2015 (10) TMI 1447 - AT - Income Tax

Expenditure under the head repairs and maintenance for replacing old windmill with the new one - revenue v/s capital expenditure - Held that - It is not clear from the records before us whether the assessee has replaced only damaged parts of the existing windmill or has replaced entire old windmill with the new one. These facts have to be ascertained from books, purchase order, job sheet, etc. In case, the assessee has replaced only damaged parts of the windmill, without there being substantial change in original performance and generation capacity of windmill the expenditure is allowable as claimed by the assessee. We find that the judgment of the hon ble Allahabad High Court in the case of CIT v. Renu Sagar Power Co. Ltd. 2007 (9) TMI 183 - ALLAHABAD HIGH COURT also supports the contentions of the learned authorised representative. Needless to say that if it is case of replacing a new windmill in the place of old windmill, the expenditure would certainly be capital in nature. The file is remitted back to the Assessing Officer with a direction to decide the issue afresh after verifying the factual aspect. The Assessing Officer while deciding the issue de novo shall grant an opportunity of hearing to the assessee, in accordance with law.- Decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Capital expenditure vs. revenue expenditure - Replacement of windmill parts.
2. Treatment of insurance claim.

Analysis:

Issue 1: Capital expenditure vs. revenue expenditure - Replacement of windmill parts
The appeal involved a public limited company engaged in manufacturing chlorate and windmill power generation. The company filed its return of income for the assessment year 2010-11, initially admitting income of Rs. 2,58,83,550, later revised to Rs. 2,44,57,950. The Assessing Officer during scrutiny noted an expenditure of Rs. 92,00,000 for replacing old windmill parts, considering it capital in nature. The Commissioner of Income-tax (Appeals) upheld this decision. The assessee contended that only damaged parts were replaced, citing relevant legal precedents. The Department argued that the entire windmill was replaced. The Tribunal observed discrepancies in the records and remitted the case to the Assessing Officer for a fresh decision based on factual verification, emphasizing the distinction between replacing damaged parts and a whole windmill to determine the nature of expenditure. The judgment highlighted the need for a proper assessment based on factual evidence.

Issue 2: Treatment of insurance claim
The second issue regarding the treatment of an insurance claim was not pursued by the assessee's representative during the appeal and was dismissed as not pressed. The Tribunal did not delve into this issue further due to lack of argumentation. Consequently, the treatment of the insurance claim remained unaddressed in the final decision.

In conclusion, the Tribunal partially allowed the appeal for statistical purposes, primarily focusing on the capital vs. revenue expenditure issue related to the replacement of windmill parts. The judgment underscored the importance of factual verification and proper assessment to determine the nature of expenditure accurately. The treatment of the insurance claim, though raised as an issue, was not pursued and thus not elaborated upon in the final decision.