INGA LABORATORIES P. LTD, MUMBAI V. DCIT 8(2), MUMBAI

ITA 7986/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4196 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-07-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 18-06-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 28-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI . . , , BEFORE SHRI B.R. MITTAL, JM AND SHRI RAJENDRA, AM ./I.T.A. NO. 7986/MUM/2011 ( / ASSESSMENT YEARS: 2008-09) M/S INGA LABORATORIES PVT.LTD INGA HOUSE, MAHAKALI CAVES ROAD, ANDHERI (E), MUMBAI-400093 / VS. DY. COMMISSIONER OF INCOME TAX 8(2), AAYAKAR BHAVAN, M K ROAD, MUMBAI-400020. ./ ./PAN/GIR NO. :AAAC11737K ( ' /APPELLANT ) .. ( # ' / RESPONDENT ) ' / APPELLANT BY : SHRI SATISH MODI # ' % /RESPONDENT BY : MS.NEERAJA PRADHAN % ( / DATE OF HEARING : 18.6.2013 % ( /DATE OF PRONOUNCEMENT : 05.7.2013 / O R D E R PER B.R.MITTAL JM: THE ASSESSEE FILED THIS APPEAL FOR ASSESSMENT YEAR 2008-09 AGAINST ORDER OF LD. CIT(A),XXII DATED 27.10.2011. 2. GROUND NO.1 OF THE APPEAL IS REPRODUCED BELOW : 1. THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DIS ALLOWANCE OF EXPENDITURE INCURRED ON REPAIRS OF RS.56,67,543/- ON THE PREMI SES TAKEN ON RENTAL FROM M/S INDO GERMAN ALKALOIDS AND THEREBY NOT APPRECIATING THE FACT OF THE CASE AND THE NATURE OF EXPENSES INCURRED. 3. THE RELEVANT FACTS GIVING RISE TO THIS APPEAL AR E THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURER OF DRUG/ PHARMA PRODUC T. THE ASSESSEE FILED RETURN OF INCOME. DURING THE COURSE OF ASSESSMENT PROCEEDING S, THE AO NOTED THAT THE TOTAL TURNOVER OF THE ASSESSEE HAD INCREASED BY 13.8%, W HEREAS OTHER OPERATING EXPENSES I.T.A. NO. 7986/MUM/2011 2 INCREASED BY 27.27% WHEN COMPARED TO THE CORRESPOND ING FIGURES OF THE LAST YEAR. THE AO ON SCRUTINIZING THE DETAILS AS WELL AS FINAN CIAL ACCOUNT OF THE ASSESSEE OBSERVED THAT THE AFORESAID INCREASE IN OPERATING EXPENSES W AS ON ACCOUNT OF ASSESSEES CLAIM OF CAPITAL EXPENDITURE AS REVENUE EXPENDITURE, WHICH W ERE INCLUDED IN THE OPERATING EXPENSES DURING THE YEAR. THE ASSESSEE WAS ASKED TO FILE THE DETAILS IN RESPECT OF EACH OF THE CAPITAL EXPENDITURE DEBITED IN THE PROF IT AND LOSS ACCOUNT. 4. THE AO HAS STATED THAT THE ASSESSEE DEBITED AN AMOUNT OF RS.49,52,153/- ON ACCOUNT OF REPAIRS TO BUILDING AND AN AMOUNT OF R S.20,61,093/- ON ACCOUNT OF REPAIRS TO OTHERS UNDER THE HEAD OTHER OPERATION EXPENSE S IN THE PROFIT AND LOSS ACCOUNT IN THE ASSESSMENT YEAR UNDER CONSIDERATION. THE AO HA S GIVEN DETAILS OF THE SAID REPAIRS IN TABLE (1) AND (2) AS UNDER : TABLE 1 S. NAME OF THE PARTY NATURE OF PAYMENT AMOUNT NO. ( RS. ) 1 . K.K. INTERIOR CIVIL WORK 1 , 12 , 72 , 93 2. PATEL & COMPANY CIVIL WORK 1 , 6 , 05 , 710 3. SHREE KUMAR PILLAI PLUMBING WORK 49 , 000 4. OM SAI CONSTRUCTION P AINTING WORK 63 , 548 5. M.B. INTERIOR CARPENTRY WORK 1 , 65 , 615 6. KUMKUM DESIGNER TILES TILES 4 , 512 7. PADMA PRABHU GRANITE & MARBLE TILES 3 , 23 , 559 8. TECHNICO ENGG. CORPORATION FABRICATION WORK 1 , 06 , 300 9. DEEPAK LUMINAIRES ROO M FITTING 22 , 200 10. SHRI BHAGWAN CHOWDHARY PAINTING WORK 2 , 11 , 627 1 1. V.K. BROTHERS RAILING 1 , 01 , 046 12. MAMTA PAINTS PAINTS 1,13, 261 13. NATIONAL ELECTRIC & HARDWARE PAINTS 1 , 53 , 778 14. RUSTOM SIDDIQUI GYPSUM CEILING 2 , 46 , 207 15. KISMAT ANSARI P.O.P. WORK 42 , 785 16. MANOHAR MARBLES URINAL SET 40 , 931 17. SHIVAM HARDWARE CHANNELS 36 , 238 18. DILIP K. SHARMA RCCWORK 3 , 11 , 578 19. SHRINATH TRADING CO. TILES 1 , 05 , 212 20. ANKIT ENGG. PVT LTD. URI NAL FLUSH 23 , 479 21. ANIL ALUMINIUM ALUMINIUM 16 , 303 22. RAJ ENGINEERS ALLUMINIUM W INDOWS 6 , 359 23. SUPERNOVA LIGHTING INDUSTRIES LIGHT FITTINGS 18 , 838 24. ALFIA INTERIORS CARPENTRY WORK 26 , 675 25. OTHER EXPENSES 30 , 099 TOTAL 49 , 52 , 153 I.T.A. NO. 7986/MUM/2011 3 TABLE 2 SR. NAME OF THE PARTY NATURE OF PAYMENT AMOUNT NO. ( RS.)_ 1. JOSEPH LAWRENCE & CO PLYWOOD & SANMICA 24 , 158 2. MAMTA PAINTS PAINT 1 , 17 , 495 3. SHIVLAL PRAJAPATI CARPENTRY WORK 46 , 700 4. SUPREME AGENCIE S MAINT. CHARGES OF DOOR CLOSERS 42 , 865 5. U. NEED ENTERPRISES . CARPENTRY WORK 64 , 325 6. NEEL KAMAL PLYW OOD MARINE PLY 9 , 398 7. LAXMI HARDWARE STORES PVC PIPE 9 , 764 8. PINTO TRADING CO. PLYWOOD & SANMICA 2 , 38 , 654 9. SATISH KUM AR JHA LABOUR CHARGES 24 , 600 10. WATER DRILLING & PUMP SERVICES SPARES FOR BOREWELL 37 , 515 11. ALFIA INTERIORS CARPENTRY WORK 36 , 635 12. SHREE NM ELECTRICALS LTD. ARMED COPPER CABLE 20 , 002 13. SHIV ENTERPRISES CEMENT 36 , 375 14. PARESH TRADERS CEMENT 57 , 200 15. M.K. SALES AGENCY SAND & METAL 38 , 130 16. SHREE SAI TRANSPORT SAND & METAL 18 , 750 17. KMC TRANSPORT BRICKS & SAND 46 , 460 18. AAK TRADERS METAL 18 , 000 19. RAHUL TRADING BRICKS 18 , 000 20. C HISTY ENTERPRISES METAL 37 , 770 21. G.N. TRANSPORT SAND & METAL 18 , 480 22. Y.K. TRANSPORT BRICKS 12 , 000 TOTAL 9 , 73 , 276 THE AO FURTHER STATED THAT THE ASSESSEE HAS ALSO P AID INTERIOR DESIGNING CHARGES AMOUNTING TO RS.40,404/- TO RAJESH PATEL. THUS, TOTAL REPAIRS TO BUILDING DURING THE YEAR AS PER TABLE (1) AND TABLE (2) AND INTERIOR DE SIGN EXPENSES WORKS OUT TO RS.59,65,835/-(RS.49,52,153/- + RS.9,73,276/- + RS. 40,406/-). THE AO ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THESE EXPENSES SHOULD NOT BE CAPITALIZED. THE ASSESSEE VIDE LETTER DATED 9.11.2010 STATED INTERALIA THAT T HE SUM OF RS.49,52,153/-, MAJOR AMOUNT OF EXPENSES WAS INCURRED TO RENOVATE THE TWO FLOORS WHICH WERE GIVEN ON LEASE @ RS.15,00,000/- PER MONTH. THE SAID BUILDINGS IS MORE THAN 40 YEARS OLD AND REQUIRES LOT OF REPAIR WORKS. THE EXPENSES WERE INCURRED FOR REPAIRING OF THE SAID BUILDING IN ORDER TO GET SUCH HIGH RENT AND CLAIMED AS REVENUE EXPENSES. THE ASSESSEE FURTHER STATED THAT RS.40,406/- PAID TO MR.RAJESH PATEL F OR INTERIOR DESIGNING FEES FOR RENTED PROPERTY AND HENCE DEBITED TO PROFESSIONAL FEES AND CLAIMED AS REVENUE IN NATURE. 5. THE AO DID NOT ACCEPT THE SAID CONTENTION OF THE ASSESSEE. THE AO HAS STATED THAT THE ASSESSEE HAS INCURRED HUGE EXPENDITURE TO THE TUNE OF RS.59,65,835/- FOR CARRYING OUT RENOVATION WORK. HOWEVER, IT IS NOT ICED FROM THE BALANCE SHEET AS ON 31.3.2008 THAT AS PER SCHEDULE-5, GROSS BLOCK OF T HE FACTORY PREMISES DURING THE YEAR WAS RS.32,36,383/- AND THE NET BLOCK WAS RS.11,54, 050/-. HE HAS FURTHER STATED THAT I.T.A. NO. 7986/MUM/2011 4 FROM THE FORM 3CD OF THE TAX AUDIT REPORT THE WRI TTEN DOWN VALUE AS ON 1.4.2007 OF THE BUILDING WAS RS.6,67,754/-. THEREFORE, THE RE PAIR AND MAINTENANCE TO THE BUILDING INCURRED DURING THE YEAR EXCEEDED THE GROSS BLOCK OF BUILDING SHOWN IN THE BALANCE SHEET AND ALSO IN THE FORM 3CD OF THE TAX AUDIT REP ORT. THE AO HAS STATED THAT THE ASSESSEE IN HIS LETTER DATED 9.11.2010 ITSELF HAS A CCEPTED THAT IT HAS MADE RENOVATION WORK TO BUILDING IN ORDER TO GET HIGH RENT. THERE FORE, THE EXPENDITURE INCURRED BY THE ASSESSEE IS TO ENJOY RENTAL INCOME BY WAY OF RENOVA TION OF THE BUILDING AND HENCE IT GIVES ENDURING BENEFITS IN THE FORM OF RENT AND CON SIDERED THE SAID EXPENDITURE AS CAPITAL EXPENDITURE. THE AO TREATED THE SAID AMOU NT OF RS.59,65,835/- AS CAPITAL EXPENDITURE AND STATED THAT THE ASSESSEE IS ENTITLE D FOR DEPRECIATION. THE AO HAS FURTHER STATED THAT THE MOST OF THE EXPENDITURES HA VE BEEN INCURRED DURING THE SECOND HALF OF THE YEAR. THEREFORE, DEPRECIATION AT THE RATE OF 5% IS ALLOWABLE WHICH WORKS OUT TO RS.2,98,292/- AND ALLOWED THE SAME. THUS, T HE AO DISALLOWED THE REMAINING AMOUNT OF RS.56,67,543/- AND ADDED BACK TO THE TOTA L INCOME OF THE ASSESSEE. BEING AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE FI RST APPELLATE AUTHORITY. 6. THE LD.CIT(A) HAS CONFIRMED THE ACTION OF THE A O VIDE PARAGRAPH 4.3 OF THE IMPUGNED ORDER WHICH IS REPRODUCED BELOW: 4.3. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE SUBMISSIONS OF THE APPELLANT, ASSESSMENT ORDER. THE APPELLANT H AS ADMITTEDLY INCURRED HUGE EXPENDITURE ON CIVIL WORK, PAINTING, FITTING, TILING, PLUMBING, ALUMINIUM WINDOWS ETC. IN RESPECT OF LEAS ED PREMISES AND THESE ARE IN THE NATURE OF COMPLETE RENOVATION OF T HE PREMISES. FURTHER, THE APPELLANT HAS DECLARED THE RENTAL INCOME FROM T HIS PREMISES AS BUSINESS INCOME WHICH HAS BEEN ACCEPTED BY THE ASSE SSING OFFICER. FURTHER, CLAUSE 7.6 OF THE LEAVE AND LICENCE AGREEM ENT WITH S. KUMARS NATIONWIDE LTD. MANDATES THAT ALL MAJOR REPAIRS SHA LL BE CARRIED OUT BY THE LICENSOR(APPELLANT) AND THE APPELLANT ALSO REFE RRED TO THIS CLAUSE IN ITS SUBMISSION. THUS, THESE EXPENSES ARE UNDOUBTEDLY MA JOR REPAIR AND RENOVATION EXPENSES INCURRED TO MAKE THE PREMISES S UITABLE FOR THE LICENSEE. EXPLANATION 1 TO SEC. 32(1) STIPULATES TH AT ALL THE EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO LEASE PREMI SES FOR RENOVATION OR EXTENSION OR IMPROVEMENT IS ENTITLED TO DEPRECIATIO N AS IF THE SAID STRUCTURE IS OWNED BY THE ASSESSEE. CONSIDERING THE NATURE OF EXPENSES AND THE PROVISIONS OF ACT, THE ACTION OF A.O. IN TREATING T HE ENTIRE EXPENDITURE AS CAPITAL IN NATURE IS JUSTIFIED. GRO UND NO.1 IS DISMISSED. HENCE THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL . 7. THE LD. AR SUBMITTED THAT THE ASSESSEE HAD TAKEN THE PREMISES UNDER CONSIDERATION ON LEASE FROM A PARTNERSHIP FIRM VIDE AGREEMENT DATED 1.4.2005 FOR A I.T.A. NO. 7986/MUM/2011 5 PERIOD OF 9 YEARS. IT IS RELEVANT TO STATE THAT T HE SAID PARTNERSHIP FIRM IS THE SISTER CONCERN OF THE ASSESSEE. THE LD. AR SUBMITTED THAT THE SAID PREMISES WAS USED BY THE ASSESSEE FOR ITS BUSINESS PURPOSE I.E RESEARCH AND DEVELOPMENT LABORATORY. SUBSEQUENTLY, THE ASSESSEE DECIDED TO SHIFT ITS RE SEARCH AND DEVELOPMENT LABORATORY TO RENOVATE THE PREMISES. AFTER RENOVATING THE PRE MISES HAS LET OUT TO S.KUMAR NATIONWIDE LTD. VIDE AGREEMENT DATED 9.2.2007 F OR A PERIOD OF 24 MONTHS ON MONTHLY RENT OF RS.15,00,000/-, BESIDES INTEREST FREE REFU NDABLE DEPOSIT OF RS.1,80,00,000/- DURING THE PERIOD AGREEMENT. THE LD. AR STATED TH AT THE AO HAS CONSIDERED THE RENT RECEIVED BY THE ASSESSEE AS BUSINESS INCOME OF THE ASSESSEE. THAT THE EXPENDITURE INCURRED BY THE ASSESSEE TO MAKE IT ADMINISTRATIVE OFFICE AS PER THE REQUIREMENT OF THE TENANT M/S S.KUMAR NATIONWIDE LTD, AND THEREFORE, THE SAID EXPENDITURE INCURRED BY THE ASSESSEE IS REVENUE IN NATURE. THE LD. AR H AS SUBMITTED THAT THE ASSESSEE HAS MODIFIED THE TERMS AND CONDITIONS FOR USE OF THE PR EMISES TO SUIT THE ASSESSEES TENANTS REQUIREMENT AND THE SAID EXPENDITURE SHOULD BE CON SIDERED AS REVENUE IN NATURE. THE LD. AR RELIED ON THE FOLLOWING CASES TO SUBSTANTIAT E HIS ABOVE SUBMISSIONS: 1 CIT V MADRAS AUTO SERVICE PVT. LTD. (1998) 233 IT R 468 (SC) 2. CIT VS. HEDE CONSULTANCY PVT. LTD. (2002) 258 IT R 380 (BOM) 3. CIT V/S TALATHI AND PANTHAKY ASSOCIATES PVT. LTD ., (2012) 343 ITR 309 (BOM.) 4. NILA PRODUCTS LTD. VS. CIT (1984) 148 ITR 99 (BO M) 5. MDCIT V/S SANDOZ (P.) LTD. (2012) 137 ITD 326(MU M.) 6. CYMROZA ART GALLERY V/S ACIT (2013) 21 IT R (TRIB)262 (MUM) 7. DCIT V/S BIJESH THAKKAR (2012) 49 SOT 502 (MUM.) 8. INSTALMENT SUPPLY P.LTD V/S CIT (1984) 1 49 ITR 52 (DEL) 9. CIT V/S DR.A.M.SINGHVI (2008)302 ITR 26 (RAJ) 10. CIT V/S AYESHA HOSPITALS P.LTD (2007) 292 ITR 2 66 (MAD) 11. ACIT V/S M.M.PUBLICATIONS LTD. (2011)43 SOT 59 (COCHIN) 8. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORDE RS OF THE AUTHORITIES BELOW AND ASSESSEE HAS ITSELF STATED BEFORE THE LD. CIT(A) T HAT THE ASSESSEE WAS UNDER BUSINESS COMPULSION TO BREAKDOWN THE LABORATORY FACILITIES WHICH WAS CARRIED OUT AT THE PREMISES UNDER CONSIDERATION AND THEREAFTER CARRIED OUT THE COMPLETE RENOVATION SO AS TO SUIT THE REQUIREMENTS OF THE LIECENSEE. THE LD .DR SUBMITTED THAT THE NATURE OF THE EXPENDITURE, DETAILS CONTAINED AT PAGES 33 AND 34 O F THE PAPER BOOK, AND ALSO STATED BY THE AO IN THE ASSESSMENT ORDER AT PAGES 2 AND 3 OF THE ASSESSMENT ORDER ALSO SHOW THAT IT WAS NOT MERELY A REPAIR CARRIED OUT BY THE ASSESSEE BUT IT WAS COMPLETE OVERHAULING AND RESTRUCTURING OF THE PREMISES. HE NCE, THE SAID EXPENDITURE HAS RIGHTLY BEEN CONSIDERED AS CAPITAL EXPENDITURE. I.T.A. NO. 7986/MUM/2011 6 9. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE LD. REPRESENTATIVES OF THE PARTIES AND THE ORDERS OF THE AUTHORITIES BELOW. W E HAVE ALSO CAREFULLY CONSIDERED CASES CITED BY THE LD. AR OF THE ASSESSEE (SUPRA). WE HA VE ALSO GONE THROUGH HE COPIES OF THE AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND ITS LESSEE VIZ. INDO GERMAN ALKALOIDS, A PARTNERSHIP FIRM AND ALSO SISTER CONCE RN OF THE ASSESSEE AND HAVE ALSO GONE THROUGH THE COPY OF LEAVE AND LICENSE AGREEMENT EN TERED INTO BETWEEN THE ASSESSEE AND M/S S.KUMAR NATIONWIDE LTD. DATED 9.2.2007 COPY OF WHICH IS PLACED AT PAGES 1 TO 29 OF THE PAPER BOOK. 10. WE OBSERVE THAT THE ASSESSEE HAS TAKEN THE SAID PREMISES VIDE AGREEMENT DATED 1.4.2005 AT A MONTHLY RENT OF RS.3000/- PER MONTH FROM ITS SISTER CONCERN, A PARTNERSHIP FIRM, FOR A PERIOD OF 9 YEARS. IT IS RE LEVANT TO STATE THAT THE SAID AGREEMENT IS ON STAMP PAPER OF RS.20/- IS NOT REGISTERED AGREEM ENT, THOUGH, THE LEASE DEED EXECUTED FOR A PERIOD OF 9 YEARS. THE COMPLETE AR EA OF THE PREMISES COMPRISES APPROXIMATELY 1500 SQ.FT ON FIRST FLOOR AND 2 ND FLOOR WITH 16 TO 18 CAR PARKING PLACES ALLOCATED IN THE SAID PREMISES. WE OBSERVE THAT TH E ASSESSEE HAS RENOVATED THE SAID PREMISES BY INCURRING THE EXPENDITURE AGGREGATING T O RS.59,65,835/- IN FINANCIAL YEAR 2007-08, RELEVANT TO THE ASSESSMENT YEAR UNDER CONS IDERATION. WE ARE NOT AWARE AS TO WHETHER THE ASSESSEE HAS INCURRED ANY EXPENDITURE IN THE PRECEDING FINANCIAL YEAR AND/OR IN THE SUCCEEDING ASSESSMENT YEAR AS WELL. T HE ASSESSEE AFTER INCURRING THE SAID EXPENDITURE HAS LET OUT THE SAID PREMISES TO M/S S .KUMAR NATIONWIDE LTD AT A MONTHLY RENT OF RS.15,00,000/- FOR A FIXED PERIOD OF 24 M ONTHS, BESIDES TAKING INTEREST FREE REFUNDABLE ADVANCE OF RS.1,80,00,000/-. ON PERUSA L OF THE AGREEMENT ENTERED BY THE ASSESSEE, IT IS OBSERVED FROM THE CLAUSE 3.1 THAT NONE OF THE PARTY IS ENTITLED TO TERMINATE THIS AGREEMENT DURING THE SAID LOCK-IN- PERIOD OF 24 MONTHS BEGINNING FROM 9.2.2007 TILL 8.2.2009. THE ABOVE TERMS AND CONDITI ONS OF THE AGREEMENT ITSELF ESTABLISHES THAT THE FIRST LEASE AGREEMENT ENTERED INTO BY THE ASSESSEE WITH ITS SISTER CONCERN, A PARTNERSHIP FIRM TO TAKE THE SAID PRE MISES ON RENT ON MONTHLY RENT OF RS.3000/- AND THEREAFTER SPENT THE SAID AMOUNT O F RS.59,65,000/- IN THE FINANCIAL YEAR RELEVANT TO THE YEAR UNDER CONSIDERATION AND L ET OUT THE SAID PREMISES AT MONTHLY RENT OF RS.15,00,000/- APPEARS TO BE A COLOURABLE D EVICE. SINCE THE SAID ISSUE IS NOT BEFORE US AND THE AO HAS ALREADY ASSESSED INCOME SO RECEIVED BY THE ASSESSEE UNDER THE HEAD BUSINESS INCOME AND WE HAVE CONFINED OU RSELVES KEEPING IN VIEW THE ABOVE FACTS AS TO WHETHER THE SAID EXPENDITURE INCURRED BY THE ASSESSEE TO RENOVATE THE SAID PREMISES IS TO BE ALLOWED AS CAPITAL EXPENDITURE OR AS A REVENUE EXPENDITURE. WE HAVE ALREADY STATED HEREINABOVE THE DETAILS OF THE EXPEN DITURES INCURRED BY THE ASSESSEE. I.T.A. NO. 7986/MUM/2011 7 CONSIDERING THE ABOVE FACTS, WE ARE OF THE CONSID ERED VIEW THAT THE SAID EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE FOR COMPLETE RENO VATION OF THE BUILDING TO SUIT THE REQUIREMENT OF LICENSEE VIZ M/S S.KUMAR NATIONWIDE LTD, AS THE ASSESSEE ITSELF CONTENDED BEFORE THE LD. CIT(A) (PARAGRAPH 4.2 OF IMPUGNED ORDER), WE ARE OF THE CONSIDERED VIEW THAT THE SAID EXPENDITURE CANNOT BE SAID TO BE A REVENUE EXPENDITURE BUT IT IS A CAPITAL EXPENDITURE GIVING ENDURING BE NEFITS TO THE ASSESSEE IN THE FORM OF REGULAR RECEIPT OF MONTHLY RENT AT THE RATE OF RS.1 5,00,000/- PER MONTH AND INTEREST FREE REFUNDABLE SECURITY DEPOSITS OF RS.1,80,00,000/-. HENCE, WE ARE OF THE CONSIDER VIEW THAT THE LD. CIT(A) HAS RIGHTLY HELD THAT THE SAID EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO THE PREMISES UNDER CONSIDERATION FOR CO MPLETE RENOVATION TO SUIT THE REQUIREMENTS OF LICENCEE IS A CAPITAL EXPENDITURE A ND THE ASSESSEE IS ENTITLED TO DEPRECIATION. EXPLANATION TO SECTION 32(1) OF THE ACT ALSO STIPULATES THAT ALL THE EXPENDITURES INCURRED BY THE ASSESSEE IN RELATION TO LEASE PREMISES FOR RENOVATION OR EXTENSION OR IMPROVEMENT IS ENTITLED TO DEPRECIATIO N AS IS SHOWN BY THE ASSESSEE. HENCE, WE UPHOLD THE ORDER OF THE LD. CIT(A). BEFOR E WE PART WITH THIS GROUND OF APPEAL, WE MAY STATE THAT THE CASES CITED BY THE L D.AR ARE NOT RELEVANT TO THE FACTS OF THE CASE BEFORE US FOR THE REASONS THAT IN THESE CA SES THE EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE FOR RENOVATING AND/REPAIRS OF THE B UILDING TO KEEP BUSINESS ADVANTAGE : (I) USING MODERN PREMISES AT A LOWER RENT -MADRAS AUTO SERVICE (P) LTD (SUPRA) (II) TO CONTINUE THE TENANT IN THE PREMISES IN LIE U OF MAKING CONTRIBUTION TOWARDS RE-CONSTRUCTION OF THE PREMISES TALATHI AND PANTHAKY ASSOCIATED P.LTD(SUPRA) (III) CONSTRUCTION WAS MADE FOR THE PURPOSE OF PROP ER UTILIZATION OF THE PREMISES FOR BUSINESS OF THE ASSESSEE. NILA PRODUCT S LIMITED (SUPRA) IV) TO CARRY OUT THE REPAIRS TO IMPROVE BAD CONDIT ION OF THE BUILDING WHICH ASSESSEE ITSELF USING FOR ITS BUSINESS PURPOSES- S ANDOZ (P) LTD (SUPRA) V) FOR RENOVATION OF THE OFFICE PREMISES ETC. WE OBSERVE THAT IN THE OTHER CASES ALSO WHICH ARE RELIED ON BY THE ASSESSEE BEFORE US , EXPENDITURE HAS BEEN INCURRED TO RENOVATE ITS PREMISES WHICH ARE USED FOR BUSINESS P URPOSES AND NOT TO CREATE A SOURCE TO EARN INCOME. HENCE THE SAID CASES ARE NOT RELEVA NT TO THE FACTS OF THE CASE BEFORE US. 11. ACCORDINGLY, GROUND NO.1 OF THE APPEAL TAKEN B Y THE ASSESSEE IS REJECTED. I.T.A. NO. 7986/MUM/2011 8 12. GROUND NO.2 OF THE APPEALS IS AS UNDER : 2. THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DIS ALLOWANCE OF EXPENDITURE INCURRED ON REPAIRS TO AIR CONDITIONER FOR RS.32,2 30/- BEING COST OF NEW COMPRESSION (3) REPLACING AND DAMAGED ONES IN THE EXISTING AIR CONDITIONERS. 13. WE HAVE HEARD THE LD.REPRESENTIVES OF THE PARTI ES AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE OBSERVE THAT THE SAID EXPEN DITURE HAS BEEN INCURRED BY THE ASSESSEE TOWARDS COST OF NEW COMPRESSOR AND TO REP LACE OLD DAMAGED ONE, THEREFORE, NO NEW ASSET HAS COME INTO EXISTENCE. THE SAID EXP ENDITURE IS REVENUE IN NATURE AS EXPENDITURE HAS BEEN INCURRED TO REPLACE THE DAMAG ED COMPRESSORS OF EXISTING AIR- CONDITIONERS. HENCE WE ALLOW GROUND NO.2 OF THE APP EAL TAKEN BY THE ASSESSEE BY TREATING THE EXPENDITURE OF RS.32,230/- AS REVEN UE IN NATURE. WE MAY STATE THAT THE AO WHILE GIVING EFFECT TO OUR ORDER, WILL WITHDRAW THE DEPRECIATION ALLOWED THEREON. HENCE GROUND NO.2 TAKEN BY THE ASSESSEE IS ALLOWED . 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED IN PART. ORDER PRONOUNCED AFTER HEARING LD. REPRESENTATIVE OF THE PARTIES IN THE OPEN COURT ON 5TH JULY, 2013 % / 0 5TH JULY, 2013 % SD/- SD/- (RAJENDRA) (B.R. MITTAL) / ACCOUNTANT MEMBER /JUDICIAL MEMBER MUMBAI; 0 DATED 05/07/2013 . . ./ SRL , SR. PS !' #' / COPY OF THE ORDER FORWARDED TO : 1. ' / THE APPELLANT 2. # ' / THE RESPONDENT. 3. 4 ( ) / THE CIT(A)- 4. 4 / CIT 5. 5 #7 , ( 7 , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, TRUE COPY / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI