Indian Kanoon - Search engine for Indian Law

2.1 That the learned Commissioner of Income Tax (Appeals) overlooked the basic fact that such expenditure was incurred to renovate and repair the building to carry on the business properly, without making any structural changes, moreover, the appellant company was not the owner of the said property and as per the lease deed, the appellant company was not allowed to carry on any major structural changes in the said property.

9. The Ld. authorized representative of the assessee submitted that assessee had taken the premises at Hyderabad in Pune on rent and has paid rent. In these premises expenses were incurred which are revenue in nature. He further submitted that the assessee has submitted the complete details to the Ld. assessing officer and therefore the statement of the Ld. assessing officer that assessee has failed to substantiate it is a revenue expenditure and no details were filed is devoid of any merit. He further submitted that all such details were available for the period till 04/02/2008 when the survey was conducted, as it was part of the impounded documents. He further submitted that the details was submitted before the Ld. assessing officer vide its submission dated 24/12/2010 and the details of such expenditure were also given to the Ld. assessing officer which are placed at page No. 309 of the paper book. He further submitted that the improvement in the existing structure was made by the assessee in order to carry out the business of the running of „ business Centre‟ smoothly and more efficiently and to make it a commercially viable. He contended that when improvement was made in respect of leased property, it did not effect the structural stability of the scheduled property nor it was entitled to do so under the terms of the lease deed, which prohibited the assessee to make any structural change. He submitted that the work undertaken by the assessee was only in respect of renovation of interiors on impugned property fixing or installing such devices and gadgets and equipments and furniture and fiction as were deem fit from time to time for the purpose of running the business more effectively and conveniently. He further submitted that the mere fact that it has been capitalized in the books of account by itself is insufficient to hold that such expenditure incurred was not revenue expenditure in nature. For this he referred to the celebrated decision of the Hon‟ble Supreme Court in case of 227 ITR 172. He further placed reliance on the decision of the Hon‟ble Delhi High Court in case of CIT versus Hi line pens private limited 306 ITR 182 wherein the Hon‟ble high court has held that the expenditure incurred on repairs and operation of leasehold premises is revenue expenditure. He further submitted that unless and until the expenditure is incurred on structural changes in the property the expenditure incurred is not capital in nature. He further stated that the mere fact that the expenditure is substantial by itself is insufficient to conclude that such expenditure is not revenue expenditure. For this reason he also referred to the gross revenue earned by the assessee from the business to Rs. 147819997/-. He further referred to the decision of the Hon‟ble Supreme Court in case of Empire Jute company Ltd versus CIT 124 ITR 1 to submit that the expenditure incurred enured for a longer period does not and cannot make it a capital expenditure. He further submitted that the assessee has got its account audited after obtaining copies of the books of accounts and documents, which were impounded by the revenue therefore the assessing officer, cannot say that the expenditure incurred is unverifiable or has not been incurred. He vehemently submitted that the expenditure incurred is towards repairs of existing superstructure only and was not in respect of laying of a structure therefore the expenditure incurred does not represent capital expenditure as the expenditure incurred is not for doing any work in or in relation to and by way of extension or renovation of premises by making structural changes and the same is therefore revenue expenditure and deserves to be allowed. He further relied on 15 decisions of various Hon‟ble high courts wherein the expenditure has been held to be revenue in nature with respect to renovation etc. During the course of the hearing he also filed an additional written submission to submit that the assessee has premises at Pune under leave and license agreement dated 07/11/2006 of 26000 square feet for 5 years only. With respect to the Hyderabad premises which was taken under a lease deed dated 20/02/2007 of 23538 ft.² for a period of 3 years. He further submitted that expenditure of Rs. 34671983/- was incurred at Pune for which the details are available at page number 310 to 376 of the paper book and a sum of Rs. 30846669/-was incurred at Hyderabad the details of which are available at page number 377 to 432 of the paper book. He further submitted that there is no evidence that there was any structural changes made as no permission was sought from any of the principal authorities seeking any change. He once again vehemently submitted that the expenditure incurred by the assessee is a business expenditure and falls within the ratio of the judgment of Hon‟ble Supreme Court in case of Empire jute company Ltd versus CIT (supra). He further referred to the decision of the Hon‟ble Delhi High Court in case of installments supply private Ltd versus CIT 149 ITR 5 and CIT versus Madras auto services private limited of Hon‟ble Supreme Court in 233 ITR 468. He stated that it is a settled law that the expenditure incurred in respect of premises taken only is on repairs and renovation, hence revenue expenditure and not capital expenditure. Therefore in the end his contention was that the expenditure incurred by the assessee is revenue expenditure in nature and therefore should have been allowed as deduction.