2019 (6) TMI 1717 - AT - Income Tax

Nature of expenses - Repair and Maintenance to Building - revenue or capital expenditure - expenditure is eligible either u/s 30 or u/s 37(1) of the Income Tax Act as per the submissions of the Ld.AR - HELD THAT - Assessee incurred expenditure for fixing Alco Bond Sheets on outside wall of the factory building to maintain the present structure and also incurred expenditure in respect of interior work. The assessee incurred expenditure only for keeping an existing asset into its present condition. Besides this the assessee has not carried out any extension to the existing building which could classify the said expenses as capital expenditure. AO has not brought any material on record to show that it is an adverse material contrary to the bills and the work carried out by the assessee and the said expenses were giving an enduring benefit to the assessee. All these repairs are done to preserve and maintain an already existing asset. In the course of such repairs if they have upgraded the facilities by fixing of Alco Bond sheets on outer walls of the building which do not constitute a new asset or a new advantage. The contention of the Ld. AR that expenditure cannot be covered as current repairs the same is eligible u/s 37(1) of the Income Tax Act as revenue expenditure as the repairs were done to preserve and maintain an already existing asset and to improve its longevity. There was no new assets created by the assessee. Therefore CIT(A) as well as the Assessing Officer was not right in making disallowance of current repairs out repairs maintenance of building. Decided in favour of assessee.

Summary

Issues:
Disallowance of repair and maintenance expenses.

Analysis:
The appeal was filed against the order passed by CIT(A)-XV, New Delhi for Assessment Year 2010-11, regarding the disallowance of Rs. 55,70,068/- out of Repair and Maintenance to Building. The assessee, engaged in manufacturing gears and shafts, declared total income of Rs. 24,02,33,040/- for the relevant year. The case was scrutinized, and various additions were made by the Assessing Officer, including the disallowance in question.

The CIT(A) partly allowed the appeal, leading to the current appeal. The assessee argued that the expenses were incurred to maintain the existing structure and not to create any new asset. The AR emphasized that no enduring benefit was derived from the expenses and that they were essential for preserving the existing asset. The AR cited relevant case laws and the decision of the Hon'ble Supreme Court to support the claim that the expenses constituted revenue expenditure under Section 37(1) of the Income Tax Act.

After considering the arguments, the Tribunal noted that the repairs were aimed at maintaining the existing asset and improving its longevity, without creating any new asset. The Tribunal found no adverse material to suggest an enduring benefit to the assessee from the expenses. Therefore, the disallowance made by the CIT(A) and the Assessing Officer was deemed incorrect. The Tribunal allowed the appeal, concluding that the expenses qualified as current repairs and were eligible as revenue expenditure under Section 37(1) of the Income Tax Act.

In conclusion, the Tribunal allowed the appeal filed by the assessee, emphasizing that the expenses incurred for repair and maintenance did not result in the creation of new assets but were essential for preserving and maintaining the existing asset. The judgment was pronounced on 6th June 2019.