TaxTMI 
TaxTMI 
2021 (8) TMI 604
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....the case. 2. Whether the Ld. CIT(A) was right in treating the expenditure as Revenue when the contract itself is null and void, a. as per contract act, "a void contract is illegitimate and unenforceable from the start because of the way it was drafted." In the case of the assessee the lease period of 5 years extendable by 25 months is illegitimate and unenforceable because the construction period itself is 5 years extendable to 36 months leaving no time for the lease to operate. b. from the above there is no lease period left since shadowed by construction period and hence the working of Revenue Saving by the id. CIT(A) is baseless. 3. Whether the Ld. CIT(A) was justified in holding the expenditure to be Revenue when the entire agreement shows that it is only a device to avoid tax and not a genuine transaction as enunciated in various case laws and hence, corporate veil has to be lifted. 4. Whether the Ld. CIT(A) was justified in treating the expenditure as Revenue when the land owner will be left with land only since the assessee has every right to retain the ownership of superstructure, considering the scale of expenditure involved. 5. Whether the Ld. CIT(A) was justi....
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....f M/s.TVS Lean Logistics Ltd., reported in 293 ITR 432 allowed appeal filed by the assessee. The Department has filed further appeal before the Tribunal against order of the learned CIT(A) and the ITAT., Chennai, vide its order in ITA No.101 to 103/Chny/2016 dated 21.09.2016 has remitted the issue to file of the Assessing Officer to decide the issue afresh in light of judgement of Hon'ble Jurisdictional High Court of Madras in the case of M/s.TVS Lean Logistics Ltd. (293 ITR 432) and the decision of Hon'ble Supreme Court in the case of M/s. Madras Auto Service (P) Ltd., reported in 233 ITR 468, with a direction to the Assessing Officer to re-examine the issue whether expenditure incurred on construction of super structure on leasehold land resulted in savings of any revenue expenditure in the form of monthly rent at subsequent stage in future or not. 4. The Assessing Officer has taken up proceedings for re-examination of the issue, consequent to the direction of the Tribunal and called upon the assessee to justify its case in light of findings of the Tribunal and decision of the Hon'ble Supreme Court in the case of Madras Auto Service P.Ltd. (supra) and to file evidences t....
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....d (Supra), it is only when the assessee holds a lease right or other right of occupancy and any capital expenditure is incurred for construction of any structure or doing of any work in relation to and by way of renovation or extension of or improvement to the building and the expenditure on construction incurred by the assessee, that assessee would be entitled to depreciation to the extent of such expenditure incurred for construction or improvement of building. In this case on perusal of facts, case of the assessee is squarely covered by the decision of the Hon'ble Supreme Court in the case of M/s. Madras Auto Service (P) Ltd. (supra) and the decision of Hon'ble Jurisdictional High Court of Madras in the case of TVS Lean Logistics Ltd. (supra), where it was clearly held that the assessee did not acquire capital asset, but has put up construction of building only for business advantage on leasehold land and hence, entire cost of construction is admissible as revenue expenditure. The learned CIT(A) has also recorded categorical finding that assessee has paid nominal rent for land and thus, saved substantial amount of rental income, which resulted in monetary benefit. There....
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....appraised facts in right perspective, then the Tribunal is having every authority to apply provisions in right perspective of law to determine correct tax liability of the assessee. Since the Assessing Officer has by inadvertent error not applied provisions of section 37 of the Act, even though expenditure was capital in nature. Therefore, he submitted that the Tribunal should apprise facts and decide the issue within the framework of the provisions of section 37 of the Act. In this regard, he has relied upon the following judicial precedents:- 1. CIT Vs.Express Hotels P.Ltd ( 281 ITR 160) (Guj) 2.CIT Vs. Ice Suppliers Corporation (64 ITR 195(P&H) 3.CIT Vs. Indian Express (Madurai) (140 ITR 705)(Mad) 4.CITVs. Mahalakshmi Textile MillsLtd.(66 ITR 710)(SC) 7. The learned AR for the assessee, on the other hand, strongly supporting order of the learned CIT(A) submitted that the issue is squarely covered in favour of the assessee by the decision of ITAT., Chennai in assessee's own case for assessment year 2013-14 & 2016-17, where the Tribunal under identical set of facts and by following the decision of the Hon'ble Supreme Court in the case of CIT Vs. M/s. Madras Auto Servi....
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....t findings of the Tribunal are as under:- "5. We have considered the rival submissions on either side and perused the relevant material available on record. In the earlier round of litigation, this Tribunal in I.T.A. No.291/Mds/2017, examined this issue and remitted back the matter to the file of the Assessing Officer with a direction to re-examine the matter in the light of the judgment of Apex Court in Madras Auto Service (P.) Ltd. (supra) and the judgment of Madras High Court in TVS Lean Logistics Ltd. (supra). Now, the Assessing Officer has made a distinction between the cases before the Apex Court and Madras High Court on the one hand and the case of the assessee on the other hand. This distinction made by the Assessing Officer, according to the Ld. representative, is not correct. We have gone through the orders of the Assessing Officer and both the cases before the Apex Court and the High Court. In the case of the assessee before the High Court and Apex Court, the vacant property was taken on lease and the cost of construction was claimed by incurring heavy expenditure. In both the cases, the assessee was paying a nominal rate of rent when compared to the market rate of lea....
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....ng to the contrary. This court in the above case summarised the tests as follows (page 44) : "1. Outlay is deemed to be capital when it is made for the initiation of a business, for extension of a business, or for a substantial replacement of equipment. 2. Expenditure may be treated as properly attributable to capital when it is made not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade. . . If what is got rid of by a lump sum payment is an annual business expense chargeable against revenue, the lump sum payment should equally be regarded as a business expense, but if the lump sum payment brings in a capital asset, then that puts the business on another footing altogether. 3. Whether for the purpose of the expenditure, any capital was withdrawn, or, in other words, whether the object of incurring the expenditure was to employ what was taken in as capital of the business. Again, it is to be seen whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital." (underlining ours) Relying upon the second test enumerated above, learned counsel for the a....
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....f any structure or doing any work or in relation to and by way of renovation, extension or improvement to the building which is put up in a building taken on lease by him for carrying on his business and profession of the assessee, but not in a case of construction of any structure or doing any work or relation to where such building is put up/constructed for the purpose of business or the profession of the assessee in a land taken on lease by the assessee. Because the assessee did not acquire a capital asset, viz., the land in the instant case, but has put up a construction of the building only for the business advantage, with the result the entire construction cost is admissible as the revenue expenditure. 9. The apex court in L. H. Sugar Factory and Oil Mills P. Ltd. v. CIT [1980] 125 ITR 293 held that the construction of roads in the case of sugar mill is revenue expenditure. Similarly, contribution to the State Housing Board for construction of tenements for the workers was also held to be revenue expenditure by the apex court in the case of CIT v. Bombay Dyeing and Manufacturing Co. Ltd. [1996] 219 ITR 521." 8. In view of the above judgment of Apex Court and the judgment ....
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....pplication to the facts of the present case, because the Tribunal being final fact finding authority has every power to adjudicate the issue before it in light of facts on record brought out by both the parties, but it does not have any power to improve order of the Assessing Officer. In this case, case of the Assessing Officer is that Explanation (1) to section 32(1) of the Act is squarely applicable to the instant case of the assessee, whereas the Tribunal has given categorical finding in earlier assessment years that Explanation (1) to section 32(1) of the Act has no application. Further, it is not a case of the AO that expenditure incurred by the assessee is non genuine or which has not incurred for wholly and exclusively for the purpose of business. In fact, the ld. AO had never disputed genuineness of expenditure. The AO had also not disputed fact that the assessee is having constructed building on leasehold land has derived commercial advantage by paying lesser rent. Therefore, we are of the considered view that there is no scope for applying provisions of section 37(1) to disallow expenditure as has not been incurred wholly and exclusively for business purpose. Therefore, ....