2016 (11) TMI 1597 - AT - Income Tax

Renovation expenditure - Allowable Revenue expenditure - expenditure incurred by the assessee in replacing the mosaic floor by marble floor - Held that - It appears that the hotel run by the assessee was classified as four star hotel since 1971. Therefore, the assessee has to necessarily have Air Conditioner Machine, Dishwash Machine and Audio Video in Resto Pub. This Tribunal is of the considered opinion that in the absence of any material to suggest that the assessee has purchased any new machinery, it has to be considered only as replacement of the existing machinery. When we consider the hotel as a single unit, replacement of Air Conditioner Machine, Dishwash Machine and Audio Video in Resto Pub has to be considered as maintenance of the building for the purpose of running the business of hotel. Therefore, the CIT(A) has rightly found that the expenditure was revenue in nature. - decided against revenue.

Summary

Issues: Determination of nature of expenditure - Capital or Revenue for renovation expenses and purchase of machinery in a hotel business for Assessment Years 2006-07 & 2012-13.

Assessment Year 2006-07:
The appellant, a hotel company, claimed renovation expenditure for replacing mosaic floors with marble floors as revenue expenditure. The assessing officer treated it as capital expenditure, allowing depreciation at 10%. The CIT(A) considered it revenue in nature. The Tribunal analyzed that the replacement maintained the hotel's capacity and profit apparatus, necessary for attracting customers, thus ruling it as revenue expenditure. The CIT(A)'s decision was upheld.

Assessment Year 2012-13:
The appellant claimed expenditure for purchasing Air Conditioner Machine, Dishwash Machine, and Audio Video as revenue expenses. The department argued these were capital in nature. The appellant contended it was maintenance of existing machinery. The Tribunal noted the hotel's long-standing classification as a four-star hotel, indicating the necessity of such machinery. Considering the lack of evidence for new purchases, the replacement was deemed maintenance for business operation, confirming the CIT(A)'s decision on revenue expenditure.

In conclusion, both appeals by the revenue were dismissed, affirming the CIT(A)'s decisions on the nature of expenditures for the respective assessment years.