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TMI Blog2010 (9) TMI 162X X X X Extracts X X X X X X X X Extracts X X X X ..... x Act (hereinafter referred to as "the Act"). "Whether, on the facts and in the circumstances of the case, the ITAT was correct in law in holding that expenses claimed by the assessee in respect of transformer, pumping set, mono block and consultancy charges for selection of boiler and construction of cells were not capital in nature?" 2. In the assessment year in question i.e. assessment year 1982-83 the assessee had claimed the deductions on account of "Repairs of Plant and Machinery". According to the assessee it had incurred an expenditure of Rs.26,50,090/- on such repairs in its Banaspati Unit. The Assessing Officer (AO) disallowed the expenditure to the extent of Rs.8,12,894/- holding the same to be capital in nature and therefore inadmissible. The details of these expenses are as under:- (a) Amount paid to M/s. J.B. Singh, Contractor, for fabrication and errection charges of Cell-room. Rs.50,375 (b) Amount paid to M/s. Anurag Construction Co. for dismantling of old PCC RCC work in Cell-room. Rs.16,830 (c) Amount paid to M/s. Ajanta Builders for construction of weigh-bridge Railway Siding. Rs.36,377 (d) Amount paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances in which this expenditure was incurred by the assessee, is concerned. 6. Submission of Ms. P.L. Bansal, learned counsel appearing for the Revenue, was that the cell room was demolished and new room in place thereof was constructed. It was clearly a value addition to the property and capital asset was created. The expenditure thereon should, therefore, be treated as the capital expenditure. She, likewise argued that by purchasing transformers, pumping sets and mono block pump with HP motor, the new assets were created which were essential for the running the plant. According to her, these were obvious expenditure of capital in nature. 7. On the other hand, Mr. Ajay Vohra, learned counsel who appeared for the assessee, submitted that expenditure mentioned in Para (i) above pertaining to cell rooms cannot be classified as capital in nature since no new asset came into existence. Cell room was already in existence and the appellant merely carried out repairs of the same by dismantling some worn out portions of the cell rooms and putting up new construction. The same cannot, it was submitted, lead to the conclusion that a new asset building was brought into existence. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umption that a part of the building had been demolished and that the items had actually been used for erection of a new structure. However, the Tribunal also observed that for this conclusion, the Department could not bring on record any evidence to justify the stand that the expenditure was actually for erection of a new building or asset. The Tribunal also noticed that the contention of the assessee that it had undertaken major repairs to put the dilapidated columns, beams, roofs etc. in its original position, which had become dangerous and unsafe for the workmen and hindered the normal operation of the business, was not controverted by the departmental representative nor had any evidence to the contrary been produced before the Tribunal or the authorities below. It was ultimately concluded that employing the test indicated in Saravana Spinning Mills (Supra), the assessee had incurred the said expenditure only to preserve and maintain the existing asset and that the expenditure was not of a nature which brought into being a new asset or created a new advantage of an enduring nature. Consequently, the Tribunal deleted the disallowance." (emphasis supplied) 8. Reading of the afor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business, irrespective of whether the assessee is the owner of the assets or has only used them. The expression "current repairs" denotes repairs which are attended to when the need for them arises from the viewpoint of a businessman. The word "repair" involves renewal. However, the words used in Section 31(i) are "current repairs". The object behind Section 31(i) is to preserve and maintain the asset and not to bring in a new asset. In our view, Section 31(i) limits the scope of allowability of expenditure as deduction in respect of repairs made to machinery, plant or furniture by restricting it to the concept of "current repairs". All repairs are not current repairs. Section 37(1) allows claims for expenditure which are not of capital nature. However, even Section 37(1) excludes those items of expenditure which expressly falls in Sections 30 to 36. The effect is to delimit the scope of allowability of deductions for repairs to the extent provided for in Sections 30 to 36. To decide the applicability of Section 31(i) the test is not whether the expenditure is revenue or capital in nature, which test has been wrongly applied by the High Court, but whether the expenditure is "curre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of a machine, which has become obsolete, is replaced, then it would be current repairs‟. However, the nature of expenditure in the present case falls within the description given by the Supreme Court in the aforequoted portion. 13. Since we hold that the expenditure incurred on the cell room is in the nature of capital expenditure, it cannot be allowed as business expenditure under Section 37(1) of the Act. At most, the assessee would be entitled to depreciation thereupon. 14. Insofar as purchase of pumping sets, Mono block pump with HP Motors and two transformers is concerned, they were not stand alone equipments, but were the part of bigger plant. Therefore, it would be treated as replacement of those parts when they are not used independently and the expenditure would be liable to deduction under Section 37(1). Gujarat High Court in the case of Commissioner of Income Tax Vs. Udaipur Distillery Co. Ltd. [268 ITR 451], wherein it was held that purchase of transformers in replacement of existing transformer, which could not be used independently, falls within the category of revenue expenditure and hence, is an allowable deduction under Section 37(1) of the Act. These ..... X X X X Extracts X X X X X X X X Extracts X X X X
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