2014 (8) TMI 1223 - AT - Income Tax

Allowable revenue expenditure OR capital expenditure - expenditure incurred for constructing the Express Feeder on behalf of Maharashtra State Electricity Board ( BSEB ) - said expenditure was incurred to get uninterrupted supply of power necessary for carrying of manufacturing activity. Even it was treated as capital as per Audit the assessee has claimed to have entitled for the same as revenue expenditure - HELD THAT - We find that the Hon ble Delhi High Court in the case of CIT vs. Dart Manufacturing India (P) Ltd. 2008 (8) TMI 19 - HIGH COURT DELHI has held that the payment to State electricity board for installing a transformer and LT Lines for supply of electricity Ownership of the transformer and the LT Lines remained with the electricity board and the fixed capital structure of the assessee remained untouched Expenditure incurred by the assessee allowable as revenue expenditure as following the decision of CIT vs. Saw Pipes Ltd. 2007 (1) TMI 101 - DELHI HIGH COURT wherein the expenditure on laying electric service lines for new unit and that may be enduring advantage but intended to enable the assessee to carry on its business more efficiently and profitably leaving the fixed capital untouched. In such situation the expenditure was allowed as revenue expenditure. Thus we are of the view that the expenditure incurred for construction of Express Feeder on behalf of Maharashtra State Electricity Board was deductible as revenue expenditure. - Decided in favour of assessee. Disallowance of additional depreciation on Racks Trolley D.G. Set Air Conditioner for Machinery Cooler Refrigerator Camera Computer Attendance Card System Wall Mounting fans and Electrical fittings - deduction shall not be allowed in respect of the plant which was previously used within or outside India by any other person machinery or plant installed in any office premises or any residential accommodation including in the nature of guest house any office appliance or road transport vehicles or any machinery or plant the whole of the cost of which is allowed as deduction by way of depreciation or otherwise - HELD THAT - Applying the tests laid down by the Hon ble Supreme Court in Scientific Engeering House Pvt. Ltd. 1985 (11) TMI 1 - SUPREME COURT to the facts in the instant case it could be said that the fans installed in the administrative office of the assessee constituted plan and machinery for the purpose of granting depreciation u/s.32 of the Act. We also find that in the case of CIT vs. Delhi Air Port Service 2001 (9) TMI 39 - DELHI HIGH COURT has held that air conditioner fixed in a bus is an integral part of the bus and therefore depreciation on such air conditioner is allowable at the rate applicable to the bus. In the case of CIT vs. Nathubhai H. Patel 2005 (11) TMI 49 - GUJARAT HIGH COURT the Hon ble Gujarat High Court has held that air conditioner and fans in the clinic are entitled to additional depreciation. - Decided in favour of assessee.

Summary

Issues:
1. Deductibility of expenditure for constructing "Express Feeder" as revenue expenditure.
2. Disallowance of additional depreciation on specific items.

Issue 1: Deductibility of Expenditure for Constructing "Express Feeder" as Revenue Expenditure:

The appeal involved a dispute regarding the deductibility of expenditure incurred for constructing an "Express Feeder" on behalf of the Maharashtra State Electricity Board (BSEB) as revenue expenditure. The Commissioner of Income Tax (Appeals) confirmed the addition made by the Assessing Officer, treating the expenditure as capital expenditure. The Appellate Tribunal noted that the assessee, along with other companies, jointly incurred the expenses for installing the express feeder, with the assessee's share amounting to Rs. 1,09,22,758. The Tribunal considered the terms of the agreement, which granted exclusive rights to use the feeder station for five years, with maintenance responsibilities. The Tribunal referred to relevant case laws, including decisions by the Delhi High Court and the Bombay High Court, to support the deductibility of the expenditure as revenue expenditure. Ultimately, the Tribunal held that the expenditure for constructing the "Express Feeder" was deductible as revenue expenditure, directing the Assessing Officer accordingly.

Issue 2: Disallowance of Additional Depreciation on Specific Items:

The second issue revolved around the disallowance of additional depreciation on various items such as racks, trolleys, air conditioners, water coolers, cameras, computers, wall-mounted fans, and electrical fittings. The Assessing Officer disallowed Rs. 18,05,951 as additional depreciation, which was later deleted by the Commissioner of Income Tax (Appeals). The Revenue challenged this deletion, arguing that the items did not qualify as plant and machinery for claiming additional depreciation. The Tribunal analyzed the provisions related to depreciation and additional depreciation, emphasizing the need for functional tests to determine if the items constituted plant and machinery. Referring to precedents, including judgments by the Bombay High Court and the Delhi High Court, the Tribunal upheld the Commissioner's decision to allow the depreciation and additional depreciation on the disputed items. Consequently, the Tribunal dismissed the appeal filed by the Revenue, affirming the allowance of depreciation and additional depreciation.

In conclusion, the Appellate Tribunal, in the cited judgment, addressed the issues of deductibility of expenditure for constructing the "Express Feeder" as revenue expenditure and the disallowance of additional depreciation on specific items. The Tribunal's detailed analysis, supported by relevant legal precedents, resulted in allowing the appeal filed by the assessee and dismissing the appeal filed by the Revenue. The judgment provided clarity on the treatment of such expenditures and depreciation claims, emphasizing the importance of legal principles and functional tests in determining the nature of expenses for tax purposes.