2016 (6) TMI 1266 - AT - Income Tax

Nature of expenditure - Expenditure incurred on temporary wooden structures - allowable as revenue expenditure or capital expenditure - Held that - CIT(A) has taken correct view of the facts of the case and decided that the expenditure incurred on leased premises on temporary wooden structure (interior decoration) is a revenue expenditure. Accordingly, the ground raised by the Revenue in all these appeals is dismissed.

Summary

Issues:
Appeal against CIT(A) order allowing expenditure on temporary wooden structures as revenue expenditure.

Analysis:
The appeals were filed by the Revenue against the CIT(A)'s decision allowing the expenditure on temporary wooden structures as revenue expenditure for the assessment years 2008-09, 2009-10, and 2010-11. The key issue in all three appeals was whether the CIT(A) erred in holding that the expenditure incurred on temporary wooden structures was allowable as revenue expenditure. The assessee, a retailer of ready-made garments, had claimed 100% depreciation on temporary wooden structures for the leased premises used as retail garment showrooms. The AO did not accept the claim and allowed depreciation at 10%. The CIT(A) observed that the assessee carried out specific interior works to bring showrooms in line with brand specifications and allowed the expenditure as revenue based on judicial pronouncements and Explanation 1 to Section 32(1).

The CIT(A) noted that the assessee's interior work did not alter the building but enhanced the showroom's design and functionality. The CIT(A) referred to the Explanation 1 to Section 32(1) to support the allowance of 100% depreciation on such interior works. The CIT(A) distinguished a previous Tribunal order and decided in favor of the assessee, treating the expenditure as revenue. The Revenue appealed the decision before the ITAT.

The ITAT, after hearing both parties and reviewing the material, found the issue to be covered in favor of the assessee by a judgment of the jurisdictional High Court. The High Court's decision in CIT Vs. Armour Consultant (P) Ltd. supported the allowance of expenditure on design, layout, and material construction as revenue expenditure. The ITAT agreed with the CIT(A)'s view that the expenditure on temporary wooden structures for leased premises constituted revenue expenditure. Consequently, the ITAT dismissed all three appeals of the Revenue.

In conclusion, the ITAT upheld the CIT(A)'s decision, considering the expenditure on temporary wooden structures as revenue expenditure for the leased premises used as retail garment showrooms. The judgment relied on the High Court's precedent and the nature of the interior works carried out by the assessee to enhance the showroom's functionality and design, rather than altering the building structure.