ACIT, CHENNAI V. M/s. Fraser & Ross, CHENNAI

ITA 2240/CHNY/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90725 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 04-06-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 23-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure
• Section: 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C B ENCH, CHENNAI . , ! # , $ & BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./ I.T.A.NO . 2240/MDS/2013 ( / ASSESSMENT YEAR: 2005-06) ASSISTANT COMMISSIONER OF INCOME TAX, BUSINESS CIRCLE-I CHENNAI-34. VS M/S. FRASER & ROSS ASVN RAMAN TOWER 52, VENKATNARAYANA ROAD, T.NAGAR CHENNAI-600 017. PAN: AAAFF0644F ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. A.V.SREEKANTH, JCIT /RESPONDENT BY : MR. S.P.CHIDAMBARAM, C.A. /DATE OF HEARING : 4 TH JUNE, 2015 /DATE OF PRONOUNCEMENT : 29 TH JULY, 2015 / O R D E R PER CHALLA NAGENDRA PRASAD, JM: THIS APPEAL IS FILED BY THE REVENUE AGAINST THE OR DER OF THE COMMISSIONER OF INCOME TAX APPEALS(CENTRAL)-I, CHENNAI DATED 27.09.2013 FOR THE ASSESSMENT YEAR 2 005-06. THE ONLY ISSUE IN THE APPEAL OF THE REVENUE IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DIREC TING THE ASSESSING OFFICER TO ALLOW 100% DEPRECIATION ON LEA SEHOLD IMPROVEMENTS CARRIED OUT BY THE ASSESSEE ON TWO PRE MISES ONE AT CHENNAI AND THE OTHER AT COIMBATORE. 2 ITA NO.2240 /MDS/2013 2. THE CONTENTION OF THE REVENUE IS THAT COMMISSION ER OF INCOME TAX (APPEALS) FAILED TO APPRECIATE THE NATUR E OF WORK CARRIED OUT SUCH AS FALSE CEILING, WOODEN PARTITION ALONG WITH SOME TEMPORARY STRUCTURES AND GLASS/WOODEN PANE WOR KS IN THE TWO PREMISES CAN BE CLASSIFIED AS FITTING AND DEPRECIATION AT 15% ONLY IS ALLOWABLE. 3. COUNSEL FOR THE ASSESSEE SUBMITS THAT DURING THE ASSESSMENT YEAR ASSESSEE INCURRED EXPENDITURE OF ` 22,53,892/- TOWARDS LEASEHOLD IMPROVEMENTS IN THE N ATURE OF FALSE CEILING, WOODEN PARTITION, GLASS / WOODEN PANES AND OTHER TEMPORARY STRUCTURES ON THE LEASED PREMISES O CCUPIED AND USED BY THE ASSESSEE FOR CARRYING ON ITS PROFES SION. THE ASSESSEE CLAIMED 100% DEPRECIATION ON THE ABOVE LEA SEHOLD IMPROVEMENTS AS THEY ARE IN THE NATURE OF TEMPORARY STRUCTURES AND THE ASSESSEE IS NOT DERIVING ANY END URING BENEFIT OUT OF SUCH TEMPORARY STRUCTURES. COUNSEL F OR THE ASSESSEE SUBMITS THAT ASSESSING OFFICER TREATED THE EXPENDITURE AS CAPITAL EXPENDITURE HAVING ENDURING BENEFIT AND ALLOWED DEPRECIATION APPLICABLE TO FITTINGS AT 15%. COUNSEL FOR THE ASSESSEE SUBMITS THAT BY VERY NATUR E ALL THE 3 ITA NO.2240 /MDS/2013 ITEMS LOOSE ITS INDEPENDENT IDENTITY AND BECAME PAR T OF LEASEHOLD PREMISES AND ARE NOT RETRIEVABLE. THEREFO RE, HE SUBMITS THAT NEITHER NEW ASSET HAS COME INTO EXISTE NCE NOR IS THE BENEFIT OF ENDURING NATURE. COUNSEL FOR THE ASS ESSEE THEREFORE SUBMITS THAT EXPENDITURE INCURRED ON TEMP ORARY STRUCTURES IS ELIGIBLE FOR 100% DEPRECIATION. IN T HE ALTERNATIVE, COUNSEL SUBMITS THAT EXPENDITURE IS ALLOWABLE AS RE VENUE EXPENDITURE UNDER SECTION 37 OF THE ACT. HE SUBMITS THAT COMMISSIONER OF INCOME TAX (APPEALS) ACCEPTED THE P LEA OF THE ASSESSEE IN VIEW OF THE VARIOUS DECISIONS OF JU RISDICTIONAL HIGH COURT AND ALLOWED THE CLAIM OF THE ASSESSEE T HAT EXPENDITURE INCURRED ON LEASED PREMISES IS ALLOWAB LE AT 100% DEPRECIATION. THEREFORE, HE STRONGLY SUPPORTS THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). HE PL ACES RELIANCE ON THE DECISION OF CO-ORDINATE BENCH OF TH IS TRIBUNAL IN THE CASE OF VISUAL GRAPHICS COMPUTING SERVICES I NDIA PVT. LTD. VS. DCIT IN ITA NO.617/MDS/2011 DATED 29.05.20 15 AND IN THE CASE OF VICTORY FINANCIAL SERVICES P.LTD. VS . ACIT IN ITA NO.854/MDS/2014 DATED 15.05.2015 AND THE DECISI ON OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. AR MOUR 4 ITA NO.2240 /MDS/2013 CONSULTANTS P.LTD., (32 TAXMANN.COM 172) IN SUPPORT OF HIS SUBMISSIONS. 4. DEPARTMENTAL REPRESENTATIVE SUPPORTS THE ORDER O F THE ASSESSING OFFICER IN HOLDING THAT EXPENDITURE IN TH E LEASED PREMISES IN RESPECT OF FALSE CEILING, WOODEN PARTIT ION GLASS/WOODEN PANE AND OTHER TEMPORARY STRUCTURES A S CAPITAL EXPENDITURE AND DEPRECIATION IS ALLOWABLE @ 15% AS APPLICABLE TO FITTINGS. HE PLACES RELIANCE ON THE D ECISION OF VISAKHAPATNAM BENCH OF THIS TRIBUNAL IN THE CASE OF ACIT VS. EFFTRONICS SYSTEMS P.LTD. (15 TAXMANN.COM 345), MUMBAI BENCH OF THIS TRIBUNAL IN THE CASE OF FREE I NDIA ASSURANCE SERVICES LTD. VS. DCIT (12 TAXMANN.COM 42 4), CHENNAI BENCH OF THIS TRIBUNAL IN THE CASE OF ABT L TD. VS. ACIT (30 TAXMANN.COM 11) AND THE DECISION OF HIGH C OURT OF PUNJAB IN THE CASE OF UTTAR BHARAT EXCHANGE LTD. VS . CIT (55 ITR 550). 5. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHOR ITIES AND THE DECISIONS RELIED ON. THE ASSESSEE INCURRED EXPENDITURE TOWARDS FALSE CEILING, WOODEN PARTITION , GLASS / 5 ITA NO.2240 /MDS/2013 WOODEN PANES AND OTHER TEMPORARY STRUCTURES IN THE LEASEHOLD PREMISES OCCUPIED BY IT FOR ITS PROFESSIO N AND CLAIMED 100% DEPRECIATION ON SUCH EXPENDITURE. TH E ASSESSING OFFICER DISALLOWED THE SAME TREATING IT A S CAPITAL EXPENDITURE AND ALLOWED DEPRECIATION @ 15%. ON APPE AL, THE COMMISSIONER OF INCOME TAX (APPEALS) FOLLOWING THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF THIRU AROORAN SUGARS LTD. VS. DCIT (350 ITR 324) ALLOWED THE CLAIM OF THE ASSESSEE HOLDING THAT IN THE INSTANT CASE FALSE CEILING, WOODEN PARTITION ERECTED IN THE LEASEHOLD PREMISES ARE TO BE CLASSIFIED AS TEMPORARY STRUCTURES AND TH E EXPENDITURE INCURRED TOWARDS THE SAME IS NOT CAPITA L EXPENDITURE IN VIEW OF THE DECISION OF HIGH COURT I N THE CASE OF THIRU AROORAN SUGARS LTD. (SUPRA), WHEREIN IT WA S HELD THAT TEMPORARY STRUCTURES BY MEANS OF FALSE CEILING AND OFFICE RENOVATION HAS NOT RESULTED INTO CAPITAL EXPENDITUR E . ON GOING THROUGH THE DECISIONS RELIED ON, WE FIND THAT THE ISSUE HAS BEEN DECIDED BY THE CO-ORDINATE BENCH OF THIS T RIBUNAL IN FAVOUR OF THE ASSESSEE IN THE CASE OF VICTORY FINAN CIAL SERVICES P.LTD. VS. ACIT (SUPRA) WHEREIN ON SIMILAR CIRCUMSTANCES, THE CO-ORDINATE BENCH FOLLOWING THE DECISION 6 ITA NO.2240 /MDS/2013 OF THIRU AROORAN SUGARS LTD. (SUPRA) AND THE DECISI ONS OF OTHER HIGH COURTS HELD THAT EXPENDITURE INCURRED ON TEMPORARY STRUCTURES TOWARDS WOODEN AND INTERIOR WO RKS FOR OFFICE PURPOSES IS ALLOWABLE AS REVENUE EXPENDITURE AND WHILE HOLDING SO, THE TRIBUNAL HELD AS UNDER:- 7. THE NEXT ISSUE IN THE GROUNDS OF APPEAL OF THE ASSESSEE IS THAT COMMISSIONER OF INCOME TAX (APPEAL S) ERRED IN UPHOLDING THE ADDITION MADE OF ` 4,78,054/- TREATING THE EXPENSES INCURRED FOR IMPROVEMENT OF LEASEHOLD BUILDING AS CAPITAL EXPENDITURE. THE ASS ESSING OFFICER WHILE COMPLETING THE ASSESSMENT NOTICED THA T ASSESSEE SPENT ` 5,03,220/- FOR IMPROVEMENT OF LEASE HOLD BUILDING AND HAS BEEN CLAIMED AS REVENUE EXPENDITURE. HE OBSERVED THAT ASSESSEE COMPANY MOVED TO NEW PREMISES WHICH WAS TAKEN ON LEASE AND INCURRED EXPENDITURE FOR WOODEN AND OTHER INTERIOR WORKS. THE ASSESSING OFFICER DISALLOWED THE SAID EXPENSES TREATING THE EXPENDITURE AS CAPITAL EXPENDITURE AND ALLOWED DEPRECIATION @ 10% ON SUCH WOODEN AND INTERIOR WORKS. ON APPEAL, COMMISSIONER OF INCOME T AX (APPEALS) UPHELD THE DISALLOWANCE OBSERVING THAT ASSESSEE IS STILL OCCUPYING THE LEASED PREMISES AND THE EXPENDITURE RESULTED IN ENDURING BENEFIT. 8. COUNSEL FOR THE ASSESSEE SUBMITS THAT EXPENDITUR E WAS INCURRED FOR WOODEN AND INTERIOR WORKS AND TO M AKE THE LEASED PREMISES SUITABLE FOR OFFICE/BUSINESS PURPOSES. HE SUBMITS THAT ASSESSEE IS NOT DERIVING ANY ENDURING BENEFIT BY INCURRING SUCH EXPENSES. COUNSE L PLACES RELIANCE ON THE DECISIONS OF THE HONBLE MAD RAS HIGH COURT IN THE FOLLOWING CASES:- I) THIRU AROORAN SUGARS LTD. VS. DCIT (2013) (31 TAXMANN.COM 3) II) CIT VS. HARIDAS BHAGATH & CO.P.LTD., (240 ITR 1 69) III) CIT VS. AYESHA HOSPITALS P.LTD. (292 ITR 266) 9. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTS THE ORDERS OF LOWER AUTHORITIES AND HE PL ACES 7 ITA NO.2240 /MDS/2013 RELIANCE ON THE DECISION OF HIGH COURT OF PUNJAB IN THE CASE OF UTTAR BHARAT EXCHANGE LTD. VS. CIT (55 ITR 550). 10. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHORITIES AND THE DECISIONS RELIED ON. ON GOING T HROUGH THE ASSESSMENT ORDER, WE FIND THAT THE ASSESSEE HAS INCURRED EXPENSES ON LEASED PREMISES TOWARDS WOODEN AND INTERIOR WORKS FOR OFFICE PURPOSES. IN THE CASE OF THIRU AROORAN SUGARS LTD. VS. DCIT (SUPRA) THE HON BLE HIGH COURT HELD THAT EXPENDITURE INCURRED ON TEMPOR ARY STRUCTURES BY MEANS OF FALSE CEILING AND OFFICE REN OVATION ON LEASED PREMISES ARE DEDUCTIBLE AS REVENUE EXPENDITURE. IN THE CASE OF CIT VS. HARIDAS BHAGA TH & CO.P.LTD., (SUPRA) THE HONBLE HIGH COURT HELD THA T EXPENDITURE PROVIDED ON EXTRA AMENITIES IN LEASEH OLD PREMISES I.E. SOME CONSTRUCTION WORK TO MAKE THE PROPERTY SUITABLE FOR BUSINESS PURPOSES IS REVENUE EXPENDITURE AND NO CAPITAL ASSET BROUGHT INTO EXIST ENCE. IN THE CASE OF CIT VS. AYESHA HOSPITALS P.LTD. (SUP RA), THE HONBLE HIGH COURT HELD THAT EXPENDITURE ON PAI NTING, RELAYING OF DAMAGED FLOORS, PARTITIONS ETC. IN LEA SEHOLD PREMISES ARE ALLOWABLE AS REVENUE EXPENDITURE. THE HIGH COURT FURTHER HELD THAT SUCH EXPENDITURE CANNO T BE CONSIDERED TO BE A CAPITAL EXPENDITURE OF THE NATUR E MENTIONED IN EXPLANATION 1 TO SECTION 32(1) OF THE ACT. ALL THESE DECISIONS SUPPORT THE CONTENTION OF THE ASSES SEE THAT EXPENDITURE ON WOODEN AND INTERIOR WORKS ON TH E LEASED PREMISES INCURRED FOR OFFICE PURPOSES IS ALL OWABLE AS REVENUE EXPENDITURE. THUS, RESPECTFULLY FOLLOWIN G THE ABOVE CITED DECISIONS, WE DIRECT THE ASSESSING OFFI CER TO ALLOW THIS EXPENDITURE AS REVENUE EXPENDITURE. 6. SIMILARLY, CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF VISUAL GRAPHICS COMPUTING SERVICES INDIA PVT LTD . VS. DCIT IN ITA NO.617/MDS/2011 DATED 29.05.2015 HELD AS UNDER:- 6. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE, IN THIS CASE, INC URRED EXPENDITURE TOWARDS IMPROVEMENT TO LEASEHOLD PREMIS ES WHICH INCLUDE FALSE CEILINGS, DISMANTLING EXISTING GRANITE FLOORING, INTERIOR WORKS AT TECHNOPARK OFFICE, PROV IDING TEAK WOOD FOR DOOR FRAMES, LAYING CERAMIC TILES, P ARTITION 8 ITA NO.2240 /MDS/2013 WORK, SUSPENDED CEILING SYSTEM, WALL AND COLUMN PANELLING, SANITARY WORK, PAINTING AND CLEANING WOR K, DATA AND VOICE CABLING WORK ETC. AND CONSIDERED THE SAME AS TEMPORARY STRUCTURES AND CLAIMED 100% DEPRECIATION. THERE IS NO DISPUTE THAT THE EXPENDITURE INCURRED F OR RENOVATING THE EXISTING LEASEHOLD PREMISES. THE ASSESSEE HAS NOT EXTENDED ANY CONSTRUCTION IN TH E LEASEHOLD PREMISES. IT INCURRED THE EXPENDITURE FOR BEAUTIFYING THE EXISTING LEASEHOLD PREMISES. BEING SO, IT CANNOT BE SAID THAT THE EXPENDITURE IS RESULTED IN CREATION OF ANY NEW CAPITAL ASSET. IN OUR OPINION, THE EXPEN DITURE INCURRED BY THE ASSESSEE ON PROVIDING WOODEN PARTITION, PAINTINGS, INTERIOR WORKS AND OTHER REPAIRS TO THE LEASEHOLD PREMISES ETC. ARE TO BE CONSIDERED AS REV ENUE EXPENDITURE. THIS VIEW IS FORTIFIED BY THE JUDGMENT OF THE DELHI HIGH COURT IN THE CASE OF CIT V. ESCORTS FINA NCE LTD. (205 CTR 574), WHICH WAS FOLLOWED BY THE CO- ORDINATE BENCH OF THE TRIBUNAL IN ITA NO.1254/MDS/2 012 FOR THE ASSESSMENT YEAR 2008-09 VIDE ORDER DATED 22.11.2012 IN THE CASE OF DR. AGARWALS EYE HOSPITA L. FURTHER, THE SAME VIEW WAS TAKEN BY THE JURISDICTIO NAL HIGH COURT IN THE CASE OF THE CASE OF CIT V. ARMOUR CONSULTANTS P. LTD. (85 DTR 361), WHEREIN IT WAS HE LD THAT THE EXPENDITURE INCURRED BY THE ASSESSEE FOR D ESIGN, LAYOUT AND MATERIAL CONSTRUCTION, FABRICATION WORKS IN LEASED PREMISES ARE DEDUCTIBLE AS REVENUE EXPENDITU RE. IT ALSO CLARIFIED BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S. THIRU AROORAN SUGARS LTD. IN TAX CASE (APPEAL) NO. 197 OF 2005 DATED 26.7.2011, THAT EXPLANATION (1) TO SEC.32(1) OF THE INCOME-TAX ACT, 1961, WHICH WAS INSERTED WITH EFFECT FROM 1.4.1988, IS AN EXCEPTIONAL ONE WHICH PERMITS DEPRECIATION IN CASES WHERE THE ASSESSEE DOES NOT OWN A BUILDING IN RESPE CT OF WHICH, THE ASSESSEE INCURS CAPITAL EXPENDITURE ON T HE CONSTRUCTION OF ANY STRUCTURE OR DOING OF ANY WORK, IN OR IN RELATION TO, AND BY WAY OF RENOVATION OR EXTENSION OF, OR IMPROVEMENT TO THE BUILDING. FURTHER, IT WAS HELD T HAT THE TEMPORARY STRUCTURE BY MEANS OF FALSE CEILING AND O FFICE RENOVATION HAD NOT RESULTED IN ANY CAPITAL EXPENDIT URE. THE BENEFIT OF THE ABOVE DECISION, APPLIES TO THE F ACTS OF THE PRESENT CASE. ACCORDINGLY, WE ARE INCLINED TO D ISMISS THIS GROUND TAKEN BY THE REVENUE. 7. RESPECTFULLY FOLLOWING THE SAID DECISIONS, WE U PHOLD THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEAL S) IN 9 ITA NO.2240 /MDS/2013 ALLOWING THE CLAIM OF THE ASSESSEE AND REJECT THE G ROUNDS RAISED BY THE REVENUE. 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH JULY, 2015. SD/- SD/- ( # ) ( & (# ) ( CHANDRA POOJARI ) ( CHALLA NAGENDRA PRASAD ) * / ACCOUNTANT MEMBER ( * / JUDICIAL MEMBER ( /CHENNAI, , /DATED 29 TH JULY, 2015 SOMU ./ 0/ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. 1 () /CIT(A) 4. 1 /CIT 5. / 5 /DR 6. /GF .