2019 (12) TMI 145 - AT - Income Tax

Disallowance of expenditure incurred on account of furniture and fixtures - premise was sealed and could not be used for business activity - AO disallowed the entire expenses by taking view that the assessee incurred expenditure which is capital in nature and hit by the provision of section 37(1) - HELD THAT - CIT(A) upheld the action of AO of impugned order and granted part relief to the assessee on the expenses incurred on certain items. We have noted that the lower authorities has not disputed that assessee has obtained a tenanted premises for running its business for setting up a Studio. Further there is no dispute that the premises could not be utilized as its user from Warehouse to office premises was not sanctioned by BMC. The premise was sealed in the month of October 2008. The leave and licence agreement was executed on 01.05.2008. The assessee has claimed expenses which consist of furniture and fixture fixing of interior installation of water and electricity connection fencing of the tenanted premises. Assessee fairly submitted that ld CIT(A) has granted substantial relief to the assessee. We have noted that order giving effect to the order of ld CIT(A) is not placed on record The assessee has furnished the break-up of all these expenses details of which are available at page no. 213 of Paper Book. We find merit in the submissions assessee that the assessee despite incurring huge expenditure could not use the tenanted premises for its business purpose and the expenses incurred by the assessee are allowable expenses. Therefore the issue is restored back to the file of assessing officer to verify the remaining expenses which were incurred on repair / maintenance for use of tenanted preemies and allow appropriate relief to the assessee in accordance with law. Needless to say that before passing the order the Assessing Officer shall grant opportunity to the assessee to substantiate the claim / expenses. In the result this ground of appeal is allowed for statistical purpose. Claim of bad-debt in the nature of revenue expenses - AO disallowed the claim by taking view that suit filed by landlord has not attained the finality - CIT(A) upheld the action of Assessing Officer holding that the assessee has not fulfill the requirement of section 36(2) - HELD THAT - Considering the fact that the assessee has made the payment by the order of Civil Court and the fact that this plea is raised before the Tribunal for the first time therefore this ground of appeal is restored to the file of Assessing Officer to verify the payment made by the assessee in compliance of order of small cause court dated 23.10.2015 and grant appropriate relief to the assessee before giving effect to the direction of this order the Assessing Officer is directed to grant opportunity to the assessee. In the result this ground of appeal is allowed for statistical purpose.

Summary

Issues Involved:
1. Classification of renovation expenses as revenue or capital expenditure.
2. Allowability of bad-debt write-off.
3. Alternative claim of bad-debt as revenue expenditure.

Issue-wise Detailed Analysis:

1. Classification of Renovation Expenses:
The primary issue was whether the renovation expenses amounting to ?95,81,077/- should be classified as revenue or capital expenditure. The assessee argued that the expenditure on furniture and fixtures should be considered revenue expenditure, as it was incurred for a leased property. The CIT(A) partially accepted this argument, allowing ?59,72,177/- as revenue expenditure for furniture and fixtures but treated the remaining ?36,58,900/- (incurred on refurbishment and air conditioners) as capital expenditure. The Tribunal noted that the premises could not be utilized due to legal issues with the BMC and that the landlord did not fulfill their obligations. The Tribunal restored the issue to the Assessing Officer to verify the remaining expenses and allow appropriate relief, emphasizing that the expenses were incurred for the use of tenanted premises.

2. Allowability of Bad-Debt Write-Off:
The assessee claimed a write-off of ?24,68,323/- as bad debt, which the Assessing Officer disallowed, stating that the amounts were not credited in the Profit & Loss Account in any previous year, thus not meeting the requirements of section 36(2). The CIT(A) upheld this disallowance, noting that the assessee failed to establish that the amounts written off were taken into account while computing the income of the previous year or any earlier previous year. The Tribunal dismissed the grounds related to bad-debt write-off as not pressed by the assessee.

3. Alternative Claim of Bad-Debt as Revenue Expenditure:
The assessee alternatively claimed that the bad-debt amount should be allowed as revenue expenditure. The Tribunal considered the fact that the landlord had filed a suit for recovery of possession and arrears of rent, and the Civil Court had passed an interim order against the assessee for payment of mesne profit. The Tribunal restored this issue to the Assessing Officer to verify the payment made by the assessee in compliance with the court order and to grant appropriate relief, directing the Assessing Officer to provide an opportunity to the assessee to substantiate the claim.

Conclusion:
The Tribunal's judgment provided partial relief to the assessee by restoring the issues related to renovation expenses and the alternative claim of bad-debt as revenue expenditure to the Assessing Officer for verification and appropriate relief. The appeal was partly allowed, with instructions for the Assessing Officer to grant the assessee an opportunity to substantiate their claims before passing the final order.