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TMI Blog2024 (2) TMI 1041X X X X Extracts X X X X X X X X Extracts X X X X ..... uting total income. 3. That the Id. CIT(A) has not specifically directed to treat the balance amount of Rs. 34,92,059/- as revenue expense out of the capital expenditure treated by the Id.AO and therefore the Id.AO should be directed to allow the same while computing the total income. 4. That the learned CIT(A) has erred in law and facts by confirming the action of the Id. AO for initiating penalty proceedings u/s 271(1)(c) of the Act and therefore Id. AO should be directed to drop the said penalty proceedings. 5. That your appellant craves a leave to add, alter or amend any grounds at the time of hearing." 2. Facts, in brief, are that the assessee filed its revised return declaring total income at Rs. 14,55,96,240/- on 31.03.2016. The case was selected for scrutiny assessment and the assessment u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the "Act") was framed vide order dated 27.12.2016. The AO while framing the assessment made disallowance of expenses u/s 14A of the Act amounting to Rs. 1,64,269/-. The AO observed that the assessee had claimed repair, maintenance and stores/spares consumed, which as per AO was excessive. He, therefore, called upon th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xisting assets. No new assets resulted by such repair and maintenance. 2. Brief facts of the case are that the assessee is a company incorporated on 07.02.2001, engaged in the business of manufacturing of Industrial nitrocellulose (Chemicals) and having manufacturing plant in Gujrat. 3. Assessee is incorporated in 2001 and no major repair work undertaken since its incorporation and as assessee uses chemicals, acid etc., to produce the finished goods due to which strength of civil works of building get destroyed and even plant and machinery used for production get rusted. Thus, in order to maintain the present condition existing assets, assessee has to undertake civil repair of building and plant & machinery. 4. Further, vide reply dated 30.11.2016, assessee submitted copy of invoices of repair and maintenance at PB pg no. 42-52 and copy of invoices of store and consumable at PB pg no. 53-59. 5. On kind perusal of the same it can be observed that all the expenditure incurred for repair and maintenance of building, plant and machinery, electrical instruments and store consumptions are just to preserve and maintain an already existing asset. On the contrary, AO has not brought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... added on account of such repairs, it cannot be said that a new asset has come into existence All these repairs are done to preserve and maintain an already existing asset. In the course of such repairs, if they have upgraded the facilities to international standards, then that would not constitute a new asset. Therefore, the Tribunal was justified in holding that the expenditure incurred towards repairs and replacement of old parts would be in the nature of revenue expenditure and not capital expenditure 8. Reliance is also placed on the judgement of Hon'ble ITAT Delhi in the case of HI-TECH GEARS LTD VS DCIT-I.T.A. No. 4669/DEL/2015 dated. 28.05.2019 - Where expenditure have been incurred to keep the existing assets in present condition and no adverse evidence has been brought on record by the AO to show that the expenses incurred by the assessee is enduring in nature, the expenses cannot be said to be capital in nature. The relevant findings of the court are as under: 8. We have heard both the parties and perused the material available on record. It is pertinent to note that the assessee incurred expenditure for fixing Alco Bond Sheets on outside wall of the factory build ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenses cannot be said to be capital in nature 11. Therefore, in view of the facts of assessee's case as well as in view of the settled position of law in this regard, the addition made by the AO and further sustained by the Ld. CIT(A) by treating the Repair & Maintenance and Stores & Consumable expenditure to be of capital nature is liable to be deleted." 5. On the other hand, learned DR supported the orders of the authorities below. He contended that the lower authorities clearly demonstrated that these items have enduring benefit, therefore, cannot be categorized as revenue expenditure. The same ought to have been capitalized. 6 We have heard rival submissions and gone through the material available on record. The only dispute which is raised by the assessee is regarding treatment of repair & maintenance; and store and space expenses, whether such expenditure s capital or revenue. One of the tests whether such expenditure is capital or revenue is of enduring benefit. The assessee is required to demonstrate that the expenses have been claimed for a routine up keep of building and plant & machinery. On the other hand, revenue has to rebut such claim by furnishing credible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No new asset came into existence by such repairs. In the case of CIT Vs. Madras Auto Service (P) Ltd. (SC), the Hon'ble Apex Court has reiterated the test as laid by the Hon'ble Supreme Court in the case of Assam Bengal Cement Co. Ltd. v. CIT (1955) 27 ITR 34, which is reproduced as under: "1. Outlay is deemed to be capital when it is made for the initiation of a business, for extension of a business, or for a substantial replacement of equipment. 2. Expenditure may be treated as properly attributable to capital when it is made not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade... If what is got rid of by a lump sum payment is an annual business expense chargeable against revenue, the lump sum payment should equally be regarded as a business expense, but if the lump sum payment brings in a capital asset, then that puts the business on another footing altogether. 3. Whether for the purpose of the expenditure, any capital was withdrawn, or, in other words, whether the object of incurring the expenditure was to employ what was taken in as capital of the business. Again, it is to be seen whether the e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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