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Facts
The assessee, engaged in a business requiring laboratory accreditation, incurred Rs. 54,72,532/- on repairs and maintenance for refurbishing its office/laboratory buildings to meet NABL accreditation requirements. The CIT(A) confirmed the disallowance of these expenses, treating them as capital expenditure due to their substantial nature and long-lasting effect, allowing 10% depreciation. Other issues included interest on TDS, addition u/s 56(vii)(b), and disallowance u/s 40(a)(ia).
Held
The Tribunal held that since the repairs were undertaken to obtain and maintain NABL accreditation, which is subject to periodic inspection rather than being a permanent asset enhancement, the expenditure should be treated as revenue and not capital in nature. Consequently, the appeal was allowed.
Key Issues
Whether expenses incurred for refurbishing business premises to meet accreditation requirements, providing non-permanent benefits, constitute revenue or capital expenditure.
Sections Cited
142(1), 56(vii)(b), 40(a)(ia)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD
IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, AHMEDABAD BEFORE DR. B.R.R. KUMAR, VICE-PRESIDENT Ms SUCHITRA KAMBLE, JUDICIAL MEMBER Pradip Chauhan, The Deputy Commissioner Vs. 14, Antica Green Woods, of Income Tax,, Ankodia Sevasi, Circl1(1)(1), Vadodara-391330. Vadodara. [PAN :ABEPC2753 M] (Appellant) .. (Respondent) Appellant by : Shri Hardik Vora, AR Respondent by: Shri Rajeev Garg, Sr. DR Date of Hearing 03.07.2025 Date of Pronouncement 09.07.2025 O R D E R PER DR. B.R.R. KUMAR, VICE-PRESIDENT:-
This appeal is filed by the Assessee against the appellate order dated 13.01.2025 passed by the Commissioner of Income Tax (Appeals)/ National Faceless Appeal Centre (NFAC), Delhi, relating to the Assessment Year 2014-15. 2. The assessee has raised the following grounds of appeals:
1. On the facts and circumstances of the case as well as law on the subject, the learned CIT (Appeals) has erred in confirming disallowance of repairs and maintenance expenses 54,72,532/- on the grounds that the repairs are in the nature of capital expenses.
2. On the facts and circumstances of the case as well as law on the subject, the learned CIT (Appeals) has erred in confirming disallowance of repairs and maintenance expenses of Rs. 54,72,532/- solely on the ground that the expenditure was substantial and, therefore, deemed to be capital in nature. Pradip Chauhan Vs. DCIT Asst. Year : 2014-15 - 2–
3. On the facts and circumstances of the case as well as law on the subject, the learned CIT (Appeals) has erred in confirming disallowance of Rs.12,563/- on account of interest on TDS.
4. On the facts and circumstances of the case as well as law on the subject, the learned CIT (Appeals) has erred in setting aside for verification instead of deleting the addition 11,28,478/- u/s 56(vii)(b) of the Act. 5. On the facts and circumstances of the case as well as law on the subject, the learned CIT (Appeals) has erred in setting aside for verification instead of deleting the disallowance of Rs. 16,19,000/- u/s 40(a)(ia) of the Act.
Disallowance of Capital Expenses claimed as Revenue Expenses: Rs.54,72,532/-
The assessee has claimed expenses of Rs.54,72,532/- on account of repairs & maintenance of building. Such expenses were not found to have been incurred towards day-to-day repairs & maintenance, hence vide notice u/s 142(1) dt. 14.09.2016, the assessee was requested to show cause as to why the same may not be treated as capital expenses and why not additions may be made accordingly allowing the available rate of depreciation.
The assessee’s submissions are as under:-
We would like to state that the assessee has been carrying out his business activity from various premises ie. Head Office and 8 Branch Offices situated at Bhuj Gandhinagar, Junagadh, Jaisalmer, Bharuch, Nadiad. Godhra and Navsari premises since last many years. The assessee has during the year registered with NABL for accreditation of his Laboratory, which can be considered as a highest accreditation for his nature of business and hence was required to renovate the building as per the requirements for accreditation with NABL and other institutions. Since, the assessee has refurnished office/laboratory building for Head Office, Bhuj. Gandhinagar und Nadiad offices as per requirements, we have debited to profit and loss account as repairs & maintenance expense. We would like to submit herewith that merely the amount of expenditure is not the only criteria to Pradip Chauhan Vs. DCIT Asst. Year : 2014-15 - 3– determine whether the expenditure is capital expenditure or revenue expenditure, as explained we have refurbished total office/laboratory building we have debited the same to repairs and maintenance expenditure, hence request your good self to allow the said expenditure as revenue expenditure and not to capitalize the same.
The Assessing Officer held that the assessee has accepted refurbishing of office/laboratory buildings and furniture & fixtures as per requirement of NABL accreditation. Such refurbishments have not been made by the assessee on account of day-to-day repairs & maintenance but the same have been done on a large scale having long lasting effect. Due to such refurbishment on substantive scale, the assessee will get enduring benefits over the years. Hence, the Assessing Officer held that the expenses incurred towards refurbishment of office/laboratory building and furniture & fixtures are certainly capital expenditure and not revenue expenditure as claimed by the assessed thus claim of revenue expenditure is rejected and the same is treated as capital expenditure. Depreciation @10% is however allowed on such capital expenditure.