All expenses towards creation of a new asset or for enhancing capacity of existing asset are in nature of capital expenditure

All expenses towards creation of a new asset or for enhancing capacity of existing asset are in nature of capital expenditure

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All expenses towards creation of a new asset or for enhancing capacity of existing asset are in nature of capital expenditure

ELEL HOTELS AND INVESTMENTS LTD. & ORS. vs. DEPUTY COMMISSIONER OF INCOME TAX & ORS.

DELHI TRIBUNAL

 Business expenditure—Allowability

Assessee filed return of income
During assessment proceeding, AO noted that assessee showed receipt from interest on deposit of an amount and miscellaneous income
Assessee had claimed said receipt expenses in P&L a/c
AO held that entire receipt represented ‘income from other sources’ and no business activity was carried out by assessee
AO found that assessee had no income from operations of Hotel business
Only government dues paid as rates and taxes were allowable—AO found that depreciation was already disallowed and added back to assessee’s income thus, balance amount of expenditure was disallowed
AO denied carry forward of unobserved depreciation in absence of any business activity
CIT(A) made disallowance u/s 37(1) on account of amount paid to consultants by treating same as capital expenditure and balance expenses were allowed as business expenditure for preservation of business and protection of assets and property
Held, CIT(A) had allowed business expenditure except amount paid to consultant for planning and concept design, architecture services, designing AC and ventilation system and basement work-related total structure, which were held as capital expenditure—Architectural plan/concept provided by said parties were not executed, however no documentary evidence was filed to substantiate claim
All said expenses were towards creation of a new asset or for enhancing capacity of existing asset and thus same were in nature of capital expenditure
No error was found in finding of CIT(A) in this regard—CIT(A) had analysed all expenses and found that same was incurred essentially for preserving and maintaining hotel property owned by assessee
Lease rent expenses paid to government of Maharashtra were in respect of land on which hotel was located, which was essential expenditure to preserve assets of company
Similarly, expenses on Auditor’s remuneration, personnel expenses, security expenses, power and fuel and water expenses were necessary expenses for maintenance of hotel property
Tribunal in assessee’s own case held that hotel business could not be said to have been set up simply because a banquet hall was let out
Unless hotel building was completed, gamut of activities which a hotel was required to undertake could not be said to have been ready for use and thus merely because banquet hall was ready in incomplete hotel building hotel business it was held could not have been set up
Assessee’s appeal dismissed.

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