2017 (2) TMI 70 - AT - Income Tax

Addition on account of expenditure of repair and renovations - revenue OR capital expenditure - Held that - The authorities below had acted on the presumption that a part of the building had been demolished and that the items had actually been used for erection of a new structure. However, we find from the records of the case that for this conclusion, the Department could not bring on record any evidence to justify the stand that the expenditure was actually for erection of a new building or asset. We find that the contention of the assessee that it had undertaken major repairs to put the dilapidated columns, beams, roofs, etc., in its original position, which had become dangerous and unsafe for the workmen and hindered the normal operation of the business, was not controverted by the Departmental representative nor had any evidence to the contrary been produced before the Tribunal or the authorities below. Accordingly, we are of the view that the assessee had incurred the said expenditure only to preserve and maintain the existing asset and that the expenditure was not of a nature which brought into being a new asset or created a new advantage of an enduring nature. Consequently, the expenditure is revenue in nature and has to allow as deduction. We allow the claim and reverse the orders of the lower authorities. - Decided in favour of assessee

Summary

Issues:
- Whether the addition made by the AO on account of expenditure of repair and renovations claimed by the assessee as revenue treating the same as capital was justified.

Analysis:
- The only issue in this appeal was against the order of CIT(A) confirming the addition made by the AO on account of expenditure of repair and renovations claimed by the assessee as revenue treating the same as capital. The AO noted that the expenses incurred in repairs and renovation of the building gave enduring benefit to the assessee and treated it as capital expenditure. The CIT(A) also confirmed this action by observing that the expenses were not for current repairs but for extensively repairing and restoring the structure of the building, which brought an enduring advantage to the assessee. The CIT(A) upheld the AO's decision to treat the expenditure as capital expenditure and allowed depreciation on it. The assessee then appealed to the Tribunal.

- The Tribunal considered the submissions and facts of the case. The assessee owned a building that required extensive repairs and rehabilitation. The assessee provided details of expenditures incurred, including major repairs like removing existing plaster and redoing the same. The Tribunal noted that the expenditure was on repairs, reinforcement, and replacement of dilapidated parts of the existing building, not on creating a new asset. Relying on legal precedents, the Tribunal found that the expenditure was towards preserving and maintaining the existing asset, not for creating a new asset. The Tribunal disagreed with the Department's doubt regarding the nature of the expenditure and concluded that the expenditure was revenue in nature and deductible. The Tribunal allowed the claim and reversed the lower authorities' orders.

- In conclusion, the Tribunal allowed the appeal of the assessee, stating that the expenditure incurred was revenue in nature and should be allowed as a deduction. The Tribunal found that the expenditure was for preserving and maintaining the existing asset, not for creating a new asset or enduring advantage. The orders of the lower authorities were reversed, and the appeal was allowed.