2022 (11) TMI 374 - AT - Income Tax

Nature of expenses - expenditure towards furniture and maintenance expenditure which includes plywood purchases, hardware items and other carpentry works - revenue or capital expenditure - Assessee claims that the said expenditure is revenue in nature because the same has been incurred for the leased premises for the renovation of the branch office - HELD THAT - Assessee has filed enough materials including certain judicial proceedings to justify its case, where the Hon ble High Court of Madras in case of Commissioner of Income Tax-I, Chennai Vs. Armour Consultants Private Limited 2013 (3) TMI 269 - MADRAS HIGH COURT had considered very similar nature of expenditure like partitions, vinyl flooring and interior decorations for leased premises and held that the said expenditure incurred to make the lease premises workable and functional is revenue in nature. ITAT, Chennai in the case of Redington (India) Limited 2015 (8) TMI 40 - ITAT CHENNAI held that office cabins, wooden partitions, plastering, water proofing treatment, installation charges, flooring charges, etc for leased premises is current repairs which cannot be considered as capital expenditure which gives enduring benefits to the Assessee. The substance of ratio laid down by various Courts and Tribunals is that, if certain expenditure incurred to make the leasehold premises functional like partitions works, temporary repairs, flooring, etc., then the said expenditure should be allowed as revenue in nature. Therefore, we are of the considered view that the Assessing Officer has completely erred in making addition on furniture and maintenance expenditure as capital in nature. CIT (Appeals) without appreciating the above facts had simply sustained the additions made by the Assessing Officer. Hence, we set aside the order passed by the learned Commissioner of Income Tax (Appeals) and direct the Assessing Officer to delete the addition - Appeal of assessee allowed.

Summary

Issues:
1. Time-barred appeal due to lockdown restrictions during Covid-19 pandemic.
2. Classification of expenditure under "Furniture Maintenance" as capital or revenue in nature.

Issue 1: Time-barred appeal due to lockdown restrictions during Covid-19 pandemic

The appeal filed by the Assessee was found to be time-barred by 16 days due to the lockdown restrictions imposed during the Covid-19 pandemic. The Assessee had delivered the appeal documents to the Income Tax Appellate Tribunal on 19.05.2021, but it was not considered filed on that date due to the lockdown. However, after the partial relaxation of the lockdown on 07.06.2021, the appeal documents were deemed filed with a delay of 16 days. The Tribunal, in line with the directions of the Hon'ble Supreme Court, condoned the delay and admitted the appeal for adjudication on merits.

Issue 2: Classification of expenditure under "Furniture Maintenance" as capital or revenue in nature

The Assessee, engaged in the business of trading in gold ornaments, diamonds, and other precious stones, had claimed an expenditure under "Furniture Maintenance" for renovation of a leased branch office. The Assessing Officer considered this expenditure as capital, providing enduring benefits, and made an addition after allowing depreciation. The Commissioner of Income Tax (Appeals) upheld this decision, stating that the expenditure was capital in nature and not for repair or maintenance. The Assessee referred to judicial precedents to support its claim that similar expenditure for leased premises should be considered revenue in nature.

On review, the Tribunal found that the Assessing Officer had not provided sufficient reasons for classifying the expenditure as capital. Citing judicial precedents, including a case involving similar expenditure for leased premises, the Tribunal concluded that the expenditure should be considered revenue in nature. The Tribunal highlighted that expenses incurred to make leasehold premises functional, such as partitions, flooring, and temporary repairs, should be treated as revenue expenditure. Therefore, the Tribunal set aside the Commissioner's decision and directed the Assessing Officer to delete the addition made towards the furniture maintenance expenditure classified as capital in nature.

In conclusion, the Tribunal allowed the Assessee's appeal, emphasizing that the expenditure under "Furniture Maintenance" for the leased premises should be treated as revenue in nature, overturning the previous classification as capital expenditure. The judgment showcases the importance of justifying expenditure classifications with proper reasoning and aligning decisions with relevant judicial precedents.