Case Law Details
Karnataka Soaps & Detergents Limited Vs ACIT (ITAT Bangalore)
The assessee had set up a branch office in Mumbai. The branch office was housed in a leased premises (leave and licence deed was executed on 5th December, 2013). The leased premises required certain repairs and renovation amounting to Rs.12,95,867. The assessee had claimed the above expenditure of Rs.12,95,867 as a revenue expenditure in the return of income. The assessment was completed vide order dated 11.11.2016 u/s 143(3) of the I.T.Act. The Assessing Officer had disallowed the above expenditure of Rs.12,95,867 incurred on the leased premises, for repairs and renovation. According to the Assessing Officer, the impugned expenditure is a capital expenditure.
The assessee had claimed expenditure amounting to Rs.12,95,867 as revenue expenditure. The A.O. disallowed the same treating it as a capital expenditure. The CIT(A) confirmed the view taken by the Assessing Officer. The CIT(A) placed reliance on the judgment of the Hon’ble Madras High Court in the case of CIT v. ETC Travel Agency (P.) Ltd. (supra) and also Explanation 1 to section 32(1) of the I.T.Act.
Explanation 1 to section 32(1) of the I.T.Act relied on by the CIT(A) is of no help to the revenue. Explanation 1 to section 32(1) of the I.T.Act only permits the assessee to claim depreciation on capital expenditure incurred on leased premises taken by the assessee. On the other hand, if the expenditure incurred by the assessee is on the revenue front, whether the premises is taken on lease or not is immaterial and the same is always an allowable deduction. Therefore, the CIT(A) misinterpreted Explanation 1 to section 32(1) of the I.T.Act.
In the light of the aforesaid reasoning and the judgment of the Hon’ble jurisdictional High Court, cited supra, we hold that the assessee is entitled to deduction of sum of Rs.12,95,867 as revenue expenditure.
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