Thread by @abhishekrajaram

What would be the Classification of Interiors done on Rented Premises? Whether Revenue Expenditure or Capital Expenditure?

Assessee is running it's business from the rented premises which was taken for the lock in period of 60 months with provision of renewal of the agreement.

Issue is Classification of expenditure incurred on interior of rented premises as AO was of the view that the expenditures incurred on the renovation of the business premises will generate benefit to the assessee over a long period of time, thus, treated the same as capital

in nature on account of enduring benefit expected to arise to the assessee.

The view taken by the AO was subsequently confirmed by the learned CIT (A).

Aggrieved by the Order of CIT(A) Assessee approached Income Tax Appeallate Tribunal.

#ITAT held:
There is no ambiguity that the assessee shall gain the benefit out of the interior expenses incurred by it.

But the benefit is in the nature of smooth and efficient running of the business.

As such the benefit to the assessee, though enduring in nature, but the same

is not on capital transaction rather it directly relates to the revenue transaction of the assessee. Thus, the same i.e. interior expenses cannot be categorized as capital in nature.

Further, there is not coming any fixed assets into existence out of such expenditure.

Thus in the absence of any fixed assets, the impugned expenses cannot be treated as capital in nature.

AO is directed to delete the addition made by treating the interior expenditure as capital in nature on the rented premises – assessee appeal is allowed

Title: Ved Indian Heritage Haat Foundation vs Income Tax Officer

Court/Authority: ITAT Ahmedabad

Citation: ITA No. 1583/AHD/2019, Assessment Year 2016-17

Dated: 21-Dec-2022