The Vizag bench in Asstt CIT v. Electronics Systems (P ) Ltd. (2012) 143TTJ484 held that the following expenditure on renovation of premises taken on lease would only qualify for depreciation @ 10%:
1) Civil works;
2)Electrical works with transformer;
3)False ceiling;
4)Flooring;
5)Mirrors and aluminum partitions.
The AO however allowed expenditure on painting and tube lights as revenue expenditure though.
By far the southern benches are taking uniform opinion as regard treatment of such expenditure to be capital in nature. The general view is that Explanation 1 to s. 32 makes it clear that in case the assessee incurs expenditure for the purpose of business operation on the construction of
any structure or by way of renovation or extension of a building, etc., which
is owned by the assessee on leasehold basis, then the assessee is entitled to
depreciation as if such building was owned by him. This means even if the expenditure is incurred on construction of any structure on leasehold property such expenditure will also be treated as capital expenditure and, the assessee becomes entitled to depreciation.
Any claim in this regard otherwise than in the manner above may lead to imposition of penalty hence it may be wise to revise returns where any such expenditure is claimed as revenue in the returns or books of account.
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