2016 (8) TMI 363 - AT - Income Tax

Repairs and maintenance of building - construction activity - revenue or capital expenditure - Held that - The Main reason for the disallowances by the Ld. assessing officer is that the assessee has incurred expenditure on MS plate s sheets and angles. Merely the assessee has used a particular material it cannot be said that the assessee has used it for the purpose of construction of a building without recording a specific finding about the nature of extension or construction work carried out. It is also important to note that detail of expenditure selected by the Ld. AO then saying that it is a capital expenditure in nature without noting that it does not include any cement or labour expenditure. AO also did not brought on record that whether the assessee has constructed any new shed. In absence of any finding by the Ld. assessing officer that assessee has extended its already existing building such kind of expenditure cannot be held to be capital in nature. The ratio laid down by the Hon ble Delhi high court in CIT versus TS TECH SUN India Ltd (2012 (7) TMI 313 - DELHI HIGH COURT) squarely covered the issue in favour of the assessee wherein on the identical facts and circumstances Hon ble high court has held that no extra capacity or space was created in the factory by repairing the roof and floor and therefore no advantage of enduring nature was obtained by the assessee. Therefore respectfully following the decision of Hon ble Delhi high court, we reverse the finding of the lower authorities that the expenditure is capital in nature. In view of this, we hold that the expenditure incurred by the assessee is revenue in nature and there is no benefit of enduring nature obtained by the assessee.- Decided in favour of assessee.

Summary

Issues:
1. Disallowance of repair expenses as capital expenditure for building.
2. Disallowance of repair expenses as capital expenditure for plant and machinery.

Analysis:

Issue 1: Disallowance of repair expenses for building as capital expenditure
The appellant, a manufacturing company, filed an appeal against the disallowance of repair expenses for the building as capital expenditure. The assessing officer disallowed ?3,158,570 as capital expenditure, which the appellant claimed as revenue expenditure. The lower authorities upheld this decision, considering the nature of the expenditure and its enduring benefit. However, the appellant argued that the repairs were necessary for regular maintenance due to the nature of their manufacturing process. The Tribunal noted that no new construction was undertaken, and the repairs did not result in any enduring benefit. Relying on a decision of the Delhi High Court, the Tribunal ruled in favor of the appellant, allowing the repair expenses as revenue expenditure.

Issue 2: Disallowance of repair expenses for plant and machinery as capital expenditure
The appellant contested the disallowance of ?3,606,434 as capital expenditure for repairs to plant and machinery. The assessing officer considered certain expenses as capital in nature due to their enduring benefit. The appellant argued that the repairs were for regular upkeep and did not lead to any capacity increase. The Tribunal observed that no new asset or increase in capacity was established by the lower authorities. Citing a previous court decision, the Tribunal concluded that since no new asset was acquired or constructed, the disallowance of the repair expenses was not justified. Consequently, the Tribunal allowed the expenses as revenue expenditure.

Conclusion
The Tribunal partially allowed the appeal, overturning the disallowance of repair expenses for both the building and plant and machinery. As a result, the appellant succeeded in establishing the nature of the expenses as revenue rather than capital expenditure, based on the specific circumstances and legal precedents cited during the proceedings.