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2015 (6) TMI 104 - UTTARAKHAND HIGH COURT

2015 (6) TMI 104 - UTTARAKHAND HIGH COURT - [2016] 387 ITR 710 - Dry Docking Expenses - revenue v/s capital - Held that:- According to the accepted principles, capital expenditure is something which is spent once for all, while revenue expenditure is that which has to be incurred from year to year. If the expenditure is to bring into existence or advantage for the enduring profit of the business, then expenditure may be capital in the nature but where the expenditure has direct nexus, connection .....

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19 of 2010, Income Tax Appeal No. 20 of 2010, Income Tax Appeal No. 21 of 2010, Income Tax Appeal No. 22 of 2010 - Dated:- 14-5-2015 - K. M. Joseph, CJ And V. K. Bist,JJ. For the Appellant : Mr. H.M. Bhatia, Adv For the Respondent : Mr. Rupesh Jain, Adv JUDGMENT K. M. Joseph,C. J. (Oral) These matters being interconnected, they are being disposed of by this common judgment. 2. The only substantial question of law, which is raised in these appeals, is whether the ITAT has erred in law in holding .....

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sessee is engaged in oil exploration. The Assessing Officer disallowed the expenditure incurred by the respondent / assessee towards the maintenance of vessels and rigs on the basis that it will be a capital expenditure. In appeal, the appellate Commissioner allowed the appeal of the respondent / assessee holding that it is a revenue expenditure. This finding has been affirmed by the Tribunal. It is against the same that the Revenue has come up in appeals under Section 260-A of the Income Tax Ac .....

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rs and maintenance and to fulfil the requirements of American Bureau Standards (ABS), for which, various surveys are to be undertaken, some of which are to be taken yearly, some are to be undertaken two and half yearly and remaining are to be undertaken five yearly. It has been pointed out that it is obligatory on the part of ONGC to carry out surveys as per ABS for insurance and other purposes like requirement of mandatory authorities and hence, these expenses are revenue expenditure in the nat .....

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ption that the expenditure involved are not just repair but total overhaul and renovation of the vessels. He further stated that assessee had also not been claiming these expenses as revenue expenditure in its books of accounts and these expenses are not debited to profit and loss account as discussed in assessment order and by making these observations, learned CIT(A) in that year has upheld the assessment order. When we go through these explanations of the assessee as reproduced by the AO in t .....

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es are revenue in nature but for the qualification of the amount, we find that the details are not before us. The AO in the assessment order for Asstt. Year 2004-05 says that the assessee has incurred an expenditure of ₹ 111.62 crores and claimed the same as deduction on account of Dry Docking expenses in the computation of income but this is not clear as to whether this amount of ₹ 111.62 crores is the total amount of such expenses or whether a part of the total amount has already b .....

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t year income and assessee has not furnished before us computation of income filed by it along with return of income and the profit and loss account for the relevant years. Under these facts, we feel that for the purpose of verification of the amount actually incurred by the assessee on this account in these three years, the matter should go back to the file of AO. We, therefore, restore this matter back to the file of AO in all the three years for the limited purpose of verifying the amount of .....

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tion. With these observations, this issue in all the three years is restored back to the file of AO for this limited purpose. The AO should pass necessary orders as per law as per above discussion in all the three years after providing adequate opportunity of being heard to the assessee. 6. Mr. H.M. Bhatia, learned counsel appearing for the appellant, would submit, essentially, that this is a case, where the respondent / assessee, in his own accounts, has not laid the foundation by debiting the .....

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s a revenue expenditure; but, he does admit that, in the accounts, the amount claimed as spent towards maintenance was not debited to the profit and loss account; but his contention is that the accountancy practice cannot be treated as conclusive. In this context, he drew our attention to the unreported judgment of the Hon ble Apex Court in Civil Appeal Nos. 6366-6368 of 2003 with Civil Appeal Nos. 6946-6948 of 2004 dated 23rd March, 2015. Therein, we notice the following finding: 19. In the ins .....

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ment was deprive the assessee from claiming the entire expenditure as a deduction. It has been held repeatedly by this Court that entries in the books of accounts are not determinative or conclusive and the matter is to be examined on the touchstone of provisions contained in the Act. [See - Kedarnath Jute Manufacturing Co. Ltd. v. Commissioner of Income Tax (Central), Calcutta (1972) 3 SCC 252; Tuticorin Alkali Chemicals & Fertilizers Ltd, Madras v. Commissioner of Income Tax, Madras (1997) .....

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n nature by the Commissioner of Income Tax in deciding the assessment for the year 2001-2002 and the same are treated as capital expenditure. Though a large body of case-law was cited, the Assessing Officer proceeded to hold that the cases are quite distinguishable from the facts of the assessee s case under consideration, inasmuch as, none of the cases related to the issue of shifting or floating vessel, which was involved in these cases. The appellate Tribunal, finding that it was not in a pos .....

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ds laid out. Under such surveys, the structural and mechanical fitness of a floating installation is tested. The expenses on dry docking are on account of removing the old paint and repainting the same, overhauling the propellers, thrusters, gears and electric motors, repair and replacement / upgrading of the obsolete equipments. Such expenses are, therefore, only for maintaining and preserving the existing assets. The Allahabad High Court in the case of CIT Vs. B. Hill & Co. Pvt. Ltd. 142 I .....

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