2015 (10) TMI 170 - AT - Income Tax

Disallowance of part of electrical replacement expenses - revenue v/s capital - Held that - It is the nature of the expenditure which has to be considered while allowing the expenditure in the hands of the assessee. We find merit in the plea of the assessee that the expenditure incurred by the assessee is on account of repairs and renewals carried out at his business premises and are in the nature of current repairs which is allowable as expenditure under section 31(1) of the Act. In view of the admission of the assessee, we direct the Assessing Officer to allow the expenditure of ₹ 2,28,238/- as revenue expenditure and the balance expenditure of ₹ 22,400/- is to be treated as capital in nature. - Decided partly in favour of assessee. Treatment of repairs and renewal expenses - revenue v/s capital- Held that - he first bill referred to by the assessee is dated 02.05.2008 of Mangal Electricals & Refrigeration for ₹ 2,00,000/-. The nature of the expenditure is the repairs of toilet rooms which changes of tiles, painting, water proofing and plumbing. Though the assessee has booked the expenses at ₹ 2,00,000/- but the same comprises of various items under which, the repairs of the toilets by way of changing the tiles and also plumbing in different rooms of the hospital have been carried out. Another expenditure of ₹ 75,628/- has been claimed by the assessee by way of payment to M/s. Bharatkumar Dayal & Co vide invoice dated 05.06.2008. The assessee had purchased various carpentry items from the said concern for replacing the old items. Where the assessee has carried on repairs of existing items, then the said expenditure is to be allowed as revenue expenditure in the hands of the assessee. In the entirety of the above facts and circumstances, we are of the view that the part of the expenditure claimed by the assessee is revenue in nature i.e. expenditure incurred on replacing of tiles and bath rooms along with water proofing, plumbing work carried out, the carpentry material purchased by the assessee and other hardware items purchased for replacing of the existing items including painting and supervision charges for repair works. The expenditure incurred on bore well drilling of ₹ 14,100/- is of enduring benefit and is to be treated as capital expenditure. Accordingly, we direct the Assessing Officer to treat the expenditure of ₹ 5,64,517/- -Rs.14,100/- 5,50,417/-, tabulated by the assessee, as revenue expenditure and the balance expenditure of ₹ 3,40,196 14,100/- 3,54,296/- as capital expenditure - Decided partly in favour of assessee.

Summary

Issues:
Treatment of repairs and renewal expenses as capital in nature.

Analysis:
The appeal was filed against the order of CIT(A) regarding assessment year 2009-10 under section 143(3) of the Income-tax Act. The appellant contested the disallowance of expenses related to electrical replacement and repairs/renewals. The Assessing Officer disallowed expenses exceeding a certain amount, considering them as capital in nature. The CIT(A) upheld this decision, emphasizing the enduring benefit provided by the expenses. The appellant argued that the expenses were for current repairs and replacements, providing detailed breakdowns and bills. The Tribunal analyzed each expense item and concluded that certain expenses were revenue in nature, while others were capital. For electrical replacement, a portion was allowed as revenue expenditure, and the rest was treated as capital. Similarly, for repairs and renewal expenses, a portion was classified as revenue expenditure, and the remaining amount was considered capital. The Tribunal directed the Assessing Officer to adjust the treatment of expenses accordingly. The appeal was partly allowed based on these findings.

This detailed analysis involved examining the nature and purpose of each expense item to determine its classification as revenue or capital expenditure. The Tribunal considered the bills provided by the appellant, focusing on the specific items purchased and the benefits derived from the expenses. The Tribunal emphasized the distinction between expenses providing enduring benefits and those related to current repairs. The decision was based on a thorough review of the facts and circumstances surrounding the expenses claimed by the appellant. The Tribunal's judgment provided clarity on the treatment of repairs and renewal expenses, ensuring a fair and accurate assessment of the appellant's claims.