2012 (7) TMI 313 - HC - Income Tax

Deletion of the disallowance by CIT(A) - repair and maintenance expenses held to be capital in nature by AO - Held that - The expenditure was in the nature of repairs incurred in order to preserve and maintain the existing asset namely, the factory building and therefore was allowable as revenue expenditure as no new asset or enduring advantage was obtained by the assessee by incurring the expenditure. No extra capacity or space was created in the factory by repairing the roof and the floor - findings of fact recorded on the basis of the material on record and those findings have not been challenged or shown to be perverse or based on no material - no substantial question of law - in favour of assessee.

Summary

Issues:
1. Disallowance of repair and maintenance expenses as capital in nature.

Analysis:
The case involves an appeal by the Revenue against the Tribunal's order confirming the deletion of a disallowance of Rs.52,71,300 made by the Assessing Officer on the ground that repair and maintenance expenses claimed by the assessee were capital in nature. The assessee, a public limited company engaged in manufacturing automobile parts, claimed repair expenses totaling Rs.58.57 lakhs for the assessment year 2006-07. The expenses were incurred on a building on three different dates. The Assessing Officer sought justification for the expenditure, which the assessee provided, explaining that the expenses were necessary to maintain the factory building and did not result in any capital advantage. However, the Assessing Officer considered the expenditure as creating a new floor and roof, resulting in a capital advantage, and disallowed Rs.52,71,300.

On appeal, the CIT(Appeals) examined the matter and concluded that the expenditure was for repairs to preserve and maintain the existing asset, the factory building, making it allowable as revenue expenditure. The Revenue then appealed to the Tribunal, which noted that no new asset or extra space was created by the expenditure. It found that the repairs to the roof and floor were essential to maintain the factory's integrity and did not increase its capacity. The Tribunal affirmed the CIT(Appeals) decision, stating that the expenditure only restored the building to its original condition and did not provide any enduring advantage or additional capacity to the factory.

The High Court upheld the Tribunal's decision, emphasizing that the findings of fact regarding the nature of the expenditure were based on the material on record and were not challenged as perverse or unfounded. The Court reiterated that unimpeached findings of fact do not raise substantial questions of law. Consequently, the appeal by the Revenue was dismissed, with no order as to costs.