2016 (12) TMI 1345 - AT - Income Tax

Disallowance of the repairs and maintenance expenses treating the same as capital - expenditure after allowing depreciation - Held that - Assessee has incurred expenses in the nature of current repairs u/s 30 of the Act and hence the same cannot be treated as capital expenditure in the absence of creation of any new asset of enduring nature and hold them to be revenue expenditure. However, consequently the depreciation allowed by the Revenue shall be adjusted accordingly in accordance with our above orders.

Summary

Issues Involved:
Disallowance of repairs and maintenance expenses treated as capital expenditure.

Analysis:
1. The appeal was filed against the appellate order passed by the CIT(A) for the assessment year 2010-11, arising from the assessment order by the Assessing Officer under section 143(3) of the Income Tax Act, 1961.
2. The grounds of appeal raised by the assessee focused on the disallowance of repairs and maintenance expenses on the factory building, treating it as capital expenditure instead of revenue expenditure.
3. The AO observed that certain items of expenditure included in the bills from the civil contractor were in the nature of capital expenditure and disallowed them as revenue expenses. The AO capitalized the disallowed expenses and allowed depreciation on them.
4. The CIT(A) upheld the AO's decision, considering the expenses to be of capital nature, increasing the life and value of the building, and providing enduring benefits to the business.
5. The assessee argued that the repairs were necessary to maintain the productive capacity of the building and were in the nature of current repairs, not resulting in any new asset or enduring advantage. The assessee also highlighted errors in the assessment order regarding the amount of disallowance.
6. The Tribunal noted that similar expenses were allowed as revenue expenditure in the preceding assessment year by a co-ordinate Bench, holding that the expenses were for repair and maintenance of existing buildings, not creating any new enduring asset.
7. Following the precedent, the Tribunal allowed the appeal, holding that the expenses were current repairs under section 30 of the Act and should not be treated as capital expenditure. Adjustments were directed regarding the depreciation allowed by the Revenue.
8. The Tribunal's decision favored the assessee, allowing the appeal against the disallowance of repairs and maintenance expenses treated as capital expenditure for the assessment year 2010-11.

This detailed analysis covers the issues involved in the legal judgment, providing a comprehensive overview of the arguments presented and the final decision rendered by the Tribunal.