Asera Software (India) Pvt. Ltd. Vs ACIT (ITAT Bangalore)- With respect to the disallowance of lease cancellation charges it is evident that this loss to the assessee was incurred due to appropriation of security deposit standing with the landlord in lieu of the loss of lease rent to the landlord. As far as the assessee is concerned, it is a payment made for the portion of the rent payable for the balance term of the lease agreement. This expense has crystallised during the relevant assessment year due to the decision taken for termination of the lease agreement.
The argument of the Revenue that this payment pertains to the surrender of a lease hold right and lease hold right being in the nature of an asset can be construed only as a capital loss to the assessee is not appreciable. In the case of CIT v. Ashok Leyland relied upon by the ld. AR, it was held that “the compensation paid for termination of the services of the managing agents was a payment made with a view to save business expenditure in the accounting period as well as a few subsequent years; it was not made for acquiring any enduring benefit or income-yielding asset. By avoiding certain business expenditure the company could not be said to have acquired enduring benefits or any income-yielding asset. The expenditure was of a revenue nature and was an allowable deduction in computing the profits of the assessee- company.” Ld. AR’s reliance in the case CIT v. Peico Electronics & Electrical Ltd. supra is also of quite relevance wherein it was held that the compensation paid for premature termination of trade agreement to avoid future commercial inconvenience did not bring into existence any capital asset of enduring nature and, therefore is revenue expenditure. Drawing strength from these case laws, we are of the considered opinion that the expense incurred by the assessee due to cancellation charges of lease agreement for Rs.30,77,193 can be only held to be revenue expenditure. It is ordered accordingly.
Now going to the issue of disallowance of expenditure incurred due to temporary construction on the lease hold premises, it is apparent that the assessee has not acquired any asset of enduring nature. It was an expenditure incurred on the lease hold premises to suit the convenience of the appellant. More over the premises had to be vacated due to commercial expediency. The decision cited by the ld. AR in the case of CIT Vs Haridas Bhagath & Co. Pvt. Ltd. reported in 240 ITR 169 is drawn for attention wherein it was held that the expenditure on the building taken on lease was revenue in nature. Following the ratio of this decision, we hold that the improvement cost on lease hold building incurred by the appellant for Rs. 3,52,473 is to be allowed as a revenue expenditure. It is ordered accordingly. Thereby we have allowed all the three grounds raised by the assessee in its favour.