DCIT Vs Add Lounge Service Pvt. Ltd (ITAT Delhi)
Conclusion: Capital expenditure on leasehold premises, such as plumbing, partitions, flooring, and electrical fittings, qualified as improvements to a building used for business purposes. Therefore, depreciation deduction for improvements made to leasehold premises was allowable.
Held: Assessee had claimed depreciation on the cost of improvements made to a leased property used for its business operations. AO disallowed the depreciation and treated the expenditure as non-qualifying for depreciation under Section 32 and made an addition of Rs. 53,42,103/-. CIT(A) deleted the addition, relying on a prior ITAT decision in the assessee’s own case. CIT(A) held that assessee was entitled to claim depreciation on leasehold improvements, as such expenditure satisfied the ownership test under Explanation 1 to Section 32. Revenue appealed to the ITAT. It was held that the earlier ruling held that capital expenditure on leasehold premises, such as plumbing, partitions, flooring, and electrical fittings, qualified as improvements to a building used for business purposes. Further, it was highlighted that Explanation 1 to Section 32 of the Income Tax Act, effective from 01/04/1988, explicitly allows depreciation on such expenditure as if the assessee owned the building. Tribunal noted that Revenue failed to distinguish the facts of the present case from the prior ruling. It confirmed the CIT(A)’s order and directed AO to delete the addition of Rs. 53,42,103/-.
