2015 (7) TMI 1235 - AT - Income Tax

Expenditure on creation of new cabins in business center - revenue in nature OR capital in nature - Held that - The issue is squarely covered in favour of the assessee by the finding of the Tribunal in the own case of the assessee for A.Y. 2007-08 the expenditure incurred by the assessee for maintaining furniture, fixtures etc. for running the business center were Revenue in nature and thus allowable has been upheld by the Hon ble Bombay High Court. Thus, the issue is now squarely covered by the decision of the Hon ble Bombay High Court in the own case of the assessee. Thus, the claim of the expenditure by the assessee on this issue for A.Y. 2005-06, 2006-07 & 2010-11 is accordingly allowed. Disallowance of prior period expenses - AO disallowed an amount claimed as business promotion expenses on the ground that the same pertained to the period prior to the assessment year under consideration - Held that - CIT(A) correctly relying upon the decision of the ITAT Delhi Bench in the case of Goetze India Ltd. vs. CIT 2007 (7) TMI 341 - ITAT DELHI-C held that since the quantum of actual liability was crystallized during the year under consideration, hence the expenditure was allowable during the current year. He, therefore, deleted the disallowance. - Decided in favour of assessee

Summary

Issues:
1. Dispute over the nature of expenditure on creation of new cabins in a business center - Revenue contests CIT(A) finding that it is revenue expenditure.
2. Disallowance of prior period expenses - AO disallowed business promotion expenses as they pertained to the period preceding the assessment year.

Detailed Analysis:
1. The first issue revolves around the nature of expenditure on creating new cabins in a business center. The Revenue challenged the CIT(A)'s decision to treat the expenditure as revenue in nature, contrary to the AO's classification as capital expenditure. The Tribunal previously set aside the matter to the AO for reconsideration. The AO again disallowed the expenditure as capital. However, the CIT(A) allowed the claim based on the assessee's explanation that the expenses were necessary for the business center's operation and did not confer enduring benefits. The Tribunal upheld this decision, citing similar past allowances and the absence of capital asset acquisition. The Revenue's appeal was dismissed as the issue was previously settled in favor of the assessee by the Tribunal and upheld by the High Court.

2. The second issue pertains to the disallowance of prior period expenses. The AO disallowed business promotion expenses as they related to the period preceding the assessment year. The assessee argued that since the bill was received in the current year, crystallizing the liability, the expenditure should be allowed. The CIT(A) agreed, citing a decision from the ITAT Delhi Bench. The Tribunal found no fault with the CIT(A)'s decision, as the liability was crystallized during the current year, justifying the allowance of the expenses. Consequently, all appeals by the Revenue were dismissed.

In conclusion, the judgment addressed the Revenue's challenges regarding the nature of expenses and the treatment of prior period expenses. The Tribunal upheld the CIT(A)'s decisions in both instances, emphasizing the necessity and timing of the expenses for business operations. The detailed explanations provided by the assessee supported the allowance of the expenditures, leading to the dismissal of the Revenue's appeals.