2012 (4) TMI 765 - AT - Income Tax

Summary

Issues involved: Capital expenditure vs. revenue expenditure on building repairs.

The judgment pertains to an appeal by the Assessee against the order of the Learned CIT(Appeals)-III, Baroda regarding the nature of expenditure on building repairs for A.Y. 2006-07. The main issue raised was whether the expenditure of &8377; 16,40,187/- on building repairs should be treated as capital expenditure or revenue expenditure.

The facts revealed that the Assessee, a manufacturing company, claimed expenditure under "building repair" for repair of soak-pit system and water proofing at its residential colony attached to the manufacturing unit. The Assessing Officer considered the expenditure as capital in nature based on the enduring benefit to the Assessee and amendments in section 30 and section 31. The Learned CIT(Appeals) affirmed the Assessing Officer's decision but allowed depreciation on the addition to fixed assets.

The Assessee argued that the repairs were long overdue and necessary to maintain existing assets. The Assessee cited various case laws to support the claim for revenue expenditure. On the other hand, the Revenue contended that the expenditure was for laying down new pipelines due to a mandatory requirement, thus justifying the capital treatment.

After considering the evidence and legal aspects, the Tribunal analyzed the nature of the expenditure in light of relevant case laws and statutory provisions. The Tribunal emphasized that expenditure for current repairs should be for preserving and maintaining existing assets, not for obtaining new advantages. It distinguished the present case from the cited precedents and concluded that the expenditure should be treated as revenue expenditure.

Therefore, the Tribunal allowed the Assessee's appeal, directing to treat the claimed expenditure as Revenue Expenditure.