2012 (11) TMI 1244 - AT - Income Tax

Summary

Issues involved: The only issue in this case is regarding the allowance of certain expenditures incurred towards repairs and maintenance of a building and Theatre Complex as revenue expenditure.

Summary:

Issue 1: Allowance of Expenditures for Repairs and Maintenance

The appellant, a private limited company engaged in exhibiting feature films, filed its return of income for the assessment year 2007-08. The Assessing Officer (AO) disallowed certain expenditures incurred for modernization of the building, considering them as capital expenditure for renovation and modernization. The AO opined that the expenses were not for repairs and maintenance but for deriving enduring benefits in subsequent years. The appellant contended that the expenditure did not increase seating capacity or create capital assets of enduring benefit. The AO, however, did not accept this argument and disallowed the expenditure as capital expenditure. The Commissioner of Income Tax (Appeals) [CIT (A)] allowed some expenditures as revenue expenditure but treated others, like marble flooring, as capital expenditure. The Income Tax Appellate Tribunal (ITAT) remitted the matter back to the AO to verify the nature of the expenditures claimed under repairs and maintenance. If found similar to previous years' expenditures allowed as revenue, the AO was directed to treat them as revenue expenditure for the current assessment year.

The ITAT held that expenditures incurred in the process of profit earning should be allowed as revenue expenditure. The tribunal referred to a previous case where the Supreme Court allowed expenses incurred for renovating a building as revenue expenditure as they were part of the profit-earning process. The ITAT found that certain expenses like repair of chairs, drainage work, wall paper fixing, and consultancy charges were revenue in nature, while marble flooring was treated as capital expenditure. The tribunal directed the AO to allow expenditures under repairs and maintenance as revenue if similar to those allowed in previous years.

In conclusion, the appeal filed by the department was treated as allowed for statistical purposes, and the matter was remitted back to the AO for further verification of the nature of expenditures claimed under repairs and maintenance.

This summary provides a detailed overview of the judgment, focusing on the issue of allowance of expenditures for repairs and maintenance in the context of the appellant's business activities.