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TMI Blog2015 (5) TMI 572X X X X Extracts X X X X X X X X Extracts X X X X ..... unit, assessee claimed expenditure of Rs. 1,58,21,689/- under the head repairs and maintenance. The said expenditure was incurred by the assessee on renovation of 33 executive rooms in the hotel, waterproofing of roof top and restaurant and lobby in front of restaurant. The Assessing Officer did not accept the plea of the assessee that such expenditure was revenue in nature. In appeal before the CIT(A), the plea of the assessee was that the expenditure was allowable as a revenue expenditure inasmuch as no new asset was created by incurrence of the impugned expenditure and that the said expenditure was otherwise also justified on the principles of commercial expediency. The CIT(A) accepted the plea of the assessee partly inasmuch as the expenditure incurred on waterproofing of roof top and on restaurant and lobby in front of restaurant amounting to Rs. 14,18,612/- was held to be a revenue expenditure and the balance of Rs. 1,44,03,077/- has been held to be a capital expenditure eligible for the depreciation allowance. Not being satisfied with the order of the CIT(A), assessee is in appeal before us. 4. In the context of the above dispute at the outset, we may refer to the det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comprising 62 rooms and it is a three star hotel facility located in hilly area which faces very high rainfall. Therefore, hotel's building requires very high maintenance and needs renovation periodically due to weather and heavy rainfall. It was pointed out that with the passage of time and new trends, it become essential to incorporate new trends to attract new customers and also to retain old customers. The Ld. Representative pointed out that last major renovation of the hotel was undertaken in the year 2000/2001 which is a very long period and considering that the hotel was a three star hotel facility, the building had undergone significant wear and tear due to passage of time, weather condition, etc.. It was felt by the management that expenditure was required to create a new ambience for better business prospects. With this background, during the year under consideration, assessee added 18 new rooms and out of existing 36 rooms, 33 rooms were also renovated. The expenditure relatable to the new 18 rooms was duly capitalized and only the expenditure incurred on renovation of 33 rooms has been claimed as revenue expenditure. It was, therefore, contended that there was no justif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the hotel industry in Khandala." 8. The aforesaid discussion by the Assessing Officer shows that the case setup against the assessee is that it has obtained a new advantage by renovating the hotel in terms of competitive edge in the hotel industry in Khandala. The moot question is as to whether such an advantage obtained by the assessee as a consequence of the aforesaid expenditure is in capital field or in revenue field. In order to answer the aforesaid controversy, it would also be relevant to understand the commercial reasons which weighed with the assessee to incur the impugned expenditure. Before the lower authorities, assessee made written submissions whereby the commercial expediency was sought to be demonstrated in the follows words :- "The commercial expediency for incurring the renovation expenses have been stated earlier. Briefly, it is submitted that: a. The hotel is a three star hotel, located in hilly area and faces very high rainfall and hence the hotel building requires very high maintenance and also requires renovation periodically due to weather and heavy rainfall. b. In order to retain regular customers it is necessary that the monotony of the same ambience ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ractical and business point of view rather than upon the juristic classification of the legal rights, if any secured, employed or exhausted in the process." 10. The import of the aforesaid observations is that the controversy ought to be addressed in the context of the business necessity or expediency. If the out-going expenditure is targeted to retain the regular customers and also attracted new customers with upgradation of facilities and change of ambience, it would certainly qualify to be an objective of business necessity or expediency. Thus, in such as situation the expenditure can be said to be incurred in the revenue field especially in the present case when there is no dispute that no new asset has been created with the incurrence of the impugned expenditure. At the present stage, we may also refer to an argument taken by the Revenue to say that by incurrence of the impugned expenditure a portion of the balcony outside the rooms have been brought into the room space itself thereby increasing the capacity of the room. On this basis, it is sought to be made out that this has resulted in enhanced profit yielding capacity and therefore a portion of the impugned expenditure is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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