Computer Access Pvt. Ltd., CHENNAI V. ACIT, CHENNAI

ITA 3084/CHNY/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95941 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-09-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 28-08-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 19-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A B KOLI IRS
• Assessee Lawyers: A S SRIRAMAN
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 32

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C(SMC) BENCH, CHENNAI , BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ./ I.T.A. NO.3084/MDS/2014 ( / ASSESSMENT YEAR : 2005-2006) M/S. COMPUTER ACCESS PVT. LTD, NO.1, DR. RANGA RAOD, 2 ND STREET, ALWARPET, CHENNAI 600 018. [PAN: AAACC 1374L] ( /APPELLANT) VS THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(3), CHENNAI ( !' /RESPONDENT) / APPELLANT BY : SHRI. A.S. SRIRAMAN, ADVOCATE / RESPONDENT BY : SHRI. A.B. KOLI, IRS, JCIT. /DATE OF HEARING : 28.08.2015 /DATE OF PRONOUNCEMENT : 02.09.2015 # / O R D E R THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-I, CHENNAI, DA TED 24.07.2014 FOR THE ASSESSMENT YEAR 2005-2006. 2. THE GRIEVANCE OF THE ASSESSEE IN THIS APPEAL IS WIT H REGARD TO TREATING AN EXPENDITURE OF A3,89,670/- INCURRED ON PARTITIONS AND I.T.A.NO.3084/MDS/2014 :- 2 -: STRUCTURES FOR THE LEASEHOLD BUILDING, AS CAPITAL E XPENDITURE AND GRANTED DEPRECIATION AT 15%, WHERE THE ASSESSEE CL AIMED IT AS REVENUE EXPENDITURE. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE INCURR ED AN EXPENDITURE OF A3,89,670/- TOWARDS PARTITIONS AND S TRUCTURES FOR THE BUILDING AND THE ASSESSEE CLAIMED THE ENTIRE AMOUNT AS REVENUE EXPENDITURE. HOWEVER, THE ASSESSING OFFICER OBSERVE D THAT AS PER EXPLANATION 1 TO SEC 32 OF THE ACT, IF AN ASSESSEE INCURS EXPENDITURE ON LEASEHOLD PREMISES FOR THE CONSTRUCTION OF ANY S TRUCTURE OR DOING OF ANY WORK IN OR IN RELATION TO OR BY WAY OF RENOVATI ON OF IMPROVEMENT, IS CONSIDERED TO BE A CAPITAL EXPENDITURE AND DEPRE CIATION WILL BE PROVIDED ACCORDINGLY. ACCORDINGLY, HE ALLOWED DEPR ECATION AT 15%. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). 4. THE COMMISSIONER OF INCOME TAX (APPEALS) CONS IDERED THE ARGUMENT OF ASSESSEE AND OBSERVED THAT THE ASSESSEE HAD PUT UP WOODEN PARTITIONS, PLYWOOD FIXATION AND OTHER INTER IOR WORKS BY WAY OF RENOVATION AND IMPROVEMENT IN THE LEASED PREMISES. THERE WAS ALSO NO HARD AND FAST RULE THAT ALL THE EXPENDITURE ON L EASEHOLD PREMISES WILL PARTAKE THE CHARACTER OF REVENUE EXPENDITURE. THE EXPENDITURE I.T.A.NO.3084/MDS/2014 :- 3 -: INCURRED BY THE ASSESSEE WAS DEFINITELY FOR IMPROVI NG THE LEASED PREMISES, MAKING IT FIR FOR CARRYING OUT ITS BUSINE SS. FURTHER THE IMPROVEMENTS CARRIED OUT BY THE ASSESSEE ON THE LEA SED PREMISES ARE NOT MEANT FOR DISMANTLING IN THE SAME YEAR OR IN TH E NEXT YEAR. HE OBSERVED THAT THE ASSESSING OFFICER WAS JUSTIFIED I N DISALLOWING THE SAME AS CAPITAL EXPENDITURE AS PER EXPLANATION 1 TO SEC.32 AND ALLOWING DEPRECIATION ON THE SAME. ACCORDINGLY, THE COMMISSIONER OF INCOME TAX (APPEALS) DISMISSED THE GROUND OF THE AS SESSEE. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 5. BOTH SIDES HEARD AND PERUSED THE MATERIAL ON RECOR D. IN THIS CASE THERE IS NO DISPUTE WITH REGARD TO ASSESSEE IN CURRING THE ABOVE EXPENDITURE ON LEASEHOLD PREMISES. THE FACT IS TH AT THE EXPENDITURE WAS INCURRED FOR MAKING WOODEN PARTITIONS AND TEMPO RARY STRUCTURES IN THE LEASEHOLD BUILDING AND THE ABOVE ADDITIONS DOES NOT HAVE ANY CIVIL WORK. BEING SO, THE FINDINGS OF THE TRIBUNAL IN THE CASE OF M/S. SUNDARAM ASSET MANAGEMENT CO. LTD IN ITA NOS.1241 & 1154/MDS/2014 FOR THE ASSESSMENT YEARS 2009-10 & 20 10-2011, DATED 22.08.2014 IS SQUARELY APPLICABLE TO THIS CASE, WHEREIN IT WA S HELD AS UNDER:- 10. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHORITIES AND THE DECISION OF THIS TRIBUNAL RELIE D ON. THE ASSESSING OFFICER WHILE COMPLETING THE I.T.A.NO.3084/MDS/2014 :- 4 -: ASSESSMENT DISALLOWED THESE EXPENSES CLAIMED BY THE ASSESSEE TOWARDS RENOVATION AND REPAIRS TREATIN G THE SAME AS CAPITAL EXPENDITURE. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APPEALS) FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008- 09 DELETED THE DISALLOWANCE, AGAINST WHICH THE REVENUE IS IN APPEAL BEFORE US. THIS TRIBUNAL WHIL E DEALING WITH SIMILAR ISSUE IN ASSESSEES OWN CASE F OR THE ASSESSMENT YEAR 2008-09 OBSERVED AS UNDER:- IV. THE FOURTH GROUND OF APPEAL OF THE ASSESSEE RELATES TO REPAIRS OF LEASE-HOLD PREMISES. THE ASSESSEE HAS PLACED ON RECORD AT PAGE NO. 42 OF THE PAPER BOOK, THE NATURE OF WORK CARRIED OUT BY THE ASSESSEE IN THE LEASED OFFICE PREMISES. THE ASSESSEE HAS CLAIMED THE EXPENDITURE ON CIVIL WORK WHICH INCLUDES DEMOLITION, PAINTING, FLOORING AND PARTITION ETC., AMOUNTING TO RS.2,06,61,216/- AS REVENUE EXPENDITURE. THE AUTHORITIES BELOW HAVE HELD THE SAME TO BE CAPITAL EXPENDITURE. THE ASSESSEE HAS TAKEN OFFICE BUILDING ON LEASE FOR THE PERIOD OF THREE YEARS WITH A NO OPTION TO EXTEND WITH THE CONSENT OF BOTH PARTIES. AN EXPLANATION1 TO SECTION 32(1) CLEARLY SPELLS OUT THAT WHERE THE BUSINESS OR PROVISION OF THE ASSESSEE IS CARRIED ON IN A BUILDING NOT OWNED BY HIM, IN RESPECT OF WHICH THE ASSESSEE HOLDS A LEASE OR OTHER RIGHTS OF OCCUPANCY, ANY CAPITAL EXPENDITURE IS INCURRED BY THE ASSESSEE FOR THE PURPOSE OF THE BUSINESS OR PROFESSION ON THE CONSTRUCTION OF ANY STRUCTURE OR DOING OF ANY WORK IN OR IN RELATION TO AND BYWAY OF RENOVATION OR EXTENSION OR IMPROVEMENT TO THE BUILDING, THEN THE PROVISIONS OF THIS CLAUSE SHALL APPLY AS IF THE SAID STRUCTURE OR WORK IS BUILDING OWNED BY THE ASSESSEE. HOWEVER, THE AFORESAID PROVISIONS ARE APPLICABLE WHERE NEW ASSET HAS COME INTO EXISTENCE. THE ASSESSEE IN SUPPORT OF HIS CONTENTIONS I.T.A.NO.3084/MDS/2014 :- 5 -: HAS RELIED ON THE ORDER OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF M/S. SUNDARAM BNP PARIBAS ASSET MANAGEMENT COMPANY LTD., VS. ACIT (SUPRA), THE TRIBUNAL IN THE AFORESAID ORDER HAS HELD AS UNDER: 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PERUSAL OF THE BREAKUP OF THE EXPENSES WHICH HAVE BEEN DISALLOWED CLEARLY SHOWS THAT THE EXPENDITURES ARE ON THE INTERIOR DECORATIONS AND CREATION OF THE OFFICE ATMOSPHERE. THE EXPENDITURE HAS NOT RESULTED IN ANY BUILDING COMING INTO EXISTENCE NOR HAS THE EXISTING BUILDING BEEN MODIFIED OR THE STRUCTURE ALTERED. AS THE EXISTING BUILDING HAS NOT BEEN ALTERED AND THERE IS NO CHANGE TO ITS STRUCTURE AS A RESULT OF THE EXPENDITURE INCURRED BY THE ASSESSEE, IT CANNOT BE SAID THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IS IN THE CAPITAL FIELD. FURTHER A PERUSAL OF THE EXPENDITURE CLEARLY SHOWS THAT IT IS IN THE REVENUE FIELD. IN THE CIRCUMSTANCES WE ARE OF THE VIEW THAT THE EXPENDITURE ON THE REPAIRS AND MAINTENANCE IN THE FORM OF ELECTRICAL FITTINGS, ELECTRIFICATION CABINET, WORK STATION, PARTITION, CUPBOARD, STAND ETC. ARE LIABLE TO BE TREATED AS A REVENUE EXPENDITURE. IN THE CIRCUMSTANCES, THE ORDERS OF THE LEARNED CIT(A) AND THE ASSESSING OFFICER ARE REVERSED ON THIS ISSUE AND THE ASSESSING OFFICER IS DIRECTED TO GRANT THE ASSESSEE THE CLAIM OF REVENUE EXPENDITURE IN REGARD TO THE SAID EXPENDITURE. CONSEQUENTLY, THE DEPRECIATION AS ALLOWED BY THE ASSESSING OFFICER ON THE SAID EXPENDITURE WHICH HAS BEEN CAPITALIZED WOULD STAND REVERSED. WHETHER THE EXPENDITURE INCURRED ON RENOVATION OF A BUILDING IS CAPITAL OR REVENUE, IS A QUESTION OF FACT. THE SAME HAS TO BE DECIDED ON THE FACTS OF I.T.A.NO.3084/MDS/2014 :- 6 -: EACH CASE. WE FIND THAT THE FACTS OF THE CASE OF THE ASSESSEE ARE SIMILAR TO THE ONE ADJUDICATED BY THE TRIBUNAL MENTIONED ABOVE. THE CIVIL WORK RELATES TO THE INTERIOR DECORATION AND CREATION OF THE OFFICE ATMOSPHERE. RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED AND THE EXPENDITURE INCURRED BY THE ASSESSEE IN MODIFYING THE INTERIORS OF A BUILDING INTO OFFICE ARE HELD TO BE REVENUE IN NATURE. 11. THE CO-ORDINATE BENCH CONSIDERED A SIMILAR ISSUE WHERE THE ASSESSEE CLAIMED EXPENDITURE ON CIV IL WORK WHICH INCLUDES DEMOLITION, PAINTING, FLOORING AND PARTITION ETC. AS REVENUE EXPENDITURE. THE TRIBUNA L AFTER CONSIDERING EXPLANATION 1 TO SECTION 32(1) AN D ALSO THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S. SUNDARAM BNP PARIBAS ASSET MANAGEMENT COMPANY LTD. VS. ACIT IN ITA NO.518/MDS/2010 DATED 7 TH JANUARY, 2011, HELD THAT EXPENDITURE INCURRED BY THE ASSESSEE IS REVENUE IN NATURE. RESPECTFULLY FOLLOWING THE SAID DECISION, WE HOLD THAT THE EXPENDITURE INCURRED BY THE ASSESSEE FOR DEMOLITION, PAINTING, FLOORING, PARTITION, MODULAR AND ELECTRICAL WORKS ON THE LEASEHOLD PREMISES IS REVEN UE EXPENDITURE. THUS, WE UPHOLD THE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE AND REJECT THE GROUNDS OF APPEAL RAISED BY THE REVENUE. A SIMILAR DECISION WAS TAKEN BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF THIRU AROORAN SUGAR LTD. VS. DCIT, 350 ITR 0324 (M AD ) WHEREIN IT WAS HELD THAT THE EXPENDITURE INCURRED IN RESPECT OF MAINTENANCE OF LEASED PREMISES IS DEDUCTIBLE AS REV ENUE EXPENDITURE. SIMILAR VIEW WAS ALSO TAKEN BY THE JURISDICTIONAL H IGH COURT IN THE CASE OF CIT VS. AYESHA HOSPITALS (P) LTD 292 ITR 266 , WHEREIN IT WAS HELD I.T.A.NO.3084/MDS/2014 :- 7 -: THAT EXPENDITURE INCURRED BY ASSESSEE ON PAINTIN G RELAYING OF DAMAGED FLOORS, PARTITIONS ETC. IN LEASEHOLD PREMIS ES IS ALLOWABLE AS REVENUE EXPENDITURE. 6. BEING SO, TAKING A CONSISTENT VIEW ON THE ABOVE M ATTER, I AM INCLINED TO ALLOW THE APPEAL OF THE ASSESSEE. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO.3084/MDS/2014 IS ALLOWED. ORDER PRONOUNCED ON WEDNESDAY, THE 2ND DAY OF SEPT EMBER, 2015, AT CHENNAI. SD/- ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER !' /CHENNAI. #$ /DATED:02.09.2015. KV $% &' (' /COPY TO: 1. ) APPELLANT 2. / RESPONDENT 3. * ( )/CIT(A) 4. * /CIT 5. '+, - /DR 6. ,. / /GF.