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TMI Blog2006 (9) TMI 219X X X X Extracts X X X X X X X X Extracts X X X X ..... or value add to that asset. In the instant case the expenditure has been incurred in the very first year of the acquisition of the premises. The expenditure has been incurred by the assessee so as to make the premises more posh and impressive befitting the business profile of the assessee-company. The expenditure has been incurred with a view to bring a fresh advantage that is not already there. Such an expenditure would be an expenditure in the nature of capital expenditure, as held by Hon'ble Bombay High Court in the case of New Shorrock Spg. Mfg. Co. Ltd. v. CIT [ 1956 (2) TMI 54 - BOMBAY HIGH COURT] . We find that the expenditure has been incurred as a part of overall enhancement and improvement of the available premises with a view to acquire a fresh benefit or advantage. For that purpose the assessee has incurred an expenditure by way of interior work at Delhi and by way of interior work at Bombay. Besides an expenditure has been incurred on roof insulation. Apart from these expenses the other expenses cannot be said to be related to building premises, except that they have been installed at the leased premises. The expenditure is on new installation for the purpose of h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s purpose of the assessee. Expenditure for purchase of jerseys bearing assessee's logo is also an expenditure in the nature of advertisemen t and, therefore, allowable as business expenditure. We hold that the learned CIT (Appeals) erred in allowing the expenditure paid towards Garba festival in Barodaas business expenditure. The expenditure was in the nature of donation. We hold accordingly. Tax liability u/s 115JA - Disallowance of the sum being provision for doubtful debts and being provision for damage in stock - We find that the learned Assessing Officer has proceeded on an entirely incorrect basis because both the provisions related to the assets and not any liabilities incurred by the assessee. Therefore, there was no question of these amounts representing any unascertained liability. The learned Assessing Officer otherwise did not enquire into the matter and there is no material to hold that these amounts have been arbitrarily provided for by the assessee. Thus, we hold that addition of these amounts to book profit is without any basis. We, therefore, decline to interfere in the order of the learned CIT (Appeals) in this behalf. In the result, this appeal is partly allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Companies Act as Leasehold improvements and the same was spread over a period of three years. That did not in any way debar the assessee from claiming the entire expenditure under Income-tax Act as revenue expenditure. The very fact that the expenditure had been incurred on lease-hold premises clearly established that the expenditure had been carried out for better enjoyment of leasehold property and the benefit derived was co-terminus with the lease making it obvious that there could not be any enduring benefit. The assessee placed reliance before the learned CIT (Appeals) on some case law and pleaded that treatment given in the books of account was not binding as far as the Income-tax Act proceedings were concerned. The assessee relied upon the judgment of Hon'ble Delhi High Court in the case of CIT v. Shriram Refrigeration Industries Ltd. [2002] 253 ITR 783 to support his contention that any expenditure towards extension, renovation or improvement of building on a leasehold land was of revenue nature only. The assessee referred to the judgment of Hon'ble Supreme Court in the case of L.H. Sugar Factory Oil Mills (P) Ltd. v. CIT [1980] 125 ITR 293 and argued that if the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the judgments in Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC) and Addl. CIT v. Buckau Wolf New India Engg. Works Ltd. [1986] 157 ITR 751 (Bom.). On this basis the learned CIT (Appeals) directed that the entire expenditure should be treated as revenue expenditure and allowed to the assessee as a deduction under section 37(1) of the Act. He directed the learned Assessing Officer to withdraw depreciation as allowed. Still aggrieved, revenue is in appeal before us. 5. During the course of hearing before us the learned DR argued that the assessee had incurred huge expenditure on the premises after being satisfied that the premises, though lease hold, were likely to remain with the assessee for sufficiently long period. It was the prevalent practice for commercial premises to be leased out for a period of three years each time but the lease being renewed from time to time. Hence the argument of the assessee that the advantage was for a period of three years only was not of much consequence. There was no merit in the second contention of the learned CIT(A) that the expenditure had been incurred to carry out more efficiently and more profitably the business operations of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so having regard to the area and layout of the leasehold premises. That mainly included of wires and switches and expenditure on wires and switches could hardly be called capital expenditure. 8. In his rejoinder, the learned DR argued that the, expenditure was not in the nature of repair and maintenance. It was expenditure incurred on setting up of office premises in the first year of lease. 9. We have carefully considered the rival submissions. In the impugned order the learned CIT (Appeals) has proceeded on the basis that his predecessor CIT (Appeals) by his orders dated 1 st February, 2000 and 15 th December, 2000 for assessment years 1996-97 and 1997-98 had allowed the similar claims of assessee. During the course of hearing before us also the learned counsel for the assessee argued that revenue had not gone in appeal for assessment years 1996-97 and 1997-98 and for the sake of consistency the same position should obtain in the case of the assessee for assessment year 1999-2000. There is no force in these contentions. In the instant case we are concerned with expenditure incurred by the assessee on the premises leased from M/s. High Rise Properties Ltd. On 21-11-1997 and from M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the judgment of Hon'ble Supreme Court in the case of CIT v. Madras Auto Services (P.) Ltd. without noticing the provisions of Explanation 1 to section 32(1) and impact of the amendment on the applicability of the judgment in the case of Madras Auto Services (P.) Ltd. Similarly in the case of Hede Consultancy (P.) Ltd., the judgment in the case of Madras Auto Services (P.) Ltd. had been applied without noticing the provisions of Explanation 1 to section 32(1) or its predecessor section 32(1A). At any rate, the ratio of the judgment of Hon'ble Delhi High Court in the case of Rajdev Singh Co. is quite clear and, therefore, the various decisions relied upon by the learned counsel for the assessee in this behalf are not of much assistance to the assessee. Fact of the matter is that for the purpose of determination of the nature of expenditure under consideration before us, the fact that the premises are lease-hold must be ignored and it should be assumed that the premises belonged to the assessee. 11. We also must state that there is not much force in the contention of the assessee that the expenditure has been incurred for optimum utilization of available space and to run ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le test that must be constantly borne in mind is that as a result of the expenditure which is claimed as an expenditure for repairs what is really being done is to preserve and maintain an already existing asset. The object of the expenditure is not to bring a new asset into existence, nor is its object the obtaining of a new or fresh advantage. This can be the only definition of 'repairs' because it is only by reason of this definition of repairs that the expenditure is a revenue expenditure. If the amount spent was for the purpose of bringing into existence a new asset or obtaining a new advantage, then obviously such an expenditure would not be an expenditure of a revenue nature but it would be a capital expenditure, and it is clear that the deduction which the Legislature has permitted under section 10(2)(v) is a deduction where the expenditure is a revenue expenditure and not a capital expenditure. We may point out here that the aforesaid judgment of Hon'ble Bombay High Court as well as the extract therefrom as above quoted, have received the seal of approval of Hon'ble Apex Court in the case of Ballimal Naval Kishore v. CIT [1997] 224 ITR 414. 12. As to the ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... angible or intangible asset was acquired by the assessee nor was there any addition to or expansion of the profit-making apparatus of the assessee. (underlined by us) Here again the argument that prevailed was that road in question belonged to the State Government and not to the assessee and, therefore, insofar as the assessee was concerned, no tangible or intangible asset was acquired by the assessee. Expenditure in that case, qua that assessee, was not in capital field; whereas in the case of the assessee before us the expenditure is predominantly in capital field. As to the judgment of Hon'ble Delhi High Court in the case of Shriram Refrigeration Industries Ltd., the following expenditure incurred by the assessee was treated by revenue to be expenditure of capital nature :- Rs. (1) Cable work/telephone points 29,962/- (2) Wooden partitions 85,591/- (3) Wall tiles and toilets 3,252/- (4) Furniture upholstry and curtain 10,361/- (5) Sanitary fitting works 6,000/- (6) Wall pelmets/apaintiage 13,326/- 1,48,492/- On assessee's appeal the Tribunal held that the entire expenditure was of revenue nature because the same had been incurred on rented premises. On revenue's appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esides an expenditure of Rs. 5,17,000/- has been incurred on roof insulation. Apart from these expenses the other expenses cannot be said to be related to building premises, except that they have been installed at the leased premises. The expenditure is on new installation for the purpose of heating and cooling of the premises and for the purpose of communication network and demarcation of the premises among employees. The expenditure is in the nature of new installation and not in the nature of repairs and renovation. During the course of hearing before us the assessee has argued that the expenditure was on wires, hubs, switches, modems, etc. We do not agree. The expenditure is to bring into existence a sophisticated communication system to bring about connectivity of the assessee's office in Delhi and Bombay with other establishments of the assessee in India and abroad. The expenditure is not merely on wires and cables etc. but expenditure is on installation of sophisticated network. Taking into consideration all these aspects we hold that the assessee was not at all justified in treating such expenditure as part of repairs and renovation. 16. In view of the discussion in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing advertisement expenditure. 18. During the course of hearing before us the learned DR argued that the reliance placed by the learned CIT (Appeals) on the judgment of Hon'ble High Court in the case of Bharat Commerce Industries Ltd. was misplaced. In that case donation had been made to a school where the children of the employees of that company were studying. No such nexus with school at Savli was shown by the assessee and, therefore, the expenditure was donation simplicitor and if at all eligible for deduction under section 80G. The learned D.R. argued that sponsorship of various conferences did not have a direct relation with the assessee's business and, therefore, the expenditure was mainly in the nature of donation. The learned AR of the assessee pointed out that Savli was the place where assessee's factory was situated and the children of assessee's workers were availing of educational benefits of the school to which the assessee contributed Rs. 1,50,000/- for building of compound wall and for provision of chairs, tables and stationery. 19. We have carefully considered the rival submissions. In the case of Bharat Commerce Industries Ltd, Hon'ble Delhi H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT v. Echjay Forgings (P.) Ltd. [2001] 251 ITR 15, The learned CIT (Appeals) held that the assessee was engaged in the business of insecticides and the products had a limited shelf life. The provision of Rs. 41,73,107/- comprised of obsolete/useless stock. Besides, certain shortages were reported on account of leakage of stock during transportation and storages. Therefore, these amounts related to ascertained liability. The learned CIT (Appeals) also referred to the judgment of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273 and held that if the accounts of the assessee were prepared in accordance with Part-II and Part-III of Schedule VI of the Companies Act, the Assessing Officer was not empowered to disturb the book profits. He, therefore, directed the Assessing Officer to work out the assessee's book profits as shown by the assessee. 21. During the course of hearing before us the learned D.R. pointed out that the assessee debited provision for doubtful debts - Rs. 4,00,178/- and provision for damaged stock Rs. 41,73,107/- as selling, administration and other expenses after reducing the amount of sundry debtors and inventory of finished g ..... X X X X Extracts X X X X X X X X Extracts X X X X
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