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December 23, 2022

Repair & maintenance of showroom is revenue in nature

by CA Shivam Jaiswal in Income Tax, Legal Court Judgement

Repair & maintenance of showroom is revenue in nature

Fact and Issue of the case

The appellant is a private limited company holding authorized dealership of Hyundai Motors, has for the AY 2013-14 filed its return of income [for short “ITR”] on 30/09/2013 declaring income of ₹1,09,70,250/-, wherein the case was subjected to CASS by service of notice u/s 143(2) and considering the submissions of the assessee, the assessment was culminated u/s 143(3) with additions viz; disallowance of depreciation on demo car, disallowance of interest u/s 36(1)(iii) for diversion of interest bearing funds, disallowance u/s 40a(ia) and disallowance of repairs & maintenance holding as Capex. The assessee company challenged the action of Ld. AO contesting all the addition before the first appellate authority [for short “FAA”], wherein the Ld. CIT(A) finding force in assessee’s contention granted part relief as regards to depreciation on demo car following precedents laid in assessee’s own case for earlier years and conceded with the balance action of Ld. AO in confirming other additions. Consequently, against sustained additions / disallowances the appellant company is in appeal before this Tribunal.

Observation of the Court

In the present case before us, it is an admitted fact that, the appellant has occupied the premises on short term lease in a disfigured condition and carried out the extensive repairs to convert the same into workshop and showroom so has to suit its business operation to be carried therefrom under a dealership specification, but without bringing into existence any capital field / asset or rights therein, except enduring usage over a short period of lease, which naturally subjected to pre-termination, consequently no control over the term of enduring usage as well. And the question as to whether or not such extensive repairs is of enduring nature is extensively dealt by the Hon’ble Supreme Court in the case of “Alembic Chemical Works Co. Ltd. Vs CIT” reported in 177 ITR 377, wherein the Lordships have vide para 9 observed that;

The Tribunal is headful to quote that, expenditure incurred for enduring benefit may termed as deferred revenue expenditure is essentially revenue in nature and the decision to treat the same as deferred revenue only represents a management decision taken in view of the magnitude of the expenditure involved and benefit to be derived subject to limitation on enduring usage. For the purpose of allow ability of any expenditure under the Act, what is material is the classification between the capital and revenue and the same-does not recognise of any concept of deferred revenue expenditure cataloguing with enduring benefit, hence for the reason we disapprove the contention of Ld. DR’s for treating the revenue expenditure as deferred expenditure, and are we are of the considered view that, the expenses incurred by the appellant squarely intra-legem to the provision of section 30(a)(i) of the Act, and the same finds fortified by the decision of the Hon’ble Calcutta High Court in “Cultural Enterprises Corp. Vs CIT” reported in 196 ITR 488, ergo we remove the infirmity in the order of both the tax authorities below by deleting the disallowance carried out u/s 30(a)(i) of the Act.


The Tribunal ruled in favour of the assessee and disposed of the appeal

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