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TMI Blog2022 (11) TMI 734X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax Appeal Defective No. - 29 of 2022 - - - Dated:- 22-7-2022 - Hon'ble Surya Prakash Kesarwani And Hon'ble Chandra Kumar Rai JJ. For the Appellant : Gaurav Mahajan ORDER 1. Heard Sri Gaurav Mahajan, learned counsel for the appellants. 2. Income Tax Appeal No.51 of 2022 relates to the A.Y. 2013 14 and Income Tax Appeal Defective No.29 of 2022 relates to the A.Y. 2012 13. 3. Since certified copy of the impugned order of the Tribunal and detailed order of the CIT Appeal have been filed alongwith the Income Tax Appeal No.51 of 2022 and the facts are common except that the figures of repair are different. With the consent of learned counsel for the appellants treating the Income Tax Appeal No.51 of 2022 as a leading appeal and facts thereof are being noted. 4. For the A.Y. 2013-14 the assessee claimed Rs.47,37,14,260/- as revenue expenditure and for the A.Y. 2012-13 he claimed Rs.23,12,19,190/- as revenue expenditure which were disallowed by the assessing officer and treated as capital expenditure and accordingly these amounts were added in the income of the assessee for the assessment of the respective Assessment years. 5. The respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of business viz., expenses of administration, manufacturing and selling products. Cost of goods purchased for resale, Depreciation on fixed assets, interest on loan for business, etc. Capital Expenditure: Capital expenditure is an expenditure intended to benefit future periods, in contrast to revenue expenditure. The term is generally restricted to expenditures that add fixed assets or that has the effect of increasing the capacity, efficiency, life span, or economy of operation of an existing fixed asset. An addition increases quality of fixed assets. Hence amount spent on the purchase of fixed asset is treated as capital expenditure. The quality of a fixed asset is said to have increased when expenditure results in any or some of the following events : When probable useful life of the fixed asset increases; When capacity of the fixed asset increases; When efficiency of the fixed asset increases; when operating economy is achieved; In View of Explanation 1 to section 32(1), the expenditure could not be claimed to be revenue expenditure for reason only that it is in relation to a property of which the assessee is a lessee and if the expenditure is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant was on the decision of the honourable high court in the case of CIT Vs Hi Line Pens Private Limited 175 ITR 132. The said case studies the distinction between the term current repairs and the term repairs which were used in section 30 (a)(2). The appellant further argued that the deduction for the expenses of the nature quoted above is also eligible under section 37(1) as such expenses were in fact necessitated by the line of business of the appellant. The appellant further discusses the term capital expenditure and stated that expenses were incurred for nature of work did not fall within the gamut of capital expenditure and squarely fell within repairs as envisaged under section 30 of the act. In para 21 of his submission, the appellant has tabulated and bifurcated the aforesaid expenses into 13 separate heads. For each categorization, the appellant has quoted a number of judgements which pertain to the nature of expenses in the categorisation and terms them as revenue in nature for the purposes of eligibility under the Income-tax Act. The AO has also led the argument that the appellant had been claiming these expenses as being of capital nature during the assessment year 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the eligibility of the expenses in the present year under reference. Further examining the provisions of Section 30 it is seen as under : In respect of rent, rates, taxes, repairs and insurance for premises, used for the purposes of the business or profession, the following deductions shall be allowed - (a) Where the premises are occupied by the assessee - (i) As a tenant, the rent paid for such premises; and further if he has undertaken to bear the cost of repairs to the premises, the amount paid on account of such repairs; (ii) Otherwise than as a tenant, the amount paid by him on account of current repairs to the premises; (b) Any sums paid on account of land revenue, local rates or municipal taxes; (c) The amount of any premium paid in respect of insurance against risk of damage or destruction of the premises. Explanation-For the removal of doubts, it is hereby declared that the amount paid on account of the cost of repairs referred to in sub-clause (i), and the amount paid on account of current repairs referred to in sub-clause (ii), of clause (a), shall not include any expenditure in the nature of capital expenditure. 5.2.5 It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of Saravana Spg. Mills (P.) Ltd.(supra). The expression 'current repairs is much more restricted than the word repairs because the latter is qualified by the word 'current . What the assessee has done in present case has been construed to be repairs by the Tribunal as a finding of fact. It has not brought about any new asset and more importantly it was not the intention of the assessee to bring about any new capital asset. The expenses that were incurred by the assessee were towards repairing the premises taken on lease so as to make it more conducive to its business activity. Such expenses would clearly fall within the expression of repairs to the premises as appearing in section 30(a)(i). The Legislature has made a distinction between expenses incurred by a tenant for repairs' of the premises and expenses incurred by a person who is not a tenant towards current repairs to the premises. This distinction has to be given meaning. Perhaps the logic behind the distinction was that a tenant would, by the very nature of his status as a tenant, not undertake expenditures as would endure beyond his likely period of tenancy or create a new asset. Whereas, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of creation of a capital asset. 5.2.7 The consistent common thread in the aforesaid judgements is determination of the nature of expenses which repairs/ renovates when the same has been carried out by a tenant. The judgement of Hi Line Pens discusses the nature of expenses which are substantially similar to those of the appellant. The Judgement of M/s instalment Supply states that in the absence of a capital asset being created the nature of the expense for business has to be of a revenue nature. Keeping in view the aforesaid judgments the expenses indicated at Rs 47,37,14,260/ are held to be expenses of revenue nature and allowable revenue expenditure to the appellant. 6. While deduction claimed by the assessee towards revenue expenditure as aforesaid, were disallowed by the Assessing Officer, it was allowed by the CIT (Appeal) by the aforesaid order dated 03.07.2018 passed in Appeal No.273/2016-17. 7. Aggrieved with the order of the CIT(Appeal), the appellant herein/Income Tax Department filed Appeal being I.T.A.T. No.6558/Del/2018 for the A.Y. 2013-14 and appeal No.612/Del/2019 relating to A.Y. 2012-13. Both the aforesaid appeals were decided by the Income Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p and thus the expenditure on renovation and repairs of stores assumes the character of revenue in nature. He has further given a finding that assessee cannot carry out his business in a store which is any different from a store of Domino s pizza outlet and for this reason also the expenditure incurred by the assessee falls u/s 37(1) of the Act as being one which is necessary for business. CIT(A) thereafter relying on the decision of Hon ble Delhi High Court in the case of CIT vs. Hi Line Pens (P.) Ltd. [2008] 175 taxman 132 (DHC) held expenses to be revenue in nature. Aggrieved by the order of CIT(A), Revenue is now before us. 9. Before us, Learned DR took us to the findings of ITO and supported the order of AO. He also placed reliance on the decision rendered by Hon ble Delhi High Court in the case of Bharat Gears Ltd. Vs. C.I.T. in [2011] 337 ITR 368 (Del.) 10. Learned AR on the other hand reiterated the submissions made before the lower authorities and supported the order of CIT(A). 11. We have heard the rival submissions and perused the material available on record. The issue in the present ground is with respect to the treatment of expenditure which has been co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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