Capital or Revenue expenditure

[murali Krishnamurthy]

The assessee is carrying the business of dealing in second hand cars and for this purpose requires considerable space to display the vehicles. The assess had taken for this purpose, an existing shed, on a short lease for 5 years and carried out certain improvements which include laying of fresh flooring, replacement of roof,painting etc. Most of the expenditure is not recoverable at the end of the lease period. The assessee claimed this amount as revenue expenditure whereas the AO treated the same as Capital expenditure. Aggrieved against the impugned assessment, the assesse filed an appeal before the CIT(A).

During the appellate proceedings, the CIT(A) has pointed out that there has been an amendment to the section and that the expenditure is Capital in nature only. Also he suggested if there are anu case law on the subject after the amendment, he will consider the same.

Is the action of the CIT(A) correct in law? Are there any case on the subject? Kindly clarify and also furnish the case law, if any on the subject. The case listed for hearing on Friday 07.03.2008.

CA Murali Krishnamurthy