2018 (11) TMI 389 - AT - Income Tax

Disallowance of repair & maintenance expenses - nature of expenditure - revenue or capital expenditure - Held that - These expenses have been incurred on several buildings, some of which have already been capitalized in earlier years and some of which were under construction. The details of the same have been placed the perusal of which reveal that an amount of ₹ 12,88,610/- have been incurred towards Building Number-3 which was under construction during the impugned AY and therefore, the same was required to be capitalized, irrespective of their nature, as rightly held by lower authorities. The remaining expenditure of ₹ 17,60,401/- & ₹ 1,31,766/- pertains to Building Numbers 2 & 1B respectively which have already been completed and capitalized in earlier years and therefore, the same were allowable to the assessee as revenue expenditure, being routine expenditure in nature. Resultantly, the amount of ₹ 12,88,610/- shall be disallowed while computing the income of the assessee & as a logical consequence allowed to be capitalized with under-construction building. The remaining expenditure of ₹ 18,92,167/- would be considered as revenue in nature and would be added with common repair & maintenance expenses Allowance of balance aggregate expenditure - Held that - Since a particular manner of apportionment has been accepted by the Tribunal in AY 2006-07, respectfully following the same, we direct the Ld. AO to re-compute the disallowance after apportioning them on the basis of gross value of assets. The working of the same has been placed on page number 28 of the paperbook, a perusal of which reveal that the proportion of building in total assets is 45.56% and accordingly, the proportionate disallowance works out to be ₹ 18,86,364/- which shall stand revised to ₹ 27,48,365/- 45.56% of ₹ 60,32,408/- in view of our adjudication in preceding para 5.1. The Ld. AO is directed to verify the proportion of the assets and if found correct, restrict the said disallowance to ₹ 27,48,365/- The assessee is directed to provide the working of the same to Ld. AO. Both these grounds stand partly allowed. Interest disallowance u/s 36(1)(iii) - Held that - although the issue has already been restored by Ld. CIT(A) to Ld. AO for re-appreciation of facts but still the disallowance u/s 36(1)(iii) has been upheld, which was erroneous and was not warranted for. We concur with these submissions. While upholding the stand of Ld. CIT(A) in restoring the issue to the file of Ld. AO, we direct Ld. AO to consider the issue after re-appreciation of factual matrix and decide the same as per law with a direction to the assessee to substantiate his claim. The ground stand allowed for statistical purposes. Loss on discarded live stocks horses u/s 36(1)(vi) - Held that - Our attention has been drawn to the fact that there are computational errors in the workings made by Ld. AO since the claim of the assessee was for ₹ 29.56 Lacs instead of ₹ 10.27 Lacs as adopted by Ld. AO. In support of the same, our attention has been drawn to the computation of income. After going through the same, we find that the assessee himself reduced loss by ₹ 10.27 Lacs on account of Loss on discarded livestock whereas it claimed total loss of ₹ 29.56 Lacs against this item, which support the submissions of Ld. Sr. Counsel. It is also noted that the assessee could not substantiate the loss to the satisfaction of Ld. AO. Therefore, we deem it fit to restore the matter back to the file of Ld. AO to re-appreciate the correct factual matrix and re adjudicate the issue as per law with a direction to the assessee to substantiate the same. This ground stand allowed for statistical purposes.

Issues involved:
1. Disallowance of 'Repairs and Maintenance' expenses
2. Disallowance of project expenses
3. Disallowance of interest expenses u/s. 36(1)(iii)
4. Non-allowance of loss on discarded livestock

Detailed Analysis:

1. Disallowance of 'Repairs and Maintenance' expenses:
The appellant contested the disallowance of a sum of ?41,40,241 out of the total repair expenditure incurred. The Assessing Officer disallowed this amount, stating it was not wholly for business purposes. The Tribunal found that a portion of the expenses was related to under-construction buildings and should be capitalized, while the rest was routine expenditure and allowable. The Tribunal directed the AO to recompute the disallowance based on the gross value of assets, following a similar approach from a previous year's case. The disallowance was revised to ?27,48,365. This ground was partly allowed.

2. Disallowance of project expenses:
The appellant challenged the disallowance of ?31,80,777 as project expenses, deemed capital in nature by the AO. The Tribunal upheld this disallowance as it related to buildings under construction, which needed to be capitalized. The disallowance was considered correct, and no relief was granted to the appellant on this issue.

3. Disallowance of interest expenses u/s. 36(1)(iii):
The disallowance of ?1,51,17,733 as interest expenses under section 36(1)(iii) was contested by the appellant. The Tribunal found errors in the AO's working and directed a reevaluation of the facts. The issue was sent back to the AO for proper substantiation by the appellant. The Tribunal upheld the CIT(A)'s decision to restore the matter to the AO for further review. This ground was allowed for statistical purposes.

4. Non-allowance of loss on discarded livestock:
The appellant claimed a loss on discarded livestock, which was disallowed by the AO. The Tribunal noted computational errors in the AO's workings and directed a reevaluation of the factual matrix. The matter was sent back to the AO for proper adjudication based on substantiated evidence. The Tribunal allowed this ground for statistical purposes.

In conclusion, the revenue's appeal was dismissed, while the appellant's appeal was partly allowed based on the Tribunal's detailed analysis and directions for reevaluation by the Assessing Officer.

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