2014 (6) TMI 739 - AT - Income Tax

Disallowance of building renovation expenses Capital or revenue expenses - Amount not treated as current repairs u/s 30 and 31 of the Act Held that - Assessee had during the year taken new permissions rent and had shifted the school in the bigger rented premises - From the details of expenses, it is seen that the expenses are with respect to alteration to furniture like glass fittings, repairs to locks, miscellaneous repair works, repairs to furniture, water proofing and other miscellaneous repairs etc. - From the nature of expenses it cannot be said that the expenses have resulted in getting enduring benefit to the Assessee and appear to be of revenue in nature - the Revenue has also not brought any material on record to controvert the submissions of the Assessee thus, the expenses are to be treated as revenue in nature and allowable u/s 37(1) of the Act Decided in favour of Assessee.

Summary

Issues involved:
1. Disallowance of building renovation expenses as capital expenditure.
2. Treatment of building renovation expenses as current repairs under sections 30 and 31 of the Income Tax Act.

Analysis:
1. The appeal was filed against the order of CIT(A) for the assessment year 2008-09. The Assessee, an individual running a school, declared a total income of Rs. 2,79,576. The assessment was framed under section 143(3) with total income assessed at Rs. 4,99,782. The Assessee challenged the order before CIT(A) and then before the ITAT, raising grounds related to the disallowance of building renovation expenses amounting to Rs. 1,85,516, treated as capital expenditure by the AO. The CIT(A) granted partial relief, leading to the appeal before the ITAT.

2. During assessment, the AO disallowed the building renovation expenses claimed by the Assessee, considering them as capital in nature. The Assessee justified the expenses stating they were incurred on a new rented premises for the school. The CIT(A) partially allowed the claim, distinguishing between current repairs and capital expenditure. The ITAT considered the nature of expenses, including alterations to furniture, repairs, and miscellaneous works, and concluded that they did not provide an enduring benefit to the Assessee. The ITAT held the expenses to be revenue in nature, allowing them under section 37(1) of the Income Tax Act.

In conclusion, the ITAT allowed the appeal of the Assessee, directing the AO to allow the building renovation expenses as revenue expenditure under section 37(1) of the Act. The judgment highlighted the distinction between capital expenditure and current repairs, emphasizing the nature of the expenses and their impact on the Assessee's income for the relevant assessment year.