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By Staff Reporter

The Income Tax Appellate Tribunal (ITAT) Kolkata has delivered a crucial verdict regarding the treatment of expenses incurred for interior decoration in a rented office. The case of Harmuny Entertainment Pvt. Ltd. vs. DCIT saw the ITAT Kolkata rule that expenditures related to the interior decoration of a rented office premises should be recognized as allowable revenue expenditure.

In this case, the Assessing Officer (AO) had raised concerns over certain expenses claimed by the assessee. The AO contended that the interior decoration expenses and liabilities shown to third parties were not justified as revenue expenditure. The AO had also raised issues with the claimed expenditure towards interior decoration of the rented office.

However, the ITAT Kolkata held that such expenses should be treated as allowable revenue expenditure. The tribunal emphasized the fact that the interior decoration work in a rented office is subject to change as needed and should be recognized as a normal operational cost. Considering that the claimed amount for interior decoration was only a small fraction of the total turnover and given that the assessee did not own any self-owned office premises, the ITAT concluded that these expenditures should indeed be treated as revenue expenses and allowed for deduction.

Furthermore, the ITAT found that there were active liabilities between the parties involved, and both the creditor and debtor were engaged in genuine efforts to address the financial transaction. As a result, the provisions of Section 41(1) of the Income Tax Act, which pertains to cessation of liability, were deemed inapplicable. The tribunal thus deleted the addition made by the AO concerning these liabilities.

The ITAT Kolkata’s ruling in this case provides valuable clarification on the tax treatment of interior decoration expenses in a rented office. By affirming the classification of these expenses as allowable revenue expenditure, the decision offers a precedent for similar cases and contributes to the understanding of taxation regulations pertaining to office-related expenses.

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