TMI Blog2012 (5) TMI 395X X X X Extracts X X X X X X X X Extracts X X X X ..... gh, Judicial Member This bunch of four appeals by the revenue is filed against the common order dated 20.12.2011 of the learned Commissioner of Income Tax (Appeals)-I, Bhopal on the following common grounds:- "On the facts and in the circumstances of the case, the ld. CIT(A) erred in: - 1. deleting the addition of Rs. 67,58,381, Rs. 57,42,716/-, Rs. 65,93,548/- and Rs. 58,49,314/-, respectively, made on account of overhead expenditure on construction treating it as a revenue expenses, when the assessee has not substantiated its claim regarding the expenditure being of revenue nature by producing records showing the nature of expenditure. 2. deleting the addition of Rs. 26,41,725/-, Rs. 12,24,593/-, 38,75,551, and Rs. 1,62,950/-, respectively, made on account of bad debts when necessary condition for allowance of claim of 'bad debts' as provided u/s 36(2)(i) of the I.T. Act, 1961 has not been fully satisfied." 2. So far as ground no. 1 on account of overhead expenditure on construction is concerned, the crux of arguments of the learned CIT DR is in support to the assessment order, for which our attention was specifically invited to para 4 of the assessment order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring assessment proceedings, was that the apportionment of overhead expenditure was as per accounting policy consistently followed by the assessee Corporation. The position of overhead expenditure/construction is summarised as under :- Asstt. Year Total overhead Expenditure Construction (in rupees) Amount capitalised (in rupees) Amount claimed in P L account as Revenue expenditure (in rupees) 2005-06 78,22,681 10,64,300 6758381 2006-07 85,81,916 28,39,200 57,42,716 2007-08 94,45,428 28,51,700 65,93,548 2008-09 1,05,71,619 23,27,162 58,49,314 The learned AO also observed that no details, in respect of overhead expenditure, were claimed in profit and loss account and the apportionment of overhead expenditure between construction and other activities was not supported by necessary details. Accordingly, the learned AO disallowed such expenses, claimed as revenue expenditure, and treated the same as of capital nature. 3.2 On appeal, the learned CIT(A) considered the written submissions (as mentioned in para 5.3 of the impugned order) and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n account of dedicated team of Engineer and other staff who are doing construction work of Godwn. The position of yearwise overhead expenses and expenses treated as of capital nature forming part of construction of Godown and revenue expenditure claimed in a P. L. account is summarised at page no. 5 para 5.2. It is also stated that the detailed chart of apportionment of overhead expenses was furnished before the Assessing Officer during the Asst. Proceedings. It is also noticed that this practice of apportionment of overhead expenses on account of salary bill of the construction staff is being consistently followed. The facts and circumstances discussed above will indicate that the expenses attributable to the construction work of new Godowns has been systematically apportioned by way of maintaining a record of counting of man days devoted by such staff on the construction work. The detailed facts discussed above will indicate that the socalled overall expenses is incurred on salary and other allowances of the construction division. The appellant has capitalised that portion of expenditure which has been incurred on construction of new Godowns. The remaining expenditure which has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion u/s 30(a)(i) of the Act. If the ratio laid down by the Hon'ble High Court is applied to the facts of the present appeal, we find that there is a clear finding in the impugned order that the assessee made the apportionment of the expenses incurred for construction of new godown and repairing and maintenance of old one, therefore, this judicial pronouncement rather helps the assessee. Another decision relied upon by the learned CIT DR is from Hon'ble Apex Court in Saravana Spinning Mills (P) Limited ( supra ) wherein machines were replaced in the textile mill. It was held that for taking the benefit of deduction u/s 31(i) of the Act, the expenditure must have been incurred to preserve and maintain the existing asset and no new asset should come into existence or to obtain a new advantage. We are of the humble opinion that since the assessee incurred the expenditure for repairing and maintaining the old godowns, therefore, neither new asset came into existence nor any benefit of enduring nature was obtained by the assessee, consequently, this judicial pronouncement also may not help the revenue. 3.5 Section 31(i) of the Act limits the scope of allowability of expenditure as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on repairs. ( vii ) The replacement cost of the asset may, however, at times be used as indicator of the true character of expenditure. If the expenditure on repair added to the written down value or disposal value exceeds the replacement cost of the asset, a presumption is possible that it is not a revenue expenditure but expenditure of capital nature. Such a presumption, of-course, would be rebuttable. ( viii ) The expression "current" preceding "repairs" appears to have been used by the legislature with a view to restricting the allowance to expenditure incurred for preservation and maintenance thereof in its current state in contradiction to that incurred on any improvement or an addition thereto. We are in agreement to a proposition that total replacement of damaged machinery/ship or an asset may not constitute repair. Our view is supported by the decision in DCIT v. STN Textiles Limited ; 257 ITR 171 (Ker.) but substitution of old/worn out parts of a machine/building/factory etc. is an expenditure of deductible nature, meaning thereby for claiming the deduction under the provisions of this Act, no new asset should come into existence and the expenditure must have ..... X X X X Extracts X X X X X X X X Extracts X X X X
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