2022 (12) TMI 382 - AT - Income Tax

Nature of expenditure - expenditures incurred towards change of flooring and bathroom fittings without changing the structure of the building - revenue or capital expenditure - HELD THAT - Admittedly, fact is that assessee is in the business of hotel/resort wherein the up-keep or maintenance of hotel/resort/property is of prime importance so as to give the customers best possible experience for their continued patronage. The regular maintenance including the replacement of worn out furnishing his continuous requirement of the hotel industry. As noted by AO he assessee has also taken up dismantling of wall and also brick work. The above facts bring out the fact that the assessee has replaced the flooring in part of Hotel and made modifications to renovate the hotel to make it more appeasing to the customers. This resulted into the improvement of value of the building. and held the expenditure as capital in nature. It is also fact on record that no new addition of assets or facilities has come into existence in respect of the existing resort/hotel of the assessee. We note that the expenditure incurred by the assessee have been made to provide the same benefit as were available at the time of their initial installation. There have been no addition to the number of rooms of the resorts/hotel or any other space to generate the additional income from that place. Thus, respectfully following the decision of Goa Tourism Development Ltd. 2019 (3) TMI 287 - BOMBAY HIGH COURT and Mac Charles (India) Ltd. 2015 (1) TMI 476 - KARNATAKA HIGH COURT we hold that the expenses which have been treated as capital in nature by the Ld. CIT(A) are to be allowed as revenue expenditure. We also find force from the decision of Pandiyan Hotels Ltd 2020 (7) TMI 688 - MADRAS HIGH COURT wherein similar issue was dealt holding it in favour of the assessee as revenue expenditure. Thus expenditure incurred by the assessee is revenue expenditure and not a capital expenditure and thus answered the substantial question of law in favour of assessee and against the revenue.

Summary

Issues:
1. Delay in filing the appeal
2. Validity of reopening assessment under Section 147
3. Treatment of expenditures as revenue or capital in nature
4. Levying of interest under Sections 234A, 234B, and 234C
5. Disallowances made by the CIT(A)

Delay in filing the appeal:
The appeal by the assessee was delayed by five days, but the Tribunal, considering the reasons provided in the affidavit, allowed the appeal to proceed in the interest of justice and fair play.

Validity of reopening assessment under Section 147:
The case was reopened under Section 147, and the assessee challenged the reopening, arguing that the conditions precedent were absent. However, the AO treated certain expenditures as capital in nature, leading to additions in the assessment. The CIT(A) sustained the addition, prompting the appeal to the Tribunal.

Treatment of expenditures as revenue or capital in nature:
The assessee claimed certain expenditures as revenue expenditure, arguing that they were for repairs and maintenance without increasing capacity or acquiring new assets. The CIT(A) disagreed and treated the expenditures as capital in nature. The Tribunal, after considering the submissions and case laws, held in favor of the assessee, allowing the expenditures as revenue expenditure.

Levying of interest under Sections 234A, 234B, and 234C:
The CIT(A) had levied interest under Sections 234A, 234B, and 234C of the Income-tax Act. However, this issue was not addressed in detail in the Tribunal's judgment as the main focus was on the treatment of expenditures.

Disallowances made by the CIT(A):
The CIT(A) had made certain disallowances, which the assessee argued were arbitrary and excessive, seeking a reduction. However, since the Tribunal allowed the appeal based on the treatment of expenditures issue, the disallowances were not specifically addressed in the final decision.

In conclusion, the Tribunal allowed the appeal of the assessee, primarily focusing on the treatment of expenditures as revenue or capital in nature. The Tribunal held that the expenses, initially treated as capital by the CIT(A), should be allowed as revenue expenditure based on the facts and circumstances of the case and relevant legal precedents. Other issues, such as the delay in filing the appeal, validity of reopening assessment, levying of interest, and disallowances made by the CIT(A), were not extensively discussed in the final decision as the main issue of expenditure treatment took precedence.