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TMI Blog2016 (12) TMI 743X X X X Extracts X X X X X X X X Extracts X X X X ..... - - Dated:- 21-10-2016 - H.S. Sidhu, Judicial Member And O. P. Kant, Accountant Member S.K. Chaturvedi, CA for the Appellant F.R. Meena, Sr. DR for the Respondent ORDER Per O.P. Kant, AM This appeal by the assessee is directed against order dated 19/07/2011 passed by the learned Commissioner of Income-tax (Appeals)-XVIII, New Delhi for assessment year 2007-08 raising following grounds: 1. The learned Assessing Officer erred on facts in law in making an addition of ₹ 31,97,677/- on account of Depreciation claimed on temporary erections and allowing only ₹ 3,19,767/- as depreciation. 2. The appellant seeks permission to modify and/or add any other ground/grounds of appeal as the circumstances might require or justify before or at the time of hearing. 2. The facts in brief of the case are that the assessee company was engaged in the business of manufacturing of mobile components and accessories and related activities. For the year under consideration, the assessee filed return of income declaring loss of ₹ 5,95,36,759/- on 13/10/2007. The case was selected for scrutiny under Computer Assisted Selection of Scrutiny (CASS) and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred to the copy of various bills of expenses available in the assessee's paper book from pages 22 to page 43. In view of above, the learned Authorized Representative submitted that it would be unjustified, if the depreciation on purely temporary reaction was disallowed. In support of the contention of the learned Authorized Representative relied on following decisions:- i. Commissioner of Income Tax vs. Industrial Cables (India) Ltd., 254 ITR 267 (PandH) ii. ACIT vs. Nippo Batteries Co. Ltd., ITA No. 1139/1140/Mds/2010 iii. CIT vs. Amrutanjan Finance Ltd. (2011) 15 Taxmann.com 392 (Mad.) iv. Peri (India) (P.) Ltd. vs. Joint Commissioner of Income Tax (OSD), [2016] 159 ITD 541/71 taxmann.com 79 (Mumbai-Trib.) 5. On the other hand, the learned Sr. Departmental Representative relied on the orders of the authorities below and submitted that the construction carried out was in the nature of improvement of leasehold premises after taking on lease and was for enduring benefits and not in the nature of repairs or renovation of the leased premises and thus the case laws referred by the learned Authorized Representative were not applicable over the facts of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 02/09/2006 Mukta Industries 01/09/2006 56,999.00 11 12/09/2006 Aluminium Craft Steel Fab 09/09/2006 97,328.00 12 19/09/2006 Deepak Floorings 14/09/2006 133,583.00 13 20/09/2006 Deepak Floorings 14,062.00 14 20/09/2006 Azim Khan Contractor 04/09/2006 229,106.00 15 22/09/2006 Design Studio 09/09/2006 102,017.00 16 29/09/2006 Aluminium Craft Steel Fab 92,863.47 17 04/10/2006 Aluminium Craft Steel Fab 28/09/2006 11,076.00 18 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a bills of M/s. Design Studio of ₹ 1,02,011/- is available which contains work in the nature of civil construction like Crane girder fixing, Exhaust Fan fixing, motor foundation for cooling tower, Air washer tank foundation, diesel tank foundation. According to the page No. 40, which is a bill of design studio for work of construction of brickwall, plaster, steel door window etc. carried out. On page 23, a copy of Bill of M/s Abhishek Engineers, amounting to ₹ 23,596/- for Gypsum Board Partition with glass wool filled, is available. On page 26 and 27, copies of bills issued by M/s. Baseline, amounting to ₹ 2,23,425/- and ₹ 19,12,943/- for supply of carpet and providing and fixing false ceiling, partition, display in reception, laminated door, teak wood doors, air conditioners ducting etc. On pages, 28 and 29 copies of bills raised by M/s Deepak Floorings, amounting to ₹ 50,625/- and ₹ 22,550/- for supply of air curtain and installation material for ceilings respectively have been filed. On page 32 and 33, copies of bills of M/s. Deepak Floorings, amounting to ₹ 1,33,583/- and ₹ 14,062/- for supply of Diaken mineral fibre ceiling with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.163/Del/2012 AY: 2007-08 could not be considered as capital outgo. In the case of Amrutanjan Finance Ltd (Supra), the Hon'ble Madras High Court has held the expenses of temporary wooden structure and partitions for running computer centres is eligible for 100% depreciation, but from the facts of the case it is not clear whether the expenses were in the nature of repairs or first-time installments. In the case of Peri (India) (P) Ltd (supra) also the Tribunal has held the expenses incurred by the assessee as repair expenses rather than leasehold improvements . 11. Whereas, in the facts of the instant case we find that expenses are not in the nature of repair or renovation of the existing premises but same are taken on lease only a month prior to the beginning of the financial year under consideration and, thereafter, the assessee has incurred expenses on construction of brick walls, plasters, aluminium and teak doors. From the bills raised, it is also apparent that expenses have been incurred for foundation of cooling tower, diesel tank etc. which appears to be part of plant and machinery. In view of above facts and circumstances, we find that the decisions cited by the Au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstruction of a permanent structure on leasehold premises. After entertaining objections from the assessee, he made disallowance of ₹ 51,34,426/- (Capitalization of two amounts of ₹ 23.90 lac and ₹ 33.14 lac as reduced by depreciation). The ld. CIT(A) allowed the assessee's claim in respect of payment to architect amounting to ₹ 33.14 lac. However, the remaining amount of ₹ 23.90 lac was treated as capital in nature. The assessee is aggrieved against the confirmation of addition to this extent, while there is no appeal filed on behalf of the Revenue. 18.3. We have heard the rival submissions and perused the relevant material on record. It is noticed that the assessee took the premises on lease and also started business during the year under consideration. A sum of ₹ 23.90 lac was incurred on complete renovation of such premises as it is apparent from the details placed on record. The Hon'ble Supreme Court in Ballimal Naval Kishore vs. CIT 1997 224 ITR 414 (SC) has held that the expenditure incurred by the assessee on total renovation of cinema theatre by installing new machinery, new furniture, new sanitary fitting and new electrical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hts, then the expenditure on i. the construction of a structure or ii. doing of any work in or in relation to and by way of renovation or extension of, or improvement to the building, shall be considered as structure or work in the nature of building owned by the assessee for the purpose of depreciation. Spirit and text of Explanation 1 to section 32 is that any capital expenditure by the assessee on a building not owned by him, in which he carries on the business, shall be considered as building owned by him for the purposes of section 32, to the extent of the amounts spent on the construction of structure or doing of any work in or in relation to and by way of renovation or extension or improvement to the building. It therefore, follows that in order to bring any amount within the ambit of Explanation 1 to section 32, it is paramount that the expenditure incurred by the assessee on the premises in the capacity of non-owner should firstly be in the nature of capital expenditure and then it should fall within any or both the clauses as discussed above. If these conditions get satisfied, as is the case under consideration, then the amount incurred for such works falls for considerat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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