOT WILL DEPEND UPON TH E FACTS OF EACH CASE. MOREOVER, AS THE ABOVE PASSAGE ITSELF PROVIDES, THI S TEST WOULD NOT APPLY IF THERE ARE SPECIAL CIRCUMSTANCES POINTING TO THE CON TRARY. THIS COURT IN THE ABOVE CASE SUMMARISED THE TESTS AS FOLLOWS (PAGE 44 ) : 1. OUTLAY IS DEEMED TO BE CAPITAL WHEN IT IS MADE FOR THE INITIA TION OF A BUSINESS, FOR EXTENSION OF A BUSINESS, OR FOR A SUBSTANTIAL REPLA CEMENT OF EQUIPMENT. 2. EXPENDITURE MAY BE TREATED AS PROPERLY ATTRIBUTABLE TO CAPITAL WHEN IT IS MADE NOT ONLY ONCE AND FOR ALL, BUT WITH A VIEW TO BRINGING INTO EXISTENCE AN 16 ITA NOS.2227 & 2228/CHNY/2018 ASSET OR AN ADVANTAGE FOR THE ENDURING BENEFIT OF A TRADE. . . IF WHAT IS GOT RID OF BY A LUMP SUM PAYMENT IS AN ANNUAL BUSINESS EXPENSE CHARGEABLE AGAINST REVENUE, THE LUMP SUM PAYMENT SHOULD EQUALL Y BE REGARDED AS A BUSINESS EXPENSE, BUT IF THE LUMP SUM PAYMENT BRING S IN A CAPITAL ASSET, THEN THAT PUTS THE BUSINESS ON ANOTHER FOOTING ALTOGETHE R. 3. WHETHER FOR THE PURPOSE OF THE EXPENDITURE, ANY CAPITAL WAS WITHDRAWN, OR, IN OTHER WORDS, WHETHER THE OBJECT OF INCURRING THE EXPENDITURE WAS TO EMPLOY WHAT WAS TAKEN IN AS CAPITAL OF THE BUSINESS . AGAIN, IT IS TO BE SEEN WHETHER THE EXPENDITURE INCURRED WAS PART OF THE FI XED CAPITAL OF THE BUSINESS OR PART OF ITS CIRCULATING CAPITAL. (UNDE RLINING OURS) RELYING UPON THE SECOND TEST ENUMERATED ABOVE, LEA RNED COUNSEL FOR THE APPELLANT HAD SUBMITTED THAT THE ASSESSEE GOT ENDUR ING BENEFIT OF A CAPITAL NATURE BY SPENDING THE AMOUNT BECAUSE THE ASSESSEE OBTAINED A NEW BUILDING FOR A PERIOD OF 39 YEARS. THE DIFFICULTY, HOWEVER, IN THE PRESENT CASE, ARISES FROM THE FACT THAT THIS BUILDING WAS N EVER TO BELONG TO THE ASSESSEE. RIGHT FROM INCEPTION, THE BUILDING WAS OF THE OWNERSHIP OF THE LESSOR. THEREFORE, BY SPENDING THIS MONEY, THE ASSE SSEE DID NOT ACQUIRE ANY CAPITAL ASSET. THE ONLY ADVANTAGE WHICH THE ASSESSE E DERIVED BY SPENDING THE MONEY WAS THAT IT GOT THE LEASE OF A NEW BUILDI NG AT A LOW RENT. FROM THE BUSINESS POINT OF VIEW, THEREFORE, THE ASSESSEE GOT THE BENEFIT OF REDUCED RENT. THE HIGH COURT HAS, THEREFORE, RIGHTLY CONSID ERED THIS AS OBTAINING A BUSINESS ADVANTAGE. THE EXPENDITURE IS, THEREFORE, TO BE TREATED AS REVENUE EXPENDITURE. 7. WE HAVE GONE THROUGH THE JUDGMENT OF MADRAS H IGH COURT IN TVS LEAN LOGISTICS LTD. (SUPRA). THE MADRAS HIGH COURT AFTER CONSIDERING EXPLANATION 1 TO SECTION 32(1) OF THE ACT AND THE J UDGMENTS OF APEX COURT IN NASIRUDDIN V. SITA RAM AGARWAL (2003) 2 SCC 577 AND RAGHUNATH RAI BAREJA V. PUNJAB NATIONAL BANK (2007) 2 SCC 230, FO UND THAT SIMILAR EXPENDITURE IS REVENUE IN NATURE. IN FACT, THE MADR AS HIGH COURT HAS OBSERVED AS FOLLOWS:- 7. SIMILARLY, THERE SHOULD BE A LITERAL RULE OF IN TERPRETATION OF A STATUTE, WHICH IS THE FIRST AND FOREMOST PRINCIPLE OF INTERPRETATION AND WHERE THE WORDS OF A STATUTE ARE ABSOLUTELY CLE AR AND UNAMBIGUOUS, RECOURSE CANNOT BE HAD TO THE PRINCIPL ES OF INTERPRETATION OTHER THAN THE LITERAL RULE AND EVEN IF THE LITERAL 17 ITA NOS.2227 & 2228/CHNY/2018 INTERPRETATION RESULTS IN HARDSHIP OR INCONVENIENCE , IT HAS TO BE FOLLOWED. THE LANGUAGE EMPLOYED IN A STATUTE IS THE DETERMINATIVE FACTOR OF THE LEGISLATIVE EVENT AND EVEN ASSUMING T HERE IS A DEFECT OR ANY OMISSION IN THE WORDS USED IN THE LEGISLATIO N, THE COURT CANNOT CORRECT OR MAKE UP THE DEFICIENCY, ESPECIALL Y WHEN A LITERAL READING THEREOF PRODUCES AN INTELLIGIBLE RESULT AND ANY DEPARTURE FROM THE LITERAL RULE WOULD REALLY BE AMENDING THE LAW IN THE GARB OF INTERPRETATION, WHICH IS NOT PERMISSIBLE AND WHI CH WOULD BE DESTRUCTIVE OF JUDICIAL DISCIPLINE, VIDE RAGHUNATH RAI BAREJA V. PUNJAB NATIONAL BANK [2007] 135 COMP CAS 163 (SC) ; [2007] 2 SCC 230. 8. WHAT CONSTITUTES A CAPITAL EXPENDITURE AND WHAT DOES NOT, TO ATTRACT EXPLANATION 1 TO SECTION 32(1) OF THE ACT D EPENDS UPON THE CONSTRUCTION OF ANY STRUCTURE OR DOING ANY WORK OR IN RELATION TO AND BY WAY OF RENOVATION, EXTENSION OR IMPROVEMENT TO THE BUILDING WHICH IS PUT UP IN A BUILDING TAKEN ON LEASE BY HIM FOR CARRYING ON HIS BUSINESS AND PROFESSION OF THE ASSESSEE, BUT NO T IN A CASE OF CONSTRUCTION OF ANY STRUCTURE OR DOING ANY WORK OR RELATION TO WHERE SUCH BUILDING IS PUT UP/CONSTRUCTED FOR THE P URPOSE OF BUSINESS OR THE PROFESSION OF THE ASSESSEE IN A LAN D TAKEN ON LEASE BY THE ASSESSEE. BECAUSE THE ASSESSEE DID NOT ACQUI RE A CAPITAL ASSET, VIZ., THE LAND IN THE INSTANT CASE, BUT HAS PUT UP A CONSTRUCTION OF THE BUILDING ONLY FOR THE BUSINESS ADVANTAGE, WITH THE RESULT THE ENTIRE CONSTRUCTION COST IS ADMISSIB LE AS THE REVENUE EXPENDITURE. 9. THE APEX COURT IN L. H. SUGAR FACTORY AND OIL MILLS P. LTD. V. CIT [1980] 125 ITR 293 HELD THAT THE CONSTRUCTION O F ROADS IN THE CASE OF SUGAR MILL IS REVENUE EXPENDITURE. SIMILARL Y, CONTRIBUTION TO THE STATE HOUSING BOARD FOR CONSTRUCTION OF TENEMEN TS FOR THE WORKERS WAS ALSO HELD TO BE REVENUE EXPENDITURE BY THE APEX COURT IN THE CASE OF CIT V. BOMBAY DYEING AND MANUFACTURI NG CO. LTD. [1996] 219 ITR 521. 8. IN VIEW OF THE ABOVE JUDGMENT OF APEX COURT AND THE JUDGMENT OF MADRAS HIGH COURT, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUT HORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 9. IN THIS CASE, THE LEARNED CIT(A), AFTER CONSIDER ING THE FACT THAT CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE 18 ITA NOS.2227 & 2228/CHNY/2018 DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F M/S. MADRAS AUTO SERVICE (P) LTD. (SUPRA) HAS HELD THAT WHEN THE ASSESSEE CONSTRUCTS BUILDING ON LEASEHOLD LAND WITHOUT OWNERSHIP, THEN COST INCURRED FOR CONSTRUCTION OF B UILDING IS REVENUE EXPENDITURE WHICH DEDUCTIBLE. THE SAID FIND INGS OF THE LEARNED CIT(A) IS SUPPORTED BY THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF M/S. MADRAS A UTO SERVICE (P) LTD. (SUPRA) AND THE DECISION OF HON'B LE HIGH COURT OF MADRAS IN THE CASE OF TVS LEAN LOGISTICS LTD. (SUPRA). THE LEARNED CIT(A) HAS ALSO RECORDED CATE GORICAL FINDING OF FACT THAT THE ASSESSEE HAS DERIVED CLEAR ADVANTAGE OF SAVING IN RENT BY INCURRING EXPENDITUR E ON CONSTRUCTION OF BUILDING IN LIEU OF RENT. FURTHER, THERE IS CLEAR COMMERCIAL ADVANTAGE IN TERMS OF SAVING IN RENT PAY MENTS AS NARRATED BY THE LD. CIT(A) IN HER ORDER. THEREFO RE, WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO ERROR I N THE FINDINGS RECORDED BY THE LEARNED CIT(A) IN DELETING ADDITIONS MADE BY THE ASSESSING OFFICER TOWARDS DISALLOWANCE OF COST OF CONSTRUCTION ON LEASEHOLD L AND. 19 ITA NOS.2227 & 2228/CHNY/2018 HENCE, WE ARE INCLINED TO UPHOLD FINDINGS OF THE LE ARNED CIT(A) AND REJECT ARGUMENTS OF THE REVENUE. 10. AS REGARDS ARGUMENTS OF THE LEARNED DR IN LIGHT OF THE DECISION OF HON'BLE SUPREME COURT IN THE CASE O F M/S. MADRAS AUTO SERVICE (P) LTD. (SUPRA) AND THE DECIS ION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF EXPRESS HOTELS PVT.LTD (SUPRA), THAT THE ASSESSING OFFICER HAS APP LIED PROVISIONS OF SECTION 32(1) INSTEAD OF PROVISIONS O F SECTION 37(1) OF THE ACT AND HENCE, THE TRIBUNAL BEING FINA L FACT FINDING AUTHORITY SHALL COMPUTE CORRECT TAX LIABILI TY OF THE ASSESSEE IN LIGHT OF FACTS OF THE CASE BY APPLYING RIGHT PROVISIONS OF THE ACT, WE FIND THAT SINCE THERE IS CLEAR DIRECTION FROM THE TRIBUNAL ON NON-APPLICATION OF EXPLANATION (1) TO SECTION 32(1) OF THE ACT, THE QU ESTION WHETHER PROVISION OF SECTION 37(1) IS APPLICABLE OR NOT IS ACADEMIC IN NATURE AND HENCE, WE ARE NOT INCLINED T O GO INTO COMMENT ON ARGUMENTS OF THE LEARNED DR. WE FUR THER NOTED THAT CASE LAWS RELIED UPON BY THE DR ON THE P OWERS OF THE TRIBUNAL HAS NO APPLICATION TO THE FACTS OF THE PRESENT CASE, BECAUSE THE TRIBUNAL BEING FINAL FACT FINDING AUTHORITY 20 ITA NOS.2227 & 2228/CHNY/2018 HAS EVERY POWER TO ADJUDICATE THE ISSUE BEFORE IT I N LIGHT OF FACTS ON RECORD BROUGHT OUT BY BOTH THE PARTIES, BU T IT DOES NOT HAVE ANY POWER TO IMPROVE ORDER OF THE ASSESSIN G OFFICER. IN THIS CASE, CASE OF THE ASSESSING OFFICE R IS THAT EXPLANATION (1) TO SECTION 32(1) OF THE ACT IS SQUA RELY APPLICABLE TO THE INSTANT CASE OF THE ASSESSEE, WHE REAS THE TRIBUNAL HAS GIVEN CATEGORICAL FINDING IN EARLIER A SSESSMENT YEARS THAT EXPLANATION (1) TO SECTION 32(1) OF THE ACT HAS NO APPLICATION. FURTHER, IT IS NOT A CASE OF THE AO THAT EXPENDITURE INCURRED BY THE ASSESSEE IS NON GENUINE OR WHICH HAS NOT INCURRED FOR WHOLLY AND EXCLUSIVELY F OR THE PURPOSE OF BUSINESS. IN FACT, THE LD. AO HAD NEVER DISPUTED GENUINENESS OF EXPENDITURE. THE AO HAD ALSO NOT DIS PUTED FACT THAT THE ASSESSEE IS HAVING CONSTRUCTED BUILDI NG ON LEASEHOLD LAND HAS DERIVED COMMERCIAL ADVANTAGE BY PAYING LESSER RENT. THEREFORE, WE ARE OF THE CONSID ERED VIEW THAT THERE IS NO SCOPE FOR APPLYING PROVISIONS OF SECTION 37(1) TO DISALLOW EXPENDITURE AS HAS NOT BE EN INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOS E. 21 ITA NOS.2227 & 2228/CHNY/2018 THEREFORE, WE REJECT CASE LAWS RELIED UPON BY THE L EARNED DR FOR REVENUE. 11. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH VIEW TAKEN BY THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER ASSESSMENT YEARS, W E ARE OF THE CONSIDERED VIEW THAT THERE IS NO ERROR IN TH E FINDINGS RECORDED BY THE LEARNED CIT(A) TO DELETE ADDITIONS MADE BY THE ASSESSING OFFICER TOWARDS COST OF CONSTRUCTION INCURRED ON LEASEHOLD LAND, HENCE, WE ARE INCLINED TO UPHOL D ORDER OF THE LEARNED CIT(A) AND REJECT GROUNDS TAKEN BY T HE REVENUE. 12. IN THE RESULT, APPEAL FILED BY REVENUE IS DISMI SSED. ITA NO.2228/CHNY/2018 (A.Y.2012-13): 13. THE FACTS AND ISSUES INVOLVED IN THIS APPEAL AR E IDENTICAL TO THE FACTS AND ISSUES WHICH WE HAVE ALR EADY CONSIDERED IN ITA NO.2227/CHNY/2018 FOR THE ASSESSM ENT YEAR 2011-12. THE REASONS GIVEN BY US IN THE PRECE DING 22 ITA NOS.2227 & 2228/CHNY/2018 PARAGRAPHS IN ITA NO.2227/CHNY/2018 SHALL MUTATIS MUTANDIS APPLY TO THIS APPEAL AS WELL. THEREFORE, FOR SIMILA R REASONS, WE ARE INCLINED TO UPHOLD ORDER OF THE LEA RNED CIT(A) AND DISMISS APPEAL FILED BY THE REVENUE. 14. IN THE RESULT, APPEALS FILED BY THE REVENUE FOR BOTH ASSESSMENT YEARS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH AUGUST, 2021 SD/- SD/- ( ) ( . ) (MAHAVIR SINGH) (G. MANJUNATHA ) / VICE-PRESIDENT % / ACCOUNTANT MEMBER ' /CHENNAI, ( / DATED 9 TH AUGUST, 2021 DS *+ ,+ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. - () /CIT(A) 4. - /CIT 5. + 1 /DR 6. /GF .