2017 (3) TMI 1222 - AT - Income Tax

Disallowing 100% of repairs & maintenance expenditure of buildings and plant & machinery - Held that - Treatment of assessee s repair claims pertaining to its hotel building and plant & machinery. Both the lower authorities except to the extent of minor fraction in lower appellate order hold the same as capital expenditure. It emerges that this tribunal s co-ordinate benches in assessment years 2005-06 to 2007-08 have already decided the very issue in assessee s favour. The factual position however is different in succeeding assessment years wherein the assessee has itself treated 65% of the above heads of expenses as capital expenditure and 35% to be Revenue expenditure as per its authorized person s survey statement operative from the impugned assessment year. The assessee s sole endeavor accordingly before us is to claim only 35% of the expenditure as revenue and balance 65% to be capital expenditure as per its above survey statement. Learned Departmental Representative appearing at Revenue s behest fails to dispute all the above-stated survey developments as well as treatment of the very head of expenditure as revenue in nature in preceding assessment years and partly capital and partly revenue expenditure in latter assessment years. We therefore accept assessee s limited contention and direct the Assessing Officer to treat 65% of the impugned claims as capital expenditure entitled for depreciation and balance 35% as revenue expenditure. He shall accordingly frame consequential assessment as per law.

Summary

Issues:
1. Delay in filing the appeal.
2. Disallowance of repairs and maintenance expenditure.
3. Treatment of repair claims as capital or revenue expenditure.

Issue 1: Delay in filing the appeal
The assessee's appeal faced a delay of 491 days due to various legal actions taken by the assessee, including filing a Section 264 revision petition and withdrawing it. The delay was condoned by the tribunal as the assessee demonstrated bonafide efforts in pursuing remedies before other forums. The Revenue did not dispute the delay, and the tribunal accepted the condonation petition.

Issue 2: Disallowance of repairs and maintenance expenditure
The Assessing Officer disallowed 100% of repairs and maintenance expenditure of buildings and plant & machinery, reducing it to 90% and 80% respectively. The CIT(A) partly upheld this decision, citing legal precedents related to "current repairs." The tribunal analyzed the nature of the repair works carried out by the assessee and found that a significant portion of the expenditure was towards renovation and not repairs, which did not qualify as "current repairs" as per legal standards. Based on the findings, the tribunal allowed only a portion of the claimed expenditure as current repairs and disallowed the rest.

Issue 3: Treatment of repair claims as capital or revenue expenditure
The main issue revolved around the treatment of the assessee's repair claims for hotel building and plant & machinery as either capital or revenue expenditure. Previous assessment years had favored the assessee, but in the relevant year, the assessee treated 65% of the expenses as capital and 35% as revenue expenditure based on a survey statement. The tribunal accepted the assessee's limited contention and directed the Assessing Officer to treat 65% of the claims as capital expenditure for depreciation purposes and 35% as revenue expenditure. The consequential assessment was to be framed accordingly.

In conclusion, the tribunal partly allowed the assessee's appeal, addressing the issues of delay in filing, disallowance of repairs and maintenance expenditure, and the treatment of repair claims as capital or revenue expenditure based on detailed analysis and legal precedents.