1984 (1) TMI 133 - AT - Income Tax

Summary

Issues:
- Appeal against the order of the AAC directing the ITO to allow certain expenditures as revenue expenditure for two assessment years.
- Whether the expenditure on wire mesh for preparing cages should be treated as revenue or capital expenditure.

Analysis:
The case involved two department appeals challenging the order of the AAC directing the ITO to allow Rs. 36,200 for the assessment year 1980-81 and Rs. 36,000 for the assessment year 1981-82 as revenue expenditure. The appeals pertained to a registered firm running a poultry farm that incurred expenses on wire mesh for preparing cages. The ITO disallowed the expenditure, treating it as capital expenditure eligible for depreciation at 10%. The AAC, however, agreed with the assessee's argument that the wire mesh used for cages was subject to frequent replacement due to exposure to weather conditions, especially in coastal areas like Visakhapatnam. Consequently, the AAC directed the ITO to treat the expenditure as revenue expenditure, withdrawing the depreciation allowed by the ITO.

The revenue, aggrieved by the AAC's order, appealed before the Tribunal, challenging the classification of the expenditure as revenue in nature. The revenue contended that the expenditure resulted in the creation of an asset of enduring nature, justifying its treatment as capital expenditure. However, after considering arguments from both sides and examining the peculiar circumstances of the poultry farm's location in Visakhapatnam, known for sea breeze causing rapid deterioration of wire mesh, the Tribunal concurred with the AAC's decision. The Tribunal held that the expenditure on wire mesh for cages should be considered revenue expenditure due to the nature of the asset created, which was not enduring. Consequently, the Tribunal dismissed the appeal, upholding the AAC's order to treat the expenditure as revenue.

In conclusion, the Tribunal affirmed the AAC's decision to treat the expenditure on wire mesh for preparing cages as revenue expenditure, emphasizing the specific conditions of the poultry farm's location in Visakhapatnam. The judgment highlighted the significance of the asset's durability in determining the classification of expenditure as revenue or capital, ultimately leading to the dismissal of the revenue's appeal.