2016 (6) TMI 285 - AT - Income Tax

Maintenance expenses deemed revenue, not capital. Tribunal upholds CIT(A)'s decision. Rented premises costs allowed.

Dy. Commissioner of Income Tax Versus M/s. Ikea Trading (India) P. Ltd.

The Tribunal upheld the decision of the Ld. CIT(A) regarding the treatment of expenditure on repair and maintenance as revenue expenditure. The expenses ... Expenditure on repair and maintenance of building - revenue v/s capital expenditure - Held that:- As during the course of hearing before us the Ld DR has also referred the various vouchers and bills extensively and could not point out that how these expenditure are capital in nature and what kind of benefit of enduring nature is derived by the assessee. Therefore setting aside the issue back to the file of the ld. AO does not serve any purpose. In view of the above facts we do not find any infirmity in the order of the Ld. CIT(A) in holding that the expenditure incurred by the assessee are repair and other expenditure and are also allowable u/s 30a(i) and 37(1) of the Income Tax Act and They are not capital expenditure in nature. - Decided against revenue Issues Involved:1. Whether the expenditure on repair and maintenance amounting to Rs. 1,44,25,239/- should be treated as revenue expenditure or capital expenditure.Detailed Analysis:Ground No. 1: General Nature of Appeal- The first ground of appeal was dismissed as it was general in nature without specific contention.Ground No. 2: Treatment of Expenditure on Repair and Maintenance- The revenue challenged the Ld. CIT(A)'s decision to treat the expenditure on repair and maintenance as revenue expenditure and not capital expenditure.Arguments by the Department (Revenue):- The Ld. DR argued that the Ld. CIT(A) deleted the disallowance by admitting new evidence without sufficient documentary support.- It was contended that the nature of the expenditure should be examined rather than its terminology.- The department emphasized that the expenditures were not current repairs but accumulated repairs, which should not be deductible.- Reference was made to the Supreme Court's decision in CIT v. Savarana Spinning Mills Limited, which held that accumulated repairs are not allowable.- The department also cited the Supreme Court's decision in Deepak Agro Foods v. State of Rajasthan and the Delhi High Court's decision in CIT v. Jan Samparak Advertising Limited to support its stance.Arguments by the Assessee:- The Ld. AR argued that the expenses were incurred on rented premises, not owned by the assessee, and included routine maintenance costs.- The expenses were for day-to-day maintenance without any enduring benefit or acquisition of capital assets.- The Ld. AR provided detailed vouchers and bills to substantiate the expenses and argued that the genuineness of the expenses was not in doubt.- It was argued that the Ld. CIT(A) had deleted the disallowance after obtaining a remand report from the AO, and the expenses were correctly treated as revenue in nature.- The Ld. AR cited the Delhi High Court's decision in Bharat Gears Limited v. CIT, which allowed repair expenditures considering the Supreme Court's precedent.Tribunal's Findings:- The Tribunal noted that the expenses were incurred on rented premises and included costs like EDP maintenance, lease rentals, security charges, and cleaning charges.- The Tribunal found that the Ld. CIT(A) had correctly deleted the disallowance after verifying the expenses through vouchers and bills.- It was emphasized that these expenses did not provide any enduring benefit and were routine in nature, thus qualifying as revenue expenditure.- The Tribunal rejected the department's reliance on the Supreme Court's decision in CIT v. Savarana Spinning Mills Limited, noting that the case was not applicable as it dealt with modernization and replacement expenses in a textile mill, not routine maintenance of rented premises.- The Tribunal also dismissed the department's contention regarding the admission of additional evidence, as no specific ground was raised in the appeal.- The Tribunal concluded that setting aside the issue to the AO would not serve any purpose, as the AO had multiple opportunities to examine the expenses and found nothing adverse.Conclusion:- The Tribunal upheld the Ld. CIT(A)'s decision, confirming that the expenditure on repair and maintenance amounting to Rs. 1,44,25,239/- was revenue in nature and allowable under sections 30(a)(i) and 37(1) of the Income Tax Act.- The appeal by the revenue was dismissed.Order Pronouncement:- The order was pronounced in the open court on 2nd June, 2016.