2002 (8) TMI 246 - AT - Income Tax

Appeal successful: Repair costs treated as revenue, not capital expenditure under Income Tax Act

The Tribunal allowed the appeal, ruling that the expenditure on repairing furniture, wooden racks, and false ceiling should be treated as revenue ... - Issues:1. Treatment of expenditure on repairing furniture, wooden racks, and false ceiling as capital expenditure for the purpose of applying section 115J of the Income Tax Act.Analysis:1. The appeal was against the order passed by the CIT(A) regarding the treatment of expenditure amounting to Rs. 80,656 as capital expenditure instead of revenue expenditure for the asst. yr. 1990-91.2. The AO observed the expenditure to be capital in nature based on the audit report and added it to the total profit for assessing the income under section 115J. The AO computed the total income by adding the amount of Rs. 80,656 to the book profit.3. The CIT(A) upheld the AO's decision, stating that the expenditure on false ceiling is of capital nature and provides enduring benefit to the assessee, thus correctly applying section 115J.4. The assessee argued that the expenditure was incurred in a rented shop and should be considered revenue expenditure. The counsel emphasized that section 115J does not mention adding back items alleged to be of capital nature to book profit.5. The Tribunal analyzed section 115J(1) and the process of computing total income and book profit. It noted that the expenditure on false ceiling in a rented shop should be treated as revenue expenditure based on a decision of the jurisdictional High Court.6. The Tribunal held that the AO was unjustified in disallowing the expenditure as capital in nature and making an additional addition to the book profit. The expenditure did not fall under the categories for adjustment under section 115J(1A), leading to the quashing of the order.7. Consequently, the Tribunal allowed the appeal of the assessee, ruling that the expenditure on repairing furniture, wooden racks, and false ceiling should be treated as revenue expenditure and not added back to the book profit for the purpose of assessing income under section 115J of the Income Tax Act.