2016 (6) TMI 486 - AT - Income Tax

Expenditure incurred and debited in the P & L account under the head repairs & maintenance - capital expenditure or revenue expenditure - Held that - When expenditure incurred for an advantage for the enduring benefit of trade can be attributable to capital expenditure in nature. In the present case also the assessee incurred expenditure for its three locations to the extent of ₹ 1,00,50,077/- under the head repairs and maintenance and the said expenditure created a new asset for the benefit of assessee for its trade. Therefore, we are of the view that the case laws as relied on by the assessee are distinguishable and do not apply to the facts of the case on hand. The expenditure incurred and claimed by the assessee is capital in nature and the assessee is not entitled to claim deduction as revenue expenditure. See Empire Jute Co. Ltd Vs. CIT reported in (1980 (5) TMI 1 - SUPREME Court) - Decided against the assessee.

Summary

Issues involved:
1. Classification of expenditure as capital or revenue in nature for repairs and maintenance expenses.

Detailed Analysis:

Issue 1: Classification of expenditure as capital or revenue in nature for repairs and maintenance expenses

The appeal pertains to an order of the CIT(A), XII, Kolkata, against the assessment framed under section 143(3) of the Income Tax Act, 1961. The primary contention raised by the assessee in this appeal is regarding the disallowance of an amount of ?1,00,50,077 under the head 'repair and maintenance' expenses. The assessee argued that these expenses were incurred for existing structures and should be treated as revenue expenditure. However, the Assessing Officer (AO) treated the expenditure as capital in nature, adding it to the assessee's income. The CIT(A) upheld the AO's decision, considering the expenditure as capital due to the creation of a new asset through renovation work.

During the hearing, the assessee reiterated that the expenses were for repairs and maintenance of existing structures, emphasizing that no new assets were created. The assessee's representative highlighted that only basic items like electrical lines, fans, and ACs were added, and no major structural changes were made. Despite the assessee's arguments, the tribunal examined the invoices and bills related to the expenditure. The tribunal observed that the extensive interior and electrical works undertaken by the assessee resulted in the creation of new assets, such as partitions, storage units, and furniture, across multiple office locations.

The tribunal referred to relevant case laws and the distinction between capital and revenue expenditure. It cited the principle that when expenditure leads to the creation of an enduring benefit or asset for the trade, it is considered capital in nature. Relying on this principle and the specific details of the expenditure incurred by the assessee, the tribunal concluded that the expenses were indeed capital in nature. The tribunal held that the expenditure created new assets benefiting the assessee's trade, thereby justifying the AO's and CIT(A)'s decision to treat it as capital expenditure. Consequently, the tribunal dismissed the appeal, upholding the addition made by the AO.

In conclusion, the tribunal's detailed analysis focused on the nature of the expenditure incurred by the assessee for repairs and maintenance. By examining the specific works carried out and their impact on creating new assets, the tribunal determined that the expenses were capital in nature, denying the assessee's claim for deduction as revenue expenditure.

This comprehensive analysis of the judgment highlights the key legal aspects and reasoning behind the decision on the classification of expenditure as capital or revenue in nature for repairs and maintenance expenses.