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2016 (12) TMI 743 - AT - Income TaxDepreciation claimed on temporary erections - Held that - It is evident from the bills raised by the different vendors, that the work carried out by the assessee was not in the nature of the repair work or refurbishing or renovation of the old premises, but it was in the nature of addition to the premises, which have been taken on the lease for initial period of five years The renovation made by the assessee company is in the nature of permanent structure by way of Brick Wall partitions, panelling of Aluminium, Flooring etc. which cannot be covered under current repairs as provided in s. 30 of IT Act, 1961. Such work as made by the assessee company, cannot be stated so as to keep the premises as restored to good condition or save it from exhaustion or compensation of loss. The work in the case of assessee, are meant to altogether change the uses by way of expanding its capacity substantially and changeover of its look. The expenditure is certainly capital in nature on which depreciation can only be allowed.
Issues Involved:
1. Disallowance of depreciation claimed at the rate of 100% on temporary erections. Issue-wise Detailed Analysis: 1. Disallowance of Depreciation on Temporary Erections: The primary issue in this appeal is the disallowance of depreciation claimed by the assessee at the rate of 100% on temporary erections, which the Assessing Officer (AO) allowed only at 10%. The assessee, engaged in manufacturing mobile components and accessories, had taken factory premises on lease for 60 months and incurred expenses on wooden partitions, fall ceilings, and electrical fittings, amounting to ?34,42,549.49. The AO and the Commissioner of Income-tax (Appeals) (CIT(A)) treated these expenses as capital expenditure, allowing only 10% depreciation. The assessee argued that these structures were temporary and had no commercial value once dismantled. The assessee referred to various judicial precedents to support the claim for 100% depreciation on temporary erections. The Departmental Representative countered that the constructions were improvements to the leasehold premises for enduring benefits, not repairs or renovations, thus not eligible for 100% depreciation. Upon review, the Tribunal noted that the work done by the assessee was not merely repair or renovation but additions to the premises, including civil construction, flooring, and structural work. The Tribunal found that the nature of the work indicated enduring benefits rather than temporary structures. The lease agreement also allowed the lessee to take away installations upon termination, further indicating the enduring nature of the improvements. The Tribunal distinguished the assessee's case from cited precedents, noting that the expenses were not for temporary structures but for significant improvements to the leased premises. The Tribunal also referred to Explanation 1 of Section 32 of the IT Act, 1961, which treats capital expenditure on leased premises as if the structure is owned by the assessee for depreciation purposes. The Tribunal upheld the CIT(A)'s finding, concluding that the expenses were capital in nature and not eligible for 100% depreciation as temporary erections. The Tribunal dismissed the ground of appeal regarding the depreciation claim. 2. General Ground of Appeal: The second ground of appeal was general in nature, and the Tribunal did not adjudicate upon it. Conclusion: The Tribunal dismissed the appeal, upholding the disallowance of 100% depreciation on temporary erections and confirming the treatment of the expenses as capital in nature, eligible for depreciation at the prescribed rate. The decision was pronounced in the open court on 21st October 2016.
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