2023 (10) TMI 516 - HC - Income Tax

Nature of expenses - renovation and repair expenses partly capitalized in the books of account of the Assessee and payment made to consultancy and supervision of interior d cor of the existing hotel of the Assessee under renovation and refurbishment - whether not the revenue expenditure admissible u/s 37? - HELD THAT - As expenses initially capitalized and was claimed as revenue expenditure for the first time before the Tribunal and forms part of the additional grounds raised by the assessee in its appeal preferred before the Tribunal it would stand remanded to the AO for examination of the character and nature of the expenses incurred having regard to the principles adverted to 2023 (10) TMI 467 - DELHI HIGH COURT the instant appeal is disposed of with the following directions as the view taken in the said appeal will apply mutatis mutandis to the instant case as well Appellant/assessee will be entitled to claim the deduction as in our opinion it is in the nature of revenue expenditure.

Summary

Issues involved:
The appeal concerns Assessment Year (AY) 1994-95. The appellant seeks to challenge the order passed by the Income Tax Appellate Tribunal (Tribunal) in ITA No.5489/Del/97 regarding substantial questions of law related to renovation and repair expenses and payment made to a consultant for interior décor.

Renovation and Repair Expenses:
The Tribunal disallowed the entire expenditure on repairs and renovation, including expenses initially capitalized by the appellant. The Commissioner of Income Tax (Appeals) deleted the disallowance concerning renovation and refurbishment but sustained the disallowance of fees paid to the consultant. The High Court held that expenses incurred on renovation, refurbishment, and repairs amounting to Rs. 3,48,92,811 and fees paid to the consultant of Rs. 44,00,000 are in the nature of revenue expenditure. The High Court directed that the expenses initially capitalized and claimed as revenue expenditure for the first time be remanded to the AO for further examination.

Payment to Consultant - Capital Expenditure:
The Tribunal, in line with the AO and CIT(A), disallowed the deduction claimed by the appellant for the fees paid to the consultant. However, the High Court ruled in favor of the appellant, stating that the payment of Rs. 44,00,000 to the consultant is in the nature of revenue expenditure. The High Court disposed of the appeal with directions allowing deductions for both the renovation expenses and the consultant fees, except for the amount initially capitalized, which was remanded for further examination by the AO.

Conclusion:
The High Court answered the substantial questions of law in favor of the appellant/assessee and against the revenue department. The appeal was disposed of with directions allowing deductions for the renovation expenses and consultant fees, while remanding the issue of initially capitalized expenses for further examination by the AO.