2018 (6) TMI 1815 - AT - Income Tax

Disallowance relating to the part of the monthly lease rentals - HELD THAT - We deem it proper to restore this issue to the file of the AO with direction to adjudicate this issue a fresh in light of the decision in case of IndusInd Bank Ltd. 2012 (3) TMI 212 - ITAT MUMBAI and accordance with law. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Thus, Ground No. 2 and 2.1 are partly allowed for statistical purpose. Disallowing the revenue expenditure incurred on leasehold improvements - HELD THAT - Decision of the Hon ble Delhi High Court in the case of CIT vs. Amway India Enterprises 2011 (11) TMI 4 - DELHI HIGH COURT held that in respect of the premises expenses which are incurred by the assessee on flooring, partition, wiring, fall ceiling, roofing, Air conditioner unit and duct, electrical wiring, laying network for setting up computer and for purchase of computer the same are in the nature of Revenue expenditure. The Hon ble High Court has given the finding that whether an expenditure incurred is made on Revenue account or otherwise one would have to bear in mind the nature of the expenditure that is was it incurred for maintenance or preservation of an asset or was it expanded otherwise. If the expenditure was of the formal kind it would be in the nature of Revenue expenditure. In the light of the Hon ble Delhi High Court decision it will be appropriate to remand this issue to the file of the Assessing Officer and after taking into cognizance the provisions of the Act the Assessing Officer may take a call for a proper justification.

Summary

Issues:
1. Disallowance of part of monthly lease rentals as capital expenditure
2. Disallowance of revenue expenditure on leasehold improvements

Issue 1: Disallowance of part of monthly lease rentals as capital expenditure:
The appeal was against an order disallowing part of the monthly lease rentals, alleging it to be an expenditure of capital nature. The appellant argued that the vehicles were capitalized in accordance with Accounting Standard-19, and depreciation was not claimed under section 32 of the Income Tax Act. The appellant relied on relevant case laws to support their claim. The Tribunal noted a previous decision against the appellant but considered the Special Bench decision and High Court rulings. The Tribunal directed the Assessing Officer to reexamine the issue in light of the case laws cited, allowing the appellant an opportunity for a fresh hearing. The appeal on this issue was partly allowed for statistical purposes.

Issue 2: Disallowance of revenue expenditure on leasehold improvements:
The appellant claimed expenses on leasehold improvements as revenue expenditure, but the Assessing Officer disallowed it as capital in nature. The appellant argued that the expenses were for temporary structures in the rented premises necessary for business operations. The Tribunal referred to a Delhi High Court decision stating that certain expenses, including flooring, partition, wiring, fall ceiling, etc., could be considered revenue expenditure. The Tribunal remanded this issue to the Assessing Officer for proper justification, considering the nature of the expenses and provisions of the Act. The appellant was granted an opportunity for a fresh hearing. The appeal on this issue was partly allowed for statistical purposes.

In conclusion, the Tribunal partially allowed the appeal, directing a reassessment of both issues by the Assessing Officer in accordance with relevant case laws and principles of natural justice. The decision was pronounced on 26.06.2018.