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2017 (9) TMI 639 - AT - Income TaxRepairs and maintenance expenses - nature of expenditure - revenue or capital - Held that - We are inclined to set aside and restore this issue back to the file of the AO for denovo determination of the issue on merits in accordance with law keeping in view ratio of decision in the case of RPG Enterprises Limited v. DCIT (2016 (7) TMI 71 - BOMBAY HIGH COURT) as is applicable to the nature of the expenditure incurred by the assessee keeping also in view that the assessee is holding the premises under JV agreement with MMTC for a period of 15 years for running a business centre and also earlier decisions in assessee s own case shall also be duly kept in view while adjudicating in de-novo proceedings. The assessee is directed to produce all relevant evidences/ explanations before the AO in its defense, which shall be admitted by the AO in the interest of justice. Proper and adequate opportunity of being heard shall be provided by the AO to the assessee in accordance with principles of natural justice in accordance with law.
Issues Involved:
1. Whether the expenses on repairs and maintenance of furniture and fixtures should be classified as revenue expenditure or capital expenditure. Issue-wise Detailed Analysis: 1. Classification of Repairs and Maintenance Expenses: - Facts of the Case: The assessee company, engaged in the business of running a business center, incurred expenses amounting to ?67,87,049 on repairs and maintenance of furniture and fixtures. The Assessing Officer (AO) treated these expenses as capital expenditure, arguing that they brought into existence an asset intended to provide enduring benefits to the business. Consequently, the AO disallowed the expenses as revenue expenditure and allowed depreciation at 10% on the capitalized amount. - CIT(A) Decision: The Commissioner of Income Tax (Appeals) [CIT(A)], relying on previous appellate orders for assessment years 2007-08 and 2009-10, and the decision of the Hon’ble Bombay High Court for assessment year 2007-08, held that the expenses were revenue in nature and allowed the appeal of the assessee. - Revenue’s Appeal: The Revenue contended that the CIT(A) erred in treating the expenses as revenue expenditure, arguing that the expenses were incurred for creating new cabins and workstations, thus providing an enduring benefit to the business. - Tribunal's Observations: The Tribunal noted that similar issues in the assessee’s own case for earlier assessment years had been decided in favor of the assessee by both the Tribunal and the Hon’ble Bombay High Court. The Tribunal observed that the AO’s finding that the expenses brought into existence a new asset was not uncontroverted. The Tribunal emphasized that the nature of the expenses is a factual matter that may vary from year to year. - Relevant Precedents: The Tribunal considered the Hon’ble Bombay High Court’s decision in the case of RPG Enterprises Limited v. DCIT, which held that expenses leading to an enduring benefit and facilitating trading operations for a long period should be treated as capital expenditure. - Tribunal’s Decision: The Tribunal set aside the issue and restored it to the AO for a de novo determination. The AO was directed to investigate the facts thoroughly, considering the nature of the expenses and the relevant judicial precedents, including the decision in RPG Enterprises Limited v. DCIT. The Tribunal instructed the AO to provide the assessee with an adequate opportunity to present evidence and explanations. Conclusion: The appeal by the Revenue was allowed for statistical purposes, with the issue remanded to the AO for a fresh evaluation of whether the expenses on repairs and maintenance should be classified as revenue or capital expenditure, considering the specific facts and circumstances of the case and relevant judicial precedents.
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