The Kolkata Bench of the Income Tax Appellate Tribunal (ITAT) has allowed the deduction of repair and maintenance expenses as revenue expenditure under Section 37(1) of the Income Tax Act, 1961. The ITAT held that the expenses were incurred for the purpose of earning income and therefore, they are eligible for deduction.
The assessee, an entertainment company, claimed ₹9,99,856/- for repair and maintenance expenses in the year under consideration. The assessee claimed that these expenses were revenue expenditures and should be allowed as a deduction under Section 37(1) of the Income Tax Act, 1961.
The AO disallowed the said expenses on the ground that they were capital in nature. The CIT(A) upheld the decision of the AO. The assessee appealed to the Tribunal.
The assessee argued that repair and maintenance expenses were revenue expenditures and should be allowed as a deduction under Section 37(1) of the Income Tax Act, 1961. They claimed the expenses were for interior decoration of office premises, and the total turnover was ₹10.91 crores, indicating some interior decoration work.
The revenue argued that repair and maintenance expenses were capital in nature and should not be deducted. They claimed they were incurred for office premises improvement and that the assessee did not provide documentary evidence to prove revenue purposes or rental premises maintenance.
The Tribunal observed that repair and maintenance expenses were incurred for interior decoration of the assessee’s office premises, which were part of their business and the total turnover was ₹10.91 crores, with the alleged sum being 1% of the gross turnover. The assessee did not have self-owned office premises, so the expenses were incurred for rental premises. The revenue failed to provide convincing arguments to prove the expenses were capital in nature.
In the case of CIT v. Shri Ram Transport Corporation, the Supreme court provided guidance on the factors as Revenue expenditure is incurred for the purpose of earning income, while capital expenditure is incurred for the purpose of providing benefits that will extend beyond the current accounting period.
The Two Member Bench comprising, Dr. Manish Borad, (accountant member), and Sonjoy Sarma (Accountant Member) has decided the case in favor of the assessee and has allowed the appeal. The Tribunal has held that the repair and maintenance expenses are revenue expenditures and should be allowed as a deduction.
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