Case Law Details
The facts in brief of the case are that the assessee company was engaged in the business of manufacturing of mobile components and accessories and related activities. For the year under consideration, the assessee filed return of income declaring loss of Rs.5,95,36,759/- on 13/10/2007. The case was selected for scrutiny under Computer Assisted Selection of Scrutiny (CASS) and statutory notice was issued and complied with. In the scrutiny proceedings, the Assessing Officer made certain additions including the disallowance of depreciation claimed of Rs.31,97,677/- on temporary structure at the rate of 100% by the assessee. The learned Assessing Officer, however, allowed depreciation at the rate of 10% on the expenses of Rs.31,97,677/- amounting to Rs.3,19,767/-. The learned Commissioner of Income-tax (Appeals) also sustained the disallowance of 100% depreciation and allowed 10% depreciation on the expenses claimed by the assessee as in the nature of temporary erections. Aggrieved with the finding of the learned Commissioner of Income Tax (Appeals) on the issue of depreciation on temporary structure, the assessee is in appeal before the Tribunal raising the grounds as reproduced above.
ITAT Delhi held that the renovation made by the assessee company is in the nature of permanent structure by way of Brick Wall partitions, panelling of Aluminium , Flooring etc. which cannot be covered under current repairs as provided in s. 30 of IT Act, 1961. Such work as made by the assessee company, cannot be stated so as to keep the premises as restored to good condition or save it from exhaustion or compensation of The work in the case of assessee, are meant to altogether change the user by way of expanding its capacity substantially and changeover of its look. The expenditure is certainly capital in nature on which depreciation can only be allowed.
Further in a recent case, the Tribunal Delhi Bench in the case of Marubeni-Itochu Steel India Pvt. Ltd. Vs. Deputy Commissioner Of Income Tax in ITA No. 1716/Del/2014, dated 15th February, 2016, has decided the identical issue as under:
“18.1. The only other ground raised in this appeal is against the confirmation of addition of Rs.23,91,810/- towards the expenditure incurred on account of leasehold improvements by treating the same as capital in nature.
18.2. The facts apropos this issue are that the assessee claimed leasehold improvement expenses of Rs.23.90 lac and architect fee of Rs.33.14 lac as revenue. The AO observed that the assessee started its business during this year only and civil and construction work was done on the premises taken on lease. He treated this work as construction of a permanent structure on leasehold premises. After entertaining objections from the assessee, he made disallowance of Rs.51,34,426/- (Capitalization of two amounts of Rs.23.90 lac and Rs.33.14 lac as reduced by depreciation). The Id. CIT(A) allowed the assessee’s claim in respect of payment to architect amounting to Rs.33.14 lac. However, the remaining amount of Rs.23.90 lac was treated as capital in nature. The assessee is aggrieved against the confirmation of addition to this extent, while there is no appeal filed on behalf of the Revenue.
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