2012 (10) TMI 780 - AT - Income Tax

Repair and maintenance of the office - Capital v/s revenue - Held that - From perusal of details of the expenses it reveals that all these details pertained to minor repairs carried out in the office. Incurrence of these expenses did not result into any asset of enduring nature. Therefore, CIT(Appeals) has rightly observed that the expenses incurred by the assessee are of revenue nature, which were incurred in order to carry out current repairs in the office as well as on other items so that the office premises can be used more effectively for the purpose of the business - in favour of assessee. Disallowance of bad debts - amount forfeited by the landlord, on account of notice period rent, outstanding rent, water and electricity charges - Held that - The assessee has submitted that all these items are of revenue nature as had the security was not adjusted then equal amount would have been paid by the assessee and it could get refund of security. The situation will remain the same. As far as the advance given to the lorry vendor is AO did not investigate the issue with the angle whether it is a revenue expenditure or not & simply disallowed. Thus FAA has considered all other details and thereafter deleted the disallowance no force in the ground of appeal raised by the revenue - in favour of assessee.

Summary

Issues involved:
1. Disallowance of expenses under repair and maintenance of building and maintenance other than building.
2. Disallowance of bad debts claimed by the assessee.

Detailed Analysis:
Issue 1: Disallowance of expenses under repair and maintenance of building and maintenance other than building.
The revenue appealed against the order of the Learned CIT(Appeals) regarding the deletion of additions made by the Assessing Officer for expenses totaling Rs.4,11,740 and Rs.71,876 under the heads of repair and maintenance of the office and maintenance other than building, respectively. The Assessing Officer disallowed these amounts as he considered the nature of the expenditure to be capital in both cases. The assessee contended that certain expenses were not claimed and were transferred to other accounts. The Learned CIT(Appeals) found that the expenses were of revenue nature and deleted the disallowance. The ITAT upheld this decision, stating that the expenses were for minor repairs and did not result in any enduring asset, thus being of revenue nature.

Issue 2: Disallowance of bad debts claimed by the assessee.
The Assessing Officer disallowed the bad debts claimed by the assessee totaling Rs.8,53,698, consisting of amounts forfeited by the landlord and an advance to a lorry vendor. The assessee argued that these were genuine business expenditures and should be allowed as business losses. The Learned CIT(Appeals) agreed with the assessee and deleted the disallowance, considering the expenses as allowable to the assessee. The ITAT concurred, noting that the security deposit forfeited by the landlord and the advance to the lorry vendor were of revenue nature. The ITAT found no merit in the revenue's appeal and dismissed it, upholding the decision of the Learned CIT(Appeals).

In conclusion, the ITAT upheld the decisions of the Learned CIT(Appeals) in both issues, ruling in favor of the assessee and dismissing the revenue's appeal.