2016 (5) TMI 426 - AT - Income Tax

ITAT Mumbai allows appeal on leasehold improvement & transfer pricing, citing revenue expenditure nature & business activity relevance.

Peri (India) Pvt. Ltd. Versus Jt. Commissioner of Income Tax (OSD), Range – 8 (2), Mumbai.

Peri (India) Pvt. Ltd. Versus Jt. Commissioner of Income Tax (OSD), Range – 8 (2), Mumbai. - TMI Issues:1. Disallowance of leasehold improvement expenditure2. Addition on account of transfer pricing adjustmentIssue 1: Disallowance of Leasehold Improvement Expenditure:The appellant challenged the disallowance of leasehold improvement expenditure of Rs. 8,55,485 by the CIT(A) under section 143(3) of the Income Tax Act, 1961 for the assessment year 2009-10. The Assessing Officer disallowed the claimed expenditure as capital expenditure under section 32, citing that the expenditure was incurred on construction, renovation, or improvement of the leased premises. The appellant argued that the expenditure was for repairs to make the premises conducive to business activity and should be allowed as a deduction under section 30(a)(i). The CIT(A) upheld the disallowance, stating that the expenditure was substantial and not akin to current repairs. However, the ITAT Mumbai, comprising Pramod Kumar AM and Pawan Singh JM, disagreed. They noted that the expenses were for interior designing, mockup materials, and repairs with limited useful life, hence qualifying as revenue expenditure. The tribunal held that the repairs were not capital in nature as per section 30(a) and deleted the disallowed amount of Rs. 8,55,485, providing relief to the assessee.Issue 2: Addition on Account of Transfer Pricing Adjustment:The appellant contested the addition of Rs. 13,49,009 on account of transfer pricing adjustment. The ITAT referred to a previous decision in the appellant's own case for the assessment year 2008-09, where technical services were availed from an associated enterprise (AE) due to the appellant's initial stage of business and lack of in-house expertise. The tribunal found that the services were essential for the business activity, and the TPO's denial of the claim was unjustified. Relying on the precedent, the ITAT allowed the appellant's claim, deleting the addition of Rs. 13,49,009. The tribunal upheld the appellant's grievance, providing relief accordingly.In conclusion, the ITAT Mumbai allowed the appeal partly, overturning the disallowance of leasehold improvement expenditure and the addition on account of transfer pricing adjustment. The judgment provided detailed reasoning for each issue, emphasizing the distinction between capital and revenue expenditure and the necessity of services for business expediency.