2014 (4) TMI 396 - AT - Income Tax

Disallowance of expenses on repairs of building Expenses debited to other operating expenses Held that - M/s Inga Laboratories Pvt. Ltd. Versus Dy. Commissioner of Income Tax 8(2), Mumbai 2013 (8) TMI 751 - ITAT MUMBAI followed - the expenditure incurred by the assessee in relation to the premises for complete renovation to suit the requirements of licencee is a capital expenditure and the assessee is entitled to depreciation - Explanation to section 32(1) of the Act also stipulates that all the expenditures incurred by the assessee in relation to lease premises for renovation or extension or improvement is entitled to depreciation as is shown by the assesse - the assessee had incurred additional expenditure of Rs. 24.08 lacs during the year in addition to the expenditure amounting to Rs. 59 lacs, incurred last year - Expenditure of both the AYs prove that same was not of revenue nature thus, the order of the FAA does not suffer from any legal infirmity Decided against Assessee.

Summary

Issues:
1. Disallowance of expenditure on repairs of building.

Analysis:
1. The assessee, a pharmaceutical company, filed its income tax return declaring total income. The Assessing Officer (AO) determined the total income after finding an increase in operating expenses due to the claim of capital expenditure as revenue expenditure. The AO directed the assessee to explain the expenses incurred on repairs of the building. The AO concluded that the expenses were capital in nature as they resulted in enduring benefits and capitalized the amount. However, he allowed depreciation and added the balance to the business income.

2. The First Appellate Authority (FAA) upheld the AO's decision, stating that the expenditure was capital in nature and needed to be disallowed. The Authorized Representative (AR) argued that the repairs were necessary as the tenant was occupying the premises, and the expenses were of revenue nature. The Departmental Representative (DR) supported the FAA's order. Referring to a previous year's decision, the Tribunal dismissed the appeal, emphasizing that the expenditure was for complete renovation to suit the tenant's requirements, entitling the assessee to depreciation.

3. The Tribunal found no change in circumstances from the previous year's decision and upheld the FAA's order. The Tribunal noted additional expenditure incurred by the assessee during the year, along with the previous year's expenditure, indicating the non-revenue nature of the expenses. Considering that depreciation was allowed for the leased premises, the Tribunal concluded that the FAA's decision was legally sound. Therefore, the Tribunal dismissed the appeal, affirming the capital nature of the expenditure and the entitlement to depreciation.

This detailed analysis covers the issues involved in the legal judgment comprehensively, highlighting the key arguments and decisions made by the authorities.