2014 (7) TMI 1191 - AT - Income Tax

Disallowance of hoarding expenses - revenue v/s capital - Held that - These hoardings were required to be maintained by the assessee and in order to avoid corrosion of the structure and other adverse weathering effects, application of red oxide and painting was regularly required to be done. Similarly, cementing and plastering of foundation was also required to be done regularly in order to maintain the hoarding structures. Keeping in view the nature of business activity carried on by the assessee, we are of the view that the expenditure incurred by the assessee to maintain the structures used for hoardings is of revenue in nature especially when the quantum of expenditure incurred is considered in the light of the fact that there were 15 hoardings which were exposed to climate. It is also relevant to note that such expenditure is a recurring expenditure which is required to be incurred by the assessee regularly and the same therefore cannot be said to have given any enduring benefit to the assessee in capital field. Moreover, even if the hoarding expenditure claimed by the assessee is inclusive of replacement of M.S. Angles etc., as noted by the A.O., the same is in the nature of replacement of parts of the hoarding structure which cannot be treated as capital expenditure. Assessee is entitled to deduction on account of hoarding expenditure being in the nature of revenue expenditure - Decided in favour of assessee

Summary

Issues involved:
Disallowance of hoarding expenses treated as capital expenditure.

Analysis:
The appeal was filed against the disallowance of hoarding expenses amounting to Rs. 8,82,666 as capital in nature. The Assessing Officer (A.O.) found that the expenses resulted in enduring benefit to the assessee and were not in the nature of current repairs. The A.O. allowed only depreciation at 10%, resulting in a net disallowance of Rs. 7,94,399. The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed the disallowance, stating that the expenses were on major repairs and maintenance, not normal repairs. The CIT(A) agreed with the A.O. that the expenses were capital in nature, giving enduring benefits. The Tribunal heard arguments and observed that the hoardings required regular maintenance to prevent corrosion and adverse weathering effects. The Tribunal considered the nature of the business activity and the recurring nature of the expenditure, concluding that it was revenue in nature. The Tribunal noted that even if the expenditure included replacement of parts, it did not qualify as capital expenditure. Therefore, the Tribunal allowed the appeal, deleting the disallowance made by the A.O. and confirmed by the CIT(A) on the grounds that the hoarding expenses were revenue in nature.

In conclusion, the Tribunal held that the hoarding expenses incurred by the assessee were revenue expenditures as they were necessary for regular maintenance to prevent corrosion and weathering effects on the hoarding structures. The Tribunal emphasized that the expenditure did not provide any enduring benefit in the capital field and was recurring in nature. Consequently, the disallowance made by the A.O. and confirmed by the CIT(A) was deleted, allowing the appeal of the assessee.