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TMI Blog2022 (5) TMI 539X X X X Extracts X X X X X X X X Extracts X X X X ..... ad already been capitalized as has been explained by the assessee to the Ld. CIT(A) vide reply dt. 13/12/2019 which has been incorporated at page no. 3 to 5 of the impugned order and has also been reproduced in former part of this order. The total expenses incurred by the assessee were amounting to Rs. 33,54,993/- against which the insurance claim settled to be received was amounting to Rs. 4,88,424/- which had been reduced by the assessee from the total expenses and net amount of Rs. 28,66,569/- was claimed as revenue expenses. In the present case the assessee is not the owner of the building and it was its duty to maintain building in the same position in which it was occupied. The assessee incurred the expenses to bring the building in the same form and no new asset came into existence rather the old building and electrical fitting were brought into workable condition, therefore, the expenses incurred by the assessee were revenue in nature and not capital in nature. We, therefore, by considering the totality of the facts set aside the impugned order and direct the AO to treat the expenses under consideration as revenue in nature. - Decided in favour of assessee. - ITA No. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount of fire amounting to Rs. 28,66,569/- should not be disallowed under section 37 of the Act. 3.2. In response the assessee filed reply on 21/12/2019 and stated that as per Clause 8 of the lease deed the assessee will be responsible for any wear and tear, maintenance and other repairs of the building. Thus, the loss on account of fire was claimed as revenue loss and not the capital loss. The Assessing officer, however did not accept the submissions of the assessee by observing that the insurance claim form clearly mentioned that the loss was in respect of the building and electrical fittings and that the assessee had made addition of Rs. 43,88,370/- in the building and Rs. 95,36,788/- in the electrical fitting etc. He accordingly treated the impugned expenditure as capital in nature. 4. Being aggrieved the assessee carried the matter to the Ld. CIT(A) and submitted that the assessee company had taken ground floor of the building at B-24/4707 4701/1, Sunder Nagar, on lease from 23/06/2016 at the rental of Rs. 5,000/- per month. In the lease agreement point no. 3 8 read as under: Point No. 3: It is expressly agreed and understood that the second party shall have no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilding taken on lease rental. The fire broke out in the premises of the company also and the company had to suffer loss on account of fire in the premises. The company had also insured the building and lodged the claim with the insurance company for the loss occurred. The insurance company after allowing the part of the claim settled the claim. The balance expenses incurred on account of maintenance of building and on account of electrical fittings were debited to Profit and Loss Account and claimed as loss. Your kind attention is invited to the FIR lodged by M/s. Vrinda International Pvt. Ltd. which is placed in the paper book at page no. 11 to 12. The copy of fire brigade report is also placed in the paper book at page no 13. Further your kind attention is invited to the newspaper cuttings which were also given to the AO during the proceedings and placed in the paper book from page no. 14 to 19. These newspaper cuttings are published by leading newspaper agencies like Ludhiana Jagran City, Ludhiana Kesari, Bhaskar News and Dainik Sawera Times. The copy of intimation given to Oriental insurance company is also placed in the paper book at page no 20 along with insurance policy whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 155 and your honour will find that additions under the head building are Rs. 11430197/- and under the head electrical fittings are Rs. 3543567/-. The contention taken by the AO in the assessment order is altogether wrong, hence the additions made under the wrong notion of law, may please be deleted. 3. The assessee has also placed in the paper book complete balance sheet of the financial year 2015-16 relevant to the assessment year 2016-17 which is placed in the paper book at page no 156 to 194. Your goodself will find that the figures mentioned in the assessment order on account of building and electrical fittings relates to assessment year 2016-17 and the same can be verified from the depreciation chart which is placed in the paper book at page no 182 of the assessment year 2016-17. The assessee has also placed in the paper book page no 195 to 199, Return of Income of the Assessment year 2016-17 and computation chart for the assessment year 2016-17 Your kind attention is also invited to the depreciation chart in the computation chart which is placed in paper book at page no 199, the additions on account of building and electrical fittings are mentioned in the depreciation c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee company has the following factory buildings where production is being carried on by the company. (a) Noorwala (b) Bhattian (c) Manmohan Road (d) New Kitchlu Nagar (e) Washing Knit Warehouse- Noorwala The complete details of buildings with address, gross block, depreciation and net balance has been given in Annexure - A' attached. 2. The complete details of Electric Fitting showing name and address of the factory, gross block, depreciation and net balance is also given in annexure 'A' and the same may please be referred. Your kind attention is invited to Paper book Page No. 139 which is depreciation chart on 31-03-2017 annexed to Balance Sheet tallies with Annexure 'A' attached with the Written Submissions. 3. The complete details of factory building and shop taken on rent have also given in Annexure 'B'. Your goodself will find that there are two factory, buildings and one shop taken on rent. The rent agreement is placed in the paper book page no. 1 and 2. This factory is taken on rent from Mrs. Sangeeta Jain, B- XXIV, 407 4707/1, Sunder Nagar, Ludhiana. The nominal rent of Rs. 5000/- is being paid per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenses were incurred for substantial construction and were of capital in nature. The Ld. CIT(A) discussed the provisions contained in section 30 31 of the Act and was of the view that after insertion of explanation w.e.f. 01/04/2004 in section 31 of the Act the amount paid on account of current repairs shall not include any expenditure in nature of capital expenditure and that the clause in lease deed cannot override the specific legal provision. The Ld. CIT(A) sustained the disallowance made by the AO. 5. Now the assessee is in appeal. 6. Ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the assessee was not the owner of the building which was taken on lease and there was a specific clause no. 3 in the lease deed dated 23/06/2016, which stated that the second party i.e. assessee company shall have no right title, interest or any claim whatsoever on the premises of the First party, i.e. the lesser, the property into consideration was exclusive property of the first party i.e. the lesser and as per clause 8 of the lease deed, the second party i.e. the assessee will be responsible for any wear and tear, maint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art of rented premises the same is to be borne by second party. From the aforesaid clauses, it is clear that the assessee was responsible for any wear and tear, maintenance and other repairs of the building. Since the building was destroyed by the fire, so, it was the responsibility of the assessee to bring the building in the same position, therefore, the expenses incurred were revenue in nature as far as the assessee was concerned and in case any claim is received from the insurance company the same is to be reduced from these expenses or in case it will be received on later date then it is to be shown as an income at the time of receipt. However for the year under consideration the assessee has incurred the expenses on account of repairs of building and electrical fittings to bring the old asset in the working condition and the other expenses which were capital in nature had already been capitalized as has been explained by the assessee to the Ld. CIT(A) vide reply dt. 13/12/2019 which has been incorporated at page no. 3 to 5 of the impugned order and has also been reproduced in former part of this order. In its explanation, it has been clarified by the assessee that the fig ..... 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