2011 (6) TMI 761 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of expenses incurred on current repairs of a leased power plant.
2. Non-allowance of claimed expenditure as revenue expenditure.

Summary:

1. Disallowance of Expenses Incurred on Current Repairs of a Leased Power Plant:
The assessee, engaged in manufacturing steel fasteners, nuts, and bolts, filed its return of income showing a loss and book profit u/s 115JB. The AO observed that the assessee had debited Rs. 31,54,844/- as deferred revenue expenditure, treating 10% of it as deferred revenue expenditure in the Profit & Loss account. The AO rejected the assessee's contention that the expenditure was revenue in nature, considering it as leasehold improvements of a capital nature, providing an enduring benefit. Consequently, the AO added the said amount to the income of the assessee, which was upheld by the CIT(A). The assessee appealed, arguing that the expenditure was incurred on repairs of a leased power plant and should be treated as revenue expenditure.

2. Non-Allowance of Claimed Expenditure as Revenue Expenditure:
The assessee entered into an agreement with M/s Central Coalfield Ltd. for leasing a thermal power station. The expenditure was incurred to make the plant operational, generating revenue during the year. The assessee claimed that the expenditure was necessary for repairs and maintenance of the leased plant, thus qualifying as revenue expenditure. The CIT(A) upheld the AO's view that the expenditure was capital in nature. The assessee argued that the expenditure did not create any capital asset and was necessary for the plant's operation, thus should be treated as revenue expenditure. The Tribunal noted that the expenditure was for items like lubricating oil, replacement parts, and other necessary repairs, which did not create any capital asset and were essential for the plant's operation. The Tribunal concluded that the expenditure did not provide any enduring benefit and should be treated as revenue expenditure.

Conclusion:
The Tribunal held that the expenditure incurred by the assessee was revenue in nature and allowable as such. The alternative ground for depreciation became infructuous. The appeal filed by the assessee was allowed.