2016 (5) TMI 959 - AT - Income Tax

Expense on Furniture & Fixtures treated as revenue upheld by Tribunal due to specific nature of activities & enduring benefit.

Income-tax Officer, Ward 21 (2), New Delhi Versus Bhat Metals

Income-tax Officer, Ward 21 (2), New Delhi Versus Bhat Metals - TMI Issues:1. Capitalization of expenses on Furniture & Fixtures, Machine Spares, and Repair & Maintenance2. Justification for capitalization of expenses by the Assessing Officer (AO)3. Treatment of expenses allowed in the previous assessment year4. Nature of expenses claimed by the assessee as revenue in natureAnalysis:Issue 1: Capitalization of expenses on Furniture & Fixtures, Machine Spares, and Repair & MaintenanceThe Revenue appealed against the order of the ld. CIT(A) that deleted the addition of expenses totaling Rs. 59,12,897 made by the AO by capitalizing expenses on Furniture & Fixtures, Machine Spares, and Repair & Maintenance, which were claimed as revenue expenses by the assessee. The AO treated these expenses as capital in nature, leading to the dispute. The ld. CIT(A) allowed the assessee's appeal by considering the nature of activities carried out by the assessee and the enduring benefit of the expenses. The Tribunal upheld the ld. CIT(A)'s decision, emphasizing that the extreme temperatures involved in the furnace work would result in major damage to the fixtures, justifying the treatment of expenses as revenue in nature.Issue 2: Justification for capitalization of expenses by the Assessing Officer (AO)The AO did not accept the assessee's contention that the expenses should be treated as revenue in nature. The AO observed that the assessee's AR admitted the difficulty in estimating the accurate life of fixtures and highlighted the use of stainless steel sheets with a longer life compared to mild steel. Despite the AR's admission, the Tribunal upheld the ld. CIT(A)'s decision to delete the addition, emphasizing the specific nature of the activities carried out by the assessee and the short lifespan of the fixtures due to extreme working conditions.Issue 3: Treatment of expenses allowed in the previous assessment yearThe assessee raised a point regarding the treatment of expenses allowed as revenue in the previous assessment year, arguing that these should not have been added back in the current assessment year. The Tribunal did not find merit in this argument, as the nature of the expenses and their treatment in different assessment years were distinct, leading to the dismissal of this ground of appeal.Issue 4: Nature of expenses claimed by the assessee as revenue in natureThe assessee provided detailed reasons for treating the expenses on Furniture & Fixtures, Machine Spares, and Repair & Maintenance as revenue in nature. The nature of the work carried out by the assessee, involving vacuum heat treatment and various heat treatment processes, was crucial in determining the treatment of these expenses. The Tribunal considered the specific details provided by the assessee regarding the expenses and the nature of the business activities to uphold the decision of the ld. CIT(A) in deleting the addition of these expenses.In conclusion, the Tribunal dismissed the departmental appeal, upholding the decision of the ld. CIT(A) to treat the expenses as revenue in nature based on the specific circumstances and nature of the activities carried out by the assessee.