2012 (8) TMI 449 - AT - Income Tax

Disallowance of claim of revenue expenditure - charges for shifting of the windmill - Held that - It is an admitted position that the expenditure in question relates to payment of fee to TNEB and not of shifting expenses as stated by AO - as both the parties have not brought the copy of the agreement entered into by the assessee with TNEB the lower authorities have not looked into the purpose for which the expenditure in question was incurred and has not brought relevant materials on record - restore this issue back to the file of the Assessing Officer for proper verification - in favour of assessee by way of remand.

Issues Involved:
1. Whether the expenditure of Rs. 13,60,000/- paid to TNEB for shifting the windmill is revenue or capital expenditure.
2. Applicability of various judicial precedents on the nature of the expenditure.

Detailed Analysis:

1. Nature of Expenditure: Revenue or Capital:
The primary issue in this case revolves around whether the expenditure of Rs. 13,60,000/- incurred by the assessee for shifting the windmill, paid to TNEB, should be classified as revenue expenditure or capital expenditure. The assessee argued that this expenditure was a fee paid to TNEB for infrastructure charges and did not result in the creation of any new asset. The payment was necessary to restore the functional efficiency of the existing asset due to inadequate wind velocity at the original location.

The CIT(A) and the Assessing Officer (AO) treated this expenditure as capital in nature, relying on the Supreme Court decision in the case of Sitalpur Sugar Works Ltd., where the relocation of a factory was considered capital expenditure. The CIT(A) reasoned that the windmill was a separate unit capable of generating electricity and shifting it amounted to relocating an entire factory, thereby justifying the classification as capital expenditure.

2. Judicial Precedents and Their Applicability:
The assessee relied on the Delhi High Court decision in DART Manufacturing India (P) Ltd., where payment to the State Electricity Board for installing transformers and LT lines was treated as revenue expenditure. The assessee also cited the Madras High Court decision in CIT vs Loyal Super Fabrics, which held that expenditure incurred for the survival of a factory at a new location should be treated as revenue expenditure, emphasizing that the test of enduring benefit is not conclusive and should consider the specific facts and circumstances.

Conversely, the Department's Representative (D.R) distinguished the DART Manufacturing case on the grounds that it involved expenditure on assets owned by the State Electricity Board, whereas in the present case, the windmill was owned by the assessee. The D.R also referenced the Madras High Court decision in India Pistons Repco Ltd., which upheld the classification of expenditure on dismantling and shifting a factory as capital expenditure.

Tribunal's Findings and Directions:
The Tribunal noted that the expenditure in question was a fee paid to TNEB for infrastructure charges, not for dismantling or reassembling the windmill. The Tribunal observed that both parties had not provided the agreement with TNEB, which was crucial to determine the nature of the expenditure. It emphasized that if the payment was merely a fee for business purposes without resulting in asset acquisition, it should be considered revenue expenditure.

Given the incomplete records and lack of specific details, the Tribunal decided to remand the issue back to the Assessing Officer for proper verification. The AO was directed to re-adjudicate the issue, considering the Tribunal's observations, and to pass a speaking order after allowing the assessee a reasonable opportunity of hearing.

Conclusion:
The appeal was allowed for statistical purposes, with the matter being remanded to the Assessing Officer for fresh verification and adjudication in light of the Tribunal's detailed analysis and directions.

← Previous Next →