Income tax - Sec 40(a)(ia) - merely because certain business expenses are capita

[CA.BHUPENDRASHAH]

Income tax - Sec 40(a)(ia) - merely because certain business expenses are capitalised, assessee is not barred from claiming same as revenue expenditure: ITAT


NEW DELHI, AUG 16, 2010: THE simple issue before the Tribunal is - Whether if certain business expenses are capitalised, the assessee is barred from claiming the same as revenue in nature. Whether depreciation @ 100% is allowable on the expenditure incurred on purely temporary structures such as wooden structure, false ceiling, painting etc. on leasehold premises.

Facts of the case

The assessee is in the business of providing education and vocational training in the field of airhostess/ cabin crew, hospitality and travel management and has offices at various places. During the year in question the assessee opened new offices or renovated old offices and incurred expenditure in respect of renovation of offices. The renovation was done of these premises and expenses incurred was in respect of wall hanger fitting, polishing, PVC flooring, painting, main door repairs, office renovation, wooden partition, PVC flooring, false ceiling, carpentry work etc. Besides, some fabrication of aircraft model etc. was done in order to frame cabin crew. Assessee, though has capitalized these expenses, however, contended that what was carried out was erection of some temporary wooden partition and temporary renovations. Therefore, the expenses were allowable either as 100% depreciable asset or of expenditure incurred wholly and exclusively for the purpose of business. It was pleaded that cabin crew training center business requires frequent renovation, remodeling of offices, training areas and to maintain high standard assessee has to take up frequent renovation. Besides the assessee's premises being leased premises, no asset owned by the assessee came into existence. The AO disallowed the expenses as capital in nature. CIT(A) held an amount of Rs. 8,78,003/- as pertaining to temporary wooden structures, which cannot be classified as furniture and thus allowable expenses.

Further, in respect of the expenses incurred by the assessee from 1-4-2004 to 28-2-2005, it was contended by the assessee that section 40(a)(ia), as amended by the Finance Act 2010 w.e.f. 1-4-2010, now prescribes that if the TDS due has been paid on or before the due date of filing of return u/s 139(1), the payment shall be allowable in the year in which it was incurred. It was pleaded that this amendment may be held to be clarificatory in nature as it has been introduced to alleviate the difficulties paused by not allowing the expenses in the same year. Alternatively, it was pleaded that the law, as existed, provided that in case of delayed TDS payment, the expenses shall be allowable in the year in which TDS is paid. However, no expenses were allowed either by AO or by CIT(A).

On appeal by the assessee, the ITAT held that,

++ there is merit in the plea of the assessee that due to wrong classification and capitalization of expenses, the whole controversy has arisen and expenses incurred are purely in the nature of revenue. In the aviation crew training business, the same necessitates frequent renovations, paintings and training requirements. False ceiling will constitute temporary structure apart from mock air-craft for training of employees which also have to be renewed from time to time, polishing, painting also will constitute revenue expenses. Thus, the issue about capital or revenue nature of each item has not been properly verified. Mere capitalization of expenses will not disentitle the assessee from valid claim of revenue expenses;

++ no reason is to disturb the finding given by the CIT(A) that an amount of Rs. 8,78,003/- represents purchase of temporary wooden structure not amounting to furniture, therefore revenue's ground in this behalf is dismissed. For the balance amount of such expenses, the matter was set aside back to the file of AO to verify the capital and revenue nature of the expenses, particularly keeping in view details thereof as painting, polishing, white-wash, carpentry work & PVC flooring etc. assessee is eligible for revenue expenses in respect of these items on verification;

++ the assessee's plea of amendment by Finance Act, 2010 should be considered as clarificatory cannot be accepted. However, alternate plea about allowing the expenses in AY 2006-07 when TDS is paid, deserves to be accepted. Consequently, the issue was set aside back to the file of AO with above observation to verify the details and to allow expenses incurred by the assessee from 1-4-2004 to 28-2-2005 in AY 2006-07 i.e. the year in which the payment of TDS have been claimed to be made by the assessee.

Assessee's appeal partly allowed.