2018 (4) TMI 126 - AT - Income Tax

Nature of expenditure on leased premises for office use - expenditure on fixtures like partitions false roofing glass and minor civil works - Revenue or capital expenditure - proof of asset of enduring nature - Held that - The assessee has taken three properties on rent but expenditure incurred during the relevant financial year is only on two properties i.e. one at Ameerpet which was taken on lease for 5 years and the other one at Pune which was taken on lease for a period of 33 months. Therefore the expenditure incurred on false ceiling as well as partition glass etc. cannot be held to be creating any asset of an enduring nature. Any expenditure incurred by the assessee for making the premises suitable for carrying on its business according to its own standard has been held to be revenue in nature in a number of cases. Hon ble Delhi High Court in the case of CIT vs. M/s. Hi Line Pens Pvt Ltd 2008 (9) TMI 25 - HIGH COURT DELHI had considered similar expenditure incurred towards false ceiling fixing tiles replacing glasses wooden partitions replacement of electric wiring earthing replacement of GI pipes etc. and after taking note of all the judicial precedents on the issue as well as the applicability of Explanation (1) to section 32(i) of the I.T. Act has held that the expenditure incurred to make its premises taken on lease so as to make the premises usable for business activities is revenue in nature. Admittedly in the case before us also the expenditure incurred has been on the premises which have been taken on lease for a period of 5 years to 33 months only. Therefore we are satisfied that there is no asset of enduring nature created and the assessee is entitled to claim it as revenue expenditure. - Decided in favour of assessee.

Summary

Issues Involved:
Assessment of revenue expenditure as capital expenditure for additions to leased premises.

Detailed Analysis:

Issue 1: Assessment of Revenue Expenditure
The appellant, engaged in manufacturing, filed its return for A.Y. 2010-11, admitting a total income. During assessment, the AO observed a claimed sum as revenue expenditure with the narration 'other deductions'. The AO found additions to leased premises claimed as revenue expenditure. The appellant explained the additions were for fixtures like partitions, false roofing, glass, and minor civil works. The AO considered the additions as capital expenditure, disallowed the claim, and allowed depreciation. The CIT (A) upheld the AO's decision. The appellant appealed, arguing the expenditure was for repairs and renovation, not resulting in an enduring asset. The appellant cited case laws supporting the revenue nature of such expenditure. The DR supported the lower authorities' decision, citing case laws considering the expenditure as capital in nature.

Issue 2: Judicial Precedents
The ITAT considered the appellant's lease of properties and the expenditure incurred on false ceiling, partitions, etc., to make the premises suitable for business. Referring to judicial precedents, including the Hon'ble Delhi High Court case, it held that such expenditure, not creating an enduring asset, is revenue in nature. The ITAT distinguished between 'repairs' and 'current repairs', emphasizing that the expenditure was for repairs to make the premises conducive to business activities. It concluded that the appellant was entitled to claim the expenditure as revenue expenditure, not subject to depreciation.

Conclusion:
The ITAT allowed the appellant's appeal, considering the expenditure on leased premises as revenue expenditure, not resulting in an enduring asset. Referring to judicial precedents and distinguishing between repairs and current repairs, the ITAT held that the expenditure was for making the premises suitable for business, qualifying as revenue expenditure. The judgment emphasized that the appellant, as a tenant, incurred the expenditure for repairs, not creating a new capital asset, entitling the appellant to claim it as revenue expenditure.