9911796707
TMI Blog2011 (11) TMI 707X X X X Extracts X X X X X X X X Extracts X X X X ..... de by Assessing Officer to capitalize expenditure to the tune of ₹ 5,81,435/-. The appellant is a registered partnership firm and is engaged in manufacture and sale of Footwear, etc. with Head Office at Karnal. Total expenditure claimed by assessee for repairs of ₹ 7,35,249/- out of it Assessing Officer treated ₹ 70,000/- towards temporary structure where 100% deprecation was allowed. Expenditure upto ₹ 1,20,000/- were allowed as revenue expenditure. The Assessing Officer treated the balance expenditure as capital in nature and disallowed a sum of ₹ 5,81,435/-. The assessee filed an appeal and this addition was deleted by the CIT (A) relying on the decision of Hon'ble Madras High Court in the case of CIT vs. Haridas Bhagath Co. Pvt. Ltd. reported in 240 ITR 169. In the further appeal, the ITAT restored the issue to the file of CIT (A) with the following direction to decide afresh :- 9. The AO has recorded finding that certain expenses are not only for repairs but are also in respect of some new construction, as cement, iron sheet, iron angel, wood etc. have also been used. The total expenditure claimed by the assessee was ₹ 7,35,249/-. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on account of claim of assessee for repairs and renovation and for providing temporary structure in the elapsed premises. The AO has recorded finding that certain expenses are not only for repairs but are also in respect of some new construction, as cement, iron sheet, iron angel, wood etc. have also been used. The total expenditure claimed by the assessee was ₹ 735249/ -. Items (c), (d) (e) as listed below para 14.3 of his order which being capital in nature, 100% depreciation was allowable. The aggregate expenditure for these items was ₹ 67,122/ - but the AO treated ₹ 70000/ - as estimated amount under the head temporary structure on which 100% deprecation is admissible. Like-wise item (h) (k) were treated as that of revenue in nature and aggregate sum of ₹ 1,20,000/- was also treated as deductible expenditure. Thus the AD treated the balance amount of ₹ 581735/ - only as being of capital in nature after due application of mind Explanation-1 appended below section 32 of the IT Act deems capital expenditure incurred by the assessee in the leased premises to be a structure or work in the building as if owned by the assessee himself. Such ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of section 31 (i) the test was not whether the expenditure was revenue or capital in nature, but whether the expenditure was current repairs . The basic test was to find out whether expenditure was incurred to preserve and maintain an already existing asset, and the expenditure must not be to bring a new asset into existence or to obtain new advantage. (iii) That each machine including the ring frame was an independent and separate machine capable of independent and specific function and, therefore, the expenditure incurred for replacement thereof would not come within the meaning of current repairs . The replacement of the ring frame constituted substitution of an old asset by a new asset, and therefore, the expenditure incurred by the assessee did not fall within the meaning of current repairs in section 31 (i). Under section 31 (i) the deduction admissible is only for current repairs. Therefore, the question as to whether the expenditure incurred by the assessee conceptually is revenue or capital in nature I not relevant for deciding the question whether such expenditure comes within the etymological meaning of the expression current repair . In other words, e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue has also been dealt with by the ITAT, Delhi 'C' Bench in the case of ACIT VS. EJ.Dupont India Ltd. [2007] 107 ITD 63 ( Del). The head note from this order is reproduced below:- Business expenditure- capital or revenue expenditure- expenditure in connection with leased premises- In view of Expln.1 to s. 32(1) for the purpose of determination of the nature of expenditure, the fact that the premises are lease-hold must be ignored and it should be assumed that the premises belonged to the assessee- Expenditure incurred by assessee on leased premises, which lease was extendable to a period of 9 years, in the very first year of acquisition in order to make the premises more posh and impressive with a view to bring a fresh advantage not already there, predominantly related to fixed asset of the assessee and so described in the accounts of the assessee was capital in nature. 1.10 In view of the various case laws discussed above, it is noted that expenditure incurred to 'preserve and maintain' the existing asset is to be taken as current repair but if as a result of expenditure, the new asset came into existence or new advantage is obtained by the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entioned above, in respect of the issue of current repairs, decision of the Madras High Court is not applicable and hence action of the AO is confirmed. The appeal is as such dismissed. 4. We have heard both the sides on the issue. After hearing both the sides, we are of the view that in case of current repairs, the basic test to decide the nature of the expenditure is that the expenditure must be incurred to preserve and maintain an already existing asset then only the expenditure can be said as revenue in nature. Whenever an expenditure brings a new asset into existence or the expenditure is made to obtain a new advantage, then the expenditure is definitely of capital in nature. This test has been decided by Hon'ble Supreme Court in the case of CIT vs. Saravana Spinning Mills P. Ltd., 293 ITR 201 (SC) wherein the Hon'ble Supreme Court has held as under:- Held, reversing the decision of the High Court, (i) that the manufacturing process in the textile mill was not one continuous integrated process; (ii) that to decide the applicability of section 31(i) the test was not whether the expenditure was revenue or capital in nature, but whether the expenditure was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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