2015 (12) TMI 911 - HC - Income Tax

Expenses of stamp duty for pledge agreement and processing fees charged by the bank - revenue or capital expenditure - ITAT deleted the addition - Held that - While deleting the addition it was noted that the expenses incurred towards pledge agreement with the bank was for borrowing working capital availed from bank and by incurring he expenditure no capital asset has come into existence. Before us no material has been placed on record by the Revenue to controvert the findings of CIT (A) and ITAT treating the expenses as revenue. - Decided against revenue Expenses on account of repairs, renovation, building road, Labour charges and maintenance expenses - revenue or capital expenditure - ITAT deleted the addition - Held that - CIT (Appeals) and Tribunal concurrently came to the conclusion that looking to the nature of the expenditure, the same could not have been treated as capital expenditure. The Assessing Officer had also made an ad-hoc addition on the ground that corresponding labour charges and other expenses were not reflected. The Tribunal in particular confirmed the view of the CIT(A) that mere quantum of expenditure would not be sufficient to treat as capital expenditure, inter-alia, on such grounds - Decided against revenue Machinery reconditioning charges of existing plant and machinery - expenses treated as capital expenditure - ITAT deleted the addition - Held that - assessee contended that machinery had become old and without changing the core machinery, replacement of parts was carried out by way of reconditioning and the expenditure involved was for such purpose. Assessing Officer without rejecting the contention of the assessee that the core machinery remained unchanged, disallowed the expenditure and treated as capital expenditure. Here also, the Tribunal observed that merely because the cost of repair was close to written down value of the machinery, would not justify in treating as one of capital expenditure - Decided against revenue

Summary

Issues:
1. Whether stamp duty and processing fees are capital expenditure?
2. Whether expenses on repairs, renovation, etc., are capital expenditure?
3. Whether machinery reconditioning charges are capital expenditure?
4. Whether seeds purchase expenses at a higher rate are disallowed under the Income Tax Act?

Analysis:
1. The first issue pertains to the treatment of stamp duty and processing fees as capital expenditure. The Tribunal upheld the CIT (A)'s decision, stating that the expenses were for working capital borrowed from the bank and did not result in the creation of any capital asset. The Tribunal found no evidence presented by the Revenue to challenge the CIT (A)'s findings. Consequently, the Tribunal dismissed the Revenue's appeal, affirming that no question of law arose.

2. The second issue involves determining whether expenses on repairs, renovation, labor charges, etc., qualify as capital expenditure. Both the CIT (A) and the Tribunal agreed that based on the nature of the expenses, they should not be treated as capital expenditure. The Assessing Officer's ad-hoc addition was rejected by the Tribunal, emphasizing that the mere amount of expenditure alone does not warrant classification as capital expenditure. The Tribunal upheld the CIT (A)'s decision, concluding that no question of law was present, and dismissed the Revenue's appeal.

3. The third issue concerns machinery reconditioning charges and whether they should be considered capital expenditure. The assessee argued that the reconditioning was necessary due to the aging machinery, and the expenditure was solely for that purpose. Despite the Assessing Officer's disallowance, the Tribunal found that the repair cost being close to the machinery's written down value did not automatically classify it as capital expenditure. The Tribunal reiterated that no question of law arose in this matter.

4. The final issue pertains to the disallowance of seeds purchase expenses at a higher rate under the Income Tax Act. The Tribunal admitted the appeal solely for consideration of this question. Further analysis and judgment on this specific issue are pending, awaiting a decision from the court.