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Issues:
Assessing capital vs. revenue expenditure on repairs of office building. Analysis: The appeal was filed against the order of CIT(A) for the assessment year 2001-02 regarding the treatment of expenses incurred on repairs of an office building as capital expenditure. The Assessing Officer rejected the claim of revenue expenditure on the basis that the extensive repairs were not justified, considering the property's condition and the agreement terms. The AO relied on the agreement for sale deed which specified the amenities to be provided by the builder. The AO concluded that the expenditure of Rs. 4,75,000 was capital in nature and allowed depreciation at prescribed rates. The CIT(A) upheld the AO's decision, leading to the appeal. The assessee argued that the expenses were incurred in the financial year 2000-01 for repairs and renovation of the office purchased in 1998. The replacement of flooring, door frames, window frames, etc., was done to suit the assessee's taste, not to create a new capital asset. The assessee contended that the expenditure should be treated as revenue expenditure, not capital expenditure. On the contrary, the Departmental Representative supported the assessment order, claiming it was a case of reconstruction of the existing unit, thus qualifying as capital expenditure. The Tribunal analyzed the situation and observed that the fittings and flooring were changed in the office in 2000-01, which did not result in the creation of any new capital asset. The Tribunal noted that the expenditure, though enduring in nature, was merely for replacement and did not lead to the formation of a new capital asset. Therefore, the Tribunal concluded that the expenses should be treated as revenue expenditure and allowed accordingly. Consequently, the appeal was allowed, and the order was pronounced on 13-6-2006.
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