2020 (5) TMI 595 - AT - Income Tax

Addition on renovation expenses on lease hold property - Non deduction of TDS - CIT (A) has confirmed the disallowance holding it to be non genuine - Alternatively, the Ld. CIT (A) has stated the repair and renovation expenses are not allowable since TDS was not deducted - HELD THAT - It is an undisputed fact that the assessee carried out repair and renovation expenses on a lease property which was taken on lease and any such repair and maintenance of lease property cannot be held to be giving any enduring benefit to the assessee, firstly for the reason that leased premises is for temporary period and nature of expenses are purely in nature of repairs. In fact such kind of repairs and renovation expenses on leased premises has been held as revenue expenditure by the various courts as relied upon by the ld. counsel. Accordingly, hold that expenditure incurred by the assessee is allowable and the additions made by the AO are deleted. Such an addition or disallowance cannot be made u/s 40(a)(ia), because the major expenses relates to purchase of material and labour payments are for petty amounts, on which TDS liability is not attracted. - Decided in favour of assessee.

Summary

Issues involved: Disallowance of repair and maintenance expenses of leased premises under Section 40(a)(ia) for Assessment Year 2007-08.

Analysis:
1. The primary issue in this case was whether the addition on renovation expenses on the leasehold property was in line with the Tribunal's direction in the first round of proceedings. The Tribunal had remanded the matter back to the Assessing Officer to examine the nature of the expenditure in light of the lease deed, which was not before the Assessing Officer initially.

2. The facts revealed that the assessee had incurred repair and maintenance expenses on lease premises, which were disallowed by the Assessing Officer as capital expenditure in the original assessment. The dispute revolved around the nature of these expenses, whether capital or revenue in nature.

3. In the subsequent rounds of proceedings, the genuineness of the expenses was questioned by the Ld. CIT (A) based on inquiries conducted without the assessee's knowledge. The Assessing Officer again disallowed the expenses as capital in nature, leading to doubts on the genuineness of the expenditure.

4. The counsel for the assessee argued that the expenses were genuine, and the Assessing Officer and Ld. CIT (A) had no grounds to question their authenticity. The counsel cited various judgments supporting the view that repair and renovation expenses on lease properties are revenue expenditures.

5. The Tribunal highlighted that the direction was limited to determining whether the expenses were revenue or capital in nature, and the genuineness of the expenses was never in question. The inquiry conducted behind the back of the assessee after a substantial time lapse was deemed inadmissible as evidence.

6. Ultimately, the Tribunal held that the repair and renovation expenses on the lease property were revenue expenditures as they did not confer any enduring benefit to the assessee. The additions made by the Assessing Officer were deleted, and the disallowance under Section 40(a)(ia) was deemed inapplicable due to the nature of the expenses.

7. The appeal of the assessee was allowed, and the Tribunal pronounced the order in favor of the assessee on 5th March 2020.