2018 (5) TMI 1988 - AT - Income Tax

Nature of expenses - repairs and maintenance expenses - revenue or capital expenditure - HELD THAT - CIT(A) observed that expenditure has been incurred in relation to fabrication and erection in form of new asset and laying new pipe line and structure for maintaining the Jetty in working condition therefore such fabrication expenditure mean something which is fabricated or manufactured. The assessee himself has used the word fabrication then it cannot be said that fabrication was done of any existing assets. As a result of fabrication new asset will come into existence hence the expenditure incurred on such account would be in capital in nature giving rise to enduring benefit as held by Hon ble Supreme Court in the case of Ballimal Naval Kishor Vs. CIT 1997 (1) TMI 3 - SUPREME COURT wherein it has been emphasized that the expenditure under head repairs and maintenance within the purview of capital expenditure were the expenditure incurred gives enduring benefit - CIT(A) has correctly upheld the addition to the extent of expenditure after allowing depreciation thereon in accordance with law. - Decided against assessee Depreciation of Electrical Installation - @ 10% OR 15% - HELD THAT - As decided in ow case 2017 (11) TMI 1700 - ITAT AHMEDABAD assessee is eligible for depreciation @15% instead of 10% allowed by the AO in respect of Jetty Trestle accordingly the Assessing Officer is directed to allow deduction of depreciation claimed @15% out of 10%. This ground of appeal is therefore allowed.

Summary

Issues:
1. Disallowance of repairs and maintenance expenses as capital expenditure.
2. Restriction of depreciation on Electrical Installation.

Issue 1 - Disallowance of repairs and maintenance expenses as capital expenditure:
The appeal challenges the disallowance of repairs and maintenance expenses amounting to Rs. 14,22,840 as capital in nature. The Assessing Officer considered certain expenses to be capable of providing enduring benefits, relying on judicial precedents. The Commissioner of Income Tax (Appeals) upheld the disallowance, stating that fabrication and erection expenses cannot be classified as repairs. The Tribunal noted that the expenditure on fabrication and erection of new assets gave rise to enduring benefits, thus being capital in nature. The Tribunal differentiated this case from a previous decision where revenue expenditure for painting work was considered differently. Therefore, the Tribunal upheld the addition of Rs. 14,22,840 as capital expenditure after allowing depreciation.

Issue 2 - Restriction of depreciation on Electrical Installation:
The second ground of appeal concerns the restriction of depreciation on Electrical Installation to 10% instead of the claimed 15%. The Tribunal referred to a previous decision where a similar issue was resolved in favor of the assessee. The Tribunal found the facts to be identical and held that the assessee was entitled to depreciation at 15% instead of 10% as allowed by the Assessing Officer. Accordingly, the Tribunal directed the AO to allow depreciation of Rs. 17,21,558 at the claimed rate of 15%. This ground of appeal was allowed.

Consequential Issues:
Grounds 3, 4, and 5 related to the charging of interest under sections 244A and 234D, and the initiation of penalty proceedings under section 271(1)(c) of the Act. The Tribunal deemed the charging of interest as consequential and dismissed the premature initiation of penalty proceedings. Therefore, Grounds 3, 4, and 5 were dismissed. Overall, the appeal of the assessee was partly allowed by the Tribunal.