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M/s Rohit Bal Designs Pvt. Ltd. C-328, 1st Floor, Defence Colony New Delhi. Vs DCIT, Circle-15(1), C. R. Building, New Delhi.
April, 09th 2014
             DELHI BENCH `F', NEW DELHI
     Before Sh. R. S. Syal, AM And Sh. A. T. Varkey, JM
             I.T.A .No.-2089/Del/2013 : Asstt. Year : 2009-10
M/s Rohit Bal Designs Pvt. Ltd.     Vs   DCIT, Circle-15(1),
C-328, 1st Floor, Defence Colony         C. R. Building,
New Delhi.                               New Delhi.
(APPELLANT)                              (RESPONDENT)
                  Assessee by : Sh. Sumant Chadha, CA &
                                Smt. Anju Goel, CA.
                  Revenue by : Smt. Meenakshi Vohra, Sr. DR.

Date of Hearing : 01.04.2014        Date of Pronouncement : 02.04.2014


      This appeal by the assessee is directed against the order
passed by the CIT (A) on 17.01.2013              in relation to the
assessment year 2009-10.

2.    The only issue raised in this appeal is against the allowing
of depreciation @ 10% on certain items as against 100% claimed
by the assessee. Briefly stated the facts of the case are that the
assessee is engaged in manufacturing and sales of high fashion
garments. On perusal of the depreciation chart, it was observed
by the AO that the assessee had claimed depreciation @ 100% on
Emporio Showroom, being premises No. 338 DLF Emporio,
                                          2                     I.T.A .No. 2089/Del/2013
                               .                               Rohit Bal Designs Pvt. Ltd.

Vasant Kunj, New Delhi which was taken on lease from M/s
Regency Park Property Management Pvt. Ltd. vide lease deed
dated 22.01.2009. The said premises was taken on lease for a
period of 3 years extendable by a further period of 6 years. The
AO called upon the assessee to explain as to why depreciation on
Emporio Showroom furniture should not be restricted to 10% as
against claimed at 100%. Break-up of total expenditure of
Rs.53,61,659/- incurred by the assessee under the head
`Showroom Emporio',                reproduced on pages 2 & 3 of the
assessment order is as follows :-

Sl. No.   Description                                                           Amount
1.        Wood inlay table, wood inlay lotus table, handee                      141619
2.        Ottoman 600 X 1200, Ottoman 600 X 600, Ottoman 750 X 750,             210488
          sofa, table sold wood shells, woodan rods
3.        Lighting fixture                                                      163547
4.        Cansole size 1500 X 600, C.P. teak wood table size 1200 X 600,        73688
          C.P. teak wood console with drawer
5.        Handcrafted Mughal huqqa base sculpture, brass                        686000
6.        Reggiani's bisio 11322.10 with 11306 optics, venture's IBU 70w,       23920
          Philips CDM-T35W/830
7.        Stencil C/ I                                                          3025
8.        Labour work                                                           1500
9.        2AB mirror frames for GLP stencil on the wall G/L lotus flower,       26345
          G/L on letter
10.       Cutting & installation of gold 2 angle                                5,440
11.       Supply of led illuminated M.S. Signage                                58700
12.       Steel Channel in desired finish, trimless qr 111 luinaires, etc.      175568
13.       Flower cut design mild steel sheed 20 guage                           237375
14.       9 X 8 route cut sign sheet with transferlatier                        4000
15.       Oram's QR 111, 100W/24, etc. 50W electronic transformer               7718
16.       For peacock fabricating and fixing brass peacock etc.                 365625
17.       Civil work, flouring work in count wood, finishing works etc.         3178092
                                   3                 I.T.A .No. 2089/Del/2013
                           .                        Rohit Bal Designs Pvt. Ltd.

3.         In support of its claim for depreciation at 100% on the
above items, the assessee stated that the said amount was incurred
on renovation which consisted of civil work, flooring work,
counter work, finishing work, doors and glassing work,
miscellaneous accessories and lighting etc., the normal life of
which was between one to two years. The AO did not concur with
the submissions advanced on behalf of the assessee. He held such
expenditure to have been incurred for creating structure giving
enduring benefit to the assessee. It was opined that the amount
was in the nature of furniture and fixture eligible for depreciation
@ 10% per annum. The AO also took note of the mandate
Explanation 1 section 32(1). Resultantly, depreciation was
allowed @ 10% per annum which resulted into disallowance of
depreciation to the tune of Rs.32,25,548/-. The ld. CIT (A)
accepted      the   assessee's   contention   for   allowing          100%
depreciation of all items, except the following:

     i.       Expenditure of Rs.31,78,092/- on civil and flooring
     ii.      Expenditure of Rs.6,86,000/- on purchase of Brass
              hand crafted Mughal Huqqa.
     iii.     Expenditure of Rs.3,65,625/- on fabrication and fixing
              of brass peacock.

4.   The assessee is in appeal against the sustenance of addition
to this limited extent. The Revenue appears to have accepted the
                                 4                I.T.A .No. 2089/Del/2013
                         .                       Rohit Bal Designs Pvt. Ltd.

impugned order inasmuch as no appeal filed by the Revenue has
been brought to our notice by the ld. DR.

5.     We have heard the rival submissions in the light of material
placed before us and precedents relied on. The ld. AR was fair
enough not to press against the sustenance of disallowance on
account of the reduced rate of depreciation in respect of second
and third items, being expenditure of Rs.6.86 lacs and Rs. 3.65
lac.    He pressed and focused his arguments only on the
expenditure of Rs.31.78 lac incurred on `Civil and flooring work'.
It was submitted that the entire amount be allowed as deduction
u/s 37(1) of the Act as it was incurred on the items which were
not retrievable on the expiry of lease.       In support         of the
contention that the entire amount should be allowed as deduction,
the ld. AR relied on the judgment of the Hon'ble Kerala High
Court in Joy Alukkas India Pvt. Ltd. [TS-144-HC-2014 (KER)]

6.      Before dealing with the contention raised on behalf of the
assessee in this regard, it would be apposite to note that the said
premises was taken on lease in the previous year relevant to the
assessment year under consideration for a period of 3 years
extendable for a further period of six years. The ld. CIT(A) has
recorded a categorical finding that the building was to remain
                                 5                 I.T.A .No. 2089/Del/2013
                         .                        Rohit Bal Designs Pvt. Ltd.

with the assessee for a period of 9 years. Such contention has not
been controverted by the ld. AR with any cogent evidence worth
the name. This shows that the said premises was to remain with
the assessee for a period of nine years on lease basis and the lease
started in the relevant financial year itself.   The assessee, on
taking possession of the premises, incurred total expenditure of
Rs.53.61 lac on renovation of this premises and claimed it as
revenue in nature.

7.   The Hon'ble Supreme Court in the case of Ballimal Naval
Kishore vs. CIT 1997 224 ITR 414 (SC) has held that the
expenditure incurred by the assessee on total renovation of
cinema theatre by installing new machinery, new furniture, new
sanitary fitting and new electrical installation besides extensive
repair of structure of building to be capital expenditure and not
allowable as current repairs. This judgment indicates that any
capital expenditure on total renovation is liable to be considered
as capital expenditure. The Hon'ble jurisdictional High Court in
Bigjo's India Ltd. VS. CIT (2007) 293 ITR 170 (Del) considered
almost a similar situation as is obtaining before us in the present
appeal. In that case, the assessee, a licensee of the showroom,
erected new counters and built a new lift shaft at a new site. It
was held that such expenditure was not in the nature of current
repairs but capital expenditure not deductible in full. Adverting
                                  6                I.T.A .No. 2089/Del/2013
                         .                        Rohit Bal Designs Pvt. Ltd.

tot the facts of the instant case, we find that the present facts are
on all fours with that considered by the Hon'ble High Court in
Bigjo"s (supra). It is evident from the description of the items on
which the above referred expenditure has been incurred that it is a
case of renovation of premises immediately after taking it on
lease. As such, there can be no question of replacement. We
cannot help if the Revenue has accepted the part deletion of
disallowance by the ld. CIT(A). Be that as it may we are
concerned only with the items of disallowance raked up in the
present appeal and hold that the ld. CIT(A) has taken
unexceptional view in treating them as capital expenditure.

8.       At this stage, it is relevant to note that the Tax Laws
(Amendment and Miscellaneous Provisions) Act, 1986 inserted
Explanation 1 to section 32 w.e.f. 1.4.1988,        which reads as

     "Explanation-1. Where the business or profession of the
     assessee is carried on in a building not owned by him but in
     respect of which the assessee holds a lease or other right of
     occupancy and any capital expenditure is incurred by the
     assessee for the purposes of the business or profession on
     the construction of any structure or doing of any work in or
     in relation to and by way of renovation or extension of, or
     improvement to the building, then, the provisions of this
     clause shall apply as if the said structure or work is a
     building owned by the assessee."
                                 7                 I.T.A .No. 2089/Del/2013
                         .                        Rohit Bal Designs Pvt. Ltd.

9.   A bare perusal of the above Explanation reveals that where
a business is carried on in a building not owned by the assessee
but in respect of which it holds a lease or either occupancy rights,
then the expenditure on i. the construction of a structure or ii.
doing of any work in or in relation to and by way of renovation or
extension of, or improvement to the building shall be considered
as structure or work in the nature of building owned by the
assessee for the purpose of depreciation. The essence of
Explanation 1 to section 32 is that any capital expenditure by the
assessee on a building not owned by him, in which he carries on
the business, shall be considered as building owned by him for
the purposes of section 32, to the extent of the amounts spent on
the construction of structure or doing of any work in or in relation
to and by way of renovation or extension or improvement to the
building. It therefore, follows that in order to bring any amount
within the ambit of Explanation 1 to section 32 it is paramount
that the expenditure incurred by the assessee on the premises in
the capacity of non-owner should firstly be in the nature of capital
expenditure and then it should fall within any or both the clauses
as discussed above. If these conditions get satisfied, then the
amount incurred for such works would fall for consideration
under Explanation 1 to section 32. In such a case, the amount so
                                  8                  I.T.A .No. 2089/Del/2013
                          .                         Rohit Bal Designs Pvt. Ltd.

incurred can be considered as revenue but would be capitalized
entitling the assessee to depreciation as per the eligible rate.

10.    Now we espouse the judgment in the case of Joy Alukkas
India (supra), which is the trump card of the ld. AR. In this case,
the Hon'ble High Court has held that if the item resulting from
the incurring of the expenditure is irretrievable at the end of the
lease period, then it should be considered as revenue expenditure.
This retrieval test formulated by the Hon'ble High Court is to be
seen in the backdrop of the facts prevailing in that case. It is not a
statutory prescription so as to be universally applicable. If this test
is brought to the logical conclusion then every expenditure even
on construction of structure by the non-owner would become
revenue, which is contrary to the unambiguous mandate of Expl.
1 to section 32. This retrieval test, being the ratio decidendi of
the case can be validly applied where the lease period is one year.
We are confronted with a situation in which lease period is nine
years. Be that as it may, the Hon'ble High Court further
considered the prescription of Expl. 1 to sec. 32 in the same case
and held that : "if the expenditure were to be considered as
capital expenditure in the hands of the owner, it has to be
considered as capital expenditure in the hands of the tenant, who
is the assessee so far depreciation and other benefits" are
concerned. It further observed that if the expenditure has to be
                                  9                  I.T.A .No. 2089/Del/2013
                          .                         Rohit Bal Designs Pvt. Ltd.

treated as revenue expenditure in the hands of the owner, it would
amount to revenue expenditure even in the hands of the assessee
tenant. "In other words, section 32(1) (i) of the Income Tax Act
read with Explanation 1 thereto, would only mean, whatever the
owner of the building is entitled so far as benefits of other
depreciation will be applicable to the case of the assessee, who
takes the building on lease". From the above discussion, it
follows that the retrieval test is not the only test laid down by the
Hon'ble High Court. It has to be read along with the clarification
given by the Hon'ble Court on the Expl. 1 to sec. 32, which
makes it clear in no uncertain terms that the capital expenditure
incurred, whether by the owner on his premises or by a non-
owner on the premises taken on rent or lease etc. for carrying on
his business, shall not be allowed as deduction in full in the year
of its incurring, but will be capitalized entitling it to depreciation.
When we view the expenditure of Rs.31.78 lac incurred by the
assessee on `Civil work, flooring work, and finishing work, etc,',
the same does not pass the test of revenue expenditure to be
deductible in full. In our considered opinion this amount has been
rightly capitalized by the AO as well as ld. CIT(A) making the
assessee eligible for depreciation on it. We, therefore, uphold the
impugned order on this issue.
                                       10                      I.T.A .No. 2089/Del/2013
                              .                               Rohit Bal Designs Pvt. Ltd.

12. In the result, the appeal is dismissed.

Order pronounced in the open Court on 02/04/2014.

      Sd/-                                                     Sd/-

   (A. T. VARKEY)                                    (R. S. SYAL)
JUDICIAL MEMBER                                  ACCOUNTANT MEMBER
Dated: 02/04/2014
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)

                                                  ASSISTANT REGISTRAR

                                                    Date       Initial
1.    Draft dictated on                         01/04/2014                  PS
2.    Draft placed before author                02/04/2014                  PS
3.    Draft proposed & placed before the second                             JM/AM
4.    Draft discussed/approved by Second Member.                            JM/AM
5.    Approved Draft comes to the Sr.PS/PS       03/04/2014                 PS/PS
6.    Kept for pronouncement on                                             PS
7.    File sent to the Bench Clerk               03/04/2014                 PS
8.    Date on which file goes to the AR
9.    Date on which file goes to the Head Clerk.
10.   Date of dispatch of Order.
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