2013 (10) TMI 1392 - AT - Income Tax

Written down value of the cost of construction as current repair - Held that - Current repair is an expenditure incurred by the assessee for the purpose of maintaining the machinery, building, etc. used for the purpose of business. It is not a case of an expenditure incurred for the purpose of doing the business. The assessee claims the written down value of the cost of construction as current repair. This Tribunal is of the considered opinion that the cost of construction of the building or its written down value cannot be allowed as current repair under the existing provisions of the Income-tax Act.

Summary

Issues:
Claim of written down value of building as current repair on lease premises.

Analysis:
The appeal pertains to the assessment year 2007-08 and involves the claim of Rs. 1,85,65,444 as current repair on the written down value of a building constructed on government land leased by the assessee for their tourism business. The assessee claimed this amount as revenue expenditure due to the state government's refusal to extend the lease, directing them to vacate the premises. The Tribunal considered whether the written down value of the building's cost could be allowed as 'current repair' under the Income-tax Act.

The Tribunal noted that the assessee had not claimed the cost of construction as revenue expenditure initially but sought it as current repair upon the lease extension denial. Despite the state government's directive to vacate, the assessee remained in physical possession due to a High Court stay order maintaining status quo. The Tribunal interpreted this as holding over the property post-lease expiry, concluding that the cost of construction cannot be considered 'current repair' as it does not align with the purpose of maintaining business assets.

The Tribunal referenced the Madras High Court judgment in TVS Lean Logistics Ltd, which clarified the applicability of Explanation 1 to section 32(1) concerning construction work on leased premises. The Madras High Court's ruling emphasized that the cost of construction must be claimed in the year of expenditure, contrasting with the written down value claim made by the assessee. Consequently, the Tribunal deemed the Madras High Court judgment inapplicable to the current case, upholding the lower authorities' decisions and dismissing the assessee's appeal.

In conclusion, the Tribunal found no fault in the lower authorities' orders, confirming the dismissal of the assessee's appeal regarding the claim of the written down value of the building's cost as 'current repair' on lease premises.