Repairs to preserve and maintain already existing asset eligible u/s 37(1) as revenue expenditure

Repairs to preserve and maintain already existing asset and to improve its longevity eligible eligible as current repairs 

ABCAUS Case Law Citation:
ABCAUS 3015 (2019) (06) ITAT

Important Case Laws Cited/relied upon by the parties:
CIT vs. M/s MAC Charles (India) Ltd.
CIT vs. TS Tech Sun India Ltd.
Norma India Ltd. vs. ACIT
CIT Vs. Mahalaxmi Mills Ltd 1967 SCR (3) 957
DCIT vs. Ikea Trading (India) Pvt. Ltd.
DCIT vs. Ahmedabad Packaging Industries Ltd.
Sarang and Associates vs. DCIT
ABM Steels Pvt. Ltd. vs. ACIT

This assessee had challenged the order passed by CIT(A) in upholding disallowance out of Repair and Maintenance to Building.

The case was manually selected for scrutiny and notices u/s 143(2) & 142(1) of The Income Tax Act, 1961 (the Act) were issued. The Assessing Officer completed the assessment by making various additions including the disallowance of current repair out of Repairs and Maintenance of building.

The CIT(A) only partly allowed the appeal of the assessee.

Before the Tribunal, the assessee submitted that the company had incurred expenditure for fixing Alco Bond Sheets on outside wall of the factory building to maintain the present structure and also incurred expenditure in respect of interior work which cannot be assumed to create any new asset.

It was further submitted that the assessee incurred expenditure only for keeping an existing asset into its present condition. Also the assessee had not carried out any extension to the existing building, which could classify the said expenses as capital expenditure.

It was submitted the assessee had explained in detail as regards to the nature of the expenditure and also submitted copies of all bills and no adverse material was brought on record by the Assessing Officer to substantiate its claim that the said expenses were giving an enduring benefit to the assessee.

It was further stated that the existing asset was the building. When no extra space was added on account of such repairs, it could not be said that a new asset has come into existence. All these repairs were done to preserve and maintain an already existing asset. In the course of such repairs, if they have upgraded the facilities by fixing of Alco Bond sheets on outer walls of the building, then that would not constitute a new asset or a new advantage.

The Revenue relied upon the decision of the Hon’ble Supreme Court wherein it was held that extent of permissible repairs will depend upon the nature of machinery employed by the assessee.

The Tribunal observed that the assessee incurred expenditure for fixing Alco Bond Sheets on outside wall of the factory building to maintain the present structure and also incurred expenditure in respect of interior work. The assessee incurred expenditure only for keeping an existing asset into its present condition. Besides this, the assessee had not carried out any extension to the existing building, which could classify the said expenses as capital expenditure.

It was noted that the Assessing Officer had not brought any material on record to show that it was an adverse material contrary to the bills and the work carried out by the assessee and the said expenses were giving an enduring benefit to the assessee.

The Tribunal found that all these repairs were done to preserve and maintain an already existing asset. In the course of such repairs, if they had upgraded the facilities by fixing of Alco Bond sheets on outer walls of the building, which did not constitute a new asset or a new advantage.

Therefore, the Tribunal held that the CIT(A) as well as the Assessing Officer was not right in making disallowance of current repairs out repairs & maintenance of building.

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