2017 (1) TMI 621 - AT - Income Tax

Disallowance of expenses pertaining to guest house maintenance and repair maintenance - it relates to cash payment which the assessee did not provide vouchers/bills - Held that - It is evident that the disallowance made is completely ad-hoc without specific finding as to how the expenditure incurred is not for business purpose. It is not the case of the AO that the expenditure claimed is not genuine. Since all bills/vouchers and ledger accounts were before the AO it would have been appropriate that specific vouchers etc. were identified before the disallowance was made. The assessee had incurred the expenditure on a lease property used as holiday home for the employees of the company. The expenses incurred in cash or through DD are towards electricity water house tax charges etc. and are for business purposes. Similar is the nature of expenses claimed under repairs and maintenance. Therefore CIT(A) has rightly held that there is no justification for making an ad-hoc disallowance when all bills/vouchers etc. were produced before the AO - Decided in favour of assessee Addition on account of repair and maintenance - Held that - CIT(A) has perused the bills/vouchers produced before the AO and noted that expenditure incurred is purely on repair and maintenance of the roof and outer areas and cannot be treated as capital expenditure providing benefit of enduring nature or leading to creation of capital asset. Therefore Ld. CIT(A) has rightly held that the disallowance of the impugned expenditure by treating the same as capital in nature was not in order and was therefore rightly deleted which does not need any interference on our part Addition on account of repair and maintenance - Held that - CIT(A) has observed that the expenditure has been incurred on painting polishing repair of false ceiling water proofing treatment tile work dismantling of roof and other miscellaneous repairs. On careful examination of the bills/vouchers it was noted that sum is incurred for dismantling and grading of roof. It appears that entire roof has been recast. Further note that Ld. CIT(A) has treated a sum as revenue in nature and therefore the disallowance made by the AO was rightly directed to be deleted which does not need any interference on our part.

Summary

Issues:
1. Capital expenditure treatment of routine repair expenses by the CIT(A).
2. Disallowance of expenses claimed under repair and maintenance by the AO.
3. Disallowance of expenses for Mussorie Guest House by the AO.
4. Disallowance of repair and maintenance expenses for leased property at 42, Janpath by the AO.

Analysis:

1. The Assessee and Department filed Cross Appeals arising from the Ld. CIT(A)'s Order for the assessment year 2012-13. The Assessee's appeal contested the treatment of routine repair expenses as capital expenditure, while the Revenue's appeal challenged the deletion of disallowances made by the AO on various expenses.

2. The Revenue's first ground related to the deletion of an addition of ?4,31,517 for guest house maintenance expenses. The ITAT found the disallowance to be ad-hoc without specific findings on the business purpose. As all vouchers were provided, the disallowance was deemed unjustified, leading to the dismissal of this ground.

3. The Revenue's second ground concerned the deletion of an addition of ?10,65,560 for repair and maintenance expenses for the Mussorie Guest House. The ITAT upheld the CIT(A)'s decision as the expenses were not of a capital nature, benefiting from an enduring asset. Thus, this ground was dismissed.

4. The Revenue's third ground involved the deletion of an addition of ?24,66,305 for repair and maintenance expenses at 42, Janpath. The ITAT agreed with the CIT(A) that the expenses were revenue in nature, not resulting in a lasting asset, leading to the dismissal of this ground.

5. The Assessee's appeal focused on the treatment of ?11,18,840 as capital expenditure for routine repair expenses. The ITAT disagreed with the CIT(A)'s characterization of this expenditure, noting that it fell under repair and maintenance, not capital in nature. Consequently, this ground was allowed.

6. Ultimately, the ITAT dismissed the Revenue's Appeal and allowed the Assessee's Appeal, emphasizing the distinction between revenue and capital expenditures in the context of repair and maintenance expenses.

This detailed analysis highlights the key issues raised in the judgment and the reasoning behind the decisions made by the ITAT regarding the treatment of expenses in question.