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TMI Blog2022 (2) TMI 215X X X X Extracts X X X X X X X X Extracts X X X X ..... re the CIT(A) in this regard, the CIT(A) did not examine this issue specifically. The ingredients and prerequisites of a capital expenditure or revenue expenditure would remain the same, and not undergo any change depending on whether the building is owned or occupied as lessee or other occupancy rights leased premises. As already stated this issue though raised by the assessee before the CIT(A) and the grounds of appeal No.9 to 12 before the Tribunal as an alternative ground has not been examined by the CIT(A). In these circumstances, we are of the view that the issue needs to be set aside for fresh consideration by the CIT(A) as to whether the expenditure in question is capital or revenue in nature. We therefore allow this appeal for statistical purposes by remanding the said issue for consideration by the CIT(A). In this regard we find that the decision cited by the learned Counsel for the assessee in assessee s own case for Assessment Year 2001-02 which relates to issue whether the improvements to lease hold premises were capital or revenue in nature, would become relevant. Appeal of the assessee is allowed for statistical purposes. - ITA No.2742/Bang/2018 (Assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to facilitate the smooth running of the business and hence ought to be considered as temporary in nature. thus allowable for 100% depreciation. 8. The Learned CIT(A) erred in law and on facts in concluding that the ownership of the property is not a relevant criteria for claiming depreciation. It is a well settled principle that where expenditure for improvements/ modification, etc is incurred on a premise taken on rent or lease to facilitate more efficient working of the staff and for optimum utilisation of the space. it is to be considered of temporary nature, as in the case of the Appellant. 9. Notwithstanding and without prejudice to the above, the Learned CIT(A) erred in law and on facts, in not considering the fact that the amounts spent on leased premises was in the nature of business expenditure for proper carrying on of business of the Appellant and are otherwise allowable as revenue expenditure. 10.The Learned CIT(A) erred in law in concluding that the Appellant has not disputed whether or not the expenditure was capital or revenue in nature since the Appellant has not made such claim in its income tax return. The Learned CIT(A) failed to appreciate that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act was passed on 29.10.2012. This order was revised by the CIT, Bengaluru-1, under section 263 of the Act by an Order dated 17.03.2014. In this order, the CIT was of the view that the assessee had claimed depreciation at 100% on lease hold improvements of ₹ 2,10,01,372/- by treating the lease hold improvements as purely temporary erections. It is not disputed that as per entry appearing in Appendix 1 of Rule 5 of the Income Tax Rules, 1962 (hereinafter called the Rules ), depreciation is allowable at 100% on purely temporary erections such as wooden structures . According to the CIT, the AO failed to examine the nature of expenses and allowed the claim of the assessee. The CIT therefore directed the AO to examine whether depreciation claimed at 100% were on improvements would fall within the ambit of part-A in Appendix-I to the Income Tax Rules, 1962 (Rules) under the head Tangible assets entry (4) depreciation at 100% on Purely temporary erections such as wooden structure . 4. In the proceedings before the AO pursuant to the order of the CIT, the assessee claimed that the additions to the leasehold improvements were temporary in nature and further claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed till date 4 Kolkata 36A, Shakespeare, Sarani, kolkata - 700017 11/7/2007 11,17,125 Not vacated till date 28-07-2007 29,12,000 Not vacated till date Total 2,28,51,221 6. On analysis of the details provided by the assessee, the AO noticed that out of four premises three were still occupation of the assessee and one premise was vacated in May, 2012. The AO therefore came to the conclusion that additions made to leasehold improvements cannot be treated as purely temporary erections as required by the appendix-IA of the Income Tax, Rules. Accordingly depreciation claimed at 100% by the assessee company was not allowed by the AO. The AO allowed depreciation at 10% on improvements that were made 180 days or more during the previous year of a sum of ₹ 1,90,97,692/- and 5% for additions that were made for period of less than 180 days during the previous year of a sum of ₹ 37,53,529/-. 7. On appeal by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l required glazing and structure, AC, Electrical works, Access control, Fire and Safety. 4.11 As per the agreement, following drawings/details were also made available to the appellant by the vendor in relation to the work assigned to it: Following shall be the deliverables in the form of drawings / details. SUPER SIRUCTURE Structural layout and details for Ground floor , Entrance, Mezzanine floor, Staircase - Ground and Mezzanine floor. Fire escape staircase External glazing details Toilet ARCIIITEC:TRUAL INTERIORS Super imposed false ceiling layout/AC/Electrical/Data/Fire and Safety. Super imposed other infrastructure details Flooring layout and details False ceiling layout and details Partition and door layout and details Wall, Column paneling and cladding Non movable furniture details, Conference, Discussion, Country Manager, Reception, Training room. Modular Display storage and counter and back drop PLUMBING / SANITARY Architectural drawings 1 Layout of toilets Plumbing layout IC septic tank location layout. Miscellaneous detail drawings ELECTRICAL WORKS Sections ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above said work is carried out on already existing structures in the building. So these would form part of the building eligible for depreciation @10% only. 4.15 As regards expenditure of ₹ 44,69,926/- on civil works, here again the same involves the renovation of the existing building including plumbing/sanitary work and fittings, partitioning ana door layouts, which is carried out on the existing structure of the building and thus not in the nature of any temporary erection. So the above said expenditure would be eligible for depreciation @10%, being part of the building used for the business by the appellant. 4.16 Considering above, an amount of ₹ 13,18,950/- would be eligible for depreciation @15% being Air conditioner forming part of Machinery and Plant and the balance amount of ₹ 1,37,49,616/- would be eligible for depreciation @10% either due to fact that the expenditure forms part of the building eligible for deprecation @10% or the expenditure forms part of the furniture and fittings including electrical fittings eligible for depreciation @10%. 4.17 Kolkata: - In relation to expenditure of ₹ 11,17,125/- incurred in Kolkata, the appellant ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and telephone cables had been laid down. Access control includes various appliances or fittings installed for having door access control etc. All these items would fall within the scope of furniture and fittings including electrical fittings eligible for depreciation @10% as the same cannot be considered as building or a building in the nature of temporary erection. 4.21 Another amount of ₹ 2,61,390/- has been spent on various items of electrical fittings which includes main switches, electrical bus-bar, halogen blast and lamps, aluminium and copper cables, sockets, starters, MCBs, light fixtures, electricity meters, earthing etc. All these items would fall within the scope of electrical fittings eligible for depreciation @10% as the same cannot be considered as building or a building in the nature of temporary erection. 4.22 Expenditure of ₹ 9,49,370/- has been incurred on interiors which includes vertical blinds, storage units, Manager cabin table, reception table, sign boards etc. All these items would fall within the scope of furniture and fittings eligible for depreciation @10% as the same :annot be considered as building or a building in the nature of temp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, distribution board, lights), bathroom fittings, etc. All these items would fall within the scope of furniture and fittings including electrical fittings eligible for depreciation @10% as the same cannot be considered as building or a building in the nature of temporary erection. Further since these assets worth ₹ 24,78,074/- were put to use for less than 180 days, the depreciation rate would be 5%. 4.26 Guwahati - In relation to expenditure of ₹ 12,75,451/- incurred in Guwahati, the appellant has enclosed copy of an invoice of ₹ 10,35,000/-. For the balance amount of ₹ 2,40,451/-, the relevant details were not produced. Thus it can be presumed that the appellant does not want to dispute the action of the AO in relation to the expenditure to the extent of ₹ 2,40,451/-. As regards the balance amount of ₹ 10,35,000/-, a perusal of the detailed invoice shows that the same includes the expenditure on purchase of work stations, cabinets, tables, chairs, display rack, steel rack, counters, soft board, electrical fittings (Switches, distribution board, lights) etc. All these items would fall within the scope of furniture and fittings including ele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counts is not final and determinative. While we agree with this proposition that treatment in the books of accounts is not conclusive but we observe that the issue whether the expenditure is capital or revenue is nature has not been examined by the lower authorities. In this regard, we find that though a specific ground viz., ground No.8 was raised by the assessee before the CIT(A) in this regard, the CIT(A) did not examine this issue specifically. The Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986 inserted Explanation 1 to section 32 w.e.f. 1.4.1988, which reads thus : Explanation-1. Where the business or profession of the assessee is carried on in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of the business or profession on the construction of any structure or doing of any work in or in relation to and by way of renovation or extension of, or improvement to the building, then, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee. Explnation-1 would apply when, (i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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