TaxTMI 
TaxTMI 
2013 (8) TMI 751
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....reased by 27.27% when compared to the corresponding figures of the last year. The AO on scrutinizing the details as well as financial account of the assessee observed that the aforesaid increase in operating expenses was on account of assessee's claim of capital expenditure as revenue expenditure, which were included in the operating expenses during the year. The assessee was asked to file the details in respect of each of the capital expenditure debited in the profit and loss account. 4. The AO has stated that the assessee debited an amount of Rs. 49,52,153/- on account of repairs to building and an amount of Rs. 20,61,093/- on account of repairs to others under the head "Other Operation Expenses" in the profit and loss account in the assessment year under consideration. The AO has given details of the said repairs in table (1) and (2) as under : Table 1 S. No Name of the Party Nature of payment Amount (Rs. ) 1. K.K. Interior Civil Work 1,12,72,93 2. Patel & Company Civil Work 1,6,05,710 3. Shree Kumar Pillai Plumbing Work 49,000 4. Om Sai Construction Painting work 63,548 5. M.B. Interior Carpentry wor....
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....ks 12,000 TOTAL 9,73,276 The AO further stated that the assessee has also paid interior designing charges amounting to Rs. 40,404/- to Rajesh Patel. Thus, total repairs to building during the year as per Table (1) and Table (2) and interior design expenses works out to Rs. 59,65,835/-(Rs.49,52,153/- + Rs. 9,73,276/- + Rs. 40,406/-). The AO asked the assessee to explain as to why these expenses should not be capitalized. The assessee vide letter dated 9.11.2010 stated interalia that the sum of Rs. 49,52,153/-, major amount of expenses was incurred to renovate the two floors which were given on lease @ Rs. 15,00,000/- per month. The said buildings is more than 40 years old and requires lot of repair works. The expenses were incurred for repairing of the said building in order to get such high rent and claimed as revenue expenses. The assessee further stated that Rs. 40,406/- paid to Mr.Rajesh Patel for interior designing fees for rented property and hence debited to professional fees and claimed as revenue in nature. 5. The AO did not accept the said contention of the assessee. The AO has stated that the assessee has incurred huge expenditure ....
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.... are undoubtedly major repair and renovation expenses incurred to make the premises suitable for the licensee. Explanation 1 to sec. 32(1) stipulates that all the expenditure incurred by the assessee in relation to lease premises for renovation or extension or improvement is entitled to depreciation as if the said structure is owned by the assessee. Considering the nature of expenses and the provisions of Act, the action of A.O. in treating the entire expenditure as capital in nature is justified. Ground No.1 is dismissed." Hence the assessee is in appeal before the Tribunal. 7. The ld. AR submitted that the assessee had taken the premises under consideration on lease from a partnership firm vide agreement dated 1.4.2005 for a period of 9 years. It is relevant to state that the said partnership firm is the sister concern of the assessee. The ld. AR submitted that the said premises was used by the assessee for its business purpose i.e Research and Development Laboratory. Subsequently, the assessee decided to shift its Research and Development Laboratory to renovate the premises. After renovating the premises has let out to S.Kumar Nationwide Ltd. vide agreement dated 9.2.2007 ....
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....the authorities below. We have also carefully considered cases cited by the ld. AR of the assessee (supra). We have also gone through he copies of the agreement entered into between the assessee and its lessee viz. Indo German Alkaloids, a partnership firm and also sister concern of the assessee and have also gone through the copy of leave and license agreement entered into between the assessee and M/s S.Kumar Nationwide Ltd. Dated 9.2.2007 copy of which is placed at pages 1 to 29 of the paper book. 10. We observe that the assessee has taken the said premises vide agreement dated 1.4.2005 at a monthly rent of Rs. 3000/- per month from its sister concern, a partnership firm, for a period of 9 years. It is relevant to state that the said agreement is on stamp paper of Rs. 20/- is not registered agreement, though, the lease deed executed for a period of 9 years. The complete area of the premises comprises approximately 1500 sq.ft on first floor and 2nd floor with 16 to 18 car parking places allocated in the said premises. We observe that the assessee has renovated the said premises by incurring the expenditure aggregating to Rs. 59,65,835/- in Financial Year 2007-08, relevant to th....
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....n for complete renovation to suit the requirements of licencee is a capital expenditure and the assessee is entitled to depreciation. Explanation to section 32(1) of the Act also stipulates that all the expenditures incurred by the assessee in relation to lease premises for renovation or extension or improvement is entitled to depreciation as is shown by the assessee. Hence, we uphold the order of the ld. CIT(A). Before we part with this ground of appeal, we may state that the cases cited by the ld.AR are not relevant to the facts of the case before us for the reasons that in these cases the expenditure has been incurred by the assessee for renovating and/repairs of the building to keep business advantage : (i) Using modern premises at a lower rent -Madras Auto Service (P) Ltd (supra) (ii) To continue the tenant in the premises in lieu of making contribution towards re-construction of the premises - Talathi and Panthaky Associated P.Ltd(supra) (iii) Construction was made for the purpose of proper utilization of the premises for business of the assessee.- Nila Products Limited (supra) iv) To carry out the repairs to improve bad condition of the building which assessee it....