2012 (11) TMI 334 - AT - Income Tax

Addition of the machinery maintenance expenses - being capital expenses Held that - Incurring of the expenditure did not result any increase in the earning of the assessee - item were purely on repair and maintenance in nature and were like brackets, bearing, belts, chain, loader, electrical motor rewinding, face plates, gas cutter pipe, nuts and bolts, washers, champs, PVC pipes, pulley, MS plates, wire mesh, welding rods, wooden gutka, ruli, shafts, lever pin etc. - no part of the machinery can be independently used and constituted separate machine or which constitute substitution of an old asset by a new asset to categorize it as capital expenditure in favor of assessee

Summary

Issues:
1. Whether the machinery maintenance expenses claimed by the assessee should be treated as revenue expenditure or capital expenditure.

Analysis:
1. The Revenue appealed against the order of the Ld. Commissioner of Income Tax (Appeals) regarding the deletion of addition of machinery maintenance expenses as capital expenses for assessment year 2008-09.

2. The Assessing Officer contended that the maintenance expenses were capital in nature as they converted old machinery into new ones, increasing their durability. The Assessing Officer invoked section 31(i) of the IT Act, treating the claim as non-allowable capital expenditure.

3. The Ld. Commissioner of Income Tax (Appeals) analyzed the nature of the expenditure and the history of maintenance expenses incurred by the assessee. He noted that the sales of the assessee remained consistent over the years, indicating that the expenditure was part of the normal trading process. The Ld. Commissioner found that no evidence was presented to prove that the expenditure resulted in the creation of a new asset or increased sales.

4. The Ld. Commissioner distinguished the case laws relied upon by the Assessing Officer and concluded that the expenditure did not qualify as capital expenditure. He observed that the parts replaced were integral to the machinery and did not independently function as separate machines, leading to the deletion of the addition made by the Assessing Officer.

5. Upon hearing the contentions and reviewing the material, the Tribunal upheld the Ld. Commissioner's order, affirming that the maintenance expenses were revenue in nature. The Tribunal agreed that the expenditure did not result in any new advantage or increased sales, and no single part purchased by the assessee lasted for a year or more.

6. The Tribunal found that the maintenance expenses were part of normal repair and maintenance activities, not leading to the creation of a new asset. Consequently, the appeal filed by the Revenue was dismissed, and the Ld. Commissioner's decision was upheld.