jairichi and omshiv, thank you very much for your responses. Well I thought so myself; just wanted to know what the experienced folks thought about this.
Back in 2013, when they had filed for my H1B, I had told them that my passport is going to expire in another year. But I coudn't get my passport renewed at that time because there was more than a year for it's expiry - and we cannot renew the passport more than a year before it's scheduled expiry date. They didn't mention anything about this being an issue with them; and were infact pretty cool about it saying that it's easier to get the passport renewed in US. However, they didn't mention anything about the I94 renewal situation.
Now they are saying that it's better to make a re-entry than extend/renew it; and although they haven't explicitly said that I will have to bear the expenses, the *indications* are definitely towards it. Hence wanted to ascertain the facts surrounding it before going back to them. If at all it comes down to my taking care of it; I would rather get the i94 renewed by visiting Canada.