2022 (7) TMI 1079 - AT - Income Tax

Depreciation on Temporary Structure - expenditure in relation to renovation of leasehold premises - assessee submitted that these are purely temporary structures on which 100% depreciation has to be allowed - HELD THAT - Assessee has incurred certain expenditure in relation to renovation of leasehold premises. The details of the same have been mentioned in the AO s order. The items mentioned by no stretch of imagination can be said to be building construction material, hence the Explanation-1 referred by the ld. DR is not applicable. As regards the nature of expenditure, it is clearly emanating that the same is relating to interior design, electrification charges, furniture charges, wallpaper, toughened glass etc. These items are certainly revenue fixtures when used in the rented premises. How they are not temporary is beyond comprehension. Further, AO s hypothesis that these are probably addition in furniture and fixture is a guess-work, not sustainable in law. CIT(A) s observation that the construction made does not appear to be temporary in nature is similar to the guesswork of the AO de hors the facts on record which show that these are temporary furnishing and fixtures in its premises. Such expenditure were duly held to be allowable in the matter of Girdhari Dass Sons 1975 (4) TMI 19 - ALLAHABAD HIGH COURT , and in the case of Peri India Pvt. Ltd. 2016 (5) TMI 426 - ITAT MUMBAI . Accordingly, we set aside the orders of authorities below on this issue and decide the issue in favour of the assessee. Disallowance of depreciation - as argued the Appellant company engage in the business of tour and travel and vehicles have actually been used for carrying the travelers - HELD THAT - We find that the orders of authorities below in denying depreciation @ 30% on commercial vehicles being used by the assessee in operating touring services leaves no doubt that Revenue authorities have failed to apply any mind. Moreover, even after submitting the RC Book of registration as taxi, ld. CIT (A) has made a bizarre remark that it was obtained with ulterior motives without any material having been brought on record. It is also noted that such depreciation rate was allowed in succeeding years i.e. AYs 2015-16, 2017-18 u/s 143(3). Hence, we set aside the orders of the authorities below on this issue and decide the issue in favour of the assessee. Disallowance of loss incurred on foreign exchange - HELD THAT - We find that the claim of the assessee has to be examined on the touchstone of Hon ble Supreme Court decision in Woodward Governor India Pvt. Ltd. 2009 (4) TMI 4 - SUPREME COURT as affirmed the allowability as revenue expenditure of the foreign exchange fluctuation determined on the basis of Accounting Standard-11 consistently on mercantile basis. Here, no case has been made out that the claim of assessee is not in consonance of this exposition. Hence, respectfully following the precedent, the assessee s ground is allowed. Nature of expenditure - legal professional expenses - Revenue or capital expenditure - HELD THAT -. We note that we have already set aside the orders of the authorities below on the issue of interior expenditure on interiors held by the authorities below as capital in nature herein above. On the same reasoning, this expenditure is also allowable as revenue expenditure. Hence we set aside the order of the authorities below on this issue and allow the issue in favour of the assessee.

Summary

Issues Involved:
1. Disallowance of depreciation claim for furniture and fixtures.
2. Disallowance of depreciation claim for commercial vehicles.
3. Disallowance of loss on foreign exchange.
4. Treatment of legal and professional expenses as capital in nature.

Disallowance of Depreciation Claim for Furniture and Fixtures:
The case involved the disallowance of depreciation claimed by the assessee for furniture and fixtures. The Assessing Officer (AO) disallowed the claim, suspecting that the additions were actually furniture and fixtures rather than temporary structures. The AO allowed depreciation at 10% instead of 100%, resulting in disallowance of excess depreciation claimed. The CIT (A) upheld the AO's decision, stating that the construction did not appear temporary. However, the tribunal found that the expenses were related to interior design and temporary fixtures, not building construction material. Citing relevant case laws, the tribunal held that the expenses were revenue fixtures and set aside the lower authorities' decision.

Disallowance of Depreciation Claim for Commercial Vehicles:
The AO rejected the depreciation claim at 30% for commercial vehicles used in the assessee's tour and travel business. The CIT (A) upheld the disallowance, questioning the usage of the vehicles for running on hire. The tribunal noted that the Revenue authorities failed to apply any reasoning in denying the depreciation claim. It highlighted that the vehicles were used in operating touring services and set aside the lower authorities' decision, allowing the depreciation claim.

Disallowance of Loss on Foreign Exchange:
The AO disallowed the claim of loss on foreign exchange fluctuation, stating it was not a revenue expenditure. The CIT (A) confirmed this decision. However, the assessee argued that the claim was in line with Accounting Standard 11 and cited relevant case law. The tribunal considered the Supreme Court decision in Woodward Governor India Pvt. Ltd. and allowed the assessee's ground, stating the claim was consistent with the accounting standard.

Treatment of Legal and Professional Expenses as Capital in Nature:
The AO treated legal and professional expenses as capital in nature, linking them to the additions of fixed assets. The CIT (A) upheld this decision. However, the tribunal, based on its earlier decision regarding interior expenditure, allowed the expenses as revenue expenditure. It set aside the lower authorities' decision and ruled in favor of the assessee.

In conclusion, the tribunal allowed the assessee's appeal on all issues, setting aside the decisions of the lower authorities and ruling in favor of the assessee.