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2015 (10) TMI 1277 - AT - Income TaxDisallowance of Lease hold Land Expenses - Held that - In the instant case, it is an admitted fact that the assessee has taken land on lease for setting up of project for processing of coir. It is also undisputed that the assessee has constructed the building at the leased premises. Thus the assessee has constructed super structure. These construction activities carried out by the assessee if put on to the test of Explanation 1 would show that the construction made by the assessee on the leased out premises would amount to capital expenditure. It is essential that the expenditure incurred on the construction of any structure on the leased premises should result in enduring benefit. 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 and in view of Supreme Court judgment in the case of Madras Auto Service 1998 (8) TMI 1 - SUPREME Court we are not considering the various judgments cited by the Ld. AR. In view of the above, we find no merit in the arguments of the assessee s counsel on this issue - Decided against assessee.
Issues Involved:
1. Disallowance of expenses on leasehold land as capital expenditure. 2. Disallowance of loading and unloading charges. 3. Disallowance of tractor rent. 4. Alleged violation of principles of natural justice. Detailed Analysis: 1. Disallowance of Expenses on Leasehold Land as Capital Expenditure: The primary issue concerns the disallowance of Rs. 18,98,962/- incurred on leasehold land, which the assessee claimed as revenue expenditure. The expenses included fencing, temporary shed, compound wall, and flooring. The Assessing Officer (AO) treated these expenditures as capital in nature, allowing only depreciation. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this view, noting that the expenditures increased the enduring capacity of the assessee's business and thus were capital in nature. The CIT(A) referenced similar cases where such expenditures were treated as capital, emphasizing that if the expenditure becomes an integral part of the leased property, it should be deferred over the lease period. The assessee argued that the expenditures were for temporary structures on leased land, which did not confer any enduring advantage as the structures had to be removed after the lease period. The assessee cited various judicial precedents, including the case of ACIT vs. M/s Sundaram Asset Management Co. Ltd, where similar expenses were treated as revenue expenditure. The Tribunal, however, held that the construction of superstructures on leased land falls under Explanation 1 to Section 32(1) of the Income Tax Act, which treats such expenditures as capital. The Tribunal referenced the Supreme Court's judgment in Madras Auto Service (P) Ltd., which emphasized that expenditures resulting in enduring benefits are capital in nature, even if the asset does not belong to the assessee. Consequently, the Tribunal dismissed the assessee's appeal on this ground. 2. Disallowance of Loading and Unloading Charges: The CIT(A) sustained the disallowance of Rs. 82,132/- claimed as loading and unloading charges. The assessee did not present any specific arguments against this disallowance before the Tribunal. As a result, the Tribunal found no merit in the assessee's grievance and dismissed this ground of appeal. 3. Disallowance of Tractor Rent: Similarly, the CIT(A) sustained the disallowance of tractor rent amounting to Rs. 1,35,000/-. The assessee did not put forth any arguments regarding this disallowance before the Tribunal. Consequently, the Tribunal dismissed this ground of appeal as well. 4. Alleged Violation of Principles of Natural Justice: The assessee contended that there was no proper opportunity given before passing the impugned order, violating the principles of natural justice. However, the Tribunal did not find any substantial argument or evidence to support this claim. Therefore, this ground of appeal was also dismissed. Conclusion: The Tribunal upheld the CIT(A)'s decision to treat the expenditures on leasehold land as capital in nature, allowing only depreciation. The disallowances of loading and unloading charges and tractor rent were also sustained due to the lack of arguments from the assessee. The appeal was dismissed in its entirety. Order Pronounced: The appeal of the assessee in ITA No.700/Mds/2014 is dismissed. Order pronounced on 11.9.2015.
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