2011 (8) TMI 258 - AT - Income Tax

Addition - under section 41(1) of the Act - There is no dispute that the assessee has shown the sundry creditors in its balance-sheet amounting to Rs. 25,60,09,090 including the liability of Apex body pending for more than 5 years Rs. 10,85,531 supported by the relevant details thereof. Out of it, the Assessing Officer has added Rs. 10,85,531 on the ground that the said liability is pending for more than 5 years, therefore, the same is ceased to exists and hence chargeable to tax under section 41(1) of the Act - Held that - CIT (A) deleted the same on the ground that the same is not barred by Limitation Act and there is no proof that the appellant obtained any benefit in respect of these creditors, the liability has not been written back by the appellant, there is no remission of liability, therefore, following the decision of the Hon ble Supreme Court in the case of CIT v. Sugauli Sugar Works (P.) Ltd. (1999 -TMI - 5715 - SUPREME Court) he deleted the addition of Rs. 10,00,000 - order of CIT(A) upheld - Decided in favour of assessee. Current Repair expenditures - capital expenditure or revenue expenditure - Held that - assessee on the tenanted office building which is more than 60 years old, has incurred repairs to preserve and maintain an already existing assets and there is no material on record to show that by incurring such expenditure the new assets has come into existence or the assessee has obtained a new advantage. - in view of decision of Supreme court in CIT v. Saravana Spg. Mills (P.) Ltd. (2007 -TMI - 1775 - SUPREME COURT OF INDIA) - the question as to whether the expenditure incurred by the assessee conceptually is revenue or capital in nature is not relevant for deciding the question whether such expenditure comes within the etymological meaning of the expression current repairs . In other words, even if the expenditure is revenue in nature, it may not fall in the connotation of current repairs. - Decided in favor of assessee.

Summary

Issues Involved:
1. Deletion of addition under section 41(1) of the Income-tax Act.
2. Disallowance of current repairs as capital expenditure.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 41(1) of the Income-tax Act:

The Revenue's appeal contested the deletion of an addition of Rs. 10,00,000 made by the Assessing Officer under section 41(1) of the Income-tax Act. The Assessing Officer had added Rs. 10,85,531 to the total income, presuming that the liability to pay creditors, which had remained unpaid for more than 5 years, had ceased to exist. The Commissioner of Income-tax (A) deleted this addition, noting that there was no evidence of benefit obtained by the assessee, no remission of liability, and the liability had not been written back by the appellant. The Commissioner relied on the Supreme Court decision in CIT v. Sugauli Sugar Works (P.) Ltd., which held that the expiry of the limitation period does not extinguish the debt but only prevents the creditor from enforcing it. The Tribunal upheld the Commissioner's decision, stating that merely because the liability was more than 5 years old did not mean there was a cessation or remission of the liability under section 41(1).

2. Disallowance of Current Repairs as Capital Expenditure:

The assessee's appeal challenged the disallowance of Rs. 2,01,500 for current repairs, which the Assessing Officer treated as capital expenditure. The repairs included breaking old plaster, making new brick walls, fixing tiles, and granite stones, among others. The Commissioner of Income-tax (A) upheld the disallowance, citing that it was a case of complete renovation, not normal repairs, referencing the Supreme Court decision in Ballimal Naval Kishore v. CIT. The Tribunal, however, found that the expenses were incurred to preserve and maintain an existing asset (an office building over 60 years old) and did not create a new asset or advantage. The Tribunal distinguished the case from Ballimal Naval Kishore, noting that the repairs were necessary for the existing structure and did not constitute total renovation. Consequently, the Tribunal allowed the assessee's appeal, holding that the repair expenses were allowable as business expenditure under section 37(1).

Conclusion:

The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal, affirming the deletion of the addition under section 41(1) and recognizing the repair expenses as allowable business expenditure.