2017 (12) TMI 1265 - AT - Income Tax

Disallowing the expenses towards warehousing expenses being expenditure on repairs - nature of expenses - revenue or capital expenditure - Held that - The undisputed facts of the issue are that the assessee has incurred an expenditure to the tune of ₹ 1,61,33,801/- on the repairs of compound wall which comprises payment for cost of bricks, cement steel, TMT bars , excavation and labour charges etc. Now the issue before us is whether the repair of compound wall constitutes revenue expenses in nature or falls under the category of capital expenditure. After examining the facts on records and relevant contentions, we find that the expenditure is clearly of revenue in nature as the same were incurred to repair and restore the dilapidated wall. Moreover, the case of the assessee finds support of the decision of the Hon ble Madras High Court in the case of Southern Roadways Ltd (2007 (6) TMI 193 - MADRAS HIGH COURT), wherein it has been held that the expenditure incurred on compound wall is revenue expenditure - Decided in favour of assessee Disallowance u/s 40(a)(ia) - non deduction of tds on payment made to Saikrupa Food Services Private Limited (SKFS) - Held that - No disallowance is called for as the recipient has already paid the taxes on the sources of income and due certificate was furnished by the assessee. We also find that the case law relied upon by the ld. AR in the case of Ansal Land Mark Township P Ltd (2015 (9) TMI 79 - DELHI HIGH COURT) support the issue of the assessee - Decided in favour of assessee

Summary

Issues:
1. Disallowance of warehousing expenses as capital expenditure.
2. Disallowance under section 40(a)(ia) for failure to deduct tax at source.

Issue 1: Disallowance of Warehousing Expenses as Capital Expenditure:
The appeal involved a challenge against disallowing expenses of &8377;1,45,20,421 as capital expenditure by the Assessing Officer (AO) for repairs, considering them to result in enduring benefits to a capital asset. The Appellate Tribunal examined the case where the appellant had incurred substantial expenses for renovating warehousing facilities, including repairing a compound wall. The AO and First Appellate Authority (FAA) treated the expenditure as capital, allowing depreciation. The FAA emphasized the enduring benefit from the expenditure and cited relevant case laws. However, the appellant argued that the expenses were revenue in nature, citing the Madras High Court decision in a similar case. The Tribunal, after considering all contentions and the nature of the repairs, held that the expenditure was revenue in nature, as it was incurred to repair a dilapidated wall, contrary to the FAA's view. The Tribunal relied on the Madras High Court decision and directed the AO to delete the addition, allowing the appellant's appeal on this ground.

Issue 2: Disallowance under Section 40(a)(ia) for Failure to Deduct Tax at Source:
The second issue pertained to the disallowance of &8377;1,26,65,630 under section 40(a)(ia) for not deducting tax at source on payments to Saikrupa Food Services Private Limited (SKFS). The appellant contended that as per the second proviso to section 201 of the Act, the recipient had already paid taxes and furnished a certificate, thus no disallowance should apply. The appellant also referenced a Delhi High Court decision supporting their stance. The Tribunal, after reviewing the facts and legal position, agreed with the appellant. It noted that the recipient had paid taxes and the certificate was provided, aligning with the Delhi High Court precedent. Consequently, the Tribunal directed the AO to delete the disallowance under section 40(a)(ia), thereby partially allowing the appellant's appeal on this issue.

In conclusion, the Appellate Tribunal ITAT Mumbai ruled in favor of the appellant on both issues, reversing the disallowances made by the authorities. The judgment highlighted the distinction between revenue and capital expenditure in the context of repairs and emphasized compliance with tax deduction provisions to avoid disallowances.